CITY OF GLEN COVE NASSAU COUNTY, NEW YORK … · ROOSEVELT & CROSS, INC ... Ambac Assurance ......

NEW ISSUES RATING: Moody’s “Aaa”* BOOK-ENTRY-ONLY BONDS AND NOTES SERIAL BONDS AND REVENUE ANTICIPATION NOTES

In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the City, under existing statutes and court decisions and assuming continuing compliance with certain tax certifications described herein, (i) interest on the Bonds and the Notes is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) interest on the Bonds and the Notes is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In addition, in the opinion of Bond Counsel to the City, under existing statutes, interest on the Bonds and the Notes is exempt from personal income taxes of New York State and its political subdivisions, including The City of New York. See “Tax Exemption” herein.

The Bonds and the Notes will NOT be designated by the City as “qualified tax-exempt obligations” pursuant to the provision of Section 265 of the Code.

CITY OF GLEN COVE NASSAU COUNTY, NEW YORK

$13,725,050 VARIOUS PURPOSES SERIAL BONDS – 2007 (the “Bonds”)

Purchased by: WACHOVIA SECURITIES, LLC

Date of Issue: April 15, 2007 Maturity Date: April 15, 2008-2021 (as shown on the inside cover page herein)

and $5,000,000

4.25% REVENUE ANTICIPATION NOTES – 2007 (the “Notes”)

$1,000,000 Purchased by:

COMMERCE BANK (Not Reoffered)

$4,000,000 Purchased by:

ROOSEVELT & CROSS, INC. (Reoffered @ 3.70%)

Date of Issue: April 17, 2007 Maturity Date: December 27, 2007 The Bonds and the Notes are general obligations of the City of Glen Cove, Nassau County, New York (the “City”), and will contain a pledge of the faith and credit of the City for the payment of the principal thereof and interest thereon and, unless paid from other sources, the Bonds and the Notes are payable from ad valorem taxes which may be levied upon all the taxable real property within the City, without limitation as to rate or amount.

The Bonds are dated April 15, 2007 and will bear interest from that date until maturity at the annual rate or rates as specified by the purchaser of the Bonds, payable on April 15, 2008, October 15, 2008 and semiannually thereafter on each April 15 and October 15 until maturity. The Bonds shall mature on April 15 in each year in the principal amounts specified on the inside cover page hereof. The Bonds maturing in the years 2008 to 2017, inclusive, will not be subject to redemption prior to maturity. The Bonds maturing in the years 2018 and thereafter will be subject to redemption prior to maturity as described herein. See “Optional Redemption” herein.

The Notes are dated April 17, 2007 and will bear interest from that date until December 27, 2007, the maturity date, at the annual rate as specified by the purchaser of the Notes. The Notes will not be subject to redemption prior to maturity.

The Bonds and the Notes will be issued in fully registered form, and when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), New York, New York. DTC will act as Securities Depository for the Bonds and the Notes. Individual purchases may be made in book-entry form only, in principal amounts of $5,000 or integral multiples thereof, except for one necessary odd denomination in the first maturity of the Bonds. Purchasers will not receive certificates representing their ownership interests in the Bonds and the Notes. Payment of the principal of and interest on the Bonds and the Notes will be made by the City to DTC, which will in turn remit such principal and interest to its participants for subsequent disbursement to the beneficial owners of the Bonds and the Notes as described herein. See “Book-Entry-Only System” herein.

* Payment of the principal of and interest on the Bonds when due will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation (“Ambac”) simultaneously with the delivery of the Bonds.

The City’s financial performance has experienced difficulties in recent years, which could affect the marketability and the market value of the Bonds and the Notes. See “Discussion of Recent Financial Operations,” “Projected Deficits” and “Financial Recovery Plan,” herein.

THIS REVISED COVER PAGE SUPPLEMENTS THE PRELIMINARY OFFICIAL STATEMENT OF THE TOWN CITY APRIL 2, 2007, RELATING TO THE OBLIGATIONS DESCRIBED THEREIN AND HEREIN BY INCLUDING CERTAIN INFORMATION OMITTED FROM SUCH PRELIMINARY OFFICIAL STATEMENT IN ACCORDANCE WITH SECURITIES AND EXCHANGE COMMISSION RULE 15c2-12 (THE “RULE”). OTHER THAN AS SET FORTH ON THIS REVISED COVER PAGE, THE INSIDE COVER PAGE, THE SECTIONS ENTITLED, “RATINGS”, “BOND INSURANCE”, “DEBT SERVICE SCHEDULE” AND THE ADDITION OF APPENDIX D, THERE HAVE BEEN NO MATERIAL REVISIONS TO SAID OFFICIAL STATEMENT. FOR A DESCRIPTION OF THE CITY’S AGREEMENT TO PROVIDE CONTINUING DISCLOSURE AS DESCRIBED IN THE RULE, SEE “DISCLOSURE UNDERTAKING” HEREIN.

Dated: April 10, 2007

Hawkins Delafield & Wood LLP has not participated in the preparation of the demographic, financial or statistical data contained in this Official Statement, nor verified the accuracy, completeness or fairness thereof, and, accordingly, expresses no opinion with respect thereto. Capital Markets Advisors, LLC has served a Financial Advisor to the City in connection with the issuance of the Bonds and the Notes.

The Bonds and the Notes are offered when, as and if issued and received by the purchasers and subject to the receipt of the final approving opinion of Hawkins Delafield & Wood LLP, New York, New York, Bond Counsel. It is anticipated that the Bonds and the Notes will be available for delivery through the offices of DTC in New York, New York on or about April 17, 2007. The Bonds will mature on April 15, in the following years and principal amounts:

Principal Interest Principal Interest Year Amount Rate Yield Year Amount Rate Yield 2008 $ 475,050 4.25% 3.57% 2015 $1,005,000 4.30% 3.78% 2009 790,000 4.25 3.58 2016 1,045,000 4.30 3.84 2010 820,000 4.30 3.59 2017 1,090,000 4.30 3.91 2011 855,000 4.30 3.60 2018 1,140,000* 4.30 4.00 2012 890,000 4.30 3.62 2019 1,190,000* 4.30 4.06 2013 925,000 4.30 3.69 2020 1,240,000* 4.30 4.12 2014 965,000 4.30 3.73 2021 1,295,000* 4.30 4.20

* The Bonds maturing in the year 2018 and thereafter will be subject to redemption prior to maturity, as described herein. (See

“Optional Redemption.”)

CITY OF GLEN COVE NASSAU COUNTY, NEW YORK

MAYOR

RALPH V. SUOZZI

CITY COUNCIL MEMBERS

JOSEPH GIOINO

NICHOLAS DiLEO

ANTHONY JIMENEZ

TIMOTHY TENKE

JOAN MEEHAN

MICHAEL G. NORMAN

____________________ SAL LOMBARDI, CPA. ..................................................... CONTROLLER CAROLYN WILLSON........................................................... CITY CLERK VINCENT TARANTO ...................................................CITY ATTORNEY

______________________________

BOND COUNSEL

HAWKINS DELAFIELD & WOOD LLP

New York, New York

FINANCIAL ADVISOR

CAPITAL MARKETS ADVISORS, LLC

Great Neck and New York, New York (212) 946-2872

No dealer, broker, salesman or other person has been authorized by the City to give any information or to make any representations, other than those contained in this Official Statement and if given or made, such other information or representations must not be relied upon as having been authorized by the City. 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 or the Notes by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained by the City from sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof.

TABLE OF CONTENTS

Page Page

THE BONDS.................................................................... 1 Description .................................................................. 1 Authority for and Purpose of the Bonds...................... 2 Optional Redemption .................................................. 3

THE NOTES..................................................................... 4 Description .................................................................. 4 Authority for Purpose of the Notes ............................. 4

THE BONDS AND THE NOTES.................................... 5 Nature of Obligation.................................................... 5 Book-Entry-Only System............................................ 5

MARKET FACTORS AFFECTING FINANCINGS OF THE STATE AND MUNICIPALITIES OF THE STATE .............................. 7 LITIGATION ................................................................... 7 TAX MATTERS .............................................................. 7

Opinion of Bond Counsel............................................ 7 Certain Ongoing Federal Tax Requirements and Certifications ........................................................ 8

Certain Collateral Federal Tax Consequences ............................................................ 8 Original Issue Discount ............................................. 8 Tax-Exempt Obligation Premium ............................. 9 Backup Withholding ................................................. 9 Legislation................................................................. 10

DOCUMENTS ACCOMPANYING DELIVERY OF THE BONDS AND THE NOTES ............................................................................. 10

Absence of Litigation ................................................ 10 Legal Matters............................................................. 10 Closing Certificates ................................................... 10

DISCLOSURE UNDERTAKING ................................... 11 Disclosure Undertaking for the Bonds ...................... 11 Disclosure Undertaking for the Notes ....................... 12

RATINGS......................................................................... 12 FINANCIAL ADVISOR.................................................. 13 BOND INSURANCE....................................................... 13 ADDITIONAL INFORMATION .................................... 13

APPENDIX A

THE CITY............................................................................A-1

General Information........................................................A-1 Elected and Appointed Officials.....................................A-2 City Services...................................................................A-2 Employees ......................................................................A-3 Employee Pension Benefits ............................................A-3 Other Post Employment Benefits ...................................A-4 Related Entities...............................................................A-4

FINANCIAL FACTORS......................................................A-5 Basis of Accounting........................................................A-5 Independent Audit ..........................................................A-5 Fund Structures and Accounts ........................................A-5 Revenues.........................................................................A-6 Discussion of Recent Financial Operations ....................A-8 Financial and Economic Initiatives.................................A-9 Budget Process .............................................................A-13 The City Investment Policy ..........................................A-13

REAL PROPERTY TAXES...............................................A-13 Limitation on Real Estate Tax Levy .............................A-13 Real Property Tax Collection Procedures and History .A-14 Ten Largest Taxpayers .................................................A-16

CITY INDEBTEDNESS ....................................................A-16

Constitutional Requirements ........................................ A-16 Statutory Procedure ...................................................... A-17 Constitutional Debt Limit............................................. A-18 Statement of Debt Contracting Power .......................... A-19 Remedies Upon Default ............................................... A-19 Bond Anticipation Notes .............................................. A-20 Cash Flow Borrowings................................................. A-20 Trend of Outstanding Indebtedness.............................. A-21 Direct and Overlapping Debt ....................................... A-21 Debt Ratios................................................................... A-22 Debt Service Schedule ................................................. A-22 Capital Financing and Improvement Programs ............ A-23 Authorized But Unissued Debt..................................... A-23

ECONOMIC AND DEMOGRAPHIC DATA................... A-23 Population .................................................................... A-23 Income.......................................................................... A-23 Employment and Unemployment................................. A-24 Employment Developments ......................................... A-24 Unemployment............................................................. A-25 Financial Institutions and Communications ................. A-26 Utilities......................................................................... A-26 Transportation .............................................................. A-26

APPENDIX B – FINANCIAL STATEMENT SUMMARIES AND CASH FLOW STATEMENTS APPENDIX C – AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005 APPENDIX D – FINANCIAL GUARANTY INSURANCE AND SPECIMEN POLICY

OFFICIAL STATEMENT

CITY OF GLEN COVE

NASSAU COUNTY, NEW YORK

relating to

$13,725,050 VARIOUS PURPOSES SERIAL BONDS – 2007

(the “Bonds”)

and $5,000,000

REVENUE ANTICIPATION NOTES – 2007 (the “Notes”)

[Book-Entry-Only Bonds and Notes]

This Official Statement, which includes the cover page, inside cover page, and appendices hereto, presents certain information relating to the City of Glen Cove, in the County of Nassau, in the State of New York (the “City”, “County” and “State,” respectively) in connection with the sale of $13,725,050 Various Purposes Serial Bonds – 2007 (the “Bonds”) and $5,000,000 Revenue Anticipation Notes – 2007 (the “Notes”). All quotations from and summaries and explanations of provisions of the Constitution and laws of the State and acts and proceedings of the City contained herein do not purport to be complete and are qualified in their entirety by reference to the official compilations thereof and all references to the Bonds and the Notes and the proceedings of the City relating thereto are qualified in their entirety by reference to the definitive form of the Bonds and the Notes and such proceedings.

THE BONDS

Description The Bonds are dated April 15, 2007 and will bear interest from that date until maturity, payable on April 15, 2008, October 15, 2008 and semiannually thereafter on each April 15 and October 15 until maturity. The Bonds shall mature on April 15 in each year in the principal amounts specified on the inside cover page hereof. The Bonds maturing in the years 2008 to 2017, inclusive, will not be subject to redemption prior to maturity. The Bonds maturing in the years 2018 and thereafter will be subject to redemption prior to maturity as described herein. See “Optional Redemption” herein. The Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), New York, New York. DTC will act as Securities Depository (defined herein) for the Bonds. Individual purchases may be made in book-entry form only, in principal amounts of $5,000 and integral multiples thereof, except for one necessary odd denomination in the first maturity. Purchasers will not receive certificates representing their ownership interests in the Bonds. Principal and interest on the Bonds will be made by the City to DTC, which will in turn remit such principal and interest to its Participants (defined herein), for subsequent disbursement to the Beneficial Owners of the Bonds as described under “Book-Entry-Only System,” herein. The Bonds may be transferred in the manner described on the Bonds and as referenced in certain proceedings of the City referred to therein.

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The record date for payment of principal of and interest on the Bonds will be the last business day of the month preceding each interest payment date. Simultaneously with the issuance of the Bonds and the Notes, the City is also issuing a separate bond anticipation note in the principal amount of $2,397,000, the proceeds of which will be used, together with other available City funds, to redeem a bond anticipation note issued on April 18, 2006 to finance a separate project and currently outstanding in the principal amount of $2,445,000. Authority for and Purpose of the Bonds The Bonds are issued pursuant to the Constitution and Laws of the State, including among others, the General Municipal Law, the Local Finance Law, and various bond ordinances duly adopted by the City Council. The proceeds of the Bonds, along with $1,267,178 in available funds, will be used to redeem, in full, $14,992,228 in outstanding notes as set forth below:

Amount 2007 Amount to Purpose Outstanding Paydown Bonds

East Island Bridge Rehab $ 194,000 $ 7,000 $ 187,000 Pratt Boulevard Connector Road 724,000 41,000 683,000 New Ferry Terminal Design 233,000 74,000 159,000 Concrete Program 114,300 9,300 105,000 2005 Road Program 330,000 17,000 313,000 UV Disinfection Project 157,000 8,000 149,000 Public Works Equipment (Sweeper) 155,000 8,000 147,000 Waterfront Infrastructure Grant Match 140,000 7,000 133,000 Commuter Loop Bus 19,000 4,000 15,000 Stadium Lighting Project 120,700 5,700 115,000 Golf Course Equipment (Carts) 20,000 2,000 18,000 Second Half Tax Certiorari Payment 574,000 133,000 441,000 City Stadium Renovation 243,000 14,000 229,000 Acquisition of Parks Department Vehicle 29,000 2,000 27,000 Installation of Soil and Leech Circle Park 116,000 6,000 110,000 Acquisition of Snowblower 1,450 1,000 450 Acquisition of EMS Vehicle 19,000 6,000 13,000 Acquisition of Ambulance 106,350 11,000 95,350 Acquisition of Various Fire Department Equipment 26,695 8,695 18,000 Acquisition of Fire Department Vehicle 48,000 48,000 0 Software System for Assessment Department 18,750 2,000 16,750 Construct Various Sewer Improvements 486,000 4,000 482,000 Highway Department Sign Replacement 9,000 1,000 8,000 Various Road Improvements 753,708 41,708 712,000 Acquisition of Highway Equipment 305,000 17,000 288,000 Improvements to Pulaski/Brewster Garages 48,000 3,000 45,000 Police Department Boiler Replacement 19,000 2,000 17,000 Improvements to Senior Center A/C Tower 19,000 2,000 17,000 Improvements to Senior Center Roof 9,000 1,000 8,000 Improvements to City Hall Exterior 9,000 1,000 8,000

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City Hall/DPW Garage Card Access System $ 19,000 $ 6,000 $ 13,000 Various Water System Improvements 486,000 4,000 482,000 Acquisition of Police Vehicles 91,000 91,000 0 Construction of Golf Course Improvements 157,500 8,500 149,000 Acquisition of Golf Course Equipment 90,000 29,000 61,000 City Hall Computer Upgrades 24,000 8,000 16,000 Pay Tax Certiorari Proceedings 218,547 68,547 150,000 Roadway construction- Waterfront Redevelopment Project 4,840,967 244,967 4,596,000 Road reconstruction and improvements 550,000 28,000 522,000 Engineering and planning of road reconstruction 190,000 44,000 146,000 Reconstruction of sidewalks and curbs 100,000 9,000 91,000 Improvements at DPW storage facilities 75,000 4,000 71,000 Improvement of salt containment and storage 25,000 2,000 23,000 Acquisition of Fire Department floor cleaning unit 7,385 1,385 6,000 Replacement of Fire Department boiler 75,000 7,000 68,000 Replacement of Police Department boiler 25,000 2,000 23,000 Elevator upgrade – compliance 5,000 1,000 4,000 Improvements at Water Treatment Plant 100,000 1,000 99,000 Improvements to Southridge Drive Transfer Station 25,000 1,000 24,000 Replacement of Pump Station controls 25,000 1,000 24,000 Improvements to Septage Receiving Station 400,000 3,000 397,000 Improvements to Kelly Street Water Main upgrades 150,000 1,000 149,000 Improvements to the Trubee Water Main 75,000 1,000 74,000 Water Department infrastructure improvements 47,500 1,000 46,500 Building Improvements at Senior Center 25,000 1,000 24,000 Payment of tax certiorari proceedings 424,836 97,836 327,000 Acquisition of vehicles by Police Department 86,000 42,000 44,000 Purchase of firearms by Police Department 21,540 4,540 17,000 Acquisition and installation of lights by Recreation Dept 75,000 4,000 71,000 Improvements to driving range 750,000 38,000 712,000 Reconstruction of the entrance driveway 165,000 8,000 157,000 Acquisition of golf carts 20,000 5,000 15,000 Acquisition of grounds machinery 50,000 12,000 38,000 Tax Certiorari 526,000 0 526,000

Total:

$14,992,228 $1,267,178 $13,725,050 Optional Redemption The Bonds maturing on or before April 15, 2017 are not subject to redemption prior to maturity. The Bonds maturing on or after April 15, 2018 will be subject to redemption prior to maturity, at the option of the City, on any date on or after April 15, 2017, in whole or in part, and if in part in any order of their maturity and in any amount within a maturity (selected by lot within a maturity), at the redemption price of 100% of the par amount of the Bonds to be redeemed, plus accrued interest to the date of redemption. The City may select the maturities of the Bonds to be redeemed prior to maturity and the amount to be redeemed of each maturity selected, as the City shall determine to be in the best interest of the City at the time of such

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redemption. If less than all of the Bonds of any maturity are to be redeemed prior to maturity, the particular Bonds of such maturity to be redeemed shall be selected by the City by lot in any customary manner of selection as determined by the City Controller. Notice of such call for redemption shall be given by mailing such notice to the registered owner not less than thirty (30) days nor more than sixty (60) days prior to such date. Notice of redemption having been given as aforesaid, the Bonds so called for redemption shall, on the date of redemption set forth in such call for redemption, become due and payable, together with accrued interest to such redemption date, and interest shall cease to be paid thereon after such redemption date.

THE NOTES Description The Notes will be dated April 17, 2007 and will mature, without option of prior redemption, on December 27, 2007. The Notes will be issued in fully registered form and when issued will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as Securities Depository (defined herein) for the Notes. Individual purchases will be made in book-entry form only, in the principal amount of $5,000 or integral multiples thereof. Purchasers will not receive certificates representing their interests in the Notes. Principal of and interest on the Notes will be paid by the City to DTC, which will in turn remit such principal and interest to its Participants (defined herein), for subsequent distribution to the Beneficial Owners of the Notes as described under “Book-Entry-Only System,” herein. The Notes may be transferred in the manner described on the Notes and as referenced in certain proceedings of the City referred to therein. Authority for Purpose of the Notes The Notes are issued pursuant to the Constitution and Laws of the State, including among others, the General Municipal Law, the Local Finance Law, and a revenue anticipation note resolution duly adopted by the City Council on March 27, 2007. The Notes are being issued in anticipation of the receipt of certain revenues due and payable to the City during the fiscal year ending December 31, 2007, including: $2,900,000 in 2007 State aid, $650,000 in 2007 water revenues and $1,450,000 in mortgage recording taxes due. Proceeds of the Notes will be used to offset the effects of timing differences between cash receipts and disbursements. The proceeds of the Notes may be used only for the respective purposes for which such state aid, water revenues and mortgage recording taxes, to be received, as specified in the 2007 Annual Budget of the City. The proceeds of the Notes will not be used for the redemption or renewal of any outstanding tax or revenue anticipation notes. Pursuant to Section 25.00(g) of the Local Finance Law, whenever the amount of the Notes and any additional revenue anticipation notes issued by the City in anticipation of the receipt of 2007 state aid, water revenue and and mortgage recording taxes, equal the amounts of such state aid, water revenue and mortgage recording taxes remaining to be received, the City is required to set aside in special bank accounts all of such state aid, water revenue and mortgage recording taxes as thereafter received, and to use the amounts so set aside only for the purpose of paying the Notes. Interest on the Notes will be provided from budgetary appropriations. In the event the aforementioned state aid, water revenue, and mortgage recording taxes are not received on or before the maturity date for the Notes, the Notes may be renewed from time to time. However, the Notes may not be renewed beyond December 31, 2008, such date being the close of the second fiscal year succeeding the fiscal year in which the Notes were originally issued. In the event such state aid, water revenue, and mortgage taxes in anticipation of which the Notes have been issued have not been received by the final maturity of the Notes or any renewals thereof, the principal of and interest on the Notes or any renewals thereof will be paid from other available funds of the City.

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FOR ADDITIONAL INFORMATION CONCERNING CASH FLOW BORROWINGS OF THE CITY IN PRIOR YEARS, SEE "CITY INDEBTEDNESS – CASH FLOW BORROWINGS,” HEREIN.

THE BONDS AND THE NOTES

Nature of Obligation Each Bond and Note when duly issued and paid for will constitute a contract between the City and the holder thereof. The Bonds and the Notes will be general obligations of the City and will contain a pledge of the faith and credit of the City for the payment of the principal thereof and the interest thereon. For the payment of such principal of and interest on the Bonds and the Notes, the City has the power and statutory authorization to levy ad valorem taxes on all taxable real property in the City without limitation as to rate or amount. Under the Constitution of the State, the City is required to pledge its faith and credit for the payment of the principal of and interest on the Bonds and the Notes, and the State is specifically precluded from restricting the power of the City to levy taxes on real estate therefor. Book-Entry-Only System The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds and the Notes, payment of principal and interest, and other payments on the Bonds and the Notes to DTC Participants or Beneficial Owners defined below, confirmation and transfer of beneficial ownership interests in the Bonds and the Notes and other related transactions by and between DTC, DTC Participants and Beneficial Owners, is based on certain information furnished by DTC to the City. Accordingly, the City does not make any representations concerning these matters. DTC will act as securities depository for the Bonds and the Notes. The Bonds and the Notes will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond 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. One fully-registered Note certificate will be issued for all Notes which bear the same rate of interest and CUSIP number. 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 17A 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 turn, 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” and, together with Direct

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Participants, “Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of the Bonds and the Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds and the Notes on DTC's records. The ownership interest of each actual purchaser of each Bond and Notes (“Beneficial Owner”) is in turn to be recorded on the Direct Participants’ 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 Participant or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest in the Bonds and the Notes are to be accomplished by entries made on the books of Direct Participants and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds and the Notes, except in the event that use of the book-entry system for the Bonds or the Notes is discontinued. To facilitate subsequent transfers, all Bonds and Notes 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 and Notes 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 and the Notes; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds and Notes are credited, which may or may not be the Beneficial Owners. The Direct Participants or 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. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds and Notes unless authorized by a Direct Participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City or Paying Agent as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds and the Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest on the Bonds and the Notes 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 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 in the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or Paying Agent, 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 Participants and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds and the Notes at any time by giving reasonable notice to the City. Under such circumstances, in the event that a successor depository is not obtained, Bond and Note certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond and Note certificates will be printed and delivered.

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

Source: The Depository Trust Company

MARKET FACTORS AFFECTING FINANCINGS OF THE

STATE AND MUNICIPALITIES OF THE STATE The financial condition of the City as well as the market for the Bonds and the Notes could be affected by a variety of factors, some of which are beyond the City’s control. There can be no assurance that adverse events in the State, including, for example, the seeking by a municipality of remedies pursuant to the Federal Bankruptcy Act or otherwise, will not occur which might affect the market price of and the market for the Bonds and the Notes. If a significant default or other financial crisis should occur in the affairs of the State or at any of its agencies or political subdivisions, thereby further impairing the acceptability of obligations issued by borrowers within the State, both the ability of the City to arrange for additional borrowings and the market for and market value of outstanding debt obligations, including the Bonds and the Notes, could be adversely affected. The City is dependent in part on financial assistance from the State. No delay in payment of State aid to the City is presently anticipated although no assurance can be given that there will not be a delay in payment thereof. However, if the State should experience difficulty in borrowing funds in anticipation of the receipt of the State taxes in order to pay State aid to municipalities and school districts in the State, including the City, in this year or future years, the City may be affected by a delay, until sufficient State taxes have been received by the State to make State aid payments to the City.

LITIGATION Various notices of claim have been filed with the City. The allegations set forth in the claims relate to various circumstances including personal injury, condemnation proceedings, civil rights violations and administrative determinations by City officials. Certain claims assert money damages, while others seek a specific action or forbearance on the part of the City. In the opinion of the City Attorney, the resolution of such various other claims presently pending against the City will not have an adverse material effect on the City's financial position. Such matters are immaterial or adequately covered by existing insurance coverage. Pursuant to the Local Finance Law, the City is authorized to issue debt to finance judgments and claims, if necessary.

TAX MATTERS

Opinion of Bond Counsel In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the City, under existing statutes and court decisions and assuming continuing compliance with certain tax certifications described herein, (i) interest on the Bonds and the Notes (collectively, the “Tax-Exempt Obligations”) is excluded from gross income for Federal income tax purposes pursuant to Section 103 of Internal Revenue Code of 1986, as amended (the “Code”), and (ii) interest on the Tax-Exempt Obligations is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. The arbitrage and use of proceeds certificate of the City (the “Tax Certificate”), which will be delivered concurrently with the delivery of the Bonds will contain provisions and procedures relating to compliance with applicable requirements of the Code. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the

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City in connection with the Bonds, and Bond Counsel has assumed compliance by the City with certain ongoing provisions and procedures set forth in the Tax Certificate relating to compliance from gross income under Section 103 of the Code. In addition, in the opinion of Bond Counsel to the City, under existing statutes, interest on the Tax-Exempt Obligations is exempt from personal income taxes of New York State and its political subdivisions, including The City of New York. Bond Counsel to the City expresses no opinion regarding any other Federal or state tax consequences with respect to the Tax-Exempt Obligations. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date, and assumes no obligation to update its opinion after the issue date to reflect any future action, fact or circumstance, or change in law or interpretation, or otherwise. Bond Counsel expresses no opinion on the effect of any action hereafter taken or not taken in reliance upon an opinion of other counsel on the exclusion from gross income for Federal income tax purposes of interest on the Tax-Exempt Obligations, or on the exemption of interest from state and local tax law. Certain Ongoing Federal Tax Requirements and Covenants The Code establishes certain significant ongoing requirements that must be met subsequent to the issuance and delivery of the Tax-Exempt Obligations in order that interest on such Obligations be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the Tax-Exempt Obligations, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the Federal government. Noncompliance with such requirements may cause interest on the Tax-Exempt Obligations to become included in gross income for Federal income tax purposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The City, in executing the Tax Certificate, will certify to the effect that the City will comply with the provisions and procedures set forth therein and that it will do and perform all acts and things necessary or desirable to assure the exclusion of interest on the Tax-Exempt Obligations from gross income under Section 103 of the Code.

Certain Collateral Federal Tax Consequences The following is a brief discussion of certain collateral Federal income tax matters with respect to the Tax-Exempt Obligations. It does not purport to address all aspects of Federal taxation that may be relevant to a particular owner of a Tax-Exempt Obligations. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the Federal tax consequences of owning and disposing of the Tax-Exempt Obligations. Prospective owners of the Tax-Exempt Obligations should be aware that the ownership of such obligations may result in collateral Federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is excluded from gross income for Federal income tax purposes. Interest on the Tax-Exempt Obligations may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Original Issue Discount “Original issue discount” (“OID”) is the excess of the sum of all amounts payable at the stated maturity of a Tax-Exempt Obligation (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates) over the issue price of that maturity. In general, the “issue price” of a maturity means the first price at which a substantial amount of each of the Tax-Exempt Obligations of that maturity was sold (excluding sales to bond houses, brokers, or similar persons acting in the capacity as underwriters,

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placement agents, or wholesalers). In general, the issue price for each maturity of Tax-Exempt Obligations is expected to be the initial public offering price set forth in this Official Statement. Bond Counsel further is of the opinion that, for any Tax-Exempt Obligations having OID (a “Discount Obligation”), OID that has accrued and is properly allocable to the owners of the Discount Obligations under Section 1288 of the Code is excludable from gross income for Federal income tax purposes to the same extent as other interest on the Tax-Exempt Obligations. In general, under Section 1288 of the Code, OID on a Discount Obligation accrues under a constant yield method, based on periodic compounding of interest over prescribed accrual periods using a compounding rate determined by reference to the yield on that Discount Obligation. An owner’s adjusted basis in a Discount Obligation is increased by accrued OID for purposes of determining gain or loss on sale, exchange, or other disposition of such Discount Obligation. Accrued OID may be taken into account as an increase in the amount of tax-exempt income received or deemed to have been received for purposes of determining various other tax consequences of owning a Discount Obligation even though there will not be a corresponding cash payment. Owners of Discount Obligations should consult their own tax advisors with respect to the treatment of original issue discount for Federal income tax purposes, including various special rules relating thereto, and the state and local tax consequences of acquiring, holding, and disposing of Discount Obligations. Tax-Exempt Obligation Premium In general, if an owner acquires a Tax-Exempt Obligation for a purchase price (excluding accrued interest) or otherwise at a tax basis that reflects a premium over the sum of all amounts payable on the Tax-Exempt Obligations after the acquisition date (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates), that premium constitutes “obligation premium” on that Tax-Exempt Obligations (a “Premium Obligation”). In general, under Section 171 of the Code, an owner of a Premium Obligation must amortize the obligation premium over the remaining term of the Premium Obligation, based on the owner’s yield over the remaining term of the Premium Obligation, determined based on constant yield principles (in certain cases involving a Premium Obligation callable prior to its stated maturity date, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such bond). An owner of a Premium Obligation must amortize the obligation premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner’s regular method of accounting against the obligation premium allocable to that period. In the case of a tax-exempt Premium Obligation, if the obligation premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Obligation may realize a taxable gain upon disposition of the Premium Obligation even though it is sold or redeemed for an amount less than or equal to the owner’s original acquisition cost. Owners of any Premium Obligation should consult their own tax advisors regarding the treatment of obligation premium for Federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the acquisition, ownership, amortization of obligation premium on, sale, exchange, or other disposition of Premium Obligations. Backup Withholding Under the Code, interest on tax-exempt obligations paid after March 31, 2007, including interest on the Tax-Exempt Obligations, is subject to “backup withholding” if the recipient of the interest does not complete a Form W-9, Request for Taxpayer Identification Number and Certification, or otherwise provide to the payor (i.e., the financial institution paying the interest on behalf of the City a taxpayer identification number). “Backup withholding” means that the payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code.

In general, it is expected that owners purchasing the Tax-Exempt Obligations through a brokerage account will have executed a Form W-9 in connection with the establishment of such account so that no backup withholding will occur. The backup withholding requirement does not affect the excludability of the interest on the Tax-

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Exempt Obligations from gross income for federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner’s federal income tax once the required information is furnished to the Internal Revenue Service.

Legislation Legislation affecting municipal obligations is regularly under consideration by the United States Congress. There can be no assurance that legislation enacted or proposed or an audit initiated by the Internal Revenue Service involving the Tax-Exempt Obligations will not have an adverse effect on the tax-exempt status or market price of the Tax-Exempt Obligations. DOCUMENTS ACCOMPANYING DELIVERY OF THE BONDS AND THE NOTES

Absence of Litigation Upon delivery of the Bonds and the Notes, the City shall furnish a certificate of the City Attorney, dated the date of delivery of the Bonds and the Notes, to the effect that there is no controversy or litigation of any nature pending or threatened to restrain or enjoin the issuance, sale, execution or delivery of the Bonds and the Notes, or in any way contesting or affecting the validity of the Bonds and the Notes or any of the proceedings taken with respect to the issuance and sale thereof or the application of moneys to the payment of the Bonds and the Notes, and further stating that there is no controversy or litigation of any nature now pending or threatened by or against the City wherein an adverse judgment or ruling could have a material adverse impact on the financial condition of the City or adversely affect the power of the City to levy, collect and enforce the collection of taxes or other revenues for the payment of its Bonds and Notes, which has not been disclosed in this Official Statement. Legal Matters Legal matters incident to the authorization, issuance and sale of the Bonds and the Notes will be subject to the final approving opinion of Hawkins Delafield & Wood LLP, Bond Counsel. Such opinion will be available at the time of delivery of the Bonds and the Notes and will be to the effect that the Bonds and the Notes are valid and legally binding general obligations of the City for which the City has validly pledged its faith and credit, and all the taxable real property within the City is subject to the levy of ad valorem real estate taxes to pay the Bonds and the Notes and interest thereon without limitation of rate or amount. Said opinion shall also contain further statements to the effect that (a) the enforceability of rights or remedies with respect to such Bonds and Notes may be limited by bankruptcy, insolvency, or other laws affecting creditors' rights or remedies heretofore or hereafter enacted, and (b) said law firm has not been requested to examine or review and has not examined or reviewed the accuracy or sufficiency of the Official Statement, or any additional proceedings, reports, correspondence, financial statements or other documents, containing financial or other information relative to the City which have been or may be furnished or disclosed to purchasers of the Bonds and the Notes, and expresses no opinion with respect to such financial or other information, or the accuracy or sufficiency thereof. Closing Certificates Upon the delivery of the Bonds and the Notes, the Purchaser will be furnished with the following items: (i) a Certificate of the Controller to the effect that as of the date of this Official Statement and at all times subsequent thereto, up to and including the time of the delivery of the Bonds and the Notes, this Official Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading, and further stating that there has been no adverse material change in the financial condition of the City since the date of this Official Statement to the date of issuance of the Bonds and the Notes; and having attached thereto a copy of this Official Statement; (ii) a Certificate signed by the Controller evidencing payment for the Bonds and the Notes; (iii) a Signature Certificate evidencing the due execution of the Bonds and the Notes, including statements that

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(a) no litigation of any nature is pending or threatened, restraining or enjoining the issuance and delivery of the Bonds and the Notes or the levy and collection of taxes to pay the principal of and interest thereon, nor in any manner questioning the proceedings and authority under which the Bonds and the Noets were authorized or affecting the validity of the Bonds and the Notes thereunder, (b) neither the corporate existence or boundaries of the City nor the title of the signers to their respective offices is being contested, (c) no authority or proceedings for the issuance of the Bonds and the Notes have been repealed, revoked or rescinded; and (iv) an Arbitrage and Use of Certificate executed by the Controller, as described under “Tax Matters” herein.

DISCLOSURE UNDERTAKING

Disclosure Undertaking for the Bonds This Official Statement is in a form “deemed final” by the City for the purposes for Securities and Exchange Commission Rule 15c2-12 (“Rule 15c2-12”). At the time of the delivery of the Bonds, the City will provide an executed copy of its “Undertaking to Provide Continuing Disclosure” (the “Undertaking”). Said Undertaking will constitute a written agreement or contract of the City for the benefit of holders and owners of beneficial interests in the Bonds, to provide, or cause to be provided: (1) to (a) each nationally recognized municipal securities information repository (“NRMSIR”) and (b) the New

York State Information Depository, if created (“SID”), (i) certain annual financial information, in a form generally consistent with the information contained or cross-referenced in Appendix A of this Official Statement under the headings: “The City,” “Financial Factors,” “Real Property Taxes,” “City Indebtedness” and “Economic and Demographic Data” on or prior to the 180th day following the end of each fiscal year, (ii) the audited financial statement for each fiscal year unless such audited financial statement shall not then be available, in which case the unaudited financial statement shall be provided and an audited financial statement shall be delivered to each NRMSIR and the SID within 30 days after it becomes available and in no event less than 360 days after the end of each fiscal year.

(2) to (a) each NRMSIR, or to the Municipal Securities Rulemaking Board (“MSRB”), and to (b) the SID,

timely notice of the occurrence of any of the following events with respect to the Bonds, if material:

(1) principal and interest payment delinquencies; (2) non-payment related defaults, (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of Bondholders; (8) bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes.

The City may provide notice of the occurrence of certain other events, in addition to those listed above, if it determines that any such other event is material with respect to the Bonds; but the City does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above. (3) to (a) each NRMSIR, or to the MSRB, and to (b) the SID, in a timely manner, notice of a failure to provide the annual financial information by the date specified. The City’s Undertaking shall remain in full force and effect until such time as the principal of, redemption premiums, if any, and interest on the Bonds shall have been paid in full. The sole and exclusive remedy for breach or default under the Undertaking is an action to compel specific performance of the undertakings of the City and no person or entity, including a holder of the Bonds, shall be entitled to recover monetary damages thereunder under any circumstances. Any failure by the City to comply with the Undertaking will not constitute a default with respect to the Bonds.

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The City reserves the right to amend or modify the Undertaking under certain circumstances set forth therein; provided that any such amendment or modification will be done in a manner consistent with Rule 15c2-12. The City is in compliance with all previous undertakings pursuant to Rule 15c2-12. Disclosure Undertaking for the Notes This Official Statement is in a form “deemed final” by the City for purposes of Securities and Exchange Commission Rule 15c2-12 (“Rule 15c2-12”). At the time of the delivery of the Notes, the City will provide an executed copy of its “Undertaking to Provide Notices of Material Events” (the “Undertaking”). Said Undertaking will constitute a written agreement or contract of the City for the benefit of holders of and owners of beneficial interests in the Notes, to provide, or cause to be provided, to (i) each nationally recognized municipal securities information repository, or to the Municipal Securities Rulemaking Board, and (ii) to the New York State Information Depository, if created, timely notice of the occurrence of any of the following events, with respect to the Notes, if material:

(1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax exempt status of the Notes; (7) modifications to the rights of Noteholders; (8) bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Notes; and (11) rating changes.

The City may provide notice of the occurrence of certain other events, in addition to those listed above if it determines that any such other event is material with respect to the Notes; but the City does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above. The City’s Undertaking shall remain in full force and effect until such time as the principal of, redemption premiums, if any, and interest on the Notes shall have been paid in full. The sole and exclusive remedy for breach or default under the Undertaking is an action to compel specific performance of the undertakings of the City, and no person or entity, including a holder of the Notes, shall be entitled to recover monetary damages thereunder under any circumstances. Any failure by the City to comply with the Undertaking will not constitute a default with respect to the Notes. The City reserves the right to amend or modify the Undertaking under certain circumstances set forth therein; provided that any such amendment or modification will be done in a manner consistent with Rule 15c2-12 as then in effect. The City is in compliance with all previous undertakings pursuant to Rule 15c2-12.

RATINGS Moody’s Investors Service, Inc. (“Moody’s”) has assigned a rating of “Aaa” to the Bonds with the understanding that upon each delivery of the Bonds, a policy insuring the payment when due of the principal of and interest on the Bonds being delivered will be issued by Ambac. (See “Appendix D – Financial Guaranty and Specimen Policy” herein). The City did not apply for a rating on the Notes. Moody's Investors Service, Inc. ("Moody's") currently assigns a rating of “Baa3” with a negative outlook to the uninsured outstanding bonded indebtedness of the City.

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With respect to the Moody's rating applicable to uninsured debt, such rating reflects only the views of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same, at the following address: Moody’s Investors Service, Inc., 99 Church Street, New York, New York 10007. There can be no assurance that such rating will continue for any specified period of time or that such rating will not be revised or withdrawn, if in the judgment of Moody's circumstances so warrant. Any such change or withdrawal of such rating may have an adverse effect on the market price of such bonds or the availability of a secondary market for those bonds.

FINANCIAL ADVISOR Capital Market Advisors, LLC., New York, New York, has served as the independent Financial Advisor to the City in connection with this transaction.

BOND INSURANCE As noted herein, timely payment of the principal and interest on the Bonds will be insured by a financial guaranty insurance policy to be issued by Ambac simultaneously with the delivery of the Bonds. Information concerning Ambac is included in Appendix D. (See “Appendix D – Financial Guaranty Insurance and Specimen Policy” herein.)

ADDITIONAL INFORMATION Additional information, including the City’s most recent audited financial statements, may be obtained from Mr. Sal Lombardi, City Controller, 15 Glen Street, Glen Cove, New York, (516) 676-2789 or from the City’s Financial Advisor, Capital Markets Advisors, LLC, 11 Penn Plaza, 5th Floor, New York, New York 10001, (212) 946-2872. Any statements in this Official Statement involving matters of opinion or estimates, whether or not expressly so stated, are intended as such and not as representations of fact. No representation is made that any of such statements will be realized. This Official Statement is not to be construed as a contract or agreement between the City and the original purchasers or holders of any of the Bonds or the Notes. Capital Markets Advisors, LLC may place a copy of this Official Statement on its website at www.capmark.org. Unless this Official Statement specifically indicates otherwise, no statement on such website is included by specific reference or constitutes a part of this Official Statement. Capital Markets Advisors, LLC has prepared such website information for convenience, but no decisions should be made in reliance upon that information. Typographical or other errors may have occurred in converting original source documents to digital format, and neither the City nor Capital Markets Advisors, LLC assumes any liability or responsibility for errors or omissions on such website. Further, Capital Markets Advisors, LLC and the City disclaim any duty or obligation either to update or to maintain that information or any responsibility or liability for any damages caused by viruses in the electronic files on the website. Capital Markets Advisors, LLC and the City also assume no liability or responsibility for any errors or omissions or for any updates to dated website information. This Official Statement is submitted only in connection with the sale of the Bonds and the Notes by the City and may not be reproduced or used in whole or in part for any other purpose. CITY OF GLEN COVE NASSAU COUNTY, NEW YORK By: /s/ Sal Lombardi City Controller & Chief Fiscal Officer DATED: April 10, 2007

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APPENDIX A

THE CITY


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THE CITY General Information The City, which was founded in 1668 and served for decades as a lumber, flour and starch milling center, was incorporated in 1918. Due to its location on the north shore of Long Island, the City's history has been closely linked to its waterfront. Located in Nassau County only 30 miles from New York City, the area became a popular summer resort before the Civil War, catering to affluent New Yorkers who could commute to New York by steamboat. By the end of the 19th century, many of the prominent New York financiers and industrialists decided to build permanent summer homes in Glen Cove, which was one of the premier "Gold Coast" addresses. Today, the City derives much of its vitality from its extremely diverse population, which according to the 2000 U.S. Census, includes over 30 ethnic groups. As of April 1, 2000, the City’s population was estimated to be 26,662 (according to the U.S. Census Bureau). The City also has a diverse economic base. While land use is predominantly residential, including numerous surviving Gold Coast estates, upper-to-middle income homes, and a variety of multi-family structures, and affordable homes, there is significant manufacturing and commercial activity. The City has long been a center of electrical assembly, chemical manufacturing and other industrial activity. The City’s retail trade includes many specialty shops and an established downtown commercial district that is undergoing a major revitalization with the development and redevelopment of retail and office space and the recent completion of approximately 254 luxury rental units with 108 additional units nearing completion. The City has renewed its interest in its historic waterfront and has developed plans for the revitalization of the 214-acre waterfront districts; including both recreational and commercial marine activities. The New York State Department of State designated Glen Cove as one of only three communities on Long Island Sound suitable for concentrated waterfront development; one of seventeen Historic Maritime Centers; and one of ten Maritime Centers on Long Island Sound. In September 2003, the City was given the prestigious Coastal America Award by Assistant Secretary of Housing and Urban Development on behalf of President George W. Bush and New York Secretary of State Randy Daniels on behalf of Governor George Pataki in recognition of the City’s partnerships with Federal and State Agencies in developing the waterfront project. After nearly ten years of working with Federal and State agencies, the environmental remediation of 46 acres of the City agency-controlled waterfront is nearly complete. A significant portion of the property is ready to be redeveloped. In May 2003, City agencies entered into a Land Disposition Agreement with a private developer for the latter to purchase and redevelop this property. The developers have proposed a mixed-use development with high-end residential units, commercial and retail properties, a hotel, and new marina areas and a cultural arts component. The estimated cost to build this development is undetermined at this time, although an estimate of nearly $1 billion has been presented by the developers. The purchase price of the land (no less than $25 million contractually), the total investment and projection of real property taxes for the City and school district can not be determined until the development is approved by City agencies. The City has powers and responsibilities inherent in the operation of a municipal government including independent taxing and debt issuance authority. Subject to the provisions of the State Constitution, the City operates under a charter, which was adopted on September 18, 1981, and in accordance with other statutes including the General City Law, the General Municipal Law, the Local Finance Law and the Real Property Tax Law, to the extent that these statutes apply to a city operating pursuant to a charter.

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Elected and Appointed Officials The City Council is the legislative body of the City and consists of six members elected at large to serve two-year terms, plus the Mayor. It is the responsibility of the City Council to approve all legislation, including ordinances and local laws, to adopt and modify, as required, operating and capital budgets, to levy real property taxes and to authorize the issuance of all indebtedness. The Mayor is elected at a general election for a two-year term and there is no restriction on the number of terms that may be served. As a member of the City Council, the Mayor presides over such body and is eligible to vote on matters before the City Council. The current Mayor, Ralph V. Suozzi, is the Chief Executive Officer of the City. Lifelong resident of Glen Cove, community volunteer and business executive, Ralph Suozzi is the son of former Glen Cove Mayor Vincent “Jimmy” Suozzi. Mr. Suozzi, who is 49 years old, was educated in the Glen Cove public school system and has a Bachelor of Science degree from LI University at CW Post. He obtained professional development credits from NYU, Wharton Direct Business School and The New School for Social Research. As a volunteer, Mr. Suozzi has participated on the Morgan Park Summer Musical Festival Executive Committee, The North Shore Historical Museum Board, St. Rocco’s Feast, the Knights of Columbus food basket drive and the Glen Cove Community Pride Project. He also served as a Glen Cove Volunteer Firefighter for 10 years. Mr. Suozzi’s employment experience extends over twenty-five years. His resume includes professional management work at CBS, American Express, Dun & Bradstreet and private consulting firms. The Department of Finance is the central fiscal control and accounting agency of the City and is responsible for control and administration of its fiscal affairs. The City Controller, Sal Lombardi, previously served for 18 years as the Treasurer of the Village of Hempstead, the largest village in the State of New York. As the Chief Financial Officer for the village, Mr. Lombardi was responsible for all financial operations including general accounting, financial reporting, payroll and budget preparation and management. Prior to joining the Village of Hempstead, Mr. Lombardi was the City Comptroller for the City of Long Beach, New York for six years. Mr. Lombardi worked for seven years before becoming City Comptroller of the City of Long Beach with national and regional certified public accounting firms. Mr. Lombardi is a Certified Public Accountant and graduate of Long Island University. The Department of Finance is responsible for accounting for all revenues and disbursements of the City, for preparation and payment of employee payrolls, for custody and investment of all City funds, supervision of tax billing, tax and revenue collections including school tax billing and collection, administration of tax lien sales, management of bank accounts, the preparation and monitoring of the annual operating budget and five-year capital plan, and maintenance of the City's assessment records. City Services The City is responsible for and provides the following services: police, fire, library, sanitation, water, sewer, solid waste management, wastewater treatment and street maintenance. The City also operates various park and recreational facilities. Pursuant to State law, the County, rather than the City, is responsible for providing health and social services. Public education is provided by the City School District of the City of Glen Cove. The school district has a separately elected governing body and has independent taxing and debt issuance authority. The City is currently a party to a contract with Severn-Trent Environmental Series Inc. (“STES”), a private corporation, under which STES is operating the City's wastewater treatment facility for a term through 2012, subject to certain rights of STES to exercise renewal options. Under the contract, the City pays STES a fixed annual fee, subject to escalation and specified adjustments as set forth in the contract, to operate the wastewater treatment facility. The City is also a party to a contract pursuant to which Waste Management of Long Island (“Waste Management”) has agreed to accept and dispose of all of the City's processible solid waste and to process certain recyclable

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materials collected within the City for a term through 2012, subject to certain rights of Waste Management to exercise renewal options. Under the contract, the City has granted to Waste Management a license to use a site owned by the City adjacent to the City's wastewater treatment facility. The City will pay Waste Management a fixed fee per ton, subject to escalation, for each ton of the City's solid waste delivered to Waste Management's facility for disposal. Waste Management will accept the City's recyclable materials at no cost to the City. Employees The City provides services through 172 full-time and 177 part-time employees, some of whom are represented by one of three unions. The Civil Service Employees Association (“CSEA”) represents clerical workers and various labor groups including certain supervisory personnel; the Patrolmen Benevolent Association (“PBA”) is the collective bargaining agent for the City police and superior officers. The CSEA contract was renewed and expires on December 31, 2009. The PBA contract was renewed and expires December 31, 2007. Employee Pension Benefits Substantially all employees of the City are members of the New York State and Local Employees’ Retirement System (the “Retirement System” or “ERS”). The Retirement System is a cost-sharing multiple public employer retirement system. The obligation of employers and employees to contribute and the benefits to employees are governed by the New York State Retirement and Social Security Law (the “Retirement System Law”). The Retirement System offers a wide range of plans and benefits which are related to years of service and final average salary, vesting of retirement benefits, death and disability benefits and optional methods of benefit payments. All benefits generally vest after five years of credited service. The Retirement System Law generally provides that all participating employers in the Retirement System are jointly and severally liable for any unfunded amounts. Such amounts are collected through annual billings to all participating employers. Generally, all employees, except certain part-time employees, participate in the Retirement System. The Retirement System is non-contributory with respect to members hired prior to July 27, 1976. All members hired on or after July 27, 1976 must contribute three percent of their gross annual salary toward the costs of retirement programs until they attain ten years in the Retirement System, at such time contributions become voluntary.

Due to unfavorable capital market returns over several recent years and downward trends in market earnings on the State’s Retirement System portfolio during the same period, then New York State Comptroller, Alan Hevesi, notified the City, on August 30, 2002, that beginning in the 2003 fiscal year the employer contribution rate for the State’s Retirement System would increase significantly. In addition, Comptroller Hevesi also indicated that the employer contribution rate would increase in subsequent years. On May 14, 2003, the Governor signed a pension reform bill into law as Chapter 49 of the Law of 2003 (“Chapter 49”). Chapter 49 changed the billing cycle for employer contributions to the ERS retirement system to match budget cycles of the City. Under the previous method, the City was not provided with the required payment until after its budget was implemented. Under the reforms implemented by Chapter 49, the employer contribution for a given fiscal year will be based on the value of the pension fund on the prior April 1, instead of the following April 1. As a result, the City is notified of and can include the actual cost of the employer contribution in its budget. Chapter 49 also required a minimum payment of 4.5% of payroll each year, including years in which investment performance of the fund would make a lower employer contribution possible and allowed a one-time financing of the employer contribution during the State’s 2004-05 fiscal year. Municipalities, including the City, may elect to bond, over 5 years, any required employer contributions in excess of 7 percent; or amortize with the State such excess amount at an interest rate of 8 percent. Chapter 49 also allowed local government to bond, over a maximum of five years, for outstanding early retirement incentive costs. During its 2004 Session the New York State Legislature enacted further pension relief in the form of Chapter 260 of the Laws of 2004 (“Chapter 260”). Chapter 260 changed the pension payment date for all local governments from December 15 to February 1. Under Chapter 260, municipalities were granted the authority to bond certain “eligible” portions of their pension contribution bills. The “eligible” portions are be determined as follows: (i) for the February 1, 2005 pension contribution bill, the amount by which such contribution exceeds 7 percent of the

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covered pensionable salaries; (ii) for the February 1, 2006 pension contribution bill, the amount by which such contribution exceeds 9.5 percent of the covered pensionable salaries; and (iii) for the February 1, 2007 pension contribution bill, the amount by which such contribution exceeds 10.5 percent of the covered pensionable salaries. In addition, the amortization period for bonds issued pursuant to Chapter 260 was extended from 5 years to 10 years. For those employers who chose to amortize, the interest rate that would be established by the Comptroller would more closely approximate a market rate of return on taxable securities. Employers who elect to offer early retirement incentive (Section 384e) to members may bond the past service cost associated with this plan. Further, the legislative body of a municipality can establish a retirement contribution reserve fund for the purpose of financing retirement contributions in the future. The New York State Retirement System has advised the City that municipalities can elect to make employer contribution payments in the December or the following February, as required. If such payments are made in the December prior to the scheduled payment date in February, such payments may be made at a discount amount. The City opted to make its pension payments on February 15 in each of the last two years. Other Post Employment Benefits Recently enacted accounting rule, GASB Statement No. 45 (“GASB 45”) of the Governmental Accounting Standards Board (“GASB”), requires state and local governments to account for and report their costs associated with post-retirement healthcare benefits and other non-pension benefits (“OPEB”). GASB 45 generally requires that employers account for and report the annual cost of the OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Under previous rules, these benefits have generally been administered on a pay-as-you-go basis and have not been reported as a liability on governmental financial statements. Only current payments to existing retirees were recorded as an expense. GASB 45 requires that state and local governments adopt the actuarial methodologies to determine annual OPEB costs. Annual OPEB cost for most employers will be based on actuarially determined amounts that, if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due. Under GASB 45, based on actuarial valuation, an annual required contribution (“ARC”) will be determined for each state or local government. The ARC is the sum of (a) the normal cost for the year (the present value of future benefits being earned by current employees) plus (b) amortization of the unfunded accrued liability (benefits already earned by current and former employees but not yet provided for), using an amortization period of not more than 30 years. If a municipality contributes an amount less than the ARC, a net OPEB obligation will result, which is required to be recorded as a liability on its financial statements. GASB 45 does not require that the unfunded liabilities actually be funded, only that the City account for its unfunded accrued liability and compliance in meeting its ARC. Actuarial valuation will be required every 2 years for the City. Although GASB 45 encourages earlier adoption, implementation is required by the City for the fiscal year commencing January 1, 2008. The City is taking steps to be in compliance with the requirements of GASB 45 during its 2008 fiscal year.

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Related Entities The Glen Cove Community Development Agency (the "CDA") is a public benefit corporation created by State legislation to promote sound growth and development of the City. The CDA board consists of the Mayor, who serves as chairman, and six other members appointed by the Mayor, subject to the approval of the City Council. The City is responsible for any deficits of the CDA. The CDA administers over $3.8 million in Section 8 Housing funds and $600,000 in Community Development Block Grants on behalf of the federal Department of Housing and Urban Development. The contract for Community Development Block Grants is between the City and Nassau County and approved by the City Council. The CDA is not authorized to issue debt. The Glen Cove Industrial Development Agency (the "IDA") is a public benefit corporation created to promote the economic welfare and prosperity of the City's inhabitants. The IDA members have complete responsibility for management of the agency and accountability for its fiscal matters. The City is not liable for bonds, notes or other obligations of the IDA. The Glen Cove Housing Authority is a public housing agency whose board has complete responsibility for its management and fiscal matters. The City is not liable for bonds, notes or other obligations of the Glen Cove Housing Authority. The City School District of the City of Glen Cove (the "District") is governed by school board members who are elected by the qualified voters of the District. The District derives its revenues from property taxes, the assessment of which is based on the City's taxing procedures. The City is responsible for billing and collecting District taxes and makes the District whole for any uncollected taxes (see "Real Property Tax Collection Procedures and History", herein). The City guarantees collection on any District taxes in arrears. The Board of Education of the District appoints management and exercises complete responsibility for all fiscal matters. The City is not liable for bonds, notes or other obligations of the District issued for District purposes or on behalf of the Library. The Glen Cove Library (“Library”) is governed by library trustees who are elected by the qualified voters of the Glen Cove City School District. The Library derives its revenues from property taxes, the assessment of which is based on the City's taxing procedures. The City is responsible for billing and collecting Library taxes; however it is the City School District that makes the Library whole for any uncollected taxes (see "Real Property Tax Collection Procedures and History", herein). The City guarantees collection on any Library taxes in arrears. The Library Board appoints management and exercises complete responsibility for all fiscal matters. The City is not liable for bonds, notes or other obligations of the Library.

FINANCIAL FACTORS Basis of Accounting The City utilizes the modified accrual basis of accounting for recording transactions in all governmental type funds. Under this method, (1) revenues are recorded when received in cash except for revenues which are material and susceptible to accrual (measurable and available to finance the current year's operations) which are recorded when earned, and (2) expenditures, other than retirement plan contributions, vacation and sick pay, and accrued interest on bond anticipation notes and general long-term debt, are recorded at the time liabilities are incurred. Independent Audit The City’s finances are periodically audited by the office of the State Comptroller. The State Comptroller last conducted audits of the City in 2006. The single audits of the City's financial statements are conducted by the City's independent auditor, Bloom & Company, Certified Public Accountants. A summary of the City’s General Purpose Financial Statements for the

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fiscal years ended December 31, 2001 through 2005 are contained in Appendix B hereto. A copy of the City’s Audited Financial Statement for the fiscal year ended December 31, 2005 is attached as Appendix C hereto. Fund Structures and Accounts The General Fund and the Special Revenue Funds are the principal funds used to account for the City's financial resources except those required to be accounted for in another fund. The General Fund accounts for substantially all of the City's operating and maintenance costs. The Special Revenue Funds are used to account for proceeds of specific revenue sources (other than major capital projects) that are restricted to expenditures for specified purposes. Special Revenue funds maintained by the City are the Water fund, the Sewer fund and the Recreation fund. There is also a Debt Service Fund which is used to account for transfers from all funds for the payment of debt service on the long-term obligations of these funds and a Capital Projects Fund which is used to account for financial resources such as proceeds from bonds, notes, transfers from government funds, and federal and state grants which are to be applied for permanent or semi-permanent capital improvements. Revenues Property Taxes. The City derives a major portion of its general fund revenues from a tax on real property (see "Statement of Revenues, Expenditures and Changes in Fund Balance" in Appendix B, herein). Property taxes accounted for approximately 67.3% of total general fund revenues for the fiscal year ended December 31, 2005. The following table sets forth total General Fund revenues and real property tax revenues during each of the last five fiscal years, and the amounts budgeted for the two most recent fiscal years.

Table 1

Property Tax Revenues Real Property Total Real Property Taxes to

Fiscal Year Revenues Taxes Revenues 2001 $ 22,332,293 $ 14,998,335 64.3% 2002 24,426,435 15,518,106 63.5 2003 27,167,080 17,317,760 63.7 2004 27,236,420 17,930,879 65.8 2005 27,422,167 18,459,159 67.3 2006 (Adopted Budget) 37,841,087 18,199,890 48.1 2007 (Adopted Budget) 41,418,408 23,243,563 56.1

Note: Water and sewer revenues are recorded in separate self-sustaining funds. Source: Audited Financial Statements and Adopted Budgets of the City. Water Fund. The water fund is used to account for transactions relating to the operation and maintenance of the City-owned water supply and distribution system. Substantially all of the fund's activities are financed through the sale of water; no tax moneys are contributed for the support of this service. Sewer Fund. This fund is used to account for revenues and expenses of running the sewer treatment plant. Recreation Fund. This fund is used to account for revenues and expenditures associated with the operation of the golf course. Due to the importance of golf and recreation to the community, a Recreation Fund was created with the intention of it becoming self-sustaining in the future. State Aid. The City also receives a significant portion of its revenues in the form of State aid. For the fiscal year ended December 31, 2005, State aid represented 17.8% of the total general fund revenues of the City. However, there is no assurance that the State appropriation for State aid to cities will continue, either pursuant to existing formulas or in any form whatsoever. The State is not constitutionally obligated to maintain or continue such aid.

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State budgetary restrictions which eliminate or substantially reduce State aid could have a material adverse effect upon the City, requiring either a counterbalancing increase in revenues from other sources to the extent available, or a curtailment of expenditures. The following table sets forth total General Fund revenues and State aid during each of the last five fiscal years, and the amounts budgeted for the two most recent fiscal years.

Table 2 State Aid

Total State Aid Fiscal Year Revenues State Aid to Revenues (%)

2001 $ 22,332,293 $ 4,514,089 20.3% 2002 24,426,435 4,606,611 18.8 2003 27,167,080 5,057,466 18.6 2004 27,236,420 4,307,676 15.8 2005 27,422,167 4,881,595 17.8 2006 (Adopted Budget) 37,841,087 4,411,500 11.7 2007 (Adopted Budget) 41,418,408 2,904,966 7.0

Source: Audited Financial Statements and Adopted Budgets of the City. Grant Monies. The following grant funds represent new initiatives since 1998 and are not replacement funds for routine budget appropriations.

Waterfront Revitalization • $100,000 New York State Department of State Local Waterfront Revitalization grant to determine feasibility of

bio-filtration system at Mill Pond. • $570,000 New York State Department of Transportation ISTEA grant for a storm water treatment system

construction and pedestrian walkway at Mill Pond. • $394,000 Department of Environmental Conservation grant to complete a Remedial Investigation/Feasibility

Study (“RI/FS”) for the Captain’s Cove site. • $3.3 million Department of Environmental Conservation grant for remediation of Captain’s Cove site. • $500,000 Housing and Urban Development BEDI grant to support the purchase and remediation of Captain’s

Cove • $100,000 New York State Department of State Local Waterfront Revitalization grant for design of pedestrian

esplanade at Captain's Cove. • $2,479,400 New York State Department of Transportation grant for design and construction of a pedestrian

esplanade at Captain's Cove • $2,448,640 NYSDOT grant for the design and construction of the pedestrian esplanade Phase Two • $1,000,000 grant from New York State Department of State Water Quality Improvement Section for Long

Island Sound, Clean Air- Clean Water Bond Act for rebuilding of bulkheads along Glen Cove Creek. • $2.9 million grant from Clean Air-Clean Water Bond Act for nitrogen removal and facility improvements to the

Glen Cove Sewage Treatment Plant. • $1,111,250 grant from the Clean Water Clean Air Bond Act for additional improvements at the wastewater

treatment plant • $550,000 U.S. Environmental Protection Agency Brownfield Pilot grant which includes analysis and survey of

several waterfront Brownfield properties. • $1.4 million U.S. Environmental Protection Agency Brownfield Showcase Community Designation grant for

technical assistance. • $200,000 U.S. Environmental Protection Agency Brownfields Assessment Grant • $13,649,411 Department of Transportation TEA 21/STP/High Priority grants for the design, ROW and

construction of road improvements to access the north side of Glen Cove Creek. • $280,000 NYS Department of State EPF grant for infrastructure planning at Garvies Point Road

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• $100,000 administrative grant for a five year National Institute of Health Sciences Brownfield Minority Environmental Worker Training grant for pre-apprentice program training for 6 minority residents

• $200,000 for Brownfield Clean-Up grant. • $150,000 NYS Department of State Planning Grant for Glen Cove Creek Water Improvement • $100,000 NYS Department of Environmental Conservation for Drainage Improvements at Herb Hill Road (Mill Pond) • $1,200,00 New York State Department of Transportation CMAQ grant for the design of a Ferry Terminal and Boat Basin Other Grants • $1,545,018 New York State Department of Transportation grant for design and construction of upgrades and

improvements for East Island Bridge. • $157,000 Local Safe Streets and Traffic Calming grant / Franklin Avenue • $692,889 Local Safe Streets and Traffic Calming grant / Glen Cove Avenue • $$65,000 New York State DOT multimodal grant for downtown infrastructure (downtown lights) • $25,000 Nassau County grant for downtown infrastructure (downtown lights) • $50,000 New York State Dormitory Fund grant for downtown infrastructure (downtown lights) • $7,5000 New York State Department of Conservation Urban and Community Forestry Grant for the development of an Urban Downtown Forestry Management Plan and support materials • $20,000 New York State Department of Conservation Urban and Community Forestry Grant to plan 26 trees in Downtown Glen Cove • $10,000 From the Long Island Sound Study for Glen Cove Marine Education Program Public Safety • $225,000 Department of Justice Universal hiring award Police Officers salary. • $4,000 Department of Health grant for Empire Defibrillators. • $60,000 New York State grants for ambulances. • $60,000 New York State grants for fire turnout gear. • $12,500 New York State Harbor Patrol grant for repairs and radios. • $100,000 Department of Justice COPS More grant for laptop computers for police cars • $70,000 Department of Justice COPS More grant for civilian administrative assistant • $18,750 Department of Justice COPS More grant for Police photo digitizing equipment • $22,000 Byrne 98 grant for Police photo digitizing equipment • $16,000 New York State grant for EMS uniforms and equipment • $12,000 New York State Division of Criminal Justice grant for wheel load weighers. • $50,000 New York State Division of Criminal Justice grant for Computer Equipment. • $100,000 New York State Community Capital Assistance Program for the Harbor Patrol - purchase of a new boat, uniforms, and equipment. Discussion of Recent Financial Operations The City, like most small cities throughout New York State, suffered financial setbacks in the early 1990's due to reductions in State Aid, real property tax delinquencies, a declining tax base as a result of reductions in real property assessments pursuant to tax certiorari proceedings, revenue shortfalls and, in general, the downturn in overall economic activity. The City has made aggressive efforts to raise revenues by initially increasing taxes, fees and fines, and by attracting new business to the City to expand the tax base. Notwithstanding these efforts, the City has generated consecutive operating deficits in recent years and has a cumulative deficit as discussed below. See “Projected Deficits”. 2003 Audited Results. For the fiscal year ended December 31, 2003, General Fund revenues and other sources were approximately $27.2 million and General Fund Expenditures and other uses were $27.8 million, which resulted in a cumulative General Fund deficit of ($618,206).

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2004 Audited Results. For the fiscal year ended December 31, 2004, General Fund revenues and other sources were approximately $31.6 million and General Fund Expenditures and other uses were $32.4 million, which resulted in a cumulative General Fund deficit of ($772,160). 2005 Audited Results. For the fiscal year ended December 31, 2005, based on audited results, General Fund revenues and other sources were approximately $27.4 million and General Fund Expenditures and other uses were $28.0 million, which resulted in a cumulative General Fund deficit of ($1,341,415). 2006 Adopted Budget. For the fiscal year ended December 31, 2006, General Fund revenues are budgeted at $37.8 million and General Fund Expenditures and other uses are budgeted at $37.8 million. The City expects that its cumulative General Fund Deficit will be shown to have increased at the end of its 2006 fiscal year. 2007 Adopted Budget. For the fiscal year ending December 31, 2007, General Fund revenues are budgeted at $41.4 million and General Fund Expenditures and other uses are budgeted at $41.4 million. Projected Deficits The City presently has a structural deficit in its operating funds and based on audited results for the fiscal year ended December 31, 2005, the City’s cumulative deficit increased to approximately $6.7 million. The New York State Comptroller’s Office recently completed two audits of the City. The results of such audits are expected to show that the City will end the 2006 fiscal year with a projected operating deficit of $4 million. As a result, the total cumulative deficit for all funds is expected to reach approximately $12 million as of December 31, 2006. The causes of such deficits include, but are not limited to, the adoption of structurally weak budgets that aggressively over estimated revenues and underestimated expenditures for the past few years. For example, real estate tax revenue has increased, on average, below inflation levels for the past dozen years resulting in insufficient funding to meet the needs of the City.

The City is presently taking steps to address its structural deficit and to improve its financial position. Such steps include seeking special legislation which would allow the City to issue bonds to fund its deficit, and increasing sewer rates, building department fees and real property taxes. See “Market Factors Affecting Financings of the State and Municipalities of the State,” “Discussion of Recent Financial Operations,” and “Financial Recovery Plan,” herein. Financial Recovery Plan The Mayor and the City Administration are working diligently to develop solutions to the City’s financial difficulties. The City has developed a tentative financial recovery plan that is targeted toward restoring fiscal balance to City financial operations. The plan includes the following revenue enhancements and cost reductions expected to be implemented by the City:

• Seek special state legislation authorizing the issuance of serial bonds to fund the City’s cumulative deficit. • A property tax increase in the fiscal 2007 budget. The adopted 2007 fiscal year budget increased property

taxes by 27.8% for the 2007 fiscal year. • Increase in City sewer rates • Increase in Building Department fees • Increase in court fines

Financial and Economic Initiatives Over the last several years, the City has embarked on a comprehensive and coordinated financial plans which has three broad goals: 1) reduce expenses through more efficient fiscal operations; 2) enhance non-tax revenues through new enterprises; and 3) expand the tax base.

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Improved Fiscal Operations The City Controller embarked on a number of initiatives which resulted in more efficient operations and lower costs for the City, including: an automated general ledger and computerized accounts payable and accounts receivable systems; automated purchasing and ordering; mandatory approval for any overtime; an employee evaluation process; and monthly monitoring and evaluation of the budget. The City Controller also developed and implemented a formal set of capital and debt issuance policies (see "Capital Financing and Improvement Programs", herein) which are intended to address the City's former lack of a long-term capital plan, and to reduce the City's historic reliance on short-term borrowing. The City’s most recent 5-year capital plan was prepared in the spring of 2006. Enhanced Non-Tax Revenues The administration identified a number of opportunities which substantially increased non-tax revenues, including: a comprehensive approach to investment management; stepped-up building code enforcement which increase fines for illegal conversions and non-complying use. Expansion of the Tax Base The administration embarked on an aggressive policy of enhancing its tax base through a combination of economic development and encouragement of rational land use. Much of the City’s redevelopment effort and success has been focused on the downtown and waterfront revitalization efforts which are discussed below. Downtown Revitalization Avalon Bay Properties is constructing a total of approximately 362 units of luxury rental apartments in downtown Glen Cove for a total investment of approximately $74 million. The project will be built in two phases with the first building (approximately 254 units) completed. The second building (108 units) started construction in spring 2005 and will be completed in the summer of 2007. This project will return property, previously owned by the City, to the tax rolls. The Phase I project, Avalon at Pratt, started making payments in lieu of taxes (PILOT) payments to the City in January 2004. The Phase II project, Avalon at Glen Street, is expected to start generating PILOTs in 2008. The total tax revenues generated by this project to all tax collecting jurisdictions are expected to exceed $1.2 million by 2008. The Glen Cove Community Development Agency has an active commercial rehabilitation project funded through the HUD Community Development Block Grant program that has positively impacted reinvestment into the downtown business district as well as other business districts in Glen Cove. The CDA program includes façade and signage matching grants as well as loans. In 2002-2003, three major buildings in downtown were rehabilitated including a vacant professional building and two substantial rows of retail stores. Over the past several years, this program has resulted in façade improvements on approximately 14 buildings in the downtown as well as additional improvements made by the property owners. The Building Department and the Business Improvement District report a retail occupancy rate in the downtown of approximately 94%, the highest in over 20 years. In 1999, a 50,000 square foot retail shopping center was constructed on a vacant parcel of land, that was previously owned by the City and thereby returning the property to the tax rolls. Staples, which opened in October 1999, serves as the anchor store for the retail shopping center which includes Bethpage Federal Credit Union, Annie Sez and Glen Cove Chemists as additional tenants. Ruby Tuesday’s, a national family restaurant, opened in the downtown in October 1999, employing approximately 50 people. There has been a substantial investment in public improvements in the downtown. The City recently installed energy efficient and decorative street lighting in the downtown with grant funds. Recent municipal upgrades include municipal lot and parking lot upgrades as well as energy efficient street lighting throughout the City which will be paid for from energy savings. Waterfront Redevelopment

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To date, the City has been awarded more than $30 million in federal and state funding for planning, infrastructure improvements, and environmental testing and remediation. The City completed the Glen Cove Creek Waterfront Revitalization Plan - a master planning and redevelopment study of 214 acres surrounding Glen Cove Creek. The vision is to turn the waterfront into a regional waterfront tourism destination similar to Newport, Rhode Island or Baltimore’s Inner Harbor. In preparation for redevelopment, the City rezoned the Marina District on the south side of the Glen Cove Creek to encourage water-dependent development and marine-related activity, including waterfront restaurants, ship’s chandlery and marine-related retail, eliminating non-compatible uses such as storage of contractors’ equipment. This rezoning has resulted in the redevelopment and expansion of the marinas, with private investment exceeding $5 million. In addition, 100 acres on the north side of Glen Cove Creek were also rezoned as a new Marine Waterfront Zone, which will permit a hotel/conference center, maritime retail village, restaurant, aquarium, terminal for high speed ferry operation and maritime museum. The City has completed a Generic Environmental Impact Statement (“GEIS”) of the waterfront. In 1999, the IDA purchased 47 acres on the north side of Glen Cove Creek, known as the Captain’s Cove and Li Tungsten sites and has entered into an innovative Prospective Purchaser’s Agreement with USEPA that allows the IDA and prospective developers to purchase the property without environmental liability. In May 2003, the IDA entered into a land disposition agreement (LDA) with Glen Isle Development Company, LLC, a joint venture between J.D. Posillico and Darren Development Corp. for the redevelopment of all 47 acres. The purchase price, a minimum of $25 million, will be established via appraisals after the development and adoption of a final development plan. Glen Isle has presented a plan to the City that calls for a mixed-use development with residential units, a hotel and catering facility, new marinas, commercial and retail space and a cultural arts component. The estimate for full construction of the site is approximately $1 billion. In the fall 2001, the City completed remediation of 18-acres at Captain’s Cove, a New York State Department of Environmental Conservation (“DEC”) priority listing site. Pursuant to an agreement with the City, the USEPA completed the excavation of tungsten ore tailing which were placed at Captain’s Cove site in June 2003. These tungsten ore tailings at Captain’s Cove were connected to the Li Tungsten refining facility (formerly “Wah Chang Smelting & Refining”) located near the site. The Li Tungsten site is a federal superfund site of approximately 23 acres. Eight acres on the waterfront and adjacent roadway were completed and remediated by a private party was commenced in March 2006 and will be completed in 2007. In July 2004, the EPA reached an interim settlement with one remaining, non-settling PRP which allowed over $20 million to be used on the site to remove the stockpiled waste from the site and continue the dredging and remediation of the creek and the remaining properties. The dredging of Glen Cove Creek has been completed. The removal of the waste commenced in March 2005 and is expected to be completed in 2007. Waterfront Infrastructure Improvements The City has been granted over $9.88 million in Federal and New York State funding for the improved connection of New York State Route 107 to the waterfront. Phase I of construction on this project started in the early 2005 and is expected to be finished by June 2007. Funding is currently being sought for Phase II on the roadway which will, among other things, widen the existing road, improve drainage and bury utility lines. The City is installing a pedestrian esplanade along the water’s edge of the Captain’s Cove site. This walkway, constructed with grant money is open with construction of Phase I of this project was completed and dedicated in September 2003. The State DOT awarded Glen Cove an additional $2 million in grant money to continue the walkway along the waterfront revitalization. As of spring 2007, this project was in the design phase. The City was awarded several grants to upgrade the Municipal Sewage Treatment Plant. Phase I of the project includes the installation of tertiary treatment (Biological Nutrient Removal) to reduce nitrogen loadings into Hempstead Harbor and Long Island Sound. The Phase I project has been completed. The second phase which included the installation of ultraviolet technology to reduce chlorination of the wastewater was completed in 2006. Both phases have been funded mostly by DEC grants in the amounts of $2.9 million and $1.05 million, respectively.

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Other improvements completed include installation of 1,200 feet of sheet steel bulkheading, additional marine-pump out facilities, municipal boat ramp and the parking lot renovations. One-third of Glen Cove Creek was dredged for the first time in more than 30 years in the winters of 1996 and 1997 and the winter of 2001 by the U.S. Army Corps of Engineers (“ACOE”). Dredging on the remainder of the Creek was completed in the spring of 2007. This will encourage the economic viability and expansion of water-dependent use of the waterfront. The Glen Cove Public Works Yard was renovated to include a new enclosed transfer building, new welding and sign shop and the relocation of the municipal animal shelter to a brand new building constructed at no cost to the taxpayers Other The healthcare industry in Glen Cove is particularly strong. North Shore University Hospital at Glen Cove recently completed approximately $12 million in capital improvements including the expansion of the emergency room and the development of a pediatric trauma center. As part of the largest hospital corporation on Long Island, the Glen Cove facility has been designated as the special surgery hospital for orthopedic surgery and rehabilitation. This designation has lead to growth at Glen Cove’s three nursing home facilities that provide post surgery patient rehabilitation. In addition, there has been strong demand for medical office space in Glen Cove. Residential development has been strong over the last several years. Recently, Spectrum/Skanska U.S.A., one of the largest residential developers in the United States, developed the 47 acre Loews estate overlooking Hempstead Harbor with luxury one family homes in the one to two million dollar price range. Toll Brothers, a national residential developer, recently completed the development of luxury townhouses adjacent to the City-owned golf course. In February 2007, Photocircuits, one of the City’s largest taxpayers, announced that it will be closing its factory located in the City during the second quarter of 2007. As a result of this closing, Photocircuits will terminate approximately 740 employees presently working at its facilities in Glen Cove. Also as a result of this closing, the City will also lose almost $1 million in annual revenues to its water fund as Photocircuits is the biggest user of water in the City. City and County officials are working closely with the management team from Photocircuits to identify new tenants and new uses for Photocircuits facility in the City. At this time, it is not known how Photocircuit’s 23-acre site will be used in be future. In addition, the administration has made job retention and recruitment a major priority, and is working closely with the Glen Cove Industrial Development Agency (“IDA”), the Long Island Power Authority (“LIPA”), KEYSPAN Energy Corp. (“KEYSPAN”), and State officials to assist local employers in increasing payrolls, lowering energy costs, and “fast tracking” approvals for commercial expansion.

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Construction Activity The number of building permits issued within the City and the estimated cost of construction based on permits issued for each of the last five years is set forth below. The City instituted a moratorium on residential subdivisions in March 2006. The City intends to lift the moratorium on minor subdivisions in April 2007 but maintain the moratorium on major subdivisions for an additional six months.

Table 3

Building Permits

Year No. of Permits Estimated Cost 2002 2,199 $14,687,000 2003 1,754 13,943,500

2004 1,502 7,367,080

2005 233 20,153,800

Source: City Officials Budget Process The budget process begins in late summer at which time department heads prepare estimates of revenues and expenditures for the following year. Pursuant to the City Charter, departmental estimates must be submitted to the City Controller by September 1. The Mayor submits a proposed budget to the City Council on or before October 1. The City Council reviews the proposed budget and may make changes or revisions that are not inconsistent with the law. During the City Council's review period, by October 10, notice is given of a public hearing on the proposed budget. The public hearing on the proposed budget is to be held no later than October 10, at which time members of the public may express their views on such budget. Following the public hearing, the City Council may make whatever additional revisions that it deems necessary. The final budget for the next fiscal year is adopted by ordinance of the City Council not later than October 10. The City Investment Policy The City Council has adopted an Investment Policy, which includes as eligible investments: certificates of deposit and time deposit accounts in banks or trust companies authorized to do business in New York State; obligations of the State or the U.S. Treasury (including federal agencies where principal and interest is guaranteed by the United States of America); and, with approval of the State Comptroller, obligations of other local governments as well as of the City itself. The Investment Policy further stipulates that: • Certificates of deposit and time deposit accounts must be fully secured by insurance of the Federal Deposit

Insurance Corporation, or collateralized with obligations of the U.S. Treasury, the State, or obligations of local governments within the State. Collateral shall be delivered to the City or to an approved custodial bank. The market value of collateral shall at all times equal or exceed the principal value of the certificate of deposit, marked to market no less frequently than weekly.

• Repurchase agreements shall provide for payment to the provider only upon delivery of U.S. Treasury obligations to an approved custodial bank or, in the case of a book-entry transaction, when the obligations of the U.S. Treasury are credited to the approved custodial bank account.

• Repurchase agreements shall be entered into only with banks or trust companies registered as primary dealers in government securities, with a minimum 105% collateralization, marked to market weekly.

• The investments will be audited annually by the City's independent auditor, and the Investment Policy will be reviewed annually by the City Council.

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Consistent with the above statutory limitations, it is the City's current policy to invest in: (1) certificates of deposit or time deposit accounts that are fully secured as required by statute, (2) obligations of the United States of America or (3) obligations guaranteed by agencies of the United States of America where the payment of principal and interest is guaranteed by the United States of America. In the case of obligations of the United States government, the City may purchase such obligations pursuant to a written repurchase agreement that requires the purchased securities to be delivered to a third party custodian.

REAL PROPERTY TAXES Limitation on Real Estate Tax Levy The City is responsible for levying taxes for City purposes. The City's real property tax levying powers, other than for debt service and certain other enumerated purposes, are limited by the State Constitution to 2.0% of the five-year average full valuation of taxable real property of the City. The City Charter, however, limits the City's real property tax levying power to 1.5% of the five-year average full valuation. The following table sets forth the computation of the City's real estate tax levying limitation and the determination of its tax margin.

TABLE 4 Real Property Tax Assessment and Rates

Fiscal Year Ending State Equalization

December 31: Assessed Valuation Ratio Full Valuation

2002 $ 2,491,417,126 1.0000% $ 2,491,417,126 2003 2,498,500,000 0.8267 3,022,257,167 2004 2,498,925,621 0.7776 3,213,638,915 2005 2,500,121,578 0.6912 3,617,074,042 2006 3,897,530,500 0.9445 4,126,554,261

Total Five-Year Full Valuation $16,470,941,511 Five-Year Average Full Valuation 3,294,188,302 1 1/2% of Five-Year Average Full Valuation 49,412,825 Exclusions Added Thereto: Debt Service 5,780,119 Maximum Taxing Power 43,632,706 City Tax Margin $20,389,143

Sources: State Board of Real Property Services and the City of Glen Cove Controller's Office.

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Real Property Tax Collection Procedures and History Total real property taxes in the City are comprised of three separate taxing elements: (1) City, (2) County and (3) School. Real property taxes become payable upon the levy of such taxes by the City Council, the Nassau County Legislature and the local Board of Education, respectively. Preparation of the tax assessment roll is the statutory responsibility of the City under the Real Property Tax Law. The City Assessment Office undertakes regular inspections of property to ensure that new construction, improvements or demolitions are reflected in the annual roll of taxable properties. The taxes as levied by the City become a lien on December 1; County taxes are billed on a single statement and are levied January 1. City taxes are one half payable on December 1 and one half payable on June 1. County taxes are one half payable January 1 and one half payable July 1. The Glen Cove City School District (the "District") taxes are levied August 1 and are one half payable August 1 and one half payable February 1. School taxes are collected by the City until March 1. A five percent administrative fee is added to all delinquent District tax bills in addition to interest expense, which accrues from March 1 at 0.75% per month. The City guarantees the District the full amount of its tax levy. Prior to the annual tax sale (generally held in June), County taxes are remitted to the County only to the extent they are actually collected by the City. According to the Real Property Tax Law, unpaid school taxes are paid to the District as they are collected or at such time as the unpaid tax is included in the tax sale. Delinquent City and District taxes are enforced by the City under Article 11, Title 3 of the Real Property Tax Law which provides for foreclosure by "action in rem" after two years from the date of the first lien. In general, this section of the law permits foreclosure actions to be instituted for all tax liens due and unpaid for a period of at least two years. The City has elected to use the two-year period in order to strengthen its real property tax enforcement procedures. The table below shows the trend during each of last five years for taxable assessed valuations, State equalization rates, full valuations, real property tax levies and real property tax rates.

TABLE 5 Assessed Valuations

2002 2003 2004 2005 2006 Assessed Value $2,491,417,126 $2,498,500,000 $2,498,925,621 $2,500,121,578 $3,897,530,500 Equal. Ratio 100.00% 82.67% 77.76% 69.12% 94.45% Full Value 2,491,417,126 3,022,257,167 3,213,638,915 3,617,074,042 4,126,554,261 Tax levy 15,499,306 17,288,687 17,288,691 18,199,890 18,199,890

Tax Rate(1) $6.22 $6.91 $6.91 $7.28 $4.67 (1) Per $1,000 assessed value. Source: New York State Office of Real Property Services and City officials.

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Ten Largest Taxpayers The following table presents the assessments of the City's ten largest taxpayers for the 2006 fiscal year.

TABLE 6 Taxable Assessments(1)

% of Total Nature of Assessed Assessed

Taxpayer Business Valuation Valuation (2) Glen Cove Properties Hotel $29,133,200 0.75% Konica Imaging USA Inc. Photo Imaging 21,546,700 0.55 Walker & Walker Real Estate 13,708,400 0.35 Trousdell Village Co-ops 13,511,600 0.35 Glengariff Corp. Nursing Home 13,438,800 0.34 Glen Arms Group Apartment Rental 13,284,000 0.34 Sterling Glen Nursing Home 12,363,161 0.32 Long Island Power Authority Real Estate 10,626,735 0.27 Pearsall Owners Corporation Co-ops 10,579,800 0.27 Metropolitan Senior Housing LLC Nursing Home 9,842,310 0.25 Total: $148,034,706 3.80% (1) The City's total assessed value for the 2006 fiscal year is $3,897,530,500. Source: City officials.

CITY INDEBTEDNESS

Constitutional Requirements The New York State Constitution limits the power of the City (and other municipalities and school districts of the State) to issue obligations and to otherwise contract indebtedness. Such constitutional and statutory limitations include the following, in summary form, and are generally applicable to the City and Bonds and the Notes. Purpose and Pledge. The City shall not give or loan any money or property to or in aid of any individual or private corporation or private undertaking or give or loan its credit to or in aid of any of the foregoing or any public corporation. The City may contract indebtedness only for a City purpose and shall pledge its faith and credit for the payment of principal of and interest thereon. Payment and Maturity. Except for certain short-term indebtedness contracted in anticipation of taxes, indebtedness shall be paid in annual installments commencing no later than two years after the date such indebtedness shall have been contracted and ending no later than the expiration of the period of probable usefulness of the object or purpose as determined by statute; no installment may be more than fifty per centum in excess of the smallest prior installment, unless the City has authorized the issuance of indebtedness having substantially level or declining annual debt service. The City is required to provide an annual appropriation for the payment of interest due during the year on its indebtedness and for the amounts required in such year for amortization and redemption of its serial bonds and bond anticipation notes. General. The City is further subject to constitutional limitation by the general constitutionally imposed duty on the State Legislature to restrict the power of taxation, assessment, borrowing money, contracting indebtedness and

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loaning the credit of the City so as to prevent abuses in the exercise of such powers; however, as has been noted under "Nature of Obligation", the State Legislature is prohibited by a specific constitutional provision from restricting the power of the City to levy taxes on real estate for the payment of interest on or principal of indebtedness theretofore contracted. Statutory Procedure In general, the State Legislature has authorized the power and procedure for the City to borrow and incur indebtedness subject, of course, to the constitutional and provisions set forth above. The power to spend money, however, generally derives from other law, including the General City Law, the General Municipal Law and the City Charter. Pursuant to the Local Finance Law and the City Charter, the City authorizes the incurrence of indebtedness by the adoption of an ordinance approved by at least two-thirds of the members of the City Council. Certain improvements, the cost for which will be specially assessed against benefited property, are subject to public hearing. The Local Finance Law also provides a twenty-day statute of limitations after publication of a bond ordinance which, in effect, estops thereafter legal challenges to the validity of obligations authorized by such bond ordinance except for alleged constitutional violations. The City has complied with such requirements with respect to the bond ordinance authorizing the issuance of the Bonds. Each bond ordinance usually authorizes the construction, acquisition or installation of the object or purpose to be financed, sets forth the plan of financing and specifies the maximum maturity of the bonds subject to the legal (Constitution, Local Finance Law and case law) restrictions relating to the period of probable usefulness with respect thereto. Each bond ordinance also authorizes the issuance of bond anticipation notes prior to the issuance of serial bonds. Statutory law in New York permits notes to be renewed each year provided that principal is amortized and provided that such renewals do not (with certain exceptions) extend more than five years beyond the original date of borrowing. However, notes issued in anticipation of the sale of serial bonds for assessable improvements are not subject to such five year limit and may be renewed subject to annual reductions of principal for the entire period of probable usefulness of the purpose for which such notes were originally issued. (See "Payment and Maturity" under "Constitutional Requirements"). In addition, under each bond ordinance, the City Council may delegate, and has delegated, power to issue and sell bonds and notes, to the City Controller, the chief fiscal officer of the City under its Charter. In general, the Local Finance Law contains similar provisions providing the City with power to issue general obligation revenue anticipation notes, tax anticipation notes and budget notes. Debt Limit. The City has the power to contract indebtedness for any City purpose so long as the principal amount thereof shall not exceed seven per centum of the average full valuation of taxable real estate of the City and subject to certain enumerated exclusions and deductions such as water and certain sewer facilities and cash or appropriations for current debt service. The constitutional and statutory method for determining the average full valuation is by dividing the assessed valuation of taxable real estate for the most recently completed assessment roll and the four immediately preceding assessment rolls by the respective equalization rates assigned to each of such assessment rolls. Such equalization rates are the ratios which each of such assessed valuations bear to the respective full valuation of such year, as assigned by the State Board of Real Property Services. The State Legislature is required to prescribe the manner by which such ratios shall be determined. Average full valuation is determined by adding the full valuations for the most recently completed assessment roll and the four immediately preceding assessments rolls and dividing the resulting sum of such addition by five. There is no constitutional limitation on the amount that may be raised by the City by tax on real estate in any fiscal year to pay principal and interest on all indebtedness.

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Constitutional Debt Limit The following table sets forth the constitutional debt limit of the City.

TABLE 7 Constitutional Debt Limit

Fiscal Year State

Ending Assessed Equalization Dec. 31: Valuation Ratio Full Valuation

2002 $ 2,491,417,126 1.0000% $ 2,491,417,126 2003 2,498,500,000 0.8267 3,022,257,167 2004 2,498,925,621 0.7776 3,213,638,915 2005 2,500,121,578 0.6912 3,617,074,042 2006 3,897,530,500 0.9445 4,126,554,261

Total Five-Year Valuation $ 16,470,941,511

Average Five-Year Valuation 3,294,188,302

Debt Limit – 7% of Average Full Valuation $ 230,593,181

Source: City of Glen Cove, Assessor's Office and the New York State Office of Real Property Services.

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Statement of Debt Contracting Power

TABLE 8 Statutory Debt Limit and Net Indebtedness

(as of April 2, 2007) Debt Contracting Limitation $230,593,181 Gross Direct Indebtedness Serial Bonds: General Purpose $22,353,474 Water 2,622,074 Sewer 4,059,452 $29,035,000 Bond Anticipation Notes: General Purpose 24,111,093 24,111,093 Total Gross Direct Indebtedness 53,146,093 Exclusions and Deductions: Water Bonds $2,622,074 Sewer Bonds(1) 4,059,452 Appropriations in Current Budget to Pay Non-Exempt Debt Maturing During Remainder of Fiscal Year 3,159,738 Total Exclusions and Deductions 9,841,264 Total Net Indebtedness $ 43,304,829 Net Debt-Contracting Margin $187,288,352 Percentage of Debt-Contracting Limitation Exhausted 18.78%

(1) Sewer indebtedness excluded pursuant to Section 124.10 of the Local Finance Law. Source: City Controller Remedies Upon Default Under current law, provision is made for contract creditors (including the Bondholders and the Noteholders) of the City to enforce payments upon such contracts, if necessary, through court action, although the present statute limits interest on the amount adjudged due to creditors to nine per centum per annum from the date due to the date of payment. As a general rule, property and funds of a municipal corporation serving the public welfare and interest have not been judicially subjected to execution or attachment to satisfy a judgment, although judicial mandates have been issued to officials to appropriate and pay judgments out of current funds or the proceeds of a tax levy. Remedies for enforcement of payment are not expressly included in the City's contract with holders of its bonds and notes, although any permanent repeal by statute or constitutional amendment of a noteholder’s or bondholder's remedial right to judicial enforcement of the contract should, in the opinion of Bond Counsel, be held unconstitutional. The State has consented that any municipality in the State may file a petition with any United States district court or court of bankruptcy under any provision of the laws of the United States, now or hereafter in effect for the composition or adjustment of municipal indebtedness. Subject to such State consent, under the United States

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Constitution, Congress has jurisdiction over such matters and has enacted amendments to the existing federal bankruptcy statute, generally to the effect and with the purpose of affording municipal corporations, under certain circumstances, with easier access to judicially approved adjustment of debts including judicial control over identifiable and unidentifiable creditors. In recent times, certain events and legislation affecting remedies on default have resulted in litigation. While courts of final jurisdiction have upheld and sustained the rights of bondholders, such courts might hold that future events, including financial crises as they may occur in the State and in municipalities of the State, require the exercise by the State of its emergency and police powers to assure the continuation of essential public services. No principal or interest payment on City indebtedness is past due. The City has never defaulted in the payment of the principal of and interest on any indebtedness. Bond Anticipation Notes The following bond anticipation notes of the City are currently outstanding:

TABLE 9 Outstanding BAN Indebtedness

Issue Date Due Date Description Amount

April 18, 2006 April 18, 2007 Coles School Acquisition – 2006 Series A $ 2,445,000* April 18, 2006 April 18, 2007 Various Purposes – 2006 Series B 14,992,228** July 27, 2006 July 27, 2007 Various Purposes – 2006 Series C 5,338,975 November 14, 2006 July 27, 2007 BAN for Tax Certiorari Claims – 2006 704,890 December 7, 2006 July 27, 2007 BAN for Various Purposes – 2006 630,000 Total: $ 24,111,093 Source: City Officials * To be redeemed with proceeds from the sale of bond anticipation notes, together with available funds. ** To be redeemed with proceeds from the sale of the Bonds, together with available funds. Cash Flow Borrowings The tax anticipation notes and revenue anticipation notes issued in the last five fiscal years are listed below.

TABLE 10 Tax Anticipation Notes

Year Amount Date of Issuance Date of Maturity 2002 $ 0 N/A N/A 2003 950,000 09/15/03 12/30/03 2004 0 N/A N/A 2005 0 N/A N/A 2006 0 N/A N/A

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Revenue Anticipation Notes

Year Amount Date of Issuance Date of Maturity 2002 $1,500,000 02/28/02 12/19/02

2,000,000 09//0502 12/19/02 2003 3,400,000 02/13/03 12/30/03 2004 3,500,000 02/13/04 12/30/04 2005 3,500,000 02/23/05 12/30/05 2006 5,000,000 02/24/06 12/28/06

3,300,000 10/24/06 07/24/07 Trend of Outstanding Indebtedness The following table provides information relating to the capital indebtedness outstanding at year end for the past five fiscal years.

TABLE 11 Outstanding Indebtedness

2002 2003 2004 2005 2006(1) Bonds $32,285,000 $28,530,000 $35,125,000 $35,535,199 $31,730,000 Bond Anticipation Notes 13,805,544 18,149,628 12,536,866 17,123,228 24,111,093 Total $46,090,544 $46,679,628 $47,661,866 $52,658,427 $55,841,093 (1) Unaudited. Source: Audited Financial Statements of the City. Direct and Overlapping Indebtedness The real property taxpayers of the City are responsible for a proportionate share of outstanding debt obligations of the County and the City School District of the City of Glen Cove. Such taxpayers' share of this overlapping debt is based upon the amount of the City's equalized property values taken as a percentage of each separate unit’s total values. The table below sets forth both the total outstanding principal amount of debt issued by the City and the approximate magnitude of the burden on taxable property in the City of the debt instruments issued and outstanding by such other political units. Authorized but unissued debt has not been included.

TABLE 12 Statement of Direct and Overlapping Indebtedness

Gross Direct Indebtedness $53,146,093 Exclusions and Deductions 9,841,264 Net Direct Indebtedness $43,304,829 Overlapping Debt

Issuer

Outstanding

As of

Share

Amount Applicable to City

Nassau County $2,692,362,990 12/31/06 1.88% $50,616,424 Glen Cove City SD 0 04/02/07 100.00% 0 Total Net Overlapping Debt $50,616,424 Total Net Direct Debt 43,304,829 Total Net Direct and Overlapping Debt $93,921,253 Sources: Data provided by City, County, and District Officials.

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Debt Ratios The following table presents certain debt ratios relating to the City's net direct and overlapping indebtedness.

TABLE 13 Debt Ratios

Debt Per Debt to Amount Capita(1) Full Value(2)

Net Direct Indebtedness $ 43,304,829 $ 1,624 1.11% Net Direct and Overlapping Indebtedness 93,921,253 3,523 2.41 (1) The population of the City is 26,662, according to the 2000 Census. (2) The City's full value of taxable real property for fiscal year 2006 is $3,897,530,500. Sources: Data provided by City, County, School District Officials and the Long Island Almanac. Debt Service Schedule The following table sets forth all principal and interest payments required on the outstanding bonded indebtedness of the City, inclusive of the Bonds.

TABLE 14 Bond Principal and Interest Maturity

Fiscal Year Total Annual

Ending December 31: Principal Interest Debt Service (1)

2007 $ 4,250,000 $ 1,485,785 $ 5,735,785 2008 4,925,050 2,154,014 7,079,064 2009 4,775,000 1,638,541 6,413,541 2010 3,945,000 1,430,628 5,375,628 2011 4,135,000 1,249,989 5,384,989 2012 3,590,000 1,057,623 4,647,623 2013 3,750,000 891,921 4,641,921 2014 3,935,000 715,858 4,650,858 2015 2,245,000 488,408 2,733,408 2016 2,335,000 394,733 2,729,733 2017 1,465,000 297,230 1,762,230 2018 1,535,000 234,285 1,769,285 2019 1,605,000 168,390 1,773,390 2020 1,670,000 99,545 1,769,545 2021 1,295,000 27,843 1,322,843

Totals: $ 45,455,050 $ 12,334,790 $ 57,789,840

(1) Rows may not add due to rounding.

Source: Audited Financial Statements, City of Glen Cove.

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Capital Financing and Improvement Programs As a continuation of the fiscal planning process, the Mayor and the City Council directed the Controller to conduct a multi-year planning process, which involves all City department heads, the Mayor and City Council, the Director of Public Works, and citizens of the City. Projects typically included in the plan, include construction, acquisition, improvements to roads, water and sewer facilities, public safety, recreation facilities, and computer equipment for the Library and City departments. The Capital Budget and Plan for the 2007 fiscal year will be financed in part by the issuance of bonds and bond anticipation notes, and from operations in the Recreation/Golf Course Fund, the Water Fund, and the Sewer Fund. Authorized and Unissued Long-Term Debt Following the issuance of the Bonds and the Notes, the City has no authorized and unissued debt.

ECONOMIC AND DEMOGRAPHIC DATA

Population The following table presents population trends for the City, County and State, based upon recent census data and information gathered in a Long Island Power Authority population survey.

TABLE 15

Population Trend

Percentage Change

1990 2000 1990/2000 City 24,149 26,622 10.2% County 1,287,444 1,334,544 3.7 State 17,990,455 18,976,457 5.5

Source: NYS Department of Economic Development, State Data Center, US Department of Commerce, US Census Bureau. Income The following table presents median household money income for the City, County and State.

TABLE 16 Median Income

1997 1998 1999 2000 City $66,139 $67,221 N/A N/A County 79,284 80,581 82,157 76,500 State 36,010 38,885 49,327 52,313

Source: U.S. Bureau of the Census; Long Island Power Authority (“LIPA”) Estimates; Long Island Almanac, 1998.

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Employment and Unemployment The following tables provide information concerning employment and unemployment in the City, County and State.

TABLE 17

Civilian Labor Force (Thousands)

2003 2004 2005 2006 City 13.5 13.5 12.8 13.4 County 718.5 718.5 667.8 696.6 State 9,309.0 9,353.0 9,430.0 9,499.0

Source: New York State Department Labor. Information not seasonally adjusted. Employment Developments Maccarone Plumbing, located in the City, has expanded its staff to include 52 union plumbers and 8 office staff, and is one of the largest plumbing contractors on Long Island. St. Christopher-Ottilie, has moved its headquarters to Glen Cove. This is a not-for-profit agency specializing in foster care, adoption and residential care for children and young adults. The organization employs over 2,500 employees in the metro New York area. The main office staffs total 104 employees. The School for Language and Communication Development has purchased and relocated to the old South School. The School serves as an international interactive school specializing in educating children with communication disorders in a mainstream school setting. The facility also includes a daycare center. The City has been attracting retail tenants particularly in the downtown business district. The Staples shopping center in downtown Glen Cove is a recent development of approximately 50,000 square feet and the businesses in the center employ approximately 50 employees with retailers including Staples, Annie Sez, and Glen Cove Chemists.

As discussed previously herein, in February 2007, Photocircuits, one of the City’s largest taxpayers, announced that it will be closing its factory located in the City during the second quarter of 2007. As a result of this closing, Photocircuits will terminate approximately 740 employees presently working at its facilities in Glen Cove. City and County officials are working closely with the management team from Photocircuits to identify new tenants and new uses for that facility. At this time, it is not known how Photocircuit’s 23-acre site will be used in be future.

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TABLE 18 Recent Employment Developments

Number of Business Type of Business Employees

Stop & Shop Supermarket 75 King Kullen Supermarket 75 Babi Nails Beauty Salon 20 Wild Fig Restaurant 15 Adirondack Grill Restaurant 15 Sherlock Holmes Real estate office 10 Cove Audiology Medical 10 Avalon Dermatology Medical 10 Pancho Villa Restaurant 8 Curves for Women Gym 5 Glen Cove Fitness Center Gym 5 Bethpage Federal Credit Union Credit Union 5 Glen Cove Chemists Pharmacy 5

Glen Cove has representation by a wide variety of national and regional retailers and service providers. National and regional businesses located within the City’s limits include: The only Ferrari and Maserati dealership in New York State, Aboffs, A.G. Edwards & Sons, Allstate, Alpers, Amerada Hess, Annie Sez, Astoria Federal Savings Bank, Avalon Bay Communities, Baskin Robbins, Blockbuster Video, Bethpage Federal Credit Union, Brewer’s Yacht Yards, Burger King, Carvel Ice Cream, Century 21 Realty, Citibank, Curves for Women, CVS, Dunkin Donuts, Eckerd’s, Enterprise Rent-a-Car, Exxon, Bank of America, GNC, H & R Block, Iavarone Brothers, Island Fitness, KB Toys, King Kullen, Land Rover, Lexus/Rallye Motors, London Jewelers, The Med Station, MailBoxes, etc., McDonald’s, Minuteman Press, Mobil, Napa Auto Parts, North Fork Bank, Oppenheimer, Payless Shoes, Petco, Petland Discount, Radio Shack, 7-11, Ruby Tuesday’s, Sherlock Holmes, Staples, Starbucks, Sterling Glen, Stop & Shop, Subaru, Sunoco, Sunrise Assisted Living, Taco Bell, Tutortime, Volvo, Wendy's, Western Union and YMCA. Unemployment Unemployment rates for the City, County and the State are set forth below.

TABLE 19 Yearly Average Unemployment Rates

Year City County State 2002 4.2% 4.0% 6.2% 2003 4.4 3.9 6.4 2004 4.4 3.9 5.8 2005 4.4 4.1 5.0 2006 3.9 3.7 4.5

Source: New York State Department of Labor. Information not seasonally adjusted.

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TABLE 20 Monthly Unemployment Rates

Month City County State February 2006 5.2% 4.2% 5.3% March 4.6 4.0 5.0 April 3.6 3.7 4.7 May 3.5 3.8 4.4 June 3.9 3.9 4.4 July 4.2 4.0 4.9 August 3.8 3.7 4.3 September 3.6 3.6 4.1 October 3.1 3.2 3.8 November 3.1 3.2 3.9 December 3.2 3.1 3.8 January 2007 4.7 3.9 4.9

Source: New York State Department of Labor. Information not seasonally adjusted. Financial Institutions and Communications There are four commercial banks, Bank of America N.A., North Fork Bank, American Community Bank and Citibank, located in the City. The City is served by the major New York metropolitan area newspapers, radio and television stations. In addition, the City has two local newspapers, the Glen Cove Record Pilot and The Gold Coast Gazette. Cablevision, a private corporation, provides cable television service to City residents.

Utilities Electricity and natural gas are supplied to the City by the Long Island Power Authority. Telephone service is provided by Verizon. The City provides sewer facilities and water supply distribution to its residents, and is responsible for financing the construction, operation and maintenance of these systems. Transportation Rail transportation is provided by the Oyster Bay branch of the Long Island Railroad. Highways serving the City include the Long Island Expressway and the Northern State Parkway. The area is covered by an extensive network of County roads. In addition, public bus transportation is available by the Metropolitan Suburban Bus Authority. The City also operates a shuttle bus for downtown shoppers.

END OF APPENDIX A

APPENDIX B

FINANCIAL STATEMENT SUMMARIES AND CASH FLOW STATEMENTS


2006 2007

REVENUES

General $10,490,680 $9,702,010Police Department 286,275 299,025Recreation/Golf 1,727,150 1,330,900Water/Sewer Fund 6,450,000 6,019,500Debt Service Fund 687,092 20,000Insurance Fund 0 26,000Fund Balance Appropriation 0 777,410

Revenues other than taxes 19,641,197 18,174,845

Amount to be raised by taxes 18,199,890 23,243,563

TOTAL REVENUES $37,841,087 $41,418,408

EXPENDITURES:

General 13,792,825 14,679,004Police Fund 9,950,694 10,422,494Recreation Fund 2,175,801 2,359,652Water/Sewer Fund 5,198,364 5,134,733Debt Service Fund 6,723,403 8,222,025Insurance Fund 0 600,500Fund Balance Appropriation 0

TOTAL APPROPRIATIONS $37,841,087 $41,418,408

Net Assessed Value(1)$3,897,530,500 $4,400,941,422

Tax Rate Per $100 of Assessed ValueHomestead 0.36975 0.42812Non-Homestead 1.12565 1.16110

(1) The City recently completed reassessment of residential and commercial property within the City, in accordance with Section 1902 of the Real Property Tax Law of the State of New York.

Source: Adopted Budgets of the City.

CITY OF GLEN COVEStatement of Budgeted Revenues and Expenditures

Operating FundsFiscal Year Ended December 31:

B-1

2004 2005Assets:

Cash and Cash Equivalents $0 $83,413Receivables

City Taxes 11,875,786 14,035,271Tax Liens 2,322,974 2,325,035Accounts 1,844,986 1,333,342

Prepaid expenses 69,190 16,380Due from component units 2,111,439 2,978,815Due from other funds 5,639,230 1,788,191Inventory 4,584 4,584Other 3,426 3,427

Total Assets $23,871,615 $22,568,458

Liabilities:Accounts payable $3,018,896 $1,632,282Due to component unit 2,000 2,000Due to other funds 1,578,046 0Due to Other Governments 148,490 1,518,143Budget notes payable 150,000 0Deferred revenues 19,746,344 20,757,448

Total Liabilities $24,643,776 $23,909,873

Fund Balances:Reserve for prepaid expense $0 $0Reserve for school tax liens 0 0Reserve for encumbrancesUnreserved (Deficit) (772,161) (1,341,415)

Total fund equity ($772,161) ($1,341,415)

Total Liabilities and Fund Equity $23,871,615 $22,568,458

Source: Audited Financial Statements.

CITY OF GLEN COVEComparative Balance Sheet - General Fund

Fiscal Year Ended December 31:

B-2

2001 2002 2003 2004 2005Revenues:

Real Property Taxes $14,998,335 $15,518,106 $17,317,760 $17,930,879 $18,459,159Nonproperty Tax Items 1,354,745 2,818,215 3,553,946 1,709,489 1,888,165Departmental Income 1,108,046 859,437 673,178 1,306,374 440,739Intergovernmental Charges 0 0 0 0 337,839Licenses and Permits 0 0 0 0 258,822Fines and Forfeitures 225,039 292,627 256,016 236,622 292,483Use of Money and Property 31,372 18,557 7,926 1,715,381 819,230State Aid 4,514,089 4,606,611 5,057,466 4,307,676 4,881,595Federal Aid 100,667 312,882 288,514 30,000 15,000Miscellaneous Revenues 0 0 0 0 29,135

Total Revenues $22,332,293 $24,426,435 $27,154,806 $27,236,421 $27,422,167

Expenditures:General Government $4,937,044 $4,734,610 $4,954,694 $5,070,220 $2,733,363Public Safety 8,780,592 7,741,861 8,668,721 9,720,649 10,939,427Transportation 1,414,609 1,303,157 1,571,797 1,547,452 1,775,820Culture and Recreation 860,198 976,872 964,943 1,061,626 1,042,218Home and Community Service 0 0 0 0 2,639,008Employee Benefits 1,755,339 3,392,296 3,942,061 3,564,365 3,265,610Capital Outlay 4,348 104,061 0 46,738 60,912Debt Service 0 0 0 0 41,341Miscellaneous 0 31,321 0 108,895 0

Total Expenditures 17,752,130 18,284,178 20,102,216 21,119,945 22,497,699

Other Financing Uses:Transfer to Internal Service Fund (357,330) (280,000) (315,000) 0 (360,000)Transfers from Other Funds 0 150,000 0 0 0Transfers to Other Funds (4,259,819) (5,303,294) (5,952,204) (6,400,953) (5,133,723)Transfers from Component Unit 875,000 0 0 0 0Transfers to Component Unit (1,585,998) (1,664,004) (932,000) 0 0State Funding - Retirement System 0 0 0 850,283 0

Total Expendituresand Other Uses $23,080,277 $25,381,476 $27,301,420 $26,670,615 $27,991,422

Fund Balance, Beginning of the Year: $511,673 ($236,311) ($1,191,352) ($1,337,966) ($772,160)

Fund Balance - School Tax Liens $0 $0 $0 $0Results of Operations and net other Sources (Uses) (747,984) (955,041) (146,614) 565,806 (569,255)

Prior period adjustment 0 0 0 0 0Fund Balance, End of Year ($236,311) ($1,191,352) ($1,337,966) ($772,160) ($1,341,415)

Source: Audited Financial Statements of the City.

Fiscal Year Ended December 31:Statement of Revenues, Expenditures, and Changes in Fund Balances - General Fund

CITY OF GLEN COVE

B-3

JAN. FEB. MAR. APRIL MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. Total

Beginning Balance 1,618,423 6,225,478 2,857,996 1,588,732 2,221,354 592,274 161,497 446,948 6,724,414 4,418,588 2,831,791 131,971 1,618,423

Cash Receipts:

Property Taxes 5,304,507 218,436 130,000 320,000 460,000 2,420,000 5,550,000 240,000 235,000 190,000 175,000 8,000,000 23,242,943State Aid 0 0 0 0 0 0 0 0 271,908 0 0 2,633,058 2,904,966Note Proceeds 0 0 0 5,000,000 0 0 0 0 0 0 0 0 5,000,000Water/Sewer 527,350 338,604 525,000 315,000 255,000 335,000 255,000 485,000 355,000 605,000 475,000 385,000 4,855,954Mortgage Tax 0 0 0 0 350,000 0 0 290,000 0 0 0 810,000 1,450,000Recreation 18,894 22,143 95,000 185,000 195,000 190,000 185,000 185,000 110,000 70,000 40,000 45,000 1,341,037Departmental Income 464,673 325,000 860,000 320,000 150,000 510,000 190,000 390,000 270,000 700,000 300,000 910,000 5,389,673Other Receipts 2,528,166 300,000 570,000 0 0 280,000 0 282,500 525,000 0 0 520,000 5,005,666Projected Deficit Bond Proceeds(1) 0 0 0 0 0 0 0 7,500,000 0 0 0 0 7,500,000

Total Receipts: 8,843,590 1,204,183 2,180,000 6,140,000 1,410,000 3,735,000 6,180,000 9,372,500 1,766,908 1,565,000 990,000 13,303,058 56,690,239

Balance & Receipts 10,462,013 7,429,661 5,037,996 7,728,732 3,631,354 4,327,274 6,341,497 9,819,448 8,491,322 5,983,588 3,821,791 13,435,029 58,308,662

Disbursements

Salaries 1,381,041 1,182,328 1,590,000 1,475,000 1,520,000 1,600,000 1,650,000 1,510,000 1,210,000 1,150,000 1,340,000 1,140,000 16,748,369Debt Service 1,017,973 181,169 939,264 2,632,378 369,080 865,777 1,259,361 0 845,826 26,797 74,820 49,753 8,262,198Warrants/Claims 1,837,521 1,461,654 920,000 1,400,000 1,150,000 1,700,000 780,000 1,250,000 1,390,000 1,370,000 1,800,000 1,470,000Other 0 1,746,514 0 0 0 0 0 60,000 0 0 0 0 1,806,514Note Repayment Account 0 0 0 0 0 0 2,100,000 275,034 626,908 605,000 475,000 3,018,058 7,100,000Note Interest Account 0 0 0 0 0 0 105,188 0 0 0 0 133,333 238,521

Total Disbursements 4,236,535 4,571,665 3,449,264 5,507,378 3,039,080 4,165,777 5,894,549 3,095,034 4,072,734 3,151,797 3,689,820 5,811,144 34,155,602

Ending Balance 6,225,478 2,857,996 1,588,732 2,221,354 592,274 161,497 446,948 6,724,414 4,418,588 2,831,791 131,971 7,623,885 24,153,060

Note Repayment Account(2) Balance (Beginning) $1,200,000 $1,200,000 $1,200,000 $1,200,000 $1,200,000 $1,200,000 $1,200,000 $0 $275,034 $901,942 $1,506,942 $1,981,942 $1,200,000 State Aid Receipts 0 0 0 0 0 0 2,100,000 0 271,908 0 0 2,633,058 5,004,966 Water/Sewer Receipts 0 0 0 0 0 0 0 275,034 355,000 605,000 475,000 385,000 2,095,034 Principal Repayment 0 0 0 0 0 0 3,300,000 0 0 0 0 5,000,000 8,300,000

Balance (Ending) $1,200,000 $1,200,000 $1,200,000 $1,200,000 $1,200,000 $1,200,000 $0 $275,034 $901,942 $1,506,942 $1,981,942 $0 $0

(1) The City is presently seeking special legislation from the New York State Legislature which would authorize the issuance of serial bonds or bond anticipation notes in anticipation thereof to fund the City's accumulated deficits in its General Fund, Water and Sewer Fund, Debt Service Fund, Recreation Fund and Self Insurance Fund. If the City's efforts to secure the enactment of the special legislation to fund its deficits are not successful and there are sufficient uncollected real property taxes and other revenues of the City, the Local Finance Law permits the City to issue revenue and tax anticipation notes in anticipation of the receipt of such uncollected real property taxes or other revenues due and owing. The City can not predict the outcome of its efforts to secure such special legislation at this time.

(2) For repayment of the City's $3,300,000 Revenue Anticipation Notes - 2006 and the City's $5,000,000 Revenue Anticipation Notes - 2007

CITY OF GLEN COVECASH FLOW PROJECTIONJan 1, 2007 - Dec. 31, 2007

B-4

APPENDIX C

FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED DECEMBER 31, 2005* * Such Financial Statements and opinion are intended to be representative only as of the date thereof. Bloom & Co., LLP, has not been requested by the City to further review and/or update such Financial Statements or opinion in connection with the preparation and dissemination of this Official Statement.


CITY OF GLEN COVE NEW YORK

BASIC FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

Prepared by: Salvatore Lombardi

Department of Finance Controller

CITY OF GLEN COVE

BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005

TABLE OF CONTENTS

Page1. FINANCIAL SECTION Independent Auditors’ Report 1 Principal Officials 3 City Departments and Agencies 4 Management’s Discussion and Analysis (Unaudited) 5 2. BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Assets, December 31, 2005 16 Statement of Activities, For the Year Ended December 31, 2005 18 Fund Financial Statements Balance Sheet - Governmental Funds, December 31, 2005 19 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets, For the Year Ended December 31, 2005 21 Statement of Governmental Fund Revenues, Expenditures and Changes in Fund Balances (Deficit), For the Year Ended December 31, 2005 22 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities, For the Year Ended December 31, 2005 24 Statement of Net Assets Proprietary Fund - Internal Service Fund, December 31, 2005 26 Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Fund - Internal Service Fund, For the Year Ended December 31, 2005 27 Statement of Cash Flows Proprietary Fund - Internal Service Fund, For the Year Ended December 31, 2005 28 Statement of Fiduciary Assets and Liabilities, Agency Fund, December 31, 2005 29 Statement of Changes in Fiduciary Assets and Liabilities, Agency Fund, For the Year Ended December 31, 2005 30

CITY OF GLEN COVE

BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005

TABLE OF CONTENTS 2. BASIC FINANCIAL STATEMENTS (Continued)

Page Notes To Financial Statements Note 1. Summary of Significant Accounting Policies 31 Note 2. Cash and Cash Equivalents 49 Note 3. Receivables and Deferred Revenues 50 Note 4. Tax Sale Certificates 50 Note 5. Investments 50 Note 6. Fixed Assets 50 Note 7. Long-Term Debt 52 Note 8. Industrial Revenue Bond and Note Transactions 56 Note 9. Deferred Compensation Plan 56 Note 10. Pension Plans and Post Retirement Benefits 56 Note 11. Interfund Receivables and Payables 58 Note 12. Fund Equity 59 Note 13. Real Property Taxes 60 Note 14. Contingencies 61 Note 15. The Waterfront Project and Related Agreements 62 Combining Financial Information – Non-Major Governmental Funds Combining Balance Sheet - Non-Major Governmental Funds, December 31, 2005 65 Combining Statement of Revenues, Expenditures and Changes in Fund Balances (Deficit), Non-Major Funds, For the Year Ended December 31, 2005 66 Other Supplementary information Schedule of Revenues, Expenditures and Changes in Fund Balances (Deficit) - Budget and Budgetary Basis Actual - General Fund, For The Year Ended December 31, 2005 67 Schedule of Revenues, Expenditures and Changes in Fund Balances (Deficit) - Budget and Budgetary Basis Actual - Home and Community Service Fund (Water and Sewer Fund), For the Year Ended December 31, 2005 71 Schedule of Revenues, Expenditures and Changes in Fund Balances (Deficit) - Budget and Budgetary Basis Actual - Recreation Fund, For the Year Ended December 31, 2005 72 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Budgetary Basis Actual - Debt Service Fund, For the Year Ended December 31, 2005 73

INDEPENDENT AUDITORS’ REPORT

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BLOOM & CO. LLP. 50 CLINTON STREET, SUITE 502. HEMPSTEAD. NEW YORK 11550. TEL: 516 - 486-5900 CERTIFIED PUBLIC ACCOUNTANTS FAX: 516 - 486-5476 STEVEN BLOOM, CPA MEMBER OF FREDERICK PAUKER, CPA AMERICAN INSTITUTE OF SIROUSSE TABRIZTCHI, Ph.D. CPA CERTIFIED PUBLIC ACCOUNTANTS

INDEPENDENT AUDITORS' REPORT Honorable Mayor Ralph V. Suozzi and the City Council City of Glen Cove Glen Cove, New York We have audited the accompanying financial statements of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Glen Cove, New York, (“the City”) as of and for the year ended December 31, 2005, which collectively comprise the City’s basic financial statements as listed in the table of contents. We have also audited the financial statements of the City’s non-major governmental and fiduciary funds which are presented as supplementary information in the accompanying combining and individual fund financial statements as of December 31, 2005 and for the year then ended, as listed in the table of contents. These financial statements are the responsibility of the City’s management. Our responsibility is to express an opinion on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. The basic financial statements referred to above do not include financial data of the City of Glen Cove Housing Authority, which should be included in order to conform with accounting principles generally accepted in the United States of America. If the omitted component unit had been included, based on unaudited information, the assets and revenues of the discretely presented component unit column would have increased by $6,488,096 and $2,052,650, respectively, there would have been an excess of expenditures over revenues in that component unit of $143,269 for the year, and the discretely presented component unit column net assets would have been a $5,123,357.

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Honorable Mayor Ralph V. Suozzi and the City Council City of Glen Cove In our opinion, except for the effects on the basic financial statements of the omission described in the preceding paragraph, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Glen Cove, New York, as of December 31, 2005, and the respective changes in financial position, where applicable, cash flows, for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the non-major governmental and fiduciary funds of the City, as of December 31, 2005, and the respective changes in financial position, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Management’s Discussion and Analysis on pages 5-15 is not a required part of the basic financial statements, but is supplementary information required by the Government Accounting Standards Board (“GASB”). We have applied certain limited procedures that consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audits were conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying schedule of expenditures of federal financial assistance is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements of the City of Glen Cove. The combining and individual non-major fund financial statements and the schedule of expenditures of federal awards have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated July 30, 2006, on our consideration of the City of Glen Cove's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

July 30, 2006 BLOOM & CO., LLP BLOOM & CO., LLP Hempstead, New York

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CITY OF GLEN COVE BASIC FINANCIAL STATEMENTS

PRINCIPAL OFFICIALS Hon. Mayor Ralph Suozzi

COUNCIL MEMBERS

Nicholas DiLeo Joseph Gioino

Anthony Jimenez Joan Meehan

Michael Norman Timothy Tenke

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ANIMAL LEAGUE ASSESSMENT DEPT BEAUTIFICATION BUILDING COMMUNITY

DEVELOPMENT

CITY ATTORNEY CITY CLERK CITY COURT FINANCE FIRE

GCCCASA GOLF COURSE INDUSTRIAL DEVELOPMENT LIBRARY MAYOR’S OFFICE

MEDICAL TRANSPORTATION RECREATION PERSONNEL POLICE PUBLIC WORKS

SECTION 8 SENIOR CENTER WATER AND SEWER

VETERANS AFFAIRS YOUTH BOARD

City of Glen Cove City Departments and Agencies

CITY OF GLEN COVE MANAGEMENT’S DISCUSSION AND ANALYSIS

Year ended December 31, 2005

(Unaudited) INTRODUCTION As management of the City of Glen Cove (“the City”), we offer readers of the City’s basic financial statements this narrative analysis of the City’s financial performance and an overview of the City’s financial activities for the fiscal year ended December 31, 2005. This discussion and analysis includes comparative data for the fiscal years ended December 31, 2005 and 2004. Fiscal year 2005 is the third year of implementation of Governmental Accounting Standard Board (GASB) Statement No. 34. Basic Financial Statements – and Management’s Discussion and Analysis (GASB No.34). GASB No. 34 established new reporting requirements for state and local governments. The new reporting requirements include a more comprehensive disclosure of information and a restructured presentation of the financial statements of previous fiscal years. We encourage readers to consider the information presented here in conjunction with additional information obtainable from the City’s basic financial statements. OVERVIEW OF THE BASIC FINANCIAL STATEMENTS This discussion and analysis serves as an introduction to the City’s basic financial statements. The City’s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains supplementary information.

COMPONENTS OF THE ANNUAL FINANCIAL REPORT

The City’s financial activities and position are expressed in four parts: management’s discussion and analysis (this section), the basic financial statements, required supplementary information other than management’s discussion and analysis, and other

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supplementary information presenting combining statements for non-major governmental funds. The basic financial statements include government-wide financial statements, fund financial statements, and notes that provide more detailed information to supplement the basic financial statements. Government-wide Financial Statements The government-wide financial statements are designed to present a broad overview of the financial position of the City in a manner analogous to a private-sector business. These statements consist of the Statement of Net Assets and the Statement of Activities and are prepared using the economic resources measurement focus and the accrual basis of accounting, as opposed to the modified accrual basis used in prior reporting models. This means that all the current year’s revenues and expenses are included regardless of when cash is received or paid, producing a view of financial position similar to that presented by most private-sector companies. The Statement of Net Assets consolidates reporting of the City’s current financial resources with reporting of capital assets and long-term obligations, and thus summarizes all of the City’s assets and liabilities. Net assets are the difference between the City’s assets and liabilities; it is one measure of the City’s financial health. In evaluating the net assets of the City, other non-financial factors affecting the City’s overall health and financial condition should be considered, such as changes in demographics and the condition of the City’s infrastructure (i.e. roads, drainage improvements, storm and sewer lines, etc.) The Statement of Activities presents the change in net assets of the City during the most recent fiscal year. All of the current year’s revenues and expenses are recognized regardless of when cash is received or paid. Some of the reported revenues and expenses will have corresponding cash flows in future fiscal periods (e.g. uncollected taxes and earned but not used vacation leave). The Statement of Activities focuses on both the gross and net cost of various activities; the City’s general tax and other revenues pay these costs. This statement summarizes the cost of providing (or the subsidy provided by) specific government services and includes all current year revenues and expenses. In the statement of Net Assets and the Statement of Activities, the City is divided into three kinds of activities for reporting purposes:

Governmental Activities - the City’s basic services are reported, including general government, public safety, transportation, culture and recreation, home and community services and interest on long-term debt. Taxes, fees and federal and state aid finance most of these activities.

Business type activities – these are activities conducted by municipal enterprises

that are organized to engage business like a private-sector company. The City does not have any business type activities.

Component Units - the City has three component units, the Glen Cove

Community Development Agency, the Glen Cove Industrial Development Agency, and the Glen Cove Housing Authority. Although legally separate entities, the City is financially accountable for them. The statements of the Housing Authority have not been included with that of the primary government for 2005 because of the differences in the fiscal periods.

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Fund Financial Statements A ‘fund’ is a self-balancing accounting entity. The City uses separate funds to keep track of sources of financing and spending related to specific activities. Fund financial statements present financial information in a form familiar to experienced users of governmental financial statements. These statements present significant funds separately; each statement does not reflect the City as a whole. Some funds are required by state law to be established by the City, while other funds are established to help the City control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants and other money. Readers are encouraged to read these statements for detailed information about the City’s most significant activities. Notes to the Financial Statements The notes supply information that is essential to a full understanding of the data in the government-wide and fund financial statements. The notes to the financial statements can be found immediately following the basic financial statements. BEYOND THE BASIC FINANCIAL STATEMENTS In addition to the basic financial statements and accompanying notes, this report presents individual fund statements combined with non-major governmental funds. The budgetary comparative information for the revenues and expenditures of the General Fund, Debt Service Fund, and Special Revenue Funds (Water/Sewer and Recreation) has been included as well. Governmental Funds Financial Statements

Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, the governmental funds financial statements utilize the modified accrual basis of accounting, which measures cash and other assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the City’s general governmental operations and the basic services it provides. This information will reflect the resources that are available for the City’s programs. The reconciliation following the fund financial statements explains the differences between the government’s activities, reported in the government-wide Statement of Net Assets and government-wide Statement of Activities, and the governmental funds. The General Fund, Capital Projects Fund and Debt Service Fund are reported as major funds. The City maintains six individual governmental funds. Information for each fund is presented separately in the governmental funds balance sheet and statement of revenues, expenditures and changes in fund balances for the General Fund, Home and Community Service Fund (Water and Sewer Fund), Debt Service and Capital Projects Fund which are considered to be major funds. Data for the Recreation Fund and Expendable Trust Fund have been combined into a single, aggregate presentation. Data for each of these non-major governmental funds is provided in the form of supplementary combining statements.

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The City as Trustee Reporting the City’s Fiduciary Responsibilities The City is the trustee for certain amounts held on behalf of others. All of the City’s fiduciary accounts are included in the Agency Fund and are reported in a separate Statement of Fiduciary Assets and Changes in Liabilities. The activities of the Agency Fund are excluded from the City’s government-wide financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purpose. GOVERNMENT-WIDE FINANCIAL ANALYSIS Financial Highlights (amounts in millions) The following list encapsulates significant elements of the City’s financial performance for fiscal year 2005.

The City’s financial condition weakened as a result of operations in the fiscal year ended December 31, 2005. The City had net assets of $1.2 in 2004 and a deficit in net assets of $0.4 in 2005.

The City’s net assets from governmental activities decreased by $1.6 during 2005. This decrease in assets was the result of expenses less charges for services, operating and capital grants exceeding general revenues.

During the fiscal year ended December 31, 2005, investment in capital assets and infrastructure exceeded the related debt by $22.8. The net assets invested in capital assets decreased by $2.3 from 2004.

The City’s unrestricted net assets decreased by $3.5, from a deficit of $24 in 2004 to a deficit $27.5 in 2005.

As of December 31, 2005 the City’s governmental funds reported a combined ending deficit fund balance of $0.7, a reduction of $5 from the prior fiscal year. The decrease in fund balance from the prior year was due to obtaining funds through issuance of bonds and renewal of bond anticipation notes.

The City’s total debt was $90.8. Long-term debt was $44.4 on December 31, 2005. Long-term bonds payable, including the Environmental Facilities Corporation (EFC) loan were $37.6. The amount of bonds payable increased by $0.7 during 2005 from $36.9 on December 31, 2004.

Net Assets On December 31, 2005, total assets of the City were $90.4, while total liabilities were $90.8; the resulting deficit was $0.4. Capital assets less debt was $22.9. Measurement of capital assets less debt reflects investment in capital assets (e.g., land, buildings, machinery, infrastructure and equipment) less any outstanding debt incurred by asset acquisition. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since capital assets cannot be used to liquidate these liabilities. The City had $4.2 in net assets restricted for capital projects. On December 31, 2005, the City showed a deficit of $27.5 in unrestricted net assets.

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Table 1 Summary of Net Assets

As of December 31, 2005 and 2004 (amounts expressed in millions)

Governmental Activities Assets 2005 2004 Current and other assets $ 24.4 $ 23.2 Capital assets 66.0 61.8

Total assets 90.4 85.0

Liabilities Current liabilities 46.4 33.4 Long-term liabilities 44.4 50.4 Total liabilities 90.8 83.8 Net assets Invested in capital assets, net of related debt 22.9 25.2 Restricted for capital projects 4.2 -- Unrestricted assets (27.5) (24.0) Total net assets (deficit) $(0.4) $ 1.2

Figure 1.

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Changes in Net Assets - Governmental Activities The City’s program revenues were $9.4 and general revenues were $26; total revenues were $35.4. The City’s program revenues decreased by $2.4 (20%) from $11.8 reported at the end of 2004. The decrease was primarily due to the reduction of operating grants. The program revenues accounted for 27% of the total revenues of the City. Charges for services were 93% of program revenues and 25% of the total revenues. The general revenues constituted 73% of the total revenues of the City. Property taxes of $18.4 were the largest source of general revenue and accounted for 52% of the total revenues of the City. The property tax revenues remained almost unchanged from 2004. Unrestricted grants increased $0.5 (12%) from $4.1 in 2004 to $4.6 in 2005. The expenses of the City were $37 in 2005 as compared to $34.7 in 2004. The $2.3 increase of was primarily due to additional expenditures for public safety. Public safety constituted the largest portion of expenses of the City in 2005, representing 41% of the total expense. The expenditures for public works and home and community decreased from $2.9 and $8.4 in 2004 to $2.4 and $8, in 2005, respectively.

Figure 2. As a result of expenditures exceeding revenues, the decrease in net assets for the year was $1.6. The City’s total net assets changed from $1.2 for the year ended 2004 to a deficit of $0.4 for the year ended 2005. Revenues and expenses of the City’s governmental activities are detailed as follows.

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Table 2 Changes in Net Assets

For the Years Ended December 31, 2005, 2004 (amounts expressed in millions)

Governmental Activities Revenues 2005 2004Program revenues: Charges for services $ 8.7 $ 7.5 Operating grants & contributions 0.2 2.2 Capital grants & contributions 0.5 2.1 General revenues: Property taxes 18.4 18.4 Non-property taxes 1.9 1.7 Investment earnings 0.2 0.0 Sale and rental of property 0.8 1.7 Grants not restricted 4.6 4.1 Miscellaneous 0.1 0.1 Total revenues 35.4 37.8 Expenses General government $ 4.7 3.6 Culture and recreation 4.5 4.5 Public safety 15.2 13.3 Public works 2.4 2.9 Home & community services 8.0 8.4 Interest on debt 2.2 2.0 Total expenses 37.0 34.7 Increase in net assets (1.6) 3.1 Net assets (deficit), January 1 1.2 (1.9) Net asset, December 31, $ (0.4) $1.2 Governmental Funds Total assets in the City’s general fund were $22.6 in 2005 as compared to $23.9 in 2004. The decrease of $1.3 (5%) was the net effect of primarily three elements: an increase city taxes receivable of $2, an additional amount of $0.8 due from component units, and a decrease of $3.9 due from other funds. Taxes and accounts receivable, net of allowances, were $17.7 in 2005 as compared to $15.9 in 2004. The largest part of the taxes and accounts receivable, $13.9, was related to 2006 real estate taxes receivables, which were recorded as deferred revenues. The amount of $1.1 due from other funds consisted of $1 due from Debt Service, $0.1 million due from Capital Project Funds. Total liabilities in the City’s General fund were $23.9 in 2005 as compared to $24.6 in 2004. The principal reasons for the reduction of $0.7 (3%) in liabilities in 2005 were the decrease in accounts payable and accrued expenses and the absence of interfund liabilities. In 2005, the accounts payable and accrued expenses totaled $1.6 as compared

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to $3.2 in 2004, a decrease of $1.6 (50%). The interfund liability was $1.6 in 2004. The deferred revenues of $20.8 million were mostly 2006 real estate taxes billed in December 2005. The deferred revenues also include $1.8 from the Industrial Development Agency and $67,200 from the Community Development Agency for reimbursable expenditures. The deferred revenues increased by $1 (5%), from $19.7 in 2004. Capital Assets As of December 31, 2005 the City had recorded $66.1 million in net capital assets as compared to $61.8 on December 31, 2004. Infrastructure and construction in progress had the largest increases by $3.1 and $2.08, respectively. The Capital Budget Program of the City is a long range financing guide and not a definitive plan. City Council Resolution must authorize each appropriation before a capital project is undertaken. Each capital project may be financed by issuance of general obligation bonds, which have been preceded in the past by the issuance of bond anticipation notes for various periods of time depending on the project’s period of probable usefulness.

Table 3 Capital Assets

As of December 31, 2005 and 2004 (amounts expressed in millions)

2005 2004 Land $ 3.2 $ 3.2 Buildings 78.1 77.9 Infrastructure 51.1 47.7 Construction in progress 7.6 4.8 Machinery & equipment 6.6 5.7 146.6 139.3 Less: Accumulated depreciation ( 80.5) (77.5) Total capital assets, net $ 66.1 $ 61.8 Debt Administration The City of Glen Cove issues both General Obligation Bonds and Bond Anticipation Notes. The City may contract indebtedness only for City purposes and pledges its full faith and credit for the payment of principal and interest. Moody’s Investors Service rates the City’s general obligation bond issues Baa2. The New York State Constitution limits the power of the City to issue obligations and to otherwise contract indebtedness. Such constitutional limitation, in summary form, as generally applicable to the City, includes the following: Purpose and Pledge – Subject to certain enumerated exceptions, the City shall not give or loan any money or property to, or in aid of, any individual or private corporation or private undertaking or give or loan its credit to, or in aid of, any of the foregoing or any public corporation. The City may contract indebtedness only for City purposes and shall pledge its full faith and credit for the payment of principal and interest thereon. Payment and Maturity – Except for certain short-term indebtedness contracted in anticipation of taxes or to be paid within three fiscal year periods, indebtedness will be

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paid in annual installments commencing no later than two years after the date of such indebtedness has been contracted and ending no later than the expiration of the period of probable usefulness of the object of purpose as determined by statute; no installment may be more than fifty percent (50%) in excess of the smallest prior installment unless the City authorized the issuance of bonds with substantial level or declining debt service. The City is required to provide an annual appropriation for the payment of interest due during the year on its indebtedness, for the amounts required in such year for amortization and redemption of its general obligation bonds, and for such required annual installments on its notes. The long-term liabilities of the City increased from $62.7 in 2004 to $65.7 in 2005. The City issued $4.9 in long term bonds to pay off the bond anticipation notes and finance capital projects. Long-term BANs in the amount of $7.1 and Capital Projects BANs of $10 were renewed during the year 2005 or shortly thereafter. The amount of serial bonds outstanding increased by $1. The long-term liabilities of the City were as follows: 2005 2004 Serial bonds $ 35.6 $34.6 Liability for compensated absences 9.3 8.4 Remediation liability 2.1 2.4 Liability for retirement system debt 1.4 1.0 Security deposit 0.2 0.2 Total 48.6 46.6 Bond anticipation notes 17.1 7.3 Total Long Term Debt $ 65.7 $53.9 Debt Limit – The City has the power to contract indebtedness for any City purpose so long as the principal amount thereof, subject to certain limited exceptions, does not exceed seven percent (7%) of the average full valuation of taxable real estate of the City. As a matter of State law, debt obligations relating to water and certain sewer facilities and cash or appropriations for current debt service are excluded from the debt limit calculation. The constitutional method of determining full valuation is calculated by taking the assessed valuation of taxable real estate as shown upon the latest completed assessment roll and dividing the same by the equalization rate as determined by the State Board of Equalization and Assessment. The State Legislature is required to prescribe the manner by which such ratio shall be determined. Average full valuation is determined by taking a sum of the full valuation of the last completed assessment roll and the four preceding assessment rolls and dividing such sum by five. Pursuant to Article VIII of the Constitution and Title 8 of Article 2 of Local Finance Law, the debt limit of the City is calculated by taking 7% of the latest five year average of the full valuation of taxable real property. At December 31, 2005, the total outstanding indebtedness for the City of Glen Cove was approximately $52.7. Of this amount, approximately $44.9 was subject to the constitutional debt limit and represented approximately 21% of the statutory debt limit.

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Union Contracts The City employs approximately 200 full-time employees. The Civil Service Employees Association Local 882 Unit 7560 AFSCME, AFL-CIO contract covers approximately 126 employees and expires on December 31, 2009. The Patrolmen’s Benevolent Association (P.B.A.) contract covers 52 employees and expires on December 31, 2007. Retirement The New York State Employees’ Retirement System has recently suffered some adverse effects of the weak stock market conditions. As a result, the system was expected to require contributions from the City in excess of amounts budgeted for the prior fiscal year ended December 31, 2004. However, due to a change in the billing cycle, the City was able to hold its contribution rates to those set at the time the 2005 budget was adopted. The new billing cycle will require a minimum contribution rate of 7%. Employer contributions for subsequent years will be based on the Russell 3000 performance as of April 1 of the preceding two years. In 2002, the City of Glen Cove adopted the New York State Early Retirement Incentive Program as authorized by Chapter 69 of the Laws for 2002. The option to retire early ran through December 31, 2002. The eligibility varied based on tier, age and years of service, but all options required that the employees be at least fifty (50) years of age and be vested in the New York State Retirement System. As part of its contractual agreements with the unions, the City of Glen Cove also offered fully paid health insurance benefits to current and future spouses and dependents. State Aid The City receives financial assistance from the State of New York. In its General Fund budget for the 2005 fiscal year, approximately 14% of the operating revenues of the City were estimated to be received in the form of State aid. Should the State not adopt its budget in a timely manner, the municipalities and school districts in the State, including the City, may be affected by a delay in the payment of State aid. The State is not constitutionally obligated to maintain or continue State aid to the City. Tax Collection City taxes are levied annually and due in two equal installments. The first half is due on December 1st of the prior year and the second half is due June 1st of the current year. If not paid by the above dates, a 1.5% per month penalty is added. The City collects its own taxes and is responsible for the collection of delinquent taxes. Tax sales are held annually. As of December 31, 2005, the following tax levy was outstanding.

Table 3

City of Glen Cove Property Tax Levy for 2005 and Uncollected Amounts As of December 31, 2005

Total Tax % of December 1 Levy Uncollected Uncollected

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2004 $18.5 $ 0.5 2.7% BUDGETARY AND ECONOMIC CONSIDERATIONS Budgetary Highlights Budget Variances – General Fund. Budgeted property taxes were $18.5 of which $18.0 was collected; the balance of $0.5 will be collected in future years. The income from license and permits was $0.3 which was $0.4 below the budgeted income of $0.7. State and local aid of $4.5 exceeded the budgeted figure of $4.0 by $0.5 (12.9%). This was mostly attributable to $0.3 (12%) of additional revenue sharing and a $0.3 (16%) increase mortgage tax fees collected. Total revenues exceeded budgeted revenues by $0.6 (2.2%). Public safety expenditures of $10.8 exceeded budgeted expenses by $0.8 (7.9%); this was mostly attributable to police officers’ salaries. Budget Variance – Special Revenue Fund. Budgeted revenues for the Water/Sewer fund were $6.2 million of which only $5.5 million was realized, a shortfall of 12.3%. Water and Sewer Fund expenditures were $4.7 as compared to the budgeted amount of $4.4, or $0.3 (6.0%) above budgeted amounts, which was caused by an increase in contractual services of $0.2. Recreation revenues of $1.2 were $0.3 (17.5%) below budgeted amount of $1.5. This was attributable to inclement weather conditions during the summer of 2005 affecting the amount of golf course fees collected. Economic Conditions The unemployment rate in Nassau County has continued to be somewhat lower than national and State of New York averages. The average unemployment rates for the City of Glen Cove were 4.7% and 4.4% for 2004 and 2005, respectively. The average unemployment rates for the County of Nassau were 4.5% and 4.1% in 2004 and 2005, respectively. The unemployment rates in the City and the County of Nassau remained below the average rate for the State of New York which were 5.8% and 5% for 2004 and 2005, respectively. The inflation rate in Long Island, as measured by the percentage change in Consumer Price Index was above the national average in 2004 and 2005. The annualized rates of increase in the Consumer Price Index for all items in New York – Northern New Jersey – Long Island were 3.8% and 3.6% for 2004 and 2005, respectively, contrasted to 2.7% and 3.4% for the U.S. in 2004 and 2005, respectively. The greater than expected rise in consumer prices in Long Island seems to be constraining current and prospective consumer purchases and may trigger an increase in interest rates. Overall, the economy appears to be expanding and continued growth is probable. These indicators were taken into account when adopting the operating and capital plans for the fiscal year ending December 31, 2006. CONTACTING THE CITY’S FINANCIAL MANAGEMENT This financial report is designed to provide the City’s citizens, taxpayers, customers’ investors and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City of Glen Cove City Comptroller’s Department at 516-676-2000.

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GOVERNMENT-WIDE FINANCIAL STATEMENTS

CITY OF GLEN COVE STATEMENT OF NET ASSETS

DECEMBER 31, 2005 Primary Government Governmental Components Activities Units ASSETS Current assets: Cash and cash equivalents $ 567,216 $ 859,666 Restricted cash -- 65,926 City taxes 13,885,271 -- Tax liens 2,475,035 -- Accounts receivable 4,372,443 48,951 Receivable from other governments -- 201,128 Due from agency fund 26,658 -- Due from component units 2,978,815 9,056,922 Prepaid expenses 16,380 15,907 Inventory 4,584 -- Other assets 77,787 -- Total current assets 24,404,189 10,248,500 Non-current assets: Capital assets: Non-depreciable 10,834,342 15,660,999 Depreciable, net 55,202,250 17,539 Total non-current assets 66,036,592 15,678,538 Total Assets $ 90,440,781 $ 25,927,038 The notes to the financial statement are an integral part of this financial statement.

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CITY OF GLEN COVE STATEMENT OF NET ASSETS

DECEMBER 31, 2005 (CONTINUED)

Primary Government Governmental Components Activities Units LIABILITIES Current liabilities: Accounts payable accrued expenses $ 3,245,819 $ 91,186 Accrued interest payable 783,327 -- Customer deposits 23,737 -- Loans payable -- 33,765 Due to primary government -- 2,978,816 Due to component unit 2,000 9,056,922 Due to other governments 1,678,877 -- Escrow funds -- 65,926 Deferred revenues 18,248,852 344,060 Security deposits 200,000 -- Long-term liabilities – due in one year 22,272,178 5,000 Total current liabilities 46,454,790 12,575,675 Non-current liabilities: Estimated liability for claims 1,210,525 -- Section 108 loan -- 6,000,000 Long-term liabilities- due in more than one year 43,193,911 144,432 Total non-current liabilities 44,404,439 6,144,432 Total liabilities 90,859,226 18,720,107 NET ASSETS Invested in capital assets, net of related debt 22,883,832 5,341,918 Restricted for capital projects 4,181,273 -- Unrestricted (27,483,550) 1,865,013 Total net assets $( 418,445) $ 7,206,931 The notes to the financial statement are an integral part of this financial statement.

Charge for Operating Capital Governmental Component

Component Units $( 6,178,401) $ 382,611 $4,801,734 $ -- $ (994,056)

Change in net assets (1,636,900) (994,046) Net assets (deficit) – beginning of year 1,218,455 8,200,977

Non-property taxes 1,886,511

Expenses Services Grants Grants Activities Units

Interest ( 2,246,721) -- -- -- ( 2,246,721)

General government $( 4,653,360) $ 683,248 $ -- $ -- $( 3,970,112)

Home and community ( 7,950,039) 5,559,796 -- -- ( 2,390,243)

Miscellaneous 59,963 ________

Culture and recreation ( 4,467,025) 1,672,467 73,967 -- ( 2,720,591)

Investment earnings 186,319 10

Grants not restricted 4,640,994

Property taxes $ 18,444,146

Transportation and public works ( 2,430,757) 167,042 16,159 457,105 (1,790,451) Public Safety (15,253,375) 619,123 91,166 -- (14,543,086)

Total $(37,001,277) $8,701,676 $ 181,292 $ 457,105 $(27,661,204)

Total general revenues 26,024,304 10

Net assets (deficit) – end of year $(418,445) $7,026,931

Rental of property 806,371

CITY OF GLEN COVE STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED DECEMBER 31, 2005 Net (Expense) Revenue and Changes in Net Assets Primary Program Revenues Government

The notes to the financial statement are an integral part of this financial statement.

Primary Government

General Revenues:

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FUND FINANCIAL STATEMENT

CITY OF GLEN COVE BALANCE SHEET-GOVERNMENTAL FUNDS

DECEMBER 31, 2005 Home and Community Non-major Total Service Fund Debt Capital Governmental Governmental General (Water and Sewer) Service Projects Funds Funds ASSETS Cash $ 83,413 $ -- $ -- $ 275,037 $ 183,843 $ 542,293 Receivables, net of allowances for Uncollectible accounts: City taxes 14,035,271 -- -- -- -- 14,035,271 Tax liens 2,325,035 -- -- -- -- 2,325,035 Receivable 1,333,342 2,999,597 -- -- 39,504 4,372,443 Due from other funds 1,089,083 9,541,661 740,632 4,763,328 74,000 16,208,704 19 Due from internal service fund 672,450 -- -- -- -- 672,450 Due from agency fund 26,658 -- -- -- -- 26,658 Due from component units 2,978,815 -- -- -- -- 2,978,815 Inventory 4,584 -- -- -- -- 4,584 Prepayments 16,380 -- -- -- -- 16,380 Other 3,427 -- -- -- 74,361 77,788 Total assets $22,568,458 $12,541,258 $ 740,632 $ 5,038,365 $371,708 $41,260,421 The notes to the financial statement are an integral part of this financial statement.

CITY OF GLEN COVE BALANCE SHEET- GOVERNMENTAL FUNDS

DECEMBER 31, 2005 (CONTINUED)

Home and Community Non-major Total Service Fund Debt Capital Governmental Governmental General (Water and Sewer) Service Projects Funds Funds LIABILITIES AND FUND EQUITY LIABILITIES: Accounts payable & accrued expenses $ 1,632,282 $1,036,309 $ -- $ 499,460 $ 77,768 $ 3,245,819 Customer deposits -- 23,737 -- -- -- 23,737 Due to other funds -- 13,112,262 957,690 357,025 1,781,727 16,208,704 Due to internal service fund -- -- -- 607 -- 607 Due to component unit 2,000 -- -- -- -- 2,000 Due to other governments 1,518,143 70,424 -- -- 90,310 1,678,877 20 Deferred revenues 20,757,448 -- -- -- -- 20,757,448 Total liabilities 23,909,873 14,242,732 957,690 857,092 1,949,805 41,917,192 FUND EQUITY: Fund balances: Reserved for capital projects -- -- -- 4,181,273 -- 4,181,273 Unreserved: (1,341,415) (1,701,474) (217,058) -- (1,578,097) (4,838,044) Total fund equity (1,341,415) (1,701,474) (217,058) 4,181,273 (1,578,097) (656,771) Total liabilities and fund equity $22,568,458 $12,541,258 $ 740,632 $5,038,365 $371,708 $ 41,260,421 The notes to the financial statements are an integral part of this statement.

CITY OF GLEN COVE RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS

TO THE STATEMENTS OF NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2005

Fund balances - total governmental funds $ ( 656,771) Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds: Governmental capital assets 146,665,450

Less accumulated depreciation (80,628,858) Long-term liabilities, including bonds payable are not due and payable in the current period and therefore are not reported in the governmental funds Governmental long-term debt Bonds payable 35,535,199 Remediation liability -EFC Loan 2,115,689 Liability for retirement system debt 1,441,052 21 Liability for compensated absences 9,250,921 Security deposits 200,000 BANS rolled over 17,123,228 Total (65,666,089) Revenues recorded in the statement of net assets are recorded as deferred revenues in the governmental funds 2,508,596 Additional interest accrued (783,327) Internal service funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of the internal service funds that are reported with governmental activities. ( 1,857,446) Net assets of governmental activities. $ (418,445)


CITY OF GLEN COVE STATEMENT OF GOVERNMENTAL FUND REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES (DEFICIT) FOR THE YEAR ENDED DECEMBER 31, 2005

Home and Community Non-major Total Service Fund Debt Capital Governmental Governmental General (Water and Sewer) Service Projects Funds Funds Revenues: Taxes $18,459,159 $ -- $ -- $ -- $ -- $18,459,159 Non-property tax items 1,888,165 -- -- -- -- 1,888,165 Departmental income 440,739 5,459,312 -- -- 1,334,628 7,234,679 Intergovernmental charges 337,839 -- -- 39,525 -- 377,364 Licenses and permits 258,822 -- -- -- -- 258,822 Fines and forfeitures 292,483 -- -- -- -- 292,483 Use of money and property 819,230 -- 173,460 -- -- 992,690 State and local aid 4,881,595 -- 341,481 334,566 -- 5,557,642 Federal aid 15,000 -- -- 119,809 -- 134,809 Miscellaneous revenues 29,135 -- -- 2,730 -- 31,865 Total revenues 27,422,167 5,459,312 514,941 496,630 1,334,628 35,227,678 22 Expenditures: Current: General government 2,733,363 -- -- 868,528 -- 3,601,891 Public safety 10,939,427 -- -- -- -- 10,939,427 Transportation 1,775,820 -- -- -- -- 1,775,820 Culture and recreation 1,042,218 -- -- -- 2,555,746 3,597,964 Home and community service 2,639,008 4,368,076 -- -- -- 7,007,084 Employee benefits 3,265,610 231,279 -- -- 345,605 3,842,494 Other -- -- -- -- -- Capital outlay 60,912 47,390 -- 7,248,256 53,076 7,409,634 Debt Service: Interest 41,341 31,187 1,866,323 -- -- 1,938,851 Principal retirement -- -- 11,861,877 -- -- 11,861,877 Total expenditures 22,497,699 4,677,932 13,728,200 8,116,784 2,954,427 51,975,042


CITY OF GLEN COVE

STATEMENT OF GOVERNMENTAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICIT)

FOR THE YEAR ENDED DECEMBER 31, 2005 (CONTINUED)

Home and Community Non-major Total Service Fund Debt Capital Governmental Governmental General Water and Sewer Service Projects Funds Funds Excess (deficiency) of revenues over (under) expenditures 4,924,468 781,380 (13,213,259) (7,620,154) (1,619,799) (16,747,364) Other Financing Sources (Uses): Proceeds of general obligation bonds -- -- -- 5,249,200 -- 5,249,200 Proceeds from renewed BANs -- -- 7,160,000 9,963,228 -- 17,123,228 Transfers to Internal Service Fund ( 360,000) ( 20,000) -- -- ( 20,000) ( 400,000) Transfers in -- -- 5,834,157 -- 576,428 6,410,585 Transfers out (5,133,723) (1,276,862) -- -- -- (6,410,585)

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Total other financing sources (uses) (5,493,723) (1,296,862) 12,994,157 15,212,428 556,428 21,972,428 Net change in fund balances (569,255) ( 515,482) ( 219,102) 7,592,274 (1,063,370) 5,225,065 Fund equity, January 1, 2005 (772,160) (1,185,992) 2,044 (3,411,001) (514,727) (5,881,836) Fund equity, December 31, 2005 $ (1,341,415) $(1,701,474) $(217,058) $4,181,273 $ (1,578,097) $(656,771) The notes to the financial statement are an integral part of this financial statement. .

CITY OF GLEN COVE RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED DECEMBER 31, 2005 Net change in fund balances - total governmental funds $ 5,225,065 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is depreciated over their estimated useful lives. 24 Expenditures for capital assets 7,409,634 Less current year depreciation (3,179,870) Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. This is the amount by which proceeds exceeded repayments. Bond and loan proceeds (22,372,428) Accrued interest (307,870) Principal payments 11,861,877 The notes to the financial statement are an integral part of this financial statement.

CITY OF GLEN COVE RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED DECEMBER 31, 2005 (CONTINUED)

Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Change in long-term compensated absences (817,719) Deferred revenues 944,112 Changes in retirement liability (415,790) Internal service funds are used by management to charge the costs of certain activities to individual funds. The net (expense) of the internal service funds is reported with governmental activities. 16,089

Change in net assets of governmental activities. $ (1,636,900) The notes to the financial statement are an integral part of this financial statement.

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CITY OF GLEN COVE

STATEMENT OF NET ASSETS PROPRIETARY FUND

INTERNAL SERVICE FUND DECEMBER 31, 2005

ASSETS Cash and cash equivalents $ 24,923 Due from other funds 607 Total assets $ 25,530 LIABILITIES Estimated liability for claims $ 1,210,524 Due to other funds 672,450 Total liabilities 1,882,974 Fund net assets Deficit (1,857,444) Total fund net assets $ (1,857,444) The notes to the financial statement are an integral part of this financial statement.

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CITY OF GLEN COVE

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUND

INTERNAL SERVICE FUND FOR THE YEAR ENDED DECEMBER 31, 2005

Operating revenues: Miscellaneous revenues $ 59,963 Interfund premium 400,000 Total operating revenues 459,963 Operating expenses: Contractual expenses 184,389 Claims and judgments 259,485 Total operating expenses 443,874 Operating loss 16,089 Fund net assets (deficit), January 1, 2005 (1,873,533) Fund net assets (deficit), December 31, 2005 $(1,857,444) The notes to the financial statement are an integral part of this financial statement. .

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CITY OF GLEN COVE

STATEMENT OF CASH FLOWS PROPRIETARY FUND

INTERNAL SERVICE FUND FOR THE YEAR ENDED DECEMBER 31, 2005

Cash flows from operating activities: Fees received for services and other income $ 459,963 Cash payment for claims (462,685) Net cash used in operating activities 2,722 Cash flows from non-capital financing activities Repayment of borrowing from other funds ( 131) Net cash provided by non-capital financing activities ( 131) Net change in cash (2,853) Cash and cash equivalent, January 1, 2005 27,776 Cash and cash equivalent, December 31, 2005 $ 24,923 Adjustments to reconcile operating loss to net cash provided by operating activities: Operating gain (loss) $ 16,089 Decrease in accounts payable (18,811) Net cash used in operating activities $ ( 2,722) The notes to the financial statement are an integral part of this financial statement.

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CITY OF GLEN COVE STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES

AGENCY FUND DECEMBER 31, 2005

ASSETS Cash $ 335,149 Total assets 335,149

LIABILITIES Due to other funds 26,658 Deposits and escrow 308,491 Total liabilities $ 335,149 The notes to the financial statement are an integral part of this financial statement.

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CITY OF GLEN COVE STATEMENT OF CHANGES IN FIDUCIARY ASSETS AND LIABILITIES

AGENCY FUND FOR THE YEAR ENDED DECEMBER 31, 2005

Balance Balance 1/1/2005 Increase Decrease 12/31/2005 ASSETS Cash $ 96,935 $ 457,094 $ 218,880 $ 335,149 Total $ 96,935 $ 457,094 $ 218,880 $ 335,149 LIABILITIES Due to other funds $ 16,424 $ 16,424 $ 26,658 $ 26,658 Deposits and escrows 80,511 430,436 202,456 308,491 Total $ 96,935 $ 457,094 $ 218,880 $ 335,149 The notes to the financial statement are an integral part of this financial statement.

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Notes to Financial Statements

The notes provide a summary of significant accounting policies and other disclosures required for a fair presentation of the basic financial statements.

CITY OF GLEN COVE NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the City of Glen Cove (“the City”) have been prepared in conformity with the generally accepted accounting principles applicable to state and local governmental units as promulgated by the Government Accounting Standards Board (GASB). The basic financial statements of the City include all funds and component units (except the Glen Cove Housing Authority). The financial statements of the City have been prepared to conform to the generally accepted accounting standards (GAAP) as applicable to state and local governments. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and reporting principles. The more significant accounting principles and reporting practices used by the City are described below. A. NEW ACCOUNTING STANDARDS ADOPTED In 2003, the City adopted three new statements of financial accounting standards and one new interpretation issued by the Government Accounting Standards Board (GASB): Statement No.34 - Basic Financial Statements-and Management’s Discussion and Analysis- for State and Local Governments. Statement No.37 - Basic Financial Statements-and Management’s Discussion and Analysis- for State and Local Governments: Omnibus. Statement No.38 - Certain Financial Statement Disclosures. Interpretation No.6-Recognition and Measurement of Certain liabilities and Expenditures in Governmental Fund Financial Statements. Statement No. 34 (as amended by Statement No. 37) represents a very significant change in the financial reporting model used by the state and local governments. Statement No. 34 requires government-wide financial statements to be prepared using the accrual basis of accounting and the economic resources measurement focus. Government-wide financial statements do not provide information by fund or account group, but distinguish between the City’s governmental activities, business type activities, and activities of its discretely presented component units on the statement of net assets and statement of activities. Significantly, the City’s statement of net assets includes both non-current assets and non-current liabilities of the City, which were previously recorded in the General Fixed Assets Account Group and the General Long-term Debt Account Group. The City also capitalized all capital assets including infrastructure at historical cost and recorded annual depreciation expense and the related accumulated depreciation. In addition to the government-wide financial statements, the City prepared fund financial statements which continue to use the modified accrual basis of accounting and the current financial resources measurement focus. The accrual basis of accounting is used for the Internal Service Fund. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Accordingly, the accounting and financial reporting of the City’s General Fund, Special Revenue Funds, Capital Projects Fund, and Debt Service Fund is similar to those previously presented in the City’s financial statements, although the format of the financial statements has been modified by Statement No. 34 to focus on major funds as opposed to fund types.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. NEW ACCOUNTING STANDARDS ADOPTED (Continued) Statement No. 34 also requires certain supplementary information in the form of Management’s Discussion and Analysis that includes an analytical overview of the City’s financial activities. In addition, a budgetary comparison statement is presented that compares the adopted and modified General Fund and Special Revenue Fund budget and actual results. GASB Statement No. 37 amends GASB Statement No. 21 and No. 34. The amendments to Statement 21 are necessary because of the changes to the fiduciary fund structure required by Statement 34. Generally, escheat property that was reported in an expendable trust fund in the previous model should be reported in a private purpose trust fund under Statement 34. Additionally, the amendments either (1) clarify certain provisions that, in retrospect, may not be sufficiently clear for consistent application or (2) modify other provisions that GASB believes may have unintended consequences in some circumstances. This statement became effective for the City in fiscal year 2002. GASB has issued Statement No. 38, Certain Financial Statement Note Disclosures that modifies, establishes and rescinds certain financial disclosure requirements. This statement has become effective to the City in 2005. Interpretation 6 is an interpretation of NCGA Statements 1, 4, and 5; NCGA Interpretation 8; and GASB Statement Nos. 10, 16, and 18. It clarifies the existing modified accrual standards for distinguishing the portion of a liability that should be reported as governmental fund liability/expenditure from the portion that should be reported as a general long term liability (i.e. government-wide reporting only). The City is evaluating the impact of the following GASB statements and will adopt them as of the effective dates. In June 2005, GASB issued Statement No. 47, Accounting for Termination Benefits. In financial statements prepared on the accrual basis of accounting, employers should recognize a liability and expense for voluntary termination benefits for periods beginning after June 15, 2005. Earlier application is encouraged. In December 2004, GASB issued Statement No. 46, Net Assets Restricted by Enabling Legislation—an amendment of GASB Statement No. 34. The Statement states that the legal enforceability of an enabling legislation restriction should be re-evaluated if any of the resources raised by the enabling legislation are used for a purpose not specified by the enabling legislation or if a government has other cause for reconsideration. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2005.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. NEW ACCOUNTING STANDARDS ADOPTED (Continued) In June 2004, GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions Employers that participate in single-employer or agent multiple-employer defined benefit Other Post Employment Benefit (“OPEB”) plans are required to measure and disclose an amount for annual OPEB costs on the accrual basis of accounting. Annual OPEB costs are equal to the employer’s annual required contribution to the plan (ARC), with certain adjustments if the employer has a net OPEB obligation for past under- or over-contributions. Those governments with revenues of $10 million or more but less than $100 million) are required to implement this Statement in financial statements for periods beginning after December 15, 2008. In May 2004, GASB issued Statement No. 44, Economic Condition Reporting: The Statistical Section—an amendment of NCGA Statement 1. This Statement amends the portions of NCGA Statement 1, Governmental Accounting and Financial Reporting Principles, that guide the preparation of the statistical section. The City adopted this statement. In April 2004, GASB issued Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. This Statement establishes uniform financial reporting standards for OPEB plans and supersedes the interim guidance included in Statement No. 26, Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans. Those governments with revenues of $10 million or more but less than $100 million) are required to implement this Statement in financial statements for periods beginning after December 15, 2006. B. FINANCIAL REPORTING ENTITY The City, founded in 1668 and incorporated in 1918, is governed by the general laws of the State of New York and various local laws. The City Council is the legislative body responsible for overall operations. The Mayor serves as chief executive officer and the Controller serves as chief financial officer. The City provides a full range of municipal services including public safety, fire protection, recreation, parks, sanitation, water, library, street maintenance, and general administrative services. 1. Discretely Presented Component Units These component units are entities which are legally separate from the City, but for which the City is financially accountable for financial reporting purposes, or whose relationships with the City are such that exclusion would cause the City’s financial statements to be misleading or incomplete. Financial accountability exists if the City appoints a voting majority of an organization’s governing board and is either able to impose its will on the organization or there is potential for the organization to provide specific financial benefits to or impose specific financial burdens on the City. The financial statements of the component units are discretely presented in a separate column from the primary government.

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CITY OF GLEN COVE

NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. FINANCIAL REPORTING ENTITY (Continued) The financial statements of the following component units have been discretely presented in the accompanying report because (a) their governing boards are not substantially the same as the governing body of the City, or (b) the component unit provides services entirely to the citizenry and not the City. The Community Development Agency (the “CDA”) is a public benefit corporation created by the state legislature to promote the safety, health and welfare of the City's inhabitants and to promote the sound growth and development of the City. The CDA is classified as a discretely presented component unit because it meets the criteria listed above. The Mayor presides over the CDA. The City has the ability to significantly influence the operations of the CDA and the CDA may provide financial benefit or impose burden on the City. The following funds are used to account for the activities of the Community Development Agency: Community Development Fund - This fund is used to account for revenues derived from the United States Government pursuant to Title I of the Housing and Community Development Act of 1974 - Public Law 93-393. Section 8 Housing Assistance Fund - This fund is used for housing assistance payments received from the U.S. Department of Housing and Urban Development and expended to provide lower income families with decent, drug free, safe, affordable and sanitary rental housing. The Industrial Development Agency (the "IDA") is a public benefit corporation created by the state legislation on May 17, 1974. Under the provisions of Chapter 374 of the 1974 Laws of New York State, the purpose of the IDA is to promote economic welfare, recreation opportunities, and prosperity of the City's inhabitants. The IDA is classified as a discretely presented component unit because it meets the criteria listed above. On behalf of the City, the Mayor of Glen Cove appoints the governing board of the IDA and has the ability to impose the City's will on the IDA. The IDA is shown as a proprietary type component unit and is presented on an accrual basis of accounting for its fiscal year ended December 31, 2005. The Glen Cove Public Housing Authority (the "PHA") is a public housing agency organized pursuant to the Public Housing Laws of the State of New York. The City appoints the PHA's board and has the ability to impose its will on the Authority. The PHA is a component unit of the reporting entity and its financial statements should be included in the basic financial statements of the City of Glen Cove. The financial statements of the Glen Cove Public Housing Authority are prepared for the fiscal years ending March 31 and are audited separately from the City.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. FINANCIAL REPORTING ENTITY (Continued) The financial statements of the Glen Cove Housing Authority were only available for the Fiscal year ended March 31, 2005. Because of substantial difference between the reporting periods of the Housing Authority and the primary governments, the statements of this component unit are not included in the City’s statements. Separate financial statements of the component units that issue statements can be obtained from: Controller The City of Glen Cove City Hall, 9 Glen Street Glen Cove, New York 11542 Tel. 516-676-2000 2. Excluded Organizations The following organizations are not a part of the reporting entity: The Glen Cove Public Library was established by the city in 1889 and granted a charter by the State Board of Regents as provided in Article 5 of the Education Law. The Library was classified as a discretely presented component unit because it met the criteria listed above, until December 31, 2002. In February 2003, the State Board of Regents amended the charter and established an independent Special District Public Library. Accordingly, all trustees of the Library are elected by the voters of the Glen Cove City School District No. 5, for staggered terms of five years each. Library taxes are raised directly for library purposes. The City leased the building that houses the Library to the Library District at nominal annual rental of $1, for a period of 18 months commencing on July 1, 2003. The Library indebtedness is no longer supported by the full faith and credit of the City. The Glen Cove School District was created by state legislation, which designates the school board and is the governing authority. School board members are elected by the voters of the district. The board designates management and exercises complete responsibility for all fiscal matters. C. BASIC FINANCIAL STATEMENTS-GASB STATEMENT NO. 34 In accordance with GASB 34, the basic financial statements include both government-wide (based on the City as a whole) and fund financial statements. While the previous model emphasized fund types (the total of all funds of a particular type), the new reporting model focuses either on the City as a whole or major individual funds (within the fund financial statements). Both the government-wide and fund financial statements (within the basic financial statements) categorize primary activities as either governmental or business type. In the government-wide Statement of Net Assets, both the governmental and business-type activities columns (a) are presented on a consolidated basis by column, (b) and are reflected, on a full accrual, economic resource basis, which incorporates long-term assets and receivables as well as long-term debt and obligations.

36

CITY OF GLEN COVE


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. BASIC FINANCIAL STATEMENTS-GASB STATEMENT NO. 34 (Continued) The government-wide Statement of Activities reflects both the gross and net cost per functional category (police, fire, public works, etc.), which are otherwise being supported by general government revenues (property, sales and use taxes, certain intergovernmental revenues, fines, permits and charges, etc.). The Statement of Activities reduces gross expenses (including depreciation) by related program revenues, operating and capital grants. The program revenues must be directly associated with the function (police, public works, community and youth services, etc.) or a business-type activity. The operating grants include operating-specific and discretionary (either operating or capital) grants while the capital grants column reflects capital-specific grants. The net costs, by function, are normally covered by general revenue (property, sales or gas taxes, intergovernmental revenues, interest income, etc.). Historically, the previous model did not summarize or present net cost by function or activity. The City does not currently employ an indirect cost allocation system. This government-wide focus is more on the sustainability of the City as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. The fund financial statements are, in substance, very similar to the financial statements presented in the previous model. The emphasis is on the major funds in either the governmental or business-type categories. Non-major funds (by category) or fund type are summarized into a single column. The governmental funds major fund statements in the fund financial statements are presented on a current financial resource and modified accrual basis of accounting. This is the manner in which these funds are normally budgeted. This presentation is deemed most appropriate to (a) demonstrate legal and covenant compliance, (b) demonstrate the source and use of liquid resources, and (c) demonstrate how the City’s actual experience conforms to the budget or fiscal plan. Since the governmental fund statements are presented on a different measurement focus and basis of accounting than the government-wide statements’ governmental column, a reconciliation is presented on the page following each statement, which briefly explains the adjustment necessary to transform the fund based financial statements into the governmental column of the government-wide presentation. Internal service funds of a government (which traditionally provide services primarily to other funds of the government) are presented in the summary form as part of the proprietary fund financial statements. Since the principal users of the internal services are the City’s governmental activities, financial statements of internal service funds are consolidated into the governmental column when presented at the government-wide level. To the extent possible, the costs of these services are reflected in the appropriate functional activity (police, fire, public works, etc.). The City’s fiduciary funds are assets held for the benefit of a third party (other local governments, private parties, pension participants, etc.) and cannot be used to address activities or obligations of the government. These funds are not incorporated into the government-wide statements. The focus of the revised model is on the City as a whole and the fund financial statements,

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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. BASIC FINANCIAL STATEMENTS-GASB STATEMENT NO. 34 (Continued) including the major individual funds of the governmental and business-type categories, as well as the fiduciary funds, (by category) and the component units. Each presentation provides valuable information that can be analyzed and compared (between years and between governments) to enhance the usefulness of the information. D. BASIS OF PRESENTATION The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, related of the cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The new model (Statement No. 34) sets forth minimum criteria (percentage of the assets, liabilities, revenues or expenditures/expenses of either fund category or the governmental and enterprise combined) for the determination of major funds. The City electively added funds, as major funds, which either had debt outstanding or specific community focus. The non-major funds are combined in a column in the fund financial statements and detailed in the combining section. The City uses the following fund types: 1. Governmental Funds Governmental Fund measurement (in the Fund Financial Statements) focuses upon determination of financial position and changes in financial position (sources, uses, and balances of financial resources) rather than upon net income. The following is a description of the Governmental Funds of the City: General Fund - The General Fund is the general operating fund of the City through which the City provides most services. Its principal sources of revenue are real property taxes, departmental income, fines and forfeitures, and state aid. The fund is charged with all costs of operating the government for which a separate fund has not been established. Special Revenue Fund - Special Revenue Funds are used to account for specific operations for which most of the revenue involved comes from restricted non-tax sources directly related to the services rendered. The special revenue funds of the City include: Home and Community Service and Recreation Funds. Home and Community Service Fund - In conjunction with the approval of the 1998 budget for Special Revenue Funds, the City authorized the establishment of a single fund, Home and Community Service Fund, to replace the Water and Sewer Funds. This fund is used to account for revenue from the sale of water and sewer services and the expense incurred in connection therewith and the revenues and expenses of running the water-treatment plant.

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Recreation Fund - This fund is used to account for revenues and expenditures associated with the operation of the golf course and other recreational activities provided by the City.


FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. BASIS OF PRESENTATION (Continued) Special Trust Funds - Trust Funds are expendable trusts established to account for donations and grants. An expendable trust is accounted for in the same manner as a governmental fund, using the modified accrual basis and the flow of financial resources measurement focus. The expendable trust funds of the City include special events, recreation, and library funds. Capital Projects Fund – The Capital Projects Fund is used to account for financial resources used for the acquisition or construction of major capital facilities. The principal sources of revenue are from the sale of bonds, state aid, and from General Fund appropriations. Debt Service Fund - This fund is used to account for the accumulation of resources for the payments of principal, interest, and related costs of general long-term obligations. The fund was established in 1994. 2. Proprietary Fund The Proprietary Fund consists of the Internal Service Fund. The City formed an Internal Service Fund to account for the self-insurance of automobile and public liability claims and the cost of workers' compensation. This internal service fund is accounted for as a proprietary fund. The accrual basis of accounting is used for this fund. 3. Fiduciary Fund The Agency Fund - Fiduciary Funds are used to report assets held in a trustee or agency capacity for others and therefore are not available to support City programs. The reporting focus is upon net assets and changes in net assets and employs accounting principles similar to proprietary funds. Trust and Agency Funds are used to account for the trust or agencies, which are custodial in nature. 4. Non-Current Governmental Assets/Liabilities: GASB Statement #34 eliminates the presentation of Account Groups, but provides for these records to be maintained and incorporates the information into the Governmental column in the government-wide Statement of Net Assets. 5. Discrete Presentation – Component Unit Discrete presentation (separate column) is used in incorporating the financial statements of the Component Units, the Glen Cove Community Development Agency, the Glen Cove Housing Authority and the Glen Cove Industrial Development Agency in the statements of the City. The reasons for discrete presentation are the following: the Component Units are legally separate entities; the City appoints the board of directors of the Component Units; the boards of the City and the Component Units are substantively different; the City is able to impose its will on the Component Units; the Component Units do not provide direct or indirect services to the City Government. The Community Development Agency uses governmental fund type basis of

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presentation and the Industrial Development Agency and the Housing Authority use enterprise fund type basis of presentation.


FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E. BASIS OF ACCOUNTING AND MEASUREMENT FOCUS Basis of accounting refers to the point at which revenues or expenditures/expenses are recognized in the accounts and reported in the financial statements. It relates to the timing of the measurements made, regardless of the measurement focus applied. The Government-wide Financial Statements and the Proprietary, Fiduciary and Component Unit Fund Financial Statements are presented on an accrual basis of accounting. The Governmental Funds in the Fund Financial Statements are presented on a modified accrual basis. 1. Accrual: All proprietary, internal service, and pension trust funds are accounted for using the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. 2. Modified Accrual: All governmental funds are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual; i.e., both measurable and available. "Available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures are generally recognized under the modified accrual basis of accounting when the related liability is incurred. The exception to this general rule is that principal and interest on general obligation long-term debt, if any, is recognized when due. In applying the "susceptible to accrual" concept to intergovernmental revenues pursuant to GASB Statement 33, the provider should recognize liabilities and expenses and the recipient should recognize receivables and revenue when the applicable eligibility requirements, including time requirements, are met. Resources transmitted before the eligibility requirements are met should, under most circumstances, be reported as advances by the provider and deferred revenue by the recipient. The Governmental and Expendable Trust Funds All governmental funds and expendable trust funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases (i.e., expenditures and other financing uses) in net current assets. Governmental funds and expendable trust funds are accounted for on a modified accrual basis of accounting. Governmental fund revenues are recognized in the accounting period in which they become susceptible to accrual (i.e., both measurable and available to finance current expenditures of the fiscal period.) Revenue items accrued includes property taxes, user charges, and reimbursable amounts from Federal and State supported programs. Property taxes levied for

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the current year are considered available and are, therefore, recognized as revenues to the extent that they are collected during the current year or within 60 days after the end of the fiscal year.


FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E. BASIS OF ACCOUNTING AND MEASUREMENT FOCUS (Continued) Intergovernmental revenues received, but not earned, are recorded as deferred revenues. Certain fines and penalties collected by the City are remitted to New York State and are subsequently returned to the City. The City deems the amounts of such items to be susceptible to estimation and, accordingly, records receivable and related revenue for amounts collected but not remitted to the City by New York State. Other licenses, fines, penalties and miscellaneous revenues are recorded as revenues when payment is received because they are generally not measurable until actually received. Investment earnings are accrued as earned. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable with the following modifications that are in conformity with generally accepted accounting principles: General long-term obligation principal and interest are reported only when due, vacation and unpaid sick leave when paid, pension costs when billed, and judgments and claims when settled. Estimates for unpaid vacation and sick leave, pension costs and judgments and claims are reported in the Statement of Net Assets. 2. Proprietary Fund The proprietary fund is accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and liabilities associated with the operating statements present increases (i.e., revenues) and decreases (i.e., expenses) in net total assets. This fund follows the accrual basis of accounting, which involves a capital maintenance and recovery focus. Under this method, revenues are recognized when earned and expenses are recognized when incurred. The Proprietary fund's unbilled receivables are recognized as revenues at year-end. Following the recommendation of GASB No. 20, the City and its component units have elected not to apply Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, including amendments to the statements that are issued after that date. In accordance with the Statement of the Governmental Accounting Standards Board (GASB) No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting, the City applies all applicable interpretations issued on or before November 30, 1989 that do not conflict with GASB pronouncements. After November 30, 1989, the City exclusively applies all applicable GASB pronouncements. 3. Agency Fund The agency fund is accounted for on a modified accrual basis of accounting for the purpose of asset and liability recognition. 4. Interfund Transfers

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Transfers among funds are recognized in the accounting period in which interfund receivables and payables arise. Intergovernmental revenues received as reimbursements for specific purposes are recognized based upon the expenditures recorded.

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CITY OF GLEN COVE


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E. BASIS OF ACCOUNTING AND MEASUREMENT FOCUS (Continued) 5. Component Units The accounts of the Community Development Agency are organized as governmental fund types and use a modified accrual basis of accounting. The Industrial Development Agency and the Housing Authority use a proprietary method of accounting. F. ENCUMBRANCES Encumbrances represent commitments, such as purchase orders and contracts for future performance of services or receipt of goods. Encumbrances, which are outstanding at the end of a year, are excluded from expenditures and reported as a reservation of fund balances. Only for legal-budgetary comparison, encumbrances are recorded as expenditures. The amount of encumbrances at the end of the fiscal year 2004 and 2005 were immaterial. G. BUDGETS AND BUDGETARY ACCOUNTING The City prepares an annual budget for the General Fund and all Special Revenue Funds, prior to October 1st. The Mayor submits a proposed budget to the City Council for the fiscal year commencing the following January 1st. This budget includes proposed expenditures on a line item basis for each department and the means of financing for the annually budgeted funds. The City conducts public hearings to obtain taxpayer comments. The City Council adopts the City's budget no later than October 10th. The City Council must approve the changes in appropriations or estimated revenues. Appropriations lapse on the fiscal year-end for all City departments. The budget is formally amended by City Council resolution on the last day of the year to reflect adjustments to budgeted amounts. The budget for the City’s General Fund and budgeted Special Revenue Funds have been prepared on a legal basis, which is not consistent with Generally Accepted Accounting Principles (GAAP) in certain respects. The actual amounts are shown in the Schedule of Revenues, Expenditures and Change in Fund Balance - Budget and Budgetary Basis Actual. The General Fund and budgeted Special Revenue Funds are presented on the same basis as was used to develop the budget. The major difference between budget basis and GAAP basis accounting is that encumbrances are considered to be the equivalent of expenditures for budget purposes but as a reservation of fund balance for GAAP purposes. Total expenditures of each department within the General Fund and for each department within the budgeted Special Revenue Funds may not exceed budgeted amounts for such departments, unless approved by the City Council. Budgeted amounts for the year ended December 31, 2005, reflected amendments approved by the City Council. Such amendments primarily consisted of transfers of budgeted amounts between departments and the transfer of funds from the Water Fund to the General Fund. Appropriations of the Special Revenue Funds, which have not been expended or encumbered, lapse at the end of a fiscal year. Appropriations of the Capital Projects Fund are continued until completion of the applicable project at which time the remaining unused funds from completed projects are transferred to the Debt Service Fund. The differences between GAAP and the budget basis expenditures for different funds were not material.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. ASSETS, LIABILITIES AND NET ASSETS OR EQUITY 1. Deposits and Investments Cash includes amounts in demand deposits as well as short-term investments with original maturities of three months or less from the date acquired by the City. The City pools cash resources of certain funds in order to facilitate the management of cash. Cash applicable to a particular fund is readily identifiable. The balance in the pooled cash accounts is available to meet current operating requirements. Cash in excess of current requirements is invested in various interest-bearing time deposits and disclosed as part of the City's time deposits. The City’s investments consist principally of certificates of deposit, negotiable order of withdrawal accounts, and interest bearing bank accounts. Cash balances in excess of Federal Deposit Insurance Corporation limits are collateralized by municipal notes and U.S. Treasury Notes and categorized as Category 2 collateral under GASB Statement No. 3. Cash equivalents for purposes of the statements of cash flows are investments (including restricted assets) in the State of New York Local Government Investment Pool, mutual funds, demand deposits, repurchase agreements, and U.S. Treasury bills and notes with maturities of three months or less at acquisition date. GASB Statement No. 31 provides that governmental entities may report all investments at fair value or they may elect to report certain money market investments and participating interest-earning investment contracts at amortized cost. The City has elected to report all investments at fair value. The City’s policy is to invest in certificates of deposit, repurchase agreements, and direct U.S. Treasury debt, securities guaranteed by the United States Government or any of its agencies. 2. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as “due to/from other funds.” Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable Governmental Funds to indicate that they are not available for appropriation and are not expendable available financial resources.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. ASSETS, LIABILITIES AND NET ASSETS OR EQUITY (Continued) 2. Receivables and Payables (Continued) All accounts, property tax and court receivables are shown net of an allowance for uncollectible accounts. All receivables in excess of one year comprise the allowance for uncollectible accounts at December 31, 2005. 3. Inventories The amount of inventory of supplies and materials were not material, as of December 31, 2005. Inventories, if significant, are reported in the balance sheet of governmental and proprietary funds at cost, using the first-in-first-out method. The costs of governmental fund-type inventories are recorded as expenditures when inventory is purchased rather than when consumed. 4. Interest Receivable Interest on investments and certain receivables are recorded as revenue in the year the interest is earned and is available to pay liabilities of the current period. 5. Other Assets Other assets held are recorded and accounted for at cost. 6. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (i.e., roads, sidewalks and similar items), are reported in the applicable governmental activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial individual cost of more than $500 and an estimated useful life in excess of one year. Assets contributed (donated) to those funds are recorded by reference to historical costs of the donor if recently purchased or constructed, or if such records are not available, at estimated fair market value on the date of receipt. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. No interest was capitalized for the fiscal year 2005.

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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. ASSETS, LIABILITIES AND NET ASSETS OR EQUITY (Continued) 6. Capital Assets (Continued) Depreciation and amortization of all assets are recorded and calculated using the straight-line method over the following estimated useful lives: Years Water system 10 to 75 Sewer system 25 to 50 Buildings and improvements. 25 Land improvements 25 Machinery and equipment 20 Motor vehicles 3 to 10 Furniture, fixtures and office equipment 5 to 10

When capital assets are disposed of, the cost and accumulated depreciation or amortization is removed from the accounts and any resultant gain or loss is recognized in the government-wide and Proprietary Fund financial statements. 7. Long-term obligations In the government-wide financial statements and the Proprietary Fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount and deferred amounts on refunding. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, Governmental Fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. ASSETS, LIABILITIES AND NET ASSETS OR EQUITY (Continued) 8. Fund balance In the fund financial statements, Governmental Funds report reservation of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. 9. Post Retirement Benefits In addition to providing pension benefits, the City provides health insurance coverage and survivor benefits for qualified retired employees and their survivors as provided for in the various union contracts. Substantially all of the City's employees may become eligible for these benefits if they reach normal retirement age while working for the City. Health care benefits and survivors benefits are provided through an insurance company whose premiums are based on the benefits paid during the year. For the year 2005, qualified retired employees were receiving retirement benefits at a cost of approximately $1,055,700. 10. Risk Management It is the policy of the City not to purchase commercial insurance for the risks of losses to which it is exposed except for real property damage. Instead, the City management believes it is more economical to manage its risks internally and set aside assets for claim settlement in its internal service fund, the City Insurance Fund (CIF). CIF services all claims for risk of loss to which the City is exposed, including general liability, property and casualty, workers' compensation, environmental, and antitrust. All funds of the City participate in CIF. CIF allocates the cost of providing claims servicing and claims payment by charging a "premium" to each fund based on a percentage of each fund's estimated current-year payroll. This charge considers recent trends in actual claims experience of the City as a whole and makes provision for catastrophe losses. Premiums paid by the operating funds are accounted for as operating transfers out. CIF liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claims liabilities depend on such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claims liability does not necessarily result in an exact amount. Claims liabilities are re-evaluated periodically to take into consideration recently settled claims, the frequency of claims and other economic and social factors. Liabilities for incurred losses to be settled by fixed or reasonable determinable payments over a long period of time are reported at their present value.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. ASSETS, LIABILITIES AND NET ASSETS OR EQUITY (Continued) 11. Compensatory Absences Compensated absences consist of vacation leave and a calculated amount of sick leave earned by employees based on services already rendered. The City employees receive vacation time, sick leave, and other benefits pursuant to the labor contract or City ordinances covering their terms of employment. Employees of the City may carry over unused vacation and sick days as stipulated by various union contracts. City employees are granted vacation and sick leave and earn compensatory absences in varying amounts. In the event of termination or upon retirement, an employee is entitled to payment for accumulated vacation and sick leave and unused compensatory absences at various rates subject to certain maximum limitations. The City’s policy is to pay employees for unused accumulated vacation hours at termination or retirement. Sick leave time can be accumulated without limit. The cost of compensatory absences is accrued, when incurred, in the government-wide financial statements. A liability for the current amount of compensated absences is recorded as a current liability at December 31 in the Governmental and Proprietary Funds. The current compensated absences amount in the Governmental Funds is combined with accrued payroll and other payroll related amounts in the accrued payroll and benefits line item. There is no long-term liability for compensated absences in the Governmental Funds. 12. Investments The City's investment policies are governed by New York State statute. The City also has a written policy which restricts investments to cash and cash equivalents, including money market funds, certificates of deposits and obligations of the United States and its agencies and instrumentalities. Investments are stated at cost or amortized costs, whichever most approximates market value. The City's Controller has the authority to implement the City's investment policies. The City requires the Trust department of each bank at which cash has been deposited to pledge short-term United States Treasury securities or New York State municipal securities to collateralize such investments. Measures are taken by the City to ensure that the market value of such collateral is equal to or greater than the value of the related investment. 13. Prepaid Items Payments made to vendors for services that will benefit periods subsequent to the balance sheet date are recorded as assets in the current period.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. ASSETS, LIABILITIES AND NET ASSETS OR EQUITY (Continued) 14. Property Tax Revenues Property taxes are recognized as revenue when they are levied because they are considered to be measurable and available. Proper allowances are made for estimated uncollectible accounts and delinquent accounts. The City is responsible for assessing and collecting property taxes in accordance with enabling state legislation. Property taxes become a lien on the first day of the levy year and may be paid in two equal installments. The first installment is payable without penalty or interest on or before January 10th and the second installment is payable without penalty or interest on or before July 10th. Payments after these dates are subject to a penalty of ¾ % per month and interest at 1½ % for each month thereafter. All property taxes are recognized in compliance with NCGA Interpretation-3 (Revenue Recognition-Property Taxes), which states that such revenue is recorded when it becomes measurable and available. Recognized property tax revenue represents payments received against the current year's tax levy, against prior years’ levies or payments received in the first two months of the following year from the current and prior years' levies. An allowance for estimated uncollectible property taxes is provided for those amounts not collected as of December 31, 2005. Property tax receivables are recognized on the date levied. The following is a summary of the City property tax calendar for 2005:

Tax bills mailed December 1st, 2004 Levy date January 1st, 2005 First installment payment due December 1st, 2004 Lien date January 1st, 2005 Second installment payment due June 1st, 2005 Tax sale - 2005 delinquent property taxes No later than the last Friday in June, 2005

Each year, the City sells liens on properties on which there are unpaid taxes. According to the City Charter, this sale must be held no later than the last Friday in June following the year for which the tax was levied. The City Tax Receiver collects all real estate taxes for the City, Nassau County and the School District. County taxes collected are periodically remitted to the County. During the initial tax collection period, School District taxes are deposited to a School District account as they are collected. After this initial tax collection period, the City is required to remit to the School District, at least once each month, all collections of previously unpaid taxes. The City is responsible for uncollected school taxes. Any uncollected taxes at the tax sale date which are not purchased as liens by outside lien buyers must be purchased by the City.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. ASSETS, LIABILITIES AND NET ASSETS OR EQUITY (Continued) 15. Deferred Revenues Revenues and other governmental fund financial resource increments are recognized in the accounting period in which they become susceptible to accrual (i.e. when they become both measurable and available to finance expenditures of the fiscal period.) "Available" means collectible within the current period (year ended December 31, 2005) or within 60 days after year end (January or February of 2006) and usable to pay liabilities of the current period. Deferred revenues are those where asset recognition criteria have been met, but for which revenue recognition criteria have not been met. 16. Revenue Recognition - Special Revenue Funds Amounts received by Special Revenue Funds that relate to future periods are not recognized as revenue and are shown as "Deferred Revenue" within the accompanying combined balance sheet. 17. Notes Payable Bond Anticipation Notes (BANs) are accounted for in accordance with NCGA Interpretation No.9. Accordingly, if all necessary legal steps have not been taken to refinance the BANs and the ability to refinance the BANs has not been established, the BANs are reported as a current liability within the Capital Projects Fund or the General Fund as of December 31, 2005. BANs that are outstanding at the end of a year, if refinanced or "rolled over" subsequent to the end of a year to a maturity date which exceeds one year from the balance sheet date, are reported as a long term debt in the Statement of Net Assets. Tax and revenue anticipation notes are reported as a fund liability in the fund receiving the proceeds. 18. Leases General fixed assets acquired via lease agreements are capitalized at the inception of the agreement in an amount determined by the criteria of FASB Statement No. 13. A liability in the same amount is recorded simultaneously in the GLTDAG. When a capital lease represents the acquisition or construction of a general fixed asset, the acquisition or construction of the general fixed asset is reflected as an expenditure and other financing source, consistent with the accounting and financial reporting for general obligation bonded debt. Subsequent governmental fund lease payments are accounted for consistently with principles for general obligation debt. In governmental funds, lease receivables and deferred revenues are used to account for leases receivable when the City is the lessor in a lease situation. Only the portion of lease receivables that represents revenue/other financing sources that are measurable and available are recognized as revenue/other financing sources in governmental funds. The remainder of the receivable is deferred.

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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) H. ASSETS, LIABILITIES AND NET ASSETS OR EQUITY (Continued) 18. Leases (Continued) Capital lease accounting for proprietary funds follow FASB Statement No. 13, as amended and interpreted, without modification. All assets and liabilities of proprietary funds are accounted for, and reported, in the respective funds. Therefore, transactions for proprietary funds capital leases are accounted for and reported entirely within the individual proprietary fund. 19. Pension Plans and Post Retirement Benefits. The City has adopted the Governmental Accounting Standards Board Statement No. 27 “Accounting for Pensions by State and Local Governmental Employers”. This statement establishes standards for the measurement, recognition, and display of pension expenses and related assets, liabilities, note disclosures, and supplementary information. Pension cost is required to be measured and disclosed using the accrual basis of accounting, regardless of the amount recognized as pension expense on the modified accrual basis of accounting. Annual pension cost should be equal to the annual required contributions to the pension plan, calculated in accordance with certain parameters. This change in accounting had no effect on the financial statements. NOTE 2. CASH AND CASH EQUIVALENTS At December 31, 2005, carrying values of cash and cash equivalents were $902,365 and $859,666 for the Primary government and component units, respectively. The carrying value of the Primary government cash includes the following balances: $542,293 in major and non-major governmental funds, $24,923 in Internal Service Fund and $335,149 in Fiduciary Funds. As required by law, all cash deposits and cash equivalents are fully collateralized or insured at December 31, 2005. The bank balances of deposits were either entirely insured by the Federal Deposit Insurance Corporation (FDIC) or collateralized with securities pledged in third party custodial accounts of the pledging financial institutions in the City's name. In accordance with GASB Statement No. 3, deposits and investments are categorized separately to give an indication of the level of custodial risk assumed by the City. The bank balances of the primary government and component units were entirely insured or collateralized as follows: Category 1 Category 2 Total Primary government $ 429,181 $ 2,129,553 $ 2,558,734 Component units 300,000 679,061 979,061 Total reporting entity $ 729,181 $ 2,808,614 $ 3,537,795 Category 1 represents the bank balances that are insured by FDIC or collateralized by securities held by the City or an agent in the City’s name. Category 2 includes the bank balances that are collateralized with securities held by pledging financial institution’s trust department or agents in the name of the City or its component units.

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NOTE 3. RECEIVABLES AND DEFERRED REVENUES The following table provides a schedule and reconciliation of the receivables and deferred revenues, as of December 31, 2005: Total Accounts Receivable Received but Deferred Receivable City Taxes: Receivable Available not Available Revenues

Tax levy, 2005 $ 300,959 $ -- $ -- $ 300,959

Tax levy, 2006 13,734,312 -- 4,514,540 18,248,852 Total city taxes $14,035,271 $ -- $4,514,540 $ 18,549,811

Tax Liens: School liens $ 560,027 $ 560,027 $ -- $ -- City liens 337,329 51,007 -- 286,322 Water liens 1,427,679 1,427,679 -- -- Total tax liens $ 2,325,035 $ 2,038,713 $ -- $ 286,322

In addition to the above deferred revenues, the total deferred revenues of $20,757,448 include $1,921,315 for the expenditures that the City had made on behalf of the IDA to develop the waterfront properties and for occupancy and utility costs of the CDA. The City charges the CDA $40,000 annually for these costs. According to a longstanding inter-municipal cooperation understanding (“the Agreement”), formalized on August 25, 2004, the IDA and CDA had agreed to reimburse the City for all expenditures made on their behalf since 1997. As of December 31, 2005, the expenditures not reimbursed that the City had incurred on behalf of IDA were $1,854,115. NOTE 4. TAX SALE CERTIFICATES At December 31, 2005, the City held City and School tax liens of $587,545 and $560,027, respectively. The City acts as collecting agent for school taxes. The unsold school tax liens are acquired by the City and represent long-term loans to the School District. Based on the collection history of the school tax liens, there was no allowance necessary for the future uncollectibility. The School tax liens are recorded as a receivable in the General Fund and an equal amount of the General Fund balance is reserved. NOTE 5. INVESTMENTS As of December 31, 2005, the City had no investments that mature after 60 days. NOTE 6. FIXED ASSETS In 1999, the City retained the services of an appraisal organization to determine the replacement cost of its purchased fixed assets for insurance purposes and to verify the recorded historical costs of those assets. The historical costs of the fixed assets have been examined to eliminate the costs of infrastructural elements and those assets that were disposed of in the past. The balances in the equipment account, as of December 31, 2005, represent the results of the

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CITY OF GLEN COVE


NOTE 6. FIXED ASSETS (continued) procedures used to verify the historical costs. In certain instances where the records of historical costs were insufficient, estimated historical costs of similar assets were used. Under the current accounting policy of the City, the fixed assets include the land, land improvements, buildings, building improvements and construction-in-progress. All public domain (“infrastructure”) general fixed assets consisting of roads, bridges, curbs and gutters, streets and sidewalks, drainage systems and lighting systems have been excluded from the fixed assets. These assets are not movable and are only useful to the City. The City is in the process of reconciling its fixed assets to exclude all the elements of infrastructure that were historically capitalized in the building and improvement accounts. The adjustment to the machinery and equipment account represents the assets that were replaced or disposed of in the past. Capital assets activities for the year ended December 31, 2005, were as follows: Balance Balance 1/1/2005 Additions Deletions 12/31/2005 Governmental activities: Non-depreciable assets: Land $3,186,022 $ -- $ -- $3,186,022 Construction in progress 4,810,117 6,243,982 (3,405,779) 7,648,320 Total 7,996,139 6,243,982 (3,405,779) 10,834,342 Depreciable assets: Infrastructure 47,703,139 3,405,779 -- 51,108,918Buildings 77,855,011 274,848 -- 78,129,859 Equipment 5,701,527 890,804 -- 6,592,331 Total 131,259,677 4,571,431 -- 135,831,108 Total capital assets 139,255,816 10,815,413 (3,405,779) 146,665,450 Less accumulated depreciation for: Infrastructure (17,844,066) (1,263,313) -- (19,107,379) Building (55,022,821) (1,165,837) -- (56,188,658) Equipment ( 4,582,100) ( 750,721) -- (5,332,821) Total accumulated depreciation (77,448,987) (3,179,871) -- (80,628,858) Total governmental activities capital assets, net $61,806,829 $7,635,542 $(3,405,779) $66,036,592

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NOTE 6. FIXED ASSETS (continued) Depreciation was charged to governmental fund programs in the Statements of Activities as follows: Governmental activities: General government $ 413,383 Public safety 1,271,948 Transportation 286,188 Culture and recreation 349,786 Home and community service 858,565 Total depreciation expense – governmental activities $3,179,870 NOTE 7. LONG-TERM DEBT The following is a summary of changes in long term liabilities reported in the government-wide financial statements of net assets for the year ended December 31, 2005: Due Balance Balance in One 1/1/2005 Reductions Additions 12/31/05 Year Remediation liability $ 2,394,900 $ (279,211) $ $2,115,689 $294,900 Liability for retirement system debt 1,025,262 415,790 1,441,052 163,963 Liability for compensated absences 8,433,203 (244,500) 1,062,218 9,250,921 345,888 Serial bonds 34,581,000 (3,955,001) 4,909,200 35,535,199 4,344,199Security deposit 200,000 -- -- 200,000 -- Total 46,634,365 (4,478,712) 6,387,208 48,542,861 5,148,950 Bond anticipation notes 7,287,666 (7,287,666) 17,123,228 17,123,228 17,123,228 Total long term debt $53,922,031 $(11,766,378) $23,510,436 $65,666,089 $22,272,178 Liability to Retirement System - The liability represents the unpaid amounts relating to the System's fiscal years ending March 31, 1988, 1989 and 2005. As a result of the enactment of Chapter 62, Laws of 1989, contributions due from the City for those fiscal years are amortized over 17 years. The initial payment was made on December 15, 1989. Under Chapter 49, Laws of 2003 the City elected to amortize over 10 years a portion of its pension liability for 2005. The carrying balance of retirement debt was at December 31, 2005 is $ 1,441,052. Compensated Absences and Claims - Payment of compensated absences of $9,250,921 is dependent upon many factors, therefore, timing of future payments is not readily determinable.

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NOTE 7. LONG-TERM DEBT (Continued) Bond Anticipation Notes - The BANS include those rolled over one year beyond the original maturity dates and are due and payable in 2005. Serial Bonds - Serial bonds outstanding at December 31, 2005 are as follows:

Originally Original Interest Maturity Description Issued Amount Rate (%) Date Outstanding General fund: Public improvement 08/87 $ 3,565,000 7.050% 08/07 $ 350,000 Public improvement 12/92 1,000,000 6.190% 12/06 55,000 Public improvement 06/95 8,662,021 5.850% 06/11 4,903,852 Public improvement 06/96 8,142,000 5.380% 06/11 3,655,000 Public improvement 04/98 5,284,500 4.360% 04/09 2,275,000 General obligation 06/98 9,195,000 4.610% 09/14 6,080,000 Public improvement 06/99 2,069,000 4.800% 07/13 1,327,622 Public improvement 05/00 2,334,317 5.440% 05/08 1,000,701 Public improvement 03/04 7,762,908 3.280% 03/17 7,362,470 Public improvement 07/05 1,094,200 3.500% 07/16 1,094,200 49,108,946 28,103,845 Special revenue fund: Water system 01/93 1,925,704 5.660% 01/10 467,614 Public improvement 06/99 405,000 4.800% 07/13 259,876 Public improvement 05/00 115,000 5.440% 05/08 49,299 Public improvement 03/93 1,854,296 5.660% 01/10 473,385 Public improvement 06/99 300,000 4.800% 07/13 192,502 General obligation 09/95 400,000 5.850% 09/11 156,148 General obligation 10/96 50,000 5.440% 10/11 20,000 Public improvement 11/98 200,000 4.360% 01/09 75,000 Public improvement 03/04 2,027,092 3.280% 03/17 1,922,530 Public improvement 07/15 3,815,000 3.500% 07/16 3,815,000 11,092,092 7,431,354 TOTAL $60,201,038 $ 35,535,199

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NOTE 7. LONG-TERM DEBT (Continued) Debt Service Requirements to Maturity of General Obligation Bonds The total annual principal and interest payments on debt outstanding as of December 31, 2005 and extending to December 31, 2020 are as follows: Year Principal Interest Total 2006 4,344,199 1,414,971 5,759,170 2007 4,380,000 1,243,428 5,623,428 2008 4,345,000 1,067,913 5,412,913 2009 4,125,000 901,549 5,026,549 2010-2014 13,360,000 2,411,264 15,771,264 2015-2017 3,765,000 398,150 4,163,150 2018-2020 1,216,000 100,599 1,316,599 $ 35,535,199 $ 7,537,874 $ 43,073,073 Long-Term Debt of the Component Units In October 1999, the City of Glen Cove, the Glen Cove Community Development Agency (“the CDA”), the Glen Cove Industrial Development Agency (“the IDA”), and the County of Nassau (“the County”) entered into agreements regarding obtaining a $6,000,000 loan, pursuant to Section 108 of Title I of the Housing and Community Development Act of 1974. The purpose of the loan was to acquire, decontaminate, and develop certain waterfront properties. The agreements included the following provisions: The County and the United States Department of Housing and Urban Development (“HUD”) agreed to make the Section 108 loan to the CDA based on guarantees from the City, the CDA, and the IDA regarding the repayment of the loan and indemnification for all hazardous material. The CDA agreed to sign a $6,000,000 note (“the Note”) payable to the County and advance the loan proceeds to the IDA for the acquisition and improvement of the waterfront properties. The Note is secured by a mortgage on the properties being developed. Interest rate for each advance will be set on the date of such advance and will be equal to 0.2% above the three-month London Interbank Offered Rate (LIBOR). Interest will be paid quarterly and the maturity date of the loan is August 1, 2005.

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NOTE 7. LONG-TERM DEBT (Continued) Long-Term Debt of the Component Units (Continued) The IDA agreed to use the program income that will be obtained from the sale of decontaminated properties to repay the Section 108 loan. In 1999 and 2000, the CDA obtained $4,056,159 and $1,929,950 dollars of the Section 108 loan from the County and expended it on the development of the waterfront properties belonging to the Industrial Development Agency. In 1999, the City, the IDA, and the CDA entered into a supplemental agreement regarding the City’s share of the additional remediation costs of environmental contamination in the Properties. The City obtained a loan from the State of New York Environmental Facilities Corporation (“EFC”) in the amount of $3,000,000 to pay the cost of additional remediation required to be performed on the Properties (See Note 16). In 2001, the amount of $3,000,000 of the environmental remediation liability was paid and the EFC loan incurred. The EFC loan bears 0% interest and matured on October 19, 2003. It was renewed at a discounted interest rate for 15 years. On December 31, 2005 the City had two outstanding loans from the EFC for $3,514,611 in total. Statutory Debt Limit and Net Indebtedness The City has the power to contract indebtedness for any City purpose so long as the principal amount of borrowing does not exceed 7% of the average full valuation of taxable real estate of the City. In 2005, the amount of average full valuation was $2,910,495,323 as compared to $2,587,182,492 in 2004. The increase in full valuation from 2004 to 2005 was 12%. Debt-contracting limitation was $203,734,673, at December 31, 2005. The amount of indebtedness is subject to exclusions and deductions such as water and certain sewage facilities and cash or appropriations for current debt service. There is no constitutional limitation on the amount that may be raised by the City through real estate taxes in any fiscal year to pay principal and interest on all indebtedness. The Statutory debt limit of the City was as follows: Five-year average full valuation $ 2,910,495,323 Debt contracting limitation 7% of five-year average full valuation 203,734,673 Outstanding Indebtedness: General obligation serial 35,559,200 Bond anticipation notes 17,123,228

52,682,428 Exclusions and deductions Appropriations in remaining current budget to pay non-payment debt maturing in next fiscal year -- Water and sewer bonds ( 7,779,979) Total exclusions and deductions ( 7,779,979) Total net indebtedness $ 44,902,449 The net indebtedness was 22% of the debt contracting limitation.

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NOTE 8. INDUSTRIAL REVENUE BOND AND NOTE TRANSACTIONS Certain industrial development revenue bonds issued by the Agency are secured by property that is leased to companies and is retired by lease payments. The bonds and notes are not obligations of the Agency, City or the State. The Agency does not record the assets or liabilities resulting from completed bond and note issues in its accounts. Its primary function is to arrange financing between the borrowing companies and the bond and note holders, and trustees or banks acting as fiscal agents. The Agency receives bond administration fees from the borrowing companies for providing this service. Such administrative fee income is recognized immediately upon the issuance of the bonds and notes. NOTE 9. DEFERRED COMPENSATION PLAN The City offers, substantially all of its employees, a deferred compensation plan ("the Plan") created pursuant to Section 5 of New York State Finance Law and the Internal Revenue Code (Section 457). The Plan permits participants to defer a portion of their earnings until their termination, retirement, death, or the occurrence of certain unforeseeable emergencies. The plan is administered and serviced by an independent contractor, under the rules and regulations promulgated by the State of New York Civil Service Commission and the New York State Deferred Compensation Board at no cost to the City. Recent changes to the IRS Code require the creation of a separate trust fund for the benefit of plan participants, which, in effect, would protect the plan assets from the claims of general creditors. In October 1997, the Government Accounting Standards Board issued Statement No. 32 Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans. As of October 1, 1997, the New York State Deferred Compensation Board (the Board) created a Trust and Custody agreement making Chase Manhattan Bank the Trustee and Custodian of the Plan. Statement No. 32 became effective for the Plan as of October 1, 1997. Since the Board is no longer the trustee of the Plan, the Plan no longer meets the criteria for inclusion in the State’s financial statements. Therefore, the City is no longer required to record the value of the plan assets. During 2005, the participant contributions to the Plan were approximately $300,000. NOTE 10. PENSION PLANS AND POST RETIREMENT BENEFITS 1. Description of Plan The City participates in the New York State and Local Employees Retirement System ("ERS") or the New York State and Local Police and Fire Retirement System ("PFRS") and the Public Employees' Group Life Insurance Plan (“Systems”). These are cost sharing multiple-employer, defined benefit retirement systems.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 10. PENSION PLANS AND POST RETIREMENT BENEFITS (Continued) 1. Description of Plan (Continued) The Systems provide retirement benefits as well as death and disability benefits. Obligations of employers and employees to contribute to the Plan and benefits to be received by the employees are governed by the New York State Retirement and Social Security Law (NYSRSSL). As set forth in the NYSRSSL, the Comptroller of the State of New York (Comptroller) serves as sole trustee and administrative head of the Systems. The Comptroller shall adopt and may amend rules and regulations for the administration and transaction of the business of the Systems and for custody and control of their funds. The Systems issue a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the New York State and Local Retirement Systems, Gov. Alfred E. Smith State Office Building, Albany, NY 12244. 2. Employees Covered under the Plans All full time employees of the City are members of the New York State and Local Employees Retirement System or the New York State and Local Police and Fire Retirement System. 3. Funding Policy The Systems are non-contributory with the exception of employees who joined the New York State and Local Employees' Retirement System after July 27, 1976. Employees with less than ten years of service are required to contribute 3% of their salary. Under the authority of NYSRSSL, the Comptroller shall certify annually the rates expressed as proportions of payroll of members. These rates shall be used in computing the contributions required to be made by the employers to the pension accumulation fund. The City is required to contribute at an actuarially determined rate. The required contributions for the current year and two preceding years were: ERS PFRS 2005 $ 875,765 $ 1,218,902 2004 889,640 1,160,246 2003 460,841 390,671 The City's contribution to the system was equal to the total contributions required for each year. Based on available data, the City believes that its actuarially determined contributions are less than one percent of total actuarially determined contribution requirements for all employers participating in the retirement system. The City’s contributions in 2005, including the amortization of long-term debt to the Retirement System, represent 18% of aggregate police officers’ payroll and 8% non-police officers’ payroll.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 10. PENSION PLANS AND POST RETIREMENT BENEFITS (Continued) 3. Funding Policy Since 1989, the System's billings have been based on Chapter 62 of the Laws of 1989 of the State of New York. This legislation requires participating employers to make payments on a current basis, while amortizing existing unpaid amounts relating to the System's fiscal years ending March 31, 1988 and 1989 with an 8.75% interest factor added. Local governments were given the option to prepay this liability. At the end of 2005, the total unpaid liability of the City was $163,963, which is reported in the Statement of Net Assets. In 2003, the State of New York adopted Chapter 49 of the Laws of 2003 that allowed the City to amortize a portion of its pension liability in 2005 over a period of ten years at 8% interest. The City has adopted the Governmental Accounting Standards Board Statement No. 27, “Accounting for Pensions by State and Local Governmental Employers”. This statement establishes standards for the measurement, recognition, and display of pension expenses and related assets, liabilities, note disclosures, and supplementary information. The pension cost is required to be measured and disclosed using the accrual basis of accounting, regardless of the amount recognized as pension expense on the modified accrual basis of accounting. The annual pension cost should be equal to the annual required contributions to the pension plan, calculated in accordance with certain parameters. This change in accounting had no effect on the financial statements. NOTE 11. INTERFUND RECEIVABLES AND PAYABLES At December 31, 2005, inter-fund receivables and payable balances were:

Due from Due to Fund Other Funds Other Funds General $ 1,089,083 $ -- Water/sewer 9,541,661 13,112,262 Capital projects 4,763,328 357,025 Debt service 740,632 957,690 Other government funds 74,000 1,781,727 Total $16,208,704 $16,208,704

At December 31, 2005, receivables and payable from Self-Insurance Fund were as follows:

General $ 672,450 $ -- Capital projects -- 607 Self insurance fund 607 672,450 Total $ 673,057 $ 673,057

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NOTE 12. FUND EQUITY 1. Fund Balance Deficits The General Fund had an unreserved deficit fund balance of $1,341,415 on December 31, 2005. The revenues of the General Fund were $4,924,468 in excess of expenditures. However, the total of other financing sources and uses of $5,493,723 eliminated the excess and resulted in a decrease in fund balance of $569,255. This resulted in an overall increase of the unreserved deficit balance, from the prior year amount of $772,166. The Water and Sewer Fund had a deficit unreserved fund balance of $1,701,474, as of December 31, 2005. Expenditures and operating transfers exceeded revenues by $1,296,862. The overall fund deficit increased from the prior year amount of $1,185,992 by $515,482. The Recreation Fund (Non-Major Fund) had a deficit unreserved fund balance of $1,699,076 as of December 31, 2005. Due to the expenditures exceeding revenues, the increase in previous year deficit of $1,345,082 was $353,994. The Recreation Fund deficit was mainly attributable to the shortfall in golf course revenues. The deficit of $1,873,533 in the Internal Service (self-insurance fund) equity arises from the accrual of claims and judgments in excess of interest income and payments from other funds. The deficit is due to the City’s current expense funding policy. This policy involves paying losses from regular operating transfers on an “as required” basis. 2. General Fund Budgetary Compliance As of December 31, 2005, the budgetary compliance status was as follows:

Taxes billed December 1, 2005 for 2006 $18,248,851 Less: Taxes outstanding for 2006, as of December 31, 2005 13,738,478 Cash collected in 2005 on 2006 tax levy 4,510,373 Cash balance, December 31, 2005 ( 80,413) Cash used in 2005 from 2006 tax levy $ 4,429,960

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NOTE 13. REAL PROPERTY TAXES Property taxes levied by the City are limited by the New York State Constitution to 2% of the five-year average of full valuation. The City charter, however, limits the real property tax levy to 1.5% of the five-year average. For the year ended December 31, 2005, the allowable taxing authority was limited to $50,225,630 of which the City levied $18,199,890. The total levy of taxes represents 36.24% of the taxing authority of the City of Glen Cove. The following tables set forth the computation of the City’s total and average full valuation, real estate tax levying limitation, and the determination of its tax margin for the fiscal year ended December 31, 2005.

Computation of Total and Average Full Valuation

State Fiscal Year Ended Assessed Equalization Full December 31 Valuation Rate Valuation 2001 $ 69,554,815 3.15 $ 2,208,089,365 2002 2,491,417,126 100.00 2,491,417,126 2003 2,498,500,000 82.67 3,022,257,167 2004 2,498,925,621 77.76 3,213,638,916 2005 2,500,121,578 69.12 3,617,074,042 Total five-year full valuation $14,552,476,616 Five-year average full valuation $ 2,910,495,323

Computation of Maximum Taxing Power and Tax Margin

For the Year Ended December 31, 2005 1 ½ % of five-year average full valuation $ 43,657,430 Plus: Amount required for debt service 6,568,200 Maximum taxing power 50,225,630 Less: Real estate tax levy for 2005 18,199,890 City tax margin $ 32,025,740 The real estate tax levy for 2005 was 36.24% of maximum taxing power.

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NOTE 14. CONTINGENCIES 1. Federal Grants The City has received grants, which are subject to audit by agencies of the State and Federal Governments. Such audits may result in disallowances and a request for a return of funds to the Federal and State Governments. Based on past audits, the local government administration believes disallowances, if any, will not be material. 2. Self-Insurance Program The City is a defendant in a number of lawsuits arising from tax certiorari claims and claims against the City for alleged improper actions or negligence of City employees. Total claims are substantial; however, it has been the City's experience that such actions are settled for amounts substantially less than the claimed amounts. The City attorney estimates that the potential claims against the City, not covered by various insurance policies, would not materially affect the financial condition of the City. The City is self-insured for general liability and workers compensation claims. Independent companies manage the self-insurance program. Current year’s claims settlements, administrative costs and excess insurance premiums are accounted for in the Proprietary Fund, which is funded by interfund transfers. During 2005, the transfer amounts were generally budgeted by the City based, in part, on the actuarial amount presented by the independent companies managing the claims. 3. Real Property Tax Litigation Various taxpayers of the City seeking to reduce tax assessments on the grounds of over-valuation and inequality have filed numerous tax certiorari petitions. The City's Attorney has advised the City that it is not practicable to determine the aggregate amount of tax reductions requested since sufficient information is not available as to the number of cases, which have been dismissed or discontinued. Corresponding proceedings are being dismissed or discontinued in similar tax certiorari proceedings in Nassau County. Management of the City does not believe that the outcome of such proceedings will have a material adverse effect on the financial condition of the City.

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CITY OF GLEN COVE NOTES TO FINANCIAL STATEMENTS FOR THE YEAR DECEMBER 31, 2005

NOTE 14. CONTINGENCIES (Continued) 3. Real Property Tax Litigation (Continued) For the year ended December 31, 2005, the City's budget, as amended, did not include any provision for the payment of prior year’s tax refunds. During the year, the prior year’s tax refunds of $548,220 were paid through the issuance of short term Bond Anticipation Notes. Construction Commitments The City's outstanding commitments under various construction contracts were less than $2,000,000. NOTE 15. THE WATERFRONT PROJECT AND RELATED AGREEMENTS Settlement Agreement In 1999, the United States Environmental Protection Agency (USEPA) informed the City about its potential responsibility for the cost of remediating the contamination at two parcels of land; a 26-acre parcel known as the Li Tungsten property on Herbhill Road; and a 23-acre parcel of land known as the Captain’s Cove property. USEPA’s examination of environmental contamination indicated that waste materials from tungsten processing and other operations had been deposited on certain parcels while the City owned them. According to the USEPA regulations and as reflected in the agreements between the City, the CDA, and the IDA, the City is responsible for the payment of the remediation costs. In 2000, USPEA responded favorably to the City’s settlement proposal. The City had estimated its share of the liability for remediation to be approximately $5 million. The initial remediation costs were financed by a loan from the Environmental Facilities Corporation (a New York State Agency.) In 2001, the City borrowed $3,000,000 from the Environmental Facilities Corporation and paid the liability to the USEPA. In 2003, the city arrived at an agreement with USEPA regarding limiting its maximum liability in cash to $5 million, pending court approval, which was obtained in 2005. The City has obtained the required additional $2 million funding through the Environmental Facilities Corporation revolving loan program. This loan program has made money available to the City at no interest on short-term basis, and at very low interest rates thereafter. Agreement Regarding Sales Proceeds On March 30, 1999, the Glen Cove Industrial Development Agency and the United States Environmental Protection Agency - Region 2 entered into an agreement regarding LI Tungsten Superfund and Captain’s Cove sites. The Glen Cove Industrial Development Agency acquired these sites for commercial waterfront development.

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FOR THE YEAR ENDED DECEMBER 31, 2005 NOTE 15. THE WATERFRONT PROJECT AND RELATED AGREEMENTS (Continued) Agreement Regarding Sales Proceeds (Continued) A total of approximately $74 million in encumbrances, including more than $26 million in underlying mortgage principal, was attached to these properties. The EPA has an unperfected Federal lien against the properties. Under the contract IDA agreed:

To expend in excess of $9 million for economic revitalization of the sites and surrounding area.

In exchange for the US covenant not to sue, the IDA paid the EPA $ 100,000. Upon disposal of the sites, through sales or lease, the IDA will pay the following

amounts to the EPA: 50% of any amount of sales proceeds received in excess of $9 million, up to

$12.2 million. 40% of any amount received in excess of $12.2 million, up to $14.2 million,

plus $1.6 million. 25% of the sales proceeds over $14.2 plus $2.4 million.

Not to sell the sites for less than $13.4 million. Not to reduce the sales proceeds to account for any costs including redevelopment

remediation, negotiating, brokerage, and closing costs. Sale of Waterfront Properties for Redevelopment On May 14, 2003, the Industrial Development and Community Development Agencies (“the Agencies”) entered into a sales agreement with Glen Isle Development Company, LLC (“Glen Isle”), with offices at 9 Gerhard Road, Plainview, New York 11803, regarding the parcels of land on Glen Cove’s waterfront, located at Garvies Point Road, Herbhill Road, and Dickson Street for the purpose of redevelopment. The purchase included the Captain’s Cove State Inactive Hazardous Waste Site and the Li Tungsten Federal Superfund Site. Glen Isle delivered a letter of credit in the amount of $1 million to be held as good faith escrow and to be returned with the interest earned on the escrow amount, within thirty days from the date of the issuance of a completion certificate by IDA. The proposed development concept involves the construction of a branded hotel, with a maximum of 250 rooms, marina, conference center, catering and spa facilities, and 100 associated residential units, a commercial and retail component of not greater than 250,000 square feet, and a cultural entertainment park, and up to 350 residential units. In consultation with the IDA, Glen Isle will develop a detailed and fully supported final project plan that requires the approval of the Agencies.

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CITY OF GLEN COVE


NOTE 15. THE WATERFRONT PROJECT AND RELATED AGREEMENTS (Continued) Sale of Waterfront Properties for Redevelopment (Continued) The City is responsible for the construction of the road improvement project outside the property that conforms to customary design criteria for four-lane public thoroughfare. The City has applied for various grants to fund the offsite infrastructure costs. Subject to various terms and covenants, the sales price to the developer is projected at $20.5 million dollars. The actual sales price is subject to appraisal. However, the minimum purchase price is set at $12.5 million and the maximum at $26 million. If the appraised price is above the maximum, Glen Isle may either accept or cancel the agreement. Agreement to Partially Refinance Section 108 Loans On December 14, 2000, the City entered into an agreement to borrow up to $2,228,703 from the State of New York Environmental Facilities Company. In 2001, the City borrowed $1,255,000 under this contract. The loan is short term with 0% interest and must be repaid or converted to long-term notes either 30 days after project completion or December 14, 2005, whichever occurs earlier. On October 16, 2003 and December 4, 2003, these loans were converted to long term. Agreement with IDA and CDA Upon the commencement of the Waterfront project in 1997, the managements of the City and IDA agreed to cooperate in the development of the Waterfront properties that belonged to IDA. The City agreed to assist in the construction of the required infrastructure and to provide necessary personnel and experts. The IDA agreed to reimburse the City for the Waterfront expenditures. The agreement was formalized on August 25, 2005, stipulating that the City should periodically compute and bill the IDA for these expenditures. The City had billed IDA $1,026,739 for the Waterfront expenditures, as of December 31, 2005. The City of Glen Cove entered an agreement on December 9, 2003, with the CDA and transferred certain lots, owned by the City and located on the Glen Cove Waterfront project site to the CDA. The lots are required to accommodate the construction of a roadway that is necessary for the Waterfront Revitalization Project. The appraised sale price of the lots was $1,937,200.00. The CDA has paid $1,300,000 and owes the balance of $637,200.00 to the City. To economize the CDA costs and facilitate communication between the City and CDA, the management of the CDA and the City agreed to relocate the CDA offices to the City headquarters at 9 Glen Street, Glen Cove. The City provided all the required space and utilities for the CDA. The expenses were to be computed and billed periodically. As of December 31, 2005, the occupancy and utilities cost owed by the CDA was $400,000.

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APPENDIX D

FINANCIAL GUARANTY INSURANCE AND SPECIMEN POLICY


Payment Pursuant to Financial Guaranty Insurance Policy Ambac Assurance Corporation ("Ambac Assurance") has made a commitment to issue a financial guaranty insurance policy (the "Financial Guaranty Insurance Policy") relating to the Bonds, effective as of the date of issuance of the Bonds. Under the terms of the Financial Guaranty Insurance Policy, Ambac Assurance will pay to The Bank of New York, in New York, New York, or any successor thereto (the "Insurance Trustee"), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and/or interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the Paying Agent. The insurance will extend for the term of the Bonds and, once issued, cannot be canceled by Ambac Assurance. The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding Bonds, Ambac Assurance will remain obligated to pay the principal of and interest on outstanding Bonds on the originally scheduled interest and principal payment dates, including mandatory sinking fund redemption dates. In the event of any acceleration of the principal of the Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration, except to the extent that Ambac Assurance elects, in its sole discretion, to pay all or a portion of the accelerated principal and interest accrued thereon to the date of acceleration (to the extent unpaid by the Obligor). Upon payment of all such accelerated principal and interest accrued to the acceleration date, Ambac Assurance's obligations under the Financial Guaranty Insurance Policy shall be fully discharged. In the event the Paying Agent has notice that any payment of principal of or interest on a Bond that has become Due for Payment and that is made to a holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, non-appealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available. The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment (as set forth in the Financial Guaranty Insurance Policy). Specifically, the Financial Guaranty Insurance Policy does not cover: 1. payment on acceleration, as a result of a call for redemption (other than

mandatory sinking fund redemption) or as a result of any other advancement of maturity;

2. payment of any redemption, prepayment or acceleration premium; and 3. nonpayment of principal or interest caused by the insolvency or negligence

of the Trustee, Paying Agent or Bond Registrar, if any. If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of the Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of

interest pursuant to the Financial Guaranty Insurance Policy requires proof of holder entitlement to interest payments and an appropriate assignment of the holder's right to payment to Ambac Assurance. Upon payment of the insurance benefits, Ambac Assurance will become the owner of the Bond, appurtenant coupon, if any, or right to payment of the principal of or interest on such Bond and will be fully subrogated to the surrendering holder's rights to payment. The insurance provided by the Financial Guaranty Insurance Policy is not covered by the property/casualty insurance security fund specified by the insurance laws of the State of New York. Ambac Assurance Corporation Ambac Assurance is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin, and is licensed to do business in 50 states, the District of Columbia, the Territory of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of approximately $10,015,000,000 (unaudited) and statutory capital of approximately $6,371,000,000 (unaudited) as of December 31, 2006. Statutory capital consists of Ambac Assurance's policyholders' surplus and statutory contingency reserve. Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., Moody's Investors Service, Inc. and Fitch Ratings have each assigned a triple-A financial strength rating to Ambac Assurance. Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in the Financial Guaranty Insurance Policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor. Ambac Assurance makes no representation regarding the Bonds or the advisability of investing in the Bonds and makes no representation regarding, nor has it participated in the preparation of, this Official Statement other than the information supplied by Ambac Assurance and presented under the heading "BOND INSURANCE". Available Information The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the "Company"), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). These reports, proxy statements and other information can be read and copied at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Copies of Ambac Assurance's financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance's administrative

offices is One State Street Plaza, 19th Floor, New York, New York 10004, and its telephone number is (212) 668-0340.

Incorporation of Certain Documents by Reference The following document filed by the Company with the SEC (File No. 1-10777) is incorporated by reference in this Official Statement:

The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and filed on March 1, 2007. All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in "Available Information".

SSPPECIIMMENNAmbac Assurance Corporation (Ambac), a Wisconsin stock insurance corporation, in consideration of the payment of thepremium and subject to the terms of this Policy, hereby agrees to pay to The Bank of New York, as trustee, or its successor (the“Insurance Trustee”), for the benefit of the Holders, that portion of the principal of and interest on the above-described obligations(the “Obligations”) which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor.

Ambac will make such payments to the Insurance Trustee within one (1) business day following written notification to Ambac ofNonpayment. Upon a Holder’s presentation and surrender to the Insurance Trustee of such unpaid Obligations or related coupons,uncanceled and in bearer form and free of any adverse claim, the Insurance Trustee will disburse to the Holder the amount ofprincipal and interest which is then Due for Payment but is unpaid. Upon such disbursement, Ambac shall become the owner ofthe surrendered Obligations and/or coupons and shall be fully subrogated to all of the Holder’s rights to payment thereon.

In cases where the Obligations are issued in registered form, the Insurance Trustee shall disburse principal to a Holder only uponpresentation and surrender to the Insurance Trustee of the unpaid Obligation, uncanceled and free of any adverse claim, togetherwith an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee duly executed by the Holder or suchHolder’s duly authorized representative, so as to permit ownership of such Obligation to be registered in the name of Ambac or itsnominee. The Insurance Trustee shall disburse interest to a Holder of a registered Obligation only upon presentation to theInsurance Trustee of proof that the claimant is the person entitled to the payment of interest on the Obligation and delivery to theInsurance Trustee of an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee, duly executed by theHolder or such Holder’s duly authorized representative, transferring to Ambac all rights under such Obligation to receive theinterest in respect of which the insurance disbursement was made. Ambac shall be subrogated to all of the Holders’ rights topayment on registered Obligations to the extent of any insurance disbursements so made.

In the event that a trustee or paying agent for the Obligations has notice that any payment of principal of or interest on anObligation which has become Due for Payment and which is made to a Holder by or on behalf of the Obligor has been deemed apreferential transfer and theretofore recovered from the Holder pursuant to the United States Bankruptcy Code in accordance witha final, nonappealable order of a court of competent jurisdiction, such Holder will be entitled to payment from Ambac to the extentof such recovery if sufficient funds are not otherwise available.

As used herein, the term “Holder” means any person other than (i) the Obligor or (ii) any person whose obligations constitute theunderlying security or source of payment for the Obligations who, at the time of Nonpayment, is the owner of an Obligation or ofa coupon relating to an Obligation. As used herein, “Due for Payment”, when referring to the principal of Obligations, is whenthe scheduled maturity date or mandatory redemption date for the application of a required sinking fund installment has beenreached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by applicationof required sinking fund installments), acceleration or other advancement of maturity; and, when referring to interest on theObligations, is when the scheduled date for payment of interest has been reached. As used herein, “Nonpayment” means the failureof the Obligor to have provided sufficient funds to the trustee or paying agent for payment in full of all principal of and intereston the Obligations which are Due for Payment.

This Policy is noncancelable. The premium on this Policy is not refundable for any reason, including payment of the Obligationsprior to maturity. This Policy does not insure against loss of any prepayment or other acceleration payment which at any timemay become due in respect of any Obligation, other than at the sole option of Ambac, nor against any risk other than Nonpayment.

In witness whereof, Ambac has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by its dulyauthorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of thecountersignature of its duly authorized representative.

Form No.: 2B-0012 (1/01)

THE BANK OF NEW YORK acknowledges that it has agreed to perform the duties of Insurance Trustee under this Policy.

President

Effective Date:

Secretary

Authorized Officer of Insurance Trustee

Ambac Assurance CorporationOne State Street Plaza, 15th FloorNew York, New York 10004Telephone: (212) 668-0340

Obligor: Policy Number:

Obligations: Premium:

Financial Guaranty Insurance Policy

A-

Authorized Representative

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