NEW ISSUE-BOOK-ENTRY ONLY NOT RATED In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, under existing law, the interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest on the Bonds is excluded pursuant to section 103 (a) of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes and is not an item of preference for purposes of the federal alternative minimum tax. See "TAX MATTERS" herein. STATE OF CALIFORNIA RNERSIDE COUNTY $26,330,000 CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1) Dated: Date of Delivery Due: September 1, as shown on the inside front cover hereof The City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") are being issued by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District"), which was established by the City of Indio (the "City"), pursuant to a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"), and will be secured as described herein. The Bonds are being issued to (i) finance the acquisition of capital facilities fees and certain public improvements serving property within Improvement Area No. 1 of the District ("Improvement Area No. 1"), (ii) fund a reserve account for the Bonds, (iii) fund capitalized interest through September 1, 2006, and (iv) pay the costs of issuance of the Bonds. See "THE FINANCING PLAN" herein. The Bonds will be issued in denominations of $5,000 or any integral multiple thereof, shall mature on September 1 in each of the years and in the amounts, and shall bear interest as shown on the inside front cover hereof. Interest on the Bonds shall be payable on each March 1 and September 1, commencing March 1, 2006 (the "Interest Payment Dates") to the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, by check mailed on such Interest Payment Date or by wire transfer to an account in the United States of America made upon instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds. The Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Bonds. Individual purchases of the Bonds will be made in book-entry form only. Principal of and interest and premium, if any, on the Bonds will be payable by DTC through the DTC participants. See "THE BONDS-Book-Entry System" herein. Purchasers of the Bonds will not receive physical delivery of the Bonds purchased by them. The Bonds are subject to optional redemption, mandatory sinking fund redemption and special mandatory redemption from Special Tax prepayments prior to maturity as set forth herein. See "THE BONDS-Redemption" herein. The Bonds are limited obligations of the District. The Bonds are payable solely from the Net Taxes (as defined herein), comprised of Special Taxes (as defined herein) to be levied on and collected from the owners of the taxable land within Improvement Area No. 1, and from certain other funds pledged under the Fiscal Agent Agreement, all as further described herein. The Special Taxes are to be levied according to a Rate and Method of Apportionment of Special Tax approved by the qualified electors within Improvement Area No. 1 on July 20, 2005. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. SEE THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED "SPECIAL RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED, IN ADDITION TO THE OTHER MATTERS SET FORTH HEREIN, IN CONSIDERING THE INVESTMENT QUALITY OF THE BONDS. This cover page contains certain information for quick reference only. It is not a complete summary of the Bonds. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered when, as and if issued, subject to approval as to their legality by Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by the City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel to the City with respect to the issuance of the Bonds. It is anticipated that the Bonds will be available for delivery on or about September 15, 2005.

Member ofSWS Group

Dated: September 7, 2005 $26,330,000 CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1) Maturity Dates, Principal Amounts, Interest Rates and Yields*

(Base CUSIPt 455697) $7,350,000 Serial Bonds

Maturity Date Principal Interest Reoffering September 1 Amount Rate Yield CUSIPt 2007 $385,000 3.35% 3.20% AAO 2008 370,000 3.40 3.40 AB 8 2009 395,000 3.70 3.70 AC6 2010 425,000 3.90 3.90 AD4 2011 460,000 4.00 4.05 AE2 2012 495,000 4.15 4.20 AF9 2013 515,000 4.25 4.30 AG7 2014 535,000 4.25 4.40 AH 5 2015 560,000 4.375 4.50 AJ 1 2016 585,000 4.50 4.60 AK8 2017 610,000 4.60 4.70 AL6 2018 640,000 4.70 4.80 AM4 2019 670,000 4.75 4.85 AN2 2020 705,000 4.85 4.95 AP 7

$4,080,000 5.00% Term Bond maturing September 1, 2025, Yield 5.05% CUSIPt AQ 5 $5,210,000 5.10% Term Bond maturing September 1, 2030, Yield 5.10% CUSIPt AR 3 $6,690,000 5.15% Term Bond maturing September 1, 2035, Yield 5.15% CUSIPt AS 1 $3,000,000 5.15% Special Escrow Term Bond maturing September 1, 2035, Yield 5.15% CUSIPt AT 9

t Copyright 2005, American Bankers Association. CUSIP data herein are provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., for convenience of reference only. Neither the City, the Underwriter or the Financial Advisor assumes any responsibility for the accuracy of this CUSIP data. CITY OF INDIO, CALIFORNIA

MAYOR AND CITY COUNCIL Melanie Fesmire, Mayor Gene Gilbert, Mayor Pro Tem Lupe Ramos Watson, Councilmember Ben Godfrey, Councilmember Michael H. Wilson, Councilmember

CITY STAFF Glenn Southard, City Manager Michael Busch, Finance Director Cynthia Hernandez, City Clerk

PROFESSIONAL SERVICES

Bond Counsel and Disclosure Counsel Fulbright & Jaworski L.L.P. Los Angeles, California

Financial Advisor Harrell & Company Advisors, LLC Orange, California

Underwriter Southwest Securities, Inc. Newport Beach, California

Underwriter's Counsel Jones Hall, A Professional Law Corporation San Francisco, California

Special Tax Consultant Albert A. Webb Associates Riverside, California

Appraiser First American Commercial Real Estate Services Santa Ana, California

Market Absorption Consultant Market Profiles Inc. Santa Ana, California

Fiscal Agent Union Bank of California, N.A. Los Angeles, California No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations in connection with the offer or sale of the Bonds described herein, other than as 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, the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.

The information set forth herein has been obtained from the City, the District, and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation of such by the City, the District or the Underwriter. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

The information and expressions of opinion stated herein are subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the affairs of the City, the District or any major property owner within the District since the date hereof. The Official Statement is submitted in connection with the sale of Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts.

IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREYAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS ACTING AS AGENTS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

THE BONDS HA VE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAW OF ANY STATE. TABLE OF CONTENTS Page

INTRODUCTORY STATEMENT ...... 1 General ...... 1 Use of Proceeds ...... 1 Security for the Bonds ...... 1 Special Escrow Fund ...... 2 The District ...... 2 The Special Tax ...... 2 Foreclosure Covenant ...... 2 Limited Obligations ...... 3 Further Information ...... 3 Forward Looking Statements ...... 3 CONTINUING DISCLOSURE ...... 4 ESTIMATED SOURCES AND USES OF FUNDS ...... 4 THE FINANCING PLAN ...... 4 THEBONDS ...... 6 Description of the Bonds ...... 6 Redemption ...... 6 The Fiscal Agent ...... 10 Book-Entry System ...... 10 Debt Service Schedule ...... 11 SECURITY FOR THE BONDS ...... 11 General ...... 11 The Special Taxes ...... 12 Special Tax Fund ...... 12 Reserve Account ...... 14 Special Escrow Fund ...... 14 Rate and Method of Apportionment of Special Taxes ...... 16 Covenant for Superior Court Foreclosure ...... 17 No Obligation of the City Upon Delinquency ...... 18 Direct and Overlapping Debt ...... 18 Estimated Effective Tax Rate ...... 20 Appraisal ...... 21 Maximum Special Tax Coverage ...... 22 THE CITY ...... 24 THE DISTRICT ...... 24 THE DEVELOPMENT ...... 24 General ...... 25 Availability of Water for Construction ...... 25 Public Facilities ...... 26 Environmental Assessment ...... 26 Development and Financing Plans - Improvement Area No. 1 ...... 27 Absorption Study ...... 29 THE MASTER DEVELOPER AND THE DEVELOPERS ...... 29 SPECIAL RISK FACTORS ...... 33 Concentration of Ownership ...... 33 Risks of Real Estate Secured Investments Generally ...... 33 Terrorist Attacks ...... 34 Land Development Costs ...... 34 Future Land Use Regulations and Growth Control Initiatives ...... 34 Failure to Develop Properties ...... 34 TABLE OF CONTENTS ( continued)

Disclosure to Future Home buyers ...... 36 Parity Taxes and Special Assessments ...... 36 Appraised Value; Land Value ...... 36 Value to Lien Ratios ...... 37 Insufficiency of Special Taxes ...... 37 Tax Delinquencies ...... 38 Future Indebtedness ...... 38 Natural Disasters ...... 3 8 Endangered and Threatened Species ...... 39 Hazardous Substances ...... 39 Bankruptcy and Foreclosure ...... 39 Property Controlled by FDIC ...... 40 Billing of Special Taxes ...... 41 Collection of Special Taxes ...... 42 Maximum Special Tax Rates ...... 42 Exempt Properties ...... 42 California Constitution Article XIIIC and Article XIIID ...... 43 Ballot Initiatives and Legislative Measures ...... 44 No Acceleration ...... 44 Loss of Tax Exemption ...... 44 Limitations on Remedies ...... 44 Limited Secondary Market ...... 45 CONCLUDING INFORMATION ...... 45 Underwriting ...... 45 Legal Opinion ...... 45 Tax Exemption ...... 46 No Litigation ...... 48 No Rating on the Bonds ...... 48 Miscellaneous ...... 48

APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES ...... A-1 APPENDIX B - CITY OF INDIO SUPPLEMENTAL INFORMATION ...... B-1 APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT ...... C-1 APPENDIXD - APPRAISAL REPORT ...... D-1 APPENDIX E - MARKET ABSORPTION STUDY ...... E-1 APPENDIX F - FORM OF BOND COUNSEL OPINION ...... F-1 APPENDIX G - FORMS OF CONTINUING DISCLOSURE AGREEMENTS ...... G-1 APPENDIXH - BOOK-ENTRYONLYSYSTEM ...... H-1

11 OFFICIAL STATEMENT

$26,330,000 CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1)

INTRODUCTORY STATEMENT

General

This Official Statement, including the cover page, the inside cover page and the Appendices hereto, is provided to furnish certain information in connection with the issuance and sale by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") of its Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") in the aggregate principal amount of $26,330,000 being issued in connection with the financing of capital facilities fees and certain public improvements servicing Improvement Area No. 1 of the District ("Improvement Area No. 1"). The Bonds will be issued pursuant to the provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"), and pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections 53311 et seq. of the Government Code of the State of California) (the "Act").

The Act was enacted by the California Legislature to provide an alternate method of financing certain public facilities and services, especially in developing areas. Once duly established, a community facilities district is a legally constituted governmental entity established for the purpose of financing specific facilities and services within defined boundaries. Subject to approval by a two-thirds vote of the qualified electors within a community facilities district and compliance with the provisions of the Act, a community facilities district may issue bonds and levy and collect special taxes to repay its bonds.

The Bonds will be issued in denominations of $5,000 each or any integral multiple thereof and will be dated and bear interest from the date of their deliver, at the rates set forth on the inside cover page hereof. See "THE BONDS." The Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Bonds. Individual purchases of the Bonds will be made in book-entry form only. Principal of and interest and premium, if any, on the Bonds will be payable by DTC through the DTC participants. See "THE BONDS -- Book-Entry System" herein. Purchasers of the Bonds will not receive physical delivery of the Bonds purchased by them.

Use of Proceeds

The Bonds are being issued to finance capital facilities fees and the acqms1t10n and/or construction of certain public improvements serving property within Improvement Area No. 1, to fund a reserve account for the Bonds, to fund capitalized interest on the Bonds through September 1, 2006, and to pay the costs of issuance of the Bonds. See "THE FINANCING PLAN" herein.

Security for the Bonds

The Bonds are secured by the pledge of Net Taxes and the other amounts in the Special Tax Fund ( other than amounts in the Administrative Expense Account therein). Net Taxes are defined as Special Taxes minus an amount equal to the Administrative Expense Requirement. Special Taxes means the amount of all special taxes authorized to be levied within Improvement Area No. 1, together with the proceeds collected from the sale of property pursuant to the foreclosure provision of the Fiscal agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions. See "SECURITY FOR THE BONDS - General."

The District has established a Reserve Account pursuant to the Fiscal Agent Agreement. The Reserve Account will be funded from the proceeds of the Bonds in the initial amount of $1,758,080. The Reserve Requirement as of any date of calculation will be an amount equal to the lowest of ( 1) 10% of the original proceeds of the Bonds, less accrued interest, if any, less original issue discount, if any, plus original issue premium, if any, or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds. See "SECURITY FOR THE BONDS - Reserve Account."

Special Escrow Fund

A portion of the proceeds of the Bonds will be deposited into the Special Escrow Fund to be established under the Fiscal Agent Agreement. These funds will be released to the Acquisition and Construction Fund upon satisfaction of certain conditions. See "SECURITY FOR THE BONDS - Special Escrow Fund." If these conditions are not met, the amounts in the Special Escrow Fund will be used to redeem Bonds. See "THE BONDS -Redemption."

The District

The District consists of approximately 364.96 gross acres comprising two improvement areas on which the Terra Lago community and the facilities and improvements associated therewith are to be located. Improvement Area No. 1 consists of approximately 174.80 acres, approximately 135. 75 acres of which are slated for residential development and 39.05 acres of which are open space, and Improvement Area No. 2 ("Improvement Area No. 2") which consists of approximately 190.16 acres, 173.76 acres of which are slated for residential development and 16.4 acres of which are open space. At buildout, it is anticipated that Improvement Area No. 1 will contain 635 residential dwelling units and Improvement Area No. 2 will contain 849 residential dwelling units. See "THE DISTRICT" for further information regarding the District and "THE DEVELOPMENT" for further information regarding the Terra Lago community. The Bonds are being issued to finance certain public improvements serving properties within Improvement Area No. 1 only and are not financing public improvements in Improvement Area No. 2. No Special Taxes levied on property in Improvement Area No. 2 is or will be security for the Bonds. See "THE FINANCING PLAN" herein.

The Special Tax

On July 20, 2005, at an election held pursuant to the Act, the landowners who comprised the qualified electors of the District authorized the District to incur bonded indebtedness in Improvement Area No. 1 in an aggregate amount not to exceed $30,000,000, and approved a Rate and Method of Apportionment of Special Tax (the "Rate and Method") to be levied within and for Improvement Area No. 1 to pay the principal of, and interest on, the authorized bonded indebtedness and approved an appropriations limit for Improvement Area No. 1 equal to the maximum amount of bonded indebtedness authorized to be incurred for Improvement Area No. 1. See "APPENDIX A -- RA TE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES."

Foreclosure Covenant

The District has covenanted for the benefit of the owners of the Bonds that, under certain circumstances described herein, the District will commence judicial foreclosure proceedings with respect

2 to delinquent Special Taxes on property within the District, and will diligently pursue such proceedings to completion. See "SECURITY FOR THE BONDS - The Special Taxes" and "SECURITY FOR THE BONDS - Covenant for Superior Court Foreclosure." In addition, see "SECURITY FOR THE BONDS - Direct and Overlapping Debt" for a discussion of additional debt payable on a parity with the Bonds.

Limited Obligations

NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN.

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

Further Information

Brief descriptions of the Bonds, the security for the Bonds, special risk factors, the District, the City, the Master Developer or the Developers ( as such terms are hereinafter defined) and other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the Bonds, the Fiscal Agent Agreement, resolutions and other documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Bonds, the Fiscal Agent Agreement, such resolutions and other documents. All such descriptions are further qualified in their entirety by reference to laws and to principles of equity relating to or affecting generally the enforcement of creditors' rights. For definitions of certain capitalized terms used herein and not otherwise defined, and a description of certain terms relating to the Bonds, see "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT" hereto.

Copies of such documents may be obtained from the office of the City Manager of the City.

Forward Looking Statements

Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "project," "budget" or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the captions "THE DEVELOPMENT" and "THE MASTER DEVELOPER AND THE DEVELOPERS."

THE ACHIEVEMENT OF CERTAIN RES UL TS OR OTHER EXPECT A TIO NS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY

3 UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.

CONTINUING DISCLOSURE

It is anticipated that the District will be developed by four developers (the "Developers") as further described herein under the heading "THE MASTER DEVELOPER AND THE DEVELOPERS." The District and the Developers, other than Ryland Homes of California, Inc. ("Ryland"), have separately covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data relating to Improvement Area No. 1 (collectively, the "Annual Reports"), and to provide notices of the occurrences of certain enumerated events, if material.

The Annual Reports will be filed with each Nationally Recognized Municipal Securities Information Repository and with the appropriate State information depository, if any. The notices of material events will be filed with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). The specific nature of information to be contained in the Annual Reports or the notice of material events is summarized in "APPENDIX G -- FORMS OF CONTINUING DISCLOSURE AGREEMENTS." These covenants have been made by the District and the Developers in order to assist the Underwriter in complying with the Rule. The District has never failed to comply in all material respects with any previous undertakings with regards to said Rule to provide annual reports or notices of material events. The Developers have never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events.

ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and used of funds relating to the issuance of the Bonds is set forth below:

Sources of Funds Principal Amount of the Bonds ...... $26,330,000.00 Less: Net Original Issue Discount ...... (71,272.00) Total Sources ...... $26,258,728.00 Uses of Funds Deposit to Acquisition and Construction Fund ...... $19,497,172.37 Deposit to Reserve Account ...... 1,758,080.00 Deposit to Interest AccountCl) 1,234,030.63 2 Deposit to Costs of Issuance Accounl ) ...... 335,000.00 Underwriter's Discount ...... 434,445.00 3 Deposit to Special Escrow FundC ) 3,000,000.00 Total Uses ...... $26,258,728.00

(l) Capitalized interest through September 1, 2006 (l) Includes fees for Bond Counsel, Disclosure Counsel, Financial Consultant, the Appraiser, the Market Absorption Consultant, legal and financial consultant costs of the Developers, the Fiscal Agent and its counsel, costs of printing the Official Statement, and other costs of issuance of the Bonds. 4 C ) To be released to the Acquisition and Construction Fund upon satisfaction of certain conditions. See "SECURITY FOR THE BONDS - Special Escrow Fund.

THE FINANCING PLAN

The proceeds of the Bonds will used to finance capital facilities fees and certain public improvements serving properties within Improvement Area No. 1. Such eligible improvements and estimated costs thereof are set forth below. Any shortfall in financing these improvements are the

4 responsibilities of the Master Developer. The inability of the Master Developer to finance any shortfall may have an adverse effect on the Developers' ability to complete the development as contemplated.

The following table sets forth a description of the improvements to be constructed m Improvement Area No. 1, along with the estimated costs associated with each item.

CITY OF INDIO CFD 2004-3 IMPROVEMENT AREA NO. 1 IMPROVEMENTS/FEES FUNDED FROM SPECIAL TAX BONDS

New Phase 1 Quant Unit Unit Price Project Total City Fees Storm Drainage Fees 450 Acres 500 $ 225,000.00 Fire Station Mitigation Fee 635EA 1,000,000.00 Sheriff/Police Fee 635EA 85 53,975.00 Park Fee 635EA 400 254,000.00 Bridge/Major Street Impact Fees 635EA 700 444,500.00 TUMF 635EA 794 504,190.00 Water Meter Fee 635EA 156 99,060.00 Water Capital Improvement Fees 1484 EA 3,025.25 4,489,471.00 Park Capital Impact Fee 635EA 1,988 1,262,380.00 $8,332,576.00 Other Fees School Fees 635EA 8,800 $5,588,000.00* Sewer Connection Capacity Fees 635EA 3,110 1,974,850.00 Sewer Service Fees 635EA 127 80 645.00 $7,643,495.00 Capital Costs Reimbursable to Developer Site Preparation $ 355,268.00 Grading 68,576.00 Surface Improvements 591,956.00 Landscaping 1,508,875.00 Storm Drainage 133,800.00 Traffic Control 610,411.00 Water 1,186,300.00 Sewer 814,222.00 Engineering 1,862,900.00 Soils Engineering 150,000.00 Blueprints 35,000.00 Repairs for Inspection 141,897.00 Dry Utilities 263,471.00 Contingency 503 437.00 $8,226,113.00 Shortfall- to be Reimbursed to Suncal from Phase 2 (1,705,011.63) Net Available for Suncal Reimbursement $6,521,101.37 Phase 1 Bond Proceeds $22,497,172.37

* $3,000,000 available to be paid when released from Escrow Fund.

5 THE BONDS

Description of the Bonds

The Bonds will be issued as fully registered bonds, in denominations of $5,000 each or any integral multiple thereof within a single maturity and will be dated and bear interest from the date of their delivery (the "Dated Date"), at the rates set forth on the inside cover page hereof. The Bonds will be issued in fully registered form, without coupons.

Interest on the Bonds will be paid in lawful money of the United States of America semiannually on March 1 and September 1 of each year ( each, an "Interest Payment Date"), commencing on March 1, 2006. Interest on the Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless ( i) such date of authentication is an Interest Payment Date in which event interest shall be payable from such date of authentication, ( ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication, or (iii) the date of authentication is prior to the close of business on the first Record Date occurring after the issuance of such Bond, in which event interest shall be payable from the dated date of such Bond; provided, however, that if at the time of authentication of such Bond, interest is in default, interest on that Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment on that Bond, interest on that Bond shall be payable form its dated date.

The Bonds will mature on September 1 in the principal amounts and years as shown on the inside cover page hereof and are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption as shown below.

Redemption

Optional Redemption

Subject to the limitations set forth below, the Bonds maturing on or after September 1, 2016 may be redeemed, at the option of the District from any source of funds, prior to maturity on any date on or after September 1, 2015, in whole, or in part in the order of maturity selected by the District and by lot within a maturity, at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption:

Redemption Dates Redemption Prices

September 1, 2015 through August 31, 2016 102.0% September 1, 2016 through August 31, 2017 101.0 September 1, 201 7 and thereafter 100.0

In the event the District elects to redeem Bonds as provided above, the District shall give Written Request of the District to the Fiscal Agent of its election to so redeem, the redemption date and the principal amount of the Bonds to be redeemed. The notice to the Fiscal Agent shall be given at least 60 but no more than 90 days prior to the redemption date, or such shorter period as shall be acceptable to the Fiscal Agent.

6 Mandatory Redemption from Special Tax Prepayments

The Bonds are subject to mandatory redemption, in whole or in part and on a pro rata basis among maturities, on any Interest Payment Date from and to the extent of any prepayment of Special Taxes at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption:

Redemption Dates Redemption Prices

September 1, 2005 through August 31, 2009 103.0% September 1, 2009 through August 31, 2015 102.5 September 1, 2015 and thereafter As Provided for Optional Redemption

In connection with such redemption, the District may also apply amounts in the Reserve Account which will be in excess of the Reserve Requirement as a result of such Special Tax prepayment to redeem Bonds as set forth above.

Mandatory Sinking Fund Redemption

The Bonds maturing on September 1, 2025, September 1, 2030 and September 1, 2035 and the Special Escrow Term Bonds maturing on September 1, 2035 shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account, on September 1, 2021, September 1, 2026, September 1, 2031 and September 1, 2007, respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Bonds so called for redemption shall be selected by the Fiscal Agent by lot and shall be redeemed at a redemption price for each redeemed Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows:

Bonds (CUSIP 455697 AQ 5) Maturing on September 1, 2025

Redemption Date (September 1) Principal Amount

2021 $740,000 2022 775,000 2023 815,000 2024 855,000 2025 (maturity) 895,000

Bonds (CUSIP 455697 AR 3) Maturing on September 1, 2030

Redemption Date (September 1) Principal Amount

2026 $940,000 2027 990,000 2028 1,040,000 2029 1,090,000 2030 (maturity) 1,150,000

7 Bonds (CUSIP 455697 AS 1) Maturing on September 1, 2035

Redemption Date (September 1) Principal Amount

2031 $1,205,000 2032 1,270,000 2033 1,335,000 2034 1,405,000 2035 (maturity) 1,475,000

Special Escrow Term Bonds (CUSIP 455697 AT 9) Maturing on September 1, 2035

Redemption Date Redemption Date (September 1) Principal Amount (September 1) Principal Amount

2008 $45,000 2022 100,000 2009 50,000 2023 105,000 2010 55,000 2024 110,000 2011 60,000 2025 120,000 2012 65,000 2026 125,000 2013 65,000 2027 130,000 2014 70,000 2028 135,000 2015 75,000 2029 145,000 2016 75,000 2030 150,000 2017 80,000 2031 160,000 2018 85,000 2032 165,000 2019 90,000 2033 175,000 2020 90,000 2034 185,000 2021 95,000 2035 (maturity) 195,000

If during the Fiscal Year immediately preceding one of the sinking fund redemption dates specified above the District purchases Bonds, at least 45 days prior to the redemption date, the District shall notify the Fiscal Agent by Written Request of the District as to the principal amount purchased and the amount of Bonds so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce such upcoming Sinking Fund Payment for the applicable maturity of the Bonds. All Bonds purchased pursuant to this subsection shall be cancelled pursuant to the Fiscal Agent Agreement.

In the event of a partial redemption of the Term Bonds pursuant to optional redemption or mandatory redemption from Special Tax prepayments, each of the remaining Sinking Fund Payments for such Term Bonds, as described above, will be reduced, as nearly as practicable, on a pro rata basis.

8 Redemption from Special Escrow.

The Special Escrow Term Bonds (CUSIP 455697 AT 9) maturing on September 1, 2035 are subject to mandatory redemption, pro rata, on September 1, 2007, or on such later date as is permitted under this Fiscal Agent Agreement, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, from amounts available in the Special Escrow Fund.

Notice of Redemption

When Bonds are due for redemption under the Fiscal Agent Agreement, the Fiscal Agent shall give notice, in the name of the District, of the redemption of such Bonds; provided, however, that a notice of a redemption to be made from other than from Sinking Fund Payments shall be conditioned on there being on deposit on the redemption date sufficient money to pay the redemption price of the Bonds to be redeemed. Such notice of redemption shall (a) specify the CUSIP numbers (if any), the bond numbers and the maturity date or dates of the Bonds selected for redemption, except that where all of the Bonds of a maturity are subject to redemption, or all the Bonds of one maturity, are to be redeemed, the bond numbers of such issue need not be specified; (b) state the date fixed for redemption and surrender of the Bonds to be redeemed; ( c) state the redemption price; ( d) state the place or places where the Bonds are to be redeemed; ( e) in the case of Bonds to be redeemed only in part, state the portion of such Bond which is to be redeemed; ( f) state the date of issue of the Bonds as originally issued; (g) state the rate of interest borne by each Bond being redeemed; and (h) state any other descriptive information needed to identify accurately the Bonds being redeemed as shall be specified by the Fiscal Agent. Such notice shall further state that on the date fixed for redemption, there shall become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 60 days prior to the redemption date, the Fiscal Agent shall mail a copy of such notice, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register. The actual receipt by the Owner of any Bond or the original purchaser of any Bond of notice of such redemption shall not be a condition precedent to redemption, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date.

Effect ofNotice of Redemption

Notice of redemption having been duly given, as described above, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption:

(1) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in the Fiscal Agent Agreement, anything in the Fiscal Agent Agreement or in the Bonds to the contrary notwithstanding;

(2) Upon presentation and surrender thereof at the office of the Fiscal Agent, the redemption price of such Bonds shall be paid to the Owners thereof;

(3) As of the redemption date the Bonds, or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds, or portions thereof, shall cease to bear further interest; and

( 4) As of the date fixed for redemption no Owner of any of the Bonds, or portions thereof so designated for redemption shall be entitled to any of the benefits of this Fiscal Agent Agreement, or to

9 any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available.

The Fiscal Agent

Union Bank of California, N.A., has been appointed as the Fiscal Agent for all of the Bonds under the Fiscal Agent Agreement. For a further description of the rights and obligations of the Fiscal Agent pursuant to the Fiscal Agent Agreement, see "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT" hereto.

Book-Entry System

The Depository Trust Company, New York, New York ("DTC"), will act as securities depository for the Bonds. The Bonds will be registered in the name of Cede & Co. (DTC's partnership nominee), and will be available to ultimate purchasers in the denomination of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC. Ultimate purchasers of Bonds will not receive physical certificates representing their interest in the Bonds. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, references herein to the Owners shall mean Cede & Co., and shall not mean the ultimate purchasers of the Bonds. Payments of the principal of, premium, if any, and interest on the Bonds will be made directly to DTC, or its nominee, Cede & Co., by the Fiscal Agent, so long as DTC or Cede & Co. is the registered owner of the Bonds. Disbursements of such payments to DTC's Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of DTC's Participants and Indirect Participants. See "APPENDIX H - BOOK-ENTRY ONLY SYSTEM."

10 Debt Service Schedule

The following is the annual debt service schedule for the Bonds, assuming no redemptions other than mandatory sinking fund redemptions.

DEBT SERVICE SCHEDULE

Year Ending Annual (September 1) Principal Interest Debt Service 2006 $ -0- $ 1,234,030.63 $ 1,234,030.63 2007 385,000 1,283,962.50 1,668,962.50 2008 415,000 1,271,065.00 1,686,065.00 2009 445,000 1,256,167.50 1,701,167.50 2010 480,000 1,238,977.50 1,718,977.50 2011 520,000 1,219,570.00 1,739,570.00 2012 560,000 1,198,080.00 1,758,080.00 2013 580,000 1,174,190.00 1,754,190.00 2014 605,000 1,148,955.00 1,753,955.00 2015 635,000 1,122,612.50 1,757,612.50 2016 660,000 1,094,250.00 1,754,250.00 2017 690,000 1,064,062.50 1,754,062.50 2018 725,000 1,031,882.50 1,756,882.50 2019 760,000 997,425.00 1,757,425.00 2020 795,000 960,965.00 1,755,965.00 2021 835,000 922,137.50 1,757,137.50 2022 875,000 880,245.00 1,755,245.00 2023 920,000 836,345.00 1,756,345.00 2024 965,000 790,187.50 1,755,187.50 2025 1,015,000 741,772.50 1,756,772.50 2026 1,065,000 690,842.50 1,755,842.50 2027 1,120,000 636,465.00 1,756,465.00 2028 1,175,000 579,280.00 1,754,280.00 2029 1,235,000 519,287.50 1,754,287.50 2030 1,300,000 456,230.00 1,756,230.00 2031 1,365,000 389,855.00 1,754,855.00 2032 1,435,000 319,557.50 1,754,557.50 2033 1,510,000 245,655.00 1,755,655.00 2034 1,590,000 167,890.00 1,757,890.00 2035 1670000 86 005.00 1,756,005.00

Total $26,330,000 $25,557,950.63 $51,887,950.63

SECURITY FOR THE BONDS

General

NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES OF IMPROVEMENT AREA NO. 1, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL

11 OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES OF IMPROVEMENT AREA NO. 1 AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN.

The Bonds are secured by a pledge of Net Taxes and the other amounts in the Special Tax Fund (other than amounts in the Administrative Expense Account therein). Net Taxes is defined as Special Taxes minus an amount equal to the Administrative Expense Requirement. Special Taxes means the amount of all special taxes (the "Special Taxes" or the "Special Tax") received by the District with respect to Improvement Area No. 1, together with the proceeds collected from the sale of property pursuant to the foreclosure provision of the Fiscal Agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions.

In the event that delinquencies occur in the receipt of the Special Taxes within Improvement Area No. 1 in any fiscal year, the District may increase its Special Tax levy on property within Improvement Area No. 1 in the following fiscal year up to the maximum amount permitted under the Rate and Method. Under no circumstances, however, will Special Taxes levied against any parcel used for private residential purposes be increased by more than 10 percent as a consequence of delinquency or default by the owner of any other parcel or parcels within Improvement Area No. 1. Although the Special Tax levy on property within Improvement No. 1 may be increased, Special Taxes resulting from the increase may not be available to cure any delinquencies for a period of one year or more. In addition, an increase in the Special Tax levy may adversely affect the ability or willingness of property owners to pay their Special Taxes. See "Rate and Method of Apportionment of Special Taxes" below and "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" hereto for a description of the District's procedures for levying Special Taxes within Improvement Area No. 1, and "SPECIAL RISK FACTORS- Insufficiency of Special Taxes."

OWNERSHIP OF THE BONDS IS SUBJECT TO A SIGNIFICANT DEGREE OF RISK. POTENTIAL INVESTORS ARE ADVISED TO CAREFULLY READ THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED "SPECIAL RISK FACTORS."

The Special Taxes

The Special Taxes are to be apportioned, levied and collected according to the Rate and Method for Improvement Area No. 1. See "- Rate and Method of Apportionment of Special Taxes" below and "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" hereto.

Beginning in Fiscal Year 2006-2007 and so long as any Bonds issued under the Fiscal Agent Agreement are Outstanding, the District has covenanted to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement. Subject to the maximum special tax rates, the Rate and Method is formulated to result in the levy each year of an amount of such payment of principal, premium, if any, and interest, replenishment of the Reserve Account and related administrative expenses; however, see "SPECIAL RISK FACTORS" for a discussion of certain factors affecting the actual timely collection of such Special Tax levies.

Special Tax Fund

Pursuant to the Fiscal Agent Agreement, there is established a "Special Tax Fund" to be held and maintained by the Fiscal Agent. In the Special Tax Fund there is further established and created an

12 Interest Account, a Principal Account, a Redemption Account, a Reserve Account and an Administrative Expense Account.

The amounts on deposit in the foregoing funds and accounts will be held by the Fiscal Agent in trust and the Fiscal Agent will invest and disburse the amounts in such funds and accounts in accordance with the provisions of the Fiscal Agent Agreement and will disburse investment earnings thereon in accordance with the provisions of the Fiscal Agent Agreement.

The District will, on each date on which it receives Special Taxes, transfer the Special Taxes to the Fiscal Agent for deposit in the Special Tax Fund in accordance with the terms of the Fiscal Agent Agreement to be held in trust. The Fiscal Agent will first deposit into the Administrative Expense Account of the Special Tax Fund an amount equal to the Administrative Expense Requirement and shall then transfer the amounts on deposit in the Special Tax Fund on the dates and in the amounts set forth in the Fiscal Agent Agreement, in the following order of priority, to:

1. The Interest Account of the Special Tax Fund;

2. The Principal Account of the Special Tax Fund;

3. The Redemption Account of the Special Tax Fund;

4. The Reserve Account of the Special Tax Fund;

5. The Administrative Expense Account of the Special Tax Fund; and

6. The Surplus Fund.

Administrative Expense Account. The Fiscal Agent will transfer from the Special Tax Fund and deposit in the Administrative Expense Account of the Special Tax Fund from time to time amounts necessary to make timely payment of Administrative Expenses, which will be disbursed by the Fiscal Agent upon the Written Request of the District. Amounts deposited in the Administrative Expense Fund are not pledged to the repayment on the Bonds.

Interest Account and Principal Account of the Special Tax Fund. The principal of and interest due on the Bonds until maturity, other than principal due upon redemption, will be paid by the Fiscal Agent from the Principal Account and the Interest Account of the Special Tax Fund, respectively. At least five Business Days prior to each March 1 and September 1, the Fiscal Agent will make the following transfers from the Special Tax Fund first to the Interest Account and then to the Principal Account; provided, however, that to the extent that deposits have been made in the Interest Account or the Principal Account from the proceeds of the sale of an issue of the Bonds, or otherwise, the transfer from the Special Tax Fund need not be made; and provided, further, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made up by an immediate transfer from the Reserve Account:

1. To the Interest Account, an amount such that the balance in the Interest Account five Business Days prior to each Interest Payment Date will be equal to the installment of interest due on the Bonds on said Interest Payment Date and any installment of interest due on a previous Interest Payment Date which remains unpaid. Moneys in the Interest Account shall be used for the payment of interest on the Bonds as the same become due.

2. To the Principal Account, an amount such that the balance in the Principal Account five Business Days prior to September 1 of each year, commencing September 1, 2007 shall at least equal the

13 principal payment due on the Bonds maturing on such September 1 and any principal payment due on a previous September 1 which remains unpaid. Moneys in the Principal Account will be used for the payment of the principal of such Bonds as the same become due at maturity.

Redemption Account of the Special Tax Fund. On each September 1 on which a Sinking Fund Payment is due, after the deposits have been made to the Interest Account and the Principal Account of the Special Tax Fund, the Fiscal Agent will next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account five Business Days prior to each September 1 equal to the Sinking Fund Payment due on any Outstanding Bonds on such September 1; provided, however, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency will be made up by an immediate transfer from the Reserve Account. Moneys so deposited in the Redemption Account will be used and applied by the Fiscal Agent to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedule set forth in the Fiscal Agent Agreement and in any Supplemental Fiscal Agent Agreement for such Term Bonds.

Reserve Account

Moneys in the Reserve Account will be used solely for the purpose of paying the principal of, including Sinking Fund Payments, and interest on any Bonds when due in the event that the moneys in the Interest Account and the Principal Account of the Special Tax Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are insufficient to make a Sinking Fund Payment when due. If the amounts in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund are insufficient to pay the principal of, including Sinking Fund Payments, or interest on any Bonds when due, the Fiscal Agent will withdraw from the Reserve Account for deposit in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund, as applicable, moneys necessary for such purposes.

Whenever moneys are withdrawn from the Reserve Account, after making the required transfers under the Fiscal Agent Agreement, the Fiscal Agent will transfer to the Reserve Account from available moneys in the Special Tax Fund, or from any other legally available funds which the District elects to apply to such purpose, the amount needed to restore the amount of such Reserve Account to the Reserve Requirement. Moneys in the Special Tax Fund will be deemed available for transfer to the Reserve Account only if the Fiscal Agent determines that such amounts will not be needed to make the deposits required to be made to the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund. If amounts in the Special Tax Fund or otherwise transferred to replenish the Reserve Account are inadequate to restore the Reserve Account to the Reserve Requirement, then the District will include the amount necessary fully to restore the Reserve Account to the Reserve Requirement in the next annual Special Tax levy for property within Improvement Area No. 1 to the extent of the maximum permitted Special Tax rates.

Anything to the contrary in the Fiscal Agent Agreement notwithstanding, the District may, at any time, substitute an Alternate Reserve Account Security for cash in the Reserve Account.

Special Escrow Fund

The Special Escrow Fund is established under the Fiscal Agent Agreement. The Fiscal Agent shall make a disbursement from the Special Escrow Fund to the Acquisition and Construction Fund upon receipt of a certificate of the Authorized Representative of the City (the "Administrator") directing the Fiscal Agent to release funds from the Special Escrow Fund. Upon receipt of such certificate, the Fiscal Agent shall deposit the disbursement to the Acquisition and Construction Fund, in an amount specified by the Administrator in a written certificate. The transfers referred to in the preceding sentence shall only be

14 made on any Business Day on or prior to the Initial Escrow Close Date or any Revised Escrow Close Date (as such terms are defined below) and any certificate of the Administrator requesting any such draw shall be presented to the Fiscal Agent by the District at least 10 days ( or such lesser number of days as agreed to by the Fiscal Agent) prior to the date for the transfer to be made.

At any time after the Delivery Date and prior to the release of all moneys held in the Special Escrow Fund, the Developer may provide the District with funds so that the District may cause a formal appraisal to be prepared, at the expense of the Developer, consistent with the appraisal standards of the City to determine the Improvement Area No. 1 Value (the "Additional Appraisal"). If the Administrator approves the Additional Appraisal and the Improvement Area No. 1 Value established by the Additional Appraisal indicates that additional moneys are to be released from the Special Escrow Fund consistent with the City's policy of maintaining a value-to-lien ratio and Special Tax coverage ratio as described below, then the Administrator will cause a written notice be provided to the Fiscal Agent for the release of amounts to the Acquisition and Construction Fund.

(i) Value-to-Lien Ratio. The Improvement Area No. 1 Value (not including the value of any parcel that is then delinquent in the payment of Special Taxes) shall be at least three times the sum of: (a) the aggregate principal amount of all Bonds then Outstanding, less the principal amount of any Bonds representing amounts (if any) to remain on deposit in the Special Escrow Fund following the proposed disbursement, plus (b) the aggregate principal amount of any fixed assessment liens on the parcels in the District subject to the levy of Special Taxes, plus ( c) a portion of the aggregate principal amount of any and all other community facilities district bonds or assessment district assessment liens then outstanding and payable at least partially from special taxes or assessments to be levied on parcels of land within the District (the "Prior Bonds") equal to the aggregate principal amount of the Prior Bonds multiplied by a fraction, the numerator of which is the amount of special taxes and special assessments levied for the Prior Bonds on parcels of land within the District, and the denominator of which is the total amount of special taxes and special assessments levied for the Prior Bonds on all parcels of land against which the special taxes and special assessments are levied to pay the Prior Bonds (such fraction to be determined based upon the maximum special taxes which could be levied in the year in which maximum annual debt service on the Prior Bonds occurs), based upon information from the most recent available Fiscal Year.

(ii) Minimum Value Test. The Improvement Area No. 1 Value (including only those parcels of real property in the District then constituting "Undeveloped Property," as defined in the Rate and Method of Apportionment relating to Improvement Area No. 1), shall be at least two and one-halftimes (a) the sum of the amounts referred to in clauses (a), (b) and (c) of (i) above which are determined by the District's special tax consultant to be allocable to the parcels of Undeveloped Property assuming that for (a) above the special tax consultant shall allocate to Developed Property that portion of the principal amount of the Outstanding Bonds for which the maximum annual debt service is equal to the aggregate Assigned Special Tax in the then Fiscal Year for all then Developed Property (as the terms "Assigned Special Tax" and "Developed Property" are defined in the Rate and Method of Apportionment), and otherwise not taking into account the principal amount of any Bonds representing amounts (if any) to remain on deposit in the Special Escrow Fund following the proposed disbursement).

(iii) Special Tax Coverage. The maximum Special Taxes that may be levied in each Fiscal Year on parcels that are not then delinquent in the payment of Special Taxes shall be at least one hundred ten percent (110%) of the then Maximum Annual Debt Service, based upon the Rate and Method of Apportionment of Special Taxes of Improvement Area No. 1.

15 In making the determinations under the preceding clauses (i), (ii) and (iii), the Administrator may conclusively rely on a certificate of a special tax consultant engaged by the District.

On and after July 15, 2007 (the "Initial Escrow Close Date"), the Fiscal Agent shall make no further disbursements from the Special Escrow Fund, and on September 1, 2007 (the "Initial Escrow Redemption Date"), the Fiscal Agent shall use amounts in the Special Escrow Fund to redeem the Bonds to the maximum extent possible on the Initial Escrow Redemption Date, as described above.

Notwithstanding the foregoing, the Initial Escrow Close Date (and any Revised Escrow Close Date established pursuant to this paragraph) and the Initial Escrow Redemption Date (and any Revised Escrow Redemption Date established pursuant to this paragraph) may be extended from time to time upon receipt by the Fiscal Agent, not later than one Business Day prior to the Initial Escrow Close Date ( or, if extended pursuant to the terms of this paragraph, the then applicable Revised Escrow Close Date), of a Written Request requesting such extension and stating (a) the new date after which amounts in the Special Escrow Fund will no longer be subject to disbursement pursuant to the Fiscal Agent Agreement (the "Revised Escrow Close Date") which date shall be at least 45 days but not more than 90 days prior to the date such amounts are to be used to redeem the Bonds as described in the following clause (b ), and (b) the new date on which the Bonds are to be subject to mandatory redemption from the amounts held in the Special Escrow Fund (the "Revised Escrow Redemption Date"), which date shall be an Interest Payment Date. In no event will the Revised Escrow Redemption Date be extended beyond the earliest date following the third anniversary of the issuance of the Delivery Date on which the Bonds may be redeemed pursuant to the terms thereof.

On or after any Revised Escrow Close Date the Fiscal Agent shall make no further disbursements from the Special Escrow Fund and on the Revised Escrow Redemption Date the Fiscal Agent shall use amounts in the Special Escrow Fund to redeem the Bonds to the maximum extent possible on the Revised Escrow Redemption Date.

Rate and Method of Apportionment of Special Taxes

The following is a summary of certain provisions of the Rate and Method This summary does not purport to be comprehensive and reference should be made to the Rate and Method attached hereto as Appendix A. All capitalized terms not defined in this section have the meanings set forth in the Rate and Method

Each Fiscal Year, commencing with the 2006-2007 Fiscal Year, all Parcels of Taxable Property within the District shall be categorized into the applicable Improvement Area and classified as either Developed Property, Undeveloped Property, Public Property and/or Property Owner's Association Property that is not Exempt Property and shall be subject to the levy of Special Taxes in accordance with the Rate and Method of Apportionment. See "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." Parcels of Developed Property shall further be classified as Residential Property or Non-Residential Property. A Parcel of Residential Property shall further be classified as Single Family Property or Multifamily Residential Property. Single Family Property shall be further categorized based on the Residential Floor Area for such Parcel, which is determined based on the square footage shown on the building permit for such Single Family Property. There are two zones established within Improvement Area No. 1 and such zones are taxed at different rates ("Zone A" and "Zone B").

Commencing with Fiscal Year 2006-2007 and for each following Fiscal Year, the City shall levy the Special Tax on all Taxable Property within Improvement Area No. 1 until the amount of Special Taxes equals the Special Tax Requirement for Improvement Area No. 1 in accordance with the following steps:

16 First: The Special Tax shall be levied on each Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax rate as needed to satisfy the Special Tax Requirement for Improvement Area 1, Zone A and Zone B;

Second: If additional moneys are needed to satisfy the Special Tax Requirement for Improvement Area No. 1, Zone A and Zone B, after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property within Improvement Area No. 1, Zone A and Zone Bat up to 100% of the Maximum Special Tax for Undeveloped Property; and

Third: If additional moneys are needed to satisfy the Special Tax Requirement for the Bonds after the first two steps have been completed, then for each Assessor's Parcel of Developed Property whose Assigned Special Tax is the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement.

No Special Taxes levied on property within Improvement Area No. 2 are security for repayment of the Bonds.

Covenant for Superior Court Foreclosure

In the event of a delinquency in the payment of any installment of Special Taxes, the District is authorized by the Act to order institution of an action in the Superior Courts of the State to foreclose any lien therefor. In such action, the real property subject to the Special Taxes may be sold at a judicial foreclosure sale. The ability of the District to foreclose the lien of delinquent unpaid Special Taxes may be limited in certain instances and may require prior consent of the property owner in the event the property is owned by or in receivership of the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal agencies. See "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure" and "SPECIAL RISK FACTORS - Tax Delinquencies." Such judicial foreclosure proceedings are not mandatory. However, in the Fiscal Agent Agreement, the District has covenanted for the benefit of the Owners of the Bonds that it (i) will commence judicial foreclosure proceedings against all parcels owned by a property owner where the aggregate delinquent Special Taxes on such parcels is greater than $5,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes were due and (ii) will commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied for such Fiscal Year, and (iii) will diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid; provided, however, that the District may elect to defer foreclosure proceedings on any parcel so long as the amount in the Reserve Account of the Special Tax Fund is at least equal to the Reserve Requirement and such delinquencies will not cause moneys in the Reserve Account to be withdrawn on the next succeeding Interest Payment Date. The District may, but is not obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Account of the Special Tax Fund at the Reserve Requirement.

There could be a default or a delay in payments to the owners of the Bonds pending prosecution of foreclosure proceedings and receipt by the District of foreclosure sale proceeds, if any, and subsequent transfer of those proceeds to the City. However, up to the maximum amount permitted under the applicable Rate and Method, the District may adjust the Special Taxes levied on all property within the District to provide the amount required to pay debt service on the Bonds.

Under current law, a judgment debtor (property owner) has at least 140 days from the date of service of the notice of levy in which to redeem the property to be sold. If a judgment debtor fails to redeem and the property is sold, his only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action a foreclosure sale is set aside, the

17 judgment is revived, the judgment creditor is entitled to interest on the revised judgment and any liens extinguished by the sale are revised as if the sale had not been made (Section 701.680 of the Code of Civil Procedure of the State of California).

No Obligation of the City Upon Delinquency

The City is under no obligation to transfer any funds of the City into the Special Tax Fund or any other funds or accounts under the Fiscal Agent Agreement for the payment of the principal of or interest on the Bonds if a delinquency occurs in the payment of any Special Taxes. See "SECURITY FOR THE BONDS - Covenant for Superior Court Foreclosure" for a discussion of the District's obligation to foreclose Special Tax liens upon delinquencies.

Direct and Overlapping Debt

Set forth below is the existing authorized indebtedness payable from taxes and assessments that may be levied on property within Improvement Area No. 1. In addition, other public agencies may issue additional indebtedness at any time, without the consent or approval of the City or the District.

18 CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1) DIRECT AND OVERLAPPING DEBT

2004-05 Local Secured Assessed Valuation: $24,144,014

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 8/1/05 Desert Community College District 0.056% $ 38,703 Desert Sands Unified School District 0.102 139,709 Desert Sands Unified School District Lease Tax Obligations 0.240 53,676 City of Indio Assessment District No. 90-1 2.713 52,632 City of Indio Community Facilities District No. 2004-3 100. - (1) Coachella Valley Recreation and Park Reassessment District No. 01-1 0.828 35,935 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $320,655

OVERLAPPING GENERAL FUND OBLIGATION DEBT: Riverside County General Fund Obligations 0.023% $142,910 Riverside County Board of Education Certificates of Participation 0.023 2,809 Desert Sands Unified School District Certificates of Participation 0.240 35,436 City of Indio Certificates of Participation 1.010 35,754 Coachella Valley County Water District, I.D. No. 71 Certificates of Participation 0.100 9,530 Coachella Valley Recreation and Park District Certificates of Participation 0.202 5,383 TOTAL GROSS OVERLAPPING GENERAL FUND OBLIGATION DEBT $231,822 Less: Riverside County self-supporting obligations 4,722 TOTAL NET OVERLAPPING GENERAL FUND OBLIGATION DEBT $227,100

GROSS COMBINED TOTAL DEBT $552,477 (2) NET COMBINED TOTAL DEBT $547,755

(1) Excludes Mello-Roos Act bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations.

Ratios to 2004-05 Assessed Valuation: Direct Debt ...... - 0/o Total Direct and Overlapping Tax and Assessment Debt...... 1.33% Gross Combined Total Debt ...... 2.29% Net Combined Total Debt ...... 2.27%

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

Source: California Municipal Statistics, Inc.

19 Estimated Effective Tax Rate

Set forth below is the estimated fiscal year 2006/07 tax obligations for a sample developed property within Zone A and Zone B of Improvement Area No. 1.

ESTIMATED FISCAL YEAR 2006/07 TAX OBLIGATION FOR A SAMPLE DEVELOPED PROPERTY

(IMPROVEMENT AREA NO. 1, ZONE A)

Projected Amount

Projected Sales Price (Based on a Home Size of 1,800 Square Feet) $351,500.00

Ad Valorem Property Taxes: Basic Levy ( 1. 00%) $ 3,515.00 Desert Sands Unified School District G.O. Bond (0.09581 %) 336.77 Coachella Valley Water District Debt Service (0.02080%) 73.11 Desert Community College District Debt Service (0.01994%) 70.09 Total General Property Taxes (1.13655%) $ 3,994.97

Assessment, Special Taxes & Parcel Charges: Coachella Valley Recreation and Park District Reassessment District No. 01-1 - Estimate $ 54.00 Landscaping & Lighting District- EstimateCl) 115.00 City oflndio CFD No. 2004-3 (Improvement Area No. 1) 2,467.83 2 City oflndio CFD No. 2004-1 C) 367.20 Total Assessments & Parcel Charges $ 3,004.03

Projected Total Property Tax $ 6,999.00 Projected Effective Tax Rate 2.00%

(1) Anticipated lighting and landscape district to service the development. (2) Special taxes for the City oflndio CFD No. 2004-1 (Police, Fire and Paramedic Services) increase annually by 2%.

Source: Albert A. Webb Associates.

20 ESTIMATED FISCAL YEAR 2006/07 TAX OBLIGATION FOR A SAMPLE DEVELOPED PROPERTY

(IMPROVEMENT AREA 1, ZONE B)

Projected Amount

Projected Sales Price (Based on a Home Size of 1,800 Square Feet) $431,500.00

Ad Valorem Property Taxes: Basic Levy ( 1. 00%) $ 4,315.00 Desert Sands Unified School District G.O. Bond (0.09581 %) 413.42 Coachella Valley Water District Debt Service (0.02080%) 89.75 Desert Community College District Debt Service (0.01994%) 86.04 Total General Property Taxes (1.13655%) $ 4,904.21

Assessment, Special Taxes & Parcel Charges: Coachella Valley Recreation and Park District Reassessment District No. 01-1 - Estimate $ 54.00 Landscaping & Lighting District- EstimateCl) 115.00 City oflndio CFD No. 2004-3 (Improvement Area No. 1) 3,158.59 2 City oflndio CFD No. 2004-1 C) 367.20 Total Assessments & Parcel Charges $ 3,694.79

Projected Total Property Tax $ 8,599.00 Projected Effective Tax Rate 2.00%

(1) Anticipated lighting and landscape district to service the development. 2 ( ) Special taxes for the City oflndio CFD No. 2004-1 (Police, Fire and Paramedic Services) increase armually by 2%.

Source: Albert A. Webb Associates.

Appraisal

The Bonds are secured by Special Taxes which may include amounts realized upon foreclosure sale of delinquent parcels. Therefore, the ability of the District to meet debt service on the Bonds may depend on the ability of delinquent parcels to generate sufficient proceeds upon foreclosure sale to pay delinquent Special Taxes. The City has commissioned First American Commercial Real Estate Services, Santa Ana, California (the "Appraiser") to perform an appraisal (the "Appraisal") of the property values of parcels within the District. See "APPENDIX D -- APPRAISAL REPORT" hereto. The Appraisal was prepared with a date of value of June 17, 2005. In the opinion of the Appraiser, the discounted "bulk­ sale" value of the properties within Improvement Area No. 1, as of the date of value stated in the Appraisal, is $71,000,000, which is 3 times the aggregate principal amount of Bonds issued (excluding the portion to be deposited in the Special Escrow Fund). See "APPENDIX D -- APPRAISAL REPORT" for description of the valuation methodology. The Appraiser's value estimates reflect certain absorption assumptions set forth in the Appraisal including the sale of finished properties to "end users." In addition, the Appraiser's estimate refers to the sale of lots to developers or investors who will ultimately sell off to "end users." Also, the land development costs furnished by the Master Developer represent the costs estimated at the time of the Appraisal for developing the tract within Improvement Area No. 1. There can be no assurance that property values set forth in the Appraisal will not decrease, or that at any time the amount that could be realized upon sale of a particular parcel in a foreclosure sale for nonpayment of Special Taxes will equal that parcel's appraised value.

21 Maximum Special Tax Coverage

The following table sets forth a summary of estimated developed tax and undeveloped taxes per Developer in Improvement Area No. 1 for the years 2006 through 2012.

SUMMARY OF ESTIMATED DEVELOPED TAX AND UNDEVELOPED TAXES PER DEVELOPER COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1)

Year Estimated Estimated Undeveloped Taxes Total Ending Developed Estimated Sept. 1 Tax Woodside Lennar Ryland Ashbrook Total Taxes

2006 2007 $704,300 $194,681 $354,125 $244,705 $376,248 $1,169,758 $1,874,058 2008 1,518,894 132,403 241,502 373,905 1,892,799 2009 1,789,873 17,830 104,023 121,854 1,911,727 2010 1,930,844 1,930,844 2011 1,950,152 1,950,152 2012 1,969,654 1,969,654

Source: Special Tax Consultant.

The following tables show the debt service coverage achieved on the Bonds assuming 100% buildout, with the Special Tax levied at the maximum amount permitted by the Rate and Method.

22 SPECIAL TAXES AND DEBT SERVICE COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1)

Estimated Assigned Admin. Estimated Debt Special Taxes Costs Net Taxes Service Coverage

2007 $1,874,058 $(35,000) $1,839,058 $1,668,963 110.2% 2008 1,892,799 (35,000) 1,857,799 1,686,065 110.2 2009 1,911,727 (35,000) 1,876,727 1,701,168 110.3 2010 1,930,844 (35,000) 1,895,844 1,718,978 110.3 2011 1,950,152 (35,000) 1,915,152 1,739,570 110.1 2012 1,969,654 (35,000) 1,934,654 1,758,080 110.0 2013 1,969,654 (35,000) 1,934,654 1,754,190 110.3 2014 1,969,654 (35,000) 1,934,654 1,753,955 110.3 2015 1,969,654 (35,000) 1,934,654 1,757,613 110.1 2016 1,969,654 (35,000) 1,934,654 1,754,250 110.3 2017 1,969,654 (35,000) 1,934,654 1,754,063 110.3 2018 1,969,654 (35,000) 1,934,654 1,756,883 110.1 2019 1,969,654 (35,000) 1,934,654 1,757,425 110.1 2020 1,969,654 (35,000) 1,934,654 1,755,965 110.2 2021 1,969,654 (35,000) 1,934,654 1,757,138 110.1 2022 1,969,654 (35,000) 1,934,654 1,755,245 110.2 2023 1,969,654 (35,000) 1,934,654 1,756,345 110.2 2024 1,969,654 (35,000) 1,934,654 1,755,188 110.2 2025 1,969,654 (35,000) 1,934,654 1,756,773 110.1 2026 1,969,654 (35,000) 1,934,654 1,755,843 110.2 2027 1,969,654 (35,000) 1,934,654 1,756,465 110.1 2028 1,969,654 (35,000) 1,934,654 1,754,280 110.3 2029 1,969,654 (35,000) 1,934,654 1,754,288 110.3 2030 1,969,654 (35,000) 1,934,654 1,756,230 110.2 2031 1,969,654 (35,000) 1,934,654 1,754,855 110.2 2032 1,969,654 (35,000) 1,934,654 1,754,558 110.3 2033 1,969,654 (35,000) 1,934,654 1,755,655 110.2 2034 1,969,654 (35,000) 1,934,654 1,757,890 110.1 2035 1,969,654 (35,000) 1,934,654 1,756,005 110.2

Source: Special Tax Consultant and Underwriter.

No assurance can be given that any of the foregoing ratios can or will be maintained during the period of time that the Bonds are Outstanding. The City and the District have no control over the amount of additional indebtedness that may be issued in the future by other public agencies, the payment of which is secured by the levy of a tax or an assessment, whether on a parity with or subordinate to the Special Taxes. See "SPECIAL RISK FACTORS - Appraised Value; Land Value."

23 THE CITY

The City is located approximately 120 miles east of Los Angeles in the Coachella Valley, surrounded by the San Jacinto Mountains to the east and the Santa Rosa Mountains to the south. Its neighboring communities are La Quinta to the west, unincorporated areas of Riverside County to the south, the City of Coachella to the east and unincorporated Riverside County land to the north. In 1893, Indio became one of 12 townships in the County of Riverside and was incorporated as a general law city in 1930 with a council-manager form of municipal government. The City Council is composed of a Mayor and four members elected bi-annually at large to four-year alternating terms with the mayor rotating on an annual basis. Positions of City Manager and City Attorney are filled by appointments of the City Council. See "APPENDIX B -- CITY OF INDIO SUPPLEMENTAL INFORMATION" herein.

THE DISTRICT

On May 18, 2005, the City Council adopted a Resolution of Intention to form a community facilities district under the Act, to levy a special tax and to incur bonded indebtedness for the purpose of financing the improvements. After conducting a noticed public hearing, on July 20, 2005, the City Council adopted the Resolution of Formation, which established the District ( consisting of Improvement Area No. 1 and Improvement Area No. 2) and set forth the Rate and Method of Apportionment for the levy and collection of Special Taxes.

On July 20, 2005, an election was held within Improvement Area No. 1 in which the landowners eligible to vote unanimously approved the incurrence of bonded indebtedness in an amount not to exceed $30,000,000 and the levy of the Special Tax within Improvement Area No. 1. The Bonds are secured by Special Taxes payable by the property owners within Improvement Area No. 1 only and not Improvement Area No. 2.

The District expects to issue bonds in the future, the proceeds of which will be used to finance certain public facilities in Improvement Area No. 2 and which, when issued, will be secured by Special Taxes levied on taxable parcels within the Improvement Area No. 2.

The District consists of approximately 364.96 gross acres known as the Terra Lago comprising two Improvement Areas - Improvement Area No. 1 consists of approximately 174.80 acres, approximately 135. 75 acres of which are slated for residential development and 39.05 acres of which are open space, and Improvement Area No. 2 which consists of approximately 190.16 acres, 173. 76 acres of which are slated for residential development and 16.4 acres of which are open space. At buildout, it is anticipated that Improvement Area No. 1 will contain 635 residential dwelling units and Improvement Area No. 2 will contain 849 residential dwelling units. See "THE DEVELOPMENT" for further information regarding the Terra Lago housing community. The Bonds are being issued to finance the acquisition of public improvements serving properties within Improvement Area No. 1 only and not Improvement Area No. 2. See "THE FINANCING PLAN" herein.

THE DEVELOPMENT

Unpaid Special Taxes do not constitute a personal indebtedness of the Master Developer or the Developers (as each such term is defined herein), their affiliates or any subsequent owners of the parcels within Improvement Area No. 1 and neither the Master Developer nor the Developers (as defined below) have made any enforceable commitment to pay the principal of or interest on the Bonds or to support payment of the Bonds in any manner. There is no assurance that the Developers have or any subsequent

24 owners will have the ability to pay the Special Taxes or that, even if they have the ability, they will choose to pay such taxes. An owner may elect not to pay the Special Taxes when due and cannot be legally compelled to do so. Neither the District nor any Bondowner will have the ability at any time to seek payment from the Developers or any subsequent owners ofproperty within the District of any Special Tax or any principal or interest due on the Bonds, or the ability to control who becomes a subsequent owner of any property within the District. See "SECURITY FOR THE BONDS" and "SPECIAL RISK FACTORS" herein.

The Master Developer and the Developers have provided the information set forth under the heading "THE DEVELOPMENT" and "THE MASTER DEVELOPER AND THE DEVELOPERS." No assurance can be given that all information is complete. Although the Developers currently own all of the property within Improvement Area No. 1, the Developers intend to build and sell the residential properties to individual homeowners. When such sales occur, the ownership of the land within Improvement Area No. 1 will become more diversified No assurance can be given that development of the property will be completed, that it will be completed in a timely manner or that it will occur as described herein.

General

Improvement Area No. 1 consists of a total of 174.80 gross acres, 135.7 of which are slated for residential development comprising 635 residential lots and 39.05 acres of open space. The residential lots are contained within five residential tracts that will be developed by four merchant builders. See "THE MASTER DEVELOPER AND THE DEVELOPERS." The subject tracts are situated within the larger area generally known as "Shadow Hills" that is located in the northern portion of the City of Indio north of the Interstate 10 Freeway.

The master-planned community of Terra Lago is located less than one mile north oflnterstate-10 at the northeast corner of Golf Center Parkway and Avenue 43. The community is bisected by the Coachella Canal, an extension of the All American Canal, that runs southeastward through the property. The northern edge of the Terra Lago community abuts the base of the foothills at the northern boundary of the City of Indio. The property extends southward to Avenue 44. To the east of the property is open desert. About one mile to the northwest off of Jackson Street are six new home subdivisions within the Shadow Hills community that are currently marketing homes. For a further discussion of the community and the surrounding area, see "APPENDIX E-MARKET ABSORPTION STUDY."

Availability of Water for Construction

On June 20, 2005, the Indio Water Authority adopted a resolution that, among other things, terminated the use of construction meters (i.e. grading, dust control, filling water trucks, street cleaning, etc.) except in special circumstances during the period between July 1, 2005 through October 31, 2005 (the "Summer Conservation Period"). Such action was taken in order to ensure that sufficient water is available for existing Indio residents as construction meters can consume as much as 60 times that of a single family dwelling unit. There is no shortage of water sources, however. The Indio Water Authority is in the process of upgrading existing wells, and anticipates drilling additional new wells as required, in order to meet increasing water demands. This suspension of construction water meters is not expected to have any impact on the issuance of building permits or occupancy permits within Improvement Area No. 1.

Furthermore, the Indio Water Authority resolution also stated that in the event that the potable water distribution system is not capable of providing expanded potable water service to new construction in the City, the Indio Water Authority would consider suspension of the installation of additional water

25 meters until the end of the Summer Conservation Period. The Indio Water Authority does not expect to take any such action.

No assurance can be made that the Indio Water Authority will not take similar actions in the future that may impact the ability of the Developers to proceed with their respective developments in a timely manner. Any delay in development may have an adverse impact on the District's ability to pay debt service on the Bonds. See "SPECIAL RISK FACTORS -Failure to Develop Properties."

Public Facilities

A description of the public facilities proposed to be financed for Improvement Area No. 1 is contained in the Funding and Acquisition Agreement by and between the City and the Master Developer (the "Funding and Acquisition Agreement"). These public facilities consist of in-tract public facilities that are within and required to develop Improvement Area No. 1 and backbone public facilities, both within and outside the District, required to serve the entire District or both Improvement Areas. The costs of many of the backbone public facilities are eligible to be financed by either of the Improvement Areas. In addition, pursuant to the Agreement of Formation of Mello-Roos Community Facilities District No. 2004-3 (the "Development Agreement"), the costs of many of the backbone public facilities are eligible to be financed with the proceeds of bonds including, without limitation, the Bonds.

The Master Developer has identified two development phases within Terra Lago. Phase 1 currently includes Improvement Area No. 1 and Phase 2 includes Improvement Area No. 2. The Master Developer completed mass grading of Improvement Area No. 1 prior to the sale of the tracts contained therein to the Developers. With respect to the major backbone public infrastructure improvements required to serve Improvement Area No. 1, as of August 1, 2005, approximately 98% of such infrastructure improvement for Improvement Area No. 1, including sewer, water, storm drain, dry utilities and landscaping improvements, had been completed. The backbone public infrastructure improvements required to serve Improvement Area No. 2 are expected to be completed by December, 2006.

As of July, 2005, the Master Developer had expended approximately $25 million for the mass grading and major backbone public infrastructure improvements for Improvement Area No. 1. Initial funding for the work completed by Master Developer has been provided by internal sources.

To the extent available, costs of the public facilities with respect to Improvement Area No. 1 will be funded from proceeds of the Bonds. The City will not be obligated to pay for the public facilities except from amounts on deposit in the applicable Acquisition and Construction Fund once established with respect to each of the Improvement Areas. The City makes no warranty, express or implied, that the proceeds of the bonds deposited and held in the applicable Acquisition and Construction Fund, and any investment earnings thereon, will be sufficient to pay for the Improvements.

Environmental Assessment

A Phase 1 Environmental Assessment (the "Phase I Environmental Assessment") was undertaken by Earth Systems Southwest, Consulting Engineers and Geologists, in October 2002 to evaluate the potential for the presence of soil or groundwater contamination as a result of past use, handling, storage or disposal of hazardous materials or petroleum. Certain areas were excavated to remove certain contaminated or stained soil but no remediation was recommended and no additional items of environmental concern were identified on the site and further investigation was not warranted. See "SPECIAL RISK FACTORS - Hazardous Substances."

26 Development and Financing Plans - Improvement Area No. 1

Improvement Area No. 1 is expected to be developed with 635 homes ranging in size from 1,658 to 3,120 square feet. The Master Developer has sold all tracts within Improvement Area No. 1 to the Developers in mass-graded, blue-top condition. The on-site infrastructure development costs are being funded from the proceeds of the Bonds. Total on-site development costs to develop the property in Improvement Area No. 1 are estimated to be $9,608,416 (exclusive of any home construction costs). These costs are to pay fees and convert the land from mass graded blue-top condition into finished pads including the construction or installation of in-tract streets, sidewalks, curbs, gutters, sewer, water and storm drain improvements, landscaping, and dry utilities and related soft costs. As of August 1, 2005, construction of the in-tract improvements had not commenced but is expected to commence in the near future.

SUMMARY OF TRACT MAP APPROVALS COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1)

Expected Completion of On-Site Number Final Map Infrastructure Tract# Builder of Lots Approval and Grading

31601-2 Woodside Homes 178 May 4, 2005 June,2006 31601-3 Lennar Homes 128 July 6, 2005 June,2006 31601-4 Lennar Homes 86 July 6, 2005 June,2006 31601-5 Ryland Homes 110 July 6, 2005 June,2006 31601-7 Ashbrook Homes 133 August 3, 2005 June,2006

Source: The Developers

As currently proposed, the homes that are planned for construction on the subject properties consist of product lines that will be marketed independently of one another by the four Developers. The homes will offer a variety of design configurations that will appeal to a broad mix of household types including families with children, young married couples, move-down households, retired couples, and second home buyers. In addition to the base sale prices of the subject Terra Lago homes, many of the homes will command substantial premiums primarily for views of the lake located within Improvement Area No. 1 and the golf course located in Improvement Area No. 2.

27 SUMMARY OF PROPOSED NEW HOMES COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1)

Minimum Number Lot Size Home Size Tract# Builder of Lots % of Lots (Sq. Ft.) Range (SF)

31601-2 Woodside Homes 178 27.7% 5,000 1,658-2,407 31601-3 Lennar Homes 128 20.3 7,200 2,092-2,660 31601-4 Lennar Homes 86 13.6 8,400 2,595-3, 120 31601-5 Ryland Homes 110 17.4 6,000 1,987-2,591 31601 Ashbrook Homes 133 21.0 3,300 2, 100-2,500 Total I Range 635 100.0% 3,300-8,400 1,658-3,120

Source: SunCal Properties, Market Profiles

SUMMARY OF PROPOSED SPECIAL TAXES COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1)

Number Special Tract# Builder of Lots Avg Tax Tax % of Total

31601-3 Lennar Homes 128 $3,059 $391,552 21% 31601-4 Lennar Homes 86 3,495 300,601 16 31601-5 Ryland Homes 110 2,913 320,447 17 31601 Ashbrook Homes 133 3,516 467,673 25 31601-2 Woodside Homes 178 2,212 393,786 21 Total 635 $1,874,058 100%

Source: SunCal Properties, Market Profiles

Development of the infrastructure improvements within Improvement Area No. 1 is being overseen by the Master Developer in accordance with the provisions of the separate purchase agreements entered into between the Master Developer and each of the Developers. ( see "THE MASTER DEVELOPER AND THE DEVELOPERS" below). As of August 1, 2005, four building permits had been issued within Improvement Area No. 1 for the Model Park located in Tract No. 31601-2 owned by Woodside Portofino, Inc.

There is no assurance that amounts necessary to finance the site development costs within Improvement Area No. 1 will be available from the Master Developer, the Developers, or any other source, when needed. Neither the Master Developer nor the Developers are under any legal obligation of any kind to expend funds for the development of the property within District. Any contribution or loans by the Master Developer or the Developers, whether to fund costs of development within Improvement Area No. 1 or to pay special taxes, is entirely voluntary. The public infrastructure improvements associated with Improvement Area No. 2 are not being financed with the proceeds of the Bonds.

28 Absorption Study

A market absorption report dated July, 2005 (the "Absorption Study") has been prepared by Market Profiles, Santa Ana, California, at the request of the City in connection with the issuance of the Bonds. The study evaluated the depth of demand for new homes in Coachella Valley, as well as, the competitive market demand within the local Indio marketplace. The Absorption Study indicated that market demand is ample to support the development and sales of new homes in Improvement District No. 1. Competitive evaluations of the price structures that are anticipated and projected sales absorption rates for each of the residential tracts in Improvement Area No. 1, as well as further information regarding the Absorption Study, its assumptions and conclusions, are set forth in "APPENDIX E - MARKET ABSORPTION STUDY."

THE MASTER DEVELOPER AND THE DEVELOPERS

The Master Developer

Indio Land Ventures/SunCal Companies. Indio Land Ventures LLC, a Delaware limited liability corporation ("Indio Land Ventures") acquired the raw land comprising Improvement Area No. 1 and Improvement Area No. 2 on January 1, 2003. Indio Land Ventures has since sold the five tracts of Improvement Area No. 1 to the following merchant builders: Ashbrook ( 40. 70 acres owned by Terra Lago, 133, L.P.), Ryland Homes (32.65 acres), Woodside Portofino, Inc. (38.75 acres) and Lennar Homes (62.70 acres owned by MW Housing Managers III Cal Pers) as further described below. See also "THE DEVELOPMENT." Indio Land Ventures remains the owner of all the property contained in Improvement Area No. 2 which comprises approximately 190.16 acres, approximately 173.76 acres are slated for residential development and 16.4 acres are open space.

SunCal Properties ("SunCal") is the developer of the property owned by Indio Land Ventures in Improvement Area No. 2 and SunCal remains the Master Developer in connection with the implementation of the infrastructure in Improvement Area No. 1 in accordance with the provisions of the respective purchase agreements entered into between the Master Developer and each of the Developers. Founded in 1973, SunCal has developed at least 20 projects located mostly in Southern California. Current developments include Tesoro Del Valle in Los Angeles, Fairway Canyon in Beaumont, and Summerland Ranch in Calimesa. More information about SunCal can be found on the company's website, www.suncal.com. This Internet address is included for reference only, and the information on this Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this Internet site.

Provided below is a partial listing of recent regional projects and developments undertaken by Sun Cal.

Project Jurisdiction

Tesoro Del Valle Los Angeles Fairway Canyon Masterplan Beaumont Summerland Ranch Calimesa Mcsweeney Farms Hemet College Park Chino Westport at Mandalay Bay Oxnard

29 Indio Land Ventures is owned by SCC/Indio Land, LLC, a Delaware limited liability corporation, which is owned by SCC Mezz Ventures, a Delaware limited liability corporation, which in turn is owned by SCC Acquisitions, LLC, a Delaware limited liability corporation. SCC Acquisitions, LLC is owned by SCC Acquisitions, Inc. and Nevada Sun Investment Co., a Nevada corporation. Indio Land Ventures is also owned by LB Indio Land Ventures LLC, A Delaware limited liability company, which is wholly owned by PAMI LLC, a Delaware limited liability corporation, which in turn is owned by Lehman Brothers Entities. Indio Land Ventures is jointly managed by Sun Cal and Lehman Brothers.

The Developers

Ryland Homes. Ryland Homes of California, Inc., a Delaware corporation ("Ryland Homes") is a subsidiary of The Ryland Group, Inc., headquartered in Calabasas, California and listed on the NYSE under the symbol "RYL". Ryland Homes acquired 32.65 gross developable acres in March of 2005 comprising 110 lots, 76 of which are located in Zone A of Improvement Area No. 1 and 34 of which are located in Zone B. All of these are graded lots and are ready to have houses built on them. Ryland Homes plans to build 110 single family detached homes, thirty-six of which will be single story, and seventy-four of which will be two story, all of which are expected to be completed and sold by the end of 2006 and which shall be self-funded by Ryland Homes from monies on hand and not from any loan or other funding mechanism. The name of the development is Cristalo@ Terra Lago.

Founded in 1967, Ryland has built more than 225,000 homes and currently operates in 27 markets across the country. Current developments include Rosemont in San Marcos, Meadows in Perris, and Hermosa in Coachella. More information about Ryland Homes can be found on the company's website, www.ryland.com. This Internet address is included for reference only, and the information on this Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this Internet site.

Provided below is a partial listing of recent regional projects and developments undertaken by Ryland Homes and their principal participants and the date of completion of those projects.

Project Number of Units Jurisdiction Completion Date

Rosemont 68 San Marcos April 2004 Oasis-Sorano 250 Menifee May 2004 Oasis-Orviento 304 Menifee July 2004 Serenada 127 Murrieta September 2004 Pasatiempo 88 French Valley September 2004 Oasis-Palermo 217 Menifee November 2004 Waterford 74 San Marcos December 2004 Meadows 139 Perris Est. December 2005 Hermosa 120 Coachella Est. February 2006 Concord Estates 128 French Valley Est. May 2006 Sienna 132 Indio Est. June 2006

Woodside Portofino. Woodside Portofino, Inc. ("Woodside Portofino") is a special purpose corporation formed to acquire and develop the property located within Improvement Area No. 1 which it acquired in February 2005. It is an affiliate of Woodside Homes of California, Inc., which is the homebuilder/contractor for construction of homes on the land owned by Woodside Portofino, Inc. in Improvement Area No. 1. Both Woodside Portofino, Inc. and Woodside Homes of California, Inc. are wholly-owned subsidiaries of Woodside Group, Inc., a privately owned holding company. Its subsidiaries are homebuilding companies with operations in northern, central, and southern California,

30 Phoenix, Las Vegas, Jacksonville, Washington D.C., Denver, Minnesota, San Antonio, and Utah. The Woodside Group has no legal or contractual obligation to contribute funds to Woodside Portofino, either to complete the project or to pay the Special Taxes.

Woodside Portofino acquired 38.75 gross acres of land in Improvement Area No. 1 in February of 2005, 33.05 of which are developable acres on which it is planned that 179 single-family residences be built on 15 8 lots located in Zone A and 20 lots located in Zone B which shall be self-funded by Woodside Portofino from monies on hand and not from any loan or other funding mechanism. None of these residences have been built on to date. The project is to be called Portofino@ Terra Lago.

More information about Woodside Homes can be found on the company's website, www.woodsidegroupinc.com. This Internet address is included for reference only, and the information on this Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this Internet site.

Provided below is a listing of recent regional projects and developments undertaken by Woodside Homes' Southern California Division and the dates of completion for those projects.

Proiect Number of Units Jurisdiction Com12Ietion Date Aberdeen 175 Yucaipa Est. November, 2005 Mahogany 121 Temecula January, 2005 Marquis 127 Temecula June,2005 Nelson 116 Riverside February, 2005 Oak Creek 124 Riverside March, 2005 Park Lane 185 Riverside Est. December, 2005 Serrano 136 Victorville Est. December, 2005 Sienna 108 Victorville Est. August, 2005 Solana 103 Victorville April, 2005 Summerset 160 Victorville Est. December, 2005 Traditions 134 Riverside Est. December, 2005 W estcreek PA 1 105 Victorville Est. December, 2005 W estcreek PA 3 85 Victorville Est. December, 2005 Woods Valley 79 San Diego May, 2005

WHP Terra Lago 133/Ashbrook. WHP Terra Lago 133, a California Limited Partnership ("WHP Terra Lago"), owns 40.70 gross acres of the land in Improvement Area No. 1 acquired in May, 2005, 17.60 of which are to be developed into 133 residential units arranged in three duplex building types withy several zero lot line homes on 30 lots located in Zone A of Improvement Area No. 1 and 103 lots located in Zone B. Two lots comprising 23.10 acres will not be used for residential improvements but will be developed to provide for a clubhouse and adjoining lake. Buildout for the residential units is expected to be completed in mid-2007 and shall be self-funded by Ashbrook from monies on hand and not from any loan or other funding mechanism.

The property held by WHP Terra Lago is being developed by Ashbrook Development Company, Inc., doing business as Ashbrook Communities ("Ashbrook"). WHP Terra Lago is an affiliate of Ashbrook which is the homebuilder/contractor for construction of homes on the land owned by WHP Terra Lago in Improvement Area No. 1. Ashbrook has no legal or contractual obligation to contribute funds to WHP Terra Lago either to complete the project or pay Special Taxes in connection therewith.

Ashbrook is a privately-held home building and land development company that was formed in April 1995 by Timothy McGowan and Richard Crook. Ashbrook Communities' recent developments

31 include Buenavida in San Marcos, Saint Augustine and Santo Tomas in Rancho Mirage, Pasadera in La Quinta, Blossom Valley in Lakeside, and Murrieta in Murrieta. More information about Ashbrook can be found on the company's website, at www.ashbrookcommunities.com. This Internet address is included for reference only, and the information on this Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy ofthe information contained on this Internet site.

Provided below is a partial listing of regional projects and developments undertaken by Ashbrook and their principal participants within the last five years and the date of completion of those projects.

Proiect Number of Units Jurisdiction Completion Date

Buenavida 408 San Marcos 2003 Perris Meadows 177 Perris 1999 Hemet 196 196 Hemet 2004 Saint Augustine 137 Rancho Mirage 2004 Pasadera 92 La Quinta February 2005 Blossom Valley 44 Lakeside 2004 Santo Tomas 152 Rancho Mirage 2006 ( estimated) Murrieta 289 Murrieta 2003 Desert Trace 111 Indio February 2007

MW Housing Partners Ill/Lennar Corporation. Two tracts of land comprising a total of 62. 70 acres located in Improvement Area No. 1 are owned by MW Housing Partners III ("MW Housing Partners") are being developed by Lennar Homes, an affiliate of Lennar Corporation, a publicly traded company listed on the New York Stock Exchange under the trading symbol "LEN". Both tracts owned by MW Housing Partners, comprising a total of 214 lots, are located in Zone A of Improvement Area No. 1 and which shall be self-funded by Lennar Homes from monies on hand and not from any loan or other funding mechanism. Lennar Corporation, together with its subsidiaries, operates primarily as a geographically diversified builder of single-family homes throughout major metropolitan markets in Arizona, California, Colorado, Florida, Illinois, Maryland, Minnesota, Nevada, New Jersey, North Carolina, South Carolina, Texas, and Virginia. Through its 68 homebuilding divisions, Lennar Corporation delivered approximately 23,899 homes in 2001, 27,393 homes in 2002 and 32,180 homes in 2003.

MW Housing Partners is an affiliate of Lennar Homes which is the homebuilder/contractor for construction of homes on the land owned by MW Housing Partners in Improvement Area No. 1. Neither Lennar Homes nor Lennar Corporation have any legal or contractual obligation to contribute funds to MW Housing Partners either to complete the project or pay Special Taxes in connection therewith.

Lennar Corporation is subject to the periodic reporting requirements of the Exchange Act of 1934, as amended (the "Exchange Act") and, accordingly, files periodic financial and other information with the Securities and Exchange Commission (the "Commission") on a regular basis, including but not limited to its annual report on Form 10-K and its quarterly reports on Form 10-Q. More information about Lennar Homes and Lennar Corporation can be found on the company's website, www.lennar.com. This Internet address is included for reference only, and the information on this Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this Internet site.

32 Current projects under development by Lennar Homes include the following:

Proiect N um her of Units Jurisdiction Completion Date

La Morada 171 Coachella 2007 Las Plumas 87 Coachella 2006 Sunburst 131 Indio 2005 Vista Serena 111 Indio 2006 Cala Rosa 118 Indio 2006 Paradiso 225 Indio 2008 Cordoba @ Terra Lago 128 Indio 2008 Marquesa@ Terra Lago 86 Indio 2008 Desert River Estates 123 Indio 2006 La Quinta del Oro 141 La Quinta 2005 La Quinta Desert Villas 132 La Quinta 2008 Esplanade 268 La Quinta 2006 Escena 240 Palm Springs 2007

SPECIAL RISK FACTORS

The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in Improvement Area No. 1 to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the District to make full and punctual payments of debt service on the Bond In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in Improvement Area No. 1.

Concentration of Ownership

As buildout and market absorption continues within Improvement Area No. 1, property ownership within Improvement Area No. 1 can be expected to become diversified. Lack of diversity of ownership presents a risk to Bondowners, in that failure of a large taxpayer within Improvement Area No. 1 to pay Special Taxes when due could result in the depletion of the Reserve Account prior to the replenishment thereof from moneys realized upon resale of property from foreclosure or otherwise, or delinquency redemptions after a foreclosure sale.

Risks of Real Estate Secured Investments Generally

The Bondowners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of Improvement Area No. 1, the supply of or demand for competitive properties in such area, and the market value of commercial and industrial buildings and/or sites in the event of sale or foreclosure, (ii) changes in real estate tax rate and other operating expenses, government rules (including, without limitation, zoning laws and restrictions relating to threatened and endangered species) and fiscal policies and (iii) natural disasters (including, without limitation, earthquakes and floods), which may result in uninsured losses, or natural disasters elsewhere in the country or other parts of the world affecting supply of building materials that may cause delays in construction.

33 Terrorist Attacks

The terrorist attacks of September 11, 2001 and subsequent military and/or terrorist activities in this country and abroad have contributed to slowdowns of the national as well as the State's overall economy. None of the City, District, the Master Developer or the Developers can predict the likelihood of future terrorist attacks or the long-term economic impact caused by such attacks. Future terrorist attacks may result in a slowdown of home sales and a decrease in land values within Improvement Area No. 1.

Land Development Costs

The cost of additional improvements plus the public and private in-tract, on-site and off-site improvements would likely increase the public and private debt secured by the land within Improvement Area No. 1. See "SECURITY FOR THE BONDS - Direct and Overlapping Debt." This increased debt could reduce the ability or desire of the property owners to pay the annual Special Taxes levied against the property. See "SECURITY FOR THE BONDS - The Special Taxes" and "SECURITY FOR THE BONDS - Appraisal." In that event there could be a default in the payment of principal of, and interest on, the Bonds.

Future Land Use Regulations and Growth Control Initiatives

In recent years, citizens of a number of local communities in Southern California, including citizens of the County of Riverside, the County of Orange and the County of San Diego, have placed measures on the ballot designed to control the rate of future growth in those areas. It is possible that future initiatives could be enacted and become applicable to the development proposed to be conducted within Improvement Area No. 1 (the "Development") and could, if applied retroactively, negatively impact the ability of the Developers to complete the proposed Development. Bondowners should assume that any event that impacts the ability to develop land in Improvement Area No. 1 could cause the land values within Improvement Area No. 1 to decrease and could affect the willingness and ability of the owners of land within Improvement Area No. 1 to pay the Special Taxes when due. See "SECURITY FOR THE BONDS - Appraisal."

In evaluating the investment quality of the Bonds, investors should assume that the possible enactment of more restrictive land use regulations by the City or the County of Riverside, or by voter initiative presents a substantial risk to the timely construction and completion of development, except with respect to units for which building permits have already been issued and substantial work and liabilities have been incurred in good faith reliance thereon prior to the date of adoption of any such land use regulations.

The failure to complete the Development as planned, or substantial delays in the completion of the Development, due to litigation or other causes may reduce the value of the property within Improvement Area No. 1, and will increase the amount of Special Taxes to be paid by the owners of undeveloped property and may affect the willingness and ability of the owners of land within Improvement Area No. 1 to pay the Special Taxes when due. Depending on the nature of the Development eventually approved and completed, the value of the land within Improvement Area No. 1 may be reduced.

Failure to Develop Properties

Land development operations are subject to comprehensive Federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health

34 requirements, as well as numerous other matters. There is always the possibility that such approvals will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental requirements would adversely affect land development operations. In addition, there is the risk that lawsuits challenging the City's approval of the Development will be instituted.

Under current California law, it is generally accepted that proposed development is not exempt from future land use regulations until building permits have been properly issued and substantial work has been performed and substantial liabilities have been incurred in good faith reliance on such permits.

Development of certain portions of the land within the District is contingent upon construction or acquisition of major public improvements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, gas, telephone and electrical facilities, as well as local in-tract improvements including site grading. While certain of these improvements have been or are expected to be constructed with proceeds of the Bonds, there can be no assurance that all of these improvements will be constructed. The cost of these public and private in-tract and off-site improvements could increase the public and private debt for which the land within Improvement Area No. 1 provides security. This increased debt could reduce the willingness and/or ability of the property owners to pay the annual Special Taxes levied against their property.

In addition, there is the risk that future governmental restrictions, including but not limited to, governmental policies restricting or controlling development within the District will be enacted. Should a court of competent jurisdiction determine that the vesting tentative maps do not exempt the Development from future initiatives approved by the voters or regulations adopted by the City more restrictions and requirements on development within the District could be imposed pursuant to such initiatives or regulations. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Initiatives" above.

Moreover, there can be no assurance that the means and incentive to conduct land development operations within Improvement Area No. 1 will not be adversely affected by a future deterioration of the real estate market and economic conditions of future local, State and federal governmental policies relating to real estate development, the income tax treatment of real property ownership, or the national economy. A slowdown of the development process and the absorption rate could adversely affect land values and reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Bonds.

Another risk to the Bondowners involves the value of undeveloped property. The inability or failure to develop property due to adverse regulatory or economic conditions may reduce the value of undeveloped property. The undeveloped property also provides less security to the Bondowners should it be necessary for the District to foreclose on undeveloped property in Improvement Area No. 1 due to the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within Improvement Area No. 1 as currently proposed will likely reduce the diversity of ownership of land within Improvement Area No. 1, making the Bondowners more dependent upon timely payment of the Special Tax levied on the undeveloped property. Because of the current concentration of ownership of the undeveloped property in the affiliated landowners, the timely payment of the Bonds depends upon the willingness and ability of the present owners of the undeveloped property to pay the Special Taxes levied on the undeveloped property when due. See "SPECIAL RISK FACTORS - Concentration of Ownership" above. A slowdown or stoppage in the continued development of Improvement Area No. 1 could reduce the willingness and ability of such owners to make Special Tax payments on undeveloped property, and could greatly reduce the value of such property in the event it has to be foreclosed upon.

35 Disclosure to Future Homebuyers

Pursuant to Section 53328.3 of the Act, the District has recorded a Notice of Special Tax Lien in the Office of the Riverside County Recorder. The sellers of property within the District are required to give prospective buyers a Notice of Special Tax in accordance with Sections 53340.2 and 53341.5 of the Act. While title companies normally refer to the Notice of Special Tax Lien in title reports, there can be no guarantee that such reference will be made or the seller's notice given or, if made and given, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a home or commercial facility or the lending of money thereon. Failure to disclose the existence of the Special Taxes may affect the willingness and ability of future owners of land within Improvement Area No. 1 to pay the Special Taxes when due.

Parity Taxes and Special Assessments

The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is coequal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The Special Taxes have priority over all existing and future private liens imposed on the property. The District, however, has no control over the ability of other entities and districts to issue indebtedness secured by special taxes or assessments payable from all or a portion of the property within Improvement Area No. 1. In addition, the landowners within Improvement Area No. 1 may, without the consent or knowledge of the District, petition other public agencies to issue public indebtedness secured by special taxes or assessments. Any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes. See "SECURITY FOR THE BONDS - Direct and Overlapping Debt."

Appraised Value; Land Value

The value of land within Improvement Area No. 1 is an important factor in evaluating the investment quality of the Bonds. In the event that a property owner defaults in the payment of Special Tax installments, the District's only remedy is to judicially foreclose on that property. Prospective purchasers of the Bonds should not assume that the property within Improvement Area No. 1 could be sold for the assessed or appraised value described in the Official Statement at a foreclosure sale for delinquent Special Tax installments or for an amount adequate to pay delinquent Special Tax installments. Reductions in property values within Improvement Area No. 1 due to a downturn in the economy or the real estate market, events such as earthquakes, droughts, or floods, stricter land use regulations, threatened or endangered species or other events may adversely impact the security underlying the Special Taxes.

The property values set forth in the various tables herein are the property values determined by the Appraiser. The Appraisal was prepared for the purpose of estimating and confirming the minimum market value of the property in Improvement Area No. 1 as of June 17, 2005 in its as is condition on the basis of certain assumptions. Prospective purchasers of the Bonds should not assume, however, that the land within Improvement Area No. 1 could be sold for the appraised amount described herein at the present time or at a foreclosure sale for delinquent Special Taxes. See the Appraisal included as Appendix D hereto for a brief description of the analysis used and assumptions made by the Appraiser. The actual value of the property is subject to future events that might render invalid the assumptions relied upon by the Appraiser in determining the appraised value.

The actual market value of the property is subject to future events such as a downturn in the economy, and occurrences of certain acts of nature, all of which could adversely impact the value of the land in Improvement Area No. 1 which is the security for the Bonds. As discussed herein, many factors

36 could adversely affect property values or prevent or delay land development within Improvement Area No. 1. Furthermore, the estimated value-to-lien ratio of individual parcels may vary. No assurance can be given that, should a parcel with delinquent Special Taxes be foreclosed upon and sold for the amount of the delinquency, any bid will be received for such property or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes.

Value to Lien Ratios

Value-to-lien ratios have traditionally been used in land-secured bond issues as a measure of the "collateral" supporting the willingness of property owners to pay their special taxes and assessments ( and, in effect, their general property taxes as well). The value-to-lien ratio is mathematically a fraction, the numerator of which is the value of the property (usually a market value as determined by an appraiser) and the denominator of which is the "lien" of the assessments or special taxes. A value to lien ratio should not, however, be viewed as a guarantee for credit-worthiness. Land values are more volatile in the early stages of a development, and are especially sensitive to economic cycles. A downturn of the economy or other market factors may depress land values and hence the value-to-lien ratios, by increasing risk to investors and lenders, and lengthening the absorption period for new development projects. Further, the value-to-lien ratio cited for a bond issue is an average. Individual parcels in a community facilities district may fall above or below the average, sometimes even below a 1: 1 ratio. (With a ratio below 1: 1, the land is worth less than the debt on it.) If property ownership in a community facilities district is highly concentrated during the early stages of development, the delinquency of a major property owner can deplete the bond's reserve fund and threaten the timely payment of the debt service, even though the value-to-lien ratio is adequate. Although judicial foreclosure proceedings can be initiated rapidly, the process can take several years to complete, and the bankruptcy courts may impede the foreclosure action. No assurance can be given that, should a parcel with delinquent Special Taxes be foreclosed upon and sold for the amount of the delinquency, any bid will be received for such property or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes. Finally, local agencies may form overlapping community facilities districts or assessment districts because they typically do not coordinate their bond issuances. Debt issuance by another entity can dilute value-to-lien ratios, as set forth in the table in the section above entitled "SECURITY FOR THE BONDS - Direct and Overlapping Debt." See "SECURITY FOR THE BONDS - Estimated Appraised Value-to-Lien Ratios."

Insufficiency of Special Taxes

Under the Rate and Method, the annual amount of Special Tax to be levied on each taxable parcel in Improvement Area No. 1 will be based primarily on whether such parcel is developed or not and, for detached developed property on the square footage, and for undeveloped property on the acreage of the Assessor's Parcel. See "APPENDIX A-RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" and "SECURITY FOR THE BONDS - Rate and Method of Apportionment of Special Taxes." Accordingly, to the extent property is not developed, collection of the Special Taxes will be dependent on the willingness and ability of the owners of undeveloped property to pay such Special Taxes when due. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Initiatives" and "­ Failure to Develop Properties" above for a discussion of the risks associated with undeveloped property.

The Act provides that, if any property within Improvement Area No. 1 not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by a gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts. MOREOVER, IF A SUBSTANTIAL PORTION OF LAND WITHIN IMPROVEMENT AREA NO. 1

37 BECAME EXEMPT FROM THE SPECIAL TAX BECAUSE OF PUBLIC OWNERSHIP, OR OTHERWISE, THE MAXIMUM SPECIAL TAX WHICH COULD BE LEVIED UPON THE REMAINING ACREAGE MIGHT NOT BE SUFFICIENT TO PAY PRINCIPAL OF AND INTEREST ON THE BONDS WHEN DUE AND A DEFAULT COULD OCCUR WITH RESPECT TO THE PAYMENT OF SUCH PRINCIPAL AND INTEREST.

Tax Delinquencies

Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of, and interest on, the Bonds are derived, will be billed to the properties within Improvement Area No. 1 on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Special Tax installment payments cannot be made to the County Tax Collector separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and Special Tax installment payments in the future.

See "SECURITY FOR THE BONDS - Reserve Fund" and "SECURITY FOR THE BONDS - Covenant for Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the District is obligated to follow under the Fiscal Agent Agreement, in the event of delinquency in the payment of Special Tax installments.

Future Indebtedness

At the present time part of the land within Improvement Area No. 1 has not been improved. The cost of any additional improvements may well increase the public and private debt for which the land in Improvement Area No. 1 provide security, and such increased debt could reduce the ability or desire of property owners to pay the Special Taxes levied against the land in Improvement Area No. 1. In addition, in the event any additional improvements or fees are financed pursuant to the establishment of an assessment district or another district formed pursuant to the Act, any taxes or assessments levied to finance such improvements way have a lien on a parity with the lien of the Special Taxes. See "SECURITY FOR THE BONDS - Direct and Overlapping Debt."

Natural Disasters

The District, like all California communities, may be subject to unpredictable seismic activity, fires due to the vegetation and topography, or flooding in the event of significant rainfall. According to the seismic safety element of the City's General Plan, the City is located in a seismically active region. As a result, Improvement Area No. 1 could be impacted by a major earthquake from the numerous faults in the area. Seismic hazards encompass both potential surface rupture and ground shaking. The occurrence of seismic activity, fires or flooding in or around the District could result in substantial damage to properties in Improvement Area No. 1, which, in turn, could substantially reduce the value of such properties. As a result of the occurrence of such an event, a substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when due, and the reserve fund for the Bonds may become depleted. In addition, the value of land in Improvement Area No. 1 could be diminished in the aftermath of such natural events, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes.

38 Endangered and Threatened Species

On a regular basis, new species are proposed to be added to the State and federal protected species lists. Any action by the State or federal governments to protect species located on or adjacent to the property within the District could negatively affect the Developers' ability to complete the development of the properties within Improvement Area No. 1 as planned. This, in turn, could reduce the ability or willingness of the property owners to pay the Special Taxes when due and would likely reduce the value of the land and the potential revenues available at a foreclosure sale for delinquent Special Taxes.

Hazardous Substances

A serious risk in terms of the potential reduction in the value of a parcel within Improvement Area No. 1 is a claim with regard to a hazardous substance. In general, the owners and operators of a parcel within Improvement Area No. 1 may be required by law to remedy conditions of such parcel relating to release or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of the property whether or not the owner or operator had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the parcels within Improvement Area No. 1 be affected by a hazardous substance, will be to reduce the marketability and value of such parcel by the costs of remedying the condition, because the prospective purchaser, upon becoming the owner, will become obligated to remedy the condition just as the seller is.

Further it is possible that liabilities may arise in the future with respect to any of the parcels resulting from the current existence on the parcel of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the current existence on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly affect the value of a parcel within Improvement Area No. 1 that is realizable upon a delinquency.

As described in the Phase 1 Environmental Assessment, certain areas within Improvement Area No. 1 have been excavated to remove contaminated or stained soil but no remediation has been recommended and further investigation was not warranted. See "THE DEVELOPMENT -­ Environmental Assessment."

Bankruptcy and Foreclosure

The payment of property owners' taxes and the ability of Improvement Area No. 1 to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings, may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the State relating to judicial foreclosure. See "SECURITY FOR THE BONDS - Covenant for Superior Court Foreclosure." In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays.

The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinion) will be qualified, as to the enforceability of the various legal

39 instruments, by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally.

In addition, bankruptcy of a property owner (or a property owner's partner or equity owner) would likely result in a delay in procuring Superior Court foreclosure proceedings unless the bankruptcy court consented to permit such foreclosure action to proceed. Such delay would increase the likelihood of a delay or default in payment of the principal of, and interest on, the Bonds and the possibility of delinquent tax installments not being paid in full.

Under 11 U.S.C. Section 362(b)(18), in the event of a bankruptcy petition filed on or after October 22, 1994, the lien for ad valorem taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bondowners should be aware that the potential effect of 11 U.S.C. Section 362(b )(18) on the Special Taxes depends upon whether a court were to determine that the Special Taxes should be treated like ad valorem taxes for this purpose.

On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed after the filing of the bankruptcy petition were declared to be "administrative expenses" of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the property and retain all the proceeds of the sale except the amount of the pre-petition taxes.

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

The Act provides that the Special Taxes are secured by a continuing lien which is subject to the same lien priority in the case of delinquency as ad valorem taxes. No case law exists with respect to how a bankruptcy court would treat the lien for Special Taxes levied after the filing of a petition in bankruptcy. Glasply is controlling precedent on bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Taxes, the amount of Special Taxes received from parcels whose owners declare bankruptcy could be reduced.

Property Controlled by FDIC

The District's ability to collect interest and penalties specified by State law and to foreclose the lien of delinquent Special Tax payments may be limited in certain respects with regard to properties in which the Internal Revenue Service, the Drug Enforcement Agency, the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal agencies has or obtains an interest. The District is not aware of any such interest of a federal agency in the land within Improvement Area No. 1. On June 4, 1991 the FDIC issued a Statement of Policy Regarding the Payment of State and Local Real Property Taxes. The 1991 Policy Statement was revised and superseded by a new Policy Statement effective January 9,1997 (the "Policy Statement"). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its proper tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent

40 with sound business practice arid the orderly administration of the institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent.

The Policy Statement states that the FDIC generally will not pay non ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Act and a special tax formula which determines the special tax due each year, are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC's federal immunity.

The FDIC has filed claims against one California county in United States Bankruptcy Court contending, among other things, that special taxes authorized under the Act are not ad valorem taxes and therefore not payable by the FDIC, and seeking a refund of any special taxes previously paid by the FDIC. The FDIC is also seeking a ruling that special taxes may not be imposed on properties while they are in FDIC receivership. The Bankruptcy Court ruled in favor of the FDIC's positions and, on August 28, 2001, the United States Court of Appeals for the Ninth Circuit affirmed the decision of the Bankruptcy Court, holding that the FDIC, as an entity of the federal government, is exempt from post-receivership special taxes levied under the Act. This is consistent with provision in the Law that the federal government is exempt from special taxes.

The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to a parcel in which the FDIC has an interest, although prohibiting the lien of the FDIC to be foreclosed on at a judicial foreclosure sale would likely reduce the number of or eliminate the persons willing to purchase such a parcel at a foreclosure sale. Owners of the Bonds should assume that the District will be unable to foreclose on any parcel owned by the FDIC. Such an outcome would cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment of the Bonds. The District has not undertaken to determine whether the FDIC or any FDIC-insured lending institution currently has, or is likely to acquire, any interest in any of the parcels, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding.

Billing of Special Taxes

A special tax formula can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in turn, along with various other factors, can lead to problems in the collection of the special tax. In some community facilities districts, taxpayers have refused to pay the special tax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by the District.

Under provisions of the Act, the Special Taxes are billed to the properties within Improvement Area No. 1 which were entered on the Assessment Roll of the County Assessor by January 1 of the previous Fiscal Year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Ordinarily, these Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular

41 property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and installment payments of Special Taxes in the future. See "SECURITY FOR THE BONDS - Covenant for Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the District is obligated to follow, in the event of delinquency in the payment of installments of Special Taxes.

Collection of Special Taxes

In order to pay debt service on the Bonds, it is necessary that the Special Tax levied against land within Improvement Area No. 1 be paid in a timely manner. It is possible that delays in the payment of debt service may be the result of the County processing subdivisions or by the transfer of ownership of property within Improvement Area No. 1. The District has covenanted in the Fiscal Agent Agreement under certain conditions to institute foreclosure proceedings against property with delinquent Special Taxes in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Taxes to protect its security interest. In the event such superior court foreclosure is necessary, there could be a delay in principal and interest payments to the owners of the Bonds pending prosecution of the foreclosure proceedings and receipt of the proceeds of the foreclosure sale, if any. No assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Taxes installment. Although the Act authorizes the District to cause such an action to be commenced and diligently pursued to completion, the Act does not specify the obligations of the District with regard to purchasing or otherwise acquiring any lot or parcel of property sold at the foreclosure sale if there is no other purchaser at such sale. See "SECURITY FOR THE BONDS - Covenant for Superior Court Foreclosure."

Maximum Special Tax Rates

Within the limits of the Rate and Method, the District may adjust the Special Taxes levied on all property within Improvement Area No. 1 to provide the amount required each year to pay annual debt service on the Bonds and to replenish the Reserve Account to an amount equal to the Reserve Requirement. However, the amount of Special Taxes that may be levied against particular categories of property is subject to the maximum tax rates set forth in the applicable Rate and Method. In the event of significant Special Tax delinquencies, there is no assurance that the maximum tax rates for property in Improvement Area No. 1 would be sufficient to meet debt service obligations on the Bonds. See "SECURITY FOR THE BONDS - The Special Taxes" and "APPENDIX A - RA TE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES."

Exempt Properties

So long as certain conditions are met, each Rate and Method provides that the District shall not levy a Special Tax on Property classified as Exempt Property. Under the Rate and Method, the Board will not levy Special Taxes on public property, Property Owner's Association property within the District or property comprising the golf course (located in Improvement Area No. 2) as well as certain other parcels specified in Improvement Area No. 2. Exempt Property status will be assigned in the chronological order in which property in the District becomes included in such categories of Exempt Property.

In addition, the Act provides that properties or entities of the State, federal or local government are exempt from the Special Taxes; provided, however, the property within Improvement Area No. 1 acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Taxes, will continue to be subject to the Special Taxes. The Act further provides

42 that if property subject to the Special Taxes is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Taxes with respect to that property is to be treated as if it were a special assessment. The constitutionality and operation of these provisions of the Act have not been tested. In particular, insofar as the Act requires payment of the Special Taxes by a federal entity acquiring property within Improvement Area No. 1, it may be unconstitutional.

If for any reason property within Improvement Area No. 1 becomes exempt from taxation by reason of its status under the Rate and Method, or by reason of its ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitation of the maximum authorized rates, the Special Taxes will be reallocated to the remaining taxable properties within Improvement Area No. 1. This would result in the owners of such property paying a greater amount of the Special Taxes and could have an adverse impact upon the timely payment of the Special Taxes.

California Constitution Article XIIIC and Article XIIID

On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which articles contain a number of provisions affecting the ability of the District to levy and collect both existing and future taxes, assessments, fees and charges. According to the "Official Title and Summary" of Proposition 218 prepared by the California State Attorney General, Proposition 218 limits the "authority of local governments to impose taxes and property-related assessments, fees and charges." On July 1, 1997 California State Senate Bill 919 ("SB 919") was signed into law. SB 919 enacted the "Proposition 218 Omnibus Implementation Act," which implements and clarifies Proposition 218 and prescribes specific procedures and parameters for local jurisdictions in complying with Articles XIIIC and XIIID.

Article XIIID of the State Constitution reaffirms that the proceedings for the levy of any Special Taxes by the District under the Act must be conducted in conformity with the provisions of Section 4 of Article XIIIA. The District has completed its proceedings for the levy of Special Taxes in accordance with the provisions of Section 4 of Article XIIIA. Under Section 53358 of the California Government Code, any action or proceeding to review, set aside, void, or annul the levy of a special tax or an increase in a Special Tax (including any constitutional challenge) must be commenced within 30 days after the Special Tax is approved by the voters.

Article XIIIC removes certain limitations on the initiative power in matters of local taxes, assessments, fees and charges. The Act provides for a procedure, which includes notice, hearing, protest and voting requirements, to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting a resolution to reduce the rate of any special tax if the proceeds of that tax are being utilized to retire any debt incurred pursuant to the Act unless such legislative body determines that the reduction of that tax would not interfere with the timely retirement of that debt. Although the matter is not free from doubt, it is likely that exercise by the voters of the initiative power referred to in Article XIIIC to reduce or terminate the Special Tax is subject to the same restrictions as are applicable to the Board, as the legislative body of the District, pursuant to the Act. Accordingly, although the matter is not free from doubt, it is likely that Proposition 218 has not conferred on the voters the power to repeal or reduce the Special Taxes if such repeal or reduction would interfere with the timely retirement of the Bonds.

It may be possible, however, for voters or the Board, acting as the legislative body of the District, to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the Bonds.

43 Proposition 218 and the implementing legislation have yet to be extensively interpreted by the courts; however, the California Court of Appeal in April 1998 upheld the constitutionality of Proposition 218' s balloting procedures as a condition to the validity and collectibility of local governmental assessments. A number of validation actions for and challenges to various local governmental taxes, fees and assessments have been filed in Superior Court throughout the State, which could result in additional interpretations of Proposition 218. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and the outcome of such determination cannot be predicted at this time with any certainty.

Ballot Initiatives and Legislative Measures

Proposition 218 was adopted pursuant to a measure qualified for the ballot pursuant to California's constitutional initiative process; and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the Legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the District or other local districts to increase revenues or to increase appropriations or on the ability of a landowner to complete the development of property. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Initiatives" above.

No Acceleration

The Bonds do not contain a provision allowing for their acceleration in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement or upon any adverse change in the tax status of interest on the Bonds. There is no provision in the Act or the Fiscal Agent Agreement for acceleration of the Special Taxes in the event of a payment default by an owner of a parcel within Improvement Area No. 1. Pursuant to the Fiscal Agent Agreement, a Bond Owner is given the right for the equal benefit and protection of all Bond Owners to pursue certain remedies described in "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT."

Loss of Tax Exemption

As discussed under the caption "CONCLUDING INFORMATION -Tax Exemption," in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the District has covenanted in the Fiscal Agent Agreement not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Internal Revenue Code of 1986, as amended. Interest on the Bonds could become includable in gross income for purposes of Federal income taxation retroactive to the date the Bonds were issued, as a result of acts or omissions of the City or the District in violation of the Code. Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the optional redemption or mandatory sinking fund redemption provisions of the Fiscal Agent Agreement.

Limitations on Remedies

Remedies available to the Bond Owners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Bonds or to preserve the tax-exempt status of the Bonds. Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditor's rights, by equitable principles and by the exercise of judicial

44 discretion. Additionally, the Bonds are not subject to acceleration in the event of the breach of any covenant or duty under the Fiscal Agent Agreement. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Bond Owners.

Enforceability of the rights and remedies of the Bond Owners, and the obligations incurred by the District, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor's rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against joint powers authorities in the State. See "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure."

Limited Secondary Market

As stated herein, investment in the Bonds poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risk of investment in the Bonds should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Bonds or, if a secondary market exists, that the Bonds can or could be sold for any particular price. No application has been made for a credit rating for the Bonds, and it is not known whether a credit rating could be secured either now or in the future for the Bonds.

CONCLUDING INFORMATION

Underwriting

The Underwriter purchased the Bonds at a purchase price of $25,824,283, representing the principal amount of the Bonds less an Underwriter's discount of $434,445.00 and less Net Original Issue Discount of $71,272.00. The Underwriter intends to offer the Bonds to the public initially at the prices set forth on the inside cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice.

The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers.

Legal Opinion

The legal opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, approving the validity of the Bonds, in substantially the form set forth in APPENDIX F hereto, will be made available to purchasers of the Bonds at the time of original delivery. A copy of the legal opinion for the Bonds will be provided with each definitive bond. Bond Counsel has not undertaken on behalf of the Owners or the Beneficial Owners of the Bonds to review the Official Statement and assumes no responsibility to such Owners and Beneficial Owners for the accuracy of the information contained herein. Certain legal matters will be passed upon for the City by the City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, Disclosure Counsel to the City with respect to the issuance of the Bonds. Jones Hall, A Professional Law Corporation, San Francisco, California, has acted as counsel to the Underwriter.

45 Tax Exemption

The Internal Revenue Code of 1986 (the "Code"), imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to maintain the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes.

In the opinion of Fulbright & Jaworski L.L.P., Bond Counsel, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Bond Counsel is also of the opinion that, assuming compliance with the aforementioned covenant, the Bonds are not "specified private activity bonds" within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on the Bonds owned by a corporation may affect the computation of its alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income ( determined without regard to such adjustment or to the alternative tax net operating loss deduction)).

To the extent that a purchaser of a Bond acquires that Bond at a price that exceeds the aggregate amount of payments ( other than payments of qualified stated interest within the meaning of section 1.1273-1 of the Treasury Regulations) to be made on the Bonds (determined, in the case of a callable Bond, under the assumption described below), such excess will constitute "bond premium" under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt obligation must be amortized on a constant yield, economic accrual, basis; the amount of premium so amortized will reduce the owner's basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. In the case of a purchase of a Bond that is callable, the determination whether there is amortizable bond premium, and the computation of the accrual of that premium, must be made under the assumption that the Bond will be called on the redemption date that would minimize the purchaser's yield on the Bond ( or that the Bond will not be called prior to maturity if that would minimize the purchaser's yield). The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when a Bond owned by such owner is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Bond to the owner.

The excess, if any, of the stated redemption price at maturity of Bonds of a maturity over the initial offering price to the public of the Bonds of that maturity set forth on the cover of this Official Statement is "original issue discount" under the Code. Such original issue discount accruing on a Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and exempt from California personal income tax to the same extent as would be stated interest on the Bond. Original issue discount on any Bond purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Bond accruing during each period is added to the adjusted basis of such Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Bond. The Code includes certain provisions relating to the accrual of original issue discount in the

46 case of purchasers of Bonds who purchase such Bonds other than at the initial offering price and pursuant to the initial offering.

Any person considering purchasing a Bond at a price that includes bond premium should consult his or her own tax advisors with respect to the amortization and treatment of such bond premium, including, but not limited to, the calculation of gain or loss upon the sale, redemption or other disposition of the Bond. Any person considering purchasing a Bond of a maturity having original issue discount should consult his or her own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering and at the original offering price, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes.

Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the ownership of the Bonds. No assurance can be given that future legislation, or amendments to the Code, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of interest on the Bonds from personal income taxation by the State of California or of the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Furthermore, Bond Counsel expresses no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of bond counsel if such advice or approval is given by counsel other than Bond Counsel.

Although Bond Counsel is of the opinion that interest on the Bonds is exempt from state personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner's federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Bonds. The nature and extent of these other tax consequences will depend upon the owner's other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds or, in the case of a financial institution, that portion of an owner's interest expense allocated to interest on the Bonds, (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the Bonds, (iii) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Bonds and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel has expressed no opinion regarding any such other tax consequences.

Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City and the District described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the District as the "taxpayer,"

47 and the Owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the District may have different or conflicting interest from the Owners. Further, the disclosure of the initiation of an audit may adversely affect the market price of the Bonds, regardless of the final disposition of the audit.

No Litigation

A certificate of the District to the effect that no litigation is pending or threatened concerning the validity of the Bonds will be furnished to the Underwriter at the time of the original delivery of the Bonds. Neither the City nor the District are aware of any litigation pending or threatened which questions the existence of the District or the City or contests the authority of the District to levy and collect the Special Taxes or to issue the Bonds.

No Rating on the Bonds

The Bonds are not rated and the District does not anticipate applying for a rating on the Bonds.

Miscellaneous

All of the preceding summaries of the Fiscal Agent Agreement, other applicable legislation, agreements and other documents are made subject to the provisions of such documents and do not purport to be complete documents of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith.

This Official Statement does not constitute a contract with the purchasers of the Bonds.

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

48 The City Council of the City of Indio has duly authorized the City Manager to execute and deliver this Official Statement on behalf of the District.

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO)

By /s/ Glenn Southard City Manager of the City of Indio on behalf of the City of Indio Community Facilities District No. 2004-3 (Terra Lago)

49 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES

A-1 [THIS PAGE INTENTIONALLY LEFT BLANK] RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR COMI\IDNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) CITY OF INDIO, CALIFORNIA

A Special Tax (alJ capitalized terms are defined in Section A.t Definitions below) shall be applicable to each Parcel of Taxable Property located within the boundaries of Community Facilities District No. 2004~3 (TERRA IA.GO). The amolUlt of Special Tax to be levied in each Improvement Area in each Fiscal Year, commencing in Fiscal Year 2005-2006 on a Parcel shall be determined by the City Council of The City of Indio, acting in its capacity as the legislative body of the CFD by applying the appropriate Special Tax for Developed Property, Undeveloped Property and Public Property and/or Property Owner's Association Property that is not Ex.empt Property as set fo1th in Sections B., C., and D., below. All of the real property within tbe CFDt unle~s exempted by law or by the provisions hereof in Section E., shall be taxed for the purposes, to the ex.Lent and in the manner herein provided.

A.. DEF.INITION§i

The tenns hereinafter set forth have the following meanings:

"Acre or Acreage" mean,~ lhe acreage of a Parcel as indicated on the most recent Assessnl''s Parcel M apt or if the land area is not shown on the Assessor's Parcel Map, the land area shown on the applicable Final Map, parcel map, condominium plan, or other R-imilar jnstrument.

''Act'' means the Mello-Roos Community Facilities Act of 1982, as amendedt being Chapter 2.5, Part 1 of Division 2 of Title 5 of the California Government Code of the State of Califomia.

"Adminish"ative Expenses" means all actual or reasonably estimated costs and expenses of the District that arc chargeable or allocable to the applicable Improvement Area lo carry out its duties as the administrator of the CFD as allowed by the Act, which shall include without limit~tiun, all cost..~ and expenses arising out of or resulting from the annual levy and collection of the Special Tax, trustee fees, rebate compliauce calculation fees, and legal is.s.ues, or actual, potential or threatened litigation involving the CFDt continuing disclosure unrlertaldngs nf lhe District as. imposed by applicable laws and regulationst communication with bondholders and normal administrative expenses.

"Administr9tor'' means an official of the Distrlct1 or designee thereof, res.ponsihlc for determining the levy and collection of the Special Taxes.

''Assessor's Paree] Map0 means an official map of the AssessoJ" of the County of Riverside designating parcels by Assessor's Parcel number.

''Assigned Special Tax'' means the SpeciaJ Tax for each Land Use Category of Developed Property, as determined in accordance with Section C.l.a., below.

Cily of Indio August 17, 2005 Community Facilitie,s District No. 2004-3 (Terra Lago) Page 1 0 Backup Special Tax'' means the Special Tax. of that name described in Section E below.

"Bonds'' means any bonds or other indebtedness (as defined in the Act) issued by an Improvement Area of the CFD and secured by the levy of Special Taxes within such Improvement Area.

~'Boundary Map" means a map :showing the territory area within the boundaries of CPD

2004-3 identified on EXHIBJT UA n

''CFD'' means Community Facilities District No. 2004-3 (TERRA LAGO) of the District established pursuant to the Act.

"Council'' means The City of Indio City Council

"County"' means the County of Riverside.

"Developed Property"' means all Parcels of Tax.able Property, not classified as Undeveloped Property, Public Property and/or Property Owner's Association Property that are not Exempt Property pursuant to the provisions of Section E. below: (i) that arc included in a Final Map that was recorded prior to January 1st preceding the Fiscal Year in which the Special Tax is being leYied and (ii) a building permit for new construction has been issued prior to April 1st preceding the Fiscal Year in which the Special Tax is being levied.

"Exempt Property,, means any Parcel~ which is exempt from Special Taxes pursuant to Section E.t below.

li'Final Map" means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of a condominium plan pu:rsuant to California Civil Code J 352 that creates individual lots for which building permits may be issued without further subdivision.

"Fisc.al Year'' means the period starting on July 1 and ending on the following June JO.

''lmpr-ovement Area(s)'' means hnprovemellt Area l, Zone A or Zone B or Improvement Area 2, Zone A or Zone Bas geographically identified on EXHJBrr HB''.

'~Improvement Area 1, Zone A"' means the specific area identified on EXHIBIT "B" as Imp•uvement Area 1, Zone. A of the CFO.

"Improvement Area 1, Zone B"' means the specific area identified on EXHIBIT ~'B" as hnprovernent Area 1, Zone B of the C:fl).

"Improvement Are.a 2.,. Zone A" means the specific area identified on EXHIBIT 'iff' as Improvement Area 2, Zone A of the CFD.

"Improvement Area 2, Zone Bt' means the specific area identified on EXHIBIT ' 1B" as Improvement Area 2., Zone B of the CFO.

City of In

"Land Use Category'' means any of the categories listed in Tables l i 2) 3, 4 and 5.

"Maximum Special Tax" means the maximwn Special Tax, detennined in accordance with Section C., which can be levied in any Fiscal Year on any Parcel.

"Multifamily Residential Property'' means any Parcel of Developed Property thal consists of a building or buildings comprised of attached residential units available for rental by the general public., or for sale to an end user, and may be under commnn management.

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

"ParceJ(s)" means a lot or parcel shown on an Assessor's Pared Map with an assigned parcel number valid at the time the Special Tax is enrolled for the Fiscal Year for which the Special Tax is being levied.

"Property Owner's Association Property"' means any Parcel within the boundary of the CFO, which, at t.he time the Special Tax is enrolled for the Fiscal Year for which the Special Tax. is befog levied has been conveyed) dedicated to, or in-evocably dedicated to a property owner association, including any master or sub-association.

'Troportionately" means for (i) Developed Property that the ratio of the actual Special Ta~ levy to the Assigned Special Ta~ is the same for a11 Parcels of Developed Propeny, and Undeveloped Property~ Public Property and/or Property Owner's Association Property that is not Exempt Property pursuant to Section E., that the ratio of the actual Special Tax levy per acre to the Maximum Special Tax per acre is the same for all such Pa:iceJ.s.

"Public Propcrtt' means any Parcel within the bon.udary of the CFO which, at the time the Special Tax is enrolled for the Fjscal Year for which the Special Tax is being levied! is used for rights-of-way or any other purpose and is owned by, dcdk:atcd to, or incvocably offered for d~dication to the Federal Government, the State of California, the County, City or ac1y other local jurisdictiou, provided, however, that any pmperty leased by a public agency to a private entity and subject to taxation under Section 53340.1 of the Act shall he taxed and classified according to its use.

"Residential Floor Area" means all oft.he square footage of living area of a residenrlal structure, not including any carport~ walkway, garage~ overhang, patio, enclosed patio or similar area on a Parcel. The determination of Residential Floor Area shall be made by reference to the huiJding permit(s) for the Parcel or similar official document me.ans selected by the Administrator. Once such determination has been niade for a Parcel. it shall remain fixed in all fulure Fiscal Years.

"Residential Property" means all Parcels of Developed Property for which a building

City of lndio Augusi t 7 1 2005 Community Facilities Districl No. 2004~3

i'Special Tax Requirement for- Improvement Area 2,, means. that amount requLred in any Fiscal Year within hnprovement Area 2 of the CFD to pay: (i) annual debt service on all outstanding Bonds due in the calendar year which commences in such FiscaJ Year; (H) periodic costs on the Bonds, including hut not limited to, credit enhancement. and rebate payments on the Bonds; (iH) Administrative Expenses; (iv) an amount equal to any amjdpatcd shortfall due to Special Tax delinquency in the prior Fiscal Yeur; and (v) any amounts required to establish or replenish any reserve fund~ for the outstanding Bonds; less (vi) a credit for fund.:; available to reduce the annual Spec-:ial Tax. levy as determined pursuant to the Indenture.

"TaxabJe Property" means all Parcels in an Impi-ovement Area which have not prepaid pursuant to Section H., or are not exempt from the Special Tax pursuant to law or Section E., below.

''Undeveloped Property" means all Taxable Property not classified as Developed Property. Public Property and/or Property Owner's Association Property that fo not Exempt Property pursuant to the provisions of Sect ion E.

Cily of Indio August l 7 1 2005 Community Facilities District No. 2004--3 (J'erra ).,ago) Pagc4 A.. ASSIGNMENT TO LAND USE CATEGORY

Each Fi.seal Year:> commencing with the 2005-2006 Fiscal Year, all Parcels of Taxable Property within the CFD shall be categorized into the applicable Improvement Area and classified as either Developed Property, Undeveloped Property, Public Property and/or Property Owner 1 s Association Property that is not Exempt Property pursuant to the provisions in Section E., and shall be subject to the levy of Special Tues in accordance with this Rate and Method of Apportionment as determined pursuant to Sections C., and D., below.

Parcels of Developed Property shaJl further be classified as Residential Property or Non­ Re~idential Propeny. A Parcel of Residential Property shall further be classified as Single Family Property or Multifamily Residential Property. Single Family Property shaU be further categorized based on the Residential Floor Area for such Parcel.

C .. MAXIMUM SPECIAL TAX RATE

l. Developed .Property

The Max.imum Special Tax. for each Parcel of Single Family Property within its applicable Improvement Area shall be the applicable Assigned Special Tax described in

Table 1t 2, 3, or 4.

The Maximum Special Tax for each Parcel of Non-Residential Property within its applicable Improvement Area shall he the Assigned Special Tax described in Table J, 2, 3 or 4.

a. Assigned Sp_~gal Tax

The Assigoed Special Tax for each Parcel of Developed Properly within its applicable hnprovement Area is shown in Tab le 1, 2t 3, or 4.

City of Indio Augu:..l 17, '1005 Community Facilities District No. 20()4...3 (Terra La.go) Page5 TABLEl Assigned Special Tnxes for Property within Im rovement Area 1, Zone A

Less than 1,501 SF DU 1,501 SF to 1~625 SF $2,028.55

DU · 11626 SF to 1,750 SF $2,228.22 DU 1,751 SF to 1,900 SF $2A67.83 DU 1,901 SF to 1,950 SF $2,547.70 DU lt951 SF to 2,100 SF .$2,605.98 DU 2JOI SF to 2,150 SF .$2,681.53 DU 2,151 SF to 2,250 SF DU 2,251 SF to 2,300 SF $2,908.19 DU 2,301 SF to 2,400 SF $3,059.29 DU 2AO l SF to 2,500 SF $3t102.46 DU 2,501 SF to 2,550 SP $3,175.86 DU 2 551 SF to 2,600 SF $3,249.25 DU 2~601 SF to 2,850 SF $3,616.22 $4,056.57 Acre N/A $20,460.00 Acre NIA $20,460.00

Ou each July 1, conunencing on Iuly 1, 2007, for a perlod of five (5) years, until July lt 2012, the Assigned Special Tax shaJl be increased by one percent (1.00%) of the amount in effect in the priur Fiscal Year.

City of Jndiu August 17 1 2005 Conununity Facmue~ Disttict No. 2004-3 (1',ma L;J.go) Page6 TABLE 2 Assigned Special Taxes for Property within Im rovement Area 1, Zone B ~~~~

Less than I~SOl SF $2,519.63 DU 1,501 SF to t625 SF $2,719.31 DU 1t626 SF to 1t750 SF $2,918.98 DU 1,751 SF to 1 900 SF $3,158.59 DU 11901 SF to lt950 SF $3,238.46 DU 1,951 SF to 2JOO SF $3,372.29 DU 2.101 SF to 2J50 Sf' $3A69.43 DU 2 151 SF to 2,250 SF $3,523.39 DU 2 251 SF to 2,300 SF $3,771.64 DU Over 2,300 SF $3,965.91 Acre NIA $20A60.00 Acre NIA $20t460.00

On each July 1, commencing on July 1, 2007 t for a period of five (5) years, until JuJy 1, 2012, the Assigned Special Tax shall he increased by one percent ( 1.00%) of the amount in effect in the prior Fiscal Year.

TABLKJ Assigned. Special Taxes for Prope11y within hn rovement Area 2t Zone A ~~-~

DU Less than 1,SOl SF $1,677.77 DU 1,501 SF to 21000 SF $2Al 1.70 DU 2,001 SF to 2500 SF $3,162.90 DU Over 2,500 SF $3?905.47 Acre NIA Acre NIA $22,304.00

On each J uJ y 1, conunencing on 1ul y l t 2007, for a period of five (5) years~ until

Ju1y 1J 2012, the Assigned Special Tax. shall be increased by one percent (LOO%) of the amount in effect in the prior Fiscal Year.

Chy nf Indio August 17, 2005 Corrirnunity l•acilities Dfatrict No. 2004-3 (Terra Lago) Page7 TABLE4 Assigned Special Taxes for Property w .i.thin Im rovement Area 2i Zone B

DU Less than 2 00 l SF $3,154.27 DU 2,00 l SF to 2,500 SF $3!905.47 DU 2,501 SF to 3 ,000 SF $4!648.04 DU Over 3,000 Sf' $4!665.31 AL-re NIA $22.304.00 A(..'tC NIA $22,304.00

On each July 11 commencing on July 1, 2007t for a period of five (5) years, until

July 11 2012 1 the Assigned Special Tax shall be increased by one percent ( 1.00% J of the amount in effect in the prior Fi seal Year.

1. Undeveloped Property

The Maximum Special Tax for each Parcel of UndeveJoped Property within each Improvement Area is shown in Table 5 below.

TABLES Undeveloped Property Maximum Special Tax Rate

J...:._f!_~~eve!f~..d Pr£Eerl.1'. Atre $20A60.00 2 -UndeveJoped Property Acre $22,304J)O

On each JuJy 1, commencing on July 1) 2007, for a period uf five (5) yearr;., until Ju1y 1, 2012t the Maximum Special Tax shall be increased by une perct~nt (1.00%) of thE.~ amount in effect in the prim FiscaJ Year.

L Public l~perty and/or Property Owner's Association Pruperty that is not Exempt Property pursuant to the provisions of Section E.

The Maximum Special Tax for each Parcel of Public Property and/or Property Owners

City of Indio AJJgu.st 17, 2005 Cmnm1ltticy Fat:ilities Districl No_ 2004-3 (Terra Lago) Page8 Association Property that is not Ex.empt Property pursuant to the provisions of Section E., with in each Improvement Area shall be the applicable Undeveloped Property Maximum Spec, al Tax mte per Acre in Table 5.

D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX

Conunencing wilh Fiscal Year 2005-2006 and for each following Fiscal Year, the Council shall levy the Special Tu on all T~able Property in e.ach Improvement Area until the amount of Special Tu:es equals the applicable Special Tax. Requirement for each Improvement Area in accordance with the following steps:

1. Improvement Area 1

firn.t: The Special Tax: shall be levied on each Parcel of Developed Property at up to 100% of the applicable Assigned Special Ta,c, rate as needed to satisfy the Special Tax Requirement for lmprovemem Area 1 ~ Zone A and Zone 13.

Second: If additional moneys are needed to satlsfy the Special Tax Requi!ement for

Improvement Area L, Zone A and Zone B1 after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property within Jmpmvement Area 1, Zone A and Zone Bat up to 100% of the Maximum Special Tax for Undeveloped Property;

Third: If additional moneys arc needed to satisfy the Special Tax Requirement aft.er lhe first two steps have been completed, then for each Assessor,s Parcel of Developed Property whose Assigned Special Tax is. the Backup Spedal Tax shall be increased Proportionately from the Assj gned Special Tax up to 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement.

2. Improvement Area 2

First: 111e Special Tax shall be levied on each Parcel of Developed Property at up to 100% of the a.pplicabJe Ass1gned Spedal Tax rate m; needed to satisfy the S~..dal Ta. Requirement for Improvement Arca 2t Zone A and Zone B.

Second.; If additional moneys are needed to satisfy lhc Special Tax Req11frement for Improvement Area. 2t Zone A and Zone Bt after the first step has been completedt the Special Tax shall be lev1ed Proportionately on each Parcel of Undeveloped Property within Improvement Arca 2, Zone A and Zone B at. up to 100% of the Ma~dmum Special Tax for Undeveloped Property;

Third: lf additional moneys are needed to satisfy the Special Tax Requirement after the first

two seeps have been completed 1 then for each Assessor's Parcel or Developed Property whose Assigned Special Tax is the Back.up Special Ta,; shall be increased Proportionately from the As.signed Special Tax up to 100% of the Backup Special Ta,; as needed to satisfy the Special Tax. Requirement.

City of Indio August 17, 2005 Community Facilities District No. 2004~3 (Terra Lago) Page9 Notwithstanding the ahove~ under no circumstances will the Special Taxes levied against any Parcel of Residential Property within an Improvement Area be increased by more than ten percent (10%) per Fiscal Year as a consequence of delinquency or default by the owner of any other Parcel within an Improvement Area of the CFD.

K BACKUP SPECIAL TAXES

Each Fiscal Year t each Assessor's Parcel of Developed Property classified as Residential Property shall be subject to a Backup Special Tax. In each Fiscal Year. the Backup Special Ta.x rate for Developed Property classified as Residential Property within a Final Map shall be the rate per Lot calculated according to the following formuJa:

Rx A B .... ----~~~-n~------L The terms above have the following meanings:

B = Backup Special Tax per Lol in each Fiscal Year

R = Max. im um Special Tax rate per Acre for Undeveloped Property for the applicable Fiscal Year

A = Acreage of Developed Property classified or to be classified as Residen.tial Property in such Final Map

L == Lots in the Final Map which are classified or to be classified as Residential Property

Notwithstanding the foregoing, if all or any portion of the Final Map(s) described in the preceding paragraph is subsequently changed or modified, then lhe Back.up Speciai Tax for each Assessor's Parcel of Developed Property classified or to be classified as Residential Property in such Final Map Area thal is changed or modified shall be a rate per square foot of Acreage calculated a.~ follows:

1. Determine the total Backup Special Tax anticipated to apply to the changed or modified Final Maps

2. Toe result of paragraph 1 above shall be divided by the Acreage of Developed Property clm;.~ified or to be classified as Residential Property whk.h is ultimately expected to exist in such changed or modified Final Map Area, as reasonahly determined by the Cily.

3. The result of paragraph 2 above shall be divide.d by 43,560. The result is the Backup Special Tax per square foot of Acreage which shall be applicable to Assessor's Parcels of Developed Property dassified as ResMentfaJ Property in such changed or modified Final Map Arca for aH remaining Fiscal Years in which the Special Tax may be levied.

F~ J.:XE~IONS

Chy nf Indio August 17 ~ 2005 Comrnuntty Facilities Di::itrict No. 2004--3 (Tena Lago) P9ge JO The Council shall not levy Special Taxes on Public Property, Property Owner's Association Property or Golf Course Property within each Improvement Arca or Riverside County Assessor Parcel Numbers 601-150-024 and 601-270~018 located within Improvement Area 2 of the CFD. Exempt Property status will be assigned by the Adrninistrator in the chronological order in which property becomes Public Property~ Property Owner's Association Property or Golf Course Property.

G~ MANNER OF COLLECTION

The Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property tax.es and shalJ be subject to the same penalties, the same procedure, sale and lien priority in the case of delinquency; provided, however~ that the Administrator may directly bil1 lhe Special Tax, may collect Special Taxes at a different time or in a different manner if necessary to meet it:S financi,al obligations~ and may covenant to foreclose and may actually foreclose on Parcels having delinquent Special Taxe.~ a'; permitted by the Act if necessary to meet the financial obligations of the CFD.

IL APPEALS

Any taxpayer may file a written appeal of the Special Tax on his/her Parcel(s) with the Administrator, provided that the appellant is curre-n t in Ws/her pa)'lilents of Special Taxes. Dluing pendency of an appeal, all Special Taxes pl'eviously levied must be paid on or before the payment date established when the levy was made. The appeaJ must spedfy the reasons why the appellant claims the Special Ta,.. is in error. The Administrator shall review the appeal~ meet with the appellant if the Administrator deem~ necessary, and advise the appellant of its ~etermination. lf the Administrator agrees with the .appellant. the Administrator shall grant a credit to eliminate or reduce future Special Taxes on the appellant's Parcel(s). No refunds of previously paid Special Taxes shall be made.

The Administrator shall interpret this Rate and Method of Apportionment and make detenninations relative to the annual levy and administration of the Special Tax and any taxpayer who appeals~ as herein s.pecified.

I. ,PRl!:PAYMENT OFSPECIAL TAX

The following definitions apply tn this Section H:

'~Outstanding Bond5° means all previously issued bonds issued and secured by the levy or Special Taxe:::;, which wm remain outsta.ndlng atler the first interest and/or principal payment date following the current Fiscal Ye.art e;,;:cludiug bonds to be. l'Cdeemed at a later date with the proceeds of prior prepayments of Maximum Special Ta.1:es.

1~ Prepayment in Full

The Maximum Special Tax obligat1on may only be prepaid and permanently satisfied by a Parcel of Developed Property, and/or Undeveloped Property for which a building pcnnit has been issued, and Pub] ic Property and/or Property Owner~ s Association Property that is not Exempt Property pursuant to Section E. The Maximwn Special Tax obligation applicable to

City of Indio August I 7, 2005 Community Facilities District No. 2004-3 ('l'ena Lago) Page 11 such Parcel may he fully prepaid and the obJigation of the Parcel to pay the Special Tax pennancntly satisfied as described herein; provided that a prepayment may be made only if there are no delinquent Special Taxes with respect to such Parcel at the time of prepayment. An owner of a Parcel intending to prepay the Maximum Special Tax obligation shall provide the Administrator with written notice of jntent to prepay~ and within 5 business days of receipt of such notice, the Administrator shall notify such owner of the amount of the non-rnfundable deposit determined to cover the cost to be incurred by the CFO in calculating the proper amount of a prepayment. Within 15 days of receipt of such non­ refundable deposit, the Administrator shall notify such owner of the prepayment amount of such Parcel. Prepayment must be made not less than 60 days prior to any redemption date for any Bond~ to be redeemed with the proceeds of such prepaid Special Taxes.

~The Prcpa yment Amount ( defined below) shall be calculated as summarized below (capitalized tetnlS as defined below): .

Bond Redemption Amount plus Redemption Premium plus Defeasance Amount plus Administrative Fees and Expenses less Reserve Fund Credit Total: equals Prepayment Amount

As of the proposed date of prepayment. the Prepayment Amount (defined below) shall be calcuJated as follows:

1. Confiim that no Special Tax delinquencies apply to such Parc.d.

2. For Parcels of Developed Property. compute the Maximum Special Tax for the Parcel to be prepaid. For Parcels of Undeveloped Property to be prepaid, compute the Maximnm Special Tax for that Parcel as though it was already designated as

Developed Property 1 based upon the building pennit which has altcady been issued for that Parcel. For Parcels of Public Property and/or Property Owner's Association Property to be prepaidt compute the Maximum Special Tax for that Parcel.

3. Divide the Maximum Special Tax computed pursuant ta paragraph 2 by the total estimaLed Max:imum Special Tues based on the Developei..d Propeny SpeciaJ Tax which could be charged, less any Parcels which have been prepaid.

4. Multip]y tJ1e quot,e1,1. compul.ed pursuanl to paragraph 3 by lhe Outstanding Bonds to compute the amount of Outstanding Bonds to be retired and prepaid (the F'Bond Re

5. Multiply the Bond Redemption Amount computed pursuant to paragraph 4 by the

applicab]e redemption premium, if m1y1 on the Outstanding Bonds to be redeemed (the HRedemption Premium").

6. Compute lhe amount needed to pay interest on the Bond Redemption Amount from

City of Indio August 17, 2005 Conununity Facilities District No. 2004-3 (Terra Lago) Page 12 the first bond interest and/or. principal payment date following the current Fisca] Y car until the earliest redemption date for the Outstanding Bonds.

7. Determine the Special Taxes levied on the Paree( in the current Fiscal Year which have not yet been paM.

8. Compute Ute amount the Administrator reasonably expects to derive from the reinvestnH.,'nt of the Prepayment Amount less the Administrative Fees and Rtpenses from the dnte of prepayment until the redemption date for the Outstanding Bonds to be redeemed with the p.repa yment.

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

10. Verify the administrative fees and expensesi including the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming tile Outstanding Bonds, and the costs of recording any notices to evidence the prepayment and the redemption (the "Administrative Fees an.d Expenses'').

1 J. The reserve fund credit (the HRe.serve Fund Credit') shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with tl1e redemption of Outstanding Bouds as a result of the prepaymen~ or (h) the amount derived by subtra(...1ing the new re...,,erve requirement (as defined in the Indenture) in effecl after the redemption of Outstanding Bonds as a result of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shal I such amount be less than zero.

12. The Maximum Spedal Tax prepayment is equal to the sum of the amnunts computed pursuant to paragraphs 4t 5, 9 and 1O~ less the amotmt computed pursuant to paragraph 11 (the ··prepayment Amount').

13. From the Prepayment Amount, the amounti computed pursuant to paragraphs 4~ St 9, and t 1 shall be deposited into the appropriate fund a~ eSt.3blished under the Indenture and be used to retire Outs1anding Bonrls or make debt service payments. The amouot computed pursuant to paragraph 10 shall be retained by the CFO.

The Pn...1)aymenl Amount may be sufficient to redeem othet than a $5,000 increment of B,mds. In such cases, the increment .above $5,000 or integral maltiple thereof will be retained in the appropriate fund establisbcd under the Jndentul'e to be used with the next prepayment of bonds or- to make debt service payments.

As a result of Ule payment of the c1.ment Fiscal Yeats Sped al Tax 11!!.vy as determined under paragraph 7 (above), the Administrator shall remove the current Fiscal Year's Special Tax levy for such Pa.reel from the County tax rolls. With re$pect to any Parcel that is prepaid, the Board shalJ cause .a suitable notice to be recorded. in compliance with the Act, to indicate the prepayment of Special Taxes and Lhe release of the Special Tax lien on such Parcel, and the obligation of such Parcel to pay the Special Tax shall cease.

City of Indio August 17, 2005 Community Facilities: District No. 2004-3 (Terra Lagu) Pag.e 13 Notwithstanding the foregoing, no Special Tax prepayment sha11 be allowed unless the amount of Maximum Special Tax.es that may be levied on Tax.able Property both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds.

Tenders of Bond~ in prepayment of Maximum Special Taxes may be accepted upon the terms and conditions established by the Board pursuant to the Act. However, the use of Bond tenders sh.all only be allowed on a case-by-case basis a.s specifically approved by the Board.

2. Prepayment in Part

The Maximum Special Tax on a Parcel of Developed Property or Undeveloped Property for which a building permit has been issued may be partially prepaid in increment~ of $2,000. The amount of the prepayment shall he calculated as in Section H.1; except that a partial prepa)Tiient shall be calculated according to the following formula:

These terms have the following meaning:

PP = the partial prepayment P.e = the Prepayment Amount calculated according to Section H. l F =the percent by which the owner of the Parcel(s) is partially prepaying the Maximwn Special Tax.

The owner of a Parcel who desires to partially prepay the Maximum Special Tax. shall notify the Administrator of 0) such owner's intent to partially prepay the Maximum Special Tax, (ij) the amouut of partial prepayment expressed in increments of $2,000, and (iii) the company or agency that will be acting as the escrow agent, if applicable and within 5 days of receipt uf such notice, the Adminisu-aLor shal I notify such property owner or the amowll of the non refundable deposit dctennined to cover the cost to be incurred by tbe CH) iu. calculaLing the proper amount of a prutial prepayment. Within 15 business days of receipt of such non-reJu11dable deposil, t11e Administrator shall notify such ovvner of the partial prepayment amount of such Parcel. Partial prepayment must be made not less than 60 days prior to any redemption date for any Bonds to be redeemed with the proceeds of such prepaid Special Taxes.

With respecl to any Parcel I.hat is partiaHy prepaidi the Administrator shall (i) distribute the fonds remitted to it according to Paragraph 13 of Section H. I, and {H) indicate in the records of tlm CFD I.hat there has heen a partial prepaynwnl of the Maximum Special Tax and that a portion of the Max.imum Special Tax equal to the outstanding percentage (1.00 - F) of the remaining Ma~imum Special Ta~ shall continue to be authorized to be levied on such Parcel pursuant to Section D.

City of lii.dio Augu:st l 71 2005 Community Facilities District No. 2004~3 (Terra Lago) Page 14 J. TERM OF THE SPECIAL TAX

For each year that any Bonds are outstanding the Special Tax shaJl be levied on all Parcels subject to the Special Tax. If any delinquent Special Taxes remain uncollected prior to or after all Bonds are retired, the Special Tax may be levied to the eJ[.tent necessary to reimburse the CFD for uncollected Special Taxes associated with the levy of such Special Taxes, but not later than the Fiscal Year.

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IMPROYEJIE/tT ~y FACJLITES DISTRICT NO. 2004-3 EXHBIT B ARE.A NO. 2 ( TERRA LA QO I COI.NTY OF~ STATE OF CALFORMA

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~.D. OS--OtJ23 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIXB

CITY OF INDIO SUPPLEMENTAL INFORMATION

The following information concerning the City of Indio is presented as general background data. The Bonds are payable solely from unpaid Assessments as described in the Official Statement. The Bonds are not an obligation of the City, and the taxing power of the City is not pledged to the payment of the Bonds ( except to the limited extent described herein).

General Information

In 1893, Indio became one of 12 townships in the County of Riverside and was incorporated in 1930 and encompasses 24.8 square miles. It is a general law city with a council-manager form of municipal government. The City Council is composed of a Mayor and four members elected bi-annually at large to four-year alternating terms with the mayor rotating on an annual basis. Positions of City Manager and City Attorney are filled by appointments of the City Council. Indio is the geographic mid point of both Riverside County and the Coachella Valley. It is known as both a desert resort and a major agricultural area. Indio is about 75 miles north of the California-Baja California Mexican border and 120 miles east of the center of the Riverside metropolitan complex and 30 miles southeast of Palm Springs. It is the halfway point for all the weekly Southern Californians who make the weekend and holiday trips to the Colorado River and the Glamis Off Road recreational facilities. Indio's neighboring communities are La Quinta to the west, unincorporated areas of Riverside County to the south, the City of Coachella to the east and unincorporated Riverside County land to the north. Home of the National Date Festival, Shalimar Sports Center's satellite off-track wagering facility and international polo matches, Indio welcomes tens of thousands of visitors each year.

Governmental Services

The City provides a broad range of services to its citizens which include police protection, water service, trash collection, street construction and maintenance, parks and recreation, planning and zoning, housing and community development, building inspection and general and administrative support services. It cooperates with Riverside County in the provision of fire protection and with Coachella Valley Water District for flood control. The Indio Police Department operates from one station and has 49 sworn officers serving the community. The City maintains five parks and the Coachella Valley Recreation District operates a 39,000 square foot comprehensive recreational facility in the City.

Transportation

Interstate 10 connects Indio with Los Angeles, San Diego and Phoenix, Arizona. State Highways 86 and 111 provide access to neighboring communities and Palm Springs.

Commercial rail service to Indio is provided by Southern Pacific Railroad.

Air cargo and passenger flight services are provided at the Palm Springs International Airport and at nearby Bermuda Dunes and Thermal Airports.

Population

Table No. B-1 summarizes population growth between 2001 and 2005 for the City of Indio, surrounding cities and Riverside County.

B-1 TABLE NO. B-1 CHANGE IN POPULATION CITY OF INDIO, SURROUNDING CITIES* AND RIVERSIDE COUNTY 2001-2005

INDIO SURROUNDING CITIES RIVERSIDE COUNTY Percentage Percentage Percentage Year Population Change Population Change Population Change

2001 50,464 113,040 1,590,473 2002 52,507 4.0% 115,918 2.5% 1,654,220 4.0% 2003 55,155 5.0 120,631 4.1 1,726,754 4.4 2004 60,175 9.1 123,309 2.2 1,807,858 4.7 2005 66,118 9.9 130,556 5.9 1,877,000 3.8

% Change Between 2001 -2005 31.0% 15.5% 18.0%

* Surrounding cities include Palm Springs, Palm Desert, Indian Wells and Coachella.

Source: State of California Department of Finance.

Employment and Industry

The City of Indio is located in the Riverside/San Bernardino/Ontario labor market area. Six major job categories constitute 64.9% of the work force. They are government (15.5%), service producing (14.4%), professional and business services (9.2%), manufacturing (8.8%), educational and health services (8.6%) and leisure and hospitality (8.4%). The June 2005 unemployment rate in the Riverside/San Bernardino/Ontario area was 5.2%. The State of California June 2005 unemployment rate (unadjusted) was 5.4%.

B-2 TABLE NO. B-2 RIVERSIDE/SAN BERNARDINO/ONTARIO MSA WAGE AND SALARY WORKERS BY INDUSTRY (in thousands)

Industry 2000 2001 2002 2003 2004

Government 192.1 200.2 212.7 211.6 211.5 Other Services 35.0 37.1 38.1 38.4 38.8 Leisure and Hospitality 100.8 104.4 107.2 109.0 115.2 Educational and Health Services 102.2 106.0 112.4 115.8 117.7 Professional and Business Services 97.0 101.7 106.8 115.4 125.2 Financial Activities 34.8 38.2 39.5 42.6 45.3 Information 12.9 14.6 14.1 13.9 13.8 Trade, Transportation and Utilities 212.2 219.4 226.3 236.3 250.4 Service Producing Retail Trade 127.4 132.2 137.5 142.7 151.8 Wholesale Trade 38.3 41.6 41.9 43.5 44.4 Manufacturing Nondurable Goods 34.5 34.4 33.4 33.7 34.5 Durable Goods 85.6 84.1 82.0 82.4 85.5 Goods Producing Construction 80.1 88.4 90.9 99.0 110.8 Natural Resources and Mining _____Ll_ 1.2 1.2 1.2 1.2 Total Nonfarm 1,154.2 1,203.5 1,244.0 1,285.5 1,346.1 Farm ____lU 20.9 20.3 20.3 18.8 Total (all industries) l) 75.9 1.224.4 1.264.3 1.305.8 1.364.9

Source: State of California Employment Development Department.

The major employers operating within the City and their respective number of employees as of June 30, 2005 area as follows:

Name of Employer Number of Employees Product/Service

County of Riverside 900 Government Fantasy Springs Casino 525 Casino John F. Kennedy Memorial Hospital 445 Medical Hospital City of Indio 226 Government Sears Roebuck & Company 142 Department Store Desert Orthopedic Center 115 Physical Therapy Super Saver Food 100 Grocery Store Dimare Company 100 Farm Produce Granite Construction 100 Concrete GTE 100 Telephone Service

Source: City of Indio. 2004 data not yet available.

B-3 Personal Income

Personal income information for Riverside County, the State of California and the United States are summarized in Table No. B-3.

TABLE NO. B-3 EFFECTIVE BUYING INCOME RIVERSIDE COUNTY, CALIFORNIA AND UNITED STATES 1999-2003

Riverside County State of California United States

1999 $35,145 $39,942 $37,233 2000 39,293 44,464 39,129 2001 37,480 43,532 38,365 2002 38,691 42,484 38,085 2003 39,321 42,924 38,201

Note: Personal income data not available for smaller geographical areas such as the City of Indio. 2004 data not yet available.

Source: Sales and Marketing Management, "Survey ofBuying Power. "

Commercial Activity

The following table summarizes the volume of retail sales and taxable transactions for the City of Indio for 1999 through 2003.

TABLE NO. B-4 CITY OF INDIO TOTAL TAXABLE TRANSACTIONS (in Thousands) 1999-2003

Total Taxable Retail Sales Retail Sales Transactions Issued Sales Year ($000's) % Change Permits ($000's) % Change Permits

1999 318,955 496 401,104 1,169 2000 385,117 20.7% 560 473,781 18.1% 1,204 2001 444,519 15.4 612 531,686 12.2 1,250 2002 450,141 1.3 699 536,126 0.8 1,481 2003 504,197 12.0 743 589,327 9.9 1,636

Source: State of California Board of Equalization. 2004 data not yet available.

B-4 The following table compares taxable transactions for the City of Indio and surrounding cities.

TABLE NO. B-5 CHANGE IN TOTAL TAXABLE TRANSACTIONS INDIO AND SURROUNDING CITIES (in thousands) 1999-2003

% Change City 1999 2000 2001 2002 2003 1999 - 2003

INDIO $ 401,104 $ 473,781 $ 531,686 $ 536,126 $ 589,327 46.9% Palm Springs 542,041 601,316 623,956 617,260 675,487 35.5 Palm Desert 1,098,211 1,217,986 1,211,069 1,209,385 1,296,730 40.3 Indian Wells 63,611 68,599 62,958 57,178 67,186 10.9 Coachella 113,485 132,640 146,254 155,831 176,051 79.2

Source: State of California Board of Equalization. 2004 data not yet available.

Taxable transactions by type of business for the City of Indio for 1999 through 2003 are summarized in Table No. B-6.

TABLE NO. B-6 CITY OF INDIO TAXABLE TRANSACTIONS BY TYPE OF BUSINESS (in thousands) 1999-2003

1999 2000 2001 2002 2003

Retail Stores Apparel Stores $ 6,304 $ 8,090 $ 7,651 $ 7,380 $ 7,599 General Merchandise Stores 48,362 51,256 51,293 48,720 50,580 Food Stores 30,749 34,011 36,761 39,208 43,369 Eating/Drinking Places 37,763 42,343 42,707 39,710 43,666 Home Furnishings and Appliances 9,276 22,404 27,503 30,794 35,800 Building Materials and Farm Implements 46,350 46,344 43,136 40,158 54,461 Auto Dealers/Suppliers 95,464 130,246 185,893 191,899 206,886 Service Stations 24,138 29,073 27,255 27,889 33,789 Other retail stores 20,549 21,350 22,320 24,383 28,047 Total Retail Stores 318,955 385,117 444,519 450,141 504,197

All Other Outlets 82,149 88 664 87 167 85,985 85,130

Total All Outlets $401)04 $473,781 $531,686 $536)26 $589,327

Source: State of California Board of Equalization. 2004 data not yet available.

B-5 Building Activity

The following table summarizes building activity valuations for the City of Indio for the five fiscal years from 2000 through 2004.

TABLE NO. B-7 CITY OF INDIO BUILDING ACTIVITY AND VALUATION (in thousands) 2000-2004

2000 2001 2002 2003 2004

Total Residential $60,913,897 $74,439,017 $142,813,529 $230,927,525 $394,347,500 Total Commercial 26,509,455 16,374,150 9,085,542 9,401,352 56,330,897 Total Valuation $90,423,352 $90,813,167 $151,899,071 $240,328,877 $450,678,397

Source: City of Indio.

B-6 APPENDIXC

SUMMARY OF FISCAL AGENT AGREEMENT

The following is a summary of certain provisions of the Fiscal Agent Agreement, and is supplemental to the summary of other provisions of such document described elsewhere in this Official Statement. This summary does not purport to be comprehensive or definitive, and reference should be made to such document for full and complete statement of its provisions. All capitalized terms used but not otherwise defined in this Appendix shall have the meanings assigned to such terms in the Fiscal Agent Agreement.

DEFINITIONS

Unless the context requires, the following terms shall have the following meanings:

"Acquisition and Construction Fund" means the fund by such name created and established pursuant to the Fiscal Agent Agreement.

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

"Administrative Expense Account" means the account by such name in the Special Tax Fund created and established pursuant to the Fiscal Agent Agreement.

"Administrative Expense Requirement" means for any Fiscal Year, an amount necessar to pay Administrative Expenses.

"Administrative Expenses" means the administrative costs with respect to the calculation and collection of the Special Taxes, including all attorneys' fees and other costs related thereto, the fees and expenses of the Fiscal Agent, any fees for credit enhancement for the Bonds which are not otherwise paid as Costs oflssuance, any costs related to the District's compliance with State and federal laws requiring continuing disclosure of information concerning the Bonds and the District, and any other costs otherwise incurred by the City staff on behalf of the District in order to carry out the purposes of the District as set forth in the Resolution of Formation and any obligation of the District under the Fiscal Agent Agreement.

"Annual Debt Service" means the principal amount of any Outstanding Bonds payable in a Bond Year either at maturity or pursuant to a Sinking Fund Payment and any interest payable on any Outstanding Bonds in such Bond Year, if the Bonds are retired as scheduled.

"Alternate Reserve Account Security" means one or more surety bonds, bond insurance policies, or other form of guaranty from a municipal bond insurer for the benefit of the Fiscal Agent meeting the requirements therefor in the Fiscal Agent Agreement in substitution for or in place of all or any portion of the Reserve Requirement.

"Authorized Investments" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein:

(1) Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America ("Direct Obligations").

C-1 (2) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):

U.S. Export-Import Bank ("Eximbank")

Direct obligations or fully guaranteed certificates of beneficial ownership

Farmers Home Administration ("FmHA")

Certificates of beneficial ownership

Federal Financing Bank

Federal Housing Administration Debentures ("FHA")

General Services Administration

Participation certificates

Government National Mortgage Association ("GNMA" or "Ginnie Mae")

GNMA-guaranteed mortgage-backed bonds

GNMA-guaranteed pass-through obligations

U.S. Maritime Administration

Guaranteed Title XI financing

U.S. Department of Housing and Urban Development (HUD)

Project Notes

Local Authority Bonds

New Communities Debentures - U.S. government guaranteed debentures

U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds

(3) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself:

Federal Home Loan Bank System

Senior debt obligations

C-2 Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac")

Participation certificates

Senior debt obligations

Federal National Mortgage Association ("FNMA" or "Fannie Mae")

Mortgage-backed securities and senior debt obligations

Student Loan Marketing Association ("SLMA" or "Sallie Mae")

Senior debt obligations

Resolution Funding Corp. ("REFCORP") obligations

Farm Credit System CM. - Consolidated system-wide bonds and notes

(4) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm-G" ' "AAAm" or "AAm" ' and ' if rated b y Mood y 's ' rated "Aaa" ' "Aal" or "Aa2" (incl u ding those of the Fiscal Agent and its affiliates).

(5) Certificates of deposit secured at all times by collateral described in (1) and/or (2) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral.

( 6) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC or which are with a bank rated "AA" or better by Standard & Poor's and "Aa" or better by Moody's (including those of the Fiscal Agent and its affiliates).

(7) Investment Agreements with any corporation, including banking or financial institutions, provided that

(a) the long-term debt of the provider of any such investment agreement is rated, at the time of investment, at least "AA" and "Aa" by the Rating Agency ( without regard to gradations of plus or minus within such category), and

(b) any such investment agreement is collateralized with United States Treasury or agency obligations which at least equal 102% of the principal amount invested thereunder, and

( c) any such agreement shall include a provision to the effect that, in the event the long-term debt rating of the provider of such agreement is downgraded below "AA-" or below "Aa" by the applicable Rating Agency, the District has the right to withdraw or cause the Fiscal Agent to withdraw all funds invested in such agreement and thereafter to invest such funds pursuant to the Fiscal Agent Agreement.

(8) Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A-1" or better by Standard & Poor' s.

C-3 (9) Bonds or notes issued by any state or municipality which are rated by Moody's and Standard & Poor's in one of the two highest rating categories assigned by such agencies.

(10) Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of "Prime - 1" or "A3" or better by Moody's and "A-1" or "A" or better by Standard & Poor's.

(11) Repurchase agreements collateralized by Direct Obligations, GNMAs, FNMAs or FHLMCs with any registered broker/dealer subject to the Securities Investors' Protection Corporation jurisdiction or any commercial bank insured by the FDIC, if such broker/dealer or bank has an uninsured, unsecured and unguaranteed obligation rated "P-1" or "A3" or better by Moody's, and "A-1" or "A-" by Standard & Poor's; provided:

(a) a master repurchase agreement or specific written repurchase agreement governs the transaction; and

(b) the securities are held free and clear of any lien by the Fiscal Agent or an independent third party acting solely as agent ("Agent") for the Fiscal Agent, and such third party is (i) a Federal Reserve Bank, (ii) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $50 million, or (iii) a bank approved in writing for such purpose by Financial Guaranty Insurance Company, and the Fiscal Agent shall have received written confirmation from such third party that it holds such securities, free and clear of any lien, as agent for the Fiscal Agent; and

( c) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the Fiscal Agent; and

( d) the repurchase agreement has a term of 180 days or less, and the Fiscal Agent or the Agent will value the collateral securities no less frequently than weekly and will liquidate the collateral securities if any deficiency in the required collateral percentage is not restored within two business days of such valuation; and

( e) the fair market value of the securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103%

(12) Local Agency Investment Fund ("LAIF") of the State of California.

(13) Any other investment which the District is permitted by law to make.

"Authorized Representative of the District" means the Mayor, Vice Mayor, City Manager, Finance Director, or any other person or persons designated by the City Council of the City.

"Bond Counsel" means an attorney at law or a firm of attorneys selected by the District of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia.

"Bond Register" means the books which the Fiscal Agent shall keep or cause to be kept on which the registration and transfer of the Bonds shall be recorded.

C-4 "Bondowner" or "Owner" means the person or persons in whose name or names any Bond is registered.

"Bond Year" means the twelve month period commencing on September 2 of each year and ending on September 1 of the following year, except that the first Bond Year for the Bonds shall begin on the Delivery Date and end of the first September 1 which is not more than 12 months after the Delivery Date.

"Business Day" means a day which is not a Saturday or Sunday or a day of the year on which banks in New York, New York, Los Angeles, California, or the city where the corporate trust office of the Fiscal Agent is located, are not required or authorized to remain closed.

"Code" means the Internal Revenue Code of 1986 and any Regulations, rulings, judicial decisions, and notices, announcements, and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it.

"Costs of Issuance" means the costs and expenses incurred in connection with the issuance and sale of the Bonds, including the acceptance and initial annual fees and expenses of the Fiscal Agent and its counsel, legal fees and expenses, costs of printing the Bonds and the preliminary and final official statements for the Bonds, fees of financial consultants and all other related fees and expenses, Bonds, as set forth in a written certificate of an Authorized Representative.

"Costs of Issuance Account" means the account by such name in the Acquisition and Construction Fund created and established pursuant to the Fiscal Agent Agreement.

"Defeasance Securities" means any of the following:

(a) Cash

(b) United States Treasury Certificates, Notes and Bonds (including State and Local Government Series -- "SLGS")

(c) Direct obligations of the U.S. Treasury which have been stripped by the U.S. Treasury itself, e.g., CATS, TIGRS and similar securities.

( d) The interest component of Resolution Funding Corp. strips which have been stripped by request to the Federal Reserve Bank of New York and are in book-entry form.

(e) Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard & Poor's.

(f) Obligations issued by the following agencies which are backed by the full faith and credit of the United States:

U.S. Export-Import Bank - direct obligations or fully guaranteed certificates of beneficial ownership

Farmers Home Administration - certificates of beneficial ownership

Federal Financing Bank

General Services Administration - participation certificates

C-5 U.S. Maritime Administration - guaranteed Title XI financing

U.S. Department of Housing and Urban Development (HUD) - Project Notes, Local Authority Bonds, New Communities Debentures - U.S. government guaranteed debentures, U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds.

"Delivery Date" means the date on which the Bonds were issued and delivered to the initial purchasers thereof.

"Depository" shall mean The Depository Trust Company, New York, New York, and its successors and assigns as securities depository for the Certificates, or any other securities depository acting as Depository under the Fiscal Agent Agreement.

"District" means City oflndio Community Facilities District No. 2004-3 (Terra Lago) established pursuant to the Act and the Resolution of Formation.

"Fiscal Agent" means Union Bank of California, N.A., a national banking associat10n duly organized and existing under and by virtue of the laws of the United States of America, at its principal corporate trust office in Los Angeles, California, and its successors or assigns, or any other bank or trust company which may at any time be substituted in its place as provided in the Fiscal Agent Agreement and any successor thereto.

"Fiscal Agent Agreement" means the Fiscal Agent Agreement, together with any Supplemental Fiscal Agent Agreement approved pursuant to Article 6 hereof.

"Fiscal Year" means the period beginning on July 1 of each year and ending on the next following June 30.

"Improvement Area No. 1" means Improvement Area No. 1 of the District.

"Improvement Area No. 1 Value" means the market value, as of the date of the appraisal or tax roll described below, of all parcels of real property in Improvement Area No. 1 subject to the levy of the Special Taxes and not delinquent in the payment of any Special Taxes then due and owing, including with respect to such non-delinquent parcels the value of the then existing improvements and any facilities to be constructed or acquired with any amounts then on deposit in the Acquisition and Construction Fund, as determined by reference to (i) an appraisal performed within six (6) months of the date of any proposed release of moneys from the Special Escrow Fund by an MAI appraiser (the "Appraiser") selected by the District, or (ii) in the alternative, the assessed value of all such non-delinquent parcels and improvements thereon as shown on the then current County real property tax roll available to the District. The District shall not be liable to the Owners, the Underwriter or any other person or entity in respect of any appraisal provided for purposes of this definition or by reason of any exercise of discretion made by any Appraiser pursuant to this definition.

"Independent Financial Consultant" means a financial consultant or special tax consultant or firm of either such consultants generally recognized to be well qualified in the financial consulting or special tax consulting field, appointed and paid by the District, who, or each of whom:

( 1) is, in fact, independent and not under the domination of the District;

(2) does not have any substantial interest, direct or indirect, in the District; and

C-6 (3) is not connected with the District as a member, officer or employee of the District, but who may be regularly retained to make annual or other reports to the District.

"Interest Account" means the account by such name created and established in the Special Tax Fund pursuant to the Fiscal Agent Agreement.

"Interest Payment Date" means each March 1 and September 1, commencing March 1, 2006; provided, however, that, if any such day is not a Business Day, interest up to the Interest Payment Date will be paid on the next succeeding Business Day.

"Investment Agreement" means one or more agreements for the investment of funds of the District complying with the criteria therefor as set forth in Subsection (7) of the definition of Authorized Investments.

"Maximum Annual Debt Service" means the maximum sum obtained for any Bond Year prior to the final maturity of the Bonds by adding the following for each Bond Year:

(1) the principal amount of all Outstanding Bonds payable in such Bond Year either at maturity or pursuant to a Sinking Fund Payment; and

(2) the interest payable on the aggregate principal amount of all Bonds Outstanding in such Bond Year if the Bonds are retired as scheduled.

"Moody's" means Moody's Investors Service, its successors and assigns.

"Net Taxes" means Special Taxes minus an amount equal to the Administrative Expense Requirement.

"Nominee" shall mean the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Fiscal Agent Agreement.

"Outstanding" or "Outstanding Bonds" means all Bonds theretofore issued by the District, except:

(1) Bonds theretofore cancelled or surrendered for cancellation in accordance with the Fiscal Agent Agreement;

(2) Bonds for payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Fiscal Agent Agreement; and

(3) Bonds which have been surrendered to the Fiscal Agent for transfer or exchange pursuant to the Fiscal Agent Agreement or for which a replacement has been issued pursuant to the Fiscal Agent Agreement.

"Participants" shall mean those broker-dealers, banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository.

"Person" means natural persons, firms, corporations, partnerships, associations, trusts, public bodies and other entities.

C-7 "Principal Account" means the account by such name in the Special Tax Fund created and established pursuant to the Fiscal Agent Agreement.

"Principal Office of the Fiscal Agent" means the office of the Fiscal Agent located in Los Angeles, California or such other office or offices as the Fiscal Agent may designate from time to time, or the office of any successor Fiscal Agent where it principally conducts its business of serving as Fiscal Agent under indentures pursuant to which municipal or governmental obligations are issued.

"Project" means those public facilities and/or capital fees described in the Resolution of Formation that are to be acquired, constructed or financed within and outside of the District, including all engineering, planning and design services and other incidental expenses related to such facilities and other facilities, if any, authorized by the qualified electors within the District from time to time.

"Project Costs" means the amounts necessary to finance the Project, to create and replenish any necessary reserve funds, to pay the initial and annual costs associated with the Bonds, including, but not limited to, remarketing, credit enhancement, Fiscal Agent and other fees and expenses relating to the issuance of the Bonds and the formation of the District, and to pay any other "incidental expenses" of the District, as such term is defined in the Act.

"Rating Agency" means Moody's and Standard & Poor's, or both, as the context requires.

"Record Date" means the fifteenth day of the month preceding an Interest Payment Date, regardless of whether such day is a Business Day.

"Redemption Account" means the account by such name created and established in the Special Tax Fund pursuant to the Fiscal Agent Agreement.

"Regulations" means the regulations adopted or proposed by the Department of Treasury from time to time with respect to obligations issued pursuant to section 103 of the Code.

"Representation Letter" shall mean the Blanket Letter of Representations from the District to the Depository as described in the Fiscal Agent Agreement.

"Reserve Account" means the account by such name created and established in the Special Tax Fund pursuant to the Fiscal Agent Agreement.

"Reserve Requirement" means, as of any date of calculation, an amount equal to the lowest of (1) 10% of the original proceeds of the Bonds, less accrued interest, if any, less original issue discount, if any, plus original issue premium, if any, or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds. The District may originally fund the Reserve Account with an Alternate Reserve Account Security or may at any time substitute an Alternate Reserve Account Security for the cash on deposit in the Reserve Account to satisfy the Reserve Requirement pursuant to the Fiscal Agent Agreement.

"Resolution of Formation" means Resolution No. 9025 adopted by the City Council of the City on July 20, 2005, pursuant to which the City formed the District.

"Sinking Fund Payment" means the annual payment to be deposited in the Redemption Account to redeem a portion of the Term Bonds in accordance with the schedule set forth in the Fiscal Agent Agreement.

C-8 "Special Taxes" means the taxes authorized to be levied within Improvement Area No. 1 by the District in accordance with the Resolution of Formation, the Act and the voter approval obtained at the July 20, 2005 election in the District, together with prepayments thereof and the proceeds collected from the sale of property pursuant to the foreclosure provisions of the Fiscal Agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions, and any additional special taxes authorized to be levied by the District from time to time which are pledged by the District to the repayment of the Bonds.

"Special Tax Fund" means the fund by such name created and established pursuant to the Fiscal Agent Agreement.

"Standard & Poor's" means Standard & Poor's, a division of McGraw-Hill, its successors and assigns.

"Supplemental Fiscal Agent Agreement" means any supplemental fiscal agent agreement amending or supplementing the Fiscal Agent Agreement.

"Surplus Fund" means the fund by such name created and established pursuant to the Fiscal Agent Agreement.

"Tax Certificate" means the certificate by that name to be executed by the District on a Delivery Date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code.

"Underwriter" means the institution or institutions, if any, with whom the District enters into a purchase contract for the sale of the Bonds.

"Written Request of the District" means a request m writing executed by an Authorized Representative.

INVESTMENTS

Moneys held in any of the funds and accounts under the Fiscal Agent Agreement shall be invested at the Written Request of the District in accordance with the limitations set forth below only in Authorized Investments which shall be deemed at all times to be a part of such funds and accounts. Any loss resulting from such Authorized Investments shall be credited or charged to the fund or account from which such investment was made, and any investment earnings on a fund or account shall be applied as follows: (i) investment earnings on all amounts deposited in the Special Tax Fund ( other than the Reserve Account), Acquisition and Construction Fund and Surplus Fund and each Account therein shall be deposited in those respective funds and accounts, and (ii) all other investment earnings shall be deposited in the Interest Account of the Special Tax Fund; provided, however, investment earnings in the Reserve Account shall be deposited in the Interest Account of the Special Tax Fund only to the extent moneys in such Reserve Account exceed the Reserve Requirement. Moneys in the funds and accounts held under the Fiscal Agent Agreement may be invested by the Fiscal Agent at the Written Request of the District received at least 2 Business Days prior to the investment date, from time to time, in Authorized Investments subject to the following restrictions:

(1) Moneys in the Interest Account, the Principal Account and the Redemption Account of the Special Tax Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on such dates so

C-9 as to ensure the payment of principal of, premium, if any, and interest on the Bonds as the same become due.

(2) Moneys in the Acquisition and Construction Fund shall be invested in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available without penalty, as close as practicable to the date the District estimates the moneys represented by the particular investment will be needed for withdrawal from the Acquisition and Construction Fund. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, amounts in the Acquisition and Construction Fund on the Delivery Date for the Bonds shall not be invested at yields greater than those set forth in the Tax Certificate.

(3) One-half of the amount in the Reserve Account of the Special Tax Fund may be invested only in Authorized Investments which mature not later than two years from their date of purchase by the Fiscal Agent, and one-half of the amount in the Reserve Account may be invested only in Authorized Investments which mature not more than three years from the date of purchase by the Fiscal Agent; provided that such amounts may be invested in an Investment Agreement to the final maturity of the Bonds so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with the Fiscal Agent Agreement; and provided that no such Authorized Investment of amounts in the Reserve Account shall mature later than the respective final maturity date of the Bonds.

(4) In the absence of Written Request of the District providing investment directions, the Fiscal Agent shall invest solely in Authorized Investments specified in clause ( 4) of the definition thereof.

The Fiscal Agent shall sell at the best price obtainable, or present for redemption, any Authorized Investment whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such Funds and Accounts or from such Funds and Accounts. For the purpose of determining at any given time the balance in any such Funds and Accounts, any such investments constituting a part of such Funds and Accounts shall be valued at their cost, except that amounts in the Reserve Account shall be valued at the fair market value thereof and marked to market at least annually. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, the Fiscal Agent shall not be responsible for any loss from investments, sales or transfers undertaken in accordance with the provisions of the Fiscal Agent Agreement. The Fiscal Agent may act as principal or agent in connection with the acquisition of any Authorized Investments. Any Authorized Investments that are registrable securities shall be registered in the name of the Fiscal Agent. The Fiscal Agent is authorized, in making or disposing of any investment permitted by the Fiscal Agent Agreement, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Fiscal Agent or for any third person or dealing as principal for its own account.

COVENANTS AND WARRANTY

Warranty. The District shall preserve and protect the security pledged under the Fiscal Agent Agreement to the Bonds against all claims and demands of all persons.

Covenants. So long as any of the Bonds issued under the Fiscal Agent Agreement are Outstanding and unpaid, the District makes the following covenants with the Bondowners under the provisions of the Act and the Fiscal Agent Agreement (to be performed by the District or its proper officers, agents or employees), which covenants are necessary and desirable to secure the Bonds and tend to make them more marketable; provided, however, that said covenants do not require the District to expend any funds or moneys other than the Special Taxes and other amounts deposited to the Special Tax Fund:

C-10 (1) Punctual Payment: Against Encumbrances. The District covenants that it will receive all Special Taxes in trust and will immediately deposit such amounts with the Fiscal Agent, and the District shall have no beneficial right or interest in the amounts so deposited except as provided by the Fiscal Agent Agreement. All such Special Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth in the Fiscal Agent Agreement, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the District.

The District covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every Bond issued under the Fiscal Agent Agreement, together with the premium, if any, thereon on the date, at the place and in the manner set forth in the Bonds and in accordance with the Fiscal Agent Agreement to the extent that Net Taxes are available therefor, and that the payments into the Funds and Accounts created under the Fiscal Agent Agreement will be made, all in strict conformity with the terms of the Bonds and the Fiscal Agent Agreement, and that it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Fiscal Agent Agreements and of the Bonds issued under the Fiscal Agent Agreement.

The District will not mortgage or otherwise encumber, pledge or place any charge upon any of the Net Taxes except as provided in the Fiscal Agent Agreement, and will not issue any obligation or security having a lien or charge upon the Net Taxes superior to or on a parity with the Bonds. Nothing in the Fiscal Agent Agreement shall prevent the District from issuing or incurring indebtedness which is payable from a pledge of Net Taxes which is subordinate in all respects to the pledge of Net Taxes to repay the Bonds.

(2) Levv of Special Tax. Beginning in Fiscal Year 2006-07 and so long as any Bonds issued under the Fiscal Agent Agreement are Outstanding, the legislative body of the District covenants to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement.

(3) Commence Foreclosure Proceedings. The District covenants for the benefit of the Owners of the Bonds that it (i) will commence judicial foreclosure proceedings against all parcels owned by a property owner where the aggregate delinquent Special Taxes on such parcels is greater than $5,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes were due and (ii) will commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied for such Fiscal Year, and (iii) will diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid; provided, however, that the District may elect to defer foreclosure proceedings on any parcel so long as the amount in the Reserve Account of the Special Tax Fund is at least equal to the Reserve Requirement and such delinquencies will not cause moneys in the Reserve Account to be withdrawn on the next succeeding Interest Payment Date. The District may, but is not obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Account of the Special Tax Fund at the Reserve Requirement.

The District covenants that it will deposit the proceeds of any foreclosure in the Special Tax Fund.

( 4) Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Net Taxes or; other funds in the Special Tax Fund (other than the Administrative Expense Account therein), or which might impair the security of the Bonds then Outstanding; provided that nothing contained in the Fiscal Agent

C-11 Agreement shall require the District to make any such payments so long as the District in good faith shall contest the validity of any such claims.

( 5) Books and Accounts. The District will keep proper books of records and accounts, separate from all other records and accounts of the District, in which complete and correct entries shall be made of all transactions relating to the levy of the Special Tax and the deposits to the Special Tax Fund. Such books of records and accounts shall at all times during business hours be subject to the inspection of the Fiscal Agent or of the Owners of the Bonds then Outstanding or their representatives authorized in writing.

(6) Tax Covenants. The District covenants that it shall take all actions necessary in order that interest on the Bonds be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes, and that it shall not use or invest, and shall not permit the use or investment of, and shall not omit to use or invest Gross Proceeds or any other amounts ( or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes.

(7) Reduction of Maximum Special Taxes. The District finds and determines that, historically, delinquencies in the payment of special taxes authorized pursuant to the Act in community facilities districts in Southern California have from time to time been at levels requiring the levy of special taxes at the maximum authorized rates in order to make timely payment of principal of and interest on the outstanding indebtedness of such community facilities districts. For this reason, the District determines that a reduction in the maximum Special Tax rates authorized to be levied on parcels in the District below the levels provided in the Fiscal Agent Agreement would interfere with the timely retirement of the Bonds. The District determines it to be necessary in order to preserve the security for the Bonds to covenant, and, to the maximum extent that the law permits it to do so, the District does covenant, that it shall not initiate proceedings to reduce the maximum Special Tax rates for the District, unless, in connection therewith, (i) the District receives a certificate from one or more Independent Financial Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in the District as of the July 1 preceding the reduction, the maximum amount of the Special Tax which may be levied on then existing Developed Property (as defined in the Rate and Method of Apportionment of Special Taxes then in effect in the District) in each Bond Year for any Bonds Outstanding will equal at least 110% of the sum on the estimated Administrative Expenses and gross debt service in that Bond Year on all Bonds to remain Outstanding after the reduction is approved, and ( ii) the District finds that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds. For purposes of estimating Administrative Expenses for the foregoing calculation, the Independent Financial Consultant shall compute the Administrative Expenses for the current Fiscal Year and escalate that amount by two percent (2%) in each subsequent Fiscal Year.

(8) Covenants to Defend. The District covenants that in the event that any initiative is adopted by the qualified electors in the District which purports to reduce the maximum Special Tax below the levels specified in the Fiscal Agent Agreement or to limit the power of the District to levy the Special Taxes for the purposes set forth in the Fiscal Agent Agreement, it will commence and pursue legal action in order to preserve its ability to comply with such covenants.

(9) Limitation on Right to Tender Bonds. The District covenants that it will not adopt any policy pursuant to Section 53341.1 of the Act permitting the tender of Bonds to the District in full payment or partial payment of any Special Taxes.

C-12 (10) Continuing Disclosure. The District covenants to comply with the term of the Continuing Disclosure Agreement executed by it with respect to the Bonds.

AMENDMENTS TO FISCAL AGENT AGREEMENT

Supplemental Fiscal Agent Agreements or Orders Not Requiring Bondowner Consent. The District may from time to time, and at any time, without notice to or consent of any of the Bondowners, adopt Supplemental Fiscal Agent Agreements for any of the following purposes:

(1) to cure any ambiguity, to correct or supplement any provisions in the Fiscal Agent Agreement which may be inconsistent with any other provision in the Fiscal Agent Agreement, or to make any other provision with respect to matters or questions arising under the Fiscal Agent Agreement or in any additional resolution or order, provided that such action is not materially adverse to the interests of the Bondowners;

(2) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in the Fiscal Agent Agreement, other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with the Fiscal Agent Agreement as theretofore in effect or which further secure Bond payments;

(3) to modify, amend or supplement the Fiscal Agent Agreement in such manner as to permit the qualification of the Fiscal Agent Agreement under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, or to comply with the Code or regulations issued thereunder, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Owners of the Bonds then Outstanding; or

( 4) to modify, alter or amend the rate and method of apportionment of the Special Taxes in any manner so long as such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the District to an amount which is less than that permitted under the Fiscal Agent Agreement; or

(5) to modify, alter, amend or supplement the Fiscal Agent Agreement in any other respect which is not materially adverse to the Bondowners.

Supplemental Fiscal Agent Agreements or Orders Requiring Bondowner Consent. Exclusive of the Supplemental Fiscal Agent Agreements described in the Fiscal Agent Agreement, the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding shall have the right to consent to and approve the adoption by the District of such Supplemental Fiscal Agent Agreements as shall be deemed necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Fiscal Agent Agreement; provided, however, that nothing in the Fiscal Agent Agreement shall permit, or be construed as permitting, (a) an extension of the maturity date of the principal, or the payment date of interest on, any Bond, (b) a reduction in the principal amount of, or redemption premium on, any Bond or the rate of interest thereon, ( c) a preference or priority of any Bond over any other Bond, or ( d) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such Supplemental Fiscal Agent Agreement, without the consent of the Owners of all Bonds then Outstanding.

If at any time the District shall desire to adopt a Supplemental Fiscal Agent Agreement, which pursuant to the terms of the Fiscal Agent Agreement shall require the consent of the Bondowners, the

C-13 District shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplemental Fiscal Agent Agreement. The Fiscal Agent shall, at the expense of the District, cause notice of the proposed Supplemental Fiscal Agent Agreement to be mailed, by first class mail, postage prepaid, to all Bondowners at their addresses as they appear in the Bond Register. Such notice shall briefly set forth the nature of the proposed Supplemental Fiscal Agent Agreement and shall state that a copy thereof is on file at the office of the Fiscal Agent for inspection by all Bondowners. The failure of any Bondowners to receive such notice shall not affect the validity of such Supplemental Fiscal Agent Agreement when consented to and approved by the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding as required by the Fiscal Agent Agreement. Whenever at any time within one year after the date of the first mailing of such notice, the Fiscal Agent shall receive an instrument or instruments purporting to be executed by the Owners of a majority in aggregate principal amount of the Bonds Outstanding, which instrument or instruments shall refer to the proposed Supplemental Fiscal Agent Agreement described in such notice, and shall specifically consent to and approve the adoption thereof by the District substantially in the form of the copy referred to in such notice as on file with the Fiscal Agent, such proposed Supplemental Fiscal Agent Agreement, when duly adopted by the District, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the Bonds have consented to the adoption of any Supplemental Fiscal Agent Agreement, Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination.

Upon the adoption of any Supplemental Fiscal Agent Agreement and the receipt of consent to any such Supplemental Fiscal Agent Agreement from the Owners of not less than a majority in aggregate principal amount of the Outstanding Bonds in instances where such consent is required pursuant to the provisions of the Fiscal Agent Agreement, the Fiscal Agent Agreement shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Fiscal Agent Agreement of the District and all Owners of Outstanding Bonds shall thereafter be determined, exercised and enforced under the Fiscal Agent Agreement, subject in all respects to such modifications and amendments.

Notation of Bonds; Delivery of Amended Bonds. After the effective date of any action taken as provided in the Fiscal Agent Agreement, the District may determine that the Bonds may bear a notation, by endorsement in form approved by the District, as to such action, and in that case upon demand of the Owner of any Outstanding Bond at such effective date and presentation of his Bond for the purpose at the office of the Fiscal Agent or at such additional offices as the Fiscal Agent may select and designate for that purpose, a suitable notation as to such action shall be made on such Bonds. If the District shall so determine, new Bonds so modified as, in the opinion of the District, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Outstanding Bond at such effective date such new Bonds shall be exchanged at the office of the Fiscal Agent or at such additional offices as the Fiscal Agent may select and designate for that purpose, without cost to each Owner of Outstanding Bonds, upon surrender of such Outstanding Bonds.

EVENTS OF DEFAULT; REMEDIES

Events of Default. Any one or more of the following events shall constitute an "event of default":

(a) Default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise;

C-14 (b) Default in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; or

( c) Except as described in (a) or (b ), default shall be made by the District in the observance of any of the agreements, conditions or covenants on its part contained in the Fiscal Agent Agreement or the Bonds, and such default shall have continued for a period of 30 days after the District shall have been given notice in writing of such default by the Fiscal Agent or the Owners of 25% in aggregate principal amount of the Outstanding Bonds.

The District agrees to give notice to the Fiscal Agent immediately upon the occurrence of an event of default under (a) or (b) above and within 30 days of the District's knowledge of an event of default under ( c) above. The Fiscal Agent shall not be deemed to have knowledge of any event of default described in ( c) above unless a responsible officer shall have actual knowledge thereof or the Fiscal Agent shall have received written notice at its Principal Office.

Remedies of Owners. Following the occurrence of an event of default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated:

(1) By mandamus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the members, officers and employees of the District, and to compel the District or any such members, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in the Fiscal Agent Agreement;

(2) By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or

(3) By a suit in equity to require the District and its members, officers and employees to account as the fiscal agent of an express trust.

Nothing in the Fiscal Agent Agreement, the Bonds shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners thereof at the respective dates of maturity, as provided in the Fiscal Agent Agreement, out of the Net Taxes and other amounts pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in the Fiscal Agent Agreement.

A waiver of any default or breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the Act or by the Fiscal Agent Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners.

If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the District and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken.

No remedy in the Fiscal Agent Agreement conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given under the Fiscal Agent Agreement or now or hereafter existing, at law or in

C-15 equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law.

In case the moneys held by the Fiscal Agent after an event of default pursuant to (a) or (b) above shall be insufficient to pay in full the whole amount so owing and unpaid upon the Outstanding Bonds, then all available amounts shall be applied to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest.

DEFEASANCE

Defeasance. If the District shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in the Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement, then the Owner of such Bond shall cease to be entitled to the pledge of Net Taxes, and, other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond under the Fiscal Agent Agreement shall thereupon cease, terminate and become void and be discharged and satisfied. In the event of a defeasance of all Outstanding Bonds pursuant to the Fiscal Agent Agreement, the Fiscal Agent shall execute and deliver to the District all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay over or deliver to the District's general fund all money or securities held by it pursuant to the Fiscal Agent Agreement which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds.

Any Outstanding Bond shall be deemed to have been paid if such Bond is paid in any one or more of the following ways:

(a) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond, as and when the same become due and payable;

(b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; or

( c) by depositing with the Fiscal Agent or another escrow bank appointed by the District, in trust, noncallable Defeasance Securities, in which the District may lawfully invest its money, in such amount as will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund ( exclusive of the Administrative Expense Account) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable;

then, at the election of the District, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the District under the Fiscal Agent Agreement and any Supplemental Fiscal Agent Agreement with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District contained in certain section of the Fiscal Agent Agreement or any covenants in a Supplemental Fiscal Agent Agreement relating to compliance with the Code. Notice of such election shall be filed with the Fiscal Agent not less than ten days prior to the proposed defeasance date, or such shorter period of time as may

C-16 be acceptable to the Fiscal Agent. In connection with a defeasance under (b) or ( c) above, there shall be provided to the District a verification report from an independent nationally recognized certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank to pay and discharge the principal of, premium, if any, and interest on all Outstanding Bonds to be defeased in accordance with the Fiscal Agent Agreement, as and when the same shall become due and payable, and an opinion of Bond Counsel ( which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with the Fiscal Agent Agreement and any applicable Supplemental Fiscal Agent Agreement. If a forward supply contract is employed in connection with an advance refunding to be effected under ( c) above, (i) such verification report shall expressly state that the adequacy of the amounts deposited with the bank under ( c) above to accomplish the refunding relies solely on the initial escrowed investments and the maturity principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and (ii) the applicable escrow agreement executed to effect an advance refunding in accordance with ( c) above shall provide that, in the event of any discrepancy or difference between the terms of the forward supply contract and the escrow agreement, the terms of the escrow agreement shall be controlling.

Upon a defeasance, the Fiscal Agent, upon request of the District, shall release the rights of the Owners of such Bonds which have been defeased under the Fiscal Agent Agreement and any Supplemental Fiscal Agent Agreement and execute and deliver to the District all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance under the Fiscal Agent Agreement of all Outstanding Bonds, the Fiscal Agent shall pay over or deliver to the District any funds held by the Fiscal Agent at the time of a defeasance, which are not required for the purpose of paying and discharging the principal of, premium, if any, or interest on the Bonds when due. The Fiscal Agent shall, at the written direction of the District, mail, first class, postage prepaid, a notice to the Bondowners whose Bonds have been defeased, in the form directed by the District, stating that the defeasance has occurred.

C-17 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIXD

APPRAISAL REPORT

D-1 [THIS PAGE INTENTIONALLY LEFT BLANK] APPRAISAL REPORT

COMMUNITY FACILITIES DISTRICT NO. 2004-3 CITY OF INDIO INDIO, CALIFORNIA

PREPARED FOR:

CITY OF INDIO ROY STEPHENSON, CITY ENGINEER 100 CMC CENTER MALL INDIO, CALIFORNIA 92201

PREPARED BY:

WILLIAM V. SHREWSBURY, MAI/SENIOR VICE PRESIDENT JAIMIE Z. BASSO/ASSOCIATE APPRAISER

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES APPRAISAL AND VALUATION DIVISION 1217 EAST NORMANDY PLACE . SANTA ANA, CALIFORNIA 92705 PH: (714) 564-8982 I FAX: (714) 564-8985

DATE OF VALUE: JUNE 17, 2005

DATE OF REPORT: JULY 15,2005

Copyright 2005 by First American Commercial Real Estate Services Appraisal and Valuation Division .. All rights reserved. Unless with the prior written permission of First American Commercial Real Estate Services Appraisal and Valuation Division, no part may be reproduced, recorded, stored in a database or retrieval system or transmitted by electronic, photocopy or any other means, whether in eye~readable or machine~readable form, microfilm or otherwise. First American Commercial Real Estate Services, Inc.

July 15, 2005 File No. 614

City of Indio Roy Stephenson, City Engineer 100 Civic Center Mall Indio, CA 92201

Re: Appraisal of Various Tracts of land (635 Lots within Phase One of the Terra Lago Master Planned Community) to be Developed Under Community Facilities District No. 2004-3 Located in the City of Indio, California

Dear Mr. Stephenson:

In response to your authorization, we have prepared the following narrative appraisal report concerning the market value of the fee simple interest in the above-referenced real estate.

Based on the investigation and analyses undertaken, our experience as real estate appraisers and subject to the definitions, assumptions and limiting conditions contained in this appraisal report, the following opinions have been formed based on the current market data as of June 17, 2005.

The estimated value of the residential parcels, discounted for the time and cost of absorption, assuming the proposed Community Facilities District No. 2004-3 financing is in place and ready for funding, is as follows:

SEVENTY ONE MILLION DOLLARS $71,000,000 Mr. Roy Stephenson July 15, 2005 Page Two

The definitions of value are as such:

Market Value As-Is: Means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions or qualifications as of the date of inspection.

Market Value: Means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

The narrative appraisal report which follows sets forth the results of our investigations and analyses, pertinent facts about the area and the property, comparable data and the reasoning which, in part, led to the conclusions set forth.

This report is intended to be in conformance with and is subject to the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute, the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and in compliance with CDIAC appraisal guidelines.

Respectfully submitted, \MJ.1..-~~ William V. Shrewsbury, MAI Senior Vice President California OREA License No. AG004522

\VVS:pa SUMMARY OF SALIENT FACTS AND CONCLUSIONS

• EFFECTIVE DATE OF APPRAISAL: June 17, 2005

• INTEREST APPRAISED: Fee simple.

• LEGAL DESCRIPTION: See page 13 of this report

• OWNERSHIP: See page 13 of this report

• SITE: Five tracts (zones) ofland to be developed under Community Facilities District No. 2004- 3.

PA 1: Tract No. 31601-2 (178 Lots) PA2: Tract No. 31601-3 (128 Lots) PA3: Tract No. 31601-4 (86 Lots) PA4: Tract No. 31601-5 (133 Lots) PAS: Tract No. 31601-5 (110 Lots)

TOTAL 635 LOTS

• LOCATION: Various parcels described in the report herein located in the City of Indio.

• ASSESSOR'S PARCEL NOS.: CFD 2003-4 is comprised of Assessor's Parcel Numbers 601-290-003, 601-290-008 and portions of601-270-013, 601-270-015, and 601-270-006.

• THOMAS BROTHERS GRID: Riverside County, 5410-H5 and 5411-AS, A6, B5, and B6

• SITE: Five separate tracts of land. -Shape: Irregular -Earthquake Hazard: None. -Flood Hazard: See Site Description in this report. -Environmental Issues: See Site Description in this report. -Zoning: Various residential uses. See Site Description in this report. -Taxes: See Property Tax Summary.

• ADVANT AGES OF SUBJECT: Good location within a strong developing area of Indio and surrounding desert communities.

• DISADVANTAGES OF SUBJECT: None apparent.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NOfilL\NDY PL-\CE •SANL-\ .ANA, C.ALIFORNL-\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 4 • MARKETABILITY FOR SALE/ The most likely purchaser of the subject site is a TYPICAL BUYER: large developer interested in bulk purchase of the entire parcel.

• MAJOR AREA INFLUENCE: The 10 Freeway Corridor, the City oflndio and the surrounding desert communities.

• HIGHEST AND BEST USE: -"As Is" Vacant: Developed as set forth in the proposed Master Plan for the Community Facilities District 2004- 3.

• FINAL VALUE ESTIMATE: $71,000,000 Discounted Bulk Value

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EvALUATION 1217 NOR1L-\i~DY PL\CE •SANTA ANA, C.ALIFORNL\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 5 TABLE OF CONTENTS

TRANSMITTAL LETTER • ...... • ...... 2 SUMMARY OF FACTS AND CONCLUSIONS ...... 4

TABLE OF CONTENTS ...... • ...... • ...... 6

INTRODUCTION ...... • ...... 8 Purpose of the Report ...... 8 Intended Use of the Report ...... ·...... 8 Intended Users of the Report ...... 8 Scope of the Appraisal ...... 8 Dates of Inspection and Valuation ...... 9 Statement of Work Product/Dates of Report Preparation ...... 9 Premises, Assumptions and Limiting Conditions ...... 9 Special Limited Conditions ...... 11 Definitions and Reporting Standards ...... 12 Property Rights Appraised ...... 12 Property Identification ...... 13 Ownership ...... 13 Legal Description ...... 13

AREA DESCRIPTION ...... •...... " 14 Riverside County Overview ...... 14 City of Indio ...... 21 Summary ...... 24

NEIGHBORHOOD DATA ...... 25 Immediate Surroundings/Neighborhood ...... 25 Primary Neighborhood Access and Secondary Routes ...... 25 Distances and Directions from the Subject Neighborhood to Major Business Districts ...... 25

SITE DATA ...... -...... • ...... 27 Site Analysis ...... 27 Location ...... _ ...... 27 Important Site Characteristics ...... 27 Ingress/Egress and Exposure ...... 27 Utilities and Services Available to the Subject Properties' Neighborhood ...... 27 Size and Shape ...... 28 Adjacent Properties ...... 28 Topography ...... 28 Proposed Uses ...... 2 8 Soil and Subsoil Conditions ...... 29 Earthquake, Flood, and Other Nuisances and Hazards ...... 29 Street Improvements ...... 29 Easements, Restrictions and Encroachments ...... 2 9

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NO~'\L-\.NDY PLA~E •S. .:\NT.A .ANA, C-\LIFORNI.A 92705• PHONE 714.580-7056 • FAX 714.550-7057 6 Essential Zoning Provisions ...... 29 CC&Rs/Private Restrictions, Governing Use ...... 29 Functional Adequacy of Site ...... 29 Tax and Assessment Data ...... 29

MAR.KET CONDITIONS . . . • ...... 37 Physical and Locational Considerations ...... 3 7 Legal Considerations ...... 38 ~arket F~asibility ...... 38 Discounting ...... 42

HIGHEST AND BEST USE ...... 44 Highest and Best Use - As Vacant ...... 45

VALUATION METHODOLOGY ...... 48 Basis of Valuation ...... 48 Valuation Approaches ...... 48

DIRECT COMPARISON APPROACH ...... 49 Introduction ...... 49 Analysis of Comparable Sales ...... 50 Single-Family Residential Land Sales Comparison Approach Analysis ...... 56 Reconciliation of Finished Lots Value Concluded Land Value ...... 58 DEVELOPMENTAL ANALYSIS ...... 59 Absorption ...... 59 General, Administrative, Taxes, Development Costs, Profit and Marketing Costs ...... 59 Discount Rate ...... 60

DISCOUNTED CASH FLOW ANALYSIS ...... 62 SUMMARY OF VALUATIONS ...... 67

VALUATION SUMMARY ...... 68

CERTIFICATION ...... 69 APPRAISER'S QUALIFICATIONS ...... 71

ADDENDUM ...... • ...... 70 -Absorption Study

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EvALUATION 1217 NORi.\HNDY PL.\CE •S.ANTA ~.\NA, CALIFORNL\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 7 INTRODUCTION

Purpose of the Report The purpose of this report is to estimate the market value of the fee simple interest in the following described real estate, subject to special tax levies pursuant to the Community Facilities District Act of 1982, under the following valuation premises:

The estimated "as is" value of the residential acreage discounted for the time and cost of absorption, assuming the proposed CFD funding is in place.

The estimated retail market value of the subject property, assuming the proposed CFD Financing has been funded.

Intended Use of the Report It is these appraisers' understanding that this appraisal report is to be used for CFO bond financing named CFD 2004-3. The opinions set forth are subject to the premises, assumptions and limiting conditions detailed below and throughout this report. This report is intended to be in conformance with and is subject to the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation. It is also made in conformance to the guidelines set out by CDIAC.

Intended Users of the Report The intended users of the report are The City of Indio officials, underwriters, counsel and potential investors only.

Scope of the Appraisal As a part of this appraisal, the appraisers made a number of independent investigations and analyses. Only the Direct Comparison Approach and a form of the Income Approach, known as the Discounted Cash Flow Analysis, have been utilized. The Cost Approach was felt inapplicable. The investigations and analyses undertaken include the following: 1. Review of area demographic and economic information. 2. Review and analysis of the market activity for the various components of the subject property as well as the market for master planned communities. 3. Accumulation and confirmation of land sales similar in use to the parcels comprising the subject property. 4. Discussions with City planners, buyers, developers and other knowledgeable persons in the area.

All conclusions reached are presented in a self-contained, fully documented narrative appraisal

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORi\L-\NDYPL-\.CE •SANT.-\. ANA, C\LIFORNL\. 92705• PHONE 714:580-7056 • FAX 714.550-7057 8 report.

Dates of Inspection and Valuation The effective date of value in this report is June 17, 2005. No future valuation is expressed or implied by this report. The property was last inspected on June 17, 2005 by William V. Shrewsbury, MAI.

Statement of Work Product/Dates of Report Preparation The data used in this report was collected, verified and analyzed by William V. Shrewsbury, MAI. This report was prepared between the dates of June 1, 2005 and July 15, 2005.

Premises, Assumptions and Limiting Conditions The analyses and opinions set forth in this report are subject to the following assumptions and limiting conditions.

The valuation of the subject property is based, in part, on the conceptual specific land use plan proposed by the various developers. It is further assumed that all governmental approvals have been granted to allow such a plan. The uas is" condition is based upon the project being developed as defined in this report. We reserve the right to alter the conclusion of the estimated values contained in this report in the event that any change in the development costs occur or there is a change in the specific land use plan as to the number of dwelling units or acreage for any one ofthe defined land uses. The value contained in this report is further conditioned upon the project being developed as defined within the body of the Community Facilities District 2004-3.

We assume no responsibility for matters legal in character, nor do we render any opinion as to title which is assumed to be good and marketable, and that the premises are assumed to be free and clear of all deeds of trust, leases, use restrictions and reservations, covenants, conditions, easements, cases or actions pending, tax liens and bonded indebtedness (unless otherwise specified).

No survey, legal or engineering analysis of this property has been made by me. It is assumed that the legal description and area computations furnished are reasonably accurate. In the absence ofa survey, no opinion is made nor responsibility taken for encroachments or undisclosed easements (if any).

A current soils report was not furnished to this appraiser for review. Therefore, we assume that the soil conditions at the subject site are suitable for the existing development. This appraisers reserve the right to alter his conclusions of value if so warranted by a soils report for the subject property.

OiI, gas, mineral rights and subsurface rights were not considered in making this appraisal unless otherwise stated and are not a part of the appraisal, if any exist.

This appraisers will not be required to give testimony or attendance in court or any other governmental hearing by reason of this appraisal unless arrangements have previously been made.

In the event this appraiser is subpoenaed for a deposition, judicial or administrative proceeding and is ordered to produce this appraisal report and files, this appraiser will immediately notify the employer.

This report has not been prepared for court testimony nor is the undersigned prepared for such testimony at this time. If court testimony becomes necessary, advance arrangements will hav~ to be made and reasonable compensation for such additional services would have to be mutually agreed upon.

The liability of First American Commercial Real Estate Services Inc. is limited to the client and to the fee actually received. There is no accountability, obligation or liability to any third party. Ifthis report is placed in the hands of anyone other than the client, the client is responsible for making such third party aware of all limiting conditions and assumptions of the assignment and related discussions.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NO~\L-\NDY PL-\CE •SANTA AN.A, C-\LIFORNL\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 9 First American Commercial Real Estate Services, Inc. is not responsible for any costs incurred to discover or correct any deficiencies of any type in the subject property; physical, financial and/or legal. The client agrees that First American Commercial Real Estate Services Inc. and the analysts will be held harmless in the case of lawsuits involving limited partnerships, syndication or stock offerings in real estate (brought on by a lender, partner or part-owner, tenant or any other party), and the client will pay any and all awards, settlements of any type, regardless of the outcome.

It has been assumed that the subject improvement suffers no structural damage or termite infestation and that Urea-Formaldehyde Foam (UFFI), asbestos or other hazardous materials may have been used in its construction. It is the responsibility of the client, lender or user of this report to check for these items.

These appraisers will appear at the deposition, judicial or administrative hearing with his appraisal report and files and will answer all questions unless the employer provides the appraiser with legal counsel who then instructs him/her not to appear, instructs him/her not to produce certain documents or instructs him/her not to answer certain questions. These instructions will be overridden by proper court order which the appraisers will follow if legally required to do so. It shall be the responsibility of the employer to obtain a protective order.

The appraisers assume no responsibility for any conditions not readily observable from his/her related customary inspection of the subject and which might affect the valuation excepting those items specifically mentioned in this report.

No opinion is intended to be expressed regarding matters that require legal expertise or specialized investigation or knowledge beyond that customarily employed by the real estate appraiser.

The date of value, for which the opinions of value are expressed in this report, is June 17, 2005. The dollar amount of this value opinion is based on the purchasing power of the United States dollar on that date.

These appraisers assume no responsibility for changes in economic or physical conditions occurring after the date of this report that may affect the valuation opinion stated in this report. Maps, plats and exhibits included herein are for illustration only, as an aid for the reader in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced or used apart from this report.

No consideration has been given in this appraisal to personal property located on the premise; only the real estate has been considered unless otherwise specified.

Information contained in this report has been gathered from sources which are believed to be reliable and. where feasible, has been verified. No responsibility is assumed for the accuracy of information supplied by others.

Area calculations and dimensions used are for relative appraisal comparison purposes only. There is no such thing as a completely exact measurement and definitions can vary.

Any sketch or identified survey of the property included in this report is only for the purpose of assisting the reader to visualize the property.

This opinion of value is intended to be an opinion of value for a point estimate of time only. These appraisers, in rendering this opinion, assume no responsibility for subsequent management, economic or physical factors which may or may not affect said conclusions or opinion.

The allocation of total value to land or to buildings, if shown in this report, is invalidated if used separately in conjunction with any other appraisal and, if a lease or partial interest valuation is given, the sum of the parts may or may not equal the entire fee simple interest in the real estate.

This appraisers estimate that the marketing time to sell the property is within 12 months.

The estimated income and expense estimates used in the Discounted Cash Flow Section do not constitute an audit of this project and should not be misconstrued as such. Estimated income and expenses shown are for appraisal purposes only and represent a combination ofjudgments based on marketing data, experience and estimated expenses. Expenses and income used are to be considered stabilized; actual income and expenses may be different.

In this appraisal assignment, the existence of potentially hazardous materials and/or existence oftoxic waste, which may or may not be present on the property, has not been considered. This appraiser has not been notified of the existence of any such items; however, the appraiser is not qualified to detect such substances. It is suggested that the reader consult with a qualified expert in the field for the possible presence of such materials and the potential cost of correction, if found.

FIRST AMERICAN COMM:ERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOR.1L-\.i'-JDY PL-\.CE •S.c-\.NTA ANA, CALIFORNL\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 10 Flood zones have either been confirmed with the county or city of the property. If the flood zone has not been confirmed with the city, then the flood zone has been researched by looking at the National Flood Insurance Program's FIRM (Flood Insurance Rate Map). Although the FIRM panel has been researched, We are not a flood engineer and bear no responsibility for its accuracy. If there is any question as to the validity of the FIRM panel, then I suggest that the client do an independent search, confirming the subject and panel with the National Flood Insurance Program in Washington, D.C.

The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible noncompliance with requirements of ADA in estimating the value of the property.

The signatory of this appraisal report is a member of the Appraisal Institute and is licensed by the State of California The Bylaws and Regulations of the Institute require each member and candidate to control the uses and distribution of each appraisal report signed by such member or candidate. Therefore, except as hereinafter provided, the party for whom this appraisal report or evaluation was prepared may distribute copies of this appraisal or evaluation report in its entirety to such third parties as may be selected by the party for whom this appraisal report was prepared. However, selected portions of this appraisal report shall not be given to third parties without the prior written consent of the signatory of this appraisal report. (Nothing is to be removed, particularly conclusions of value. The entire report is to be presented at all times.) Further, neither all nor any part of this appraisal report shall be disseminated to the general public by the use of advertising media, public relations media, news media, sales media or other media for public communication without the prior written consent ofthe signatory of this appraisal report, particularly as to value conclusions, the identity of the appraiser or any reference to the Appraisal Institute or to the designations granted by the organization.

Any future seismic earthquakes in the Southland may have a detrimental influence upon value. We have examined the property from the exterior to see if there are any structural problems. As a result, we cannot say whether the structure has been affected by any earthquakes. In addition, we do not know whether this structure can withstand another earthquake. Since we have no direct evidence relating to this issue, we did not consider possible structural damage in estimating the value of the property.

Acceptance of and/or use of this report by the client or any third party constitutes acceptance of the above conditions. First American Commercial Real Estate Services Inc. and the analysts' liability extends only to the stated client, not subsequent parties or users, and is limited to the amount of the fee received.

The appraisers assume that the flood information provided by the County of Riverside is accurate; however, if it is different, then the appraiser does not take responsibility.

Special Limited Conditions . It should be noted that considerable weight has been considered in the absorption assumptions contained in the Market Absorption Study CFD 2004-3, City oflndio, dated July 2005, prepared by Market Profiles. Absorption assumptions set forth in the report call for the sale of finished properties to "end users." Our estimate refers to the sale of lots to developers or investors who will ultimately sell off to "end users." Also, the land development costs furnished by SunCal Companies represent the costs estimated at this time for developing the tract within the CFD 2004-3 development. Our value estimates reflect these assumptions. We reserve the right to amend our value estimate should they amend their absorption and/or development cost estimates.

Definitions and Reporting Standards The terms "market value" and "fee simple estate," as used in this report, are defined below. The

FIRST AMERICAN COMI\1ERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOR..i.\.L-\NDY PL-\.CE •SANTA ..-\.K-\., CALIFORNL-\. 92705• PHONE 714.580-7056 • F.:\X 714.550-7057 11 term "highest and best use" is defined in that section of this report. In addition, other standards are presented with respect to "personal property" and "self-contained appraisals."

Market Value1 Means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation ofa sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. Dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Market Value As-Is

Means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions or qualifications as of the date of inspection. 2

Fee Simple Estate3

Absolute ownership unencumbered by any other interest or estate subject only to the four powers of government.

Cash Equivalency Definition

The definition of market value contains within it the concept of cash equivalency. The following paragraph elaborates on this concept as contained within the definition of market value used by the Federal National Mortgage Association (FNMA) and the Federal Horne Loan Mortgage Corporation (FHLMC):

In applying this definition of market value, adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs that are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third-party financial institution that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession, but the dollar amount of any adjustment should approximate the market's reaction to the financing or concessions based on the appraiser's judgement.•

Property Rights Appraised The interest appraised in this report is considered to be the fee simple interest of the subject property described herein. This valuation is based on and explicitly assumes a total transfer of the real estate described whether it be in one lump total or in a series of component positions.

10ffice of the Comptroller of the Currency under 12 CFR, Part 34, Subpart C -Appraisals, 34.42 Definitions (f).

2Clarification: The property may be partially complete (only structural framework up and not enclosed); it may be physically complete but only partially leased up or sold out or it may already be "stabilized."

'The Dictionary ofReal Estate Appraisal, Second Edition, published by the American Institute of Real Estate Appraisers, I 989, p. 120.

"'Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISALAND EVALUATION 1217 NORi.\UNDY PL\CE •SANL\ _ANA, CALIFOR.i'\JIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 12 Property Identification/Ownership This property is an appraisal of the land and improvements located in the zones or tracts set forth as follows: PA 1: Woodside Homes Tract 31601-2 178 Lots PA2: Lennar Homes Tract31601-3 128 Lots PA3: Lennar Homes Tract 31601-4 86 Lots PA4: Ashbrook Comm. Tract 31601-5 133 Lots PAS: Ryland Homes Tract 31601-5 110 Lots

TOTAL 635LOTS

Legal Description The land referred to in this report is situated in the City of Indio, County of Riverside, State of California, and is described in the addendum.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NOR...\.UNDY PL-\.CE •S.A.NTA .ANA, CALIFORNIA. 92705• PHONE 714.580-7056 • FAX 714.550-7057 13 AREA DESCRIPTION

Riverside County Overview Riverside County consists of24 individual cities and numerous unincorporated communities, as of 2005. Riverside County is typically grouped with adjacent San Bernardino County to form the Riverside-San Bernardino Metropolitan Statistical Area (MSA), and the area is commonly referred to as the Inland Empire.

The major urbanized areas are located in the western portion of the county. The major incorporated cities include Riverside, Corona and Moreno Valley. Peripheral areas such as Temecula and Moreno Valley are the most active areas for new growth. The desert area of Riverside County, known as the Coachella Valley, includes such world-famous desert communities as Palm Springs, Rancho Mirage, Palm Desert and Indian Wells. Riverside County is bounded by Orange County to the west, San Bernardino County to the north, the state of Arizona to the east, and San Diego County and Imperial County to the south, as the map on the next page indicates.

The following section summarizes the general population, employment, income and retail sales trends in Riverside County.

Riverside County Population Trends As of January 2003, the countywide population stood at approximately 1,726,754 residents, in 2004 it was 1,807,858, and 2005 the population was 1,877,000. Annual population gains from natural increase and in-migration changed accounted for a 2.90% increase per year.

The future rate of growth within the county will depend on a number of factors including availability of developable land, availability of water, the national and regional economic climates, and public policy toward growth. The areas within the county which will continue to experience the largest share of the new population growth will be the peripheral area between Corona and the Temecula Valley and the Moreno Valley area.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOR.i'\L\NDY PLACE •SANL\ AN_-\, CALIFOR.i~L\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 14 RIVERSIDE COUNTY REGIONAL MAP \ \ \ )~ --~! j._' / jt\;.. _ , ;395 . :)~ l r . f Adel~nt' }. i /. Amboy {' ·c' ..... L : V1ctoiville~ TwentynlnetPalms i . -~"".~:.- .. 1- '":;:"~pie Va~ Marine Corps Base r- 1 ..:~~-·~-~ .i. LOS : "\ -.~-1gie.speria · , .. S·A .. J~. t ,~-,La~- 95_) .__, ' ·· ,. ;.v "'~ '"-..,,,..\ MountSan ' . j ANGEL,E:s' \Antoni6i_ -·--\i·...I'"" B E R N A R Q.\ I N O \r;!}ii:Cadiz Lake l i10,064 ff~ l t l \. i I "a • ' \,..., -)J -~~iby Lake >:..~~:..f;:~;.·_. Joshua .. Twentymne ~-o:.~:· ~.,,.'./ \.I., ... 2.J):e~~.~~.!~~tr§.~--·~- ;:,t.,

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Omi 20 40 60 Copyright© 1988-2003 Microsoft Corp. andlor its suppliers. All rights reserved. http:flwww.microsoft.com/streets © Copyright 2002 by Geographic Data Technology, Inc. All rights reserved.© 2002 Navigation Technologies. AU rights reserved. This data includes information taken with permission from Canadian authorities@ 1991-2002 Government of Canada (Statistics Canada andfor Geomatics Canada), all rights reserved. Riverside County Employment Trends Employment data for Riverside County is compiled for the entire Riverside-San Bernardino MSA, which includes both Riverside County and San Bernardino County. These counties have a diverse economy with manufacturing, construction and tourism as the major industry groups. The most common measure of employment growth is the increase in non-agricultural employment.

The following information in italics was taken from Market Profiles, Inc.'s Feasibility Report dated July 1, 2005.

Employment Growth

The demand for new homes in the Coachella Valley is influenced by the economic vitality of Riverside County and all of Southern California. Tourist expenditures and second home purchases are important elements ofthe Valley's economy. _The strength oflocally based, primary home purchases is dependent upon the vitality of the tourism industry, which, in turn, is dependent upon the strength ofthe national and Southern California economies.

From 1997 through 2000, employment in Southern California increased at a healthy average annual rate of 3.0 percent. During the same period, employment in Riverside and San Bernardino counties increased at a very strong rate of5. 2 percent per year.

The rate ofemployment growth began to decline in the first three quarters o/2001 due to rising interest rates and a slowing national economy. Following the attack on the World Trade Center in September,job growth came to a virtual halt in the fourth quarter o/2001. Total employment in Southern California increased by 1. 2 percent for the year 2001.

The economic weakness experienced in the late fourth quarter of 2001 carried over into 2002 and 2003 and employment in Southern California declined slightly each ofthose years. Positive job growth is projected to be reestablished in 2004 and employment is projected to grow by 1. 5 percent in 2004, improving to 2. 2 percent in 2005.

Employment growth in Riverside County is monitored by the State along with San Bernardino County on a combined, bi-county basis. Employment in the bi-county region isprojected to grow by about 2.5 percent in 2004, and the rate ofjob growth is projected-to improve to 3.5 percent in 2005.

Southern California's continuously expanding employment base will result in substantial demand for new homes in the Coache Ila Valley. Locally, the Valley's economy has begun to benefit from new employment opportunities relating to the recent voter approval of Proposition lA which authorized the establishment ofLas Vegas style casinos with slot machines on Indian lands in California. As a result, several major casino projects have been completed or are in various states ofthe development process in the Coachella Valley. These projects are projected to add several hundred jobs to the Valley's employment base and to attract several thousand

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EvALUATION 1217 NOR.i.'vL-\NDY PL\CE •S.ANTA ..\NA, CALIFOR.i."'\JL\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 16 EXHIBIT 11 .. 2 EMPLOYMENT GROWTH RIVERSIDE .. SAN BERNARDINO e1 .. cOUNTY REGION AND SOUTHERN CALIFORNIA 1980 .. 2006

Riverside & San Bernardino Counties Southern California Total Increase/ Percent Total Increase/ Percent Year Employment Decrease Change Employment Decrease Change 2006 1,252,700 42,000 3.5% 8,464,400 168,000 2.0% 2005 1,210, 700 40,000 3.4% 8,296,400 135,100 1.7% PROJECTED 2004 1,170,700 50,500 4.5% 8, 161,300 122,000 1.5% 2003 1,120,200 37,700 3.5% 8,039,300 (11,200) -0.1% 2002 1,082,500 31,800 3.0% 8,050,500 (12,700) -0.2% 2001 1,050,700 40,600 4.0% 81063,200 96,600 1.2% 2000 1,010, 100 49,800 5.2% 7,966,600 216,300 2.8% 1999 960,300 56,500 6.3% 7,750,300 221,000 2.9% 1998 903,800 40,700 4.7% 7,529,300 245,700 3.4% 1997 863,100 38,300 4.6% 7,283,600 216,800 3.1% 1996 824,800 23, 100 2.9% 7,066,800 126,000 1.8% 1995 801,700 28,900 3.7% 6,940,800 124,700 1.8% 1994 772,800 16,900 2.2% 6,816,100 35,700 0.5% 1993 755,900 4,400 0.6% 6,780,400 (102,900) -1.5% 1992 751,500 10,000 1.3% 6,883,300 (205,000) -2.9% 1991 741,500 6,300 0.9% 7,088,300 (180,600) -2.5% 1990 735,200 46,000 6.7% 7,268,900 103,100 1.4% 1989 689,200 41,500 6.4% 7,165,800 190,400 2.7% 1988 647,700 36,800 6.0% 6,975,400 241,300 3.6% 1987 610,900 36,500 6.4% 6,734,100 240,900 3.7% 1986 574,400 37,700 7.0% 6,493,200 226,100 3.6% 1985 536,700 41,000 8.3% 6,267, 100 237,800 3.9% 1984 495,700 30,000 6.4% 6,029,300 266,800 4.6% 1983 465,700 13, 100 2.9% 5,762,500 53,900 0.9% 1982 452,600 (6,300) -1.4% 5,708,600 (135,800) .. 2.3% 1981 458,900 6,900 1.5% 5,844,400 89,300 1.6% 1980 452,000 N.A. N.A. 5,755,100 N.A. N.A.

Source: California Employment Department, Market Profiles

MARKET PROFILES, INC. 274211x2-1,2,3,4,5,6,7.xls more visitors to the region. This growth will have a stimulating influence on the demandfor new homes in the Coachella Valley. The first major impacts ofthe casino expansion were felt in 2001.

Casino projects recently completed and planned include the following:

• The Au2ustine Casino, south of the Citv of Coachella, opened for business in 2004. The casino employs approximately 300 persons.

• The Moron.20 Band of Mission Indians recentlv completed construction of a $2 5 0 million casino resort hotel on a site located a few miles west of Palm Sprin2s on the north side ofInterstate 10. The project is expected to create 4, 000 new iobs over the next five vears. When completed it will be one of the largest gaming destinations on the West Coast.

• A $90 million, 125, 000 square foot casino recently opened in 2004 north of Rancho Mirage.

• The Aqua Caliente Band of Cahuilla Indians announced in Januarv plans to expand the Aqua Caliente Casino bv additional 65, 000 square feet, add a new 14 storv hotel with 400-rooms, and add 350,000 square feet of retail space. These various proiects will be on the Aqua Caliente Reservation at the corner of Bob Hop Drive and Ramon Road, which is an unincorporated area of Riverside County.

• In Palm Sprinzs. the Spa Resort Casino opened in 2004. The $95 million 2amin!Z facilitv has 3 0 tables, 1, 000 slot machines, an entertainment lounge, and four restaurants.

• Construction has be2un on the first phase of a 300-acre resort and corporate development located in Palm Sprin2s. The Indian Oasis Resort and Corporate Center will ultimatelv include a 10-storv hotel, 290 condominium units, an 18-hole f!Olt course, a 100, 000 square foot shopping center, and 5 00, 000 square feet of office space.

In 2003, the f!rowth of the Coachella Vallev's economv was affected bv the slowdown in tourism that began in 2001. Hotel revenues in the Vallev declined bv 4.8% and 3.2% in 2001 and 2002, respectivelv. This drop in visitor activity had a dampenin2 effect on the demand (or new homes in the Valley. Nevertheless, the sales of new homes increased in 2002 compared to 2001 (see New Home Sales Trends below). Since 2003, however. tourism has started to rebound with hotel room revenues increasin2 bv 2.4 percent in 2003 and 4.3 percent in 2004. Further improvement in hotel revenues is projectedfor 2005.

The proiected improvement in the health ofthe Southern California economy over the next two years will stren2then the underlvin!Z demand (or new homes in the Coachella Vallev. The volume "ot visitors to the Vallev will recover and grow, while the financial state and the confidence levels ofnew home buyers will improve.

Demographic and Housing Profile

There are 365,648 persons residing in the Valley. The population has grown at a strong pace of 4.1% per year since 2000. The Valley's population is projected to grow at a rate of 3.8% per

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NO&.\.L-\NDY PLACE •S~c\NT..c\ .ANA, CALIFORNIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 18 year over the next five years. Although the percentage rate ofgrowth is declining, the growth rate in absolute terms is projected to remain near recent levels.

The average household size in the Coachella Valley is 2. 68 persons. This is a low figure resulting from a large proportion of one and two-person households. Nearly two-thirds (64%) of the market area's households consist ofone or two persons, compared to 54 percent countywide. The large proportion of small households is partly due to a large retired population. Nineteen percent of the population is over 65 years of age. Countywide this age group accounts for 14 percent ofthe population.

The population of the City ofIndio is 61,516persons. At 3.46 persons, the average household size in the city is much larger than that ofthe Coachella Valley as a whole. The city has a much larger proportion offamily households with children than do the other communities in the Valley.

The income profile ofthe Valley's households is very diverse. Households are distributed across a broad range of annual incomes from under $25,000 (21%) to over $100,000 (20%). The median income ofhouseholds in the Coachella Valley is $44,240. This is a modest figure that is 8. 6% below the countywide median figure of$48,384. The median income ofhouseholds in1ndio is $39,477.

Housing Profile Single family detached homes account for 46 percent ofthe Valley's housing stock compared to a countywide proportion of 61 percent. The median housing value in the Coachella Valley is $238,378 (existing homes). This figure is slightly below the figure for Riverside County of $245,354. However, the Valley's housing stock is very diverse. The Valley has a greater than typical proportion of the least expensive homes and of the most expensive homes. Twenty five percent of the Valley's housing stock is valued below $150, 000 compared to 22% countywide. However, the Valley also has a higher proportion of homes valued over $400, 000 (24% versus 18% countywide).

Housing vacancy rates are very high in the City ofPalm Desert, as well as in the Cities ofIndian Wells, La Quinta, Palm Springs and Rancho Mirage. These high vacancy rates ofover 30%, 40% and even 50% are due to the high incidence ofsecond home ownership in these cities. Assuming an underlying vacancy rate offive to ten percent, second home ownership in these cities ranges from 20 to 45 percent ofthe total housing stock.

The proportion ofsecond home ownership in the City ofIndio is relatively low. The proportion of second home ownership in the city is estimated to be about ten percent. However, this proportion is projected to increase over the next five years.

New Home Sales Trends

The volume ofsales in the Valley declinedfrom a peak of3, 3 5 6 in 1989 to 95 3 in 19 93 due to the effects ofthe regional recession that began in mid-1990. Sales activity remained moderate from 1993 through 1997, then accelerated to 2,226 homes sold in 1998 and to 3,330 homes in 2000. Sales for 2001 fell to 2,510 homes due to a general slowdown in economic growth in Southern California Sales increased to 4,236 homes in 2002. Sales activity continued to increase in 2003 and in 2004 with 5, 768 homes sold in 2003 and 5, 851 homes sold in 2004.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOR.r..\B.NDY PL\CE •S.ANTA .. \N.. \, C\LIFORNL\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 , 19 The geographic pattern ofnew home sales in the Coachella Valley has shifted over the past few years. Excluding the Indio-Coachella submarket, sales activity among the other submarket areas varied significantly from year to year. The sales fluctuations have been due largely to supply considerations. Sales in the Palm Desert submarket droppedfrom 1,313 homes in 2002 to 383 homes in 2003 due to a decline in home supply. Alternatively, homes sales.in the Palm Springs­ Cathedral City submarket (including Desert Hot Springs) increasedfrom 393 homes in 2002 to 1,161 homes in 2004 due to an increase in supply. The shifting geographic pattern of sales activity is likely to continue in the future. More sales activity is expected to emerge in Palm Desert since the city has recently ended its moratorium on development in its northern sector.

In contrast to fluctuating sales activity in the other sub market areas ofthe valley, new home sales in the Indio-Coachella Submarket have consistently increased over the past three years. Sales jumpedfrom 591 homes in 1999 to 1,217 in 2002 and 2,890 homes in 2003. New home sales in the Indio-Coachella Submarket continued to accelerate in 2004 with sales totaling 2,596. Moderate home prices have been a major attractor ofhome buyers to the submarket.

Price Trends

The average price ofa detached home sold in the Coache! la Valley in the third quarter of2005 was $487, 063. The average sale price hasfluctuatedfrom quarter to quarter due to the changing mix ofproduct offerings. Although the prices of individual homes have risen significantly, the average sale price of all homes has risen only moderately over the past 4 years due to the increase in the sales volume ofmodestly-priced homes located in the Indio-Coachella submarket area. The average price ofnew homes sold in the Indio-Coachella submarket during the first quarter o/2005, was $381,349. This figure is 40 percent higher than the average sale price for the first quarter of2004 o/$272,163.

Sales are spread across a broad price spectrum ranging from under $200, 000 to over $400, 000. During 2004 and 2005, there is a clear pattern ofdecreasing sales oflower priced homes as the price structure ofnew homes in the Valley has shifted upward. In the first quarter of2004, 50% ofthe new homes sold were priced under $300,000. By the first quarter of2005, that proportion has dropped to just 6. 7%.

The Indio-Coachella submarket area dominated the sales of homes in the Coachella Valley in first quarter 2005 that were priced under $400,000.

Proiected New Home Demand

The primary factors that have contributed to strong new home sales in the Coachella Valley the local job-creating projects outline above, and very low mortgage interest rates. Supported by favorable regional and national economic trends, job growth within the Valley is projected to continue at a favorable pace. And, although mortgage interest rates are expected to rise moderately, a healthy volume of new homes sales is projected to be sustained within the Coachella Valley.

Based on the data analysis, it is projected that the demand/or new homes in the Coachella Valley will average 4, 5 00 homes per year over the nextfive years. With 5, 851 homes sold, the 2004 sales volume surpassed theprojected annual demand of4,500 homes. However, it is projected that the pace ofsales will moderate in 2005 and 2006.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORMANDYPL-\CE •S.. ANTA~-\N .. -\, C-\.LIFOR...'l'L-\ 92705• PHONE 714.580-7056 • F..-\X 714.550-7057 20 The majorfty ofthe demand will be fueled by the primary buyer segment (i.e., owner occupants as opposed to second home owners), including retired households. Second home buyers, including pre-retirement buyers, are projected to account for just over one quarter ofthe demand The great majority of the buyers that are active in the community ofIndio consist ofprimary home buyers consisting primary offirst time buyers and local move-up households.

The Coachella Valley new home market is diverse. Market spread across a wide range ofprices from under $300, 000 to over $1, 000, 000. The majority ofthe demand/or new homes in the Indio­ Coachella submarket emanates from primary resident households. Primary homebuyers are responsible for the high volume ofdemand below the $400,000 price level.

Riverside County Transportation Riverside County is served by a major airport, Ontario International, which is located in San Bernardino County. Several major airlines have flights into Ontario, providing national and international flight capabilities. Los Angeles International Airport is located approximately 60 miles west of Riverside. Also, Palm Springs has its own airport.

A network of freeways links most urbanized areas of the county. The major north-south arterial are the Devore Freeway (Interstate 15) and the Escondido Freeway (Interstate 215). The Riverside Freeway (State Highway 91 ), the Pomona Freeway (State Highway 60) and the San Bernardino Freeway (Interstate 10) provide east-west access to the desert communities and Los Angeles.

Riverside County Amenities Within a two-hour drive of the County of Riverside are ocean and mountain ski resorts. World­ famous desert communities such as Palm Springs are also found in Riverside County.

Riverside County Conclusion Riverside County is the fastest growing county in the Southern California region in terms of population and employment. The county remains poised for considerable expansion. It has become diversified with an ever-growing employment base which should be a positive factor on real estate values in general.

City of Indio The subject property is located within the incorporated limits of the City of Indio in Riverside County. Indio is located in the south-central region of the Coachella Valley. Indio is located approximately 78 miles southeast of the City of Riverside, which also serves as the County seat,

FIRST AM.ERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NOfil.UNDY PL-\CE •SANTA .ANA, CALIFORNIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 21 130 miles southeast of the City of Los Angeles and 529 miles south of San Francisco. The City of Indio was incorporated May 16, 1930. The city consists of approximately 24.8 square miles and is bounded by unincorporated Riverside County to the north and south, the City of La Quinta to the west and Coachella to the east. Please refer to the location map earlier in this section.

Population The City oflndio has had dramatic population increases in the last 30 years. Growth from 1970 to 2000 has been from a population of 14,469 to 45,700 as of January 1, 2000, and four years later it was 66, 118, reflecting a 22. 7% increase. Population shifts from other suburban developments within the Coachella Valley have been a key factor in India's growth in recent years, as well as the progression in growth to the east away from Palm Springs. Most future growth in the city will be the development of the east and southern sections of the city.

The Census showed that the city's overall median age for over 65 is 18.4%. The overall median household income stood at $35,555. There is considerable fluctuation between the winter and summer months in terms of population count, age and demographics as Indio becomes more of a \\Tinter retreat for many baby boomers and senior citizens.

India's families have an average income and education compared to the county.

Transportation The City of Indio has a variety of transportation facilities available. Rail is available by Union Pacific main line. Amtrak passenger rail service is available in Indio and Palm Springs. Truck transportation has two carriers for· direct daily service to Los Angeles. Overnight deli very is offered to Los Angeles, San Francisco, San Diego, Phoenix and Mexicali. Air transportation is available. Palm Springs International Airport, 20 miles northwest, is served by nine airlines (Alaska being the largest), general facilities and an 8,500-foot runway. The Bermuda Dunes Airport, a private general aviation facility, is located in adjacent Bermuda Dunes. County-owned Desert Resorts Regional Airport, 7 miles southeast in Thermal, has general aviation facilities and a 5,000-footrunway. Bus transportation is available by Greyhound. The SunLine Transit Agency provides local bus service throughout the Coachella Valley from the Indio Transportation Center. The nearest ports are Los Angeles/Long Beach, 133 miles west, and San Diego, 130 miles southwest. Highways serving Indio are the 1-10 west to Los Angeles and east to Phoenix; California 111 northwest/southwest; and California 86 (NAFTA Highway) south to Brawley and

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NQR..i.\,L-\NDY PL\CE •S.ANTA ANA, C\LIFORNL\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 22 El Centro in Imperial County, Yuma, Arizona, and Mexicali and Mexico City, Mexico.

Industrial There are 1,341 acres in the City limits zoned for industry. This is available in parcels ranging in size from Yi to 200 acres. Included in this acreage total are 20 industrial parks. City-owned land is no longer available.

Community Characteristics The city has numerous facilities available. In the health-related area Indio has one full-service hospital, with 130 beds; a 24-hour emergency care facility; and a base for paramedic service. Seventy-one physicians/surgeons, 18 dentists, 9 optometrists and 8 chiropractors practice in Indio.

With regard to education, the Desert Sands Unified School District has 14 elementary schools, 5 middle schools, 3 high schools and I continuation school. The School District is planning to build a K-12 campus, near the subject property, north oflnterstate IO at Jefferson and A venue 39. The high school should be completed in 2008. College of the Desert is opening up the Valley Education Center to expand educational opportunities in Indio. The facility will partner with several universities to offer distance learning on a "per class" basis. Chapman College; National University; California State University, San Bernardino; and University of Redlands offer programs in Palm Desert/Palm Springs leading to bachelor's and graduate degrees.

Ofcultural interest, the community has two direct TV channels and one cable system (MediaOne). Indio has 36 churches, 2 libraries, 1 daily newspaper, 3 weekly newspapers, 4 banks, 2 savings and loans, 7 parks, I sports complex, 1 theater with eight screens and 1 live performing arts center. Neighboring Coachella has 13 churches, I library, 1 bank, 1 boxing club, 1 radio station, 1 community center and 5 parks. Other regional recreational facilities include: over 90 public and private golf courses; 200-acre Lake Cahuilla Park (County); and Salton Sea for boating, waterskiing and fishing.

Indio offers many recreational facilities including the Indio Municipal Golf Course, Heritage Palms, Indian Springs, President's Club at Indian Palms and Landmark Golf Club, among the city's seven public courses. Other recreational opportunities include equestrian, polo, swimming, tennis, mountain biking, hiking, four wheeling and off-roading. Indio provides a variety of activities for the outdoor enthusiast.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOML\NDY PL-\.CE •S.ANTA ANA, CALIFORNL\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 23 The median sales price for new and existing homes is $377,449, according to the Desert Real Estate May 2005 Report. The medium and upper-medium housing stock is growing quickly. Indio has a number of newer developments where prices range from $300,000 to over $400,000, such as The Shadow Hills residential developments, such as the El Dorado Collection, the Ventanas, and Palazzo. There are also new homes being built in the Indio Ranchos area with many prices exceeding $300,000.

There are 40 hotel/motels, with approximately 2,500 rooms in Indio. There are 20 mobile home parks, with 3,000 spaces, in the Cities of Coachella and Indio and surrounding unincorporated areas.

Summary Indio is strategically located in the Coachella Valley as a service and retail center for a strong agri­ business and rapidly expanding resort and recreational economy. A major interstate highway (I­ I 0) and railroad (Union Pacific) offer excellent transportation service for an emerging industrial sector, all of which provide a healthy economy attractive for investment. Indio hosts several emerging industry sectors, including: golf industry manufacturing cluster, agricultural industry cluster and home improvement/home furnishings industry cluster. Recent developments include: relocation/ consolidation ofcounty facilities, including courts, Dash GolfCarts, Matzie Golf, 1-10 Auto Mall, Metropolitan 8 Theater, JFK Hospital expansion, East Valley Education Center and the new casinos being developed.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORL\L-\.NDY PL-\CE •SANTA ANA, CALIF0fu.'1L-\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 24 NEIGHBORHOOD DATA

Immediate Surroundings/Neighborhood On the following page is a neighborhood map identifying the subject properties in relation to the City of Indio and surrounding areas. As can be seen on this neighborhood map, the subject properties are located in the north central section of the City of Indio.

CFD 2004-3 is located north oflnterstate 10, at the northeast comer of Golf Center Parkway and Avenue 43. The City of Indio has become a focal point of much of the residential, commercial and industrial expansion along the 1-10 and Highway 111 Corridors within the southwestern Coachella Valley region in which the subjects are located. This expansion has absorbed much of the skilled labor pool and created demands for skills which are available only through training and importation from other areas. Unskilled and, for the most part, semi-skilled workers are available in adequate supply.

The subject property is judged to be conducive to a single-family, detached housing development, competitive with similar developments within the immediate market areas of the subject development. At present, the commercial area is along Highway 111 and Jackson Street.

Primary Neighborhood Access and Secondary Routes The primary access to this neighborhood is by automobile with some limited bus access. This is supported by the close proximity of the 1-10 Freeway, located approximately 1 mile south of the subject property.

Distances and Directions from the Subject Neighborhood to Major Business Districts Major urban areas in the vicinity of the subject property include the City of Riverside and County seat, located approximately 78 miles west of the subject property, and the City of Palm Springs, located approximately 15 miles northwest. The City of Ontario, which is home to the Ontario International Airport, is located approximately I 00 miles northwest of the subject property.

In summary, the immediate neighborhood is going through a transition from agricultural/desert land uses to residential and commercial uses. As previously mentioned, steady growth is expected to continue.

FIRST .AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NO~'\L\NDY PL-\CE •S,.\NTA .ANA, CALIFOR...~L-\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 ' 25 NEIGHBORHOOD MAP

sOruEct PROPERTY/." CFO 2004-3 TERRA LAGO ~.~~ C A L I F O R/i- I A /''_ '

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---

u5 c 0 U) i """') ~- ___§0th Ave

La aLinta u5 1111\pacl c 0 U) "\hella .!I:: 0 ~ .,m Omi 2 3 4 Copyright© 1988-2003 Microsoft Corp. and/or its suppliers. All rights reserved. http://www.microsofl.com/streets © Copyright 2002 by Geographic Data Technology, Inc. All rights reserved.© 2002 Navigation Technologies. All rights reserved. This data includes information taken with permission from Canadian authorities© 1991-2002 Government of Canada (Statistics Canada and/or Geomalics Canada), all rights reserved. SITE DATA

Site Analysis: The subject site description is based on a personal inspection of the subject property and discussions with developers, as well as a review of plat maps, Assessor's Maps and land use plans.

Location: The subject property consists of five separate tracts, located in the City oflndio. A map showing the outline of the residential tracts is included on the map at the end of this section.

Important Site Characteristics: The tracts have generally level topography. The market area is well supported by various residential developments.

Positive Site Characteristics: Average to good proximity and freeway access.

Negative Site Characteristics: No apparent negative factors were observed.

lngress/E,:ress and Exposure: Access to and circulation within the developments are depicted on the map at the end of this section.

The design of the internal collectors appears to allow for adequate travel lanes in each direction. Additionally, there will be sidewalks and landscaping on both sides of the roadways.

All roads will be constructed to City of Indio standards. The roadways will be dedicated to the City of Indio upon completion and maintained by the City through the assessments of a community service agency.

The tracts will be valued assuming a finished map is in place and the lots are in a "ready to build" condition. They will also be valued, discounted back to an "as is" condition, with the assessment infrastructure in place.

The land development costs have been furnished by SunCal Companies and are presented and applied in our market value analysis.

Utilities and Services Utilities and services are furnished by the following Available to the Subject agencies/companies: Properties' Neighborhood: Electricity: Imperial Irrigation District Natural Gas: Southern California Gas Water: City of Indio Waste Water: Valley Sanitary District

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOR..\L-\NDY PL\CE •SANTAA...."'JA, C.ALIFORNL-\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 27 Telephone: Verizon Fire: County of Riverside Police: Indio Police Department Transit: Sun Line Transit Agency

Rates for these utilities, to be provided and applied to the subject properties, are generally competitive with the Riverside County area as a whole.

All the aforementioned utilities have source lines proximate to or directly to the subject zones.

Size and Shape: The zones of the CFD 2004-3 project consist of the following approximate sizes and densities.

LAND USE SUMMARY

PA Total Total # of Density Density Acreage• Residential Lots Based on Based on Acreage•* Total Residential Acreage Acreage

1 47.09 33.05 178 3.78 5.38

2 36.58 33.95 128 3.50 3.77

3 25.67 24.25 86 3.32 3.55

4 41.56 17.60 133 3.20 7.55

5 26.01 26.9 110 4.22 4.10

TOTAL 176.91 135.75 635 3.60 4.87

Source: F ACRES * Information obtained from Tract Maps **Information obtained from the Master Plan Map

The tracts are irregular in shape and will be identified as such in the CFD 2004-3.

Adjacent Properties: The land area adjacent to the subject tracts is either vacant or improved with residential developments, similar to the proposed uses for the subject.

Topoeraphy: The land is generally level.

Proposed Uses: For a summary of the specifics and projected prices of the residential product type proposed for these tracts, the reader is referred to the Price and Absorption Study of the subject tracts prepared by Market Profiles of Tustin, California. A portion of that report is included within this appraisal report.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORi.viANDY PL\CE •SANTA ANA, C.ALIFORNL-\ 92705• PHONE 714.580-7056 • F..-\X 714.550-7057 28 Soil and Subsoil Conditions: A soils report was not provided for review.

Based on the nature of this report, we have assumed the soil is of suitable load-bearing capacity for the proposed development and indicated highest and best use of the site under study.

Earthquake, Flood, and The subject property is not located in an enviromnentally Other Nuisances and Hazards: hazardous area per the City of Indio.

The site is considered a seismically active area, as is all of Southern California. There are, however, no known active faults on or inunediately adjacent to the site, and the hazard of surface fault ruptures is considered very low.

All of the parcels in CFD 2004-3 are located in Flood Zone B, Map Page and Community Panel Number 0602550002, dated May 1, 1985.

Street Improvements: In general, the subject tracts will have finished roads and utility access completed.

Easements, Restrictions A title report was not available for our review. We have and Encroachments: assumed there are no easements or encroachments which could adversely affect the value of the subject property. The appraisers reserve the right to alter their conclusion of value if subsequent information indicates a change is warranted.

Essential Zonini: Provisions: The subject tracts in CFD 2004-3 consists of residential land use sites within the Master Planned Conununity.

CC&Rs/Priva te Restrictions, There are Covenants, Conditions and Restrictions Governing Use: (CC&Rs). First American Commercial Real Estate Services Appraisal and Valuation Division assumes these do not have an adverse effect upon value.

Functional Adequacy of Site: The sites appear functionally adequate for the proposed development as described in the developer's proposed plan.

Tax and Assessment Data: In California, all real property is assessed at I 00% of full cash value (which is interpreted to mean market value of the fee simple interest) as determined by the County Assessor. Generally, a reassessment occurs only when a property is sold ( or transferred) or when new construction occurs ( as differentiated from replacing existing construction). Assessments for properties that were

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORivL-\NDY PUCE •SANL\ .ANA, CALIFORNIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 29 acquired before the tax year 1975/76 were stabilized as of the tax year 1975/76. Property taxes are limited by State law to 1% of the assessed value plus voter-approved obligations. Taxes are payable in two equal installments, which become delinquent after December IO and April 10, respectively. The existing parcels are not currently assessed by individual lot parcel numbers by the Riverside County Tax Assessor. Total taxes will ultimately reflect the presence of the CFD bonds, the creation of which is the purpose of this appraisal.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EvALUATION 1217 NOR..\L-\NDY PUCE •SANTA ANA, C.A.LIFORNL\ 92705• PHONE 714.580-7056 • EAX 714.550-7057 30 MASTER PLAN

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Physical and Locational Considerations The physical and locational characteristics of the five planning areas of the subject CFD No. 2004-3 are considered to be very good. The sites are all located in a master planned development in a developing area oflndio. The subject referred to as Phase 1 of the Master Plan, will include a 22 acre private lake with boat access, two golf courses and a recreation complex, complete with clubhouse, pool and a tennis complex. In addition each tract will have it's own neighborhood park. The planning areas are currently surrounded, to a large degree, by undeveloped land. Currently, strong growth is seen as imminent surrounding the subject tracts as long as the economy stays stabilized as it presently is.

As noted in the Site Description section of this report, the subject's sizes and topographies are adequate for residential development. Engineering and site work is necessary to accommodate the use outlined in the proposed development plans but from a physical and locational perspective, a variety of residential uses are physically possible.

Access to all zones is considered good. Accessibility and location would allow for a variety of residential land uses to be developed on the zones as planned. As residential units are constructed and access roads are extended, the demand for residential and retail support use should increase, thereby increasing an already good economic environment.

The five subject zones, as currently proposed, will consist of the following detached single- family units: PA Lots 1 178 2 128 3 86 4 133 5 110

TOTAL 635

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES - APPRAISAL AND EVALUATION 1217 NORl\-L\NDY PL\.CE •SANTA ANA, C.ALIFORNL-\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 37 The subject properties will consist of predominately single-family residential developments. This appears to be a logical extension of the existing residential developments near the subject area. The land will physically accommodate the proposed density.

Legal Considerations The legal factors influencing the highest and best use of the subject properties are primarily governmental regulations such as zoning and building codes.

The subject zones and tracts are zoned for residential uses within the Terra Lago Master Planned Community. There are no other existing entitlements other than current City of Indio building requirements for the tracts. There will be some conditions, covenants and restrictions associated with the tract developments; however, these are mostly cosmetic in nature and would not be expected to negatively affect the lot value.

The developers' conceptual plan for the subject developments are currently being developed. Based on the ultimate approval ofthe developer's conceptual plan, which includes all residential use, the proposed development is assumed to be a legally conforming use.

Market Feasibility In this section, market conditions that influence the subject property will be considered. The major factor requiring consideration is the attractiveness ofthe subject as a real estate investment or its financial feasibility. Financial feasibility is based, to a large degree, on market acceptance or market feasibility.

The pathway ofthe growth in Riverside County has been concentrated in several growth "nodes." These nodes of growth include the Cities of Corona, Riverside, Hemet/San Jacinto, Murrieta and the Coachella Valley.

The City oflndio has historically been known as primarily an affordable housing community. The area was characterized by mobile home parks and subdivisions of small homes, and small detached residential product targeting the first-time buyer and/or the empty nester, retirement or winter resident market.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NOR...\L\.i'JDY PL-\.CE •SANTA AN.-\, C.ALIFOR.i"'JL\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 38 The current conceptual plans proposed for the subject tracts appears to be the highest and best use of the subject property when analyzed from a market perspective. In valuing property such as the subject, we have endeavored to analyze the market conditions and compare the anticipated supportable development uses with the conceptual plan currently in place. Where possible, if the market conditions support the development of the product type proposed for the subject, it is assumed that a purchaser of the subject property would develop the site with a similar use. In the case ofland uses outlined in the conceptual plan that are deemed not supportable by market conditions, alternative uses are considered. Based on the data and analysis ofthe Market Profiles report for the land use, a determination is made as to whether the development plan for the subject site is the highest and best use of the land. This market-supported development plan is then used to estimate the value of the subject site in the Valuation section ofthis appraisal report.

The following analyses ofthe market conditions and absorption rates by product are used as tests of reasonableness rather than a full detailed market analysis of the subject project. A number of marketing reports were reviewed to help in our analysis. The most important was the report prepared by Market Profiles, Inc. The following information in italics was taken from Market Profiles, Inc.'s Feasibility Report dated July 2005.

New Home Competition

During the first quarter o/2005, there were 78 subdivisions marketing new detached homes in the Coachella Valley. The 78 projects account for a total of 15,042 homes of which 8,213 homes have been offeredfor sale and all but 559 ofthe homes offered have been sold. This is a low unsold inventory level.

The Coachella Valley new home market is very diverse. The Indio-Coachella and the Indian Wells-LaQuinta submarkets had the largest number ofactive new home subdivisions during the first quarter period with 26 and 24 projects, respectively. The Indio-Coachella submarket generated the highest sales volume during the quarter (585 homes). The sales ofnew homes in the submarket were aided by the moderate prices of homes. The average sales price was $381,349 compared to $792,518 in the nearby LaQuinta-Indian Wells submarket.

There were 26 new home subdivisions that were active in the Indio-Coachella Submarket during the first quarter of2005. The 26 projects account/or 7,330 homes, ofwhich 3, 722 have been offered/or sale and only 155 ofthose remain unsold. Seventeen ofthe new home projects are located in Indio and nine are located in Coachella. With 3, 200 homes, the retirement community ofSun City in Indio (Shadow Hills) accounts for nearly halfof the homes. An additional three of the projects, accounting for 344 homes are located within the Indian Palms Country Club, also in Indio.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 N OR..\L-\NDY PL-\.CE •SANTA AN.A, CALIFORNI.A 92705• PHONE 714.580-7056 • FAX 714.550-7057 39 Inventory Levels

The total of559 new detached homes that remain unsold (including homes under construction. completed. and pre-selling) throughout the Coachella Valley is a favorable unsold inventory figure. As a rule. a balance between the unsold inventory at the end ofa quarter and the number ofhomes sold during the quarter is indicative ofa healthy market condition (i.e .• 1: 1 unsold to sold ratio). Thus, compared to the sales volume of 964 homes sold during the first quarter period, the unsold inventory of5 5 9 homes at the end ofthe fir st quarter of2005 is indicative of afavorable market condition (0.58:1 unsold to sold ratio).

Inventory conditions in the Indio/Coachella submarket area are even more restricted than elsewhere in the Coachella Valley. At the end ofthe first quarter of2005i the unsold inventory in the Indio/Coachella submarket totaled 155 homes compared to fourth quarter sales of585 homes (0.26:1 unsold to sold ratio).

Sales Rates

The sales rates include "Cumulative" and "Current Quarter" rates. The Cumulative sales rate describes the rate ofsales generated since the date ofopening ofeach project. and the Current Quarter sales rate describes the rate ofsale during the third quarter period.

Cumulative sales rates range widely from 0. 08 to 7. 9 homes per week. The average cumulative sales rate is 2. 79 homes per week per project.

The new home projects that are most similar to the subject development are those that are located in the Shadow Hills community of north Indio. During the first quarter of2005, there were seven new home subdivisions active in the Shadow Hills community. The cumulative sales rates among those seven subdivisions range.from 0.31 to 7.87 homes per week The average sales rate is 2. 79 homes per week and the median rate is 1.64 homes per week..

Most Competitive New Home Proiects

The new home subdivisions that are most relevant to the subject properties are those that are located within the Shadow Hills community located north of the I-10 Freeway. The seven projects are described below.

The fastest selling subdivision in Shadow Hills is Bella Tierra. The first 40 ofthese 3- and 5- bedroom homes have been sold at a rate of 8.12 homes per week. The base prices range from $379.990 to $419,990for plans that range in size from 1.895 to 2,629 square feet ($159. 75 to $200.52 per sq. ft.). The homes are sited on 8,000 square foot lots (minimum).

Another fast selling subdivision is Foxstone by KB Home. All 63 homes that were released during the first quarter were sold equating to a sales rate of4. 88 homes per week The project has another 182 homes remaining to be sold in subsequent phases. The base prices of these homes range from $3 07, 990 to $3 68, 990 for 2- and 3-bedroom plans that range in size from 1.517 to 2,526 square feet ($146.07 to $203. 02 per sq.ft.). The residents pay a homeowners fee of $100 per month, plus CFD taxes. The neighborhood is gated and the minimum lot size is 8, 000 square feet.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORi\L--\i.~DYPLACE •S.ANTAANA, CALIFORNIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 40 The 132-lot Sienna subdivision recently opened in Shadow Hills. The base prices ofthe homes range from $394,990 to $447,990for 3- and 4-bedroom plans that range in size.from 2,448 to 3,143 square feet ($142.54 to $161.35 per sq.ft.).

The 263-lot Shadow Ranch subdivision by Family Development sold out its first phase of 30 homes at a rate of3. 0 homes per week. These homes range in price from $ 3 94, 990 to $489, 9 90 for 3-, 4-. and 5-bedroomplans that range in size.from 3,185 to 3,247 square feet ($150.90 to $180. 77 per sq. ft.) The residents pay a homeowners fee of $95 per month for green belt maintenance. The minimum lot size is 8,500 square feet.

The Desert Collection is a gated subdivision of142 homes. The base prices ofthese 3-bedroom homes range from $3 64, 990 to $414, 9 90 for plans that range in size from 1, 610 to 2, 2 66 square feet ($183.13 to $226. 70 per sq.ft.). The residents pay a homeowners fee of$75 per month. The first 73 homes were sold at a rate of3. 31 homes per week. The minimum lot size is 7, 200 square feet.

There are two subdivisions still active within one private, gated neighborhood developed by Century Vintage Homes. The three subdivisions are The Ventana Collection, The El Dorado Collection, and Villa Estates II The homeowners will pay dues of $50 per month for maintenance of the private streets, plus an assessment district fee. The Ventana Collection consists of2- and 3-bedroom homes that range in size from 1,208 to 1,843 square feet with base prices ranging.from $299,990 to $339,990 ($184.47 to $248.33 per sq.ft.). Ofthe 198 homes in this tract, 87 have been sold at a rate of0.81 homes per week.

The base prices ofthe homes in The El Dorado Collection range from $339,990 to $424,990for 2- and 3-bedroom plans that range in size from 1, 720 to 2, 778 square feet ($152.98 to $197. 66 per sq. ft.). Ofthe 198 homes in the tract, 176 have been sold at a rate of 1. 64 homes per week.

The Villa Estates II homes have base prices rangingfrom $294,990 to $394,990. These 3- and 4-bedroom homes range in size from 1,302 to 2, 735 square feet ($144.42 to $226.56 per sq.ft.). Of the 13 7 homes in the subdivision, 12 3 have been sold at a rate of1. 5 3 homes per week.

The new community ofTalavera in northeastern most Indio recently opened with four new home subdivisions offering homes for sale. The homes range in price from $299,999 to $416,990. The minimum lot size for all ofthe homes in Talavera is 8, 000 square feet.

The Venecia homes are the smallest being offered in Talavera. They consist of3- and 4-bedroom plans that range in size from 1, 5 76 to 1, 94 7 square feet with base prices ranging.from $2 99, 999 to $333,990 ($171.54 to $190.35 per sq. ft.). Twenty-five of the 45 homes in the first phase release were sold at a rate of 1. 76 homes per week.

The homes in the Florencia subdivision in Talavera range in size form 1,855 to 2,380 with base prices rangingfrom $330,000 to $370,000 ($155.46 to $179.45 per sq.ft.). Ofthe 44 homes in the first phase, 26 were sold at a rate of 5. 93 homes per week.

Also in Talavera, the Alicante homes consist of3-, 4-, and 5-bedroom plans that range in size from $389,540 to $404,990 ($130. 68 to $156.25 per sq.ft.). Two thirds ofthe 33 homes released in the first phase have been sold at a rate of 3. 61 homes per week.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 N OR.i.\HNDY PLACE •S,:\NTA ..-\NA, C-\LIFORNL\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 41 The largest homes being offered in Talavera are those in the Genova subdivision. The base prices of these homes range from $396,990 to $416,990 for 2-, 3-, and 5-bedroom plans that range in size from 2,848 to 3,280 square feet ($127.64 to $139.39 per sq.ft.). Eighteen homes have been sold at a rate of 1. 9 homes per week

Proposed New Home Development

There are approximately 7,500 new homes within more than 40 subdivisions that are proposed for future development in the City ofIndio. With this scale ofproposed activity, it is projected that the Indio market area will experience a competitive environment for the next several years. However, the market is currently undersupplied and the homes that are plannedfor development will be constructed in a phased manner over the next several years. It is projected that competitive conditions will be more intense than those currently being experienced in the Indio marketplace, however, generally healthy demand-supply conditions are projected to be maintained

The majority ofthe new homes that will be constructed in Indio over the next few years will be located in and around the Shadow Hills community located north ofInterstate 10 Freeway. In addition to the 1,400-plus homes that will be developed within the subject Terra Lago community, there are more than 2, 700 homes that are plannedfor construction elsewhere in the Shadow Hills community. The majority ofthese homes will be constructed over the next three to four years. There will be 2, 723 homes that will be part ofthe City ofIndio Assessment District 2004-VSD. All ofthese homes will be located in the Shadow Hills community to the west ofTerra Lago community. The prices ofthe homes wil1 generally range between $3 5 0, 000 to $5 00, 000. The two subdivisions by Family Development are under construction and are actively selling homes.

Also located north of the 1-10 Freeway is the site of the Andreas Ranch that will include 937 homes within a private, gated community. This property is located north of Avenue 38 at Jefferson Street.

Discountine; In order to obtain an "as is" value, the finished lots need to be analyzed considering the time it would take to sell them off. Consideration needs to be given to the costs to finish the lots and the various costs associated with marketing and holding the lots during this time period. Our absorption rate estimates are by land product which were compared to the estimated absorption rates from the Market Profiles Market Consultants report dated July 2005. Our absorption expectations are very similar to those outlined in that report. Our absorption estimate assumed a purchase of the subject tracts by a merchant builder. It appears the absorption rate projection advised by Market Profiles Market Consultants is within a reasonable range.

Based on the tracts that are being analyzed, it is estimated that a period of one year would be

FIRST AMERICAN COl\fMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOR.i.\L\NDY PL\CE •S.ANTA .ANA, C..-\LIFOR.i.'JL\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 42 required to sell the land associated with the proposed residential tracts. This includes a total of 635 residential lots. Our absorption estimate is tied to the developer's proforma and infrastructure costs as well as Market Profiles Consultants' absorption study.

FIRST AM:ERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EvALU A TI ON 1217 NOR}.1A~TIY PL-\.CE •SANTA ANA, CALIFORNL-\. 92705• PHONE 714.580-7056 • FAX 714.550-7057

T 43 HIGHEST AND BEST USE

Highest and Best Use5 is an appraisal concept which has been defined as follows: 1. The reasonable and probable use that supports the highest present value of vacant land6 or improved property, as defined, as of the date of appraisal.

2. The reasonably probable and legal use of land or sites as though vacant, found to be physically possible, appropriately supported, financially feasible and that results in the highest present land value.

3. The most profitable use.

Implied in these definitions is that determination of highest and best use takes into account the contribution of a specific use to the community and community development goals as well as the benefits of that use to individual property owners. Hence, in certain situations the highest and best use of land may be for parks, greenbelts, preservation, conservation, wildlife habitats and the like. A use which does not meet the needs of the public will not meet the above highest and best use criteria.

The determination ofthe highest and best use opinion, therefore, requires a separate analysis for the land as legally permitted, as if vacant. Secondly, the highest and best use of the property, with their improvements, must be analyzed to consider any deviation of the existing improvements from the ideal. 11 F or highest and best use of both land as though vacant and property as improved, a use must meet four criteria. The criteria are that the highest an~ best use must be ( 1) physically possible, (2) legally permissible, (3) financially feasible and (4) maximally productive. These criteria should usually be considered sequentially; it makes no difference that a use is financially feasible if it is physically impossible to construct an improvement or if such a use is not legally permitted. 117

5The Appraisal ofReal Estate, 9th Edition, published by the American Institute of Real Estate Appraisers, Chicago, IL, p. 269.

6The questions to be answered in this analysis are: If the land is, or were vacant, what use should be made of it? What type of building or other improvement, if any, should be constructed on the land, and when?

7The Appraisal of Reai Estate, 9th Edition, published by the American Institute of Real Estate Appraisers, Chicago, IL, p. 274.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERviCES-APPRAISAL AND EVALUATION 1217 NORMANDY PL\CE •SANTA ANA, CALIFORNIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 44 Highest and Best Use-As Vacant

Physical Considerations

Location/Topography/Size: As set forth previously, the subject parcel sizes are more than adequate for proposed single-family development. The parcel comprising the subject properties are regular in their configuration, however, it results in no significant development limitations. The properties should have adequate drainage when completed per City of Indio requisites.

The location of the properties are situated within what should continue to be developing residential areas. Therefore, it would appear as though a planned residential type of land use would be feasible.

Utilities/Flood Zone: The properties are located in areas designated with a flood zone risk. All ofthe planning areas are located within Flood Zone B, an area of minimal to moderate flood hazrd. The Community Panel is 0602550602 revised May 1, 1985.

This is defined as areas between limits of the 100-year flood and 500-year flood; or certain areas subject to 100-year flooding with average depths less than one foot or where the contributing drainage area is less than one square mile; or areas protected by levees from the base flood and are no significant hazard. The parcels have access to public water, sewer, electricity, natural gas and telephone lines. Therefore, they appear to have no potential deficiency from a utility or flood zone development standpoint.

Conclusion: No soils report has been reviewed by us. Overall, there appears to be no adverse soil conditions of which the appraisers are aware. The shape of the parcels are irregular, however, this results in no specific development limitation. From a physical standpoint, the sites are considered adequate for various types of residential development as regulated and dictated by the master plan zoning. The nature of the surrounding market is likely to support these uses.

Legally Permissible

Legal Factors: The legal factors affecting a site and its potential uses are often the most restrictive. These would typically be governmental regulations such as zoning and building codes. The developers' proposed plans are based on residential developments. The existing zoning will permit residential and limited commercial use development. Considering the nature of the surrounding developments and the subject's zoning classifications, the

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NOR.MANDY PL-\.CE •SANTA .AN.A, CA.LIFORNL\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 45 proposed developments appear to meet the legal criteria for highest and best use.

Conclusion: From a legally permissible standpoint, the subject is restricted by the zoning under the General Plan of the City of Indio. The subject appears to be feasible for development with residential uses within the Master Planned Community over the next several years.

Financial Feasibility As discussed in the Market Condition section of the area and Maximum Productivity description for the City oflndio, there has been a resurgence of Riverside County home sales, commercial and industrial real estate activity over the 2003-05 period. The market has been very strong over this period and all indications indicate this will continue and stabilize. The majority of the existing housing inventory in the area is priced competitively and the majority of the demand appears to be generated by the lower price range market. Sales of homes under $250,000 are limited, and the future inventory of homes in the $250,000 to $300,000 category are decreasing. This pattern is expected to continue as the existing lower priced inventory is sold out and is slowly replaced by similar homes which reflect the necessary higher price for finished single-family lots to be commercially viable.

The Coachella Valley sub market has continued to capture a representative share of the Riverside County sales. This market share can be attributed to the lower priced concentration of new home supply which is available in the area. The submarket should continue to capture a good share of sales due to the erosion of alternative lower price supply in most of the other submarkets. The Coachella Valley submarket should continue to experience a good rate of activity among products priced $300,000.

The lack of new single-family homes that can be brought to market at prices under $300,000 will continue to place limits on future total sales volume. This factor forms a primary opportunity for the subject areas to successfully enter the Riverside market. While the overall Riverside market should continue to experience a period of concentration, Coachella Valley's residential product, targeted to the under-supplied, lower-priced, conventional single-family detached market, should experience a positive market response if priced properly.

We believe the subject tracts have the potential to meet with good market acceptance. The previous factors, coupled with the acquisition cost ofthe land, development costs consideration and the potential absorption level, should provide the highest return to the subject sites. Therefore, the proposed development is

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOfil.L-\NDY PLKE •SANT...\ ANA, CALIFORNU 92705• PHONE 714.580-7056 • FAX 714.550-7057 46 financially feasible and maximally productive if brought into the development arena under the right set of economic circumstances such as those we are currently experiencing. The highest and best use as of the date of value is a timely development of the various projects according to the developer's proposed development plan. The current economic environment would indicate this be initiated as soon as possible.

Physical and Locational The physical and locational characteristics of the subject Characteristics residential property have previously been described in this report. The subject's location is considered good for residential use. The subject has average proximity to various employment centers in the Coachella Valley. Commercial and retail services are also close by.

In addition, the physical possibility of the potential development, based on the present zoning, appears to be feasible.

The size, shape and topography of the sites makes development physically possible.

Legal Considerations The legal factors influencing the highest and best use of the subject property are primarily government regulations, such as zoning and building codes. The tracts zoning allows development to residential as reported by the City oflndio. It is assumed that any development will be built in conformance with the developing codes and other governmental regulations. Based upon this assumption, the stated legal consideration for highest and best use is supportable.

Financially Feasible The regional economy as well as the national economy has been recovering nicely for residential development since the early '90s in the desert area. A survey of some of the more established residential developments in the Indio area supports the potential resurgence of residential development.

Conclusion: Physical, legal and market considerations have been analyzed to evaluate the highest and best use of the tracts. This analysis is presented to evaluate the type of use which will generate the greatest level of future benefits possible from the properties. Based on the purpose of this appraisal, the highest and best use would be to develop to residential, which is the highest and best use.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EvALUATION 1217 NORMANDYPL\CE •SANTA ANA, C.ALIFORNL\ 92705• PHONE 714.580-7056 • E-\X 714.550-7057 47 VALUATION METHODOLOGY

Basis of Valuation Valuation is based upon general and specific background experience; opinions of qualified, informed persons; consideration of all data gathered during the investigative phase of the appraisal; and analysis of all market data available to the appraiser.

Valuation Approaches Three basic approaches to value are available to the appraiser: the Cost Approach, the Direct Comparison Approach and the Income Approach. Since the subject sites are essentially vacant land parcels, only the Direct Comparison Approach and a form of the Income Approach known as the Discounted Cash Flow Analysis have been utilized in estimating the market value of the "as if finished" fee simple value.

Cost Approach

This approach calculates either the replacement or reproduction cost estimate of the subject property improvements new (maintaining comparable quality and utility). Losses in value are then subtracted from this value. Losses are sustained through depreciation, age, wear and tear, functionally obsolescent features and economic factors affecting the property. The net value is then added to the estimated land value to provide a total value estimate. The Cost Approach is not applicable in this particular appraisal.

Direct Comparison Approach

This approach is based upon the principle that the value of a property tends to be set by the price at which comparable properties have recently been sold or for which they can be acquired. This approach requires a detailed comparison of sales of comparable properties with the subject property. One of the main requisites, therefore, is that a sufficient number of transactions of comparable properties be available to provide an accurate indicator of value and that accurate infonnation regarding price, terms, property description and proposed use be obtained through interview and observation.

Income Approach

This approach is based upon the theory that the value of property tends to be set by the expected income therefrom to the owner. It is, in effect, the capitalization of expected future income into present worth. This approach requires an estimate ofnet income, an analysis ofall expense items, the selection of a capitalization rate and the processing of the net income stream into a value estimate. The lncome Approach is applicable in this particular appraisal in a fonn known as a Discounted Cash Flow Analysis wherein projected sales ofthe subject portions to developers who will ultimately develop the land are discounted into a present value estimate.

Methodology

Due to the fact that the subject property consists of a vacant parcel of land, only the Direct Comparison Approach and a form of the Income Approach (Discounted Cash Flow Analysis) have been utilized.

FIRST .AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NOR.n.L\NDY PL\.CE •SANTA ANA, C.ALIFORNL\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 48 DIRECT COMPARISON APPROACH

Introduction The Direct Comparison Approach is based upon the premise that when a property is replaceable in the market, its value tends to be set by the purchase price necessary to acquire an equally desirable substitute property, assuming no costly delay is encountered in making the decision and the market is reasonably informed. In appraisal practice, this is known as the Principle of Substitution. 8

A search was undertaken to identify recent sales of comparable properties. In our survey, we searched for comparable sales of small to medium-sized, bulk acreage transactions of single­ family developments. In our survey, eleven single-family sales were uncovered. The area of the sales covered the northeastern portions of the Coachella Valley. The quality and quantity of the data was average. Of the sales uncovered, the most relevant were selected and are set forth in .,. this report. A summary of the most comparable sales information is provided in the table on the following page. The data sheets are located before the sales location map.

8This approach is a method ofanalyzing the subject property by comparison of actual sales of similar properties. These sales are evaluated by weighing both overall comparability and the relative importance of such variables as time, terms of sale, location of sale property, lot characteristics, improvement characteristics and amenities (if any).

FIRST .AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOR.i\L-\.NDY PL-\.c;E •SANTA .ANA, CALIFORNL-\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 49 Analysis of Comparable Sales For comparison, the comparable sales have been analyzed on a price per buildable lot basis. The comparables were compared to the subject and final conclusions were based upon price per lot. The following table summarizes the comparable sales used in the analysis. A more detailed description of each transaction is included in the pages following the table.

SINGLE-FAMILY RESIDENTIAL COMPARABLE SALES Sale Cash Total Finished # Location Date Equivalent Acres Lots Lot Costs Sale Price** I. PA I subject development, Mar05 $17,281,075 47.09 178 $113,500 Indio, CA 2. PA 2 subject development, Mar05 $14, 728, 625 36.58 128 $132,000 Indio, CA 3. PA 3 subject development, Mar05 $11,689,842 25.67 86 $152,000 Indio, CA 4. PA4 subject development, May05 $18,619,937 41.56 133 $151,000 Indio, CA 5. PA 5 subject development, Mar05 $13,934,365 26.01 llO $141,000 Indio, CA

Source: First American Commercial Real Estate Services** Sale ofland in Blue Top Condition

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOR.i.\.L-\NDY PL\CE •SANTA ,.-\N,.-\, C\LIFORNL-\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 50 Datum No. 1

This is within the subject master plan, known as Planning Area 1. This sale took place on March I, 2005 for $17,281,075 for the blue top conditioned land. The finished lot estimate was reported at $113,500 for a density of 3.78 lots per acres. This sale is located on the NEC of Golf Center Parkway and Avenue 43. Only 33.05 acres will be used for residential, giving the residential acreage a density of 5.38 lots per acre.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORM.\NDY PL\CE •SA1~TA .,L""J.. :\, C-\LIFOR.i~L\ 92705• PHON""E 714.580-7056 • FA.. X 714.550-7057 51 Datum No. 2

This sale is within the subject development and is known as Planning Area 2, Tract No. 31601- 3. The total price is $14, 728,625 and took place on March 28, 2005. The finished lot price is estimated at $132,000. The density is 3.50 units per acre. It is located north of Avenue 44 and east of Golf Center Parkway.

FIRST .AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NOR1,,L\_.1_·,my PL\.CE aS.. \NL-\. ~-L'\JA, C-\.LIFOfu'-TL\ 92705• PHONE 714.580-7056 o F_-\X 714.550-7057 52 Datum No. 3

The sale is within the subject development and isknown as Planning Area 3 Tract No. 31601-4. The total price is $11,689,842 and is estimated at $152,000 per finished lot. This sale took place on March 28, 2005. The size is25.67 acres and has a density of3.32 lots per acre. This is located within Tract No, 31601-4 and is located on Avenue 44, east of Golf Center Parkway, in the City of Indio.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPR.AISAL AND EVALUATION 1217 NO~L-\..NDYPL\.CE •SJ,.i~TA .:\... r\.JA, C.A.LIFORl'\JB. 92705• PHONE 714.580-7056 • E.\..X 714.550-7057 53 DatumNo.4

The is a sale within the subject development and is known as Planning Area 4, Tract No. 31601- 5. The total price is $18,619,937 and is estimated at $151,000 per finished lot. This sale took place on May 18, 2005. The size is 41.56 acres and a density of3.20 lots per acre. This is located North of Avenue 44 and east of Golf Center parkway, in the City oflndio. Only 17.6 acres will be used as residential acreage, based on the residential acreage, the density would be 7.55 units per acre. The remaining acreage is for the lake.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES - APPRAISAL AND EVALUATION 1217 NOfil,,L-\.i'\l'DYPL-\CE •S..ANT.A '"'\..L"J-e\, C-\LIFORJ.'-JL\ 92705• PHONE 714.580-70.56 o E\..X 714.550-7057 54 Datum Noa 5

The is a sale is within the subject development and is known as Planning Area 5, Tract No. 31601-5. The total price is $13,934,365 or $141,000 per finished lot This sale took place on March 25, 2005. The size is 26.01 acres and a density of 4.22 lots per acre. This is located north of Avenue 44, north of Tract No. 61601-4, and just south of the golf course driving range.

-FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NORi.\L-\1.'\JDY PL\.CE aiS_ANT.-\ .A1"'\J.A, C\LIFORNL-\ 92705• PHONE 714.580-7056 • E-\X 714.550-7057 55 Single-Family Residential Land Sales Comparison Approach Analysis Five comparable sales were used to estimate the value ofthe subject properties. The adjustments applied and derivation of each are set forth in the following grid.

LAND SALES ANALYSIS ADJUSTMENTS Sale 1 Sale2 Sale3 Sale 4 Sale5 Unadjusted Price/SF $113,500 $132,000 $152,000 $151,000 $141,000 Property Rights 0% 0% 0% 0% 0% Subtotal $113,500 $132,000 $152,000 $151,000 $141,000 Financing Terms 0% 0% 0% 0% 0% Subtotal $113,500 $132,000 $152,000 $151,000 $141,000 Conditions of Sale 0% 0% 0% 0% 0% Subtotal $113,500 $132,000 $152,000 $151,000 $141,000 Market Conditions 0% 0% 0% 0% 0% Subtotal $113,500 $132,000 $152,000 $151,000 $141,000 Other Adjustments Location 0% 0% 0% 0% 0% Parcel Physical Characteristics 0% 0% 0% 0% 0% Legal Encumbrances 0% 0% 0% 0% 0% A vai labi lity of Utilities 0% 0% 0% 0% 0% Zoning 0% 0% 0% 0% 0% Highest and Best Use 0% 0% 0% 0% 0% Amenities 0% 0% 0% 0% 0% Total Other Adjustments 0% 0% 0% 0% 0% Value Indication for Subject $113,500 $132,000 $152,000 $151,000 $141,000 Source: First American Commercial Real Estate Services

The adjustments made are discussed below:

Property Rights Conveyed: A transaction price is al ways predicated on the real property interests conveyed. The real property rights being valued in this appraisal are the fee simple interests assuming community facility district assessments under 2004-3 are in place.

Financing: Consideration was given to the influence of financing terms and arrangements. However, all of the sales were either all cash or market financed and were adjusted where warranted.

Condition of Sale: Each ofthe property transfers included herein was an arm's length transaction where the buyers and sellers were not under undue duress. No adjustment was made.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NOR.i.\L-\i~DY PUCE •SANTA AN.A, CALIFORNIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 56 Date of Sale All ofthe comparable sales occurred between March 2005 (Changes in Market Conditions): and May 2005

Our research indicates that the market has been very strong within this period. Our analysis considered price level increases since March 2005 in homes as well as residential lots. Based on Market Data information we have not made any adjustments to the comparable sales.

Location: Adjustments were made to the data for differences in the location of the comparable properties. Consideration was given to variances in underlying land values, visibility, access and schools, as well as average sale prices of homes.

Location adjustments were applied to the comparable sales where appropriate. However, the sales data did not permit the derivation oflocation adjustments through paired sales data analysis that was felt to be highly supportive. A number ofother variables contained in the data set prohibit reasonable grouping of the sales. The market data was subsequently considered on a broader basis to identify general patterns which would indicate the need for location adjustments.

No adjustment was necessary.

Physical Characteristics: Physical characteristics include such things as the parcel size and market appeal.

In general, assuming all other factors are similar, larger developments will sell for less than smaller ones on a per lot basis due to the economics of constructing and operating larger developments. In addition, unit prices for most real estate products tend to decline as the number of units purchased increases.

The subject property is part of a master planned community and all of the comparable sales where within that community.

Size: It is difficult to measure from the market variances in size, therefore, the market data was considered a broader basis. No adjustment was made.

Amenities: The subject property will have a lake, two-golf courses and a club house. All of the comparables were located in the master planned community and no adjustment was necessary.

FIRST AM:ERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORi\B.NDY PL-\CE •SANTA .AN.A, C-\.LIFORNIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 57 Reconciliation of Finished Lots Value Concluded Land Value The adjusted land values concluded for the subject range from $113,500 to $152,000 per lot. The average or mean value is $137,900, while the median value is $132,750. The concluded estimate of land value for the subject is $13 7, 000 per lot, which results in the following land value indicated for the subject:

SUM OF THE FINISHED LOT VALUES RECONCILIATION SUMMARY

Estimated Lot Value Indicated Lots Value

635 $137,000 $86,995,000 Source: First American Commercial Real Estate Services

We have concluded at $137,000 for a finished lot, that indicates a value of $86,995,000, or $87 ,000,000 Rounded.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 N ORM.,.\NDY PL\CE •S.ANTA .ANA. CALIFORNIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 58 DEVELOPMENTAL ANALYSIS

Fallowing is a summary of an estimated analysis of the costs of development and absorption for the subject property. The cash flow analysis takes into account the time and cost of absorption of the subject zones.

The reader should note that this is an analysis of typical investor thinking and not a projection or future value estimate. This analysis is to estimate the value of the Community Facilities District No. 2004-3 at completion, prior to full absorption, and after full absorption.

Absorption Market feasibility deals with market conditions which influence the subject property. The major factors in considering whether a development is feasible in the market are the potential finished lot values in relationship to the competition and the subject's market segment, as well as the demand for reasonably priced finished lots within that market.

Based on Market Profiles Consultants' study, the builders' proforma and our analysis, it is our opinion the subject lots could be sold out to initial purchasers or merchant builders over a proposed one year development time frame. For our cash flow we used 1 year.

General, Administrative, Taxes, Development Costs, Profit and Marketing Costs We have estimated the overhead, real estate tax and marketing costs for the subject parcel. The category of "Overhead" covers all overhead and management, including the developer's office expenses, accountants, the management staff, along with supporting clerical/secretarial, field supervision personnel, insurance premiums, travel and vehicle expenses, and other miscellaneous expenses. Marketing expenses include not only sales commissions but also brochures, advertising, closing costs borne by the seller, and any other items required to attract and secure buyers to complete a successful transfer. We have utilized 2% for general and administration costs and 2% for marketing for costs based upon rates experienced by similar projects.

The estimated Assessment District and ad valorem tax cost is not computed on an exact percentage formula, rather it is on a per acre or unit basis. The tax calculations have been

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES-APPRAISAL AND EVALUATION 1217 NORMANDY PL\CE •SANTA .AN.A, C.ALIFORNL\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 59 approximated at a rate of 2% of the estimated value during the sell-off period, reflecting the bonds and finished condition of the land.

Development cost proforma has been provided by SunCal Companies. The total costs for the subject tracts is $25,035,347 , the cost per lot is $39,425.74. The developer contribution is $3,168,656 or $4,990.01 per lot, leaving a residual for the bond of $21,866,691.

Discount Rate The final element in the discounted cash flow analysis is the discount rate. Since we have used a format which incorporates a partial profit in the discount rate, the rate will need to cover the investment in the land and compensate for all the risks and effort in developing the land, which was added as a line item in our cash flow.

The discount rate used in our analysis reflects time, risk and return for this development. Our experience with other similar developments indicates that the larger and more complex a property, the greater the discount rate required. It should be noted that the discounted cash flow assumptions have been undertaken on a before-tax basis and before the effects of financing.

Different types ofinvestments require widely varying rates ofreturn. The lowest rates are those attached to the safest investments. A "safe" rate is represented by the return on U.S. Government Treasury rates, as of June 2005 was 4.37%. Another alternative, at higher risk, is corporate bonds. As of the effective date of this appraisal, long high-yield corporate bonds were selling at average yield rates of 5.40%. However, even high-yield corporate bonds are less risky than an investment in development land like the subject property. Bond investments can be much smaller than the amount needed to buy the subject land, the bonds are far more liquid and there is a larger pool of potential buyers. Consequently, the discount rate should be higher than the yield rate on high-yield corporate bonds.

According to the 200 5 second quarter, Investor Survey published by Realtyrates.com, investor's in various types of improved real estate (incoming properties) required an average yield between 8.78% to 22.01 % . The subject land is not an income property. It requires an enormous initial investment and it will require cash infusions to cover infrastructure construction, development overhead and carrying costs. It would be very difficult to find a buyer for a quick sale if the

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EvALUATION 1217 NOfil..L-\NDYPL-\CE •SANT.A AN.A, C..,\LIFORNL-\ 92705• PHONE 714.580-7056 • FAX 714.550-7057 60 property had to be liquidated. Therefore, the yield rate should be substantially higher than the average 12. 0% return on income properties and, in fact, higher than the highest rate of return on income properties. According to Realtyrates.com, Developer's Survey, subdivisions and PUD' s actual discount rates for 500+ units ranged between 14.07% to 34.62%.

Banks are currently charging approximately 7.54% (prime rate 5.54%) plus 2% for loan costs. Considering loan costs, liquidity risks, property truces and profit for the holding period before a sale could occur, a rate higher than any of the above in dictated yield would be required. In light of these facts and analysis, the appraisers believe it is reasonable to require at least 6% premium above the yield rate on secure income properties for an investment in development land like the subject property. A 6% premium on the 10.0% rate reported for secured income properties produces a discount rate of approximately 14 %. It has been the appraisers' experience over the last several years that discount rates on vacant land have ranged from 12% to as much as 25%. In general, it is believed that a rate of 14.0% is appropriate for the subject.

In order to run a single Discounted Cash Flow for the subject, it was necessary to make an analysis based on the estimated time period that the land development will be in place and that the number oflots projected by the developer coincides with the estimate by the Market Profiles absorption study estimate.

As has been explained, the subject lots are projected to be absorbed in one year. The bulk lot sales are scheduled throughout the one year absorption period. This is consistent with Market Profiles 11 land take down" absorption estimates for all product types. Sales prices for the bulk lots sales are anticipated to remain stable for the first year and then are likely to increase. However, we have used a zero inflation assumption during our cash flow. A non-constant dollar assumption would have resulted in a higher discount rate selection. Please refer to the following page for our detailed Cash Flow Analysis.

This analysis results in a discounted "as is" value of the land with the bond amount in place for the residential lots.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORMANDY PL-\CE •SANTA ANA, CALIFORNIA. 92705• PHONE 714.580-7056 • FAX 714.550-7057 61 DISCOUNTED CASH FLOW ANALYSIS CFO 2004~ Planning Area 1

Properly TyJ>!>S; ti or lct/\,nil Price per l.01it Toi.al RES. IMP. LOTS 118 $137.llOO $24,386,000.00

I SUBTOTAL , ra $1 n,000 $24,386.ooo. oo I

jTOTAL $24 388 000.00 I DISCOUNT RATE: H.00%

~ DEVELOPMENT COSTS S6811,200 G&ACOSTS 2.00% REAL ESTATE TAXES 2.CHl% MARKHING COSTS 2.00%

!YEARS 1 2 3 4 5 6 1 8 9 10 11 12 13 14 15 16 TOTAL YEARS RES. IMPLOTS 178 0 0 0 178

TOTAL LOTS 178.00 TOTAL ACRES ITOTAL REVENUE/YEAR $24,Jl!ll.000.00 so.oo $0.00 so.oo so.oo $0.00 $0.llO $0.00 $0.00 0 0 $0.00 $0.00 S0.00 so.oo so.oo $24,386,000.llO

EXPENSES DEVELOPMENT COSTS $638,200.00 a.oo 0.00 0.00 0.00 $0 so so so $0 $0 so $0 so $0 $0 S6811,200.00 G&ACOSTS $487, 720.00 $0.00 $0.llO $0.00 $0.00 SD.OD so.oo SO.OD $0.00 $0.00 $0.00 so.oo $0.00 so.oo $0.00 $0.00 $487,720.00 REAL TAXES $0.00 SO.OD $-0.00 s-o.oo S·0.00 $·0.00 $-0.ll(I $·0.00 $·0.00 $-0.00 s.o.oo $-0.00 s.o.oo s-o.oo $-0.00 s-o.oo SO.OD MARKETING COSTS $487, 720.00 SO.OD $0.ll(I $0.00 SO.Oil $0.00 SO.DO SD.OD SO.DO $0.00 $0.00 SO.DO $0.00 $0.00 so.oo so.oo $467,720.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 SD.DO $0.00 $0.00 $0.00 SO.OD SO.DO $0.00 so.oo $0.00 so.oo so.oo so· so so so SD so SD $0 $0 $0 $0 so so so $0 $0.00 $0 so so $0 $0 so so so so so so $0 $0 so $0 so.oo so so so $0 so $0 so $0 $0 $0 $0 $0 $0 so $0 $0.00 [ TOTAL EXPENSES: $1,863,1140.00 $0.00 S0.00 so.oo $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.llO $0.00 S 1,663,640.00

Nol Gash Flow: S22, 522,360 so so $0 so $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 so $22,522, 360

~ent Value Factor: 0.8771!13% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 1.000000%

Present llal~e ol Caoh Flow: S19, 756,456 so so $0 $0 $0 $0 so so so $0 so so so $0 so $19.756,456

!:Indicated Nel Present Value II .Sl9.756,.156

Source: Firsl Am""can Comm..-aal Real Eslale s..,..;oos DISCOUNTED CASH FLOW ANALYSIS CFO 200!·3 PlanningAree 2

Proplll1yTyJl'IO: # or lot/unit Ptlce per ..,It Total RES. IMP. LOTS 128 $137,00IJ $17.536.000.00

ISUBTOTAL 128 $137.000 $17,536.000.00

ITOTAL S17 536 000.00 - I DISCOUNT RA TE: 1( .00%

~ DEVELOPMENT COSTS S63H.721 G&ACOSTS 2.00% REAL ESTATE TN

I YEARS 1 2 3 4 5 6 1 8 9 10 11 12 13 14 ,~ 16 TOTAL YEARS RES. IMP LOTS 128 0 0 0 128

TOTAL LOTS 128.00 TOTAL ACRES ITOTAL REVENUENEAR $17,536,000. 00 S0.00 $000 $0.00 $0.00 so.oo $0.00 $0.00 $0.00 0 0 $0.00 $0.00 $0.00 so.oo $0.00 s11,s36.ooo.oo I

EXPENSES DEVELOPMENT COSTS :1638.721.00 0.00 0.00 0.00 0.00 so so SD $0 so so $0 so so $0 $0 :1636,721.00 G&ACOSTS $350,720.00 $0.00 $0.00 $0.00 $0.00 S0.00 so.oo $0.00 $0.00 $0.00 $0.00 $0.00 SO.OD $0.00 $0.00 $0.00 $350, 120.00 REAL TN

Nel Cash Flow: $16.19M39 $0 so so $0 $0 so $0 $0 $0 $0 $0 so so so $0 $16,195.639

Presenl Vililoo Faclor: 0.817193% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% O.ll0Cl000% 0.000000% 1.000000%

P,esenl Value ot Cash Flaw. $14,:206,876 so $0 $0 $0 so so $0 $0 $0 so $0 $0 $0 so $0 $14,206.876

!"Indicated Net Present Value SU,206,1176

Source: firsl American. Con,merdal Real Estala Services. DISCOUNTED CASH FLOW ANALYSIS CF020D4--3 P1ann,ng Area 3

Prope,1y Types: II DI lol/w,11 Price per urot TDlal RES. IMP. LOTS 86 $137 ,000 $11, 782,000.00

[StJBTOTAL _ 88 su,,ooo ,11.1e2,ooo.oo I

ITOTAL $11 782 ,000.00 ' DISCOUNT RATE: 14.00%

J;;IIJlll[WII;_ DEVEWPMENT COSTS $429,141 G&ACOSTS 2.00% REAL ESTATE TAXES 2.00% MARKETING COSTS 2.00%

jYEARS 1 2 3 4 5 6 1 6 9 10 11 u 13 14 15 16 TOTAL YEARS ] RES. IMP LOTS 86 a 0 a 86

TOTAL LOTS 86.00 TOTAL ACRES ! TOTAL REVENUE/YEAR $11, 781,000.00 $0.00 so.oo so.oo $0.00 so.no SO.Oil $0.00 so.oo 0 0 so.oo so.oo so.no so.oo so.oo s11.1a2.ooo.oo I

EXPENSES DEVELOPMENT COSTS $429,141.00 0.00 0.00 0.00 0.00 $0 so so $0 $0 so so so so so so $429, 141.00 G&ACOSTS $235,640.00 $0.00 so.oo $0.00 $0.00 so.no $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 SO.Oil $0.00 $0.00 $0.00 $235,640.00 REAL TAXES $0.00 SO.Oil $-0.00 $-0.00 $.(l.00 $-0.00 $-0.00 $.(l.00 $-0.00 $-0.00 $-0.00 $-0.00 $-0.00 s-o.no $-0.00 $-0.00 $0.00 MARKETING COSTS $235,640.00 SO.Oil so.oo so.oo SO.OD $0.00 $0.00 $0.00 SO.OD $0.00 so.oo so.oo SO.OD SO.Oil $0.00 $0.00 $235,640.00 $0.00 $0.00 so.oo $0.00 so.co $0.00 SO.OD SO.Oil SO.OD SO.DO $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0 $0 so so $0 so so $0 so $0 so $0 $0 so so $0.00 $0 so $0 $0 so so so $0 $0 $0 $0 $0 $0 so so SO.DO $0 $0 $0 so $0 $0 so so so so $0 so $0 so so $0.00 I TOTAL EXPENSES: $900,421 .00 SD.DO so.oo SO.OD SO.DO $0.00 $0.00 $0.00 $0.00 $0.00 SO.DO $0.00 $0.00 $0.00 $0.00 $0.00 $000,421.00

Net c ... h Flow, $10,881,~79 $0 $0 so $0 $0 so so so so $0 $0 so $0 $0 so $10,881 ,579

Present \lalue Facl..-, 0.877193% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 1.000000%

Prese,,l Value DI Cash Flow, $9,545,245 $0 ,o so so $0 $0 so so so so $0 $0 so so so S9,545,245

!'Indicated Net Present Value S9~'4.!i,2J.!i

Source: Firs I American. Cormnerci at Real Es.tale Servi.oos DISCOUNTED CASH FLOW ANALYSIS CFO 2004-3 Pla..,,;ng /Vea4

Properly Types: • or lol/unil Price per 111111 To1al RES. IMP. LOTS 133 $137 ,000 $16,221,000. 00

lsuaioTAL -- 133 1131,000 s1e.221.ooo.oo I

!TOTAL St~ DISCOUNT RA TE; 14.00'11.

~ DEVELOPMENT COSTS $663,671 G&ACOSTS 2.00% REAL ESTATE TAXES 2.00% MARKETING COSTS 2.00%

[YEARS 1 2 3 4 !i 6 7 8 g 10 11 12 13 14 15 111 TOTAL YEARS Rl:S. IMP LOTS 133 0 0 0 133

TOTAL LOTS 133.00 TOTALACRl:S ITOTAL REVENUE/YEAR $18,221,00J.OO $0.00 $000 $0.00 $0.00 SO.OD SO.OD $0.00 $0.00 0 0 $0.00 $0.00 $0.00 $0.00 $0.00 s 1a,221,000.00 I

fXPENSES DEVELOPMENT COSTS $663,671.00 0.00 D.00 0.00 0.00 so $0 so $0 $0 SD so so so so $0 $663,671.00 G&ACOSTS $364,420.00 $0.00 $0.00 S0.00 so.oo SO.DD SD.OD S0.00 $0.00 $0.00 $0.00 so.oo $0.00 $0.00 $0.00 $0.00 $364,420.00 REAL TAXES $0.00 so.oo $--0.00 S.-0.00 $-0.00 $-000 S-o.oo $-0.00 S·D.00 S-o.oo S-0.00 S.-0.00 $--0.00 $-0.00 $-0.00 $--0.00 SO.OD MARKETING COSTS $364,420.00 SO.OD SO.OD SO.OD SO.OD $0.00 $0.00 SO.OD $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 so.oo $0.00 $364,420.00 so.oo $0.00 so.oo S0.00 $0.00 so.no SD.DO $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 so so so $0 so $0 so so $0 so so so so so so so.oo so so so so $0 $0 so so so so so so so $0 $0 $0.00 0 $0 so so $0 $0 $0 so $0 $0 so so so so so so $0.00 I TOTAL EXPENSES· $1,3!!2,511.00 $0.00 so.oo so.oo SO.OD $0.00 $0.00 SO.DD $0.00 $0.00 S0.00 $0.00 $0.00 SO.DD $0.00 $0.00 $1,392,5\1.00

Net Casi! Flow: $16,628,469 $0 so so $0 $0 so so $0 so so so so so so so $16,828,489

PrBSaat Valua Factor: 0.817193% 0.000000% 0.000000% 0000000% 0000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 1.000000%

Pr...... ,i Valua of Cash Flow: $14,761,832 $0 so $0 $0 $11 so $0 so SD so $0 so $0 $0 $0 $14, 761,832

l!tndicated Net Present Value II Sl4,761,lll2

Socree: Firsl Amancan Comm0

Pi"fl'lrlY Types; # ol lot/unll Price per unit Tolal RES.1MP. LOTS 110 $137 .ooo $15,070,000.00

lsuBTOTAL 110 s1a1,ooo ,15.010,000.00 _I

lroTAL .. $15 010 000:00 ., DISCOUNT RATE: 14.00%

~ DEVELOPMENT COSTS $~.001 G&ACOSTS 2.00% REAL ESTA TE TAXES 2.00% '-IARKETING COSTS 2.00%

jYEARS 1 10 11 12 13 14 15 18 TOTAL YEARS RES. IMP LOTS 110 110

TOTAL LOTS 110.00 TOTAL ACRES ITOTAL REVENUE/YEAR $15,070,000.00 $0.00 $0.00 $0.00 S0.00 $0.00 $0.00 SO.DO $0.00 0 0 so.oo so.oo so.oo $0.00 so.oo $15,070,000.00 ]

EXPENSES DEVELOPMENT COSTS ~.901.00 0.00 0.00 0.00 0.00 so so so $0 $0 $0 $0 so so so so $:.46,901.00 G&ACOSTS $301,400.00 so.oo so.oo S0.00 $0.00 so.oo $0.00 so.oo so.oo $0.00 $0.00 $0.00 S0.00 so.oo $0.00 so.oo $3111,400.00 REAL TAXES so.oo so.oo l-().00 $-0.00 $·0.00 $·0.00 $·000 $-0.00 $-0.00 5-000 $-0.00 $·0.00 5-0.00 5-0.00 l-().00 $-D.00 so.oo MARKETING COSTS $301,400.00 SO.DO so.oo so.oo $000 so.oo $0.00 $0.00 so.oo $0.00 $0.00 SO.Oii so.oo $0.00 SO.Oii so.oo Sl01,400.00 so.oo SO.Oii so.oo S0.00 $0.00 S0.00 $0.00 $0.00 S0.00 $0.00 so.oo $0.00 so.oo $0.00 so.oo S0.00 SO.DO so so so $0 so $0 $0 so $0 so so so so $0 so so.oo so so so so so $0 $0 so $0 so so so so so so so.oo so $0 so so $0 so $0 so $0 so so so $0 so so so.oo ITOTAL EXPENSES: $1.151.701.00 S0.00 $0.00 $0.00 $0.00 $0.00 S0.00 $0.00 SO.DO $0.00 S0.00 SO.OD SO.OD S0.00 so.oo SO.OD ,1.1s1.101.oo I

NelC..shFlow: Sll.918,299 so so so so $0 $0 $0 $0 $0 so so so so so so Sll.918.2911

Pr••om Val'-"' Facio<; 0.817193% 0.000000% 0.000000% 0.000000% 0.000000% 0.0!l0000% D.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 0.000000% 1.000000%

Pt.esenl Value of Cash Flaw; $12.209.034 so so so $0 $0 so $0 so so so so so so so $0 $12,209.034

illndicated Nel Present Value :1 Sll,209,0J.1

Source: First American Commercial Resl E,tale 5"MC"5 Summary of Valuations:

SUM OF THE VALUES CONCLUSION

Discounted Subject Lots Bulk Value

Planning Area I 178 $19,757,000

Planning Area 2 128 $14,207,000 Planning Area 3 86 $9,545,000

Planning Area 4 133 $14,762,000

Planning Area 5 110 $12,209,000

CFD 2004-3 635 $70,408,000

Rounded $71,000,000

Source: First American Commercial Real Estate Services

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES - APPRAISAL AND EVALUATION 1217 NQRJ.\,L-\NDY PUCE •SANTA .ANA, CALIFO&"!\JL-\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 67 VALUATION SUMMARY

The following values are the estimated values of the property as of June 17, 2005.

The estimated value of the residential parcel, discounted for the time and cost of absorption, assuming the proposed Assessment District Financing is in place and ready for funding, is as follows: SEVENTY ONE MILLION DOLLARS $71,000,000

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NOR..\L-\.NDY PL\CE •S.. -\.NTA ANA, CALIFORNL-\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 68 CERTIFICATION

We certify that to the best of our knowledge and belief: ... During the completion of the assignment, we did personally inspect the property that is the subject of this report ( except as specifically noted).

... We have no present or contemplated future interest in the real estate or personal interest with respect to the subject matter or the parties involved in this appraisal report, and our employment in this matter is not in any manner contingent upon anything other than the delivery of this report. We have no bias with respect to the property that is the subject of this appraisal or the parties involved with this assignment.

... Our compensation was not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value as estimated, the attainment of a stipulated result or the occurrence of a subsequent event directly related to the intended use of this report.

... This report is not based upon a requested minimum valuation, specific valuation or the approval of a loan.

... The statements of fact contained in this appraisal report, upon which the analyses, opinions and conclusions expressed herein are based, are true and correct.

... This evaluation report sets forth all of the limiting conditions (imposed by the terms of my assignment or by the undersigned) affecting the analyses, opinions and conclusions contained in this report.

... The analyses, opinions and conclusions were developed and this appraisal report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice as promulgated by the Appraisal Foundation for an evaluation report.

... We alone have prepared the personal, unbiased professional analyses, opinions and conclusions concerning real estate that are set forth in this appraisal report.

... William V. Shrewsbury, MAI, is a "Certified General Real Estate Appraiser" within the State of California. William V. Shrewsbury's Certification Number is AG004522. Jaimie Z. Basso's OREA License No. is AT031532.

... This appraisal report is invalid unless all signature pages have been signed.

... We certify that to the best of my knowledge and belief the reported analyses, opinions and conclusions were developed and this report has been prepared in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

... We certify that the use ofthis report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NORi.\L\.NDY PL-\CE •S.ANT.A ANA, CALIFORNIA 92705• PHONE 714.580-7056 • FAX 714.550-7057 69 .,. We are competent to appraise this particular property type and have appraised similar property types in the area. Disclosure of the contents of this appraisal report is governed by the Bylaws and Regulations of the Appraisal Institute.

The Appraisal Institute conducts voluntary programs ofcontinuing education for its designated members. MAis who meet the minimum standards of this program are awarded periodic educational certification.

As of the date of this report, William V. Shrewsbury has completed the requirements of the continuing education program of the Appraisal Institute.

William V. Shrewsbury, MAI Senior Vice President California Certification No. AG004522

AT031532

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -APPRAISAL AND EVALUATION 1217 NO&\L\NDY PLACE •S.ANL-\ ANA, CALIFORNL\. 92705• PHONE 714.580-7056 • FAX 714.550-7057 70 QUALIFICATIONS

OF

WILLIAM V. SHREWSBURY, MAI

PROFESSIONAL BACKGROUND

Actively engaged as a real estate appraiser and consulting appraiser with forty years experience. I am Senior Vice President, Real Estate Appraisal/Commercial Division, of First American Commercial Real Estate Services located at:

1217 Normandy Place Santa Ana, California 92705

Previously engaged as President of Interstate Appraisal Corporation and Director of Real Estate Appraisal with The Irvine Company.

PROFESSIONAL ORGANIZATIONS

Member of the Appr~sal Institute with MAI designation.

Licensed Real Estate Appraiser, State of California, 11 Certified General Real Estate Appraiser".

Member of the International Association of Assessing Officers with the Accredited Assessment Evaluation (CAE) designation. I am also a member of the Orange County Assessment Appeals Board.

A licensed California Real Estate Broker.

EDUCATION

Real Estate Special Courses:

Essentials of Residential Design and Structure Intermediate Real Estate Appraisal, Courses I, II, III, IV, V Real Estate Principles Commercial Investment Property Advanced Real Estate Appraisal Real Estate Law Real Estate Practices Real Estate Finance Subdivision Analysis Engineering Qualifications of William V. Shrewsbury, MAI Page Two

Courses Sponsored by Appraisal Institute:

Principles, Methods, Teclmiques of Real Estate Appraising Urban Properties Techniques of Capitalization Residential Appraising Appraising Leasehold Estates Capitalization A Standards of Professional Practice A and B

COURT QUALIFICATIONS

Qualified as an expert witness.

SCOPE OF APPRAISAL EXPERIENCE

Vacant Land

Various large land holdings such as the 1,700 acres, planned community (Village· of Woodbridge); 350 acres, planned community (Village of Deerfield); 1,000 acres, planned community (University Park); 1,200 acres, planned community (Village of Turtle Rock); 650 acres, commercial development (Newport Center); 10,000 acres, planned community, coastal area; 77 ,000 acres, land holdings of The Irvine Company. Also various land holdings from San Diego County to Los Angeles County.

Residential

Single-family dwellings, multiple-family dwellings, condominiums and mobile home parks throughout Southern California.

Commercial

Shopping centers (neighborhood and sub-regional), retail stores, general office buildings (low­ and high-rise), service stations, carwash, parking lots and medical office buildings.

Industrial

Warehouses, industrial condominiums and highly improved industrial buildings.

Special Purpose

Churches, marinas, television studio, restaurant, parks, nursery, golf courses, tennis club, lessor and lessee interests, packing house operation and fractional interests. ADDENDUM ENGAGEMENT LETTER ABSORPTION STUDY [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIXE

MARKET ABSORPTION STUDY

E-1 [THIS PAGE INTENTIONALLY LEFT BLANK] MARKET FEASIBILITY AND ABSORPTION ANALYSIS (TERRA LAGO) COMMUNITY FACILITIES DISTRICT .. PHASE ONE INDIO, CALIFORNIA

JULY 2005

Prepared for: CITY OF INDIO 100 Civic Center Mal I Indio, California 92202

Prepared by: MARKET PROFILES

200 North Tustin Avenue1 Suite 102 Santa Ana, California 92705 Telephone Number: 714/546.3814 Facsimile Number: 714/546-0953

11...,i !! -J.-l Jiii ·-~ -, ,-. ~ ....L. J --- -- [~ )Lt l ~ PW-. .. I I I' I I M a r ke t Prof i I es www.marketprofilesinc.com July 1, 2005

Mr_ Roy Stephenson CITY OF INDJO 100 Civic Center Ma!l Indio, California 92202

RE: MARKET FEASIBILITY AND ABSORPTION ANALYSIS - TERRA LAGO COMMUNITY FACILITIES DISTRICT- PHASE I

Dear Mr. Stephenson:

This market report presents Market Profile's evaluation of the market opportunities relating to the residential tracts that compose Terra Lago Community FaciHties District in the City of Indio. The Assessment District consists of 635 lots that are located in the Shadow Hills district in the northern portion of the City of Indio. The study evaluated the depth of demand for new homes in the Coachella Valley, as well as, the competitive conditions within the local Indio marketplace.

Briefly, the research findings indicate that market demand is ample to support the development and sale of the proposed new homes. Competitive evaluations of the price structures that are anticipated for the homes are presented in Section I of the report, and the sales absorption rates that are projected for each of the subject residential tracts are presented at the end of that section.

The report has been reorganized as follows:

Section I - Summary of Findings and Conclusions Section 11 -- Market Demand Analysis Section 111 - Summary of Competition Section IV - Supporting Documentation

We appreciate the opportunity to work with you in evaluating the opportunities for development of new homes in the City of Indio. Please call if you have any questions. Boyd Martin directed the study effort and David Dickey served as project manager.

Sincerely, MARKET PROFILES 4;4J1'/± J)tWJ 4/, flu4t Boyd D. Martin David W. Dickey Chairman Senior Economist

100 Norrh Tustin Avenue. Suite 102, Santa Ana, Ca. 91705 (714) S46<1814 Fax (714) 546-0953 _;LI J II ~ ll\_l)ll. ,' .. l ' ,> ·, ,-, r ---...l~::'.!t.b,. __ i;J.J.J .. l Market Profiles

TABLE OF CONTENTS

SECTION DESCRIPTION PAGE NO.

SUMMARY OF FINDINGS AND CONCLUSIONS Introduction ...... ·-·--- ...... ·········------····· ...... 1-1 Property Location and Description ...... !-1 Description of Subject Homes ... , ...... 1-3 The Market Opportunity---· ...... , ...... 1-4 Existing New Home Competition ...... 1-5 Future New Home Competition ...... ,, ...... 1-7 Price Positioning Analysis ...... 1-7 Premrums for Lake and Golf Course Frontage ...... 1-8 Projected Sales Absorption ...... lJ9

II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST Introduction ...... ·······---- ...... 11-1 Employment Growth ...... ·---- ... !1-1 Demographic Profile ...... 11-3 Housing Profile··························-----·······························--·-····-··········· 11-4 New Home Sales Trends······--···--·····························-·--·-··················· 11~4 Price Trends·························--·------·····························------················· 11~5 Projected New Home Demand ...... 11-6

Ill SUMMARY OF COMPETITION Introduction ___ ...... ······················------...... ___ ...... 111-1 New Home Competition ...... 111-1 Inventory Trends·························----··········· ...... 111-2 Sales Rates ...... 111-2 Most Competitive New Home Projects ...... 111-2 Proposed New Home Development...... 111-4

IV SUPPORTING DOCUMENTATION (Available with Hard Copy) 1- 1 I 1J r\i!r\il!J ;.,;l(:'l 1l'li' Market Profiles

LIST OF EXHIBITS

EXHIBIT DESCRIPTION

SECTION I - SUMMARY OF FINDlNGS AND CONCLUSIONS

1-1 Regional Site Location Map

Neighborhood Site Location Map

1-3 Summary of Proposed Home Prices, Terra Lago Phase One, June 2005

1-4 Projected Annual New Home Demand, Coachella Valley, 2005-2006

1-5 Summary of New Home Developments 1 Shadow Hills, July 2005

1-6 Price and Product Characteristics, Indio Comps

1-7 New Home Sales Rates by Price Range, Coachella Valley, First Quarter 2005

1-8 Quarterly Absorption Schedule, Terra Lago Community Facilities District Phase One, City of Indio

SECTION II - ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST

11-1 Coachella Valley Submarket Areas

11-2 Employment Growth, Riverside I San Bernardino Bi-County Region and Southern California, 1980-2006

11-3 Hotel Room Sales, Coachella Valley, 1988-2004

11-4 Demographic Profile, Coachella Valley and Riverside County

11-5 Housing Profile, Coachella Valley and Riverside County, 2005

11-6 Housing Stock Profiles! Coachella Valley Cities 1 2000

11-7 New Home Sales by Submarket Area, Coachella Valley, 1992~First Quarter 2005 I :! t'.l1 1 [~i\~rrll~:a~'._;;; .9J Market Profiles

LIST OF EXHIBITS

EXHIBIT DESCRIPTION

11-8 Average New Home Price, Detached Product1 Coachella Valley by Submarket Area. 1998-Third Quarter 2004

New Home Sales by Price Range, Detached Produce Coachella Valley, 2003-First Quarter 2005

11-10 New Home Sales Distributed by Price Range, Indio-Coachella Sub market Area and Coachella Valrey, First Quarter 2005

11-11 Housing Growth Summary, Riverside County and the Coachella Valley Market Area, 1980-2009

11-12 Projected Annual New Home Demand, Coachella Valley, 2005-2006

SECTION Ill - SUMMARY OF COMPETITION

111-1 Summary of New Home Developments, Detached Product, Coachella Valley, First Quarter 2005 lll-2 New Home Market Summary by Submarket Area, Detached Product, First Quarter 2005 lll-3 Summary of New Home Developments, Indio-Coachella Submarket Area, First Quarter 2005

lll-4 Summary of New Horne Developments, Shadow Hills1 July 2005

New Home Projects Location Map

111-6 Development Status Report1 City of Indio, June 2005

ii SECTION I SUMMARY OF FINDINGS AND CONCLUSIONS Market Profiles, Inc.

SECTION I SUMMARY OF FINDINGS AND CONCLUSIONS

INTRODUCTION This section presents a summary of the market opportunities identified with respect to the new homes that are proposed to be constructed within the Terra Lago Community Facilities District (CFD) in the City of Indio_ The homes consist of five tracts that compose Phase I of the Terra Lago planned community. Based upon the anticipated price structure of the homes, a forecast of sales absorption has been formulated and is presented at the end of this Section I of the report {see Exhibit 1-8).

PROPERTY LOCATION AND DESCRIPTION The subject properly consists of 635 residential lots that are contained within five residential tracts that will be developed by four quality builders. The subject tracts are situated within the larger Shadow Hills community that is located in the northern portion of the City of Indio north of the Interstate 10 Freeway.

The master-planned community of Terra Lago is located less than one mile north of lnterstate-1 O at the northeast corner of Golf Center Parkway and Avenue 43_ The community is bisected by the Coachella Canal, an extension of the All American Canal, that runs southeastward through the property. The northern edge of the Terra Lago community abuts the base of the foothills at the northern boundary of the City of Indio­ The property extends southward to Avenue 44. To the east of the property is open desert. About one mile to the northwest off of Jackson Street are six new home subdivisions within the Shadow Hills community that are currently marketing homes. These subdivisions are discussed below.

The location of the subject property is shown from a regional viewpoint in Exhibit 1-1 l and Exhibit 1-2 shows the property in a local context.

All of the sites offer convenient access to the J-1 O Freeway. There are a wide variety of good quality retail shops and services located along Highway 11 in downtown Indio about three miles southwest. A major expansion of the Indio Fashion Mall is planned that would increase the size from its current 220,000 square feet and transform it into a ulifestyle center'l. Within the Shadow Hills community, a 500t000 square foot power center is planned for a site located at the northwest corner of Interstate 1O and Monroe Street. Development of this center is anticipated to begin in mid- to late-2005. In addition, a neighborhood retail center with a supermarket has been approved for a 10- acre parcel at the northwest corner of Jackson Street and Avenue 42. Given the large

1-1 Market Profiles, Inc. number of homes being constructed in the vicinity. it is reasonable to assume that its development will be initiated in advance of the completion of all of the subject homes.

Currently! there is an elementary school and a junior high school located on the south side of Interstate 10. However, the Desert Sands School District has announced plans to build a new high school north of Interstate 1 O at Jefferson Street and Avenue 39_ The property on which the high school will be built ultimately will also include new elementary and middle schools, forming a K through 12 campus_ The new high school will be ready to open in 2008, but timetables for construction of the elementary and middle schools have not been established.

Higher education facilities located in the Coachella Valley area include: College of the Desert, a two-year community college located in Palm Desert: the Coachella Valley Campus of California State University San Bernardino (CSUSB)1 which recently opened its initial phase of development in Palm Desert on a site at Cook Street and Frank Sinatra Drive; and Chapman University! with an extension and degree program offered at facilities in Palm Desert. In addition. UC Riverside (UCR) will be building a two­ building complex on a portion of the same site on which CSUSB is building its campus. The UCR satellite campus will house graduate-level academic programs in entrepreneurship1 a center for UCR research in the area and the university's outreach programs and services, w1th initial facilities planned to open in early-2005.

The subject property is one mile east of the 18-hole, Par-3 Indio Municipal Golf Course! the only night-lighted course in the Coachella Valley. The Indio Municipal Course is planned to undergo an expansion and renovation to be reconfigured into a Par 60 Executive Course.

Two major Indian casinos 1 Spotlight 29 Casino and Fantasy Springs Casino, are located less than three miles from the subject project! near the intersection of Golf Center Drive and Interstate 10. Both of these facilities are undergoing significant improvement and expansion programs.

The Terra Lago community will offer several major amenities. The community will be constructed around the existing Landmark Golf Club that incrudes two 18~hole championship golf courses. The subject homes in the Phase I of the community will be constructed around a 22-acre private lake that will offer boat access_ Phase I will also include a recreation complex that will consist of a clubhouse, pool, and tennis complex. In addition, each tract will have a neighborhood park.

1-2 Market Profiles, Inc.

DESCRIPTION OF SUBJECT HOMES As currently proposed, the homes that are planned for construction on the subject properties consist of five product lines that will be marketed independently of one another by four different homebuilders. Each of the homebuilders is highly experienced and has consistently demonstrated the ability to construct and market quality homes in a timely and professional manner. The five product lines are summarized in Text Table 1-1 below_

The homes will offer a variety of design configurations that will appeal to a broad mix of household types including families with children, young married couples! move-down households. retired couples. and second home buyers.

TEXT TABLE 1-1 SUMMARY OF PROPOSED NEW HOMES TERRA LAGO CFO

Minimum Number Lot Size Home Size

Tract# Builder ---+-~~~------f~~~--+-----"----"~___._------f~~----___._____._----1of Lots % Mix (Sqw Ft.) Ranae (SF) -~ 1~o 1~?, ___ ,___W_o_o_d_si_d_e _H_o_m_e_s-----1-_1_7_8_-+-_27. 7_%_------l-__5____c,_00_0_----1-----=1,_6_58_-_2_.4_07----I 31601-3 __ ---~,_e_nn_a_r_H_o_m_e_s_+--_12_8_--+-_2_0_.3....:....%:...... -.+-_. ___ 7,2,_0_0_--+-_2_,_09_2_-_2,_6_60----1 31601 A Lennar Homes 86 13.6% BAOO 2,595-3. 120 1------~-~ --~--+-~~~--+-~~~--+-~----'-~~--+-----''--~-'-~~ 31601-5 Ryland Homes 110 17.4% 6,000 1,987-2.591 31601 Ashbrook Homes 133 21ji01r_o_---1----3-'--,3-0-0----1---2-'--,1-0-0--2-,5-0-0-----l I------'------'------T..Q~~ I/ Range 635 100.0~.. -~,300-8,400 1,658-3,120 Source: SunCal Properties, Market Profiles

The home prices that are currently proposed for each of the tracts are shown in Exhibit 1-3. Although subject to revision, it is anticipated that each builder will construct homes that are in reasonable conformance with the proposed targets that are presented in this report The sale prices shown are stated fn today's dollars, exclusive of future inflation or price appreciation that is likely to occur.

The projected sales absorption rates for the subject new home subdivisions are predicated upon the home prices and sizes that are shown in Exhibit 1~3 (see PROJECTED SALES ABOSRPTION below). Depending upon the degree that the actual home prices and sizes may differ from those shown I the absorption projections may require appropriate adjustments.

1-3 Merket Profiles, fnc_

In addition to the base sale prices of the subject Terra Lago homes, many of the homes will command substantial premiums primarily for views of the lake and golf course. The values of the view premiums and the number of homes that will be able to command such premiums within each neighborhood are summarized in Exhibit 1-3- The values of the premiums were derived based on a review of premiums that are currently being commanded by new home subdivisions with comparable views (see PREMIUMS FOR LAKE AND GOLF COURSE FRONTAGE below}.

THE MARKET OPPORTUNITY New home sales !n the Coachella Valley have been strong over the past three years_ The sales volume reached 5,768 homes in 2003 and 5,851 homes were sold in 2004_ In the first quarter of 20051 sales totaled 1,331 homes. Although this is a strong sales figure, it is below the 2,052 sales that were reported in the first quarter of 2004.

For analysls purposes, the Coachella Valley has been divided into five submarket areas_ The boundaries of the submarkets are shown in Exhibit 11-1 in Section II of this report. Each of the submarket areas has unique characteristics. The Indio-Coachella submarket consists of the cities of Indio and Coachella and the immediately surrounding unincorporated areas.

New home sales in the Indio-Coachella submarket area have accelerated over the past three years. Sales increased from 241 homes in 1999 to 591 in 2001, then sales jumped to 1,217 homes in 2002 and to 2,890 homes in 2003. Sales continued strong in 2004 with 21596 homes sold. Moderate home prices have been a major attractor of homebuyers to the submarket

In the first quarter of 2005, new home sales in the lndlo-Coachella submarket totaled 585 homes. This figure is below the 872 homes that were reported sold in the first quarter of 2004.

The lndio·Coachella submarket accounted for 44 percent of all new detached homes sold in the Coachella Valley during the first quarter of 2004. The high proportional share captured by the submarket is due to three major factors as follows:

1. Moderate home prices. 2_ Shortages of moderately priced new homes in other areas of the Valley. 3. lncreaslng homebuyer perceptions of Indio as a desirable residential locatton.

1-4 Mark.et Profiles, Inc.

The demand for new homes in the Coachella Valley is projected to average 41500 homes per year over the next two years (see report Section II). The projected distribution of demand by price range is shown in Exhibit 1-4.

Market demand is spread across a wide range of prices from under $300 1 000 to over $1,000,000. The majority of the new homes sold to date in Indio have been purchased by households that were seeking a moderately priced primary home. During the first quarter of 2005, the Indio-Coachella submarket area accounted for 89 percent of all homes sold in the Coachella Valley that were priced below $400,000. New supplies of homes priced under $400,000 have emerged in the communities of Desert Hot Springs and Coachella. However, the community of Indio will continue to dominate the market for moderately priced homes. It is projected that, on a sustained basis. the Indio­ Coachella submarket area will capture roughly 45 percent of the total annual new home sales in the Coachella Valley. This equates ta a sales volume of about 2,000 homes per year.

Given the continued availability of very low mortgage interest rates (i.e., near 6%). the volume of new home sales in the Indio market area may surpass the projection of sustained annual sales of 2,000 homes. The sustained forecast assumes that interest rates will eventually rise by at least one half percentage point, resulting in a moderation in new home demand within the submarket. In addition 1 it is assumed that the competitlve conditions within the City of India will intensify and that other communities in the Coachella Valley will offer larger numbers of moderately priced new homes than they have in recent months.

EXISTING NEW HOME COMPETITION There were 78 new home subdivisions that were active throughout the Coachella Valley during the first quarter of 2005. Descriptions of these projects are included in Section Ill of this report. There are 12 new home subdivisions currently active in Shadow Hills area. These 12 subdivisions are most relevant to the subject properties. The 12 projects are summarized in Exhibit 1-5 and the most pertinent projects are described below.

The fastest selling subdivision in Shadow Hills Js Bella Tierra. The first 40 of these 3- and 5-bedroom homes have been sold at a rate of 8.12 homes per week. The base prices range from $379,990 to $419,990 for plans that range in size from 1,895 to 21629 square feet ($159.75 to $200.52 per sq. ft.). The homes are sited on 8,000 square foot lots (minimum).

Another fast selling subdivision is Foxstone by KB Home. All 63 homes that were released during the first quarter were sold equating to a sales rate of 4.88 homes per

1-5 Market Profiles, inc week. The project has another 182 homes remaining to be sold in subsequent phases. The base prices of these homes range from $307,990 to $368,990 for 2- and 3- bedroom plans that range in size from 1,517 to 2,526 square feet ($146.07 to $203.02 per sq. ft.). The neighborhood is gated and the minimum lot size is 8,000.

The 132-lot Sienna subdivision recently opened in Shadow Hills. The base prices of the homes range from $394 ,990 to $447,990 for 3~ and 4-bedroom plans that range in size from 2,448 to 31143 square feet ($142.54 to $161.35 per sq. ft.).

The 263-lot Shadow Ranch subdivision by Family Development sold out its first phase of 30 homes at a rate of 3.0 homes per week. These homes range !n price from $394,990 to $489,990 for 3-, 4-, and 5-bedroom plans that range in size from 3, 185 to 3,247 square feet {$150.90 to $180.77 per sq. ft.). The minimum lot size is 8!500 square feet.

The Desert Collectlon is a gated subdivision of 142 homes. The base prices of these 3-bedroom homes range from $364,990 to $414,990 for plans that range in size from 1,61 a to 2,266 square feet ($183.13 to $226. 70 per sq. ft.). The first 73 homes were sold at a rate of 3.31 homes per week. The minimum lot size is 7,200 square feet.

The new community of Talavera in northeastern most Indio recently opened with four new home subdivisions offering homes for sale. The homes range in price from $299,999 to $416,990. The minimum lot size for all of the homes in Talavera is 8,000 square feet.

The Venecia homes are the smallest being offered in Talavera. They consist of 3- and 4-bedroom plans that range in size from 1,576 to 1,947 square feet with base prices ranging from $299.999 to $333,990 ($171.54 to $190.35 per sq. ft.). Twenty-five of the 45 homes in the first phase release were sold at a rate of 1 .76 homes per week.

The homes in the Florencia subdivision in Talavera range in size from 1,855 to 2,380 with base prices ranging from $330 1000 to $370,000 ($155.46 to $179.45 per sq. ft.). Of the 44 homes in the first phase, 26 were sold at a rate of 5.93 homes per week.

Also in Talavera, the Alicante homes consist of 3-, 4-, and 5-bedroom plans that range in size from $389,540 to $404,990 (130.68 to $156.25 per sq. ft.). Two thirds of the 33 homes released in the first phase have been sold at a rate of 3.61 homes per week.

The largest homes being offered in Talavera are those in the Genova subdivision. The base prices of these homes range from $396,990 to $416,990 for 2-, 3- and 5-bedroom plans that range in size from 2,848 to 3,280 square feet ($127.64 to $139.39 per sq. ft.).

1-6 Market Profiles, Inc.

Eighteen homes have been sold at a rate of 1.9 homes per week.

FUTURE NEW HOME COMPETIT[ON There are approximately 7,500 new homes within more than 40 subdivisions that are proposed for future development in the City of Indio {see report Section 111). With this scale of proposed activity, it is projected that the Indio market area will experience a competitive environment for the next several years. However, the Indio market has been experiencing an under supplied market condition (see Section I !I) and the homes that are planned for development will be constructed in a phased manner over the next several years. It is projected that competitive conditions over the next three years will be more intense than those currently being experienced in the Indio marketplace, however, generally healthy demand-supply conditions are projected to be maintained.

The majority of the new homes that will be constructed in Indio over the next few years will be located in and around the Shadow Hills community located north of Interstate 1O Freeway. In addition to the 1,400-plus homes that will be developed within the subject Terra Lago community, there are more than 2, 700 homes that are planned for construction elsewhere in the Shadow Hills community. The majority of these homes will be constructed over the next three to four years. A summary of the 2, 723 homes that will be part of the City of Indio Assessment District 2004-VSD is presented in Section 111 of this report. All of these homes will be located in the Shadow Hills community primarily to the west of the Terra Lago community. The prices of the homes will generally range between $300.000 and $500,000. Two subdivisions by Family Development located in the AD 2004-VSD are under construction and are actively selling homes (see Exhibit 1-5 ).

Also located north of the 1-10 Freeway is the site of the Andreas Ranch that will include

937 homes within a private 1 gated community. This property is located north of Avenue 38 at Jefferson Street.

PRICE POSITIONING ANALYSIS The subject new homes that are proposed for development within Phase I of the Terra Lago community will offer an assortment of designs that will appeal to a variety of household types. The price positioning of the subject homes compared to the existing new home projects that are located in Shadow Hills is shown in Exhibit 1-6. The home prices shown in the exhibits are base prices, exclusive of location premiums or other upgrades.

Exhibit 1-6 shows that the anticipated price structure of the majority of the subject homes (shown with solid llnes) posftions them well within the price structures of the existing new home projects in Shadow Hills (shown with dashed lines). This is a favorable price

1-7 Market Profiles! Inc. positioning for the subject homes given the high quality community image that the subject Terra Lago community !s anticipated to establish within the Indio marketplace. The subject residential tracts will be contalned within an attractive and cohesive community context that will offer major amenities that are not avaUable to the existing new home competitors in Shadow Hills.

PREMIUMS FOR LAKE AND GOLF COURSE FRONTAGE Many of the subject homes that are proposed for Phase I of the Terra Lago community will be adjacent to the lake or to the existing Landmark golf course. The resulting views will create opportunities to command substantial premiums for those homes. View premiums that are currently being commanded by new home projects in the Coachella Valley range up to $250,000. The amount of the premium is influenced by the quality of the view and by the value of the home. The maximum premiums generally range from ten percent to 33 percent of the home value. Within the City of Indio. the highest view premiums that are currently being commanded are for homes with frontage on the lndjan Palms golf course. Premiums of up to about $100,000 and 20 percent of the home value are being commanded within Indian Palms. The Indian Palms golf course is of lesser quality than the Landmark Golf Club that is part of the Terra Lago community.

Currently, there are two new home subdivisions in Rancho Mirage that are marketing homes that have lake views. Both of these subdivisions are located within the private Santo Tomas community. The premiums for lake frontage in this community range up to $200,000 and equate to as much as 40 percent of the home price.

Based on the anticipated quality of the lake and golf course views that will be created in

Phase I of the Terra Lago community1 it is concluded that the subject homes that will have lake or golf course frontage will be able to command view premiums of about $100,000. The estimated premiums that can be commanded by the subject new home tracts are summarized in Exhibit 1-3. The number of homes that will have lake and golf course frontage have been estimated based on preliminary land use maps.

In addition to the major view premium, the sale prices of many of the subject homes will, appropriately, include additional premiums for less significant characteristics such as larger lot size, desirable location {such as a cul-de-sac). etc. Premiums of $1 1 000 to $15,000 have been successfully commanded by new home subdivisions in Shadow Hins. Such premiums are common among virtually all of the competitive new home subdivisions in this marketplace. Market Profiles, Inc.

PROJECTED SALES ABSORPTION The sales rates among the 78 new home projects that were selling detached homes in the Coachella Valley during the first quarter of 2005 ranged widely from 0.08 to 7.9 homes per week. The average sales rate was 1.73 homes per week per project.

The sales rates of the 12 Shadow Hilfs projects that are shown in Exhibit 1~5 range from 0.81 to 8.12 homes per week. The average sales rate is 3.43 homes per week and the median rate is 3.0 homes per week. The sales rates of these homes are very favorable in part due to the fact that many of them recently opened and sales rates tend to be more rapid in the initial marketing phases, then taper off in later phases.

A healthy volume of new home sales is projected to be maintained in the Indio submarket area over the next two years. It is anticipated that each of the builders that will be marketing the subject homes has demonstrated a substantial track record of successful development and marketing of new homes throughout Southern California. Based on the estimated price positioning of the subject homes, it is projected that the five product lines will generate sales rates ranging from 0.75 to 2.0 homes per week. The sales rate that is projected for each product line is shown in Text Table 1-2 below.

TEXT TABLE 1-2 PROJECTED WEEKLY SALES RATES BY TRACT TERRA LAGO COMMUNITY FACILITIES DISTRICT Planning Area I Lot Size Number Ave. Weekly Tract# (Sq. Ft.) of Lots Sales Rate* 1 5,000 178 2.0 31601-2 -- ••~ • 'I I • ._ -- 2 7,200 128 1.5 31601-3 . - . 3 8.400 86 1.0 31601 ~4 4 6,000 110 0.75 31601-5 - - -· 5 3.300 133 0.75 31601 Total Lots: 635 * Homes per week. Source: Market Profiles

1-9 Market Profiles, Inc.

The sales projection for each of the product I ines relates primarily to the price structure of the homes. The subject homes that are anticipated to be offered at the lowest prices are projected to generate the most rapid sales rates. Historical experience has demonstrated that new homes with lower prices typically sell more rapidly than those with higher prices. Exhibit 1~7 shows that this pattern generally holds throughout the Coachella Valley. However, the home price is not necessarHy the determining factor in the sales experience. Other factors include the specific neighborhood location within the community. the design and construction quality of the homes, and the marketing program of the builder.

The sales rates that are projected for the subject homes are conservative relative to the experience of new home projects that are currently marketing homes in the Shadow Hills community. The sales rates also take into consideration the general market environment that is anticipated to prevail over the marketing lives of the subject new home tracts. The projected sales rates are based on the assumption that market conditions will be moderately less favorable than those that were experienced in the Indio marketplace during 2004. The erosion of market conditions is expected to occur over the next few months due to a moderate rise in mortgage interest rates and to a slowdown in the resale market sector that has already occurred. As the new home market cools. the rate of increase in home prices will slow and this will decrease the sense of urgency that was evident among homebuyers in 2DQ4_

The projected moderation in new home market activity is expected to be accompanied by an increase in the competitive intensity within the Indio marketplace. The number of new home projects that will be active within the Shadow Hills community is projected to increase from the current 12 projects to 15 or more projects by late-2006. However. on balance. between eight and ten projects are expected to be marketing homes within the community at any given time over the next three years.

A tabular summary of the projected absorption schedule for the subject homes is presented in Exhibit 1-8. The sales forecasts describe the rate of closed transactions calculated from the date of the first closings that are anticipated for each of the new home tracts. Presale activity is projected to result in the sale of ten percent of the homes and is reflected in the first month of closings_ The absorption schedules assume that the sales programs will not be interrupted by long periods when the homes are temporarily sold out due to the construction schedule or other delays.

The timing of the first closings for each of the tracts has been estimated based on anticipated construction schedules that are yet to be finalized and, thus, are subject to change.

1-10 EXHIBIT 1-1 REGIONAL srTE LOCATION MAP

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MARKET PROFILES, INC. 274211x1-1,2.3.415J6,7,8.xls a.. <( :i: z 0 I-- u< NQ -wr -J t: I­ m -- :c- "'c XO WO :c cc 0 m :z: (.!) -w z

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u z VJ w .....J LJ... 0 c::: a. 1- w ~ a::: <( ~ EXHIBIT 1-3 SUMMARY OF PROPOSED HOME PRICES TERRA LAGO PHASE ONE JUNE 2005

Number Min. Lot Base Price/ Tract# Of Lots Sq. Ft. Price* Sq.Ft. Sq. Ft. 31601-2 178 5,000 $2891900 11350 $215 $301,990 1,898 $159 $309,990 2,259 $137 $319,990 2,407 $133 31601-3 128 7,200 $342,000 2,092 $163 $372,000 2,434 $153 $392,000 2,660 $147 31601-4 86 8,400 $426,000 2,595 $164 $446,000 2,803 $159 $466,000 31120 $149 31601-5 110 61000 $450,990 1,987 $227 $465,990 21164 $215 $4701990 2,230 $211 $4801990 2,408 $200 $475,990 2,348 $203 $490,990 2,591 $189 31601 133 3,300 $399,000 2,100 $190 $425,500 2,275 $187 $450,000 2,500 $180

Estimated Lot Premium Summary Planning Type of Ave. Prem. No. of Ave. Prem. Area Premium Value Prem. Lots Per Lot

31601-2 Lake $100,000 22 $121360

31601-3 Open $30,000 12 $2,813 Space 31601-4 Open $50,000 4 $2,326 Space 31601 Golf $100,000 34 $30,909 Course 31601-5 Lake $100,000 103 $77A44

* Base sale price exclusive of lot premiums or upgrades. All prices are stated in today's dollars. ** Average sale price including major lot premiums.

MARKET PROFILES, INC. 274211x1-1,2,3.4,5,6,7,8.xls EXHIBIT 1-4 PROJECTED ANNUAL NEW HOME DEMANC COACHELLA VALLEY 2005-2006

PRICE RANGE* AVERAGE ANNUAL SALES % OF TOTAL

Under $300,000 500 11.1% $300,000-$350!000 750 16.7% $350.000-$4001000 900 2Q.QO/o $400,000-$450,000 650 14.4% $450 ,000-$500 ,000 450 10.0% $500,000-$750,000 550 12.2°/Q $750,000-$1.000,000 450 10.0% $1,000,000 and Over 250 5.6%

TOTAL 4,500 100.0%

PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006

1000

900

600

700

600

500

400

300 Cl AVERAGE ANNUAL 200 ,~ --~I-" SALES 100

0 I I I I- =:I Under $300.000- $350,000- $400,000· $450.000· $500,000- $750,000-S 1,000,000 $300,000 $350,IJOO $400,000 $450,000 $500,000 $750,000 $1,DOD,OOO and Over

* Prices stated in today's dollars excluding future inflation or appreciation Source: Market Profiles

MARKET PROFILES, INC. 274211 x1-1,2,3.4,5,5,7,8.xls EXHIBIT 1·5 SUM MA RY OF NEW HOME DEVELOPMENTS SHADOW HILLS JULY 2005 Sa. les i'Wee k Ranges eloper CurQtr Cum Price Sqft S/Sq AUCANTE @ TALAVERA 3-. 3.1 3.31 $389,540 2,493 .$130.68 20-May--05 8,000 105 22 22 11 72 INDIO DR HORTON $404,990 3,099 $156.25 TALAVERA BELLA TIERRA@ SHADOW HILLS 8.12 8.12 $379.990 1,895 $159.75 01-Jun-05 8,000- 56 40 40 2 14 INDIO FAM1LY DEVELOPMENT $419_990 2,629 $200.52 SHADOW HILLS THE DESERT COLLECTION @SHADOW HILLS 1.75 2.61 $375.990 1,610 $1.83.13 06-Nov-04 7.200 142 90 17 8 44 INDIO REYNOLDS COMMUNITIES $419,990 2.266 $,226. 70 SHADOW HILLS THE EL DORADO COLLECTION@SHADOW HILU: 0.17 1.49 -$339,990 1.720 $-152.9'8 22-Mar-D3 6_000 198 178 2 6 "14 INDtO CENTURY VINTAGE HOMES -$424,9'90 2.778 $197.67 SHADOW HILLS FLORENCIA @ TALAVERA 2..18 5.28 $330,000 1.855 $155.46 01-Jur.-05 8,000 121 26 26 18 77 INDIO DR HORTON $370,000 2,380 $179.45 TALAVERA FOXSTONE 3. 10 4.88 $326,000 1,517 $146.07 12-Feb--05 8,000 245 100 37 0 145 INDIO KB HOME $3-87,000 2,526 $2G3.02 SHADOW HJLLS GENOVA @TALAVERA 1.90 1.90 $396,990 2,848 $127.64 30-Apr-05 8.001 110 1B 18 1 91 INDIO DR HORTON $416,990 3,267 $139.39 TALAVERA S HADDW RANCH @. SHA.DOW HILLS 2.SB 5.SJ $414,990 2, 185 $157_06 01-Feb-05 8,000 263 122 30 0 233 lNDIO FAMILY DEVELOPMENT $509.990 3,247 $169.93 SHA DOW HILLS SIENNA @ SHADOW HILLS 2.35 2.35 $-394.990 2 ,448 $141_54 13-Apr-05 8,000 1.32 28 28 24 80 INDIO RYLAND HOMES $447,990 -3, 143 $161.35 SHADOW HILLS THE VE NTANA COLLECTION @ S HACOW HILLS 0.-84 0.81 $299,99-D 1,208 $184-47 22-Mar-03 6,000 241 97 10 2 142 INDIO CENTURY VINTAGE HOMES $339,990 1.643 $248. 33 SHA DOW HILLS VENECIA AT TALAVERA 3-47 3.47 $299,990 1.576 $171.54 16-May-05 8,000 100 25 25 20 55 INDIO DR HORTON $333-,990 1_947 $190.35 TALAVERA VILLA ESTATES II@ SHADOW HILLS 1-46 1-45 $294.~0 1.302 $144.42 01-0ct-03 7.200 137 134 11 3 0 INDIO CENTURY VINTAGE HOMES $394,990 2.735 $226.56 SHADOW HILLS

MARKET PROFILES, •NC. P/i.GE 5 OF g 274211:t:"1-1.2,3,4,5,6,7.B_:.:hs EXHIBIT 1-6 ;PRICE AND PRODUCT CHARACTERISTICS rNDIO COMPS $520,000 ~ .x

·1 . x- - $470.000 - - -;;. =!... -- X'. - L - --~-~,~-~~~~·--"·-··'"' ------• ~ )K

$420,000 +· .. ---: : i~ •. ~,:,:,::~~ ~ ::'. ~- ··&' e-· .-c··:: .· }e ~ ~ ~ ::~: ,.-

~ • I + •" • •• • • • • I - • _I._, • • $370,000 ------.-- -- -_ --- --.·< ~i~,=~:::.:.:·_:"_:+k,,-::-' ." ------T------f-I I

••• . ----- . - ,W. - -• ------:-. --- T - -- $320,000 ------: .- .-.:.-- •• -··. - •• _. .. -- _- ..-. ~ - --= ---- ~ ------...... ~ -- . -~ ~~; .... 1 .. ~ ~- ..... ~ •••...... -4 . .. -•.• ~····:·~!!~~!~~1··~~¥~·~~~~1!~f $270,000 l 1.200 1,300 1.400 1.500 1,600 1,700 1.600 1,900 :2:,000 2, 100 2.200 2,3{10 :2,40D 2,500 2,600 2,7{10 2,,800 2,00-0 3,000 l, 100 3,200 3,:300 SQUARE FEET ...... ,_Terra Lago 3. 1601-2 ___,.__ Terra Lago 31601 ·3

~ Terra Lago 3-1601-4 ~ Terra Laeo 31601 ·5 ---+--Terra la~o 31601 • - • · -Alicante @ Talavera, a.coo Sgft Lot, !nrtio - - + - -Bella Tierra @ Sha-0ow Hills, 8000 Sqft let, JMia • • ·- • ·The El Doraao Colleciion@ Shadow Hill:s, 6000 Sqff Lot, lfldio • • - • • Florencia @ Talavera. SOOO Sq1' Lot, lndi-o · - + · -Fo;(:S.to11e, 8000 Sqfl Lot, Indic -· * · ·Genova@ Talavera, .S001 Sqft Lot. Indio · - -x- · -Shao o-w Randi @ Shadow Hills. 8000 Sgft Lot .Indio · · -»- - -Sietlna @ Sliad-aw Hills. 6000 Sqfl: Lot, Ilid io · - • • • The De-ser'I Col leciiori @ Slladciw Hill~, 7200 Sqft Lot. I ooio - · -.. • ~ Tlie Ventan.a C-O!Jeciion-@ Shai:JIJW Hills. 6000 Sq:ft Lat. Indio -- + - -Veli€-B1a Al Talavera, 6000 Sgft Lot. !n--d io ·*· ~ Villa Es,ates 11 @ Shadow Hills, 7200 Sqft Loi. Ind~ i i SOL~C:: RE51JE~ T Al nE~C

MARK ET PROF ILES, INC. 27421 h:"1-1,2 ,3.-4,5,5 ,7 ,8.:.:ls EXHIBIT l-7 NEW HOME SALES RATES BY PRICE RANGE COACHELLA VALLEY FIRST QUARTER 2005 Ave. Sales Sales/Week No. of Price Range Per Week;!; Range·!( Projects

Under $300.000 1.11 0.52 - 2.04 8

$300,000-$400,000 2.24 0.54 - 7.87 24

$400!000-$5001000 1.26 0.25 - 3.0 15

$5001000-$600,000 0.07 0.08 - 1.04 4

$6001000-$700,000 1.09 0.5 - 2.0 7

$700,000-$800,000 1.11 0.12-2.87 7

$800 I 000-$900 I 000 0.00 0 0

$900,000-$1,000,000 0.08 0.37 .. 1.25 3

$1 ,000,000 & Over 0.07 0.24 - 1.63 7

"' Excludes projects with sales rates over 10 homes per week.

MARKET PROFILES, INC. 274211 x1~1,2,3,4,5,6,7,8.xls EXHIBIT 1-8 QUARTERLY ABSORPTION SCHEDULE TERRA LAGO COMMUNITY FACILITIES DISTRICT -- PHASE I CITY OF INDIO

1 HB 2.00 38 26 26 31601-2 Cumulative Closed 38 84 90 116 142 168 178 2 126 1.50 24 19 19 19 19 19 7 31601-3 Cumulative Closed 24 43 62 82 101 121 126 3 86 1.00 16 13 13 13 13 13 5 316014 Cumulative Closed 16 29 42 55 68 81 86 4 110 0.75 16 10 10 10 10 10 10 10 10 10 B 31601-5 Cumulative Closed 16 26 36 45 55 65 75 84 94 104 110 5 133 0.75 17 10 10 10 10 10 10 10 10 10 10 9

"' C lose-0 sale transactions. ,.,. Average weekly sales rate over the life of the project.

Source: Market Profifes

MAR KET PROF llES_ I !',IC 274211x1-1,2,3,4,5.6,7.8.xls SECTION II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST Market Profiles, Jnr:

SECTION II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST

INTRODUCTION This section presents a review of the major factors that influence the demand for new homes in the City of Indio in the Coachella Valley area of Riverside County. Factors evaluated in the demand analysis include demographic profiles of the Coachella Valley and of the City of Indio. employment growth, new home sales and inventory trends, and home price trends_ Based on the data analysis, a forecast of housing demand distributed by price range has been formulated for the Coachella Valley.

The Coachella Valley includes all of the cities and communities located between Palm Springs and Desert Hot Springs on the northwest to the cities of La Quinta and Coachella on the southeast. The Coachella Valley is divided into five submarket areas as shown in Exhibit IJ-1. The Indio submarket consists of the cities of Indio and Coachella and the immediately surrounding unincorporated areas.

EMPLOYMENT GROWTH The demand for new homes in the Coachella Valley is influenced by the economic vitality of Riverside County and of all of Southern California_ Tourist expenditures and second home purchases are important elements of the Valley's economy, The strength of locally based! primary home purchases is dependent upon the vitality of the tourism industry, which, in turn, is dependent upon the strength of the national and Southern California economies.

Exhibit 11-2 presents a historic.al summary of employment growth throughout Southern California and in the Riverside/San Bernardino bi-county region. From 1997 through 2000, employment in Southern California increased at a healthy average annual rate of 3.0 percent. During the same period. employment in Riverside and San Bernardino counties increased at a very strong rate of 5.2 percent per year.

The rate of employment growth began to decline through the first three quarters of 2001 due to rising interest rates and a slowing national economy. Following the attack on the World Trade Center in September, job growth came to a virtual ha!t in the fourth quarter of 2001. Total employment in Southern Calffornia increased by 1.2 percent for the year 2001.

The slowdown in growth that began in late-2001 carried over into 2002 and 2003. However, total employment in the Riverside-San Bernardino bi-county region increased at healthy rates of 3.0 percent (31,800 jobs) in 2002, and 3.5 percent (37,700 jobs) in 2003. This is a favorable performance compared to Los Angeles and Orange counties, which both

11-1 Market Profiles. Im;._ experienced modest declines in employment during 2002 and 2003. Job growth in the Riverside-San Bernardino region improved to 4.5 percent in 2004 (50!500 jobs). Favorable rates of job growth are expected ta be maintained through the next couple of years. However, the pace of growth is projected to moderate to about 3.5 percent in 2005 and 2006. The projected expansion of the regional economy over the next few years will support continued healthy demand for new residential units.

Southern California 1s continuously expanding employment base will result in substantial demand for new homes in the Coachella Valley. Locally, the Vallets economy has beneflted from new employment opportunities relating to the approval of Proposition 1 A which authorized the estabHshment of Las Vegas-style casinos with slot machines on Indian lands in California. As a result. several major casino projects have been completed or are in various states of the development process in the Coachella Valley. These projects are projected to add several hundred jobs to the Valley1 s employment base and to attract several thousand more visitors ta the region. This growth will have a stimuJating influence on the demand for new homes in the Coachella VaJley. The first major impacts of the casino expansions were felt in 2001.

Casino and hotel projects recently completed and planned include the following:

Q The Augustine Casino, south of the City of Coachella, opened for business in 2004. The casino employs approximately 300 persons.

D The Morongo Band of Mission Indians recently completed construction of a $250 million casino resort hotel on a site located a few miles west of Palm Springs on the north side of Interstate 1o_ The project is expected to create 4!000 new jobs over the next five years_ When completed it wHI be one of the largest gaming destinations on the West Coast.

D A $90 million. 125,000 square foot casino recently opened in 2004 north of Rancho Mirage.

D The Agua Caliente Band of Cahuilla Indians announced in January plans to expand the Agua Caliente Casfno by additional 65,000 square fee( add a new 14-story hotel with 400-rooms, and add 350,000 square feet of retail space_ These various projects will be on the Agua Caliente Reservation at the corner Bob Hape Drive and Ramon

Road r which is an unlncorporated area of Riverside County.

D In Palm Springs! the Spa Resort Casino opened in 2004. The $95 million gaming facility has 30 tablest 1,000 slot machines, an entertainment lounge, and four restaurants_

11-2 Market Profiles, Inc

D Construction has begun on the first phase of a 300-acre resort and corporate development located in Palm Springs. The Indian Oasis Resort and Corporate Center wilt ultimately include a 10-story hotel! 290 condominium units, an 18-hole golf course, a 100,000 square foot shopping center, and 500,000 square feet of office space.

In 2003. the growth of the Coachella Valley's economy was affected by the slowdown in tourism that began in 2001. Exhibit 11-3 shows that hotel revenues in the Valley declined by 4.8 and 3.2 percent in 2001 and 2002, respectively. This drop in visitor activity had a dampening effect on the demand for new homes in the Valley. Despite the slowdown, sales of new homes increased from 2001 to 2002 (see NEW HOME SALES TRENDS below). Since 2003, however, tourism has started to rebound, with hotel room revenues increas!ng by 2.4 percent in 2003 and 4.3 percent in 2004. Further improvement in hotel revenues is projected for 2005.

The projected improvement in the health of the Southern California economy over the next two years will strengthen the underlying demand for new homes in the Coachella Valley. The volume of visitors to the Valley will recover and grow, while the financial state and the confidence levels of new home buyers will improve.

DEMOGRAPHIC PROFILE Exhibit 11-4 presents population and income profiles of the Coachella Valley, the City of

Indio, and Riverside County_ There are 3651648 persons residing fn the Valley. The population has grown at a strong pace of 4.1 percent per year since 2000. The Valley's population is projected to grow at a rate of 3.8 percent per year over the next five years. Although the percentage rate of growth is declining, the growth rate in absolute terms is projected to remain near recent levels.

The average household size in the Coachella Valley is 2.68 persons. This is a low figure resulting from a large proportion of one and two person households. Nearly two thirds (64%) of the market area's households consist of one or two persons, compared to 54 percent countywide_ The large proportion of small households is partly due to a large retired population. Nineteen percent of the population is over65 years of age. Countywide this age group accounts for 14 percent of the population.

The population of the City of Indio is 61,516 persons. At 3.46 persons, the average household size in the city is much larger than that of the Coachella Valley as a whole. The city has a much larger proportion of family households with children than do the other communities in the Valley_

11-3 Mijrket Profiles, Inc.

The income profile of the Valley's households is very diverse. Households are distributed across a broad range of annual incomes from under $25,000 (21 %) to over $100,000 (20% ). The median income of the Coachella Valley's household's ls $44,240. This is a modest figure that is 8.6 percent below the countywide median figure of $48,384. The median income of households in Indio is $39,477.

HOUSING PROFILE Exhibit 11-5 shows a profile of the existing housfng stock of the Coachella Valley. Single family detached homes account for 46 percent of the Valley's housing stock compared to a countywide proportion of 61 percent. The median housing value in the Coachella Valley is $238,378 {existing homes). This figure is slightly below the figure for Riverside County of $245,354. However! the Valley's housing stock is very diverse. The Valley has a greater than typical proportion of the least expensive homes, as well as! of the most expensive homes. Twenty five percent of the Valley's housing stock is valued below $1501000 compared to 22 percent countywide. However, the Valley also has a higher proportion of homes valued over $400.000 (24% versus 18%. countywide).

Exhibit 11-6 shows the vacancy characteristics of the Coachella Valley housing stock by city. Housing vacancy rates are very high in the City of Palm Desert, as weU as, in the cities of

Indian Wells, La Quinta 1 Palm Springs1 and Rancho Mirage. These high vacancy rates of over 30, 40, and even 50 percent are to due the high incidence of second home ownership in these cities. Assuming an underlying vacancy rate of five ta ten percent, second home ownership in these cities ranges from 20 to 45 percent of the total housing stock.

The proportion of second homes in the City of Indio is relatively low. The proportion of second home ownership in the city is estimated to be about ten percent. However! this proportion is projected to increase over the next five years.

NEW HOME SALES TRENDS Exhibit 11-7 presents a summary of new home sales in the Coachella Valley distributed by submarkel area. The volume of sales in the Valley declined from a peak of 3,356 in 1989 to 953 in 1993 due to the effects of the regional recession that began in mid~1990. Sales activity remained moderate from 1993 through 1997, then accelerated to 21226 homes sold in 1998 and to 3,330 homes in 2000. Sales for 2001 fell to 2151 O homes due to a general slowdown in economic growth fn Southern California. Sales increased to 4,236 homes in 2002. The jump in sales in 2002 was due to several factors as discussed in PROJECTED NEW HOME DEMAND below. Sates activity continued to increase strongly in 2003 and 2004 with 5,768 homes sold in 2003 and 51851 homes sold in 2004.

11-4 Market Profiles, fnc

Sales in the Coachella Valley totaled 1,331 homes in the first quarter of 2005. This is a strong sales figure, however, it is well below the 2,052 sales that were reported in the first quarter of 2004.

The geographic pattern of new home sales in the Coachella Valley has shifted over the past few years. Excluding the Indio-Coachella submarket sales activity among the other submarket areas varied significantly from year to year. The sales fluctuations have been due largely to supply considerations. Sales in the Palm Desert submarket dropped from 11313 homes in 2002 to 383 homes in 2003 due to a decline in home supply. Alternatively, home sales in the Palm Springs-Cathedral City submarket (including Desert Hot Springs) increased from 393 homes in 2002 to 1, 161 homes in 2004 due an increase in supply. The shifting geographic pattern of sales activity is likely to continue in the future. More sales activity is expected to emerge in Palm Desert since the city has recenUy ended its moratorium on development in its northern sector.

In contrast to fluctuating sales activity in the other submarket areas of the Valley, new home sales in the India-Coachella Submarket have consistently increased over the past three years. Sales jumped from 591 homes in 1999 to 1,217 homes in 2002 and 2,890 homes in 2003. New home sales in the Indio-Coachella Submarket continued to accelerate in 2004 with sales totaling 2,596. Moderate home prices have been a major attractor of homebuyers to the submarket (see PRICE TRENDS below).

In the first quarter of 2005, new home sales in the lndio~Coachella Submarket totaled 585 homes. This figure is below the 872 homes that were reported sold in the first quarter of 2004.

PRICE TRENDS Exhibit 11-8 shows the average price of new homes sold each quarter in the five submarket areas of the Coachella Valley. The average price of a detached home sold in the Coachella Valley in the first quarter of 2005 was $4871063_ The average sale price has fluctuated from quarter to quarter due the changing mix of product offerings. Although the prices of individual homes have risen significantly I the average sale price of all homes has risen only moderately over the past four years due to the increase in the sales volume of modestly priced homes located in the Indio-Coachella submarket area.

The average price of a new home sold in the Ind io~Coachella sub market during the first quarter of 2005 was $381,349. This figure is 40 percent higher than the average sale price for the first quarter of 2004 of $272, 163. However, the average sale price has not changed significantly over the past three quarters.

11-5 Marr.et Protnes, Inc.

Exhibit 11-9 shows the quarterly pattern of new home sales in the Coachella Valley market area distributed by price range. Sales are spread across a broad price spectrum ranging from under $200,000 to well over $400 1000. During 2004 and 2005, there is a clear pattern of decreasing sales of lower priced homes as the price structure of new homes in the Valley has shifted upward. In the first quarter of 2004, 50 percent of the new homes sold were priced under $300,000. By the first quarter of 2005, that proportion had dropped to just 6.7 percent.

Exhibit 11-10 shows that the Indio-Coachella submarket area dominated the sales of homes in the Coachella Valley in first quarter 2005 that were priced under $400,000.

PROJECTED NEW HOME DEMAND The primary factors that have contributed to strong new home sales in the Coachelta Valley the local job-creating projects outlined above, and very low mortgage interest rates, Supported by favorable regional and national economic trends. job growth within the Valley is projected to continue at a favorable pace_ And, although mortgage interest rates are expected to rise moderately, a healthy volume of new homes sales is projected to be sustained within the Coachella Valley_

Based an the data analysis, it is projected that the demand for new homes in the Coachella

Valley will average 4,500 homes per year over the next five years. With 5,851 homes sold 1 the 2004 sales volume surpassed the projected annual demand of 4,500 homes. However, it is projected that the pace of sales will moderate in 2005 and 2006.

The demographic factors that underlie the housing demand forecast are summarized in Exhibit 11-11. The majority of the demand will be fueled by the primary buyer segment (i.e., owner occupants as opposed to second home owners), including reUred households. Second home buyers, including pre-retirement buyers, are projected to account for just over one quarter of the demand. The great majority of the buyers that are active in the community of Indio consist of primary home buyers consisting primary of first time buyers and local move-up households.

The Coachella Valley new home market is diverse_ Exhibit 11-12 shows the projected average annual demand for new homes distributed by price range. Market demand is spread across a wide range of prices from under $300 1 000 to over $1 1 000 1000. The majority of the demand for new homes in the Indio-Coachella submarket emanates from primary resrdent households_ Primary homebuyers are responsible for the high volume of demand below the $400,000 price level as shown in Exhibit I t-12.

11-6 EXHIBIT 11-1 COACHELLA VALLEY SUBMARKET AREAS

--~--J::):_,_ ... :· c.:,.__ .. _._ ~----=-=----;J"~_: .r- ...--.--.- .- .- -..,,_-_ ~~~< -~-

,::Josnua)ttee)Nationel_ Pvt(·---- "'•.-~r .. ------.-- -- __ '·-<~~~~t~;_j~~,;~:~ii:[~~f ~,,,, -- - _sen o--~--~.. ~~~l,..~A ---- -....__ .Jacinto ""-:--~

'Mderness ~------;,..-:-_ -~------~-~~------Mount San - -- Jacinto . State Park-- \: _ ----~... Indio -­ T~ Coachella ~-. .r. .tf$4 .-::F9L 1l~~~ -·· ·=-- .c - ~ -·~ :.._,_:, ..--~._.~ -~--- . . ... Sin ~rdino National forest lf -,- --~~=·=~-="'--~L--- -~~ ~ 14_: i14·_.::.--='"~--, ,-, "'.-T..-.;, '-::" ~- .. '\; . ·'-'"-· Thomas "\ ;} Ji --~-,;\c-µ- ~,,­ ,,,i;i

MARKET PROFILES, INC. 27421 h:2-1,2.3,4,5,6,7.xls EXHIBIT 11-2 EMPLOYMENT GROWTH RIVERSIDE-SAN BERNARDINO Bl·COUNTY REGION AND SOUTHERN CALIFORNIA 1980 • 2006

Riverside & San Bernardino Counties Southern Callfornla Total Increase/ Percent Total Increase/ Percent Year Employment Decrease Change Employment Decrease Change 2006 1,252,700 ... 3.5% 8,464,400 '= ... 2.0% 2005 1,210,700 1 .... 3.4% 8,296,400 .. 1. 70/.:, PROJECTED 2004 1,170,700 50,500 4.5% 8, 161,300 122,000 1.5% 2003 1, 120,200 37,700 3.5% 8,039,300 (11,200) -0.1% 2002 1,082,500 31,800 3.0% 8,050,500 (12,700) ~0.2% 2001 1,050,700 40,600 4.0% 810631200 96,600 1.2% 2000 1,010, 1 OD 49,800 5.2% 719661600 216,300 2.8% 1999 960,300 56,500 6.3% 7,750,300 221,000 2.9% 1998 903,800 40,700 4.7% 7,529,300 245,700 3.4% 1997 863, 100 38,300 4.6% 7.283,600 216,800 3.1'% 1996 824,800 231100 2.9°/o 7,066,800 126,000 1.8% 1995 8011700 28,900 3.7% 6,940,800 1241700 1.8% 1994 772,800 16.900 2,2% 6,8161100 35,700 0.5% 1993 755,900 4AOO 0.6% 6i7BOAOO (102,900) -1.5% 1992 751.500 10,000 1.3% 61883,300 (2051000) -2.9% 1991 741,500 6,300 0.9% 7;088,300 (180,600) -2.5% 1990 735,200 46,000 6.7% 7,268!900 103, 100 1.4% 1989 689,200 411500 6.4% 7, 165,800 190,400 2.7% 1988 6471700 36,800 6.0% 6.975,400 241,300 3.6% 1987 610,900 36,500 6.4% 6,734,100 240,900 3.7% 1986 574,400 37,700 7.0% 6,4931200 226, 100 3.6% 1985 536,700 41,000 8.3% 6,267,100 237!800 3.9% 1984 495,700 301000 6.4% 6,029,300 266,800 4.6% 1983 465,700 13,100 2.9% 5}62,500 53,900 0.9% 1982 452,600 (6,300) -1.40/~ 51708,600 (135,800) -2.3% 1981 4581900 6,900 1.5% 5l844AOO 89,300 1.6% 1980 452,000 N.A. N.A. 5l755, 100 N.A. N.A.

Source: California Employment Department, Market Profiles

MARKET PROFILES, INC. 274211 x2-1,2,3,4,5,6,7.xls EXHtBIT 11-3 HOTEL ROOM SALES COACHELLA VALLEY 1988 - 2004

Room Revenue Percent Revenue Percent Year ($ Millions) Change Per Room Change 2004 $362 4.2% $23,352 4.1% 2003 $347 2.4% $22A4D -0.4% 2002 $339 -3.2% $22,521 A.3% 2001 $350 -4.8% $23,528 -6.4% 2000 $368 6.1% $25,126 4.9% 1999 $347 11.6% $23,954 8.9% 1998 $311 8.4% $21,988 7.1% 1997 $287 8.3%) $201523 17.0% 1996 $265 8.6%1 $171545 8.3% 1995 $244 5.2% $161200 6.6% 1994 $232 5.5% $151200 4.5% 1993 $220 -2.2%i $14,539 1.6% 1992 $225 0.4% $141306 -2.1% 1991 $224 -0.9% $14,617 -5.1% 1990 $226 8.1% $15,400 7.1% 1989 $209 13.0% $14,384 N.A. 1988 $185 N.A. N.A. N.A.

Source: Wheeler's Desert Letter, Market Profiles

MARKET PROFILES. INC_ 274211x2-1,2,3,4,5,6,7.xfs EXHIBIT 11-4 DEMOGRAPHIC PROFILE COACHELLA VALLEY AND RIVERSIDE COUNTY

CITY OF COACHELLA RIVERSIDE DESCRIPTION lNDIO VALLEY COUNTY

POPULATION 2010 Projection N.A. 435,809 2,155,693 2005 Estimate 61,516 365,648 1,843A93 2000 Census 49, 116 303,579 1,545,387 1990 Census 37,554 222,945 11170A13 Growth 2005-2010 N.A. 19.19% 16.94% Growth 2000-2005 25 25% 20.45% 19.29% Growth 1990-2000 30 79% 36.17% 32.04%

HOUSEHOLDS 201 O Projection NA 160,815 694,251 2005 Estimate 17,532 135.402 597,519 2000 Census 13,871 113,516 506,218 1990 Census 11,003 85,166 402,067 Growth 2005-201 O N.A. 18.77% 16.19% Growth 2000-2005 26_39% 19.28% 18.04% Growth 1990-2000 26.07Q/o 33.26°/o 25.90%

2005 ESTIMATED POPULATION BY RACE 61,516 365,648 1,843,493 WHITE 47.71% 67 85% 62.92% BLACK 2.30% 2_03% 6.19% ASIAN & PACIFIC ISLANDER 1.83% 2.47% 4.32% OTHER RACES 44.21% 23.31 1'/o 20.69% TWO OR MORE 3.96% 3.51% 4.73% 2005 ESTIMATED POPULATION HISPANIC ORIGIN 78.15% 51_79% 40.14%

2005 OCCU Pl ED UNITS 132,010 597,519 OWNER OCCUPIED 67.58% 69.39% RENTER OCCUPIED 32.42% 30.61% AVERAGE PERSON PER HH 3.46 2.68 3_03 2005 EST. HOUSEHOLDS BY INCOME 17,532 132.010 597,519 UNDER $15,000 15.31 % 9.20% 12.86% $15,000 TO $24,999 15.21% 11.83% 11.75% $25,000 TO $34,999 13.63% 12.36% 11.38% $35,000 TO $49,999 19.61% 16.86% 15.69%

$50,000 TO $74 1999 17.69% 19.10% 19.36% $75,000 TO $99,999 8.37% 11.06% 12_16°/o $100,000 TO $149,999 7.08% 10.58% 11.33% $150,000 TO $249,999 2.02Q/o 5.76% 3.97%, $250,000 TO $499,999 0.75% 2.14°/o 1_08% $500,000 AND OVER 0.33% 1.12% 0.41 %· 2005 EST. AVERAGE HOUSEHOLD INCOME $51 ,732 $65,569 $63,592 2005 EST. MEDIAN HOUSEHOLD INCOME $39,477 $44,240 $48,384 2005 EST. PER CAPITA INCOME $14,979 $24A81 $20,892 Source: Clarira.s, Market Profiles

MARKET PROFILES, INC 27421 h:2-1,2,3,4,5,6,7.xls EXHIBIT 11-5 HOUSING PROFILE COACHELLA VALLEY AND RIVERSIDE COUNTY 2005

COACHELLA RIVERSIDE DESCRIPTION VALLEY COUNTY YEAR ROUND UNITS IN STRUCTURE 189,200 689,903 SINGLE FAMILY DETACHED 45.85% 61.26% SINGLE FAMILY ATTACHED 16.17% 7.12% DOUBLE UNITS 2.18% 1.38% 3 TO 19 UNITS 12.20% 9.29% 20 TO 49 UNITS 2.05°/e1 1.93% 50+ UNITS 5.37°/o 4.56% MOBILE HOME OR TRAILER 14.07% 13.30% ALL OTHER 2.11% 1.15% OWNER OCCUPIED PROPERTY VALUES 91 ,511 414,642 UNDER $80,000 10.34%~ 8.51% $80.000 TO $991999 2.74% 2.36%} $100,000 TO $149,999 11.60% 10.77% $150,000 TO $199,999 16.36% 15.62% $200,000 TO $299,999 23.37% 28.27% $300,000 TO $399,999 12.05% 16.72% $400,000 TO $499,999 7.08% 8.19% $500,000 TO $749,999 8.72% 6.27% $750,000 TO $999,999 3.66% 1.66% $1,000!000+ 4.08% 1.71% MEDIAN PROPERTY VALUE $238,378 $245,354 HOUSING UNITS BY YEAR BUILT 189,200 689,903 BUILT 1999 TO PRESENT 19.44% 18.94% BUILT 1995 TO 1998 7.26°/o 6.84% BUILT 1990 TO 1994 10.13% 11.02% BUILT 1980 TO 1989 25.93% 25.23% BUilT 1970 TO 1979 19.34% 17.00% BUILT 1960 TO 1969 10.00% 9.84% BUILT 1950 TO 1959 5.61% 6.69% BUILT 1940 TO 1949 1.39% 2.22% BUILT 1939 OR EARLIER 0.901'.1/o 2.21% Srn.Jr"Ce; Clar,tas. Market Profiles

MARKET PROFILES. INC. 27421 i :<2-1 ,2,3,4,5,6,7.:

Source: 2000 U.S. Census, Market Pmfiles

MARKET PROFILES, INC. 274211 x2-1.2,3,4.5,6,7 xis EXHJBIT 11-7 NEW HOME SA LES BY SU BMARKET A REA COACHELLA VALLEY 1992 THROUGH FIRST QUARTER 2006

Rancho Mirage 12 23 35 7 15 22 25 27 52 j 11 6 17 7 66 73 3 144 141 0 218 Palm Desert 65 85 150 145 110 255 130 122 25-2 44 223 257 144 426 570 117 646 763 10 1.159 1,169 La Quinta 123 208 331 n 417 494 142 550 692 56 449 505 25 358 363 13 337 350 11 520 531 lndi o-Coachella D 270 270 0 319 318 36 231 267 7 232 239 7 142 149 34 16S 199 24 185 209 Totals 213 740 953 233, 1.123 1,356 365 f 1-.085 1,450 134 1,043 1,177 222 1,065 1,287 206 1,345 1,551 -91 2, 135 2.~26

Ranctio M,rage 0 297 297 0 256 256 0 282 282 0 530 530 0 555 65-5 0- 375 375 0 22 22 Palm Desert 0 917 917 0 93~ 931 0 708 70B 0 1,313 1,313 0 36:3 38,3 37 176 213 40 26 66 La Quinta 46 1,004 1,050 59 1.224 1,283 0 616 616 16 767 783 17 990 ,.007 92 1.414 1,506 227 195 422 lndi o-Coachella 45 196 241 5 459 464 10 581 591 33 1 r1134 ,.211 32 2~8:Sa 2,890 a 2~596 2,596 0 ses 595- Totals. 143 2,707 2,850 81 3.249 3,3,30 20 2,490 2,510 n 4,163 4,236 97 5,671 5,768 212 5J5,3,9 5,851 J67 964 1,33,1 ~ 5FA = A.'ltaGhed Product: SFD =- Detaehed P roct1..1ct

S,::i,1,,1ri;e: Res:kl:ential Trends. Ma,t,:i::=-1 Prcfile5

MARKET P ROFiLES, It-JC. 274.211 x.2-1-~ ,3 ,'I, .5. B,7.xis EXHIBIT 11-8 AVERAGE NEW HOME PRICE DETACHED PRODUCT COACHELLA VALLEY BY SUBMARKET AREA 1998 THROUGH THrRD QUARTER 200.4 Coachella I-i!4W!fM I~ L&. Rancho Indian Wells! lndioi [-J!MiBi Valley Cathedral City Mirage Palm Desert La Quinta Coachetia -oo $487,063 $462,322 $736,646 $521,254 $792,518 $381,349 DQ.a.....ll $499.631 $360,870 $717,860 $508,513 $729,686 $388,340 $457.466 $299,834 $658,127 $485,217 $724,240 $359,647 $510,106 $304,485 $590,519 $535,581 $749,098 $411,898 -1 $361,324 $279.160 $496,667 $611.757 $567.776 $272.163 2003-4 $346,358 $3051670 $468.964 $375.655 $676.643 $243.005 -3 $313,006 $217A90 $448.814 $332,545 $5051884 $204.431 -2 $296,622 $256.104 $425,579 $337A18 $4291891 $218.396 -1 $340,765 $336,465 $447,426 $287.891 $567,382 $214.492 2002-4 $300.454 $238,373 $441,490 $276.209 $489, 195 $229,710 -3 $2811557 $223,604 $454.508 $248.836 $477,517 $184,271 -2 $340.713 $2251636 $440.543 $292,771 $456,337 $204A72 -1 $312,116 $214,903 $441,411 $277,911 $420,302 $196,025 2001-4 $329.280 $201,729 $445,032 $268,632 $503,068 $189,480 -3 $255,805 $186, 125 $452,987 $247,040 $363,954 $185,520 -2 $296.827 $189,472 $442,205 $256,930 $396,384 $202,200 -1 $324,701 $217,298 $437.138 $249,576 $426,394 $188,030 2000-4 $324.022 $194,660 $414.786 $286, 109 $399,754 $181, 196 -3 $287,569 $214t066 $412.485 $339.922 $317,687 $174,732 -2 $284,240 $231 ,023 $394,995 $270.721 $320,949 $159,021 -1 $333,048 $204,602 $405.141 $318,494 $430i968 $169,353 1999-4 $306,379 $168,613 $412,549 $330,832 $372, 182 $162,632 -3 $277,309 $169,002 $358,096 $294,271 $310,590 $159,317 -2 $356.066 $163,783 $350,545 $290,086 $473,375 $164,763 -1 $311,993 $156,986 $382,024 $338.503 $322,317 $159,636 1998-4 $261.202 $142,881 $359,811 $270.587 $271,954 $153,273 -3 $244.795 $131,435 $398r290 $247,275 $254,547 $144,043 -2 $2411970 $132,544 $329,771 $2381423 $253.779 $142,302 ~1 $254.635 $122,826 $3Q?r834 $242.658 .$298,036 $144,500

Source: Residential Trends. Market Profiles

MARKET PROFILES, INC. 274211X2-8,9.10, 11.12.);:IS EXHIB1T 11 .. 9 NEW HOME SALES BY PRICE RANGE DETACHED PRODUCT COACHELLA VALLEY 2003 THROUGH FIRST QUARTER 2005

Under $150,000 71 112 87 74 2 4 0 0 2 $150-1751000 66 157 108 177 126 25 5 0 0 $175-2001 000 73 152 94 178 215 54 10 0 0

$2 00-2 50 I 00 0 151 324 176 621 295 126 81 12 -1

$2 50-3 00 I 000 115 269 159 350 381 161 159 128 64 $3 00-4001000 176 308 100 288 499 249 412 174 451 $400,000 & U 245 280 209 551 513 1142 530 336 448 Totals 897 1,602 933 2,239 2,031 1,761 1,197 650 I 964 * Q =Quarter

Source: Resjdential Trends, Market Profiles

MARKET PROFILES, INC. 274211x2-8.9, 10, 11, 12.xls EXHIBIT 11·10 NEW HOME SALES DISTRIBUTED BY PRICE RANGE INDIO·COACHELLA SUBMARKET AREA AND THE COACHELLA VALLEY FIRST QUARTER 2005

Number of Homes* Sold Indio­ Coachella Price Range Coachella Valley Under $200,000 2 2 $200T$250,000 0 (1) $250-$3001000 57 64 $300-$350,000 242 264 $350-$400,000 157 187 $400 000 & U 127 448 Totals 585 964 "' Detached homes.

Source: Residential Trends, Market Profiles

MARKET PROFILES, INC, 274211x2~8,9, 10, 11, 12.xts EXHIBtT 11-11 HOUSING GROWTH SUMMARY RIVERSIDE COUNTY AND THE COACHELLA VALLEY MARKET AREA 1980 .. 2009

Rive rs ide.. s an

1990 7351200 N.A. 402,067 N.A. I 85r 186 N.A. N.A. I N.A. I N.A. to 2000 1,010! 100 27A90 506.218 10,415 113,516 2,833 I 1r841 I 992 I 552 to 2005 1 t210,700 401120 597.519 18,260 135,402 4r377 j 2,845 I 1.532 I 854 to 2010 1 A25,700 43.000 694,251 19,346 160,815 5,083 I 3,300 I 1.783 l 1,200

* Riverside/San Bernardino bi-county region_

Source: Calif. Employment Development Dept.1 Clairtas. Mafket Profiles

MARKET PROFILES, INC. 2742111'2-8,9, 10, 11.12.xls EXHIBIT 11-12 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006

PRICE RANGF AVERAGE ANNUAL SALES 0/u OF TOTAL

Under $300,000 500 11.1% $300,000~$350,000 750 16.7% $3501000-$400,000 900 20.0% $400,000-$450,000 650 14.4% $450,000-$500,000 450 10.0% $500,000-$750,000 550 12.2°/o $750,000-$1,000,000 450 10.0% $1 .000, 000 and Over 250 5.6%

TOTAL 4,500 100.0%1

PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006

1000 - . ------.. · 1

900

601J

700

eoo

500

400

300 l!!IAVERAGE ANNUAL 200 SALES

;'l: ll 100 ::-r(::::- ···-Jl. 0 --t-- --··I . Under $300,000- $350,0ouT $400,000- $450,000- $500,QO{lr $750,ijQQ- $1,000,000 $300,000 $350,000 $400,000 $450,000 $500,000 $750,000 $1,000,000 and Over

.. Prices stated in today's dollars excluding future inflation or appreciation. So urea: Market Profiles

MARKET PROFILES. INC. 274211x2-8,9, 10, 11, 12 :.::ls SECTION Ill SUMMARY OF COMPETITION Market Profi!Bs, Inc

SECTION Ill SUMMARY OF COMPETITION

INTRODUCTION This section presents a review of the existing new home competition throughout the Coachella Valley and within the community of Indio. For analysis purposes, the Coachella Valley is divided into five submarket areas. The boundaries of the submarkets are shown in Exhibit 11-1 (report Section II). The Indio-Coachella submarke1 area is composed of the cities of Indio and Coachella and the immediately surrounding unincorporated areas.

The data that is presented in this section is based on a quarterly audit of all new home projects that are active in the CaacheHa Valley. The home prices and sales data that are presented in this market report represent the market circumstances as of the end of the first quarter 2005 audit period which ended in mid-ApriL The sale prices of the new homes that are being marketed in the Shadow Hills area have been updated as of early­ July.

NEW HOME COMPETITION During the first quarter of 2005, there were 78 subdivisions marketing new detached homes in the Coachella Valley. Exhibit !11-1 presents a tabular summary of the 78 projects. The projects account for a total of 15,042 homest of which 8,213 homes have been offered for sale and all but 559 of the homes offered have been sold. This is a low unsold inventory level as discussed below (see INVENTORY TRENDS).

The Coachella Valley new home market is very diverse. Exhibit 111-2 shows a summary of new home activity within each of the Valley's five submarket areas {detached product). The Indio-Coachella and the Indian Wells-La Quinta submarkets had the largest number of active new home subdivisions durrng the first quarter period with 26 and 24 projects, respectively. The Indio-Coachella submarket generated the highest sales volume during the quarter with 585 homes sold. The sales of new homes in the submarket were aided by the moderate prices of the homes. The average sales price was $381 ,349 compared to $792.518 in the nearby La Quinta-Indian Wells submarket.

Exhibit 111-3 presents a summary of the 26 projects that were active in the Indio­ Coachella submarket during the first quarter of 2005. Detailed profiles of each of the projects are included in Section IV of his report. The 26 projects account for 7,330 homes, of which 3, 722 have been offered for sale and only 155 of those remain unsold. Seventeen of the new home projects are located in Indio and nine are located in Coachella. With 3,200 homes, the retfrement community of Sun City in Indio (Shadow

111-1 Market Profiles, Inc.

Hills) accounts for nearly half of the homes. An additional three of the projects! accounting for 344 homes, are located within the Indian Palms Country Club, also in Indio. Descriptions of the most competitive new home projects are presented below (see MOST COMPETITIVE NEW HOME PROJECTS).

INVENTORY TRENDS The total of 559 new detached homes that remain unsold (including homes under construction, completed, and pre~selling) throughout the CoacheBa Valley is a favorable unsold inventory figure. As a rule, a balance between the unsold inventory at the end of a quarter and the number of homes sold during the quarter is indicative of a healthy market condition (i.e.! 1 :1 unsold to sold ratio). Thus, compared to the sales volume of 964 homes sold durtng the first quarter period, the unsold inventory of 559 homes at the end of the first quarter of 2005 is indicative of a favorable market condition (0.58:1 unsold to sold ratio).

Exhibit 111-2 shows that inventory conditions in the Indio-Coachella submarket are more restricted than elsewhere in the Coachella Valley. At the end of the first quarter of 2005, the unsold Inventory in the lndio-Coachefia submarket totaled 155 homes compared to first quarter sales of 585 homes (0.26: 1 unsold to sold ratio).

SALES RATES Exhibit 111-1 shows the weekly sales rate for each of the new home projects in the Coachella Valley. The sales rates are shown as 11 Cumulative" and 'fCurrent Quarter1 rates. The Cumulative sales rate describes the rate of sales generated since the date of opening of each project, and the Current Quarter sales rate describes the rate of sale during the first quarter period. Cumulative sales rates range widely from 0.08 to 7 .9 homes per week. The average cumulative sales rate is 1. 73 homes per week per project.

The new home projects that are most similar to the subject development are those that are located in the Shadow Hills community of north Indio. During the first quarter of 2005, there were 12 new home subdivisions active in the Shadow Hills community. These projects are summarized in Exhibit 111-4. The cumulative sales rates among those seven subdivisions range from 0.31 to 7.87 homes per week. The average sales rate is 2. 79 homes per week and the median rate is 1.64 homes per week.

MOST COMPETITIVE NEW HOME PROJECTS The new home subdivisions that are most relevant to the subject properties are those that are located within the Shadow Hills community located north of the 1-10 Freeway (see Exhibit 111-4). The 12 projects are described below and their locations are shown in Exhibit 111-5.

111-2 Market Profiles. Inc.

The fastest selling subdivision in Shadow Hills is Bella Tierra (map #1 ). The first 40 of these 3- and 5-bedroom homes have been sold at a rate of 8.12 homes per week. The base prices range from $3791990 to $419;990 for plans that range in size from 1,895 to 21629 square feet ($159. 75 to $200.52 per sq. ft.). The homes are sited on 8,000 square foot lots (minimum).

Another fast selling subdivision is Foxstone by KB Home {map #8}. All 63 homes that were released during the first quarter were sold equating to a sales rate of 4.88 homes per week. The project has another 182 homes remaining to be sold in subsequent phases. The base prices of these homes range from $307,990 to $368,990 for 2- and 3-bedroom plans that range in size from 1,517 to 2,526 square feet ($146,07 to $203.02 per sq. ft.). The residents pay a homeowners fee of $100 per month, plus CFO taxes. The neighborhood is gated and the minimum lot size is 8,000.

The 132~1ot Sienna subdivision recently opened in Shadow HiHs (map #7). The base prfces of the homes range from $394,990 to $44 7 ,990 for 3- and 4-bedroom plans that range in size from 2,448 to 3, 143 square feet ($142.54 to $161.35 per sq. ft.).

The 263-lot Shadow Ranch subdivision by Family Development (map #3) sold out as first phase of 30 homes at a rate of 3.0 homes per week. These homes range in price from $394,990 to $4891990 for 3-, 4-, and 5-bedroom plans that range in size from 3, 185 to 3124 7 square feet ($150.90 to $180.77 per sq. ft.). The residents pay a homeowners fee of $95 per month for green belt maintenance. The minimum lot size is 8,500 square feet.

The Desert Collection is a gated subdivision of 142 homes (map #2). The base prices of these 3-bedroam homes range from $364,990 to $414,990 for plans that range in size from 1,610 to 21266 square feet ($183.13 to $226.70 per sq. ft.). The residents pay a homeowners fee of $75 per month. The first 73 homes were sold at a rate of 3.31 homes per week. The minimum lot size is 7 ,200 square feet.

There are two subdivisions still active within one private, gated neighborhood developed by Century Vintage Homes_ The three subdivisions are The Ventana Collection 1 The El Dorado Collection, and Villa Estates II (map #'s 4, 5, & 6). The homeowners will pay dues of $50 per month for maintenance of the private streets! plus an assessment district fee. The Ventana Colrection consists of 2- and 3-bedroom homes that range in size from 1,208 to 11843 square feet with base prices ranging from $2991 990 to $339,990 ($184.47 to $248.33 per sq. ft.). Of the 198 homes in this tract, 87 have been sold at a rate of 0.81 homes per week.

The base prices of the homes in The El Dorado Collection range from $339,990 to

111-3 M~rket Profiles. Inc_

$424, 990 for 2- and 3-bedroom plans that range in size from 1, 720 to 2, 778 square feet ($152.98 to $197.66 per sq. ft.). Of the 198 homes in this tract 176 have been sold at a rate of 1 _64 homes per week.

The Villa Estates II homes have base prices ranging from $294,990 to $394, 990. These 3- and 4-bedroom homes range in size from 1,302 to 2, 735 square feet {$144.42 to $226.56 per sq. ft.). Of the 137 homes in this subdivision, 123 have been sold at a rate of 1.53 homes per week.

The new community of Talavera in northeastern most Indio recently opened with four new home subdivisions offering homes for sale (map #'s 9 through 12), The homes range in price from $299,999 to $416,990, The minimum lot size for all of the homes in Talavera is 8,000 square feet.

The Venecia homes are the smallest being offered in Talavera. They consist of 3- and 4-bedroom plans that range in size from 1 ,576 to 1,94 7 square feet with base prices ranging from $299,999 to $333,990 ($171 _54 to $190.35 per sq. ft.}. Twenty-five of the 45 homes in the first phase release were sold at a rate of 1. 76 homes per week.

The homes in the Florencla subdivision in Talavera range in size from 1,855 to 2!380 with base prices ranging from $3301000 to $370,000 {$155.46 to $179.45 per sq. ft.). Of the 44 homes in the first phase, 26 were sold at a rate of 5.93 homes per week.

Also in Talavera, the Alicante homes consist of 3-, 4-, and 5-bedroom plans that range in size from $389,540 to $404,990 (130.68 to $156.25 per sq_ ft). Two thirds of the 33 homes released in the first phase have been sold at a rate of 3.61 homes per week.

The largest homes being offered in Talavera are those in the Genova subdivision. The base prices of these homes range from $396,990 to $416,990 for 2-1 3- and 5-bedroom plans that range in size from 2,848 to 3,280 square feet {$127.64 to $139-39 per sq. ft.). Eighteen homes have been sold at a rate of 1 .9 homes per week_

PROPOSED NEW HOME DEVELOPMENT There are approximately 71500 new homes within more than 40 subdivisions that are proposed for future development in the City of Indio. These projects are summarized in Exhibit 111-6. With this scale of proposed activity, it is projected that the Indio market area will experience a competitive environment for the next several years. However, the market is currently undersupplied and the homes that are planned for development will be constructed in a phased manner over the next several years. It is projected that competitive conditlons will be more lntense than those currently being experienced in the Indio marketplace, however, generally heafthy demand-supply conditions are projected to be maintained.

111-4 Market Pron/es, Inc.

The majority of the new homes that will be constructed in Indio over the next few years will be located fn and around the Shadow Hills community located north of Interstate 10 Freeway_ In addition to the 1,400-plus homes that will be developed within the subject Terra Lago community, there are more than 2,700 homes that are planned for construction elsewhere in the Shadow Hills community. The majority of these homes will be constructed over the next three to four years. A summary of the 21723 homes that will be part of the City of lndlo Assessment District 2004-VSD is presented in Text Table 111-1 on the following page_ All of these homes will be located in the Shadow Hills community to the west of the Terra Lago community. The prices of the homes will generally range between $350,000 and $500,00Q_ The two subdivisions by Family Development are under construction and are actively selling homes (see Exhibit 111-4 ).

Also located north of the 1-10 Freeway is the site of the Andreas Ranch that will include

937 homes within a private I gated community. This property is racated north of Avenue 38 at Jefferson Street.

111-5 Market Proflles, Inc

TEXT TABLE IIJ..1 SUMMARY OF PROPOSED HOMES ASSESSMENT DISTRICT 2004-VSD Project Name·~'/ Number Size Range"' Tract# Builder·" of Lots (Sq. Ft.) Affresco Rilington 275 1.900-3, 100 32401 Communities Vista Laguna D.R. Horton 363 2,200-3,600 32402 --- Paradiso Ponderosa 185 2, 700-3, 500 31815 Lennar 225 21000-2,600 - -·· Desert Trace Ashbrook Com's 111 2, 176-2,902 30643 KB Home 247 11512-2,513 Ry! and Hom es 132 --- ?~~~S,-3, 130 Sandhurst J.D. Desert Dev. 30778 59 1,870-21586 32304 123 -- r1-----' Shadow Ranch Femily Dev. 263 2,700-3,800 32149 ... Haciendas Beazer Home~ 31686 147 2.000-3,000 31974 102 31975 137 -·'!"I lo ,,i Bella Tierra Family Dev. 56 1,900-2,600

30605 - Vineyards Alpine Group 298 1,500-2,600 31562 Total Lots: 2,723 * Preliminary data_

Source' Market Profiles

111-6 EXHIBIT 111-1 SUMMA.RY OF NEW tlOME IJEVELO"MENTS DETACHED ?RODUCT COACHe:LI..A IJAllE'I' FIRST QUARTER 2005

Al:iCJBE-COLL.ECTION@ SA"'1"0 TOMAS ::,42 ~.04 :9500.0~ ::'.300 -125:1: 1[I 1-Dec-ro 9200 136 73 6 7 56 R,l,l'CHO l,'IIR.1,GE ,!,:SHBROOK CCMM:JNITIES :;7;:.:i,0-~o ~ 365 :!;3(118e., SAlCHO MIRAGE

, D,STINGUIS--IEO HOMES $t:i42.~C--,- t235------$21!;7135 MIS!>l~N SHURl:-5 BELLA CAl'ffO 1.00 1fl6 $2~7.~~ ·,3:;i9 :;11;,2 45 5-Ji,I-O~ 6,1;,00 175 172 16 ~ 0 COAC>iEU.Jo. .:;:, LINGTO ~ COMMUt. TIES $327.5'9'o ~.016' 1178.26 STANC-ALOt-iE S.laLL...AGIO COLLECTIOr.l ~ TIJSCANA 0.$0 0.5:;; s.. :J~.ooc, 3,67& i:J.50.2:J 1-S~-O~ 12,000 221 -47 9 0 17-= lt..l[]AN V..LLS SL.'t.i~ISE COIIPANY s~.4B:2,ooo ..:1,114 ur.:·w rusr...-At,,:.t.. oc SRENt.lA @ CA.PR-I O&l D ?9 $515•JOO :.",Y.12 s rn2 16 16--MB'/--00 1Cl,OOD 124 i!? 9 1D 35 P}iLi.il OESERT 5TON:::BRIDGE c:£1/;;:LCP~ENT S~O(IOO J,D; $2~8.47 C/,PRI CASA 131;L.LA ~ lt,IDl~JII PALMS COLl~Tln' CL!IJl3 0 30 o_:::5 ::0330.'3!:IJ 1,704 $2'~9.41 2[;..Jl.¥1--!:L <:.,WJ •2· 1C' 4 3 ,as IN::IO FIRST Po!..CIFIC.i. OE\IELOPMENT cc;;:p S439. :IOO 2,1Q'. $229.45 I i\lDIAI',, Pll,L;l.15 COIJNTRY CLLJB CClff.11.L COLL.l:CTI0'4@ TRJLOC.¥ lH17 ~-9~ 5352.900 1.355 $2-56.~3 2..::-At.g-02 4.:oo 40.J 256 , 9 125 LAQUl'HI'. SHEA HOMES $«1.900 1,7'12 $260.50 TRILOOY CORTCNA. C:OLL.ECTION@ TUSCANA Q.46 ~.45 l2,019,00J .::0,916 $4(]5 11 1...Sep-m 13,00:: 122 3~ 7 0 BJ lt..01,1,,t.1 'M:LLS SUNRISE CO ... PAt.ff s:2,:::,;:i1.00J 5,438 U1Dil9 1U8CA1',L,', C:OUNTR'~ CLUB l!IESERTVIEW ESTATES II @:MDUNTJllNl.i'IM J_33 ,_s::: $.JIN,900 1.$5 H32

w.>;<:~ c:IRQDLE!S. I~ P.. .GE I OF,! 21-421 '.::3·1.2,:;.~.~.6.ld< EXI-IIEIITlll-1 S.Uoi'IIAAR'f OF NEW liOl.fE DEVELOPMENTS DETACI-IEI) iP'ROMJCT COACHELLA \l,._LLH Fl F::ST QUAFtTEFt 2005-

FOU~ SEASONS - PALM COLLECTION 1.1"'1 117 S361.900 ~.900 $11'17 !12 10.[)ec.i:)2, :5.ooe 200 iJ7 16 ~ 113 PAL~ SPRlt,K,S K. HOVMI\ ANIF:)RECJo.ST HO~ES S4U-;!QJ ?,W'.f l199-9(l F:JL!R .SEA....'-01\1.S FOXSTONE 7.B-7 -;>-97 S307.900 1,517 314607 1.2 Feb-05 8,00J 245 Ei:!- 53 -'.] 18:2 NOIC KB HOME S::16!:l.900 2,t,21;, S:203']2 SHI-.OOW HILLS HERMOSA .:.4J 4.as S297.9:i0 1,5':l!:I $177,92 20-NCir04 6.WJ 1:m g7 71 (] ~j CO~HEL!_il. RIL-1.ND f-DM :=S !.34'1,900 1,9'K S~92.:l7 SlA.1.10-ALONE lJI. COLONidi 3.-~2 2:SB !.331mo 1,91t $"71.:54 24-lhll'--04 6, 10 273 11!.'I !ii'.. (J 1!;-11 CO~HELLA RW OEVELOPP/El",IT ~1)3.990 2,39:J $17:3.81 SlA}lD-ALONE LA. MOP.ADA 15 00 15.CIO 1-342,990 :::.2:5~ S-1J.5.95 g-,,.pr--05 IHIOO 171 15 15 a 1E6 CO.,,CHELLA LE~NA,I'! HOi.,ES S31!ti,99D ~.BJ'3 !-1518~ S"!:.Nll-ALONI:: :LA PALOMA -0.37 ~-:J,.4 S3:s.siso 1 743 S147.97 1.5-IA::ff-04 f-,000 249 11 ~ -e :S 134 C:J.,!,CH:UA ;.;;. HC\.'t-ll>.NL.!,N.IFORECAS~ HQM;s $350.990 :..'-:rr:2 1177.::.-1 LA PALOMA ES-TA TES ~-ti~ .:.ro Jl2B. ..OC 1.&46 $137.60 15-.Jal"l-05 6,0XI 16~ &I ~ 1iJ t25 00. .!iCI-ELLA K. HOVt..'At..•:AN!FORf:'.CA5T tt:JME3 1395.900 :!..a77 S17S.16 STAND.+,..ONE LA -PA.SADA • LIMITED EDITIOIII ~-00 :::-.;.o $412"100 :::.2~8 $171.~ 22-...'ar,-05 8,8:20 64 ~ 32 D 32 ::ATHEDRM.. CITY FAR ',',£ST DEVEOPMHJT S46;;oo:i ~.581 11a2.€-3 ST.11,ND-,!,.'.ONE !LA QU11ffA CIEL ORO 3.00 i."'16 S46!1.900 .:!,3!16 11B079 21..Jyn-03 8,000 •.47 136 42 11 a LA QUINTA L::Nl';AR H:),_.i:S S400.900 2,760 $19664 STAND-ALONE ··- LANDAU HOMES 0.00 C 54 $371,000 1,i;J;J7 $15~"'12 29-May--04 9,Clr 41 .24 D D 17 CATt-:'tDRJ.L CITY l.AIJJAI ,' DPvE i.DPI.IIENT 5-421,000 2,57B ~,ss.n STAND-ALON;::: ;LAS Bli:ISAS NDi;tTH@ RANCHO IND.IQ 0.14 1.61 l1S':l,e-90 1,':.!J.7 :iro.23 19-Sep-02 a.coo ;,;;-~ :2~5 2 9 0 INDO - CEt-JTL'RY-...INfAGE t-Oi.,Es 5:Jf.9,990 ~.735 S!92.75 RANCI-+:) INDIO 'LAS PLUMAS 475 .,:175 $-32-:5.99() 2.1)32 S!39.0$ 12-1.!Er"-05 6.0Cl:l H 19 19 D 6a CQA-::;-iELLA ~ENNA-~ --lrn'IES $386,9'.l() :::.8"3~ S1&a.6C, STAND-,',LOIJ:: I.AS VENTANAS @:!'GA WES-T -0 26 0.33 $U9~.000 :;_n-:i S376.01 26-Ma~-04 11.500 2E, 1~ -1. 11 0 LAQL•:t.TA CALl~ORNIA OO'JE COMM JNlflES INC $1.'55':l,000 .!.;,336 s.-3M.53- ;:,:3.:.. 'M:Sl L,EG.a,c;:r ISU..l'fO @ MISS40N Hl.1..S C. C. !H7 1.25 $BJ9,9JD ~-~ $249 74 26-Jl.ll-04 13,!87 44 44 7 (I 0 AAl-iCHO PII IRAGE SHEFFIELD 1---0~ES $9'93,,,SOC, 3.6.1-5 ,34a.ll:i M;SSIOt. Hl'_LS C C. ~RIPOSA G TRILOG'f ::rn 1,ci,,:I ~.t.5B.e90 1.821 ~24a.4'3 .24--,1,,1.i!rl).2 5000 4:)() 142" 2 2 .256 L.AQL··tflA S;-!EA HOMES .$537.WO 2 t63 ,2~::!.0S TRIL03Y MA STE~ SERIES 11@ DESEIH PRINCESS 1.00 O.BO -S:245.-990 1.67a H45.i'-4 1-Mar-01 4.9!':0 195 172. 15 Cl 13 C.i..THEORALCTY L!:i',lt-.AR t+O,..ES :$265.-900 182:5 $149.61 DESERl PRINCESS MONf.l.fiE:@e SANTA R05A 0.1-4 :!-97 ;Si7'14'1l00 2:,601 S236.51 8-MlrJ--04 1300] 150 13B .::' 12 0 lr,,IJIO \'\E:S::rnA tilG ONZA LES $79(il.900 3,,3-1!2 $.:74.B:5 STAND-ALONE MONTECIW@ RIO DEL SOL 0.2-3 1)_:52 :s453".900 1,630 5260.96 6-N,:n,o-04 4,600 91 11 5 1 79 CATHEDRAL CITY DAIION SISKIN S474..iOO 1,820 12.:1:220 RJO DELSOL UDl'fTEE..~ 11a -OCl-2 SIBa,000 2,3.:IB -$26328 16-0=1"53 '3,2CIO 71 ~ 1-S 2 D I NOIAN 'h'ELLS TRANS 'AIEST t-1():JSI '.IG :j.99-a,900 "3,!116 $33£.IJ3 STAND-A LC-% "°!iAIC: @ESF'LAHADE: 02, O.S!i M00,900 ::1,72B -$1Se-iS3 1-Mill'-(]3 1 D,OC,O 10GA WES! 1.~f:i 0.84 $-93t'i,976 :3,l-41 ;j;:!,t~.65 1-&lp-00 1:!,00CI 85 70 1-;; 2 13 iAQJIN"""' 1[)11 RROfHERS, 11-.C. 11.COf.. 975 11,167 S:!&.:--46 PGA 'MS"'"

lll.i'lll<:ET PROFI..ES. 0 NC. PJ..GE:!CF"4 2r~21 · a-1 .:o.~_!i.li m EXHIEIIT 111-1 SUMIMARY OF NEW HOME DE"liELOPMEMTS DHA.CHE!l PFtODUC:T COA.CHEllA IIA Ll£Y FIRST Q.UAITTER ZCJD5

s~les,",\J~e-k RangH De-.. ~ !c-p m~nt'D{!nlope, CurQtr Cum Pnce s~ S•S~ NORMAN EStATE:S@PGA WEIT CU3 o.i4 Sl.175,900 3,U7(; :!.lixl.: l..t:JRIAAN EST,1,.TES 11, Li.C S1.575.~::0 3,!tli' S402.32 NORMAN CQURSE ::i::,..i. ','.ESf PALAZZO@fi:IC IJEL SOL JJ.:W o.ra :1-528.000 2.00J ::..266.66 8-0ci~ 6.00D a~ 2 -3 5 f~ G,C,,T--IED-:AL CITY DA~ON SISKIN 1-Mfl.!?3~ :::.400 :l-270.62 RO DEL 5CL 'PAIULOISE SPRINGS Cl26 1.26 S300.90C 1 25.!I t179.e8 1:S-~av-0'1 i".:00 .:!/5 59 ~ ;!! :!.41!- DESERT Hc-T SPRINGS OORAI.IA LcC S3~9.900 2 '.68 S-246.41 STAt,,::}..ALON~ PASEO VISTA. -.ac 11.i $dJ55"900 HB1 $2:ff~? J,;;-JtA--:-4 4JOO fiS -40 1~ 1 2.11 .?AU,I ::ESERT S{)UTHERI..! Suto.· :::Oto.STRUCTI0'-1 S525'il00 2:.J1:5 1251.50 ST.lo.t,, J-ALOI\E F'IAZZA SERl':NA 2.0::: 2.00 .SS9C,9!i() l65'J 1218:.94 2:..fJl;:ir..0~ 12.00J g, 6 6 ~ 87 L"i.OL'II\ITA K HOV!-.i.t-.1--iiAN.'FOREC..!,S- HO~ ~S :167:-.900 3-006 $22&',16 STA~D-ALOI\E. -72 POINT 1-1.0.F'PV RAMCH •)00 :l-'11 $S,3i900 2,800 1228-53 ~ -~~v--:i4 8,3~ ~J I) [) 5:2 :.AQL 1'.T,',. EHLINE COMPAI\Y S79il,9'.!IJ -3,:.:77 1244.85 ST ,l,.'.ID,.l,LOf;E PUERTAAZUL o.n 1.43 S:!911,9':iO 1,J-80 .S:a~.6!:r ·1-:\10-.....o.J J,800 "27 10~ ::! :l.2 D LA QU !'-iT.L Pt..C. F :: S.L.!si''.".,1,, F:: s«.6,990 1,7-4D -i2a92..:' S, Af'.ID.ALO!-.IE ·RHAPSODY @ INOdAN PALMS COUNTR'I" CLUB 123 040 S378.9'ilD 1,82!:: :iW3.7i' 20-Us"-C"'- fi,s:JO 76 22 1~ q, 40 l'IIDIC, F"RST PACIFICA OEVELC-t='I.IENT CORP $,:129,00D :2,Cl73 S.207.66 INDIAN PALMS CC.:UHTRY CLUE! RIDGE. GATE @ HIDDEM CANYOIIII O

IAARKET PR-8FI-...ES.1r-te PAf.E l OF 4 ~74211:Q-·.• ~.::J.U.6.)16 E:l:~IBIT 11!-t SUMMARY OF NEW -HOME DEVELOPMENTS tJ.EfJ\CHEO FIRODUCT COACH ELLA VALLEY FIRST DUAfHE.R 2flOS

le:s.•\'iee~ -i;:~nges 1r Cum l'"nte- Sqt1 s:sq TAPESTRY@ ESPU.t.lADE 2 33 191 S~OO_!,r~O 1.00E, s1n10 11-JL.n-0:!- f:l.~00 ~75 180 ::,;; 2'J 75 LA QUlt-.'TA LENNAR ~~ES S43(1)J:;!I) :2.225 52154!? ESPLJ.."Ui.:::£ TI-IE CESEFIT CDLLEClJOt.l@ SHADOW 1-IIUS :2.56 J.31 S~64,99[1 1-&1[) $1S~ 13 S-Nw-04 7200 ~42 n 43 3 £,6 INCrO REYt-.OLD-5 C:J~MIJl--ilTl ES S.:114_9':l[I :w5- S2:2':"ii"D sw,,o:iw "ll~LS Th!E EL DORADO COLLECl10N@ MOUITT,l!,IN VIEW osa 1 Je. $.J~,!;.::11) 1 518 .S154.71! 17-Cd--00 :;,,:JOO ·~ 105 9 ~5 OES ERT r.01 SPRI !-..GS CENTL1R'f VINTAGE HOMES ~29.990 ::.?7-S $2.3=J5!:: MISS -:JN u..KES ~- C. iliE El. OORAOO COLI.ECTION @ S.HA~ HILLS Cl~(] 1,f,4 $3~.!?9[· 1.72:J ~152.9~ 22-1,,lw--03 ~.aoo 1W 17':: 12 10 - INCIO CENTL.'R.,. VINTAGE HOIIES $,424S':I::: 2-77-9 S~97 00 -SH,1,[):J1"r,' ~1·-LS THE OR.CHA.Fm :, 35 1.57 $629.:i(]:! ~-74::J s211.oa 21>-..;p---U. , 3 :ioo 3;:_;. ii ::.:J ~ 13 INCIO F,1,~IL Y c.::.--...ELOPM ,::i,., 1 $759'i10J J,6:;l:J Sl&J.1-5 STJ,,t,, J-ALOt..l:: THE PAL.MS OF LA CUllfTA ~.n D.:!-9 $Taeaoo 2.6~.() $313.3.1 5-Mar-03 11,0,,"0 .53 4J ~ ·o ·] U..QIJl\li,!,_ PRST PA.CIFIC), OEV:lo=i~ ;::::i,.rr CORP .$' .45a,OO~- .4,047 S366.!i0 THE Pol..•_M5 THE: IJE:I\ITAMili COllECTION@ WIOUNT,i!,lt.1 VIEW ,J.7' '.::.:15 $29i,900 1,:211 f1B.t.f:6 17-0::1-0:! 5,000 2JO 1,·1 10 ~1 31! DESE!;!T HO S"'RINGS CEl,.'TURY ',Jl 'IIT AGE I--OI.IE5 $3-34900 1,620 !li2-'17.i'2 M'SSIOt. LAKES C. C THE YENTAl{A COLLECTION@ SHADOW HILLS 0.7~ oa1 529';1,9:lD 1.XIB $1-94-'17 :2-Ma:--03 Ei,000 196 ,37 ·1 1(14 ;1m10 CEl·FIJF!Y'VlNTAGE HCMES s'.!3':l,9':10 1,l!;.113 $2-41:'3~ S-f.J..DO',,.. HILLS- THE lo'I u.AS I@ MOUNTJi•N VI~ a.46 '.05 57::..2,975 2.$31 52576! 1-Ja11-00 9,00'.l 22~ 12,;, 7 71 29 JJ. CJINT.A iOLL BRDTHERS. t,C. S.78-4.975 3.~, 5278-Se l,IOUNTAIN V,E',',' Tl-I~ VISTA!',; Q LAS COLINII.S Cl.71 1.53 SJCEl.00[1 1 m::· $17~ 61 4--Sap--D4 7200 184 ,::It! ,0 1 ~ 1:2!: 1~010 GH,',_ C:C-MPA.NIES !,J~.9l0 '.::-::t:i-9 $18,' 2fr LJI.S CCLlt,.L,l,S THE. 'll'IS-TAS@ MOU:NTAINVIEW 016 al1 51203,97:5 ~.26.J $31-B94 1-.J,art-(IJ 1:2,7~~ ~~ 35 4 4~ 24 U,, QUINTA TGLL e.a;:oTHER:S. INC $1 .293,9;'5 4Cl5;' s;:,13.!J.8! ~OJNTAIN V· E','\i' . 11ERRA Im. SCJl.. ~.62 2.04 1-138_:fl: 1.104 $111.6'5 1-Se-:i-O:!, raoo ·n 17::. :5!'! 1 0 00.ACH=LLA I INt-0",',HIVE RESORT 00~ l,IUNlllE.S S33.D!i9:l ~.':14.5 S":Eul.00 Sf.!.ND.,t,,LONE VEtfTANAOOL1.ECT1Clt.l @MOUPiTAINGATE I & 11 D. .::I:::: 1.o4 $32B'il00 :.211 ,5·00.00 12-J~--:S ~-6CO .2E.1 1.11e. 6 4 109 PALM 5PfW,IGS CT:ITT JRY V! t. "TAJ:r-: IO~ES $~:l,99:J •. a:ro S.271.66 MOL'"l7'}JN GATE \IERSAILL.£$ -:]-"3~ 1.74 $55!HIOO .2,2:):5 $200.52 15-t,Jq.,..JJ2 8,500 275 21'5 5 11

W-.Rr.ET~LE!,,.INC. l',l,.GE ~ DF I :1.?1-21 bJ-- ,.2.3.~_~.6.m EXHIBff 111-2 NEW HOME MARKET SUMMARY BY SUBMARKET AREA DETACHED PRODUCT FIRST QUARTER 2005

INDIAN VV'ELLS-lA QUlNTA 24 0.88 $7921518 2,976 $266.28 3.575 1.869 195 259 I 1,447

INDIO-COACHELLA 26 3.18 $381,349 2.147 $177.64 7,330 3,137 585 155 I 4,038

PALM DESERT 4 0.94 $521,254 21322 $224.50 I 453 326 26 12 I 115

PALM SPRINGS-CATHEDRAL CITY 19 1.17 $462t322 21216 $208.64 I 310S1 1,502 136 104 I 1.485

RANCHO MJRAGE 5 1.03 $736,646 21768 $266.15 I 593 415 22 29 I 149

SINGLE FAMILY DETACHED TOTALj 78 1.73 i $4a1,os3 2,341 $208.08 I 15, 042 7, 249 964 559 I 7,234 Source: Resideritial Trends1Market Profiles

MARKET PROFILES I l NC. 274211x3.-1,2.3,4,5-,6.)(IS EXHIBIT 111-3 S UIIMAR'f OF NEW HOME DE.VELOPUENTS INDIO-COACH ELLA SUBMA.RKET AREA FIRST QUARTER :roes rl{:!65 5.ilss Lo1Si2.e,' Toti!il Tt,t.:II Cu rQtr RE-ma:r, Community,' Sq!'t $'$qft St;:irt Den~i:1 Un its Sold Seid l1ns0ld ForDe\' Ma ste •P la r. BELL.A. CANTO 100 186 $2J7,991J 1,369 S162.45 05-Juf.lJ3 El.MD 175 172 16 3 D COA.CHELU.. RILINGTON CO IIIIIIUNITIES Sl27,991l 2,019 $178.26 STAND-1\LONE CASA BELLA @ INDIAN PALMS COUNmY CLUB 0.30 a.~ 5 $390. 99 o 1, 70 4 S209.41 26-Ju r.-04 4.500 121 11J 4 3 100 INDIO FIRST PACI FICA DE\JELOPIJIENT CORP S4J9,990 2.1 a1 f,229.45 INDIAN PAUIIS. CC ESPERANZA @ DESERT RIVER ESTA TES 1.57 1.8[) :E,,575,99D 3, 16B f,187.40 21-Ma'p'--04 2:1 .7.30 133 131 22. 3 <1,(3 IN~O LEt..ltJAR HOM ES $749.99-0 4,002 ll 13.38 FOXSTONE 7.B7 7.87 $307,990 1,517 .$.145.07 12-Feb--05 6,IJIJO 245 6~ 6:J a Ul2 JNDLO KB HOME $.:36B,900 2,52'6 ,$,203.02 5HJWDW HIU.S HERMOSA 4.4:.l 4.65- $:297,900 t ,54'9 1-177.82 20-Ni.v.---04 6,000 1:2D ffl 71 0 23 COACHELU. RYLAND HOMES $344,990 1 ,94() :S 192:.37 STAND-AlONE LACOLONIA. :JJ13-2 2..s:a ::5331 .8'90 1 .EIHJ l H~ .54 24-Mair-04 Ei,11G 2:73- 119 5!3 D 1:54 COACHELLA RTV DEVELOPMENT $-409:SOO 2 -~ :11 r-J..BI STANO-M..ONE lA MORADA 15 rn 15.D [I S:!.42 MD 2 25B $135 95 ()9-Apr-05 E,,00) 171 1:5 15 0 156 COACHELLA LENNAR HO MES SM.5 990 ~.M9 S151 .Mo STAHD-ALONE LA PALOIIA -0.37 2 J4 5309.'390 1,743 S147 .97 15-Ma,,,-04 "6.000 249 11-~ -6 5 134 COACHE LU. K. HOVNAN lAN.•'F-DREC.,L,ST HOMES S:'.!..50,990 2.3-72 $177..84 ST AND-ALO.NE LA PALOW. -ESTATES 2.!50 ~-50 1i328,9CID 1,846 S~37 6ll 15-Jan--05 6.00CI 16:5 30 ::SD 10 125 COACHELLA K. HOVNAWAt..1/FORECAST HO~E.S S3'35,91JD 2,877 $178.16 STAND-ALO~E LAS BRJSAS NORTH @ RANCHO INDIO cD.14 1.61 $,189,990 1,:527 :$93.23 19-Se;::i-02. aooo 224 ::>15 l ':} [) INDIO CENTVRYVINTAGE HOIAES s::169,900 :!,735 $i92.75 RANCHO IN~O LAS PLUMAS 4.75, 4. 75 -S,:33 5,9 90 2,D 92 $139. 05 12.-M.ar-05 6.000 -Bl 19 1i CJ 68 COACHEUA LEf'.fN,!,,RHOMES $-365,900 ::!:,632 $1 EiD.EiD STAND-ALONE MONTAGE ii; SANTA ROSA 0.14 2.87 -S-714.900 2.E'-01 $2:36.51 D8-Ma~--(l

Sm.m;;.e· Resden1ial Trenm,. i.'igro:sl Pr:ililes

MAFi:k'.~"." "'RO!-ILES, INC. PA~1~1 .27"211:d-1 ;}.,'!.- .._ 5,B . .is. EXHIBIT 111-4 SUMMARY OF ~EW HOME DEVELOPMENTS SHADOW HILLS JULY 2005 Ranges PriiGe Sqft $/S 9 IAUCANT!:@TALAVERA 3.31 :3.31 $389,540 2,493 $130:68 20-May-05 8,000 105 22 22 11 72 DR HORTON $404,99-0 3,099 $156.25 TALAVERA 1 IBELLA TIERRA@ SHADOW HILLS 8.12 8.12 $379,990 1,895 $159.75 01-J1..m-OS 8,000 56 40 40 2 14 fNOlO FAMILY DEVELOPMENT $419,990 2,629 $200.52 SHADOW HILLS 2 ITHE DESERT COlLECTION@ SHADOW HILLS 1.75 2.61 $375,990 1,610 $183.13 06-Nov-04 7.200 142 90 17 8 44 INDIO REYNOLDS COMMUNITIES $419.990 2,266 .$226.70 SHADOW HILLS 4 hHE EL DORADO COLLECTION@SHADOW HILLS 0.17 1.49 $339.990 1.720 $152.98 22-Mar-03 6.000 198 178 2 6 14 INDIO CENTURY VINTAGE HOMES S424,990 2.778 $197.67 SHADOW HILLS 1 O I FLORENC!A @TALAVERA 2.18 5.28 $330,000 1, 855 $155.-46 01-Ju11-05 6,000 121 26 26 18 77 INDIO DR HORTON $370,000 2,380 $179.45 TAlAVERA B IFOXS TON-E 3.10 4.88 $326,000 1,517 $146.07 12-Feb-05 8,000 245 100 37 0 145 INDIO KB HOME $367,000 2,526 $203.02 SHADOW HILLS 11 IGENOVA@TALA\/ERA 1.90 1.90 $396,-990 2,848 $127.64 30-Apr-05 8,001 110 18 18 1 B1 lNDIO DR HORTON $416,990 3,267 $139.39 TALAVERA 3 IS HA DOW RAN CH @ SHADOW HILLS 2.58 5.53 $414,990 2,185 -$157.06 01-Feb-05 -8.000 2-63 122 30 0 233 IND!O FAMI L"I DEVELOPMENT $:509.990 3 ,:247 $189 .93 SHAOOW HILLS 7 iSIENNA@ SHADOW HILLS 2c35 2.35 $394.990 2,446 $142.54 13-Apr-05 8.000 132 28 28 24 80 INDIO RYLAND HO MES $447,990 3.143 $161.35 SHADOW HILLS 5 i THE VENTANA COLLECTION @ SHADOW HILLS 0.84 0.81 $299,990 1,208 $184.47 22-Mar-03 S.000 241 97 10 2 142 INDIO CENTURY VtNTA-GE HOMES $339,990 1,843 $24R3-3 SHADOW HILLS t2 IVENECIA AT TALAVERA 3.47 3-47 $299,990 i .576 $171.54 16-May-05 8,000 100 25 25 20 55 INDIO DR HORTON $333,990 1.947 $190.35 TALAVERA 6 MLLA ESTATES II @SHA DOW HILLS 1.46 1.46 $294,990 1,3.Q2 $144.42 01-0ct-0-3 7,200 137 134 11 3 0 INOIO CENTURY VINTAGE HOMES $394,990 2,7"35 $,2.26.56 SHADOW HILLS

MARKET PROFILES, !NC PAGE 1 OF 1 274211:(3-1 ,2,3 -~ 5,6.xl:!l D.. <( ::!!: z 0 1-- < 0 w et:: a. w :E 0 J: 3: .,"' w :i:, . .,.,·.ir z (· '.¥:,:,~ ::! ~ 'I .· :·eurr 1 :St 0z u:, w ...... J u::: 0 a: a.. 1---­w ~ a::: ~ EXHIBIT 111-6 DEVELOPMENT STATUS REPORT CiTY OF INDIO JUNE 2005 • 4 • • + ...... HI • .l.. "IJH- •Jun LIU- SINGLE F ANILY A ITAC HED RECENTLY APPROVED OR: U NOER CONSTRUCTION To construct 6(1 re:rnJ.e11tial lots on EA 05-02-425 PMP ' appm:w: 11.36 acres Note: from RV SolJ'tllwest comer of Madison St. Maaison St.. LLC 1 Montaoo De Oro 5-3-42 CZ 5-2-631 60 3/10(2005- park To SFH O lot line homes: gate,(j & Dcmrttiy Lane {760} 773-9024 DR 5-3-162 communey SINGE FAMILY C ETACHEO I RECENTLY APPROVED OR UN DER CONSTRUCTION TIJ attow the :subdiv1sioll of 40.1 112 mile east of the intersection 2 B.arc;;elOfl.a TM 32411 13.S Beazer Homes 5{27/2005 acres into 138 single famity homes or Monroe and Avenue 50 To construct 110 :single family homes Cor1i na at T errn Lago Withifl lhe Terra Lago 3 TM 31601 no located within the Terra La~o Ry'land Homes -- P~ nncng Area 5 community masterptanned community

De:s-igin Review 5·1+ Tract 31686 to subclillide SO acres Westside of Gott Center Beazer Homes 4 H.acienda 2~ 1/1512005 157 into 264 s.1ngte family lots 1nclucling. Parkway no.rth of Avenue 43 (949) 235--2900

TM 05-01-420 PM P SDI Communities LLC [Ttaci 328-69) To subdii,1de 78 .5 Ave n.ue 4 o and Jeffers oo St. 5 l.ndkl 78 {]:5-01-37 EA 05-01- 2-3-B Atln: S1;1rn Yoo 1/1 El/2005 acres for 2313 single family homes, APN 67g-110-005 37 t 95-1) 676-7000

l"1:r11i.,:;iun::mal-' 323,3,13 & l2340 Thi 04-7-410 TM 04-7- North of Avenue 50, west of Slonefield De~1Jpment TM 32339; Tc subdi'Jide 5.2.49 ;::icres 6 Slortefield Deveklpmenl 411 Change of 96 Hjorti1 Streel ana scmlh of Art McCutl !YJ1f2004 i11lo 96 re::mlenti.al tols TM 3234(]; Zone D4-7-622 Avenue-49 94Et--5a.1-4663 Des1gl"'I Re'lilew 04-0 1 ':1...1 General~ localed on the Regency Homes Peter To cans1n.ic, 4 71 s Ingle familij norlheast comer-of .A.dams SL 7 Espana. DR 05-1-155 -471 Sotomo-.n 112or.wos resideflces on 160.67 acres and Ave -40. (760) 770-73 73 APN 679-070-00:2

To attow the oons.truction of 36 new Design Re1,1iew 04--6 :single-family res1dneces & To allow Souttiwest comer of Dr. Carreon. W.E.W. Construction B Rancho Verde 36 6130{2004 123 two slory homes on 7_ 18 acres of Blvd. and Calhoun Slreet 76()-3,43-5102 vacant land

MARKET PROFILES. INC_ 27.111211 :a--1. ::?:,3,4. ~.G.:t:ls EXHIBIT 111·6 DEVELOPMENT STATUS REPORT CITY OF lNDIO JUNE 2005 Project Name Fil13 Name Units Request Locatmn Owner SubmCtted

Mixed use aei.relopment totaling 656 I ocate,d oorth -af Ave. 38 and James T.aylor '9 Fiesta de Vida TM 33276 111!512005 acres. east of Wash1flglon St (916) 257-0066

To review archllecJure-& landscape The Brid,ge @ Jefferson. Southeast -comer of Ai,,renue 48 10 The Bndge at Jefferson DR 04-f0--139 124 plans to a!IOIN fur the constroction of LLC Ted Van -Huls.en-- 11}113!2004 and Jefferson Sire.et 124 SEt.gfe.-family htlmes Bretl 760-200-4485

Northwest ,c:omer of Jackso~ St. D.R. Hortoo Mk:helle Sonora Wells To construct 363 single family homes 11 DR 05-5-181 363 and Ave. 41 souUl of ttie aH Kell~ !hll/2005 (Formerly Vista Laguna) on 9'3.3 acres (TM J.2402) a rner1Ci3n canal (949'~ 442-6199

APPROVED, NO RECORD OF DEVELO PNENT To subdiv1ae acres of va Ian a.o cam a Nortll of 1-10 freeway, between into 275 single family lots with pnvale Mickie Rlle'f Rilinglan Tentative Map Monrow Slr~t and Jackson 12 Affresco 275 streets, and rhree Communities 7'612004 :3.2401 TM 04-6-406 street. north of the- All American recreationalJretentian bE11sin common 760-4 71-.Ei-460 Canal area. lols. To subcfot•cle 4.41 acres 1r'lto 24 Desig 11 ReVJew 04--5 residet1tial lots 111 lhe RH zorie, al.so Saulh of Fred Wanng Drnre, Four Tov-;ers Developme11t 1:l Vill.aOiVin,:j 117 TM 32425 (TM 24 5[1212004 To conslroct 24 SinQle family west of Clinto11 Street 760~333-3405 04-5--406) residerices. Famlfy Dei.ielopment Tentaw-e Map Ta subdl"'1de 16.35 a,c:re:s. 1nlo 56 North of Ave. 44, west c,t Golf 14 Buena Vis[a 56 Rudy Hererra 31312004 306D5; 04-3--402 sl'1gle Jamil~ flames Ce11ter Parkway (760) 900-BEt-89 TM 31974; 04-2- TM 31974; To subdivtde 29.07 acres Dese-rl Lake 400 inlo 10:.5 SFH Wesl Side of Golf Centrir 15 D-esert lake. LLC 257 Ramfy Reinhart 21412004 TM 31975, 04-2- TM 3197!5; To subcli\llde 3,9.48 acres Parkway, north of A"Vemue 4J. (909) 605-9-456 401 into 152 SFH

Tencatlve Map To sutH::liv1de 160 acres (If land into N,arthea:s.t corner o~ Aver,ue 40 Peter Soloman 16 Regency Homes: Cornri;)d.o 480 1J2912004 316.89 TM 04-1-396 .WO single family oomes .and .4.dams Street (760) 770-7373

Des.igli Review 03-9 To subdivide 7.14 acres of vacant GH.A. Paloma, Grciup, LLC South of Fred Waring. west of 17 Alclea al Waring 95 Tentatllo'e M.ap 34 land 1nlo 34 single ramiljl residential M.a no Gonza~s 9J30/2003 Cllntori Streel 31692; OJ.-9-392 lots with pri',1';3le s!reels. (760) ~22-3422

MARKET PROFILES, INC. 2742'11:t:3--1,2,3,4. 5,6.:t:I~ EXHJBIT 111-6 DEVELOPMENT STATUS REPORT CITY OF INDIO JUNE 2005 P rojecl Na.me File Name Un its Request Location Owner Submitted Tenlative M'ap To subaiv1de 16.13 acres 1nt-o 82 3, 1 J.B-9 03-9-391: single-family res.1i1ential lots; To Desen Equipment TA Indian Palms Cochran Ranch Spe-eific.Plan establish ~ ncJ use regulam:ms. 18 82 lnaian Palms Counlry Club- M-c:Conriell "9/.51:2003 Esla!es Ame ndmefll 95-9-5 development starK:lards_ ar.d de:s 1gn (760) 34 7 ·34B6 ProJect Master Plan 9u1deliries and To ameni:I the tar.:::I 03-9-29 use deS'9 lii:3tion. I' .... <:1u-o- IU I .... To allow for the de,..elopme11t of.9:51 32462 (04-11-417)) (h,.,aling units oJ vanous clens.ity North of Avenue 44 bet'Neen TM 32341 (TM D4- Sunc.al types on 563.l4 acres Golf Center Parkway and Di Ilion 19 Te-rra Lago East ti-416} TM 322-8-B 527 Gar," ~lliams 11!1J2004 {DedLJcilng developmen•s alrea~ Road: Landmark lakes Golf (TM D-4-11-415) TM {700} 775-6373 accounted for in. tt,fs report, 527 units Course 32287 {TM 04-11- .. " .. , remain in Terra Lago) Review of architectural designs and A~hbrook Go mmunities Destgn Review 04-~ Sor.Jthwest oomer of Jadson SL 20 Sandstooo al Desert Trace 111 fron.t yard l,::m.1scaping for 111 sfr.gle- Bruce Maue 9/2112004 136 and Ave. 41 famify homes wilhin Tract 30643 (160) 200-9200 General P1an Gener.al Plan A.mendment & soulh of Ave. 42 between Amend 4-11-64 Sull Desert Homes LLC 21 Estates at Sanahurst 123 Tenla!iw M.a p for 40 acre$ tor 123 Jac:tson SL & Van Buren S!. 11/412004 Tentative t.tap •ll-4- 760 77:5-5000 single family oomes APN 679.-310-007 11-419 Parcel Map 31-463 To ~ubdi,;1de 274.96 acr,es of land North of I· 10 iree-Y.tay, noiltl :s.ide TR. CO. Projed Master Plan; Into 9:37 s1nQ,e..family res 1de11tiail l,ots. 22 Artt1re<;1~ R;;;inch 937 of Avenue JB .at the norttierly Tom Rielly 5/16/'2003, 03--8-2.fi: Specific fut a ~rivale gated comm uney in an terminus of Jefferson Slreet {949'} 719-4!375 Plan 03--13-14 E.E and RL zone Tentative Map To subcii'il'iae BO c11C:h:!$ into 2"96 East of Golf Center Parkway on tarry Hughes 23 Larry Hughes 31562; TM 00-3- 208 smgle fami'Y homes 1n a gat-e-d 6'112003 Aver.t..re-44. (760) 5i"a.-O 139 388 community Tentative Map Lupe Watson ViS1c1 MQf'l~nil 30606; TM 03-7- T(I sul:x:lii'lde 9. 77 acres in-to 11 South sit1e l)f A1,,1eni;e 6-0, west Lupe-Watson 24 11 7'29f2003. Estates 387; ProJect Master te$1c:denti~I lots of Jackson Sueet. (760) 771-6237 Plan CJ3·7-:27

Centenni.ai Homes. Design Re'Jiew 03--7 To oonstruct 31 s1ngle-fa:mHy NIXlh side 1Jf Dr. Carreon Blvd __ Ce nlennia I Homes Dere-k 26 31 711612003- Calhoun Estates 85 detacheo residences west of Calhoun Street. Scott 415-.tHJ'9-1962

Design Review 03-7 Construc:oon of 53 single family First P.acifica First P .acific Development; located on Wayoo StJeet m the 27 84 Condrtiorial Use 53 homes on 7.96 acres wittl optional" De~oprnent; Eric French; 7J15.12003- Bellasara II Indian Palms Cot.miry ClulJ.. Permit 00-7-794 Casita" 909-84 i -1379 PENDING

MARKET PROFIL'ES_ FNC. 2742.1 t~3-1,2.3A 5,6 X1S EXHIBIT 111-6 DEVELOP MENT STA'nJS REPORT CITY OF INDIO JUNE 2005 Project Name File Name Units Request l.ocation Jner u TM 32340TM 04-7- To subdivide 38.64 acres into 36 Nor1h of Avenue 50, west of Stonefield Development 410 TM 04-7-411 res1den!i;::il lols To change the zornng 28 Stonefield Oevelopme11t 36 Hjorth Streel ana south of Art McCurl B/31'2004 Change of Zone 04- des.g.nation on g,g .33 acres from A~nue 49 949-5-61-4663 7-{j22 CEIR-1 &: CEIR-2 lo C El R -112

Pleasant Valiey Northv/e:s! oome-r of Golf Cer.te r To construct 179 s 1ngle fami~ ho,mes. Investments '29 Wooasrde Homes DR 05-01-158 HH Parkwa1 and A1'enue 43 wilh1n 2/1512005- 011 61.27 acres Paul Kroft Te11a Logo l (949) 848-49J30 ' To sub-dl'Ade 3,-g .acres mto 1 3,8 Locate<:! 011 north'l'lest {:Omer of Kevin M arming JO \Nhittier Ra llCh. TM 3147:3. 13.S s.1nglefamly homes in a gated 318.12005 Avern.11:- 4B &. Jaciuo11 st. 76-0 404-1900 community To consider lhe site- plan .a rld Al !he s-autheast comer of 31 San Milan at Paradiso. TM 31615 225 architecture for 225 slngile family Lennar Homes 41712005 Monroe- Street and A1Jen1,.,1e 40 homes

To co11:Struct 7 SF H's on 2.43 acres Northwest comer of Ave. 44 and Ruay Herrera 32 Bel la Tierra 2 TM 33291 7 1J24/2005 apprmred TM 30605 Gotf Center Parkv.'ay (760) 9=90-8989

P{lflder-o~ Homes 11 lnc To ooflstruct 1 fl.5- single ramify nomes 33 Poncler(Jsa Villas DR 05-4-170 185 Ave 41 & Manroe- St. Pamela Hardey 31'2412005 (TM 3-1615 410 Lots) (925) 460-8981 TM 33004, To subdN1de approx 2.14 PM P D5-03""44 TM acres Into 774 lotr;;. SF lo!s ..wl rnflge Loc:atee1 at the n

TM 05--3-426 .P MP TM 3-3-:2!33 De~opment of 40 acres Norttl of Avenue 44, east of Golf Ri.Jdy Herrera 36 Aliante 05-3--41 DR 05-3-- 130 intet 130 res1de-n.tial lois and a 3 aCl'e 3/81.2005 Center Parxway {760} 900-89B9 163 park/open spaoe area.

Desig-n rei.riew to coostrtJct -86 s1n-gle Marques.a at Terra Lag,o Golr Center Parkway and lenriar Ho me~ 37 DR 05-3-161 86 story, single fami~ homes Tract 3/B,12005 Plannillg' Area 3 Av-enue 44 Trect ::3,16D1-4 (760) ~25-3 791 31601

MARKET PROF ILES, INC. 274211 :.:3-1,2,3,4,5,6.:ds EXHIBrT 111-6 El EVELOP MENT STATUS REPORT CITT OF INDJO JUNE 2005 Project Name fil,e Narn,e Units Request Lac:ation Owner Submitted

CUP 05--03-829 DR Design review to construcl 12S Golf ~ter Parkway .and LenMrHomes 38 Corc1oba at Terr a lago 128, 2115[2005 05-3-160 single famiJy homes Avel"\U'e-44 Trnct 31601-3 (760) 325-3791

05-02-425 Traci 4 Towers development ™ To conslruct 14 residenlial oomes on South or John Nobresa nd West 3g Viii.a La Jolla 33014 GPA 05-2-68, 14 Guy Elz.iorry 211412005 3.3 acr-es of Arabia DR 05-2-161 760-333-3405

Design Review 05-2 To subdivide 6.92 acres mto 27 Northeasl comer of Jeffersoo Roger Snellenberger 40 Indian Sprin!JS CC 160 Tentative Tract 27 i/24.IWOS s1ngre-ramily res1aential streel & 1/'iies.tward Ho {760) 784-5097 Map-33165 li:lnd division of "9 .6 Acres m 11le Patricia A.iken; lnoio Raochos Tentatiire P.aJcel Indio Ranchos Country Estates aire-.a \Nest side of Monroe. between Palric:ia Aiken 41 4 10!412004 Country Estates Area M.ap 04-10-332 iflto foo, (4} two acre single--ramily 491h Ave. & 5Dttl Avenue (760} 347--0778 residential lots Design- RevteW 04- To conslucl 56 one-story ancl two- Rudy .a:oo Rayrnoncl 10-142 Condilional 118 mile nor-Iii or Avenue 44 and 42 Buena Tierra 56 story s 1ngle family residential Lmits Herrera 111161.2004 Use Permit 04-10- wesc of GaW Center Parkway on 16. 35 ~cre:s ~60) '900-8989 ,823 I To s-ul:KliYide 16.6 acres inlo 25 ChsJ1ge of Zone 04- l....i;l:s, Bougainvilleas lLG res.1dential lots and 15 le-tte.-M Jots 11-626 PMP 04---11 • N orlh of Averiue 50, e-ast of Judane ClairklDennis 43 Las Bouga1mrilleas. llC 25 for streel. landscap1ng and re-teniion, 7f27f2004 36 Tentatire Map Jefferson Sir~ Ffeet'Tli3n a Isa To charige tlie- zoriin,g from 33012; 04-11-418- 760-773,-9024 CEIR-2 To CEIR-112 To construcl 247 sirigle-famil'y KB Home Coasial lrir;.. DeS1gi11 Review 04· 7 Northeas! comer of M Dntoe c1 oo 44 \Nir,clsong at Desert Tr.ace 247 homes oo 80.26 acres of .agrici.Jltur.;il Tim Lokkesmoe 13-0 Avenue4l -- I.a rld 'INitllln TIM 30043 gc9.537_33oa

SOURCE. City of lnaio. Market Profiles

PiM.RKET PRO.Fl LES. INC. 274.2:11x3--1.2,:J .-4,5.6.:w:ls [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIXF

FORM OF BOND COUNSEL OPINION

[Dated the Date of Closing]

City of Indio 17866 Sierra Highway Canyon Country, California 91351

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Members of the Board of Trustees:

We have acted as bond counsel to the City oflndio (the "City") in connection with the issuance of the $26,330,000 aggregate principal amount of City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"), pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, or the Government Code of the State of California (the "Act") and pursuant to a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"). We have examined the Act and such certified proceedings and other papers as we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the District contained in the Fiscal Agent Agreement and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

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

1. The Fiscal Agent Agreement has been duly and validly authorized, executed and delivered by the District and, assuming such Fiscal Agent Agreement constitutes the legally valid and binding obligation of the Fiscal Agent, constitutes the legally valid and binding obligation of the District, enforceable against the District in accordance with its terms.

2. The Bonds constitute valid and binding limited obligations of the District as provided in the Fiscal Agent Agreement, and are entitled to the benefits of the Fiscal Agent Agreement.

3. The Bonds are secured by a valid pledge of the Special Taxes and all moneys in the funds and accounts under the Fiscal Agent Agreement, including all amounts derived

F-1 from the investment of such moneys, subject to the application thereof on the terms and conditions as set forth in the Fiscal Agent Agreement.

4. The Internal Revenue Code of 1986 (the "Code") sets forth certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issue of the Bonds. The District has covenanted in the Fiscal Agent Agreement to maintain the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes.

In our opinion, under existing law, interest on the Bonds is exempt from personal income taxation of the State of California and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes.

We are further of the opinion that under existing statutes, regulations, rulings and court decisions, the Bonds are not "specified private activity bonds" within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income ( determined without regard to such adjustment or to the alternative tax net operating loss deduction)).

Except as stated in the preceding three paragraphs, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other bond counsel.

No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering materials relating to the Bonds.

The rights of the owners of the Bonds and the enforceability of the Bonds and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. The enforceability of the Bonds and the Fiscal Agent Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California.

F-2 Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

Respectfully submitted,

F-3 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIXG

FORMS OF CONTINUING DISCLOSURE AGREEMENTS

CONTINUING DISCLOSURE AGREEMENT (City oflndio Community Facilities District No. 2004-3 (Terra Lago))

This Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September 1, 2005, is executed and delivered by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Union Bank of California, N.A., as dissemination agent (the "Dissemination Agent") hereunder, in connection with the issuance of the $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"). The District and the Dissemination Agent covenant and agree as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District and the Fiscal Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

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

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

"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

"City" shall mean City of Indio, California.

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

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

G-1 "Listed Events" shall mean any of the events listed in Section 5( a) of this Disclosure Agreement.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at http://www.sec.gov.

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

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

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

"State" shall mean the State of California.

"State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository.

SECTION 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Reports may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. If the District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f). Furthermore, upon receipt of a written request of any Beneficiary Owner, the Dissemination Agent shall provide a copy of the Annual Report to such Beneficial Owner.

(b) Not later than fifteen ( 15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the District shall provide the Annual Report to the Dissemination Agent and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District and the Fiscal Agent of such failure to receive the Annual Report. The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and Fiscal Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report.

G-2 (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A

( d) The Dissemination Agent shall:

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

(ii) to the extent information is known to it, file a report with the District and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided.

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

(i) The audited financial statements of the City, prepared in accordance with generally accepted accounting principles in effect from time to time. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(ii) The balance in the Special Escrow Fund held under the Fiscal Agent Agreement.

(iii) Total assessed valuation (per the Riverside County Assessor records) of all parcels currently subject to the Special Tax within Improvement Area No. 1 of the District, showing the total assessed valuation for all land and the total assessed valuation for all improvements within Improvement Area No. 1 of the District and distinguishing between the assessed value of developed property and undeveloped property.

(iv) Identification of each parcel for which any Special Tax payment is delinquent, together with the following information respecting each such parcel: (A) the amount delinquent; (B) the date of each delinquency; (C) in the event a foreclosure complaint has been filed respecting such delinquent parcel and such complaint has not yet been dismissed, the date on which the complaint was filed; and (D) in the event a foreclosure sale has occurred respecting such delinquent parcel, a summary of the results of such foreclosure sale.

(v) The number of certificates of occupancy issued by the City and the principal amount of prepayments of the Special Tax with respect to Improvement Area No. 1 of the District for the prior Fiscal Year.

(vi) A land ownership summary listing property owners responsible for more than five percent (5%) of the annual Special Tax levy, as shown on the Riverside County Assessor's last equalized tax roll prior to the September next preceding the Annual Report date.

G-3 (vii) The principal amount of the Bonds outstanding and the balance in the Reserve Account (along with a statement of the Reserve Requirement) as of the September 30 next preceding the Annual Report date.

(viii) A description of the status of the facilities being constructed with proceeds of the Bonds as of the date of the Annual Report (but only so long as such facilities are not completed), and the balance in the Acquisition and Construction Fund as of the September 30 next preceding the Annual Report date (but only until such fund is closed).

(ix) The number of building permits issued in Improvement Area No. 1 of the District during the prior Fiscal Year.

(x) The amount of Special Taxes generated by the developed parcels and undeveloped parcels within Improvement Area No. 1 of the District.

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

SECTION 5. Reporting of Significant Events.

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

1. principal and interest payment delinquencies;

2. non-payment related defaults;

3. modifications to rights of Bondholders;

4. optional, contingent or unscheduled bond calls;

5. defeasances;

6. rating changes;

7. adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds;

8. unscheduled draws on the debt service reserves reflecting financial difficulties;

9. unscheduled draws on credit enhancements reflecting financial difficulties;

G-4 10. substitution of credit or liquidity providers, or their failure to perform;

11. release, substitution or sale of property securing repayment of the Bonds.

(b) The Dissemination Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Dissemination Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Dissemination Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent or the Dissemination Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. Neither the Fiscal Agent nor the Dissemination Agent shall have any responsibility to determine the materiality of any of the Listed Events.

(c) Whenever the District obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the District shall as soon as possible determine if such event would be material under applicable federal securities laws.

( d) If the District has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f).

(e) If in response to a request under subsection (b ), the District determines that the Listed Event would not be material under applicable federal securities laws, the District shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f).

(f) If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Fiscal Agent Agreement.

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

G-5 SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the District and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the District in a timely manner and in a form suitable for filing.

SECTION 8. Amendment; Waiver. Notwithstanding any other prov1s1on of this Disclosure Agreement, the District, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to any amendment so requested by the District) provided, neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

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

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

( c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District.

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in

G-6 addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the District or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent ( at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the District or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agent. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders, or any other party. The Dissemination Agent shall have no liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Agreement. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

G-7 SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the District: City oflndio Community Facilities District No. 2004-3 c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Phone: (760) 342-6580 Fax: (760) 342-6597

To the Fiscal Agent: Union Bank of California, N.A. 120 South San Pedro Street, Suite 400 Los Angeles, California 90012 Attn: Corporation Trust Department Phone: (213) 972-5674 Fax: (213) 972-5694

Any person may, by written notice to the other persons listed above, designate a different address or telephone number( s) to which subsequent notices or communications should be sent.

SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

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

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO)

City Manager of the City of Indio

UNION BANK OF CALIFORNIA, N.A., as Dissemination Agent

Authorized Representative

G-8 EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party: City oflndio Community Facilities District No. 2004-3 (Terra Lago)

Name of Bond Issue: City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Date of Issuance: September 15, 2005

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The District anticipates that the Annual Report will be filed by .]

Dated: ------

UNION BANK OF CALIFORNIA, N.A., on behalf of District

cc: Issuer

G-9 DEVELOPER CONTINUING DISCLOSURE AGREEMENT ([NAME OF PROPERTY OWNER])

This Developer Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September 1, 2005, is executed and delivered by , [type of entity] (the "Property Owner") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent") and acting in its capacity as Dissemination Agent hereunder, in connection with the issuance of the $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "Issuer") and the Fiscal Agent. The Property Owner, the Dissemination Agent and the Fiscal Agent covenant and agree as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Property Owner, the Dissemination Agent and the Fiscal Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

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

"Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, five percent ( 5%) or more of the outstanding voting securities of such other Person, (b) any Person whose outstanding voting securities of five percent (5%) or more are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and ( c) any Person directly or indirectly controlling , controlled by, or under common control with, such other Person; for purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person.

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

"Assumption Agreement" means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Agreement (as modified for such Major Owner's development and financing plans with respect to Improvement Area No. 1 of the District), whereby such Major Owner or Affiliate agrees to provide annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in Improvement Area No. 1 of the District owned by such Major Owner and its Affiliates and, at the option of the Property Owner or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof.

G-10 "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

"Disclosure Representative" shall mean the of the Property Owner or his or her designee, or such other officer or employee as the Property Owner shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time.

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

"District" shall mean City of Indio Community Facilities District No. 2004-3 (Terra Lago).

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

"Major Owner" shall mean an owner (including all Affiliates of such owner) of land in Improvement Area No. 1 of the District responsible in the aggregate for 20% or more of the annual special taxes levied in Improvement Area No. 1 of the District.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at http://www. sec. gov.

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

"Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof.

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

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

"Special Taxes" shall mean the special taxes to be levied on the property owned by the Property Owner within Improvement Area No. 1 of the District.

"State" shall mean the State of California.

G-11 "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository.

SECTION 3. Provision of Annual Reports.

(a) Property Owner shall, or, upon written direction, shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement with a copy to the Fiscal Agent and the Issuer. Not later than fifteen (15) Business Days prior to said date, Property Owner shall provide the Annual Report to the Dissemination Agent. Property Owner shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent and the Issuer to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent, the Issuer and the Fiscal Agent may conclusively rely upon such certification of Property Owner and shall have no duty or obligation to review such Annual Report. The Annual Report may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. If Property Owner's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f).

(b) If the Fiscal Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Fiscal Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A

(c) The Dissemination Agent shall:

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

(ii) to the extent information is known to it, file a report with the Issuer, the Property Owner and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided.

SECTION 4. Content of Annual Reports. The Property Owner's Annual Report shall contain or include by reference the following:

(i) Relating to all property owned by Property Owner within Improvement Area No. 1 of the District (the "Property"), a summary of the Property Owner's development activity on the Property during the Property Owner's last fiscal year: (A) number of acres/lots owned by the Property Owner or its Affiliates as of the end of the applicable fiscal year or a more recent date, (B) progress of construction activities on the Property as of the end of the applicable fiscal year

G-12 or more recent date, and (C) number of acres/lots sold by Property Owner or its Affiliates to end users or builders as of the end of the applicable fiscal year or a more recent date.

(ii) Any material changes in the information relating to the Property Owner and/or the Property contained in the Official Statement under the caption "THE DISTRICT" and "THE DEVELOPMENT."

(iii) A description of the status of any land purchase contracts with regard to the Property (other than sales to individual home buyers).

(iv) A description of any change in the legal structure of the Property Owner and/or the financial condition of the Property Owner that would materially interfere with its ability to complete the development plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN" and "THE MASTER DEVELOPER AND THE DEVELOPERS" (the "Development Plan") or to pay its Special Taxes.

(v) A description of any material changes in the Development Plan.

(vi) A pro forma financing statement relating to the Development Plan detailing (A) amount spent to date, (B) the remaining costs to complete the Development Plan including timing of such disbursements and (C) the source of financing for such remaining development costs.

(vii) A description of any previously undisclosed material amendment to the land use entitlements for the Property.

(viii) An update of the status of any previously reported Listed Event described in Section 5 hereof.

(ix) A statement as to whether or not the Property Owner and all of its Affiliates paid, prior to their becoming delinquent, all special taxes levied on the property owned by the Property Owner and such Affiliates within Improvement Area No. 1 and if such Property Owner or any of such Affiliates is delinquent in the payment of such special taxes, a statement identifying each entity that is so delinquent, specifying the amount of each such delinquency and describing any plans to resolve such delinquency.

(x) A description of any material changes in the financing plan of the Property Owner for the Development Plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN - Development and Financing Plans -Improvement Area No. 1" (the "Financing Plan") and the causes or rationale for such changes.

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

G-13 SECTION 5. Reporting of Significant Events.

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

1. bankruptcy or insolvency proceedings commenced by or against Property Owner or a partner or Affiliate thereof that would materially interfere with its ability to complete the Development Plan or to pay its Special Taxes;

2. failure to pay any taxes, special taxes or assessments due with respect to the Property;

3. filing of a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof seeking damages, or a judgment in a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof, which could have a significant impact on the Property Owner's ability to pay Special Taxes or to sell or develop the Property;

4. any conveyance by the Property Owner of property to an entity that is not an Affiliate of such Property Owner, the result of which conveyance is to cause the transferee to become a Major Owner;

5. any denial or termination of credit, any denial or termination of, or default under, any line of credit or loan or any other loss of a source of funds that could have a material adverse affect on the Property Owner's most recently disclosed Financing Plan or the ability of the Property Owner or any Affiliate to pay Special Taxes when due;

6. any significant amendments to land use entitlement for the Property Owner's property;

7. any previously undisclosed governmentally-imposed preconditions to commencement or continuation of development of the Property;

8. any previously undisclosed legislative, administrative or judicial challenges to development of the Property;

9. any material change in the alignment, design or likelihood of completion of significant public improvement being constructed by the Property Owner affecting the Property, including major thoroughfares, sewers, water conveyance systems and similar facilities; and

10. The assumption of any obligation by a Major Owner pursuant to Section 6.

(b) The Fiscal Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request

G-14 that the Property Owner promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Fiscal Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Fiscal Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. The Fiscal Agent shall have no responsibility to determine the materiality of any of the Listed Events.

(c) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or otherwise, the Property Owner shall as soon as possible determine if such event would be material under applicable federal securities laws.

( d) If the Property Owner has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Property Owner shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f).

(e) If in response to a request under subsection (b ), the Property Owner determines that the Listed Event would not be material under applicable federal securities laws, the Property Owner shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f).

(f) If the Dissemination Agent has been instructed by the Property Owner to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories.

SECTION 6. Duration of Reporting Obligation. (a) All of the Property Owner's obligations hereunder shall commence on such date as property owned by the Property Owner is responsible for payment of 20% or more of the special taxes in Improvement Area No. 1 and shall terminate (except as provided in Section 11) upon (i) the legal defeasance, prior redemption or payment in full of all the Bonds or (ii) so long as the Bonds are outstanding, at such time as property owned by the Property Owner is no longer responsible for payment of 20% or more of the special taxes in Improvement Area No. 1. Upon the occurrence of any such termination or suspension prior to the final maturity of the Bonds, the Property Owner shall give notice of such termination or suspension in the same manner as for a Listed event under Section 5.

(b) If a portion of the property in Improvement Area No. 1 of the District owned by the Property Owner, or any Affiliate of Property Owner, is conveyed to a Person that, upon such conveyance, will be a Major Owner, the obligations of Property Owner hereunder with respect to such property owned by such Major Owner and its Affiliates shall be assumed by such Major Owner or by an Affiliate thereof and the Property Owner obligations hereunder will be terminated. In order to effect such an assumption, such Major Owner or Affiliate shall enter

G-15 into an Assumption Agreement. The entering into an Assumption Agreement by such Major Owner or Affiliate shall be a condition precedent to the conveyance of such property and the Property Owner shall provide a copy of the executed Assumption Agreement to the Fiscal Agent and the Issuer prior to such conveyance.

SECTION 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Property Owner pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the Property Owner, the Issuer and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Property Owner in a timely manner and in a form suitable for filing.

SECTION 8. Amendment: Waiver. Notwithstanding any other prov1s1on of this Disclosure Agreement, the Property Owner, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to any amendment so requested by the Property Owner) provided, neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

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

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

( c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Property Owner shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Property Owner.

G-16 SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Property Owner chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Property Owner shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the Property Owner or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent ( at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Property Owner or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Property Owner or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agent. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Property Owner agrees to indemnify and save the Dissemination Agent and Fiscal Agent, their officers, directors, employees and agents (the "Indemnified Party"), harmless against any loss, expense and liabilities which they may incur arising out of or in the reasonable exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding losses, expenses or liabilities due to any Indemnified Party's respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Property Owner for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the Property Owner, the Bondholders, or any other party. Neither the Fiscal Agent or the Dissemination Agent shall have any liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related

G-17 to or arising from this Agreement. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the Issuer: City oflndio Community Facilities District No. 2004-3 (Terra Lago) c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Telephone: (760) 342-6580 Facsimile: (760) 342-6597 To the Fiscal Agent: Union Bank of California, N.A. 120 S. San Pedro Street, 4th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694 To the Dissemination Agent: Union Bank of California, N.A. 120 S. San Pedro Street, 4th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694 To the Property Owner:

Attn: Telephone: Facsimile:

Any person may, by written notice to the other persons listed above, designate a different address or telephone number( s) to which subsequent notices or communications should be sent.

SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Property Owner, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

G-18 SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

[PROPERTY OWNER], [type of entity]

Name:

Title:

UNION BANK OF CALIFORNIA, N.A.,

as Dissemination Agent and Fiscal Agent

Authorized Officer

G-19 EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party: Name of Bond Issue: City oflndio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) Date of Issuance: September 15, 2005 NOTICE IS HEREBY GIVEN that the Property Owner has not provided an Annual Report with respect to the above-named Bonds as required by the Developer Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The Property Owner anticipates that the Annual Report will be filed by .]

Dated: ------

UNION BANK OF CALIFORNIA, N.A.,

on behalf of Property Owner

cc: Issuer Property Owner

G-20 APPENDIXH

BOOK-ENTRY ONLY SYSTEM

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

The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the each issue of the Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC.

DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to die provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-US. 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-US. 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"). 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 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

H-1 To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTCs partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds: DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners well be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

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

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer 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 are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, Agent, or Issuer, 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 the Fiscal 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 and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond 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 certificates will be printed and delivered.

H-2