OFFICIAL STATEMENT NEW ISSUE NO RATING In the opinion of Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Bonds is exempt from State of California personal income taxes, is excluded from gross income for purposesof income taxation by the United States of America, and is not an item of tax preference for purposes of the alternative min,imum tax imposed by the United States on individuals and corporations, subject to certain qual�fications more particularly described under the heading "TAX EXEMPTION" herein. STATE OF CALIFORNIA COUNTY OF RIVERSIDE $12,815,000 COMMUNITY FACILITIES DISTRICT NO. 89-1 (REDHAWK) OF THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT SPECIAL TAX BONDS, SERIES 1990 Dated: December 15, 1990 Due: September l, as shown The Bonds are being issued to finance the construction and acquisition of certainschool, day care and reclaimed water facilities and other public improvements as further described herein to serve property located within Community Facilities District No. 89-1 (Redhawk) of the Temecula Valley Unified School District (the "District"), located in the County of Riverside, State of California. The Bonds are authorized to be issued 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) and a resolution adopted by the GoverningBoard of the Temecula Valley Unified School District (the "School District") acting as the legislative body of the District, approving execution of an Administration Agreement by and between the School District on behalf of the District and Bank of America National Trust and Savings Association, as fiscal agent ("Fiscal Agent") dated as of December 15, 1990 ("Administration Agreement") which establishes the terms and conditions governing the Bonds and any Additional Bonds (as definedherein). The Bonds are payable from certain proceeds of an annual Special Tux(as definedherein) to be levied and collected fromproperty located within the District and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of Special Tuxes (together, the "Special Tux Revenues") and from certain Bond proceeds pledged under the Administration Agreement.

The Special Tux is to be levied according to the rate and method of apportionment approved by the School District, and by the owners of the property within the District. The Special Tuxes are to be collected in the same manner and at the same time as ad valorem property taxes are collected by the Treasurer-TuxCollector of the County of Riverside and, when received, that portion of the Special Tuxes pledged to the repayment of the Bonds will first be placed in the Special TuxFund and then be transferred to the Bond Fund of the District held by the Fiscal Agent in Los Angeles, California. The Bonds are being issued as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. Interest is payable March 1 and September I of each year (commencing March 1, 1991) by check mailed to the owners of the Bonds appearing on the Fiscal Agent's registration books as of the 15th day of the month preceding each interest payment date (the "Record Date") or, upon instructions of any owner of $1,000,000 or more by wire transfer made to an account of a bank or financialinstitution in the United States of America designated by such owner in aggregate principal amount of Bonds received on or priorto the Record Date preceding such interest payment date. Principal of and premium, if any, on the Bonds will be payable at the principal corporate trust office of the Fiscal Agent in San Francisco, California. The Bonds maturing on or after September 1, 2001 are subject to optional redemption at the redemption prices set forth herein on September 1, 2000 and on any interest payment date thereafter. See "THE BONDS-Optional Redemption". The Bonds maturing September 1, 2010 and September 1, 2017 are subject to mandatory sinking fund redemption at par, without premium, commencing September 1, 2006 and September 1, 2011, respectively, and each September 1 thereafter in the amounts set forth herein. See "THE BONDS-Mandatory Sinking Fund Redemption". The Bonds are also subject to special mandatory redemption at par, plus a premium of three percent, on any interest payment date following a prepayment by one or more landowners of their Special Tuxobligations, as described herein. See "THE BONDS-Special Mandatory Redemption". NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE TEMECULA VALLEY UNIFIED SCHOOL DIS­ TRICT, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE SCHOOL DISTRICT NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM AMOUNTS DEPOSITED IN THE SPECIAL TAX FUND, THE BOND FUND, THE RESERVE FUND AND THE PREPAY­ MENT FUND AS MORE FULLY DESCRIBED HEREIN. See the section of this OfficialStatement entitled "Special Risk Factors" for a discussion of the risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Bonds. MATURITY SCHEDULE Date Principal Interest Date Principal Interest (September I) Amount Rate Price (September 1) Amount Rate Price 1992 ...... $ 10,000 6.50'k 1009,; 1999...... $165,000 7.70% 100% 199:3 ...············ 20,000 6. 75 100 2000 ...... 200,000 7.80 100 1994 ··············· 30,000 7.00 100 2001 ...... 240,000 7.90 100 1995 ··············· 50,000 7.20 100 2002 ...... 280,000 8.00 100 1996 ...... 75,000 7.40 100 2003 ...... 330,000 8.10 100 1997 ...... 105,000 7. 50 100 2004 ...... 380,000 8.20 100 1998 ··············· 135,000 7.60 100 2005...... 435,000 8.25 100 $3,010,000 at 8.50% Term Bonds due September 1, 2010-Price (100%) $7,350,000 at 8.60% TermBonds due September 1, 2017-Price (100%) (Accrued Interest to be added) The Bonds are offered when. as and if issued, subject to approval as to their legality by Best, Best & Krieger, Riverside, Cal�fornia,Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the Underwriter by Stradling, Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach, California, and for the School District and the District by Best, Best & Krieger, Riverside, Cal�fornia. It i.s anticipated that the Bonds in definitive form will be available in New York, New York on or about December 27, 1990. Stone & Youngberg Dated: December 14, 1990 TEMECULA VALLEY UNIFIED SCHOOL DISTRICT GOVERNING BOARD Walt R. Swickla, President Joan F. Sparkman, Clerk Dr. David Eurich, Member Mary Jo Helmeke, Member Rosie Vanderhaak, Member STAFF Dr. Patricia B. Novotney, Ed.D., Superintendent John Brooks, Assistant Superintendent of Business Services Jay Hoffman, Assistant Superintendent for Instructional Support Services BOND COUNSEL Best, Best & Krieger Riverside, California UNDERWRITER'S COUNSEL Stradling, Yocca, Carlson & Rauth, a Professional Corporation Newport Beach, California APPRAISER Brown, Chudleigh, Schuler and Associates Los Angeles, California SPECIAL TAX CONSULTANT David Taussig and Associates, Inc. Irvine, California MARKET ABSORPTION ANALYST Empire Economics Capistrano Beach, California FINANCIAL ADVISOR TO THE SCHOOL DISTRICT Fieldman, Rolapp & Associates Irvine, California FISCAL AGENT Bank of America National Trust and Savings Association Los Angeles, California TABLE OF CONTENTS

INTRODUCTION...... • . . . • .. • • . . • . . • .. . • . • • • . . . . • .. . .. 1 THE BONDS...... • ...... 3 Authority for Issuance...... 3 Description of the Bonds...... • ...... • . 3 Optional Redemption...... 4 Mandatory Redemption - Prepayment of Special Tax...... 4 Mandatory Sinking Fund Redemption...... 5 Purchase of Bonds in Lieu of Redemption...... 6 Notice of Redemption...... 6 Registration of Exchange or Transfer...... 7 Mutilated, Lost, Destroyed or Stolen Bonds...... 7 Issuance of Additional Bonds...... 8 ESTIMATED SOURCES AND USES OF FUNDS...... 10 SOURCES OF PAYMENT FOR THE BONDS...... 10 Debt Service on the Bonds...... 11 Special Tax...... 11 Proceeds of Foreclosure Sales...... • . • ...... • .. . • ...... 14 Reserve Fund ...... 15 SPECIAL RI SK FACTORS . • . • . • • . • • • • • • . • • • • • • • • • • • • • • • • • • • . • • . • • • . . • 16 Failure or Inability to Complete Planned Development...... 16 Future Land Use Regulations and Growth Control Initiatives.... 17 Direct and Overlapping Indebtedness...... 18 Land Values...... 19 Potential Shortfalls in Special Tax Revenues...... 20 Bankruptcy and Foreclosure Delays...... 21 No Acceleration Provision...... 21 Loss of Tax Exemption...... 22 Constitutional Limitations on Taxation and Appropriations..... 22 Ballot Initiatives...... 24 TlIE DEVELOPMENT• • . • • • • • • • • • . • • • • . • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 2 4 The Developers ...... • ...... 2 5 THE SCHOOL DISTRICT.. . . . • • . . • . • • • . • . • • . • • • • . • • • • • • • . • • • . • • • • • . • • 2 7 COMMUNITY FACILITIES DISTRICT NO. 89-1 CREDHAWK)...... 28 Description...... 28 The Project...... 28 THE ADMINISTRATION AGREEMENT...... 29 Funds and Accounts...... 29 Investment of Funds and Accounts...... 34 Other Covenants of the District. . • . .. • . . • ...... • . . • . .. . . 34 Amendment of the Administration Agreement...... 36 Events of Default and Owners' Remedies...... 37 Def easance...... • ...... • ...... 3 8 TAX EXEMPTION...... ,, . • • • .. . • • • • • • • • • • . • • . • • • • • • • • • • .. • • • 40 CONCLUDING INFORMATION...... • ...... 40 Underwriting...... 40 Legal Opinion ...... , .. , , ...... 41 No Litigation...... 41 No Rating...... 41 Bonds Not General Obligations...... 41 Miscellaneous...... 41

Appendix A - Rate and Method of Apportiorunent of Special Tax Appendix B - Summary of Appraisal Appendix C - Summary of Market Absorption Study Appendix D - Direct and Overlapping Debt Report Appendix E - The Temecula Valley Unified School District Area Appendix F - Prepayment Formula

No dealer, broker, salesperson or other person has been authorized by the School District or the District to give any information or to make any representations, 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 District.

The 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 official 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 School District, the District or the Underwriter. 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 School District, the Project, the District or major property owners in 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.

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 PREVAIL IN THE OPEN MARKET, SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS HAVE NOT BEEN REGI STEREO UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. INTRODUCTION

The purpose of this Official Statement is to provide certain information concerning the issuance of the Conununity Facilities District No. 89-1 (Redhawk) of the Temecula Valley Unified School District Special Tax Bonds, Series 1990 (the "Bonds"), in the aggregate principal amount of $12,815,000. The proceeds of the Bonds will be used to finance certain school, day care and reclaimed water facilities and other public improvements which will be needed to support the planned development of approximately 4100 residential units within the boundaries of Conununity Facilities District No. 89-1 (Redhawk) of the Temecula Valley Unified School District (the "District").

The land within the District includes approximately 1270 gross acres planned predominately for residential use, with a projected bui1dout of approximately 2900 single family residential dwelling units and 1200 multi­ family dwelling units. Thirteen (13) acres are proposed for conunercial development. RDHK Venture, a California limited partnership, is the master developer/ builder of approximately 970 gross acres which will include approximately 3200 residential dwelling units and the commercial development. Seven (7) merchant builders are building or proposing to build approximately 900 residential dwelling units on the remaining acreage. See "THE DEVELOPMENT" herein. The District is located in an unincorporated area in the southwestern portion of the County of Riverside. See "COMMUNI TY FACILITIES DISTRICT NO. 89-1 (REDHAWK)" herein.

The District was formed and the Bonds are being issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, constituting Sections 53311 et seg. of the California Government Code (the "Act"). The Act was enacted by the California Legislature to provide an alternative method of financing certain essential public capital facilities and services, especially in developing areas of the State. Any public agency may establish a community facilities district within defined boundaries to provide and finance the cost of eligible public facilities and services. Generally, the governing board or legislative body of the local agency which forms a district acts on behalf of such district as its legislative body. Subject to approval by a two-thirds vote of the qualified electors of a district and compliance with the provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district and may levy and collect a special tax within such district to repay such indebtedness.

Pursuant to the Act, on May 15, 1990 the Governing Board of the Temecula Valley Unified School District (the "Governing Board") adopted two resolutions (collectively, the "Resolution of Intention"), stating its intention to establish the District, to levy a Special Tax (as defined below) within the District and to issue up to $20, 000,000 in bonded indebtedness to finance certain public improvements needed to support the proposed development within the District. On July 5, 1990, following a public hearing, the Governing Board adopted a resolution (the "Resolution of Formation") forming the District and a resolution calling a special election pursuant to the Act to authorize the District to incur bonded indebtedness in a principal amount not to exceed $20, 000,000 to finance the construction and acquisition of certain

-1- school, day care and reclaimed water facilities and other facilities (the "Project") and to approve the rate and method of apportionment of a Special Tax (as defined herein) to pay the principal of and interest on any bonded indebtedness incurred by the District and to establish an appropriations limit for the District. On July 17, 1990, the owners of land within the District as of that date voted to authorize the District to incur bonded indebtedness in a principal amount not to exceed $20,000,000 to finance the Project and approved the maximum rate and method of apportionment (the "Rate and Method of Apportionment") of a special tax to pay the principal of and interest on such bonded indebtedness. On October 16, 1990 the Governing Board acting as the legislative body of the District adopted Ordinance No. 1990/91-1 which provides for the Rate and Method of Apportionment and levying of the Special Tax (the "Ordinance"). On October 16, 1990 the Governing Board, acting as the legislative body of the District, adopted a resolution (the "Resolution of Issuance"> authorizing the issuance of the Bonds in an aggregate principal amount of not to exceed $20, 000, 000 and approved the Administration Agreement. On November 20, 1990 the Governing Board, acting as the legislative body of the District, adopted a resolution amending the Administration Agreement. As used in this Official Statement, the "Special Tax" is that tax authorized pursuant to the Act to be levied against land within the District in accordance with the Rate and Method of Apportionment of Special Taxes approved by the qualified electors at the July 17, 1990 election. See the section of this Official Statement entitled "SOURCES OF PAYMENT FOR THE BONDS - The Special Tax" and APPENDIX A herein. At a later time, additional bonds (the "Additional Bonds"); (which Additional Bonds, if any, and the Bonds are sometimes referred to collectively herein as the "District Bonds") on a parity with the Bonds may be issued to fund the acquisition and construction of the Project. See "COMMUNITY FACILITIES DISTRICT NO. 89-1 (REDHAWK) - The Project". All the District Bonds, including the Bonds and each series of Additional Bonds, if any, will be secured on a parity with each other pursuant to the terms of the Administration Agreement (as defined herein) and, subject to the limitations therein, by the Special Taxes pledged to repay the District Bonds and certain moneys in the Bond Fund created pursuant to the terms of the Administration Agreement. The qualified electors of the District have presently authorized the issuance of up to $7,185,000 in Additional Bonds and could authorize the issuance of further Additional Bonds at subsequent elections. See "THE BONDS - Issuance of Additional Bonds". NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT, COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE SCHOOL DISTRICT NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM AMOUNTS DEPOSITED BY THE DISTRICT IN THE SPECIAL TAX FUND, THE BOND FUND, THE RESERVE FUND AND THE PREPAYMENT FUND AS MORE FULLY DESCRIBED HEREIN.

-2- In the event that the Special Taxes are not paid when due, the only sources of funds to repay the Bonds are amounts held by the Fiscal Agent, including amounts held in the Reserve Fund (as defined herein) and the Surplus Special Tax Fund (as defined herein), and the proceeds, if any, from foreclosure sales of land within the District following a delinquency in a Special Tax payment. An appraisal of the land within the District dated July 25, 1990 and updated October 31, 1990 ( the "Appraisal") was prepared by Brown, Chudleigh, Schuler and Associates (the "Appraiser"). The market value of the land within the District was estimated by the Appraiser to be $144,600,000 as of the date of the update of the Appraisal, based upon certain assumptions. See "APPENDIX B - Summary of Appra i sa I". Notwithstanding the Appraiser's estimates of value, there is no assurance that the land can be sold for a price sufficient to pay the principal and interest on the Bonds in the event of a default in payment of Special Taxes by the landowners within the District. See "SPECIAL RISK FACTORS - Land Values". Because the land within the District is largely unimproved, the purchase of the Bonds involves significant risks which should be evaluated by prospective purchasers prior to reaching a decision to purchase any Bonds. See "SPECIAL RISK FACTORS Failure or Inability to Complete Planned Development" herein. Brief descriptions of the Bonds, the security for the Bonds, the School District, the District, the Developer and the Appraisal are included in this Official Statement, together with summaries of certain provisions of the Bonds and the Administration Agreement. The descriptions of the Bonds and the Administration Agreement do not purport to be comprehensive or definitive and are qualified in their entirety by reference to such documents, copies of which are available for inspection at the office of the Assistant Superintendent for Business Support Services of the Temecula Valley Unified School District, 31350 Rancho Vista Road, Temecula, California 92390-0279, telephone number (714) 676-2661.

THE BONDS Authority for Issuance The District was established and bonded indebtedness in an amount not to exceed $20,000,000 was authorized to be issued pursuant to provisions of the Act. The Bonds will be issued pursuant to the Act and an Administration Agreement by and between the School District on behalf of the District and the Fiscal Agent dated as of December 15, 1990, (the "Administration Agreement"), which was approved by a resolution of the Governing Board acting as the legislative body of the District on October 16, 1990 and amended by adoption of a resolution by the Governing Board acting as the legislative body of the District on November 20, 1990. See "THE ADMINISTRATION AGREEMENT" herein. Description of the Bonds The Bonds will be issued in the aggregate principal amount of $12,815,000 only as fully registered Bonds, without coupons, in the denomination of $5,000 or any integral multiple thereof, and will bear interest at the rates per annum and will mature on the dates set forth on the cover hereof.

-3- The Bonds will be dated December 15, 1990 and interest will be payable thereon on March 1 and September 1 of each year, commencing March l, 1991 (the "Interest Payment Dates"), from the interest payment date next preceding the date of authentication thereof, unless (i) the 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 the close of business on a Record Date (as defined herein) 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 first Record Date preceding the first Interest Payment Date, in which event interest shall be payable from December 15, 1990; provided that if, at the time of authentication of any Bond, interest is in default, interest on that Bond will 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 on such Bond the interest shall be payable from December 15, 1990. The principal of and premium, if any , on the Bonds is payable in lawful money of the United States of America at the principal corporate trust office of the Fiscal Agent upon presentation of the Bonds. Payment of interest on the Bonds will be made to the owner thereof by check of the Fiscal Agent mailed to the owner at his address as it appears on the Bond Register to be kept by the Fiscal Agent, at its principal corporate trust office in San Francisco, California, as of the close of business on the fifteenth day of the month preceding an Interest Payment Date (the "Record Date"), or at such other address as is furnished to the Fiscal Agent in writing by such owner. Upon instructions of a registered owner of at least $1, 000,000 in aggregate principal amount of Bonds received at least fifteen (15 ) business days prior to the Interest Payment Date, interest will be paid by wire transfer in immediately available funds to an account of a bank or financial institution in the United States of America designated by such owner. Opt i onal Redempt ion The Bonds maturing on or after September l, 2001 may be redeemed prior to maturity at the option of the District, from any source of funds, on September l, 2000 or on any Interest Payment Date thereafter, pro rata among maturities and by lot within a maturity, as a whole or in part, at the following redemption prices, expressed as a percentage of the principal amount thereof, together with accrued interest to the date of redemption:

Redemption Dates Redemption Price

September l, 2000 or March l, 2001 102% September l, 2001 or March l, 2002 101% September l, 2002 and thereafter 100% Mandatory Redempt ion - Prepayment of Spec ial Taxes The Bonds are subject to mandatory redemption in increments of $5,000 from amounts received by the District as a prepayment of the Special Tax obligation of any landowner in the District on the Interest Payment Date next succeeding such receipt at a redemption price equal to the principal amount thereof, plus

-4- a premium of 3% of such principal amount, together with accrued interest to the date of redemption. 'Any partial mandatory redemption made from such prepayments shall be made proportionately among maturities and by lot within each maturity.

The Resolution No. 1990/91-43 of the Governing Board sets forth the formula for the prepayment of a Special Tax obligation. The prepayment formula is set forth in its entirety in Appendix G hereto. Mandatory Sinking Fund Redemption The Bonds maturing September l, 2010 are subject to mandatory sinking fund redemption in part and by lot on each September 1 specified below, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption , without premium, as follows : TERM BONDS MATURING SEPTEMBER l,

Redemption Principal Date Amount (September 1) Redeemed

2006 $ 485,000 2007 540,000 2008 590, 000 2009 665,000 2010 (maturity) 730 , 000

The Bonds maturing September l, 2017 are subject to mandatory sinking fund redemption in part and by lot on each September 1 specified below, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption , without premium , as follows : TERM BONDS MATURING SEPTEMBER l,

Redemption Principal Date Amount (September 1) Redeemed

2011 $ 810, 000 2012 880, 000 2013 955, 000 2014 1,035, 000 2015 1,120, 000 2016 1,220 , 000 2017 (maturity) l, 330 , 000

In the event of a partial redemption of the Bonds maturing September l, 2010 or September 1, 2017 pursuant to the optional redemption and special mandatory redemption prov1s1ons discussed above, each of the rema1n1ng mandatory sinking fund payments will be reduced , as nearly as practicable, on a pro rata basis .

-5- Purchase of Bonds in Lieu of Redemption

In lieu or partially in lieu of redemption as described above, the District may direct the Fiscal Agent to use moneys in the Bond Fund (defined hereinafter) to purchase Bonds, at public or private sale as and when, and at such prices as the District may direct, but in no event at a price in excess of the principal thereof, plus accrued interest to the date of purchase. The District shall direct the Fiscal Agent to purchase Bonds proportionately among maturities. Notice of Redemption Notice of redemption, containing the information required by the Administration Agreement, will be given by the Fiscal Agent, in the name of the District. The Administration Agreement requires that the notice of redemption shall Ca) state the redemption date; Cb) state the redemption price; Cc) state the n\.Ullbers, CUSIP n\.Ullbers and dates of maturity of the Bonds to be redeemed, and, in the case of Bonds to be redeemed in part, the respective principal portions to be redeemed; provided, however, that whenever any call includes all Bonds of a maturity the n\.Ullbers of the Bonds of such maturity need not be stated; Cd) state as to any Bond called in part the principal amount thereof to be redeemed; (e) require that such Bonds be surrendered at the principal corporate trust office of the Fiscal Agent in Los Angeles, California; and Cf) give notice that further interest on such Bonds will not accrue after the designated redemption date. At least 30 days but no more than 60 days prior to the redemption date, the Fiscal Agent will mail a copy of such notice, postage prepaid, to the registered owners thereof at their addresses appearing on the Bond Register and to the securities depositories and information services as required by the Administration Agreement. The actual receipt by a Bondowner of notice of a redemption is not a condition precedent to redemption, and neither the failure to receive such notice nor any defect therein will affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date.

The notice of redemption will be given on behalf of the District by the Fiscal Agent. A certificate by the Fiscal Agent that notice of redemption has been given to the owners of the Bonds as provided for in the Administration Agreement will be conclusive as against all parties, and no owner whose Bond is called for redemption may object thereto, or object to cessation of interest on the redemption date, by any claim or showing that such owner failed to receive actual notice of cal l and redemption.

From and after the redemption date, if funds available for the payment of the principal of, and interest and any premium on Bonds called for redemption shall have been deposited in the Bond Fund, such Bonds shall cease to be entitled to any benefit under the Administration Agreement other than the right to receive payment of the redemption price, and no interest shall accrue on such Bonds on or after the redemption date . Upon surrender of Bonds redeemed in part, a new Bond or Bonds of the same series, interest rate and maturity will be registered, authenticated and delivered to the owner at the expense of the District in the aggregate principal amount of the unredeemed portion.

-6- Reg istrat ion of Exchange or Transfer There will be kept by the Fiscal Agent books for the registration and transfer of the Bonds and, upon presentation for such purpose, the Fiscal Agent will , under such reasonable regulations as it may prescribe , register or transfer, or cause to be registered or transferred, Bonds on such register, as provided in the Administration Agreement .

The transfer of any Bond may be registered only upon such books of registration upon surrender thereof to the Fiscal Agent, together with an assignment duly executed by the owner of such Bond or his attorney or legal representative, in satisfactory form to the Fiscal Agent . Upon any such registration or transfer, a new Bond or Bonds will be authenticated and delivered in exchange for such transferred Bond , in the name of the transferee , of any denomination or denominations authorized by the Resolution, and in an aggregate principal amount equal to the principal amount of such Bond or Bonds so surrendered .

Bonds may be exchanged at the principal corporate trust office of the Fiscal Agent in San Francisco, California , for a like aggregate princpal amount of Bonds of the same series and maturity , subject to the terms and conditions provided in the Fiscal Agent 's system of registration, including the payment of certain charges, if any , upon surrender of such Bonds. Upon such exchange , a new registered Bond or Bonds of any authorized denomination or denominations of the same series and maturity for the same aggregate principal amount will be issued in exchange therefor .

The District may make a charge to the owner for every such exchange or registration of transfer of Bonds sufficient to reimburse it for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer. The Fiscal Agent will not be required to make any exchange or registration of transfer of Bonds during the 15 days immediately preceding any date upon which Bonds are to be selected for redemption, nor will the Fiscal Agent be required to exchange or register the transfer of any Bond selected for redemption.

The District and the Fiscal Agent may treat the owner, as shown on the registration books kept by the Fiscal Agent, as the person exclusively entitled to payment of principal , premium, if any , and interest of a Bond and the exercise of all other rights and powers of the owner, except that all interest payments will be made to the owner as of the Record Date .

Mutilated, Lost, Destroyed or Stolen Bonds If any Bond is mutilated , lost , stolen or destroyed , the Fiscal Agent shall authenticate a new Bond or Bonds in replacement thereof in the same aggregate principal amount and of the same maturity , as the case may be . In the case of a mutilated Bond , the Fiscal Agent shall require its surrender prior to authenticating a new Bond. In the case of a lost, stolen, or destroyed Bond , the District and the Fisca l Agent may require satisfactory

-7- indemnity prior to authenticating a new Bond . The District and the Fiscal Agent may charge the owners of the Bonds for their reasonable fees and expenses in connection with replacing mutilated, lost. stolen, or destroyed Bonds . Issuance of Additional Bonds

If at any time after the issuance of the 2, OOOth building permit for a residential dwelling unit within the District. the District determines it necessary, the District may provide for the issuance of and sell Additional Bonds pursuant to the Act secured by a lien upon the Special Taxes equal to the lien securing the Bonds , in such principal amounts as it estimates will be needed for its purposes , subject to the following conditions precedent to such sale:

Ca) The District shall be in compliance with all covenants set forth in the Resolution of Issuance, the Mitigation Agreement (as defined herein), the Administration Agreement and any supplemental agreement thereto and a certificate of the District to that effect shall have been filed with the Fiscal Agent; provided, however, that Additional Bonds may be issued notwithstanding that the District is not in compliance with all such covenants so long as immediately following the issuance of such Additional Bonds the District will be in compliance with all such covenants .

Cb) The issuance of such Additional Bonds shall have been duly authorized pursuant to the Act and all applicable laws .

Cc) The District shall have received an op.in.ion of Bond Counsel and/or Counsel to the District stating, among other items , that Cl) the District has the right and power under the Act to execute and deliver the Administration Agreement and the supplemental agreement relating to such Additional Bonds , (2) the Administration Agreement and all such supplemental agreements have been duly and lawfully approved, executed and delivered by the District, are in full force and effect and are valid and binding upon the District and enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency , reorganization and other similar laws relating to the enforcement of creditors ' rights ) and no other authorization for the Administration Agreement or such supplemental agreement is required, and (3) such Additional Bonds are valid and binding limited obligations of the District, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency , reorganization and other similar laws relating to the enforcement of creditors ' rights ) and, assuming compliance by the District with certain tax covenants , the issuance of the Additiona l Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of interest on any outstanding Bonds and Additional Bonds theretofore issued or the exemption from State of California personal income taxation of interest on any outstanding Bonds and Additional Bonds theretofore issued;

-8- (d) The District shall have received a report or certificate from an independent special tax consultant which certifies that the maximum Special Tax that may be levied by the District pursuant to the Act and the applicable resolutions and ordinances of the District is at least equal to 110% of annual debt service on all outstanding Bonds (including any such Additional Bonds to be issued) following the issuance of the Additional Bonds .

(e) The District shall have received a report or certificate from an independent financial consultant (which independent financial consultant may rely upon information obtained from the School District and/or California Municipal Statistics, Inc. >, the fair market value of the land and then existing improvements in the District, as determined by an appraisal performed on a basis consistent with the appraisal provided to the District in connection with the issuance of the Bonds, is at least 3. 0 times the sum of (A ) the aggregate principal amount of all District Bonds then outstanding, plus (B) the aggregate principal amount of the additional Additional Bonds proposed to be issued , plus CC) the aggregate principal amount of all assessment district bonds then outstanding and payable from assessments to be levied on parcels of land within the District, plus (D) a portion of the aggregate principal amount of other community facilities district bonds then outstanding and payable at least partially from special taxes to be levied on parcels of land within the District (the "Other CFD Bonds") equal to the aggregate principal amount of the Other CFD Bonds multiplied by a fraction the numerator of which is the amount of special taxes levied for the Other CFD Bonds on parcels within the District and the denominator of which is the total amount of special taxes levied for the Other CFD Bonds on all parcels of land, based upon information from the most recent available fiscal year; and

(f ) Provision shall have been made for the deposit into the Reserve Fund of an amount at least equal to the amount necessary to cause the amount on deposit in the Reserve Fund to equal the Reserve Requirement, as calculated immediately after the issuance of such Additional Bonds.

-9- ESTIMATED SOURCES AND USES OF FUNDS Sources

Principal Amount of Bonds $12,815,000.00 Accrued Interest 36,092 .58

Total Sources $12, 851 , 092 . 58

Improvement Fund(l) $10 ,249,840.60 Interest Account of the Bond Fund (2) 684,376.98 Reserve Fund 1,281,500.00 Underwriter 's Discount 320, 375. 00 Costs of Issuance 315,000. 00

Total Disbursements $12 , 851, 092 . 58

SOURCES OF PAYMENT FOR THE BONDS As described below , the Bonds and the interest thereon are special obligations of the District and are secured by and are payable from a first pledge of the Special Taxes to be levied by the Governing Board of the District annually on land within the District (including any proceeds received in foreclosure following a default in the payment of Special Taxes) and all moneys deposited in the Bond Fund and the Reserve Fund and, until disbursed pursuant to the Administration Agreement , in the Surplus Special Tax Fund and the Improvement Fund (subject to the obligation to rebate "arbitrage" in accordance with the Internal Revenue Code of 1986, as amended) and all moneys on deposit in the Bond Fund and the Reserve Fund . See "Security for the Bonds".

(1) Until such time as the amount of money disbursed from the Improvement Fund , together with the moneys then on deposit in such fund , equals $9 , 770 ,000, interest earned on all amounts held in the Improvement Fund will be credited to the Improvement Fund . (2) Represents accrued interest and capitalized interest on the Bonds , which amount together with interest earnings thereon at the projected rate of 7% per annum, is anticipated to be sufficient to pay interest on the Bonds through September l, 1991 .

-10- Debt Service on the Bonds The following table shows the schedule for payment of debt service on the Bonds :

Year Ending Principal Interest Total September l Payment Payment Debt Service

1991 769,975.11 769,97 5.11 1992 10,000.00 l,082,777.50 l,092 , 777. 50 1993 20,000.00 1,082,127.50 1,102,127.50 1994 30, 000.00 1,080, 777.50 1,110, 777. 50 1995 50,000.00 l,078, 677.50 1,128,677.50 1996 75,000.00 1,075,077.50 l, 150, 077. 50 1997 105, 000.00 1,069,527.50 1,174,527.50 1998 135 ,000 . 00 1,061, 652 . 50 1,196 ,652 . 50 1999 165,000.00 1,051,392.50 1,216,392.50 2000 200,000 .00 1,038 ,687.50 1,238,687.50 2001 240, 000.00 l,023,087.50 1,263,087.50 2002 280,000.00 1,004, 127. 50 1,284,127.50 2003 330, 000.00 981, 727. 50 1,311,727.50 2004 380, 000 .00 954,997.50 1,334,997.50 2005 435,000.00 923, 837.50 1,358,837. 50 2006 485,000.00 887,950.00 1,372, 950. 00 2007 540,000.00 846,725.00 l,386 , 725. 00 2008 590,000.00 800,825.00 1,390,825.00 2009 665,000.00 750,675.00 1,415, 675. 00 2010 730, 000.00 694, 150 .00 l,424 , 150 . 00 2011 810,000.00 632 ,100 .00 1,442,100.00 2012 880,000.00 562,440.00 1,442,440. 00 2013 955,000.00 486,760.00 1,441, 760.00 2014 1,035 ,000. 00 404 ,630.00 1,439 , 630.00 2015 1,120,000. 00 315,620.00 1,435,620.00 2016 1,220,000.00 219,300. 00 1,439,300.00 2017 l,330, 000 .00 114, 380. 00 1,444, 380.00 $ $ $ TOTM. 12------,815,000. 00 ------·21,994 ,0"------05.11 ---34,8------09,005.11 Special Tax

Debt service on the Bonds is expected to be paid primarily from the proceeds of Special Taxes levied against land within the District . The procedures for the levy of the Special Tax are described below.

In accordance with the provisions of the Act, the Governing Board of the School District established the District on July 5, 1990 to finance the construction and acquisition of certain public facilities . The District subsequently submitted a proposition to the qualified electors of the District to authorize the annual levy and collection of the Special Tax pursuant to the terms and conditions of the Act and the Rate and Method of Apportiorunent . The levy of the Special Tax and the Rate and Method of Apportionment of the

-11- Special Tax were authorized by the qualified electors of the District, at an election held on July 17, 1990. The Special Tax is to be levied and collected according to the Rate and Method of Apportionment as approved by the qualified electors at such election. The Rate and Method of Apportionment is set forth in its entirety in Appendix A hereto.

Because the Special Tax has been authorized by a vote of at least two-thirds of the qualified electors of the District, it is excepted from the tax rate limitation of California Constitution Article XIII A pursuant to Section 4 thereof. See "SPEC IAL RISK FACTORS - Const itutional limitat ions on Taxat ion and Appropriat ions" herein. Consequently, the Governing Board has the power and is obligated, pursuant to the covenants contained in the Administration Agreement , to cause the levy and collection of the Special Tax annually, conunencing in the District 's fiscal year 1991-92, according to the Rate and Method of Apportionment.

The District has covenanted in the Administration Agreement to levy Special Taxes in each fiscal year, commencing with fiscal year 1991-92, up to the maximum rates permitted by the Rate and Method of Apportionment , in order to yield an amount equal to the Net Annual Debt Service (as defined below) coming due in the ensuing Bond Year {as defined hereinafter), plus the Additional Levy (as defined hereinafter) , administrative costs due or coming due during the fiscal year, plus the amount , if any, necessary to replenish the Reserve Fund to an amount equal to the Reserve Requirement (as defined herein). Net Annual Debt Service means Annual Debt Service plus Administrative Expenses (i) less capitalized interest and (ii) available interest earnings . Bond Year means the period beginning March l, of any Fiscal Year and ending on the last day of February of the ensuing Fiscal Year.

Additional Levy means an amount equal to 9% of the aggregate Assigned Special Taxes (as defined in the Rate and Method of Apportionment) in a Fiscal Year, provided that the aggregate Assigned Special Taxes are less than Net Annual Debt Service. If the aggregate Assigned Special Taxes in a Fiscal Year are greater than the applicable Net Annual Debt Service, then the Additional Levy shall be an amount equal to 9% of such Net Annual Debt Service . The Additional Levy is an amount in excess of Net Annual Debt Service which is equal to 9% of the Special Taxes that are levied on Developed Property. As described in the Administrative Agreement , proceeds from the Additional Levy will , as with all Special Tax revenue, be deposited initially in the Special Tax Fund and be available for transfer, first to the Administrative Expense Fund , second to the Reserve Fund , third to the Bond Fund and then to the Surplus Special Tax Fund. The Special Taxes levied by the District will be collected by the County of Riverside (the "County") in the same manner and at the same time as ad valorem property taxes are collected by the Treasurer-Tax Collector of the County . When received by the District from the County, the Special Taxes will be deposited in the Special Tax Fund and then in the Bond Fund held by the Fiscal Agent and applied as set forth in the Administration Agreement . See "THE RESOLUT ION OF I SSUANCE'' here in.

-12- When received by the District from property owners within the District, prepayments of Special Taxes will be deposited in the Prepayment Fund held by the Fiscal Agent and applied as set forth in the Administration Agreement.

Although the Special Taxes will constitute liens on taxed parcels within the District, they do not constitute a personal indebtedness of the owners of property within the District. Moreover, in addition to the Bonds, other liens for taxes and assessments already exist on the property located within the District and others could come into existence in the future, possibly without the consent of the District , and in certain cases without the consent of the owners of land within the District. See "SPECIAL RISK FACTORS - Direct and Overlapping Indebtedness" and "APPENDIX D Direct and Overlapping Debt Report" for a summary of existing debt and currently authorized but unissued debt. There is no assurance that the owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described in the section of this Official Statement entitled "SPECIAL RISK FACTORS" herein. The amount of Special Taxes that the District may levy in any fiscal year is strictly limited by the maximum rates permitted by the Rate and Method of Apportionment. Thus, there can be no assurance that the Special Tax proceeds will, in all circumstances , be adequate to pay Annual Debt Service when due. See "SPECIAL RISK FACTORS - Potential Shortfalls in Special Tax Revenues". The Rate and Method of Apportionment first classifies property to be taxed into developed property, which is any assessor 's parcel in the District for which a building permit has been issued as of March 1 of the preceding fiscal year ("D eveloped Property"), and undeveloped property, which is any taxable property, excluding 182. 7 acres designated on County of Riverside Parcel Map No. 24387 as a golf course, not classified as Developed Property ("Undeveloped Property"). For Undeveloped Property, the "Maximum Special Tax" (as defined in APPENDIX A hereto) was established at $7, 300 per acre for Fiscal Year 1991-1992, subject to escalation by 2. 0% in each subsequent Fiscal Year commencing July l, 1992. For Developed Property, the Rate and Method of Apportionment establishes an assigned tax rate determined by type of property (classes 1 through 9) and a Backup Special Tax chargeable per square foot of land within an assessor 's parcel. The Maximum Special Tax for an assessor 's parcel designated as Developed Property will be the greater of (i) the amount derived by multiplying the square footage of such assessor 's parcel times the Backup Special Tax or (ii) the amount determined by reference to the established Special Tax Rate for the class of Developed Property to which such assessor 's parcel is assigned. The Rate and Method of Apportionment of Special Tax includes a five-step process by which the Governing Board will determine the amount of Special Tax to be levied against each Developed Property and Undeveloped Property in the District for each fiscal year. This amount will be used to pay for Annual Debt Service on the District 's indebtedness, create or replenish the Reserve Fund and pay administrative and construction expenses. The Governing Board will follow the process set forth in the Rate and Method of Apportionment set forth in APPENDIX A hereto until the amount of the Special Tax levy equals the amount required to be collected to pay Net Annual Debt Service and administrative costs and to replenish the Reserve Fund.

-13- David Taussig and Associates, Inc. ( the "Special Tax Consultant" ) has assisted in the preparation of the Rate and Method of Apportionment of the Special Tax described above and in APPENDIX A hereto and has reviewed the formula for the Special Tax to be levied on the property within the District . Based upon such review , the Special Tax Consultant has certified that the Special Tax in any particular year, if collected in the maximum amounts permitted pursuant to the Special Tax formula, would generate at least 110% of the scheduled annual debt service payable with respect to the District Bonds, provided that acreage and other information supplied by the landowners within the District and relied on by the Special Tax Consultant are true and correct . The only properties within the District that are absolutely exempt from the Special Tax are property (not to exceed a total of 692 acres of land) conveyed or offered for dedication to a public agency or owned by a homeowner 's association, public rights of way, unmanned utility properties or any public or utility easements making utilization of the land impractical for other than the purpose set forth in the easement, the golf course property previously described, and 133 apartment units. If property conveyed or dedicated to a public agency or owned by a homeowner 's association exceeds 692 acres, the acres exceeding such total may be taxed as Undeveloped Property if the Special Tax revenues which may be generated by levying the Maximum Special Tax against all Developed Property is insufficient to pay Net Annual Debt Service, replenish the Reserve Fund and to pay the administrative expenses of the District. See "SPECIAL RISK FACTORS - Potent ial Shortfal Is in Spec ial Tax Revenues" and "APPENDIX A" hereto. Proceeds of Foreclosure Sa les

A second potential source of funds to pay debt service on the Bonds is the proceeds received following a judicial foreclosure sale of land within the District resulting from a landowner 's failure to pay a Special Tax installment when due. Pursuant to Section 53356 .1 of the Act, in the event of any delinquency in the payment of any Special Tax or receipt by the District of Special Taxes from the County in an amount which is less than the Special Tax levied, the Governing Board as the legislative body of the District, may order the institution of a superior court action to foreclose the lien therefor within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at a judicial foreclosure sale.

Under the Act, the commencement of judicial foreclosure following the nonpayment of a Special Tax is not mandatory. However, the Governing Board as the legislative body of the District has covenanted for the benefit of the owners of the Bonds that, if the amount collected is less than ninety-five percent (95%) of the amount of the Special Tax levied in such fiscal year, it will institute foreclosure proceedings not later than the succeeding October 1 as authorized by the Act in order to enforce the lien of the delinquent installments of the Special Tax against each separate lot or parcel of land in the District, and will diligently prosecute and pursue such foreclosure proceedings to judgment and sale. Notwithstanding the foregoing, if the District determines on the basis of such review that any single property owner in the District is delinquent curnmulatively in excess of ten thousand dollars ($10,000 ), then it will diligently institute, prosecute and pursue such

-14- foreclosure proceedings in the time and manner provided herein against the owner of such property. The District has pledged the proceeds of any foreclosure to the payment of the Bonds or replenishment of the Reserve Fund for advances therefrom to the Bond Fund.

In the event such superior court foreclosure or foreclosures are 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 by the District 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 Tax installment . Although the Act authorizes the District to cause such an action to be commenced and di ligently 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 execution sale if there is no other purchaser at such sale. The Act provides that upon foreclosure the Special Tax will have the same lien priority as is provided for ad valorem taxes.

Effective July l, 1983 a judgment debtor (property owner) has 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 so 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 judgment is revived and the judgment creditor (i. e. , the District) is entitled to interest on the revived judgment as if the sale had not been made. ( Section 701. 680 of the Code of Civil Procedure of the State.) The constitutionality of the aforementioned legislation, which repeals the former 1-year redemption period, has not been tested; and there can be no assurance that , if tested, such legislation will be uphe ld.

Reserve Fund In order to secure further the payment of principal of and interest on the Bonds , the District is required to maintain on deposit in the Reserve Fund held by the Fiscal Agent an amount equal to the least of Ci) ten percent (10%) of the original proceeds of the Bonds and any Additional Bonds, (ii) maximum annual debt service on the outstanding principal amount of the Bonds and any Additional Bonds, or (iii) one hundred twenty-five percent (125%) of average annua l debt service on outstanding principa l amount of the Bonds and any Additional Bonds (the "Reserve Requirement") . The District has covenanted to levy Special Taxes up to the maximum rates permitted under the Rate and Method of Apportionment in an amount that is sufficient to maintain the balance in the Reserve Fund at the Reserve Requirement while any Bonds or Additional Bonds are outstanding. Amounts in the Reserve Fund are available to be used to pay Annual Debt Service on the Bonds or Additional Bonds and may be used to pay the final year 's debt service on the Bonds and any Additional Bonds.

-15- SPECIAL RISK FACTORS

Fa ilure or Inabi l ity to Complete Planned Deve l opment

The property within the District (the "Development") is currently being developed or is proposed to be developed by one master developer, RDHK Venture, a California limited partnership, proposing to develop approximately 970 gross acres and seven (7) merchant builders developing the remaining 325 gross acres. RDHK Venture is currently acting as the land developer of its acreage and the actual development of the RDHK Venture property may be undertaken by RDHK Venture, merchant builders purchasing property from RDHK Venture, or some combination thereof. Final subdivision maps have been recorded for only 658 of the total proposed 4100 residential dwelling units throughout the entire development.

A major risk to Bondholders is that proposed development within the District is subject to unexpected delays, disruptions and changes which may affect the willingness and ability of the property owners to pay Special Taxes when due. For example , land development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs, changes in federal, state or local governmental policies relating to the ownership of real estate and by other similar factors. Moreover, land development opera­ tions within the District may be adversely affected by future governmental policies, including, but not limited to, governmental policies to restrict or control development. See "SPEC IAL RISK FACTORS - Future land Use Regu lations and Growth Control Initiatives" . Certain approvals, including building permits, for the Development must come from the County of Riverside . Although final tract maps have been recorded for a portion of the land within the District and tentative tract maps for the remaining portion of the District, there can be no assurance that the current owners and developers or their successors, will secure the necessary approvals to complete the proposed buildout of the Development. The fact that the land within the District is currently owned by just eight (8) owners, is not fully developed and is subject to a number of contingencies which could slow or prevent future development presents significant risks to the Bondholders. No assurance can be given that the Development will be partially or fully completed, and in assessing the investment quality of the Bonds prospective purchasers should evaluate the risks of noncompletion discussed below .

First, undeveloped land is less valuable than developed land and provides less security to the Bondholders should it be necessary for the District to foreclose on undeveloped property due to the nonpayment of Special Taxes . Second, an inability to complete the Development will reduce the expected diversity of ownership of land within the District, making the Bondholders more dependent upon timely payment of the Special Tax levied on the undeveloped property. See "THE DEVELOPMENT" herein . Unless and until RDHK Venture and these seven (7) merchant builders sell land to others and further diversification of ownership occurs , the timely payment of the Special Taxes

-16- turns entirely upon the willingness and ability of RDHK Venture and the seven merchant builders to pay the Special Taxes . This concentration of ownership presents a significant risk that the Reserve Fund will be depleted rapidly and the District will default on the Bonds if RDHK Venture or any of the seven other current owners fails to pay a Special Tax installment when due. As one example, this concentration of ownership increases the potential negative impact of a bankruptcy by a major property owner. See "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure Delays" herein. Future Land Use Regulat ions and Growth Control Initiatives Development 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, drainage and flood protection facilities, gas, telephone and electrical facilities, recreational facilities and street lighting, as well as the local in-tract improvements, including substantial site grading. The installation of the necessary infrastructure improvements and the construction of the residential units within the Development is subject to the receipt of discretionary approvals from a number of public agencies concerning the layout and design of such improvements and projects, the nature and extent of the improvements, land use, health and safety requirements and other matters. The failure to obtain any such approval could adversely affect the planned land development within the District. Although vesting tentative tract maps approved for the Development and final maps have been recorded for 658 units, there can be no assurance that the land development operations within the District will not be adversely affected by future governmental policies, including, but not limited to, governmental policies to restrict or control development. Under current California law, it is generally accepted that proposed development is not exempt from future land use regulations until building permits have been issued and substantial work has been performed and substantial liabilities have been incurred in good faith reliance on the permits . To date, building permits have been issued for approximately 25 models and 40 production dwelling units within the Development and, depending upon the market absorption for the development, the final building permits may not be requested by merchant builders for another 7 to 10 years. See "THE DEVELOPMENT" herein. Because the completion of the Development will not occur for several years, the application of future land use regulations to the Development could cause significant delays and cost increases not currently anticipated, thereby reducing the ability or willingness of property owners to pay the Special Taxes when due or causing land values within the District to decrease substantially from those estimated by the Appraiser . See "SPECIAL RISK FACTORS - Land Values" herein . In order to protect its rights to develop the land within the District, a Development Agreement was obtained by Great American Development Company, the predecessor in interest to the current owners, from the County of Riverside pursuant to the provisions of Government Code Section 65865 . The Development Agreement provides that the Developers have vested rights to develop the Development in accordance with Specific Plan No. 217 of the County which

-17- permits development of a maximum of 4100 residential dwelling units and to require that the land use regulations applicable to and governing the Development are, with certain exceptions, only those that were in effect as of the date that the Development Agreement was executed.

Notwithstanding that the Development Agreement has been executed and certain other land use approvals obtained, no assurance can be given that the Development Agreement will ultimately exempt the Development from the provisions of future restrictions on land use development imposed by the County or by voter initiative. No binding case law exists in California which addresses the issue of whether statutory development agreements override the prov1s1ons of a subsequently enacted voter initiative or other land use regulations, including those of successor cities. The statutory authority for development agreements and several specific development agreements similar to the Development Agreement are currently being challenged in the California courts. Neither the District nor the Developers can predict either the outcome of any of such challenges or the effect of an adverse outcome on the validity or enforceability of the Development Agreement.

During the past two years, a number of local communities in Southern California, including the County of Riverside, have placed on the ballot measures intended to control the rate of future growth. Although the initiative on the County ballot was rejected by Riverside County voters at the November, 1988 election, it is possible that future initiatives could be enacted, could become applicable to the Development and could negatively impact the ability of the Developers, or their successors, to complete the proposed Development. In arriving at an estimated value of the land within the District, the Appraiser has assumed that the land within the District may be developed as currently planned by the Developers. Bondholders should assume that any significant delay or reduction in the permitted density of the planned Development would cause the land values within the District to decrease significantly from those arrived at by the Appraiser. See "SPECIAL RISK FACTORS - Land Values" herein. Direct and Overlapping Indebtedness Presently, the property within the District is subject to $34,510,688 of net direct and overlapping bonded debt, a figure which does not include the Bonds. See "APPENDIX D - Di rect and OverI app i ng Debt Report" . To repay the direct and overlapping debt, the owners of the land within the District must pay the annual assessment installments for County of Riverside Assessment District No. 159 and the Special Tax as well as the general property tax levy which currently equals approximately 1.135% of the assessed valuation of each parcel of land within the District. The ability of an owner of land within the District to pay the Special Taxes could be adversely affected if additional debt is incurred which is payable by the owners of land within the District. Please see discussion below of a proposed supplemental assessment for County of Riverside Assessment District No. 159 . As explained below, the land could become subject to additional debt either by the issuance of Additional Bonds or the imposition of other taxes and assessments by public agencies other than the District .

-18- The District has covenanted that , except for bonds issued to refund all of the Bonds outstanding , it will not issue any Additional Bonds which are secured on a parity with the Bonds unless the conditions set fo rth in the Administration Agreement have been satisfied. See "THE BONDS - Issuance of Additional Bonds".

Other public agencies whose boundaries overlap those of the District could , however, without the consent of the District , and in certain cases without the consent of the owners of the land within the District, impose additional taxes or assessment liens on the property within the District in order to finance public improvements to be located inside of or outside of the District. The lien created on the property within the District through the levy of such additional taxes or assessments will be on a parity with the lien of the Special Taxes. The County of Riverside has indicated its intention to initiate proceedings to levy a supplemental assessment within Assessment District No. 159 which encompasses the District and which could result in an increase of the assessment lien on the Development in an amount currently estimated to be $16 , 550 ,000. The imposition of additional liens on a parity with the Special Taxes may reduce the ability or willingness of the landowners to pay the Special Tax and increases the possibility that fo reclosure proceeds will not be adequate to pay delinquent Special Taxes .

Land Values The value of the property within the District is a critical factor in determining the investment quality of the Bonds . If a property owner defaults in the payment of a Special Tax, the District 's only remedy is to commence foreclosure proceedings in an attempt to obtain funds to pay the delinquent Special Tax . Reductions in District property values due to a downturn in the economy , physical events such as earthquakes or floods , stricter land use regulations or other events will adversely impact the security Ci. e. , the value of the land) underlying the Special Tax .

An appraisal (the "Appraisal") was prepared by the Appraise r dated July 25 , 1990 summarizing that firm 's opinion with respect to the probable market value of the property located in the Dist rict based upon the current land use approvals . The Appraiser reaffirmed its estimate of market value as of October 31, 1990 . The land within the District totals approximately 1270 gross acres , with approximately 4100 residential dwelling units and 13 net acres of comme rcial land expected to be developed. As set forth in the Summary of Appraisal attached hereto as APPENDIX B , the Appraiser has estimated land values in two different scenarios. The Appraiser utilized a direct sales comparison approach and determined the value utilizing this methodology to be $137 ,100,000. The Appraiser also utilized a discounted cash flow developmental analysis and determined the value utilizing this methodology to be $144 ,600 ,000. The Appraiser concluded that the developmental analysis best reflects the approach an informed purchaser would utilize in valuing the land within the District. See "APPEND IX B - Summary of Appraisal".

-19- Prospective purchasers of the Bonds should not assume that the land within the District could be sold for any of the appraised amounts described above at a foreclosure sale for delinquent Special Taxes. The actual value of the land is subject to future events which might render invalid the basic assumption of the Appraiser which is that the land within the District is capable of being developed in accordance with the Company 's current overall plan. As discussed under "SPECIAL RISK FACTORS - Fai lure or lnab i I ity to Complete Planned Development", many factors could prevent or delay the completion of the Development as planned. Thus, even the market value of $144, 600,000 may not be realized at a foreclosure sale due to adverse future events and the negative impact of a sale made under duress at foreclosure . Potent ial Shortfalls in Spec ial Tax Revenues In order to pay debt service on the Bonds when due, it is necessary that the Special Taxes levied against land within the District be paid in a timely manner. A potential shortfall in Special Tax revenues could arise due to nonpayment by one or more landowners or, as explained below, due to property becoming exempt from taxation as a result of its acquisition by a public entity.

Nonpayment of Special Taxes could occur due to the inability or unwillingness of a landowner to pay a Special Tax installment. The Developers, or their successors, might be unable to, or might elect not to , pay the Special Tax if the ability to develop the land is significantly delayed or altered. See "SPECIAL RISK FACTORS - Fai lure or lnabi I ity to Complete Planned Development" and "Future Land Use Regulat ions and Growth Control Initiatives. " Should the Special Taxes not be paid on time, the District has established a Reserve Fund in the initial amount of $1,281, 500 which is available to pay debt service on the Bonds to the extent other funds are not available therefor. Under the Administration Agreement, the District is obligated to maintain in the Reserve Fund an amount equal to the Reserve Requirement; however, if enough property owners default in payment of Special Taxes, the Reserve Fund could be depleted quickly with no source of funds to replenish it. In addition, the District has covenanted under certain circumstances to institute foreclosure proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on the Bonds. However, there is no assurance that the foreclosure proceedings will produce the amounts necessary to pay the debt service on the Bonds when due. See "SOURCES OF PAYMENT FOR THE BONDS - Proceeds of Foreclosure Sales" and "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure Delays" herein. A second potential shortfall in Special Tax revenues could be caused as a result of property becoming exempt from taxation. The Act provides that, if any property within the District not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and be 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

-20- Tax with respect to that property is to be paid by the public entity. The constitutionality and operation of these provisions of the Act have not been tested. If for any reason property subject to the Special Tax becomes exempt from taxation by reason of ownership by a non-taxable entity such as the federal government, or another public entity, subject to the limitation of the maximum authorized rate of levy, the Special Tax will be reallocated to the taxable properties within the District up to the maximum amounts permitted by the Rate and Method of Apportionment. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the timely payment of the Special Tax. MOREOVER , IF A SUBSTANT IAL PORT ION OF LAND WITHIN THE DISTR ICT BECAME EXEMPT FROM THE SPEC IAL TAX BECAUSE OF PUBL IC OWNERSH IP, OR OTHERWISE, THE MAX MUMI SPEC I AL TAX WH ICH COULD BE LEV I ED UPON THE REMAIN I NG ACREAGE WOULD NOT BE SUFF ICI ENT TO PAY PR I NC I PAL OF AND INTEREST ON THE BONDS WHEN DUE AND A DEFAULT WI LL OCCUR WI TH RESPECT TO THE PAYMENT OF SUCH PRINCIPAL AND INTEREST.

Bankruptcy and Forec losure De l ays

The payment of Special Taxes and the ability of the District to foreclose the lien of a delinquent unpaid Special Tax, as discussed in the section herein entitled "SOURCES OF PAYMENT FOR THE BONDS - Proceeds of Forec losure Sa les," may be limited by bankruptcy, insolvency, or other laws generally affecting creditors ' rights or by the laws of the State relating to judicial foreclosure. 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 instruments, by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, the bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings and could result in delinquent Special Tax installments not being paid in full. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds. To the extent that the property in the District continues to be owned by RDHK Venture and the 7 merchant builders, the payment of Special Taxes and the ability of the District to foreclose the lien of a delinquent unpaid Special Tax could be substantially curtailed by the bankruptcy or insolvency of RDHK Venture or any one or more of the 7 merchant builders, or by the application of other laws generally affecting creditors ' rights or by the laws of the State relating to judicial foreclosure. No Acce lerat ion Provision

The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Administration Agreement. Pursuant to the Administration Agreement, any registered owner of any outstanding District Bonds is given the right for the equal benefit and protection of all owners similarly situated to pursue certain remedies described under "THE RESOLUT ION OF ISSUANCE -- Events of Defau lt and Owners ' Remed ies".

-21- Loss of Tax Exempt ion As discussed under the caption "TAX EXEMPT ION" herein, interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued, as a result of future acts or omissions of the District in violation of its covenants in the Administration Agreement. Should such an event of taxability occur, the Bonds are not subject to a special redemption and will remain outstanding until maturity or until redeemed under one of the other redemption provisions contained in the Administration Agreement. Const itut ional Limitations on Taxat ion and Appropriations On June 6, 1978, California voters approved Proposition 13, a statewide initiative relating to the taxation of real property which added Article XIII A to the California Constitution. Among other things, the Proposition: (a) limited ad valorem property taxes on all real property to one percent (1%) of the full cash value of the property; (b) exempted existing voter approved bonded indebtedness from the 1% limitation; (c) defined "full cash value" as the Assessor 's appraised value of real property as of June l, 1975, adjusted by changes in the Consumer Price Index - not to exceed 2% per year; (d) permitted establishment of a new "full cash value" when there is new construction or a change in ownership; (e) permitted the reassessment, up to the June 1975 value, of property which was not current on the 1975-76 assessment roll; (f) required counties to collect the 1% property tax and to "apportion according to law the districts within the counties"; Cg) prohibited new ad valorem taxes on real property, or sales taxes, or transaction taxes, on the sale of real property; (h) permitted the imposition of special taxes by local agencies, other than those prohibited, by a two-thirds (2/3) vote of the "qualified electors" of such agencies; and (i) required a two-thirds (2/3) vote of all members of both houses of the Legislature for any changes in State taxes which would result in increased revenues.

In January, 1989, the United States Supreme Court in Allegheny Pittsburgh Coal Co. v. Webster County Commission (the "West Virginia Case"), ruled invalid a system of property taxation in a county in West Virginia which taxed similarly situated properties differently based on when property was originally acquired by the taxpayer. That case involved a method of assessment implemented by the county assessor, and the Court expressly refused to comment on whether California 's system, based on constitutional provisions, would be affected. Nonetheless in light of the West Virginia case, a number of lawsuits have been filed in California Superior Courts challenging the validity of Article XIIIA insofar as it has resulted in varying amounts of tax on similarly situated properties. The lower courts have upheld Article XIIIA, but appeals are being heard, and will likely be taken to the California and United States Supreme Courts . The School District and the District cannot predict how any final court decision striking down any aspect of Article XIIIA would ultimately alter the system of property taxation in California or affect the financial strength of the School District or the District, as the nature of any court 's remedy and the response of the Legislature are unknown at this time.

-22- On June 3, 1986, California voters approved Proposition 46 which amended Article XIII A to provide that the one percent (1%) limitation on ad valorem property taxes shall not apply to ad valorem property taxes or special assessments to pay interest and redemption charges on any bonded indebtedness for the acquisition or improvement of real property approved on or after July l , 1978 by two-thirds of the votes cast by voters voting at the election for the taxes or assessment. Were the voters to approve indebtedness payable from ad valorem taxes , those taxes would be on a parity with the Special Taxes. See "SPECIAL RISK FACTORS Direct and Overlapp ing Indebtedness" herein. Article XIII A provides that each county will levy the maximum ad valorem property tax permitted by Article XIII A and will distribute the proceeds to local agencies in accordance with an allocation formula based, in part, on pre-Article XIII A ad valorem property tax rate levies by local agencies. The ad valorem tax revenues are distributed to local agencies , according to an allocation system enacted by Statutes of 1979, Chapter 282, as amended. Under this law , local public entities receive property tax revenues in proportion to their relative tax rates prior to the enactment of Article XIII A subject to certain modifications for cities , counties and school districts and to various adjustments in succeeding years.

Future assessed valuation growth allowed under Article XIII A (new construction , change of ownership, 2% inflation) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate areas within which the growth occurs. Local agencies and schools will share the growth of "base" revenues from the tax rate area. Each year 's growth allocation becomes part of each agency 's allocation in the following year. The availability of revenues from growth and tax bases to such entities may be affected by the establishment of redevelopment agencies which, under certain circumstances, may be entitled to such revenues resulting from the upgrading of certain property values. The Special Tax is a special tax approved by the voters of the District in accordance with the procedures set forth in Section 4 of Article XIII A. The District has not pledged any taxes other than the Special Taxes to the repayment of the Bonds and, given the limitations on ad valorem property taxes imposed by Article XIII A, does not expect any ad valorem taxes to be available to repay the Bonds .

State and local government agencies in California and the State of California itself are subject to annual "appropriation limits" imposed by Article XIII B of the State Constitution. Article XIII B prohibits government agencies and the State from spending "appropriations subject to limitation" in excess of the appropriations limit imposed. "Appropriations subject to limitation" are authorizations to spend "proceeds of taxes , 11 which consist of tax revenues , certain state subventions and certain other funds , including proceeds from regulatory licenses , user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by such entity in providing the regulation, product or service. " No limit is imposed on appropriations of funds which are not "proceeds of taxes ," such as appropriations for debt service on indebtedness existing or authorized before

-23- January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, reasonable user charges or fees and certain other nontax funds. Since the Bonds constitute indebtedness authorized by the voters of the District, the District does not intend to treat the Special Taxes as "appropriations subject to limitation".

On November 4, 1986, the California voters approved Proposition 62, which adds Sections 53720 to 53730 to the California Government Code. These provisions Ci) require that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by a two-thirds vote of the governmental entity 's legislative body and by a majority vote of the electorate of the governmental entity, (ii) require that any special taxes (defined as taxes levied other than taxes for general governmental purposes) imposed by a local goverrunental entity be approved by a two-thirds vote of the voters within the jurisdiction, (iii) restrict the use of revenue from a special tax to the purposes or for the service for which the special tax was imposed, (iv) prohibit the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIII A, Cv) prohibit the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (vi) require that any tax imposed by a local governmental entity on or after August l, 1985 continue to be imposed only if approved by a majority vote of the electorate within two years of the adoption of the initiative or no longer be imposed on and after November 15, 1988. The District has and will comply with these requirements. Ballot Initiatives Article XIII A, Article XIII Band Proposition 62 were adopted pursuant to measures qualified for the ballot pursuant to California 's constitutional initiative process. From time to time, other initiative measures could be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State, the County or local districts to increase revenues or to increase appropriations or on the ability of the Prior Landowners to complete the Development. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Init iatives" herein . THE DEVELOPMENT The following information regarding the ownership of the Development is included because it may be relevant to an informed evaluation of the Bonds and the security for the Bonds. This information should not be construed to suggest that the Bonds or the Special Tax will be personal obligations of the current or future property owners in the District.

The Development consists of approximately 1270 gross acres, of which approximately 580 developable acres are allocated for residential development and approximately 14 developable acres are allocated for commercial development. These developable acres are expected to be subject to the Special Tax. The Development is located in an unincorporated area located in southwestern Riverside County approximately two miles east of the Interstate 15 Freeway.

-24- All of the land within the Development is being prepared for development by RDHK, a California limited partnership, and seven (7) merchant builders. RDHK is currently acting as the land developer of its approximate 970 gross acres and the actual development may be undertaken by RDHK, merchant builders selected by RDHK, or some combination thereof . The anticipated development by RDHK and the merchant builders is as follows:

Developer/ Single Family Multi Family Commercial Merchant Builder Dwelling Units Dwelling Units Acres RDHK 1,988 1,299 14 Barratt 120 Broadmoor/Westana 73 J. M. Peters 120 L. W. Hawk Joint Venture 130 Medici Investments 190 M. J. Brock & Sons 12 7 Warmington ---145 2, 983 1,299 14 dwelling units dwelling units acres

The Developers RDHK Venture is a California limited partnership with W. W. Dean & Associates as the general partner and Weyerhauser Venture as the limited partner . RDHK Venture owns approximately 970 gross acres of land in the District. The partnership has not made a final determination as to what portion of this property RDHK Venture will develop itself but it is anticipated that RDHK Venture will sell some portion of its property to merchant builders who will develop such property . The partnership anticipates build out of its properties will take from 7 to 10 years. No final subdivision maps have been recorded for the RDHK Venture property although the developer is currently processing a 69 lot and a 457 lot final subdivision map through the County of Riverside . No construction financing has been obtained for any portion of the RDHK Venture property to date .

W. W. Dean & Associates , a closely held California corporation, has been developing properties in California for thirty ( 30 ) years and has developed over 6,000 dwelling units during this period.

Barratt American Incorporated C"Barrat t") owns approximately 36 acres of land within the District. Barratt currently plans to build approximately 120 detached single family dwelling units averaging 1839 to 2648 square feet in size. At the present time four models have been constructed and 11 additional slabs have been poured al though no further construction of these uni ts is underway . Barratt has an existing line of credit which will permit it to finance the construct ion over time of all 120 dwelling units. Barratt anticipates complete buildout to occur in approximately June 1992. -25- Barratt was incorporated in Delaware in 1980 and is headquartered in Southern California. Its parent company, Barratt Developments PLC, has been building homes since 1958 from its headquarters in Newcastle, England. Barratt has been building residential housing in Southern California since 1982 and has completed over 4,000 dwelling units.

Broadmoor/Westana/Redhawk Associates ("Broadmoor/Westana") owns approximately 28 acres of land within the District . Broadmoor/Westana currently plans to build 73 detached single family dwelling units averaging 2, 315 to 3,248 square feet in size. At the current time three models have been constructed with the start of construction of production units tentatively scheduled for February 1991. Broadmoor/Westana has obtained construction financing from Bank of America for the first phase of production units . No date has been estimated for the buildout of the project.

Broadmoor/Westana is a California general partnership, the general partners of which are Broadmoor Pacific, Inc . ( "Broadmoor" ), a California corporation, and Westana Redhawk Corp . ( "Westana"), a California corporation . Broadmoor was established in 1959 and has developed and sold over 12, 000 single family dwelling units . Westana wa established in 1980 and has developed and sold over 1, 200 homes. J. M. Peters ("Peters") owns approximately 27 . 5 acres of land within the District. The final subdivision map for the Peters ' property has not been recorded . Peters currently plans to build 120 detached single family dwelling units. Four models are currently under construction and nearing completion . Peters anticipates that complete buildout will take approximately 3 years . No construction financing has been obtained for the Peters project .

Peters is a Nevada corporation with over 15 years of residential building experience in Southern California . During this period, Peters has built and sold over 7,000 dwelling units in Southern California. L. W. Hawk Joint Venture ( "L . W. Hawk") owns approximately 32 acres of land within the District. L. W. Hawk currently plans to build 130 detached single family dwelling units ranging from 2,350 to 3,005 square feet in size. At the present time 5 model homes have been completed . L. W. Hawk anticipates construction of production units will commence in early 1991 and that the project will be built out by the end of 1992. Construction financing for the initial phase has been obtained from Security Pacific National Bank. L. W. Hawk is a California general partnership, the general partners of which are Pacific Scene, Inc., a California corporation, and L & W Investments, Inc., a California corporation . Pacific Scene has been building homes in San Diego County since 1971 and has completed and sold approximately 20,000 dwell ing units.

Medici Investment Company, Inc. ("Medici") owns approximately 45 acres of land within the District . Medici currently plans to build 188 detached single family homes averaging approximately 2,000 square feet in size. At the present time 4 models are under construction. Medici has obtained an

-26- acquisition and development loan for 94 dwelling units and construction financing for 42 dwelling units from Western Financial Savings Bank. Medici currently anticipates complete buildout to occur in approximately June 1990.

Medici is a California corporation. Medici was formed eight years ago and has built and sold over 800 dwelling units and has ongoing proj ects including over 500 dwelling units. M. J. Brock & Sons, Inc. ("Brock") owns approximately 32 acres within the District. Brock currently plans to build 127 detached single family dwelling units ranging from approximately 1,900 to 2,600 square feet in size. At the present time 4 model homes have been completed. Brock plans on commencing sales in March 1991 and anticipates complete buildout to occur in approximately 2 to 3 years. Construction of the units will be financed internally.

Brock is a California corporation and is wholely owned by The Ryland Group, Inc., a publicly held corporation traded on the New York Stock Exchange. Brock has throughout its existence built over 30 ,000 dwelling units in California. Warmington Housing Investors 88.2 ("Warmington") owns approximately 40 acres of land within the District. Warmington currently plans to build 145 detached single family homes ranging from approximately 2, 230 to 3,260 square feet in size. At the present time 4 models have been completed and an additional 18 slabs poured although no further construction is currently underway on the slabs. Warmington currently anticipates that sales will commence in the first quarter of 1991 and that the project will be built out in 1993. Warmington has obtained construction financing through Citicorp . Warmington is a Rhode Island general partnership, the general partners of which are Warmington Homes, a California corporation, and Mutual Benefit California Housing Investors-5, L. P., a Rhode Island limited partnership. Warmington Homes has been building homes for approximately 60 years and has built and sold over 20,000 dwelling units. Warmington Homes close some 1, 300 dwelling units in 1989 and has project 860 closings in 1990. THE SCHOOL DISTRICT The Temecula Valley Unified School District was unified effective July 1, 1989 resulting in the incorporation of the Temecula Valley High School into the former Temecula Union School District. The School District provides public education to the residents of the City of Temecula and the unincorporated area of the County of Riverside within the Temecula Valley. The School District boundaries cover an area of approximately 140 square miles and serve a population of approximately 30,000.

-27- The School District currently has the following pupil enrollment :

Grade Level Students

K-5 3,631 6-8 l,586 9-12 2,432 The School District currently operates five elementary schools (K-5 ), two middle schools ( 6-8 ) , one high school ( 9-12) and one continuation high school.

The School District is governed by a Governing Board consisting of five (5 ) members. Members are elected to four-year terms in staggered years. The day-to-day operations are managed by a Board-appointed Superintendent of Schools. Dr. Patricia Novotney has served in this capacity since the School District 's unification and previously served as superintendent of the former Temecula Union School District since 1985. COMMUNITY FACILITIES DISTRICT NO . 89-1 (REDHAWK) Description The District is located in southwestern Riverside County. The District consists of approximately 1270 acres, which lie east of Interstate 15. The land is comprised of gently rolling hills. Of the 1270 acres, approximately 580 are expected to be developed and these developed acres will be subject to the Special Tax. The Project The District was formed to finance a portion of the direct costs of developing public facilities for the Development. The facilities to be financed will include ( i) school facilities including but not limited to the acquisition of school sites , the building/or acquisition of school buildings, the making of additions and/or alterations to or rehabilitation of school buildings, and permanent improvement of school grounds; (ii) day care facilities; (iii) reclaimed water facilities; (iv) landscaping and (v ) any other public facilities which the School District is authorized to contribute revenue to, own , operate or construct.

The description of the public facilities set forth above is general in nature. The final nature and location of improvements and facilities will be determined upon the preparation of final plans and specifications . The final plans may show substitutes in lieu of , or modifications to, the proposed work, provided that the facilities provide a service substantially similar to that as set forth above.

-28- DESCRIPTION OF PROJECT IMPROVEMENTS

Description Amount

School Facilities (including day care and landscaping) $ 9, 699,840 .60 Reclaimed Water Facilities 550,000.00

TOTAL $10,249,840 .60

In order to implement the installation and acquisition of the reclaimed water facilities, the District wi ll enter into an agreement with the Rancho Cal ifornia Water District ( "RCWD"), pursuant to which RCWD wi ll acquire the reclaimed water facilities constructed by the Great American Development Company.

THE ADMINISTRATION AGREEMENT The following is a swnmary of certain provisions of the Administration Agreement and does not purport to be complete . Reference is hereby made to the Administration Agreement for further information . Copies of the Administration Ag reement will be available from the Clerk of the Board upon request.

Funds and Accounts Pursuant to the Administration Agreement, the following funds, each of wh ich is to be held and administered by the Fiscal Agent, have been established : the Special Tax Fund, the Reserve Fund, the Bond Fund, Surplus Special Tax Fund, Administrative Expense Fund, Cost of Issuance Fund, the Prepayment Fund, the Improvement Fund and the. Rebate Fund.

Upon receipt of payment for the Bonds, the Fiscal Agent will set aside and deposit the proceeds received from such sale and delivery in the fol lowing respective funds and accounts:

1. The Fiscal Agent will deposit in the Bond Fund a sum equal to the amount of accrued interest received upon the issuance of the Bonds, together with an amount which together with interest earnings on such amount, is projected to equal the interest which will accrue on the Bonds prior to September 1, 1991.

2. The Fiscal Agent will deposit in the Reserve Fund $1, 218,500, which is equal to the Reserve Requirement .

3. The Fiscal Agent will deposit in the Cost of Issuance Fund an amount equal to $315, 000 .

-29- 5. The Fiscal Agent will deposit in the School Facilities Account of the Improvement Fund an amount equal to $9, 699, 840. 60 and in the Other Public Facilities Account of the Improvement Fund an amount equal to $550, 000.

Amounts will be deposited to and withdrawn from the funds established under the Administration Agreement , and will be applied, as described below.

Spec ial Tax Fund. The Fiscal Agent shall deposit into the Special Tax Fund all Special Tax Revenues and any amount transferred from the Administrative Expense Fund immediately upon receipt thereof except for prepayments of the Special Tax which shall be deposited in the Prepayment Fund. As soon as practicable after receipt by the Fiscal Agent of any Special Tax Revenue , but no later than ten (10) days after such receipt, the Fiscal Agent shall dispurse such amounts as follows : o To the Administrative Expense Fund an amount estimated by the CFO to be sufficient, together with the amounts then on deposit in such funds to pay the Administrative Expenses (as defined in the Administration Agreement ) of the District during the current fiscal year.

o To the Reserve Fund, an amount which is sufficient, together with the amounts then on deposit in such fund, to equal the Reserve Requirement.

o To the Bond Fund, an amount representing the principal of and interest and premium then due and payable on the Bonds including any mandatory sinking fund payments.

o To the Surplus Special Tax Fund, any remaining amount then on deposit in the Special Tax Fund.

Moneys shall not be transferred from the Special Tax Fund to the Administrative Expense Fund or the Surplus Special Tax Fund if such transfer or the amount thereof would adversely impact the payment of debt service on the Bonds in the then current Bond Year. Administrat ive Expense Fund . Moneys in the Administrative Expense Fund shall be held in trust by the Fiscal Agent for the benefit of the District. Amounts in the Administrative Expense Fund shall be disbursed by the Fiscal Agent and paid to the District or its order upon receipt by the Fiscal Agent of a certificate of an Authorized Officer of the District.

In the event that amounts in the Bond Fund, Special Tax Fund, Surplus Special Tax Fund and Reserve Fund are insufficient to pay the principal of and interest and any premium then due and payable on the Bonds, including any sinking fund payment, the Fiscal Agent shall withdraw to the extent of funds available from the Administrative Expense Fund the amount of such deficiency and transfer such amount to the Bond Fund.

-30- In the event that the District is required to rebate to the United States of America Excess Investment Earnings as that term is defined in the Administration Agreement, the Fiscal Agent shall withdraw to the extent of funds available an amount equal to such Excess Investment Earnings from the Administrative Expense Fund in the event that amounts in the Improvement Fund are insufficient for such purpose .

Annually, on the last day of each fiscal year, the Fiscal Agent shall withdraw any amounts then remaining in the Administrative Expense Fund that have not be allocated to pay Administrative Expenses incurred but not yet paid and transfer such amounts to the Special Tax Fund.

Costs of Issuance Fund . Amounts in the Costs of Issuance Fund shall be dis pursed by the Fiscal Agent from time to time to pay Costs of Issuance as such term is defined in the Administration Agreement upon receipt of a requisition from the District. The Fiscal Agent shall maintain the Costs of Issuance Fund for a period of one hundred and eighty (180) days from the date of delivery of the Bonds and shall then transfer any moneys remaining therein to the Administrative Expense Fund for the payment of any unpaid Cost of Issuance.

Bond Fund. Moneys in the Bond Fund shall be held in trust by the Fiscal Agent for the benefit of the Bond Owners and shall be disbursed for the payment of the principal of, and interest of and any premium on , the Bonds and, pending such disbursements, shall be subject to a lien in favo r of the Bond owners .

On each Interest Payment Date, the Fiscal Agent shall withdraw from the Bond Fund and pay to the Bond Owners the principal of and interest and any premium then due and payable on the Bonds, including any mandatory sinking fund payments.

In the event that amounts in the Bond Fund are insufficient for the purpose set forth in the preceding paragraph , the Fiscal Agent shall withdraw an amount equal to such deficiency from the following funds in the following order of prio rity :

o The Surplus Special Tax Fund to the extent that funds therein have not be contractually committed (as set forth in the Administration Agreement) .

o The Reserve Fund.

o The Administrative Expense Fund.

If , after transferring all available moneys from the above-identified funds, there are insufficient funds in the Bond Fund to make the payment described above , Fiscal Agent shall apply the available moneys in the Bond Fund first to the payment of interest on the Bonds , then to the payment of principal due on the Bonds, other than by reason of sinking fund payments , and then to the payment of principal due on the Bonds by reason of sinking fund payments . "Any sinking fund payment not made as scheduled shall be added to the sinking fund payment to be made on the next sinking fund payment date .

-3 1- Reserve Fund . Moneys in the Reserve Fund shall be held in trust by the Fiscal Agent for the benefit of the Bond Owners as a reserve for the payment of principal of, and interest on the Bonds and shall be subject to a lien in favor of the Bond Owners.

All amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the following purposes :

o For transfer to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of , and interest and any premium on, the Bonds . o For transfer to the Bond Fund for the purpose of redeeming Bonds as described herein below.

o For transfer to the Rebate Fund in the event that amounts in the Improvement Fund, Administrative Expense Fund , and Surplus Special Tax Fund or the Prepayment Fund are insufficient for the purpose of making a rebate payment to the United States of America as required by the Administration Agreement .

Whenever, on any interest payment date, the amount in the Reserve Fund exceeds the Reserve Requirement, the Fiscal Agent shall provide written notice to the District of the amount of such excess and shall transfer an amount equal to the excess from the Reserve Fund to the Bond Fund to be used for the payment of the principal of and interest on the Bonds on the next succeeding Interest Payment Date .

Whenever the balance in the Reserve Fund together with the balance in the Special Tax Fund (less any amounts required for transfer to the Administrative Expense Fund) and Bond Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall transfer the amount in the Reserve Fund and the Special Tax Fund to the Bond Fund to be applied, on the next succeeding Interest Payment Date on which the Bonds are subject to redemption, to the payment and redemption of all of the Outstanding Bonds. In the event that the amount transferred from the Reserve Fund and Special Tax Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the excess shall be transferred to the District to be used for any lawful purpose of the District .

Surp lus Spec ial Tax Fund . Moneys in the Surplus Special Tax Fund shall be held in trust by the Fiscal Agent for the benefit of the Bond Owners and shall be disbursed as follows: o To the Bond Fund, to the extent that the moneys then on deposit in the Surplus Special Tax Fund have not been contractually committed (as set forth in the Administration Agreement), in the event that amounts in the Bond Fund are insufficient for the purpose of paying the principal of and interest and any premium then due and payable on the Bonds, including any amounts due by reason of sinking fund payments.

-32- o For the payment or reimbursement of costs of the School Facilities as that term is defined in the Administration Agreement.

o For transfer to the Rebate Fund in the event that moneys on deposit in the Improvement Fund, the Prepayment Fund ?.nd the Administrative Expense Fund are insufficient to make any required rebate to the United States of America. Improvement Fund . Moneys in the Improvement Fund shall be held in trust by the Fiscal Agent for the benefit of the Bond Owners and, except as otherwise provided in the Administration Agreement, shall be disbursed for the payment or reimbursement of cost of the Project and, pending such disbursement, shall be subject to a lien in favor of the Bond Owners.

Prepayment Fund . Moneys in the Prepayment Fund shall be held in trust by the Fiscal Agent for the benefit of the District and the Bond Owners, shall be disbursed as provided in the Administration Agreement and, pending disbursement, shall be subject to a lien in favor of the Bond Owners. All amounts received for the prepayment of Special Taxes on parcels within the District shall, at written direction of the District, be deposited into the Prepayment Fund. Money from the Prepayment Fund shall be transfered to the Bond Fund periodically, at the written direction of the District, in the amounts that the parcels of real property within the District for which the Special Tax has been prepaid would have been responsible if prepayment of the Special Tax has not occurred . Amounts received for prepayment of the Special Tax shall be used to redeem Bonds pursuant to the provisions of the Administration Agreement.

Interest earnings and profits, or losses, resulting from the investment of moneys in the Prepayment Fund shall be retained the Prepaymnet Fund.

Disbursements from the Improvement Fund shall be made by the Fiscal Agent upon receipt of a certificate of an Authorized Officer of the District. Moneys in the Improvement Fund may be withdrawn and deposited in the Rebate Fund in the event that amounts on deposit in the Rebate Fund are insufficient to make any rebate payment to the United States of America as required pursuant to the Administration Agreement. Upon the filing of a certificate of the District stating that the Project costs to be financed by disbursements from the Improvement Fund have either been completed, that all such Project costs have either been paid or are not required to be paid from the Improvement Fund, the Fiscal Agent shall transfer the amount, if any, remaining in the Improvement Fund or Bond Fund. However, if moneys then on deposit in the Improvement Fund are less than $100,000, those moneys shall be transferred to the Bond Fund and shall be available to pay interest payments on the Bonds .

-33- Rebate Fund. District shall pay to the Fiscal Agent for deposit in the Rebate Fund any amount required to be rebated to the United States of America pursuant to the Administration Agreement. Investment of Funds and Accounts Moneys in any fund or account will be invested and reinvested in Permitted Investments (as defined in the Administration Agreement), as directed by the District in writing two business days prior to the date of making such investment. In the absence of such written direction , the Administration Agreement prescribes certain specific investments in which the Fiscal Agent may invest such moneys. Certain of the Permitted Investments in which the District may invest Bond and Special Tax proceeds are not rated by any nationally recognized rating service. Interest earnings and profits or losses from the investment of moneys on deposit in the Surplus Special Tax Fund, Reserve Fund and Bond Fund shall be transferred to or retained in the Bond Fund. Interest earnings and profits or losses from the investment of moneys on deposit in the Special Tax Fund, Prepayment Fund , Administrative Expense Fund, Cost of Issuance Fund and Rebate Fund shall be credited to the fund in which such moneys are held. Interest earnings and profits or losses from the investment of moneys on deposit in the Improvement Fund and the accounts therein shall be credited to such account or fund; provided, however , that at such time as the amount of money which has been disbursed from the School Facilities Account of the Improvement Fund, together with moneys being held in such account, equals $9,7 70,000, at which time all School Facilities Account interest earnings and profits shall be transferred to the Bond Fund. Other Covenants of the District 1. PunctuaI Payment. The District will punctually pay or cause to be paid the the principal of , and interest and any premium on, the Bonds when and as due in strict conformity with the terms of the Administration Agreement and any supplemental agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Administration Agreement and all supplemental agreements and of the Bonds. 2. Special Obligation. The Bonds are special obligations of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund , the Reserve Fund , the Improvement Fund, the Special Tax Fund and the Surplus Special Tax Fund (to the extent Uncommitted Funds are on deposit therein ). Nothwithstanding any other provision of the Administration Agreement, the District is not obligated to advance funds from the District treasury or to levy any taxes, assessments, charges or fees other than the Special Taxes to cure any deficiency in the Bond Fund, the Reserve Fund or the Administrative Expense Fund; provided, however , that nothing in the Administration Agreement prevents the District, in its sole and absolute discretion and pursuant to such terms and conditions as it determines to be appropriate, from making such advances for the purpose of curing any such deficiency.

-34- 3. Extens ion of Time for Payment . The District shall not, directly or indirectly, extend or consent to the extension of the time for payment of any claim for interest on any of the Bonds and shall not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding any such claims for interest or in any other manner. 4. Aga inst Encumbrances . The District will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien created by the Administration Agreement for the benefit of the Bonds, except as permitted by the Administration Agreement .

S. Books and Accounts. The District will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the District which may be the books and records of the Fiscal Agent, in which complete and correct entries shall be made of all transactions relating to the expenditure of amounts disbursed form the Improvement Fund, the Administrative Expense Fund, the Special Tax Fund, the Prepayment Fund and the Surplus Special Tax Fund and to the Special Tax Revenues. Such books of records and accounts shall at all times during business hours be subject to the inspection of the Fiscal Agent, the Property Owners (as that term is defined in the Administration Agreement) and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then outstanding, or their representatives duly authorized in writing.

6. Protect ion of Security and Rights of the Owners. The District will preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all persons.

7. Compl iance with Law . Completion of Proiect . The District will comply with all applicable provisions of the Act and law in completing the acquisition or construction of the Project.

8. Tax Covenants. The District covenants to take any and all action and to refrain from taking any action, which is necessary in order to comply with the Internal Revenue Code of 1986, as amended (the "Code"), in order to maintain the exclusion from federal gross income, pursuant to Section 103 of the Code, of the interest on the Bonds. The District shall assure that it will not make any use of the proceeds of the Bonds that would cause the Bonds to be "private activity bonds" within the meaning of Section 141Ca) of the Code, or would result in loans to any person other than a governmental unit in violation of Section 141Cc) of the code and to make no use of the proceeds of the Bonds which if taken or reasonably expected to have been taken, or had been deliberately and intentionally taken , on the date of delivery of the Bonds to the original purchaser thereof, would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148 (a) of the Code. The District shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of Section 149 (b) of the Code.

-35- 9. Co llect ion of Special Tax Revenues . The District shall comply with all requirements of the Act, including the enactment of necessary ordinances, so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of collection of delinquent Special Taxes. The District shall fix and levy the amount of Special Taxes within the District required for the payment of Net Debt Service on any outstanding Bonds becoming due and payable during the ensuring fiscal year, including therein the administrative expenses, and including any necessary replenishment or expenditure of the Reserve Fund.

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

11. Covenant to Forec lose . The District will order, and cause to be commenced, and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Tax or installment thereof against parcels with cumulative delinquent Special Taxes in excess of $10,000 by the October 1st following the close of each fiscal year in which the Special Taxes were due and against all parcels with delinquent Special Taxes, whatever the amount, by the October 1st 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 Taxes levied .

12. Modification of Max i mum Author i zed Special Tax . The District shall not approve a modification of the maximum authorized Special Tax which would prohibit the District from levying the Special Tax in any fiscal year at such a rate as could generate maximum Special Tax Revenues in each fiscal year at least equal to 110% of annual debt service on all outstanding Bonds and any Additional Bonds in such fiscal year . Amendment of the Administrat ion Agreement .

The Administration Agreement may be modified or amended at any time by a supplemental agreement pursuant to the affirmative vote at a meeting of the Owners, or with the written consent without a meeting, of the Owners of at least a majority in aggregate principal amount of the Bonds then outstanding, exclusive of Bonds owned or held for the account of the District Cother than any pension or retirement fund) . No such modification or amendment shall Ci ) extend the maturity of any Bond or impair the obligation of the School District on behalf of the District, to pay the principal of, and the interest and any premium on, any Bond, or (ii) permit the creation of any pledge or lien upon the Special Taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or the Administration Agreement), or Ci ii ) reduce the percentage of Bonds re qui red for the amendment of the Administration Agreement. The consent of the Owners must be obtained pursuant to the provisions of the Administration Agreement .

-36- The Administration Agreement may also be modified or amended at any time by a supplemental agreement without the consent of the Owners, only to the extent permitted by law and only for one or more of the following purposes:

o To add to the covenants and agreements of the District contained in the Administration Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power reserved in the Administration Agreement to the District; o To make modifications not adversely affecting any outstanding series of Bonds of the District in any material respect; o To make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provisions contained in the Administration Agreement, or in regard to questions arising under the Administration Agreement, as the District and the Fiscal Agent may deem necessary or desirable and not inconsistent with the Administration Agreement, and which shall not adversely affect the rights of the Owners of the Bonds;

o To provide for the issuance of Additional Bonds, subject to and in accordance with the provisions of the Administration Agreement; or

o To make such additions, deletions or modifications as may be necessary or desirable to assure compliance with Section 148 of the Code relating to the required rebate of Excess Investment Earnings (as that term is defined in the Administration Agreement ) or otherwise as may be necessary to assure exclusion from gross income for federal income tax purposes of interest on the Bonds. Events of Default and Owners ' Remedies The Administration Agreement declares each of the following events to be an event of default : 1. Default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same becomes due and payable, whether at maturity as therein expressed, or upon proceedings for redemption;

2. Default in the due and punctual payment of any interest on any Bond when and as such interest becomes due and payable;

3. Default by the District in the observance of any of the other covenants, agreements or conditions in the Administration Agreement, and such default has continued for a period of 30 days after written notice to the District by the Fiscal Agent or the Owners of ten percent C 10%) of the principal amount of the outstanding Bonds; and

Upon the occurrence and continuation of any event of default, the Fiscal Agent or the Owners of any outstanding Bond may proceed to exercise the following remedies:

-3 7- 1. Mandamus, suit, action or proceeding, to compel the Governing Board, the District or the School District, and their members, off icers, agents or employees, to perform each and every term, provision and covenant contained in the Administration Agreement and in the Bonds, and to require the carrying out of any or all of such covenants and agreements of the District and the fulfillment of all duties imposed upon the District by the Act;

2. Suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Owners ' rights ; and 3. Suit, action or proceeding in any court of competent jurisdiction, to require the District or the School District and its members and employees to account as if it and they were of an express trust. Defeasance If the District pays and discharges all indebtedness on all Bonds Outstanding in any one or more of the following ways :

Ca) by paying or causing to be paid the principal of (including redemption premiums, if any) and interest on all Bonds Outstanding, as and when the same become due and payable; Cb) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the Bond Fund and the Reserve Fund, is fully sufficient to pay or redeem all Bonds Outstanding at or before their respective maturity dates, including all principal, interest and redemption premiums, if any; or

Cc) by irrevocably depositing with the Fiscal Agent, in trust, cash or non-callable Federal Securities in such amount as the District shall determine, as conf inned by an independent certified public accountant which will, together with the interest to accrue thereon and moneys then on deposit in the Bond Fund and the Reserve Fund, be fully sufficient to pay and discharge the indebtedness on all Bonds of such series (including all principal, interest and redemption premiums ) at or before their respective maturity dates; and if notice of such redemption shall have been given as required by the Administration Agreement or provisions satisfactory to the Fiscal Agent shall have been made to give such notice, then, at the election of the District, and notwithstanding that any Bonds of such series shall not have been surrendered for payment, the pledge of the Special Tax Revenues and other funds provided for in the Administration Agreement and all other obligations of the District under the Administration Agreement with respect to all such Bonds Outstanding shall cease and terminate, except only the obligation of the District to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon and all amounts due the Fiscal Agent pursuant to the Administration Agreement and thereafter Special Tax Revenues shall not be payable to the Fiscal Agent .

-3 8- Any money or securities deposited with the Fiscal Agent to defease the Bonds shall be accompanied by a certificate of a certified public accountant confirming the accuracy of the calculations establishing the sufficiency of such deposit , and an opinion of Bond Counsel as that term is defined in the Administration Agreement stating that the deposit of such moneys or securities to defease the Bonds will not adversely affect the exclusion from gross income, for federal income tax purposes, of interest on such Bonds .

"Federal Securities" means any of the following which at the time of investment are legal investments under the laws of the State of California :

(1) Direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the United States Department of Treasury ) and obligations, the payment of the principal of and interest on which are directly guaranteed by the United States of America , including , without limitation , such of the foregoing which are commonly referred to as "stripped" obligations and coupons; or

(2) Any of the following obligations of the following agencies of the United States of America : Ca) direct obligations of the Export-Import Bank , (b) certificates of beneficial ownership issued by the Farmers Horne Administration , (c) participation certificates issued by the General Services Administration , (d) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, (e) project notes issued by the United States Department of Housing and Urban development , and (f) public housing notes and bonds guaranteed by the United States of America .

(d) by delivering to the Fiscal Agent , for cancellation by it, all Bonds Outstanding ; or

(e) by depositing with the Fiscal Agent, in trust , Government Obligations (as defined below) in such amount (as verified by a report of an independent certified public accountant retained by the District) as will, together with the income or increment to accrue thereon and any other moneys of the District made available for such purpose , be fully sufficient to pay and discharge the indebtedness on all Bonds (including all principal , interest and redemption premiums) at or before their respective maturity dates; and , if the District also pays or causes to be paid all other sums payable under the Administration Agreement by the District , then and in that case , and notwithstanding that any Bonds have not been surrendered for payment , the pledge of the Special Taxes and other funds provided for in the Administration Agreement and all other obligations of the District under the Administration Agreement , except for its covenants to comply with the Internal Revenue Code of 1986 , will cease, terminate and be completely discharged, and the Owners of the Bonds not so surrendered and paid will thereafter be entitled to payment only out of the money or Government Obligations deposited with the Fiscal Agent as aforesaid for their payment ; subject, however, to the provisions of the Administration Agreement providing fo r the payment of Bonds after discharge of the Administration Agreement .

-39- 'Any funds and accounts held by the Fiscal Agent which are not required for the defeasance of all Outstanding Bonds will be paid over to the District.

"Goverrunent Obligations" means and includes any of the following securities, if and to the extent the same are at the time legal for investment of the District funds: direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America and including a receipt, certificate or any other evidence of an ownership interest in an aforementioned obligation, or in specified portions thereof (which may consist of specified portions of interest thereon) and also including advance refunded tax-exempt bonds secured by the aforementioned obligations. For the purposes of defeasance, Goverrunent Obligations shall mean and incude only such securities as are described in the preceding sentence which : (x ) shall not be subject to redemption prior to their maturity other than at the option of the Owner thereof unless the moneys to be available from the redemption of such securities on the earliest date on which such securities are subject to redemption , other than at the option of the owner thereof, shall be at least equal to the amount of money expected to be derived in connection with such securities in determining that the applicable provisions of the Administration Agreement have been satisfied, and (y) which are then permitted to be applied as provided in the Administration Agreement for defeasance under applicable law. TAX EXEMPTION In the opinion of Best, Best & Krieger, Riverside, California, Bond Counsel, subject, however, to the qualifications set forth below , under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided , however , that, for the purpose of computing the alternatiave minimum tax imposed on such corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted net book income (adjusted current earnings for taxable years beginning December 31, 1989 ). CONCLUDING INFORMATION Underwriting The Bonds were purchased through negotiation by Stone & Youngberg (the "Underwriter">. The Underwriter agreed to purchase the Bonds at an aggregate purchase price of $12,530, 635 plus accrued interest. The initial public offering prices set forth on the cover page may be changed by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof .

-40- Legal Opinion The legal opinion of Best, Best & Krieger, Riverside, California, approving the validity of the Bonds will be made available to purchasers at the time of original delivery . A copy of the legal opinion will be printed on the back of each definitive bond and the form of such opinion is set forth in Appendix F hereto. Certain legal matters have been passed on for the Underwriter by Stradling, Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach, California, counsel for the Underwriter. No Litigation At the time of delivery of and payment for the Bonds, an authorized officer of the District will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court or regulatory agency, against the School District or the District affecting their existence or the titles of their offices or seeking to restrain or to enjoin the sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Resolution, or in any way contesting or affecting the validity or enforceability of the Bonds, the Administration Agreement or any action of the District contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the School District with respect to the formation of the District or the District with respect to the Bonds or any action of the District contemplated by the Bonds or any related documents, nor, to the knowledge of the District, is there any basis therefor. No Rat ing The District has not made and does not contemplate making application to any rating agency for the assignment of a rating of the Bonds. Bonds Not General Ob ligat ions The Bonds are not general obligations of the District or the School District but are limited obligations of the District payable solely from the Special Taxes , the proceeds of the Bonds deposited to the Prepayment Fund, the Special Tax Fund, the Reserve Fund and the Bond Fund, and investment income thereon. lmy tax for the payment of the Bonds shall be limited to the Special Taxes to be collected within the jurisdiction of the District. Mi see II aneous All of the preceding sununaries of the Administration Agreement, applicable legislation, agreements and other documents are made subject to the provisions of such legislation and documents, respectively, and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the District for further information in connection therewith.

-4 1- 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.

The District will furnish a certificate of an appropriate officer, dated the date that the Bonds are issued, to the effect that to the best of such officer 's knowledge and belief, and after reasonable investigation, neither the Official Statement nor any amendment or supplement thereto contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. The execution and delivery of the Official Statement by the President of the Governing Board, has been duly authorized by the Governing Board of the Temecula Valley Unified School District acting in its capacity as the legislative body of Community Facilities District No. 89-1 (Redhawk). COMMUNITY FACILITIES DISTRICT NO. 89-1 (REDHAWK) OF THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT

Isl Superintendent

-42- Append ix A

RATE AND METHOD OF APPORTI ONMENT OF SPEC IAL TAX FOR COMMUN ITY FACILITIES DISTR ICT NO . 89-1 (REDHAWK) OF TEMECULA VALLEY UNIFIED SCHOOL DISTR ICT

A Special Tax applicable to each Assessor 's Parcel in Corrununity Facilities District No. 89-1 (herein "CFD No. 89-1") shall be levied and collected according to the tax liability determined by the Governing Board (herein the "Board") of the Temecula Valley Unified School District acting in its capacity as the legislative body of CFD No. 89-1 through the application of the appropriate amount or rate for "Developed Property" or "Undeveloped Property, " as described below. All of the property in CFD No. 89-1, unless exempted by law or by the provisions of this Rate and Method of Apportionment, shall be taxed for the purposes , to the extent and in the manner herein provided. A. DEFINITIONS The terms hereinafter set forth have the following meanings : "Additiona l Levy" means an amount equal to nine percent (9%) of the aggregate Assigned Special Taxes in a Fiscal Year, provided that the aggregate Assigned Special Taxes are less than Net Debt Service; if the aggregate Assigned Special Taxes in a Fiscal Year are greater than Net Debt Service, then Additional Levy means an amount equal to nine percent (9%) of Net Debt Service. "Apartment" means a residential unit in a building or buildings comprised of residential units available for rental by the general public.

"Ass igned Special Tax" means that special tax applicable to Developed Property as indicated in Table l of Section C. l of this document.

"Backup Special Tax" for Fiscal Year 1991-92 means an amount equal to $.078-per-sguare-foot of land area applicable to each Assessor 's parcel.

"Cal endar Year" means a twelve (12)-month period beginning January l of any Fiscal Year.

"Condominium" means a unit meeting the statutory definition of a condominium contained in Civil Code Section 1351.

"Deve l oped Property" means all Assessor 's parcels in CPD No. 89-1 for which a building permit has been issued as of March 1 of the preceding Fiscal Year, but not including the Golf Course .

APPENDIX A-1 "Fisca l Year" means the period starting on July 1 and ending the following June 30.

"Golf Course" means an area not to exceed 182. 7 acres designated as such on Parcel Map 24387.

"Max i mum Spec ial Tax" means the maximwn Special Tax, determined in accordance with Section C, that can be levied by the Board in any Fiscal Year for each class of Developed Property and for Undeveloped Property, as applicable.

"Net Debt Serv ice" for any Fiscal Year means an amount equal to the annual interest and principal payments due for the Calendar Year plus administrative expenses less capitalized interest and less available interest earnings.

"Single Fami ly Attached" means a residential structure consisting of two or more residential units that share common walls, but not including Apartments.

"Single Fami ly Detached" means a residential structure consisting of only one residential unit.

"Taxab le Property" is all of the area within the boundaries of CFD No. 89-1, exclusive of the Golf Course, which is not exempt from the Special Tax pursuant to law or Section E below.

"Undeveloped Property" means all Taxable Property in CFD No. 89-1, exclusive of the Golf Course, not classified as Developed Property. B. ASSIGNMENT TO LAND USE CLASS On or about July 1 of each year, all Taxable Property within CFO No. 89-1 shall be categorized either as a Developed Property or an Undeveloped Property and shall be subject to tax in accordance with the rate and method of apportiorunent determined pursuant to Sections C and D below .

For purposes of determining the applicable Maximum Special Tax pursuant to Section C, Developed Property shall be assigned to one of the classes designated in Table 1 below. Single Family Detached Developed Property shall be assigned Classes 1 through 6 based upon the square footage for the improvements to be constructed on an Assessor 's parcel as set forth on the most recent building permit issued for such property. The square footage of a structure assigned to Classes 1 through 6 shall be exclusive of garages or other structures which are not used as living spaces. All Condominiums and Single Family Attached, for sale residential dwellings shall be assigned to Classes 7 and 8, based on the building square footage set forth on the most recent building permit, exclusive garages or other structures which are not used as living spaces. All Apartments which are not exempt from the Special Tax pursuant to Section E below, shall be assigned to Class 8. All Commercial/Industrial Property shall be assigned to Class 9.

APPENDIX A-2 For purposes of Section C, the acreage or square footage of land area for an Assessor 's parcel shall be determined by reference to the most current Riverside County Assessor's parcel map . Notwithstanding Section E, below, for purposes of the Backup Special Tax, the acreage or square footage of land area applicable to Developed Property in Classes 7 through 8 shall be computed from the underlying parcel or lot as indicated on the most recent Assessor 's parcel map or final subdivision tract map. Each residential unit shall be assigned an equal proportion of the Backup Special Tax applicable to the underlying Assessor 's parcel or lot. In making the computations set forth in Section C and in determining the Maximum Special Tax for Developed Property which may be levied in any Fiscal Year, on July l, 1992, and on each July 1 thereafter, the Backup Special Tax and the Assigned Special Tax for each class set forth in Table 1 shall be increased by an amount equal to 2. 0 percent of the amount in effect for the previous Fiscal Year.

The Maximum Special Tax for Undeveloped Property which may be levied in any Fiscal Year, on July l, 1992, and on each July 1 thereafter, shall be increased by an amount equal to 2. 0 percent of the amount in effect for the previous Fiscal Year. C. MAX I MUM SPECIAL TAX RATE 1. Developed Property The Maximum Special Tax for an Assessor 's parcel classified as Developed Property in Classes 1 through 9 shall be the greater of ( i) the amount derived by multiplying the square footage applicable to such Assessor 's parcel times the Backup Special Tax or (ii) the Assigned Special Tax.

APPENDIX A-3 TABLE 1 ASSI GNED SPEC IAL TAXES ON DEVELOPED PROPERTY IN COMMUNITY FACILITIES DISTRICT NO. 89-1 (FI SCAL YEAR 1991-92) PER UNIT (RESI DENTIAL)) OR PER ACRE (COMMERC IAL/ I NDUSTR IAL)

Ass i gned Spec ial Tax Rate for Class Land Use Square Footage Fiscal Year 1991-92 1 Single Family Detached >2 , 800 Sq. Ft . $ 763.00 per unit

2 Single Family Detached 2,601-2 ,800 Sq. Ft . $ 658.00 per unit

3 Single Fami ly Detached 2,301-2 ,600 Sq . Ft. $ 620.00 per unit

4 Single Fami ly Detached 2,001-2 ,300 Sq . Ft. $ 530.25 per unit

5 Single Family Detached 1,700-2 ,000 Sq. Ft. $ 296.00 per unit

6 Single Family Detached <1,700 Sq . Ft. $ 238.00 per unit

7 Single Family Attached/ l,151 + Sq . Ft . $ 102 .00 per unit Condominium

8 Single Family Attached/ <1,151 Sq. Ft. $ 62.00 per unit Condominium

9 Commercial/Industrial NIA $2,244 per acre

The Maximum Special Tax may exceed the Assigned Special Tax if the Backup Special Tax alternative is used ( $0. 078 per square foot of lot space for Developed Property). The Backup Special Tax (for Developed Property) will be applied under the Third step of Section D (below) to the following :

1. Class 1 lots larger than 9,782 square feet.

2. Class 2 lots larger than 8,435 square feet.

3. Class 1 lots larger than 7,948 square feet.

4. Class 1 lots larger than 6,798 square feet.

5. Class 1 lots larger than 3,794 square feet.

6. Class 1 lots larger than 3,057 square feet.

APPENDIX A-4 7. Single Family Attached and Condominium units in Class 7 for which densities are less than 33 units per acre.

8. Single Family Attached and Condominium units in Class 8 for which densities are less than 54 units per acre. 2. Undeveloped Property The Maximum Special Tax for Undeveloped Property in Fiscal Year 1991-92 shall be $7, 300 per acre. D. METHOD OF APPORT IONMENT OF THE SPEC I AL TAX TO DEVELOPED PROPERTY AND UNDEVELOPED PROPERTY

Starting in Fiscal Year 1991-92 the Board shall determine the amount of money to be collected from Taxable Property in CFD No. 89-1 in that Fiscal Year. Such amount shall include the Additional Levy and the sums necessary to pay for Net Debt Service on indebtedness of CFD No. 89-1 , to create or replenish reserve funds determined necessary by CFD No. 89-1 . The levy of the special Tax shall cease upon the later of twenty-five (25) years from the date of original issuance of the last series of bonds of CFD No. 89-1 or the date of the final redemption, defeasance and/or repayrrtent of all outstanding bonds of CFD No. 89-1. The Board shall levy the Special Tax as follows until the amount of the levy equals the amount to be collected :

First: The Special Tax shall be levied on Developed Property which has not been exempted pursuant to Section E, in equal percentages up to the following rates : 100% of the Assigned Special Tax for each class for such Fiscal Year. Second: If additional moneys are needed after the first step has been completed, the Special Tax shall be levied proportionately on each parcel of Undeveloped Property (exclusive of Undeveloped Property owned by or irrevocably offered for dedication to a public agency or owned by a homeowners ' association) up to 100% of the applicable rate for such Fiscal Year determined by reference to Section C.

Third: If additional moneys are needed after th first two steps have been completed, then the levy of the Special Tax on each Assessor 's parcel, whose Maximum Special Taxis determined through the application of the Backup Special Tax, shall be increased up to the Maximum Special Tax for each such Assessor 's parcel by increasing the applicable rate for each Assessor 's parcel by increasing the applicable rate for each Assessor 's parcel for such Fiscal Year determined by Section C in equal percentages above the rates levied pursuant to step one above. However , if the Backup Special Tax must be levied, the District shall only levy the Special Taxes , including the Backup Special Tax, in an amount sufficient to provide all funds necessary for payment of Net Debt Service plus amounts necessary to create and replenish any reserve fund, and the Backup Special Tax, to directly fund any Additional Levy for any construction costs.

APPENDIX A-5 Fourth: If additional moneys are needed after the first three steps have been completed, then the Special Tax shall be levied proportionately on each parcel of UndevelopedI Property offered dedication to a public agency or owned by a homeowners association which has not been exempted from the Special Tax pursuant to Section E, up to the Maximum Special Tax for Undeveloped Property; and

Fifth: If additional moneys are needed after the first four steps have been completed, then the Special Tax shall be levied proportionately on each parcel of Undeveloped Property conveyed to a public agency which has not been exempted from the Special Tax pursuant to Section E, up to the Maximum Special Tax for Undeveloped Property. E. LIMITATIONS The Board shall not impose any Special Tax on up to 692 acres of land conveyed orI offered for dedication to a public agency or owned by a homeowners association. If the total number of acres of land conveyed or irrevocably offered for dedication to a public agency or owned by a homeowners' association exceeds 692 acres, then the acres exceeding such total shall be taxed as Undeveloped Property to the extent set forth in steps four and five in Section D - bove; provided, however, that in no event shall the Board impose a Special Tax on land which is a public right of way or which is an unmanned utility property or a property encumbered with public or utility easements making impractical its utilization for other than the purpose set forth in the easement.

The Board shall not impose any Special Tax on up to 133 apartment units . If the total number of apartment units exceeds 133, then the units exceeding such total shall be taxed i the same manner as Class 8 property. F. REV I EW/APPEAL COUNCIL The Board shall establish as part of the proceedings and administration of CFD No. 89-1 a special three member Review/Appeal Council. Any landowner or resident who thinks that the amount of the Special Tax, as to their parcel, is in error may file a notice with the Review/Appeal Council appealing the amount of the Special Tax assigned to such parcel . The Review/Appeal Council shall interpret this Rate and Method of Apportionment of the Special Tax and make determinations relative to the annual administration of the special tax and any landowner or resident appeals, as herein specified. G. MANNER OF COLLECTION The Special Taxes for CFD No. 89-1 will be collected in the same manner and at the same time as ordinary ad valorem property taxes are collected in the County of Riverside; provided, however, that CFD No. 89-1 may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations. In the event of a delinquency, CFD No. 89-1 will pursue foreclosure proceedings in a timely manner as prescribed by applicable law and documents of CFD No. 89-1.

APPENDIX A-6 Appendix B S��y OF APPRAISAL BROWN, CHUDLEIOH, SCHULER, AND AS SOCIATES REAL ESTAT E APPRAISALS - MARKET STUDIES

LAWRENCE E. BROWN 744 CAROLEY AVENUE, SUITE 100 MEMBER AMERICAN INSTITUTE OF" REAL ESTAT E APPRAISERS MEDFORD, OREGON 97004-6124 AMERICAN SOCI ETY OF' REAL ESTATE COUNSELORS TELEPHONE (503) 772·8566 WALTER H. CHUDLEIGH, Ill MEMBER AMERICAN INSTtTuTE or REAL ESTATE APFIRAISEFl:S F"A CSIMILE (503) 773 ·6314 GREGORY S. SCHULER JON D. KLINE MARGARET GARRINGTON DEAN A. MYERS MICHAEL L. DETRICK MARK S. DIMARCO

October 31, 1990

Dr. Patricia B. Novotney Superintendent TEMECULA VALLEY UNIFIED SCHOOL DISTRICT 31350 Rancho Vista Road Temecula, California 92390 Reference : Redhawk Mello-Roos, Community Facilities District No . 89-1, Rancho California , California. Our File No . 1373 Dear Dr. Novotney: In response to your request, we are pleased to submit a summary of our findings regarding the appraisal of the Redhawk Mello-Roos project , Community Facilities District No . 89-1, located in Rancho California, California . The purpose of this limited appraisal update is to report to you our opinion relative to the market value of the fee simple interest in the proj ect based upon our original analysis. By reference, the original full narrative report , dated July 25, 1990, is made a part of this letter. This limited appraisal update has been prepared using the letter appraisal format, and as agreed, an additional fu ll narrative analysis is not considered to be within the scope of this project . The market value of the subject property determined in this appraisal update is based upon the following conditions : 1. The ownership boundaries, proposed uses , densities, and areas incorporated into the analysis are based upon the engineering maps previously provided , and are assumed to be correct .

SAN F"RA NCISCO AREA OF"F"ICE: 100 SOUTH ELLSWORTH, NINTH F"LOOR • SAN MATEO, CALIF"ORNIA 94401·3990 • (415) 579·0772 LOS ANGELES AREA OF"F"ICE: 3848 CARSON STREET, SUITE 220 • TORRANCE, CALIFORN IA 90503·6704 • (213) 540·4788 N )RTHEAST QF"F"ICE: 555 LONG WHARF" DRIVE, SUITE 9H • NEW HAVEN, CONNECTICUT 065 11·4951 • (203) 624·8466 Dr. Patricia B. Novoteny October 31, 1990 Page 2

2. The absorption period anticipated for the proposed units is based upon a review and subsequent concurrence with the findings of a market absorption study as prepared by Empire Economics , dated May 1990. This absorption period is utilized in the developmental cash flow analysis summarized in this update . 3. The final value conclusion pertains solely to the proposed residential development at Redhawk and does not include the golf course and additional amenities . 4. The analysis also assumes local and national stabilization of the housing market .

Brief Description of the Property The Temecula Valley Unified School District has authorized the formation of Community Facilities District No . 89-1 for Redhawk, a master planned community being developed by the Great American Development Company and associated merchant builders . Specifically , the Redhawk project is located in the southwestern �ortion of Riverside County, south of the intersection of Highway 79 and Margarita Road, within the area commonly known as Rancho California. Primary features and characteristics of the Redhawk proj ect are as follows : 1. Redhawk has an approved specific plan and development agreement with Riverside County that provides for entitlements of some 4,188 detached and attached residential units. 2 • Redhawk also offe.rs an amenity package which includes a championship 18-hole golf course, with a 30,000 square foot club house (not yet built) , as well as more than 2 00 acres of open space and parks . This amenity package is not considered a portion of the Comm.unity Facilities District in this analysis. Dr. Patricia B. Novoteny October 31, 1990 Page 3

3. Approximately 14 (net) •cres will be reserved for development ·of a retail center which is expected to provide the area residents with various types of convenience goods and services. 4. Redhawk is be!ng touted as "the premiere" project in the southwestern portion of Riverside County. The project represents a master planned community which will offer a diversity of residential products and area amenities.

Property History The entire project site was originally purchased by the Great American Development company for a raw land purchase price of $15,100, 000. The Great American Development Company, subsequently, sold bulk lots to merchant builders in April 1989, with closing dates in June 1989 . All entitlements were in place at the time of sale. The bulk land sales program was accomplished on a closed bid basis, with the merchant builders bidding on the available tracts. All tracts were sold within a one-month period of time at full asking prices on an all-cash basis.

The Land Location Southwestern portion of Riverside County, south of the intersection of Highway 79 and Margarita Road, Rancho California, California. �

1,270.44 (gross) acres, or 55,340,366 square feet . The subject portion of this total area consists of 595 developable acres, or 25, 918 ,200 square feet . Dr. Patricia B. Novoteny October 31, 1990 Page 4

The specific tracts comprising the subj ect property and correspanding acreage are summarized in the following chart . It should be noted that of the total residential units specified, 133 apartment units are considered exempt from the tax levy, and as a result have been excluded from this analysis. This results in a total of 4,055 attached and detached units which are the subj ect of this appraisal.

Total Commercial/ Tract Developable Residential Retail Map No .'s Acres units Acres Acres 23063 189 1,109 189 0 23064 56 443 56 0 23065 167 1,208 153 14 23066 86 655 86 0 23067 --21. 773 _n_ _Q Total 595 4,188 581 14

I2pograph� �nd Soil Terraced hillside land surrounded by low hills and steeply rolling hillside land. Although no formal soils report was provided for our review, it is assumed that the subject soil is of sufficient load-bearing capacity for the proposed improvements . Zoning Future development of the subj ect property is governed by Specific Plan No . 217 as administered by the county of Riverside. Development of the Redhawk community is a legal conforming use under the Specific Plan . Based upon the total developable acres of 595, a vested density of 4,188 residential units equates to over seven units per acre . Or. Patricia B. Novoteny October 31, 1990 Page 5

utilities All the usual and necessary public utilities are available to the subject site. Primary Access Primary access to the subj ect site is via State Highway 79 which runs in an east/west direction along the subject's northerly boundary .

Highest and Best Use The following six factor·s were considered in the highest and best use analysis of the subject property. 1. Existing land use regulations. 2. Reasonably probable modification of such land use regulations. 3. Economic demand . 4. Physical adaptability of the property . 5. Neighborhood trends. 6. The optimal use of the property .

Based upon our highest and best use study , the optimal use of the subject site, as if vacant, is considered to be that of various density residential projects within a golf course environment, as outlined in the Specific Plan No. 217. The highest and best use of the subj ect site as improved pertains to the use that should be made of the property as it presently exists. The use that maximizes the property's net income is considered to be its highest and best use., as improved. The master planned Redhawk project at the site appears to represent the maximally productive use of the land in question . Dr . Patricia B. Novoteny October 31, 1990 Page 6

Land Valuation Approaches Based upon our original full narrative analysis, the Redhawk Community Facilities District was valued on both a bulk lot sale basis, as well as a developmental basis. The direct sales comparison approach was utilized in valuing the subject on a bulk lot sale basis. The developmental analysis incorporates a discounted cash flow schedule which outlines the most probable development scheme for the Redhawk project over an estimated 12-year proj ection period. A summarization of the findings of each valuation approach follows .

Bulk Lot Sale Analysis In utilizing the direct sales comparison approach in determining the value of the sul:>ject on a bulk lot sale basis, comparable land sales in the subject region were examined in regard to single-family , multi-family, and commercial land uses. Based up,on the sales data uncovered , the following "as-is" bulk land value indications were formulated for the various components of the project .

2,889 Single-Family Residential Units @ $42, 000/Unit $121,338, 000 1,168 Multi-Family Residential Units @ $10,000/Unit 11,680, 000 Discounted Value of the 14-Acre Commercial Site 4.130.000 Total "As-Is" Land Value Conclusion Based on a Bulk Lot Sale Basis $137 .148 .000 say, S137 .100 ,ooo Dr. Patricia B. Novoteny October 31, L990 Page 7

Based upon the particular features of the subject, and in consideration of the sales data examined previously, the "as-is" value indications formulated by the direct comparison approach were considered appropriate for the subject components. It should be noted, however, that the direct sales comparison approach was utilized primarily as a secondary valuation method. ·Differences between land sale development fees and costs, quality of homesites, etc . require substantial adjustments when properly applying this valuation technique. These adjustments are subjective and represent a potential flaw in this approach. As a result, most emphasis was placed upon the discounted cash flow developmental analysis in determining the most appropriate opinion of value for the subject.

Discounted Cash Flow Developmental Analysis The discounted cash flow developmental analysis takes into account the most probable development scheme for the Redhawk project over an estimated 12-year projection period. This developmental approach and capital structure may differ slightly from the final project plan, but is the best estimate of what will actually occur based upon the available information at the time of our analysis. The cash flow incorporated into this approach takes into consideration the income generated and various costs, commissions, and fees incurred over an established absorption period. Reference is made to the following discounted cash flow schedule and summary sheets. After application of the various costs and income and expense parameters as outlined in the original analysis, and assuming an internal rate of return of 12 percent, a developmental value of $140,446,800 was concluded. Addition of the separate land value conclus ion determined for the 14-acre (net) commercial site results in a final developmental value conclusion for the subj ect project of $144,600, 000. DEVELOPMENTAL ANALYSiS · REDHAWK MELLO-ROOS

ASSUUPTIOMS Discount Rate 12.00, Interest Rate - Loan 12.50% Appreciation 5.00% Closing Costs, Com1issions, Fees 3.00% Developers Profit 10.50%

ABSORPT!OM SCHEDULE NO.OF LOT& I OF W.J .•OEAK W.W. DEAN WARM[NGTO" BROAOMOOR ... . JJf. U.J. PAClFIC AHACKEO DETACHED HOMES HOMES BARRATT PETERS BROCK SCENE MEDICI YEAR ABSORBED TOTAL 0 Dec-90 0 0 0 0 0 0 0 0 0 o.oo, 4 4 Jul-91 91 2.26% 0 63 5 2 4 4 6 2 4 4 Dec-91 91 2.26\ 0 63 5 4 4 6 6 7 Jul-92 152 3.75\ 0 104 8 4 6 7 10 Oec-92 152 3.75\ 0 104 8 4 6 6 7 7 10 7 7 7 Jul-93 205 5.04\ 43 111 8 4 7 11 7 Dec-93 205 5.04% 43 111 8 4 7 7 7 11 7 7 Jul-94 218 5.38\ 47 118 9 4 8 8 11 7 7 Dec-94 218 5.38\ 47 118 9 4 8 8 11 Jul-95 232 5. 72\ 51 124 9 5 8 8 8 8 12 Dec-95 232 5.72\ 51 124 9 5 8 8 8 8 12 8 8 Jul-96 256 6.31\ 58 136 10 5 9 9 13 Dec-96 256 6.31\ 58 136 10 5 8 8 9 9 13 5 Jul-97 256 6.31\ 62 133 10 8 8 9 9 13 Dec-97 256 6.31% 62 133 10 5 8 8 9 9 13 4 4 4 Jul-98 152 3.75\ 66 59 4 2 4 6 2 4 6 Dec-98 152 3.75 \ 66 59 4 4 4 4 Jul-99 144 3.55\ 70 51 4 2 3 3 3 3 5 Oec-99 144 3.55\ 70 51 4 2 3 3 3 3 5 2 Jul-00 154 3.79\ 74 55 4 3 3 3 4 5 2 4 Dec-00 154 3.79\ 74 55 4 3 3 3 5 2 2 2 Jul-01 129 3.18\ 74 38 3 1 2 4 2 2 2 4 Dec-01 129 3.18\ 74 38 3 1 2 Jul-02 39 0.96\ 39 0 0 0 0 0 0 0 0 Dec-02 39 0.96\ 39 0 0 0 0 0 0 0 0 Total 4,055 100.00, 1,088 1,988 145 , 73 120 120 127 130 188 Page 1 DEVELOPMENTAL ANALYSIS · REDHAIK MELLO-ROOS

SALES P��CEJb$ SC.REO�LE I 1990 BASE PRICE/UNIT $10,000 $90,000 $84,200 $77 J 100 $81 ,300 $92,000 $70, 500 $70,000 $77,000 I SALES W.lf; DEAi · W.W. DEAN WARMINGTON BROADIIOOR Jlfl . tl;l. PAtlFIC YEAR PROCEEDS ATTACHED DETACHED HOMES KoiES BARRATT PETERS BROCK .. . SCEijE Dec-90 0 0 0 0 0 0 0 0 0 ,eoitr0 Jul-91 8 J 111 I 506 0 5,802,064 396 J 140 182,554 316,664 358, 340 290, 495 295,251 469,998 Oec-91 8,314,293 0 5,947,115 406,043 187 J 117 324,580 367, 299 297.758 302,633 481 , 748 Jul-92 14, 159,733 0 10, 127,672 691 ,844 318,829 552,886 625,652 507 J 151 515,615 820,085 Dec-92 14,513,726 0 10,380,864 709 I 140 326, 799 566, 708 641,293 519,830 528,506 840,587 Jul-93 16,335, 577 480,848 11,339,935 774,501 357,213 619,049 700,523 567,922 577, 358 918,228 Dec-93 16,743,966 492,870 11,623,433 793,863 366,144 634,525 718,036 582, 120 591 , 792 941, 184 Jul-94 18,187,954 552,739 12,613,145 861,752 397,293 688,561 779, 184 631 ,870 641 ,950 1,021 , 461 Dec-94 18,642,652 566, 557 12,928,473 883,296 407,225 705 J 775 798,663 647,666 657,998 1 ,046,998 Jul-95 20 I 190 I 609 636, 920 13,985,080 955,326 440,515 763,525 864,013 700,397 712,039 1,132, 794 Oec-95 20,695,374 652,843 14,334.707 979,210 451,527 782,613 885,614 717,907 729, 840 1, 161, 113 Jul-96 23,234,002 761 I 010 16,072,930 1 I 098 I 148 506,315 877, 383 992, 856 805,231 818,348 1,301 ,780 Dec-96 23,814,852 780,036 16,474,754 1,125, 602 516,973 899,317 1,017,677 825, 362 638,807 1 I 334 J 325 Jul-97 23,987,836 854, 677 16,545, 441 1 I 129,948 520,788 903,308 1,022, 194 828, 988 842, 408 1,340,085 Oec-97 24,587, 532 876, 044 16,959,077 1,15 8, 196 533,807 925,891 1 ,047,748 849 ,713 863,468 1,373,587 Jul-98 11,729,966 955,877 7,706, 757 526,200 242, 869 420, 356 475, 679 385,957 392,344 623,949 Dec-98 12,023,236 979,774 7,899, 426 539,355 246,940 430,864 487,571 395,606 402, 153 639,547 Jul-99 10,805,767 1,065,133 6,966, 425 475,967 219,382 380,401 430, 466 349 I 177 354, 689 564, 148 Dec-99 11,075,932 1,091 , 761 7, 140,586 487,866 224,667 389, 911 441,227 357,907 363, 556 578,251 Jul-00 12 I 177 I 305 1, 183,001 7,863,680 537,079 247, 744 428, 902 485, 350 393,903 400, 622 637, 022 Dec-00 12,481,737 1,212,576 8,060, 272 550,506 253,938 439, 624 497, 484 403 ,751 410,637 652,948 Jul-01 9,235,049 1,242,891 5,716,205 390,321 179,999 312,017 353, 082 286, 553 290,988 462,994 Oec-01 9,465,925 1,273, 963 5,859, 110 400, 079 184,499 319,617 361,909 293 ,717 298,262 474, 568 0 Jul-02 688, 198 688, 198 0 0 0 0 0 0 0 Dec-02 705-,403 705,403 0 0 0 0 0 0 0 0 TOTALS 341 , 908 I 170 17,053,120 232 ,347 I 149 15,870,384 7,317,338 12,682,675 14,351,859 11 ,838,980 11,829, 284 18,817,400

Page 2 DEVELOPMENTAL ANALYSIS · REDHAWK MELLO-ROOS

I DISCOUNTED CASH FLOW I DEOU,T I�NS FROM �AUS PROCEEDS

I CLOSING REPAYMENT I I I "El I I . orscOUNTED SALES I COMMISSIONS DEVELOPERS REMAINING EXISTING I TOTAL I Ct$H I P.ROFH I I YOR PROCEEDS I FEES COSTS BONDS BONDS I COSTS I FLOW CASH FLOW I I I Dec-90 0 I 0 0 0 0 0 I 0 I 0 0 I 0 I I Jul-91 8, 111,506 I 243, 345 851 ,708 7,016,452 0 I 8, 111,506 I 0 0 I I I 691 ,934 Dec-91 8,314,293 I 249 , 429 873,001 4,941 ,887 441 ,860 1,11 6, 183 I 7,622,359 I 615,819 I I I 10,715,889 8,997, 267 Jul-92 14,159,733 I 424,792 1 , 486 , 772 441,860 1,090, 420 I 3,443,844 I I I I 11,12 9, 641 8,815,718 Dec-92 14,513,726 I 435,412 1,523,941 377, 118 1,047,614 I 3,384,085 I I I I 9,526,307 Jul-93 16,335,577 I 490,067 1,715,236 377, 118 1,004,808 I 3,587, 228 I 12,748, 348 I 288,824 947,218 I 3,496,477 I 13,247,489 9,338,957 Dec-93 16,743,966 I 502,319 1,758 , 116 I I I 288,824 889,629 I 3,633, 826 I 14,554, 127 9,679,326 Jul-94 18, 187,954 I 545,639 1 ,909,735 I I I I 3,542,650 I 15, 100,003 9, 473, 928 Dec-94 18,642, 652 I 559, 280 1,957,478 197,657 828,235 I I I 197,657 I 3,690, 230 I 16,500,379 9,766, 549 Jul-95 20, 190,609 I 605,718 2, 120 ,014 766,841 I I I 303, 172 701 ,506 I 3,798, 553 I 16,896,821 9,435,096 Dec-95 20,695, 374 I 620,861 2, 173,014 I I I 636, 171 I 4,075,933 I 19,158,069 10,092, 232 Jul-96 23,234,002 I 697,020 2,439 ,570 303,172 I I I I 3,965,920 I 19,848,932 9,864,31 1 Oec-96 23,814,852 I 714,446 2,500, 559 186,837 564,078 I I I 1 491,984 I 3,917, 179 I 20,070,657 9,409,907 Jul-97 23,987,836 I 719,635 2,518,723 86,837 I I I 93,908 419,892 I 3,833,117 I 20,754,415 9, 179 ,698 Dec-97 24,587, 532 I 737, 626 2,581 , 691 I I I 93,908 347 ,800 I 2,025, 256 I 9,704,730 4 I 049, 445 Jul-98 11 ,729,986 I 351 ,900 1,231,649 I I I I 1,978, 206 I 10,045,030 3,954 , 189 Dec-98 12,023,236 I 360, 697 1,262,440 50,0H 304,995 I I I 50, 074 262, 190 I 1,771,046 I 9,034,742 3,355,182 Jul-99 10,805, 787 I 324, 174 1, 134,608 I I I 221,637 I 1, 727 I 394 I 9,348,538 3,275,202 Dec-99 11,075,932 I 332,278 1,16 2,973 10,507 I I I 181,084 I 1,835,526 I 10,341,778 3,418,092 Jul-00 12,177,305 I 365,319 1,278,617 10,507 I I I I 1,822,890 I 10 ,658 ,847 3,323,479 Dec-00 12,481,737 I 374,452 1,310,582 0 137,855 I I I 94,627 I 1,341,358 I 7,893,691 2,321,972 Jul-01 9,235,049 I 277,051 969,680 0 I I I 0 58,296 I 1,336 , 196 I 8, 129,729 2,256,041 Dec-01 9,465,925 I 283,978 993,922 I I I 21,966 I 114, 872 I 573,326 150,095 Jul-02 688, 198 I 20,646 72 ,261 0 I Dec-02 705,403 I 21, 162 74 I 067 0 10,983 I 106,212 599,191 147 ,987 Totals 341 , 908 I 170 10,257, 245 35,900,358 3,899,910 12, 146,01 1 74,161 ,864 267,746,306 140,446,800

VALUATION Discounted Cash Flow 140,446 ,800 Co11ercial Land 4,- 130,000 INDICATED VALUE t44,576,800 Page 3 DEVELOPMENTAL ANALYSIS · REOHAWK MELLO-ROOS

EXISTING BONDS FlNANCllG CD ec·90 · . ·. > Ju1·9f. -_ --�D•c·9t _ J No . of Debf Ser{ . Total Annu•I 1 Assessor s Parcel Nu1ber Units Per Unit Debt Service Retaining Costs 10,335, 349 10,981,308 4,651,188 Assessments Interest 645, 959 686, 332 290,699 926-160-019-0 7,408 Loan Repay1ent 0 -7,016,452 -4, 941 ,887 926-160-020-0 73 263.82 19,259 Ending Retaining Costs 10 I 98 t I 308 4,65!, 188 0 926-160-021-1 120 255.67 30,680 926-1 60-022-2 145 538.84 78, 132 Available Proceeds 0 7,016,452 5,633,821 926-1 60-023-3 77 533.75 41,099 Re1aining Proceeds 0 0 691,934 926-180-011-4 132 239.37 31, 597 926-180-012-5 127 230.20 29, 235 926-180-013-6 2,744 233.26 640,065 926-190-006-1 120 406 .42 48, 770 926-1 90-007-2 67 428 .83 28, 732 926-190-008-3 600 439.02 --263,412 Subtotal 1,218,390

Supple1ental Assess1ents 926-160-019-0 1,905 926-1 60-020-0 73 137.51 10,038 926-1 60-021-1 120 113.06 13,567 926-1 60-022-2 145 125.29 18, 167 926-1 60-023-3 77 124.27 9,569 926-180-011-4 132 294.38 38,858 926-180-012-5 127 294.38 37,386 926-180-013-6 2, 744 294.38 807,779 926-190-006-1 120 144. 64 17,357 926-1 90-007-2 67 158.90 10,646 926-190-008-3 600 167.05 10--0,230 Subtotal 1,065,503

Grand Total 2,283,892 ------

Page 4 Dr . Patricia B. Novoteny October 31, 1990 Page 8

Correlation The application of the direct sales comparison approach and the developmental analysis resulted in the following conclusions of value.

Direct Sales Comparison Approach (Bulk Lot Sale Basis) $137,100, 000 Developmental Analysis $144,600, 000

The developmental analysis, in our opinion, best reflects the approach an informed purchaser would utilize in valuing the subject property . This analysis accounts for each of the various income and expense items incurred with a developmental project such as the subject. In addition, the developmental analysis accounts for the absorption period anticipated, concurrent with the marketing and sales of the residential units. As a result, the developmental analysis conclusion was considered the most appropriate indication of value for the subject , Redhawk Mello-Roos proj ect.

Valuation

Based upon the matters �nd opinions discussed in this limited appraisal update, in conjunction with the findings outlined in the original full narrative report , the opinion has been formed that the market value of the fee simple interest in the Redhawk Mello-Roos project , as of October 31, 1990, is the following sum:

ONE HUNDRED FORTY-FOUR IC[LLION SIX HUNDRED THQUSAHQ QOJJMS ($144,600.000) Dr. Patricia B. Novoteny October 31, 1990 Page 9

If you should have any questions concerning the matters and opinions expressed in this limited appraisal update, please call. Respectfully submitted, �� -� . �R - LAWRENCE E. BROWN , MAI )� .#�� DEAN A. MYERS LEB:DAM:lc LIMITING COHDXTXONS

This report is made expressly subj ect to the conditions and stipulations following:

1. No responsibility is assumed by your appraiser for matters which are legal in nature . 2. No opinion of title is r$ndered and the property is appraised as though free of all encumbrances and the title marketable. 3. The appraisal' covers the property described only . 4. No survey of the boundaries of the property has been made . All areas and dimensions furnished to your appraiser are assumed to be correct. 5. Sources of information are believed to be correct and , where feasible, have been verified. 6. The appraiser assumes that there are no hidden or unapparent conditions of the property , subsoil, or structures, which would render it more or less valuable. The appraiser assumes no responsibility for such conditions, or for engineering which might be required to discover such factors . It is assumed that no soil contamination exists as a result of chemical drainage or leakage in connection with any production operations on or near the property. In addition , in this assignment the existence (if any) of potentially hazardous materials, such as asbestos , used in the construction or maintenance of the improvements or disposed of on the site has not been considered. 7. The appraiser, by reason of this appraisal , is not required to give testimony or to be in attendance in court at any governmental or other hearing with reference to the property without prior arrangements having been made with the appraiser relative to such additional employment . 8. Disclosure of the contents of this appraisal report is governed by the By-Laws and Regulations of the American Institute of Real Estate Appraisers of the National Associat ion of Realtors. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser or the firm with which he is connected , or any reference to the American Institute of Real Estate Appraisers or to the MAI or RM designation) shall be disseminated to the public through advertising media, public relations media, news media, sales media or any other public means of communication without the prior written consent and approval of the author . CERTIFICATION

We certify that we have personally inspected the property herein, known as the Redhawk Mello-Roos, Temecula Valley Unified School District, Community Facilities District No. 89-1 located in Rancho California, California : and to the best of our knowledge and belief,

1. The statements of fact contained in this report are true and correct . 2. The reported analyses, opinions , and conclusions are limited only by the reported assumptions and limiting conditions and are our personal unbiased professional analyses, opinions , and conclusions . 3. We have no past, present, or prospective direct or indirect interest in the property that is the subject of this report and we have no personal interest or bias with respect to the parties involved. 4. Our compensation is not contingent upon an action or event resulting from the analyses, opinions , or conclusions in or use of this report or otherwise contingent upon anything else other than the delivery of this report. 5. Our 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 practice of the American Institute of Real Estate Appraisers. 6. The use of this report is subject to the requirements of the American Institute of Real Estate Appraisers relating to review by its duly authorized representatives. 7. The American Institute of Real Estate Appraisers has a policy of continuing education. This policy includes a program of voluntary recertification. "As of the date of this report, I, Lawrence E. Brown , MAI , have completed the requirements under the continuing education program of the American Institute of Real Estate Appraisers." 8. We have made a personal inspection of the property that is the subject of this report unless otherwise specified under my signature below. 9. No one provided significant professional assistance to the persons signing this report.

LEB: DAM : le QUALIFICATIONS OF LAWRENCE E. BROWN , MAI

EMPLOYMENT

Principal , Brown, Chudleigh, Schuler , and Associates, Real Estate Valuation, Investment Counseling , Development Management , Medford , 1979 to Present . Vice President, Coldwell Banker Capital Management Corporation, Manager of Appraisal Services , Los Angeles Office, 1975-1979. Vice President , Landauer Associates, Los Angeles {Shattuck Company) , 1966-1975.

BROWN, CHUDLEIGH, SCHULER, AND ASSOCIATES OFFICES

Headquarters Office: 744 Cardley Avenue , Medford , Oregon 97504 Telephone (503 ) 772-8566, Facsimile (503) 773-6314

California: San Francisco Office: 100 South Ellsworth, Ninth Floor, San Mateo, California 94401, Telephone (415) 579-0772 Los Angeles Office: 3848 Carson Street , Suite 220, Torrance , California 90503, Telephone (213) 540-4788

Connecticut: Long Wharf Maritime Center, 555 Long Wharf Drive, Suite 9H, New Haven, Connecticut 06511, Telephone (203) 624-8466 EDUCATION

Master of Business Administration, Real Estate and Finance , University of Southern California, 1972 . Bachelor of Science in Business Administration, Real Estate and Urban Land Economics, University of California at Los Angeles, 1965.

PROFESSIONAL AFFILIATIONS

Member, American Institute of Real Estate Appraisers of the National Association of Realtors. Member, American Society of Real Estate Counselors of the National Association of Realtors. Member, Urban Land Institute . Member, Board of Realtors , National Association of Realtors , Medford . Licensed Real Estate Appraiser, State of Oregon.

ACADEMIC AFFILIATIONS

Senior Lecturer, University of Southern California , School of Business Administration, Department of Finance and Business Economics, (1973-1976) . Instructor, Real Estate Appraisal and Advanced Real Estate Appraisal, University of California at Los Angeles Extension, (1973-1978). Beta Gamma Sigma, Graduate School of Business Administration, University of Southern California, Academic Honorary . Instructor, American Institute of Real Estate Appraisers : Course lB, Capitalization, 1976, 1978 Course lA , Principles, 1977 Instructor, El Camino College , Real Estate Appraisal and Real Estate Principles , (1971-1973). ALLIED REAL ESTATE ACTIVITIES

Speaker, Mortgage Banker Association of America Advanced Case Study Seminar, Portland, Oregon, September 1986. Published article in the April 1976 issue of Appraisal Journal of the American Institute of Real Estate Appraisers , entitled "Specialty Shopping Center - The New Trend in Retailing ." Co-authored article in the December 1978 issue of The Real Estate Appraiser and Analyst of the Society of Real Estate Appraisers, entitled "Real Estate Investment Yield as Correlation to the Rate Shown in Money and Capital Markets ." Speaker at the Southwest Regional Conference of the American Institute of Real Estate Appraisers, San Diego, California, October 1978 . Speaker at the National Convention of the American Institute of Real Estate Appraisers, Honolulu, Hawaii, November 1978. Presented seminar on Real Estate Investment Analysis, April 1974 . Extension Division , Univers ity of southern California. Participant , International Council on Shopping Centers , "Idea Exchange ," Los Angeles, October 1974 . Guest Lecturer , University of California at Los Angeles, Graduate School of Management , (1973 and 1975) .

SCOPE OF SERVICES

Absorption Studies Marketing Strategy Formulation Assessment Appeals Mortgage Loan Appraisals Depreciation Studies Partition of Assets Development Counseling Physical Reproduction and/or Estate Planning Replacement Cost studies Fair Rental Analyses Probate Appraisals Feasibility Studies Pro Forma Income and Expense Fractional Interest Analysis Valuations Highest and Best Use Studies Real Estate Valuation Investment Property Analyses Retail Demand Analysis Leasehold and Leased Fee Re-use Appraisals Valuations Site Development Studies Market Demand studies TYPES OF PROPERTIES APPRAISED

Commercial Regional, convenience , and specialty shopping centers , retail store buildings , discount department stores , low and high-rise office buildings, restaurants, service stations , supermarkets , etc . Eminent Domain Full and partial takings , transmission line rights-of-way , pipeline easements , well sites , street widenings , air rights , etc. Industrial Warehouses , factories , loft buildings , industrial and business parks , research and development facilities, air frame manufacturing plans , cold storage facilities, food processing plants , metal fabrication plants, truck terminals, foundries, harbors , etc . Residential Furnished and unfurnished apartment buildings , single­ family dwellings , mobile home parks , condominiums , town- houses . Special Purpose Golf courses, miniature golf courses , walk-in and drive-in theaters, governmental structures, hotels, motels, boat marinas, recreational vehicle parks , churches , communica­ tion complexes , airplane hangars , resorts , duck hunting clubs . Vacant Land Residential acreage , apartment sites , bulk residential lots , retail sites , industrial land, ranch and farm land , desert and mountain acreage, coastal property , timber land , mitigation land, air rights . REPRESENTATIVE LIST OF APPRAISAL AND CONSULTATION CENTERS

Public Clients and Institutions City of Boise Seventh Day Adventists City of Burbank Southern California Edison City of Glendale Company City of Los Angeles southern California Gas Federal Deposit Insurance Company Corp . Stanford University Pacific Lighting Corporation Upper Santa Clara Valley Water Pepperdine College District Pima County Assessor 's Office Trustee of the Teamsters Union Port of Long Beach Pension Fund Retail Clerks Union Trustee of the Las Vegas Regent's of University of Bartenders and Culinary California Worker's Pension Fund West Coast University Women 's Auxiliary of the California Lutheran Hospital

Attorneys and Accountants Adams , Duque & Hazeltine Munger, Tolles & Rickershauser Albright , Stoddard , Warnick O'Melveny & Myers & Albright Peat, Marwick, Mitchell & co . Ball, Hunt , Hart , Brown , & Pointdexter & Doutre Baerwitz Richards, Watson & Dreyfuss & Brawerman & Kopple Gershon Cox, Castle & Nicholson Robertson, Huycke , cauvin & Debevoise, Plimpton, Lyons & Wolfe Gates Rutan & Tucker Gibson, Dunn & Crutcher Sullivan & Cromwell Graham & James Thorpe, Sullivan, Workman, Harris, Kerr, Forster & Thorpe, & O'Sull ivan Company Latham & Watkins

Real Estate Development Companies and Mortgage Bankers American Property Investors Kacor Associated Advisors, Inc . Kaufman & Broad, Inc . Barclay, Curci, Inc . Keystone Mortgage Company Bixby Land Company Don Knoll, Inc . Blackman, Flynn, & Co . Lincoln Property Company Burnett-Ehline Company W.L. Marocco Development Co . Cabot, Cabot & Forbes Mcconnico and Company Calmark Development Corp . McGranahan, Carlson & Company Carson Estate Company Newhall Land and Farming co . Continental Real Equities Newman Property Coldwell Banker company Price Development Company Continental Illinois Properties The Rouse Company DeMonet Industries Santa Anita Consolidated Diversified Development Company Scudder Realty Advisors Dunn Properties Sequoia Pacific Realco Getty Financial Corp . Sonnenblock-Goldman Corporation Hahn Devcorp UMET Trust Ernest w. Hahn Inc . United California Mortgage Heitman Mortgage co . Wallace Moir Corporation The Hewson Company Watt Industries The Hunt Organization Wells Fargo Realty Advisors !.D.S. Realty Trust The Irvine Company

Corporations Airco , Inc . I.M.L. Truck Terminals Baxter-Travenol Laboratories Interstate Brands Company Bechtel Corporation Johns Manville Corporation Bristol Myers Mary Kay Cosmetics Capital Metals Company H.S. Kress & Company Carnation Company Lawry's Foods Certified Grocers of California Lear Siegler Coca-Cola Bottling Company Levi-Strauss Consolidated Bottling Company May Stores, Inc. Consolidated Foods Corp . Mead Corporation Consolidated Freightways Montgomery Ward & Company Container Corporation of Norton Simon, Inc . America Pacific Motor Trucking Company B. Dalton Bookseller J.C. Penney Dayline , Inc . Reliance Steel Company Exxon Company Rheem Manufacturing Ford Motor Company Roadway Express Frigid Coil Corporation S.T.P. Company General Electric Stauffer Chemical Company General Host Corporation system 99 Genesco, Inc . 3-M Business Products Getty Oil Company Time - D.C. W.R. Grace and Company Times Mirror Company Gulf Oil company Triangle Steel Company Hartfield-Zody's, Inc . Twentieth Century Fox Heublein Corp . Utah International Hi-Shear Corporation Western Electric company Hughes Aircraft Xerox Corporation Hunt Foods Zody's Department Store Hydrill Company I.B.M. (THIS PAGE INTENTIONALLY LEFf BLANK) Appendix c Sumna.ryEMPIRE of Marke ECONOMICSt Absorption Study

Economic-Real Estate Consultants

Joseph Janczyk Evans, Ph .D. 35505 Camino Capistrano, Suite 200 Capistrano Beach , California 92624

(714 ) 661-7012

October 10, 1990

Ms . Patricia B. Novotney , Ed .D. Temecula Valley Unified School District 31350 Rancho Vista Road Temecula , CA 92390-0279

Re : Market Study Update Letter for CFO No . 89-1 {REDHAWK}

Dear Patricia,

The purpose of this letter is to provide you with an update of the Market Absorption study for REDHAWK which was conducted in May 1990. Since the Study was completed, there have been some significant changes in the economy , in general, as well as the energy market , in particular. Accordingly, the potential impacts of these changes on the estimated absorption schedules for REDHAWK are now discussed.

Potential Economic Frameworks for Estimating Absorption

There are various economic frameworks that may be ut ilized to evaluate the marketability of REDHAWK ; their characteristics are as follows : Economic Scenario Time Period --Suppl.em¢11ta.L------�------Co:mme11ts---

Most Probable Trended 3 - 5 years; stable , Pr.edictable average , trended

Most Probable Cyclical 3 - 5 years ; Changable, .Vc,latile annual, cyclical Subject: to .r�'7':rsion

current -·Actual Presently Actual: ··conditions

Page 1 Since REDHAWK is a large planned community that has more than 4,000 housing units, its marketing time is expected to be about a decade, and so the scenarios which are relevant are the TRENDED and the CYCLICAL . By comparison , the ACTUAL focuses only upon the current economic/housing market conditions , and so it does not have the appropriate time horizon for a project such as REDHAWK .

Accordingly , the economic assumptions underlying the TRENDED and CYCLICAL scenarios are as follows : ** .. ** ** ----·----Economic------Characte----ristics Trended ** .cyc:lical

Economic Growth/Year 2.8%, average < o to 5+% , Varies

Accuracy/Reliability High, 3;,;..5 yrs Low, Year/Year Market study - Updates Annuall.y

Schedule for Co0,structing Planned, Subject to Change Infrastructure continuous Di$:ruptive

The specific growth paths generated by these economic assumptions , along with the recent economic conditions , are as follows :

REC ENT/FO R ECASTED EMPLOYMENT GROWTH REDHAWK MARKET REGION 9.00"

11:1 8.00" 7.00,C J\ 6.00'1:: I \ ..c::: ;- 5.00'1:: I \ 1'-" c' ! � 1i 4.00'1:: I \.i. _/\ � � .3.00lll. I I \ I \ ..5 \ 0 � '- ) .., 2.00'1:: r / \ I

-2.00,i:; 1 980 1 982 1 984 1986 i 988 1 990 1 992 1 994 1 996 1 998 2000

CJ Actual Trended c> C clicol

So, a comparison of the TRENDED and CYCLICAL scenarios reveals that the former provides an effective planning horizon that can be utilized for constructing significant amounts of infrastructure over a one-two+ years time period .

Accordingly , Empire Economics, based upon its analysis of the characteristics of REDHAWK , regards the use of the TRENDED Scenario as being appropriate for providing a frame of reference that can be ut ilized to evaluate the economic

Page 2 feasibility of REDHAWK 'S Projects . This is because REDHAWK has a substantial number of residential units which will require a significant amount of time to be marketed.

Nevertheless , it should be emphasized that a critical assumption underlying the use of the TRENDED Scenario is that the property/project owners have a sufficient amount of financial staying power to deal with the ACTUAL economic conditions that are presently being experienced in the economy .

Potential Impacts of Energy Prices

The Market Absorption Study performed an analysis of the sources of demand for the residential projects in REDHAWK , including commuters who are employed in the western portion of Riverside/San Bernardino counties as well as Orange County . Specifically , this analysis considered the benefits/costs of commuting. With respect to the benefits of commut ing , the price of the homes in REDHAWK are significantly lower (by more than 35%) than comparable homes situated in Orange County . With regards to costs , these include the costs of the vehicle and gasoline as well as the time involved in commuting (based upon traffic congestion) . Accordingly , the relationship of the price of housing at the urban core to fringe is as follows :

HOUSING PRICE GRADI ENT E:Ml"LOYME:NT CORE: TO F"RINCE s.o,r; s.o,r; :...... 4.o,r; ...... 3.0X ......

2.0,i;: 1 ...... , ...... , .o,i;: ...... :,:: "' ' ..><. � -f o.o,i;: ..x;....x;...... � ... 0 -1 .O,C """"' """ "' "' � ><...... "">, '·� �...... _ ...... _;>" ·c: -2.0,i: "' � r--.... � -3.o,r; ><"" ...... ,. � � ><;.. .;>< c -4.o,r; ... "- ,...... _ xx: �· -s.o,r; >< "">, -s.o,r; � -7.o,r; ><"" ...... -a.o,i: '-,2

The Market Study is based upon the pr ice of oil being below $30 per barrel. Wh ile the price of oil has exceeded this level during the past several months , such relatively high prices would need to be sustained for more than several months to have a significant impact .

Current Housing Market Conditions

Emp ire Economics conducted another field survey of the active residential projects that are considered to be comparable to the forthcoming projects in REDHAWK , and then compared this to the results Page 3 of the market survey that was conducted in the Spring of 1990 . This analysis revealed that the REDHAWK Market Area is currently exhibiting signs of a housing market surplus :

* The demand has decreased, as compared to recent years , due to slower rate of employment growth in the Market Region , in general, as well as the higher prices of gas for commuters, in particular; commuters presently represent a substantial portion of the demand in this Market Area. * On the other hand , the supply of housing has increased since a large number of projects are completing their infrastructure , and so they are entering the marketplace.

The current market surplus is exhibited by a increase in standing inventory as well as various types of price incentives that purchasers are being offered , including some direct price reductions as well. The length of time that this surplus will last and its severity depends upon the degree to which the economy slows as well as the level to which gas prices rise. Nevertheless, the intermediate term trends underlying the demand for housing in the REDHAWK Market Area are still considered to be strong .

ownership of Property: Concentration versus Diversity

With respect to REDHAWK , the risk factors associated with the ownership of property, concentrated as compared to diverse, are now discussed .

Great American Development Company, the developer of REDHAWK , has sold the parcels in Tract #23063 , Phase One, to eight bu ilders which have nine projects amongst them ; the characteristics of their projects are expected to be as follows :

Lot Size ----Bu------ilders ------Units ------Sq. Ft .. ------Living · .. Area Mo------dels

M.J. Brock 126 5-6000 1,931 2,650 Open Barratt 120 5000 1,839 2,648 Open J.M Peters 120 5000 2,571 3,131 Nov-90 Pacific Scene 128 5-6000 2,350 3,005 Nov-90 Medici 188 5000 1,846 2,441 Apr-91 Warmington 145 6000 2,125 3,259 Open Broadmoor/Westana 73 7200 2,315 3,192 N/A W.W. Dean 69 7200 N/A N/A June-91 W.W. Dean ------137 condos N/A N/A June-91 Total ..•.•••••. 1,106

Thus , the eight builders have a total of some 1,106 lots, this represents approximately 25% of the lots in REDHAWK ; this diversity enhances the financial staying power of the properties in Phase One .

Page 4 However , since some 75% of the lots are still owned by the developer, the developer's financial staying power during the next several years is a critical concern .

Concluding Statements

Empire Economics's Market Absorption Study dated May 1990 utilized a conservative Trended Scenario to estimate the demand for housing in REDHAWK . Accordingly, the estimated absorption (occupancy) of homes amounted to some 183 units during 1991. REDHAWK is expected to have some five projects with model complexes opened by December 1990, and another three model complexes opened by June 1991. Consequently the estimated absorption (occupancy) for some 183 units in REDHAWK during 1991 is regarded as reasonable, even under the current market conditions.

Therefore, the Trended Scenario is regarded as being the appropriate framework for evaluating the marketability of the projects in REDHAWK , due to its characteristics (large number of homes) as well as the difficulties inherent in forecasting economic/real estate cycles .

If you have additional comments, contact me as I would be pleased to discuss them with you .

Si)

nc' zyk Evans, Ph .D. Consultant

Page 5 Surrmary of Market Absorption Study

MARKET ABSORPTION STUDY TEMECULA VALLEY UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 89-1 (REDHAWK ) SUMMARY AND CONCLUSIONS

Prepared for Temecula Valley Unified School District Riverside County , California

Prepared by EMPIRE ECONOMICS Joseph Janczyk Evans, Ph .D. 35505 Camino Capistrano, Suite #200 Capistrano Beach, California 92624

May 1990 INTRODUCTIOB TO THB MARKBT ABSORPTIOB STUDY

Backqroup4 The Temecula Valley Unified School District has authorized the formation of Community Facilities District No. 89-1 for REDHAWK , a Master Planned Community that is being developed by Great American Development Company . Specifically , REDHAWK is located in the southwestern portion of Riverside County, southerly of the intersection of Highway 79 and Margarita Road; its primary features/ characteristics are as follows : * REDHAWK has an approved Specific Plan and Development Agreement with Riverside County that provides it with entitlements for some 4,188 residential units , including detached, attached and apartments . Since the Project has approximately 581 developable acres for these residential products, it has a land-use density of some seven units per acre . * REDHAWK has an outstanding amenity package, including a championship eighteen hole golf course with a 30,000 sq .ft. clubhouse as well as more than 200 acres of open space and parks . * REDHAWK has a retail center that is expected to provide its residents with various types of convenience goods/services . Thus, REDHAWK is regarded as being "the" premier project in the southwestern portion of Riverside County , considering that it is a Master Planned community with a diversity of residential products as well as an outstanding amenity package . The size of the Mello Roos Bond Issue for CFO No . 89-1 (REDHAWK) is expected to be approximately $18.5 million . These funds will be utilized for the project's infrastructure costs as well as the financing costs for bond reserve , capitalized interest and issuance expenses . However, the actual size of the Mello Roos Bond Issue is subject to revision , based upon the final engineering cost estimates as well as the financial market conditions at the time of the bond sale. The purpose of the Market Alsorption Study is to estimate the . probable absorption schedules for the residential and commercial-retail proj ects in CFO No . 89-1, since their marketability influences the value of the property which is the principal security for the purchasers of the bonds . Specifically , from the perspective of the Bond Purchasers, the particular components of the infrastructure should be time-phased and location-phased in a manner that approximately coincides with the absorption of the projects/properties within CFO No . 89-1. Otherwise, to the extent that the infrastructure is not appropriately phased , then the following types of market surpluses and/or shortages for various types of products may occur: * on the one hand , if certain projects do not have the infrastructure that is required to support their development in a timely manner, then they may not be able to respond to the demand in the marketplace, resulting in a market shortage . * on the other hand, if too much infrastructure is bui lt , then properties for which there is not presently a market demand would incur high carrying costs due to the market surplus, and this could adversely impact their financial feasibility. Page 1 Thus , the Market Absorption Study formulates guidelines on the appropriate time-phasing and location-phasing of the infrastructure for the properties located in CFO No. 89-1, as a means of providing the bond purchasers with as much security as possible from a market absorption perspective .

Methodology Underlying .tJle Market AJ;,sorption study CFO No . 89-1 encompasses a large geographical area of some 595 developable acres that will eventually contain approximately 4,188 residential units as well as a 14 acre retail center; the golf course and open-spaces areas are not included within the CFD's boundaries . Consequently, the overall marketability of the projects in CFO No . 89-1 will be determined, to a large degree, by the future economic growth of its regional economy , and so Empire Economics considers this to be a critical component of the Study . Likewise, Empire Economics also regards the time-phasing and location-phasing of the specific components of the infrastructure within CFO No . 89-1 as being critical as well, since these will have a significant impact upon the development responsiveness and financial feasibility of each of its particular projects . Thus , the Market Absorption Study performs a comprehensive analysis of the Macroeconomic and Microeconomic factors that are expected to influence the marketability of each of the projects in CFO No . 89-1; this is accomplished through a systematic analysis of the following : Expected Product Mix: * The number of residential units and their probable product types in CFO No . 89-1 are estimated , based upon a consideration of the following : First, the entitlements that the various parcels have received, according to the REDHAWK 's Specific Plan and Development Agreement . Secondly, the expected marketing strategies of the developer/builders in the District . Third , the recent/expected residential trends/patterns in the Market Area . * The number of commercially designated acres that are expected to be utilized for the retail center are estimated in a similar manner : the Specific Plan approvals, the development strategy of the developer, and the current/expected market trends/patterns . Macroeconomic-Components: * CFO No . 89-1 Market Region's future employment growth is forecasted for the 1990-2000 time period . This involves an economic base analysis of the Market Region 's recent employment growth , as a whole, as well as the composition of this growth by various economic sectors, in particular, along with the expected employment trends and patterns during the 1990-2000 time period . * Empire Economics' utilizes these employment forecasts to derive estimates of the Market Region's future population growth during the 1990-2000 time period along with the demand for housing that this population growth is expected to generate. * Next, the proportion of the Market Region 's future employment , population, and residential growth that are expected to be captured by the Market Area are estimated for the 1990-2000 time period . This is based upon a consideration of the recent trends/patterns in the Market Area, along with modifications Page 2 regarding its future role for residential, industrial and commercial development in the Market Region's economy . * The demand for CFO No . 89-l's housing is estimated, based upon the Market Area's total housing demand and the share of this demand that the residential projects in CFO No . 89-1 are expected to capture, considering their location, product types, prices and other competitive factors. * The demand for the retail center in CFO Mo. 89-1 is derived by using the number of new households in the District 's projects and their purchasing power , along with various ratios for retail sales/sq.ft. and leasable sq.ft./acre. Microeconomic components: * The market absorption schedules for the residential and commercial-retail products in CFO No . 89-1 Projects ' are derived according to the following procedure : + Aggregate Absorption Schedule: This analyzes the market demand and supply conditions for all of the residential and commercial-retail properties in CFO No . 89-1, as a whole , in order to derive the overall absorption schedules for these products . + Specific Absorption Schedules : This involves a disaggregation of the Aggregate Absorption Schedule for CFO No. 89-1 to each of its five Tracts for the residential products, using information on their expected phasing patterns . Therefore , the Market Absorption Study systematically proceeds from the Macroeconomic analysis of CFO No. 89-l's Market Region's future employment , population and housing growth to the estimated absorption schedules for the residential units in each of the five Tracts in CFO No. 89-1 , based upon the development strategy of Great American Development Company as well as their phasing/development patterns .

Relationship of Market Absorption study to the Mello Roos Bond Issue The results of the Market Absorption study for CFO No . 89-1 during the 1990-2000 time period may be utilized by the other Mello Roos Bond Issue participants in the following manner : * Special Tax Consultant : The Special Tax Consultant can utilize CFO No . 89-l's absorption schedules to calculate the Me llo Roos Special Tax Revenues that are expected to be paid by the landowners and/or future residents/occupants in each year; these revenues are used to meet the debt service schedule on the District 's Bond Issue . * Appraiser : The Appraiser can utilize the absorption schedules to perform a Discounted Cash Flow Analysis which establishes the value of the property in the District ; this represents the security/collateral underlying the Bond Issue . * District Engineer : The District Engineer can utilize CFO No . 89-l's absorption schedules as a means of coordinating the provision of the infrastructure facilities with the expected occupancy of the residential and commercial projects in CFO No . 89-1. * Temecula Va lley Un ified School District : The Market Absorption Study provides employment , population and housing projections

Page 3 for the Market Region and also the Market Area; these can be used to plan the time-phasing of other public infrastructure requirements as well. * Great American Development Company: Empire Economics' Market Absorption study starts with the total expected demand for residential units and commercial-retail acreage in CFO No . 89-1 Market Area , and then allocates a portion of this demand to CFO No. 89-1, based upon certain criteria that reflect its competitiveness in the marketplace as well as the phasing of its infrastructure. Consequently , Great American Development Company can utilize these absorption schedules to reconcile their Business Plans with the overall expected conditions in the entire CFO No. 89-1 Market Area. Therefore , Empire Economics provides absorption schedules for the residential and commercial-retail projects in CFO No . 89-1, and these may be utilized by the various consultants as well as the School District and the Project Owners/Project Managers in establishing the optimal location-phasing and time-phasing of the infrastructure for projects , and thereby enhancing the security/revenues for the bond issues . oualifications/credentials 2l. Empire Economics Empire Economics is an economic-real estate consulting firm that specializes in conducting Market Absorption Studies for residential , commercial and industrial projects located throughout California . Although Empire Economics conducts such studies for a diversity of clients , including developers, builders and governmental agencies, its pr imary area of specialization has been tax-exempt financings during the past ten years . * Mortgage Revenue Bond Financings and Certificates of Participation : Eighty issues with bonds amounting to over $2 , 000,000, 000. * Mello Roos/Assessment District Bond Financings that have actually had their bonds issued: sixty bond issues totaling about $850,000, 000. * Mello Roos/Assessment District Financings that are presently in their formative stages : over twenty issues that have an expected value of $600,000, 000. Consequently, Empire Economics has a considerable amount of experience with the special characteristics of the Market Absorption Study that are required for a Mello Roos District as we ll as the particular types of information that the other consultants need from the study such as the Special Tax Consultant, Appraiser , and District Engineer .

Delineation of the Market Areas To provide the appropriate perspectives on the relevant economic, demographic, residential and commercial trends/patterns for the Market Absorption Study of CFO No . 89-1, it is necessary to identify several different market areas . Accordingly, the rationale underlying the delineation of their geographical boundaries is now discussed. State of California The state of California, as a whole, is important , since its population and employment growth are utilized as reference points for Page 4 gauging the employment trends and patterns for CFO No. 89-l's Market Region. CFD No . 89-1 Market Region: CFO No. 89-l's Market Region's economy encompasses Riverside , Orange, San Diego, and San Bernardino counties, including all of their cities and communities. The employment and population growth trends/patterns in these counties are closely interrelated, due to their geographical proximity as well as the freeway corridors that link them demographically and economically. CFD No . 89-1 Market Area: The Market Area encompasses the south-western portion of Riverside County, including the cities Temecula and Lake Elsinore as . well as the communities in their vicinity . These cities/communities are regarded as being comparable, from an economic perspective, since they have a similar degree of economic maturity. This can be attributed to their distance from Orange and Los Angeles counties as well as the freeway corridors that form a relatively close linkage amongst them .

CFD NO. 89-1 LAND-USES: PROBABLE RESIDENTIAL AND COMMERCIAL-RETAIL PRODUCT TYPES AND THEIR PHASING SCHEDULES

The estimation of the probable number of residential units as well as the number of commercial-retail acres in CFO No. 89-1, and their product mixes, has a direct impact upon the amount of debt that can be supported by the Mello Roos District. Specifically, the number of units/acres and the amount of the annual taxes per unit/acre generates the revenues that are available for the annual debt service . This, in turn , determines the size of the bond issue that can be supported by the properties/projects in CFO No . 89-1. Expected Land-Use Designations for CFD No. 89-1 Based upon REDHAWK 's Specific Plan and Development Agreement with Riverside County , CFO No . 89-1 has been partitioned into five portions/phases, based upon the Tract Maps that have already been approved by the county ; accordingly, their characteristics are as follows : & Total '""'' - Commer : Indus . ------Tract Maps ------Devel. ------Resident----ial-· ------Retail -----Office--- Acres Units Acres Acres Acres (Est.) (Est.) Tr . # 23063 ...... 189 1,109 189 0 0 Tr . # 23064 ...... 56 443 56 0 0 Tr . # 23065 ...... 167 1,208 153 14 0 Tr. # 23066 ...... 86 655 86 0 0 Tr . # 23067 ...... ------97 ------773 ------97·- '�"- -·------0 ------0 595 4,188 581 14 0 Thus , CFO No . 89-1 has a total of 595 developable acres which are expected to have the following land-uses : Residential Projects have Page 5 some 581 acres with 4,188 housing units and there are also 14 acres for a commercial-retail center. So, the absorption schedules are estimated for each of these Tract Map Areas in CFO No. 89-1, since each has its own land-use and market entry characteristics. Probable Number 21 Resi4ential Units A.aA their Pro4uct II.ix The purpose of this section is to estimate the probable number of residential units in CFO No . 89-1 as well as their composition according to various market segments , based upon their product types and price ranges. Specifically , this involves a consideration of the Specific Plan for the Projects/Properties in CFO No. 89-1, along with the particular characteristics/attributes of each of these Projects/Properties. Estimated Number � Resi4ential units an4 their Densities According to the Specific Plan for the Properties/Projects in CFO No. 89-1, Riverside County has granted approval for the development of some 4,188 residential units. Furthermore, these residential units can be partitioned into land-use density categories which reflect various product-types : apartments, attached and detached, accordingly , the number of units by the various land-use categories are as follows : - Apart . Attach. Attach . Detach . Detach . Detach. Tract------Map ------<150------K ------>150K 150-2------00K ------200-350K ------>SOOK Tr . # 23063 0 137 0 102 870 0 Tr . # 23064 0 0 0 51 392 0 Tr . # 23065 133 467 0 206 402 0 Tr . # 23066 0 141 0 71 443 0 Tr . # 23067 ------0 ------421 ------0 ------50 ------302 ------0 Totals ...... 133 1,166 0 480 2,409 0 Shares ...... 3.2% 27.8% 0.0% 11.5% 57 .5% 0.0% So , the Projects in CFO No . 89-1 are expected to have the following Product Types : Apartments: 133 (3%) , Condos : 1,166 (28%) , Detached priced at $150-200,000 : 480 (12%) , and Detached priced at $200-350,000 : 3,842 {58%) . The Projects in Tract #23063 have been committed to various builders , and these are expected to proceed with the building /marketing of their products in the near future ; accordingly , their character istics are as follows : Builder Tract Lot Size ------ti 23063 Acreage------Units Est---imated-----

Broadmoor/Westana ...... 23063-1II 20.44 73 8,400 Warmington Housing ...... " -2 31.49 145 6,500 Medici Investment Company .. " -3 28.59 188 4,600 Pacific Scene •••••••••••••• II -4 23. 30 130 5,400 M.J. Brock & Sons ...... " -5 22.03 127 5,200 Barratt , American ...... " -6 21. 67 120 5,400 Deane Homes •••••••••••••••• " -7 14 .42 69 6,300 J.M. Peters Co ., Inc ...... -8 15.98 120 4,000 RED HAWK Ventures ...... N/A ------11. 00 ------137 ----2,4----00 Totals ...... 188.92 1,109 5,100 Page 6 Thus , there are nine projects in Tract #23063, and these have a total of 1,109 housing units amongst them; their lot sizes are approximately 5,100 sq.ft. , on the average, with a range of 2,400 sq .ft. lots for condos to 8,400 sq.ft. lots for the higher-priced detached products. for ,,-1 ProposedThe Prpriciceses for .the the Resident residentialial Products products in in crp CFO 19, No. 89-1 influence their marketability as well as the Mello Roos Revenues that will be generated to cover the debt service of the Bond Issue. Consequently , Empire Economics performed a comprehensive analysis of the active residential projects in the Market Area in order to evaluate the proposed prices for the residential products in CFO No. 89-1. The boundaries of the CFO No . 89�1 Housing Market Area are delineated though a consideration of the following: for households considering the purchase of a home in CFO No . 89-1, the various housing proj ects in the general area that they would visit in the process of arriving at a purchase decision. Accordingly, the Housing Market Area includes the cities of Temecula and Lake Elsinore as well as their nearby communities; these provide a sufficient sample of active residential projects to perform the statistical analysis. Accordingly, Empire Economics identified the active residential projects that are presently marketing their products in this area . Then , for each of these, information was compiled on their pricing, lot sizes, living areas, distance from the Los Angeles/Orange counties ' employment core , homeowners fees , and Special Taxes/Assessments, amongst other features. The general characteristics of the active projects in the CFO No. 89-1 Housing Market Area are as follows : Description of Average -Probable Range- Characteristic Lower Upper

Price ...... •....• $183, 063 $121,490 $244 ,636 Living Area ...... 1,893 1,384 2,402 Distance , Employ ...... 72 66 79 Distance, Employ - Squared . N/A N/A N/A Lot Size...... 6,655 2,133 11, 177 Lot Size - Squared ...... N/A N/A N/A Me llo Roos Tax ...... 481 0 968 Sales Rate/Year ...... 65 26 104 Project Units ...... 200 35 365 Golf Course ...... • 8.9% N/A N/A Minimum Age ....•....•.....• 6.7% N/A N/A {Note: The Most Probable Range represents approximately 68% of the projects ; statistically, it is plus/minus one standard deviation from the average .} So, the relevant residential projects have prices of $183,100, on the average, with a probable range of $121,500-244,600. The projects have some 1,900 sq.ft. of living area, on the average, with a probable range of 1,385-2 ,400 sq .ft. Consequently, the Value Ratio (price/living area) for these projects amounts to $96.70, on the average, and it has a probable range of $87 . 75-101.85. The lot sizes are 6,650 sq .ft. , on the average, while the typical distance of the projects from the Los Angeles/Orange County employment centers is some 72 miles, and its probable range is from 66-79 miles. The Mello Roos Special Taxes associated with the projects amounted to some $480 per Page 7 year , on the average. Approximately 9% of the projects have a golf course as an amenity and some 7% have minimum age requirements of 55+. The projects have a typical size of some 200 units, with a probable range of 35 to 365 units. Finally, their sales rate amount to 65 units per year on the average , and this has a probable range of 26-104 sales per year . composition .2f Residential units � Market segments To provide a description of the characteristics of the expected residential units, and also to facilitate the analysis of the market demand/supply conditions for the residential projects in CFO No. 89-l's various market segments , Empire Economics designated seventeen potential market segments, including apartments , various prices of attached and detached products, and estate/custom homes. The characteristics of the projects in each of these market segments are based upon the features of the active residential projects in CFO No 89-1 Market Area ; these are as follows : --Active Projects-- Market Lot Living - CFO District - Segment Size Area Market Segment Code (Avg.) (Avg.) Relevant Units ------Apartment Below $ 74 , 999 1 0 300 Yes 133 Attached $75,000 $125,000 2 2,700 600 Yes 591 Attached 125,000 150, 000 3 3,500 1, 000 Yes 575 Attached 150,000 200,000 4 3,900 1,300 No 0 Attached 200 , 000 250, 000 5 4,700 1,700 No 0 Attached 250 , 000 500, 000 6 5,500 2,200 No 0 Attached 500, 000 +++++ 7 9,500 4,500 No 0 Detached 100, 000 150, 000 8 3,100 800 No 0 Detached 150,000 200,000 9 3,900 1,300 Yes 480 Detached 200, 000 250, 000 10 4,700 1,700 Yes 1,167 Detached 250, 000 300, 000 11 5,500 2,200 Yes 1,173 Detached 300, 000 350, 000 12 6,300 2,600 Yes 69 Detached 350, 000 400,000 13 7,100 3,100 No 0 Detached 400, 000 500, 000 14 7,900 3,600 No 0 Detached 500,000 600, 000 15 9,500 4,500 No 0 Detached 600, 000 1000000 16 11,200 5,400 No 0 Detached 1000000 +++++ 17 17 ,600 9,100 No 0 Totals.�········································ ······· ····· 4,188

Therefore , of the seventeen potential market segments , CFO No . 89-1 has a potential for seven of them : this includes apartments : 133 units ; attached products priced from $100, 000-150,000: 1,166 units, single-family detached priced from $150,000-200,000: 480 units, single-family detached priced from $200-300,000: 2,340 units , and custom homes priced over $300,000: 69 units . Thus, the projects in CFO No . 89-1 have a concentration of detached homes in the $200-300, 000 price range (54%) as well as attached homes in the $100-150 ,000 price range (28%) .

Page 8 commercial-Retail centers CFO No . 89-1 has a total of some 14 acres of commercial property that are designated specifically for retail commercial centers . Considering the location and size of these parcels, Empire Economics regards the most probable type of commercial centers for CFO No . 89-1 to be as follows : Acreage Share Type of Center (Approximate) (Approximate) Corner ...... LO 7.1% Neighborhood •.....••••••••• 2.0 14.3% Community ...... 11.0 78.6% Mall/Power Center ••.••.•.•• o.o 0.0% Restaurants ••••...•.••••••• o.o 0.0% Auto Center •••...... ••...•. o.o 0.0% Service Station ...... o.o 0.0% Offices/Insur .•.•...... •• o.o 0.0% Theatre complex ...... •.• o.o 0.0% Health-Care .•...... •..•... o.o 0.0% Totals: ...... 14.0 100.0% So , the commercial property in CFO No . 89-1 is expected to offer the following: Locally-oriented : Corner , Neighborhood and Community centers, and these are expected to have a total of 14 acres . The marketability of various these types of commercial centers depends upon the number of households in CFO No. 89-1 as well as their expenditure patterns , since each of these type of centers offers specific types of products/services . Thus , the demand for the Neighborhood Commercial Center in CFO No . 89-1 is derived according to the amount of leasable space that can be supported by the occupants of the new residential units as well as the type of centers that are expected to be developed .

ESTIMATED ABSORPTION SCHEDULES FOR THE HOUSING UNITS IN CFD NO . 89-1

Based upon the above analysis of the demographic-economic conditions in the Market Region as well as the market demand and supply conditions for housing in the Market Area , the marketing success that CFO No 89-1 can expect to achieve is based upon a variety of factors , with the most significant being as follows : * CFO No . 89-1 (REOHAWI<) is regarded as the premier project in its Market Area of southwestern Riverside County, considering that it is a large Master Planned Community that has a broad diversity of housing product along with an outstanding amenity packages which features a championship golf course and substantial amounts of open space. * The continuation of a relatively strong rate of economic-demographic growth in the Market Area is critical to the marketing success of CFO No . 89-1 (REOHAWI<) , considering

Page 9 the number of its residential units along with their product mix: relatively high prices for the detached products as well as a large number of attached homes (as compared to the other projects in the Market Area) . Therefore, considering the locational, economic, and housing market factors discussed above , the Aggregate and Specific absorption schedules for CFO No. 89-1 are now estimated .

Estimated Aggregate Absorption Schedule for CPD Ho . 89-1 The estimated aggregate absorption schedules for the housing units in CFO No. 89-1 are based upon a consideration of the housing demand-supply conditions in the Market Area , in general, and the competitiveness of CFO No . 89-l's housing products in the marketplace , in particular . Specifically , the absorption schedules for housing in the various market segments in CFO No. 89-1 are estimated by starting with the Market Area's future demand for housing in each of these segments and then applying the project's respective capture rate for each of the segments. Accordingly, the application of this algorithm results in the following estimated absorption schedules for the various product types in CFO No. 89-1 : Year ------Cumulative ------Apart- Attached --- Detached ------ments ------$100-150K $1------50-200K ------200-350K Total •...... 133 1,166 480 2,409 { Absorption = Occupancy of Housing Units } 1990 0 0 0 0 1991 0 0 0 183 1992 0 0 98 389 1993 0 85 190 621 1994 27 178 277 877 1995 55 281 357 1,159 1996 85 396 434 1,478 1997 116 520 480 1,820 1998 133 652 480 1,993 1999 133 792 480 2,141 2000 133 940 480 2,300 2001 133 1,089 480 2,409 2002 133 1,166 480 2,409 2003 133 1,166 480 2,409 2004 133 1,166 480 2,409 2005 133 1,166 480 2,409 2006 133 1,166 480 2,409 2007 133 1,166 480 2,409 2008 133 1,166 480 2,409 2009 133 1,166 480 2,409 2010 133 1,166 480 2,409 Remaining ...20 00 •• 0 226 0 109 Remaining ...20 05 •. 0 0 0 0 Rema ining ...20 10 .. 0 0 0 0

Page 10 ------Annually ------Year Apart- Attached --- Detached ------men ts ------�$100-150---K $150-2---·-----00K 200---�-----350K-

1990 0 0 0 0 1991 0 0 0 183 1992 0 0 98 206 1993 0 85 93 231 1994 27 93 87 256 1995 28 102 80 282 1996 30 116 77 319 1997 31 124 46 342 1998 17 1:32 0 172 1999 0 140 0 148 2000 0 148 0 159 2001 0 148 0 109 2002 0 77 0 0 2003 0 0 0 0 2004 0 0 0 0 2005 0 0 0 0 2006 0 0 0 0 2007 0 0 0 0 2008 0 0 0 0 2009 0 0 0 0 2010 0 0 0 0 So, the absorption schedules for housing in each of the market segments follows a systematic pattern that reflects the market entry of homes in that segment , the absorption rate per year, and the number of units in the market segment . * For apartment units, wh ich have a high-density designation of some 16-20 units/ac ., the estimated absorption schedule reflects that they are expected to enter the market in 1994 , with the 133 units being absorbed by 1998. * For attached housing products, such as townhomes and condominiums , the estimated absorption schedule reflects that they are expected to enter the market in 1993, and that all of the 1,166 units are also expected to be absorbed by 2002. * For detached housing products the estimated absorption schedule reflects that they are expected to enter the market in 1991, and that the 2,889 units will be absorbed by 2001. The absorption schedules by the product types can now be combined to arrive at the overall absorption schedules for the CFO No . 89-·1 as a whole, and these are as follows :

Page 11 Year --- Annually --- -- Cumulative ------Units ------Share ------Units ------Share 4,188 1990 0 0.00% 0 0.00% 1991 183 4.37% 183 4.37% 1992 304 7.27% 487 11. 64% 1993 408 9.75% 896 21. 39% 1994 463 11. 05% 1,359 32.45% 1995 493 11. 76% 1,851 44. 21% 1996 542 12 .94% 2,393 57.14% 1997 543 12 . 97% 2,936 70. 11% 1998 321 7.67% 3,258 77. 78% 1999 288 6.88% 3,546 84. 66% 2000 308 7.35% 3,854 92.02% 2001 257 6.14% 4,111 98 . 16% 2002 77 1.84% 4,188 100.00% 2003 0 0.00% 4,188 100. 00% 2004 0 0.00% 4,188 100. 00% 2005 0 0.00% 4,188 100.00% 2006 0 0.00% 4,188 100. 00% 2007 0 0.00% 4,188 100. 00% 2008 0 0.00% 4,188 100.00% 2009 0 0.00% 4,188 100.00% 2010 0 0.00% 4,188 100.00% So, CFO No . 89-1 has an expected absorption for some 1,850 units (44%) by 1995, some 3,854 units (92%) by 2000, and all of its 4,188 units by the year 2002 . The absorption rate amounts to some 490 units per year during the 1993-1997 time period when most of its product types are be ing offered.

Estimated Absorption Schedules for the Tracts in CPD NO. 89-1 The Aggregate Absorption schedules presented above can now be partitioned into the estimated absorption schedules for each of the five designated Tracts in CFO No . 89-1 . Specifically , these are derived by starting with the aggregate absorption schedule, with its composition by the various market segments, and then applying this absorption to each of the Tracts in a successive , sequential manner. Accordingly , based upon a consideration of the Aggregate Absorption Schedules as well as the infrastructure/phasing considerations , the estimated absorption schedules for the various Tracts in CFO No . 89-1 are as follows:

Page 12 ----- Estimated Absorption Schedules; Product Type and Tract ----- Apart­ Attached --- Detached --­ Year ments $100-150K $150-200------K ---200-----350K- {Absorption by Homeowners; Final Maps' Lead Time : 18-24 months} 1990 N/A N/A N/A N/A 1991 N/A N/A N/A # 23063 1992 N/A N/A I 23063 # 23063 1993 N/A # 23063 I 23065 # 23063 1994 # 23065 # 23065 # 23065 # 23064 1995 # 23065 # 23065 I 23065 # 23064 1996 I 23065 # 23065 # 23067 # 23065 1997 I 23065 # 23065 Sold-Out # 23066 1998 Sold-out # 23066 Sold-Out # 23066 1999 Sold-Out # 23067 Sold-Out # 23067 2000 Sold-Out # 23067 Sold-Out # 23067 2001 Sold-Out # 23067 Sold-Out Sold-Out 2002 Sold-Out Sold-Out Sold-Out Sold-Out 2003 Sold-Out Sold-Out Sold-Out Sold-Out 2004 Sold-Out Sold-Out Sold-Out Sold-Out 2005 Sold-Out Sold-Out Sold-Out Sold-Out 2006 Sold-Out Sold-Out Sold-Out Sold-Out 2007 Sold-Out Sold-Out Sold-Out Sold-Out 2008 Sold-Out Sold-Out Sold-Out Sold-Out 2009 Sold-out Sold-Out Sold-Out Sold-Out 2010 Sold-Out Sold-Out Sold-Out Sold-Out

Therefore , the estimated absorption schedules for the Tracts in CFO No . 89-1 reflect a pattern similar to that of the Aggregate absorption schedules for the various product types ; additionally, the particular Tracts wh ich are expected to provide these products are also specified. While a specific Tract may market most of its products during the year that it enters the market , some of its products may require additional years to complete their marketing . Consequently , several of the Tracts are expected to be on the markets simu ltaneously, and they will be marketing different product types during that time period . Finally, it is worthwhile to note that since the Market Absorption Study defines absorption as the actual occupancy of a home , the lead time between the recordation of the final map and the occupancy is expected to be some 18-24 months .

conclusions of the Market Absorption Study Therefore , �ased upon a comprehensive analysis of all of the relevant economic conditions as well as the housing market demand-supply factors, Empire Economics concludes that the marketing prospects for the residential projects in CFO No . 89-1 are favorable. This can be attributed to the expected strength of the economic and housing market conditions in its Market Area (due to continuation of the economic-demographic spillover from Los Angeles/Orange counties) and the Project being a Master Planned Community with a diversity of housing products as well as a golf course and open-space amenity package .

Page 13 LAN D USE DESIGNATIONS REDHAWK 190 � ' �� 180 �� 170 �" ""' �� � � 160 xx �y'A �,()« �� �� ' " " 150 "�� "' " � � "' 140 ""'� �� "'� �� 130 "" " � ""' � �" ""' � 120 z '� �� � �� c 1 10 � � 3 �� ' � � '� 0- 100 (1) � " ""'� � """'� � ""'� ' 90 "' 0 -+, �-- -- �� 80 ""'<' "'" ' "' � -- � ·�� n � �� " ."""� ', ""' ""'� ,, " """'�' ' 70 (1) �� �� �� �� �� �� �� �� en 60 " '�� ' ""' ""' '�� '"" '�� ��� 50 " "' "� "�� ""'� �� "� �� "� � "� �� 40 "' "'" " � � � � � � 30 � " �" "� """'---" �" �"--- �'�� �'�� �� � �� 20 � � ""� �� � �� �� � �� �� � 10 ""< ""< 0 � "'""� � "'""� � " "� � " ""� � " ""� Tr. # 23063 Tr, # 23064 Tr. # 23065 Tr. # 23066 Tr. # 23067

cs::::=J Residential � Comm ercial - Retail ASSOMPTIONS UNDERLYING THE MARKET ABSORPTION STUDY The Market Absorption study for CFD No . 89-1 is based upon various assumptions ; these should be reviewed carefully by the reader so that the conclusions of the study can be understood within their proper context. Most Probable Trended Economic scenario The Market Absorption Study focuses upon the expected absorption schedules for the residential and commercial-retail products in CFD No . 89-1 according to the Most Probable Trended Economic Scenario. Specifically , this Scenario represents the economic and demographic conditions for the Market Region in the intermediate term, a time span that covers some five-ten years. This is regarded as being appropriate for a Mello Roos Bond Issue , since the bonds have relatively lengthy maturities. Consequently, the economic and market conditions which actually materialize on a year by year basis may differ from those presented for the Most Probable Trended Economic Scenario, as a result of typical economic cycles as well as exogenous factors which are difficult to forecast/quantify with a high degree of precision . Accordingly, the Most Probable Trended Economic Scenario should not be construed as a representation of what is actually going to materialize in any given year. Provision of the Infrastructure; B9l§ of Government Agencies The Market Absorption Study assumes that the Temecula Valley Unified School District as well as other County/City agencies that supply public facilities and services do, in fact , provide these in a timely manner so that the Projects in CFO No . 89-1 can respond to the expected market demand for their residential and commercial products . Otherwise , if the required infrastructure is not available in a timely manner , then the absorpt ion of the Proj ects could be adversely impacted . Developers/Builders Responsiveness to Market Conditions The Market Absorption Study assumes that current property owners and any future owners in CFO No. 89-1 that purchase property from the current owners respond to the market conditions with products that are competitively priced and have the features/amenities that are desired by the purchasers . This is an especially critical assumption since the property in CFO No . 89-1 is presently vacant , and so it is not possible to evaluate the specific characteristics of the product types that wi ll eventually be developed. Consequently , to the extent that future proj ects have prices/ features that differ from the competitive market standards, then their absorption schedules would need to be modified from those presented according to the Most Probable Trended Economic Scenario . Financial strength of the Project Developers/Builders The Market Absorption Study assumes that Great American Development Company as well as the Project Builders in CFO No . 89-1 have sufficient financial strength to adequately fund their projects , including paying their Mello Roos Special Taxes , and that they have sufficient financial reserves which could be utilized to supplement their cash flow positions , in the event that adverse economic or market conditions occur .

Page 14 RESIDEi\JT\Al_ PRODUCT MIX REDHAWK 1 .3

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cs=] Apts. � Condos cs:2] Townhomes Det. < $250 ,000 K:=8 Det. > $250,000 � Custom �- 1 i M A.T E U R E S i D E_ [\J TI/\L I'\ 8 �� 0 R PT IO f\J REDHAWK 600 l ---

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0 1990 1995 2000 2005 20 10

cs=] Apts � Att.<$200K cs:zJ Att. > $200K E:::::'SJ Det.<$200K � Det.$200-SOOK L=2J Det. $SOOK+ ESTI MATED /\ B SORPT!ON SCHEDULE

RED HAWK 4.5 _ T __ _ 4.0

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0.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

rs=] � Att. >$200K Apts � Att.<$200K L3 Det.<$200K K /i Det.$200-$500K Det.> $500+ Append ix D DIRECT AND OVERLAPPING DEBT REPORT TEMECULA UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 89-1 (REDHAWK )

1990-91 Assessed Valuation: $92,509,590

DIRECT AND OVERLAPPING BONDED DEBT % Applicable Debt 10/1/90 Riverside County Board of Education 0.190% $ 17,699 Riverside County Building Authorities 0.190% 862,098 Riverside County Free Library Authority 0.297 1,858 Metropolitan Water District 0.013 93, 140 Eastern Municipal Water District Certificates of Participation 0.644 629, 768 Eastern Municipal Water District, Improvement District #U-8 4.230 423,000 Temecula Unified School District 3.245 288,643 (1) Temecula Unified School District Certificates of Participation 3.245 78,861 Temecula Unified School District Community Facilities District No . 89-1 100. 12,815,000 (2) Rancho California Water District Certificates of Participation 5.227 4,858, 497 Rancho California Water District Rancho Division 8.125 338,406 (3) Riverside County Assessment District No. 159 24. 630 18,962,217(4)

TOTAL GROSS DIRECT AND OVERLAPPING BONDED DEBT $ 39, 369, 185 Less: Rancho California Water District Certificates of Participation - 4,858, 497

TOTAL NET DIRECT AND OVERLAPPING BONDED DEBT $ 34,510, 688

Ratios to Assessed Valuation : Direct Debt 13.85% Total Gross Debt 42.56% Total Net Debt 37.31% SHARE OF PROPOSED ISSUANCE : Riverside County Assessment District No. 159 $16,550,000

STATE SCHOOL BUILDING AND REPAYABLE AS OF 6/30/90 : $ 0

(1) Represents 8,000,000 previously issued and $21,000,000 proposed to be issued in early 1991 out of total general obligation bond authorization of $65,000,000 . (2) Represents $12,750,000 out of total authorization of $20,000,000. ( 3) Represents $44, 360, 000 of general obligation bonds out of total authorization of $55 ,000 ,000. (4 ) Includes share of authorized bonds to be sold. Source : California Municipal Statistics , Inc. (THIS PAGE INTENTIONALLY LEFf BLANK) Appendix E THE TEMECULA VALLEY UNIFIED SCHOOL DISTRICT AREA Locat ion The Temecula Valley Unified School District is located in the southwestern portion of Riverside County, approximately 87 miles southeast of Los Angeles and approximately 59 miles north of San Diego.

History Prior to the settlement of California by the Spanish in 1769, the Temecula area was occupied by the Luisano and Diegueno Indian Tribes. These Indian tribes occupied the lowlands in the Murrieta and Pauba Valleys . An Indian vil lage called Temeku was located on a bluff adjacent to the confluence of the Murrieta and Pauba Creeks . The land within the School District was contained within the bounda ries of the Spanish mission of San Luis Rey. When the Mexican Government secularized the missions in the early 1800 • s, the mission land in the School District was divided into several Ranchos . Grants were awarded by the Mexican Government for the Ranchos Santa Rosa , Pauba , Temecula , and Little Temecula. After California was acquired by the United States and gained admission to the Union in 1850, these Ranchos were patented by the United States Government .

The present site of Temecula was developed in the 1880's on the Ca lifornia Southern Railroad from San Bernardino through Murrieta Valley and Temecula Canyon to San Diego. The railroad was abandoned in 1935 due to periodic destructive floods in Temecula Canyon. The township of Temecula served as a shipping center for cut granite from quarries located southwest of the conf luence of the Temecula and Murrieta Creeks .

Originally, the land now encompassed by the School District was located in San Diego County. In 1893, Riverside County was formed from portions of San Bernardino and San Diego Counties and the area was included within the new boundaries of Riverside County . In 1904, approximately 87 ,500 acres of the land within the present School District boundaries were acquired by the Vail Ranch . This land was developed into a productive and prosperous cattle ranch . Then, in 1964, the Rancho California Development Corporation was formed when the Vail Ranch was acqui red by the Partnership of Kaiser Corporation (Kaiser Aluminum & Chemical Corporation and Kaiser Industries Corporation) and Macco Realty Co . The developers implemented a program to create an area with balanced residential , commercial , and industrial uses whi le ma intaining open space as well as agricultural land.

APPENDIX E- 1 In 1969, the Kaiser Corporations acquired the interest of the Macco Realty Company and subsequently joined with Aetna Life and Casualty Company to form the partnership of Kaiser Aetna to develop the area within the School District . By this time, another 10,000 acres of land had been acquired by the developers , making the project size a total of approximately 96 ,000 acres. In 1977, the Aetna Life and Casualty Company interests were acquired by Kaiser Aluminum & Chemical Corporation .

In December 1986, a joint venture of Bedford Properties and the Kemper Insurance Company, Rancho California Development Company, acquired Kaiser Development Company. The purchase involved 28 , 000 acres of undeveloped land within the School District. Climate Two general climate zones exist within the area encompassed by the School District : cool , moist air in the Santa Rosa Division and warmer, dryer air in the Rancho Division. Fluctuations in rainfall and temperature exist between the two divisions. However, warm summers and moderate winters are typical of the overall climate for the area. Annual average precipitation is 11. 58 inches, annual average temperatures range from an 80. 5 degrees to a minimum annual average of 46 .3 degrees. The climate and soil within the area of the School District are particularly favorable for growing avocado, grape and citrus crops. As of June, 1989, approximately 13,000 acres were used for agricultural purposes. Avocados are produced on approximately 98 percent of the agricultural land in the Santa Rosa Division. Grapes occupy approximately 54 percent of the Rancho Division agricultural lands with citrus occupying only 28 percent of the agricultural land in the Rancho Division .

There are currently 26 agricultural management firms operating within the area of the School District which manage agricultural production of thousands of acres of land owned by individual investors, partnerships and corporations. The agricultural managers apply economies of scale, by combining many small and medium sized parcels of land as if these parcels were one large ranch.

In addition, a substantial wine industry has been developed in the area . Approximately 2,600 acres of land were planted with grapevines . There are currently twelve (12) wineries which produce wine with locally grown grapes . Populat ion The current population within the School District is estimated to be approximately 30,000. The Temecula Chamber of Commerce reports an average yearly increase in population of approximately 16% over the last few years.

APPENDIX E-2 Economy/C01111118rce Temecula is a community of mixed single family and multifamily residential, commercial , light industrial and agricultural development . Major commercial and industrial development is located in the Rancho California Plaza, which includes currently leased commercial space totaling 114, 000 square feet, including a 38,000 square foot Safeway Market . Rancho California Town Center also contains major commercial development , with leasable space totaling 550,000 squre feet. South of the Rancho California Plaza is the older, historic portion of the City of Temecula, with additional commercial activity, including general retail stores, gift/specialty shops , restaurants, real estate offices, personal and professional services, and other similar service businesses. The housing mix consists of condominiums , apartments, and single family dwellings located on lots ranging from 7 ,200 square feet to 20-acre custom estates. Such houses currently range in price from approximately $100, 000 to $400,000 and above . The largest employers as of June , 1989 area shown in the following two tables . MAJOR EMPLOYERS Approximate Employer No . of Employees Type of Business Advanced Cardiovascular Systems 624 Medical Devices Hudson Oxygen Company 430 Therapy Equipment Internationa l Rectifier 362 Semi Conductors Bianchi Leather Products 225 Leather Goods Borg-Warner Mechanical Seals 150 Pump Parts Milgard Manufacturing 110 Dual Glaze Windows & Doors AhamTor(ATI) 97 Heat Sinks Plant Equipment 87 Telephone Equipment American Industries 85 Remanufacturer Auto Parts Vons , Stater Bros., & Albertsons 382 Grocery Stores Temecula Creek Inn 150 Hotel General Dynamics 137 Aerospace (Accounting staff only) Various Banks and Savings & Loans 136 Financial Ranpac Engineering Corporation 135 Engineering Temecula Valley Unified School District 105 Utility Partnership Asset Management 89 Developer U.S. Border Patrol 87 Government Bedford Properties and Mesa Homes 80 Real Estate Developer

APPENDIX E-3 Bank of Commerce, Escondido National Bank, First Interstate Bank, Overland Bank, Bank of America, Security Pacific National Bank, Torrey Pines Bank, North County Savings and Loan Association and Great American First Savings Bank have established branches in Temecula. Construct ion· Building Permit Valuations indicate that significant construction activity has been taking place in the City of Temecula and its immediate environs . The following table shows building valuations from 1982 to 1988: CONSTRUCTION VALUATION 1982-1988 (in $000 's) Single Multi- Commercial Total Family Family & Industrial Valuation

1988 $700,560 $64, 949 $80, 332 $877, 184 1987 191, 971 26,676 45,646 282, 617 1986 104,836 29,963 32,021 166,820 1985 20,135 8,382 23,236 51,753 1984 43,614 3, 384 14, 794 61, 792 1983 15,451 777 7,846 24,074 1982 9,410 3,832 8,034 11,866

Source: Riverside County Department of Development

Ut i Iit ies Electricity is provided by the Southern California Edison Company, natural gas is supplied by the Southern California Gas Company, and telephone service is available from General Telephone Company of California. Present sewer service consists primarily of individual septic systems and approximately 5,000 sewer connections (approximately 500 RCWD, 4,500 EMWD). The District has authority to provide sewer service in the Santa Rosa Division and the EMWD provides sewer service in the Rancho Division. Community Serv ices

I The Riverside County Sheriff s Department provides police protection to the Temecula area from a substation located in the City of Elsinore . State highways are patrolled by the State California Highway Patrol, which has a station in Temecula. The State Division of Forestry and the Riverside County Fire Department provide fire service from a shared facility located in Temecula. A branch of the Riverside County Library is located in the Rancho California Plaza. However, a larger facility is currently under construction in the new Walt Abraham County Administration Complex and is approximately 15,000 square feet.

APPENDIX E-4 Recreation Picnic and camping facilities are located in Vail and Skinner Lake . Both lakes provide sailing and fishing. Butterfield Country, located at Vail Lake, is a recreational vehicle park with 4 70 campsites. Two public golf courses are located in the Temecula area. In addition , there are four golf courses located within 25 miles of Temecula . Bear Creek Golf Course and Country Club, a Jack Nicklaus community consisting of a private residential project of approximately 650 acres is situated around the 18-hole golf course designed by Jack Nicklaus. In addition, there are many miles of marked equestrian trails in and around Temecula. Education There are three public elementary schools located in Temecula, which are Rancho Elementary, Joan F. Sparlanan Elementary and Vail Elementary School . There are two middle schools , which are Temecula School and Margarita School. Enrollment of elementary and secondary school students went from 400 students in 1986 to 3, 589 as of June 1, 1989. A public high school is located in Temecula, with current enrollment of 1,466, and a Community College is located in San Jacinto, with extension classes at Rancho California. There are currently four private schools. They are Hillcrest School , Linfield Christian School, Montessori School and Temecula Christian School. Linf ield Christian School offers kindergarten through 12th grade education. Located in the cities of Riverside and San Diego are branches of the University of California. A state university is also located in San Diego. All the state institutions offer four year degrees and graduate degrees. Transportation Temecula and the surrounding area is bisected by Interstate 15 CU. S. Highway 395). Orange County is accessible via State Highway 74 and State Highway 91 via Interstate 15. Carlsbad is accessible via State Highway 78 and Oceanside is accessible via State Highway 76.

APPENDIX E-5 (THIS PAGE INTENTIONALLY LEFf BLANK) Appendix F PREPAYMENT FORMULA

PREPAYMENT PRIOR TO ISSUANCE OF ADDITIONAL BONDS

Any property owner in the District who desires to prepay the special tax on a particular parcel, subsequent to the issuance of the Bonds, shall notify the Governing Body in writing of such intention and shall cause to be determined the amount of prepayment no more than sixty (60) days and no less than thirty (30) days prior to date of such prepayment, which date (the "Prepayment Date") shall be a date which is at least 60 days prior to an interest payment date for the Bonds.

A prepayment may be made on any parcel of property owned by a public agency on any Prepayment Date and a prepayment may be made on any other parcel on any Prepayment Date after it becomes developed property as set forth in the Rate and Method of Apportionment of the Special Tax for the District. The prepayment formula is defined as follows :

P = PVT - RFC + F + PR The variables area described as follows : P - Prepayment Amount PVT - Present Value of Taxes RFC - Reserve Fund Credit F - Prepayment Fees PR - Redemption Premium for Series A bonds "Present Value of Taxes" or PVT means the special tax applicable to the subject parcel in the current Fiscal Year not yet received by the District plus the sum of the present values of the maximum special tax (as defined in the Rate and Method of Apportionment for the District) applicable to the subject parcel in each remaining Fiscal Year subsequent to the Fiscal Year in which the calculation is made, until the date of the last maturity of the Bonds, using as the discount rate the yield of the Bonds (meaning that yield which when computing the present worth of all payments of principal and interest produces an amount equal to the face value of the bonds). "Reserve Fund Credit" or RFC shall be calculated as a reduction in the reserve fund for the Bonds proportional to the principal amount of Bonds to be redeemed pursuant to the prepayment. "Prepayment Fees" or F shall mean the fees of the District, the fiscal agent and any consultants retained by the District in connection with the prepayment calculation and redemption of the Bonds.

APPENDIX F-1 "Redemption Premium on the Bonds" or PR shall mean a prepayment premium as set forth in the Administration Agreement for a mandatory redemption of the Bonds as of the prepayment date applied to the special tax applicable to the subject parcel in the current Fiscal Year not yet received by the District plus the sum of t he present values of the applicable maximum special taxes.

Bonds shall be redeemed in a manner such that the yield on the Bonds outstanding after prepayment is as close as possible to the original yield on all of the Bonds.

In addition, any property owner prepaying his or her special taxes must also pay all delinquent special taxes , interest and penalties owing on the parcel on which prepayment of the special tax is being made , if any .

PREPAYMENT AFTER ALL AUTHORIZED ADDITIONAL BONDS ARE ISSUED

Any property owner in the District who desire to prepay the special tax on a particular parcel shall notify the legislative body of the District in writing of such intention and shall cause to be determined the amount of prepayment no more than sixty (60 ) days and no less than thirty (30 ) days prior to date of such prepayment, which date C the "Prepayment Date") shall be a date which is at least 60 days prior to an interest payment date for bonds issued by the District.

A prepayment may be made on any parcel of property owned by a public agency on any Prepayment Date and a prepayment may be made on any other parcel on any Prepayment Date after it becomes developed property as set forth in the Rate and Method of Apportiorunent of the Special Tax for the District . The prepayment formula is defined as follows :

P = PVT - RFC+F + PR

The variables area described as follows :

P - Prepayment �unt PVT - Present Value of Taxes RFC - Reserve Fund Credit F - Prepayment Fees PR - Redemption Premium for bonds

"Present Value of Taxes" or PVT means the special tax applicable to the subject parcel in the current Fiscal Yea r not yet received by the District plus the sum of the present values of the maximum special tax (as defined in the Rate and Method of Apportiorunent for the District) applicable to the subject parcel in each remaining Fiscal Year subsequent to the Fiscal Year in which the calculation is made, until the date of the last maturity of the Bonds plus the Additional Bonds, using as the discount rate the combined aggregate yield of the bonds (meaning that yield which when computing the present worth of all payments of principa l and interest produces an amount equal to the face value of the bonds ).

APPENDIX F-2 "Reserve Fund Credit" or RFC shall be calculated as a reduction in the reserve fund balance for the Bonds and the Additional Bonds proportional to the principal amount of the Bonds and the Additional Bonds to be redeemed pursuant to the prepayment.

"Prepayment Fees" or F shall mean the fees of the District, the fiscal agent and any consultants retained by the District in connection with the prepayment calculation and redemption of the Bonds .

"Redemption Premium on the Bonds" or PR shall mean a prepayment premium as set forth in the Administration Agreement for a mandatory redemption of the Bonds and/or Additional Bonds as of the prepayment date applied to the special tax applicable to the subject parcel in the current Fiscal Year not yet received by the District plus the sum of the present va lues of the applicable maximum special taxes.

Bonds shall be redeemed in a manner such that the combined aggregate yi eld on all of the bonds outstanding after prepayment is as close as possible to the original combined aggregate yield on all of the bonds.

In addition , any property owner prepaying his or her special taxes must also pay all delinquent special taxes, interest and penal ties owing on the parcel on which prepayment of the special tax is being made, if any.

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