$26,330,000 CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO.

2004-3 (TERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1) CLOSING MEMORANDUM September 15, 2005 This memorandum sets forth the actions taken in connection with the issuance, sale and delivery of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") in the aggregate principal amount of $26,330,000. Southwest Securities, Inc. (the "Underwriter") has agreed to purchase the Bonds for $25,824,283.00, which sum equals the principal amount thereof, less an Underwriter's discount of $434,445.00, and less net original issue discount of $71,272.00. The Underwriter made a public offering of the Bonds. The Pre-Closing A Pre-Closing was held commencing at 1:00 p.m. on September 14, 2005 at the offices of Fulbright & Jaworski L.L.P., 555 South Flower Street, 41st Floor, Los Angeles, California 90071, at which Pre-Closing all documents listed on the attached Closing List (the "Closing Documents") were examined, readied and packaged for the Closing. The Closing Documents were held in escrow by Fulbright & Jaworski L.L.P. pending the Closing. The Closing The actions described herein which were taken as part of the closing (the "Closing"), were taken as a simultaneous transaction, and no delivery of documents, payment of money or other action was considered to have been completed until all such deliveries, payments or other actions had been made or taken. The issuance, sale and delivery of the Bonds took place at the Closing, which commenced at 8:00 a.m. on September 15, 2005 at the offices ofFulbright & Jaworski L.L.P. At the Closing, all the Closing Documents were delivered and all payments evidenced by the Closing Documents were made. Simultaneously, the Bonds were delivered to the Underwriter through the facilities of The Depository Trust Company.

45655340.1

The Parties City of Indio ("City") City of lndio Community Facilities District No. 2004-3 (Terra Lago) (the "District") Kotkin & Associates, APLC, City Attorney ("City Attorney") Harrell & Company Advisors, LLC, Financial Advisor ("FA") Southwest Securities, Inc. ("Underwriter") Jones Hall, A Professional Corporation, Underwriter's Counsel ("UC") Fulbright & Jaworski L.L.P., Bond Counsel and Disclosure Counsel ("FJ") Union Bank of California, N.A. ("Fiscal Agent") Albert A. Webb Associates ("Special Tax Consultant") First American Commercial Real Estate Services (the "Appraiser") Market Profiles, Inc. (the "Absorption Consultant")

45655340.1

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

DISTRICT FORMATION DOCUMENTS 1. Petition (Including Consent and Waiver) Requesting the Establishment of a Community Facility District. [City] 2. Resolution No. 8956 (Resolution of Intention to Establish Community Facility District) adopted May 18, 2005. [City] 3. Resolution No. 8957 Indebtedness) adopted May 18, 2005. [City] (Resolution of Intention to Incur Bonded

4. Resolution No. 9024 (Resolution Approving Joint Community Facilities Agreements) adopted July 20, 2005. [City] 5. [City] 6. Resolution No. 9026 (Resolution Calling a Special Election) adopted July 20, 2005 along with 125 Days Concurrence Certificate. [City] 7. Resolution No. 9027 (Resolution Canvassing Results of Special Election) adopted July 20, 2005. [City] 8. A Copy of the Notice of Special Tax Lien filed with the County Recorder Office. [Special Tax Consultant] 9. Ordinance No. 1442 (Ordinance Authorizing the Levy of Special Tax) adopted August 3, 2005. [City] BASIC DOCUMENTS 10. Resolution No. 9037 (Approving Resolution) adopted August 3, 2005, as certified by the City Clerk of the City. [City] 11. Executed copy of the Fiscal Agent Agreement, dated as of September 1, 2005, by and between the District and the Fiscal Agent. [FJ] Resolution No. 9025 (Resolution of Formation) adopted July 20, 2005.

45655340.1

12. Executed copy of the Continuing Disclosure Agreement (City of Indio Community Facility District No. 2004-3 (Terra Lago)), dated as of September 1, 2005, by and between the District and the Fiscal Agent, as Dissemination Agent. [FJ] 13. Executed copies of the Developer Continuing Disclosure Agreements, each dated as of September 1, 2005, by and between the respective property owner and the Fiscal Agent, as Dissemination Agent. [FJ] 14. 15. 16. 17. Bonds. [FJ] 18. Direction of the City as to Application of Moneys at Closing; Costs of Issuance Fund Requisition No. 1; and Acquisition and Construction Fund Requisition No. 1. [FJ] 19. 20. 21. SALE DOCUMENTS 22. Preliminary Official Statement, dated August 19, 2005. [FA] Tax Certificate as to Arbitrage. IRS Form 8038-G. [FJ] Certified copy of Specimen Bond. [FJ] [FJ] Certificate of the City as to Signature and Incumbency. Officer's Certificate of the City. [FJ] Certificate of the City relating to the Official Statement. [FJ] Direction of the City to the Fiscal Agent to Authenticate and Deliver the [FJ]

23. 15c2-12 Certificate of the City, dated August 19, 2005, as to the Finality of the Preliminary Official Statement. [FJ] 24. Executed copy of the Purchase Contract, dated September 7, 2005, by and between the District and the Underwriter. [FJ] 25. Executed copy of the Official Statement, dated September 7, 2005. [FA]

FISCAL AGENT DOCUMENTS 26. 27. Certificate as to Signature and Incumbency. [Fiscal Agent]

Certificate of Authorized Representative of the Fiscal Agent. [FJ]

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UNDERWRITER'S 28. 29. LEGAL OPINIONS 30. 31. 32. 33. 34. MISCELLANEOUS 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. [City] 46. No. 2004-3. [City]

DOCUMENTS Issue Price Certificate. [FJ] Receipt for the Bonds. [FJ]

Final Opinion of Bond Counsel. [FJ] Supplemental Opinion of Bond Counsel. [FJ] Opinion of Disclosure Counsel. [FJ] Opinion of Counsel to the District. [City Attorney] Opinion of Counsel to the Fiscal Agent. [Fiscal Agent] DOCUMENTS Certificate of Appraiser along with copy of the Appraisal Report. Certificate of Absorption Consultant along with copy of Absorption Study. Certificate of Special Tax Consultant. Certificate of Financial Advisor. Certificates of Developers. CDIAC Report of Proposed Debt Issuance. [FJ] CDIAC Report of Final Sale. [FJ] Blanket Letter of Representations to the Depository Trust Company. [FJ] Funding, Construction and Acquisition Agreement. [FJ] Joint Community Facilities Agreement (Valley Sanitary District). [City] Joint Community Facilities Agreement (Imperial Irrigation District).

Agreement for Formation of Mello-Roos Community Facilities District

45655340.1

m,,lb

TO: FROM:

CITY COUNCIL OF THE CITY OF INDIO INDIO LAND VENTURES, LLC

PETITION (INCLUDING CONSENT AND WAIVER) REQUESTING THE ESTABLISHMENT OF A COMMUNITY SERVICES DISTRICT

The undersigned landowner does hereby certify under penalty of perjury that the following statements are all true and correct: 1. The undersigned is authorized to represent the landowner identified below and is its designated representative to petition the City Council (the "Council") of the City of Indio (the "City") and to give the consent and waiver contained herein with respect to a Community Facilities District to be established over the properties included within this petition (the "CFD") to be formed under the provisions of the Mello-Roos Community Facilities Act of 1982 (the "Act"), being Chapter 2.5 of Part 1 of Division 2 of title 5 (commencing with Section 53311) of the California Government Code. 2. The undersigned hereby certify that as of the date indicated opposite his signature, the landowner listed herein is the owner of the property within the proposed boundary of the CFD described in Exhibit "A" hereto (the "Property"). 3. The undersigned, pursuant to Section 53318 of the Act, hereby requests that proceedings be commenced (i) to establish the CFD for the purpose of financing streetscape, landscape, traffic controls, storm drain, water and sewer facilities, dry utilities, other City fees and facilities, other Valley Sanitary District fees and facilities, other Imperial Irrigation District fees and facilities, and related costs including designs, inspections, professional fees, connection fees and acquisition costs in connection with a master planned community project known as "Terra Lago", (ii) to designate improvement areas within the CFD, (iii) to authorize the issuance of bonds for each improvement area of the CFD and (iv) to establish an appropriations limit for each improvement area of the CFD. 4. In accordance with the provisions of the Act, and specifically Sections 53326(a) and 53327(b) thereof allowing certain time and conduct requirements relative to a special landowner election to be waived with the unanimous consent of all the landowners to be included in a community facilities district and concurrence of the election official conducting the election, the undersigned (i) expressly consents to the conduct of the special election at the earliest possible time following the adoption by the Council of a Resolution of Formation Establishing the CFD and (ii) expressly waives any requirement to have the special election

45576535.1

conducted within the time periods specified in Section 53326 of the Act or in the California Elections Code. 5. The undersigned waives any requirement for the mailing of the ballot for the special election and expressly agree that said election may be conducted by mailed or handdelivered ballot to be returned as quickly as possible to the designated election official, being the office of the City Clerk and the undersigned request that the results of said election be canvassed and reported to the Council at the same meeting of the Council as the public hearing on the formation of the CFD or the next available meeting. 6. The undersigned expressly waives all applicable waiting periods and waives the requirement for analysis and arguments relating to the special forth in Section 53327 of the Act, and consents to not having such materials landowner in the ballot packet, and expressly waives any requirements as to ballot. for the election election, as set provided to the the form of the

7. The undersigned expressly waives all notice requirements relating to hearings and special elections, whether by posting, publishing or mailing, and whether such requirements are found in the Califomia Elections Code, the California Government Code or other laws or procedures, including but limited to any notice provided for by compliance with the provisions of Section 4101 of the Califomia Elections Code. IN WITNESS WHEREOF, I hereunto set my hand this _ day of March, 2005.

INDIO LAND VENTURES, LLC, a California limited liability company

aar_ C. Williams Vice President SunCal Companies

__

FILED IN THE OFFICE OF THE CITY CLERK OF THE CITY OF INDIO THIS DAY OF , 2005.

City Clerk

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EXHIBIT A

PROPOSED BOUNDARY OF THE CFD

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RESOLUTION

NO. 89::$6

RESOLUTION OF _ON OF THE CITY COUNCIL OF' _ CITY OF INDIO TO ESTABLISH _ OF. INDIO CO_ _ACIL_S DISTRICT NO. 2004,-3 (,TERRA LAGO); AND DESIGNATING IMTROV]I_MZNT AREAS _ SAID COMMUNITY FACH.ITIES DISTRICT WHEREAS, the City Council (the "'Council") of the City of Indic (the "City") received a petition (the "Petition") requesting the institution of proceedings for (i) formation community facilities district (the "C;FD") pursuant to the Mello-Roos Community Facilities of 1982, as amended (the "Act"), (:,j) designation of improvement ar_as within the CFD, authorization of issuance of bond_ for each improvement area within the CFD, mad establishment of an appropriations limit for each improvement area within the CTD; and has of a Act (iii) (iv)

WI-IEILEAS, the Council has determined that the Petition compiles with the requirements of Government Code Section 53318(;) and now intends to initiate such proceedings, and W[-IEI_AS, it is the intentio:a of the Council to finance the acqui_;ition and construction of the F_cilitivs (as defined below) or any combination thereof through the formation of the CFD, subject to the authorization of bonds and the levy of a special tax to pay lease payments, installment purchase payments or ether payments, or principal and interest on bonds, being approved at an election to be held within the boundaries of each improvement area within the CFD; and wHEREAS, pursuant to Seclion 53350 of the Act, the Council rosy designate a portion or portions of the C:FD as one or more improvement areas for purposes of financing of, or contributing to the financing of, specified public fazilities; NOW, TH:EKEI_O:I_, THE CITY COUNCIL OF THE CITY OF :I:N'DIO DOES Ir_KEBY KESOLV_, DLS'I_RMI:N_ AND ORDE_ AS FOLLOWS: Seetio_ L The Council h,._'vby determines to institute proceedings for the formation of a community facilities district und,_r the terms of the Act. The exterior boundaries oft.he CFD are hereby specified and described to be as shown on that certain map now on file in the office of the Clerk entitled "Community Facili'ties District No. 2004-3 (Terra Lago)," which map indicates by a boundary line the extent of the territory included in each improvement area within the CFD and shall govern for all details as to tile extent of each improvement area within the C:FD. On the original and one copy of the map on file in the City. Clerk's office, the City Clerk shall ndorse the certificate evidencing the date and adoption of this resolution. The City Clerk shall file the original of such map in her office ancL, within fiRevn (15) days aYter the adoption of this Resolution, the City Clerk shell file a copy of such map so endorsed in the records of the County Recorder, County of Kiverside, State of California. $e_ction 2. The name of the proposed Paeilities District No. 2004-3 (Terra Laso)." _ shall be "City of Indic Community

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S__eafion 3. The Council hereby designates the portions of the CFD as described in Exhibit A attached hereto, as Improvement Area 1 and Improvemem Area 2, respectively, of City of Indic Community Facilities District No. 2004-3 (Terra Lace). The facilities proposed to be financed by each improvement area of the CFD are public infrastructure faciliti,s and other governmental fxcilifies with an estimated useful life of five years or longer, which the CFD is authorized by law to construct, own or Opiate mad that are necessary to meet increased demands placed upon the City as a result of development or rehabilitation occurring within the proposed CFD, including but not limited to streetseape, landscape, traffic controls, storm dn,fin, water and sewer facilities, dry utilities, other City fees a_d facilities, other Valley Sanitary District fees and facilities, other Imperial Irrigation District fees and facilities, and related costs including designs, inspeN_'tiom,professional fees, connection fees and aCxluisition costs (the "Facil:..ties"). Such Facilities need not be physicaIIy located within the CFD, S.e_tion 5_ Except where funds are otherwise available, it is the intention of the Council to levy annually in accord_._.oe with procedures contained, in the Act a special tax (the "Special Tax") sufficient to pay for-the cost, o financing the acquisition and/or construction, of the Facilities, including the principal of and interest on the bonds proposed to be issued to finance the Facilities and other periodic costs, the establishment and replenishment of reserve funds, the remarketing, credit enhancement and liquidity fees, the costs of administering the levy and collection of the Special Tax and all other costs of the levy of the Special Tax and issuance of the bonds, including any foreclosttre proceedings, axchite_-aral, engineering, inspection, legal, fiscal, and financial consultant fees, .:liscotmt fees, interest on bonds due and payable prior to the expiration of one year from the dat,, of compl.etion of facilities (but not to exceed two years), election costs and all costs of issuance of the bonds, including, but not limited to, fees for bond counsel, disclosure counsel, financing consultants and printing costs, and all other administrative costs of the tax levy and bond issue. "The Special Tax will be secured by recordation of a continuing lien against all non-exempt real property in the CFD. In the f'trst year in which roacha Special Tax is levied, the levy shall include a sum 8t_.fficient to repay to the City all amounts, if any, transferred to the CFD pursua._t to Section 53314 of the Act and interest thereon. The schedule of the rate and method of apportionment and manner of collection of the Special Tax is described in detail in. Exhibit B attached hereto and by this reference incorpormed herein. The Special Tax is based upon the cost of financing the Facilities in the CFD, the demand that each parcel will place on the Facilities anti the benefit (direct and/or indirect) received by each parcel from the Facilities. The Special Tax is apportioned to each parcel on the foregoing basis pursuant to Section 5332&3 of the Act. In the event that a portion of the property within an improvementarea of the CFD shall become for any reason exempt, wholly or partially, from the levy of the Special Tax, the Council shall, on behalf of the CFD, increase the levy to the extent necessary upon the remaining property within the same improvement area of the CFD which is not delinquent or exempt in order to yield the required payments, subject to the maximum tax. Under no circumstances, however, shall the Special Tax levied agRinst any parcel used for private residential purposes be increa,w,d as a consequence of delinquency or default by the owner of any other parcel or parcels within the same improvement area of the CFD by more than 10 percent.

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Furthermorthe e, maximum special tax autho_ tobelevie ag d ains anypa t rceu lsed for private resident purpos ial esh s all not be increased over time in excess of2 percent peryear, Section 6. The Council hereby finds that the proposed Facilities are necessary to meet increased demands put upon "dieCity as a result of the new development or rehabilitation withitn he proposeC dFD, Se_ion 7. A public hearing (the "Hearing") on theestablishme of nt the CFD andthe proposerate d andmethodofapportionment oftheSpecia T l ax shalb le held on July 6,2005, at 6:00 o'clock p.m., or as soon thereafter as practicable, at the chambers of the City Council of the Ci'_yof Indic, 150 Civic Center MalI, Indic, California 92202. Suction 8.. At the time and place .set forth above for the hearing, any interested person, including all persons owning lands or registered to vote within the proposed CFD, may appear and be heard. Each City officer who is or will be responsible for the Facilities to be financed by the CFD, if it is established, is hereby directed to study the proposed CFD and, at or before the time of the above-mentioned Hearing, file a report with the Council, and whioh is to be made a part of the record of the Hearing, containing a brief desoription of the Facilities by type which will in his or her opinio_ be required to adequately meet the needs of the CFD and his or her estimate of the cost of providing the Facilities. The City Manager is directed to estimate the fair and reasonable cost of all incidental expenses, including the cost of planning and designing the Facilities to b,_ financed pursuant to the Act, including the cost of environmentaI evaluations of such facilities, all costs associated with the creation of the CFD, issumace of bonds, detmaination of the amount of any special taxes, collection of any special taxes, or costs otherwise incurred in order to carry out the authorized purposes of the City with respect to the CFD, and any othel expenses incidoma] to the construction, completion and inspection of the authorized work to _e paid through the proposed financing. Section 10. The City may aocept advances of funds from any sources, including private persons or private entities, _nd is authorized and directed to use such funds for any authorized purpose, including any cost incurr_t by the City in creatia_gthe CFD. The City may enter into an agreement to repay all of such funds as arc riot expend_ or committed for any authorized purpose at the time of the- dection on the levy of the Special Tax, if the proposal to levy such tax should fail, and to rep_tyall of such funds advanced if the levy of the Special Tax shall be _pproved by the qualified electors of the CFD. Section 11_ The City Clerk is hereby directed to publish a notice ("Notice") of the Hearing pursuant to Section 6061 of the Government Code in a newspaper of general circulation published in the area of the proposed CFD. Such Noti shall contain information set forth in Section 53322 of the Act. Such publication shall be completed at least 7 days prior to the date of the Hearing SectionJ.2. The Clerk may send a copy of the Notice by first-class mail, postage prepaid, to _ach registered voter and to _ach landowner within proposed CtrD as shown on the

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last equalize as d sessment roll. Said mailing shall be completed notless thanfix'men (15) days prior tothe date ofthe Hearing. Sectio_ 13. Pursuant toSectio5 n3344.1 of theAct, theCouncil hereby reserves to itsel ini f, ts sole discretion, theright andauthority by subsequent resoluti t o oallow n anyowner ofprope_y within theCFD, subject totheprovisioo nf sSectio5 n3344.1 oftheA_ and_os conditions asit may imposea ,ndarty applicabl pr_ayrn e en pen t altia es sprescribed in thebond indemtur oe rcompmlble instrument ordocumentt ,otende t r othe CFD treasurin er full payment or part payment of any installmem of the special texes or the interest or pcnaltiea thereon which may be due or delinquent, but for which a bill has been received, any bond or other obligation secured thereby, the bond or other obligation to be taken at par and credit to be given for the accrued.interest shown thereby computed to the date of tender. $_t_On 14, Thevoting pr,3c..du with rerespect to theestablishment ofthe C_D andthe imposition of the special t_ shall be:by hand delivered or mailed ballot election. PASSED, APPROVED and ADOPTED this 18" day of May, 2005 by thc following
vote',

AYES: Gilbert Godfr , ey, P.amos Watson, Wilson, Fesmire NOES: None

i
ATIEST:
7 "'

IVIELANIE FES_

MAYOR

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EXHibIT A IMPROVEMENT AREA D_SIGNATION

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EXHIBIT B RATE AND METHOD OF APPORTIO_T OF SPEC/AL TAX

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06/13/2005

09:44

Received06113/200509:44AM in 08:56 on line [5] for DK09720 * Pg 10124 7GO342G597 CITY MANAGER OFFICE

PAGE

10/24

or .other in.gta'umtm purm_

._-,'whii2 Bonds ,m'_ istro_

ts-_ditid,

ammidod ,at_.er

_u_1_d
" _a __._

f_om'fi_ to _im_.atmtroyi_ .nm_x mpLm_,or__

_ _ _ _' _ _ _. _, _ _; _@_

thes_m_.
_. ' . r .....

"

"M_a_mu= Slmcial T_ut'_:mmms the nmxi_um $1x_tllTax..'d_,td..,in _o_0_ C.<whieJa_ctm,be.;lovi_ in troy Fiscal Ymr tm._a_ lazrcel. "
" .

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of It buildi o ng b_dings am_prised ofmm_h_ rmi&mtia .m_ l m_il_i_ for.rtclttfl bY:,_ _nta.al public,or f_ ss]e to._ _nd mm,_d maybe _ r,omm_ _._ m_._ .'_. "
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_peci_ Ttt_ is.eta'oiled for fl'm _s_sd Ymr fi_ which th-'_ot_:ial Ttm..i_..Imitlg lvVit_l, _i._-_t_

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PAGE 11/24

._sidm'gial umJ_..

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Zo_e..A .. _or o_/: _ _. .o ., __ ., . ,.,. Spe _1 ._ ,. .
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Spedg Tax Eequiremeetfor L-npt_ve_e__, t .L

_ir_m_t foI rnwrov_eAr _ m2, Z . o?e AorZone B." ..... 'Sp,_i,,,T,.x _,quir,,mm ttfor , ..Tmpr_,.-_t _

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_rm,mm _ _ B_Is;':(_ii):A_Imm/m'_e'..K,q_ C,' ; ).', _._m._ ._._..,ay. mx_i_ ,s_n:_.1 'clue ,1, _ _M_'M Tax deli_qu,m_ m, the _.'.or:F_a_IY,_, m_ '(v) .m_.. '._ai_' r_"Z_ :__bli_h _ _pt_,h.m_ rmsetwe fumcLi s%r_l_ ,,ouim_ding .I_:x_ _._. I_
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06/13/2005

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Received06/13/200509:44AM in 08:56 on line [5] for DK09720 * Pg 12/24 760342G597 CITY MANAGER OFFICE

PAGE

12/24

within _

sh_ll be __

the ,.q_He.sble Im!_'ov_

:lind "

, ....

cl_si.fic as_ d l_velupe P d mp_, _ndewlop_1_m1_alPublic y, '...2ropet ' t_'_liI/_: '_,ro;_y -O_e_'s 'A._So_ion _ t.bl is _t ._oe r_ , 0t Prop_y.,_=mo_.._ _e ' _om_ Se_cm._._d.Q2AII be _T_e._t to_ le_'of _pe_, T_ _Jmc_rd_m W _ _I_

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08/13/2005

09:_4

Received06113/200509:44AM in 08:56 on line [5] for DK09720* Pg 13/24 7G_B42G597 CITY MANAGER OFFICE

PAGE

13/24

B6113120@5

09:44

Received 06/13/200509:44AM in 08:56 on Line [5] for DK09720 * Pg 15/24 7GB3_2G597 CITY MANAGER OFFICE

PAGE

15/24

As_ign_I Special Taxm'fur Pmper_ wit_

-ZamB

_. P_bllc e_perty u_or ,Pruper__ue_

Property' pursunt to._'_ provis_ns'_r

SecttonE..

Association P,_-_:_.t

_ _uot-_.i_

City o1_dio

Mmy,[O, 20(_

06/13/2005

09:d4

Received 06/13/200509:44AM in 08:56 on Line [5] for DK09720 * Pg 16/24 7G03_2G597 CITY MANAGER OFFICE E.,

PAGE

IG/24

Asso_i_on Pru_rty _a_ is not Exmnpt PT_pe_y pursusm to the pzovisions of Se_ou w_h_n _tc2_ Imi_ov_r_ A_,e shall be fl,e appUcah|e Undevetoped'_Pr0p_t7 Special Tax rm_ _ A_ in Table 5,

D, b_THOD O_..AFI'ORTIONM_N_, OPT] _ . _ . .--

b'q_TAX

%"

....

shall Im,y fl_c Special Tax'bn"Rl]Ttotabl_b_ e :m'ty-m't_.a_"_J_rt,_.-'_Grila1'._lh ................................ 'e

._uu_ of Spt_-i_d Ttor_, oqtmasthc.toFlimbl _pe e _l "Tm_..Reqttirem._a gut :t ','t_.h Jm_'ov_nem A_'_ m _ecordmme wi_ _ f_ll:v. S vin .st. _.. s: '
1. Improvement Ares 1

"

Yh_ _

Tax .,h_i b_l=_'o_, c_-:._,,_; _,_._t

Pro_-_ _u,to.;0#_
Spiel 'J_ax_mt ' "

of flee applicable Assigned .q_ T_ ram m_d_,_,m_'y._., _rc lmprov_mtm Anm l, F._ne A _md Zorn B; .

s___d: if _i_i_ moneys _n,,_a ;__,a__ 'sp_._ Taxw# ' rmm_'._r

hr, prov_nmtAre_ L Zon_A and Zo,__ tu-_ lh_ fm_t _i,,'been eam_1,t_, th_'_niat"
Tax _z]I be |twicd. Propta'tiotx_]y on _]_ Par_sl :ofUnd_'vo|oped.:_. Iraprovem=t Arm 1, Zont Aa_md Zone B at._. m a00% oftht Maximum Sp_al vii_ Tax _Mr

Oud_,_to_ Prop_-t_, "

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_
.... .

b_ con_ei_..::._, _,_ = _mm .:._ e_ .:P,, u. _of :c_ma_a _. my sp_i_, ._ w._:_,_f._i,_.,'_':_,x

. .." . . ,.

Sp_nlaT la_ i_e_

.: ",

_e A_

_ _a.._,_..

..
'...:... ,

2._p_o_.__
. -o.

_
. ' . . . : , :'. . /., ,"

ofth_ sppligabl A_.gnod Special'Fax _as ssc_l _ stMs'_,_ forIm_v_m_ Ar_ 2, Zone A _ ZoneB; : .' _

,T_ _.q_' ,:

Im_ovem_ _ 2.,Zone A md Zon_._,_.._r,the_ ,t._p:tm ban .r_l_t_ _h___ Tax P_cma_[y' Improve_mem _a 2,Zone A mad Zo_-Bi_t _p to 1_/, o_e MaximUm'_,_l _k :fur Und_v_lc__Proptr_;
shah be Itwled; r_p _ _ '_ "U_O_ _ _i_

Third: If _ditionsl

money._.m'e tt_

to satisfy the $1_nm] Tnx _q,_luir_e_reekt e he r first

two st_shaw been oomplo_._ _eu _r _-mh Assessor's Ptr_

of IX_.loped Pmp_,

whose Assigned Special T_'i_._a_'B_.k_' 3pe_ial Tax _11 b_ h/m_sml Mm!y from th_ Assigned Sp_tl Tax up m'100% oftheBae2mp SF_i*l Tax.as ne_d_dyo satisfy

the _p_i.,I T_ R_.uir_men__

City_F_d_ Community Failifi_ Ui_tN0.20_--_ Mm/J0, 200_ _al_ 9..

(Tm'a.LagO._ .

86/13/2805

Received 06/13/200509:k4AM in 06:56 on line C5] for DK09720 * Pg 17/24 09:_t4 7G8342G597 CITY MANAGER OFFICE

PAGE

17/24

Parcel of ResidenzisJ Property, wRhi= zn Invrovement Ax_ M "inm_tsed by more:_az mn p_t (10%) per_isceJ Yearas a oomequm[_ o_ delinquency ._,defauk by .tbe.owm_._f any _h_ Parce within l an LmW_ Area of the CFD.

.......... "_ Fis=aT Y_, _ach'A_s_ssor' Pmv s m.J )fDcv_oI_d 'Prolm_y.clus_q_ _'I_d_m_] ............ Propcz_shall be subj_tte a _ Slmmit T l ax. :I_each I_._-_ Yc ] _,li_ ]_eJa_Sp_ Tax_te _ D_lol_d _ _msi._ m Kmsi_Nmfis Pr l opmrty _in a Irma] N_p sh_ bethe rm_ per Lot cal_Immd ._corcling _o_be f_ll_ng formula:

BL .........

- _mum

"8i_ci._l T_X ramper _, _,Y__'flevc-4_ped

al_lir.able Fis_l__r

Prop_'for.flm

Prel=m_ ia: y, sti_ Final Mmp L = _ _ _e _,img_ whi_ m-_.lm_ c, i_ or,o.b_._lass/_ m R_0,_t_ l_roperty

calc_|m_-_l :_ follows: .

Eu'_lM,,ps.

',

",
.

'
,

'
. ,

..

"

in su_hch_zng_l .or mod_e_..7:imd Map _ea,_._ re.scraWly de_rmlned"by'_# Ci_, 3. Th_ r_sultofp_]a2 above s[ml[ he_vi_J_ 4_,._(] Th . e resultis_c B_k_p Special Tax per square foot.ofAcyeage w_ir._ _1_1 be apt_mSl_ _ ,_ssor's Yar=eI_ .of Developed Property classified as gc_ich_al.lhro_c.r_ insuc.h cha_ge, d _r _o_ff_1'.Firml Map ,Area for.all 'r_ei_ng Fiscal Yea_ it,W1_ ch t.%_SpeclaI.Tax may be _e_ig&,

City O_diO

'_

I0. 20_

C_mm_ F_mtie, D'__

m 2_D_-_ :(Tm-m l_m_)

_'_'.t

06/13/2005

Received 06/13/200509:44AM in 08:56 on line [5] for DK09720* Pg 18/24 09:_14 7GO342GSB7 CITY MANAGER OFFICE

PAGE

18/24

The Council sh_ not levySperAal Taxes on PublioProperty, Property Owner's .Aasoeiatio_ .Property or G0ff Cours_ Prope._ within _h Impmvcmen_ .Arm cr Pdwrs'iae Coxm_ .Assessor Pardi Numbtrs 601-150-024 and 6Q1-270-018]ooamfl within'hnprov_m_t Area 2 o_ the CFD, Ex_m_ Prope_ys_ms wiTl..be assigned :by. the Administ_ :iu..the _hronotogicaI order in which property b_oom_ PublicPa'_, Pr_ Owner's

............. so ion: xrp or

G. , _M.t_N"Iq_R Old, COLLECTION.

..................................................... ............... "....... .... =' ,., ,

'..TheSpeuial Tax slmll be c,_l_'t_l in the sam_ mman_ and at flae same tim;- as ot'din_ ad Valorem propczty _zxesand shall be mzbje_t to the same penalties, the-same procedure, sale and li_ priodly in the case of &:'Iinqu_oy; provid.ed,hqw_ver, that the Administrator may dire_dy bill the Spe_-'i_Tax, may e_fle_ Specie Taxes _ a diE=eat time.'or i_ a different maaa_ ff necessary _ ml_'_its _aandal obligafiom, sad,may co_e_mlt._ f_.cl_se "_admay acmally foreclose on Pamels..ha-_ng delinqu_t SI_.'al ;Ta,x_Sas p_'tU_d by .the/_,et _f aeces_ary m meet _he financia;:o_lig_tiom of_ CFD, ' , : '

Any t_payer may _ _ writ_..appv.al of 1he Sp_i_l..I_x on ._isfaer Patrol(s). _tth fla Admh_mtor, prt_defl _t the_c]l_nt iS c_'_, _ i_ymm_,_,o_fS'_Pe-ciai Taxes. - .During w-,nc_cy of an._ _ alI _l:_Ci_ Tax_-pre_io_ly levi_l must'.b_ paid on:or.berate . . tb_ paym_t &=s est_blish_ wh_0._e 1_...was m_,.:,Th_ _,nmst specify th_ rmsons . Why the aE_elIamcl_ns the Sl_.X,i..T_ 'al :_:in m'_r.,i "Th_ Adminimmtor shat r_ew_th_ -aP_ meet withthe _11_: if. the.A_r .,Cle_m nev.e_ary, m_l.ad_sc::',_ appenant of its d_t=miu_om,. If th_ .Aam_sa'ator agees w ith_ae i_Llang.,._ Administrator shall grant .a zzex_, to ,.dim:mare or mdawe , fuV_ Spcdal .Taxes on _he a,pp_llanfs Pmm_l(s_);" No.r_funds :ofi_r_ao_sly pm" ' ' , 'd Spcdal Tax_ sh_.bc_.. : '
, " ". i i... . ., ."

dstennmafions r_ImSve,io _he .a_mal :_y .m_ _ taxpayer who. z1_e.aa ls s_h_ , xc sp in eeifi_tL

_ the."Sp_al: Tax, az_l _ny

I. r AWm

OFSrCt
H:

The following dsfini_ions a/rSfly"to_tion

"Outstanding Bon_Ls" means all previously issucd b_nds bsue.d-and se_are,d by th_]eW.of Special Taxes, which w_ll rwsain oummnding after the :_st. i._',.c'r_ and/or wineipaI ,pay_at date following _e curmat Fiscal Ysar. excluding bonds m .be redefine, st a l_t_r date with the pr_eeAs of prior l:_aym_nm,of Maximmn Spu-_2 Ta ml xes; I. . Prepayme_tin tall -

The/vl_imtt_ Special Tax obligation may only be prspaid and permanently sa_sfied by a Parcel of Developed Propertan y, [i/or Undevelopgl Prcrp_, for which a btfilding permit has b_m issued, audPublic Prop.srty and/o_ Pr_rpsrry Ownsr's Asso_imdclh'op_rty rn that isn_ Exe_npt Property p_t toSection E. The Mmdmum S_l Tax .obligation_ppIi_ble to Ci;o yf I_dJo
Commtm/ty Pacilifies Dblfi_ No. 200_-3 (T_ra L_u$o)

May!0, 200_
Pag_ 1]

Received06/13/200509:44AM in 08:56 on fine [5] for DK09720 * Pg 19/24 86/13/2005 09:44 7G03426597 CITY M Ap NAGER OFFICE.ILX ..... =........... , _,_._ Lu _y us= _l_ pomancz_dT _i_f_ed _d_oril_ ba'ain; provided _at a prepaymcr_m t ay be mad= only if thcrs _rcno de]i=cFi_ 5p_cia/TLxe_ wi_ r_spB__ ro such Par_ =the time o_pmpaym_. owner 0 a P_e_l _a_e_ding to prol:ay _ Magi_mum Spc_id Tax obiipfion ._'lal] ?rovid the A_1= _ w_cm not_e ofiut_t to propay,_d _ S bm_ea_ d=ys ot roodp_ of sttoh no6c_ the Admini_mi_r sludi z_oti_ _ach ovnm"of the amotmt of tha aov-ref'undabt= d=po=t_ d=mm_ t_ ,)v=_ _e _= to b,= imp-red by d=_ C_ in ......... c_caleting t_ prop= mmmt of a pr=p_tt. W'__tn l J d_B of mo=ipt of _ noa-" _mdab}e dc'lx_it . t_e Adadnimzmor shag nmi_ su_ own=" of the _='a limoum af s_h Pmv=t. Pr_paymeal mtk_tbe _ _ot I_ tt_m 60 day_Ffior m =v md=zaptitm._iats for any Bo_tis to be red,tacit wi_ the proc=d_ of such prvpmd Spe_al Tax=s,

P_GE

19/24

..........

(.czp'mli=d term= = dofi_.4 below):.

piu_
pb._ pim les_

-. _=II=m;piion !_=mium
D=faasim== _=_amnf Admi_ve T==_:mid Eacpm'_a_ Ream're F,_d Ca_,dit"

,.

Total- =qaals
As _ "E= l plx_os_:_[ite s_=ul_d,_s'fo_ows:'

_er_
0f'_"_.

_uo.m
' _.1;:_,._ . e_i_2m= : . . ' A.t_rgat {deOa_ _ ow_i.-_%_Ll .%

_L

-...... ,. . .,_...:,....;_._.:. _ . .... . . .... - . := ..., For.Pm-c_,dfVmn_cptxi _ecry,,_f_olal_e'._$pc=iiiLTaxf-mthe.P._l. _. be prepaid.. For P_d_ Of Und_.-v_lc_d :':_=op(:_J -(x)_=.'imq_i_,, =(mtpi_i',i_e M=ximam S'.p_l Tax _-tl_ .'1==r_l m "_o',,II_ it ._._.:al_ _==ilmld_' =s

_or",hffi Pa t w.eL.Forl'ar_ o_Publk !_p=tY _or'Pmpm'y Osvnsr's A_,_ Pzop=-_ to_,l)__p=id e,o_,_t=theN.t=xir=_:_T== _/tl_,P_. ""
, , ' .

=_imm_l,I_xtmum Sp=i_ .._:=_ai:=_t-=z._,z:_dopat..,_mi_..,,S.W_i_.ir=x

4. comput_ che ;=mournof Otmmmd_ =." _=md.s._o be r=_d _. dcmp_on,4raotmfO_ _. Mu[_p|y _ Bon_I Ked_mptt_ ._.c_: computed spplic=bic'.redemption pt-=zrium :if'a __y, _n _e _ =ad pr_ (_.e =Bond

pumm_._ _]i_.Ph 4 bY the .,B_r_s _o be r."_de_me_

_.. cc=_

_ =m_=_.',_4.,_d. _= ,to:__utm__ t_e_ondR_=_'ptlm, _a_=tmt from

200_3.i_ar_T.ab,o) May _0,2005 P_= t2

oflnd_o Com_aaity Fsi1_m D_=N_.

06/13/2005

09:44

Received06/13/200509:44AM in 08:56 on line [5] for DK09720 * PQ 20/24 7GO342G597 CITY MANAGER OFFICE

PAGE

20/94

the first bond interest toddor print'pal Imymctrt dam foUowing the tam'trot Fiscal Ymr uatii the Barlitm redemption dam for the Omst_ding Bonds. 7.. DBtel'ordne the S_ial Tcxes ,].evitd tm thePtOCl_11_t.mzrrm_ Mve _ot vet bern pti&. " FmlO Yem',_ctie,_

- .

.........

$, 2-. Com o pute the amount the Adttd0i_'atorrttsonab_ ex3:smts to derive from t}lu_ ne000v_Jtm0en oif f.be Pmptymem Amuotatt I_ _s A_ TJm$ lind rr, xpmses . fizun tb_ dam of lm_aymm_t mn dm mtm_io_ date for the Ommmdiag Bor_ to bc *adeemcd wi_h thcp_ertL. 9. Add the m'Dotttatst:oraput_d pummant '_olmmlp-ap_ 6 sand 7 tmfl s_ compmed purs_nt to ptuagr_h S (the "L_#_ts.c,,Cmo_ne'). . _ _aoum

'

1 O. Vcdf-y thesdminimm_v= ftm _ cxpmses, including the oosm ot compmatio oftt_ :_ the emr_ to invest tlm l_paymmt prooetds, 1he oosts of redeeming b_ Oud_lmctmg Bon_ and'the corn of recording atty. _otic_ to cvidamm ._= prclmYroent mad'din rt_tm_fim (tbt "Ad_dn/x_-at_ Fe_ ovM_ix/m,m_d').

:_'

'

txpe=tmd _o_ _ _= a'ttse_ r_airt'mtnt (a_ d_tue.d in .the Indetttttr_), if m_y, os_itt_ wiOa the rtdemptlot_ of O_m_mdi_ Bonds _ a rmult of ti_ pr_ymmt, or _o) _ mount derivedby s1/o1_ S _encw rcscz'v_ rmluirmamt (ea d_Metl k'x tiae Iode_tur) in _Fmct.a_r ti_ md_tion of Oummading"Bonds _. a result of lira prtlmYmm :_om the baismm in thc'rctmr_e f'_d on ttlt prepa.ymmt dttc ,laR :in nO _,etshall such_mou_ be less li_nztz_.

_ to pm,s=_ _, s, 9 =_t 10, ],_,: ,_,e_ro_a __.'pt_rstmt : .. :,-_ .- -. ... : "pmaSx_h 11 (the "pvgmjm_ Amo_f"). .. : ,;, ..

_.
..,:, _" ._." , '. ..'

"

an 1 1 shsIJ.be dcpo_ Inio_h_ _I_OlmimeTmid tt _l_h_d _mder_e md be reed to rt_r _BomL_.or make debt s_cepa_'nmm. Tbz amom_j comput_ed put, mint to lmmqpl_h ! 0 sh,_D be retained.by _e.(_"D. x'o_ Primmer Amount may b_ mm_ot to r_t_ tim L.I_S_I000 i_:oi' Bonds2 Ln su_ m_m, the incremmtt a.bow: $5,000 oe_ atttln'ple thereof wiB.be' "retained in the appropriatt fund e_tablished mad= the I_dmttl_.t0 be used wi_ the Oex_ pr_a_ettt ofI_w_tt od$ r_ make _bt,_Wi..'ce l_tymm_,. : ..... .. :_ As a nmilt of_e paym_mt ofti_ oirt_ Fisctd Year's Special Tax levy as _b_e.fl und_ pzrsg_ph 7 (ahoy,), "the ,a,_ni__-m_r shall r_'nove the eam_t Fzscal Year's Spe.ci_ Tax levy for such Pin-=elfrom the County lax roils, W.itb nmpectm m'ty Paw,el that il pmpai6,.tl_ Board dmU em_s_ a smitsbl notic_ to be recor_ in _Limc_"wltb _e Act, to iadictm tee .Ft_aymcnt of Special T.axm tma the re__._e ,_fl_S epecial T_ Ii_ on_ucb:parce4 truffle obIiga_o_ of' _uchPa_l to pay flae SFm_i_1 Tax sh_l] omsc,
,

Ci_ of _dio . Commtm_ Fic'ditit_L>is_tNO.2004-5.:_.-_-m I_go)

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86/13/2085

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Received06/131200509:44AM in 08:56 on line [5] for DK09720 * Pg 21/24 7603426597 CITY MANAGER OFFICE T_es that may be _m6_ on Taxab]_lh'epm't bot y hprior W m_ is st h_m_ 1,l limm _le m_mm_ minus] debt sm'vlue o_ _11

PAGE

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amountofMaximum $_al a/_the lm_poseat preps_r_

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I_,ras an_ canteens e_ahlkhed hy ._e _mxi _mmt _ the A_ H_,. the use .of =" _aa tende_ ._bm_ _!y b_ allowed'_ _ ms_by_ b_s _s s_=_c_y _reWd by ths -, ................. Bo_ .....

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Tb_Ms:dramm Speehtl Tax m_'aPlu_ of f'_m,elol_l _ orUn_ve.lop_.Pra_rt'y._r whichs b_tinE pm_mit h_s bc_n issu_l may b_ pm_i_tly' Im'W_d in ir_r_n_ts sf _2.,0_. Th_ amoum of t_ Im=paTm_t _all be =ai_atat_ as m Se=dcm _1; _cc_t h_ S _1. _r_ymc_t sb_lb_ cal_ulsmd a_,,4_R_ _ rh,. fol]owJ_ fix-mula: .. '1_-:-1_,x2

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the A_ of(1) su_ awne_'s_ m _xUy prepay_n_MaximumS-pe_ Tax," Cn')the _o_m of _ tnpmy_mt,_n,_ _ imamn_ of S2,00_'.aod (litim d :=om[_ oraSem__m_v, dtl b_fi_, " as _, mrow aSen% i a, _pli_la e_dWRI_ _ &ys
re_ vf_eh notice, theAdm_Ii_mmm" _a_l] uoti_ suoh propm*ty, ownf o_lh amcnm_ c_ .tb_ non-_,fimd,sbl_ depo_h determined _ ,m_r the costto b= tnmm'n_ by _ CFD in _lculmqrt_ the propex smou_ era pm_l prcp_ynm_ .W'r_in 15 tnmi_ss _ ef rme_ st_ nmn-rcfimdable dl_x)s_ the ._hn_nl_r r.h_ll notify Sucll owner of .the

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pr_ymmt _moumof mmh p_c_l. Pm_ t_pm/m_ _

.prior zo eny.reden_tio_ S:_iml Taxes.
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be =_lenot Ires _m 60.d_

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d_e for any Bonds _,:[o__dem'ncd Wi_ _ proceeds of _'t_,h,Vmpaid ' " _ . ,, "." : ,.. " : ' ..

W_ ms_t *om_yI_oeI th_is: _mial] _;_& y

the Aaminim_r sh_/ll(id )km'but _e c

funds r_mlI_d ,,o it _c.ording to P_h I3 of R_tion H,I, and (_)'indlcat in the re_mrds dth_ CFD thin th_'_ has bc_n a _'l_al _p_ of the _ $_ Tax and th_ t portiol_d_c Maximum Spe_a] Tax e_lud 'to _1_ ou_Rm_lmg p=rcml_ (LO0 - F) o_'the r_g _aximum Special Tax shal] _t'[r_ue to be authorized m be levi_4 cm s-nc'iX h arc_] pursuit to Sectiu_ D,

86/13/2085

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PAGE

22/24

For each 'yemthat any Bonds arc c_standJ.ng the Spa:iS] Tax shad be'lcvie_ cooat] Parcels ._bje_'t to _ae .Special Tax. If _ do[inqu_'_pc_ai Ta.x_ m00a_ h'neollla:g_I prior to or af_ aIl Boo_ are retired, _h Sp_ia/Tax m_ty bm ]vi_ to the _ n_.gsa_ to .rmmburse the CFD for _co_ Special Taxes assmlgte.dwith'_t_l .egy .of such :_.p_al Taxc_'.bm _ot.l_er than,tht Fis_aI Ym.t. ' : : ................. "_i: ....... ........................... 7....... .......................................... .

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City of Imlio . Coramuat_,Fam'litl-s1_istr_N_. 2004_2 _rewa La_)

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,.0

Received 06/13/2005 09:44AM in 08:56 on Line [5] for DK09720 * Pg 23/24 05/13/2005 09"44 7G_342G5g7 CITY MANAGER OFFICE PAGE 23/24

RESOLUTION

NO. 8957

PJ_SOLUTION OF E_TTENTION OF TH_ CITY COUNCIL OF THE CITY OF INDIO TO INCUR BONDED INDEBTEDNESS IN THE AMOUNT NOT TO EXCEED $30,000,000 AND $30,000,000 WITHIN IMI_OVEM]gNT AREA NO. 1 AND IM]PROVEM_NT AREA NO. 2, R]_PE_LY, OF THE PROPOSED CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 CJ_RRA LA GO)

WI-_F, EAS, the City Council (the "Council") of the City of Indio (the "Ci_") has heretofore adopted Resolution No. 8956, stating the Council's intention to form Community Facilities District No. 2004-3 (Terra Lago) (the "CFD"), pursuant to the MeIIo-Roos Community Facilities Act of 1982, as amended, (the "Act"), to finance the purchase, construction, expansion or rehabilitation of" certain real and other tangible property with an estimated useful life of five years or Ionger, including public infi-ast_ctt_e acilities and other govenm_ental facilities, which arenecessary to meet increasedmTtauds placedupon the Cityas a result of development or rehabilitati oc on curring within thepteposed CTD (the "Facilities a_) nd; WHEREAS, the Council has heretofore adoptedResolution No. 8957 designating portions of the CFD as Improvement Area No. I and Improvement Area No. 2 (eachan "ImprovementArea"and collectivethe"Improveme ly, ntAreas")a ,nd WHEREAS, inorder tofinance theFaciliti it es isnecessary toincur bonded indebtedness intheamounts not to x_e_ $30,090,000 and $30,000,000 forImprovementArea]No.I and Improvement Area No. 2, respez_ive'.!y, the repayment of which is to be secured by special taxes levied in accordance with Section 5_340 at seq. of the A_t on all property within the respective Improvement Areas, other than those properties exempted from taxation as provided in the respe_dve rate and methodofapportionment attached asExhibit B to]ResolutiNo. on B956. NOW, THEREFORE, TIlE CITY COUNCIL OF THE HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section i. The abovereci':als aretrueand correct. CITY OF INDIO DOES

S_e_tion 2. Itis necessary to incur bonded indebtedness withineach Imptovernent Area No. 1 and ImprovcrnemAreal';b. 2 oftheCFD intheamountsnottoexc._:_i $30_000,000 and $30,000,000, respectively, totqnance thecosts oftheFaciliti fe or seachImprovementArea. Sectiqn 3. The indebtedness rill be incurred for thepurposeoffinancing thecosts of designing c , onstructin an g d acquiHu_theFacilitie ts h, eacquisitiof nnecessary equipment and property therefor and fulfilling contractuac lommitments and carrying out the powers and purposes oftheCFD, including butro , tlimitet do, thefinancing ofthecosts associated withthe issuance ofthebonds and all othe_ _osts necessary tofinanct eheFacilitiwh esich arepermitted to be financed pursuant tothe Act. S.e_tton_4.__. Each_Impzov.em e,nt Are,a_shaJLp__for__its_b onded i,a ebt__ess,

4_5765]9.2

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Seotion 5_, It is the inten_:of the Council to authorizethe sale of bonds in one or more series,in the maximum aggregate principalamountnot to exceed $30,000,000 and $30,000,000 for Improvement Area No. 1 and Ir,aprovement Area No. 2, respectively, at a maximum i_rest rate not in excess of 12 percent p_ annm'a or such r_te not in excess of the maximum rate permitted by la_ at the time the bonds are issued. The _rm of the bonds shall be determirted pursuant to a resolution of the Council authorizing the issuance of the bonds, but such term shall in no event exceed 40 years or such longer term as is then permittedby law. Section_& A public hearing (the "Hearing") on the proposed debt issue shall be held on July 6_ 2005 at 6:00 o'clock p.m., or as soon thereafter as practicable, at the ehambors of the City Cou_dl of the City of Indic, 150 Civic Cemer Mail, Indic, California 92202. Section 7. At the Heari:.lg at the time and place set forth above, any interested persons, including all persons owning land within the proposed CFD, may appear and be heard it the Hearing. _.ection 8. The proposition to incur bonded indebtedness in the maximum, aggregate principal amount not to exceed $30,000.000 and $30,000,000 for Improvemvnt Area No. I and Improvement Area No. 2, respectively, shall be submitted to the qualified eleoto_ of the respective Improvement Area. A special community facilities district eleztion shall be conducted on July 6, 2005. The spo_iaI election shall be conducted by hand delivered or mailed ballot election. The ballots shall be returned tothe eft"ice of the election officer.no liner than 11:00 o'clock p.m. on July 6, 2005 Section 9. The Clerk is hereby directed to publish a copy of this resolution, which shall serve as notice ("Notice") of the Hearing and the special bond election, pursuant m Section 6061 of the Government Code in a nt;wspapcr of general circulation in ,.he proposed CFD, Section 10. The Clerk may send a copy of the Notice of the Hearing by first-class mail, postage prepaid, to each regist,_'redvoter and to each landowner within the proposed CFD as shown on the last equalized assessment roll. PASSED, APPROVED and ADOPTED this 18th day of May, 2005 by the following vote: AYES: Gilbert, Godfrey, Ramos Watson, Wilson, Fesmire NOES: None
_..'

MELANIE FESMIRE, MAYOR ATTEST:

citer CL_RK

HERNANDEZ_ CIVIC f "] J ".

RESOLUTION NO. 9024 RESOLUTION OFTHE CITY COUNCIL OF THE CITY OF INDIO, CALIFORNIA, APPROVING JOINT COMMUNITY FACILITIES AGREEMENTS WHEREAS, the City Council (the "Council") of the City of Indio (the "City") has heretofore adopted Resolution No. 8956 ("Resolution of Intention") stating its intention to form City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "CFD") pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (the "Act"); and WHEREAS, Section 53316.2 of the Act states that a community facilities district may finance facilities to be owned or operated by an entity other than the agency that created the district only pursuant to a joint community facilities agreement or a joint exercise of powers agreement; and WHEREAS, certain facilities and capital fees to be financed by the CFD include those facilities and capital fees to be owned or operated by the Valley Sanitary District and Imperial Irrigation District. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF INDIO DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. The City Council hereby approves the Joint Community Facilities Agreements in substantially the forms presented to the City Council at this meeting. The Mayor, the City Manager and the Finance Director are hereby authorized to execute the Joint Community Facilities Agreements with such revisions, amendments and completions as shall be approved by the officer executing the same, such approval to be conclusively evidenced by the execution and delivery thereof. Section 2. adoption. This Resolution shall take effect from and aider the date of its passage and

vote:

PASSED, APPROVED

and ADOPTED this 20th day of July, 2005 by the following

AYES: Gilbert, Godfrey, Ramos Watson, Wilson, Fesmire NOES: None

MELANIE FESMIRE, MAYOR ATTEST:

JI

RESOLUTION NO. 9025

RESOLUTION OF FORMATION OF THE CITY COUNCIL OF THE CITY OF INDIO DETERMINING THE VALIDITY OF PRIOR PROCEEDINGS AND ESTABLISHING CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO)

WHEREAS, the City Council (the "Council") of the City of Indio (the "City") has heretofore adopted Resolution No. 8956 ("Resolution of Intention") stating its intention to form City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "CFD") pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (the "Act"), and designating portions of the CFD as Improvement Area No. 1 and Improvement Area No. 2; and WHEREAS, a copy of the Resolution of Intention is on file with the City Clerk and incorporated herein by reference; and WHEREAS, pursuant to the Act and in accordance with applicable laws, this Council held a public hearing on the formation of the CFD, the proposed rate and method of apportionment of the special taxes (the "Special Taxes") and the incurring of bonded indebtedness by the CFD for Improvement Area No. 1 and Improvement Area No. 2; and WHEREAS, at said hearing all persons not exempt from the Special Tax desiring to be heard on all matters pertaining to the formation of the CFD, the proposed rate and method of apportionment of the Special Taxes and the incurring of bonded indebtedness by the CFD for Improvement Area No. 1 and Improvement Area No. 2 were heard and a full and fair heating was held; and WHEREAS, at said hearing evidence was presented to the Council on said matters before it, and this Council at the conclusion of said hearing is fully advised in the premises. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF INDIO DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Pursuant to Section 53325. l(b) of the Government Code, the Council finds and determines that the proceedings prior hereto were valid and in conformity with the requirements of the Act. Section 2. A community facilities district to be designated "City of Indio Community Facilities District No. 2004-3 (Terra Lago)" is hereby established pursuant to the Act. Section 3. The description and map of the boundaries of the CFD on file in the Clerk's office and as described in the Resolution of Intention and incorporated herein by reference, as amended to exclude a portion thereof as identified at the public hearing, shall be the boundaries of the CFD. The map of the proposed boundaries of the CFD has been recorded in the Office of the County Recorder of Riverside County, California (Book 62 of Maps of Assessment and Community Facilities District at page 88 and as Instrument No. 2005-0437055).
45625228.1

Section 4. The facilities proposed to be financed by each improvement area of the CFD are public infrastructure facilities and other governmental facilities with an estimated useful life of five years or longer, which the CFD is authorized by law to construct, own, operate or finance and that are necessary to meet increased demands placed upon the City as a result of development or rehabilitation occurring within the proposed CFD, including but not limited to site preparation, construction, purchase, modification, expansion, improvement or rehabilitation of roadway improvements, dry utilities, storm drain improvements, landscape improvements, traffic control devices, fire station, and water and sewer facilities including the acquisition of capacity in the City's water system and sewer capacity in the Valley Sanitation District sewer system, and related costs including designs, inspections, professional fees, annexation fees, connection fees and acquisition costs (the "Facilities"). Such Facilities need not be physically located within the CFD. Section 5. Except where funds are otherwise available, it is the intention of the Council to levy annually in accordance with procedures contained in the Act a special tax (the "Special Tax") sufficient to pay for the costs of financing the acquisition and/or construction of the Facilities, including the principal of and interest on the bonds proposed to be issued to finance the Facilities and other periodic costs, the establishment and replenishment of reserve funds, the remarketing, credit enhancement and liquidity fees, the costs of administering the levy and collection of the Special Tax and all other costs of the levy of the Special Tax and issuance of the bonds, including any foreclosure proceedings, architectural, engineering, inspection, legal, fiscal, and financial consultant fees, discount fees, interest on bonds due and payable prior to the expiration of one year from the date of completion of facilities (but not to exceed two years), election costs and all costs of issuance of the bonds, including, but not limited to, fees for bond counsel, disclosure counsel, financing consultants and printing costs, and all other administrative costs of the tax levy and bond issue. The Special Tax will be secured by recordation of a continuing lien against all non-exempt real property in the CFD. In the first year in which such a Special Tax is levied, the levy shall include a sum sufficient to repay to the City all amounts, if any, transferred to the CFD pursuant to Section 53314 of the Act and interest thereon. The schedule of the rate and method of apportionment and manner of collection of the Special Tax is described in detail in Exhibit A attached hereto and by this reference incorporated herein. The Special Tax is based upon the cost of financing the Facilities in the CFD, the demand that each parcel will place on the Facilities and the benefit (direct and/or indirect) received by each parcel from the Facilities. The Special Tax is apportioned to each parcel on the foregoing basis pursuant to Section 53325.3 of the Act. In the event that a portion of the property within an improvement area of the CFD shall become for any reason exempt, wholly or partially, from the levy of the Special Tax, the Council shall, on behalf of the CFD, increase the levy to the extent necessary upon the remaining property within the same improvement area of the CFD which is not delinquent or exempt in order to yield the required payments, subject to the maximum tax. Under no circumstances, however, shall the Special Tax levied against any parcel used for private residential purposes be increased as a consequence of delinquency or default by the owner of any other parcel or parcels within the same improvement area of the CFD by more than 10 percent. Furthermore, the maximum special tax authorized to be levied against any parcel used for private residential purposes shall not be increased over time in excess of 2 percent per year.
45625228.1

Section 6. Upon recordation of a Notice of Special Tax Lien pursuant to Section 3114.5 of the Streets and Highways Code, a continuing lien to secure each levy of the Special Tax shall attach to all nonexempt real property in the CFD, and this lien shall cominue in force and effect until the Special Tax obligation is prepaid or otherwise permanently satisfied and the lien canceled in accordance with law or until collection of the Special Tax by the CFD ceases. Section 7. The proposed Special Tax to be levied in each improvement area of the CFD has not been precluded by protests by owners of one-half or more of the land in the territory included in the same improvement area of the CFD pursuant to Government Code Section 53324. Section 8. Pursuant to and in compliance with the provisions of Government Code Section 50075.1, the Council hereby establishes the following accountability measures pertaining to the levy by the CFD of the Special Tax: A. Such Special Tax shall be levied for the specific purposes set forth herein.

B. The proceeds of the levy of such Special Tax shall be applied only to the specific purposes set forth herein. C. The CFD shall establish an account or accounts into which the proceeds of such Special Tax shall be deposited. D. The City Manager, or his or here designee, acting for and on behalf of the CFD, shall annually file a report with the Council as required pursuant to Government Code Section 50075.3. Section 9. The City Manager, or his designee, is designated to be responsible for preparing or causing to be prepared annually a current roll of Special Tax levy obligations by assessor's parcel number and for estimating future Special Tax levies pursuant to Section 53340.1 of the Government Code. Section 10. The voting procedure with respect to the imposition of the Special Tax, incurring bonded indebtedness and establishing an appropriations limit with respect to each improvement area of the CFD shall be by hand delivered or mailed ballot election. Section 11. The City Clerk is directed to certify and attest to this Resolution and to take any and all necessary acts to call, hold, canvass and certify an election or elections on the incurring bonded indebtedness, the levy of the Special Tax, and the establishment of the appropriation limit.

45625228.1

PASSED, APPROVED vote:

and ADOPTED this 20th day of July, 2005 by the following

AYES: Gilbert, Godfrey, Ramos Watson, Wilson, Fesmire NOES: None _ ,S__//_e_--_-_, MELANIE FESMIRE, MAYOR

ATTEST:

_RNANDEZ CITY CLERK, CMC

//_2 t_/

45625228.1

RESOLUTION NO. 9026 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF INDIO TO INCUR BONDED INDEBTEDNESS IN THE AMOUNTS NOT TO EXCEED $30,000,000 AND $30,000,000 WlTHIN IMPROVEMENT AREA NO. 1 AND IMPROVEMENT AREA NO. 2, RESPECTIVELY, OF THE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) AND CALLING A SPECIAL ELECTION

WHEREAS, the City Council (the "Council") of the City of Indio (the "City") has heretofore adopted Resolution No. 9023 (the "Resolution of Formation"), which formed the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "CFD"), pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, (the "Act"), to finance the purchase, construction, expansion or rehabilitation of certain real and other tangible property with an estimated useful life of five years or longer, including public infrastructure facilities and other governmental facilities, which the City is authorized by law to construct, own or operate (the "Facilities"); and WHEREAS, a copy of the Resolution of Formation is on file with the City Clerk and incorporated herein by reference; and WHEREAS, the Council has heretofore designated portions of the CFD as Improvement Area No. 1 and Improvement Area No. 2 (each an "Improvement Area," and collectively, the "Improvement Areas"); and WHEREAS, in order to finance the in the amounts not to exceed $30,000,000 Improvement Area No. 2, respectively, the levied in accordance with Section 53340 respective Improvement Areas. Facilities it is necessary to incur bonded indebtedness and $30,000,000 for Improvement Area No. 1 and repayment of which is to be secured by special taxes et seq. of the Act on certain properties within the

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF INDIO DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. The above recitals are true and correct.

Section 2. It is necessary to incur bonded indebtedness in amounts not to exceed $30,000,000 and $30,000,000 for Improvement Area No. 1 and Improvement Area No. 2, respectively, to finance the costs of the Facilities for the respective Improvement Areas. Section 3. The indebtedness will be incurred for the purpose of financing the costs of acquiring the Facilities, the financing of the costs associated with the issuance of the bonds and all other costs necessary to finance the Facilities which are permitted to be financed pursuant to the Act. Section 4. Improvement Area. Each Improvement Area will pay for the bonded indebtedness for such

Section 5. The bonds shall be issued in one or more series at a maximum interest rate not to exceed 12 percent per annum or such rate not in excess of the maximum rate permitted by law at the time the bonds are issued, and payable annually or semiannually as determined by the Council. The term of the bonds shall be determined pursuant to a resolution of the Council authorizing the issuance of the bonds, but such term shall in no event exceed 40 years or such longer term as is then permitted by law. Section6. Pursuant to and in compliance with the provisions of Article 1.5

(commencing with Section 53410) of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code, the Council hereby establishes the following accountability measures pertaining to any bonded indebtedness incurred by or on behalf of the City: (a) Such bonded indebtedness shall be incurred for the specific purposes set forth in Section 3 above. (b) The proceeds of any such bonded indebtedness shall be applied only to the specific purposes identified in Section 3 above. (c) The document or documents establishing the terms and conditions for the issuance of any such bonded indebtedness shall provide for the creation of an account or accounts into which the proceeds of such bonded indebtedness shall be deposited. (d) The City Manager, or his or her designee, acting for and on behalf of the City, shall annually file a report with the Council as required by Government Code Section 53411. Section 7. Pursuant to Government Code Section 53353.5, the Council hereby determines to submit to the qualified electors of each Improvement Area a combined proposition (the "Proposition") to: (1) levy special taxes on property within each Improvement Area in accordance with the applicable rate and method of apportionment of special tax specified in the Resolution of Formation; (2) incur bonded indebtedness in the amounts not to exceed $30,000,000 or $30,000,000; and (3) establish an appropriations limit as defined by subdivision (h) of Section 8 of Article XIIIB of the California Constitution, for each Improvement Area. Said appropriations limit shall equal the maximum amount of bonded indebtedness authorized to be incurred for the respective Improvement Area. The form of the Proposition is attached as Exhibit "A." Section 8. A special election is hereby called for each Improvement Proposition set forth in Section 7 above. Area on the

Section 9. The time for notice having been waived by the qualified electors, the date of the special election for each Improvement Area on the Proposition shall be on the 20th day of July, 2005. There being no registered voters residing within the territory of the CFD at the time &the protest hearing and ninety (90) days prior thereto, and the requirements of Section 53326 of the Government Code having been waived by the landowners, the ballots for the special election shall be hand delivered to the landowners within the CFD. The voter ballots shall be returned to the City Clerk at 100 Civic Center Mall, Indio, California 92201, no later than 11:00

o'clock p.m. on July 20, 2005. However, the election may be closed within the concurrence of the City Clerk, as soon as the ballot is returned. Section 10. Notice of said election and written argument for or against the measure have been waived by the landowners. Section 11. Each Improvement Area shall constitute a single election precinct for the purpose of holding said special election. Section 12. The Council hereby directs that the special election be conducted by the City Clerk, as the elections official. Section 13. adoption. vote: AYES: Gilbert, Godfrey, Ramos Watson, Wilson, Fesmire NOES: None This Resolution shall take effect from and after the date of its passage and

PASSED, APPROVED

and ADOPTED this 20th day of July, 2005 by the following

MELANIE FESMIRE, MAYOR ATTEST:

CONCURRENCE ON HOLDING SPECIAL ELECTION LESS THAN 125 DAYS FOLLOWING THE ADOPTION OF RESOLUTION OF FORMATION

As the elections official of the special election (the "Election") called for by Resolution No. 9026 (Resolution Calling a Special Election), I hereby concur on holding the Election less than 125 days following the adoption of Resolution No. 9025 (Resolution of Formation).

Dated: July 20, 2005

By: _'City Clerk of the City of Indio

/ k.,/

45655340.1

",4

RESOLUTION RESOLUTION CANVASSING AREA NO. 1 COMMUNITY

NO.. 9027

OF THE CITY COUNCIL OF THE CITY OF INDIO, CALIFORNIA, THE RESULTS OF THE ELECTION HELD WITHIN IMPROVEMENT AND IMPROVEMENT AREA NO. 2 OF THE CITY OF INDIO FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO)

WHEREAS, the City Council (the "Council") of the City of Indio (the "City") has previously conducted proceedings pertaining to the formation of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "CFD"), the authorization of indebtedness in the amounts not to exceed $30,000,000 and $30,000,000 within Improvement Area No. 1 and Improvement Area No. 2, respectively, of the CFD, the rate and method of apportionment for the levy and collection of special taxes (the "Special Tax") to pay the principal and interest on bonds issued or other debt, and the establishment of an appropriations limit, and the calling of an election in regard to the foregoing; and WHEREAS, on July 20, 2005, an election was held within Improvement Area No. 1 and Improvement Area No. 2 of the CFD relative to the authorization of not to exceed $30,000,000 and $30,000,000 of indebtedness within Improvement Area No. 1 and Improvement Area No. 2, respectively, of the CFD, the rate and method of apportionment of the Special Tax, and the establishment of an appropriations limit; and WHEREAS, at such election the proposal for incurring the bonded indebtedness, the rate and method of apportionment and manner of collection of the Special Tax and establishing an appropriations limit for each Improvement Area No. 1 and Improvement Area No. 2 of the CFD was approved by the requisite 2/3 of the votes cast by qualified electors of Improvement Area No. 1 or Improvement Area No. 2 of the CFD, as applicable. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF INDIO DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. It is hereby determined that the election conducted within each Improvement Area No. 1 and Improvement Are No. 2 of the CFD was duly and validly conducted. Section 2. The Council, acting as the legislative body of the CFD, is authorized to levy the Special Tax on behalf of the CFD, as specified in Ordinance No. 1441, (the "Resolution of Formation") adopted by the Council on July 20, 2005. Section 3. The Council is authorized to incur indebtedness on behalf of the CFD for Improvement Area No. 1 and Improvement Area No. 2 of the CFD, in the maximum amounts of $30,000,000 and $30,000,000, respectively. Section 4. The City is authorized to establish an appropriations limit for Improvement Area No. 1 and Improvement Area No. 2 of the CFD.

Section 5. The City Clerk is hereby directed and authorized to record notice of the special tax of the CFD by recording a Notice of Special Tax Lien of the CFD pursuant to Section 3117.5 of the California Streets and Highways Code. PASSED, APPROVED vote: AYES: Gilbert, Godfrey, Ramos Watson, Wilson, Fesmire NOES: None and ADOPTED this 20th day of July, 2005 by the following

ATTEST:

CITY CLERK

O0

RECORDING REQUESTED BY ANDWHENRECORDED RETURNTO: City of Indio 100 Civic Center Mall Indio, California 92201 Attention: Cynthia Hernandez

DOC

I:1 207 005 0603064 /28/2-005

ConForm Ce od py
Has not been compared with original

LarryI,lUard
County oT Riverside Assessor, County Clerk & Recorder

NOTICE OF SPECIAL TAX LIEN

Pursuant to the requirements of Section 3114.5 of the Streets and Highways Code and Section 53328.3 of the Government Code, the undersigned clerk of the legislative body of the City of Indio (the "City"), State of California, hereby gives notice that a lien to secure payment of special taxes is hereby imposed by the City Council of the City. The special taxes secured by this lien are authorized to be levied for the purpose of financing public infrastructure facilities and other governmental facilities with an estimated useful like of five years or longer including, but not limited to, streetscape, landscape, traffic controls, storm drain, water and sewer facilities, dry utilities, other City fees and facilities, other Valley Sanitary District fees and facilities, other Imperial Irrigation District fees and facilities, and related costs including designs, inspections, professional fees, connection fees and acquisition costs, and for the purpose of paying principal and interest on bonds issued with respect to each improvement area. The special taxes are authorized to be levied within the improvement areas of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") which has now been officially formed and the lien of the special taxes are a continuing lien which shall secure each annual levy of the special taxes and which shall continue in force and effect until the special taxes cease to be levied and a notice of cessation of special taxes is recorded in accordance with Section 53330.5 of the Government Code. The rate and method of apportionment, and manner of collection of authorized special tax, for each improvement area is as set forth in Exhibit "A" attached hereto and hereby made a part hereof. Conditions under which the obligation to pay the special taxes may be prepaid and permanently satisfied and the lien of the special taxes canceled are as set forth in Exhibit "A" attached hereto. Notice is further given that upon the recording of this notice in the office of the county recorder, the obligation to pay the special tax levies shall become a lien upon all nonexempt real property within the respective improvement areas of the District in accordance with Section 3115.5 of the Streets and Highways Code. The name of the owner(s) and the assessor's tax parcel number(s) of the real property included within the respective improvement areas of the District and not exempt from the special tax are as set forth in Exhibit "B" attached hereto.

45638539.1

Reference is made to the boundary map of the District recorded at Book 62 of Maps of Assessment and Community Facilities Districts at Page 88, in the office of the County Recorder for the County of Riverside, California which map is now and final boundary map of the District. For further information concerning the current and estimated future tax liability of owners or purchasers of real property subject to this special tax lien, interested persons should contact the Finance Director of the City of Indio, 100 Civic Center Mall, Indio, California 92201, (760) 342-6560.

C_(/Y CLERK OF THl_ CITY OF _'IO

45638539.1

STATE OF CALIFORNIA COUNTY OF RIVERSIDE

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) SS.

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_ .____

On

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before me ,d._rI",_t ' //_S/'/_

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name and title olVthe officer), personally appeared _,./--_ ._,_ "" , personally known to me ( o . ha_i_ c_f_fi___c__{c_vid_]_ ,r_, :_) to 15ethe person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person, or the entity upon which the person acted, executed the instrument. WITNESS my hand and official seal.

Signature(..._/_._

(SEAL)

45638539.1

EXHIBIT A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) CITY OF INDIO, CALIFORNIA A Special Tax (all capitalized terms are defined in Section A., Definitions below) shall be applicable to each Parcel of Taxable Property located within the boundaries of Community Facilities District No. 2004-3 (TERRA LAGO). The amount of Special Tax to be levied in each Improvement Area in each Fiscal Year, commencing in Fiscal Year 2005-2006 on a Parcel shall be determined by the City Council of The City of Indio, acting in its capacity as the legislative body of the CFD by applying the appropriate Special Tax for Developed Property, Undeveloped Property and Public Property and/or Property Owner's Association Property that is not Exempt Property as set forth in Sections B., C., and D., below. All of the real property within the CFD, unless exempted by law or by the provisions hereof in Section E., shall be taxed for the purposes, to the extent and in the manner herein provided. A. DEFINITIONS The terms hereinafter set forth have the following meanings: "Acre or Acreage" means the acreage of a Parcel as indicated on the most recent Assessor's Parcel Map, or if the land area is not shown on the Assessor's Parcel Map, the land area shown on the applicable Final Map, parcel map, condominium plan, or other similar instrument. "Act" means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1 of Division 2 of Title 5 of the California Government Code of the State of California. "Administrative Expenses" means all actual or reasonably estimated costs and expenses of the District that are chargeable or allocable to the applicable Improvement Area to carry out its duties as the administrator of the CFD as allowed by the Act, which shall include without limitation, all costs and expenses arising out of or resulting from the annual levy and collection of the Special Tax, trustee fees, rebate compliance calculation fees, and legal issues, or actual, potential or threatened litigation involving the CFD, continuing disclosure undertakings of the District as imposed by applicable laws and regulations, communication with bondholders and normal administrative expenses. "Administrator" means an official of the District, or designee thereof, responsible for determining the levy and collection of the Special Taxes. "Assessor's Parcel Map" means an official map of the Assessor of the County of Riverside designating parcels by Assessor's Parcel number. "Assigned Special Tax" means the Special Tax for each Land Use Category of Developed Property, as determined in accordance with Section C. 1.a., below.
City of Indio Community Facilities District No. 2004-3 (Terra Lago) July 27, 2005 Page 1

"Backup

Special Tax" means the Special Tax of that name described

in Section E below.

"Bonds" means any bonds or other indebtedness (as defined in the Act) issued by an Improvement Area of the CFD and secured by the levy of Special Taxes within such Improvement Area. "Boundary Map" means a map showing 2004-3 identified on EXHIB IT "A" "CFD" means Community Facilities established pursuant to the Act. "Council" "County" the territory area within the boundaries of CFD

District

No. 2004-3 (TERRA

LAGO) of the District

means The City of Indio City Council means the County of Riverside.

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

"Final Map" means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of a condominium plan pursuant to California Civil Code 1352 that creates individual lots for which building permits may be issued without further subdivision. "Fiscal Year" means the period starting on July 1 and ending on the following June 30.

"Improvement Area(s)" means Improvement Area 1, Zone A or Zone B or Improvement Area 2, Zone A or Zone B as geographically identified on EXHIBIT "B". "Improvement Area 1, Zone A" means the specific Improvement Area 1, Zone A of the CFD. "Improvement Area 1, Zone B" means the specific Improvement Area 1, Zone B of the CFD. "Improvement Area 2, Zone A" means the specific Improvement Area 2, Zone A of the CFD. "Improvement Area 2, Zone B" means the specific Improvement Area 2, Zone B of the CFD. City of Indio Community Facilities District No. 2004-3 (Terra Lago) area identified on EXHIBIT "B" as

area identified

on EXHIBIT

"B" as

area identified

on EXHIBIT

"B" as

area identified

on EXHIBIT

"B" as

July 26, 2005 Page 2

/
1MPROVEMB_r ixpR o_wr ARRA NO. 2 AREAS NO. 2004-3 _TT i o_ t _T EXHIBIT B COIIOIO.RaTY FACILITES DISTli_T (TERRA LAGO)
CITY OF INDIO, COUNTY OF RIVER,._OE, STATE OF CALIFOFII_4

"Indenture" means the bond indenture, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or supplementing the same. "Land Use Category" means any of the categories listed in Tables 1, 2, 3, 4 and 5. in accordance with

"Maximum Special Tax" means the maximum Special Tax, determined Section C., which can be levied in any Fiscal Year on any Parcel.

"Multifamily Residential Property" means any Parcel of Developed Property that consists of a building or buildings comprised of attached residential units available for rental by the general public, or for sale to an end user, and may be under common management. "Non-Residential Property" means all Parcels of Developed permit was issued for any type of non-residential use. Property for which a building

"Parcel(s)" means a lot or parcel shown on an Assessor's Parcel Map with an assigned parcel number valid at the time the Special Tax is enrolled for the Fiscal Year for which the Special Tax is being levied. "Property Owner's Association Property" means any Parcel within the boundary of the CFD, which, at the time the Special Tax is enrolled for the Fiscal Year for which the Special Tax is being levied has been conveyed, dedicated to, or irrevocably dedicated to a property owner association, including any master or sub-association. "Proportionately" means for (i) Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is the same for all Parcels of Developed Property, and Undeveloped Property, Public Property and/or Property Owner's Association Property that is not Exempt Property pursuant to Section E., that the ratio of the actual Special Tax levy per acre to the Maximum Special Tax per acre is the same for all such Parcels. "Public Property" means any Parcel within the boundary of the CFD which, at the time the Special Tax is enrolled for the Fiscal Year for which the Special Tax is being levied, is used for rights-of-way or any other purpose and is owned by, dedicated to, or irrevocably offered for dedication to the Federal Government, the State of California, the County, City or any other local jurisdiction, provided, however, that any property leased by a public agency to a private entity and subject to taxation under Section 53340.1 of the Act shall be taxed and classified according to its use. "Residential Floor Area" means all of the square footage of living area of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio or similar area on a Parcel. The determination of Residential Floor Area shall be made by reference to the building permit(s) for the Parcel or similar official document means selected by the Administrator. Once such determination has been made for a Parcel, it shall remain fixed in all future Fiscal Years. "Residential
City of Indio Community Facilities

Property"

means all Parcels of Developed

Property

for which

a building

District No. 2004-3

(Terra Lago)

July 26, 2005 Page 3

permit has been issued for purposes

of constructing

one or more residential

dwelling units.

"Single Family Property" means all Parcels of Residential Property, other than Multifamily Residential Property, for which building permits have been issued for detached or attached residential units. "Special Tax(es)" Taxable Property. means the special tax to be levied in each Fiscal Year on each Parcel of

"Special Tax Requirement(s)" means that amount required in any Fiscal Year to pay for Special Tax Requirement for Improvement Area 1, Zone A or Zone B, or for Special Tax Requirement for Improvement Area 2, Zone A or Zone B. "Special Tax Requirement for Improvement Area 1" means that amount required in any Fiscal Year within Improvement Area 1 of the CFD to pay: (i) annual debt service on all outstanding Bonds due in the calendar year which commences in such Fiscal Year; (ii) periodic costs on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds; (iii) Administrative Expenses; (iv) an amount equal to any anticipated shortfall due to Special Tax delinquency in the prior Fiscal Year; and (v) any amounts required to establish or replenish any reserve funds for the outstanding Bonds; less (vi) a credit for funds available to reduce the annual Special Tax levy as determined pursuant to the Indenture. "Special Tax Requirement for Improvement Area 2" means that amount required in any Fiscal Year within Improvement Area 2 of the CFD to pay" (i) annual debt service on all outstanding Bonds due in the calendar year which commences in such Fiscal Year; (ii) periodic costs on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds; (iii) Administrative Expenses; (iv) an amount equal to any anticipated shortfall due to Special Tax delinquency in the prior Fiscal Year; and (v) any amounts required to establish or replenish any reserve funds for the outstanding Bonds; less (vi) a credit for funds available to reduce the annual Special Tax levy as determined pursuant to the Indenture. "Taxable Property" means all Parcels in an Improvement Area which have not prepaid pursuant to Section H., or are not exempt from the Special Tax pursuant to law or Section E., below. "Undeveloped Property" means all Taxable Property not classified as Developed Property, Public Property and/or Property Owner's Association Property that is not Exempt Property pursuant to the provisions of Section E.

City of Indio Community Facilities District No. 2004-3 (Terra Lago)

July 26, 2005 Page 4

A. ASSIGNMENT TO LAND USE CATEGORY Each Fiscal Year, commencing with the 2005-2006 Fiscal Year, all Parcels of Taxable Property within the CFD shall be categorized into the applicable Improvement Area and classified as either Developed Property, Undeveloped Property, Public Property and/or Property Owner's Association Property that is not Exempt Property pursuant to the provisions in Section E., and shall be subject to the levy of Special Taxes in accordance with this Rate and Method of Apportionment as determined pursuant to Sections C., and D., below. Parcels of Developed Property shall further be classified as Residential Property or NonResidential Property. A Parcel of Residential Property shall further be classified as Single Family Property or Multifamily Residential Property. Single Family Property shall be further categorized based on the Residential Floor Area for such Parcel. C. MAXIMUM SPECIAL TAX RATE 1. Developed Property The Maximum Special Tax for each Parcel of Single Family Property within its applicable Improvement Area shall be the applicable Assigned Special Tax described in Table 1, 2, 3, or 4. The Maximum Special Tax for each Parcel of Non-Residential Property within its applicable Improvement Area shall be the Assigned Special Tax described in Table 1, 2, 3 or4. a. Assigned Special Tax The Assigned Special Tax for each Parcel of Developed Property within its applicable Improvement Area is shown in Table 1, 2, 3, or 4.

City of Indio Community Facilities District No. 2004-3 (Terra Lago)

July 26, 2005 Page 5

TABLE 1 Assigned Special Taxes for Property within

Single Family Property Single Family Property Sint_le Family Property Single Family Property Single Famil_'Property Sin_;le Family Property Sinl_le Family Property Single Family Property Single Family Property Sint_le Family Property Sin_;le Family Property Single Family Property Single Family Property Single Family Property Single Family Property Multi Family Property Non Residential Property

DU DU DU DU DU DU DU DU DU DU DU DU DU DU DU Acre Acre

Less than 1,501 SF 1,501 SF to 1,625 SF 1,626 SF to 1,750 1,751 SF to 1,900 1,901 SF to 1,950 1,951 SF to 2 100 2,101 SF to 2 150 2,151 SF to 2 250 2,251 SF to 2 300 2,301 SF to 2 400 2,401 SF to 2 500 2,501 SF to 2,550 2,551 SF to 2,600 2,601 SF to 2,850 Over 2,850 SF N/A N/A SF SF SF SF SF SF SF SF SF SF SF SF

$1,828.87 $2,028.55 $2,228.22 $2,467.83 $2,547.70 $2,605.98 $2,681.53 $2,832.63 $2,908.19 $3,059.29 $3,102.46 $3,175.86 $3,249.25 $3,616.22 $4,056.57 $20,460.00 $20,460.00

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

City of Indio Community Facilities District No. 2004-3 (Terra Lago)

July 26, 2005 Page 6

TABLE 2 Assigned Special Taxes for Property within

Single Family Property Single Family Property Single Family Property Single Family Property Single Family Property Single Family Property Single Family Property Single Family Property Single Family Property Single Family Property Multi Family Property Non Residential Property

DU DU DU DU DU DU DU DU DU DU Acre Acre

Less than 1,501 SF 1,501 SF to 1,625 SF 1,626 SF to 1,750 SF 1,751 SF to 1,900 SF 1,901 SF to 1,950 SF 11,951 SF to 2,100 SF 2,101 SF to 2,150 SF 2,151 SF to 2,250 SF 2,251 SF to 2,300 SF Over 2,300 SF N/A N/A

$2,719.31 $2,918.98 $3,158.59 $3,238.46 $3,372.29 $3,469.43 $3,523.39 $3,771.64 $3,965.91 $20,460.00 $20,460.00

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

TABLE 3 Assigned Special Taxes for Property within Area 2, Zone A

Famil' Family Property Non Residential Property

DU DU DU DU Acre Acre

Less than 1,501 SF 1,501 SF to 2,000 SF 2,001 SF to 2,500 SF Over 2,500 SF N/A N/A

$1,677.77 $2,411.70 $3,162.90 $3,905.47 $22,304.00 $22,304.00

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

City of Indio Community Facilities District No. 2004-3 (Terra Lago)

July 26, 2005 Page 7

TABLE 4 Assigned Special Taxes for Property within Area 2, Zone B

Family Property Multi Family Property Non Residential Property

DU DU DU DU Acre Acre

Less than2,001 SF 2,001 SF to 2,500 SF 2,501 SFto 3,000 SF Over 3,000 SF N/A N/A

$3,154.27 $3,905.47 $4,648.04 $4,665.31 $22,304.00 $22,304.00

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

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

TABLE 5 Undeveloped Property Maximum Special Tax Rate

1 - Undeveloped Property 2 - Undeveloped Property

Acre Acre

$20,460.00 $22,304.00

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

2. Public Property and/or Property Owner's Association Property that is not Exempt Property pursuant to the provisions of Section E. The Maximum Special Tax for each Parcel of Public Property and/or Property Owners
City of Indio Community Facilities District No. 2004-3 (Terra Lago) July 26, 2005 Page 8

Association Property that is not Exempt Property pursuant to the provisions of Section E., within each Improvement Area shall be the applicable Undeveloped Property Maximum Special Tax rate per Acre in Table 5. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX

Commencing with Fiscal Year 2005-2006 and for each following Fiscal Year, the Council shall levy the Special Tax on all Taxable Property in each Improvement Area until the amount of Special Taxes equals the applicable Special Tax Requirement for each Improvement Area in accordance with the following steps:

1. Improvement Area 1 First: The Special Tax shall be levied on each Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax rate as needed to satisfy the Special Tax Requirement for Improvement Area 1, Zone A and Zone B. Second: If additional moneys are needed to satisfy the Special Tax Requirement for Improvement Area 1, Zone A and Zone B, after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property within Improvement Area 1, Zone A and Zone B at up to 100% of the Maximum Special Tax for Undeveloped Property; Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then for each Assessor's Parcel of Developed Property whose Assigned Special Tax is the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement. 2. Improvement Area 2 First: The Special Tax shall be levied on each Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax rate as needed to satisfy the Special Tax Requirement for Improvement Area 2, Zone A and Zone B. Second: If additional moneys are needed to satisfy the Special Tax Requirement for Improvement Area 2, Zone A and Zone B, after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property within Improvement Area 2, Zone A and Zone B at up to 100% of the Maximum Special Tax for Undeveloped Property; Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then for each Assessor's Parcel of Developed Property whose Assigned Special Tax is the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement.

City of Indio Community Facilities District No. 2004-3 (Terra Lago)

July 26, 2005 Page 9

Notwithstanding the above, under no circumstances will the Special Taxes levied against any Parcel of Residential Property within an Improvement Area be increased by more than ten percent (10%) per Fiscal Year as a consequence of delinquency or default by the owner of any other Parcel within an Improvement Area of the CFD. E. BACKUP SPECIAL TAXES Each Fiscal Year, each Assessor's Parcel of Developed Property classified as Residential Property shall be subject to a Backup Special Tax. In each Fiscal Year, the Backup Special Tax rate for Developed Property classified as Residential Property within a Final Map shall be the rate per Lot calculated according to the following formula: RxA
B _ ...................

L The terms above have the following meanings: B = Backup Special Tax per Lot in each Fiscal Year R = Maximum Special Tax rate per Acre for Undeveloped Property for the applicable Fiscal Year A = Acreage of Developed Property classified or to be classified as Residential Property in such Final Map L = Lots in the Final Map which are classified or to be classified as Residential Property

Notwithstanding the foregoing, if all or any portion of the Final Map(s) described in the preceding paragraph is subsequently changed or modified, then the Backup Special Tax for each Assessor's Parcel of Developed Property classified or to be classified as Residential Property in such Final Map Area that is changed or modified shall be a rate per square foot of Acreage calculated as follows: 1. Determine the total Backup Special Tax anticipated to apply to the changed or modified Final Maps

2. The result of paragraph 1 above shall be divided by the Acreage of Developed Property classified or to be classified as Residential Property which is ultimately expected to exist in such changed or modified Final Map Area, as reasonably determined by the City. 3. The result of paragraph 2 above shall be divided by 43,560. The result is the Backup Special Tax per square foot of Acreage which shall be applicable to Assessor's Parcels of Developed Property classified as Residential Property in such changed or modified Final Map Area for all remaining Fiscal Years in which the Special Tax may be levied. F. EXEMIVrIONS

City of Indio Community Facilities District No. 2004-3 (Terra Lago)

July 26, 2005 Page 10

The Council shall not levy Special Taxes on Public Property, Property Owner's Association Property or Golf Course Property within each Improvement Area or Riverside County Assessor Parcel Numbers 601-150-024 and 601-270-018 located within Improvement Area 2 of the CFD. Exempt Property status will be assigned by the Administrator in the chronological order in which property becomes Public Property, Property Owner's Association Property or Golf Course Property. G. MANNER OF COLLECTION The Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes and shall be subject to the same penalties, the same procedure, sale and lien priority in the case of delinquency; provided, however, that the Administrator may directly bill the Special Tax, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on Parcels having delinquent Special Taxes as permitted by the Act if necessary to meet the financial obligations of the CFD. H. APPEALS Any taxpayer may file a written appeal of the Special Tax on his/her Parcel(s) with the Administrator, provided that the appellant is current in his/her payments of Special Taxes. During pendency of an appeal, all Special Taxes previously levied must be paid on or before the payment date established when the levy was made. The appeal must specify the reasons why the appellant claims the Special Tax is in error. The Administrator shall review the appeal, meet with the appellant if the Administrator deems necessary, and advise the appellant of its determination. If the Administrator agrees with the appellant, the Administrator shall grant a credit to eliminate or reduce future Special Taxes on the appellant's Parcel(s). No refunds of previously paid Special Taxes shall be made. The Administrator shall interpret this Rate and Method of Apportionment and make determinations relative to the annual levy and administration of the Special Tax and any taxpayer who appeals, as herein specified. I. PREPAYMENT OF SPECIAL TAX The following definitions apply to this Section H: "Outstanding Bonds" means all previously issued bonds issued and secured by the levy of Special Taxes, which will remain outstanding after the first interest and/or principal payment date following the current Fiscal Year, excluding bonds to be redeemed at a later date with the proceeds of prior prepayments of Maximum Special Taxes. 1. Prepayment in Full

The Maximum Special Tax obligation may only be prepaid and permanently satisfied by a Parcel of Developed Property, and/or Undeveloped Property for which a building permit has been issued, and Public Property and/or Property Owner's Association Property that is not Exempt Property pursuant to Section E. The Maximum Special Tax obligation applicable to Cityof Indio Community FacilitiesDistrictNo.2004-3(TerraLago) July26, 2005 Page 11

such Parcel may be fully prepaid and the obligation of the Parcel to pay the Special Tax permanently satisfied as described herein; provided that a prepayment may be made only if there are no delinquent Special Taxes with respect to such Parcel at the time of prepayment. An owner of a Parcel intending to prepay the Maximum Special Tax obligation shall provide the Administrator with written notice of intent to prepay, and within 5 business days of receipt of such notice, the Administrator shall notify such owner of the amount of the non-refundable deposit determined to cover the cost to be incurred by the CFD in calculating the proper amount of a prepayment. Within 15 days of receipt of such nonrefundable deposit, the Administrator shall notify such owner of the prepayment amount of such Parcel. Prepayment must be made not less than 60 days prior to any redemption date for any Bonds to be redeemed with the proceeds of such prepaid Special Taxes. The Prepayment Amount (defined below) (capitalized terms as defined below): shall be calculated as summarized below

Bond Redemption Amount plus Redemption Premium plus Defeasance Amount plus Administrative Fees and Expenses less Reserve Fund Credit Total: equals Prepayment Amount As of the proposed date of prepayment, the Prepayment Amount (defined below) shall be calculated as follows:

1. 2.

Confirm that no Special Tax delinquencies apply to such Parcel. For Parcels of Developed Property, compute the Maximum Special Tax for the Parcel to be prepaid. For Parcels of Undeveloped Property to be prepaid, compute the Maximum Special Tax for that Parcel as though it was already designated as Developed Property, based upon the building permit which has already been issued for that Parcel. For Parcels of Public Property and/or Property Owner's Association Property to be prepaid, compute the Maximum Special Tax for that Parcel. Divide the Maximum Special Tax computed pursuant to paragraph 2 by the total estimated Maximum Special Taxes based on the Developed Property Special Tax which could be charged, less any Parcels which have been prepaid. Multiply the quotient computed pursuant to paragraph 3 by the Outstanding Bonds to compute the amount of Outstanding Bonds to be retired and prepaid (the "Bond Redemption Amount"). Multiply the Bond Redemption Amount computed pursuant to paragraph 4 by the applicable redemption premium, if any, on the Outstanding Bonds to be redeemed (the "Redemption Premium"). Compute the amount needed to pay interest on the Bond Redemption Amount from
July 26, 2005 Page 12

3.

4.

5.

6.

City of Indio Community Facilities District No. 2004-3 (Terra Lago)

the first bond interest and/or principal payment date following the current Fiscal Year until the earliest redemption date for the Outstanding Bonds. 7. Determine the Special Taxes levied on the Parcel in the current Fiscal Year which have not yet been paid. Compute the amount the Administrator reasonably expects to derive from the reinvestment of the Prepayment Amount less the Administrative Fees and Expenses from the date of prepayment until the redemption date for the Outstanding Bonds to be redeemed with the prepayment. Add the amounts computed pursuant to paragraphs 6 and 7 and subtract the amount computed pursuant to paragraph 8 (the "Defeasance Amount"). Verify the administrative fees and expenses, including the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming the Outstanding Bonds, and the costs of recording any notices to evidence the prepayment and the redemption (the "Administrative Fees and Expenses"). The reserve fund credit (the "Reserve Fund Credit") shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect after the redemption of Outstanding Bonds as a result of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be less than zero. The Maximum Special Tax prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 9 and 10, less the amount computed pursuant to paragraph 11 (the "Prepayment Amount"). From the Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 9, and 11 shall be deposited into the appropriate fund as established under the Indenture and be used to retire Outstanding Bonds or make debt service payments. The amount computed pursuant to paragraph 10 shall be retained by the CFD.

8.

9.

10.

11.

12.

13.

The Prepayment Amount may be sufficient to redeem other than a $5,000 increment of Bonds. In such cases, the increment above $5,000 or integral multiple thereof will be retained in the appropriate fund established under the Indenture to be used with the next prepayment of bonds or to make debt service payments. As a result of the payment of the current Fiscal Year's Special Tax levy as determined under paragraph 7 (above), the Administrator shall remove the current Fiscal Year's Special Tax levy for such Parcel from the County tax rolls. With respect to any Parcel that is prepaid, the Board shall cause a suitable notice to be recorded in compliance with the Act, to indicate the prepayment of Special Taxes and the release of the Special Tax lien on such Parcel, and the obligation of such Parcel to pay the Special Tax shall cease.

City of Indio Community Facilities District No. 2004-3 (Terra Lago)

July 26, 2005 Page 13

Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Maximum Special Taxes that may be levied on Taxable Property both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds. Tenders of Bonds in prepayment of Maximum Special Taxes may be accepted upon the terms and conditions established by the Board pursuant to the Act. However, the use of Bond tenders shall only be allowed on a case-by-case basis as specifically approved by the Board.

2.

Prepayment in Part

The Maximum Special Tax on a Parcel of Developed Property or Undeveloped Property for which a building permit has been issued may be partially prepaid in increments of $2,000. The amount of the prepayment shall be calculated as in Section H.1; except that a partial prepayment shall be calculated according to the following formula: PP = PE x F These terms have the following meaning: PP = the partial prepayment PE = the Prepayment Amount calculated according to Section H. 1 F = the percent by which the owner of the Parcel(s) is partially prepaying the Maximum Special Tax. The owner of a Parcel who desires to partially prepay the Maximum Special Tax shall notify the Administrator of (i) such owner's intent to partially prepay the Maximum Special Tax, (ii) the amount of partial prepayment expressed in increments of $2,000, and (iii) the company or agency that will be acting as the escrow agent, if applicable and within 5 days of receipt of such notice, the Administrator shall notify such property owner of the amount of the non-refundable deposit determined to cover the cost to be incurred by the CFD in calculating the proper amount of a partial prepayment. Within 15 business days of receipt of such non-refundable deposit, the Administrator shall notify such owner of the partial prepayment amount of such Parcel. Partial prepayment must be made not less than 60 days prior to any redemption date for any Bonds to be redeemed with the proceeds of such prepaid Special Taxes. With respect to any Parcel that is partially prepaid, the Administrator shall (i) distribute the funds remitted to it according to Paragraph 13 of Section H. 1, and (ii) indicate in the records of the CFD that there has been a partial prepayment of the Maximum Special Tax and that a portion of the Maximum Special Tax equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax shall continue to be authorized to be levied on such Parcel pursuant to Section D.

Cityof Indio Community FacilitiesDistrictNo. 2004-3(TerraLago)

July26, 2005 Page 14

J. TERM OF THE SPECIAL TAX For each year that any Bonds are outstanding the Special Tax shall be levied on all Parcels subject to the Special Tax. If any delinquent Special Taxes remain uncollected prior to or after all Bonds are retired, the Special Tax may be levied to the extent necessary to reimburse the CFD for uncollected Special Taxes associated with the levy of such Special Taxes, but not later than the Fiscal Year.

City of Ind[o Community Facilities District No. 2004-3 (Terra Lago)

July 26, 2005 Page 15

EXHIBIT B

NAMES OF PROPERTY OWNERS Indio Land Ventures Indio Land Ventures Indio Land Ventures Indio Land Ventures Indio Land Ventures Indio Land Ventures Indio Land Ventures Indio Land Ventures Indio Land Ventures Indio Land Ventures Indio Land Ventures Woodside Portofino Inc. Woodside Portofino Inc. MW Housing Managers III/Lennar Corp The Ryland Group Inc. Ashbrook WHP Terra Lago 133 A California Limited Partnership

ASSESSOR PARCEL NUMBERS 601 - 150-025-0 601-270-011-8 601-270-012-9 601-270-014-1 601-270-019-6 601-300-012-1 601-310-001-2 601-310-012-2 601-310-015-5 601-310-016-6 601-390-032-8 601-270-013-0 601-270-015-2 601-290-003-3 601-290-008-8 601-270-006-4

89/08/2005

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PAGE

85187

ORDINANCE NO. 1442 ORDINANCE OF M CITY COUNCIL OF THE CITY OF INDIO AUTHOR/ZING M LEVY OF A SPECIAL TAX, COMMUNITY FACILITIES DISTRICT NO. 2004-03 TERRA LAGO WHEREAS, on May I8, 2005, the City Council (the "Council") of the City oflndio (the "City") adopted Kesotution No. 8956 stating its intention to focm the City of Indio Community Facilities District No. 2004-3 (Terra [.ago) (the "CFD") pursuant to the Melio-goos Comamnity Facilities Act of 1982, as amended (the "Act"), to finance the purchase, construction, expansion or rehabilitation of certain real and other tangible property with an estimated useful life of five years or longer, including public infrastructurefacilities and other governmentalfacilitiea, which the City is authorized by law to construct, own or operate (the "Facilities"), and designating po_ons of the CYD u Improvement Area No. 1 and Improvement Area No. 2; and WHEREAS, on May 18, 2005, the Council also adopted Resolution No. 8957 stating its intention and the necessity to incur bonded indebtedness in the mount of not to exceed $30,000,000 and $30,000,000 for Improvement Area No. 1 and Improvement Area No. 2, respectively, to be issued for the purpose of financing the purchase, construtaion, expansion or rehabilitation of the Facilities; and WHEREAS, notice was published as required by law relative to the intention of the Council to form the CFD and to incur bonded indebtedness in the amount not to exceed $30,000,000 and $30,000,000 within the boundaries of Improvement Area No. I and Improvement Area No. 2, respectively, of the CFD, and WHEREAS, on Iuiy 6, 2005 and .Tuly20, 2005, this Counoii held a noticed public hearing as required by law relative to the determination to proceed with the formation of the CFD, the rate and method of apportion and manner of collection of the special tax to be levied within each Improvement Area No. 1 end Improvement Area No. 2 of the CFD to pay the principal and interest on the proposed bonded indebtedness of Improvement Area No. I and Improvement Area No. 2 of the CFD, and relative to the necessity for mathoflzingthe bonds, the purpose for which the bonds are to be issued, the amount of the proposed debt, the maximum term of the bonds and the maximum anrmalrate of interestto be paid; and WllXREAS, at said hearingall persons desiring to be heard on all matters pertaining to the formation of the CED and the incurring of bonded indebtedness by each Improvement Area No. ] and Improvement Area No. 2 of the CFD were heardand a 2U and fair hearin 8 was held; and WHEREAS, the Council subsequent to said bearing adopted Resolution No, 9025 ("Resolution of Formation") determining the validity of prior proceedings and e,qablished the CFD; and WHEREAS, the Council subsequent to said hearing adol0ted Resolution No. 9026 which ca/ted an election within the CFD for hly 20, 2005 on the proposition of incurring bonded indebtedness, levying a speoial tax and setting an appropriations limit; and

09/08/2005

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PAGE

06/07

WHEREAS, on July 20, 2005, an election was held within each Improvement Area No. 1 and Improvement Area No. 2 of the CFD in which the eligible electors approved by more than two-thirdvo s te the proposition of incurring bonded indebtedness, levyinga special tax,and setting an appropriations limit. NOW, THEI_FORK, THE CITY COUNCIL HEREBY ORDAIN AS FOLLOWS: OF THE CITY OF INDIO DOllS

S__tion_l. A special tax (the "Special Tax") is levied within the boundaries of each Improvenmm Area No. i and Improvement Area No. 2 of the CFD pursuant to the formulas set forth inExhibit '_A"attached hereto and incorporate bd y reference inan amount necessart yopay all 0ftlmcosts ofproviding theFacilit pe ie rs i, od costs ic a ,ndcosts ofthetaxlevyand collection, andall other costs including amountspayable withrespectothebonded indebtedness. Section 3. This legislative body is hereby further authorized each year, by resolution adopted as provided in section 53340 of the Act, to determine the specific special tax rate and amount to be levied for the then current or future tax years, except that the special tax rate to be levied shall not exceed the maximum rate set forth in Exhibit "A". S_e_tion. 3. All ofthecollection of stheSpecial Tax shall be usedasprovided forinthe Act andtheResolution ofForrnation. Section4, The above authorizeP dublicSpecial Tax shall be collectei dn the same manner as ordinary ad valorern taxes are collected and shall be subject to the same penalties and the same procedure and sale in cases of delinquency and provided for ad valorem taxes; provided, however, the CTD may collect the Special Tax at a different time or in a different manner if necessary to meet its financial obligations. $_ecfiolt.5. The Mayor shall sign this ordinance and the City Clerk shall attest to such signature. The City Clerk is directed to cause the title and summary or text of the this ordinance, together with the vote thereon, to be published within fiReen (15) days aRer its passase at least once in a newspaper of 8eneral circulation published and circulated within the territorial jurisdiction of the City, and to post at the main office of the City a certified copy of the full text of the adopted ordinance along with the names of the Council Members voting for and against the ordinance. Se_. Thisordinance relating tothelevyoftheSpecial Tax cakes effect and shall be inforce from and after 30 daysfrom thedateoffinal passage.A copy ofthis ordinance shall be transmitte td othe ClerkoftheBoardof Supervisors ofRiverside County,the Assessor and the Treasnrer-Ta Co x llector ofRiverside County.

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07/07

vote_

PASSED, APPROVED

and ADOPTED

this 3ra day of August, 2005 by the following

AYES: Gilbert, Godfrey, Ramos Watson, Wilson, Fesmire NOw.S: None

ATTEST:

CTrY CLERK

10

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_9/07

RESOLUTION NO, 903"/ RESOLUTION OF M CITY COUNCIL OF THE CITY OF INDIO AUTHORIZ/NG M ISSUANCE OF CITY Ol_ INDIO COMMIYNrI'Y FACILITIY..S DISTRICT NO. 2004-3 frERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 0MI_OVEMENT ARF_ NO, 1) AND THE EXECUTION AND DELIVERY OF A FISCAL AGENT AGI_EMENT, A CONTINUING DISCLOSURE AG_, A PURCHASE CONTRACT, A FUNDING, CONSTRUCTION AND ACQUISITION AGREEMENT AND AN OFFICIAL STATEMENT AND APPROVING ,4,PRI[LIMINA.]gY OFFICIAL STATEMENT IN CONNECTION THEREWITH WHEREAS, the City Council (the "Council") of the City of Indio (the "City") has conducted proceedings under and pursuantto the Mello-lloos Community Facilities Act of 19@2, as amended (the "Act"), to form the City of Indio Community Facilities District No. 2004-3 (TerraLago) (the "'CFD"), to authorize the levy of special taxes upon the land within the CFD, and to issue bonds secured by said spe_d taxes, the proceeds of which are :obe used to finance certain facil_ties(the 'Tacilities"); and WHEREAS, the Council intends to issue bonds designated "City of Indio Community Facilities District No. 2004-3 (TerraLago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)"(the "Bonds"); and WHEREAS, there have been mbmimgi to this Council certaindocuments providing for the issuance of the Bonds and this Council, with the aid oflts staff_has reviewed said documents and found them to be in properorder;,and WHEREAS, all conditions, things sud _cts requireAto exist, to hsve happened and to have been performed p_nt to and in the issuance of said Bonds and the levy of said special taxes as contemplated by this Resolution and the dooumGmts referred to herein, exist, have happened and have been performedin due time, form and manner as requiredby thelaws of the State of California, including the Act. NOW, THEREFORE, M CITY COUNCIL OF THE CITY OF INDIO DO_S HEREBY RESOLVE, DETERMINE AND ORDER.AS FOLLOWS: Sectio3t.1. The Council hereby authorizes the issuance of the City. of Indio Community Facilities Dislxic_ No. 2004-3 (Terra Lagn) Special Tax Bonds, Series 2005 (Improvement Arcs No. 1) (the "Bonds")in an amount not to exceed $30,000,000. Sec-_ion 2. The Council hereby approves the Fiscal Agent _ in substantially the form annexed hereto. The Mayor, the City Manager or the Finan_ Director (each, a "Responsible Officer"), are hereby authorized to execute the Fiscal Agent Agrc_nnent in substantially the form annexed hexcto, with such revisions, amendment8and completions as shall be approved by any lt,esponsibie Officer, with the advice of Bond Counsel, such approval to be conclusively evidenced by the execution and delivery thereof by any Responsible Officer.

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Section 3. The Council hereby approves the Continuing Disclosure Asreement in subsmntiaUy the form annexed hereto. Any Responsible O_cer is hereby authorized to execute the Continuing Disclosure Agreement in substantially the form annexed hereto, with such revisions, amendments and completions as shall be approved by any Responsible Officer, with the advice of Bond Counsel such approval to be conclusively evidenced by the execution and delivery thereof by any Responsible Officer. Se_ The Council hereby approves the Funding, Const_ction and Acquisition Agreement in substantially the form annexed hereto. Any Responsible Officer is hereby authorized to execxtte the Funding, Con_uction and Acquisition in substantially the form annexed hereto, with such revisions, amendments end completions as shall be approved by any Responsible Officer, with the advice of Bond Counsel, such approval to be conclusively evidenced by the execution and delivery thereof by any Responsible Officer. Section 5. The Council hereby approves the Preliminary Official Statement relating to the Bonds substmltially in the form annexed hereto with such revisions, amendments and completions as shall be approved by any Responsible Officer w/th the advice of Bond Counsel, in order m make the Preliminary Official Statement final as of its dzte, except for the omission of certain information, as permitted by Section 240.15c2-12Co)(1) of Title 17 of the Code of Federal Regulations ("Rule 15c2-12"), and any certificate rehttin8 to the finality of the Official Statement under Rule 15c.2-12. Any Responsible O_cer is authorized and directed to execute and deliver a final Official Sta_aent in substantially the form hereby approved, with such additions and changes as may be approved by Bond Counsel and any Responsible Officer exect_tinB the same, such approval 'cobe conclusively evidenced by the execution and delivery thereof. Section 6_ The Council hereby approves the Purchase Contract in substantially the form a_exed hereto. Any Responsible Officer is hereby authorized to execute the Purchase Contract in substantially the form annexed hereto, with such revisions, amendments and completions as shall be approved by any Responsible Officer, with the advice of Bond Counsel, such approval to be conclusively evidenced by the execution and delivery thereof by any Responsible Officer; provided that the Purchase Contract shall provide for an interest rate on the Bonds not greater than 6.25% and an underwriter'8 discount not _eater than 2,0% of the principal amount of Bonds. Sectio_n_7. The Mayor, the City Manager, the Finance Director, the City Clerk and all other officers of the City are hereby authorized and directed, for and in the name and on behalf of the City, to do any and all things and take any and aU other actions, includin8 the obtaining of municipal bond insurance and the publication of any notices necessary or desirable in connection with the sale of the Bonds and execution and delivery of any and all assignments, _tit'icates, requisitionagr s, eements, notices_ consents, instrumento sf conveyance,warrants and other documents, which they, orany ofthem,deem neces,uu'y or advisable inorder toconsummate the lawfulissuance and saleoftheBonds and theconsummationof the transaction as described herein.

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PASSEB_ APPROVED and ADOI_TED this 3rd day of Ausust, 2005 by the following
vote',

AYF.,S:Gilbert,Godfrey, Ramos Watson, Wilson, Fesmire NOES: None

ATTEST:

CERTIFICATE OF THE CITY CLERK OF THE CITY OF INDIO WITH RESPECT TO RESOLUTION NO. 9037

I, Cynthia Hemandez, City Clerk of the City of Indio (the "City"), DO HEREBY CERTIFY as follows: Attached hereto as Exhibit A is a copy of Resolution No. 9037, which Resolution was adopted at a regular meeting of the City Council of the City duly called and held on August 3, 2005 at which meeting a quorum was present and acting throughout. Said Resolution is a true, complete and correct copy thereof and said Resolution has not been modified, amended or repealed and is in full force and effect on and as of the date hereof. IN WITNESS September, 2005. WHEREOF, I have hereunto set my hand this 15th day of

CITY OF INDIO

45655340.1

mlb ,nlb,

FISCAL AGENT AGREEMENT

Between

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) and UNION BANK OF CALIFORNIA, N.A., as Fiscal Agent

Dated as of September 1, 2005

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

45635870.4

TABLE OF CONTENTS (continued) ARTICLE I DEFINITIONS ................................................................................................. Section 1.1. Definitions ............................................................................................ ARTICLE II Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section Section ARTICLE Ill Section Section Section Section Section Section Section Section Section Section Section ARTICLE IV Section Section Section Section Section 1 1

GENERAL AUTHORIZATION AND BOND TERMS ............................... 10 2.1. Amount, Issuance, Purpose and Nature of Bonds .............................. 10 2.2. Type and Nature of Bonds ................................................................. 10 2.3. Equality of Bonds and Pledge of Net Taxes ...................................... 11 2.4. Description of Bonds; Interest Rates ................................................. 11 2.5. Place and Form of Payment ............................................................... 12 2.6. Form of Bonds ................................................................................... 13 2.7. Execution and Authentication ............................................................ 13 2.8. Bond Register ..................................................................................... 13 2.9. Registration of Exchange or Transfer ................................................ 14 2.10. Mutilated, Lost, Destroyed or Stolen Bonds ...................................... 14 2.11. Validity of Bonds ............................................................................... 14 2.12. Book-Entry System ............................................................................ 14 2.13. Representation Letter ......................................................................... 15 2.14. Transfers Outside Book-Entry System .............................................. 15 2.15. Payments to the Nominee .................................................................. 16 2.16. Initial Depository and Nominee ......................................................... 16 2.17. No Parity Obligations ........................................................................ 16 CREATION OF FUNDS AND APPLICATION OF SPECIAL TAXES ........................................................................................................... 3.1. Creation of Funds; Application of Proceeds ...................................... 3.2. Deposits to and Disbursements from Special Tax Fund .................... 3.3. Administrative Expense Account of the Special Tax Fund ............... 3.4. Interest Account and Principal Account of the Special Tax
Fund .... ..... ** ............................................. * ........... * ................. **''*** .....

16 16 17 17 17 18 19 19 21 22 22 24 25 25 29 29 30 30

3.5. 3.6. 3.7. 3.8. 3.9. 3.10. 3.11.

Redemption Account of the Special Tax Fund .................................. [Reserved.] ......................................................................................... Reserve Account of the Special Tax Fund ......................................... Surplus Fund ...................................................................................... Acquisition and Construction Fund ................................................... Special Escrow Fund .......................................................................... Investments ........................................................................................

REDEMPTION OF BONDS AND PARITY BONDS ................................. 4.1. Redemption of Bonds ........................................................................ 4.2. Selection of Bonds for Redemption ................................................... 4.3. Notice of Redemption ........................................................................ 4.4. Partial Redemption of Bonds ............................................................. 4.5. Effect of Notice and Availability of Redemption Money ..................

45635870.4

TABLE OF CONTENTS (continued) ARTICLE V COVENANTS AND WARRANTY .............................................................. Section 5.1. Warranty ............................................................................................ Section 5.2. Covenants ........................................................................................... ARTICLE VI AMENDMENTS TO FISCAL AGENT AGREEMENT .............................. Section 6.1. Supplemental Fiscal Agent Agreements or Orders Not Requiring Bondowner Consent .......................................................... Section 6.2. Supplemental Fiscal Agent Agreements or Orders Requiring Bondowner Consent ........................................................................... Section 6.3. Notation of Bonds; Delivery of Amended Bonds .............................. ARTICLE VII Section Section Section Section Section FISCAL AGENT ........................................................................................... 7.1. Fiscal Agent ....................................................................................... 7.2. Removal of Fiscal Agent ................................................................... 7.3. Resignation of Fiscal Agent ............................................................... 7.4. Compensation and Liability of Fiscal Agent ..................................... 7.5. Merger or Consolidation .................................................................... 30 30 30 35 35 36 37 37 37 38 38 38 39 40 40 40 41 41 42 42 43 43 44 44 44 44 44 44 44

ARTICLE VIII EVENTS OF DEFAULT; REMEDIES ......................................................... Section 8.1. Events of Default ............................................................................... Section 8.2. Remedies of Owners .......................................................................... ARTICLE IX DEFEASANCE .............................................................................................. Section 9.1. Defeasance ......................................................................................... ARTICLE X Section Section Section Section Section Section Section Section Section Section MISCELLANEOUS ...................................................................................... 10.1. Cancellation of Bonds ........................................................................ 10.2. Execution of Documents and Proof of Ownership ............................ 10.3. Unclaimed Moneys ............................................................................ 10.4. Provisions Constitute Contract .......................................................... 10.5. Future Contracts ................................................................................. 10.6. Further Assurances ............................................................................. 10.7. Severability ........................................................................................ 10.8. Notices ............................................................................................... 10.9. General Authorization ........................................................................ 10.10. Execution in Counterparts ..................................................................

45635870.4

ii

FISCAL AGENT AGREEMENT

THIS FISCAL AGENT AGREEMENT, dated as of September 1, 2005, between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Union Bank of California, N.A., a national banking association, as fiscal agent (the "Fiscal Agent") governs the terms of the City of Indio Community Facilities District No. 2004-3 (Terra Lago), Special Tax Bonds, Series 2005 (Improvement Area No. 1) issued in accordance herewith from time to time. RECITALS: WHEREAS, the City Council of the City of Indio, located in Riverside County, California (hereinafter sometimes referred to as the "legislative body of the District"), has heretofore undertaken proceedings and declared the necessity to issue bonds on behalf of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") pursuant to the terms and provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, of the Government Code of the State of Califomia (the "Act"); and WHEREAS, the owners of the parcels within the District has approved the levy of a special tax and the issuance of bonds by the District and the District has authorized the issuance of bonds in one or more series, pursuant to the Act, in an aggregate principal amount not to exceed $30,000,000; and WHEREAS, the legislative body of the District intends to accomplish the financing of the acquisition of certain public infrastructure facilities and capital fees (collectively, the "Facilities") through the issuance of bonds in an aggregate principal amount of $26,330,000 designated as the "City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)" (the "Bonds"); and WHEREAS, all requirements of the Act for the issuance of the Bonds have been satisfied; NOW, THEREFORE, in order to establish the terms and conditions upon and subject to which the Bonds are to be issued, and in consideration of the premises and of the mutual covenants contained herein and of the purchase and acceptance of the Bonds by the Owners thereof, and for other valuable consideration, the receipt of which is hereby acknowledged, the District does hereby covenant and agree, for the benefit of the Owners of the Bonds as follows: ARTICLE I DEFINITIONS Section 1.1. following meanings: Definitions. Unless the context requires, the following terms shall have the

"Acquisition and Construction pursuant to Section 3.1 hereof.

Fund" means the fund by such name created and established

"Act" means the Mello-Roos Community Facilities Act of 1982, as amended, Sections 53311 et seq. of the California Government Code. "Administrative Expense Account" means the account by such name in the Special Tax Fund created and established pursuant to Section 3.1 hereof.

45635870.4

"Administrative Expense Requirement" means for any Fiscal Year, an amount necessary to pay Administrative Expenses. "Administrative Expenses" means the administrative costs with respect to the calculation and collection of the Special Taxes, including all attorneys' fees and other costs related thereto, the fees and expenses of the Fiscal Agent, any fees for credit enhancement for the Bonds which are not otherwise paid as Costs of Issuance, any costs related to the District's compliance with State and federal laws requiring continuing disclosure of information concerning the Bonds and the District, and any other costs otherwise incurred by the City staff on behalf of the District in order to carry out the purposes of the District as set forth in the Resolution of Formation and any obligation of the District hereunder. "Annual Debt Service" means the principal amount of any Outstanding Bonds payable in a Bond Year either at maturity or pursuant to a Sinking Fund Payment and any interest payable on any Outstanding Bonds in such Bond Year, if the Bonds are retired as scheduled. "Alternate Reserve Account Security" means one or more surety bonds, bond insurance policies, or other form of guaranty from a municipal bond insurer for the benefit of the Fiscal Agent meeting the requirements therefor in Section 3.7 in substitution for or in place of all or any portion of the Reserve Requirement. "Authorized Investments" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: (1) Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America ("Direct Obligations"). (2) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): U.S. Export-Import Bank ("Eximbank") Direct obligations or fully guaranteed certificates of beneficial ownership Farmers Home Administration ("FmHA") Certificates of beneficial ownership Federal Financing Bank Federal Housing Administration Debentures ("FHA") General Services Administration Participation certificates Government National Mortgage Association ("GNMA" or "Ginnie Mae") GNMA-guaranteed mortgage-backed bonds

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GNMA-guaranteed pass-through obligations U.S. Maritime Administration Guaranteed Title XI financing U.S. Department of Housing and Urban Development fflUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds (3) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself: Federal Home Loan Bank System Senior debt obligations Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") Participation certificates Senior debt obligations Federal National Mortgage Association ("FNMA" or "Fannie Mae") Mortgage-backed securities and senior debt obligations

Student Loan Marketing Association ("SLMA" or "Sallie Mae") Senior debt obligations Resolution Funding Corp. ("REFCORP") obligations Farm Credit System CM. - Consolidated system-wide bonds and notes (4) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm-G," "AAAm" or "AAm," and, if rated by Moody's, rated "Aaa," "Aal" or "Aa2" (including those of the Fiscal Agent and its affiliates). (5) Certificates of deposit secured at all times by collateral described in (1) and/or (2) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral.

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(6) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC or which are with a bank rated "AA" or better by Standard & Poor's and "Aa" or better by Moody's (including those of the Fiscal Agent and its affiliates). (7) provided that Investment Agreements with any corporation, including banking or financial institutions,

(a) the long-term debt of the provider of any such investment agreement is rated, at the time of investment, at least "AA" and "Aa" by the Rating Agency (without regard to gradations of plus or minus within such category), and (b) any such investment agreement is collateralized with United States Treasury or agency obligations which at least equal 102% of the principal amount invested thereunder, and (c) any such agreement shall include a provision to the effect that, in the event the long-term debt rating of the provider of such agreement is downgraded below "AA-" or below "Aa" by the applicable Rating Agency, the District has the right to withdraw or cause the Fiscal Agent to withdraw all funds invested in such agreement and thereafter to invest such funds pursuant to this Fiscal Agent Agreement. (8) Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A-1" or better by Standard & Poor's. (9) Bonds or notes issued by any state or municipality which are rated by Moody's Standard & Poor's in one of the two highest rating categories assigned by such agencies. and

(10) Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of"Prime - 1" or "A3" or better by Moody's and "A-I" or "A" or better by Standard & Poor's. (11) Repurchase agreements collateralized by Direct Obligations, GNMAs, FNMAs or FHLMCs with any registered broker/dealer subject to the Securities Investors' Protection Corporation jurisdiction or any commercial bank insured by the FDIC, if such broker/dealer or bank has an uninsured, unsecured and unguaranteed obligation rated "P-I" or "A3" or better by Moody's, and "A-I" or "A-" by Standard & Poor's; provided: (a) a master repurchase agreement or specific written repurchase agreement govems the transaction; and (b) the securities are held free and clear of any lien by the Fiscal Agent or an independent third party acting solely as agent ("Agent") for the Fiscal Agent, and such third party is (i) a Federal Reserve Bank, (ii) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $50 million, or (iii) a bank approved in writing for such purpose by Financial Guaranty Insurance Company, and the Fiscal Agent shall have received written confirmation from such third party that it holds such securities, free and clear of any lien, as agent for the Fiscal Agent; and (c) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the Fiscal Agent; and

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(d) the repurchase agreement has a term of 180 days or less, and the Fiscal Agent or the Agent will value the collateral securities no less frequently than weekly and will liquidate the collateral securities if any deficiency in the required collateral percentage is not restored within two business days of such valuation; and (e) the fair market value of the securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103% (12) (13) Local Agency Investment Fund ("LAIF") of the State of California. Any other investment which the District is permitted by law to make.

"Authorized Representative of the District" means the Mayor, Vice Mayor, City Manager, Finance Director, or any other person or persons designated by the City Council of the City. "Bond Counsel" means an attorney at law or a firm of attorneys selected by the District of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia. "Bond Register" means the books which the Fiscal Agent shall keep or cause to be kept on which the registration and transfer of the Bonds shall be recorded. "Bondowner" registered. or "Owner" means the person or persons in whose name or names any Bond is

"Bonds" means the District's $26,330,000 City of Indio Community Facilities District No. 20043 (Terra Lago), Special Tax Bonds, Series 2005 (Improvement Area No. 1), issued pursuant to this Fiscal Agent Agreement. "Bond Year" means the twelve month period commencing on September 2 of each year and ending on September 1 of the following year, except that the first Bond Year for the Bonds shall begin on the Delivery Date and end of the first September 1 which is not more than 12 months after the Delivery Date. "Business Day" means a day which is not a Saturday or Sunday or a day of the year on which banks in New York, New York, Los Angeles, California, or the city where the corporate trust office of the Fiscal Agent is located, are not required or authorized to remain closed. "City" means the City of Indio, Califomia. "Code" means the Internal Revenue Code of 1986 and any Regulations, rulings, judicial decisions, and notices, announcements, and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it. "Costs of Issuance" means the costs and expenses incurred in connection with the issuance and sale of the Bonds, including the acceptance and initial annual fees and expenses of the Fiscal Agent and its counsel, legal fees and expenses, costs of printing the Bonds and the preliminary and final official statements for the Bonds, fees of financial consultants and all other related fees and expenses, Bonds, as set forth in a written certificate of an Authorized Representative.

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"Costs of Issuance Account" means the account by such name Construction Fund created and established pursuant to Section 3.1 hereof. "Defeasance Securities" means any of the following: (a) Cash

in the Acquisition

and

(b) United States Treasury Certificates, Notes and Bonds (including State and Local Government Series -- "SLGS") (c) Direct obligations of the U.S. Treasury which have been stripped by the U.S. Treasury itself, e.g., CATS, TIGRS and similar securities. (d) The interest component of Resolution Funding Corp. strips which have been stripped by request to the Federal Reserve Bank of New York and are in book-entry form. (e) & Poor's. Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard

(f) Obligations issued by the following agencies which are backed by the full faith and credit of the United States: U.S. Export-Import Bank - direct obligations or fully guaranteed certificates of beneficial ownership Farmers Home Administration - certificates of beneficial ownership Federal Financing Bank General Services Administration - participation certificates U.S. Maritime Administration - guaranteed Title XI financing U.S. Department of Housing and Urban Development (HUD) - Project Notes, Local Authority Bonds, New Communities Debentures - U.S. government guaranteed debentures, U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds. "Delivery Date" means the date on which the Bonds were issued and delivered to the initial purchasers thereof. "Depository" shall mean The Depository Trust Company, New York, New York, and its successors and assigns as securities depository for the Certificates, or any other securities depository acting as Depository under Article II hereof. "District" means City of Indio Community Facilities District No. 2004-3 (Terra Lago) established pursuant to the Act and the Resolution of Formation. "Fiscal Agent" means Union Bank of California, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States of America, at its principal corporate trust office in Los Angeles, California, and its successors or assigns, or any other bank or trust

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company which may at any time be substituted in its place as provided in Sections 7.2 or 7.3 and any successor thereto. "Fiscal Agent Agreement" means this Fiscal Agent Agreement, together with any Supplemental Fiscal Agent Agreement approved pursuant to Article 6 hereof. "Fiscal Year" means the period beginning on July 1 of each year and ending on the next following June 30. "Improvement Area No. 1" means Improvement Area No. 1 of the District.

"Improvement Area No. 1 Value" means the market value, as of the date of the appraisal or tax roll described below, of all parcels of real property in Improvement Area No. 1 subject to the levy of the Special Taxes and not delinquent in the payment of any Special Taxes then due and owing, including with respect to such non-delinquent parcels the value of the then existing improvements and any facilities to be constructed or acquired with any amounts then on deposit in the Acquisition and Construction Fund, as determined by reference to (i) an appraisal performed within six (6) months of the date of any proposed release of moneys from the Special Escrow Fund by an MAI appraiser (the "Appraiser") selected by the District, or (ii) in the alternative, the assessed value of all such non-delinquent parcels and improvements thereon as shown on the then current County real property tax roll available to the District. The District shall not be liable to the Owners, the Underwriter or any other person or entity in respect of any appraisal provided for purposes of this definition or by reason of any exercise of discretion made by any Appraiser pursuant to this definition. "Independent Financial Consultant" means a financial consultant or special tax consultant or firm of either such consultants generally recognized to be well qualified in the financial consulting or special tax consulting field, appointed and paid by the District, who, or each of whom: (1) (2) is, in fact, independent and not under the domination of the District; does not have any substantial interest, direct or indirect, in the District; and

(3) is not connected with the District as a member, officer or employee of the District, but who may be regularly retained to make annual or other reports to the District. "Interest Account" means the account by such name created and established in the Special Tax Fund pursuant to Section 3.1 hereof. "Interest Payment Date" means each March 1 and September 1, commencing March 1, 2006; provided, however, that, if any such day is not a Business Day, interest up to the Interest Payment Date will be paid on the next succeeding Business Day. "Investment Agreement" means one or more agreements for the investment of funds of the District complying with the criteria therefor as set forth in Subsection (7) of the definition of Authorized Investments herein. "Maximum Annual Debt Service" means the maximum sum obtained for any Bond Year prior to the final maturity of the Bonds by adding the following for each Bond Year: (1) the principal amount of all Outstanding maturity or pursuant to a Sinking Fund Payment; and Bonds payable in such Bond Year either at

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(2) the interest payable on the aggregate principal amount of all Bonds Outstanding in such Bond Year if the Bonds are retired as scheduled. "Moody's" means Moody's Investors Service, its successors and assigns. means Special Taxes minus an amount equal to the Administrative Expense

"Net Taxes" Requirement.

"Nominee" shall mean the nominee of the Depository, determined from time to time pursuant to Section 2.16 hereof. "Outstanding" except: (1) 10.1 hereof; or "Outstanding Bonds"

which may be the Depository,

as

means all Bonds theretofore

issued by the District,

Bonds theretofore cancelled or surrendered for cancellation in accordance with Section

(2) Bonds for payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in this Fiscal Agent Agreement; and (3) Bonds which have been surrendered to the Fiscal Agent for transfer or exchange pursuant to Section 2.9 hereof or for which a replacement has been issued pursuant to Section 2.10 hereof. "Participants" shall mean those broker-dealers, banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository. "Person" means natural persons, firms, corporations, bodies and other entities. partnerships, associations, trusts, public

"Principal Account" means the account by such name in the Special Tax Fund created and established pursuant to Section 3.1 hereof. "Principal Office of the Fiscal Agent" means the office of the Fiscal Agent located in Los Angeles, California or such other office or offices as the Fiscal Agent may designate from time to time, or the office of any successor Fiscal Agent where it principally conducts its business of serving as Fiscal Agent under indentures pursuant to which municipal or governmental obligations are issued. "Project" means those public facilities and/or capital fees described in the Resolution of Formation that are to be acquired, constructed or financed within and outside of the District, including all engineering, planning and design services and other incidental expenses related to such facilities and other facilities, if any, authorized by the qualified electors within the District from time to time. "Project Costs" means the amounts necessary to finance the Project, to create and replenish any necessary reserve funds, to pay the initial and annual costs associated with the Bonds, including, but not limited to, remarketing, credit enhancement, Fiscal Agent and other fees and expenses relating to the issuance of the Bonds and the formation of the District, and to pay any other "incidental expenses" of the District, as such term is defined in the Act. "Rating Agency" means Moody's and Standard & Poor's, or both, as the context requires.

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

an Interest

Payment

Date,

"Redemption Account" means the account by such name created and established in the Special Tax Fund pursuant to Section 3.1 hereof. "Regulations" means the regulations adopted or proposed by the Department of Treasury from time to time with respect to obligations issued pursuant to section 103 of the Code. "Representation Letter" shall mean the Blanket Letter of Representations Depository as described in Section 2.13 hereof. from the District to the

"Reserve Account" means the account by such name created and established in the Special Tax Fund pursuant to Section 3.1 hereof. "Reserve Requirement" means, as of any date of calculation, an amount equal to the lowest of (1) 10% of the original proceeds of the Bonds, less accrued interest, if any, less original issue discount, if any, plus original issue premium, if any, or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds. The District may originally fund the Reserve Account with an Alternate Reserve Account Security or may at any time substitute an Alternate Reserve Account Security for the cash on deposit in the Reserve Account to satisfy the Reserve Requirement pursuant to Section 3.7 hereof. "Resolution of Formation" means Resolution No. 9025 adopted by the City Council of the City on July 20, 2005, pursuant to which the City formed the District. "Sinking Fund Payment" means the annual payment to be deposited in the Redemption Account to redeem a portion of the Term Bonds in accordance with the schedule set forth in this Fiscal Agent Agreement. "Special Escrow Term Bonds" means the Bonds maturing on September aggregate principal amount of $3,000,000. 1, 2035 issued in the

"Special Taxes" means the taxes authorized to be levied within Improvement Area No. 1 by the District in accordance with the Resolution of Formation, the Act and the voter approval obtained at the July 20, 2005 election in the District, together with prepayments thereof and the proceeds collected from the sale of property pursuant to the foreclosure provisions of this Fiscal Agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions, and any additional special taxes authorized to be levied by the District from time to time which are pledged by the District to the repayment of the Bonds. "Special Tax Fund" means the fund by such name created and established pursuant to Section 3.1 hereof. "Standard & Poor's" means Standard & Poor's, a division of McGraw-Hill, assigns. "Supplemental Fiscal Agent Agreement" means amending or supplementing this Fiscal Agent Agreement. any supplemental fiscal agent agreement its successors and

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"Surplus Fund" means the fund by such name created and established pursuant to Section 3.1 hereof. "Tax Certificate" means the certificate by that name to be executed by the District on a Delivery Date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code. "Term Bonds" means the Bonds maturing on September September 1,2035 and the Special Escrow Term Bonds. 1, 2025, September 1, 2030,

"Underwriter" means the institution or institutions, if any, with whom the District enters into a purchase contract for the sale of the Bonds. "Written Request of the District" Representative of the District. means a request in writing executed by an Authorized

ARTICLE II GENERAL AUTHORIZATION AND BOND TERMS

Section 2.1. Amount, Issuance, Purpose and Nature of Bonds. Under and pursuant to the Act, the Bonds in the aggregate principal amount of $26,330,000 shall be issued for the purpose of financing the Project, provided that the aggregate principal amount of the Bonds shall not exceed the total indebtedness presently authorized or subsequently authorized by the qualified electors of the District in accordance with the Act. The Bonds shall be and are limited obligations of the District and shall be payable as to the principal thereof and interest thereon and any premiums upon the redemption thereof solely from the Net Taxes and the other amounts in the Special Tax Fund (other than amounts in the Administrative Expense Account of the Special Tax Fund). Section 2.2. Type and Nature of Bonds. Neither the faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof other than the District is pledged to the payment of the Bonds. Except for the Net Taxes, no other taxes are pledged to the payment of the Bonds. The Bonds are not general or special obligations of the City nor general obligations of the District, but are limited obligations of the District payable solely from certain amounts deposited by the District in the Special Tax Fund (exclusive of the Administrative Expense Account), as more fully described herein. The District's limited obligation to pay the principal of, premium, if any, and interest on the Bonds from amounts in the Special Tax Fund (exclusive of the Administrative Expense Account) is absolute and unconditional, free of deductions and without any abatement, offset, recoupment, diminution or set-off whatsoever. No Owner of the Bonds may compel the exercise of the taxing power by the District (except as pertains to the Special Taxes) or the City or the forfeiture of any of their property. The principal of and interest on the Bonds and premiums upon the redemption thereof, if any, are not a debt of the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory limitation or restriction. The Bonds are not a legal or equitable pledge, charge, lien, or encumbrance upon any of the District's property, or upon any of its income, receipts or revenues, except the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expense Account) which are, under the terms of this Fiscal Agent Agreement and the Act, set aside for the payment of the Bonds and interest thereon and neither the members of the legislative body of the District or the City Council of the City nor any persons executing the Bonds are liable personally on the Bonds by reason of their issuance.

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Notwithstanding anything to the contrary contained in this Fiscal Agent Agreement, the District shall not be required to advance any money derived from any source of income other than the Net Taxes for the payment of the interest on or the principal of the Bonds, or for the performance of any covenants contained herein. The District may, however, advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose. Section 2.3. Equality of Bonds and Pledge of Net Taxes. Pursuant to the Act and this Fiscal Agent Agreement, the Bonds shall be equally payable from the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expense Account) without priority for number, date of the Bonds, date of sale, date of execution, or date of delivery, and the payment of the interest on and principal of the Bonds and any premiums upon the redemption thereof, shall be exclusively paid from the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expense Account), which are hereby set aside for the payment of the Bonds. Amounts in the Special Tax Fund (other than the Administrative Expense Account therein) shall constitute a trust fund held for the benefit of the Owners to be applied to the payment of the interest on and principal of the Bonds and so long as any of the Bonds or interest thereon remain Outstanding shall not be used for any other purpose, except as permitted by this Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement. Notwithstanding any provision contained in this Fiscal Agent Agreement to the contrary, Special Taxes deposited in the Administrative Expense Account of the Special Tax Fund and the Surplus Fund shall no longer be considered to be pledged to the Bonds, and none of the Surplus Fund or the Administrative Expense Account of the Special Tax Fund shall be construed as a trust fund held for the benefit of the Owners. Nothing in this Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement shall preclude, subject to the limitations contained hereunder, the redemption prior to maturity of any Bonds subject to call and redemption and payment of said Bonds from proceeds of refunding bonds issued under the Act as the same now exists or as hereafter amended, or under any other law of the State of California. Section 2.4. Description of Bonds; Interest Rates. The Bonds shall be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. The Bonds shall be numbered as desired by the Fiscal Agent. The Bonds shall be designated "CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1)". The Bonds shall be dated as of their Delivery Date and shall mature and be payable on September 1 in the years and in the aggregate principal amounts and shall be subject to and shall bear interest at the rates set forth in the table below payable on each Interest Payment Date, commencing March 1, 2006:

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Maturity Date (September 1) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030 2035 2035

Principal Amount $385,000 370,000 395,000 425,000 460,000 495,000 515,000 535,000 560,000 585,000 610,000 640,000 670,000 705,000 4,080,000 5,210,000 6,690,000 3,000,000

Interest Rate 3.350% 3.400 3.700 3.900 4.000 4.150 4.250 4.250 4.375 4.500 4.600 4.700 4.750 4.850 5.000 5.100 5.150 5.150

shall be payable on each Bond from the date established in accordance with Section 2.5 Interest Payment Date thereafter until the principal sum of that Bond has been paid; that if at the maturity date of any Bond (or if the same is redeemable and shall be duly redemption, then at the date fixed for redemption) funds are available for the payment or in full, in accordance with the terms of this Fiscal Agent Agreement, such Bonds shall interest. Interest due on the Bonds shall be calculated on the basis of a 360-day year twelve 30-day months. Place and Form of Payment. The Bonds shall be payable both as to principal to any premiums upon the redemption thereof, in lawful money of the United States of principal of the Bonds and any premiums due upon the redemption thereof shall be payable and surrender thereof at the Principal Office of the Fiscal Agent, or at the designated successor Fiscal Agent. Interest on any Bond shall be payable from the Interest Payment preceding the date of authentication of that Bond, unless (i) such date of authentication is an Date in which event interest shall be payable from such date of authentication, (ii) the authentication is after a Record Date but prior to the immediately succeeding Interest Payment event interest shall be payable from the Interest Payment Date immediately succeeding the authentication, or (iii) the date of authentication is prior to the close of business on the first Record after the issuance of such Bond, in which event interest shall be payable from the dated as applicable; provided, however, that if at the time of authentication of such Bond, default, interest on that Bond shall be payable from the last Interest Payment Date to which been paid or made available for payment or, if no interest has been paid or made available that Bond, interest on that Bond shall be payable from its dated date. Interest on any to the person whose name shall appear in the Bond Register as the Owner of such close of business on the Record Date. Such interest shall be paid by check of the Fiscal the Interest Payment Date by first class mail, postage prepaid, to such Bondowner at his appears on the Bond Register. In addition, upon a request in writing received by the before the applicable Record Date from an Owner of $1,000,000 or more in principal

12

amount of the Bonds, payment shall be made on the Interest Payment Date by wire transfer immediately available funds to an account within the United States designated by such Owner.

in

Section 2.6. Form of Bonds. The definitive Bonds may be printed from steel engraved or lithographic plates or may be typewritten. The Bonds and the certificate of authentication shall be substantially in the form attached hereto as Exhibit A, which forms are hereby approved and adopted as the forms of such Bonds and of the certificate of authentication. Notwithstanding any provision in this Fiscal Agent Agreement to the contrary, the District may, in its sole discretion, elect to issue the Bonds in book-entry form. Until definitive Bonds shall be prepared, the District may cause to be executed and delivered in lieu of such definitive Bonds temporary bonds in typed, printed, lithographed or engraved form and in fully registered form, subject to the same provisions, limitations and conditions as are applicable in the ease of definitive Bonds, except that they may be in any denominations authorized by the District. Until exchanged for definitive Bonds, any temporary bond shall be entitled and subject to the same benefits and provisions of this Fiscal Agent Agreement as definitive Bonds. If the District issues temporary Bonds, it shall execute and furnish definitive Bonds without unnecessary delay and thereupon any temporary Bond may be surrendered to the Fiscal Agent at its office, without expense to the Owner, in exchange for a definitive Bond of the same issue, maturity, interest rate and principal amount in any authorized denomination. All temporary Bonds so surrendered shall be cancelled by the Fiscal Agent and shall not be reissued. Section 2.7. Execution and Authentication. The Bonds shall be signed on behalf of the District by the manual or facsimile signature of the Mayor of the City and attested by the manual or facsimile signature of the City Clerk of the City. In case any one or more of the officers who shall have signed or sealed any of the Bonds shall cease to be such officer before the Bonds so signed and sealed have been authenticated and delivered by the Fiscal Agent (including new Bonds delivered pursuant to the provisions hereof with reference to the transfer and exchange of Bonds or to lost, stolen, destroyed or mutilated Bonds), such Bonds shall nevertheless be valid and may be authenticated and delivered as herein provided, and may be issued as if the person who signed or sealed such Bonds had not ceased to hold such office. Only the Bonds as shall bear thereon such certificate of authentication in the form set forth in Exhibit A hereto shall be entitled to any right or benefit under this Fiscal Agent Agreement, and no Bond shall be valid or obligatory for any purpose until such certificate of authentication shall have been duly executed by the Fiscal Agent. Section 2.8. Bond Register. The Fiscal Agent will keep or cause to be kept, at its office, sufficient books for the registration and transfer of the Bonds which shall upon reasonable prior notice be open to inspection by the District during all regular business hours, and, subject to the limitations set forth in Section 2.9 below, upon presentation for such purpose, the Fiscal Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be transferred on said Bond Register, Bonds as herein provided. The District and the Fiscal Agent may treat the Owner of any Bond whose name appears on the Bond Register as the absolute Owner of that Bond for any and all purposes, and the District and the Fiscal Agent shall not be affected by any notice to the contrary. The District and the Fiscal Agent may rely on the address of the Bondowner as it appears in the Bond Register for any and all purposes. It shall be the duty of the Bondowner to give written notice to the Fiscal Agent of any change in the Bondowner's address so that the Bond Register may be revised accordingly.

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Section 2.9. Registration of Exchange or Transfer. Subject to the limitations set forth in the following paragraph, the registration of any Bond may, in accordance with its terms, be transferred upon the Bond Register by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation at the office of the Fiscal Agent, accompanied by delivery of written instrument of transfer in a form approved by the Fiscal Agent and duly executed by the Bondowner or his or her duly authorized attorney. Bonds may be exchanged at the office of the Fiscal Agent for a like aggregate principal amount of Bonds for other authorized denominations of the same maturity and issue. The Fiscal Agent shall not collect from the Owner any charge for any new Bond issued upon any exchange or transfer, but shall require the Bondowner requesting such exchange or transfer to pay any tax or other govemmental charge required to be paid with respect to such exchange or transfer. Whenever any Bond shall be surrendered for registration of transfer or exchange, the District shall execute and the Fiscal Agent shall authenticate and deliver a new Bond or Bonds of the same issue and maturity, for a like aggregate principal amount; provided that the Fiscal Agent shall not be required to register transfers or make exchanges of (i) Bonds for a period of 15 days next preceding any selection of the Bonds to be redeemed, or (ii) any Bonds chosen for redemption. Section2.10. Mutilated, Lost, Destroyed or Stolen Bonds. If any Bond shall become mutilated, the District shall execute, and the Fiscal Agent shall authenticate and deliver, a new Bond of like tenor, date, issue and maturity in exchange and substitution for the Bond so mutilated, but only upon surrender to the Fiscal Agent of the Bond so mutilated. Every mutilated Bond so surrendered to the Fiscal Agent shall be cancelled by the Fiscal Agent pursuant to Section 10.1 hereof. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Fiscal Agent and, if such evidence is satisfactory to the Fiscal Agent and, if any indemnity satisfactory to the District and the Fiscal Agent shall be given, the District shall execute and the Fiscal Agent shall authenticate and deliver, a new Bond of like tenor, maturity and issue, numbered and dated as the Fiscal Agent shall determine in lieu of and in substitution for the Bond so lost, destroyed or stolen. Any Bond issued in lieu of any Bond alleged to be mutilated, lost, destroyed or stolen, shall be equally and proportionately entitled to the benefits hereof with all other Bonds issued hereunder. The Fiscal Agent shall not treat both the original Bond and any replacement Bond as being Outstanding for the purpose of determining the principal amount of Bonds which may be executed, authenticated and delivered hereunder or for the purpose of determining any percentage of Bonds Outstanding hereunder, but both the original and replacement Bond shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of delivering a new Bond which has been mutilated, lost, destroyed or stolen, and which has matured, the Fiscal Agent may make payment with respect to such Bonds. Section 2.11. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any way by any defect in any proceedings taken by the District, or by the invalidity, in whole or in part, of any contracts made by the District in connection therewith, and the recital contained in the Bonds that the same are issued pursuant to the Act and other applicable laws of the State shall be conclusive evidence of their validity and of the regularity of their issuance. Section 2.12. Book-Entry System. The Bonds shall be initially delivered in the form of a separate single fully registered Bond (which may be typewritten) for each of the maturities of the Bonds. Upon initial delivery, the ownership of each such Bond shall be registered in the registration books kept by the Fiscal Agent in the name of the Nominee as nominee of the Depository. Unless the District elects to discontinue the use of the book-entry system, all of the Outstanding Bonds shall be registered in the registration books kept by the Fiscal Agent in the name of the Nominee.

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With respect to Bonds registered in the registration books kept by the Fiscal Agent in the name of the Nominee, the District and the Fiscal Agent shall have no responsibility or obligation to any such Participant or to any Person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the District and the Fiscal Agent shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Participant or any other Person, other than an Owner as shown in the registration books kept by the Fiscal Agent, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the Bonds are redeemed in part, or (iv) the payment to any Participant or any other Person, other than an Owner as shown in the registration books kept by the Fiscal Agent, of any amount with respect to principal of, premium, if any, or interest due with respect to the Bonds. The District and the Fiscal Agent may treat and consider the Person in whose name each Bond is registered in the registration books kept by the Fiscal Agent as the holder and absolute owner of such Bond for the purpose of payment of the principal of, premium, if any, and interest on such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Fiscal Agent shall pay all principal of, premium, if any, and interest due on the Bonds only to or upon the order of the respective Owner, as shown in the registration books kept by the Fiscal Agent, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to satisfy and discharge fully the District's obligations with respect to payment of the principal, premium, if any, and interest due on the Bonds to the extent of the sum or sums so paid. No Person other than an Owner, as shown in the registration books kept by the Fiscal Agent, shall receive a Bond evidencing the obligation of the District to make payments of principal, premium, if any, and interest pursuant to this Fiscal Agent Agreement. Upon delivery by the Depository to the Fiscal Agent and the District of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in this Fiscal Agent Agreement shall refer to such new nominee of the Depository. Section 2.13. Representation Letter. In order to qualify the Bonds which the District elects to register in the name of the Nominee for the Depository's book-entry system, an authorized representative of the District or the Fiscal Agent is hereby authorized to execute from time to time and deliver to such Depository the Representation Letter. The execution and delivery of the Representation Letter shall not in any way limit the provisions of Section 10.2 or in any other way impose upon the District or the Fiscal Agent any obligation whatsoever with respect to persons having interests in the Bonds other than the Owners, as shown on the registration books kept by the Fiscal Agent. The Fiscal Agent agrees to take all action necessary to continuously comply with all representations made by it in the Representation Letter. In addition to the execution and delivery of the Representation Letter, any Authorized Representative of the District are hereby authorized to take any other actions, not inconsistent with this Fiscal Agent Agreement, to qualify the Bonds for the Depository's book-entry program. Section2.14. Transfers Outside Book-Entry System. In the event (i) the Depository determines not to continue to act as securities depository for the Bonds, or (ii) the District determines that the Depository shall no longer so act, then the District will discontinue the book-entry system with the Depository. If the District fails to identify another qualified securities depository to replace the Depository then the Bonds so designated shall no longer be restricted to being registered in the registration books kept by the Fiscal Agent in the name of the Nominee, but shall be registered in whatever name or names Persons transferring or exchanging Bonds shall designate, in accordance with the provisions of Section 2.9 hereof.

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Section 2.15. Payments to the Nominee. Notwithstanding any other provisions of this Fiscal Agent Agreement to the contrary, so long as any Bond is registered in the name of the Nominee, all payments with respect to principal, premium, if any, and interest due with respect to such Bond and all notices with respect to such Bond shall be made and given, respectively, as provided in the Representation Letter or as otherwise instructed by the Depository. Section 2.16. Initial Depository and Nominee. The initial Depository under this Article shall be The Depository Trust Company, New York, New York. The initial Nominee shall be Cede & Co., as Nominee of The Depository Trust Company, New York, New York. Section 2.17. No Parity Obligations. Other than refunding bonds, the District may not issue bonds, notes or other similar evidences of indebtedness payable from the Net Taxes and other amounts deposited in the Special Tax Fund and secured by a lien and charge upon such amounts equal to the lien and charge securing the Outstanding Bonds. ARTICLE III CREATION OF FUNDS AND APPLICATION OF SPECIAL TAXES Section 3.1. Creation of Funds; Application of Proceeds. There is hereby created and established and shall be maintained by the Fiscal Agent the following funds and accounts: (1) The Special Tax Fund (in which there shall be established and created an Interest Account, a Principal Account, a Redemption Account, a Reserve Account and an Administrative Expense Account). (2) The Surplus Fund.

(3) The Acquisition and Construction Fund (in which there shall be established a Costs of Issuance Account). (4) The Special Escrow Fund.

The amounts on deposit in the foregoing funds, accounts and subaccounts shall be held by the Fiscal Agent and the Fiscal Agent shall invest and disburse the amounts in such funds, accounts and subaccounts in accordance with the provisions of this Article 3 and shall disburse investment earnings thereon in accordance with the provisions of Section 3.11 hereof. Except as required to be segregated into funds and accounts as described herein, money held by the Fiscal Agent hereunder need not be segregated from other funds except to the extent required by law. All proceeds of the sale of the Bonds shall be received by the Fiscal Agent on behalf of the District and deposited and transferred as follows: (1) $335,000.00 shall be transferred to the Costs of Issuance Account of the Acquisition and Construction Fund established hereunder for disbursement in accordance with Section 3.9 below; and (2) $19,497,172.37 shall be transferred to the Acquisition and Construction Fund established hereunder for disbursement in accordance with Section 3.9 below; and (3) $1,758,080.00 (which is equal to the initial Reserve Requirement) the Reserve Account to be disbursed in accordance with Section 3.7 below; and shall be deposited in

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(4) $1,234,030.63 shall be transferred to the Interest Account of the Special Tax Fund for disbursement in accordance with Section 3.4 below; and (5) $3,000,000.00 shall be transferred to the Special Escrow Fund for disbursement accordance with Section 3.10 below. in

Section 3.2. Deposits to and Disbursements from Special Tax Fund. The District shall, on each date on which it receives Special Taxes from the Treasurer-Tax Collector of the County of Riverside, transfer the Special Taxes to the Fiscal Agent for deposit in the Special Tax Fund in accordance with the terms of this Fiscal Agent Agreement. The Fiscal Agent shall first deposit into the Administrative Expense Account of the Special Tax Fund an amount equal to the Administrative Expense Requirement as determined by the District and provided to the Fiscal Agent in writing and shall then transfer the amounts on deposit in the Special Tax Fund on the dates and in the amounts set forth in the following Sections, in the following order of priority, to: (a) (b) (c) (d) (e) (f) The Interest Account of the Special Tax Fund; The Principal Account of the Special Tax Fund; The Redemption Account of the Special Tax Fund; The Reserve Account of the Special Tax Fund; The Administrative Expense Account of the Special Tax Fund; and The Surplus Fund.

At the maturity of all of the Bonds, and after all principal and interest then due on the Bonds then Outstanding has been paid or provided for and any amounts owed to the Fiscal Agent have been paid in full, moneys in the Special Tax Fund and any accounts therein shall be transferred to the District and may be used by the District for any lawful purpose. Section 3.3. Administrative Expense Account of the Special Tax Fund. The Fiscal Agent shall transfer from the Special Tax Fund and deposit in the Administrative Expense Account of the Special Tax Fund from time to time, in accordance with Section 3.2 above, amounts necessary to make timely payment of Administrative Expenses, which shall be disbursed by the Fiscal Agent upon the Written Request of the District. Moneys in the Administrative Expense Account of the Special Tax Fund may be invested in any Authorized Investments as directed in a Written Request or in accordance with Section 3.11 (4) hereof. Section 3.4. Interest Account and Principal Account of the Special Tax Fund. The principal of and interest due on the Bonds until maturity, other than principal due upon redemption, shall be paid by the Fiscal Agent from the Principal Account and the Interest Account of the Special Tax Fund, respectively. For the purpose of assuring that the payment of principal of and interest on the Bonds will be made when due, after making the transfer required by Section 3.3, at least five Business Days prior to each March 1 and September 1, the Fiscal Agent shall make the following transfers from the Special Tax Fund first to the Interest Account and then to the Principal Account; provided, however, that to the extent that deposits have been made in the Interest Account or the Principal Account from the proceeds of the sale of an issue of the Bonds, or otherwise, the transfer from the Special Tax Fund need not be made; and provided, further, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made up by an immediate transfer from the Reserve Account:

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(1) To the Interest Account, an amount such that the balance in the Interest Account five Business Days prior to each Interest Payment Date shall be equal to the installment of interest due on the Bonds on said Interest Payment Date and any installment of interest due on a previous Interest Payment Date which remains unpaid. Moneys in the Interest Account shall be used for the payment of interest on the Bonds as the same become due. (2) To the Principal Account, an amount such that the balance in the Principal Account five Days prior to September 1 of each year, commencing September 1, 2007 shall at least equal the payment due on the Bonds maturing on such September 1 and any principal payment due on a September 1 which remains unpaid. Moneys in the Principal Account shall be used for the of the principal of such Bonds as the same become due at maturity. Section 3.5. Redemption Account of the Special Tax Fund.

Business principal previous payment

(1) On each September 1 on which a Sinking Fund Payment is due, after the deposits have been made to the Interest Account and the Principal Account of the Special Tax Fund as required by Section 3.4 hereof, the Fiscal Agent shall next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account five Business Days prior to each September 1 equal to the Sinking Fund Payment due on any Outstanding Bonds on such September 1; provided, however, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made up by an immediate transfer from the Reserve Account, if funded, pursuant to Section 3.7 below. Moneys so deposited in the Redemption Account shall be used and applied by the Fiscal Agent to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedule set forth in Section 4.1 hereof and in any Supplemental Fiscal Agent Agreement for such Term Bonds. (2) After making the deposits to the Interest Account and the Principal Account of the Special Tax Fund pursuant to Section 3.4 above and to the Redemption Account for Sinking Fund Payments then due pursuant to subparagraph (a) of this Section, and in accordance with the District's election to call Bonds for optional redemption as set forth in Section 4.1 (a) hereof, the Fiscal Agent shall transfer from the Special Tax Fund and deposit in the Redemption Account moneys available for the purpose and sufficient to pay the interest, the principal and the premiums, if any, payable on the Bonds called for optional redemption; provided, however, that amounts in the Special Tax Fund (other than the Administrative Expense Account therein) may be applied to optionally redeem Bonds only if immediately following such redemption the amount in the Reserve Account will equal the Reserve Requirement. (3) All prepayments of Special Taxes shall be deposited in the Redemption Account to be used to redeem Bonds on the next date for which notice of redemption can timely be given. (4) Moneys set aside in the Redemption Account shall be used solely for the purpose of redeeming Bonds and shall be applied on or after the redemption date to the payment of the principal of and premium, if any, on the Bonds to be redeemed upon presentation and surrender of such Bonds and in the case of an optional redemption to pay the interest thereon; provided, however, that in lieu or partially in lieu of such call and redemption, moneys deposited in the Redemption Account as set forth above may be used to purchase Outstanding Bonds in the manner hereinafter provided. Purchases of Outstanding Bonds may be made by the District at public or private sale as and when and at such prices as the District may in its discretion determine but only at prices (including brokerage or other expenses) not more than par plus accrued interest, plus, in the case of moneys set aside for an optional redemption, the premium applicable at the next following call date according to the premium schedule established pursuant to Section 4.1(1) hereof. Any accrued interest payable upon the purchase of Bonds may be paid from the

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amount reserved in the Interest Account of the Special Tax Fund for the payment of interest on the next following Interest Payment Date. Section 3.6. [Reserved.]

Section 3.7. Reserve Account of the Special Tax Fund. There shall be maintained in the Reserve Account of the Special Tax Fund an amount equal to the Reserve Requirement. The amounts in the Reserve Account shall be applied as follows: (1) Moneys in the Reserve Account shall be used solely for the purpose of paying the principal of, including Sinking Fund Payments, and interest on any Bonds when due in the event that the moneys in the Interest Account and the Principal Account of the Special Tax Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are insufficient to make a Sinking Fund Payment when due. If the amounts in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund are insufficient to pay the principal of, including Sinking Fund Payments, or interest on any Bonds when due, the Fiscal Agent shall withdraw from the Reserve Account for deposit in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund, as applicable, moneys necessary for such purposes. (2) Whenever moneys are withdrawn from the Reserve Account, after making the required transfers referred to in Sections 3.4 and 3.5 above, the Fiscal Agent shall transfer to the Reserve Account from available moneys in the Special Tax Fund, or from any other legally available funds which the District elects to apply to such purpose, the amount needed to restore the amount of such Reserve Account to the Reserve Requirement. Moneys in the Special Tax Fund shall be deemed available for transfer to the Reserve Account only if the Fiscal Agent determines that such amounts will not be needed to make the deposits required to be made to the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund. If amounts in the Special Tax Fund or otherwise transferred to replenish the Reserve Account are inadequate to restore the Reserve Account to the Reserve Requirement, then the District shall include the amount necessary fully to restore the Reserve Account to the Reserve Requirement in the next annual Special Tax levy to the extent of the maximum permitted Special Tax rates. (3) In connection with any redemption of the Bonds under Section 4. l(a) or (b), or a partial defeasance of the Bonds in accordance with Section 9.1 hereof, amounts in the Reserve Account may be applied to such redemption or partial defeasance so long as the amount on deposit in the Reserve Account following such redemption or partial defeasance equals the Reserve Requirement. To the extent that the Reserve Account is at the Reserve Requirement as of the first day of the final Bond Year for the Bonds, amounts in the Reserve Account may be applied to pay the principal of and interest due on the Bonds in the final Bond Year for such issue. Moneys in the Reserve Account in excess of the Reserve Requirement not transferred in accordance with the preceding provisions of this paragraph shall be withdrawn from the Reserve Account on the fifth Business Day before each March 1 and September 1 and transferred to the Interest Account of the Special Tax Fund. Anything to the contrary herein notwithstanding, the District may, at any time on or after the issuance of the Bonds, substitute an Alternate Reserve Account Security for cash in the Reserve Account. Upon the deposit with the Fiscal Agent of such Alternate Reserve Account Security, the Fiscal Agent shall transfer any excess amounts then on deposit in the Reserve Account into a segregated account of the Special Tax Fund to be established by the Fiscal Agent, which monies shall be applied at the written direction of the District either (i) to the payment within one year of the date of transfer of capital expenditures of the District permitted by law, or (ii) to the redemption of Bonds on the earliest succeeding date on which such redemption is permitted hereby, and pending such application shall in accordance

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with written direction of the District be held either not invested in investment property (as defined in section 148(b) of the Code), or invested in such property to produce a yield that is not in excess of the yield on the Bonds; provided, however, that the District may by written direction to the Fiscal Agent cause an altemative use of such amounts if the District shall first have obtained a written opinion of nationally recognized bond counsel substantially to the effect that such alternative use will not adversely affect the exclusion pursuant to section 103 of the Code of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In the event the District delivers an Alternate Reserve Account Security, the Fiscal Agent shall hold and apply such instrument pursuant to this Fiscal Agent Agreement so as to have moneys available thereunder for the purposes and at the times required under this Fiscal Agent Agreement. Any and all Alternate Reserve Account Securities shall comply with the following requirements: (1) A surety bond or insurance policy issued to the Fiscal Agent, by a company licensed to issue an insurance policy guaranteeing the timely payment of debt service on the Bonds (a "municipal bond issuer") may be deposited in the Reserve Account to meet the Reserve Requirement if at the time of issuance the claims paying ability of the issuer thereof shall be rated "AAA" or "Aaa" by S&P or Moody's, respectively. (2) The use of any Alternate Reserve Account Security pursuant to this Paragraph shall be subject to receipt of an opinion of counsel acceptable to the District and in form and substance satisfactory to the District as to the due authorization, execution, delivery and enforceability of such instrument in accordance with its terms, subject to applicable laws affecting creditors' rights generally, and, in the event the issuer of such Alternate Reserve Account Security is not a domestic entity, an opinion of foreign counsel in form and substance satisfactory to the District. (3) The obligation to reimburse the issuer of an Alternate Reserve Account Security for any fees, expenses, claims or draws upon such Altemate Reserve Account Security shall be subordinate to the payment of debt service on the Bonds. The right of the issuer of an Alternate Reserve Account Security to payment or reimbursement of its fees and expenses shall be subordinated to cash replenishment of the Reserve Account, and, subject to the second succeeding sentence, its right to reimbursement for claims or draws shall be on a parity with the cash replenishment of the Reserve Account. The Alternate Reserve Account Security shall provide for a revolving feature under which the amount available thereunder will be reinstated to the extent of any reimbursement of draws or claims paid. If the revolving feature is suspended or terminated for any reason, the right of the issuer of the Alternate Reserve Account Security to reimbursement will be further subordinated to cash replenishment of the Reserve Account to an amount equal to the difference between the full original amount available under the Alternate Reserve Account Security and the amount then available for further draws or claims. If (a) the issuer of an Alternate Reserve Account Security becomes insolvent or (b) the issuer of an Alternate Reserve Account Security defaults in its payment obligations thereunder or (c) the rating of the claims-paying ability of the issuer of the insurance policy or surety bond falls below an S&P "AAA" or a Moody's "Aaa," the obligation to reimburse the issuer of the Altemate Reserve Account Security shall be subordinate to the cash replenishment of the Reserve Account. (4) If (a) the revolving reinstatement feature described in the preceding paragraph is suspended or terminated or (b) the rating of the claims paying ability of the issuer of the surety bond or insurance policy falls below an S&P "AAA" or a Moody's "Aaa," the District shall either (i) deposit into the Reserve Account an amount sufficient to cause the cash or permitted investments on deposit in the Reserve to equal the Reserve Account Requirement on all outstanding Bonds, such amount to be paid over the ensuing year in equal installments on at least a monthly basis or (ii) replace such instrument with

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a surety bond or insurance policy meeting the requirements in paragraph (1) above within six months of such occurrence. (5) Where applicable, the amount available for draws or claims under the Altemate Reserve Account Security may be reduced by the amount of cash or permitted investments deposited in the Reserve Account pursuant to clause (i) of subdivision (d) of the preceding subparagraph (4). (6) If the District chooses the above described alternatives to a cash-funded Reserve Account, any amounts owed by the District to the issuer of such Altemate Reserve Account Security as a result of a draw thereon or a claim thereunder, as appropriate, shall be included in any calculation of debt service requirements required to be made pursuant to Section 9.2 hereof. (7) The Fiscal Agent shall ascertain the necessity for a claim or draw upon the Alternate Reserve Account Security and to provide notice to the issuer of the Alternate Reserve Account Security in accordance with its terms not later than three days (or such longer period as may be necessary depending on the permitted time period for honoring a draw under the Altemate Reserve Account Security) prior to each Interest Payment Date. (8) Cash on deposit in the Reserve Account shall be used (or investments purchased with such cash shall be liquidated and the proceeds applied as required) prior to any drawing on any Alternate Reserve Account Security. If and to the extent that more than one Alternate Reserve Account Security is deposited in the Reserve Account, drawings thereunder and repayments of costs associated therewith shall be made on a pro rata basis, calculated by reference to the maximum amounts available thereunder. Section 3.8. Surplus Fund. After making the transfers required by Sections 3.3, 3.4, 3.5 and 3.7 hereof, as soon as practicable after each September 1, and in any event prior to each October 1, the Fiscal Agent shall transfer all remaining amounts in the Special Tax Fund to the Surplus Fund, other than amounts in the Special Tax Fund which the District directs the Fiscal Agent by Written Request of the District to retain because the District has included such funds as being available in the Special Tax Fund in calculating the amount of the levy of Special Taxes for such Fiscal Year pursuant to Section 5.2(b) hereof. Moneys deposited in the Surplus Fund shall be transferred by the Fiscal Agent (i) to the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund to pay the principal of, including Sinking Fund Payments, premium, if any, and interest on the Bonds when due in the event that moneys in the Special Tax Fund and the Reserve Account of the Special Tax Fund are insufficient therefor, (ii) to the Reserve Account in order to replenish the Reserve Account to the Reserve Requirement, and (iii) to the Administrative Expense Account of the Special Tax Fund to pay Administrative Expenses to the extent that the amounts on deposit in the Administrative Expense Account of the Special Tax Fund are insufficient to pay Administrative Expenses or, upon the Written Request of the District, may be disbursed to the District to be expended for any other lawful purpose of the District. On September 1, 2006, the Fiscal Agent shall transfer $50,000.00 from the Surplus Fund to the Administrative Expense Account of the Special Tax Fund to the extent such amount is available in the Surplus Fund. The amounts in the Surplus Fund are not pledged to the repayment of the Bonds. In the event that the District reasonably expects to use any portion of the moneys in the Surplus Fund to pay debt service on any Outstanding Bonds, upon the written direction of an Authorized Representative of the District, the Fiscal Agent will segregate such amount into a separate subaccount and the moneys on deposit in such subaccount of the Surplus Fund shall be invested in Authorized Investments the interest on which is excludable from gross income under Section 103 of the Code (other than bonds the interest on which is a tax preference item for purposes of computing the altemative minimum tax of individuals and corporations under the Code) or in Authorized Investments at a yield not in excess of the yield on the

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issue of Bonds to which such amounts are to be applied, unless, in the opinion of Bond Counsel, investment at a higher yield will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds which were issued on a tax-exempt basis for federal income tax purposes. Section 3.9. Acquisition and Construction Fund.

(1) The moneys in the Acquisition and Construction Fund and the Costs of Issuance Account within the Acquisition and Construction Fund shall be applied exclusively to pay the Project Costs or Costs of Issuance. Amounts for Project Costs and Costs of Issuance shall be disbursed by the Fiscal Agent from the account in the Acquisition and Construction Fund and the Costs of Issuance Account within the Acquisition and Construction Fund upon receipt of a requisition signed by an Authorized Representative of the District, substantially in the form of Exhibit B hereto. On a date 180 days from the date of delivery of the Bonds, or earlier if instructed by an Authorized Representative of the District, any amount remaining in the Costs of Issuance Account of the Acquisition and Construction Fund shall be transferred to the Acquisition and Construction Fund and used for Project Costs. (2) Upon receipt of a written certificate of an Authorized Representative stating that all or a specified portion of the amount remaining in the Acquisition and Construction Fund is no longer needed to pay Project Costs, the Fiscal Agent shall transfer all or such specified portion of the moneys remaining on deposit in the Acquisition and Cons_uction Fund to the Special Tax Fund, or to the Surplus Fund if requested in such written certificate and if there shall have been delivered to the Fiscal Agent with such written certificate an opinion of Bond Counsel to the effect that such transfer to the Surplus Fund will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds which were issued on a tax-exempt basis for federal income tax purposes. Upon transfer of the final amounts on deposit in the Acquisition and Construction Fund or either account in such fund, such accounts and fund shall be closed. Section 3.10. Special Escrow Fund.

(1) The Fiscal Agent shall make a disbursement from the Special Escrow Fund to the Acquisition and Construction Fund upon receipt of a certificate of Authorized Representative of the District (the "Administrator" herein) pursuant to Section 3.10(2) below directing the Fiscal Agent to release funds from the Special Escrow Fund. Upon receipt of such certificate, the Fiscal Agent shall deposit the disbursement to the Acquisition and Construction Fund, in an amount specified by the Administrator in a written certificate. The transfers referred to in the preceding sentence shall only be made on any Business Day on or prior to the Initial Escrow Close Date or any Revised Escrow Close Date (as such terms are defined below) and any certificate of the Administrator requesting any such draw shall be presented to the Fiscal Agent by the District at least 10 days (or such lesser number of days as agreed to by the Fiscal Agent) prior to the date for the transfer to be made. (2) At any time after the Delivery Date and prior to the release of all moneys held in the Special Escrow Fund, the Developer at its sole election, may provide the District with funds so that the District may cause a formal appraisal to be prepared, at the expense of the Developer, consistent with the appraisal standards of the City to determine the Improvement Area No. 1 Value (the "Additional Appraisal"). If the Administrator approves the Additional Appraisal and the Improvement Area No. 1 Value established by the Additional Appraisal indicates that additional moneys are to be released from the Special Escrow Fund consistent with the City's policy of maintaining a value-to-lien ratio and Special Tax coverage ratio as described below, then the Administrator will cause a written notice to be provided to the Fiscal Agent for the release of amounts to the Acquisition and Construction Fund.

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(i) Value-to-Lien Ratio. The Improvement Area No. 1 Value (not including the value of any parcel that is then delinquent in the payment of Special Taxes) shall be at least three times the sum of: (a) the aggregate principal amount of all Bonds then Outstanding, less the principal amount of any Bonds representing amounts (if any) to remain on deposit in the Special Escrow Fund following the proposed disbursement, plus (b) the aggregate principal amount of any fixed assessment liens on the parcels in the District subject to the levy of Special Taxes, plus (c) a portion of the aggregate principal amount of any and all other community facilities district bonds or assessment district assessment liens then outstanding and payable at least partially from special taxes or assessments to be levied on parcels of land within the District (the "Prior Bonds") equal to the aggregate principal amount of the Prior Bonds multiplied by a fraction, the numerator of which is the amount of special taxes and special assessments levied for the Prior Bonds on parcels of land within the District, and the denominator of which is the total amount of special taxes and special assessments levied for the Prior Bonds on all parcels of land against which the special taxes and special assessments are levied to pay the Prior Bonds (such fraction to be determined based upon the maximum special taxes which could be levied in the year in which maximum annual debt service on the Prior Bonds occurs), based upon information from the most recent available Fiscal Year. (ii) Minimum Value Test. The Improvement Area No. 1 Value (including, for purposes of this Section 3.10(2)(ii), only those parcels of real property in the District then constituting "Undeveloped Property," as defined in the Rate and Method of Apportionment relating to Improvement Area No. 1, shall be at least two and one-half times (a) the sum of the amounts referred to in clauses (a), (b) and (c) of Section 3.10(2)(i) above which are determined by the District's special tax consultant to be allocable to the parcels of Undeveloped Property assuming that for (a) above the special tax consultant shall allocate to Developed Property that portion of the principal amount of the Outstanding Bonds for which the maximum annual debt service is equal to the aggregate Assigned Special Tax in the then Fiscal Year for all then Developed Property (as the terms "Assigned Special Tax" and "Developed Property" are defined in the Rate and Method of Apportionment), and otherwise not taking into account the principal amount of any Bonds representing amounts (if any) to remain on deposit in the Special Escrow Fund following the proposed disbursement). (iii) Special Tax Coverage. The maximum Special Taxes that may be levied in each Fiscal Year on parcels that are not then delinquent in the payment of Special Taxes shall be at least one hundred ten percent (110%) of the then Maximum Annual Debt Service, based upon the Rate and Method of Apportionment of Special Taxes of Improvement Area No. 1. In making the determinations under the preceding clauses (i), (ii) and (iii), the Administrator may conclusively rely on a certificate of a special tax consultant engaged by the District. (3) On and after July 15, 2007 (the "Initial Escrow Close Date"), the Fiscal Agent shall make no further disbursements from the Special Escrow Fund pursuant to Section 3.10(2) above, and on September 1, 2007 (the "Initial Escrow Redemption Date"), the Fiscal Agent shall use amounts in the Special Escrow Fund to redeem the Bonds to the maximum extent possible on the Initial Escrow Redemption Date, as provided in this Section 3.10(3). Notwithstanding the foregoing, the Initial Escrow Close Date (and any Revised Escrow Close Date established pursuant to this paragraph) and the Initial Escrow Redemption Date (and any Revised Escrow Redemption Date established pursuant to this paragraph) may be extended from time to time upon receipt by the Fiscal Agent, not later than one Business Day prior to the Initial Escrow Close Date (or, if extended pursuant to the terms of this paragraph, the then applicable Revised Escrow Close Date), of a

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Written Request requesting such extension and stating (a) the new date after which amounts in the Special Escrow Fund will no longer be subject to disbursement pursuant to Section 3.10(1) (the "Revised Escrow Close Date") which date shall be at least 45 days but not more than 90 days prior to the date such amounts are to be used to redeem the Bonds as described in the following clause (b), and (b) the new date on which the Bonds are to be subject to mandatory redemption from the amounts held in the Special Escrow Fund (the "Revised Escrow Redemption Date"), which date shall be an Interest Payment Date. In no event will the Revised Escrow Redemption Date be extended beyond the earliest date following the third anniversary of the issuance of the Delivery Date on which the Bonds may be redeemed pursuant to the terms thereof. The Fiscal Agent shall provide the Owners, the Underwriter and the District with a written statement as to any Revised Escrow Redemption Date established under this Section 3.10(3) promptly following receipt of the Written Request and other documents described in clauses (i) through (iii) above, which notice shall set forth the Initial Escrow Redemption Date (or, if applicable, the most recent Revised Escrow Redemption Date), and shall state that such redemption date has been extended to the newlyestablished Revised Escrow Redemption Date. On or after any Revised Escrow Close Date the Fiscal Agent shall make no further disbursements from the Special Escrow Fund pursuant to Section 3.10(2), and on the Revised Escrow Redemption Date the Fiscal Agent shall use amounts in the Special Escrow Fund to redeem the Bonds to the maximum extent possible on the Revised Escrow Redemption Date. The Special Escrow Fund shall be closed when no funds remain therein. (4) The Fiscal Agent shall invest the moneys in the Special Escrow Fund in such Authorized Investments, which shall be rated in one of the highest two rating categories offered by each Rating Agency (without regard to gradations of plus or minus, or numerical gradations, within such category) as the District shall direct in Written Request of the District which shall be delivered to the Fiscal Agent on the Delivery Date and thereafter at least two (2) Business Days prior to the maturity date of any such Authorized Investment; provided that if the District does not deliver such Written Request, the Fiscal Agent shall invest such funds in Authorized Investments, which shall be rated in one of the highest two rating categories offered by each Rating Agency (without regard to gradations of plus or minus, or numerical gradations, within such category) of the type specified in clause (4) of the definition of Authorized Investments. Investment earnings shall be transferred by the Fiscal Agent to the Interest Account of the Special Tax Fund to be used for the purposes of such account. Section 3.11. Investments. Moneys held in any of the funds and accounts under this Fiscal Agent Agreement shall be invested at the Written Request of the District in accordance with the limitations set forth below only in Authorized Investments which shall be deemed at all times to be a part of such funds and accounts. Any loss resulting from such Authorized Investments shall be credited or charged to the fund or account from which such investment was made, and any investment earnings on a fund or account shall be applied as follows: (i) investment earnings on all amounts deposited in the Special Tax Fund (other than the Reserve Account), Acquisition and Construction Fund and Surplus Fund and each Account therein shall be deposited in those respective funds and accounts, and (ii) all other investment earnings shall be deposited in the Interest Account of the Special Tax Fund; provided, however, investment earnings in the Reserve Account shall be deposited in the Interest Account of the Special Tax Fund only to the extent moneys in such Reserve Account exceed the Reserve Requirement. Moneys in the funds and accounts held under this Fiscal Agent Agreement may be invested by the Fiscal Agent at the Written Request of the District received at least 2 Business Days prior to the investment date, from time to time, in Authorized Investments subject to the following restrictions:

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(1) Moneys in the Interest Account, the Principal Account and the Redemption Account of the Special Tax Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on such dates so as to ensure the payment of principal of, premium, if any, and interest on the Bonds as the same become due. (2) Moneys in the Acquisition and Construction Fund shall be invested in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available without penalty, as close as practicable to the date the District estimates the moneys represented by the particular investment will be needed for withdrawal from the Acquisition and Construction Fund. Notwithstanding anything herein to the contrary, amounts in the Acquisition and Construction Fund on the Delivery Date for the Bonds shall not be invested at yields greater than those set forth in the Tax Certificate. (3) One-half of the amount in the Reserve Account of the Special Tax Fund may be invested only in Authorized Investments which mature not later than two years from their date of purchase by the Fiscal Agent, and one-half of the amount in the Reserve Account may be invested only in Authorized Investments which mature not more than three years from the date of purchase by the Fiscal Agent; provided that such amounts may be invested in an Investment Agreement to the final maturity of the Bonds so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with Section 3.5 hereof; and provided that no such Authorized Investment of amounts in the Reserve Account shall mature later than the final maturity date of the Bonds. (4) In the absence of Written Request of the District providing investment directions, the Fiscal Agent shall invest solely in Authorized Investments specified in clause (4) of the definition thereof. The Fiscal Agent shall sell at the best price obtainable, or present for redemption, any Authorized Investment whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such Funds and Accounts or from such Funds and Accounts. For the purpose of determining at any given time the balance in any such Funds and Accounts, any such investments constituting a part of such Funds and Accounts shall be valued at their cost, except that amounts in the Reserve Account shall be valued at the fair market value thereof and marked to market at least annually. Notwithstanding anything herein to the contrary, the Fiscal Agent shall not be responsible for any loss from investments, sales or transfers undertaken in accordance with the provisions of this Fiscal Agent Agreement. The Fiscal Agent may act as principal or agent in connection with the acquisition of any Authorized Investments. Any Authorized Investments that are registrable securities shall be registered in the name of the Fiscal Agent. The Fiscal Agent is hereby authorized, in making or disposing of any investment permitted by this Section, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Fiscal Agent or for any third person or dealing as principal for its own account. ARTICLE IV REDEMPTION OF BONDS AND PARITY BONDS Section 4.1. Redemption of Bonds.

(1) Optional Redemption. Subject to the limitations set forth below, the Bonds maturing on or after September 1, 2016 may be redeemed, at the option of the District from any source of funds on any date on or after September 1, 2015, in whole, or in part in the order of maturity selected by the District

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and by lot within a maturity, at the following redemption prices, expressed as a percentage principal amount to be redeemed, together with accrued interest to the date of redemption: Redemption Dates September 1, 2015 through August 31, 2016 September 1, 2016 through August 31, 2017 September 1, 2017 and thereafter Redemption Prices 102.0% 101.0 100.0

of the

In the event the District elects to redeem Request of the District to the Fiscal Agent of principal amount of the Bonds to be redeemed. but no more than 90 days prior to the redemption Fiscal Agent.

Bonds as provided above, the District shall give Written its election to so redeem, the redemption date and the The notice to the Fiscal Agent shall be given at least 60 date, or such shorter period as shall be acceptable to the

(2) Mandatory Redemption from Special Tax Prepayments. The Bonds are subject to mandatory redemption, in whole or in part and on a pro rata basis among maturities, on any Interest Payment Date from and to the extent of any prepayment of Special Taxes deposited to the redemption Account in accordance with Section 3.5(3) at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption: Redemption Dates September 1, 2005 through August 31, 2009 September 1, 2009 through August 31, 2015 September 1, 2015 and thereafter Redemption Prices 103.0% 102.5 As Provided for Optional Redemption

In connection with such redemption, the District may also apply amounts in the Reserve Account which will be in excess of the Reserve Requirement as a result of such Special Tax prepayment to redeem Bonds as set forth above. (3) Mandatory Sinking Fund Redemption. The Bonds maturing on September 1, 2025, September 1, 2030 and September 1, 2035 and the Special Escrow Term Bonds shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account, on September 1, 2021, September 1, 2026, September 1, 2031 and September 1, 2008, respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Bonds so called for redemption shall be selected by the Fiscal Agent by lot and shall be redeemed at a redemption price for each redeemed Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows: Bonds Maturing on September 1, 2025 Redemption Date (September 1) 2021 2022 2023 2024 2025 (maturity)

Principal Amount $740,000 775,000 815,000 855,000 895,000

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Bonds Maturing on September 1, 2030 Redemption Date (September 1) 2026 2027 2028 2029 2030 (maturity)

Principal Amount $940,000 990,000 1,040,000 1,090,000 1,150,000

Bonds Maturing on September 1, 2035 Redemption Date (September 1) 2031 2032 2033 2034 2035 (maturity)

Principal Amount $1,205,000 1,270,000 1,335,000 1,405,000 1,475,000

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Special Escrow Term Bonds Maturing on September 1, 2035 Redemption Date (September 1) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 (maturity)

Principal Amount $45,000 50,000 55 000 60 000 65 000 65 000 70 000 75.000 75 000 80.000 85.000 90.000 90.000 95.000 100,000 105,000 110,000 120,000 125,000 130,000 135 000 145 000 150 000 160 000 165 000 175 000 185.000 195.000

Year immediately preceding one of the redemption dates specified in (3) Bonds, at least 45 days prior to the redemption date, the District shall notify Request of the District as to the principal amount purchased and the amount be credited at the time of purchase, to the extent of the full principal amount upcoming Sinking Fund Payment for the applicable maturity of the Bonds. All this subsection shall be cancelled pursuant to Section 10.1 hereof. partial redemption of the Term Bonds pursuant to Section 4.1 (a) or (b) above, Fund Payments for such Term Bonds, as described above, will be reduced, pro rata basis as determined by the District and provided to the Fiscal Agent. from Special Escrow. The Special Escrow Term Bonds maturing on to mandatory redemption, pro rata, on September 1, 2007, or on such later this Fiscal Agent Agreement, at a redemption price equal to the principal redeemed, together with accrued interest to the date of redemption, without available in the Special Escrow Fund on the Initial or Revised Escrow applicable, pursuant to Section 3.10(3).

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Section 4.2. Selection of Bonds for Redemption. If less than all of the Bonds Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof. In selecting portions of such Bonds for redemption, the Fiscal Agent shall treat such Bonds as representing that number of Bonds of $5,000 denominations which is obtained by dividing the principal amount of such Bonds to be redeemed in part by $5,000. The Fiscal Agent shall promptly notify the District in writing of the Bonds, or portions thereof, selected for redemption. Section 4.3. Notice of Redemption. When Bonds are due for redemption under Section 4.1 above, the Fiscal Agent shall give notice, in the name of the District, of the redemption of such Bonds; provided, however, that a notice of a redemption to be made from other than from Sinking Fund Payments shall be conditioned on there being on deposit on the redemption date sufficient money to pay the redemption price of the Bonds to be redeemed. Such notice of redemption shall (a) specify the CUSIP numbers (if any), the bond numbers and the maturity date or dates of the Bonds selected for redemption, except that where all of the Bonds of a maturity are subject to redemption, or all the Bonds of one maturity, are to be redeemed, the bond numbers of such issue need not be specified; (b) state the date fixed for redemption and surrender of the Bonds to be redeemed; (c) state the redemption price; (d) state the place or places where the Bonds are to be redeemed; (e) in the ease of Bonds to be redeemed only in part, state the portion of such Bond which is to be redeemed; (f) state the date of issue of the Bonds as originally issued; (g) state the rate of interest borne by each Bond being redeemed; and (h) state any other descriptive information needed to identify accurately the Bonds being redeemed as shall be specified by the Fiscal Agent. Such notice shall further state that on the date fixed for redemption, there shall become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 60 days prior to the redemption date, the Fiscal Agent shall mail a copy of such notice, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register. The actual receipt by the Owner of any Bond of notice of such redemption shall not be a condition precedent to redemption, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A certificate by the Fiscal Agent that notice of such redemption has been given as herein provided shall be conclusive as against all parties and the Owner shall not be entitled to show that he or she failed to receive notice of such redemption. In addition to the foregoing notice, further notice shall be given by the Fiscal Agent as set out below, but no defect in said further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as above prescribed. Each further notice of redemption shall be sent on or before the date notice of redemption is mailed to the Bondowners pursuant to the first paragraph of this Section by telecopy or registered or certified mail or overnight delivery service to the registered securities depositories then in the business of holding substantial amounts of obligations of types comprising the Bonds as shall be specified by the District to the Fiscal Agent and to the national information services that disseminate notice of redemption of obligations such as the Bonds. Upon the payment of the redemption price of any Bonds being redeemed, each check or other transfer of funds issued for such purpose shall to the extent practicable bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such cheek or other transfer.

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Section 4.4. Partial Redemption of Bonds. Upon surrender of any Bond to be redeemed in part only, the District shall execute and the Fiscal Agent shall authenticate and deliver to the Bondowner, at the expense of the District, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered, with the same interest rate and the same maturity. Section4.5. Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in Section 4.3 hereof, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption: (1) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in this Fiscal Agent Agreement, anything in this Fiscal Agent Agreement or in the Bonds to the contrary notwithstanding; (2) Upon presentation and surrender thereof at the office of the Fiscal Agent, the redemption price of such Bonds shall be paid to the Owners thereof; (3) As of the redemption date the Bonds or the or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds, or portions thereof, shall cease to bear further interest; and (4) As of the date fixed for redemption no Owner of any of the Bonds, or portions thereof so designated for redemption shall be entitled to any of the benefits of this Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. ARTICLE V COVENANTS AND WARRANTY Section 5.1. Warranty. The District shall preserve and protect hereunder to the Bonds against all claims and demands of all persons. the security pledged

Section 5.2. Covenants. So long as any of the Bonds issued hereunder are Outstanding and unpaid, the District makes the following covenants with the Bondowners under the provisions of the Act and this Fiscal Agent Agreement (to be performed by the District or its proper officers, agents or employees), which covenants are necessary and desirable to secure the Bonds and tend to make them more marketable; provided, however, that said covenants do not require the District to expend any funds or moneys other than the Special Taxes and other amounts deposited to the Special Tax Fund: (1) Punctual Payment; Against Encumbrances. The District hereby covenants that it will receive all Special Taxes in trust and will immediately deposit such amounts with the Fiscal Agent, and the District shall have no beneficial right or interest in the amounts so deposited except as provided by this Fiscal Agent Agreement. All such Special Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth herein, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the District. The District covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every Bond issued hereunder, together with the premium, if any, thereon on the date, at the place and in the manner set forth in the Bonds and in accordance with this Fiscal Agent Agreement to the

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extent that Net Taxes are available therefor, and that the payments into the Funds and Accounts created hereunder will be made, all in strict conformity with the terms of the Bonds and this Fiscal Agent Agreement, and that it will faithfully observe and perform all of the conditions, covenants and requirements of this Fiscal Agent Agreement and all Supplemental Fiscal Agent Agreements and of the Bonds issued hereunder. The District will not mortgage or otherwise encumber, pledge or place any charge upon any of the Net Taxes except as provided in this Fiscal Agent Agreement, and will not issue any obligation or security having a lien or charge upon the Net Taxes superior to or on a parity with the Bonds. Nothing herein shall prevent the District from issuing or incurring indebtedness which is payable from a pledge of Net Taxes which is subordinate in all respects to the pledge of Net Taxes to repay the Bonds. (2) Levy of Special Tax. Beginning in Fiscal Year 2006-07 and so long as any Bonds issued under this Fiscal Agent Agreement are Outstanding, the legislative body of the District hereby covenants to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement. (3) Commence Foreclosure Proceedings. The District hereby covenants for the benefit of the Owners of the Bonds that it (i) will commence judicial foreclosure proceedings against all parcels owned by a property owner where the aggregate delinquent Special Taxes on such parcels is greater than $5,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes were due and (ii) will commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied for such Fiscal Year, and (iii) will diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid; provided, however, that the District may elect to defer foreclosure proceedings on any parcel so long as the amount in the Reserve Account of the Special Tax Fund is at least equal to the Reserve Requirement and such delinquencies will not cause moneys in the Reserve Account to be withdrawn on the next succeeding Interest Payment Date. The District may, but is not obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Account of the Special Tax Fund at the Reserve Requirement. Fund. The District covenants that it will deposit the proceeds of any foreclosure in the Special Tax

(4) Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Net Taxes or; other funds in the Special Tax Fund (other than the Administrative Expense Account therein), or which might impair the security of the Bonds then Outstanding; provided that nothing herein contained shall require the District to make any such payments so long as the District in good faith shall contest the validity of any such claims. (5) Books and Accounts. The District will keep proper books of records and accounts, separate from all other records and accounts of the District, in which complete and correct entries shall be made of all transactions relating to the levy of the Special Tax and the deposits to the Special Tax Fund. Such books of records and accounts shall at all times during business hours be subject to the inspection of the Fiscal Agent or of the Owners of the Bonds then Outstanding or their representatives authorized in writing.

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(6)

Tax Covenants. When used in this subsection, the following terms have the

(a) Special Definitions. following meanings:

"Code" means the Internal Revenue Code of 1986. "Computation Date" has the meaning set forth in section 1.148-1 (b) of the Tax Regulations. "Gross Proceeds" means any proceeds as defined in section 1.148-1(b) of the Tax Regulations (referring to sales, investment and transferred proceeds), and any replacement proceeds as defined in section 1.148-1(c) of the Tax Regulations, of the Bonds. "Investment" has the meaning set forth in section 1.148-1 (b) of the Tax Regulations. "Nonpurpose Investment" means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of the Bonds are invested and that is not acquired to carry out the governmental purposes of that series of Bonds. "Rebate Amotmt", has the meaning set forth in section 1.148-1 (b) of the Tax Regulations. "Tax Regulations" means the United States Treasury Regulations sections 103 and 141 through 150 of the Code. promulgated pursuant to

"Yield" of any Investment has the meaning set forth in section 1.148-5 of the Tax Regulations; and of any issue of governmental obligations has the meaning set forth in section 1.148-4 of the Tax Regulations. (b) Not to Cause Interest to Become Taxable. The District covenants that it shall take all actions necessary in order that interest on the Bonds be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes, and that it shall not use or invest, and shall not permit the use or investment of, and shall not omit to use or invest Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Fiscal Agent receives a written opinion of Bond Counsel to the effect that compliance with such covenant is not necessary to, or that failure to comply with such covenant will not adversely affect, the exclusion of the interest on any Bond from the gross income of the owner thereof for federal income tax purposes, the District shall comply with each of the specific covenants in this subsection. (c) Private Use and Private Payments. Except as would not cause any Bond to become a "private activity bond" within the meaning of section 141 of the Code and the Tax Regulations, the District shall take all actions necessary to assure that the District at all times prior to the final cancellation of the last of the Bonds to be retired: (i) exclusively owns, operates and possesses all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Bonds and not use or permit the use of such Gross

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Proceeds (including through any contractual arrangement with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and (ii) does not payment by any person or using any Gross Proceeds improvement of which is Gross Proceeds. directly or indirectly impose or accept any charge or other entity (other than a state or local government) who is treated as of the Bonds or any property the acquisition, construction or to be financed or refinanced directly or indirectly with such

(d) No Private Loan. Except as would not cause any Bond to become a "private activity bond" within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the District shall not use or permit the use of Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be "loaned" to a person or entity if: (i) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (ii) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or (iii) indirect benefits of such Gross Proceeds, or burdens and benefits of ownership of any property acquired, constructed or improved with such Gross Proceeds, are otherwise transferred in a transaction that is the economic equivalent of a loan. (e) Not to Invest at Higher Yield. Except as would not cause the Bonds to become "arbitrage bonds" within the meaning of section 148 of the Code and the Tax Regulations and rulings thereunder, the District shall not (and shall not permit any person to), at any time prior to the final cancellation of the last Bond to be retired, directly or indirectly invest Gross Proceeds in any Investment, if as a result of such investment the Yield of any Investment acquired with Gross Proceeds, whether then held or previously disposed of, would materially exceed the Yield of the Bonds within the meaning of said section 148. (f) Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Tax Regulations and rulings thereunder, the District shall take or omit to take (and shall not permit any person to take or omit to take) any action that would cause any Bond to be "federally guaranteed" within the meaning of section 149(b) of the Code and the Tax Regulations and rulings thereunder. (g) Information Report. The District shall timely file any information required by section 149(e) of the Code with respect to Bonds with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe. (h) Rebate of Arbitrage Profits. 148(f) of the Code and the Tax Regulations: Except to the extent otherwise provided in section

(i) The District shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the last Bond is discharged. However, to the extent permitted by law, the District may commingle (and may allow the District to commingle) Gross Proceeds of Bonds with its other monies,

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provided that it separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith. (ii) Not less frequently than each Computation Date, the District shall calculate the Rebate Amount in accordance with rules set forth in section 148(0 of the Code and the Tax Regulations and rulings thereunder. The District shall maintain a copy of the calculation with its official transcript of proceedings relating to the issuance of the Bonds until six years after the final Computation Date. (iii) In order to assure the excludability pursuant to 3(a) of the Code of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes, the District shall pay to the United States the amount that when added to the future value of previous rebate payments made for the Bonds equals (i) in the case of the Final Computation Date as defined in section 1.148-3(e)(2) of the Tax Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (ii) in the ease of any other Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, such rebate payments shall be made by the District at the times and in the amounts as are or may be required by section 148(0 of the Code and the Tax Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by section 148(0 of the Code and the Tax Regulations and rulings thereunder for execution and filing by the District. Notwithstanding the foregoing, and provided that the District takes all steps available to it to cause the provision of such amounts, the monetary obligation of the District under this paragraph (3) shall be limited to amounts provided to it for such purpose by the District. (i) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Tax Regulations and rulings thereunder, the District shall not and shall not permit any person to, at any time prior to the final cancellation of the last of the Bonds to be retired, enter into any transaction that reduces the amount required to be paid to the United States pursuant to paragraph (h) of this subsection because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at ann's length and had the Yields on the Bonds not been relevant to either party. (j) Bonds Not Hedge Bonds.

(i) The District represents that none of the Bonds is or will become a "hedge bond" within the meaning of section 149(g) of the Code. (ii) Without limitation of paragraph (i) above: (A) the District believes (upon appropriate investigation) that on the date of issuance of the Bonds the District reasonably expected that at least 85% of the spendable proceeds of the Bonds will be expended within the three-year period commencing on such date of issuance; and (B) no more than 50% of the proceeds of the Bonds will be invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more. (k) Elections. The District hereby directs and authorizes any District representative to make elections permitted or required pursuant to the provisions of the Code or the Tax Regulations, as such representative (after consultation with Bond Counsel) deems necessary or appropriate in connection with the Bonds, in the Tax Certificate or similar or other appropriate certificate, form or document.

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(1) Closing Certificate. The District agrees to execute and deliver in connection with the issuance of the Bonds a Tax Certificate as to Arbitrage and the Provisions of Sections 103 and 141-150 of the Internal Revenue Code of 1986, or similar document containing additional representations and covenants pertaining to the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes, which representations and covenants are incorporated as though expressly set forth herein. (7) Reduction of Maximum Special Taxes. The District hereby finds and determines that, historically, delinquencies in the payment of special taxes authorized pursuant to the Act in community facilities districts in Southern California have from time to time been at levels requiring the levy of special taxes at the maximum authorized rates in order to make timely payment of principal of and interest on the outstanding indebtedness of such community facilities districts. For this reason, the District hereby determines that a reduction in the maximum Special Tax rates authorized to be levied on parcels in the District below the levels provided in this Section 5.2(7) would interfere with the timely retirement of the Bonds. The District determines it to be necessary in order to preserve the security for the Bonds to covenant, and, to the maximum extent that the law permits it to do so, the District hereby does covenant, that it shall not initiate proceedings to reduce the maximum Special Tax rates for the District, unless, in connection therewith, (i) the District receives a certificate from one or more Independent Financial Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in the District as of the July 1 preceding the reduction, the maximum amount of the Special Tax which may be levied on then existing Developed Property (as defined in the Rate and Method of Apportionment of Special Taxes then in effect in the District) in each Bond Year for any Bonds Outstanding will equal at least 110% of the sum on the estimated Administrative Expenses and gross debt service in that Bond Year on all Bonds to remain Outstanding after the reduction is approved, and (ii) the District hereby finds that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds. For purposes of estimating Administrative Expenses for the foregoing calculation, the Independent Financial Consultant shall compute the Administrative Expenses for the current Fiscal Year and escalate that amount by two percent (2%) in each subsequent Fiscal Year. (8) Covenants to Defend. The District hereby covenants that in the event that any initiative is adopted by the qualified electors in the District which purports to reduce the maximum Special Tax below the levels specified in Section 5.2(7) above or to limit the power of the District to levy the Special Taxes for the purposes set forth in Section 5.2(2) above, it will commence and pursue legal action in order to preserve its ability to comply with such covenants. (9) Limitation on Right to Tender Bonds. The District hereby covenants that it will not adopt any policy pursuant to Section 53341.1 of the Act permitting the tender of Bonds to the District in full payment or partial payment of any Special Taxes. (10) Continuing Disclosure. The District hereby covenants to comply with the term of the Continuing Disclosure Agreement executed by it with respect to the Bonds. ARTICLE VI AMENDMENTS TO FISCAL AGENT AGREEMENT Section6.1. Supplemental Fiscal Agent Agreements or Orders Not Requiring Bondowner Consent. The District may from time to time, and at any time, without notice to or consent of any of the Bondowners, adopt Supplemental Fiscal Agent Agreements for any of the following purposes:

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(1) to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provision herein, or to make any other provision with respect to matters or questions arising under this Fiscal Agent Agreement or in any additional resolution or order, provided that such action is not materially adverse to the interests of the Bondowners; (2) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in this Fiscal Agent Agreement, other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with this Fiscal Agent Agreement as theretofore in effect or which further secure Bond payments; (3) to modify, amend or supplement this Fiscal Agent Agreement in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, or to comply with the Code or regulations issued thereunder, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Owners of the Bonds then Outstanding; or (4) to modify, alter or amend the rate and method of apportionment of the Special Taxes in any manner so long as such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the District to an amount which is less than that permitted under Section 5.2(7) hereof; or (5) to modify, alter, amend or supplement this Fiscal Agent Agreement in any other respect which is not materially adverse to the Bondowners. Section 6.2. Supplemental Fiscal Agent Agreements or Orders Requiring Bondowner Consent. Exclusive of the Supplemental Fiscal Agent Agreements described in Section 6.1, the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding shall have the right to consent to and approve the adoption by the District of such Supplemental Fiscal Agent Agreements as shall be deemed necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Fiscal Agent Agreement; provided, however, that nothing herein shall permit, or be construed as permitting, (a) an extension of the maturity date of the principal, or the payment date of interest on, any Bond, (b) a reduction in the principal amount of, or redemption premium on, any Bond or the rate of interest thereon, (c) a preference or priority of any Bond over any other Bond, or (d) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such Supplemental Fiscal Agent Agreement, without the consent of the Owners of all Bonds then Outstanding. If at any time the District shall desire to adopt a Supplemental Fiscal Agent Agreement, which pursuant to the terms of this Section shall require the consent of the Bondowners, the District shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplemental Fiscal Agent Agreement. The Fiscal Agent shall, at the expense of the District, cause notice of the proposed Supplemental Fiscal Agent Agreement to be mailed, by first class mail, postage prepaid, to all Bondowners at their addresses as they appear in the Bond Register. Such notice shall briefly set forth the nature of the proposed Supplemental Fiscal Agent Agreement and shall state that a copy thereof is on file at the office of the Fiscal Agent for inspection by all Bondowners. The failure of any Bondowners to receive such notice shall not affect the validity of such Supplemental Fiscal Agent Agreement when consented to and approved by the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding as required by this Section. Whenever at any time within one year after the date of the first mailing of such notice, the Fiscal Agent shall receive an instrument or instruments purporting to be executed by the Owners of a majority in aggregate principal amount of the Bonds Outstanding, which instrument or instruments shall refer to the proposed Supplemental Fiscal Agent Agreement described in

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such notice, and shall specifically consent to and approve the adoption thereof by the District substantially in the form of the copy referred to in such notice as on file with the Fiscal Agent, such proposed Supplemental Fiscal Agent Agreement, when duly adopted by the District, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the Bonds have consented to the adoption of any Supplemental Fiscal Agent Agreement, Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination. Upon the adoption of any Supplemental Fiscal Agent Agreement and the receipt of consent to any such Supplemental Fiscal Agent Agreement from the Owners of not less than a majority in aggregate principal amount of the Outstanding Bonds in instances where such consent is required pursuant to the provisions of this section, this Fiscal Agent Agreement shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this Fiscal Agent Agreement of the District and all Owners of Outstanding Bonds shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments. Section 6.3. Notation of Bonds; Delivery of Amended Bonds. After the effective date of any action taken as hereinabove provided, the District may determine that the Bonds may bear a notation, by endorsement in form approved by the District, as to such action, and in that ease upon demand of the Owner of any Outstanding Bond at such effective date and presentation of his Bond for the purpose at the office of the Fiscal Agent or at such additional offices as the Fiscal Agent may select and designate for that purpose, a suitable notation as to such action shall be made on such Bonds. If the District shall so determine, new Bonds so modified as, in the opinion of the District, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Outstanding Bond at such effective date such new Bonds shall be exchanged at the office of the Fiscal Agent or at such additional offices as the Fiscal Agent may select and designate for that purpose, without cost to each Owner of Outstanding Bonds, upon surrender of such Outstanding Bonds. ARTICLE VII FISCAL AGENT Section 7.1. Fiscal Agent. Union Bank of California, N.A., a national banking association shall be the Fiscal Agent for the Bonds unless and until another Fiscal Agent is appointed by the District hereunder. The District may, at any time, provided that no Event of Default has occurred and is continuing, appoint a successor Fiscal Agent satisfying the requirements of Section 7.2 below for the purpose of receiving all money which the District is required to deposit with the Fiscal Agent hereunder and to allocate, use and apply the same as provided in this Fiscal Agent Agreement. The Fiscal Agent is hereby authorized to and shall mail by first class mail, postage prepaid, or wire transfer in accordance with Section 2.5 above, interest payments to the Bondowners, to select Bonds for redemption, and to maintain the Bond Register. The Fiscal Agent is hereby authorized to pay the principal of and premium, if any, on the Bonds when the same are duly presented to it for payment at maturity or on call and redemption, to provide for the registration of transfer and exchange of Bonds presented to it for such purposes, to provide for the cancellation of Bonds all as provided in this Fiscal Agent Agreement, and to provide for the authentication of Bonds, and shall perform all other duties assigned to or imposed on it as provided in this Fiscal Agent Agreement; provided, however, that the Fiscal Agent undertakes to perform such duties and only such duties as are set forth in this Fiscal Agent Agreement, and no duties of the Fiscal Agent shall be implied hereunder. Discretionary rights of the

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Fiscal Agent under this Fiscal Agent Agreement shall not be construed as duties. The Fiscal Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Fiscal Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder. The Fiscal Agent shall keep accurate records of all funds administered by it and all Bonds paid, discharged and cancelled by it. The Fiscal Agent may establish such funds and accounts as it deems necessary to perform its obligations hereunder. The Fiscal Agent is hereby authorized to redeem the Bonds when duly presented for payment at maturity, or on redemption prior to maturity. The Fiscal Agent shall cancel all Bonds upon payment thereof in accordance with the provisions of Section 10.1 hereof. Section 7.2. Removal of Fiscal Agent. Provided that no Event of Default has occurred and is continuing, the District may at any time at its sole discretion remove the Fiscal Agent initially appointed, and any successor thereto, by delivering to the Fiscal Agent a written notice of its decision to remove the Fiscal Agent and may appoint a successor or successors thereto; provided that any such successor, other than the Fiscal Agent, shall be a bank or trust company having (or if such bank or trust company is a member of a bank holding company system its bank holding company has) a combined capital (exclusive of borrowed capital) and surplus of at least $50,000,000, and subject to supervision or examination by federal or state Authority. Any removal shall become effective only upon acceptance of appointment by the successor Fiscal Agent. If any bank or mast company appointed as a successor publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this section the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Any removal of the Fiscal Agent and appointment of a successor Fiscal Agent shall become effective only upon acceptance of appointment by the successor Fiscal Agent and notice being sent by the successor Fiscal Agent to the Bondowners of the successor Fiscal Agent's identity and address. Section 7.3. Resignation of Fiscal Agent. The Fiscal Agent may at any time resign by giving written notice to the District and by giving to the Owners notice of such resignation, which notice shall be mailed to the Owners at their addresses appearing in the registration books in the office of the Fiscal Agent. Upon receiving such notice of resignation, the District shall promptly appoint a successor Fiscal Agent satisfying the criteria in Section 7.2 above by an instrument in writing. Any resignation or removal of the Fiscal Agent and appointment of a successor Fiscal Agent shall become effective only upon acceptance of appointment by the successor Fiscal Agent provided, however, that in the event the District does not appoint a successor Fiscal Agent within 30 days following receipt of such notice of resignation, the resigning Fiscal Agent may, at the expense of the District, petition the appropriate court having jurisdiction to appoint a successor Fiscal Agent. Section 7.4. Compensation and Liability of Fiscal Agent. The District shall from time to time, subject to any agreement between the District and the Fiscal Agent then in force, pay to the Fiscal Agent compensation for its services, reimburse the Fiscal Agent for all its advances and expenditures, including, but not limited to, advances to and reasonable fees and expenses of independent accountants and counsel and agents employed by it in the exercise and performance of its powers and duties hereunder. The District agrees to indemnify the Fiscal Agent, including its officers, directors, employees and agents for, and hold it harmless against, any loss, claim, liability or expense incurred which does not arise from its own negligence or willful misconduct, arising out of or in connection with the administration of this Fiscal Agent Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Fiscal Agent shall not be liable for any error in judgement made in good faith by a

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reasonable officer, unless it shall be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts. Whether or not therein expressly so provided, every provision of this Fiscal Agent Agreement relating to the conduct of or affecting the liability of or affording protection to the Fiscal Agent (acting in its capacity as Fiscal Agent or in its capacity as Dissemination Agent), its officers, directors, employees and agents, shall be subject to the provisions of this Section 7.4. The recitals of fact and all promises, covenants and agreements contained herein and in the Bonds and any offering documents pertaining to the Bonds shall be taken as statements, promises, covenants and agreements of the District, and the Fiscal Agent assumes no responsibility for the correctness of the same and makes no representations as to the validity or sufficiency of this Fiscal Agent Agreement or the Bonds, and shall incur no responsibility in respect thereof, other than in connection with its duties or obligations specifically set forth herein, in the Bonds, or in the certificate of authentication assigned to or imposed upon the Fiscal Agent. The Fiscal Agent shall be under no responsibility or duty with respect to the issuance of the Bonds for value. The Fiscal Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, Bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Fiscal Agent may consult with counsel, who may be counsel to the District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered hereunder in good faith and in accordance therewith. The Fiscal Agent shall not be bound until such Bond is submitted for inspection, disputed. The Fiscal Agent may become the District with the same rights it would have if to recognize any person as the Owner of a Bond unless and if required, and his title thereto satisfactorily established, if owner or pledgee of Bonds, and may otherwise deal with the it were not the Fiscal Agent.

Whenever in the administration of its duties under this Fiscal Agent Agreement the Fiscal Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith on the part of the Fiscal Agent, be deemed to be conclusively proved and established by a written certificate of the District, and such certificate shall be full warrant to the Fiscal Agent for any action taken or suffered under the provisions of this Fiscal Agent Agreement upon the faith thereof, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable. The Fiscal Agent shall have no duty or obligation whatsoever to enforce the collection of Special Taxes or other funds to be deposited with it hereunder, or as to the correctness of any amounts received, but its liability shall be limited to the proper accounting for such funds as it shall actually receive. No provision in this Fiscal Agent Agreement shall require the Fiscal Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of its rights or powers. All rights and indemnities of the Fiscal Agent pursuant to this Section 7.4 shall survive the removal or resignation of the Fiscal Agent, the discharge of the Bonds, or the amendment or assignment of this Fiscal Agent Agreement. Section 7.5. Merger or Consolidation. Any company into which the Fiscal Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Fiscal Agent may sell or transfer all or substantially all of its corporate trust business, shall be the successor to the Fiscal

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Agent without the execution notwithstanding.

or filing of any paper or further act, anything herein to the contrary

ARTICLE VIII EVENTS OF DEFAULT; REMEDIES Section 8.1. "event of default": Events of Default. Any one or more of the following events shall constitute an

(a) Default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; (b) Default in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; or (c) Except as described in (a) or (b), default shall be made by the District in the observance of any of the agreements, conditions or covenants on its part contained in this Fiscal Agent Agreement or the Bonds, and such default shall have continued for a period of 30 days after the District shall have been given notice in writing of such default by the Fiscal Agent or the Owners of 25% in aggregate principal amount of the Outstanding Bonds. The District agrees to give notice to the Fiscal Agent immediately upon the occurrence of an event of default under (a) or (b) above and within 30 days of the District's knowledge of an event of default under (c) above. The Fiscal Agent shall not be deemed to have knowledge of any event of default described in Section 8.1 (c) unless a responsible officer shall have actual knowledge thereof or the Fiscal Agent shall have received written notice at its Principal Office. Section 8.2. Remedies of Owners. Following the occurrence of an event of default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated: (1) By mandamus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the members, officers and employees of the District, and to compel the District or any such members, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in this Fiscal Agent Agreement; (2) By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or (3) By a suit in equity to require the District and its members, officers and employees account as the fiscal agent of an express trust. to

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

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A waiver of any default or breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the Act or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners. If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the District and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. No remedy herein conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law. In case the moneys held by the Fiscal Agent after an event of default pursuant to Section 8.1 (a) or (b) shall be insufficient to pay in full the whole amount so owing and unpaid upon the Outstanding Bonds, then all available amounts shall be applied to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. ARTICLE IX DEFEASANCE Section 9.1. Defeasance. If the District shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in this Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement, then the Owner of such Bond shall cease to be entitled to the pledge of Net Taxes, and, other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond under this Fiscal Agent Agreement shall thereupon cease, terminate and become void and be discharged and satisfied. In the event of a defeasance of all Outstanding Bonds pursuant to this Section, the Fiscal Agent shall execute and deliver to the District all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay over or deliver to the District's general fund all money or securities held by it pursuant to this Fiscal Agent Agreement which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds. Any Outstanding Bond shall be deemed to have been paid within the meaning expressed in the first paragraph of this Section if such Bond is paid in any one or more of the following ways: (a) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond as and when the same become due and payable; (b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond as and when the same shall become due and payable; or

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(c) by depositing with the Fiscal Agent or another escrow bank appointed by the District, in trust, noncallable Defeasance Securities, in which the District may lawfully invest its money, in such amount as will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond as and when the same shall become due and payable; then, at the election of the District, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the District under this Fiscal Agent Agreement and any Supplemental Fiscal Agent Agreement with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District contained in Section 5.2(t) or any covenants in a Supplemental Fiscal Agent Agreement relating to compliance with the Code. Notice of such election shall be filed with the Fiscal Agent not less than ten days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Fiscal Agent. In connection with a defeasance under (b) or (c) above, there shall be provided to the District a verification report from an independent nationally recognized certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank to pay and discharge the principal of, premium, if any, and interest on all Outstanding Bonds to be defeased in accordance with this Section, as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with this Fiscal Agent Agreement and any applicable Supplemental Fiscal Agent Agreement. If a forward supply contract is employed in connection with an advance refunding to be effected under (c) above, (i) such verification report shall expressly state that the adequacy of the amounts deposited with the bank under (c) above to accomplish the refunding relies solely on the initial escrowed investments and the maturity principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and (ii) the applicable escrow agreement executed to effect an advance refunding in accordance with (c) above shall provide that, in the event of any discrepancy or difference between the terms of the forward supply contract and the escrow agreement, the terms of the escrow agreement shall be controlling. Upon a defeasance, the Fiscal Agent, upon request of the District, shall release the rights of the Owners of such Bonds which have been defeased under this Fiscal Agent Agreement and execute and deliver to the District all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance hereunder of all Outstanding Bonds, the Fiscal Agent shall pay over or deliver to the District any funds held by the Fiscal Agent at the time of a defeasance, which are not required for the purpose of paying and discharging the principal of, premium, if any, or interest on the Bonds when due. The Fiscal Agent shall, at the written direction of the District, mail, first class, postage prepaid, a notice to the Bondowners whose Bonds have been defeased, in the form directed by the District, stating that the defeasance has occurred. ARTICLE X MISCELLANEOUS Section 10.1. Cancellation of Bonds. All Bonds surrendered to the Fiscal Agent for payment upon maturity or for redemption shall be upon payment therefor, and any Bond purchased by the District as authorized herein and delivered to the Fiscal Agent for such purpose shall be, cancelled forthwith and

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shall not be reissued. The Fiscal Agent shall destroy such Bonds, as provided by law, and, upon request of the District, fumish to the District a certificate of such destruction. Section 10.2. Execution of Documents and Proof of Ownership. Any request, direction, consent, revocation of consent, or other instrument in writing required or permitted by this Fiscal Agent Agreement to be signed or executed by Bondowners may be in any number of concurrent instruments of similar tenor may be signed or executed by such Owners in person or by their attorneys appointed by an instrument in writing for that purpose, or by the bank, trust company or other depository for such Bonds. Proof of the execution of any such instrument, or of any instrument appointing any such attorney, and of the ownership of Bonds shall be sufficient for the purposes of this Fiscal Agent Agreement (except as otherwise herein provided), if made in the following manner: (1) The fact and date of the execution by any Owner or his or her attomey of any such instrument and of any instrument appointing any such attorney, may be proved by a signature guarantee of any bank or trust company or other eligible guarantor located within the United States of America. Where any such instrument is executed by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such signature guarantee shall also constitute sufficient proof of his Authority. (2) As to any Bond, the person in whose name the same shall be registered in the Bond Register shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of the principal of any such Bond, and the interest thereon, shall be made only to or upon the order of the registered Owner thereof or his or her legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond and the interest thereon to the extent of the sum or sums to be paid. Neither the District nor the Fiscal Agent shall be affected by any notice to the contrary. Nothing contained in this Fiscal Agent Agreement shall be construed as limiting the Fiscal Agent or the District to such proof, it being intended that the Fiscal Agent or the District may accept any other evidence of the matters herein stated which the Fiscal Agent or the District may deem sufficient. Any request or consent of the Owner of any Bond shall bind every future Owner of the same Bond in respect of anything done or suffered to be done by the Fiscal Agent or the District in pursuance of such request or consent. Section 10.3. Unclaimed Moneys. To the extent permitted by law, anything in this Fiscal Agent Agreement to the contrary notwithstanding, any money held by the Fiscal Agent for the payment and discharge of any of the Outstanding Bonds which remain unclaimed for a period ending at the earlier of two Business Days prior to the date such funds would escheat to the State or two years after the date when such Outstanding Bonds have become due and payable, if such money was held by the Fiscal Agent at such date, or for a period ending at the earlier of two Business Days prior to the date such funds would escheat to the State or two years after the date of deposit of such money if deposited with the Fiscal Agent after the date when such Outstanding Bonds become due and payable, shall be repaid by the Fiscal Agent to the District, as its absolute property and free from trust, and the Fiscal Agent shall thereupon be released and discharged with respect thereto and the Owners shall look only to the District for the payment of such Outstanding Bonds; provided, however, that, before being required to make any such payment to the District, the Fiscal Agent at the written request of the District or the Fiscal Agent shall, at the expense of the District, cause to be mailed by first-class mail, postage prepaid, to the registered Owners of such Outstanding Bonds at their addresses as they appear on the registration books of the Fiscal Agent a notice that said money remains unclaimed and that, after a date named in said notice, which date shall not be less than 30 days after the date of the mailing of such notice, the balance of such money then unclaimed will be returned to the District. The Fiscal Agent shall not be liable to the District

45635870.4

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or any Owner for interest on uninvested funds held by it for the payment and discharge of the principal, premium or interest on any of the Bonds to any Owner. Section 10.4. Provisions Constitute Contract. The provisions of this Fiscal Agent Agreement shall constitute a contract between the District and the Bondowners and the provisions hereof shall be construed in accordance with the laws of the State of California. In case any suit, action or proceeding to enforce any right or exercise any remedy shall be brought or taken and, should said suit, action or proceeding be abandoned, or be determined adversely to the Bondowners or the Fiscal Agent, then the District, the Fiscal Agent and the Bondowners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken, After the issuance and delivery of the Bonds this Fiscal Agent Agreement shall be irrepealable, but shall be subject to modifications to the extent and in the manner provided in this Fiscal Agent Agreement, but to no greater extent and in no other manner. Section 10.5. Future Contracts. Nothing herein contained shall be deemed to restrict or prohibit the District from making contracts or creating bonded or other indebtedness payable from a pledge of the Net Taxes which is subordinate to the pledge hereunder, or which is payable from the general fund of the District or from taxes or any source other than the Net Taxes and other amounts pledged hereunder. Section 10.6. Further Assurances. The District will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Fiscal Agent Agreement, and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in this Fiscal Agent Agreement. Section 10.7. Severability. If any covenant, agreement or provision, or any portion thereof, contained in this Fiscal Agent Agreement, or the application thereof to any person or circumstance, is held to be unconstitutional, invalid or unenforceable, the remainder of this Fiscal Agent Agreement and the application of any such covenant, agreement or provision, or portion thereof, to other persons or circumstances, shall be deemed severable and shall not be affected thereby, and this Fiscal Agent Agreement and the Bonds issued pursuant hereto shall remain valid and the Bondowners shall retain all valid rights and benefits accorded to them under the laws of the State of California. Section 10.8. Notices. Any notices required to be given to the District with respect to the Bonds or this Fiscal Agent Agreement shall be mailed, first class, postage prepaid, or personally delivered to the City Manager of the City, 100 Civic Center Mall, Indio, California 92201 Attn: City Manager, and all notices to the Fiscal Agent in its capacity as Fiscal Agent shall be mailed, first class, postage prepaid, or personally delivered to the Fiscal Agent, Union Bank of California, N.A,, 120 South San Pedro Street, Suite 400, Los Angeles, California 90012, Attention: Corporate Trust Department. Section 10.9. General Authorization. The Mayor, City Manager and the Finance Director are hereby respectively authorized to do and perform from time to time any and all acts and things consistent with this Fiscal Agent Agreement necessary or appropriate to carry the same into effect. Section 10.10. Execution in Counterparts. This Fiscal Agent Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same instrument.

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IN WITNESS WHEREOF, the CITY OF 1NDIO, acting as the legislative body of CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO), has caused this Fiscal Agent Agreement to be signed by its Mayor and UNION BANK OF CALIFORNIA, N.A., in token of its acceptance of the trust created hereunder, has caused this Fiscal Agent Agreement to be signed in its corporate name by its officer identified below, all as of the day and year first above written.

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

Mayor of the City of Indio

UNION BANK OF CALIFORNIA, N.A., as Fiscal

Agent

_0

'_A.

Its: AuthOrized Officer

45635870.4

EXHIBIT A FORM OF SERIES 2005 SPECIAL TAX BOND

No.

UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

INTEREST RATE %

MATURITY DATE September 1, __

DATED DATE September 15, 2005

CUSIP NO.

REGISTERED

OWNER:

CEDE & CO. AND NO/100 DOLLARS

PRINCIPAL AMOUNT:

CITY OF 1NDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter provided, the Principal Amount set forth above, and to pay interest on such Principal Amount from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication hereof, 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 a Record Date (as hereinafter defined) but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication, or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire

45635870.4

A-1

transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months. This Bond is one of a duly authorized issue of "City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)" (the "Bonds") issued in the aggregate principal amount of $26,330,000 pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, being Sections 53311, et seq., of the Califomia Government Code (the "Act") for the purpose of financing the acquisition of certain capital facilities, funding a reserve account, paying capitalized interest and paying certain costs related to the issuance of the Bonds. The issuance of the Bonds and the terms and conditions thereof are provided for by a resolution adopted by the City Council of the City of Indio, acting in its capacity as the legislative body of the District (the "Legislative Body") on August 3, 2005 and a Fiscal Agent Agreement dated as of September 1, 2005 (the "Fiscal Agent Agreement"), between the District and the Fiscal Agent, and this reference incorporates the Fiscal Agent Agreement herein, and by acceptance hereof the Registered Owner of this Bond assents to said terms and conditions. The Fiscal Agent Agreement is executed under and this Bond is issued under, and both are to be construed in accordance with, the laws of the State of Califomia. Any amounts for the payment hereof shall be limited to the Net Taxes pledged and collected or foreclosure proceeds received following a default in payment of the Special Taxes and other amounts deposited to the Special Tax Fund (other than the Administrative Expense Account therein) established under the Fiscal Agent Agreement. The District has covenanted for the benefit of the owners of the Bonds that under certain circumstances described in the Fiscal Agent Agreement it will commence and diligently pursue to completion appropriate foreclosure proceedings in the event of delinquencies of Special Tax installments levied for payment of principal and interest on the Bonds. Subject to the further limitations set forth in the Fiscal Agent Agreement, the Bonds maturing or after September 1, 2016 may be redeemed, at the option of the District from any source of funds, any date on or after September 1,2015, in whole, or in part, in the order of maturity selected by District and by lot within a maturity, at the following redemption prices, expressed as a percentage of principal amount thereof, together with accrued interest to the date of redemption: Redemption Dates September 1, 2015 through August 31, 2016 September 1, 2016 through August 31, 2017 September 1, 2017 and thereafter Redemption Price 102.0% 101.0 100.0 on on the the

The Bonds are subject to mandatory redemption from prepaid Special Taxes, in whole or in part and on a pro rata basis among maturities, on any Interest Payment Date at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption: Redemption Dates Redemption Prices September 1, 2005 through August 31, 2009 September 1, 2009 through August 31, 2015 September 1, 2015 and thereafter 103.0% 102.5 As Provided for Optional Redemption

45635870.4

A-2

In connection with such redemption, the District may also apply amounts in the Reserve Account which will be in excess of the Reserve Requirement as a result of such Special Tax prepayment to redeem Bonds as set forth above. The Bonds maturing on September 1, 2025, September 1, 2030 and September 1, 2035 and the Special Escrow Term Bonds shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account, on September 1, 2021, September 1, 2026, September 1,2031, and September 1, 2008, respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Bonds so called for redemption shall be selected by the Fiscal Agent by lot and shall be redeemed at a redemption price for each redeemed Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows: Bonds Maturing on September 1, 2025 Redemption Date (Sep_mberl) 2021 2022 2023 2024 2025 (maturity)

Principal Amount $740,000 775,000 815,000 855,000 895,000

Bonds Maturing on September 1, 2030 Redemption Date (September 1) 2026 2027 2028 2029 2030 (maturity)

Principal Amount $940,000 990,000 1,040,000 1,090,000 1,150,000

Bonds Maturing on September 1, 2035 Redemption Date (Sep_mberl) 2031 2032 2033 2034 2035 (maturity)

Principal Amount $1,205,000 1,270,000 1,335,000 1,405,000 1,475,000

45635870.4

A-3

Special Escrow Term Bonds Maturing on September 1, 2035 Redemption Date (September l) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 (maturity)

Principal Amount $45,000 50,000 55,000 60,000 65,000 65,000 70,000 75,000 75,000 80,000 85,000 90,000 90,000 95,000 100,000 105,000 110,000 120,000 125,000 130,000 135,000 145,000 150,000 160,000 165,000 175,000 185,000 195,000

Term Bonds maturing on September 1, 2035 are subject to mandatory September 1, 2007, or on such later date as is permitted under this Fiscal Agent price equal to the principal amount thereof to be redeemed, together with of redemption, without premium, from amounts available in the Special or Revised Escrow Redemption Date, as applicable, pursuant to the Fiscal

with respect to the Bonds to be redeemed shall be mailed to the registered 30 nor more than 60 days prior to the redemption date by first class mail, addresses set forth in the registration books. Neither a failure of the Registered notice nor any defect therein will affect the validity of the proceedings for portions thereof so called for redemption will cease to accrue interest on the provided that funds for the redemption are on deposit with the Fiscal Agent on Thereafter, the registered owners of such Bonds shall have no rights except to redemption price upon the surrender of the Bonds.

A-4

This Bond shall be registered in the name of the Registered Owner hereof, as to both principal and interest, and the District and the Fiscal Agent may treat the Registered Owner hereof as the absolute owner for all purposes and shall not be affected by any notice to the contrary. The Bonds are issuable only in fully registered form in the denomination of $5,000 or any integral multiple thereof and may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations of the same issue and maturity, all as more fully set forth in the Fiscal Agent Agreement. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Principal Office of the Fiscal Agent in Los Angeles, California, but only in the manner, subject to the limitations and upon payment of the charges provided in the Fiscal Agent Agreement, upon surrender and cancellation of this Bond. Upon such transfer, a new registered Bond of authorized denomination or denominations for the same aggregate principal amount of the same issue and maturity will be issued to the transferee in exchange therefor. The Fiscal Agent shall not be required to register transfers or make exchanges of (i) any Bonds for a period of 15 days next preceding any selection of the Bonds to be redeemed, or (ii) any Bonds chosen for redemption. The rights and obligations of the District and of the registered owners of the Bonds may be amended at any time, and in certain cases without notice to or the consent of the registered owners, to the extent and upon the terms provided in the Fiscal Agent Agreement. The Fiscal Agent Agreement contains provisions permitting the District to make provision for the payment of the interest on, and the principal and premium, if any, of the Bonds so that such Bonds shall no longer be deemed to be outstanding under the terms of the Fiscal Agent Agreement. THE BONDS DO NOT CONSTITUTE OBLIGATIONS OF THE CITY OF INDIO (THE "CITY") OR OF THE DISTRICT FOR WHICH THE CITY OR THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE, OR HAS LEVIED OR PLEDGED, GENERAL OR SPECIAL TAXES, OTHER THAN THE SPECIAL TAXES REFERENCED HEREIN. THE BONDS ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE FROM THE PORTION OF THE SPECIAL TAXES AND OTHER AMOUNTS PLEDGED UNDER THE FISCAL AGENT AGREEMENT BUT ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR RESTRICTION. This Bond shall not become valid or obligatory for any purpose until the certificate authentication and registration hereon endorsed shall have been dated and signed by the Fiscal Agent. of

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required by law to exist, happen and be performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law, and that the amount of this Bond, together with all other indebtedness of the District, does not exceed any debt limit prescribed by the laws or Constitution of the State of California.

45635870.4

A-5

IN WITNESS WHEREOF, City of Indio Community Facilities District No. 2004-3 (Terra Lago) has caused this Bond to be dated as of the Dated Date, to be signed on behalf of the District by the Mayor of the City of Indio, acting as the legislative body of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) by his manual signature and attested by the manual signature of the City Clerk of the City of Indio.

By:

Mayor of the City of Indio ATTEST:

City Clerk of the City of Indio

[FORM OF FISCAL AGENT'S CERTIFICATE OF AUTHENTICATION AND REGISTRATION] This is one of the Bonds described in the within-defined Fiscal Agent Agreement.

Dated:

UNION BANK OF CALIFORNIA, N.A., as Fiscal Agent

By: Its: Authorized Signatory

45635870.4

A-6

[FORM OF ASSIGNMENT] For value received the undersigned hereby sells, assigns and transfers unto

(Name, Address, and Tax Identification or Social Security Number of Assignee) the within-mentioned Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Fiscal Agent with full power of substitution in the premises. Dated:

Signature Guaranteed:

Note: Signature(s) must be guaranteed by an eligible guarantor institution,

Note: The signature(s) on this Assignment must correspond with the names as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever.

45635870.4

A-7

EXHIBIT B REQUISITION NO. 1

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) REQUISITION FOR DISBURSEMENT OF PROJECT COSTS/COSTS OF ISSUANCE

Union Bank of California, N.A. (the "Fiscal Agent") is hereby requested to pay from the Acquisition and Construction Fund/Costs of Issuance Account, established by the Fiscal Agent Agreement dated as of September 1, 2005, between the Fiscal Agent and the City of Indio Community Facilities District No. 2004-3 (Terra Lago), for payment of authorized Project Costs/Costs of Issuance. The amount is due and payable under purchase order, contract or other authorization and has not formed the basis of any prior request for payment. The conditions to the release of this amount from the Acquisition and Construction Fund/Costs of Issuance Account are satisfied. There has not been filed with nor served upon the District notice of any lien, right to lien or attachment upon, or stop notice or claim affecting the right to receive payment of the amount specified above which has not been released or will not be released simultaneously with the payment of such amount, other than materialmen's or mechanic's liens accruing by mere operation of law.

Dated:

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

By: Authorized Representative

45635870.4

B-1

CONTINUING DISCLOSURE

AGREEMENT

(City of Indio Community Facilities District No. 2004-3 (Terra Lago))

This Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September 1, 2005, is executed and delivered by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Union Bank of California, N.A., as dissemination agent (the "Dissemination Agent") hereunder, in connection with the issuance of the $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"). The District and the Dissemination Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District and the Fiscal Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report or any addendum thereto provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "City" shall mean City of Indio, California. "Disclosure Representative" shall mean the City Manager of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time. "Dissemination Agent" shall mean the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the District and which has filed with the Fiscal Agent a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

45635855.2

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at http://www.sec.gov. "Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of California. "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Reports may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. If the District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f). Furthermore, upon receipt of a written request of any Beneficiary Owner, the Dissemination Agent shall provide a copy of the Annual Report to such Beneficial Owner. (b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the District shall provide the Annual Report to the Dissemination Agent and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District and the Fiscal Agent of such failure to receive the Annual Report. The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and Fiscal Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report. (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Dissemination Agent

45635855.2

shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) to the extent information is known to it, file a report with the District and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. include by reference the following: The District's Annual Report shall contain or

(i) The audited financial statements of the City, prepared in accordance with generally accepted accounting principles in effect from time to time. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (ii) The balance in the Special Escrow Fund held under the Fiscal Agent Agreement.

(iii) Total assessed valuation (per the Riverside County Assessor records) of all parcels currently subject to the Special Tax within Improvement Area No. 1 of the District, showing the total assessed valuation for all land and the total assessed valuation for all improvements within Improvement Area No. 1 of the District and distinguishing between the assessed value of developed property and undeveloped property. (iv) Identification of each parcel for which any Special Tax payment is delinquent, together with the following information respecting each such parcel: (A) the amount delinquent; (B) the date of each delinquency; (C) in the event a foreclosure complaint has been filed respecting such delinquent parcel and such complaint has not yet been dismissed, the date on which the complaint was filed; and (D) in the event a foreclosure sale has occurred respecting such delinquent parcel, a summary of the results of such foreclosure sale. (v) The number of certificates of occupancy issued by the City and the principal amount of prepayments of the Special Tax with respect to Improvement Area No. 1 of the District for the prior Fiscal Year. (vi) A land ownership summary listing property owners responsible for more than five percent (5%) of the annual Special Tax levy, as shown on the Riverside County Assessor's last equalized tax roll prior to the September next preceding the Annual Report date.

45635855.2

(vii) The principal amount of the Bonds outstanding and the balance in the Reserve Account (along with a statement of the Reserve Requirement) as of the September 30 next preceding the Annual Report date. (viii) A description of the status of the facilities being constructed with proceeds of the Bonds as of the date of the Annual Report (but only so long as such facilities are not completed), and the balance in the Acquisition and Construction Fund as of the September 30 next preceding the Annual Report date (but only until such fund is closed). (ix) The number of building permits issued in Improvement Area No. 1 of the District during the prior Fiscal Year. (x) The amount of Special Taxes generated by the developed undeveloped parcels within Improvement Area No. 1 of the District. parcels and

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. 2. 3. 4. 5. 6. 7. principal and interest payment delinquencies; non-payment related defaults; modifications to rights of Bondholders; optional, contingent or unscheduled bond calls; defeasances; rating changes; adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds; unscheduled difficulties; unscheduled difficulties; draws on the debt service reserves reflecting financial

8.

9.

draws

on

credit

enhancements

reflecting

financial

45635855.2

10. 11.

substitution of credit or liquidity providers, or their failure to perform; release, substitution or sale of property securing repayment of the Bonds.

(b) The Dissemination Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Dissemination Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Dissemination Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent or the Dissemination Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. Neither the Fiscal Agent nor the Dissemination Agent shall have any responsibility to determine the materiality of any of the Listed Events. (c) Whenever the District obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the District has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the District determines that the Listed Event would not be material under applicable federal securities laws, the District shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Fiscal Agent Agreement. SECTION 6. Termination of Reporting Obligation. The District's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(f).

45635855,2

SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the District and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the District in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to any amendment so requested by the District) provided, neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in

45635855.2

addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the District or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent (at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the District or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination A_ent. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders, or any other party. The Dissemination Agent shall have no liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Agreement. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

45635855.2

SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the District: City of Indio Community Facilities District No. 2004-3 c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Phone: (760) 342-6580 Fax: (760) 342-6597 Union Bank of California, N.A. 120 South San Pedro Street, Suite 400 Los Angeles, California 90012 Attn: Corporation Trust Department Phone: (213) 972-5674 Fax: (213) 972-5694

To the Fiscal Agent:

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

45635855.2

SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO)

City Managl_ of the City of Ir_io

UNION BANK OF CALIFORNIA, N.A., as Dissemination Agent

_utl_rized

Representative

45635855.2

EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) September 15, 2005

Name of Bond Issue:

Date of Issuance:

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The District anticipates that the Annual Report will be filed by .] Dated: UNION BANK OF CALIFORNIA, N.A., on behalf of District

cc: Issuer

45635855.2

A-1

13

DEVELOPER CONTINUING DISCLOSURE AGREEMENT (MW HOUSING PARTNERS HI, L.P. and LENNAR HOMES OF CALIFORNIA, INC.)

This Developer Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September 1, 2005, is executed and delivered by MW Housing Partners HI, L.P., a California limited partnership (the "Property Owner"), Lennar Homes of California, Inc., a California corporation ("Developer"), and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent") and acting in its capacity as Dissemination Agent hereunder, in connection with the issuance of the $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "Issuer") and the Fiscal Agent. Developer and Property Owner have entered into (i) those certain Subdivision Development Agreements, each dated as of March 25, 2005 (collectively, the "SDA"), under which Developer has agreed to develop and manage the Property on behalf of Property Owner, and (ii) those certain Option Agreements dated as of March 25, 2005, as amended by the First Amendments to Option Agreements (collectively, the "Option Agreement") under which Developer is obligated to acquire the Property from Property Owner in the manner set forth in the Option Agreement. The Property Owner, the Dissemination Agent, the Developer and the Fiscal Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Property Owner, the Dissemination Agent, the Developer and the Fiscal Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, five percent (5%) or more of the outstanding voting securities of such other Person, (b) any Person whose outstanding voting securities of five percent (5%) or more are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person; for purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Annual Report" shall mean any Annual Report or its addendum provided by the Developer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Assumption Agreement" means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms
45655147.1 1

"

substantially similar to this Disclosure Agreement (as modified for such Major Owner's development and financing plans with respect to Improvement Area No. 1 of the District), whereby such Major Owner or Affiliate agrees to provide annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in Improvement Area No. 1 of the District owned by such Major Owner and its Affiliates and, at the option of the Property Owner or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the Project Manager of the Developer set forth in Section 12 hereof or his or her designee, or such other officer or employee as the Developer shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time. "Dissemination Agent" shall mean the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Developer and which has filed with the Fiscal Agent a written acceptance of such designation. "District" Lago). "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "Major Owner" shall mean an owner (including all Affiliates of such owner) of land in Improvement Area No. 1 of the District responsible in the aggregate for 20% or more of the annual special taxes levied in Improvement Area No. 1 of the District. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at http://www.sec.gov. "Participating Underwriter" shall mean any of the original underwriters required to comply with the Rule in connection with offering of the Bonds of the Bonds shall mean City of Indio Community Facilities District No. 2004-3 (Terra

"Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Repository" shall mean each National Repository and each State Repository

45655147.1

"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Special Taxes" shall mean the special taxes to be levied on the property owned by the Property Owner and the Developer within Improvement Area No. 1 of the District. "State" shall mean the State of California. "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3o Provision of Annual Reports. (a) Developer shall, or, upon written direction, shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement with a copy to the Fiscal Agent and the Issuer. Not later than fifteen (15) calendar days prior to said date, the Developer shall provide the Annual Report to the Dissemination Agent. Developer shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent and the Issuer to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent, the Issuer and the Fiscal Agent may conclusively rely upon such certification of Developer and shall have no duty or obligation to review such Annual Report. The Annual Report may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. (b) If the Fiscal Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Fiscal Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) to the extent information is known to it, file a report with the Issuer, the Property Owner, the Developer and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided

45655147.1

SECTION 4. Content of Annual Reports. or include by reference the following:

The Developer's

Annual Report shall contain

(i) Relating to all property owned by Property Owner and the Developer within Improvement Area No. 1 of the District (the "Property"), a summary of the Developer's development activity on the Property during the immediately preceding calendar year: (A) number of acres or lots owned by the Property Owner, the Developer, or either of their Affiliates as of the end of the immediately preceding calendar year or a more recent date, (B) progress of construction activities on the Property as of the end of the immediately preceding calendar year or more recent date, and (C) number of acres or lots sold by Property Owner, the Developer, or their Affiliates to end users or builders as of the end of the immediately preceding calendar year or a more recent date. (ii) Any material changes in the information relating to the Property Owner, the Developer and/or the Property contained in the Official Statement under the caption "THE DEVELOPMENT." (iii) A description of the status of any land purchase contracts with regard to the Property (other than the Option Agreement and sales to individual homebuyers). (iv) A description of any change in the legal structure of the Developer and/or the financial condition of the Developer that would materially interfere with its ability to complete the development plan for the Property described in the Official Statement under the caption "THE DEVELOPMENT - Development and Financing Plans - Improvement Area No. 1" (the "Development Plan") or to pay the Special Taxes levied against the Property owned by the Developer or the Property Owner. (v) A description of any material changes in the Development Plan.

(vi) A pro forma statement relating to the Development Plan detailing (A) amount spent to date, (B) the remaining costs to complete the Development Plan including timing of such disbursements, and (C) the source of financing for such remaining development costs. (vii) A description of any previously undisclosed entitlements for the Property. (viii) An update of the status of any previously Section 5 hereof. material amendment to the land use

reported Listed Event described

in

(ix) A statement as to whether or not the Property Owner, the Developer and all of its Affiliates paid, prior to their becoming delinquent, all Special Taxes levied on the Property owned by the Property Owner, the Developer and such Affiliates within Improvement Area No. 1, and if such Property Owner, the Developer or any of such Affiliates is delinquent in the payment of such Special Taxes, a statement identifying each entity that is so delinquent, specifying the amount of each such delinquency and describing any plans to resolve such delinquency.

456551471

(x) A description of any material changes in the financing plan of the Developer for the Development Plan described in the Official Statement under the caption "THE DEVELOPMENT - Development and Financing Plans - Improvement Area No. 1" (the "Financing Plan") and the causes or rationale for such changes. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Developer or related entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Developer shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Developer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. bankruptcy or insolvency proceedings commenced by or against the Property Owner, the Developer or a partner or Affiliate thereof that would materially interfere with the Developer's ability to complete the Development Plan or to pay the Special Taxes levied against the Property owned by the Developer or the Property Owner; 2. failure to pay any taxes, special taxes or assessments due with respect to the Property owned by the Developer or the Property Owner; 3. filing of a lawsuit against Property Owner, the Developer, or, to the Developer's actual knowledge, a partner or Affiliate thereof seeking damages, or a judgment in a lawsuit against Property Owner, the Developer, or, to the Developer's actual knowledge, a partner or Affiliate thereof, which could have a significant impact on the Developer's ability to pay Special Taxes levied against the Property owned by the Developer or the Property Owner, or to sell or develop the Property; 4. any conveyance by the Property Owner or Developer of property to an entity that is not an Affiliate of Property Owner or Developer, the result of which conveyance is to cause the transferee to become a Major Owner, except that there is no obligation to report a transfer of all or any portion of the Property from the Property Owner to the Developer; 5o any denial or termination of credit, any denial or termination of, or default under, any line of credit or loan or any other loss of a source of funds that could have a material adverse affect on the Developer's most recently disclosed Financing Plan or the ability of the Property Owner or Developer to pay Special Taxes levied against the Property owned by the Property Owner or the Developer when due; 6. any significant amendments to land use entitlement for the Property;

45655147.1

7. any previously undisclosed governmentally-imposed commencement or continuation of development of the Property; 8. any previously undisclosed challenges to development of the Property; legislative,

preconditions

to

administrative

or

judicial

9. any material change in the alignment, design or likelihood of completion of significant public improvement being constructed by the Developer affecting the Property, including major thoroughfares, sewers, water conveyance systems and similar facilities; and 10. 6. (b) The Fiscal Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request that the Developer promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Fiscal Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Fiscal Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. The Fiscal Agent shall have no responsibility to determine the materiality of any of the Listed Events. (c) Whenever the Developer obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or otherwise, the Developer shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Developer has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Developer shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the Developer determines that the Listed Event would not be material under applicable federal securities laws, the Developer shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) If the Dissemination Agent has been instructed by the Developer to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. The assumption of any obligation by a Major Owner pursuant to Section

45655147.1

SECTION 6. Duration of Reporting Obligation. (a) All of the Developer's obligations hereunder shall commence on such date as property owned by the Property Owner and Developer is responsible for payment of 20% or more of the special taxes in Improvement Area No. 1 and shall terminate (except as provided in Section 11) upon (i) the legal defeasance, prior redemption or payment in full of all the Bonds or (ii) so long as the Bonds are outstanding, at such time as Property owned by the Property Owner and the Developer is no longer responsible for payment of 20% or more of the Special Taxes in Improvement Area No. 1. Upon the occurrence of any such termination or suspension prior to the final maturity of the Bonds, the Developer shall give notice of such termination or suspension in the same manner as for a Listed event under Section 5. (b) If a portion of the property in Improvement Area No. 1 of the District owned by the Property Owner and/or Developer, or any Affiliate of Property Owner or Developer, is conveyed to a Person that, upon such conveyance, will be a Major Owner (other than a transfer of all or any portion of the Property from the Property Owner to the Developer), the obligations of Developer hereunder with respect to such property owned by such Major Owner and its Affiliates shall be assumed by such Major Owner or by an Affiliate thereof and the Property Owner and Developer obligations hereunder will be terminated. In order to effect such an assumption, such Major Owner or Affiliate shall enter into an Assumption Agreement. The entering into an Assumption Agreement by such Major Owner or Affiliate shall be a condition precedent to the conveyance of such property and the Property Owner or the Developer shall provide a copy of the executed Assumption Agreement to the Fiscal Agent and the Issuer prior to such conveyance. SECTION 7. Dissemination Agent. The Developer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Developer pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the Developer, the Issuer and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Developer in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver Notwithstanding any other provision of this Disclosure Agreement, the Property Owner, the Developer, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to any amendment so requested by the Property Owner or by Developer) provided, neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted;
45655147.1

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Developer shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Developer. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Developer from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Developer chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Developer shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Developer or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent (at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Developer or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination _. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination
45655147.1 8

Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Developer agrees to indemnify and save the Dissemination Agent and Fiscal Agent, their officers, directors, employees and agents (the "Indemnified Party"), harmless against any loss, expense and liabilities which they may incur arising out of or in the reasonable exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding losses, expenses or liabilities due to any Indemnified Party's respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Developer for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the Property Owner, the Developer, the Bondholders, or any other party. Neither the Fiscal Agent or the Dissemination Agent shall have any liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Agreement. The obligations of the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Notices. Any notices or communications to this Disclosure Agreement may be given as follows: To the Issuer: to or among any of the parties

City of Indio Community Facilities District No. 2004-3 (Terra Lago) c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Telephone: (760) 342-6580 Facsimile: (760) 342-6597 Union Bank of California, N.A. 120 S. San Pedro Street, 4th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694

To the Fiscal Agent:

To the Dissemination Agent: Union Bank of California, N.A. 120 S. San Pedro Street, 4 th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694

45655147.1

To the Property Owner:

MW Housing Partners III, L.P. 1301 Fifth Avenue, Suite 3100 Seattle, WA 98101 Atm: David Brentlinger Telephone: (206) 264-2240 Facsimile: (206) 264-2241 Lennar Homes of California, Inc. 25 Enterprise Aliso Viejo, California 92656 Attn: Erik Higgins Telephone: (949) 349-8000 Facsimile: (949) 349-0782

To the Developer:

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Property Owner, the Developer, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

[REMAINDER OF PAGE INTENTIONALLY

LEFT BLANK]

45655147.1

l0

SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. MW HOUSING PARTNERS III, L.P. a California limited partnership By: MW Housing Partners III, LLC a California limited liability company Its General Partner By" WRI CP Investments III LLC A Washington limited liability company Its Co-Manager By: Weyerhaeuser Realty Investors, Inc., A Washington corporation

sManage r t'_ y_ ___-"-'_ Nanae:'_a_2_ "F_qZv_3q,,_etwTitle: __.t_ 6.,- _)_c_P_s.g,__

Name: __--_.-.... _"X%_-_ _'_,,,._ _ Title: _t "-- P,_,,;3-v_l

LENNAR HOMES OF CALIFORNIA, INC. a California corporation By: _/'_-_--_ "-.3 Title: _c _E,; ,.DEr,rT-

UNION BANK OF CALIFORNIA_ N.A., as Dissemination Agent and Fiscal Agent

By

,_

/_.._.'L.L . . <(. (_(_ C(_-_'_"_/'5--_ Authorized Officer

45655147.1

11

EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party: Name of Bond Issue:

Lennar Homes of California, Inc. City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Date of Issuance:

September 15, 2005

NOTICE IS HEREBY GIVEN that the Developer has not provided an Annual Report with respect to the above-named Bonds as required by the Developer Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The Developer anticipates that the Annual Report will be filed by .] Dated: UNION BANK OF CALIFORNIA, N.A., on behalf of Property Owner

cc: Issuer Property Owner

45655147.1

A-1

DEVELOPER CONTINUING DISCLOSURE AGREEMENT (WHP TERRA LAGO 133)

This Developer Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September 1, 2005, is executed and delivered by WHP Terra Lago 133, a California Limited Partnership (the "Property Owner") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent") and acting in its capacity as Dissemination Agent hereunder, in connection with the issuance of the $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "Issuer") and the Fiscal Agent. The Property Owner, the Dissemination Agent and the Fiscal Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Property Owner, the Dissemination Agent and the Fiscal Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, five percent (5%) or more of the outstanding voting securities of such other Person, (b) any Person whose outstanding voting securities of five percent (5%) or more are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person; for purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Annual Report" shall mean any Annual Report or its addendum provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Assumption Agreement" means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Agreement (as modified for such Major Owner's development and financing plans with respect to Improvement Area No. 1 of the District), whereby such Major Owner or Affiliate agrees to provide annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in Improvement Area No. 1 of the District owned by such Major Owner and its Affiliates and, at the option of the Property Owner or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof.
45655143.1

"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the Project Manager of the Property Owner as set forth in Section 12 hereof her officer or employee as the Property Owner shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time. "Dissemination Agent" shall mean the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Property Owner and which has filed with the Fiscal Agent a written acceptance of such designation. "District" shall mean City of Indio Community Facilities District No. 2004-3 (Terra Lago). "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "Major Owner" shall mean an owner (including all Affiliates of such owner) of land in Improvement Area No. 1 of the District responsible in the aggregate for 20% or more of the annual special taxes levied in Improvement Area No. 1 of the District. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at http://www.sec.gov. "Participating Underwriter" shall mean any of the original underwriters required to comply with the Rule in connection with offering of the Bonds. of the Bonds

"Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Special Taxes" shall mean the special taxes to be levied on the property owned by the Property Owner within Improvement Area No. 1 of the District. "State" shall mean the State of California.

45655143.1

"State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) Property Owner shall, or, upon written direction, shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement with a copy to the Fiscal Agent and the Issuer. Not later than fifteen (15) Business Days prior to said date, Property Owner shall provide the Annual Report to the Dissemination Agent. Property Owner shall provide a written certification with each Annual Report fumished to the Dissemination Agent and the Fiscal Agent and the Issuer to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent, the Issuer and the Fiscal Agent may conclusively rely upon such certification of Property Owner and shall have no duty or obligation to review such Annual Report. The Annual Report may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. If Property Owner's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(t"). (b) If the Fiscal Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Fiscal Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) to the extent information is known to it, file a report with the Issuer, the Property Owner and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. contain or include by reference the following: The Property Owner's Annual Report shall

(i) Relating to all property owned by Property Owner within Improvement Area No. 1 of the District (the "Property"), a summary of the Property Owner's development activity on the Property during the Property Owner's last fiscal year: (A) number of acres/lots owned by the Property Owner or its Affiliates as of the end of the applicable fiscal year or a more recent date, (B) progress of construction activities on the Property as of the end of the applicable fiscal year
45655143.1

or more recent date, and (C) number of acres/lots sold by Property Owner or its Affiliates to end users or builders as of the end of the applicable fiscal year or a more recent date. (ii) Any material changes in the information relating to the Property Owner and/or the Property contained in the Official Statement under the caption "THE DISTRICT" and "THE DEVELOPMENT." (iii) A description of the status of any land purchase contracts with regard to the Property (other than sales to individual homebuyers). (iv) A description of any change in the legal structure of the Property Owner and/or the financial condition of the Property Owner that would materially interfere with its ability to complete the development plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN" and "THE MASTER DEVELOPER AND THE DEVELOPERS" (the "Development Plan") or to pay its Special Taxes. (v) A description of any material changes in the Development Plan.

(vi) A pro forma financing statement relating to the Development Plan detailing (A) amount spent to date, (B) the remaining costs to complete the Development Plan including timing of such disbursements and (C) the source of financing for such remaining development costs. (vii) A description of any previously undisclosed material amendment to the land use entitlements for the Property. (viii) An update of the status of any previously reported Listed Event described in Section 5 hereof. (ix) A statement as to whether or not the Property Owner and all of its Affiliates paid, prior to their becoming delinquent, all special taxes levied on the property owned by the Property Owner and such Affiliates within Improvement Area No. 1 and if such Property Owner or any of such Affiliates is delinquent in the payment of such special taxes, a statement identifying each entity that is so delinquent, specifying the amount of each such delinquency and describing any plans to resolve such delinquency. (x) A description of any material changes in the financing plan of the Property Owner for the Development Plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN - Development and Financing Plans -Improvement Area No. 1" (the "Financing Plan") and the causes or rationale for such changes. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Property Owner or related entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Property Owner shall clearly identify each such other document so included by reference.

45655143.1

SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Property Owner shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. bankruptcy or insolvency proceedings commenced by or against Property Owner or a partner or Affiliate thereof that would materially interfere with its ability to complete the Development Plan or to pay its Special Taxes; 2. the Property; failure to pay any taxes, special taxes or assessments due with respect to

3. filing of a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof seeking damages, or a judgment in a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof, which could have a significant impact on the Property Owner's ability to pay Special Taxes or to sell or develop the Property; 4. any conveyance by the Property Owner of property to an entity that is not an Affiliate of such Property Owner, the result of which conveyance is to cause the transferee to become a Major Owner; 5. any denial or termination of credit, any denial or termination of, or default under, any line of credit or loan or any other loss of a source of funds that could have a material adverse affect on the Property Owner's most recently disclosed Financing Plan or the ability of the Property Owner or any Affiliate to pay Special Taxes when due; 6. any significant Owner's property; amendments to land use entitlement for the Property

7. any previously undisclosed governmentally-imposed commencement or continuation of development of the Property; 8. any previously undisclosed challenges to development of the Property; legislative,

preconditions

to

administrative

or judicial

9. any material change in the alignment, design or likelihood of completion of significant public improvement being constructed by the Property Owner affecting the Property, including major thoroughfares, sewers, water conveyance systems and similar facilities; and 6. 10. The assumption of any obligation by a Major Owner pursuant to Section

(b) The Fiscal Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request
45655143.1 5

that the Property Owner promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Fiscal Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Fiscal Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. The Fiscal Agent shall have no responsibility to determine the materiality of any of the Listed Events. (c) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or otherwise, the Property Owner shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Property Owner has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Property Owner shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the Property Owner determines that the Listed Event would not be material under applicable federal securities laws, the Property Owner shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) If the Dissemination Agent has been instructed by the Property Owner to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. SECTION 6. Duration of Reporting Obligation. (a) All of the Property Owner's obligations hereunder shall commence on such date as property owned by the Property Owner is responsible for payment of 20% or more of the special taxes in Improvement Area No. 1 and shall terminate (except as provided in Section 11) upon (i) the legal defeasance, prior redemption or payment in full of all the Bonds or (ii) so long as the Bonds are outstanding, at such time as property owned by the Property Owner is no longer responsible for payment of 20% or more of the special taxes in Improvement Area No. 1. Upon the occurrence of any such termination or suspension prior to the final maturity of the Bonds, the Property Owner shall give notice of such termination or suspension in the same manner as for a Listed event under Section 5. (b) If a portion of the property in Improvement Area No. 1 of the District owned by the Property Owner, or any Affiliate of Property Owner, is conveyed to a Person that, upon such conveyance, will be a Major Owner, the obligations of Property Owner hereunder with respect to such property owned by such Major Owner and its Affiliates shall be assumed by such Major Owner or by an Affiliate thereof and the Property Owner obligations hereunder will be terminated. In order to effect such an assumption, such Major Owner or Affiliate shall enter
45655143.t 6

into an Assumption Agreement. The entering into an Assumption Agreement by such Major Owner or Affiliate shall be a condition precedent to the conveyance of such property and the Property Owner shall provide a copy of the executed Assumption Agreement to the Fiscal Agent and the Issuer prior to such conveyance. SECTION 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Property Owner pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the Property Owner, the Issuer and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Property Owner in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Property Owner, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to any amendment so requested by the Property Owner) provided, neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, a_er taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Property Owner shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Property Owner.
45655143.1 7

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Property Owner chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Property Owner shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Property Owner or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent (at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Property Owner or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Property Owner or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination _Ag_e__. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Property Owner agrees to indemnify and save the Dissemination Agent and Fiscal Agent, their officers, directors, employees and agents (the "Indemnified Party"), harmless against any loss, expense and liabilities which they may incur arising out of or in the reasonable exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding losses, expenses or liabilities due to any Indemnified Party's respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Property Owner for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the Property Owner, the Bondholders, or any other party. Neither the Fiscal Agent or the Dissemination Agent shall have any liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related

45655143.1

to or arising from this Agreement. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the Issuer: City of Indio Community Facilities District No. 2004-3 (Terra Lago) c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Telephone: (760) 342-6580 Facsimile: (760) 342-6597 Union Bank of California, N.A. 120 S. San Pedro Street, 4th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694

To the Fiscal Agent:

To the Dissemination Agent: Union Bank of California, N.A. 120 S. San Pedro Street, 4 th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694 To the Property Owner: WHP Terra Lago 133, C/0 Ashbrook Communities 77-570 Springfield Lane, Suite J Palm Desert, CA 92211 Attn: Tom Hill, Project Manager Telephone: 760 200 9290 Facsimile: 760 200 9319

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Property Owner, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

45655143.1

SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. WHP TERRA LAGO 133, a California Limited Partnership

BYe: Title:

Alex Zika_ Its Authorized Signatory

UNION BANK OF CALIFORNIA, N.A., as Dissemination Agent and Fiscal Agent

By Authorized Officer

45655143.1

10

SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. WHP TERRA LAGO 133, a California Limited Partnership

By Name: Title:

UNION BANK OF CALIFORNIA, N.A., as Dissemination Agent and Fiscal Agent

d Officer

45655143.1

10

EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party:

WHP Terra Lago 133, a California Limited Partnership City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) September 15, 2005

Name of Bond Issue:

Date of Issuance:

NOTICE IS HEREBY GIVEN that the Property Owner has not provided an Annual Report with respect to the above-named Bonds as required by the Developer Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The Property Owner anticipates that the Annual Report will be filed by .] Dated: UNION BANK OF CALIFORNIA, N.A., on behalf of Property Owner

cc: Issuer Property Owner

45655143.1

A-1

DEVELOPER CONTINUING DISCLOSURE AGREEMENT (WOODS[DE PORTOFINO, INC.)

This Developer Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September 1, 2005, is executed and delivered by Woodside Portofino, Inc., a corporation duly existing under the laws of the State of California (the "Property Owner") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent") and acting in its capacity as Dissemination Agent hereunder, in connection with the issuance of the $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "Issuer") and the Fiscal Agent. The Property Owner, the Dissemination Agent and the Fiscal Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Property Owner, the Dissemination Agent and the Fiscal Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, five percent (5%) or more of the outstanding voting securities of such other Person, (b) any Person whose outstanding voting securities of five percent (5%) or more are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person; for purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Annual Report" shall mean any Annual Report or its addendum provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Assumption Agreement" means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Agreement (as modified for such Major Owner's development and financing plans with respect to Improvement Area No. 1 of the District), whereby such Major Owner or Affiliate agrees to provide annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in Improvement Area No. 1 of the District owned by such Major Owner and its Affiliates and, at the option of the Property Owner or such Major

45647839.1

Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the Project Manager of the Property Owner as set forth in Section 12 hereof or his or her designee, or such other officer or employee as the Property Owner shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time. "Dissemination Agent" shall mean the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Property Owner and which has filed with the Fiscal Agent a written acceptance of such designation. "District" shall mean City of Indio Community Facilities District No. 2004-3 (Terra Lago). "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "Major Owner" shall mean an owner (including all Affiliates of such owner) of land in Improvement Area No. 1 of the District responsible in the aggregate for 20% or more of the annual special taxes levied in Improvement Area No. 1 of the District. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at http://www.sec.gov. "Participating Underwriter" shall mean any of the original underwriters required to comply with the Rule in connection with offering of the Bonds. of the Bonds

"Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Special Taxes" shall mean the special taxes to be levied on the property owned by the Property Owner within Improvement Area No. 1 of the District.
45647839.1 2

"State" shall mean the State of California. "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) Property Owner shall, or, upon written direction, shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement with a copy to the Fiscal Agent and the Issuer. Not later than fifteen (15) Business Days prior to said date, Property Owner shall provide the Annual Report to the Dissemination Agent. Property Owner shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent and the Issuer to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent, the Issuer and the Fiscal Agent may conclusively rely upon such certification of Property Owner and shall have no duty or obligation to review such Annual Report. The Annual Report may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. If Property Owner's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(t"). (b) If the Fiscal Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Fiscal Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) to the extent information is known to it, file a report with the Issuer, the Property Owner and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. contain or include by reference the following: The Property Owner's Annual Report shall

(i) Relating to all property owned by Property Owner within Improvement Area No. 1 of the District (the "Property"), a summary of the Property Owner's development activity on the Property during the Property Owner's last fiscal year: (A) number of acres/lots owned by the
45647839.1

Property Owner or its Affiliates as of the end of the applicable fiscal year or a more recent date, (B) progress of construction activities on the Property as of the end of the applicable fiscal year or more recent date, and (C) number of acres/lots sold by Property Owner or its Affiliates to end users or builders as of the end of the applicable fiscal year or a more recent date. (ii) Any material changes in the information relating to the Property Owner and/or the Property contained in the Official Statement under the caption "THE DISTRICT" and "THE DEVELOPMENT." (iii) A description of the status of any land purchase contracts with regard to the Property (other than sales to individual homebuyers). (iv) A description of any change in the legal structure of the Property Owner and/or the financial condition of the Property Owner that would materially interfere with its ability to complete the development plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN" and "THE MASTER DEVELOPER AND THE DEVELOPERS" (the "Development Plan") or to pay its Special Taxes. (v) A description of any material changes in the Development Plan.

(vi) A pro forma financing statement relating to the Development Plan detailing (A) amount spent to date, (B) the remaining costs to complete the Development Plan including timing of such disbursements and (C) the source of financing for such remaining development costs. (vii) A description of any previously undisclosed material amendment to the land use entitlements for the Property. (viii) An update of the status of any previously reported Listed Event described in Section 5 hereof. (ix) A statement as to whether or not the Property Owner and all of its Affiliates paid, prior to their becoming delinquent, all special taxes levied on the property owned by the Property Owner and such Affiliates within Improvement Area No. 1 and if such Property Owner or any of such Affiliates is delinquent in the payment of such special taxes, a statement identifying each entity that is so delinquent, specifying the amount of each such delinquency and describing any plans to resolve such delinquency. (x) A description of any material changes in the financing plan of the Property Owner for the Development Plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN - Development and Financing Plans -Improvement Area No. 1" (the "Financing Plan") and the causes or rationale for such changes. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Property Owner or related entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the

45647839.1

Municipal Securities Rulemaking Board. other document so included by reference.

The Property Owner shall clearly identify each such

SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Property Owner shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if materiah 1. bankruptcy or insolvency proceedings commenced by or against Property Owner or a partner or Affiliate thereof that would materially interfere with its ability to complete the Development Plan or to pay its Special Taxes; 2. the Property; failure to pay any taxes, special taxes or assessments due with respect to

3. filing of a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof seeking damages, or a judgment in a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof, which could have a significant impact on the Property Owner's ability to pay Special Taxes or to sell or develop the Property; 4. any conveyance by the Property Owner of property to an entity that is not an Affiliate of such Property Owner, the result of which conveyance is to cause the transferee to become a Major Owner; 5. any denial or termination of credit, any denial or termination of, or default under, any line of credit or loan or any other loss of a source of funds that could have a material adverse affect on the Property Owner's most recently disclosed Financing Plan or the ability of the Property Owner or any Affiliate to pay Special Taxes when due; 6. any significant amendments Owner's property; to land use entitlement for the Property

7. any previously undisclosed governmentally-imposed commencement or continuation of development of the Property; 8. any previously undisclosed challenges to development of the Property; legislative,

preconditions

to

administrative

or judicial

9. any material change in the alignment, design or likelihood of completion of significant public improvement being constructed by the Property Owner affecting the Property, including major thoroughfares, sewers, water conveyance systems and similar facilities; and 10. 6. The assumption of any obligation by a Major Owner pursuant to Section

45647839,1

(b) The Fiscal Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request that the Property Owner promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Fiscal Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Fiscal Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. The Fiscal Agent shall have no responsibility to determine the materiality of any of the Listed Events. (c) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or otherwise, the Property Owner shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Property Owner has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Property Owner shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the Property Owner determines that the Listed Event would not be material under applicable federal securities laws, the Property Owner shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) If the Dissemination Agent has been instructed by the Property Owner to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. SECTION 6. Duration of Reporting Obligation. (a) All of the Property Owner's obligations hereunder shall commence on such date as property owned by the Property Owner is responsible for payment of 20% or more of the special taxes in Improvement Area No. 1 and shall terminate (except as provided in Section 11) upon (i) the legal defeasance, prior redemption or payment in full of all the Bonds or (ii) so long as the Bonds are outstanding, at such time as property owned by the Property Owner is no longer responsible for payment of 20% or more of the special taxes in Improvement Area No. 1. Upon the occurrence of any such termination or suspension prior to the final maturity of the Bonds, the Property Owner shall give notice of such termination or suspension in the same manner as for a Listed event under Section 5. (b) If a portion of the property in Improvement Area No. 1 of the District owned by the Property Owner, or any Affiliate of Property Owner, is conveyed to a Person that, upon such conveyance, will be a Major Owner, the obligations of Property Owner hereunder
45647839.1

with respect to such property owned by such Major Owner and its Affiliates shall be assumed by such Major Owner or by an Affiliate thereof and the Property Owner obligations hereunder will be terminated. In order to effect such an assumption, such Major Owner or Affiliate shall enter into an Assumption Agreement. The entering into an Assumption Agreement by such Major Owner or Affiliate shall be a condition precedent to the conveyance of such property and the Property Owner shall provide a copy of the executed Assumption Agreement to the Fiscal Agent and the Issuer prior to such conveyance. SECTION 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Property Owner pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the Property Owner, the Issuer and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Property Owner in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Property Owner, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to any amendment so requested by the Property Owner) provided, neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Property Owner shall describe such amendment in the next Annual Report, and shall include, as
45647839.1 7

applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Property Owner. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Property Owner chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Property Owner shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Property Owner or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent (at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Property Owner or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Property Owner or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Azent. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Property Owner agrees to indemnify and save the Dissemination Agent and Fiscal Agent, their officers, directors, employees and agents (the "Indemnified Party"), harmless against any loss, expense and liabilities which they may incur arising out of or in the reasonable exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attomeys fees) of defending against any claim of liability, but excluding losses, expenses or liabilities due to any Indemnified Party's respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Property Owner for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be
45647839.1 8

acting in any fiduciary capacity for the Property Owner, the Bondholders, or any other party. Neither the Fiscal Agent or the Dissemination Agent shall have any liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Agreement. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the Issuer: City of Indio Community Facilities District No. 2004-3 (Terra Lago) c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Telephone: (760) 342-6580 Facsimile: (760) 342-6597 Union Bank of California, N.A. 120 S. San Pedro Street, 4thFloor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694

To the Fiscal Agent:

To the Dissemination Agent: Union Bank of California, N.A. 120 S. San Pedro Street, 4 th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694 To the Property Owner: Woodside Portofino, Inc. C/o Woodside Homes of Southern California 23121 Antonio Parkway, Suite 120 Rancho Santa Margarita, CA 92688 Attn: Jeremy Telford, Project Manager Tel: 949.835.9242 Fax: 949.858.4984

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Property Owner, the Fiscal Agent, the Dissemination Agent, the Participating

45647839.1

Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

45647839.1

10

SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. WOODSIDE PORTOFINO, INC., a California corporation

By /_,_..o,_ Name: __ Peg_y_eynoso Title: Secretary

UNION BANK OF CALIFORNIA, N.A., as Dissemination Agent and Fiscal Agent

By Authorized Officer

45647839.1

1 1

SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. WOODSIDE PORTOFINO, INC., a Califomia corporation

By Name: Title:

UNION BANK OF CALIFORNIA, N.A., as Dissemination Agent and Fiscal Agent

Authorized Officer

45647839.1

11

EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party: Name of Bond Issue:

Woodside Portofino, Inc. City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) September 15, 2005

Date of Issuance:

NOTICE IS HEREBY GIVEN that the Property Owner has not provided an Annual Report with respect to the above-named Bonds as required by the Developer Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The Property Owner anticipates that the Annual Report will be filed by .] Dated: UNION BANK OF CALIFORNIA, N.A., on behalf of Property Owner

cc: Issuer Property Owner

45647839.1

A-1

14

SIGNATURE AND INCUMBENCY CERTIFICATE

We, the undersigned officers of the City of Indio (the "City"), as indicated by the titles opposite our respective signatures, DO HEREBY CERTIFY as follows: 1. The undersigned Mayor of the City has duly signed by manual signature each of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"), and said manual signature appearing on the Bonds is a true and lawful signature. 2. The undersigned Mayor has duly signed by manual signature the Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Union Bank of California, N.A., as fiscal agent, this day delivered. 3. The undersigned City Clerk has duly signed by manual signature each of the Bonds this day delivered, and said manual signature appearing on the Bonds is a true and lawful signature. 4. The following are the respective signatures of the Mayor, the City Manager, the Director of Administrative Services and the City Clerk of the City: Name and Title Signature

Melanie Glenn Southard, Fesmire, City Mayor Manager

__>

Michael Busch, Finance Director

,O.

!_/,"

_t,__

Cynthia Hernandez, City Clerk

@_'_"Q___

At the time the Mayor signed said Fiscal Agent Agreement, and also on the date of this certificate, which is the date of actual delivery of the Bonds to the purchasers of the Bonds, he was the duly chosen, qualified and acting officer indicated therein and authorized to execute the same, by manual signature or by facsimile signature, and that any officer executing said Bonds by facsimile signature has filed with the Secretary of State of the State of California his/her manual signature, certified by him/her under oath as provided by the Uniform Facsimile Signatures of Public Officials Act (Government Code Section 5500, et se_K.q.).

45655340.1

5. The persons holding the following offices and positions are duly appointed or elected and qualified thereto and acting therein and were so on and after January 1, 2005 to and including the date hereof. Name Melanie Fesmire Glenn Southard Michael Busch Cynthia Hemandez Title Mayor City Manager Finance Director City Clerk

I HEREBY CERTIFY that each of the above signatures is the true and genuine signature of the person who is now the duly chosen, qualified and acting officer indicated by the official title following such signature. Dated: September 15, 2005 CITY OF INDIO

By

__

45655340.1

01

OFFICER'S CERTIFICATE OF THE CITY

I, Glenn Southard, City Manager of the City of Indio (the "City"), on behalf of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District"), DO HEREBY CERTIFY as follows: 1. The representations of the District in the Purchase Contract are true, complete and correct as if made on the date hereof. 2. The Fiscal Agent Agreement is in full force and effect in accordance with their terms and have not been amended, modified or supplemented and the Official Statement has not been supplemented or amended. 3. All necessary official action of the District relating to the Basic Documents has been taken and is in full force and effect and such documents have not been amended, modified or supplemented in any material respect. 4. There has not occurred any change in or affecting particularly the District or the Bonds, as the foregoing matters are described in the Official Statement. 5. No action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, is pending or, to the best of our knowledge of any of us, threatened against the District, affecting the corporate existence of the District, or affecting or seeking to prohibit, restrain or enjoin the execution and delivery of the applicable Basic Documents or the pledge or application of any moneys or security provided thereby or in any way contesting or affecting the validity or enforceability of the applicable Basic Documents, or contesting in any way the completeness or accuracy of the Official Statement or any supplement or amendment thereto, or contesting the power of the District to execute and deliver the applicable Basic Documents, nor to the best of the knowledge of any of us, is there any basis therefor, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Bonds, the Fiscal Agent Agreement or the Continuing Disclosure Agreement. This certificate is delivered pursuant to Section 8(e)(4) of the Purchase Contract, dated September 7, 2005 (the "Purchase Contract"), by and between the District and Southwest Securities, Inc. Capitalized terms not otherwise defined in this certificate shall have the meanings set forth in the Purchase Contract. Dated: September 15, 2005 CITY OF INDIO

By

_!____a[ie_r

)_

_'__

45655340.1

CERTIFICATE

RELATING TO THE OFFICIAL STATEMENT

I, Glenn Southard, City Manager of the City of Indio, acting on behalf of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District"), DO HEREBY CERTIFY as follows: 1. The District has complied with all the agreements and satisfied all of the conditions it is required to perform or satisfy prior to the Closing. 2. No event affecting the District has occurred since the date of the Official Statement, which date is September 7, 2005, which either makes untrue in any material respect as of the Closing any statement contained in the Official Statement or which is not reflected in the Official Statement but should be reflected therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Dated: September 15, 2005 CITY OF INDIO. t"

By

City_g__r

_ _-)_

__

45655340.1

",4

DIRECTION TO FISCAL AGENT TO AUTHENTICATE AND DELIVER THE BONDS

September 15, 2005 Union Bank of California, N.A., as Fiscal Agent Ladies and Gentlemen: There has been heretofore delivered to you, duly executed, $26,330,000 aggregate principal amount of City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") issued under and pursuant to the Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Union Bank of California, N.A., as fiscal agent. You are hereby ordered to authenticate the Bonds and when so authenticated to deliver the Bonds or cause the Bonds to be delivered to or upon the order of Southwest Securities, Inc. as the Underwriter of the Bonds. CITY OF IND_ [O

By Accepted: UNION BANK OF CALIFORNIA, N.A., as Fiscal Agent

_'_

]_']_

Officer

45655340.1

O0

DIRECTION AND ACKNOWLEDGMENT OF THE CITY AS TO APPLICATION OF MONEYS AT CLOSING

September 15, 2005

Union Bank of California, N.A., as Fiscal Agent Ladies and Gentlemen: In accordance with the provisions of the Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"), the proceeds from the sale of $26,330,000 aggregate principal amount of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") shall be deposited with the Fiscal Agent on the date hereof. The total amount of such sale proceeds is $25,824,283.00 (which equals the principal amount thereof, less an Underwriter's discount of $434,445.00, and less net original issue discount of $71,272.00). Pursuant to the Fiscal Agent Agreement, you are hereby directed to deposit and apply such amounts immediately as shown in Schedule A, attached hereto. CITY OF INDIO

By

/_'__ __//_ City M_' anager

_'_//3t'__ _f

45655340.1

SCHEDULE A APPLICATION OF MONEYS AT CLOSING

In accordance with the terms of the Fiscal Agent Agreement, upon receipt of payment for the Bonds, the Fiscal Agent shall deposit such amounts in the following accounts: (1) $335,000.00 shall be deposited in the Costs of Issuance Acquisition and Construction Fund. Account of the

(2) (3) (4) (5)

$19,497,172.37 shall be deposited in the Acquisition and Construction Fund. $1,758,080.00 shall be deposited in the Reserve Account of the Special Tax Fund. $1,234,030.63 shall be deposited in the Interest Account of the Special Tax Fund. $3,000,000.00 shall be deposited in the Special Escrow Fund.

45655340.1

COSTS OF ISSUANCE REQUISITION NO. 1

1. The City of Indio (the "City") hereby requests Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent") pursuant to that certain Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and the Fiscal Agent under the terms of which the District has issued its Special Tax Bonds, Series 2005 (Improvement Area No. 1), to pay from the moneys in the Costs of Issuance Account of the Acquisition and Construction Fund established pursuant to the Fiscal Agent Agreement, the amounts shown on Schedule I attached hereto to the parties indicated in Schedule I. 2. The payees, the purposes for which the costs have been incurred, and the amount of the disbursements requested are itemized on Schedule I hereto. 3. Each obligation mentioned in Schedule I hereto has been properly incurred and is a proper charge against the Costs of Issuance Account. None of the items for which payment is requested has been reimbursed previously from the Costs of Issuance Account. Dated: September 15, 2005 CITY OF INDIO

By

Cl_tyf; a_ger__

45655340.1

SCHEDULE I TO COSTS OF ISSUANCE REQUISITION NO. 1

Fulbright & Jaworski L.L.P. Fulbright & Jaworski L.L.P. Harrell & Company Advisors, LLC Union Bank of California N.A. Merrill Corporation City of Indio California Municipal Statistics, Inc. Southwest Securities, Inc. First American Tax Valuation Market Profiles, Inc. Albert A Webb Associates Suncal

Bond Counsel Disclosure Counsel Financial Advisor Trustee Official Statement Printing City Administration Fee Direct/Overlapping Debt Schedule Underwriting Expenses Appraiser Market Absorption Consultant Special Tax Consultant Developer Reimbursement

$104,925.00 50,000.00 60,500.00 4,000.00 17,000.00 25,000.00 400.00 5,000.00 17,500.00 11,996.75 6,958.96 28,691.04

45655340.1

PROJECT COSTS REQUISITION NO. 1

1. The City of Indio (the "City") hereby requests Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent") pursuant to that certain Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and the Fiscal Agent under the terms of which the District has issued its Special Tax Bonds, Series 2005 (Improvement Area No. 1), to pay from the moneys in the Acquisition and Construction Fund established pursuant to the Fiscal Agent Agreement, the amounts shown on Schedule I attached hereto to the parties indicated in Schedule I. 2. The amount is due and payable under purchase order, contract or other authorization and has not formed the basis of any prior request for payment. The conditions to the release of this amount from the Acquisition and Construction Fund are satisfied. 3. There has not been filed with nor served upon the District notice of any lien, right to lien or attachment upon, or stop notice or claim affecting the right to receive payment of the amount specified above which has not been released or will not be released simultaneously with the payment of such amount, other than materialmen's or mechanic's liens accruing by mere operation of law.

Dated: September 15, 2005

CITY OF _II, __ ]_ By Ci_'y1V_anager

_A/

45655340.1

SCHEDULE I TO PROJECT COSTS REQUISITION NO. 1

a P _EY_9_q City City City City City City City City of of of of of of of of Indio Indio Indio Indio Indio Indio Indio Indio

Description Storm Drainage Fees Fire Station Mitigation Fee Sheriff/Police Fee Park Fee Bridge/Major Street Impact Fee TUMF Water Capital Improvement Fee Park Capital Impact Fee Total

Amount $87,595.00 1,000,000.00 54,060.00 254,400.00 445,200.00 504,984.00 4,489,471.00 1,264,368.00 $8,100,078.00

45655340.1

ACKNOWLEDGMENT

OF RECEIPT

Union Bank of California, N.A., as Fiscal Agent, hereby acknowledges that it has received proceeds of the sale of the $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) in the amount of $25,824,283.00 and has further received the Direction of the City of Indio as to Application of Moneys at Closing, dated the date hereof (the "Direction"), and further acknowledges that it has deposited such proceeds in accordance with the Direction. Dated: September 15, 2005 UNION BANK OF CALIFORNIA, N.A., as Fiscal Agent

By

(_

J tAuthorized

'...... Officer

{C_-L_-f-t-

.......

45655340.1

19

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

TAX CERTIFICATE AS TO ARBITRAGE AND THE PROVISIONS OF SECTIONS 103 AND 141-150 OF THE INTERNAL REVENUE CODE OF 1986 In connection with the issuance by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "CFD"), which was established by the City of Indio, California (the "City"), of its $26,330,000 Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"), pursuant to the terms of that certain Fiscal Agent Agreement, dated as of September 1, 2005 (the "Agreement"), by and between the CFD and Union Bank of California, N.A., as Fiscal Agent (the "Fiscal Agent"), and in furtherance of the covenants of the City contained in Section 5.2(6) of the Agreement, the City, on behalf of the CFD, makes and enters into the following Tax Certificate as to Arbitrage and the Provisions of sections 103 and 141-150 of the Internal Revenue Code of 1986 (the "Tax Certificate"). 1. DEFINITIONS.

Capitalized terms, if not otherwise defined herein, shall have the meanings set forth in Appendix I or, where not so defined, then in the Agreement; provided, however, that terms enclosed in quotation marks and not otherwise defined herein shall have the same meanings as when used in sections 103 and 141-150 of the Code or the Treasury Regulations promulgated thereunder. 2. REPRESENTATIONS.

(a) Issuance of the Bonds; Purposes of the Bonds. On the date hereof (the "Closing Date"), the Bonds are being issued by the City pursuant to the Agreement and delivered to the first purchasers thereof in exchange for the proceeds of sale thereof. The Bonds are being issued for the purpose of: (i) financing certain governmentally-owned public improvements (including the payment of certain development impact fees); (ii) the funding of interest on the Bonds through September 1, 2006; (iii) the funding of a Reserve Account; and (iv) the funding of the costs of issuance of the Bonds (collectively, the "Project"). No portion of the proceeds of the Bonds is to be used to pay interest on, or redemption premium or principal of, any governmental obligation (other than the Bonds). (b) Source of Payment of Bonds. The Bonds are limited obligations of the CFD, payable only out of Special Taxes (the "Special Taxes") and any other amounts (including proceeds of the sale of the Bonds) held in any fund or account established pursuant to the Agreement. The City reasonably expects that the Special Taxes will be sufficient on an annual basis to make all payments of debt service on the Bonds as and when the same become due and payable within such annual period.

45655812.1

(c) Single Issue. The CFD has not issued nor will it issue other obligations that were or will be: (a) sold at substantially the same time as the Bonds (i.e., less than 15 days apart); (b) sold pursuant to the same plan of financing with the Bonds; and (c) reasonably expected to be paid from substantially the same sources of funds as will be used to pay the Bonds. (d) No Replacement; Average Maturity. No portion of the amounts received from the sale of the Bonds will be used as a substitute for other funds that otherwise were to be used as a source of financing for the Project and that have been or will be used to acquire, directly or indirectly, Investment Property producing a yield in excess of the "yield" on the Bonds. The weighted average maturity (19.3 years) of the Bonds does not exceed 120 percent of the average reasonably expected economic life of the Project, where: (1) the weighted average maturity of the Bonds has been determined taking into account the issue price of each maturity of the Bonds; and (ii)the average reasonably expected economic life of the Project has been determined (A) taking into account the amount of Proceeds expected to be used to acquire, install or construct each unit of financed property, and (B) assuming that the expected economic life of that unit of property is (w) in the case of an interest in land, thirty years (provided that for this representation if not as much as 25% of the proceeds of the Bonds are to be allocated to the acquisition of such interests, then the use of proceeds of the Bonds for such purpose has been disregarded), (x)in the case of an improvement to land, twenty years, (y)in the case of a building, the life set forth in Revenue Procedure 62-21, and (z) in the case of any other property, the mid-point asset depreciation range life set forth in Revenue Procedure 83-35, 1983-1 C.B. 745, in each case determined as of the later of the Delivery Date or the date on which such unit of property is expected to be placed in service. (e) Statement as to Facts, Estimates and Circumstances. The facts and estimates set forth in this Tax Certificate on which the City's expectations as to the amount and use of the Gross Proceeds of the Bonds are based are made to the best of the knowledge and belief of the undersigned officer of the City and the City's expectations are reasonable. The undersigned is an officer of the City responsible for the issuance of the Bonds, who has made due inquiry with respect to and is fully informed as to the matters set forth herein. (f) Bonds Not Hedge Bonds. The City (i) reasonably expects as of the date hereof, which is the Closing Date, that no less than 85 percent of the spendable proceeds of the Bonds will be expended for the governmental purposes of the issue within the three-year period commencing on the Closing Date, and (ii) covenants that no more than 50% of the proceeds of the Bonds at any time will be invested in investments that would provide a substantially guaranteed yield for 4 years or more. 3. REASONABLE EXPECTATIONS ESTIMATES AND CIRCUMSTANCES. OF THE CITY AS TO FACTS,

The City makes the following representations and statements of fact and expectation on the basis of which it is not expected that the proceeds of or other amounts (including replaced proceeds) in respect of the Bonds will be used in a manner that will cause such bonds to be "arbitrage bonds" within the meaning of section 148 of the Code.

45655812.1

(a)

Application of Bonds Sale Proceeds and Accrued Interest.

(1) Sale Proceeds; No Overissuance. The aggregate amount to be received by the City from the sale of the Bonds (the "Bonds Sale Proceeds") will be $26,258,728.00, being equal to the aggregate principal amount of the Bonds ($26,330,000) less net original issue discount of $71,272.00 (the Bonds having been sold without accrued interest). The Bonds Sale Proceeds and any anticipated investment earnings thereon, after taking into account the other monies described below and made available for the Project by reason of the current transaction, do not exceed the amount necessary for the Project. (2) Reserve Account of the Special Tax Fund. On the Closing Date, Bonds Sales Proceeds in the amount of $1,758,080.00 (which amount is not greater than 10% of the Bonds Sale Proceeds) will be deposited on behalf of the City into the Reserve Account of the Special Tax Fund established under the Agreement (described further below). (3) Costs of Issuance Account of the Acquisition and Construction Fund. On the Closing Date, Bonds Sales Proceeds in the amount of $335,000.00 will be deposited into the Costs of Issuance Account of the Acquisition and Construction Fund established under the Agreement. Bonds Sales Proceeds held in the Costs of Issuance Account will be applied to the payment of costs of issuance of the Bonds. On a date 180 days from the date of delivery of the Bonds, any amounts remaining in the Costs of Issuance Account are to be transferred into the Special Tax Fund for application of such monies to the purposes thereof (described below). (4) Underwriter's Discount. An amount of the Bonds Sale Proceeds equal to $434,445.00 will be retained by Southwest Securities, Inc. (the "Underwriter") as a discount. (5) Acquisition and Construction Fund. On the Closing Date, Bonds Sale Proceeds in the amount of $19,497,172.37 will be deposited into the Acquisition and Construction Fund established under the Agreement to pay the cost and expense of the Project. (6) Special Escrow Fund. On the Closing Date, Bonds Sale Proceeds in the amount of $3,000,000.00 will be deposited into the Special Escrow Fund established under the Agreement. Upon the happening of certain conditions set forth in the Agreement, amounts are to be transferred from the Special Escrow Fund into the Acquisition and Construction Fund. Should any amounts remain on deposit in the Special Escrow Fund on the Initial Escrow Close Date (July 15, 2007) or a Revised Escrow Close Date and not be releasable, such amounts are to be used to redeem the Special Escrow Term Bonds on September 1, 2007 or such later date as is permitted under the Agreement. (7) Funded Interest. On the Closing Date, the balance of the Bonds Sale Proceeds in the amount of $1,234,030.63 (capitalized interest to September 1, 2006) will
45655812.1 3

be deposited in the Interest Account of the Special Tax Fund and applied to the payment of interest on the Bonds as it becomes due and payable on March 1, 2006 and September 1, 2006. (b) Bonds Sinking Fund.

Pursuant to the Fiscal Agent Agreement, the Special Tax Fund and, within the Special Tax Fund the Interest Account, the Principal Account, the Reserve Account (described below) and the Administrative Expense Account are established. The payment of debt service on the Bonds is expected to be made out of the Special Taxes; all such monies, after deduction of Administrative Expenses, are pledged to that purpose. Under the Agreement, the CFD is to transfer the Special Taxes upon receipt to the Fiscal Agent for deposit in the Special Tax Fund. For the purpose of assuring that the payment of principal of and interest on the Bonds, at least five Business Days prior to each March 1 and September 1, the Fiscal Agent is to transfer to Interest Account, an amount such that the balance in the Interest Account is equal to the interest becoming due on the Bonds on the immediately following Interest Payment Date (which are to be used for the payment of interest on the Bonds on such Interest Payment Date) and to the Principal Account, an amount such that the balance in the Principal Account is equal the principal of the Bonds maturing on such September 1 and any previously matured principal of the Bonds that remains unpaid (which are to be used for the payment of principal of the Bonds on such date). Further, on each September 1 on which a Sinking Fund Payment is due, after the deposits have been made to the Interest Account and the Principal Account, the Fiscal Agent shall next transfer into the Redemption Account the amount needed to make the balance in the Redemption Account. After making the deposits to the Interest Account, the Principal Account and the Redemption Account for Sinking Fund Payments then due, and in accordance with the CFD's election to call Bonds for optional redemption, the Fiscal Agent is to transfer from the Special Tax Fund into the Redemption Account additional moneys available for the purpose and sufficient to pay the interest, the principal and the premiums, if any, payable on Bonds for optional redemption. Moneys set aside in the Redemption Account are to be used solely for the purpose of redeeming Bonds on the respective redemption date. After making the transfers described above (and after making any transfer necessary to maintain the balance in the Reserve Account), as soon as practicable after each September 1, the Fiscal Agent is to transfer all remaining amounts in the Special Tax Fund to the Surplus Fund established under the Agreement, other than amounts in the Special Tax Fund that the CFD directs the Fiscal Agent by Written Request of the CFD to retain because the CFD has included such funds as being available in the Special Tax Fund in calculating the amount of the levy of Special Taxes for such Fiscal Year. Moneys deposited in the Surplus Fund are to be transferred by the Fiscal Agent (i) to any other reserve account established in connection with issuance of bonds for any other improvement area within the CFD to the extent amounts in such reserve account is less than the reserve requirement for that reserve account, and (ii) to the Administrative Expense Account of the Special Tax Fund to pay Administrative Expenses to the extent that the amounts on deposit in the Administrative Expense Account of the Special Tax Fund are insufficient to pay Administrative Expenses or, upon the Written Request of the CFD, may be disbursed to the CFD to be expended for any other lawful purpose of the CFD.
45655812.1 4

The amounts in the Surplus Fund are not pledged to the repayment of the Bonds and there can be no reasonable assurance that monies would be available in the Surplus Fund for the payment of debt service on the Bonds were the CFD to encounter financial difficulty. Nevertheless, in the event that the CFD reasonably expects to use any portion of the moneys in the Surplus Fund to pay debt service on the Bonds, the CFD will direct the Fiscal Agent to segregate such amount into a separate subaccount and the moneys on deposit in such subaccount of the Surplus Fund shall be held not invested in Investment Property, or invested in Investment Property to produce a yield that is not in excess of the yield on the Bonds unless, in the opinion of Bond Counsel, investment at a higher yield would not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. By reason of the foregoing structure, payment of debt service on the Bonds will be funded out of amounts deposited and held in the Special Tax Fund. These portions of the Special Tax Fund deposited in the Interest Account, the Principal Account, and that portion of the Redemption Account that includes only monies that are to be applied to the payment of principal of, or interest or premium on, the Bonds in the Bond Year within which such monies were received by the CFD, and are so used (the "Bonds Sinking Fund"), will be used primarily to achieve a proper matching of Special Taxes to the debt service on the Bonds within a Bond Year and will be depleted at least once each year except for a reasonable carryover amount not exceeding the greater of (i) the earnings on the Bonds Sinking Fund for the immediately preceding Bond Year, or (ii) one-twelfth of the principal and interest payments on the Bonds for the immediately preceding Bond Year. For that reason, to the extent allocable to the Bonds (as provided under section 1.148-6 of the Treasury Regulations, referred to above), the Redemption Account of the Special Tax Fund will constitute a sinking fund that is a "bona fide debt service fund" in respect of the Bonds, within the meaning of the Treasury Regulations. To the extent that any amounts held in the Special Tax Fund constitute "gross proceeds" of the Bonds, but are not included within the Bonds Sinking Fund, such amounts (unless otherwise provided herein) must either be held not invested in Investment Property or invested in Investment Property to produce a yield that is not in excess of the yield on the Bonds. (c) Reserve Account.

Under the Agreement, the Reserve Account is established. Monies in the account will be transferred to the Special Tax Fund (described above), if needed, to make up any deficiency therein. In the event of a temporary interruption of revenues supporting the Bonds, the Reserve Account is intended to provide for the payment of debt service. The Reserve Account will be valued on an ongoing basis; for such purpose, investments in the Reserve Account will be valued at their fair market value as provided in section 1.148-5 of the Treasury Regulations. In the event that at any time the value of the Reserve Account exceeds the Reserve Requirement established under the Agreement, and except as provided in the following sentence, an amount equal to such excess will be transferred to the Interest Account of the Special Tax Fund and applied to the purposes thereof. Pending such application such excess funds in the Reserve Account (the "Excess Reserve Account") shall be held either not invested in Investment Property, or invested in Investment Property to produce a yield that is not in excess of the yield on the Bonds. The Reserve Requirement on any date of calculation is an amount
45655812.1 5

equal to the least of (i) the Maximum Annual Debt Service with respect to the Bonds for that and any subsequent year, (ii) 125% of the average annual debt service of any Bond Year on the then Outstanding Bonds, or (iii) 10% of the proceeds (within the meaning of section 148 of the Code) of the Bonds. The Underwriter has advised the City that the establishment and funding of the Reserve Account in the amount of the Reserve Requirement is customary for municipal obligations bearing terms and creditworthiness similar to the Bonds, that the Reserve Account was a vital factor in the marketing of the Bonds at the interest rates obtained, and that the Reserve Account or a similar security may be reasonably expected to be necessary to the maintenance of an orderly secondary market for the Bonds. Based upon foregoing, the City believes that the Reserve Account constitutes a "reasonably required reserve or replacement fund" within the meaning of section 148(b) of the Code. (d) No Other Replacement Funds.

Other than the funds and accounts described above, the CFD neither has established nor will establish any fund or account monies in which are reasonably expected to be used to pay directly or indirectly debt service on the Bonds or within which there can be any reasonable assurance that monies would be available for the payment of such debt service were the City to encounter financial difficulties. (e) Yield.

(1) Bond Yield. The "yield" on the Bonds is the discount rate that, when used in computing the present value on the Closing Date of all the expected issue payments of principal of and interest on the Bonds, produces an amount equal to the present value, using the same discount rate, of the aggregate issue price of the issue on the Closing Date thereof. The present value on the Closing Date of the aggregate issue prices of the Bonds, based upon certain information provided by the Underwriter and set forth in the lnitial lssue Price Certificate attached hereto, is $25,824,283.00 (the par amount of the Bonds of $26,330,000 less net original issue discount in the amount of $71,272.00). The yield on the Bonds, computed in this manner and set forth by the Underwriter in the lnitial Issue Price Certificate is 5.0191%.

45655812.1

(2)

Expectations Regarding Yield Limitations. (i) Summary Chart. Temporary Period of Unrestricted Investment 3 Years from Closing Date 13 months Unlimited 13 months Restriction After Temporary Period Yield on Bonds plus %%1 Yield on Bonds plus %% N/A N/A Excepted From Rebate (Y)/(N) N2 N N Y

Account

Acquisition and Construction Fund Costs of Issuance Account Reserve Account (other than Excess Reserve Account) Bonds Sinking Fund [i.e., Special Tax Fund (to the extent of monies to be used to pay debt service on the Bonds within the Bond Year in which received, and allocable to Bonds)] Special Tax Fund (to the extent not included in Bonds Sinking Fund) Special Escrow Fund Excess Reserve Account and Other "Replacement Proceeds" of Bonds Investment Proceeds (i.e., earnings on Bonds Sale Proceeds)

30 days

Yield on Bonds

None 30 days

Yield on Bonds Yield on Bonds

N N

Later of period above or One Year from Receipt

Yield on Bonds plus 1/8%3

If, upon or after the expiration of the Temporary Period, there exist any Gross Proceeds that are subject to yield restriction, then for so long as such condition persists the applicable restriction on Proceeds held in the Construction and Acquisition Fund shall be the Yield on the Bonds. 2 Unless one of the three spending exceptions described under Treas. Reg. 1.148-7 is satisfied. If, upon or after the expiration of the Temporary Period, there exist any Gross Proceeds that are subject to yield restriction, then for so long as such condition persists the applicable restriction on Investment Proceeds held in the Acquisition and Construction Fund shall be the Yield on the Bonds. 7

45655812.1

(ii) Acquisition and Construction Fund. The City reasonably expects that (i) at least 85% of the net sale proceeds of the Bonds will be allocated to expenditures on the capital projects by the end of the 3-year temporary period; (ii) the City has incurred or will within 6 months of the Closing Date incur a substantial binding obligation to a third party to expend at least 5 percent of the net sale proceeds of the Bonds on the capital projects; and (iii) the City will cause the completion of the capital projects and the allocation of the net sale proceeds of the Bonds to expenditures to proceed with due diligence. As provided in section 1.148-2(e) of the Treasury Regulations, proceeds of the Bonds, including investment proceeds, held in the Construction and Acquisition Fund may be invested without regard to arbitrage yield restriction for an initial temporary period of three years from the Closing Date. Thereafter, the City will hold any "proceeds" of the Bonds remaining in the Construction and Acquisition Fund either not invested in Investment Property, or invested in Investment Property to produce a yield that is not in excess of the yield on the Bonds (provided that if at such time there exist no Gross Proceeds the investment of which is subject to more restrictive arbitrage limitation, then such proceeds may be invested in Investment Property to produce a yield that is not in excess of the yield on the Bonds plus one-eighth percent (_%)). (iii) Special Escrow Fund. Although the City reasonably expects that proceeds held in the Special Escrow Fund will be released into the Acquisition and Construction Fund, such releases are dependent upon the increase in value of the land within the CFD. The City covenants herein that prior to such release Proceeds held in the Special Escrow Fund will be held either not invested in Investment Property, or invested in Investment Property to produce a yield that is not in excess of the yield on the Bonds. (iv) Reserve Account. The amounts in the Reserve Account may be invested without regard to arbitrage yield restriction; provided that any amounts constituting the Excess Reserve Account (as defined above) must be held either not invested in Investment Property, or invested in Investment Property to produce a yield that is not in excess of the yield on the Bonds. Furthermore, amounts in the Reserve Account allocable to the Bonds funding the Special Escrow Fund shall be held either not invested in Investment Property, or invested in Investment Property to produce a yield that is not in excess of the yield on the Bonds. 4. REBATE REQUIREMENT, CALCULATIONS AND PAYMENT. The CFD has covenanted to comply with the rebate requirements of section 148(0 of the Code as the same applies to the Bonds. To provide additional guidance, certain of the regulations promulgated under section 148(0 are summarized in Appendix 111 hereto. Further, Appendix II1 describes certain exceptions to rebate that may make unnecessary any rebate payment with regard to Gross Proceeds of the Bonds. The City does not expect that any such exception will be applicable to the Bonds. In order to assure compliance with this Section 4, the City will seek such additional guidance as it believes necessary.
45655812.1 8

5. ALLOCATION AND ACCOUNTING RULES. The CFD has covenanted to comply with the requirements of section 148 of the Code. To provide additional guidance, certain of the regulations promulgated thereunder pertaining to the allocation and accounting for proceeds, investments and expenditures are summarized in Appendix IV hereto. In order to assure compliance with this Section 5, the City will seek such additional guidance as it believes necessary. Without limitation of the foregoing covenant, the City more specifically covenants that: (i) None of the proceeds of the Bonds will be used to reimburse an Original Expenditure unless (i) such Original Expenditure is described in a Reimbursement Intent Resolution adopted by the Issuer, and (ii) such Original Expenditure was first paid by, or pursuant to an agreement with or otherwise on behalf of, the City not earlier than sixty days prior to the Intent Resolution Date in respect of such Reimbursement Intent Resolution; (ii) No more than twenty percent of the Proceeds of the Bonds will be allocated to Preliminary Expenditures; and (iii) None of the proceeds of the Bonds will be allocated to the reimbursement of a Working Capital Expenditure unless either (i) both on the date on which such Working Capital Expenditure was paid and on the date on which such purported allocation is made the City had and has no "available amounts" (within the meaning of section 1.148-6(d)(3)(iii) of the Treasury Regulations) from which to make such payment or reimbursement, (ii) the Working Capital Expenditure is a de minimis expenditure, is an extraordinary expenditure or is otherwise described in section 1.148-6(d)(3)(ii) of the Treasury Regulations, or (iii) the Working Capital Expenditure is otherwise not subject to the "proceeds spent last" rules of section 1.148-6(d) of the Treasury Regulations. To the extent that the City reasonably expects to allocate (or subsequently determines to allocate) Proceeds of the Bonds to any Capital Expenditure in reliance upon a Reimbursement Intent Resolution as described in clause (i), above, the City has attached a copy such Reimbursement Intent Resolution to (or will place and maintain a copy of such Reimbursement Intent Resolution with an executed copy of) this Tax Certificate. The City has attached as Schedule I to this Tax Certificate a schedule of the anticipated uses of the proceeds of the Bonds. From time to time, the City will substitute hereto an updated Schedule I to reflect any changes in the anticipated uses of such proceeds and, upon the completion of the Project, the City will attach to this Tax Certificate a final version of Schedule I on which is set forth in detail (or through incorporation by reference of identified records clearly) the allocation of proceeds of the Bonds to expenditures, the computation of reasonably expected economic life (as described above) and any other matters that the City believes may be necessary subsequently to demonstrate compliance with the requirements of sections 103 and 141-150 of the Code. Without limitation of any provision of this Tax Certificate or of the Appendices hereto, the City will establish and maintain (or cause to be established and maintained) until a date not
45655812.1

earlier than six years following the final retirement of the Bonds (and any bonds issued to refund or re-refund all or any portion of the Bonds) detailed records sufficient to establish compliance with this Section 5 (and the expenditure and use of proceeds requirements, restrictions and limitations set forth in this Tax Certificate and under sections 103 and 141-148 of the Code of" (i) the amount of each allocation of Gross Proceeds of the Bonds to any capital or working capital expenditure (and, in the case of an allocation to working capital expenditures, evidence sufficient to establish that on the date of such working capital expenditure there existed no "available amounts" in respect of that expenditure); (ii) the fact (e.g., cancelled check, evidence of wire transfer) of an actual payment corresponding to such allocation; (iii) the identification of the payee and documentary support (e.g., invoices, contracts, legislative or other authorization) for such payment; (iv) the purpose of such the expenditure; and (v) any other information that the City believes may be necessary to such determination. 6. PROHIBITED INVESTMENTS AND DISPOSITIONS. Upon the purchase or sale of a Nonpurpose Investment, Gross Proceeds of the Bonds are not to be allocated to a payment for that Nonpurpose Investment in an amount greater than, or to a receipt from that Nonpurpose Investment in an amount less than, the fair market value of the Nonpurpose Investment as of the purchase or sale date. The fair market value of a Nonpurpose Investment is adjusted to take into account Qualified Administrative Costs allocable to the investment. Thus, Qualified Administrative Costs increase the payments for, or decrease the receipts from, a Nonpurpose Investment. To provide additional guidance, certain rules with respect to compliance with these requirements are summarized in Appendix V hereto. In order to assure compliance with this covenant, the City will seek such additional guidance as it believes necessary. Without limitation of any provision of this Tax Certificate or of the Appendices hereto, the City will establish and maintain (or cause to be established and maintained) until a date not earlier than six years following the final retirement of the Bonds (and of any notes or bonds issued to refund or re-refund all or any portion of the Bonds) detailed records sufficient to establish compliance with this Section 6 (and with the arbitrage, arbitrage rebate, hedge bond or other investment-affected requirements, restrictions and limitations set forth in this Tax Certificate and under sections 103 and 141-148 of the Code) of the acquisition, disposition or other allocation of any Nonpurpose Investment to or away from Gross Proceeds of the Bonds, including particularly: (i) the date of such allocation; (ii) the identity and terms of such investment (including, where appropriate, a copy of the instrument, contract, lease or other documentary manifestation of such Investment Property)," (iii) the value (as determined in accordance with the provisions of section 1.148-5(d) of the Regulations) of such investment on the date of allocation (and on each other date on which valuation is necessary to assure compliance with the aforementioned provisions); (iv) the date and amount of each payment made for or pursuant to such investment and the source (by fund or accounO of that payment; (v) the date and amount of each payment received directly or indirectly in respect of such investment," and (vi) any other information that the City believes will be necessary to such demonstration. 7. NO FEDERAL GUARANTEE. The City covenants not to invest five percent or more of the proceeds of the Bonds in federally insured deposits or accounts or otherwise invest such proceeds in any obligation the payment of principal or interest on which is (in whole or in part) a direct obligation of or guaranteed by the United States (or any agency or instrumentality
45655812.1

10

thereof). Notwithstanding the foregoing, the City may invest the proceeds of the Bonds in any investment guaranteed by the following agencies of the United States: (a) the Federal Housing Administration; (b) the Veterans Administration; (c) the Federal National Mortgage Association; (d) the Federal Home Loan Mortgage Corporation; and (e) the Government National Mortgage Association. Moreover, the City may invest the proceeds of the Bonds (a) during an initial temporary period until such proceeds are needed for the purpose for which the issue comprising such Bonds were issued; (b) in the Bonds Sinking Fund; (c) in obligations issued by the United States Treasury; or (d) in obligations issued pursuant to Section 21B(d)(3) of the Federal Home Loan Bank Act, as amended by Section 51 l(a) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, or any successor provision. 8. RESTRICTIONS ON ASSESSMENT LOANS AND NONGOVERNMENTAL USE. The City covenants that, except as would not cause any of the Bonds to become a "private activity bond" within the meaning of section 141 of the Code, it will take all actions necessary to assure that (i) it will own, operate and possess all property financed directly or indirectly with Gross Proceeds of the Bonds, and (ii) will not directly or indirectly impose or accept or otherwise enjoy the benefit of any charge or other payment by any person or entity (other than a state or local government) who is treated as using any Gross Proceeds of the Bonds or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with such Gross Proceeds. All of the proceeds of the Bonds will be expended for one or more specific "essential governmental functions" (within the meaning of section 1.141-5 of the Treasury Regulations). For purposes of this section, "nongovernmental person" refers to any state or local governmental unit, or agency or instrumentality thereof, but does not include the federal government or any agency or instrumentality of the federal government. Except as would not cause any Bond to become a "private activity bond" within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the City shall not use or permit the use of Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be "loaned" to a person or entity if: (i) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (ii) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or (iii) indirect benefits of such Gross Proceeds, or burdens and benefits of ownership of any property acquired, constructed or improved with such Gross Proceeds, are otherwise transferred in a transaction that is the economic equivalent of a loan. The Special Taxes are enforced contributions (within the meaning of section 1.141-5 of the Treasury Regulations) in that (i) they are imposed and collected for the purpose of raising revenue to be used for certain public improvements as set forth in Section 2(a) of this Tax Certificate; (ii) they are being imposed pursuant to a state law of general application that can be applied equally to natural persons not acting in a trade or business and persons acting in a trade or business; (iii) they do not include fees for services; and (iv) the terms for payment of the Special Taxes are the same for all assessed persons. Further, and without limitation of the foregoing, the City represents and covenants that:

45655812.1

11

(1) Owners of both business and nonbusiness property benefiting from the financed improvements are and will for so long as any Bond remains not retired be eligible, or required, to make deferred payments of the Special Taxes on an equal basis, and that the terms for payment of the Special Taxes are and will be the same for all taxed or assessed persons. The City will not permit certain property owners to pay the Special Taxes over a period of years while others are required to pay the entire Special Tax immediately or upon the sale of affected property; (2) The proceeds of the Bonds will be used exclusively for essential governmental purposes, which include only improvements to utilities and systems owned by the City or other state or local governments and available for use by the general public (such as sidewalks, streets and street lights; electric, telephone, and cable television systems; sewage treatment and disposal systems; and municipal water facilities), or for other types of facilities (such as parks) owned by the City or other state or local governments and used to provide services customarily performed (and financed with governmental bonds) by governments with general taxing powers; provided, however, the City may, without limitation of the foregoing, apply proceeds of the Bonds to the cost of undergrounding privately-owned utility facilities, provided that such costs are incurred in connection with a general governmental program to further public safety, are with respect to expenditures that the private utility company is under no obligation to incur, and are costs that are properly chargeable to the capital account of the City in respect of governmentally owned streets, roads or other infrastructure, for the use of which neither the utility nor any other nongovernmental person will have any resulting obligation to make any direct or indirect payment; and (3) The City will not require or permit any guarantee of debt service on the Bonds, or of the Special Taxes, by any person having a direct or indirect ownership interest in property benefited by Project if it is reasonable to expect on the date the guarantee is entered into that payments will be made under the guarantee. 9. INFORMATION REPORTING. The City has reviewed the Internal Revenue Service Form 8038-G to be filed in connection with the issuance of the Bonds, a copy of which is attached hereto as Exhibit B, and all of the information contained therein is, to the best of the City's knowledge, true and complete. 10. AMENDMENTS. This Tax Certificate has been executed pursuant to the Agreement wherein the City has covenanted to take such actions as are necessary to maintain the exclusion pursuant to section 103(a) of the Code of interest on the Bonds from the gross income of the owners thereof for purposes of federal income taxation. This Tax Certificate sets forth the information, representations, and procedures necessary in order for Bond Counsel to render its opinion regarding such exclusion of interest and may be amended or supplemented from time to time only to maintain such exclusion and only with the approval of Bond Counsel. Notwithstanding any other provision herein, the covenants and obligations contained herein may be and shall be deemed modified to the extent the City secures an opinion of Bond Counsel that any action required hereunder is no longer required or that some further action is

45655812.1

12

required in order to maintain the exclusion of interest on the Bonds from the gross income for purposes of federal income taxation.

[Remainder of this page intentionally left blank.]

45655812.1

13

11. SUPPLEMENTATION OF THIS CERTIFICATE. The City understands the need to supplement this Tax Certificate periodically to reflect further developments in the federal income tax laws governing the exclusion pursuant to section 103(a) of the Code of interest on governmental obligations, and will, at least once every Bond Year, seek the advice of its counsel as to the propriety of seeking the review of and supplements to this Tax Certificate from Bond Counsel. Dated: September 15, 2005

By: CITY OF " INDIO. /__b_I C_IFORNIA }_. Title: City l_ana_el-

45655812.1

14

APPENDIX I DEFINITIONS

A.

BONDYEARshall mean each one year period that ends on the day selected by the Issuer. If no day is selected by the Issuer before the date that is five years from the Delivery Date, each Bond Year ends on the anniversary of the Delivery Date and on the final maturity date. BONDCOUNSELshall mean Fulbright & Jaworski L.L.P., or any other law finn or law firms appointed by the Issuer, having a national reputation in the field of municipal finance whose opinions are generally accepted by purchasers of municipal bonds. BONDYIELDshall have the meaning set forth in Section 3 of the Tax Certificate. CAPITALEXPENDITURE shall mean a cost of a type properly chargeable (or chargeable upon proper election) to a capital account under general Federal income tax principles. CODEshall mean the Internal Revenue Code of 1986. COMMINGLED FUNDshall mean any fund or account containing both Gross Proceeds of an issue and amounts in excess of $25,000 that are not Gross Proceeds of that issue if the amounts in the fund or account are invested and accounted for collectively, without regard to the source of funds deposited in the fund or account. COMPUTATION DATE shall mean each date on which the rebate for an issue is computed. COMPUTATION DATECREDITshall mean with respect to an issue a credit of $1,000 against the rebatable arbitrage on (i) the last day of each Bond Year during which there are amounts allocated to Gross Proceeds of an issue subject to the Rebate Requirement; and (ii) the final maturity date for an issue. COMPUTATION PERIODshall mean the period between Computation Dates. The first Computation Period begins on the date hereof and ends on the first Computation Date. Each succeeding Computation Period begins on the date immediately following the Computation Date and ends on the next Computation Date. GROSSPROCEEDS shall mean any Proceeds or Replacement Proceeds of an issue. INTENTRESOLUTION DATEshall mean that date on which the Issuer adopted a resolution described in section 1.150-2 of the Regulations, expressing its intent that certain Original Expenditure be reimbursed out of Proceeds (in respect of such Original Expenditure, the "REIMBURSEMENT INTENT RESOLUTION"). The Reimbursement Intent Resolution shall have described the project for which the Original Expenditure was paid

B.

C. D.

E.
F.

G.

H.

I.

J.

K.

I-1

and stated the maximum principal amount of obligations expected to be issued for that project.
L. INVESTMENT PROCEEDS shall mean any amounts actually or constructively received from investing Proceeds of an issue.

M.

INVESTMENT PROPERTY shall mean any security or obligation within the meaning of section 148(b)(2) of the Code, any annuity contract, any interest in any residential rental property for family units which is not located within the jurisdiction of the Issuer, any "specified private activity bond" within the meaning of section 57(a)(5)(C), and any other Investment-Type Property. INVESTMENT-TYPE PROPERTY includes any property that is held principally as a passive vehicle for the production of income. A prepayment for property or services by the Issuer is Investment-Type Property if a principal purpose for prepaying is to receive an investment return from the time the prepayment is made until the time payment otherwise would be made. A prepayment is not Investment-Type Property if (i) the prepayment is made for a substantial business purpose other than investment return and there is no commercially reasonable alternative to the prepayment; and (ii) prepayments on substantially the same terms are made by a substantial percentage of persons who are similarly situated to the Issuer but who are not beneficiaries of tax-exempt financing.
MULTIPURPOSE ISSUE

N.

O.

shall mean an issue that is used for two or more separate

governmental purposes. P. NET SALEPROCEEDS shall mean Sale Proceeds, less the portion of those Sale Proceeds invested in a reasonably required reserve or replacement fund.
NONPURPOSE INVESTMENT

Q.

shall mean any Investment Property that is not a Purpose

Investment.
R.

NONPURPOSE PAYMENT shall mean: 1. amounts actually or constructively paid to acquire a Nonpurpose Investment (or treated as paid to a Commingled Fund); 2. in the case of a Nonpurpose Investment that is first allocated to an issue on a date after it is actually acquired (e.g., an investment that becomes allocable to Transferred Proceeds or to Replacement Proceeds) or that becomes subject to the Rebate Requirement on a date after it is actually acquired (e.g., an investment allocated to a reasonably required reserve or replacement fund for a construction issue at the end of the two year spending period), the Value of that investment on that date; 3. in the case of a Nonpurpose Investment that was allocated to an issue at the end of the preceding Computation Period, the Value of that Nonpurpose Investment at the beginning of the Computation Period; and

I-2

4. the Computation Date Credit. S. Nonpurpose Receipt shall mean: 1. amounts actually or constructively received from a Nonpurpose Investment (including amounts treated as received from a Commingled Fund); 2. in the case of a Nonpurpose Investment that ceases to be allocated to an issue before its disposition or redemption date (e.g., an investment that becomes allocable to Transferred Proceeds of another issue or that ceases to be allocable to the issue pursuant to the Universal Cap) or that ceases to be subject to on a date earlier than its disposition or redemption date (e.g., to a fund initially subject to the Rebate Requirement but that a bona fide debt service fund), the Value of that Nonpurpose and the Rebate Requirement an investment allocated subsequently qualifies as Investment on that date;

3. in the case of a Nonpurpose Investment that is held at the end of a Computation Period, the Value of that Nonpurpose Investment at the end of that Computation Period. T. OmGINALEXPENDITURE shall mean that certain capital expenditures paid by or on behalf of the Issuer prior to the Delivery Date. PLAINPAR BOND(ORPLAINPAR INVESTMENT) shall mean a bond (or an investment) (i) issued (or in the case of an investment acquired on a date other than the issue date, acquired) with not more than a de minimis amount (i.e., two percent of stated principal amount) of original issue discount or original issue premium; (ii) issued for a price that does not include accrued interest, other than Pre-Issuance Accrued Interest; (iii) that bears interest from the issue date at a single, stated, fixed rate or that is a variable rate debt instrument under section 1275 of the Code, in each case with interest payable at least annually; and (iv) that has a lowest stated redemption price that is not less than its outstanding principal amount.
PRE-ISSUANCE ACCRUED INTEREST shall mean amounts representing interest that has accrued on an obligation for a period of not greater than one year before its issue date but only if those amounts are paid within one year after the Delivery Date.

U.

V.

W.

PRELIMINARY EXPENDITURE shall mean an Original Expenditure paid for architectural, engineering, surveying, soil testing, reimbursement bond issuance, and similar costs that were incurred prior to commencement of acquisition, construction, or rehabilitation of the project, other than land acquisition, site preparation, and similar costs incident to commencement of construction. PROCEEDS shall mean any Sale Proceeds, Investment Proceeds and Transferred Proceeds of an issue.

X.

I-3

Y.

PURPOSE INVESTMENT shall mean an investment that is acquired to carry out the governmental purpose of an issue.
QUALIFIED ADMINISTRATIVE COSTS shall mean reasonable, direct administrative costs, other than carrying costs, such as separately stated brokerage and selling commissions that are comparable to those charged nongovernmental entities in transactions not involving tax-exempt bond proceeds, but not legal and accounting fees, recordkeeping, custody or similar costs. For a guaranteed investment contract, a broker's commission paid on behalf of either an issuer or the provider is no__2t a Qualified Administrative Cost to the extent that the present value of the commission exceeds the aggregate principal value of annual amounts each of which is equal to .05 percent of the amount reasonably expected to be invested in the respective annual period. For investments purchased for a yield restricted defeasance escrow, a fee paid to a bidding agent is a Qualified Administrative Cost only if the fee is comparable to a fee that would be charged for a reasonably comparable investment if acquired with a source of funds other than gross proceeds of tax-exempt bonds, it is reasonable and it does not exceed the lesser of $10,000 or. 1% of the initial principal amount of investments deposited in the yield restricted defeasance escrow.

Z.

aa.

REBATEBONDYIELDshall mean the Bond Yield unless: 1. the Issuer enters into a hedge transaction (e.g., interest rate swap, interest rate cap or collar) that has not been taken into account in computing the Bond Yield, in which case the Issuer shall consult with Bond Counsel for guidance in determining the Rebate Bond Yield; or 2. the Issuer, in a transaction that is separate and apart from the original sale of an issue, transfers, waives or modifies any fight that is part of the terms of an issue (e.g., a sale of the call rights on an issue). The Issuer shall consult with Bond Counsel prior to entering into any such transaction and for guidance in determining the Rebate Bond Yield.

BB.

REBATEREQUIREMENT shall have the same meaning as when used in Section 4 of the Tax Certificate. REPLACEMENT PROCEEDS shall mean amounts that have a sufficiently direct nexus to an issue to conclude that the amounts would have been used for that governmental purpose if the Proceeds of the issue were not used or to be used for that governmental purpose. For this purpose, governmental purposes include the expected use of amounts for the payment of debt service on a particular date. The mere availability or preliminary earmarking of amounts for a governmental purpose, however, does not in itself establish a sufficient nexus to cause those amounts to be Replacement Proceeds. Replacement Proceeds include, but are not limited to, amounts held in a sinking fund or a pledged fund. For these purposes, an amount is pledged to pay principal of or interest on an issue if there is reasonable assurance that the amount will be available for such purposes in the event that the Issuer in respect of such issue encounters financial difficulties. Replacement Proceeds also include, but are not limited to, amounts held in any fund or I-4

CC.

account with respect to which the Issuer or any other person substantially interested in the Issue has covenanted to maintain at least a minimum balance other than (i) a fund the balance in which need be evaluated no more frequently than twice each year, or (ii) a fund in respect of the monies in which the owner may grant a security interest senior to the direct and indirect interests of the Bondholders.
DD.

SALEPROCEEDS shall mean any amounts actually or constructively received by the Issuer from the sale of an issue, including amounts used to pay underwriters' discount or compensation and interest other than Pre-Issuance Accrued Interest. TREASURY REGULATIONS shall mean the Treasury Regulations contained in sections 1.141-0 through 1.141-15, 1.148-0 through 1.148-11, inclusive, 1.149(b)-1, 1.149(d)-1 and 1.149(g)-1, and 1.150-1 and 1.150-2 and to the extent applicable, any subsequent amendments to such regulations or any successor regulations.

EE.

FF. UNIVERSAL CAP in respect of an issue hall mean the value of all then outstanding bonds of the issue. GG. VALUE(OF A BOND) shall mean with respect to a bond issued with not more than two percent original issue discount or original issue premium, the outstanding principal amount, plus accrued unpaid interest; for any other bond, its present value. HH. VALUE(OF AN INVESTMENT) shall have the following meaning in the following circumstances: 1. GENERAL RULES. Subject to the special rules in the following paragraph, an issuer may determine the value of an investment on a date using one of the following valuation methods consistently applied for all purposes relating to arbitrage and rebate with respect to that investment on that date: (1) an investment with not more than two percent original issue discount or original issue premium may be valued at its outstanding stated principal amount, plus accrued unpaid interest; (2) a fixed rate investment may be valued at its present value; and (3) an investment may be valued at its fair market value on a date (see Appendix V).
2.

RULES. Yield restricted investments are to be valued at present value provided that (except for purposes of allocating transferred proceeds to an issue, for purposes of the universal cap and for investments in a commingled fund other than a bona fide debt service fund unless it is a certain commingled fund):
SPECIAL

(1) an investment must be valued at its fair market value when it is first allocated to an issue, when it is disposed of and when it is deemed acquired or deemed disposed of, and provided further that;

I-5

(2) in the case of transferred proceeds, the value of a nonpurpose investment that is allocated to transferred proceeds of a refunding issue on a transfer date may not exceed the value of that investment on the transfer date used for purposes of applying the arbitrage restrictions to the refunded issue.

I-6

APPENDIX

II

[RESERVED]

APPENDIX

III

REBATE

REQUIREMENT

A.

GENERALLY.Section 148(f) of the Code requires that certain earnings on Nonpurpose Investments allocable to the Gross Proceeds of an issue be paid to the United States to prevent the bonds of the issue from being arbitrage bonds. The arbitrage that must be rebated is based on the difference between the amount actually earned on Nonpurpose Investments and the amount that would have been earned if those investments had a yield equal to the yield on the issue. As of any date, the rebate amount for an issue is the excess of the future value, as of that date, of all receipts on Nonpurpose Investments over the future value, as of that date, of all payments on Nonpurpose Investments. The future value of a payment or receipt at the end of any period is determined using the economic accrual method and equals the value of that payment or receipt when it is paid or received (or treated as paid or received), plus interest assumed to be earned and compounded over the period at a rate equal to the yield on the issue, using the same compounding interval and financial conventions used to compute that yield. COMPUTATION DATES(OTHERTHANTHEFINALCOMPUTATION DATE). For a fixed yield issue, the Issuer may treat any date as a Computation Date provided such date is within five years of the Delivery Date. For a variable yield issue, the Issuer may treat the last day of any Bond Year that is not later than five years from the Delivery Date as a Computation Date and may not change that treatment after the first rebate payment, if any, is due. After the first rebate payment, if any, is due, the Issuer must consistently treat either the end of each Bond Year or the end of each fifth Bond Year as Computation Dates and may not change these Computation Dates after the first rebate payment, if any, is due. FINALCOMPUTATION DATE. The date that the final bond of an issue is actually retired (as distinguished from defeased) is the Final Computation Date. For an issue finally retired within three years of its Delivery Date, however, the Final Computation Date need not occur before the end of 8 months after the Delivery Date or during the period in which the Issuer reasonably expects that any of the spending exceptions to the rebate requirement will apply to the issue.
AMOUNT OF REQUIRED REBATE. For Computation Dates other than the Final Computation Date, the Issuer must rebate an amount that when added to the future value, as of that Computation Date, of previous rebate payments made for the issue, equals at least 90 percent of the rebate amount as of that date. For the Final Computation Date, a final rebate payment must be paid in an amount that, when added to the future value of previous rebate payments made for the issue, equals 100 percent of the rebate amount as o f that date.

B.

C.

D.

E.

MANNEROFPAYMENT.Each rebate payment must be paid no later than 60 days after the Computation Date to which the payment relates. Any rebate payment paid within this 60-day period may be treated as paid on the Computation Date to which it
TIME AND

III-1

relates. Unless otherwise provided in subsequent guidance of the Internal revenue Service, each payment made pursuant to this Appendix III shall be filed with the Internal Revenue Service Center, Ogden, UT 84201, and shall be accompanied by a properly completed and executed Form 8038-T.
F.

OFLOSS OFTAX EXEMPTION. The failure to pay the correct rebate amount when required will cause the bonds of the issue to be arbitrage bonds, unless the Commissioner determines that the failure was not caused by willful neglect and the Issuer promptly pays a penalty to the United States. If no bond of the issue is a private activity bond (other than a qualified 501(c)(3) bond), the penalty equals 50 percent of the rebate amount not paid when required to be paid, plus interest on that amount. Otherwise, the penalty equals 100 percent of the rebate amount not paid when required to be paid, plus interest on that amount. Interest accrues at the underpayment rate under section 6621 of the Code, beginning on the date the correct rebate amount is due and ending on the date 10 days before it is paid. The penalty is automatically waived if the rebate amount that the Issuer failed to pay plus interest is paid within 180 days after discovery of the failure, unless the Commissioner determines that the failure was due to willful neglect, or the issue is under examination by the Commissioner at any time during the period beginning on the date the failure first occurred and ending on the date 90 days after the receipt of the rebate amount. Generally, extensions of this 180-day period and waivers of the penalty in other cases will be granted by the Commissioner only in unusual circumstances.
PENALTY IN LIEU

G.

SPENDING EXCEPTIONS FROMREBATE. Notwithstanding the foregoing, the Code and Treasury Regulations provide certain exceptions that, if complied with, will result in the Issuer being treated as having satisfied the obligation to pay rebate with respect to some or all of the Gross Proceeds of the bonds. These exceptions are complex, and satisfaction of any of the exceptions must be confirmed by an independent accountant or other professional expert in the application of the arbitrage rebate provisions of section 148(f) of the Code. The following is a brief summary of each of these exceptions: i) SIx MONTHEXCEPTION.If the gross proceeds of the bonds (other than gross proceeds held in a bonafide debt service fund, amounts in a reasonably required reserve or replacement fund, amounts that were not anticipated to be gross proceeds but that become so after the end of the 6-month spending period, sale or investment proceeds derived from repayments of purpose investments of the bonds, or repayments of grants financed by the bonds (the "Excepted Gross Proceeds ") are expended within the 6-month period commencing on the date of issuance of the bonds, and if the rebate requirement is satisfied with respect to all amounts described in the preceding parenthetical (other than with respect to earnings on the bonafide debt service fund), then the rebate requirement shall be treated as satisfied;

ii) 18-MONTHEXCEPTION.If the gross proceeds of the bonds (exclusive of the Excepted Gross Proceeds) are allocated to expenditures in accordance with the following schedule measured from the issue date, and the rebate requirements are satisfied with respect to all Excepted Gross Proceeds (other than with respect to earnings on the bonafide debt service fund), and all of the sale proceeds and investment proceeds of 11I-2

the bonds qualified for the 3-year temporary period for capital projects (established under section 1.148-3(e)(2) of the Treasury Regulations), then the rebate requirement shall be treated as satisfied: (1) At least 15 percent within 6 months; (2) At least 60 percent within 12 months; and (3) 100 percent within 18 months (provided that reasonable retainage (described in section 1.148-7(h) of the Treasury Regulations) may be allocated to expenditures within 30-months of the date of issuance). iii) 2-YEAREXCEPTION.If the bonds constitute a "construction issue" (within the meaning of section 1.148-7(0 of the Treasury Regulations, which requires, inter alia, that at least 75% of the "available construction proceeds" (as defined in section 148(f)(4)(C)(vi) of the Code) are to be allocated to construction expenditures for property to be owned by a state or local governmental unit or a 501(c)(3) organization), and the available construction proceeds of the bonds are allocated to expenditures in accordance with the following schedule measured from the issue date, then the rebate requirements are satisfied with respect to all available construction proceeds Excepted Gross Proceeds (other than with respect to earnings on the bona fide debt service fund), and all of the sale proceeds and investment proceeds of the bonds qualified for the 3-year temporary period for capital projects (established under section 1.148-3(e)(2) of the Treasury Regulations), then the rebate requirement shall be treated as satisfied: (1) At least 10 percent within 6 months; (2) At least 45 percent within 1 year; (3) At least 75 percent within 18 months; and (4) 100 percent within 24 months (provided that reasonable retainage (described in section 1.148-7(h) of the Treasury Regulations) may be allocated to expenditures within 36-months of the date of issuance). Under the Code and Treasury Regulations, an issue comprising a construction purpose and also an other purpose or other purposes (e.g., acquisition or refunding), the Issuer under certain circumstances may bifurcate the issue for purposes of applying the rebate requirements, and may qualify the construction portion of the issue under the foregoing exception.
H.

RECOVERY OF OVERPAYMENT OF REBATE. The Issuer may recover an overpayment of a rebate amount for an issue of tax-exempt bonds by establishing to the satisfaction of the Commissioner that the overpayment occurred. An overpayment is the excess of the amount paid to the United States for an issue under section 148 over the sum of the rebate amount for the issue as of the most recent Computation Date and all amounts that are otherwise required to be paid under section 148 as of the date the recovery is requested. III-3

Notwithstanding the preceding sentence, an overpayment may be recovered only to the extent that a recovery on the date that it is first requested would not result in an additional rebate amount if that date were treated as a Computation Date. Furthermore, except for overpayments in certain limited circumstance, an overpayment of less than $5,000 may not be recovered before the Final Computation Date.
I.

The Issuer must retain records of the determination of its Rebate Requirement until six years after the retirement of the last obligation of the issue.
RECORDKEEPING REQUIREMENT.

Ili-4

APPENDIX IV
ALLOCATION AND ACCOUNTING RULES

A.

GENERALRULE. The Issuer may use any reasonable, consistently applied accounting method to account for Gross Proceeds, investments and expenditures of an issue. An accounting method is "consistently applied" if it is applied uniformly within a Fiscal Period and between Fiscal Periods to account for Gross Proceeds of an issue and any amounts that are in a commingled fund.
ALLOCATION OF GROSS PROCEEDS TO AN ISSUE. Amounts are allocable to only one issue at a time as Gross Proceeds. Amounts cease to be allocated to an issue as Proceeds only when those amounts (i) are allocated to an expenditure for a governmental purpose; (ii) are allocated to transferred proceeds of another issue of obligations; or (iii) cease to be allocated to that issue at retirement of the issue or under the Universal Cap. ALLOCATION OF GROSS PROCEEDS TO INVESTMENTS. Upon the purchase or sale of a Nonpurpose Investment, Gross Proceeds of an issue are not allocated to a payment for that Nonpurpose Investment in an amount greater than, or to a receipt from that Nonpurpose Investment in an amount less than, the fair market value of the Nonpurpose Investment as of the purchase or sale date. The fair market value of a Nonpurpose Investment is adjusted to take into account Qualified Administrative Costs allocable to the investment. Thus, Qualified Administrative Costs increase the payments for, or decrease the receipts from, a Nonpurpose Investment.

B.

C.

D.

ALLOCATION

OF

GROSS

PROCEEDS

TO EXPENDITURES.

Reasonable

accounting

methods for allocating funds from different sources to expenditures for the same governmental purpose include a "specific tracing" method, a "gross-proceeds-spent-first" method, a "first-in-first-out" method or a ratable allocation method, so long as the method used is consistently applied. An allocation of Gross Proceeds of an issue to an expenditure must involve a current outlay of cash for a governmental purpose of the issue. A current outlay of cash means an outlay reasonably expected to occur not later than five banking days after the date as of which the allocation of Gross Proceeds to the expenditure is made. Each allocation of gross proceeds to expenditures must be made not later than 18 months after the later of the date the expenditure is paid or the date the project, if any, that is financed by the issue is placed in service, but in any event by the date 60 days after the earlier of the fifth anniversary of the issue date or the final retirement of the issue. E. Any fund or account that contains both Gross Proceeds of an issue and amounts in excess of $25,000 that are not Gross Proceeds of that issue if the amounts in the fund or account are invested and accounted for collectively, without regard to the source of the funds deposited therein, constitutes a "COMMINGLED FUND." All payments and receipts (including deemed payments and receipts) on investments held by a commingled fund must be allocated (but not necessarily distributed) among each different source of funds invested in the commingled fund in accordance with a consistently applied, reasonable ratable allocation method. Reasonable ratable allocation
COMMINGLED FUNDS.

IV-1

methods include, without limitation, methods that allocate payments and receipts in proportion to either (i) the average daily balances of the amounts in the commingled fund from each different source of funds during any consistent time period within its fiscal year, but at least quarterly (the "Fiscal Period"); or (ii) the average of the beginning and ending balances of the amounts in the commingled fund from each different source of funds for a Fiscal Period that does not exceed one month. Funds invested in the commingled fund may be allocated directly to expenditures for governmental purposes pursuant to a reasonable consistently applied accounting method. If a ratable allocation method is used to allocate expenditures from the commingled fund, the same ratable allocation method must be used to allocate payments and receipts on investments in the commingled fund. Generally a commingled fund must treat all its investments as if sold at fair market value either on the last day of the fiscal year or on the last day of each Fiscal Period. The net gains or losses from these deemed sales of investments must be allocated to each different source of funds invested in the commingled fund during the period since the last allocation. This mark-to-market requirement does not apply if (i) the remaining weighted average maturity of all investments held by a commingled fund during a particular fiscal year does not exceed 18 months, and the investments held by the commingled fund during that fiscal year consist exclusively of obligations; or (ii) the commingled fund operated exclusively as a reserve fund, sinking fund or replacement fund for two or more issues of the same issuer. Subject to the Universal Cap limitation, and the principle that amounts are allocable to only one issue at a time as Gross Proceeds, investments held by a commingled fund that serves as a common reserve fund, replacement fund or sinking fund must be allocated ratably among the issues served by the commingled fund in proportion to either (i) the relative values of the bonds of those issues; (ii) the relative amounts of the remaining maximum annual debt service requirements on the outstanding principal amounts of those issues; or (iii) the relative original stated principal amounts of the outstanding issues.

IV-2

F.

UNIVERSALCAP. Amounts that would otherwise be Gross Proceeds allocable to an issue are allocated (and remain allocated) to the issue only to the extent that the Value of the Nonpurpose Investments allocable to those Gross Proceeds does not exceed the Value of all outstanding bonds of the issue. Nonpurpose Investments allocated to Gross Proceeds in a bona fide debt service fund for an issue are not taken into account in determining the Value of the Nonpurpose Investments, and those Nonpurpose Investments remain allocated to the issue. To the extent that the Value of the Nonpurpose Investments allocable to the Gross Proceeds of an issue exceed the Value of all outstanding bonds of that issue, the Issuer should seek the advice of Bond Counsel for the procedures necessary to comply with the Universal Cap. Subject to certain exceptions, the Proceeds of an issue may be allocated to "working capital expenditures" as of any date only to the extent that those expenditures exceed "available amounts" as of that date (i.e., "proceeds-spent-last"). For purposes of this section, "working capital expenditures" include all expenditures other than "capital expenditures." "Capital expenditures" are costs of a type properly chargeable (or chargeable upon proper election) to a capital account under general federal income tax principles. Such costs include, for example, costs incurred to acquire, construct, or improve land, buildings and equipment having a reasonably expected useful life in excess of one year. Thus, working capital expenditures include, among other things, expenditures for current operating expenses and debt service.
EXPENDITURE FOR WORKING CAPITAL PURPOSES.

G.

For purposes of this section, "available amount" means any amount that is available to the Issuer for working capital expenditure purposes of the type financed by the issue. Available amount excludes Proceeds of the issue but includes cash, investments and other amounts held in accounts or otherwise by an issuer for working capital expenditures of the type being financed by the issue without legislative or judicial action and without a legislative, judicial, or contractual requirement that those amounts be reimbursed. Notwithstanding the preceding sentence, a "reasonable working capital reserve" is treated as unavailable. A working capital reserve is reasonable if it does not exceed five percent of the actual working capital expenditures of the Issuer in the fiscal year before the year in which the determination of available amounts is made. For purpose of the preceding sentence only, in determining the working capital expenditures of an issuer for a prior fiscal year, any expenditures (whether capital or working capital expenditures) that are paid out of current revenues may be treated as working capital expenditures. The proceeds-spent-last requirement does not apply to expenditures to pay (i) any issuance costs of the issue or any qualified administrative costs; (ii) fees for qualified guarantees of the issue or payments for a qualified hedge for the issue; (iii) interest on the issue for a period commencing on the Delivery Date and ending on the date that is the later of three years from the Delivery Date or one year after the date on which the financed project is placed in service; (iv) the United States for yield reduction payments (including rebate payments) or penalties for the failure to meet the spend down requirements associated with certain spending exceptions to the rebate requirement; (v) costs, other than those described in (i) through (iv) above, that do not exceed five percent

IV-3

of the Sale Proceeds of an issue and that are directly related to capital expenditures financed by the issue (e.g., initial operating expenses for a new capital project); (vi) principal or interest on an issue paid from unexpected excess sale or investment proceeds; (vii) principal or interest on an issue paid from investment earnings on a reserve or replacement fund that are deposited in a bona fide debt service fund; and (viii) principal, interest, or redemption premium on a prior issue and, for a crossover refunding issue, interest on that issue. Notwithstanding the preceding paragraph, the exceptions described above do not apply if the allocation merely substitutes Gross Proceeds for other amounts that would have been used to make those expenditures in a manner that gives rise to Replacement Proceeds.

IV-4

APPENDIX VALUE

OF INVESTMENTS

A.

FAIRMARKETVALUE. The fair market value of an investment is the price at which a willing buyer would purchase the investment from a willing seller in a bona fide arm's-length transaction. Fair market value generally is determined on the date on which a contract to purchase or sell the Nonpurpose Investment becomes binding (i. e., the trade date rather than the settlement date). An investment that is not of a type traded on an established securities market, within the meaning of section 1273 of the Code, is rebuttably presumed to be acquired or disposed of for a price that is not equal to its fair market value. The fair market value of a United States Treasury obligation that is purchased directly from the United States Treasury is its purchase price. CERTIFICATES OFDEPOSIT. A certificate of deposit that has a fixed interest rate, a fixed payment schedule, and a substantial penalty for early withdrawal shall be treated as purchased at its fair market value if the yield on the certificate of deposit is not less than (i) the yield on reasonably comparable direct obligations of the United States; and (ii) the highest yield that is published or posted by the provider to be currently available from the provider on reasonably comparable certificates of deposit offered to the public.
GUARANTEED INVESTMENT CONTRACTS OR INVESTMENTS PURCHASED FOR

B.

C.

A YIELD-RESTRICTED ESCROW. The purchase price of a guaranteed investment contract or of an investment purchased for a yield-restricted escrow is treated as its fair market value on the purchase date only if: i) The Issuer makes a bona fide solicitation for the investment, where: (1) The bid specifications are in writing and are timely forwarded to potential providers; (2) The bid specifications include all material terms of the bid. A term is material if it may directly or indirectly affect the yield or the cost of the investment; (3) The bid specifications include a statement notifying potential providers that submission of a bid is a representation that the potential provider did not consult with any other potential provider about its bid, that the bid was determined without regard to any other formal or informal agreement that the potential provider has with the Issuer or any other person (whether or not in connection with the bond issue), and that the bid is not being submitted solely as a courtesy to the Issuer or any other person for

V-1

purposes of satisfying the requirements of paragraph (d)(6)(iii)(B)(1) or (2) of this section; (4) The terms of the bid specifications are commercially reasonable. A term is commercially reasonable if there is a legitimate business purpose for the term other than to increase the purchase price or reduce the yield of the investment. For example, for solicitations of investments for a yield restricted defeasance escrow, the hold firm period must be no longer than the Issuer reasonably requires; (5) For purchases of guaranteed investment contracts only, the terms of the solicitation take into account the Issuer's reasonably expected deposit and drawdown schedule for the amounts to be invested; and (6) All potential providers have an equal opportunity to bid. For example, no potential provider is given the opportunity to review other bids (i.e., a last look) before providing a bid. (7) At least three reasonably competitive providers are solicited for bids. A reasonably competitive provider is a provider that has an established industry reputation as a competitive provider of the type of investments being purchased; ii) The Issuer receives at least three bids from providers that the Issuer solicited under a bona fide solicitation described above that do not have a material financial interest in the issue. A lead underwriter in a negotiated underwriting transaction is deemed to have a material financial interest in the issue until 15 days after the issue date of the issue. In addition, any entity acting as a financial advisor to the Issuer with respect to the purchase of the investment at the time the bid specifications are forwarded to potential providers has a material financial interest in the issue. A provider that is a related party to a provider that has a material financial interest in the issue is deemed to have a material financial interest in the issue. (1) At least one of the three bids described in clause (ii), above, is from a reasonably competitive provider, within the meaning of paragraph 1.1485(d)(6)(iii)(A)(7) of the Treasury Regulations. (2) If the Issuer uses an agent to conduct the bidding process, the agent did not bid to provide the investment. iii) The winning bid satisfies following: (1) In the case of a guaranteed investment contract, the Issuer purchases the highest-yielding guaranteed investment contract for which a qualifying bid is made (determined net of broker's or other third party's fees); V-2

(2) In the case of any other investment: (a) The winning bid is the lowest cost bona fide bid (including any broker's fees). The lowest cost bid is either the lowest cost bid for the portfolio or, if the Issuer compares the bids on an investment-byinvestment basis, the aggregate cost of a portfolio comprised of the lowest cost bid for each investment. Any payment received by the Issuer from a provider at the time a guaranteed investment contract is purchased (e.g., an escrow float contract) for a yield restricted defeasance escrow under a bidding procedure meeting the requirements of this paragraph (iii) is taken into account in determining the lowest cost bid; (b) The lowest cost bona fide bid (including any broker's fees) is not greater than the cost of the most efficient portfolio comprised exclusively of State and Local Government Series Securities from the United States Department of the Treasury, Bureau of Public Debt. The cost of the most efficient portfolio of State and Local Government Series Securities is to be determined at the time that bids are required to be submitted pursuant to the terms of the bid specifications; (c) If State and Local Government Series Securities from the United States Department of the Treasury, Bureau of Public Debt are not available for purchase on the day that bids are required to be submitted pursuant to terms of the bid specifications because sales of those securities have been suspended, the cost comparison of this section is not required; (d) the yield on the investment (determined net of broker's or other third party's fees) is not less than the yield then available from the provider on reasonably comparable guaranteed investment contracts, if any, offered to other persons from a source of funds other than gross proceeds of tax-exempt bonds; (e) the determination of the terms of the guaranteed investment contract takes into account as a significant factor the Issuer's reasonably expected drawdown schedule for the amounts to be invested, exclusive of amounts deposited in debt service funds and reasonably required reserve or replacement funds; (f) the terms of the guaranteed investment contract, including collateral security requirements, are reasonable; and (g) the obligor on the investment contract or provider of the investment certifies the administrative costs that it is paying (or expects to pay) to third parties in connection with the investment.

V-3

The Issuer shall maintain records adequate to determine the fair market value of the investments described above allocated to an issue at least until three years after the last bond of the issue is finally retired.

V-4

Exhibit A Initial Issue Price Certificate September 15, 2005 City of Indio Indio, Califomia Fulbright & Jaworski L.L.P. Los Angeles, Califomia Gentlemen and Ladies: We have served as the underwriter in connection with the issuance by City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "CFD") of its $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). As such, we have been involved in the structuring and marketing of the Bonds. We hereby certify that: (i) based on our records and other information available to us which we believe to be correct, as of September 7, 2005 (the "Sale Date") we had offered or reasonably expected to offer all of the Bonds in a bona fide initial offering to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at an initial offering price not greater than that shown on the cover of the Official Statement relating to the Bonds (the "Official Statement"); (ii) based on our records and other information available to us that we believe to be correct, at least 10 percent of the Bonds were sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at the initial offering price shown on the cover of the Official Statement; (iii) at the time we agreed to purchase the Bonds, based upon then prevailing market conditions, we had no reason to believe any of the Bonds would be initially sold to the public (excluding such bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at an initial offering price greater than the fair market value thereof; (iv) based upon the initial offering prices, the aggregate issue price of the Bonds is $26,258,728.00 (the Bonds having been sold with net original issue discount of $71,272.00) and the yield on the Bonds (within the meaning of section 148(a) of the Code) is 5.0191%; and

45655812.1

A-I

City of Indio Fulbright & Jaworski L.L.P. September 15, 2005 Page 2

(v) it is our view, based upon our extensive experience in marketing and maintaining a market for obligations having terms and credit arrangements similar to those of the Bonds, that the establishment and funding of the Reserve Account contemplated under the Fiscal Agent Agreement, by and between the District and Union Bank of California, N.A., as Fiscal Agent, dated as of September 1, 2005, relating to the Bonds in the amount of the Reserve Requirement is customary for municipal obligations bearing terms and creditworthiness similar to the Bonds, that the expected funding of the Reserve Account was a vital factor in the marketing of the Bonds at the interest rates obtained, and that the availability of the Reserve Account or a similar security may be reasonably expected to be necessary to the maintenance of an orderly secondary market for the Bonds. SOUTHWEST SECURITIES, INC.

By: Title:

45655812.1

A-2

EXHIBIT

Form 8038-G

45655812.1

B-1

Form

8038-G

Information

(Rev. November2000) D erpartment ofthe Inte nal Reve nue STreasury ervice muE_,.g Reporting 1 Issuer's name City of Indio Authority

I_ Under InternalRevenueCode section 149(e) I_ Seeseparate Instructions. Caution: /f the issueprice is under$100,000. use Form 8038-GC.

Return for Tax-Exempt Governmental

Obligations

OMBNo.1545-0720

If Amended Return, check here U 2 Issuer'semployeridentification number 95 i 6000726 302

100 Civic Center Mall 5 7 3 9 city, town, or post office,state, and ZIP code Indio, California 92201 Nam eo issu Numb ef rand se treet(or P.O. box if mail is not delivered to streetaddress)

6 Dateof issue August 15, 2005 number Room/suite 8 4 CUSIP Reportnumb er City of Indio CFD 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improv. Area No. 1) 455697AT9 Nameandtitleof officeror legalrepresentative whomthe tRSmay callfor more information 10 Telephone number ofofficer or legal representative Michael Busch, Finance Director ( 760 ) 342-6560

IltaWiim Type of Issue (check applicable box(es) and enter the issue price) See instructions and attach schedule 11 [] Education ............................ 11 12 [] Health and hospital ......................... 12 13 [] Transportation ........................... 13 14 [] Public safety ............................ 14 15 [] Environment (including sewage bonds) ................... 15 16 [] Housing ............................. 16 17 [] Utilities ............................. 17 18 [] Other. Describe multiple capital improvements 18 26,258,728.00 19 If obligations are TANs or RANs, check box [] If obligationsare BANs, check box [] _ 20 If obligations are in the form of a lease or installmentsale, check box ...... []

I'.RZ..lm

Description of Obligations. Complete for the entire issue for which this form is being filed.
date (b) Issue price (c) Stated redemption price at maturity (d) Weighted average maturity (e) Yield

(a) Final maturity

21 September 1, 2035 $ a',_ _ialfa Uses of Proceeds 22 23 24 25 26 27 28 29 30

26,258,728.00 $ 26,330,000.00 19.3 of Bond Issue (including underwriters' discount)

},ears

5.0191%

Proceeds used for accrued interest ..................... Issue price of entire issue (enter amount from line 21, column (b)) ........... I ters' discount) . Proceedsused for bond issuancecosts (includingunderwr'

_--_LL_ 26,258,728.00 24 769,445 00

Proceeds used for credit enhancement ............ 25 v//////_ Proceeds allocated to reasonably required reserve or replacement fund . . 26 1,758,080.00 Proceeds used to currently refund prior issues ......... I 27 I Proceeds used to advance refund prior issues ......... I 28 I _/'_ Total (add lines 24 through 28) ....................... _ Nonrefundin_roceeds of the issue (subtract line 29 from line 23 and enter amount here . . . 30

2,527,525.00 23,731,203.00 years years

Description of Refunded Bonds (Complete this part only for refunding bonds.)
31 Enter the remaining weighted average maturity of the bonds to be currently refunded 32 Enter the remaining weighted average maturity of the bonds to be advance refunded 33 Enter the last date on which the refunded bonds will be called ........... 34 Enter the date(s) the refunded bonds were issued I ",==i /v ta i I Miscellaneous 35 36a b 37 b 38 39 40 .

Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) 1351 Enterthe amountof grossproceedsinvested or to be investedina guaranteed investment contract(seeinstructions) Enter the final maturity date of the guaranteed investment contract Pooledfinancings: a Proceedsof this issuethat are to be used to make loans to other governmentalunits 137a ] If this issue is a loan made from the proceeds of another tax-exempt issue, check box [] and enter the name of the issuer and the date of the issue If the issuer has designated the issue under section 265(b)(3)(B)(i)(lll)(small issuer exception), check box [] If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box ............ [] If the issuer has identified a hedqe, check box ....................... []
and belief, tl]_/lare true/dorrect, and comdiete. [ .

Sign H ere
I

k,

_{_V,_t_/_

_'_{_ _
this 1 return Date and a ccompanying

IL..... Glenn

Southard, City Manager

best of my knowledge

y Ze /6f of is_uer 's authorized Under Signa_ penalti_s perjur_ I declare

represe tftive examined | that I hn ave

y' Type print name and totitle schedules and or statements , and the

For Paperwork Reduction Act Notice, see page 2 of the Instructions.

cat. No. 63773S

Form8038-G (Rev.11-2000)

SCHEDULE I

45655812.1

CITY OF INDIO CFD 2004-3 IMPROVEMENT AREA NO 1 IMPROVEMENTS/FEES FUNDED FROM SPECIAL TAX BONDS New Phase 1 City Fees Storm Drainage Fees Fire Station MitigationFee Sheriff/Police Fee Park Fee Bridge/MajorStreet Impact Fees TUMF Water Meter Fee Water Capital Improvement Fees Park Capital Impact Fee Quant Unit 175 Acres 636 EA 636 EA 636 EA 636 EA 636 EA EA 1484 EA 636 EA Unit Price 500 85 400 700 794 3,025.25 1,988 ProiectTotal 87,595.00 1,000,000.00 54,060.00 254,400.00 445,200.00 504,984.00 4,489,471.00 1,264,368.00 8,100,078.00

Other Fees School Fees Sewer Connection Capacity Fees Sewer Service Fees 636 EA 636 EA EA 8,800 3,110 5,596,800.00 * 1,977,960.00 7,574,760.00

Capital Costs Reimbursable to Developer Site Preparation Grading Surface Improvements Landscaping Storm Drainage Traffic Control Water Sewer Engineering Soils Engineering Blueprints Repairs for Inspection Dry Utilities Contingency Shortfall - to be Reimbursed to Suncal from Phase 2 Net Available for Suncal Reimbursement Phase 1 Bond Proceeds

355,268.00 68,576.00 591,956.00 1,508,875.00 133,800.00 610,411.00 1,186,300.00 814,222.00 1,862,900.00 150,000.00 35,000.00 141,897.00 263,471.00 503,437.00 8,226,113.00 (1,403,778.63) 6,822,334.37 22,497,172.37

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

REVISED AS OF SEPTEMBER 8, 2005

20

Form

8038-G
Re ortin Issuer'sname City of Indio

Information

Return for Tax-Exempt Governmental

Obligations
OMBNo.1545-0720

(Rev November2000) Department of the Treasury Internal Revenu Se ervice 1 3 5 7 9 Authority_

Under Internal RevenueCode section 149(e) See separate Instructions. Caution: If the issueprice is under $700,000,use Form 8038-GC.

If Amended Return, check here [] 2 Issuer'semployeridentification number 95 i 6000726 Room/suite] 4 Report number 6 Date of issue August 15 302 , 2005 8 cusiP number

Numberand street(or P.O. box if mail isnot deliveredto street address) City, town, or post office, state, and ZIP code 100 Civic Indio, California Center 9220 Mall1 Name of issue

t --r

City of Indio CFD 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improv. Area No. 1)[ 455697AT9 Name and title of officer or legalrepresentativewhomthe IRS may callfor moreinformation 110 Telephon nu embe orfofficer orlegal representative Michael Busch, Finance Director J ( 760 ) 342-6560 r_l_'pe of Issue (check applicable box(es) and enter the issue price) See instructions and attach schedule 11 [] Education 11 12 13 14 15 16 17 18 19 20 [] [] [] Health and hospital Transportation Public safety. 12 13 14 15 16 17 18 ___,_,

[] Environment (including sewage bonds) .................... [] Housing [] Utilities [] Other. Describe " "multiple'capit'al i'ml_rovements ............... If obligations are TANs or RANs, check box [] If obligations are BANs, check box If obligations are in the form of a lease or installment sale, check box ...... (a)Finalmaturity date (b)Issueprice 26,258,728.00 $ of Bond Issue (including (c)Stated redemption priceat maturity

26,258,728.00

[] []

I_,rlllll

Description of Obligations. Completefor the entire issuefor which this form is being filed.
(d)Weighted average maturity years (e)Yield 5.0191%

21 September 1, 2035 $ II_,mlPl Uses of Proceeds 22 23 24 25

26,330,000.00 19.3 underwriters' discount)

Proceeds used for accrued interest ..................... Issue price of entire issue (enter amount from line 21, co umn (b)) L,_ Proceeds used for bond issuance costs (includingunderwriters' discount)" " "24" " " 769,445.00 _ Proceeds used for cred t enhancement . . 25

26,258,728.00

26 Proceeds allocated to reasonably required reserve or repacement fund " " 26 1,758,080.00 27 Proceeds used to currenty refund pr or ssues ' " 27 28 Proceeds used to advance refund prior issues ......... 128 I 29 Total (add lines 24 through 28) ...... i i i i i i i i i ........ __9 30 Nonrefundin roceeds of the issue _t line 29 from line 23 and enter amount here) _ 11".,_41_ Description o-f _ Bonds _ _ _ _ _ bonds.) 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . 33 Enter the last date on which the refunded bonds will be called ........... 34 Enter the date(s) the refunded bonds were issued I ta-,lilfJ I Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) 3135 I 36a Enterthe amountof grossproceeds investedor to be invested in aguaranteed investment contract(seeinstructions) b Enter the final maturity date of the guaranteed investment contract 37 b 38 39 40

2,527,525.00 23,731,203.00 years years

Pooledfinancincjs: a Proceeds of this issuethat are to be used to make loans to other governmentalunits 137a I If this issue is a loan made from the proceeds of another tax-exempt issue, check box [] and enter the name of the issuer and the date of the issue If the issuer has designated the issue under section 265(b)(3)(B)(i)(lll)(small issuer exception), check box If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box ............ If the issuer has identified a hedge, check box [] [] []

andbe liefth_ ale tru_corr ect andcml_ete' l thisreturnand I accompanying schedules andstatements, andto the bestof myknowledge Underpenalties of perjur l_ I ,de c'lare thatI haveexamined Sign Here

'
Signature of issuer'a suthorizerepresent d ative __ Date

k Glenn Southard, City Manager t Type or printnameandtitle Cat.No.63773S Form 8038-G (Rev _-zooo)

For Paperwork Reduction Act Notice, see page 2 of the Instructions.

21

CERTIFICATE AS TO SPECIMEN BONDS

I, Cynthia Hernandez, City Clerk of the City of Indio (the "City"), DO HEREBY CERTIFY as follows: 1. Attached hereto as Exhibit A is a specimen of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"), in registered form, which specimen is identical in all respects, except as to numbers, denominations, interest rate and signatures, with said Bonds delivered to Union Bank of California, N.A., as Fiscal Agent. 2. Said specimen of the Bonds, is in substantially the form prescribed by the Fiscal Agent Agreement, dated as of September 1, 2005, between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) and the Fiscal Agent. IN WITNESS September, 2005. WHEREOF, I have hereunto set my hand this 15th day of

CITY OF INDIO

45655340.1

No. R-1 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$385,000

INTEREST RATE 3.35%

MATURITY

DATE

DATED DATE September 15, 2005

CUSIP NO. 455697AA0

September 1, 2007

REGISTERED

OWNER:

CEDE & CO. THREE HUNDRED EIGHTY-FIVE THOUSAND AND NO/100 DOLLARS

PRINCIPAL AMOUNT:

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LACK)) (the "District '_) situated in the County of Riverside, State of California, FOR VALUE RECEIVED, h_reby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinaiter deemed), to the Registered Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter provided, the Principal Amount set forth above, and to pay interest on such Principal Amount from the Intere____t Date (as hereinafter defined) next preceding the date of authentication hereof, unles_)_'_/e[f authentication is an Interest Payment Date in which event interest shall be pA_l__h d_e of authentication, (ii) the date of authentication is after a Record Date (as {lfer_in_e_iid_ed ) but prior to the immediately succeeding Interest Payment Date, in which event _t'_ll be payable from the Interest Payment Date immediately succeeding the date of authentica-'fi'on,or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-2 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$370,000

INTEREST RATE 3.40%

MATURITY DATE September 1, 2008

DATED DATE September 15, 2005

CUSIP NO. 455697AB8

REGISTERED PRINCIPAL

OWNER: AMOUNT:

CEDE & CO. THREE HUNDRED SEVENTY THOUSAND AND NO/100 DOLLARS

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LACK)) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defmed), to the Registered Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter provided, the,_ncipal Amount set forth above, and to pay interest on such Principal Amount from the Interest,_ent Date (as hereinafter defined) next preceding the date of authentication hereof, unless (i),__tkf authentication is an Interest Payment Date in which event interest shall be payabletf_l_dk_ dl_ of authentication, (ii) the date of authentication is after a Record Date (as h__ed) but prior to the immediately succeeding Interest Payment Date, in which event i_es_h_! l_e payable from the Interest Payment Date immediately succeeding the date of authenti_l'o_,_or"{iii) the date of authentication is prior to the close of business on the first Record Date in which egL'rff'interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668,1

No. R-3 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$395,000

INTEREST RATE 3.70%

MATURITY DATE September 1, 2009

DATED DATE September 15, 2005

CUSIP NO. 455697AC6

REGISTERED PRINCIPAL

OWNER: AMOUNT:

CEDE & CO. THREE HUNDRED NINETY-FIVE THOUSAND DOLLARS AND NO/100

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under tl_ Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or r_ assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter prierS, _rincipal Amount set forth above, and to pay interest on such Principal Amount from _hkY _ Payment Date (as hereinafter defined) next preceding the date of authentication hereo_'al_tss ]]3 _ date of authentication is an Interest Payment Date in which event interest shall be _{tyab_ such date of authentication, (ii) the date of authentication is after a Record Date (as V_after defined) but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication, or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, Califomia. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-4 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$425,000

INTEREST RATE 3.90%

MATURITY

DATE

DATED DATE September 15, 2005

CUSIP NO. 455697AD4

September 1, 2010

REGISTERED PRINCIPAL

OWNER: AMOUNT:

CEDE & CO. FOUR HUNDRED TWENTY-FIVE THOUSAND DOLLARS AND NO/100

CITY OF INDIO COMMUNITY FACILITIES DISTR/CT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the.Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or regis et_e_l assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter pr_Principal Amount set forth above, and to pay interest on such Principal Amount from the_ Pa3_ent Date (as hereinafter defined) next preceding the date of authentication hereof, unl[_)_'_ date of authentication is an Interest Payment Date in which event interest shall be p/a_lab_a _'uch date of authentication, (ii) the date of authentication is after a Record Date (as [_ei_l_,"defmed) but prior to the immediately succeeding Interest Payment Date, in which event _ shall be payable from the Interest Payment Date immediately succeeding the date of authentication, or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-5 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$460,000

INTEREST RATE 4.00%

MATURITY DATE September 1, 2011

DATED DATE September 15, 2005

CUSIP NO. 455697AE2

REGISTERED PRINCIPAL

OWNER: AMOUNT:

CEDE & CO. FOUR HUNDRED SIXTY THOUSAND AND NO/100 DOLLARS

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter provid_l, the Principal Amount set forth above, and to pay interest on such Principal Amount from the IntL_d[t_Payment Date (as hereinafter defined) next preceding the date of authentication hereof, unless_e of authentication is an Interest Payment Date in which event interest shall be payable_! suet date of authentication, (ii) the date of authentication is after a Record Date (as he_ii_efined) but prior to the immediately succeeding Interest Payment Date, in which even_a _1_1!. be payable from the Interest Payment Date immediately succeeding the date of auth_ticat]'l_',._Sr Off) the date of authentication is prior to the close of business on the first Record Date in whist interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-6 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1) INTEREST RATE 4.15% MATURITY DATE DATED DATE September 15, 2005

$495,000

CUSIP NO. 455697AF9

September 1, 2012

REGISTERED PRINCIPAL

OWNER: AMOUNT:

CEDE & CO. FOUR HUNDRED NINETY-FIVE THOUSAND AND NO/100 DOLLARS

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of Califorma, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or rr_er re ed assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter_the Principal Amount set forth above, and to pay interest on such Principal Amount from th_lljlrest'_ayment Date (as hereinafter defined) next preceding the date of authentication hereof, __ the date of authentication is an Interest Payment Date in which event interest shall b_ttble)_rbda such date of authentication, (ii) the date of authentication is after a Record Date _g her_'_t_er defined) but prior to the immediately succeeding Interest Payment Date, in which ernst shall be payable from the Interest Payment Date immediately succeeding the date of authentaeation, or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-7 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$515,000

INTEREST RATE 4.25%

MATURITY

DATE

DATED DATE September 15, 2005

CUSIP NO. 455697AG7

September 1, 2013

REGISTERED PRINCIPAL

OWNER: AMOUNT:

CEDE & CO. FIVE HUNDRED FIFTEEN THOUSAND AND NO/100 DOLLARS

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter provi_d, the Principal Amount set forth above, and to pay interest on such Principal Amount from the_ Payment Date (as hereinafter defined) next preceding the date of authentication hereof, unl_(t'_j) th0N_ate of authentication is an Interest Payment Date in which event interest shall be pat_lc_N_m such date of authentication, (ii) the date of authentication is after a Record Date (a_sl_eir_b6*defined) but prior to the immediately succeeding Interest Payment Date, in which ev_tt"_shall be payable from the Interest Payment Date immediately succeeding the date of au_on, or (iii) the date of authentication is prior to the close of business on the first Record Date in whi_tr'l_vent interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-8 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RiVmtSmE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$535,000

INTEREST RATE 4.25%

MATURITY DATE September 1, 2014

DATED DATE September 15, 2005

CUSIP NO. 455697AH5

REGISTERED PRINCIPAL

OWNER:

CEDE & CO. FIVE HUNDRED THIRTY-FIVE THOUSAND AND NO/100 DOLLARS

AMOUNT:

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or re_red assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter _the Principal Amount set forth above, and to pay interest on such Principal Amount from tho_l_J_est 1Qtyment Date (as hereinafter defined) next preceding the date of authentication hereof, _'_the date of authentication is an Interest Payment Date in which event interest shall be _)_le'_foMt such date of authentication, (ii) the date of authentication is after a Record Date (_"Iier_ defined) but prior to the immediately succeeding Interest Payment Date, in which eve_,_est shall be payable from the Interest Payment Date immediately succeeding the date of authenfiEStion, or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-9 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$560,000

INTEREST RATE 4.375%

MATURITY

DATE

DATED DATE September 15, 2005

CUSIP NO. 455697AJ1

September 1, 2015

REGISTERED

OWNER:

CEDE & CO. FIVE HUNDRED SIXTY THOUSAND AND NO/100 DOLLARS

PRINCIPAL AMOUNT:

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held und ,,e the r Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or re_st_d assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter pro_ Principal Amount set forth above, and to pay interest on such Principal Amount from the _,J)'t PffvlrnentDate (as hereinafter defined) next preceding the date of authentication hereof, un_')_e date of authentication is an Interest Payment Date in which event interest shall be p,,_l_l_ t_X,_uch date of authentication, (ii) the date of authentication is after a Record Date (as_e_defined) but prior to the immediately succeeding Interest Payment Date, in which event_t shall be payable from the Interest Payment Date immediately succeeding the date of authentica'W6n, or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-10 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$585,000

INTEREST RATE 4.50%

MATURITY DATE September 1, 2016

DATED DATE September 15, 2005

CUSIP NO. 455697AK8

REGISTERED

OWNER:

CEDE & CO. FIVE HUNDRED EIGHTY-FIVE THOUSAND AND NO/100 DOLLARS

PRINCIPAL AMOUNT:

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under_ae Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or re_._(ed assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter pr_ Principal Amount set forth above, and to pay interest on such Principal Amount from the l_,_tt Payment Date (as hereinafter defined) next preceding the date of authentication hereof, un_K),_tt_e date of authentication is an Interest Payment Date in which event interest shall be pa_l_ fi_'V_uch date of authentication, (ii) the date of authentication is after a Record Date (as _'e_defined) but prior to the immediately succeeding Interest Payment Date, in which event _ shall be payable from the Interest Payment Date immediately succeed'ing the date of authentica"rJfffior , (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-11 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$610,000

INTEREST RATE 4.60%

MATURITY

DATE

DATED DATE September 15, 2005

CUSIP NO. 455697AL6

September 1, 2017

REGISTERED

OWNER:

CEDE & CO. SIX HUNDRED TEN THOUSAND AND NO/100 DOLLARS

PRINCIPAL AMOUNT:

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter propel, the Principal Amount set forth above, and to pay interest on such Principal Amount from the_X_ayment Date (as hereinafter defined) next preceding the date of authentication hereof, unlet_C_i_Jthe dgte of authentication is an Interest Payment Date in which event interest shall be pa_ such date of authentication, (ii) the date of authentication is after a Record Date (a_e_k_na]_'rYlefmed) but prior to the immediately succeeding Interest Payment Date, in which eve_(-m_shall be payable from the Interest Payment Date immediately succeeding the date of auxin, or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shaU be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer toan account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-12 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$640,000

INTEREST RATE 4.70%

MATURITY

DATE

DATED DATE September 15, 2005

CUSIP NO. 455697AM4

September 1, 2018

REGISTERED PRINCIPAL

OWNER: AMOUNT:

CEDE & CO. SIX HUNDRED FORTY THOUSAND AND NO/100 DOLLARS

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain mounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or re_stered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter propelled, the Principal Amount set forth above, and to pay interest on such Principal Amount from th_Payment Date (as hereinafter defined) next preceding the date of authentication hereof, unl_'i_[__) theN_late of authentication is an Interest Payment Date in which event interest shall be p_lcN_m such date of authentication, (ii) the date of authentication is after a Record Date (j_l_ein_ defined) but prior to the immediately succeeding Interest Payment Date, in which ev[_ff" in'a_f shall be payable from the Interest Payment Date immediately succeeding the date of au_on, or (iii) the date of authentication is prior to the close of business on the first Record Date in whic_vent interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-13 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$670,000

INTEREST RATE 4.75%

MATURITY DATE September 1, 2019

DATED DATE September 15, 2005

CUSIP NO. 455697AN2

REGISTERED

OWNER:

CEDE & CO. SIX HUNDRED SEVENTY THOUSAND AND NO/100 DOLLARS

PRINCIPAL AMOUNT:

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District'9 situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held und_ the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or _,r.f lI_tered , assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafterj_,,i_the Principal Amount set forth above, and to pay interest on such Principal Amount from th_irest lVayment Date (as hereinafter defined) next preceding the date of authentication hereof, _'V_the date of authentication is an Interest Payment Date in which event interest shall be _.._3_le_ro'ffi such date of authentication, (ii) the date of authentication is after a Record Date (_'ff_ defined) but prior to the immediately succeeding Interest Payment Date, in which eveflt_est shall be payable from the Interest Payment Date immediately succeeding the date of authenfiL'_ion, or Off) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-14 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$705,000

INTEREST RATE 4.85%

MATURITY DATE September 1, 2020

DATED DATE September 15, 2005

CUSIP NO. 455697AP7

REGISTERED

OWNER:

CEDE & CO. SEVEN HUNDRED FIVE THOUSAND AND NO/100 DOLLARS

PRINCIPAL AMOUNT:

CITY OF INDIC) COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or re_tered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter p,f._l_, the Principal Amount set forth above, and to pay interest on such Principal Amount from tl_c_0_rest_ayment Date (as hereinafter defined) next preceding the date of authentication hereof, j_lrk_k_ " the date of authentication is an Interest Payment Date in which event interest shall be pa_b]_ such date of authentication, (ii)the date of authentication is after a Record Date (_._ defined) but prior to the immediately succeeding Interest Payment Date, in which eye, in, rest shall be payable from the Interest Payment Date immediately succeeding the date of auth_on, or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawfial money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-15 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$4,080,000

INTEREST RATE 5.00%

MATURITY

DATE

DATED DATE September 15, 2005

CUSIP NO. 455697AQ5

September 1, 2025

REGISTERED PRINCIPAL

OWNER: AMOUNT:

CEDE & CO. FOUR MILLION EIGHTY THOUSAND AND NO/100 DOLLARS

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LACK)) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter prodded, the Principal Amount set forth above, and to pay interest on such Principal Amount from the_est Payment Date (as hereinafter defined) next preceding the date of authentication hereof, unl_,_--(i)_ date of authentication is an Interest Payment Date in which event interest shall be paya_/_om such date of authentication, (ii) the date of authentication is after a Record Date (as _ defined) but prior to the immediately succeeding Interest Payment Date, in which event _ter_ ghall be payable from the Interest Payment Date immediately succeeding the date of autl__l_/or (iii) the date of authentication is prior to the close of business on the first Record Date in wl_h er}ent interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, i$_gh_e time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-16 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$5,210,000

INTEREST 5.10%

RATE

MATURITY

DATE

DATED DATE September 15, 2005

CUSIP NO. 455697AR3

September 1, 2030

REGISTERED

OWNER:

CEDE & CO. FIVE MILLION TWO HUNDRED TEN THOUSAND AND NO/100 DOLLARS

PRINCIPAL AMOUNT:

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter prox_ied, the Principal Amount set forth above, and to pay interest on such Principal Amount from th_i_-4_t Payment Date (as hereinafter defined) next preceding the date of authentication hereof, un_fS'_) tt_date of authentication is an Interest Payment Date in which event interest shall be l__rom such date of authentication, (ii) the date of authentication is after a Record Date,,(_s _ll_e_t_. defmed) but prior to the immediately succeeding Interest Payment Date, in which _t tl_:_t_t shall be payable from the Interest Payment Date immediately succeeding the date of a_ation, or (iii) the date of authentication is prior to the close of business on the first Record Date in wIne--hevent interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-17 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005

$6,690,000

(IMPROVEMENT AREANO.1)
INTEREST RATE 5.15% MATURITY DATE DATED DATE September 15, 2005 CUSIP NO. 455697AS1

September 1, 2035

REGISTERED PRINCIPAL

OWNER: AMOUNT:

CEDE & CO. SIX MILLION SIX HUNDRED NINETY THOUSAND AND NO/100 DOLLARS

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely from certain amounts held und_ the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or revered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter _e Principal Amount set forth above, and to pay interest on such Principal Amount from the_.J_est l_yment Date (as hereinaiter defined) next preceding the date of authentication hereof, _x_the date of authentication is an Interest Payment Date in which event interest shall be pay/_I_le'_oiW such date of authentication, (ii) the date of authentication is after a Record Date (a_t_li_r_ defined) but prior to the immediately succeeding Interest Payment Date, in which even_"t_e_st shall be payable from the Interest Payment Date immediately succeeding the date of authen_n, or (iii) the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

No. R-18 UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BOND, SERIES 2005 (IMPROVEMENT AREA NO. 1)

$3,000,000

INTEREST RATE 5.15%

MATURITY DATE September 1, 2035

DATED DATE September 15, 2005

CUSIP NO. 455697AT9

REGISTERED

OWNER:

CEDE & CO. THREE MILLION AND NO/100 DOLLARS

PRINCIPAL AMOUNT:

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (the "District") situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises to pay, solely fi'om certain amounts held under the Fiscal Agent Agreement (as hereinafter defined), to the Registered Owner named above, or rqi_istered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter _d, the Principal Amount set forth above, and to pay interest on such Principal Amount from thjr_ere'_Payment Date (as hereinafter defined) next preceding the date of authentication hereof, _ the date of authentication is an Interest Payment Date in which event interest shall be p_'Y_ such date of authentication, (ii) the date of authentication is after a Record Date (as_a_r defined) but prior to the immediately succeeding Interest Payment Date, in which eve_mt&'_" shall be payable from the Interest Payment Date immediately succeeding the date of authoreD, or (iii) the date of authentication is prior to the close of business on the first Record Date in which-'Vvent interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing March 1, 2006, at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of Union Bank of California, N.A., a national banking association (the "Fiscal Agent") in Los Angeles, California. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by fast class mail, postage prepaid, or in certain circumstances described in the Fiscal Agent Agreement by wire transfer to an account within the United States, to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the "Record Date") at such Registered Owner's address as it appears on the registration books maintained by the Fiscal Agent. Interest due on the Bonds shall be calculated on a basis of a 360-day year comprised of twelve 30-day months.

45655668.1

This Bond is one of a duly authorized issue of "City of Indio Community Facilities District No. 2004-3 (Term Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)" (the "Bonds") issued in the aggregate principal mount of $26,330,000 pursuant to the MeUo-Roos Community Facilities Act of 1982, as amended, being Sections 53311, et seq., of the California Government Code (the "Act") for the purpose of financing the acquisition of certain capital facilities, funding a reserve account, paying capitalized interest and paying certain costs related to the issuance of the Bonds. The issuance of the Bonds and the terms and conditions thereof are provided for by a resolution adopted by the City Council of the City of Indio, acting in its capacity as the legislative body of the District (the "Legislative Body") on August 3, 2005 and a Fiscal Agent Agreement dated as of September 1, 2005 (the "Fiscal Agent Agreement"), between the District and the Fiscal Agent, and this reference incorporates the Fiscal Agent Agreement herein, and by acceptance hereof the Registered Owner of this Bond assents to said terms and conditions. The Fiscal Agent Agreement is executed under and this Bond is issued under, and both are to be construed in accordance with, the laws of the State of_alifornia. Any amounts for the payment hereof shalI_ to the Net Taxes pledged and collected or foreclosure proceeds received following a defau_(_)baymY_nt of the Special Taxes and other amounts deposited to the Special Tax Fund (other __ml'nistmtive Expense Account therein) established under the Fiscal Agent Agreement. The Di_ric_]|a'a"covenanted for the benefit of the owners of the Bonds that under certain circumstances _ the Fiscal Agent Agreement it will commence and diligently pursue to completion appropi_e _reclosure proceedings in the event of delinquencies of Special Tax installments levied for payme/_$'lSrincipal and interest on the Bonds.

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

on on the the

Redemption Dates September 1, 2015 through August 31, 2016 September 1, 2016 through August 31, 2017 September 1, 2017 and thereafter

Redemption Price 102.0% 101.0 100.0

The Bonds are subject to mandatory redemption from prepaid Special Taxes, in whole or in part and on a pro rata basis among maturities, on any Interest Payment Date at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption: Redemption Dates September 1, 2005 through August 31, 2009 September 1, 2009 through August 31, 2015 September 1, 2015 and thereafter Redemption Prices 103.0% 102.5 As Provided for Optional Redemption

45655668.1

In connection with such redemption, the District may also apply amounts in the Reserve Account which will be in excess of the Reserve Requirement as a result of such Special Tax prepayment to redeem Bonds as set forth above. The Bonds maturing on September 1, 2025, September 1, 2030 and September 1, 2035 and the Special Escrow Term Bonds shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account, on September 1, 2021, September 1, 2026, September 1,2031, and September 1, 2008, respec_vely, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinkin_d Payments set forth below. The Bonds so called for redemption shall be selected by the Fisc_,_y lot and shall be redeemed at a redemption price for each redeemed Bond equal to the pi_l ai_ount thereof, plus accrued interest to the redemption date, without premium, as follow_NN _

Bonds_'ng Redemption Date (September 1) 2021 2022 2023 2024 2025 (maturity)

on September 1, 2025

Principal Amount $740,000 775,000 815,000 855,000 895,000

Bonds Maturing on September 1, 2030 Redemption Date (September 1) 2026 2027 2028 2029 2030 (maturity)

Principal Amount $940,000 990,000 1,040,000 1,090,000 1,150,000

Bonds Maturing on September 1, 2035 Redemption Date (September 1) 2031 2032 2033 2034 2035 (maturity)

Principal Amount $1,205,000 1,270,000 1,335,000 1,405,000 1,475,000

45655668.1

Special Escrow Term Bonds Maturing on September 1, 2035 Redemption D_e (September 1) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2020 2021 2019 2023 2024 2025 2026 2022 __ 2027 2028 2029 2030 2031 2032 2033 2034 2035 (maturity)

Principal Amount $45,000 50,000 55,000 60,000 65,000 65,000 70,000 75,000 75,000 80,000 85,000 90,000 95,000 90,000 105,000 110,000 120,000 125,000 100,000 130,000 135,000 145,000 150,000 160,000 165,000 175,000 185,000 195,000

Term Bonds maturing on September 1, 2035 are subject to mandatory September 1, 2007, or on such later date as is permitted under this Fiscal Agent price equal to the principal amount thereof to be redeemed, together with of redemption, without premium, from amounts available in the Special or Revised Escrow Redemption Date, as applicable, pursuant to the Fiscal

with respect to the Bonds to be redeemed shall be mailed to the registered 30 nor more than 60 days prior to the redemption date by first class mail, addresses set forth in the registration books. Neither a failure of the Registered notice nor any defect therein will affect the validity of the proceedings for portions thereof so called for redemption will cease to accrue interest on the provided that funds for the redemption are on deposit with the Fiscal Agent on Thereafter, the registered owners of such Bonds shall have no rights except to redemption price upon the surrender of the Bonds.

This Bond shall be registered in the name of the Registered Owner hereof, as to both principal and interest, and the District and the Fiscal Agent may treat the Registered Owner hereof as the absolute owner for all purposes and shall not be affected by any notice to the contrary.

The Bonds are issuable only in fully registered form in the denomination of $5,000 or any integral multiple thereof and may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations of the same issue and maturity, all as more fully set forth in the Fiscal Agent Agreement. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Principal Office of the Fiscal Agent in Los Angeles, California, but only in the manner, subject to the limitations and upon payment of the charges provided in the Fiscal Agent Agreement, upon surrender and cancellation of this Bond. Upon such transfer, a new registered Bond of authorized denomination or denominations for the same aggregate principal amount of the same issue and maturity will be issued to the transferee in exchange therefor.

The Fiscal Agent shall not be required to register transfers or make exchanges of (i) any Bonds for a period of 15 days next preceding any selection of the Bonds to be redeemed, or (ii) any Bonds chosen for redemption. The rights and obligations of the District a__egistered owners of the Bonds may be amended at any time, and in certain cases without no_ or the consent of the registered owners, to the extent and upon the terms provided in the Fiscal __eement. The Fiscal Agent Agreement conta_pro_ ns_ permitting the District to make provision for the payment of the interest on, and the principal_t'_remiurn, if any, of the Bonds so that such Bonds shall no longer be deemed to be outstanding under the terms of the Fiscal Agent Agreement.

THE BONDS DO NOT CONSTITUTE OBLIGATIONS OF THE CITY OF INDIO (THE "CITY") OR OF THE DISTRICT FOR WHICH THE CITY OR THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE, OR HAS LEVIED OR PLEDGED, GENERAL OR SPECIAL TAXES, OTHER THAN THE SPECIAL TAXES REFERENCED HEREIN. THE BONDS ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE FROM THE PORTION OF THE SPECIAL TAXES AND OTHER AMOUNTS PLEDGED UNDER THE FISCAL AGENT AGREEMENT BUT ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR RESTRICTION. This Bond shall not become valid or obligatory for any purpose until the certificate authentication and registration hereon endorsed shall have been dated and signed by the Fiscal Agent. of

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required by law to exist, happen and be performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law, and that the amount of this Bond, together with all other indebtedness of the District, does not exceed any debt limit prescribed by the laws or Constitution of the State of California.

45655668.1

IN WITNESS WHEREOF, City of Indio Community Facilities District No. 2004-3 (Terra Lago) has caused this Bond to be dated as of the Dated Date, to be signed on behalf of the District by the Mayor of the City of Indio, acting as the legislative body of the City of Indio Community Facilities District No. 2004-3 (Term Lago) by his manual signature and attested by the manual signature of the City Clerk of the City of Indio. _

Mayor of the City of Indio By:

ATTEST: ___ City Clerk of the City o-'T_dio

45655668.1

CERTIFICATE

OF AUTHENTICATION

AND REGISTRATION

This is one of the Bonds described in the within-defined Fiscal Agent Agreen_nt. UNION BANK OF CAI_II_TIA, Agent By: (__ N.A., as Fiscal

Dated: September 15, 2005

,, _,, Authorized 0 ffie_r

45655668.1

FORM OF ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto

(Name, Address, and Tax Identification or Social Security Number of Assignee) the within-mentioned Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Fis premises. t with full power of substitution m the

Dated:

Signature Guaranteed:

Note: Signature(s) must be guaranteed by an eligible guarantor institution,

Note: The signature(s) on this Assignment must correspond with the names as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever.

45655668.1

22

-_- _
'--" 4J O'-"

PRELIMINARY NEW ISSUE--BOOK-ENTRY ONLY

OFFICIAL

STATEMENT

DATED

AUGUST

19, 2005 NOT RATED

_'_ ,_ _,_ _ ,._ _ _ _

In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, under existing law, the interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest on the Bonds is excluded pursuant to section 103 (a) of the Internal Revenue Code of 1986from the gross income of the owners thereof for federal income tax purposes and is not an item of preference for purposes of the federal alternative minimum tax. See "TAX MATTERS" herein. STATE OF CALIFORNIA RIVERSIDE COUNTY

8:

e,
COMMUNITY

$25 790 000" CITY OF INDIO

FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1)
Due: September 1, as shown on the inside front cover hereof

__ _ .,_'_ _ IE a _
_" -[ "E _ R- "_ -_ _m.
_ _

Dated: Date of Delivery

The City of lndio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") are being issued by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District"), which was established by the City of Indio (the "City"), pursuant to a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"), and will be secured as described herein. The Bonds are being issued to (i) finance the acquisition of capital facilities fees and certain public improvements serving property within Improvement Area No. 1 of the District ("Improvement Area No. 1"), (ii) fund a reserve account for the Bonds, (iii) fund capitalized interest through September 1, 2006, and (iv) pay the costs of issuance of the Bonds. See
"THE FINANCING PLAN_' herein.

"_ ._ _._ .,.- -m _ _ "_ _ _ "" = "_'_ _ --a=_"_ _'._ .ca --._"_ ._m ----'_ =_ _ .__ _ "m_, .m _ "_ .m _.._ _ ._,_ _ _._ "_m_ _ _ "_ ._

The Bonds will be issued in denominations of $5,000 or any integral multiple thereof, shall mature on September 1 in each of the years and in the amounts, and shall bear interest as shown on the inside front cover hereof, Interest on the Bonds shall be payable on each March 1 and September 1, commencing March 1, 2006 (the "Interest Payment Dates") to the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, by check mailed on such Interest Payment Date or by wire transfer to an account in the United States of America made upon instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds. The Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Bonds. Individual purchases of the Bonds will be made in book-entry form only. Principal of and interest and premium, if any, on the Bonds will be payable by DTC through the DTC participants. See "THE BONDS--Book-Entry System" herein. Purchasers of the Bonds will not receive physical delivery of the Bonds purchased by them. The Bonds are subject to optional redemption, mandatory sinking fund redemption and special mandatory redemption from Special Tax prepayments prior to maturity as set forth herein. See "THE BONDS--Redemption" herein. The Bonds are limited obligations of the District. The Bonds are payable solely from the Net Taxes (as defined herein), comprised of Special Taxes (as defined herein) to be levied on and collected from the owners of the taxable land within Improvement Area No. 1, and from certain other funds pledged under the Fiscal Agent Agreement, all as further described herein. The Special Taxes are to be levied according to a Rate and Method of Apportionment of Special Tax approved by the qualified electors within Improvement Area No. 1 on July 20, 2005. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRIC'I], THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. SEE THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED "SPECIAL RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED, IN ADDITION TO THE OTHER MATTERS SET FORTH HEREIN, IN CONSIDERING INVESTMENT QUALITY only. OF It THE BONDS. This cover page contains certain THE information for quick reference is not a complete summary of the Bonds. Investors read the entire Official Statement to obtain information essential to the making of an informed investment decision. should

The Bonds are offered when, as and if issued, subject to approval as to their legality by Fulbright & Jaworski L.L.P, Los Angeles, California, Bond Counse_ and certain other conditions. Certain legal matters will be passed upon for the City by the City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel to the City with respect to the issuance of the Bonds. It is anticipated that the Bonds will be available for delivery on or about September , 2005.

""
- _ "" -_ _ Q. -_-- _ Dated: September *Preliminary; 2005 subject to change.

SECURITIES SOUTHWEST
Member o fSWS Group

$25,790,000* CITY OF INDIO

COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1)
Maturity Dates, Principal Amounts, Interest ) Rates and Yields*

LAGO)

(Base CUSIPt $7,220,000* Maturity Date September 1 Principal Amount*

Serial Bonds Interest Rate Reoffering Yield

CUSIP#

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

$365,000 355,000 385,000 415,000 445,000 485,000 500,000 530,00O 550,000 580,000 605,000 635,000 670,000 700,000

$4,075,000* $5,245,000* $6,790,000* $2,460,000*

% Term Bond maturing % Term Bond maturing % Term Bond maturing % Special Escrow Term

September 1, 2025*, Yield September 1, 2030", Yield September 1, 2035", Yield Bond maturing September 1,

% cusiPt % CUSIPt % CUSIPt 2035", Yield

% CUSIPt"

*Preliminary;

subject to change.

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

CITY OF INDIO, CALIFORNIA

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

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

PROFESSIONAL

SERVICES

Bond Counsel and Disclosure Counsel Fulbright & Jaworski L.L.P. Los Angeles, California Financial Advisor Harrell & Company Advisors, LLC Orange, California Underwriter Southwest Securities, Inc. Newport Beach, California Underwriter's Counsel Jones Hall, A Professional Law Corporation San Francisco, California Special Tax Consultant Albert A. Webb Associates Riverside, California Appraiser First American Commercial Real Estate Services Santa Ana, California Market Absorption Consultant Market Profiles Inc. Santa Aria, California Fiscal Agent Union Bank of California, N.A. Los Angeles, California

No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations in connection with the offer or sale of the Bonds described herein, other than as contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale ol, the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the City, the District, and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation of such by the City, the District or the Underwriter. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinion stated herein are subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the affairs of the City, the District or any major property owner within the District since the date hereof. The Official Statement is submitted in connection with the sale of Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL 1N THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS ACTING AS AGENTS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAW OF ANY STATE.

TABLE

OF CONTENTS

INTRODUCTORY STATEMENT ............................................................................................................. General ........................................................................................................................................... Use of Proceeds .............................................................................................................................. Security for the Bonds .................................................................................................................... Special Escrow Fund ....................................................................................................................... The District ..................................................................................................................................... The Special Tax .............................................................................................................................. Foreclosure Covenant ..................................................................................................................... Limited Obligations ........................................................................................................................ Further Information ......................................................................................................................... Forward Looking Statements .......................................................................................................... CONTINUING DISCLOSURE ................................................................................................................... ESTIMATED SOURCES AND USES OF FUNDS ................................................................................... THE FINANCING PLAN ........................................................................................................................... THE BONDS ............................................................................................................................................... Description of the Bonds ................................................................................................................ Redemption ..................................................................................................................................... The Fiscal Agent ........................................................................................................................... Book-Entry System ....................................................................................................................... Debt Service Schedule ................................................................................................................... SECURITY FOR THE BONDS ................................................................................................................ General ......................................................................................................................................... The Special Taxes ......................................................................................................................... Special Tax Fund .......................................................................................................................... Reserve Account ...........................................................................................................................

! i 1 2 2 2 2 3 3 3 3 4 4 5 6 6 6 10 10 11 11 11 12 12 14

Special Escrow Fund ..................................................................................................................... 14 Rate and Method of Apportionment of Special Taxes .................................................................. 16 Covenant for Superior Court Foreclosure ..................................................................................... 17 No Obligation of the City Upon Delinquency .............................................................................. 18 Direct and Overlapping Debt ................................................................................................. ....... 18 Estimated Effective Tax Rate ....................................................................................................... 20 Appraisal ....................................................................................................................................... 21 Maximum Special Tax Coverage .................................................................................................. 22 THE CITY ................................................................................................................................................. 24 THE DISTRICT ......................................................................................................................................... 24 THE DEVELOPMENT ............................................................................................................................. 24 General ......................................................................................................................................... 25 Availability of Water for Construction ......................................................................................... Public Facilities ............................................................................................................................. Environmental Assessment ........................................................................................................... Development and Financing Plans - Improvement Area No. ! .................................................... Absorption Study .......................................... ................................................................................ THE MASTER DEVELOPER AND THE DEVELOPERS ..................................................................... SPECIAL RISK FACTORS ...................................................................................................................... Concentration of Ownership ......................................................................................................... Risks of Real Estate Secured Investments Generally ................................................................... Terrorist Attacks ........................................................................................................................... Land Development Costs .............................................................................................................. Future Land Use Regulations and Growth Control Initiatives ...................................................... Failure to Develop Properties ....................................................................................................... i 25 26 26 27 29 29 33 33 33 34 34 34 34

TABLE

OF CONTENTS (continued)

Disclosure to Future Homebuyers ................................................................................................ Parity Taxes and Special Assessments .......................................................................................... Appraised Value; Land Value ....................................................................................................... Value to Lien Ratios ..................................................................................................................... Insufficiency of Special Taxes ...................................................................................................... Tax Delinquencies ........................................................................................................................ Future Indebtedness ...................................................................................................................... Natural Disasters ........................................................................................................................... Endangered and Threatened Species ................................................ , ............................................ Hazardous Substances .................................................................................................................

36 36 36 37 37 38 38 38 39 39

Bankruptcy and Foreclosure ......................................................................................................... 39 Property Controlled by FDIC ........................................................................................................ 40 Billing of Special Taxes ................................................................................................................ 41 Collection of Special Taxes .......................................................................................................... 42 Maximum Special Tax Rates ........................................................................................................ 42 Exempt Properties ......................................................................................................................... 42 California Constitution Article XIIIC and Article XIIID .............................................................. 43 Ballot Initiatives and Legislative Measures .................................................................... .............. 44 No Acceleration ............................................................................................................................ 44 Loss of Tax Exemption ................................................................................................................. 44 Limitations on Remedies .............................................................................................................. 44 Limited Secondary Market ........................................................................................................... 45 CONCLUDING INFORMATION ............................................................................................................ 45 Underwriting .......................................... :...................................................................................... 45 Legal Opinion ............................................................................................................................... 45 Tax Exemption ........................................................................................................................ :..... 46 No Litigation ................................................................................................................................. 48 No Rating on the Bonds ................................................................................................................ 48 Miscellaneous ............................................................................................................................... 48

APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX

A B C D E F G H

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES ................ CITY OF INDIO SUPPLEMENTAL INFORMATION ........................................... SUMMARY OF FISCAL AGENT AGREEMENT .................................................. APPRAISAL REPORT ............................................................................................. MARKET ABSORPTION STUDY .......................................................................... FORM OF BOND COUNSEL OPINION .................................................................. FORMS OF CONTINUING DISCLOSURE AGREEMENTS ................................ BOOK-ENTRY ONLY SYSTEM .............................................................................

A- 1 B-1 C-1 D- 1 E-1 F-I G-I H-I

ii

OFFICIAL

STATEMENT

COMMUNITY

$25,790,000* CITY OF IND|O FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1)

INTRODUCTORY General

STATEMENT

This Official Statement, including the cover page, the inside cover page and the Appendices hereto, is provided to furnish certain information in connection with the issuance and sale by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") of its Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") in the aggregate principal amount of $25,790,000* being issued in connection with the financing of capital facilities fees and certain public improvements servicing Improvement Area No. I of the District ("Improvement Area No. l"). The Bonds will be issued pursuant to the provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"), and pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections 53311 et seq. of the Government Code of the State of California) (the "Act"). The Act was enacted by the California Legislature to provide an alternate method of financing certain public facilities and services, especially in developing areas. Once duly established, a community facilities district is a legally constituted governmental entity established for the purpose of financing specific facilities and services within defined boundaries. Subject to approval by a two-thirds vote of the qualified electors within a community facilities district and compliance with the provisions of the Act, a community facilities district may issue bonds and levy and collect special taxes to repay its bonds. The Bonds will be issued in denominations of $5,000 each or any integral multiple thereof and will be dated and bear interest from the date of their deliver, at the rates set forth on the inside cover page hereof. See "THE BONDS." The Bonds, when issued, will be registeredin the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Bonds. Individual purchases of the Bonds will be made in book-entry form only. Principal of and interest and premium, if any, on the Bonds will be payable by DTC through the DTC participants. See "THE BONDS -- Book-Entry System" herein. Purchasers of the Bonds will not receive physical delivery of the Bonds purchased by them. Use of Proceeds The Bonds are being issued to finance capital facilities fees and the acquisition and/or construction of certain public improvements serving property within Improvement Area No. 1, to fund a reserve account for the Bonds, to fund capitalized interest on the Bonds through September 1, 2006, and to pay the costs of issuance of the Bonds. See "THE FINANCING PLAN" herein.

*Preliminary; subject to change.

Security. for the Bonds The Bonds are secured by the pledge of Net Taxes and the other amounts in the Special Tax Fund (other than amounts in the Administrative Expense Account therein). Net Taxes are defined as Special Taxes minus an amount equal to the Administrative Expense Requirement. Special Taxes means the amount of all special taxes authorized to be levied within Improvement Area No. 1, together with the proceeds collected from the sale of property pursuant to the foreclosure provision of the Fiscal agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions. See "SECURITY FOR THE BONDS - General." The District has established a Reserve Account pursuant to the Fiscal Agent Agreement. The Reserve Account will be funded from the proceeds of the Bonds in the initial amount of $ The Reserve Requirement as of any date of calculation will be an amount equal to the lowest of(l) 10% of the original proceeds of the Bonds, less accrued interest, if any, less original issue discount, if any, plus original issue premium, if any, or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds. See "SECURITY FOR THE BONDS - Reserve Account." Special Escrow Fund A portion of the proceeds of the Bonds will be deposited into the Special Escrow Fund to be established under the Fiscal Agent Agreement. These funds will be released to the Acquisition and Construction Fund upon satisfaction of certain conditions. See "SECURITY FOR THE BONDS - Special Escrow Fund." If these conditions are not met, the amounts in the Special Escrow Fund will be used to redeem Bonds. See "THE BONDS - Redemption." The District The District consists of approximately 364.96 gross acres comprising two improvement areas on which the Terra Lago community and the facilities and improvements associated therewith are to be located. Improvement Area No. 1 consists of approximately 174.80 acres, approximately 135.75 acres of which are slated for residential development and 39.05 acres of which are open space, and Improvement Area No. 2 ("Improvement Area No. 2") which consists of approximately 190.16 acres, 173.76 acres of which are slated for residential development and 16.4 acres of which are open space. At buildout, it is anticipated that Improvement Area No. 1 will contain 635 residential dwelling units and Improvement Area No. 2 will contain 849 residential dwelling units. See "'THE DISTRICT" for further information regarding the District and "THE DEVELOPMENT" for further information regarding the Terra Lago community. The Bonds are being issued to finance certain public improvements serving properties within Improvement Area No. 1 only and are not financing public improvements in Improvement Area No. 2. No Special Taxes levied on property in Improvement Area No. 2 is or will be security for the Bonds. See "THE FINANCING PLAN" herein. The Special Tax On July 20, 2005, at an election held pursuant to the Act, the landowners who comprised the qualified electors of the District authorized the District to incur bonded indebtedness in Improvement Area No. 1 in an aggregate amount not to exceed $30,000,000, and approved a Rate and Method of Apportionment of Special Tax (the "Rate and Method") to be levied within and for Improvement Area No. 1 to pay the principal of, and interest on, the authorized bonded indebtedness and approved an appropriations limit for Improvement Area No. 1 equal to the maximum amount of bonded indebtedness authorized to be incurred for Improvement Area No. 1. See "APPENDIX A -- RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES."

Foreclosure Covenant The District has covenanted for the benefit of the owners of the Bonds that, under certain circumstances described herein, the District will commence judicial foreclosure proceedings with respect to delinquent Special Taxes on property within the District, and will diligently pursue such proceedings to completion. See "'SECURITY FOR THE BONDS - The Special Taxes" and "SECURITY FOR THE BONDS - Covenant for Superior Court Foreclosure." In addition, see "SECURITY FOR THE BONDS Direct and Overlapping Debt" for a discussion of additional debt payable on a parity with the Bonds. Limited Obligations NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. See the section of this Official Statement entitled "SPECIAL RISK FACTORS" for a discussion of certain risk factors which should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Bonds. Further lntormation Brief descriptions of the Bonds, the security for the Bonds, special risk factors, the District, the City, the Master Developer or the Developers (as such terms are hereinafter defined) and other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the Bonds, the Fiscal Agent Agreement, resolutions and other documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Bonds, the Fiscal Agent Agreement, such resolutions and other documents. All such descriptions are further qualified in their entirety by reference to laws and to principles of equity relating to or affecting generally the enforcement of creditors' rights. For definitions of certain capitalized terms used herein and not otherwise defined, and a description of certain terms relating to the Bonds, see "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT" hereto. Copies of such documents may be obtained from the office of the City Manager of the City. Forward Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "project," "budget" or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the captions "THE DEVELOPMENT" and "THE MASTER DEVELOPER AND THE DEVELOPERS." THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,

UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.

CONTINUING

DISCLOSURE

It is anticipated that the District will be developed by four developers (the "Developers") as further described herein under the heading "THE MASTER DEVELOPER AND THE DEVELOPERS." The District and the Developers, other than Ryland Homes of California, Inc. ("Ryland"), have separately covenanted tbr the benefit of owners of the Bonds to provide certain financial information and operating data relating to Improvement Area No. 1 (collectively, the "Annual Reports"), and to provide notices of the occurrences of certain enumerated events, if material. The Annual Reports will be filed with each Nationally Recognized Municipal Securities Information Repository and with the appropriate State information depository, if any. The notices of material events will be filed with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). The specific nature of information to be contained in the.Annual Reports or the notice of material events is summarized in "APPENDIX G -- FORMS OF CONTINUING DISCLOSURE AGREEMENTS." These covenants have been made by the District and the Developers in order to assist the Underwriter in complying with the Rule. The District has never failed to comply in all material respects with any previous undertakings with regards to said Rule to provide annual reports or notices of material events. The Developers have never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events.

ESTIMATED

SOURCES AND USES OF FUNDS

The estimated sources and used of funds relating to the issuance of the Bonds is set forth below: Sources of Funds Principal Amount of the Bonds ........................................................................... Less: Original Issue Discount ................................................................ Less: Underwriter's Discount ................................................................ Total Sources ............................................................................. Uses of Funds Deposit to Acquisition and Construction Fund (Developer) ............................... Deposit to Acquisition and Construction Fund (Ct1 y) .(1) ..................................... Deposit to Reserve Account ................................................................................ Deposit to Interest Accoun(2) .............................................................................. Deposit to Costs of Issuance Account ) .............................................................. Deposit to Special Escrow Fund (4) Total Uses ..................................................................................
0) To be applied to funding a fire station to service the District. _2) Capitalized interest through September 1, 2006 (3) Includes fees for Bond Counsel, Disclosure Counsel, Financial Consultant, the Appraiser, the Market Absorption legal and financial consultant costs of the Developers, the Fiscal Agent and its counsel, costs of printing Statement, and other costs of issuance of the Bonds. 4) To be released to the Acquisition and Construction BONDS Special Escrow Fund." Fund upon satisfaction of certain conditions. See "'SECURITY Consultant, the Official FOR THE

THE FINANCING

PLAN

The proceeds of the Bonds will used to finance capital facilities tees and certain public improvements serving properties within Improvement Area No. I. Such eligible improvements and estimated costs thereof are set forth below. Any shortiall in financing these improvements are the responsibilities of the Master Developer. The inability of the Master Developer to finance any shortfall may have an adverse effect on the Developers' ability to complete the development as contemplated. The following table sets forth a description of the improvements to be constructed Improvement Area No. 1, along with the estimated costs associated with each item. Description of Improvements Estimated Cost in

Capital Facilities Fees Storm Drainage Fees Fire Station Mitigation Fee Sheriff / Police Fee Park Fee Bridge/Major Street Impact Fees School Fees Transportation Uniform Mitigation Fee Water Meter Fee Water Capital Improvement Fees Sewer Connection Capacity Fees Sewer Service Fees Park Capital Impact Fee Payment to City for Fire Station Subtotal: Public Improvements Site Preparation Grading Surface Improvements Landscaping Storm Drainage Traffic Control Water Sewer Engineering Soils Engineering Blueprints Repairs for Inspection Dry Utilities Contingency Subtotal: Total Reimbursable Costs

225,000 317,500 53,975 254,000 444,500 5,588,000 504,190 99,060 1,936,750 1,879,600 80,645 1,262,380 1,000,000 $13,645,600

355,268 68,576 591,956 1,508,875 133,800 610,411 1,186,300 814,222 l, 862,900 150,000 35,000 14 1,897 263,471 503,437 $8,226, l 13

$21,871,713

THE BONDS Description of the Bonds The Bonds will be issued as fully registered bonds, in denominations of $5,000 each or any integral multiple thereof within a single maturity and will be dated and bear interest from the date of their delivery (the "Dated Date"), at the rates set forth on the inside cover page hcreoL The Bonds will be issued in fully registered form, without coupons. Interest on the Bonds will be paid in lawful money of the United States of America semiannually on March 1 and September 1 of each year (each, an "Interest Payment Date"), commencing on March 1, 2006. Interest on the Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) such date of authentication is an Interest Payment Date in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication, or (iii) the date of authentication is prior to the close of business on the first Record Date occurring after the issuance of such Bond, in which event interest shall be payable from the dated date of such Bond; provided, however, that if at the time of authentication of such Bond, interest is in default, interest on that Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment on that Bond, interest on that Bond shall be payable form its dated date. The Bonds will mature on September l in the principal amounts and years as shown on the inside cover page hereof and are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption as shown below. Redemption Optional Redemption Subject to the limitations set forth below, the Bonds maturing on or after September 1, 2016 may be redeemed, at the option of the District from any source of funds, prior to maturity on any date on or after September 1, 2015, in whole, or in part in the order of maturity selected by the District and by lot within a maturity, at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption: Redemption Dates September 1, 2015 through August 31, 2016 September 1, 2016 through August 31, 2017 September 1, 2017 and thereafter In the event the District Request of the District to the principal amount of the Bonds but no more than 90 days prior Fiscal Agent. elects to redeem Fiscal Agent of to be redeemed. to the redemption Redemption Prices

102.0% 101.0 100.0

Bonds as provided above, the District shall give Written its election to so redeem, the redemption date and the The notice to the Fiscal Agent shall be given at least 60 date, or such shorter period as shall be acceptable to the

Mandatory_ Redemption

from Special Tax Prepayments

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

September 1, 2005 through August 31, 2009 September 1, 2009 through August 31, 2015 September I, 2015 and thereafter

103.0% 102.5 As Provided for Optional Redemption

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

The Bonds maturing on September 1, 2025, September 1, 2030 and September 1, 2035 and the Special Escrow Term Bonds maturing on September 1, 2035 shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account, on September 1,2021, September 1, 2026, September l, 2031 and September 1, 2007, respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Bonds so called for redemption shall be selected by the Fiscal Agent by lot and shall be redeemed at a redemption price for each redeemed Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows: Bonds Maturing on September Redemption Date (September 1) 2021 2022 2023 2024 2025 (maturity) * Preliminary; subject to change. 1, 2025

Principal Amount* $735,000 775,000 810,000 855,000 900,000

Bonds Maturing on September Redemption Date (September l) 2026 2027 2028 2029 2030(mamri_) Preliminary; subject to change.

l, 2030

Principal Amount* $945,000 995,000 1,045,000 1,100,000 1,160,000

Bonds (CUSIP Redemption Date (September 1) 2031 2032 2033 2034 2035 (mamrity) Preliminary; subject to change.

) Maturing on September

1, 2035

Principal Amount* $1,220,000 1,285,000 1,355,000 1,430,000 1,500,000

Special Escrow Term Bonds (CUSIP Redemption Date (September 1) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Preliminary; subject to change.

) Maturing on September Redemption Date (Se.ptember 1) 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 (maturity)

1, 2035

Principal Amount* $40,000 40,000 45,000 50,000 50,000 55,000 55,000 60,000 60,000 65,000 70,000 70,000 75,000 80,000

Principal Amount* 80,000 90,000 90,000 95,000 100,000 105,000 115,000 120,000 125,000 130,000 140,000 145,000 150,000 160,000

If during the Fiscal Year immediately preceding one of the sinking fund redemption dates specified above the District purchases Bonds, at least 45 days prior to the redemption date, the District shall notify the Fiscal Agent by Written Request of the District as to the principal amount purchased and the amount of Bonds so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce such upcoming Sinking Fund Payment tbr the applicable maturity of the Bonds. All Bonds purchased pursuant to this subsection shall be cancelled pursuant to the Fiscal Agent Agreement. In the event of a partial redemption of the Term Bonds pursuant to optional redemption or mandatory redemption from Special Tax prepayments, each of the remaining Sinking Fund Payments for such Term Bonds, as described above, will be reduced, as nearly as practicable, on a pro rata basis. Redemption from Special Escrow.

The Special Escrow Term Bonds (CUSIP __) maturing on September 1, 2035 are subject to mandatory redemption, pro rata, on September 1, 2007, or on such later date as is permitted under this Fiscal Agent Agreement, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, from amounts available in the Special Escrow Fund. Notice of Redemption When Bonds are due for redemption under the Fiscal Agent Agreement, the Fiscal Agent shall give notice, in the name of the District, of the redemption of such Bonds; provided, however, that a notice of a redemption to be made from other than from Sinking Fund Payments shall be conditioned on there being on deposit on the redemption date sufficient money to pay the redemption price of the Bonds to be redeemed. Such notice of redemption shall (a) specify the CUSIP numbers (if any), the bond numbers and the maturity date or dates of the Bonds selected for redemption, except that where all of the Bonds of a maturity are subject to redemption, or all the Bonds of one maturity, are to be redeemed, the bond numbers of such issue need not be specified; (b) state the date fixed for redemption and surrender of the Bonds to be redeemed; (c) state the redemption price; (d) state the place or places where the Bonds are to be redeemed; (e) in the case of Bonds to be.redeemed only in part, state the portion of such Bond which is to be redeemed; (f) state the date of issue of the Bonds as originally issued; (g) state the rate of interest borne by each Bond being redeemed; and (h) state any other descriptive information needed to identify accurately the Bonds being redeemed as shall be specified by the Fiscal Agent. Such notice shall further state that on the date fixed for redemption, there shall become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 60 days prior to the redemption date, the Fiscal Agent shall mail a copy of such notice, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register. The actual receipt by the Owner of any Bond or the original purchaser of any Bond of notice of such redemption shall not be a condition precedent to redemption, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. Effect of Notice of Redemption Notice of redemption having been duly given, as described above, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption:

(1) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become duc and payable at the redemption price thereof as provided in the Fiscal Agent Agreement, anything in tile Fiscal Agent Agreement or in the Bonds to the contrary notwithstanding; (2) Upon presentation and surrender thereof at the office of the Fiscal Agent, the redemption price of such Bonds shall be paid to the Owners thereof; (3) As of the redemption date the Bonds, or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds, or portions thereof, shall cease to bear further interest; and (4) As of the date fixed for redemption no Owner of any of the Bonds, or portions thereof so designated for redemption shall be entitled to any of the benefits of this Fiscal Agent Agreement, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. The Fiscal Agent Union Bank of California, N.A., has been appointed as the Fiscal Agent for all of the Bonds under the Fiscal Agent Agreement. For a further description of the rights and obligations of the Fiscal Agent pursuant to the Fiscal Agent Agreement, see "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT" hereto. Book-Entry System

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

10

Schedule following is the debt service schedule tbr the Bonds, assuming no redemptions fund redemptions. DEBT SERVICE SCHEDULE Year Ending (September 1) 2006 2007 2008 2009 2010 201l 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Total Annual Debt Service other than

Principal

Interest

SECURITY FOR THE BONDS

THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE IMPROVEMENT AREA NO. 1, NO OTHER REVENUES OR TAXES ARE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES OF

11

IMPROVEMENT AREA NO. 1 AND AMOUNTS HELD AGREEMENT AS MORE FULLY DESCRIBED HEREIN.

UNDER

THE

FISCAL

AGENT

The Bonds are secured by a pledge of Net Taxes and the other amounts in the Special Tax Fund (other than amounts in the Administrative Expense Account therein). Net Taxes is defined as Special Taxes minus an amount equal to the Administrative Expense Requirement. Special Taxes means the amount of all special taxes (the "Special Taxes" or the "Special Tax") received by the District with respect to Improvement Area No. 1, together with the proceeds collected from the sale of property pursuant to the foreclosure provision of the Fiscal Agent Agreement for the delinquency of such Special Taxes remaining atier the payment of all the costs related to such foreclosure actions. In the event that delinquencies occur in the receipt of the Special Taxes within Improvement Area No. 1 in any fiscal year, the District may increase its Special Tax levy on property within Improvement Area No. 1 in the following fiscal year up to the maximum amount permitted under the Rate and Method. Under no circumstances, however, will Special Taxes levied against any parcel used for private residential purposes be increased by more than 10 percent as a consequence of delinquency or default by the owner of any other parcel or parcels within Improvement Area No. 1. Although the Special Tax levy on property within Improvement No. 1 may be increased, Special Taxes resulting . from the increase may not be available to cure any delinquencies for a period of one year or more. In addition, an increase in the Special Tax levy may adversely affect the ability or willingness of property owners to pay their Special Taxes. See "Rate and Method of Apportionment of Special Taxes" below and "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" hereto for a description of the District's procedures for levying Special Taxes within Improvement Area No. 1, and "SPECIAL RISK FACTORS - Insufficiency of Special Taxes." OWNERSHIP OF THE BONDS IS SUBJECT TO A SIGNIFICANT DEGREE OF RISK. POTENTIAL INVESTORS ARE ADVISED TO CAREFULLY READ THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED "SPECIAL RISK FACTORS." The Special Taxes The Special Taxes are to be apportioned, levied and collected according to the Rate and Method for Improvement Area No. 1. See "- Rate and Method of Apportionment of Special Taxes" below and "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" hereto. Beginning in Fiscal Year 2006-2007 and so long as any Bonds issued under the Fiscal Agent Agreement are Outstanding, the District has covenanted to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement. Subject to the maximum special tax rates, the Rate and Method is formulated to result in the levy each year of an amount of such payment of principal, premium, if any, and interest, replenishment of the Reserve Account and related administrative expenses; however, see "SPECIAL RISK FACTORS" for a discussion of certain factors affecting the actual timely collection of such Special Tax levies. Special Tax Fund Pursuant to the Fiscal Agent Agreement, there is established a "Special Tax Fund" to be held and maintained by the Fiscal Agent. In the Special Tax Fund there is further established and created an Interest Account, a Principal Account, a Redemption Account, a Reserve Account and an Administrative Expense Account.

12

The amounts on deposit in the foregoing funds and accounts will be held by the Fiscal Agent in trust and the Fiscal Agent will invest and disburse the amounts in such funds and accounts in accordance with the provisions of the Fiscal Agent Agreement and will disburse investment earnings thereon in accordance with the provisions of the Fiscal Agent Agreement. The District will, on each date on which it receives Special Taxes, transfer the Special Taxes to the Fiscal Agent for deposit in the Special Tax Fund in accordance with the terms of the Fiscal Agent Agreement to be held in trust. The Fiscal Agent will first deposit into the Administrative Expense Account of the Special Tax Fund an amount equal to the Administrative Expense Requirement and shall then transfer the amounts on deposit in the Special Tax Fund on the dates and in the amounts set forth in the Fiscal Agent Agreement, in the following order of priority, to: 1. 2. 3. 4. 5. 6. The Interest Account of the Special Tax Fund: The Principal Account of the Special Tax Fund; The Redemption Account of the Special Tax Fund; The Reserve Account of the Special Tax Fund; The Administrative The Surplus Fund. Tax Fund and time amounts by the Fiscal Expense Fund Expense Account of the Special Tax Fund; and

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

Interest Account and Principal Account of the Special Tax Fund. The principal of and interest due on the Bonds until maturity, other than principal due upon redemption, will be paid by the Fiscal Agent from the Principal Account and the Interest Account of the Special Tax Fund, respectively. At least five Business Days prior to each March I and September l, the Fiscal Agent will make the following transfers from the Special Tax Fund first to the Interest Account and then to the Principal Account; provided, however, that to the extent that deposits have been made in the Interest Account or the Principal Account from the proceeds of the sale of an issue of the Bonds, or otherwise, the transfer from the Special Tax Fund need not be made; and provided, further, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made up by an immediate transfer from the Reserve Account: 1. To the Interest Account, an amount such that the balance in the Interest Account five Business Days prior to each Interest Payment Date will be equal to the installment of interest due on the Bonds on said Interest Payment Date and any installment of interest due on a previous Interest Payment Date which remains unpaid. Moneys in the Interest Account shall be used for the payment of interest on the Bonds as the same become due. 2. To the Principal Account, an amount such that the balance in the Principal Account five Days prior to September 1 of each year, commencing September 1, 2007 shall at least equal the payment due on the Bonds maturing on such September 1 and any principal payment due on a September 1 which remains unpaid. Moneys in the Principal Account will be used for the of the principal of such Bonds as the same become due at maturity.

Business principal previous payment

13

Redemption Account of the Special Tax Fund. On each September 1 on which a Sinking Fund Payment is due, after the deposits havc been made to the Interest Account and the Principal Account of the Special Tax Fund, the Fiscal Agent will next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account five Business Days prior to each September 1 equal to the Sinking Fund Payment due on any Outstanding Bonds on such September 1; provided, however, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency will be made up by an immediate transfer from the Reserve Account. Moneys so deposited in the Redemption Account will be used and applied by the Fiscal Agent to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedule set forth in the Fiscal Agent Agreement and in any Supplemental Fiscal Agent Agreement for such Term Bonds. Reserve Account Moneys in the Reserve Account will be used solely for the purpose of paying the principal of, including Sinking Fund Payments, and interest on any Bonds when due in the event that the moneys in the Interest Account and the Principal Account of the Special Tax Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are insufficient to make a Sinking Fund Payment when due. If the amounts in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund are insufficient to pay the principal of, including Sinking Fund Payments, or interest on any Bonds when due, the Fiscal Agent will withdraw from the Reserve Account for deposit in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund, as applicable, moneys necessary for such purposes. Whenever moneys are withdrawn from the Reserve Account, after making the required transfers under the Fiscal Agent Agreement, the Fiscal Agent will transfer to the Reserve Account from available moneys in the Special Tax Fund, or from any other legally available funds which the District elects to apply to such purpose, the amount needed to restore the amount of such Reserve Account to the Reserve Requirement. Moneys in the Special Tax Fund will be deemed available for transfer to the Reserve Account only if the Fiscal Agent determines that such amounts will not be needed to make the deposits required to be made to the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund. If amounts in the Special Tax Fund or otherwise transferred to replenish the Reserve Account are inadequate to restore the Reserve Account to the Reserve Requirement, then the District will include the amount necessary fully to restore the Reserve Account to the Reserve Requirement in the next annual Special Tax levy for property within Improvement Area No. 1 to the extent of the maximum permitted Special Tax rates. Anything to the contrary in the Fiscal Agent Agreement notwithstanding, the District may, at any time, substitute an Alternate Reserve Account Security for cash in the Reserve Account. Special Escrow Fund The Special Escrow Fund is established under the Fiscal Agent Agreement. The Fiscal Agent shall make a disbursement from the Special Escrow Fund to the Acquisition and Construction Fund upon receipt of a certificate of the Authorized Representative of the City (the "Administrator") directing the Fiscal Agent to release funds from the Special Escrow Fund. Upon receipt of such certificate, the Fiscal Agent shall deposit the disbursement to the Acquisition and Construction Fund, in an amount specified by the Administrator in a written certificate. The transfers referred to _n the preceding sentence shall only be made on any Business Day on or prior to the Initial Escrow Close Date or any Revised Escrow Close Date (as such terms are defined below) and any certificate of the Administrator requesting any such draw shall be presented to the Fiscal Agent by the District at least 10 days (or such lesser number of days as agreed to by the Fiscal Agent) prior to the date for the transfer to be made.

14

At any time atier the Delivery Date and prior to the release of all moneys held in the Special Escrow Fund, the Developer may provide the District with funds so that the District may cause a formal appraisal to be prepared, at the expense of the Developer, consistent with the appraisal standards of the City to determine the Improvement Area No. 1 Value (the "Additional Appraisal"). If the Administrator approves the Additional Appraisal and the Improvement Area No. I Value established by the Additional Appraisal indicates that additional moneys are to be released from the Special Escrow Fund consistent with the City's policy of maintaining a value-to-lien ratio and Special Tax coverage ratio as described below, then the Administrator will cause a written notice be provided to the Fiscal Agent for the release of amounts to the Acquisition and Construction Fund. (i) Value-to-Lien Ratio. The Improvement Area No. l Value (not including the value of any parcel that is then delinquent in the payment of Special Taxes) shall be at least three times the sum of: (a) the aggregate principal amount of all Bonds then Outstanding, less the principal amount of any Bonds representing amounts (if any) to remain on deposit in the Special Escrow Fund following the proposed disbursement, plus (b) the aggregate principal amount of any fixed assessment liens on the parcels in the District subject to the levy of Special Taxes, plus (c) a portion of the aggregate principal amount of any and all other community facilities district bonds or assessment district assessment liens then outstanding and payable at least partially from special taxes or assessments to be levied on parcels of land within the District (the "Prior Bonds") equal to the aggregate principal amount of the Prior Bonds multiplied by a fraction, the numerator of which is the amount of special taxes and special assessments levied for the Prior Bonds on parcels of land within the District, and the denominator of which is the total amount of special taxes and special assessments levied for the Prior Bonds on all parcels of land against which the special taxes and special assessments are levied to pay the Prior Bonds (such fraction to be determined based upon the maximum special taxes which could be levied in the year in which maximum annual debt service on the Prior Bonds occurs), based upon information from the most recent available Fiscal Year. (ii) Minimum Value Test. The Improvement Area No. 1 Value (including only those parcels of real property in the District then constituting "Undeveloped Property," as defined in the Rate and Method of Apportionment relating to Improvement Area No. 1), shall be at least two and one-half times (a) the sum of the amounts referred to in clauses (a), (b) and (c) of (i) above which are determined by the District's special tax consultant to be allocable to the parcels of Undeveloped Property assuming that for (a) above the special tax consultant shall allocate to Developed Property that portion of the principal amount of the Outstanding Bonds for which the maximum annual debt service is equal to the aggregate Assigned Special Tax in the then Fiscal Year for all then Developed Property (as the terms "Assigned Special Tax" and "Developed Property" are defined in the Rate and Method of Apportionment), and otherwise not taking into account the principal amount of any Bonds representing amounts (if any) to remain on deposit in the Special Escrow Fund following the proposed disbursement). (iii) Special Tax Coverage. The maximum Special Taxes that may be levied in each Fiscal Year on parcels that are not then delinquent in the payment of Special Taxes shall be at least one hundred ten percent (110%) of the then Maximum Annual Debt Service, based upon the Rate and Method of Apportionment of Special Taxes of Improvement Area No. 1. In making the determinations under the preceding clauses (i), (ii) and (iii), the Administrator conclusively rely on a certificate of a special tax consultant engaged by the District. may

On and after July 15, 2007 (the "Initial Escrow Close Date"), the Fiscal Agent shall make no further disbursements from the Special Escrow Fund, and on September 1, 2007 (the "Initial Escrow

15

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

The .[bllowing is a summa_ of certain provisions of the Rate and Method. This summarv does not purport to be comprehensive and reference should be made to the Rate and Method attached hereto as Appendix A. All capitalized terms not defined in this section have the meanings set forth in the Rate and Method. Each Fiscal Year, commencing with the 2006-2007 Fiscal Year, all Parcels of Taxable Property within the District shall be categorized into the applicable Improvement Area and classified as either Developed Property, Undeveloped Property, Public Property and/or Property Owner's Association Property that is not Exempt Property and shall be subject to the levy of Special Taxes in accordance with the Rate and Method of Apportionment. See "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." Parcels of Developed Property shall further be classified as Residential Property or Non-Residential Property. A Parcel of Residential Property shall further be classified as Single Family Property or Multifamily Residential Property. Single Family Property shall be further categorized based on the Residential Floor Area for such Parcel, which is determined based on the square footage shown on the building permit for such Single Family Property. There are two zones established within Improvement Area No. l and such zones are taxed at different rates ("Zone A" and "Zone B"). Commencing with Fiscal Year 2006-2007 and for each following Fiscal Year, the City shall levy the Special Tax on all Taxable Property within Improvement Area No. 1 until the amount of Special Taxes equals the Special Tax Requirement for Improvement Area No. l in accordance with the following steps: First: The Special Tax shall be levied on each Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax rate as needed to satisfy the Special Tax Requirement for Improvement Area l, Zone A and Zone B;

16

Second: If additional moneys are needed to satis_ the Special Tax Requirement for Improvement Area No. !, Zone A and Zone B, alter the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property within Improvement Area No. I, Zone A and Zone B at up to 100% of the Maximum Special Tax |or Undeveloped Property; and Third: If additional moneys are needed to satisfy the Special Tax Requirement for the Bonds after the first two steps have been completed, then for each Assessor's Parcel of Developed Property whose Assigned Special Tax is the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement. No Special Taxes levied on property within Improvement of the Bonds. Covenant for Superior Court Foreclosure In the event of a delinquency in the payment of any installment of Special Taxes, the District is authorized by the Act to order institution of an action in the Superior Courts of the State to foreclose any lien therefor. In such action, the real property subject to the Special Taxes may be sold at a judicial foreclosure sale. The ability of the District to foreclose the lien of delinquent unpaid Special Taxes may be limited in certain instances and may require prior consent of the property owner in the event the property is owned by or in receivership of the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal agencies. See "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure" and "SPECIAL RISK FACTORS - Tax Delinquencies." Such judicial foreclosure proceedings are not mandatory. However, in the Fiscal Agent Agreement, the District has covenanted for the benefit of the Owners of the Bonds that it (i) will commence judicial foreclosure proceedings against all parcels owned by a property owner where the aggregate delinquent Special Taxes on such parcels is greater than $5,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes were due and (ii) will commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied for such Fiscal Year, and (iii) will diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid; provided, however, that the District may elect to defer foreclosure proceedings on any parcel so long as the amount in the Reserve Account of the Special Tax Fund is at least equal to the Reserve Requirement and such delinquencies will not cause moneys in the Reserve Account to be withdrawn on the next succeeding Interest Payment Date. The District may, but is not obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Account of the Special Tax Fund at the Reserve Requirement. There could be a default or a delay in payments to the owners of the Bonds pending prosecution of foreclosure proceedings and receipt by the District of foreclosure sale proceeds, if any, and subsequent transfer of those proceeds to the City. However, up to the maximum amount permitted under the applicable Rate and Method, the District may adjust the Special Taxes levied on all property within the District to provide the amount required to pay debt service on the Bonds. Under current law, a judgment debtor (property owner) has at least 140 days from the date of service of the notice of levy in which to redeem the property to be sold. If a judgment debtor fails to redeem and the property is sold, his only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action a foreclosure sale is set aside, the judgment is revived, the judgment creditor is entitled to interest on the revised judgment and any liens extinguished by the sale are revised as if the sale had not been made (Section 701.680 of the Code of Civil Procedure of the State of California). Area No. 2 arc security for repayment

17

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

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

18

CITY COMMUNITY

OF INDIO LAGO)

FACILITIES DISTRICT NO. 2004-3 (TERRA (IMPROVEMENT AREA NO. 1) DIRECT AND OVERLAPPING DEBT Valuation: $24,144,014 DEBT:

2004-05 Local Secured Assessed

DIRECT AND OVERLAPPING TAX AND ASSESSMENT Desert Community College District Desert Sands Unified School District

% Applicable 0.056% 0.102 0.240 2.713 100. 0.828 DEBT

Debt 8/1/05 $ 38,703 139,709 53,676 52,632 - (1) 35,935 $320,655

Desert Sands Unified School District Lease Tax Obligations City of Indio Assessment District No. 90-1 City of lndio Community Facilities District No. 2004-3 Coachella Valley Recreation and Park Reassessment District No. 01 - I TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT OVERLAPPING GENERAL FUND OBLIGATION DEBT:

Riverside County General Fund Obligations Riverside County Board of Education Certificates of Participation Desert Sands Unified School District Certificates of Participation City of Indio Certificates of Participation Coachella Valley County Water District, I.D. No. 71 Certificates of Participation Coachella Valley Recreation and Park District Certificates of Participation TOTAL GROSS OVERLAPPING GENERAL FUND OBLIGATION DEBT Less: Riverside County self-supporting obligations TOTAL NET OVERLAPPING GENERAL FUND OBLIGATION DEBT GROSS COMBINED TOTAL DEBT NET COMBINED TOTAL DEBT (1) Excludes MeUo-Roos Act bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise bonds and non-bonded capital lease obligations. Ratios to 2004-05 Assessed Valuation: Direct Debt ...........................................................................

0.023% 0.023 0.240 1.010 0.100 0.202

$142,910 2,809 35,436 35,754 9,530 5,383 $231,822 4,722 $227,100 $552,477 $547,755 (2)

revenue,

mortgage

revenue

and tax allocation

Total Direct and Overlapping Tax and Assessment Debt ....... 1.33% Gross Combined Total Debt ................................................... 2.29% Net Combined Total Debt ....................................................... 2.27% STATE SCHOOL BUILDING Source: California Municipal AID REPAYABLE AS OF 6/30/05:$0

Statistics, Inc.

19

Estimated

Effective

Tax Rate for a sample developed

property

Set forth below is the estimated fiscal year 2006/07 tax obligations within Zone A and Zone B of Improvement Area No. 1. ESTIMATED FOR FISCAL YEAR 2006/07 A SAMPLE DEVELOPED AREA TAX OBLIGATION PROPERTY A)

(IMPROVEMENT

NO. 1, ZONE

Projected Amount Projected Sales Price (Based on a Home Size of 1,800 Square Feet} Ad Valorem Property Taxes: Basic Levy (1.00%) Desert Sands Unified School District G.O. Bond (0.09581%) Coachella Valley Water District Debt Service (0.02080%) Desert Community College District Debt Service (0.01994%) Total General Property Taxes (1.13655%) Assessment, Special Taxes & Parcel Charges: Coachella Valley Recreation and Park District Reassessment Landscaping & Lighting District - Estimate (l) City of Indio CFD No. 2004-3 (Improvement Area No. 1) City of lndio CFD No. 2004-1 (2) Total Assessments & Parcel Charges Projected Total Property Tax Projected Effective Tax Rate $351,500.00

3,515.00 336.77 73.11 70.09 3,994.97

District No. 01-1 - Estimate

$ $

54.00 115.00 2,467.83 367.20 3,004.03 6,999.00 2.00%

Anticipated lighting and landscape district to service the development. {27 Special taxes for the City of Indio CFD No. 2004-1 (Police, Fire and Paramedic Services) increase annually by 2%. Source: Albert A. Webb Associates.

20

ESTIMATED FISCAL YEAR 2006/07 FOR A SAMPLE DEVELOPED (IMPROVEMENT AREA

TAX OBLIGATION PROPERTY 1, ZONE B) Projected Amount

Projected Sales Price (Based on a Home Size of 1,800 Square Feet) Ad Valorem Property Taxes: Basic Levy (1.00%) Desert Sands Unified School District (3.0. Bond (0.09581%) Coachella Valley Water District Debt Service (0.02080%) Desert Community College District Debt Service (0.01994/0) Total General Property Taxes (1.13655%) Assessment, Special Taxes & Parcel Charges: Coachella Valley Recreation and Park District Reassessment Landscaping & Lighting District Estimate 0_ City of Indio CFD No. 2004-3 (Improvement Area No. 1) City of Indio CFD No. 2004-1 (2) Total Assessments & Parcel Charges Projected Total Property Tax Projected Effective Tax Rate

$431,500.00

4,315.00 413.42 89.75 86.04 4,904.21

District No. 01-1 - Estimate

$ $

54.00 115.00 3,158.59 367.20 3,694.79 8,599.00 2.00%

t_ Anticipated lighting and landscape district to service the development. _2_ Special taxes for the City oflndio CFD No. 2004-1 (Police, Fire and Paramedic Services) increase annually by 2%. Source:. Alberl A. Webb Associates.

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

21

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

SUMMARY OF ESTIMATED DEVELOPED TAX AND UNDEVELOPED TAXES PER DEVELOPER COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1) Year Ending Estimated Developed Tax .... $704,300 1,518,894 1,789,873 1,930,844 1,950,152 1,969,654 $194,681 $354,125 $244,705 132,403 17,830 $376,248 241,502 104,023 $l,169,758 373,905 121,854 $1,874,058 1,892,799 1,911,727 1,930,844 1,950,152 1,969,654 Estimated Undeveloped Woodside Lennar Ryland Taxes Ashbrook Total Total Estimated Taxes

2006 2007 2008 2009 2010 2011 2012

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

22

SPECIAL TAXES AND DEBT SERVICE COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. l) Estimated Assigned Special Taxes 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 203 ! 2032 2033 2034 2035 $1,874,058 1,892,7.99 1,911,727 1,930,844 1,950,152 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 ! ,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654

Admin. Costs $(35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000)

Estimated Net Taxes $1,839,058 1,857,799 1,876,727 1,895,844 1,915,152 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654

Debt Service* $1,672,000 1,689,000 1,706,000 1,723,000 1,741,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000 1,759,000

Coverage* $110% 110 110 110 110 110 ! 10 110 110 110 110 110 110 110 110 110 110 110 110 110 110 l 10 110 110 110 110 110 110 110

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

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

THE DISTRICT On May 18, 2005, the City Council adopted a Resolution of Intention to form a community facilities district under the Act, to levy a special tax and to incur bonded indebtedness for the purpose of financing the improvements. After conducting a noticed public hearing, on July 20, 2005, the City Council adopted the Resolution of Formation, which established the District (consisting of Improvement Area No. l and Improvement Area No. 2) and set forth the Rate and Method of Apportionment for the levy and collection of Special Taxes. On July 20, 2005, an election was held within Improvement Area No. 1 in eligible to vote unanimously approved the incurrence of bonded indebtedness in an $30,000,000 and the levy of the Special Tax within Improvement Area No. 1. The Special Taxes payable by the property owners within Improvement Area No. 1 only Area No. 2. which the landowners amount not to exceed Bonds are secured by and not Improvement

The District expects to issue bonds in the future, the proceeds of which will be used to finance certain public facilities in Improvement Area No. 2 and which, when issued, will be secured by Special Taxes levied on taxable parcels within the Improvement Area No. 2. The District consists of approximately 364.96 gross acres known as the Terra Lago comprising two Improvement Areas - Improvement Area No. 1 consists of approximately 174.80 acres, approximately 135.75 acres of which are slated for residential development and 39.05 acres of which are open space, and Improvement Area No. 2 which consists of approximately 190.16 acres, 173.76 acres of which are slated for residential development and 16.4 acres of which are open space. At buildout, it is anticipated that Improvement Area No. 1 will contain 635 residential dwelling units and Improvement Area No. 2 will contain 849 residential dwelling units. See "THE DEVELOPMENT" for further information regarding the Terra Lago housing community. The Bonds are being issued to finance the acquisition of public improvements serving properties within Improvement Area No. 1 only and not Improvement Area No. 2. See "THE FINANCING PLAN" herein.

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

24

owners will have the ability to pay the Special Taxes or that, even i['thev have the ability, they will choose to pay such taxes. An owner may elect not to pay the Special Taxes when due and cannot be le_,,ally compelled to do so. Neither the District nor any Bondowner will have the ability at any time to seek pavment jkom the Developers or any subsequent ownel_ of property within the District of any Special Tar or any principal or interest due on the Bonds, or the ability to control who becomes a subsequent owner _] any property within the District. See "SECURITY FOR THE BONDS" and "SPECIAL RISK FACTORS" herein. The Master Developer and the Developers have provided the information set ,fi,'th under the heading "THE DEVELOPMENT" and "THE MASTER DEI/ELOPER AND THE DEVELOPERS. " No assurance can be given that all information is complete. Although the Developers currently own aH c?f the property within Improvement Area No. 1, the Developers intend to build and sell the residential properties to individual homeowners. When such sales occur, the ownership of the land within Improvement Area No. 1 will become more diversified. No assurance can be given that development of the property will be completed, that it will be completed in a timely manner or that it will occur as described herein. General Improvement Area No. 1 consists of a total of 174.80 gross acres, 135.7 of which are slated for residential development comprising 635 residential lots and 39.05 acres of open space. The residential lots are contained within five residential tracts that will be developed by four merchant builders. See "THE MASTER DEVELOPER AND THE DEVELOPERS." The subject tracts are situated within the larger area generally known as "Shadow Hills" that is located in the northern portion of the City of Indio north of the Interstate 10 Freeway. The master-planned community of Terra Lago is located less than one mile north of Interstate-l0 at the northeast corner of Golf Center Parkway and Avenue 43. The community is bisected by the Coachella Canal, an extension of the All American Canal, that runs southeastward through the-property. The northern edge of the Terra Lago community abuts the base of the foothills at the northern boundary of the City of Indio. The property extends southward to Avenue 44. To the east of the property is open desert. About one mile to the northwest off of Jackson Street are six new home subdivisions within the Shadow Hills community that are currently marketing homes. For a further discussion of the community and the surrounding area, see "APPENDIX E - MARKET ABSORPTION STUDY." Availability of Water for Construction On June 20, 2005, the Indio Water Authority adopted a resolution that, among other things, terminated the use of construction meters (i.e. grading, dust control, filling water trucks, street cleaning, etc.) except in special circumstances during the period between July 1, 2005 through October 3 l, 2005 (the "Summer Conservation Period"). Such action was taken in order to ensure that sufficient water is available for existing Indio residents as construction meters can consume as much as 60 times that of a single family dwelling unit. There is no shortage of water sources, however. The Indio Water Authority is in the process of upgrading existing wells, and anticipates drilling additional new wells as required, in order to meet increasing water demands. This suspension of construction water meters is not expected to have any impact on the issuance of building permits or occupancy permits within Improvement Area No. 1. Furthermore, the Indio Water Authority resolution also stated that in the event that the potable water distribution system is not capable of providing expanded potable water service to new construction in the City, the Indio Water Authority would consider suspension of the installation of additional water

25

meters until the end of the Summer Conservation take any such action.

Period.

The lndio Water Authority does not expect to

No assurance can be made that the Indio Water Authority will not take similar actions in the future that may impact the ability of the Developers to proceed with their respective developments in a timely manner. Any delay in development may have an adverse impact on the District's ability to pay debt service on the Bonds. See "SPECIAL RISK FACTORS - Failure to Develop Properties." Public Facilities A description of the public facilities proposed to be financed tor Improvement Area No. 1 is contained in the Funding and Acquisition Agreement by and between the City and the Master Developer (the "Funding and Acquisition Agreement"). These public facilities consist of in-tract public facilities that are within and required to develop Improvement Area No. 1 and backbone public facilities, both within and outside the District, required to serve the entire District or both Improvement Areas. The costs of many of the backbone public facilities are eligible to be financed by either of the Improvement Areas. In addition, pursuant to the Agreement of Formation of Mello-Roos Community Facilities District No. 2004-3 (the "Development Agreement"), the costs of many of the backbone public facilities are eligible to be financed with the proceeds of bonds including, without limitation, the Bonds. The Master Developer has identified two development phases within Terra Lago. Phase 1 currently includes Improvement Area No. 1 and Phase 2 includes Improvement Area No. 2. The Master Developer completed mass grading of Improvement Area No. I prior to the sale of the tracts contained therein to the Developers. With respect to the major backbone public infrastructure improvements required to serve Improvement Area No. 1, as of August 1, 2005, approximately 98% of such infrastructure improvement for Improvement Area No. 1, including sewer, water, storm drain, dry utilities and landscaping improvements, had been completed. The backbone public infrastructure improvements required to serve Improvement Area No. 2 are expected to be completed by December, 2006. As of July, 2005, the Master Developer had expended approximately $25 million for the mass grading and major backbone public infrastructure improvements for Improvement Area No. 1. Initial funding for the work completed by Master Developer has been provided by internal sources. To the extent available, costs of the public facilities with respect to Improvement Area No. 1 will be funded from proceeds of the Bonds. The City will not be obligated to pay for the public facilities except from amounts on deposit in the applicable Acquisition and Construction Fund once established with respect to each of the Improvement Areas. The City makes no warranty, express or implied, that the proceeds of the bonds deposited and held in the applicable Acquisition and Construction Fund, and any investment earnings thereon, will be sufficient to pay for the Improvements. Environmental Assessment

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

26

Development and Financing

Plans - Improvement

Area No. 1

Improvement Area No. I is expected to be developed with 635 homes ranging in size from 1,658 to 3,120 square feet. The Master Developer has sold all tracts within Improvement Area No. 1 to the Developers in mass-graded, blue-top condition. The on-site infrastructure development costs are being funded t?om the proceeds of the Bonds. Total on-site development costs to develop the property in Improvement Area No. 1 are estimated to be $9,608,416 (exclusive of any home construction costs). These costs are to pay fees and convert the land from mass graded blue-top condition into finished pads including the construction or installation of in-tract streets, sidewalks, curbs, gutters, sewer, water and storm drain improvements, landscaping, and dry utilities and related soft costs. As of August 1, 2005, construction of the in-tract improvements had not commenced but is expected to commence in the near future. SUMMARY OF TRACT MAP APPROVALS COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1) Expected Completion of On-Site Infrastructure and Grading June, June, June, June, June, 2006 2006 2006 2006 2006

Tract # 31601-2 31601-3 31601-4 31601-5 31601-7

Builder Woodside Homes Lennar Homes Lennar Homes Ryland Homes Ashbrook Homes

Number Tentative Map* of Lot....____s Approval 178 128 86 l 10 133 September September September September September 7, 7, 7, 7, 7, 2004 2004 2004 2004 2004

* Final maps for Improvement Area No. l have been recorded except with respect to Tract No. 31601-2 which was recorded on August 15, 2005. Source: The Developers

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

27

SUMMARY OF PROPOSED NEW HOMES COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. I) Minimum Lot Size (Sq. Ft.) 5,000 7,200 8,400 6,000 3,300 3,300-8,400

Tract # 31601-2 31601-3 31601-4 31601-5 3160 i

Builder Woodside Homes Lennar Homes Lennar Homes Ryland Homes Ashbrook Homes Total / Range

Number of Lots 178 128 86 110 133 635

% of Lots 27.7% 20.3 13.6 17.4 21.0 100.0%

Home Size Range (SF) i,658-2,407 2,092-2,660 2,595-3,120 1,987-2,591 2,100-2,500 1,658-3,120

Source: SunCal Properties, Market Profiles

SUMMARY OF PROPOSED SPECIAL TAXES COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1) Number of Lots 128 86 110 133 178 635 Special Ta._Ax $391,552 300,601 320,447 467,673 393,786 $1,874,058

Tract # 31601-3 31601-4 31601-5 31601 31601-2

Builder Lennar Homes Lennar Homes Ryland Homes Ashbrook Homes Woodside Homes Total

Av_ Tax $3,059 3,495 2,913 3,516 2,212

% of Total 21% 16 17 25 2_3_1 100%

Source: SunCal Properties, Market Profiles

Development of the infrastructure improvements within Improvement Area No. 1 is being overseen by the Master Developer in accordance with the provisions of the separate purchase agreements entered into between the Master Developer and each of the Developers. (see "THE MASTER DEVELOPER AND THE DEVELOPERS" below). As of August 1, 2005, four building permits had been issued within Improvement Area No. 1 for the Model Park located in Tract No. 31601-2 owned by Woodside Portofino, Inc. There is no assurance that amounts necessary to finance the site development costs within Improvement Area No. 1 will be available from the Master Developer, the Developers, or any other source, when needed. Neither the Master Developer nor the Developers are under any legal obligation of any kind to expend funds jor the development of the property within District. Any contribution or loans by the Master Developer or the Developers, whether to fund costs of development within Improvement Area No. 1 or to pay special taxes, is entirely voluntary. The public infrastructure improvements associated with Improvement Area No. 2 are not being financed with the proceeds of the Bonds.

28

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

THE MASTER DEVELOPER The Master Developer

AND THE DEVELOPERS

lndio Land Ventures/SunCal Companies. Indio Land Ventures LLC, a Delaware limited liability corporation ("Indio Land Ventures") acquired the raw land comprising Improvement Area No. l and Improvement Area No. 2 on January 1, 2003. lndio Land Ventures has since sold the five tracts of Improvement Area No. 1 to the following merchant builders: Ashbrook (40.70 acres owned by Terra Lago, 133, L.P.), Ryland Homes (32.65 acres), Woodside Portofino, Inc. (38.75 acres) and Lennar Homes (62.70 acres owned by MW Housing Managers III Cal Pers) as further described below. See also "THE DEVELOPMENT." Indio Land Ventures remains the owner of all the property contained in Improvement Area No. 2 which comprises approximately 190.16 acres, approximately 173.76 acres are slated for residential development and 16.4 acres are open space. SunCal Properties ("SunCal") is the developer of the property owned by Indio Land Ventures in Improvement Area No. 2 and SunCal remains the Master Developer in connection with the implementation of the infrastructure in Improvement Area No. 1 in accordance with the provisions of the respective purchase agreements entered into between the Master Developer and each of the Developers. Founded in 1973, SunCal has developed at least 20 projects located mostly in Southern California. Current developments include Tesoro Del Valle in Los Angeles, Fairway Canyon in Beaumont, and Summedand Ranch in Calimesa. More information about SunCal can be found on the company's website, www.suncal.com. This Internet address is included fbr reference only, and the information on this" Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this Internet site. Provided below is a partial listing of recent regional projects and developments SunCal. Project Tesoro Del Valle Fairway Canyon Masterplan Summerland Ranch McSweeney Farms College Park Westport at Mandalay Bay Jurisdiction Los Angeles Beaumont Calimesa Hemet Chino Oxnard undertaken by

29

lndio Land Ventures is owned by SCC/Indio Land, LLC, a Delaware limited liability corporation, which is owned by SCC Mezz Ventures, a Delaware limited liability corporation, which in turn is owned by SCC Acquisitions, LLC, a Delaware limited liability corporation. SCC Acquisitions, LLC is owned by SCC Acquisitions, Inc. and Nevada Sun Investment Co., a Nevada corporation. Indio Land Ventures is also owned by LB Indio Land Ventures LLC, A Delaware limited liability company, which is wholly owned by PAMI LLC, a Delaware limited liability corporation, which in turn is owned by Lehman Brothers Entities. lndio Land Ventures is .jointly managed by Sun Cal and Lehman Brothers. The Developers Ryland Homes. Ryland Homes of California, Inc., a Delaware corporation ("Ryland Homes") is a subsidiary of The Ryland Group, Inc., headquartered in Calabasas, California and listed on the NYSE under the symbol "RYL'. Ryland Homes acquired 32.65 gross developable acres in March of 2005 comprising 110 lots, 76 of which are located in Zone A of Improvement Area No. 1 and 34 of which are located in Zone B. All of these are graded lots and are ready to have houses built on them. Ryland Homes plans to build 110 single family detached homes, thirty-six of which will be single story, and seventy-four of which will be two story, all of which are expected to be completed and sold by the end of 2006 and which shall be self-funded by Ryland Homes from monies on hand and not from any loan or other funding mechanism. The name of the development is Cristalo @ Terra Lago. Founded in 1967, Ryland has built more than 225,000 homes and currently operates in 27 markets across the country. Current developments include Rosemont in San Marcos, Meadows in Perris, and Hermosa in Coachella. More information about Ryland Homes can be found on the company's website, www.ryland.eom. This Internet address is includedjbr reference only, and the information on this Internet site is not a part of this O.[ficial Statement or incorporated by reference into this Official Statement. No representation is made in this O[.ficial Statement as to the accuracy or adequacy of the information contained on this"Internet site. Provided below is a partial listing of recent regional projects and developments undertaken Ryland Homes and their principal participants and the date of completion of those projects. Project Rosemont Oasis-Sorano Oasis-Orviento Serenada Pasatiempo Oasis-Palermo Waterford Meadows Hermosa Concord Estates Sienna Number of Units Jurisdiction San Marcos Menifee Menifee Murrieta French Valley Menifee San Marcos Perris Coachella French Valley Indio Completion Date by

68 250 304 127 88 217 74 139 120 128 132

April 2004 May 2004 July 2004 September 2004 September 2004 November 2004 December 2004 Est. December 2005 Est. February 2006 Est. May 2006 Est. June 2006

Woodside Portofino. Woodside Portofino, Inc. ("Woodside Portofino") is a special purpose corporation formed to acquire and develop the property located within Improvement Area No. 1 which it acquired in February 2005. It is an affiliate of Woodside Homes of California, Inc., which is the homebuilder/contractor for construction of homes on the land owned by Woodside Portofino, Inc. in Improvement Area No. 1. Both Woodside Portofino, Inc. and Woodside Homes of California, Inc. are wholly-owned subsidiaries of Woodside Group, Inc., a privately owned holding company. Its subsidiaries are homebuilding companies with operations in northern, central, and southern California, 30

Phoenix, Las Vegas, Jacksonville, Washington D.C., Denver, Minnesota, San Antonio, and Utah. The Wood_ide Gl_)up has no legal or contractual obligation to contrihute.fimd_" to Wood_'ide Portofino. either to complete the project or to pay the Special Taxes. Woodside Portofino acquired 38.75 gross acres of land in Improvement Area No. 1 in February of 2005, 33.05 of which are developable acres on which it is planned that 179 single-family residences be built on 158 lots located in Zone A and 20 lots located in Zone B which shall be sell-funded by Woodside Portotino from monies on hand and not from any loan or other funding mechanism. None of these residences have been built on to date. The project is to be called Portofino @ Terra Lago. More information about Woodside Homes can be tbund on the company's website, www.woodsidegroupinc.com. This Internet address is" included /br rejerence only, and the information on this Internet site is not a part o[ this Official Statement or incorporated by reference into this Official Statement. No representation is made in this O./.'/icialStatement as to the accuracy or adequacy of the inJormation contained on this lnternet site. Provided below is a listing of recent regional projects and developments undertaken by Woodsidc Homes' Southern California Division and the dates of completion for those projects. Number of Units 175 121 127 116 124 185 136 108 103 160 134 105 85 79 Jurisdiction Yucaipa Temecula Temecula Riverside Riverside Riverside Victorville Victorville Victorville Victorville Riverside Victorville Victorville San Diego Completion Date Est. November, 2005 January, 2005 June, 2005 February, 2005 March, 2005 Est. December, 2005 Est. December, 2005 Est. August, 2005 April, 2005 Est. December, 2005 Est. December, 2005 Est. December, 2005 Est. December, 2005 May, 2005

Aberdeen Mahogany Marquis Nelson Oak Creek Park Lane Serrano Sienna Solana Summerset Traditions Westcree.k PA 1 Westcreek PA 3 Woods Valley

WHP Terra Lago 133/Ashbrook. WHP Terra Lago 133, a California Limited Partnership ("WHP Terra Lago"), owns 40.70 gross acres of the land in Improvement Area No. 1 acquired in May, 2005, 17.60 of which are to be developed into 133 residential units arranged in three duplex building types withy several zero tot line homes on 30 lots located in Zone A of Improvement Area No. 1 and 103 lots located in Zone B. Two lots comprising 23.10 acres will not be used for residential improvements but will be developed to provide for a clubhouse and adjoining lake. Buildout for the residential units is expected to be completed in mid-2007 and shall be self-funded by Ashbrook from monies on hand and not from any loan or other funding mechanism. The property held by WHP Terra Lago is being developed by Ashbrook Development Company, Inc., doing business as Ashbrook Communities ("Ashbrook"). WHP Terra Lago is an affiliate of Ashbrook which is the homebuilder/contractor for construction of homes on the land owned by WHP Terra Lago in Improvement Area No. 1. Ashbrook has no legal or contractual obligation to contribute funds to WHP Terra Lago either to complete the project or pay Special Taxes in connection therewith. Ashbrook is a privately-held home building and land development company that was formed in April 1995 by Timothy McGowan and Richard Crook. Ashbrook Communities' recent developments

31

include Buenavida in San Marcos, Saint Augustine and Santo Tomas in Rancho Mirage, Pasadera in La Quinta, Blossom Valley in Lakeside, and Murrieta in Murrieta. More information about Ashbrook can be found on the company's website, at www.ashbrookcommunities.com. This Internet address is included /or re/erence only, and the information on this Internet site is not a part of this Ojficial Statement or incorporated h)' re_rence into this Official Statement. No representation is made in this Official Statement as to the accuracy o1" adequacy of the information contained on this lnternet site. Provided below is a partial listing of regional projects and developments undertaken by Ashbrook and their principal participants within the last five years and the date of completion of those projects. Number of Units Buenavida Perris Meadows Hemet 196 Saint Augustine Pasadera Blossom Valley Santo Tomas Murrieta Desert Trace 408 177 196 137 92 44 152 289 111 Jurisdiction San Marcos Perris Hemet Rancho Mirage La Quinta Lakeside Rancho Mirage Murrieta Indio Completion Date

2003 1999 2004 2004 February 2005 2004 2006 (estimated) 2003 February 2007

MW Housing Partners III/Lennar Corporation. Two tracts of land comprising a total of 62.70 acres located in Improvement Area No. 1 are owned by MW Housing Partners III ("MW Housing Partners") are being developed by Lennar Homes, an affiliate of Lennar Corporation, a publicly traded company listed on the New York Stock Exchange under the trading symbol "LEN". Both tracts owned by MW Housing Partners, comprising a total of 214 lots, are located in Zone A of Improvement Area No. 1 and which shall be self-funded by Lennar Homes from monies on hand and not from any loan or other funding mechanism. Lennar Corporation, together with its subsidiaries, operates primarily as a geographically diversified builder of single-family homes throughout major metropolitan markets in Arizona, California, Colorado, Florida, Illinois, Maryland, Minnesota, Nevada, New Jersey, North Carolina, South Carolina, Texas, and Virginia. Through its 68 homebuilding divisions, Lennar Corporation delivered approximately 23,899 homes in 2001, 27,393 homes in 2002 and 32,180 homes in 2003. MW Housing Partners is an affiliate of Lennar Homes which is the homebuilder/contractor for construction of homes on the land owned by MW Housing Partners in Improvement Area No. l. Neither Lennar Homes nor Lennar Corporation have any legal or contractual obligation to contribute funds to MW Housing Partners either to complete the project or pay Special Taxes in connection therewith. Lennar Corporation is subject to the periodic reporting requirements of the Exchange Act of 1934, as amended (the "Exchange Act") and, accordingly, files periodic financial and other information with the Securities and Exchange Commission (the "Commission") on a regular basis, including but not limited to its annual report on Form 10-K and its quarterly reports on Form 10-Q. More information about Lennar Homes and Lennar Corporation can be found on the company's website, www.lennar.com. This lnternet address is included for reference only, and the information on this lnternet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this lnternet site.

32

Current projects under development

by Lennar Homes include the following: Jurisdiction Coachella Coachella lndio lndio Indio lndio lndio lndio lndio La Quinta La Quinta La Quinta Palm Springs Completion 2007 2006 2005 2006 2006 2008 2008 2008 2006 2005 2008 2006 2007 Date

Number of Units La Morada Las Plumas Sunburst Vista Serena Cala Rosa Paradiso Cordoba @ Terra Lago Marquesa @ Terra Lago Desert River Estates La Quinta del Oro La Quinta Desert Villas Esplanade Escena 171 87 131 111 l 18 225 128 86 123 141 132 268 240

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

As buildout and market absorption continues within Improvement Area No. 1, property ownership within Improvement Area No. 1 can be expected to become diversified. Lack of diversity of ownership presents a risk to Bondowners, in that failure of a large taxpayer within Improvement Area No. 1 to pay Special Taxes when due could result in the depletion of the Reserve Account prior to the replenishment thereof from moneys realized upon resale of property from foreclosure or otherwise, or delinquency redemptions after a foreclosure sale. Risks of Real Estate Secured Investments Generally The Bondowners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of Improvement Area No. 1, the supply of or demand for competitive properties in such area, and the market value of commercial and industrial buildings and/or sites in the event of sale or foreclosure, (ii) changes in real estate tax rate and other operating expenses, government rules (including, without limitation, zoning laws and restrictions relating to threatened and endangered species) and fiscal policies and (iii) natural disasters (including, without limitation, earthquakes and floods), which may result in uninsured losses.

33

Terrorist Attacks The terrorist attacks of September 11, 2001 and subsequent military and/or terrorist activities in this country' and abroad have contributed to slowdowns of the national as well as the State's overall economy. None of the City, District, the Master Developer or the Developers can predict the likelihood of future terrorist attacks or the long-term economic impact caused by such attacks. Future terrorist attacks may result in a slowdown of home sales and a decrease in land values within Improvement Area No. 1. Land Development Costs The cost of additional improvements plus the public and private in-tract, on-site and off-site improvements would likely increase the public and private debt secured by the land within Improvement Area No. 1. See "SECURITY FOR THE BONDS - Direct and Overlapping Debt." This increased debt could reduce the ability or desire of the property owners to pay the annual Special Taxes levied against the property. See "SECURITY FOR THE BONDS - The Special Taxes" and "SECURITY FOR THE BONDS - Appraisal." In that event there could be a default in the payment of principal oL and interest on, the Bonds. Future Land Use Regulations and Growth Control Initiatives

In recent years, citizens of a number of local communities in Southern California, including citizens of the County of Riverside, the County of Orange and the County of San Diego, have placed measures on the ballot designed to control the rate of future growth in those areas. It is possible that future initiatives could be enacted and become applicable to the development proposed to be conducted within Improvement Area No. 1 (the "Development") and could, if applied retroactively, negatively impact the ability of the Developers to complete the proposed Development. Bondowners should assume that any event that impacts the ability to develop land in Improvement Area No. 1 could cause the land values within Improvement Area No. 1 to decrease and could affect the willingness and ability of the owners of land within Improvement Area No. 1 to pay the Special Taxes when due. See "SECURITY FOR THE BONDS - Appraisal." In evaluating the investment quality of the Bonds, investors should assume that the possible enactment of more restrictive land use regulations by the City or the County of Riverside, or by voter initiative presents a substamial risk to the timely construction and completion of development, except with respect to units for which building permits have already been issued and substantial work and liabilities have been incurred in good faith reliance thereon prior to the date of adoption of any such land use regulations. The failure to complete the Development as planned, or substantial delays in the completion of the Development, due to litigation or other causes may reduce the value of the property within Improvement Area No. 1, and will increase the amount of Special Taxes to be paid by the owners of undeveloped property and may affect the willingness and ability of the owners of land within Improvement Area No. 1 to pay the Special Taxes when due. Depending on the nature of the Development eventually approved and completed, the value of the land within Improvement Area No. 1 may be reduced. Failure to Develop Properties Land development operations are subject to comprehensive Federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health

34

requirements, as well as numerous other matters. There is always the possibility that such approvals will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental requirements would adversely affect land development operations. In addition, there is the risk that lawsuits challenging the City's approval of the Development will be instituted. Under current Calitbmia law, it is generally accepted that proposed development is not exempt from future land use regulations until building permits have been properly issued and substantial work has been performed and substantial liabilities have been incurred in good faith reliance on such permits. Development of certain portions of the land within the District is contingent upon construction or acquisition of major public improvements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, gas, telephone and electrical facilities, as well as local in-tract improvements including site grading. While certain of these improvements have been or are expected to be constructed with proceeds of the Bonds, there can be no assurance that all of these improvements will be constructed. The cost of these public and private in-tract and off-site improvements could increase the public and private debt for which the land within Improvement Area No. l provides security. This increased debt could reduce the willingness and/or ability of the property owners to pay the annual Special Taxes levied against their property. In addition, there is the risk that future governmental restrictions, including but not limited to, governmental policies restricting or controlling development within the District will be enacted. Should a court of competent jurisdiction determine that the vesting tentative maps do not exempt the Development from future initiatives approved by the voters or regulations adopted by the City more restrictions and requirements on development within the District could be imposed pursuant to such initiatives or regulations. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Initiatives" above. Moreover, there can be no assurance that the means and incentive to conduct land development operations within Improvement Area No. 1 will not be adversely affected by a future deterioration of the real estate market and economic conditions of future local, State and federal governmental policies relating to real estate development, the income tax treatment of real property ownership, or the national economy. A slowdown of the development process and the absorption rate could adversely affect land values and reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Bonds. Another risk to the Bondowners involves the value of undeveloped property. The inability or failure to develop property due to adverse regulatory or economic conditions may reduce the value of undeveloped property. The undeveloped property also provides less security to the Bondowners should it be necessary for the District to foreclose on undeveloped property in Improvement Area No. 1 due to the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within Improvement Area No. 1 as currently proposed will likely reduce the diversity of ownership of land within Improvement Area No. 1, making the Bondowners more dependent upon timely payment of the Special Tax levied on the undeveloped property. Because of the current concentration of ownership of the undeveloped property in the affiliated landowners, the timely payment of the Bonds depends upon the willingness and ability of the present owners of the undeveloped property to pay the Special Taxes levied on the undeveloped property when due. See "SPECIAL RISK FACTORS - Concentration of Ownership" above. A slowdown or stoppage in the continued development of Improvement Area No. 1 could reduce the willingness and ability of such owners to make Special Tax payments on undeveloped property, and could greatly reduce the value of such property in the event it has to be foreclosed upon.

35

Disclosure to Future Homebuyers Pursuant to Section 53328.3 of the Act, the District has recorded a Notice of Special Tax Lien in the Office of the Riverside County Recorder. The sellers of property within the District are required to give prospective buyers a Notice of Special Tax in accordance with Sections 53340.2 and 53341.5 of the Act. While title companies normally refer to the Notice of Special Tax Lien in title reports, there can be no guarantee that such reference will be made or the seller's notice given or, if made and given, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a home or commercial facility or the lending of money thereon. Failure to disclose the existence of the Special Taxes may affect the willingness and ability of future owners of land within Improvement Area No. 1 to pay the Special Taxes when due. Parity Taxes and Special Assessments The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is coequal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The Special Taxes have priority over all existing and future private liens imposed on the property. The District, however, has no control over the ability of other entities and districts to issue indebtedness secured by special taxes or assessments payable from all or a portion of the property within Improvement Area No. 1. In addition, the landowners within Improvement Area No. 1 may, without the consent or knowledge of the District, petition other public agencies to issue public indebtedness secured by special taxes or assessments. Any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes. See "SECURITY FOR THE BONDS - Direct and Overlapping Debt." Appraised Value; Land Value The value of land within Improvement Area No. 1 is an important factor in evaluating the investment quality of the Bonds. In the event that a property owner defaults in the payment of Special Tax installments, the District's only remedy is to judicially foreclose on that property. Prospective purchasers of the Bonds should not assume that the property within Improvement Area No. 1 could be sold for the assessed or appraised value described in the Official Statement at a foreclosure sale for delinquent Special Tax installments or for an amount adequate to pay delinquent Special Tax installments. Reductions in property values within Improvement Area No. 1 due to a downturn in the economy or the real estate market, events such as earthquakes, droughts, or floods, stricter land use regulations, threatened or endangered species or other events may adversely impact the security underlying the Special Taxes. The property values set forth in the various tables herein are the property values determined by the Appraiser. The Appraisal was prepared for the purpose of estimating and confirming the minimum market value of the property in Improvement Area No. 1 as of June 17, 2005 in its as is condition on the basis of certain assumptions. Prospective purchasers of the Bonds should not assume, however, that the land within Improvement Area No. 1 could be sold for the appraised amount described herein at the present time or at a foreclosure sale for delinquent Special Taxes. See the Appraisal included as Appendix D hereto for a brief description of the analysis used and assumptions made by the Appraiser. The actual value of the property is subject to future events that might render invalid the assumptions relied upon by the Appraiser in determining the appraised value. The actual market value of the property is subject to future events such as a downturn in the economy, and occurrences of certain acts of nature, all of which could adversely impact the value of the land in Improvement Area No. 1 which is the security for the Bonds. As discussed herein, many factors

36

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

Under the Rate and Method, in Improvement Area No. 1 will be detached developed property on the Assessor's Parcel. See "APPENDIX

TAXES" and "SECURITY FOR THE BONDS - Rate and Method of Apportionment of Special Taxes." Accordingly, to the extent property is not developed, collection of the Special Taxes will be dependent on the willingness and ability of the owners of undeveloped property to pay such Special Taxes when due. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Initiatives" and "Failure to Develop Properties" above for a discussion of the risks associated with undeveloped property. The Act provides that, if any property within Improvement Area No. 1 not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by a gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts. MOREOVER, IF A SUBSTANTIAL PORTION OF LAND WITHIN IMPROVEMENT AREA NO. 1

37

BECAME EXEMPT FROM THE SPECIAL TAX BECAUSE OF PUBLIC OWNERSHIP, OR OTHERWISE, THE MAXIMUM SPECIAL TAX WHICH COULD BE LEVIED UPON TIlE REMAINING ACREAGE MIGHT NOT BE SUFFICIENT TO PAY PRINCIPAL OF AND INTEREST ON THE BONDS WHEN DUE AND A DEFAULT COULD OCCUR WITH RESPECT TO THE PAYMENT OF SUCH PRINCIPAL AND INTEREST. Tax Delinquencies Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of, and interest on, the Bonds are derived, will be billed to the properties within Improvement Area No. I on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non,payment, as do regular property tax installments. Special Tax installment payments cannot be made to the County Tax Collector separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and Special Tax installment payments in the future. See "SECURITY FOR THE BONDS - Reserve Fund" and "SECURITY FOR THE BONDS -

Covenant for Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the District is obligated to follow under the Fiscal Agent Agreement, in the event of delinquency in the payment of Special Tax installments. Future Indebtedness At the present time part of the land within Improvement Area No. 1 has not been improved. The cost of any additional improvements may well increase-the public and private debt for which the land in Improvement Area No. 1 provide security, and such increased debt could reduce the ability or desire of property owners to pay the Special Taxes levied against the land in Improvement Area No. 1. In addition, in the event any additional improvements or fees are financed pursuant to the establishment of an assessment district or another district formed pursuant to the Act, any taxes or assessments levied to finance such improvements way have a lien on a parity with the lien of the Special Taxes. See "SECURITY FOR THE BONDS - Direct and Overlapping Debt." Natural Disasters The District, like all California communities, may be subject to unpredictable seismic activity, fires due to the vegetation and topography, or flooding in the event of significant rainfall. According to the seismic safety element of the City's General Plan, the City is located in a seismically active region. As a result, Improvement Area No. 1 could be impacted by a major earthquake from the numerous faults in the area. Seismic hazards encompass both potential surface rupture and ground shaking. The occurrence of seismic activity, fires or flooding in or around the District could result in substantial damage to properties in Improvement Area No. 1, which, in turn, could substantially reduce the value of such properties. As a result of the occurrence of such an event, a substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when due, and the reserve fund for the Bonds may become depleted. In addition, the value of land in Improvement Area No. 1 could be diminished in the aftermath of such natural events, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes.

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Endangered and Threatened

Species

On a regular basis, new species are proposed to be added to the State and federal protected species lists. Any action by the State or federal governments to protect species located on or adjacent to the property within the District could negatively affect the Developers' ability to complete the development of the properties within Improvement Area No. 1 as planned. This, in turn, could reduce the ability or willingness of the property owners to pay the Special Taxes when due and would likely reduce the value of the land and the potential revenues available at a foreclosure sale for delinquent Special Taxes. Hazardous Substances A serious risk in terms of the potential reduction in the value of a parcel within Improvement Area No. l is a claim with regard to a hazardous substance. In general, the owners and operators of a parcel within Improvement Area No. 1 may be required by law to remedy conditions of such parcel relating to release or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of the property whether or not the owner or operator had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the parcels within Improvement Area No. ! be affected by a hazardous substance, will be to reduce the marketability and value of such parcel by the costs of remedying the condition, because the prospective purchaser, upon becoming the owner, will become obligated to remedy the condition just as the seller is. Further it is possible that liabilities may arise in the future with respect to any of the parcels resulting from the current existence on the parcel of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the current existence on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly affect the value of a parcel within Improvement Area No. 1 that is realizable upon a delinquency. As described in the Phase 1 Environmental Assessment, certain areas within Improvement Area No. 1 have been excavated to remove contaminated or stained soil but no remediation has been recommended and further investigation was not warranted. See "THE DEVELOPMENT -Environmental Assessment." Bankruptcy and Foreclosure The payment of property owners' taxes and the ability of Improvement Area No. 1 to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings, may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the State relating to judicial foreclosure. See "SECURITY FOR THE BONDS Covenant for Superior Court Foreclosure." In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinion) will be qualified, as to the enforceability, of the various legal

39

instruments, by moratorium, rights of creditors generally.

bankruptcy,

reorganization,

insolvency

or other similar laws affecting

the

In addition, bankruptcy of a property owner (or a property owner's partner or equity owner) would likely result in a delay in procuring Superior Court foreclosure proceedings unless the bankruptcy court consented to permit such foreclosure action to proceed. Such delay would increase the likelihood of a delay or delhult in payment of the principal of, and interest on, the Bonds and the possibility of delinquent tax installments not being paid in full. Under 11 U.S.C. Section 362(b)(18), in the event of a bankruptcy petition filed on or after October 22, 1994, the lien _br ad valorem taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bondowners should be aware that the potential effect of 11 U.S.C. Section 362(b)(18) on the Special Taxes depends upon whether a court were to determine that the Special Taxes should be treated like ad valorem taxes tbr this purpose. On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled in re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed after the filing of the bankruptcy petition were declared to be "administrative expenses" of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the property and retain all the proceeds of the sale except the amount of the pre-petition taxes. According to the court's ruling, as administrative expenses, post petition taxes would be paid, assuming that the debtor had sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise), it would at that time become subject to current ad valorem taxes. The Act provides that the Special Taxes are secured by a continuing lien which is subject to the same lien priority in the case of delinquency as ad valorem taxes. No case law exists with respect to how a bankruptcy court would treat the lien for Special Taxes levied after the filing of a petition in bankruptcy. Glasp_.!y_l is controlling precedent on bankruptcy courts in the State. If the Glasp_!y_ precedent was applied to the levy of the Special Taxes, the amount of Special Taxes received from parcels whose owners declare bankruptcy could be reduced. Property Controlled by FDIC The District's ability to collect interest and penalties specified by State law and to foreclose the lien of delinquent Special Tax payments may be limited in certain respects with regard to properties in which the Internal Revenue Service, the Drug Enforcement Agency, the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal agencies has or obtains an interest. The District is not aware of any such interest of a federal agency in the land within Improvement Area No. l. On June 4, 1991 the FDIC issued a Statement of Policy Regarding the Payment of State and Local Real Property Taxes. The 1991 Policy Statement was revised and superseded by a new Policy Statement effective January 9,1997 (the "Policy Statement"). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its proper tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent

4O

with sound business practice arid the orderly administration of the institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FD1C will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FD1C will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent. The Policy Statement states that the FDIC generally will not pay non ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Act and a special tax formula which determines the special tax due each year, are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC's federal immunity. The FDIC has filed claims against one California county in United States Bankruptcy Court contending, among other things, that special taxes au_orized under the Act are not ad valorem taxes and therefore not payable by the FDIC, and seeking a refund of any special taxes previously paid by the FDIC. The FD1C is also seeking a ruling that special taxes may not be imposed on properties while they are in FDIC receivership. The Bankruptcy Court ruled in favor of the FDIC's positions and, on August 28, 2001, the United States Court of Appeals for the Ninth Circuit affirmed the decision of the Bankruptcy Court, holding that the FDIC, as an entity of the federal government, is exempt from post-receivership special taxes levied under the Act. This is consistent with provision in the Law that the federal government is exempt from special taxes. The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to a parcel in which the FDIC has an interest, although prohibiting the lien of the FDIC to be foreclosed on at a judicial foreclosure sale would likely reduce the number of or eliminate the persons willing to purchase such a parcel at a foreclosure sale. Owners of the Bonds should assume that the District will be unable to foreclose on any parcel owned by the FDIC. Such an outcome would cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment of the Bonds. The District has not undertaken to determine whether the FDIC or any FDIC-insured lending institution currently has, or is likely to acquire, any interest in any of the parcels, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. Billing of Special Taxes A special tax formula can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in turn, along with various other factors, can lead to problems in the collection of the special tax. In some community facilities districts, taxpayers have refused to pay the special tax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by the District. Under provisions of the Act, the Special Taxes are billed to the properties within Improvement Area No. 1 which were entered on the Assessment Roll of the County Assessor by January 1 of the previous Fiscal Year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Ordinarily, these Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular 41

property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and installment payments of Special Taxes in the future. See "'SECURITY FOR THE BONDS - Covenant tbr Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the District is obligated to follow, in the event of delinquency in the payment of installments of Special Taxes. Collection of Special Taxes In order to pay deb! service on the Bonds, it is necessary that the Special Tax levied against land within Improvement Area No. 1 b.e paid in a timely manner. It is possible that delays in the payment of debt service may be the result of the County processing subdivisions or by the transfer of ownership of property within Improvement Area No. 1. The District has covenanted in the Fiscal Agent Agreement under certain conditions to institute foreclosure proceedings against property with delinquent Special Taxes in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Taxes to protect its security interest. In the event such superior court foreclosure is necessary, there could be a delay in principal and interest payments to the owners of the Bonds pending prosecution of the foreclosure proceedings and receipt of the proceeds of the foreclosure sale, if any. No assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Taxes installment. Although the Act authorizes the District to cause such an action to be commenced and diligently pursued to completion, the Act does not specify the obligations of the District with regard to purchasing or otherwise acquiring any lot or parcel of propertysold at the foreclosure sale if there is no other purchaser at such sale. See "SECURITY FOR THE BONDS Covenant for Superior Court Foreclosure." Maximum Special Tax Rates Within the limits of the Rate and Method, the District may adjust the Special Taxes levied on all property within Improvement Area No. 1 to provide the amount required each year to pay annual debt service on the Bonds and to replenish the Reserve Account to an amount equal to the Reserve Requirement. However, the amount of Special Taxes that may be levied against particular categories of property is subject to the maximum tax rates set forth in the applicable Rate and Method. In the event of significant Special Tax delinquencies, there is no assurance that the maximum tax rates for property in Improvement Area No. 1 would be sufficient to meet debt service obligations on the Bonds. See "SECURITY FOR THE BONDS - The Special Taxes" and "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." Exempt Properties So long as certain conditions are met, each Rate and Method provides that the District shall not levy a Special Tax on Property classified as Exempt Property. Under the Rate and Method, the Board will not levy Special Taxes on public property, Property Owner's Association property within the District or property comprising the golf course (located in Improvement Area No. 2) as well as certain other parcels specified in Improvement Area No. 2. Exempt Property status will be assigned in the chronological order in which property in the District becomes included in such categories of Exempt Property. In addition, the Act provides that properties or entities of the State, federal or local government are exempt from the Special Taxes; provided, however, the property within Improvement Area No. 1 acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Taxes, will continue to be subject to the Special Taxes. The Act further provides

42

that if properly subject to the Special Taxes is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Taxes with respect to that property is to be treated as if it were a special assessment. The constitutionality and operation of these provisions of the Act have not been tested. In particular, insofar as the Act requires payment of the Special Taxes by a federal entity acquiring property within Improvement Area No. i, it may be unconstitutional. If for any reason property within hnprovcment Area No. I becomes exempt from taxation by reason of its status under the Rate and Method, or by reason of its ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitation of the maximum authorized rates, the Special Taxes will be reallocated to the remaining taxable properties within Improvement Area No. 1. This would result in the owners of such property paying a greater amount of the Special Taxes and could have an adverse impact upon the timely payment of the Special Taxes. California Constitution Article XIIIC and Article XIIID On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which articles contain a number of provisions affecting the ability of the District to levy and collect both existing and future taxes, assessments, fees and charges. According to the "Official Title and Summary" of Proposition 218 prepared by the California State Attorney General, Proposition 218 limits the "authority of local governments to impose taxes and property-related assessments, fees and charges." On July 1, 1997 California State Senate Bill 919 ("SB 919") was signed into law. SB 919 enacted the "Proposition 218 Onmibus Implementation Act," which implements and clarifies Proposition 218 and prescribes specific procedures and parameters for local jurisdictions in complying with Articles XIIIC and XIIID. Article XIIID of the State Constitution reaffirms that the proceedings for the levy of any Special Taxes by the District under the Act must be conducted in conformity with the provisions of Section 4 of Article XIIIA. The District has completed its proceedings for the levy of Special Taxes in accordance with the provisions of Section 4 of Article XIIIA. Under Section 53358 of the California Government Code, any action or proceeding to review, set aside, void, or annul the levy of a special tax or an increase in a Special Tax (including any constitutional challenge) must be commenced within 30 days after the Special Tax is approved by the voters. Article XIIIC removes certain limitations on the initiative power in matters of local taxes, assessments, fees and charges. The Act provides for a procedure, which includes notice, hearing, protest and voting requirements, to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting a resolution to reduce the rate of any special tax if the proceeds of that tax are being utilized to retire any debt incurred pursuant to the Act unless such legislative body determines that the reduction of that tax would not interfere with the timely retirement of that debt. Although the matter is not free from doubt, it is likely that exercise by the voters of the initiative power referred to in Article XIIIC to reduce or terminate the Special Tax is subject to the same restrictions as are applicable to the Board, as the legislative body of the District, pursuant to the Act. Accordingly, although the matter is not free from doubt, it is likely that Proposition 218 has not conferred on the voters the power to repeal or reduce the Special Taxes if such repeal or reduction would interfere with the timely retirement of the Bonds. It may be possible, however, for voters or the Board, acting as the legislative body of the District, to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the Bonds.

43

Proposition 218 and the implementing legislation have yet to be extensively interpreted by the courts; however, the CalifOrnia Court of Appeal in April 1998 upheld the constitutionality of Proposition218's balloting procedures as a condition to the validity and collectibility of local governmental assessments. A number of validation actions for and challenges to various local governmental taxes, tees and assessments have been filed in Superior Court throughout the State, which could result in additional interpretations of Proposition 218. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and the outcome of such determination cannot be predicted at this time with any certainty. Ballot Initiatives and Legislative Measures Proposition 2[8 was adopted pursuant to a measure qualified for the ballot pursuant to California's constitutional initiative process; and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the Legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the District or other local districts to increase revenues or to increase appropriations or on the ability of a landowner to complete the development of property. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Initiatives" above. No Acceleration The Bonds do not contain a provision allowing for their acceleration in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement or upon any adverse change in the tax status of interest on the Bonds. There is no provision in the Act or the Fiscal Agent Agreement for acceleration of the Special Taxes in the event of a payment default by an owner of a parcel within Improvement Area No. 1. Pursuant to the Fiscal Agent Agreement, a Bond Owner is given the right for the equal benefit and protection of all Bond Owners to pursue certain remedies described in "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT." Loss of Tax Exemption As discussed under the caption "CONCLUDING INFORMATION - Tax Exemption," in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the District has covenanted in the Fiscal Agent Agreement not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Internal Revenue Code of 1986, as amended. Interest on the Bonds could become includable in gross income for purposes of Federal income taxation retroactive to the date the Bonds were issued, as a result of acts or omissions of the City or the District in violation of the Code. Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the optional redemption or mandatory sinking fund redemption provisions of the Fiscal Agent Agreement. Limitations on Remedies Remedies available to the Bond Owners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Bonds or to preserve the tax-exempt status of the Bonds. Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditor's rights, by equitable principles and by the exercise of judicial

44

discretion. Additionally, the Bonds are not subject to acceleration in the event of the breach of any covenant or duty under the Fiscal Agent Agreement. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Bond Owners. Enforceability of the rights and rcmedies of the Bond Owners, and the obligations incurred by the District, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor's rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against joint powers authorities in the State. See "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure." Limited Secondary Market As stated herein, investment in the Bonds poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risk of investment in the Bonds should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Bonds or, if a secondary market exists, that the Bonds can or could be sold for any particular price. No application has been made for a credit rating for the Bonds, and it is not known whether a credit rating could be secured either now or in the future for the Bonds.

CONCLUDING Underwriting

INFORMATION

The Underwriter purchased the Bonds at a purchase price of $ , representing the principal amount of the Bonds less an Underwriter's discount of $ and less an Original Issue Discount of $ The Underwriter intends to offer the Bonds to the public initially at the prices set forth on the inside cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers. Legal Opinion The legal opinion ofFulbright & Jaworski L.L.P., Los Angeles, California, approving the validity of the Bonds, in substantially the form set forth in APPENDIX F hereto, will be made available to purchasers of the Bonds at the time of original delivery. A copy of the legal opinion for the Bonds will be provided with each definitive bond. Bond Counsel has not undertaken on behalf of the Owners or the Beneficial Owners of the Bonds to review the Official Statement and assumes no responsibility to such Owners and Beneficial Owners for the accuracy of the information contained herein. Certain legal matters will be passed upon for the City by the City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, Disclosure Counsel to the City with respect to the issuance of the Bonds. Jones Hall, A Professional Law Corporation, San Francisco, California, has acted as counsel to the Underwriter.

45

Tax Exemption The Internal Revenue Code of 1986 (the "Code'), imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in the gross income of the owners thereof for l_deral income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to maintain the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In the opinion of Fulbright & Jaworski L.L.P., Bond Counsel, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Bond Counsel is also of the opinion that, assuming compliance with the aforementioned covenant, the Bonds are not "specified private activity bonds" within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not bc treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on the Bonds owned by a corporation may affect the computation of its alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)). To the extent that a purchaser of a Bond acquires that Bond at a price that exceeds the aggregate amount of payments (other than payments of qualified stated interest within the meaning of section 1.1273-1 of the Treasury Regulations) to be made on the Bonds (determined, in the case of a callable Bond, under the assumption described below), such excess will constitute "'bond premium" under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt obligation must be amortized on a constant yield, economic accrual, basis; the amount of premium so amortized will reduce the owner's basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. In the case of a purchase of a Bond that is callable, the determination whether there is amortizable bond premium, and the computation of the accrual of that premium, must be made under the assumption that the Bond will be called on the redemption date that would minimize the purchaser's yield on the Bond (or that the Bond will not be called prior to maturity if that would minimize the purchaser's yield). The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when a Bond owned by such owner is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Bond to the owner. The excess, if any, of the stated redemption price at maturity of Bonds of a maturity over the initial offering price to the public of the Bonds of that maturity set forth on the cover of this Official Statement is "original issue discount" under the Code. Such original issue discount accruing on a Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and exempt from California personal income tax to the same extent as would be stated interest on the Bond. Original issue discount on any Bond purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Bond accruing during each period is added to the adjusted basis of such Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Bond. The Code includes certain provisions relating to the accrual of original issue discount in the 46

case of purchasers of Bonds who purchase such Bonds other than at the initial offering price and pursuant to the initial offering. Any person considering purchasing a Bond at a price that includes bond premium should consult his or her own tax advisors with respect to the amortization and treatment of such bond premium, including, but not limited to, the calculation of gain or loss upon the sale, redemption or other disposition of the Bond. Any person considering purchasing a Bond of a maturity having original issue discount should consult his or her own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering and at the original offering price, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under t_deral individual and corporate alternative minimum taxes. Bond Counsel has not undertaken to advise in the tuture whether any events after the date of issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the ownership of the Bonds. No assurance can be given that future legislation, or amendments to the Code, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of interest on the Bonds from personal income taxation by the State of California or of the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Furthermore, Bond Counsel expresses no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of bond counsel if such advice or approval is given by counsel other than Bond Counsel. Although Bond Counsel is of the opinion that interest on the Bonds is exempt from state personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner's federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Bonds. The nature and extent of these other tax consequences will depend upon the owner's other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds or, in the case of a financial institution, that portion of an owner's interest expense allocated to interest on the Bonds, (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the Bonds, (iii) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Bonds and (vi) under section 320) of the Code, receipt of investment income, including interest on the Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel has expressed no opinion regarding any such other tax consequences. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City and the District described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the District as the "taxpayer," 47

and the Owners would have no right to participate in the audit process. In responding to or defending an audit of the lax-exempt status of the interest on the Bonds, the District may have different or conflicting interest from the Owners. Further, the disclosure of the initiation of an audit may adversely affect the market price of the Bonds, regardless of the final disposition of the audit. No Litigation A certificate of the District to the effect that no litigation is pending or threatened concerning the validity of the Bonds will be furnished to the Underwriter at the time of the original delivery of the Bonds. Neither the City nor the District are aware of any litigation pending or threatened which questions the existence of the District or the City or contests the authority of the District to levy and collect the Special Taxes or to issue the Bonds. No Rating on the Bonds The Bonds are not rated and the District does not anticipate applying for a rating on the Bonds. Miscellaneous All of the preceding summaries agreements and other documents are made to be complete documents of any or all of on file with the City for further information of the Fiscal Agent Agreement, other applicable legislation, subject to the provisions of such documents and do not purport such provisions. Reference is hereby made to such documents in connection therewith.

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

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The City Council of the City of Indio has duly authorized deliver this Official Statement on behalf of the District.

the City Manager

to execute

and

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

FACILITIES

DISTRICT

By City Manager of the City of lndio on behalf of the City of lndio Community Facilities District No. 2004-3 (Terra Lago)

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[THIS PAGE INTENTIONALLY

LEFT BLANK]

APPENDIX RATE AND METHOD

A OF SPECIAL TAXES

OF APPORTIONMENT

A-l

[THIS PAGE INTENTIONALLY

LEFT BLANK]

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR COMMUNITY FACILITIES DISTRIC_I"NO. 2004-3 (TERRA LAGO) CITY OF INDIO, CALIFORNIA A Special Tax (all capitalized terms are defined in Section A,, Definitions below) shall be applicable to each Parcel of Taxable Property located within the boundaries of Community Facilities District No. 2004-3 (TERRA LAGO). The amount of Special Tax to be levied m each Improvement Area m each Fiscal Year, commencing in Fiscal Year 2005-2006 on a Parcel shall be determined by the City Council of The City of Indio, acting in its capacity as the legislative body of the CFD by applying the appropriate Special Tax for Developed Property, Undeveloped Property and Public Property and/or Property Owner's Association Property that is not Exempt Property as set fot'dain Sections B., C., and D., below. All of the real property within the CFD, unless exempted by law or by the provisions hereof in Section E., shall be taxed for the purposes, to the extent and m the manner herein provided. A. DEFINITIONS The terms herein',fftet set forth have the following meanings: "Acre or Acreage" means the a_eage of a Parcel as indicated on the most recent Assessor's Parcel Map, or fftheland area is not,'show on theAssessor' Par s cel Map, theland area shown on the applicable Final Map, parcel map, condominiumplan, or other similar io.sarament. "Act" means the Mello-Roos Commtmity Facilities Act of 1982, as amended, being Chapter 2.5, Part 1 of Division 2 of Title 5 of the California Government Code of the State of California. "Administrative Expenses" means all actual or reasonably estimated costa and expenses of the District that are chargeable or allocable to the applicable Improvement Area to carry out its duties as the administrator of the CFD as allowed by the Act, which shall include without limitation, all costs and expenses arising out of or resulting from the annual levy and collection of the Special Tax, trustee fees, rebate complimtce calculation fees, and legal issues, or actual, potential or threatmexl litigation involving the CFD, continuing disclosure u.dertakings of the District as imposed by applicable laws and regulations, communication with bondholders and normal administrative expenses. "Administrator" means an official of the District, or designee thereof, responsible for determining the levy and colle..cfion of the Special Taxes. "Assessor's Parcel Map" means an official map of the Assessor of the County of Riverside designating parcels by As._ssor's Parcel mtmber. "Assig,ed Special Tax" means the Special Tax for each l_zmd Use Category of Developed Property, as determined in accordance with SectiotxC.t.a., below. city ofIndio Community Facilities District No.2004-3(Terra l.ago} August17,2005 Page1

"Backup Special Tax" trieans the Special Tax of that name described m Section E below. "Bonds" means any bonds or other indebtedness (as defined m the Act) issued by an Improvemerlt Area of the CFD and secured by the levy of SpcciM Taxes within such Improvement Area. "Boundary Map" means a map showing the territory area within the boundaries of CFD 2004-3 identified on EXHIB IT "'A" "CFD" means Commlmity Facilities District No. 2004-3 (TERRA LAGO) of the District established pursuant to the Act. "Council" means The City of Indio City Com_cil "Ctmnty" means the County of Riverside. "Developed Property" means all Parcels of Taxable Property, not classified as Undeveloped Property, Public Property and/or Ptopm't), Owner's Association Property that are not Exempt Property pursuant to the provisions of Section E. below: (i) that ate included in a Final Map that was recorded prior to January 1 st preceding the Fiscal Year in which the Special Tax is being levied and (ii) a building permit for new construction has been issued prior to April 1u preceding the Fiscal Year in which the Special Tax is being levied. "Exempt Property" Section E., below. means any Parcel, which is oxempt from Special Taxes pttfsuant to

"Final Map" means a subdivision of property by reeordalion of a final map, parcel map, or lot line adjustment, pur,_mnt to the Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of a condominium plan pm'suant to California Civil Code ] 352 that creates individual lots for which building permits may be issued without fuaher subdivision. "F'a_al Year" means the period starting on July I and ending on the following June 30. "Improvement Area(s)" means Improvement Area 1, Zone A or Zone B or Improvement Area 2, Zone A or Zone B as geographically identified on EXI-IIBrF "B". "Improvement Area 1, Zone A" means the specific area identifted on EXH/BIT "B" as lmp_overnent Area 1, Zone A of the CFD. "Improvement Area 1, Zone B" means the specific area identified an EXHIBIT "B" as Improvement Area 1, Zone B of the CFD. "Improvement Area 2, Zone A" means the specific area identified on EXHIBIT "B" as ImprovementArea 2, Zone A of the CFD. "Improvement Area 2, Zone B" means the specific area identified on EXHIBIT "B" as Improvement Area 2, Zone B of the CP'D.
City Oflrgtio Community Facilities District No. 2004-3 (Tetra l.ago) ' August 17, 2005 Page 2

"Indenture" means ti_e bond indenture, fiscal agent agreement,trust agreement, resolution or other instrument purSuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or supplementing tile same. "Land Use Category" means any of the calegories listed in Tables I, 2, 3, 4 and 5.

"Maximum Special Tax" means the maximum Special Tax. detem_ne.xl m accordance with SecTion C., which can be levied in any Fiscal Year on any Parcel. "Multifamily Residential Property" means any Parcel of Developed Property that consists of a building or buildings comprised of attached residential _mits available for rental by the general public, or for sale to an end user, and may be under common management "Non-Residential Property" means all Parcels of Developed permit was issued for any type of non-residential use. Property for which a building

"Parcel(s)" me.am a lot or parcel shown on an As_ssor's Parcel Map with an assigned parcel number valid at the time the Special Tax is enrolled for the Fiscal Year for which the Special Tax is being levied. "Property Owner's Association Property" means any Parcel within the boundary of the CFD, which, at the time the Special Tax is enrolled for the Fiscal Year for which the Special Tax is being levied has been conveyed, dedicated to, or irrevocably dedicated to a property owner association, including any master or sub-association. "Proportionately" means for (i) Developed Property that rite ratio of the actual Special Tax levy to the Assigned Special Tax is the same for all Parcels of Developed Property, and Undeveloped Property, Public Property and/or Property Owner's Association Property that Js not Exempt Property pursuant to Section E., that the ratio of the actual Special Tax levy per acre to the Maximum Special Tax per acre is the same for all such Pmcels. "Public Property" means any P_rcei within the botmdary of fhe CFD which, at the time the Special Tax is enrolled for the Fiscal Year for which the Sl_eial Tax is being levied, is used for rights-of-way or any other purpose and is owned by, dedicated to, or inevocably offered for dedication to the Federat Govermnent, the State of California, the County, City or atiy other local jttrisdietion, provided, however, that any property leased by a public agency fo a private entity and subject to taxation under Section 53340.1 of the Act shall be taxed and clas.si fled according to its use.

_:

"Residential Floor Area" means all of the square footage of living area of a residenlial
structure, not including any carport, walkway, garage, overhang, patio, enclosed patio ox similar area on a Parcel. The determination of Residential Floor Area shall be made by reference to the building permit(s) fox the Parcel or similar official documen! means selected by the Administrator. Once such determination has been made for a Parcel. Lt shall remain fixed in all future Fiscal Years. "Residential Property" means all Parcels of Developed Property for which a building August 17, 9011,5 Page 3

City of l.odio Community Facilitis District No. 2004-3 (Terza|.ago)

permit has been issu,d fox purposes of eomUucting one or more re_sidential dwelling units. "Single Family Property" meaus all Parcels of Residential Property, other than Muldfamily Residential Property, for which building permits have been issued for detached ot attached residential units. "Spewdai Tax(as)" means the special tax to be levied in each Fiscal Year on each Parcel of Taxable Property. "Special Tax Requirement(s)" means that amount required in any Fiscal Year to pay for Special Tax Requtrernemt for Improvemeat Area 1, Zone A or Zone B, or for Special Tax Requirement for Improvement Area 2, 7xrne A or Zone B. "Special Tax Requirement for Improvement Area r' means that amount required in any Fiscal .Year within Improvement Area 1 of the CFD to pay: (i) annual debt service on all outstanding Bonds due in the. calendar year which eonunences in such Fiscal Year; (it) periodic costs on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds; (iii) Administrative F_,xpenscs; (iv) an amoont equal Io any anticipated shortfall due to Special Tax delinquency in the prior Fiscal Year; and (v) auy amounts required to establish or replenish any reserve funds for the outstanding Bonds; less (vi) a credit for funds available to reduce the annual Special Tax levy as determined pursuant to the Indenture. "Special Tax Requirement for Improvement Area 2" rneam_ that amount required in any Fiscal Year within Improvement Area 2 of the CFD to pay: (i) anmud debt service on all outstanding Bonds due in the calendar year which commences Jr] such Fiscal Year; (it) periodic costs on the Bonds, including but not limited to, credit enhatmement and rebate payments on the Bonds; (iii) Administrative Expense; (iv) an amount equal to any anticipated shortfall due to Special Tax delinquency in the prior Fiscal Year; and (v) any amounts required to establish or replenish any reserve funds for the outstanding Bonds; I_,s (v_) aereAit for funds available to reduce the annual Special Tax levy as determined pursuam to the Indenture. "Taxable Property" means all Parcels in an Implxwement Area which have not prepaid pursuant to Section H., or are not exempt from the Special Tax pursuant to law or Sectiml E,, below. "Undeveloped Property" means all Taxable Pl_perty txot classified as Developed Property, Public Property and/or Property Owner's Association Property that _s not Exempt PropertT pursuant to the provisiorts oF Section E.

city of Indio CommunityFacilitiesDistrict No. 2004-3 (TerraLago)

August 17, 2005 Page 4

A. ASSIGNMENT T O LAND USE CATEGQRY Each Fiscal Year, commencing with the 2005-2006 Fiscal Year, all Parcels of Taxable Property within the CFD shall be categorized into the applicable Improvement Area and classified as either Developed Property, Undeveloped Property, Public Property and/ox Property Owner's Association Property that is not Exempt Property pursuant to the provisions in Section E., and shall be subjec_ to the levy of Special Taxes m accordance with this Rate and Method of Appot, ionment as determined pursuant to Sections C., and D., below. Parcels ofDcveLolx_ Property shall fro'thor be classified as ResidentiPrope al rty or NonResidential Property. A Parcel ofResidentia Prop l ertshall y further be c]assifi asSing e,,d le FamilyProperty or Multifamily Residentia Property l . Single Family Property shall be fu_cx categorized based ontheResidenti Fl al oor Areafor such Pro'eel. C. MAXIMUM SPECIAL TAX RATE 1. Developed Property The Maximum Special Tax for each Parcel of Single Family Property within its applicable Improvement Area shall be the applicable Assigned Special Tax described in Table 1,2, 3, or 4. The Maximum Special Tax for each Parcel of Non-Residential Property within its applicable Improvement Area shall be the Assigned Special Tax described in Table 1, 2, 3 or4, a. Assigned Special Tax The Assigoed Special Tax for each Parcel of Developed Property within its applicable Improvement Area is shown in Table 1, 2, 3, or 4.

City of _dio

Augu;t 17. 7._5

{MmmanitFa y cilitie.D .s istrict No. 2004-3CrerraI_ago)

Page5

TABLE 1 Assigned Special Taxes for Property within 1, Zone A

,::.: ............................. .................. _:::. ./: x:::x,_ _ : ' : ::_ _ .... 1 !!!_ :_!'_ :: ...... _:!"_ _'_'' _ X'_ii_fi_ _'_='_"_'_;_i:-iitP_!_J_ I __, .... i_!i '"'"__'_::_'_ : ;_';_ _'_'"ll!i _:Y_;f ......................; i: ' ! ''_ ......... _i _li'_'"""_ ' .......i_'" '_i_ ';;"_""_ i _;'

.......

_........

_ #Ill
DU
, ,,, ,,,,

_ _1 ....,_ t..... ................ _.__

Less than 1,501 SF 1,626 SF to 1,750 SF 1,7.51 SF to 1,900 SF 1,901 SF to ,!,950 SF 1,951 SF to 2,100 SF 2,101. SF to 2,150 SF., 2,151 SF to 2,250 SF $1,828.87

.Single Family Property

singl_ Famil_,t_tty
Single Family Prope,_ '_Single Family Property, Single Family Property Single Fami!y Property _SingleFamily Property SingleFamfly Property "" Singl_F_yProl_rt_ Sin_e Family Property Single Family Property Single Family Property Single Family Prop____ Single Family Property S'mgle Family Property Multi,Family Property Non Residential Property

DO 1,501 SFto1,625 SF
DU. DU DU DU D.U DU i

$_,0_8.5_
$2,228.22 $2,467.83 , $2,547.70 $2,605.98 $2,681.53 $2.832.63 ..... $2,908.19 $3,059.29 $3,102.46 $3,175.86 $3,249.25 $3,616.22 $4,056.57 $20,460.00 .$20,..460_:_00

DU . 2,25I SFto 2,300SF DU 12,301SF to 2,400 SF ,, ,DU _2,401 SF to 2,500 SF DU 2,501 SF to 2,550 SF DU ?v551.SF to 2,600.S.F DO 2,601 SF to 2,850 SF Over 2,850 SF N/A N/A

DU Acre .... Acre

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

city ofIrtdio Commgaily Facilities Dist:tict No. 2004-3(l'erral-ago)

Augusti7, _5Page6

TABLE 2 Assigned Special Taxes for Prof_rty within 1, Zone B

i_ii:: '::::!;:_ :_:'_:'....... :;" :' ::: : '_:::._':i::i:: : :.:_:::.-::_':'::_i:!_!:;"!!:!i!!! _"_-:! ?!_ _:e.; _ 1',. . _ x,_ ,) ',_-_., ,:.; _ ;,, _,_'_ .,.. )_ . .,-: .:._.,. ...... . .'_:_"_" .... e. _.,",_'i,,,,'....::..:. '.:_7_ i...... :.,_ _:gtI -.=z',"_=7,-_-__ 5x ,:"::_._!yF : "!P: '_i'v!, ,,,!_:_ ]- ,

,,,'[I_ }b, ...................... _I"d_['..t_._ .__ l' ................................... _ _.-_ _-..=-:_:_.f_ I,_ l[.._ SingleFamily Property ........ DU Less than 1,501 SF Sin$1e Family Iko_,ezty DU 1,501 SF to 1,625 SF Single Family .Property DU !1,626 SF to 1,750 $F Single Family Property DU [i,751 SF: to 1,900 SF Sinl_le Family Propert 7 DU [1,9OI SF to 1#50 SF Sin_,le Family Property DU '1,951 SF to 2,100 SF gingle Family Prope__y ................ DU 2,101 SF to 2,150 SF Single Family Propecty .... DU ....2_15 !..SF to 2,250 SF Single Family Pr_openy ..... DU 2,251 SF to 2,300 SF _. Single Family Property DU Over 2,3..00 SF Multi Famfl 7 Propgrt 7 Acre ...... N/A Non Re.sidemial Property Acre ._..A ..... $2,519.63 $2,719.31 $2,918.98 $3,158.59 $3,238.46 $3,372.29 $3,469.43 $3,523,39 $3,771..64 $3,96_5.91 $20,460.00 $20,460.00

On each July 1, commencing on luly 1, 2007, for a period of five (5) years, until July 1, 2012, the Assigned Special Tax shall be increased by one prccnt(1.00%) of the amount in effect in the prior Fiscal YeaL

TABLE 3 Assigned Special Taxes for Propc,x_y within Area 2, Zone A

$1,677.77 1,501 SF to 2,000 SF ISingle Family Pr0Pert7 iSingle Famil), PrOperty ........ IMulti FamilyPr0p_'ty [Non Resident-ial Property ...... DO ]%001 SF to DO ]Ove_ 2,500 Acre ] Acre_-] 2,5_ SF,, SF " NIA N/A ........ $2,411.70 $3,162.90 $3,905.47 "$22,3-04.00 $22,304.00

On each J_y 1, commencing on July ], 2007, for a period of five (_} yars, until July 1, 2012, the Assigned Special Tax shall be increased by one percent (1.00%) _ff the amount in effect in the prior Fiscal Year.

City of Indio

August

17, 2006

Community FacilitiesDistrictNo. 2006.3 (TerraI.ago)

Page 7

TABLE 4 Assigned Special Taxes for Property within Improvement Area 2, Zone B

......

II ......

_,,

Single Family Propert_ DU " L'ess _:: than '__ 2,_1 "::r S "F :_":'_"_"_'_ _ .,_ '_ ,$3 ,,_,,,_,!,_,_ ,154.27 _ ,_ ,,: o_:_ Single Family Property ..... __ DU_. 12,001SF to 2,500 SF $3,905.,17 Single. Family Property .... DU 2,501 SFto 3,000 SF $4,648.04 Single Fat_i!Z. P yroperty ..... ; DU !Over 3,000 SF $4,665.31 Multi Family Property Acre ! N/A $22.304.00 Non Residential Property ...... Acre! N/A , ,,, .,. $22,304.00

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

1, Undeveloped Property The Maximum Special Tax for each Parcel of Undeveloped Property withia each Improvement Area is shown i_xTable 5 below.

,T.Cr Lr.
Undeveloped Property Maximum Special Tax Rate

.....

.....

:. _,:.

ii!_ abli_:_, i:i_:,_;_:_p_i:'

:i:.ii

,._!!_;i;_:._,_.._,-:::_.:_d_)_!__i_:._!iiiiiiii!iiii!!i!!;;_! i!ii_,:!i;_ti ,:_il i. .:.i_,!,.,!_i.... i_!:_::_ -.Unc!eve_oped Property, _ $_o,a6o.oo

2 - Undev]o___ Pn_e.r_y Acre $22,3041}0

On each July 1, commencing on July I, 2007, for a period of five (5) years, umil July 1, 2012, the Maximum Special Tax shall be increased by one percent (1,00%) of the arnoum in effect, in the prior Fi'_ Year.

2. Pubfic l_roperty and/or Property Owner's Ass_ation Property pursuant to the provisions of Section g.

Property that is not Exempt

The Maximum Special Tax for each Parcel of Public Property and/or Properly Owners
. JU_ =.

City ol:Indio Commtmity Facilities Dislriet No. 2004-3 (Tetra i..ago)

August 17, 2005 Page 8

Association Property thai is not Exempt Property pursuant m the provisions of Section E., within each Improvement Area shall be the applicable Undeveloped Property Maximum Special Tax late per Acre m Table 5. D. METHOD Q.F...L_PORTIONMENT OF THE SPECIAL TAX Commencing with Fiscal Year 2005-2006 and for each following Fiscal Year, the Council studl levy the Special Tax on all Taxable Property in each Improvement Area until the amount of Special Taxes equals the applicable Special Tax Requirement for each Improvement Area m accordance with the following steps:

1. Improvement Area 1 _: The Special Tax shalJ be levied' on each Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax rate as needed to satisfy the Special Tax Requirement for Improvement Area 1, Zone A and Zone B. Second: If additional moneys are needed to satisfy the Special Tax Requirement for Improvement Area 1, Zone A and Zone B, after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property within lmpmvemem Area 1, Zone A and Zone B at alp to 100% of the Maximum Special Tax for Undeveloped Property, Third: If additional moneys are needed to satisfy the Spedal Tax Requirement after the first two steps have been completed, then for each Assessor's Parcel of Developed Property whose Assigned Special Tax is the Backup Special Tax shall be increased Proportionately from the Assi_ed Special Tax up to 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement. 2. Improvement Area 2 Fir...._g "_: ll_,eSpecial Tax shall be levied on each Parcel of Developed Property at up to 100% of rite applicable Assigned Special Tax rate as needed to satisfy the Slc_,-ialTa_ Require_meot for haaprovement Area 2, Zone A and Zone B. Second: If additional moneys are needed to satisfy the Special Tax Reqttiremtmt |br Improvement Area 2, Zone A and Zone B, after the first step has been completed, the Spvcial Tax shall be levied Proportionately on each Parcel of Undeveloped PrOl_ny within lmprovemenI Area 2, Zone A and Zone B at up to 100% of the Maximum Special 'fax for Undeveloped Property; Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then for each Assessor's Parcel of Developed Property whose Assigned Special Tax is the Backup Special Tax shall be iv.creased Proportionately from the Assigned Special Tax up to 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement. CityofIndio Community Facilities DistrictNo.2004-3(Terra 1.ago) Augta.s17,2005 t Page9

Notwithstanding the above, under no circumstances will the Special Taxes levied against any parcel of Residential Property within an Improvement Area be increased by more than ten percent (10%) per Fiscal Year as a consequence of delinquency or default by the owner of any other Parcel within an Improvement Area of theCFD. E. BACK _ SPECIAL TAXES

Each Fiscal Year, each Assessor's Parcel of Developed Property classified as Residential Property shall be subject to a Bae_kup Special Tax. In each Fiscal Year, the Backup Special Tax rate for Developed Property classified as Residential Property within a Final Map shall be the rate. per Lot calculated according to the following formula: RxA L The terms above have the following meanings: B = Backup SpeeislTax R perLot in "each Fi_eal Year

Maximum Special Tax rate per Acre for Undeveloped Property for the applicable Fiscal Year z.s Residential

A = Acreage of Developed Property classified or to be classified Property in such Final Map L = Lots m the Final Map which are classified or to be classified

as Residential

Property

Nolwithstaoding the foregoing, if all or any portion of the Final Map(s) described in the preceding paragraph is subsequently changed or modified, then the Backup Special Tax for each Assessor's Parcel of Developed Property classified or to be classified as Residential Property in such Final Map Area that i.schanged or modified shall be a rare per square foot of Acreage calculated a._ follows: 1. I.k..termbte the total Backup Special Tax antit,Spaled to apply to the changed or modified Final Maps

2. The result of peragrapb 1 above shall be divided by the Acreage of Developed Property classified or to be classified as Residential Property which i_ ,ltirn_tely expected to exist m such changed or mt_lified Final Map Area, as reasonably determined by the City. 3. The result of paragraph 2 above shall be dividcxl by 43,560. The testtlt is the Baekalp Special Tax per squsre foot of Acreage which shall be applicable to Assessor's Parcels of Developed Property classified as Residential Propexty in such changed or modified Final Map Area for all remaining Fiscal Years in which the Special Tax may be levied. 17. EXEMI_ION$ City of Imlio Ca)mmtmity FacilltlesDistrict No. 2004-3 (TerraLago) August 17, 2005 Psge !0

The Council shall not levy Special Taxes on Public Property, Property Owner's Association Property or Golf Course Property within each Improvement Area or Riverside County Assessor Parcel Numbers 601-150-024 and 601-270-018 located within Improvement Area 2 of the Cb"D. Exempt Property status will be assigned by the A&ninistrator in the chronological order m which property becomes Public Property, Propexty Owner's Association Property or Golf Course Property. G. MANNER 0F COLLECTION

The Special Tax shall be collected in the same maimer and at the same time as ordinary ad valorem property taxes and shall be subject to the same penalties, the same procedure, sale and lien priority in the case of delinquency; provided, however, that the Administrator may directly bill the Special "lax, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on Parcels havi_g delinquent Special Taxes ax permitted by the Act if necessary to meet the financial obligations of the CFD. IL APPEALS Any taxpayer may file a written appeal of the Special Tax on hi.s/her Parcel(s) with the Administrator, provided that the appellant is current in his/her payments of Special Taxes. Dm-hng pendency of an appeal, all Special Taxes previously levied must be paid on or before the payment date established when the levy was made. The appeal mug specify the reasons why the appellant claims the Special Tax is in error. The Administrator shall review the appeal, meet with the appellant ff the Administrator deems necessary, and advise the appellant of its determination. If the Administrator agrees with the appellant, the Administrator shall grant a credit to eliminate or reduce future Special Taxes on the appellam's Parcel(s). No refunds of i_eviou,sly paid Special Taxes shall be made. The Administrator shall interpret this Rate and Method of Appoxtio_ment and make determinations relative to the annual levy and administration of the Special Tax and any taxpayer who appeals, as herein specified. I. PREPAYMENT OFSPECIAL TAX

The followirtg defiuitiorts apply to this Section H: "Oma_uding Bonds" means all previously issued bonds issued and secured by the levy of Special Taxes, which will remain outstanding after the first intexe_t and/or principal payment date following the caxtreat Fiscal Year, excluding bonds to be redeemed at a later date with the proceeds of prior prepayments of Maximum Special Taxes. 1. Prepayment in Full

The Maximum Special Tax obligation may only be prepaid "and pemtanenfly satisfied by a Parcel of Developed Property, and/or Undeveloped Property for which a building permR has been issued, and Public Property and/or Property Owner's Association Property that is not Exempt Property pursuant to Section E. The Maximum Special Tax obligation applicable to city of Indio Comm_mity Facltities DistrictNo, 2004-3 (Tendlingo) Augtt_t17, 2005 Page 11

such Parcel may be fully prepaid and the obligation of the Parcel to pay the Special Tax permanently satisfied as described herein; provided that a prepayment may be made only if there are no delinquent Special Taxes with respect to sue&Parcel at the time of prepayment. An owner of a Parcel intending to prepay the Maximum Spe,ci',d Tax obligation shall provide the Administrator with written notice of intent to prepay, and within 5 business days of receipt of such notice, the Administrator shall notify such owner of the amount of the non-refundable deposit determined to cover the cost to be incurred by the CFD m calculating the proper amount of a prepayment. Within 15 days of receipt of such nonrefundable deposit, the Administrator shall notify such owner of the prepayment amount of such Parcel. Prepayment must be made not leas than 60 days prior to any redemption date for any Bonds to be redeemed with the prcmeeds of such prepaid Special Taxes. The Prqgzyment Amount (dcf'med below) shall be calculated as summarized (capitalized terms as defined below): Bond Redemption Amount plus Redemption Premium plus Defeasance Amount plus Administrative Fees and Expenses less Reserve Fund Credit Total: equals Prepayment Amount A.s of the proposed date of prepaymex,t, the Prepayment Amount (defined below) shall be calculated as follows: below

1. 2,

Confh-m that no Special Tax delinquencies apply to such Parcel. For Parcels of Developed Property. compute the Maximunt Special Tax for the Parcel to be prepaid. For Parcels of Undeveloped Property to be prepaid, compute the Maximt_m Special Tax for that Parcel as though it was already d_ignated as Developed Plopexty, based upon the building permit which has akeady b_n i-sslmd for that Parcel For Parcels of lhtblic Property artd/or Property Owner's Association Property to be prepaid, compute the Maximum Special Tax for that Parcel. Divide the Maximtm_ Special "Fax computed pttrsuam to paragraph 2 by the total estimated Masimum Special Ta%_ based on the Developed Prolx_rty Special Tax which could be aharged,less any Parcels which have been prepaid. Multiply the quotient computed pursuaut to paragraph 3 by the Outstanding Bouds to compute the amo_mt of Outstanding Bonds to be retired and prepaid (the "'Bond lCedemption Amounf'), Multiply t_ Bottd Redemption Amount computed pursuant to paragraph 4 by the applicable redemption premium, if any,. on the Outstanding Bonds to be redeemed (the "'Redemption Premium"). Compute the amount needed to pay interest on the Bond Redemption Amount from August17,2005 Page12

3.

4.

5.

6.

Cityof Irglio Community Facilities DistrioN t o,2004-3(Tetra LagQ)

the first bond interest and/or principal payment date followir_g the current Fiscal Year until the earliest redemption date for the Outstanding Bonds. 7. Determine the Special Taxes have not yet been paid. levied on the Parcel in the clm'ent Fiscal Year which

8.

Compute the amount the Administrator reasonably expecC.s to derive from the leinvestmcnt of the Prepayment Amoun! less the Administa'ative Fees and Expenses from the date of prepayment until the redemption date for the Outstanding Bonds to be redeemed with the prepayment. Add the amounts computed pursuant to paragraphs 6 and 7 and subtract the amount computed pursuant to paragraph 8 (the "'Defeasance Amount"). Verify the administrative fees and expense.g, including the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming the Outstanding Bonds, aud the costs of recording any nofces to evidence the prepayment and the redemption (the "Administrative Fees and Expenses"). "the reserve fund credit (the "Reserve Fund Credit") shall equal the lesser of." (a) the expected reduction in the reserve requirement (as defined iu the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepaymenL or (b) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect after the redemption of Out, landing Bonds as a result of the prepayment from the balance in the reserve fmad on the Frepaymemt dale, but in no event shall such amount be less than zero. The Maximum Special Tax prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 9 and 10, less the amount comput_xl pursuant to paragraph 11 (the "Prepayment Amount"). From the Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 9. _d 11 shall be deposited into the appropriat_ fund as established under the lndemure arm be _ed to retire Outslanding Bonds or make debt service payments. The amouot computed pursuant to paragraph 10 shall be re "tamed by the CFD.

9.

10.

1].

12.

13.

The Prepayment Amount may be sufficient to redeem other than a $5,000 increment of Bonds, In such cases, the increment above $5,000 or integral mlfltiple thereof will be retained in the appropriate fund established raider the Indenture to be used with the txex, prepayment of bonds or t make debt. service payments. As a result of the payment of the et_rrent Fiscal Year's Special Tax levy as determined under paragraph 7 (above), the Administrator shall remove the current Fiscal Year'_ Special Tax levy for such Parcel from the County tax roils. With respect to any Parcel that i_ prepaid, the Board sbal] cause a suitable notice m be recorded in compliance with the Act, to hadicate the prepayment of Special Taxes and the release of the Special Tax lien on such Pa,_eel, and the obligation of such Parcel to pay the Sly, cial Tax shall cease. City of lndio CommunityFaciliti_ DistrictNo. 2004-3 (TerraLagt_) Augusl_ 17. 2005 Page 13

Notwithstandir_g the foregoing, no Special Tax prepayment shall be allowed unless the amount of Maximum Special Taxes that may be levied on Taxable Property both prior to and after the proposed prepayment is at least 1.1 Limes the maximum annual debt service on all Outstanding Bonds. 'renders of Bonds in prepayment of Maxm_um Special Taxes may be accepted upon the terms and conditions established by the Board pursuant to the Act. However, the use of Bond tenders shall only be allowed on a case-by-case basis as specifically approved by the Board.

2.

Prepayment in Part

The Maximtun Special Tax on a Parcel of Developed Property or Undeveloped Property for which a building permit has been issued may be partially prepaid in increments of $2,000. The amount of the prepayment shall be calcdated as in Section ft.1; except that a partial pre4_ayaientshall be calculated according to the following formula: PP-'- P_ x F These lem_s have the following meaning: PP = the partial p_epaymem Pt_= the Prepayment Amolmt calculated according to Section I-L1 F = rite pea-centby which the owner of the Parcel(s) is partially prepaying the Maximum Special Tax. The owner of a Parcel who desires to partially prepay the Maximum Special Tax shall notify the Administrator of {i_ such owner's intent to partially prepay the Maximum Special Tax, (ii) the amount of partial prcpayment expressed m increments of $2,000, and (iii) the company or age_acythat will be acting as the escrow agenl, if applicable and within 5 days of receipt of such notice, the Administrator shall notify such property owner of the amount of the non refimdable deposit determined to cover the cost to be iactared by the CFD hi calculating the proper amount of a partial prepayment, Within 15 business days of receipt of such ntrn-refundable deposit, the Adrainistrator shall notify such owner of the partial prepa3anent amoun! of such Parcel. Partial prepayment must be made not less than 60 days prior to any redemption date for any Bonds to be redeemed with the prcr.eeds of such prepaid Special Taxes. With respect to any Parcel that is partially prepaid, the Administrator ,shall (i) distribute the fimds remitted to it according to Paragraph 13 of Section H.I, and 0i) indicate in the reeoKl.s of the CFD that there has been a partial prepayment of the Maximum Special Tax and that a portion of the Maximum Special Tax equal, to the outstanding percentage (t.00 - !_ of The remaining Maximum Special Tax shall continue to be authorized to be levied on such Parcel pursuant to Section D.

Cityof hglio Comm_mity FacilhiesDi.s_iet 14o. 2004-3.Crerra Lago)

August17,200.5 Page 14

J. TERM OF THE SPECIAL TAX For each year that any Bonds arc omstanding the Special Tax shall be levied on all Parcels subject to the Special Tax. If any delmquertt Special Taxes remain uncollected prior to or after all Bonds are retired, the Special Tax may be levied to the extent necessary to reimburse the CF'D for uncollected Special Taxes associated with the levy of such Special "l'ax_, but not later than the Fiscal Year.

.-:__

City of Indio CommunityFacilities District No. 2004-3 (TerraLago)

August 17, 2005 Page 15

[THIS PAGE INTENTIONALLY

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APPENDIX B CITY OF INDIO SUPPLEMENTAL INFORMATION

The lbllowing information concerning the City of lndio is presented as general background data. The Bonds are payable solely from unpaid Assessments as described in the Official Statement. The Bonds are not an obligation of the City, and the taxing power of thc City is not pledged to the payment of the Bonds (except to the limited extent described herein). General Information In 1893, Indio became one of 12 townships in the County of Riverside and was incorporated in 1930 and encompasses 24.8 square miles. It is a general law ci_ with a council-manager form of municipal government. The City Council is composed of a Mayor and four members elected bi-annually at large to four-year alternating terms with the mayor rotating on an annual basis. Positions of City Manager and City Attorney are filled by appointments of the City Council. Indio is the geographic mid point of both Riverside County and the Coachella Valley. It is known as both a desert resort and a major agricultural area. lndio is about 75 miles north of the California-Baja California Mexican border and 120 miles east of the ccnter of the Riverside metropolitan complex and 30 miles southeast of Pahn Springs. It is the halfway point for all the weekly Southern Californians who make the weekend and holiday trips to the Colorado River and the Glamis Off Road recreational facilities. Indio's neighboring communities are La Quinta to the west, unincorporated areas of Riverside County to the south, the City of Coachella to the east and unincorporated Riverside County land to the north. Home of the National Date Festival, Shalimar Sports Center's satellite off-track wagering facility and international polo matches, Indio welcomes tens of thousands of visitors each year. Governmental Services

The City provides a broad range of services to its citizens which include police protection, water service, trash collection, street construction and maintenance, parks and recreation, planning and zoning, housing and community development, building inspection and general and administrative support services. It cooperates with Riverside County in the provision of fire protection and with Coachella Valley Water District for flood control. The Indio Police Department operates from one station and has 49 sworn officers serving the community. The City maintains five parks and the Coachella Valley Recreation District operates a 39,000 square foot comprehensive recreational facility in the City. Transportation Interstate 10 connects lndio with Los Angeles, San Diego and Phoenix, Arizona. 86 and 111 provide access to neighboring communities and Palm Springs. Commercial rail service to lndio is provided by Southern Pacific Railroad. Air cargo and passenger flight services are provided at the Palm Springs International Airport and at nearby Bermuda Dunes and Thermal Airports. Population Table No. B-I summarizes population surrounding cities and Riverside County. growth between 2001 and 2005 for the City of lndio, State Highways

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TABLE NO. B-1 CHANGE IN POPULATION CITY OF INDIO, SURROUNDING CITIES* AND RIVERSIDE 2001 - 2005 INDIO Yea._..._r 2001 2002 2003 2004 2005 Population. 50,464 52,507 55,155 60,175 66,118 Percentage Change SURROUNDING Population 113,040 115,918 120,631 123,309 130,556 CITIES

COUNTY

RIVERSIDE Population 1,590,473 1,654,220 1,726,754 1,807,858 1,877,000

COUNTY Percentage Change

Percentage Chan_e

4.0% 5.0 9.1 9.9

2.5% 4.1 2.2 5.9

4.0/,, 4.4 4.7 3.8

% Change Between 2001 - 2005

31.0%

15.5%

18.0%

* Surrounding cities include Palm Springs, Palm Desert, Indian Wells and Coachella. Source: State of California Department of Finance.

Employment

and Industry

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

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TABLE NO. B-2 RIVERSIDE/SAN BERNARDINO/ONTARIO MSA WAGE AND SALARY WORKERS BY INDUSTRY (in thousands) Industry Government Other Services Leisure and Hospitality Educational and Health Services Professional and Business Services Financial Activities Information Trade, Transportation Service Producing Retail Trade Wholesale Trade Manufacturing Nondurable Goods Durable Goods Goods Producing Construction Natural Resources and Mining Total Nonfarm Farm Total (all industries) and Utilities 2000 192.1 35.0 100.8102.2 97.0 34.8 12.9 212.2 127.4 38.3 34.5 85.6 80.1 1.3 i, 154.2 21.7 1175.9 2001 200.2 37. ! 104.4 !06.0 101.7 38.2 14.6 219.4 132.2 41.6 34.4 84.1 88.4 1.2 1,203.5 20.9 1_224.4 200__.._2 212.7 38.1 !07.2 l 12.4 106.8 39.5 14.1 226.3 137.5 41.9 33.4 82.0 90.9 1.2 1,244.0 20.3 1,_264.3 200_.__33 21 !.6 38.4 109.0 115.8 115.4 42.6 13.9 236.3 142.7 43.5 33.7 82.4 99.0 1.2 1,285.5 20.____33 1305.8 2004 211.5 38.8 l 15.2 117.7 125.2 45.3 13.8 250.4 151.8 44.4 34.5 85.5 110.8 1.2 1,346.1 18.8

Source: State of California Employment Development Department.

The major employers operating within the City and their respective June 30, 2005 area as follows: Name of Employer County of Riverside Fantasy Springs Casino John F. Kennedy Memorial Hospital City of Indio Sears Roebuck & Company Desert Orthopedic Center Super Saver Food Dimare Company Granite Construction GTE Source: City of Indio. 2004 data not yet available. Number of Employees 900 525 445 226 142 115 100 100 100 100

number of employees as of

Product/Service Government Casino Medical Hospital Government Department Store Physical Therapy Grocery Store Farm Produce Concrete Telephone Service

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

RIVERSIDE

TABLE NO. B-3 EFFECTIVE BUYING INCOME COUNTY, CALIFORNIA AND UNITED 1999 - 2003 State of California $39,942 44,464 43,532 42,484 42,924

STATES

Year 1999 2000 2001 2002 2003 Note:

Riverside Count 3' $35,145 39,293 37,480 38,691 39,321

United States $37,233 39,129 38,365 38,085 38,201 areas such as the City of

Personal income data not available for smaller geographical Indio. 2004 data not yet available.

Source: Sales and Marketing Management, "Survey of Buying Power. ""

Commercial Activity The following table summarizes the volume of retail sales and taxable transactions for the City of Indio for 1999 through 2003. TABLE NO. B-4 CITY OF INDIO TOTAL TAXABLE TRANSACTIONS (in Thousands) 1999 - 2003 Total Taxable Retail Sales Transactions Permits ($000%) 496 560 612 699 743 40 l, 104 473,781 531,686 536,126 589,327

Year 1999 2000 2001 2002 2003

Retail Sales ($000%) 318,955 385,117 444,519 450,141 504,197

% Change

% Change

Issued Sales Permits 1,169 1,204 1,250 1,48 I i ,636

20.7% 15.4 1.3 12.0

18.1% 12.2 0.8 9.9

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

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The lbllowing table compares taxable transactions for the City of lndio and surrounding TABLE NO. B-5 CHANGE IN TOTAL TAXABLE TRANSACTIONS INDIO AND SURROUNDING CITIES (in thousands) 1999 - 2003

cities.

City INDIO Palm Springs Palm Desert Indian Wells Coachella

1999 $ 401,104 542,041 1,098,21 ! 63,611 113,485

2000 $ 473,781 601,316 1,217,986 68,599 132,640

200..___1 $ 531,686 623,956 1,211,069 62,958 146,254

200_._._2 $ 536,126 617,260 1,209,385 57,178 155,83 i

2003 $ 589,327 675,487 1,296,730 67,186 176,05 !

% Change 1999 - 2003 46.9% 35.5 40.3 10.9 79.2

Source: State of Calitbrnia Board of Equalization. 2004 data not yet available. Taxable transactions by type of business summarized in Table No. B-6. for the City of Indio tbr 1999 through 2003 are

TAXABLE

TABLE NO. B-6 CITY OF INDIO TRANSACTIONS BY TYPE OF BUSINESS (in thousands) 1999 - 2003 1999 200____00 2O01 2002 2003

Retail Stores Apparel Stores General Merchandise Stores Food Stores Eating/Drinking Places Home Furnishings and Appliances Building Materials and Farm Implements Auto Dealers/Suppliers Service Stations Other retail stores Total Retail Stores All Other Outlets Total All Outlets $ 6,304 48,362 30,749 37,763 9,276 46,350 95,464 24,138 20,549 318,955 82,149 $401:104 $ 8,090 51,256 34,011 42,343 22,404 46,344 130,246 29,073 21,350 385,117 88,664 $473,781 $ 7,651 51,293 36,761 42,707 27,503 43,136 185,893 27,255 22,320 444,519 87,167 $531,686 $ 7,380 48,720 39,208 39,710 30,794 40,158 191,899 27,889 24,383 450,141 85,985 $536.126 $ 7,599 50,580 43,369 43,666 35,800 54,461 206,886 33,789 28,047 504,197 85,130 $589_327

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

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Building Activity The tbllowing table summarizes fiscal years from 2000 through 2004. building activity valuations for the City of indio for the five

BUILDING

TABLE NO. B-7 CITY OF INDIO ACTIVITY AND VALUATION (in thousands) 2000 - 2004 2001 $74,439,017 16,374,150 $90,813,167 200..__.22 $142,813,529 9,085,542 $151,899,071 2003 $230,927,525 9,401,352 $240,328,877 200.___44 $394,347,500 56,330,897 $450,678,397

2000 Total Residential Total Commercial Total Valuation Source: City of lndio. $60,913,897 .26,509,455 $90,423,352

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APPENDIX SUMMARY

OF FISCAL AGENT AGREEMENT

The .fidlowing is a summary c?/"certain provisions _?/ the FLs'cal A_ent Agreement. and is supplemental to the summao," o[ other provisions _?/such document described elsewhere in this Official Statement. This summaJ T does not pmport to be comprehensive or de/initive, and re/erence shouM be made to such document for.lull and complete statement of its provisions. All capitalized terms used but not othelq_'ise de/ined in this Appendix shall have the meanings assigned to such terms in the Fiscal Agent Agreement. DEFINITIONS Unless the context requires, the following terms shall have thc following meanings: "Acquisition and Construction Fund" means the fund by such name created and established pursuant to the Fiscal Agent Agreement. "Act" means the Mello-Roos Community seq. of the California Government Code. Facilities Act of 1982, as amended, Sections 53311 et

"'Administrative Expense Account" means the account by such name in the Special Tax Fund created and established pursuant to the Fiscal Agent Agreement. "Administrative Expense Requirement" Administrative Expenses. means tbr any Fiscal Year, an amount necessar to pay

"Administrative Expenses" means the administrative costs with respect to the calculation and collection of the Special Taxes, including all attorneys' fees and other costs related thereto, the fees and expenses of the Fiscal Agent, any fees for credit enhancement for the Bonds which are not otherwise paid as Costs of Issuance, any costs related to the District's compliance with State and federal laws requiring continuing disclosure of information concerning the Bonds and the District, and any other costs otherwise incurred by the City staff on behalf of the District in order to carry out the purposes of the District as set /brth in the Resolution of Formation and any obligation of the District under the Fiscal Agent Agreement. "Annual Debt Service" means the principal amount of any Outstanding Bonds payable in a Bond Year either at maturity or pursuant to a Sinking Fund Payment and any interest payable on any Outstanding Bonds in such Bond Year, if the Bonds are retired as scheduled. "Alternate Reserve Account Security" means one or more surety bonds, bond insurance policies, or other form of guaranty from a municipal bond insurer for the benefit of the Fiscal Agent meeting the requirements therefor in the Fiscal Agent Agreement in substitution for or in place of all or any portion of the Reserve Requirement. "Authorized Investments" means any of the following which at the time of investment investments under the laws of the State for the moneys proposed to be invested therein: are legal

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

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(2) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the lull faith and credit of the United States of America (stripped securities arc only permitted if they have been stripped by the agency itselt): U.S. Export-Import Bank ("Eximbank") certificates of beneficial ownership

Direct obligations or fully guaranteed Farmers Home Administration ("FmHA")

Certificates of beneficial ownership Federal Financing Bank Federal Housing Administration General Services Administration Participation certificates Government National Mortgage Association ("GNMA" or "Ginnie Mae") GNMA-guarantced GNMA-guaranteed U.S. Maritime Administration Guaranteed Title XI financing U.S. Department of Housing and Urban Development Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures (HUD) mortgage-backed pass-through bonds Debentures ("FHA")

obligations

U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds (3) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself: Federal Home Loan Bank System Senior debt obligations

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Federal llome l_oan Mortgage Corporation Participation certificates Senior debt obligations

('_FHLMC'" or "Freddie Mac")

Federal National Mortgage Association ("FNMA" or "Fannie Mae") Mortgage-backed securities and senior debt obligations ("SLMA" or "Sallie Mae")

Studeni Loan Marketing Association

Senior debt obligations Resolution Funding Corp. ("REFCORP") Farm Credit System CM. - Consolidated obligations system-wide bonds and notes

(4) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm-G", "AAAm" or "AAm", and, if rated by Moody's, rated "Aaa", "Aal" or "Aa2" (including those of the Fiscal Agent and its affiliates). (5) Certificates of deposit secured at all times by collateral described in (1) and/or (2) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral. (6) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC or which are with a bank rated "AA" or better by Standard & Poor's and "Aa" or better by Moody's (including those of the Fiscal Agent and its affiliates). (7) provided that Investment Agreements with any corporation, including banking or financial institutions,

(a) the long-term debt of the provider of any such investment agreement is rated, at the time of investment, at least "AA" and "Aa" by the Rating Agency (without regard to gradations of plus or minus within such category), and (b) any such investment agreement is collateralized with United States Treasury or agency obligations which at least equal 102% of the principal amount invested thereunder, and (c) any such agreement shall include a provision to the effect that, in the event the long-term debt rating of the provider of such agreement is downgraded below "AA-" or below "Aa" by the applicable Rating Agency, the District has the right to withdraw or cause the Fiscal Agent to withdraw all funds invested in such agreement and thereafter to invest such funds pursuant to the Fiscal Agent Agreement. (8) Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's better by Standard & Poor's. and "A-I" or

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

and

(10) Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of"Prime - 1" or "A3" or better by Moody's and "A-1" or "A" or better by Standard & Poor's. (1 l) Repurchase agreements collateralized by FttLMCs with any registered broker/dealer subject to the jurisdiction or any commercial bank insured by the FDIC, if unsecured and unguaranteed obligation rated "P-I" or "A3" Standard & Poor's; provided: Direct Obligations, GNMAs, FNMAs or Securities Investors' Protection Corporation such broker/dealer or bank has an uninsured, or better by Moody's, and "A-I" or "A-" by

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

agreement governs

(b) the securities are held free and clear of any lien by the Fiscal Agent or an independent third party acting solely as agent ("Agent") for the Fiscal Agent, and such .third party is (i) a Federal Reserve Bank, (ii) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $50 million, or (iii) a bank approved in writing for such purpose by Financial Guaranty Insurance Company, and the Fiscal Agent shall have received written confirmation from such third party that it holds such securities, free and clear of any lien, as agent for the Fiscal Agent; and (c) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the Fiscal Agent; and (d) the repurchase agreement has a term of 180 days or less, and the Fiscal Agent or the Agent will value the collateral securities no less frequently than weekly and will liquidate the collateral securities if any deficiency in the required collateral percentage is not restored within two business days of such valuation; and (e) the fair market value of the securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103% (12) (13) Local Agency Investment Fund ("LAIF") of the State of California. Any other investment which the District is permitted by law to make.

"Authorized Representative of the District" means the Mayor, Vice Mayor, City Manager, Finance Director, or any other person or persons designated by the City Council of the City. "Bond Counsel" means an attorney at law or a firm of attorneys selected by the District of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia. "Bond Register" means the books which the Fiscal Agent shall keep or cause to be kept on which the registration and transfer of the Bonds shall be recorded.

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"Bondowner" registered.

or "Owner"

means the person or persons in whose name or names any Bond is

"Bond Year" means the twelve month period commencing on September 2 of each year and ending on September 1 of the following year, except that the first Bond Year for the Bonds shall begin on the Delivery Date and end of the first September 1 which is nol more than 12 months after the Delivery Date. "Business Day" means a day which is not a Saturday or Sunday or a day of the year on which banks in New York, New York, Los Angeles, California, or the city where the corporate trust office of thc Fiscal Agent is located, are not required or authorized to remain closed. "Code" means the Internal Revenue Code of 1986 and any Regulations, rulings, judicial decisions, and notices, announcements, and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it. "Costs of Issuance" means the costs and expenses incurred in connection with the issuance and sale of the Bonds, including the acceptance and initial annual fees and expenses of the Fiscal Agent and its counsel, legal fees and expenses, costs of printing the Bonds and the preliminary and final official statements for the Bonds, fees of financial consultants and all other related fees and expenses, Bonds, as set forth in.a written certificate of an Authorized Representative. "Costs of Issuance Account" means the account by such name in the Acquisition Construction Fund created and established pursuant to the Fiscal Agent Agreement. "Defeasance (a) (b) Government Securities" means any of the following: Cash United States Treasury Certificates, Series -- "SLGS") Notes and Bonds (including State and Local and

"

(c) Direct obligations of the U.S. Treasury which have been stripped by the U.S. Treasury itself, e.g., CATS, TIGRS and similar securities. (d) The interest component of Resolution Funding Corp. strips which have been stripped by request to the Federal Reserve Bank of New York and are in book-entry form. (e) & Poor's. Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard

(f) Obligations issued by the following and credit of the United States: U.S. Export-Import ownership

agencies which are backed by the full faith

Bank - direct obligations or fully guaranteed certificates of beneficial

Farmers Home Administration Federal Financing Bank General Services Administration

- certificates of beneficial ownership

- participation certificates

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U.S. Maritime Administration

- guaranteed Title XI financing

U.S. Department of Housing and Urban Development ([tUD) - Project Notes, Local Authority Bonds, New Communities Debentures - U.S. government guaranteed debentures, U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds. "Delivery Date" means the date on which the Bonds were issued and delivered purchasers thereof. to the initial

"Depository" shall mean The Depository Trust Company, New York, New York, and its successors and assigns as securities depository for the Certificates, or any other securities depository acting as Depository under the Fiscal Agent Agreement. "District" means City of Indio Community Facilities District No. 2004-3 (Terra Lago) established pursuant to the Act and the Resolution of Formation. "Fiscal Agent" means Union Bank of Calitbrnia, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States of America, at its principal corporate trust office in Los Angeles, California, and its successors or assigns, or any other bank or trust company which may at any time be substituted in its place as provided in the Fiscal Agent Agreement and any successor thereto. "Fiscal Agent Agreement" means the Fiscal Agent Agreement, Fiscal Agent Agreement approved pursuant to Article 6 hereof. "Fiscal Year" means the period following June 30. "Improvement beginning on July together with any Supplemental

1 of each year and ending on the next

Area No. l" means Improvement

Area No. l of the District.

"Improvement Area No. 1 Value" means the market value, as of the date of the appraisal or tax roll described below, of all parcels of real property in Improvement Area No. 1 subject to the levy of the Special Taxes and not delinquent in the payment of any Special Taxes then due and owing, including with respect to such non-delinquent parcels the value of the then existing improvements and any facilities to be constructed or acquired with any amounts then on deposit in the Acquisition and Construction Fund, as determined by reference to (i) an appraisal performed within six (6) months of the date of any proposed release of moneys from the Special Escrow Fund by an MAI appraiser (the "Appraiser") selected by the District, or (ii) in the alternative, the assessed value of all such non-delinquent parcels and improvements thereon as shown on the then current County real property tax roll available to the District. The District shall not be liable to the Owners, the Underwriter or any other person or entity in respect of any appraisal provided for purposes of this definition or by reason of any exercise of discretion made by any Appraiser pursuant to this definition. "'Independent Financial Consultant" means a financial consultant or special tax consultant or firm of either such consultants generally recognized to be well qualified in the financial consulting or special tax consulting field, appointed and paid by the District, who, or each of whom: (1) (2) is, in fact, independent and not under the domination of the District;

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

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(3) is not connected with the District as a member, officer or employee of the District, but who may be regularly retained to make annual or other reports to the District. "Interest Account" means the account by such name created and established Fund pursuant to the Fiscal Agent Agreement. in the Special Tax

_qnterest Payment Date" means each March 1 and September l, commencing March 1, 2006; provided, however, that, if any such day is not a Business Day, interest up to the Interest Payment Date will be paid on the next Business Day. "'Investment Agreement" means one or more agreements for the investment of funds of the District complying with the criteria therefor as set forth in Subsection (7) of the definition of Authorized Investments. "Maximum Annual Debt Service" means the maximum sum obtained for any Bond Year prior to the final maturity of the Bonds by adding the following for each Bond Year: (1) the principal amount of all Outstanding maturity or pursuant to a Sinking Fund Payment; and (2) the interest payable on the aggregate Bond Year if the Bonds are retired as scheduled. "Moody's" means Moody's Bonds payable in such Bond Year either at

principal amount of all Bonds Outstanding

in such

Investors Service, its successors and assigns. Taxes minus an amount equal to the Administrative Expense

"Net Taxes" Requirement.

means Special

"Nominee" shall mean the nominee of the Depository, which determined from time to time pursuant to the Fiscal Agent Agreement. "Outstanding" except: (1) Bonds theretofore cancelled or surrendered for cancellation Agent Agreement; or "Outstanding Bonds" means

may be the Depository,

as

all Bonds theretoIbre

issued

by the District,

in accordance with the Fiscal

(2) Bonds for payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Fiscal Agent Agreement; and (3) Bonds which have been surrendered to the Fiscal Agent for transfer or exchange pursuant to the Fiscal Agent Agreement or for which a replacement has been issued pursuant to the Fiscal Agent Agreement. "Participants" shall mean those broker-dealers, banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository. "Person" means natural bodies and other entities. persons, firms, corporations, partnerships, associations, trusts, public

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"'Principal Account" means the account by such name in the Special Tax Fund created and established pursuant to the Fiscal Agent Agreement. "Principal Office of the Fiscal Agent" means the office of the Fiscal Agent located in Los Angeles, California or such other office or offices as the Fiscal Agent may designate from time to time, or the office of any successor Fiscal Agent where it principally conducts its business of serving as Fiscal Agent under indentures pursuant to which municipal or governmental obligations are issued. "'Project" means those public facilities and/or capital fees described in the Resolution of Formation that are to be acquired, constructed or financed within and outside of the District, including all engineering, planning and design services and other incidental expenses related to such facilities and other facilities, if any, authorized by the qualified electors within the District from time to time. 'Project Costs" means the amounts necessary to finance the Project, to create and replenish any necessary reserve funds, to pay the initial and annual costs associated with the Bonds, including, but not limited to, remarketing, credit enhancement, Fiscal Agent and other fees and expenses relating to the issuance of the Bonds and the formation of the District, and to pay any other "incidental expenses" of the District, as such term is defined in the Act. "Rating Agency" means Moody's and Standard & Poor's, or both, as the context requires. "Record Date" means the fifteenth day of the month preceding regardless of whether such day is a Business Day. an Interest Payment Date,

"Redemption Account" means the account by such name created and established Tax Fund pursuant to the Fiscal Agent Agreement. "Regulations" means the regulations adopted or proposed by the Department time to time with respect to obligations issued pursuant to section 103 of the Code. "Representation Letter" shall mean the Blanket Letter of Representations Depository as described in the Fiscal Agent Agreement.

in the Special

of Treasury

from

from the District to the

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

in the Special Tax

"Reserve Requirement" means, as of any date of calculation, an amount equal to the lowest of (1) 10% of the original proceeds of the Bonds, less accrued interest, if any, less original issue discount, if any, plus original issue premium, if any, or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds. The District may originally fund the Reserve Account with an Alternate Reserve Account Security or may at any time substitute an Alternate Reserve Account Security for the cash on deposit in the Reserve Account to satisfy the Reserve Requirement pursuant to the Fiscal Agent Agreement. "Resolution of Formation" means Resolution No. adopted by the City Council of the City on July 20, 2005, pursuant to which the City formed the District. "Sinking Fund Payment" means the annual payment to be deposited in the Redemption Account to redeem a portion of the Term Bonds in accordance with the schedule set forth in the Fiscal Agent Agreement.

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"_Special Taxes" means the taxes authorized to be levied within hnprovement Area No. 1 by the District in accordance with the Resolution of Formation, the Act and the voter approval obtained at the July 20, 2005 election in the District, together with prepayments thereof and the proceeds collected from the sale of property pursuant to the foreclosure provisions of the Fiscal Agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions, and any additional special taxes authorized to be levied by the District from time to time which arc pledged by the District to the repayment of the Bonds. "Special Tax Fund" means the fund by such name created and established pursuant to the Fiscal Agent Agreement. "Standard & Poor's" assigns. "Supplemental Fiscal Agent Agreement" means amending or supplementing the Fiscal Agent Agreement. any supplemental fiscal agent agreement means Standard & Poor's, a division of McGraw-Hill, its successors and

"Surplus Fund" means the fund by such name created Agent Agreement.

and established

pursuant to the Fiscal

"Tax Certificate" means the certificate by that name to be executed by the District on a Delivery Date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code. "Underwriter" means the institution or institutions, purchase contract for the sale of the Bonds. "Written Representative. Request of the District" means if any, with whom the District enters into a

a request

in writing

executed

by an Authorized

INVESTMENTS Moneys held in any of the funds and accounts under the Fiscal Agent Agreement shall be invested at the Written Request of the District in accordance with the limitations set forth below only in Authorized Investments which shall be deemed at all times to be a part of such funds and accounts. Any loss resulting from such Authorized Investments shall be credited or charged to the fund or account from which such investment was made, and any investment earnings on a fund or account shall be applied as follows: (i) investment earnings on all amounts deposited in the Special Tax Fund (other than the Reserve Account), Acquisition and Construction Fund and Surplus Fund and each Account therein shall be deposited in those respective funds and accounts, and (ii) all other investment earnings shall be deposited in the Interest Account of the Special Tax Fund; provided, however, investment earnings in the Reserve Account shall be deposited in the Interest Account of the Special Tax Fund only to the extent moneys in such Reserve Account exceed the Reserve Requirement. Moneys in the funds and accounts held under the Fiscal Agent Agreement may be invested by the Fiscal Agent at the Written Request of the District received at least 2 Business Days prior to the investment date, from time to time, in Authorized Investments subject to the following restrictions: (1) Moneys in the Interest Account, the Principal Account and the Redemption Account of the Special Tax Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on such dates so

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as to ensure the payment of principal ot; premium, if ally, and interest on the Bonds as the same become due. (2) Moneys in the Acquisition and Construction Fund shall be invested in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available without penalty, as close as practicable to the date the District estimates the moneys represented by the particular investment will be needed for withdrawal from the Acquisition and Construction Fund. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, amounts in the Acquisition and Construction Fund on the Delivery Date for the Bonds shall not be invested at yields greater than those set forth in the Tax Certificate. (3) One-half of the amount in the Reserve Account of the Special Tax Fund may be invested only in Authorized Investments which mature not later than two years from their date of purchase by the Fiscal Agent, and one-half of the amount in the Reserve Account may be invested only in Authorized Investments which mature not more than three years from the date of purchase by the Fiscal Agent; provided that such amounts may be invested in an Investment Agreement to the final maturity of the Bonds so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with the Fiscal Agent Agreement; and provided that no such Authorized Investment of amounts in the Reserve Account shall mature later than the respective final maturity date of the Bonds. (4) In the absence of Written Request of the District providing investment directions, the Fiscal Agent shall invest solely in Authorized Investments specified in clause (4) of the definition thereof. The Fiscal Agent shall sell at the best price obtainable, or present for redemption, any Authorized Investment whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such Funds and Accounts or from such Funds and Accounts. For the purpose of determining at any given time the balance in any such Funds and Accounts, any such investments constituting a part of such Funds and Accounts shall be valued at their cost, except that amounts in the Reserve Account shall be valued at the fair market value thereof and marked to market at least annually. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, the Fiscal Agent shall not be responsible for any loss from investments, sales or transfers undertaken in accordance with the provisions of the Fiscal Agent Agreement. The Fiscal Agent may act as principal or agent in connection with the acquisition of any Authorized Investments. Any Authorized Investments that are registrable securities shall be registered in the name of the Fiscal Agent. The Fiscal Agent is authorized, in making or disposing of any investment permitted by the Fiscal Agent Agreement, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Fiscal Agent or for any third person or dealing as principal for its own account. COVENANTSAND WARRANTY

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

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(1) Punctual Payment; Against Encumbrances. The District covenants that it will receive all Special Taxes in trust and will immediately deposit such amounts with the Fiscal Agent, and the District shall have no beneficial right or interest in the amounts so deposited except as provided by the Fiscal Agent Agreement. All such Special Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth in the Fiscal Agent Agreement, and shall be accounted tbr separately and apart from all other money, funds, accounts or other resources of the District. The District covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every Bond issued under the Fiscal Agent Agreement, together with the premium, if any, thereon on the date, at the place and in the manner set forth in the Bonds and in accordance with the Fiscal Agent Agreement to the extent that Net Taxes are available therefor, and that the payments into the Funds and Accounts created under the Fiscal Agent Agreement will be made, all in strict conformity with the terms of the Bonds and the Fiscal Agent Agreement, and that it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Fiscal Agent Agreements and of the Bonds issued under the Fiscal Agent Agreement. The District will not mortgage or otherwise encumber, pledge or place any charge upon any the Net Taxes except as provided in the Fiscal Agent Agreement, and will not issue any obligation security having a lien or charge upon the Net Taxes superior to or on a parity with the Bonds. Nothing the Fiscal Agent Agreement shall prevent the District from issuing or incurring indebtedness which payable from a pledge of Net Taxes which is subordinate in all respects to the pledge of Net Taxes repay the Bonds. of or in is to

(2) Levy_of Special Tax. Beginning in Fiscal Year 2006-07 and so long as any Bonds issued under the Fiscal Agent Agreement are Outstanding, the legislative body of the District covenants to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement. (3) Commence Foreclosure Proceedings. The District covenants for the benefit of the Owners of the Bonds that it (i) will commence judicial foreclosure proceedings against all parcels owned by a property owner where the aggregate delinquent Special Taxes on such parcels is greater than $5,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes were due and (ii) will commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied for such Fiscal Year, and (iii) will diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid; provided, however, that the District may elect to defer foreclosure proceedings on any parcel so long as the amount in the Reserve Account of the Special Tax Fund is at least equal to the Reserve Requirement and such delinquencies will not cause moneys in the Reserve Account to be withdrawn on the next succeeding Interest Payment Date. The District may, but is not obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Account of the Special Tax Fund at the Reserve Requirement. The District covenants Fund. (4) Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Net Taxes or; other funds in the Special Tax Fund (other than the Administrative Expense Account therein), or which might impair the security of the Bonds then Outstanding; provided that nothing contained in the Fiscal Agent that it will deposit the proceeds of any foreclosure in the Special Tax

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Agreement shall require the District to make any such payments so long as the District in good faith shall contest the validity of any such claims. (5) Books and Accounts. The District will keep proper books of records and accounts, separate from all other records and accounts of the District, in which complete and correct entries shall be made of all transactions relating to the levy of the Special Tax and the deposits to the Special Tax Fund. Such books of records and accounts shall at all times during business hours be subject to the inspection of the Fiscal Agent or of the Owners of the Bonds then Outstanding or their representatives authorized in writing. (6) Tax Covenants. The District covenants that it shall take all actions necessary in order that interest on the Bonds be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes, and that it shall not use or invest, and shall not permit the use or investment ot, and shall not omit to use or invest Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes. (7) Reduction of Maximum Special Taxes. The District finds and determines that, historically, delinquencies in the payment of special taxes authorized pursuant to the Act in community facilities districts in Southern California have from time to time been at levels requiring the levy of special taxes at the maximum authorized rates in order to make timely payment of principal of and interest on the outstanding indebtedness of such community facilities districts. For this reason, the District determines that a reduction in the maximum Special Tax rates authorized to be levied on parcels in the District below the levels provided in the Fiscal Agent Agreement would interfere with the timely retirement of the Bonds. The District determines it to be necessary in order to preserve the security for the Bonds to covenant, and, to the maximum extent that the law permits it to do so, the District does covenant, that it shall not initiate proceedings to reduce the maximum Special Tax rates for the District, unless, in connection therewith, (i) the District receives a certificate from one or more Independent Financial Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in the District as of the July 1 preceding the reduction, the maximum amount of the Special Tax which may be levied on then existing Developed Property (as defined in the Rate and Method of Apportionment of Special Taxes then in effect in the District) in each Bond Year for any Bonds Outstanding will equal at least 110% of the sum on the estimated Administrative Expenses and gross debt service in that Bond Year on all Bonds to remain Outstanding after the reduction is approved, and (ii) the District finds that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds. For purposes of estimating Administrative Expenses for the foregoing calculation, the Independent Financial Consultant shall compute the Administrative Expenses for the current Fiscal Year and escalate that amount by two percent (2%) in each subsequent Fiscal Year. (8) Covenants to Defend. The District covenants that in the event that any initiative is adopted by the qualified electors in the District which purports to reduce the maximum Special Tax below the levels specified in the Fiscal Agent Agreement or to limit the power of the District to levy the Special Taxes for the purposes set forth in the Fiscal Agent Agreement, it will commence and pursue legal action in order to preserve its ability to comply with such covenants. (9) Limitation on Right to Tender Bonds. The District covenants that it will not adopt any policy pursuant to Section 53341.1 of the Act permitting the tender of Bonds to the District in full payment or partial payment of any Special Taxes.

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(10) Continuing Disclosure. The District covenants to comply with the term of the Continuing Disclosure Agreement executed by it with respect to the Bonds. AMENDMENTS TO FISCAL AGENT AGREEMENT

Supplemental Fiscal Agent Agreements or Orders Not Requiring Bondowner Consent. The District may from time to time, and at any time, without notice to or consent of any of the Bondowners, adopt Supplemental Fiscal Agent Agreements for any of the following purposes: (1) to cure any ambiguity, to correct or supplement any provisions in the Fiscal Agent Agreement which may be inconsistent with any other provision in the Fiscal Agent Agreement, or to make any other provision with respect to matters or questions arising under the Fiscal Agent Agreement or in any additional resolution or order, provided that such action is not materially adverse to the interests of the Bondowners; (2) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in the Fiscal Agent Agreement, other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with the Fiscal Agent Agreement as theretotbre in effect or which further secure Bond payments; (3) to modify, amend or supplement the Fiscal Agent Agreement in such manner as to permit the qualification of the Fiscal Agent Agreement under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, or to comply with the Code or regulations issued thereunder, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Owners of the Bonds then Outstanding; or (4) to modify, alter or amend the rate and method of apportionment of the Special Taxes in any manner so long as such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the District to an amount which is less than that permitted under the Fiscal Agent Agreement; or (5) to modify, alter, amend or supplement which is not materially adverse to the Bondowners. the Fiscal Agent Agreement in any other respect

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

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District shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplemcmal Fiscal Agent Agreement. The Fiscal Agcnt shall, at the expense of the District, cause notice of the proposed Supplemental Fiscal Agent Agreement to be mailed, by first class mail, postage prepaid, to all Bondowners at their addresses as they appear in the Bond Register. Such notice shall briefly set forth the nature of the proposed Supplemental Fiscal Agent Agreement and shall state that a copy thereof is on file at the office of the Fiscal Agent for inspection by all Bondowners. The failure of any Bondowners to receive such notice shall not affect the validity of such Supplemental Fiscal Agent Agreement when consented to and approved by the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding as required by the Fiscal Agent Agreement. Whenever at any time within one year after the date of the first mailing of such notice, the Fiscal Agent shall receive an instrument or instruments purporting to be executed by the Owners of a majority in aggregate principal amount of the Bonds Outstanding, which instrument or instruments shall refer to the proposed Supplemental Fiscal Agent Agreement described in such notice, and shall specifically consent to and approve the adoption thereof by the District substantially in the form of the copy referred to in such noticc as on file with the Fiscal Agent, such proposed Supplemental Fiscal Agent Agreement, when duly adopted by the District, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the Bonds have consented to the adoption of any Supplemental Fiscal Agent Agreement, Bonds which are owned by the District or by any person directly or indirectly contrg!ling or controlled by or under the direct or indirect common control with the District shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination. Upon the adoption of any Supplemental Fiscal Agent Agreement and the receipt of consent to any such Supplemcntal Fiscal Agent Agreement from the Owners of not less than a majority in aggregate principal amount of the Outstanding Bonds in instances where such consent is required pursuant to the provisions of the Fiscal Agent Agreement, the Fiscal Agent Agreement shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Fiscal Agent Agreement of the District and all Owners of Outstanding Bonds shall thereafter be determined, exercised and enforced under the Fiscal Agent Agreement, subject in all respects to such modifications and amendments. Notation of Bonds; Delivery of Amended Bonds. After the effective date of any action taken as provided in the Fiscal Agent Agreement, the District may determine that the Bonds may bear a notation, by endorsement in form approved by the District, as to such action, and in that case upon demand of the Owner of any Outstanding Bond at such effective date and presentation of his Bond for the purpose at the office of the Fiscal Agent or at such additional offices as the Fiscal Agent may select and designate for that purpose, a suitable notation as to such action shall be made on such Bonds. If the District shall so determine, new Bonds so modified as, in the opinion of the District, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Outstanding Bond at such effective date such new Bonds shall be exchanged at the office of the Fiscal Agent or at such additional offices as the Fiscal Agent may select and designate for that purpose, without cost to each Owner of Outstanding Bonds, upon surrender of such Outstanding Bonds. EVENTS OF DEFAULT; REMEDIES Events of Default. default": (a) Default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; Any one or more of the following events shall constitute an "event of

C-14

(b) Default in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; or (c) Except as described in (a) or (b), default shall be made by the District in the observance of any of the agreements, conditions or covenants on its part contained in the Fiscal Agent Agreement or the Bonds, and such default shall have continued for a period of 30 days after the District shall have been given notice in writing of such default by the Fiscal Agent or the Owners of 25% in aggregate principal amount of the Outstanding Bonds. The District agrees to give notice to the Fiscal Agent immediately upon the occurrence of an event of default under (a) or (b) above and within 30 days of the District's knowledge of an event of default under (c) above. The Fiscal Agent shall not be deemed to have knowledge of any event of default described in (c) above unless a responsible officer shall have actual knowledge thereof or the Fiscal Agent shall have received written notice at its Principal Office. Remedies of Owners. Following the occurrence of an event of default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated: (1) By mandamus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the members, officers and employees of the District, and to compel the District or any suchmembers, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in the Fiscal Agent Agreement; (2) By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or (3) By a suit in equity to require the District and its members, officers and employees account as the fiscal agent of an express trust. to

Nothing in the Fiscal Agent Agreement, the Bonds shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners thereof at the respective dates of maturity, as provided in the .Fiscal Agent Agreement, out of the Net Taxes and other amounts pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in the Fiscal Agent Agreement. A waiver of any default or breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the Act or by the Fiscal Agent Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners. If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the District and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. No remedy in the Fiscal Agent Agreement conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given under the Fiscal Agent Agreement or now or hereafter existing, at law or in

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

and without regard to any

In case the moneys held by the Fiscal Agent after an event of default pursuant to (a) or (b) above shall be insufficient to pay in full the whole amount so owing and unpaid upon the Outstanding Bonds, then all available amounts shall be applied to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. DEFEASANCE Defeasance. If the District shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in the Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement, then the Owner of such Bond shall cease to be entitled to the pledge of Net Taxes, and, other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond under the Fiscal Agent Agr6ement shall thereupon cease, terminate and become void and be discharged and satisfied. In the event of a defeasance of all Outstanding Bonds pursuant to the Fiscal Agent Agreement, the Fiscal Agent shall execute and deliver to the District all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay over or deliver to the. District's general fund all money or securities held by it pursuant to the Fiscal Agent Agreement which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds. Any Outstanding Bond shall be deemed to have been paid if such Bond is paid in any one or more of the following ways: (a) by paying or causing to be paid the principal-of, such Bond, as and when the same become due and payable; premium, if any, and interest on

(b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; or (c) by depositing with the Fiscal Agent or another escrow bank appointed by the District, in trust, noncallable Defeasance Securities, in which the District may lawfully invest its money, in such amount as will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; then, at the election of the District, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the District under the Fiscal Agent Agreement and any Supplemental Fiscal Agent Agreement with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District contained in certain section of the Fiscal Agent Agreement or any covenants in a Supplemental Fiscal Agent Agreement relating to compliance with the Code. Notice of such election shall be filed with the Fiscal Agent not less than ten days prior to the proposed defeasance date, or such shorter period of time as may

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be acceptable to the Fiscal Agent. In connection with a defcasance under (b) or (c) above, there shall be provided to thc District a verification report from an independent nationally recognized certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank to pay and discharge the principal ot, premium, if any, and interest on all Outstanding Bonds to be defeased in accordance with the Fiscal Agent Agreement, as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased m accordance with the Fiscal Agent Agreement and any applicable Supplemental Fiscal Agent Agreement. If a forward supply contract is employed in connection with an advance refunding to be effected under (c) above, (i) such verification report shall expressly state that the adequacy of the amounts deposited with the bank under (c) above to accomplish the refunding relies solely on the initial escrowed investments and the maturity principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and (ii) the applicable escrow agreement executed to effect an advance refunding in accordance with (c) above shall provide that, in the event of any discrepancy or difference between the terms of the forward supply contract and the escrow agreement, the terms of the escrow agreement shall be controlling. Upon a defeasance, the Fiscal Agent, upon request of the District, shall release the rights of the Owners of such Bonds which have been defeased under the Fiscal Agent Agreement and any Supplemental Fiscal Agent Agreement and execute and deliver to the District all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance under the Fiscal Agent Agreement of all Outstanding Bonds, the Fiscal Agent shall pay over or deliver to the District any funds held by the Fiscal Agent at the time of a defeasance, which are not required for the purpose of paying and discharging the principal of, premium, if any, or interest on the Bonds when due. The Fiscal Agent shall, at the written direction of the District, mail, first class, postage prepaid, a notice to the Bondowners whose Bonds have been defeased, in the tbrm directed by the District, stating that the defeasance has occurred.

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APPENDIX D APPRAISAL REPORT

D-l

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APPRAISAL
COMMUNITY

REPORT
NO. 2004-3

FACILITIES DISTRICT CITY OF INDIO INDIO, CALIFORNIA

PREPARED

FOR:

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

PREPARED BY: WILLIAM V. SHREWSBURY, MAI/SENIOR VICE PRESIDENT JAI]_IE Z. BASSO/ASSOCIATE APPRAISER FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES APPRAISAL AND VALUATION DIVISION 1217 EAST NORMANDY PLACE SANTA ANA, CALIFORNIA 92705 PH: (714) 564-8982 / FAX: (714) 564-8985 DATE OF VALUE: JUNE 17, 2005 DATE OF REPORT: JULY 15, 2005 Copyright 2005byFirstAmericanCommercialReal EstateServicesAppraisaland Valuation Division.. All fights reserved. Unlesswith the priorwrittenpermissionof FirstAmericanCommercial RealEstate ServicesAppraisaland ValuationDivision,no partmaybe reproduced, recorded, storedin a database or retrievalsystemor transmitted by electronic, photocopyor any other means,whetherin eye-readable or machine-readable form.microfilmor otherwise.

Commercial
July 15, 2005

ReM tate

Services;Inc.
File No. 614

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

Re:

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

Dear Mr. Stephenson: In response to your authorization, we have prepared the following narrative appraisal report concerning the market value of the fee simple interest in the above-referenced real estate. Based on the investigation and analyses undertaken, our experience as real estate appraisers and subject to the definitions, assumptions and limiting conditions contained in this appraisal report, the following opinions have been formed based on the current market data as of June 17, 2005.

The estimated value of the residential parcels, discounted for the time and cost of absorption, assuming the proposed Community Facilities District No. 2004-3 financing is in place and ready for funding, is as follows: SEVENTY ONE MILLION $71,000,000 DOLLARS

Mr. Roy Stephenson July 15, 2005 Page Two The definitions of value are as such: Market Value As-ls: Means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions or qualifications as of the date of inspection. Market Value: Means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) (2) (3) (4) (5) Buyer and seller are typically motivated; Both parties are well informed or well advised and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

The narrative appraisal report which follows sets forth the results of our investigations and analyses, pertinent facts about the area and the property, comparable data and the reasoning which, in part, led to the conclusions set forth. This report is intended to be in conformance with and is subject to the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute, the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and in compliance with CDIAC appraisal guidelines. Respectfully submitted,

William V. Shrewsbury, MAI Senior Vice President California OREA License No. AG004522

A_ociate A'lSpraiser California OREA License No. AT031532 WVS:pa

SUMMARY

OF SALIENT FACTS AND CONCLUSIONS

EFFECTIVE INTEREST

DATE OF APPRAISAL: APPRAISED:

June 17, 2005 Fee simple. See page 13 of this report See page 13 of this report Five tracts (zones) of land to be developed under Community Facilities District No. 2004D.

LEGAL DESCRIPTION: OWNERSHIP: SITE:

PA PA PA PA PA

1: 2: 3: 4: 5:

Tract Tract Tract Tract Tract

No. No. No. No. No.

31601-2 31601-3 31601-4 31601-5 31601-5

(178 Lots) (128 Lots) (86 Lots) (133 Lots) (110 Lots) 635 LOTS

TOTAL

LOCATION: ASSESSOR'S PARCEL NOS.:

Various parcels described in the report herein located in the City of Indio. CFD 2003-4 is comprised of Assessor's Parcel Numbers 601-290-003, 601-290-008 and portions of601-270-013,601-270-015, and 601-270-006.

THOMAS

BROTHERS

GRID:

Riverside County, B5, and B6

5410-H5 and 5411-A5, A6,

SITE: -Shape: -Earthquake Hazard: -Flood Hazard: -Environmental Issues: -Zoning: -Taxes: ADVANTAGES OF SUBJECT: OF SUBJECT:

Five separate tracts of land. Irregular None. See Site Description in this report. See Site Description in this report. Various residential uses. See Site Description in this report. See Property Tax Summary. Good location within a strong developing area of Indio and surrounding desert communities. None apparent.

DISADVANTAGES

FIRST AMERICAN COMMERCIAL REAL ESTATE 1217 NOR.;.\LkNDY PLa, CE eS.LNTA _MNA, CALIFORNL-k

SERVICES -- APPRAISAL AND EVALUATION 92705e PHONE 714.580-7056 F.MX. 714.550-7057

 MARKETABILITY TYPICAL BUYER:

FOR SALE/

The most likely purchaser of the subject site is a large developer interested in bulk purchase of the entire parcel. The 10 Freeway Corridor, the City of Indio and the surrounding desert communities.

MAJOR AREA INFLUENCE:

HIGHEST AND BEST USE: -"As Is" Vacant: Developed as set forth in the proposed Master Plan for the Community Facilities District 20043. $71,000,000

FINAL VALUE ESTIMATE: Discounted Bulk Value

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TABLE OF CONTENTS

TRANSMITTAL SUMMARY

LETTER

................................................. ................................

2 4 6 8 8 8 8 8 9 9 9 11 12 12 13 13 13 14 14 21 24 25 25 25 25 27 27 27 27 27 27 28 28 28 28 29 29 29 29

OF FACTS AND CONCLUSIONS

TABLE OF CONTENTS

...................................................

INTRODUCTION ......................................................... Purpose of the Report .................................................. Intended Use of the Report ............................................. Intended Users of the Report ............................................ Scope of the Appraisal ................................................. Dates of Inspection and Valuation ........................................ Statement of Work Product/Dates of Report Preparation ...................... Premises, Assumptions and Limiting Conditions ............................ Special Limited Conditions ....... . .................................... Definitions and Reporting Standards. .................................... Property Rights Appraised ............................................. Property Identification .............................. _.................. Ownership ......................................................... Legal Description .................................................... AREA DESCRIPTION .................................................... Riverside County Overview ............................................ City of Indio ........................................................ Summary .......................................................... NEIGHBORHOOD DATA ................................................. Immediate Surroundings/Neighborhood .................................. Primary Neighborhood Access and Secondary Routes ....................... Distances and Directions from the Subject Neighborhood to Major Business Districts ........................................... SITE DATA ................ ............................................. Site Analysis ....................................................... Location ........................................................... Important Site Characteristics .......................................... Ingress/Egress and Exposure ........................................... Utilities and Services Available to the Subject Properties' Neighborhood Size and Shape ...................................................... Adjacent Properties .................................................. Topography ........................................................ Proposed Uses ...................................................... Soil and Subsoil Conditions ............................................ Earthquake, Flood, and Other Nuisances and Hazards .................... Street Improvements ................................................. Easements, Restrictions and Encroachments ...............................

........

...

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Essential Zoning Provisions ............................................ CC&Rs/Private Restrictions, Governing Use .............................. Functional Adequacy of Site ........................................... Tax and Assessment Data ............................................. MARKET CONDITIONS .................................................. Physical and Locational Considerations .................................. Legal Considerations ............... . ................................. Market Feasibility ................................................... Discounting ........................................................ HIGHEST AND BEST USE ................................................ Highest and Best Use -- As Vacant ..................................... VALUATION METHODOLOGY ........................................... Basis of Valuation ................................................... Valuation Approaches ................................................ DIRECT COMPARISON APPROACH ...................................... Introduction ........................................................ Analysis of Comparable Sales .......................................... Single-Family Residential Land Sales Comparison Approach Analysis .......... Reconciliation of Finished Lots Value Concluded Land Value ................. DEVELOPMENTAL ANALYSIS ........................................... Absorption ......................................................... General, Administrative, Taxes, Development Costs, Profit and Marketing Costs ............................................ Discount Rate ....................................................... DISCOUNTED CASH FLOW ANALYSIS ...................................

29 29 29 29 37 37 38 38 42 44 45 48 48 48 49 49 50 56 58 59 59 59 60 62 67 68 69 71 70

SUMMARY OF VALUATIONS VALUATION

............................................

SUMMARY ................................................. ........................................................ .........................................

CERTIFICATION APPRAISER'S

QUALIFICATIONS

ADDENDUM ............................................................ -Absorption Study

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INTRODUCTION

purpose of the Report The purpose of this report is to estimate the market value of the fee simple interest in the following described real estate, subject to special tax levies pursuant to the Community Facilities District Act of 1982, under the following valuation premises: The estimated "as is" value of the residential acreage discounted absorption, assuming the proposed CFD funding is in place. for the time and cost of

The estimated retail market value of the subject property, assuming Financing has been funded. Intended Use of the Report

the proposed

CFD

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

Scope of the Appraisal As a part of this appraisal, the appraisers made a number of independent investigations and analyses. Only the Direct Comparison Approach and a form of the Income Approach, known as the Discounted inapplicable. 1. 2. 3. 4. Cash Flow Analysis, have been utilized. The Cost Approach was felt The investigations and analyses undertaken include the following:

Review of area demographic and economic information. Review and analysis of the market activity for the various components of the subject property as well as the market for master planned communities. Accumulation and confirmation of land sales similar in use to the parcels comprising the subject property. Discussions with City planners, buyers, developers and other knowledgeable persons in the area. fully documented narrative appraisal

All conclusions reached are presented in a self-contained,

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

The data used in this report was collected, verified and analyzed by William V. Shrewsbury, MAI. This report was prepared between the dates of June 1, 2005 and July 15, 2005. Premises, Assumptions limiting conditions.
The valuation of the subject property is based, in part, on the conceptual specific land use plan proposed by the various developers. It is further assumed that all governmental approvals have been granted to allow such a plan. The "as is" condition is based upon the project being developed as defined in this report. We reserve the right to alter the conclusion of the estimated values contained in this report in the event that any change in the development costs occur or there is a change in the specific land use plan as to the number of dwelling units or acreage for any one ofthe defined land uses. The value contained in this report is further conditioned upon the project being developed as defined within the body of the Community Facilities District 2004:3. We assume no responsibility for matters legal in character, nor do we render any opinion as to title which is assumed to be good and marketable, and that the premises are assumed to be free and clear of all deeds of trust, leases, use restrictions and reservations, covenants, conditions, easements, cases or actions pending, tax liens and bonded indebtedness (unless otherwise specified). No survey, legal or engineering analysis of this property has been made by me. It is assumed that the legal description and area computations furnished are reasonably accurate. In the absence of a survey, no opinion is made nor responsibility taken for encroachments or undisclosed easements (if any). A current soils report was not furnished to this appraiser for review. Therefore, we assume that the soil conditions at the subject site are suitable for the existing development. This appraisers reserve the right to alter his conclusions of value if so warranted by a soils report for the subject property. Oil, gas, mineral rights and subsurface rights were not considered in making this appraisal unless otherwise stated and are not a part of the appraisal, if any exist. This appraisers will not be required to give testimony or attendance in court or any other governmental hearing by reason of this appraisal unless arrangements have previously been made. In the event this appraiser is subpoenaed for a deposition,j udicial or administrative proceeding and is ordered to produce this appraisal report and files, this appraiser will immediately notify the employer. This report has not been prepared for court testimony nor is the undersigned prepared for such testimony at this time. If court testimony becomes necessary, advance arrangements will have to be made and reasonable compensation for such additional services would have to be mutually agreed upon. The liability of First American Commercial Real Estate Services Inc. is limited to the client and to the fee actually received. There is no accountability, obligation or liability to any third party. If this report is placed in the hands of anyone other than the client, the client is responsible for making such third party aware of all limiting conditions and assumptions of the assignment and related discussions.

and Limiting Conditions and

The analyses and opinions set forth in this report are subject to the following assumptions

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First American Commercial Real Estate Services, Inc. is not responsible for any costs incurred to discover or correct any deficiencies of any type in the subject property; physical, financial and/or legal. The client agrees that First American Commercial Real Estate Services Inc. and the analysts will be held harmless in the case of lawsuits involving limited partnerships, syndication or stock offerings in real estate (brought on by a lender, partner or part-owner, tenant or any other party), and the client will pay any and all awards, settlements of any type, regardless of the outcome. It has been assumed that the subject improvement suffers no structural damage or termite infestation and that Urea-Formaldehyde Foam (UFFI), asbestos or other hazardous materials may have been used in its construction. It is the responsibility of the client, lender or user of this report to check for these items. These appraisers will appear at the deposition, judicial or administrative hearing with his appraisal report and filesand will answer all questions unless the employer provides the appraiser with legal counsel who then instructs him/her not to appear, instructs him/her not to produce certain documents or instructs him/her not to answer certain questions. These instructions will be overridden by proper court order which the appraisers will follow if legally required to do so. It shall be the responsibility of the employer to obtain a protective order. The appraisers assume no responsibility for any conditions not readily observable from his/her related customary inspection of the subject and which might affect the valuation excepting those items specifically mentioned in this report. No opinion is intended to be expressed regarding matters that require legal expertise or specialized investigation or knowledge beyond that customarily employed by the real estate appraiser. The date of value, for which the opinions of value are expressed in this report, is June 17, 2005. The dollar amount of this value opinion is based on the purchasing power of the United States dollar on that date. These appraisers assume no responsibility for changes in economic or physical conditions occurring after the date of this report that may affect the valuation opinion stated in this report. Maps, plats and exhibits included herein are for illustration only, as an aid for the reader in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced or used apart from this report. No consideration has been given in this appraisal to personal property located on the premise; only the real estate has been considered unless otherwise specified. Information contained in this report has been gathered from sources which are believed to be reliable and. where feasible, has been verified. No responsibility is assumed for the accuracy of information supplied by others. Area calculationsand dimensions used arefor relative appraisalcomparison purposes only. There is no such thing as a completely exact measurement and definitions can vary. Any sketch or identified survey of the property included in this report is only for the purpose of assisting the reader to visualize the property. This opinion of value is intended to be an opinion of value for a point estimate of time only. These appraisers, in rendering this opinion, assume no responsibility for subsequent management, economic or physical factors which may or may not affect said conclusions or opinion. The allocation of total value to land or to buildings, if shown in this report, is invalidated if used separately in conjunction with any other appraisal and, ifa lease or partial interest valuation is given, the sum of the parts may or may not equal the entire fee simple interest in the real estate. This appraisers estimate that the marketing time to sell the property is within 12 months. The estimated income and expense estimates used in the Discounted Cash Flow Section do not constitute an audit of this project and should not be misconstrued as such. Estimated income and expenses shown are for appraisal purposes only and represent a combination ofjudgments based on marketing data, experience and estimated expenses. Expenses and income used are to be considered stabilized; actual income and expenses may be different In this appraisal assignment, the existence ofpotentiaUy hazardous materials and/or existence of toxic waste, which may or may not be present on the property, has not been cunsidered. This appraiser has not been notified of the existence of any such items; however, the appraiser is not qualified to detect such substances. It is suggested that the reader consult with a qualified expert in the field for the possible presence of such materials and the potential cost of correction, if found.

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Flood zones have either been confirmed with the county or city of the property. If the flood zone has not been confirmed with the city, then the flood zone has been researched by looking at the National Flood Insurance Program's FIRM (Flood Insurance Rate Map). Although the FIRM panel has been researched, We are not a flood engineer and bear no responsibility for its accuracy. If there is any question as to the validity of the FIRM panel, then I suggest that the client do an independent search, confirming the subject and panel with the National Flood Insurance Program in Washington, D.C. The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible noncompliance with requirements of ADA in estimating the value of the property. The signatory of this appraisal report is a member of the Appraisal Institute and is licensed by the State of California. The Bylaws and Regulations of the Institute require each member and candidate to control the uses and distribution of each appraisal report signed by such member or candidate. Therefore, except as hereinafter provided, the party for whom this appraisal report or evaluation was prepared may distribute copies of this appraisal or evaluation report in its entirety to such third parties as may be selected by the party for whom this appraisal report was prepared. However, selected portions of this appraisal report shall not be given to third parties without the prior written consent of the signatory of this appraisal report. (Nothing is to be removed, particularly conclusions of value. The entire report is to be presented at all times.) Further, neither all nor any part of this appraisal report shall be disseminated to the general public by the use of advertising media, public relations media, news media, sales media or other media for public communication without the prior written consent of the signatory of this appraisal report, particularly as to value conclusions, the identity of the appraiser or any reference to the Appraisal Institute or to the designations granted by the organization. Any future seismic earthquakes in the Southland may have a detrimental influence upon value. We have examined the property from the exterior to see if there are any structural problems. As a result, we cannot say whether the structure has been affected by any earthquakes. In addition, we do not know whether this structure can withstand another earthquake. Since we have no direct evidence relating to this issue, we did not consider possible structural damage in estimating the value of the property. Acceptance of and/or use of this report by the client or any third party constitutes acceptance of the above conditions. First American Commercial Real Estate Services Inc. and the analysts' liability extends only to the stated client, not subsequent parties or users, and is limited to the amount of the fee received. The appraisers assume that the flood information provided by the County of Riverside is accurate; however, if it is different, then the appraiser does not take responsibility.

Special Limited Conditions It should be noted that considerable weight has been considered in the absorption assumptions contained in the Market Absorption Study CFD 2004-3, City oflndio, dated July 2005, prepared by Market Profiles. Absorption assumptions set forth in the report call for the sale of finished or investors who Also, the land development costs furnished by SunCal the tract within the CFD We reserve the right to cost estimates.

properties to "end users." Our estimate refers to the sale of lots to developers will ultimately sell off to "end users." Companies represent the costs estimated at this time for developing 2004-3 development. Our value estimates reflect these assumptions.

amend our value estimate should they amend their absorption and/or development Definitions and Reporting Standards

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

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term "highest and best use" is defined in that section of this report. In addition, other standards are presented with respect to "personal property" and "self-contained
Market Value _ Means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (!) (2) (3) (4) (5) Market Value As-ls Means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions or qualifications as of the date of inspection, z Fee Simple Estate 3 Absolute ownership government. Cash Equivalency Definition unencumbered by any other interest or estate subject only to the four powers of Buyer and seller are typically motivated; Both parties are well informed or well advised and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. Dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

appraisals."

The definition of market value contains within it the concept of cash equivalency. The following paragraph elaborates on this concept as contained within the definition of market value used by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC): In applying this definition of market value, adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs that are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third-party financial institution that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession, but the dollar amount of any adjustment should approximate the market's reaction to the financing or concessions based on the appraiser's judgement?

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

1Officeof the Comptroller of the Currency under 12 CFR, Part 34, Subpart C - Appraisals, 34.42 Definitions (O2Clarification: The property may be partially complete (only structural framework up and not enclosed); it may be physically complete but only partially leased up or sold out or it may already be "stabilized." ;The Dictionary of Real Estate Appraisal, Second Edition, published by the American Institute of Real Estate Appraisers, !989, p. 120. _FederalNational Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).

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Property_ Identification/Ownership This property is an appraisal of the land and improvements located in the zones or tracts set forth as follows: PA 1: PA 2: PA 3: PA 4: PA 5: TOTAL Woodside Homes Lennar Homes Lennar Homes Ashbrook Comm. Ryland Homes Tract 31601-2 Tract 31601-3 Tract 31601-4 Tract 31601-5 Tract 31601-5 178 Lots 128 Lots 86 Lots 133 Lots 110 Lots 635 LOTS

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

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13

AREA DESCRIPTION

Riverside County Overview Riverside County consists of 24 individual cities and numerous unincorporated communities, as

of 2005. Riverside County is typically grouped with adjacent San Bemardino County to form the Riverside-San Bemardino Metropolitan Statistical Area (MSA), and the area is commonly

referred to as the Inland Empire. The major urbanized areas are located in the western portion incorporated cities include Riverside, of the county. The major

Corona and Moreno Valley.

Peripheral areas such as The desert area of desert

Temecula and Moreno Valley are the most active areas for new growth. Riverside County, known as the Coachella Valley, includes

such world-famous

communities as Palm Springs, Rancho Mirage, Palm Desert .and Indian Wells. Riverside County is bounded by Orange County to the west, San Bernardino next page indicates. The following section summarizes trends in Riverside County. Riverside County population Trends As of January 2003, the countywide population stood at approximately 2004 it was 1,807,858, and 2005 the population was 1,877,000. natural increase and in-migration 1,726,754 residents, in Annual population gains from the general population, employment, income and retail sales County to the north, the state of Arizona to the east, and San Diego County and Imperial County to the south, as the map on the

changed accounted for a 2.90% increase per year.

The future rate of growth within the county will depend on a number of factors including availability of developable land, availability of water, the national and regional economic climates, and public policy toward growth. The areas within the county which will continue to

experience the largest share of the new population growth will be the peripheral area between Corona and the Temecula Valley and the Moreno Valley area.

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Valley. " " } Sail B'_ino City ;Ino_ ,e ' National Fo'l_St "Lake Skinner 74 mecula CahUilla I.R. Palm Sprh Palms

CFD 200'I-3 TERRAI.AGO

..... .. /

'_ _' Desert "" _'.';:;_'

, .... . "\ _, Mecca ,.. '

95

,.." Fallbrook= ' .--

_!_-- ..... . . {_.Z.L./ { _l'_, I /_ ChocolateMountain 78 GunneryRange ) . j'"" -"" ;L'I "") 0 Z N

Santa Rosa Mountain: ....... _ S A N Warner Springs E) I E 'G O 7e/Anza.Borrego Desert State Park ,....... . Westmorland Orr _g_ .... WilB de _,_ eSS oSpdngS _ _',. '_ ',

....

1 t_ / ,< PAZ ";'\ .....

Pine I CaJon ;rove

941 --

\ A\ L Bard "

_ I I

0 mi

20

40

60

Copyright 1988-2003 MicrosoftCorp. and/or its suppliers. All rights reserved, http://wwwmicrosoft.com/streets Copyright2002 by GeographicData Technology, Inc. AIt rights reserved. 2002 NavigationTechnologies. All rights reserved This data includes information taken with permission from Canadian authorities 1991-2002 Government of Canada (Statistics Canada and/or Geometics Canada), all rights reserved.

Riverside County Employment Trends Employment data for Riverside County is compiled for the entire Riverside-San Bemardino MSA, which includes both Riverside County and San Bernardino County. These counties have a diverse economy with manufacturing, construction and tourism as the major industry groups. The most employment.

common measure of employment growth is the increase in non-agricultural The following information dated July l, 2005. Employment Growth

in italics was taken from Market Profiles, Inc.'s Feasibility Report

The demand for new homes in the Coachella Valley is influenced by the economic vitality of Riverside County and all of Southern California. Tourist expenditures and second home purchases are important elements of the Valley's economy. The strength oflocally based, primary home purchases is dependent upon the vitality of the tourism industry, which, in turn, is dependent upon the strength of the national and Southern California economies. From 1997 through 2000, employment in Southern California increased at a healthy average annual rate of 3.0 percent. During the same period, employment in Riverside and San Bernardino counties increased at a very strong rate of 5. 2 percent per year. The rate of employment growth began to decline in the first three quarters of 2001 due to rising interest rates and a slowing national economy. Following the attack on the World Trade Center in September, job growth came to a virtual halt in the fourth quarter of 2001. Total employment in Southern California increased by 1.2 percent for the year 2001. The economic weakness experienced in the late fourth quarter of 2001 carried over into 2002 and 2OO3and employment in Southern California declined slightly each of those years. Positive job growth is projected to be reestablished in 2004 and employment is projected to grow by 1.5 percent in 2004, improving to 2.2 percent in 2005. Employment growth in Riverside County is monitored by the State along with San Bernardino County on a combined, bi-county basis. Employment in the bi-county region is projected to grow by about 2. 5 percent in 2004, and the rate or job growth is projected to improve to 3. 5 percent in 2005. Southern California's continuously expanding employment base will result in substantial demand for new homes in the Coachella Valley. Locally, the Valley's economy has begun to benefit from new employment opportunities relating to the recent voter approval of Proposition 1A which authorized the establishment of Las Vegas style casinos with slot machines on Indian lands in California. As a result, several major casino projects have been completed or are in various states of the development process in the Coachella Valley. These projects are projected to add several hundred jobs to the Valley's employment base and to attract several thousand

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EXHIBIT 11-2 EMPLOYMENT GROWTH RIVERSIDE-SAN BERNARDINO BI-COUNTY AND SOUTHERN CALIFORNIA 1980 - 2006 IRiverside & San Bernardino

REGION

Southern California

2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1964 1983 1982 1981 1980

1,252,700 1,210,700 1,170,700 1,120,200 1,082,500 1,050,700 1,010,100 960,300 903,800 863,100 824,800 801,700 772,800 755,900 751,500 741,500 735,200 689,200 647,700 610,900 574,400 536,700 495,700 465,700 452,600 458,900 452,000

42,000 40,000 50,500 37,700 31,800 40,600 49,800 56,500 40,700 38,300 23,100 28,900 16,900 4,400 10,000 6,300 46,000 41,500 36,800 36,500 37,700 41,000 30,000 13,100 (6,300) 6,900 N.A.

3.5% 3.4% 4.5% 3.5% 3.0% 4.0% 5.2% 6.3% 4.7% 4.6% 2.9% 3.7% 2.2% 0.6% 1.3% 0.9% 6.7% 6.4% 6.0% 6.4% 7.0% 8.3% 6.4% 2.9% -1.4% 1.5% N.A.

8,464,400 8,296,400 8,161,300 8,039,300 8,050,500 8,063,200 7,966,600 7,750,300 7,529,300 7,283,600 7,066,800 6,940,800 6,816,100 6,780,400 6,883,300 7,088,300 7,268,900 7,165,800 6,975,400 6,734,100 6,493,200 6,267,100 6,029,300 5,762,500 5,708,600 5,844,400 5,755,100

168,000 135,100 122,000 (11,200) (12,700) 96,600 216,300 221,000 245,700 216,800 126,000 124,700 35,700 (102,900) (205,000) (180,600) 103,100 190,400 241,300 240,900 226,100 237,800 266,800 53,900 (135,800) 89,300 N .A.

2.0% 1.7% 1.5% -0.1% -0.2% 1.2% 2.8% 2.9% 3.4% 3.1% 1.8% 1.8% 0.5% -1.5% -2.9% -2.5% 1.4% 2.7% 3.6% 3.7% 3.6% 3.9% 4.6% 0.9% -2.3% 1.6% N.A.

Source:CaliforniaEmploymentDepartment, Market Profiles.

MARKET PROFILES, INC.

27421 lx2-1,2,3,4,5,6,7.xls

more visitors to the region. This growth will have a stimulating influence on the demand for new homes in the Coachella Valley. The first major impacts of the casino expansion were felt in 2001. Casino projects recently completed and planned include the following: The Augustine Casino, south o! the City o/Coachella, 2004. The casino employs approximately 300 persons. opened for business in

The Morongo Band o/Mission Indians recently completed construction o/a $250 million casino resort hotel on a site located a few miles west o/Palm Springs on the north side of Interstate 10. The proiect is expected to create 4, 000 new iobs over the next lqve years. When completed # will be one of the largest gaming destinations on the West Coast. A $90 million, 125, 000 square foot casino recently opened in 2004 north of Rancho Mirage. The Aqua Caliente Band o/Cahuilla Indians announced in January plans to expand the Aqua Caliente Casino by additional 65, 000 square feet, add a new 14 story hotel with 400-rooms, and add 350,000 square !eet of retail space. These various proiects will be on the Aqua Caliente Reservation at the corner o! Bob Hop Drive and Ramon Road, which is an unincorporated area of Riverside County. In Palm Springs, the Spa Resort Casino opened in 2004. The $95 million gaming facility has 30 tables, 1,000 slot machines, an entertainment lounge, and four restaurants. Construction has begun on the Iqrst phase of a 300-acre resort and corporate development located in Palm Springs. The Indian Oasis Resort and Corporate Center will ultimately include a 1O-story hotel 290 condominium units, an 18-hole goll course, a 100,000 square foot shopping center, and 500, 000 square feet of office space.

In 2003, the growth o/the Coachella Vallev's economy was affected by the slowdown in tourism that began in 2001. Hotel revenues in the Valley declined by 4.8% and 3. 2% in 2001 and 2002, respectively. This drop in visitor activity had a dampening effect on the demand for new homes in the Valley. Nevertheless, the sales of new homes increased in 2002 compared to 2001 (see New Home Sales Trends below). Since 2003, however, tourism has started to rebound, with hotel room revenues increasing by 2. 4 percent in 2003 and 4. 3 percent in 2004. Further improvement in hotel revenues is projected for 2005. The proiected improvement in the health of the Southern California economy over the next two years will strengthen the underlying demand for new homes in the Coachella Valley. The volume o! visitors to the Valley will recover and grow, while the financial state and the confidence levels of new home buyers will improve. Demographic and Housing Pro121e There are 365, 648persons residing in the Valley. The population has grown at a strongpace of 4.1% per year since 2000. The Valley's population is projected to grow at a rate of 3.8% per

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year over the next five years. Although the percentage rate of growth is declining, the growth rate in absolute terms is projected to remain near recent levels. The average househoM size in the Coachella Valley is 2. 68persons. This is a low figure resulting from a large proportion of one and two-person households. Nearly two-thirds (64%) of the market area's households consist of one or twopersons, compared to 54percent countywide. The large proportion of small households is partly due to a large retired population. Nineteen percent of the population is over 65 years of age. Countywide this age group accounts for 14 percent of the population. The population of the City of lndio is 61,516persons. At 3.46 persons, the average househoM size in the city is much larger than that of the Coachella Valley as a whole. The city has a much largerproportion offamily households with children than do the other communities in the Valley. The income profile of the Valley's households is very diverse. Households are distributed across a broad range of annual incomes from under $25,000 (21%) to over $100,000 (20%). The median income of households in the Coachella Valley is $44,240. This is a modest figure that is 8. 6% below the countywide median figure of $48, 384. The median income of households in Indio is $39,477.

Housing Profile Single family detached homes account for 46percent of the Valley's housing stock compared to a countywide proportion of 61 percent. The median housing value in the Coachella Valley is $238,378 (existing homes). This figure is slightly below the figurefor Riverside County of $245,354. However, the Valley's housing stock is very diverse. The Valley has a greater than typical proportion of the least expensive homes and of the most expensive homes. Twenty five percent of the Valley's housing stock is valued below $150,000 compared to 22% countywide. However, the Valley also has a higher proportion of homes valued over $400,000 (24% versus 18% countywide). Housing vacancy rates are very high in the City of Palm Desert, as well as in the Cities of Indian Wells, La Quinta, Palm Springs and Rancho Mirage. These highvacancy rates of over 30%, 40% and even 50% are due to the high incidence of second home ownership in these cities. Assuming an underlying vacancy rate offive to ten percent, second home ownership in these cities ranges from 20 to 45 percent of the total housing stock. The proportion of second home ownership in the City of lndio is relatively low. The proportion of second home ownership in the city is estimated to be about ten percent. However, this proportion is projected to increase over the next five years. New Home Sales Trends The volume of sales in the Valley declined from a peak of 3,356 in 1989 to 953 in 1993 due to the effects of the regional recession that began in mid-19901 Sales activity remained moderate from 1993 through 1997, then accelerated to 2,226 homes sold in 1998 and to 3,330 homes in 2000. Sales for 2001fell to 2,510 homes due to a general slowdown in economic growth in Southern California Sales increased to 4,236 homes in 2002. Sales activity continued to increase in 2003 and in 2004 with 5, 768 homes sold in 2003 and 5,851 homes sold in 2004.

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The geographic pattern of new home sales in the Coachella Valley has shifted over the past few years. Excluding the lndio-Coachella submarket, sales activity among the other submarket areas varied significantly from year to year. The sales fluctuations have been due largely to supply considerations. Sales in the Palm Desert submarket dropped from 1,313 homes in 2002 to 383 homes in 2003 due to a decline in home supply. Alternatively, homes sales in the Palm SpringsCathedral City submarket (including Desert Hot Springs) increased from 393 homes in 2002 to 1,161 homes in 2004 due to an increase in supply. The shifting geographic pattern of sales activity is likely to continue in the future. More sales activity is expected to emerge in Palm Desert since the city has recently ended its moratorium on development in its northern sector. In contrast tofluctuating sales activity in the other submarket areas of the valley, new home sales in the lndio-Coachella Submarket have consistently increased over the past three years. Sales jumped from 591 homes in 1999 to 1,217 in 2002 and 2, 890 homes in 2003. New home sales in the Indio-Coachella Submarket continued to accelerate in 2004 with sales totaling 2,596. Moderate home prices have been a major attractor of home buyers to the submarket. Price Trends The average price of a detached home sold in the Coachella Valley in the third quarter of 2005 was $487, 063. The average sale price has fluctuated from quarter to quarter due to the changing mix of product offerings. Although the prices of individual homes have risen significantly, the average sale price of all homes has risen only moderately over the past 4 years due to the increase in the sales volume of modestly-priced homes located in the lndio-Coachella submarket area. The average price of new homes sold in the lndio-Coachella submarket during the first quarter of 2005, was $381,349. This figure is 40percent higher than the average sale price for the first quarter of 2004 of $272,163. Sales are spread across a broadprice spectrum ranging from under $200,000 to over $400,000. During 2004 and 2005, there is a clear pattern of decreasing sales oflowerpriced homes as the price structure of new homes in the Valley has shifted upward In the first quarter of 2004, 50% of the new homes sold were priced under $300,000. By the first quarter of 2005, that proportion has dropped to just 6. 7%. The Indio-Coachella submarket area dominated the sales of homes in the Coachella first quarter 2005 that were priced under $400,000. Pro[ected New Home Demand The primaryfactors that have contributed to strong new home sales in the Coachella Valley the local job-creating projects outline above, and very low mortgage interest rates. Supported by favorable regional and national economic trends, job growth within the Valley is projected to continue at a favorable pace. And, although mortgage interest rates are expected to rise moderately, a healthy volume of new homes sales is projected to be sustained within the Coachella Valley. Based on the data analysis, it is projected that the demand for new homes in the Coachella Valley will average 4,500 homes per year over the next five years. With 5, 851 homes sold, the 2004 sales volume surpassed the projected annual demand of 4,500 homes. However, it is projected that the pace of sales will moderate in 2005 and 2006. Valley in

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The majority of the demand will be fueled by the primary buyer segment (i. e., owner occupants as opposed to second home owners), including retired households. Second home buyers, includingpre-retirement buyers, are projected to account for just over one quarter of the demand. The great majority of the buyers that are active in the community of lndio consist of primary home buyers consisting primary of first time buyers and local move-up households. The Coachella Valley new home market is diverse. Market spread across a wide range of prices from under $300,000 to over $1,000,000. The majority of the demand for new homes in the IndioCoachelIa submarket emanates from primary resident households. Primary homebuyers are responsible for the high volume of demand below the $400,000 price level. Riverside County Transportation Riverside County is served by a major airport, Ontario International, Bernardino County. international flight capabilities. miles west of Riverside. which is located in San 60 Several major airlines have flights into Ontario, providing national and Los Angeles International Airport is located approximately Also, Palm Springs has its own airport.

A network of freeways links most urbanized areas of the county. The major north-south arterial are the Devore Freeway (Interstate 15) and the Escondido Freeway (Interstate 215). The Riverside Freeway (State Highway 91), the Pomona Freeway (State Highway 60) and the San Bernardino Freeway (Interstate 10) provide east-west access to the desert communities Riverside County Amenities Within a two-hour drive of the County of Riverside are ocean and mountain ski resorts. Worldfamous desert commurfi'ties such as Palm Springs are also found in Riverside County. Riverside County Conclusion Riverside County is the fastest growing county in the Southern California region in terms of population and employment. real estate values in general. The county remains poised for considerable expansion. It has become diversified with an ever-growing employment base which should be a positive factor on and Los Angeles.

City of Indio The subject property is located within the incorporated County. Indio is located in the south-central limits of the City of Indio in Riverside Indio is located

region of the Coachella Valley.

approximately 78 miles southeast of the City of Riverside, which also serves as the County seat,

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130 miles southeast of the City of Los Angeles and 529 miles south of San Francisco. oflndio was incorporated May 16, 1930. The city consists of approximately and is bounded by unincorporated

The City

24.8 square miles

Riverside County to the north and south, the City ofLa Quinta

to the west and Coachella to the east. Please refer to the location map earlier in this section. Population The City oflndio has had dramatic population increases in the last 30 years. Growth from 1970 to 2000 has been from a population of 14,469 to 45,700 as of January 1,2000, and four years later it was 66,118, reflecting a 22.7% increase. Population shifts from other suburban developments within the Coachella Valley have been a key factor in Indio's growth in recent years, as well as the progression in growth to the east away from Palm Springs. Most future growth in the city will be the development of the east and southern sections of the city.

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

lndio's families have an average income and education compared to the county. Transportation The City of Indio has a variety of transportation facilities available. Rail is available by Union

Pacific main line. Amtrak passenger rail service is available in Indio and Palm Springs. Truck transportation available. has two carriers for direct daily service to Los Angeles. Overnight delivery is Air transportation is offered to Los Angeles, San Francisco, San Diego, Phoenix and Mexicali. Palm Springs International Airport, 20 miles northwest, (Alaska being the largest), general facilities and an 8,500-foot runway.

is served by nine airlines The Bermuda Dunes

Airport, a private general aviation facility, is located in adjacent Bermuda Dunes. County-owned Desert Resorts Regional Airport, 7 miles southeast in Thermal, has general aviation facilities and a 5,000-foot runway. Bus transportation is available by Greyhound. The nearest ports are Los Angeles/Long southwest. The SunLine Transit Agency Center. provides local bus service throughout the Coachella Valley from the Indio Transportation

Beach, 133 miles west, and San Diego, 130 miles

Highways serving Indio are the 1-10 west to Los Angeles and east to Phoenix; and California 86 (NAFTA Highway) south to Brawley and

California 111 northwest/southwest;

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El Centro in Imperial County, Yuma, Arizona, and Mexicali and Mexico City, Mexico. Industrial There are 1,341 acres in the City limits zoned for industry. This is available in parcels ranging

in size from to 200 acres. Included in this acreage total are 20 industrial parks. City-owned land is no longer available. Community Characteristics The city has numerous facilities available. Seventy-one physicians/surgeons, In the health-related area Indio has one full-service service.

hospital, with 130 beds; a 24-hour emergency care facility; and a base for paramedic

18 dentists, 9 optometrists and 8 chiropractors practice in Indio.

With regard to education, the Desert Sands Unified School District has 14 elementary 5 middle schools, 3 high schools and 1 continuation

schools,

school. The School District is planning to

build a 1(-12 campus, near the subject property, north of Interstate 10 at Jefferson and Avenue 39. The high school should be completed in 2008. College of the Desert is opening up the Valley Education Center to expand educational University; California State University, opportunities in Indio. The facility will partner with of Redlands offer several universities to offer distance learning on a "per class" basis. Chapman College; National San Bemardino; and University

programs in Palm Desert/Palm Springs leading to bachelor's and graduate degrees. Of cultural interest, the community has two direct TV channels and one cable system (MediaOne). Indio has 36 churches, 2 libraries, 1 daily newspaper, 3 weekly newspapers, 4 banks, 2 savings and loans, 7 parks, 1 sports complex, 1 theater with eight screens and 1 live performing 1 community center and 5 parks. Other regional recreational waterskiing and fishing. Indio offers many recreational facilities including the Indio Municipal Golf Course, Heritage facilities include: arts

center. Neighboring Coachella has 13 churches, 1 library, 1 bank, 1 boxing club, 1 radio station, over 90 public and private golf courses; 200-acre Lake Cahuilla Park (County); and Salton Sea for boating,

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

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The median sales price for new and existing homes is $377,449, according to the Desert Real Estate May 2005 Report. The medium and upper-medium developments, housing stock is growing quickly. the Indio has a number of newer developments where prices range from $300,000 to over $400,000, such as The Shadow Hills residential Ventanas, and Palazzo. such as the El Dorado Collection, There are also new homes being built in the Indio Ranchos area with

many prices exceeding $300,000. There are 40 hotel/motels, with approximately areas. 2,500 rooms in Indio. There are 20 mobile home

parks, with 3,000 spaces, in the Cities of Coachella and Indio and surrounding unincorporated

Summary Indio is strategically located in the Coachella Valley as a service and retail center for a strong agribusiness and rapidly expanding resort and recreational economy. 10) and railroad (Union Pacific) offer excellent transportation emerging industry sectors, including: cluster and home improvement/home relocation/consolidation A major interstate highway (IIndio hosts several service for an emerging industrial cluster, agricultural industry

sector, all of which provide a healthy economy attractive for investment. golf industry manufacturing

furnishings industry cluster. Recent developments include:

of county facilities, including courts, Dash Golf Carts, Matzie Golf, I-10

Auto Mail, Metropolitan 8 Theater, JFK Hospital expansion, East Valley Education Center and the new casinos being developed.

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NEIGHBORHOOD

DATA

Immediate Surroundings/Neighborhood On the following page is a neighborhood map identifying the subject properties in relation to the City of Indio and surrounding areas. As can be seen on this neighborhood properties are located in the north central section of the City of Indio. CFD 2004-3 is located north of Interstate 10, at the northeast comer of Golf Center Parkway and Avenue 43. The City of Indio has become a focal point of much of the residential, commercial and industrial expansion along the 1-10 and Highway 111 Corridors within the southwestern Coachella Valley region in which the subjects are located. This expansion has absorbed much of the skilled labor pool and created demands for skills which are available only through training and importation from other areas. available in adequate supply. The subject property isjudged to be conducive to a single-family, detached housing development, competitive development. with similar developments within the immediate market areas of the subject Unskilled and, for the most part, semi-skilled workers are map, the subject

At present, the commercial area is along Highway 111 and Jackson Street. Access and Secondary_ Routes

Primary_ Neighborhood

The primary access to this neighborhood is by automobile with some limited bus access. This is supported by the close proximity of the 1-10 Freeway, located approximately 1 mile south of the subject property. Distances and Directions from the Subject Neighborhood to Major Business Districts

Major urban areas in the vicinity of the subject property include the City of Riverside and County seat, located approximately 78 miles west of the subject property, and the City of Palm Springs, located approximately 15 miles northwest. The City of Ontario, which is home to the Ontario 100 miles northwest of the subject property. International Airport, is located approximately

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

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NEIGHBORHOOD MAP

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SITE DATA

Site Analysis:

The subject site description is based on a personal inspection of the subject property and discussions with developers, as well as a review of plat maps, Assessor's Maps and land use plans. The subject property consists of five separate tracts, located in the City of Indio. A map showing the outline of the residential tracts is included on the map at the end of this section.

Location:

Important

Site Characteristics:

The tracts have generally level topography. The market area is well supported by various residential developments. Average to good proximity and freeway access. No apparent negative factors were observed. Access to and circulation within the developments depicted on the map at the end of this section. are

Positive Site Characteristics: Negative Site Characteristics: Ingress/Egress and Exposure:

The design of the internal collectors appears to allow for adequate travel lanes in each direction. Additionally, there will be sidewalks and landscaping on both sides of the roadways. All roads will be constructed to City of Indio standards. The roadways will be dedicated to the City of Indio upon completion and maintained by the City through the assessments of a community service agency. The tracts will be valued assuming a finished map is in place and the lots are in a "ready to build" condition. They will also be valued, discounted back to an "as is" condition, with the assessment infrastructure in place. The land development costs have been furnished by SunCal Companies and are presented and applied in our market value analysis. Utilities and Services Available to the Subject Properties' Neighborhood: Utilities and services agencies/companies: Electricity: Natural Gas: Water: Waste Water: are furnished by the following

Imperial Irrigation District Southern California Gas City of Indio Valley Sanitary District

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Telephone: Fire: Police: Transit:

Verizon County of Riverside Indio Police Department Sun Line Transit Agency

Rates for these utilities, to be provided and applied to the subject properties, are generally competitive with the Riverside County area as a whole. All the aforementioned utilities have source proximate to or directly to the subject zones. Size and Shape: lines

The zones of the CFD 2004-3 project consist of the following approximate sizes and densities.
LAND USE SUMMARY PA Total Acreage* Total Residential Acreage** 33.05 33.95 24.25 17.60 26.9 135.75 # of Lots Density Based on Total Acreage 3.78 3.50 3.32 3.20 4.22 3.60 Density Based on Residential Acreage 5.38 3.77 3.55 7.55 4.10 4.87

1 2 3 4 5 TOTAL

47.09 36.58 25.67 41.56 26.01 176.91

178 128 86 133 110 635

Source: FACRES * Information obtained from Tract Maps **Information obtained from the Master Plan Map

The tracts are irregular in shape and will be identified as such in the CFD 2004-3. Adjacent Properties: The land area adjacent to the subject tracts is either vacant or improved with residential developments, similar to the proposed uses for the subject. The land is generally level. For a summary of the specifics and projected prices of the residential product type proposed for these tracts, the reader is referred to the Price and Absorption Study of the subject tracts prepared by Market Profiles of Tustin, California. A portion of that report is included within this appraisal report.

Topography: Proposed Uses:

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Soil and Subsoil Conditions:

A soils report was not provided for review. Based on the nature of this report, we have assumed the soil is of suitable load-bearing capacity for the proposed development and indicated highest and best use of the site under study.

Earthquake, Flood, and Other Nuisances and Hazards:

The subject property is not located in an environmentally hazardous area per the City of Indio. The site is considered a seismically active area, as is all of Southem California. There are, however, no known active faults on or immediately adjacent to the site, and the hazard of surface fault ruptures is considered very low. All of the parcels in CFD 2004-3 are located in Flood Zone B, Map Page and Community Panel Number 0602550002, dated May 1, 1985.

Street Improvements: Easements, Restrictions and Eneroachments:

In general, the subject tracts will have finished roads and utility access completed. A title report was not available for our review. We have assumed there are no easements or encroachments which could adversely affect the value of the subject property. The appraisers reserve the right to alter their conclusion of value if subsequent information indicates a change is warranted. The subject tracts in CFD 2004-3 consists of residential land use sites within the Master Planned Community. There are Covenants, Conditions and Restrictions (CC&Rs). First American Commercial Real Estate Services Appraisal and Valuation Division assumes these do not have an adverse effect upon value. The sites appear functionally adequate for the proposed development as described in the developer's proposed plan. In California, all real property is assessed at 100% of full cash value (which is interpreted to mean market value of the fee simple interest) as determined by the County Assessor. Generally, a reassessment occurs only when a property is sold (or transferred) or when new construction occurs (as differentiated from replacing existing construction). Assessments for properties that were

Essential Zoning Provisions: CC&Rs/Private Restrictions, Governing Use:

Functional Adequacy of Site:

Tax and Assessment Data:

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acquired before the tax year 1975/76 were stabilized as of the tax year 1975/76. Property taxes are limited by State law to 1% of the assessed value plus voter-approved obligations. Taxes are payable in two equal installments, which become delinquent after December 10 and April 10, respectively. The existing parcels are not currently assessed by individual lot parcel numbers by the Riverside County Tax Assessor. Total taxes will ultimately reflect the presence of the CFD bonds, the creation of which is the purpose of this appraisal.

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MASTER PLAN

MARKET

CONDITIONS

Physical and Locational Considerations The physical and locational characteristics of the five planning areas of the subject CFD No.

2004-3 are considered to be very good. The sites are all located in a master planned development in a developing area of Indio. The subject referred to as Phase 1 of the Master Plan, will include a 22 acre private lake with boat access, two golf courses and a recreation complex, complete with clubhouse, pool and a tennis complex. In addition each tract will have it's own neighborhood land. the subject tracts as long as the park. The planning areas are currently surrounded, to a large degree, by undeveloped Currently, strong growth is seen as imminent surrounding economy stays stabilized as it presently is. As noted in the Site Description section of this report, the subject's sizes and topographies adequate for residential development. the use outlined in the proposed development plans but from a physical are

Engineering and site work is necessary to accommodate and locational

perspective, a variety of residential uses are physically possible. Access to all zones is considered good. Accessibility and location would allow for a variety of residential land uses to be developed on the zones as planned. As residential units are constructed and access roads are extended, the demand for residential and retail support use

should increase, thereby increasing an already good economic environment.

The five subject zones, as currently proposed, will consist of the following detached singlefamily units: P_A 1 2 3 4 5 TOTAL Lots 178 128 86 133 110 635

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The subject properties will consist of predominately area. The land will physically accommodate

single-family residential

developments.

This appears to be a logical extension of the existing residential developments near the subject the proposed density.

Legal Considerations The legal factors influencing the highest and best use of the subject properties governmental regulations such as zoning and building codes. are primarily

The subject zones and tracts are zoned for residential uses within the Terra Lago Master Planned Community. There are no other existing entitlements other than current City of Indio building requirements for the tracts. There will be some conditions, covenants and restrictions associated with the tract developments; however, these are mostly cosmetic in nature and would not be

expected to negatively affect the lot value. The developers' conceptual plan for the subject developments are currently being developed.

Based on the ultimate approval of the developer's conceptual plan, which includes all residential use, the proposed development Market Feasibility In this section, market conditions that influence the subject property will be considered. major factor requiring consideration is the attractiveness or its financial feasibility. or market feasibility. The pathway of the growth in Riverside County has been concentrated in several growth "nodes." These nodes of growth include the Cities of Corona, Riverside, Hemet/San Jacinto, Murrieta and the Coachella Valley. The is assumed to be a legally conforming use.

of the subject as a real estate investment

Financial feasibility is based, to a large degree, on market acceptance

The City of Indio has historically been known as primarily an affordable housing community. The area was characterized by mobile home parks and subdivisions of small homes, and small detached residential product targeting the first-time buyer and/or the empty nester, retirement or winter resident market.

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The current conceptual plans proposed for the subject tracts appears to be the highest and best use of the subject property when analyzed from a market perspective. In valuing property such Where possible, if as the subject, we have endeavored to analyze the market conditions and compare the anticipated supportable development uses with the conceptual plan currently in place. the market conditions support the development of the product type proposed for the subject, it

is assumed that a purchaser of the subject property would develop the site with a similar use. In the case of land uses outlined in the conceptual plan that are deemed not supportable by market conditions, alternative uses are considered. report for the land use, a determination Based on the data and analysis of the Market Profiles is made as to whether the development plan for the

subject site is the highest and best use of the land. This market-supported

development plan is

then used to estimate the value of the subject site in the Valuation section of this appraisal report.

The following analyses of the market conditions and absorption rates by product are used as tests of reasonableness rather than a full detailed market analysis of the subject project. A number of The most important was the report marketing reports were reviewed to help in our analysis. Profiles, Inc.'s Feasibility Report dated July 2005. New Home Competition During the first quarter of 2005, there were 78 subdivisions marketing new detached homes in the Coachella Valley. The 78projects account for a total of 15,042 homes of which 8,213 homes have been offered for sale and all but 559 of the homes offered have been sold. This is a low unsold inventory level The Coachella Valley new home market is very diverse. The lndio-Coachella and the lndian Wells-LaQuinta submarkets had the largest number of active new home subdivisions during the first quarter period with 26 and 24 projects, respectively. The Indio-Coachella submarket generated the highest sales volume during the quarter (585 homes). The sales of new homes in the submarket were aided by the moderate prices of homes. The average sales price was $381,349 compared to $792,518 in the nearby LaQuinta-lndian Wells submarket. There were 26 new home subdivisions that were active in the lndio-Coachella Submarket during the first quarter of 2005. The 26projects account for 7,330 homes, of which 3, 722 have been offered for sale and only 155 of those remain unsold. Seventeen of the new home projects are located in lndio and nine are located in Coachella. With 3, 200 homes, the retirement community of Sun City in Indio (Shadow Hills) accounts for nearly half of the homes. An additional three of the projects, accounting for 344 homes are located within the lndian Palms Country Club, also in lndio.

prepared by Market Profiles, Inc. The following information in italics was taken from Market

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lnvento_

Levels

The total of 559 new detached homes that remain unsold (including homes under construction, completed, and pre-selling) throughout the Coachella Valley is a favorable unsold inventory figure. As a rule, a balance between the unsold inventory at the end of a quarter and the number of homes sold during the quarter is indicative of a healthy market condition (i. e., 1:1 unsold to sold ratio). Thus, compared to the sales volume of 964 homes sold during the first quarter period, the unsold inventory of 559 homes at the end of the first quarter of 2005 is indicative of afavorable market condition (0. 58:1 unsold to sold ratio). Inventory conditions in the lndio/Coachella submarket area are even more restricted than elsewhere in the Coachella Valley. At the end of the first quarter of 2005, the unsold inventory in the lndio/Coachella submarket totaled 155 homes compared to fourth quarter sales of 585 homes (0. 26:1 unsold to sold ratio). Sales Rates The sales rates include "Cumulative" and "Current Quarter" rates. The Cumulative sales rate describes the rate of sales generated since the date of opening of each project, and the Current Quarter sales rate describes the rate of sale during the third quarter period. Cumulative sales rates range widely from O.08 to 7.9 homes per week. The average cumulative sales rate is 2. 79 homes per week per project. The new home projects that are most similar to the subject development are those that are located in the Shadow Hills community of north Indio. During the first quarter of 2005, there were seven new home subdivisions active in the Shadow Hills community. The cumulative sales rates among those seven subdivisions range from 0.31 to 7.87 homes per week. The average sales rate is 2. 79 homes per week and the median rate is 1.64 homes per week.. Most Competitive New Home Projects The new home subdivisions that are most relevant to the subject properties are those that are located within the Shadow Hills community located north of the 1-10 Freeway. The seven projects are described below. The fastest selling subdivision in Shadow Hills is Bella Tierra. The first 40 of these 3- and 5bedroom homes have been sold at a rate of 8.12 homes per week. The base prices range from $379,990 to $419,990 forplans that range in size from 1,895 to 2, 629 square feet ($159. 75 to $200.52 per sq. ft.). The homes are sited on 8, 000 square foot lots (minimum). Another fast selling subdivision is Foxstone by KB Home. All 63 homes that were released during the first quarter were sold equating to a sales rate of 4.88 homes per week" The project has another 182 homes remaining to be sold in subsequent phases. The base prices of these homes range from $307,990 to $368,990 for 2- and 3-bedroom plans that range in size from 1,517 to 2,526square feet ($146. 07 to $203.02per sq. ft. ). The residents pay a homeowners fee of $1OO per month, plus CFD taxes. The neighborhood is gated and the minimum lot size is 8, 000 square feet.

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AMERICAN

COMMERCIAL PLACE eS#2qTA

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ESTATE

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AND

EVALUATION 714.550-7057

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The 132-lot Sienna subdivision recently opened in Shadow Hills. The base prices of the homes range from $394,990 to $447, 990for 3- and 4-bedroom plans that range in size from 2,448 to 3,143 square feet ($142. 54 to $161.35 per sq. ft.). The 263-lot Shadow Ranch subdivision by Family Development sold out its first phase of 30 homes at a rate of 3. 0 homes per week. These homes range in price from $394,990 to $489,990 for 3-, 4-, and 5-bedroom plans that range in size from 3,185 to 3,24 7 square feet ($150. 90 to $180. 77 per sq. ft.) The residents pay a homeowners fee of $95 per month for green belt maintenance. The minimum lot size is 8, 500 square feet. The Desert Collection is a gated subdivision of142 homes. The base prices of these 3-bedroom homes range from $364,990 to $414,990for plans that range in size from 1, 610 to 2, 266 square feet ($183.13 to $226. 70per sq. ft.). The residentspay a homeowners fee of $75 per month. The frst 73 homes were sold at a rate of 3. 31 homes per week. The minimum lot size is 7,200 square feet. There are two subdivisions still active within one private, gated neighborhood developed by Century Vintage Homes. The three subdivisions are The Ventana Collection, The E1 Dorado Collection, and Villa Estates II. The homeowners will pay dues of $50 per month for maintenance of the private streets, plus an assessment district fee. The Ventana Collection consists of 2- and 3-bedroom homes that range in size from 1,208 to 1,843 square feet with base prices ranging from $299,990 to $339,990 ($184. 4 7 to $248.33 per sq. ft.). Of the 198 homes in this tract, 8 7 have been sold at a rate of O.81 homes per week. The base prices of the homes in The EI Dorado Collection range from $339,990 to $424,990for 2- and 3-bedroom plans that range in size from 1,720 to 2, 778 square feet ($152.98 to $197. 66 per sq. ft.). Of the 198 homes in the tract, 176 have been sold at a rate of l. 64 homes per week. The Villa Estates II homes have base prices ranging from $294,990 to $394,990. These 3- and 4-bedroom homes range in size from 1,302 to 2, 735 square feet ($144. 42 to $226.56per sq. ft.). Of the 137 homes in the subdivision, 123 have been sold at a rate ofl.53 homes per week. The new community of Talavera in northeastern most Indio recently openedwith four new home subdivisions offering homes for sale. The homes range in price from $299,999 to $416,990. The minimum lot size for all of the homes in Talavera is 8, 000 square feet. The Venecia homes are the smallest being offered in Talavera. They consist of 3- and 4-bedroom plans that range in size from 1,5 76 to 1,94 7 square feet with base prices ranging from $299,999 to $333,990 ($171.54 to $190.35 per sq. ft.). Twenty-five of the 45 homes in the firstphase release were sold at a rate of l. 76 homes per week. The homes in the Florencia subdivision in Talavera range in size form 1,855 to 2, 380 with base prices ranging from $330,000 to $3 70, 000 ($155. 46 to $179. 45 per sq. ft.). Of the 44 homes in the first phase, 26 were sold at a rate of 5.93 homes per week. Also in Talavera, the Alicante homes consist of 3-, 4-, and 5-bedroom plans that range in size from $389,540 to $404,990 ($130. 68 to $156.25per sq. ft.). Two thirds of the 33 homes released in the first phase have been sold at a rate of 3. 61 homes per week.

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The largest homes being offered in Talavera are those in the Genova subdivision. The base prices of these homes range from $396,990 to $416,990 for 2-, 3-, and 5-bedroom plans that range in size from 2,848 to 3,280 square feet ($127. 64 to $139.39per sq. ft.). Eighteen homes have been sold at a rate of 1.9 homes per week.

Proposed New Home Development There are approximately 7,500 new homes within more than 40 subdivisions that are proposed for future development in the City of lndio. With this scale of proposed activity, it is projected that the Indio market area will experience a competitive environment for the next several years. However, the market is currently undersupplied and the homes that are planned for development will be constructed in a phased manner over the next several years. It is projected that competitive conditions will be more intense than those currently being experienced in the lndio marketplace, however, generally healthy demand-supply conditions are projected to be maintained The majority of the new homes that will be constructed in lndio over the next few years will be located in and around the Shadow Hills community located north of Interstate 10 Freeway. In addition to the 1,400-plus homes that will be developed within the subject Terra Lago community, there are more than 2, 700 homes that are planned for construction elsewhere in the Shadow Hills community. The majority of these homes will be constructed over the next three to four years. There will be 2, 723 homes that will be part of the City of lndio Assessment District 2004- VSD. All of these homes will be located in the Shadow Hills community to the west of Terra Lago community. The prices of the homes will generally range between $350,000 to $500, 000. The two subdivisions by Family Development are under construction and are actively selling homes. Also located north of the 1-10 Freeway is the site of the Andreas Ranch that will include 937 homes within a private, gated community. This property is located north of Avenue 38 at Jefferson Street.

Discountin_ In order to obtain an "as is" value, the finished lots need to be analyzed considering the time it would take to sell them off. Consideration needs to be given to the costs to finish the lots and the various costs associated with marketing and holding the lots during this time period. Our

absorption rate estimates are by land product which were compared to the estimated absorption rates from the Market Profiles Market Consultants a purchase of the subject tracts by a merchant builder. advised by Market Profiles Market Consultants report dated July 2005. Our absorption It appears the absorption rate projection expectations are very similar to those outlined in that report. Our absorption estimate assumed is within a reasonable range.

Based on the tracts that are being analyzed, it is estimated that a period of one year would be

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required to sell the land associated with the proposed residential tracts. This includes a total of 635 residential lots. Our absorption estimate is tied to the developer's proforma and infrastructure costs as well as Market Profiles Consultants' absorption study.

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HIGHEST AND BEST USE

Highest and Best Use 5 is an appraisal concept which has been defined as follows: 1. The reasonable and probable use that supports the highest present value of vacant land 6 or improved property, as defined, as of the date of appraisal. The reasonably probable and legal use of land or sites as though vacant, found to be physically possible, appropriately supported, financially feasible and that results in the highest present land value. The most profitable use.

2.

3.

Implied in these definitions is that determination of highest and best use takes into account the contribution of a specific use to the community and community development goals as well as the benefits of that use to individual property owners. Hence, in certain situations the highest and best use of land may be for parks, greenbelts, preservation, conservation, wildlife habitats and the like. A use which does not meet the needs of the public will not meet the above highest and best use criteria.

The determination of the highest and best use opinion, therefore, requires a separate analysis for the land as legally permitted, as if vacant. with their improvements, improvements Secondly, the highest and best use of the property, to consider any deviation of the existing must be analyzed

from the ideal.

"For highest and best use of both land as though vacant and

property as improved, a use must meet four criteria. The criteria are that the highest and best use must be (1) physically possible, (2) legally permissible, (3) financially feasible and (4) maximally productive. These criteria should usually be considered sequentially; it makes no difference that a use is financially feasible if it is physically impossible to construct an improvement or if such a use is not legally permitted."7

_TheAppraisal of Real Estate, 9th Edition, published by the American Institute of Real Estate Appraisers, Chicago, IL, p. 269. _Thequestions to be answered in this analysis are: If the land is, or were vacant, what use should be made of it? What type of building or other improvement, if any, should be constructed on the land, and when? 7TheAppraisal of Real Estate, 9th Edition, published by the American Institute of Real Estate Appraisers, Chicago, IL, p. 274.

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Highest and Best Use -- As Vacant Physical Considerations Location/Topography/Size: As set forth previously, the subject parcel sizes are more than adequate for proposed single-family development. The parcel comprising the subject properties are regular in their configuration, however, it results in no significant development limitations. The properties should have adequate drainage when completed per City of Indio requisites. The location of the properties are situated within what should continue to be developing residential areas. Therefore, it would appear as though a planned residential type of land use would be feasible. Utilities/Flood Zone: The properties are located in areas designated with a flood zone risk. All of the planning areas are located within Flood Zone B, an area of minimal to moderate flood hazrd. The Community Panel is 0602550602 revised May 1, 1985. This is defined as areas between limits of the 100-year flood and 500-year flood; or certain areas subject to 100-year flooding with average depths less than one foot or where the contributing drainage area is less than one square mile; or areas protected by levees from the base flood and are no significant hazard. The parcels have access to public water, sewer, electricity, natural gas and telephone lines. Therefore, they appear to have no potential deficiency from a utility or flood zone development standpoint. Conclusion: No soils report has been reviewed by us. Overall, there appears to be no adverse soil conditions of which the appraisers are aware. The shape of the parcels are irregular, however, this results in no specific development limitation. From a physical standpoint, the sites are considered adequate for various types of residential development as regulated and dictated by the master plan zoning. The nature of the surrounding market is likely to support these uses.

Legally Permissible Legal Factors: The legal factors affecting a site and its potential uses are often the most restrictive. These would typically be governmental regulations such as zoning and building codes. The developers' proposed plans are based on residential developments. The existing zoning will permit residential and limited commercial use development. Considering the nature of the surrounding developments and the subject's zoning classifications, the

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proposed developments highest and best use. Conclusion:

appear to meet the legal criteria for

From a legally permissible standpoint, the subject is restricted by the zoning under the General Plan of the City of Indio. The subject appears to be feasible for development with residential uses within the Master Planned Community over the next several years.

Financial Feasibility As discussed in the Market Condition section of the area and Maximum Productivity_ description for the City of Indio, there has been a resurgence of Riverside County home sales, commercial and industrial real estate activity over the 2003-05 period. The market has been very strong over this period and all indications indicate this will continue and stabilize. The majority of the existing housing inventory in the area is priced competitively and the majority of the demand appears to be generated by the lower price range market. Sales of homes under $250,000 are limited, and the future inventory of homes in the $250,000 to $300,000 category are decreasing. This pattern is expected to continue as the existing lower priced inventory is sold out and is slowly replaced by similar homes which reflect the necessary higher price for finished single-family lots to be commercially viable. The Coachella Valley submarket has continued to capture a representative share of the Riverside County sales. This market share can be attributed to the lower priced concentration of new home supply which is available in the area. The submarket should continue to capture a good share of sales due to the erosion of alternative lower price supply in most of the other submarkets. The Coachella Valley submarket should continue to experience a good rate of activity among products priced $300,000. The lack of new single-family homes that can be brought to market at prices under $300,000 will continue to place limits on future total sales volume. This factor forms a primary opportunity for the subject areas to successfully enter the Riverside market. While the overall Riverside market should continue to experience a period of concentration, Coachella Valley's residential product, targeted to the under-supplied, lower-priced, conventional single-family detached market, should experience a positive market response if priced properly. We believe the subject tracts have the potential to meet with good market acceptance. The previous factors, coupled with the acquisition cost of the land, development costs consideration and the potential absorption level, should provide the highest return to the subject sites. Therefore, the proposed development is

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financially feasible and maximally productive if brought into the development arena under the right set of economic circumstances such as those we are currently experiencing. The highest and best use as of the date of value is a timely development of the various projects according to the developer's proposed development plan. The current economic environment would indicate this be initiated as soon as possible. Physical and Locational Characteristics The physical and locational characteristics of the subject residential property have previously been described in this report. The subject's location is considered good for residential use. The subject has average proximity to various employment centers in the Coachella Valley. Commercial and retail services are also close by. In addition, the physical possibility of the potential development, based on the present zoning, appears to be feasible. The size, shape and topography of the sites makes development physically possible. Legal Considerations The legal factors influencing the highest and best use of the subject property are primarily government regulations, such as zoning and building codes. The tracts zoning allows development to residential as reported by the City of Indio. It is assumed that any development will be built in conformance with the developing codes and other governmental regulations. Based upon this assumption, the stated legal consideration for highest and best use is supportable. The regional economy as well as the national economy has been recovering nicely for residential development since the early '90s in the desert area. A survey of some of the more established residential developments in the Indio area supports the potential resurgence of residential development. Physical, legal and market considerations have been analyzed to evaluate the highest and best use of the tracts. This analysis is presented to evaluate the type of use which will generate the greatest level of future benefits possible from the properties. Based on the purpose of this appraisal, the highest and best use would be to develop to residential, which is the highest and best
use.

Financially

Feasible

Conclusion:

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VALUATION

METHODOLOGY

Basis of Valuation Valuation informed appraisal; is based upon persons; general and specific background experience; opinions of qualified, phase of the

consideration

of all data gathered data available

during

the investigative

and analysis

of all market

to the appraiser.

Valuation

Approaches to value are available to the appraiser: the Cost Approach, the Direct vacant known

Three basic approaches Comparison Approach

and the Income Approach. Approach

Since the subject

sites are essentially Approach

land parcels, only the Direct Comparison as the Discounted "as if finished" Cost Approach Cash Flow Analysis fee simple value.

and a form of the Income in estimating

have been utilized

the market

value of the

This approach calculates either the replacement or reproduction cost estimate of the subject property improvements new (maintaining comparable quality and utility). Losses in value are then subtracted from this value. Losses are sustained through depreciation, age, wear and tear, functionally obsolescent features and economic factors affecting the property. The net value is then added to the estimated land value to provide a total value estimate. The Cost Approach is not applicable in this particular appraisal. Direct Comparison Approach This approach is based upon the principle that the value of a property tends to be set by the price at which comparable properties have recently been sold or for which they can be acquired. This approach requires a detailed comparison of sales of comparable properties with the subject property. One of the main requisites, therefore, is that a sufficient number of transactions of comparable properties be available to provide an accurate indicator of value and that accurate information regarding price, terms, property description and proposed use be obtained through interview and observation. Income Approach This approach is based upon the theory that the value of property tends to be set by the expected income therefrom to the owner. It is, in effect, the capitalization of expected future income into present worth. This approach requires an estimate of net income, an analysis of all expense items, the selection of a capitalization rate and the processing of the net income stream into a value estimate. The Income Approach is applicable in this particular appraisal in a form known as a Discounted Cash Flow Analysis wherein projected sales of the subject portions to developers who will ultimately develop the land are discounted into a present value estimate. Methodology Due to the fact that the subject property consists of a vacant parcel of land, only the Direct Comparison Approach and a form of the Income Approach (Discounted Cash Flow Analysis) have been utilized.

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DIRECT COMPARISON Introduction

APPROACH

The Direct Comparison Approach is based upon the premise that when a property is replaceable in the market, its value tends to be set by the purchase price necessary to acquire an equally desirable substitute property, assuming no costly delay is encountered in making the decision and the market is reasonably informed. Substitution. 8 In appraisal practice, this is known as the Principle of

A search was undertaken to identify recent sales of comparable properties. searched for comparable sales of small to medium-sized, family developments.

In our survey, we of singleThe area of the

bulk acreage transactions

In our survey, eleven single-family sales were uncovered.

sales covered the northeastern portions of the Coachella Valley. The quality and quantity of the data was average. Of the sales uncovered, the most relevant were selected and are set forth in this report. A summary of the most comparable sales information is provided in the table on the following page. The data sheets are located before the sales location map.

_Thisapproach is a method of analyzing the subject property by comparison of actual sales of similar properties. These sales are evaluated by weighing both overall comparability and the relative importance of such variables as time, terms of sale, location of sale property, lot characteristics, improvement characteristics and amenities (if any).

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Analysis of Comparable

Sales

For comparison, the comparable sales have been analyzed on a price per buildable lot basis. The comparables were compared to the subject and final conclusions were based upon price per lot. The following table summarizes the comparable sales used in the analysis. A more detailed description of each transaction is included in the pages following the table.

SINGLE-FAMILY

RESIDENTIAL Sale Date Mar 05 Mar 05 Mar 05 May 05 Mar 05

COMPARABLE

SALES Finished Lot Costs $113,500 $132,000 $152,000 $151,000 $141,000

# 1. 2. 3. 4. 5.

Location PA 1 subject development, Indio, CA PA 2 subject development, lndio, CA PA 3 subject development, Indio, CA PA4 subject development, Indio, CA PA 5 subject development, Indio, CA First American Commercial I

Cash Equivalent Sale Price** $17,281,075 $14,728,625 $11,689,842 $18,619,937 $13,934,365

Total Acres 47.09 36.58 25.67 41.56 26.01

Lots 178 128 86 133 110

Source:

Real Estate Services ** Sale of land in Blue Top Condition I

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Datum No. 1

This is within the subject master plan, known as Planning Area 1. This sale took place on March 1,2005 for $17,281,075 for the blue top conditioned land. The finished lot estimate was reported at $113,500 for a density of 3.78 lots per acres. This sale is located on the NEC of Golf Center Parkway and Avenue 43. Only 33.05 acres will be used for residential, giving the residential acreage a density of 5.38 lots per acre.

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Datum No. 2

This sale is within the subject development and is known as Planning Area 2, Tract No. 316013. The total price is $14,728,625 and took place on March 28, 2005. The finished lot price is estimated at $132,000. The density is 3.50 units per acre. It is located north of Avenue 44 and east of Golf Center Parkway.

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Datum No. 3

The sale is within the subject development and is known as Planning Area 3 Tract No. 31601-4. The total price is $11,689,842 and is estimated at $152,000 per fmished lot. This sale took place on March 28, 2005. The size is 25.67 acres and has a density of 3.32 lots per acre. This is located within Tract No, 31601-4 and is located on Avenue 44, east of Golf Center Parkway, in the City of Indio.

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Datum No. 4

The is a sale within the subject development and is known as Planning Area 4, Tract No. 316015. The total price is $18,619,937 and is estimated at $151,000 per finished lot. This sale took place on May 18, 2005. The size is 41.56 acres and a density of 3.20 lots per acre. This is located North of Avenue 44 and east of Golf Center parkway, in the City of Indio. Only 17.6 acres will be used as residential acreage, based on the residential acreage, the density would be 7.55 units per acre. The remaining acreage is for the lake.

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Datum No. 5

The is a sale is within the subject development and is known as Planning Area 5, Tract No. 31601-5. The total price is $13,934,365 or $141,000 per finished lot. This sale took place on March 25, 2005. The size is 26.01 acres and a density of 4.22 lots per acre. This is located north of Avenue 44, north of Tract No. 61601-4, and just south of the golf course driving range.

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Single-Family Residential

Land Sales Comparison

Approach Analysis

Five comparable sales were used to estimate the value of the subject properties. The adjustments applied and derivation of each are set forth in the following grid.
LAND SALES ANALYSIS
II

ADJUSTMENTS Sale 3 $152,000 0% $152,000 0% $152,000 0% $152,000 0% $152,000 0% 0% 0% 0% 0% 0% 0% 0% $152,000

I

Sal e 1 II $113,500 0% $113,500 0% $113,500 0% $113,500 0% $113,500 0% 0% 0% 0% 0% 0% 0% 0% $113,500

II

Sale 2

Sale 4 $151,000 0% $151,000 0% $151,000 0% $151,000 0% $151,000 0% 0% 0% 0% 0% 0% 0% 0% $151,000

Sale 5I I $141,000 0% $141,000 0% $141,000 0% $141,000 0% $141,000 0% 0% 0% 0% i 0%l 0% 0% 0% $141,000 II

Unadjusted Price/SF Property Rights Subtotal Financing Terms Subtotal Conditions of Sale Subtotal Market Conditions Subtotal Other ,Adiustments Location Parcel Physical Characteristics Legal Encumbrances Availability of Utilities Zoning Highest and Best Use Amenities Total Other Adjustments Value Indication for Subject Commercial

$132,000 0% $132,000 0% $132,000 0% $132,000 0% $132,000 0% 0% 0% 0% 0% 0% 0% 0% $132,000

Source: First American IIII

Real Estate Services II

The adjustments made are discussed below: Property Rights Conveyed: A transaction price is always predicated on the real property interests conveyed. The real property rights being valued in this appraisal are the fee simple interests assuming community facility district assessments under 2004-3 are in place. Consideration was given to the influence of financing terms and arrangements. However, all of the sales were either all cash or market financed and were adjusted where warranted. Each of the property transfers included herein was an arm's length transaction where the buyers and sellers were not under undue duress. No adjustment was made.

Financing:

Condition of Sale:

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Date of Sale (Changes in Market

Conditions):

All of the comparable sales occurred between March 2005 and May 2005 Our research indicates that the market has been very strong within this period. Our analysis considered price level increases since March 2005 in homes as well as residential lots. Based on Market Data information we have not made any adjustments to the comparable sales.

Location:

Adjustments were made to the data for differences in the location of the comparable properties. Consideration was given to variances in underlying land values, visibility, access and schools, as well as average sale prices of homes. Location adjustments were applied to the comparable sales where appropriate. However, the sales data did not permit the derivation of location adjustments through paired sales data analysis that was felt to be highly supportive. A number of other variables contained in the data set prohibit reasonable grouping of the sales. The market data was subsequently considered on a broader basis to identify general patterns which would indicate the need for location adjustments. No adjustment was necessary.

Physical Characteristics:

Physical characteristics include such things as the parcel size and market appeal. In general, assuming all other factors are similar, larger developments will sell for less than smaller ones on a per lot basis due to the economics of constructing and operating larger developments. In addition, unit prices for most real estate products tend to decline as the number of units purchased increases. The subject property is part of a master planned community and all of the comparable sales where within that community.

Size:

It is difficult to measure from the market variances in size, therefore, the market data was considered a broader basis. No adjustment was made. The subject property will have a lake, two-golf courses and a club house. All of the comparables were located in the master planned community and no adjustment was necessary.

Amenities:

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOR.t\LMNDY PL_ICE eSA_NTA ANA, CALIFORNIA 92705e PHONE 714.580-7056 FAX 714.550-7057

57

Reconciliation of Finished Lots Value Concluded Land Value The adjusted land values concluded for the subject range from $113,500 to $152,000 per lot. The average or mean value is $137,900, while the median value is $132,750. The concluded estimate of land value for the subject is $137,000 per lot, which results in the following land value indicated for the subject:
SUM OF THE FINISHED LOT VALUES RECONCILIATION SUMMARY Estimated Lot Value Lots 635 $137,000 Indicated Value $86,995,000 I

Source: First American Commercial Real Estate Services I

We have concluded at $137,000 for a finished lot, that indicates a value of $86,995,000, $87,000,000 Rounded.

or

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOR;\L-XNDY PI_.CE eS,MNTA ANA, C_VLIFORNL-X 92705o PHONE 714.580-7056 FAX 714.550-7057

58

DEVELOPMENTAL

ANALYSIS

Following is a summary of an estimated analysis of the costs of development and absorption for the subject property. The cash flow analysis takes into account the time and cost of absorption of the subject zones. The reader should note that this is an analysis of typical investor thinking and not a projection or future value estimate. This analysis is to estimate the value of the Community Facilities

District No. 2004-3 at completion, prior to full absorption, and after full absorption. Absorplion Market feasibility deals with market conditions which influence the subject property. The major factors in considering whether a development is feasible in the market are the potential finished lot values in relationship to the competition and the subject's market segment, as well as the demand for reasonably priced finished lots within that market. Based on Market Profiles Consultants' study, the builders' proforma and our analysis, it is our

opinion the subject lots could be sold out to initial purchasers or merchant builders over a proposed one year development General, Administrative, time frame. For our cash flow we used 1 year. Costs, Profit and Marketing Costs

Taxes, Development

We have estimated the overhead, real estate tax and marketing costs for the subject parcel. The category of "Overhead" covers all overhead and management, supervision miscellaneous personnel, expenses. insurance Marketing premiums, travel and including the developer's office field other vehicle expenses, and

expenses, accountants, the management staff, along with supporting clerical/secretarial, expenses include not only sales commissions

but also

brochures, advertising, closing costs borne by the seller, and any other items required to attract and secure buyers to complete a successful transfer. administration projects. The estimated Assessment District and ad valorem tax cost is not computed The tax calculations on an exact have been We have utilized 2% for general and costs and 2% for marketing for costs based upon rates experienced by similar

percentage formula, rather it is on a per acre or unit basis.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES - APPRAISAL AND EVALUATION 1217 NOIL\LkNDY PLACE oSANTA ANA, CALIFORNL-k 92705e PHONE 714.580-7056 FAX 714.550-7057

59

approximated at a rate of 2% of the estimated value during the sell-off period, reflecting the bonds and finished condition of the land.

Development cost proforma has been provided by SunCal Companies. subject tracts is $25,035,347, the cost per lot is $39,425.74.

The total costs for the is

The developer contribution

$3,168,656 or $4,990.01 per lot, leaving a residual for the bond of $21,866,691. Discount Rate The final element in the discounted cash flow analysis is the discount rate. Since we have used a format which incorporates a partial profit in the discount rate, the rate will need to cover the investment in the land and compensate for all the risks and effort in developing the land, which was added as a line item in our cash flow.

The discount rate used in our analysis reflects time, risk and return for this development. experience with other similar developments indicates

Our a

that the larger and more complex

property, the greater the discount rate required. It should be noted that the discounted cash flow assumptions have been undertaken on a before-tax basis and before the effects of financing. Different types of investments require widely varying rates of return. The lowest rates are those attached to the safest investments. A "safe" rate is represented bythe return on U.S. Government Treasury rates, as of June 2005 was 4.37%. Another alternative, at higher risk, is corporate

bonds. As of the effective date of this appraisal, long high-yield corporate bonds were selling at average yield rates of 5.40%. However, even high-yield corporate bonds are less risky than an investment in development land like the subject property. is a larger pool of potential buyers. Consequently, yield rate on high-yield corporate bonds. According to the 2005 second quarter, Investor Survey published by Realtyrates.com, investor's Bond investments can be much

smaller than the amount needed to buy the subject land, the bonds are far more liquid and there the discount rate should be higher than the

in various types of improved real estate (incoming properties) required an average yield between 8.78% to 22.01%. The subject land is not an income property. It requires an enormous initial construction, development investment and it will require cash infusions to cover infrastructure

overhead and carrying costs. It would be very difficult to find a buyer for a quick sale if the

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOILMANDY PL'X_CES_MqTA .LNA, C,_LIFORNL-k 92705 PHONE 714.580-7056 FAX 714.550-7057

60

V
property had to be liquidated. Therefore, the yield rate should be substantially higher than the average 12.0% return on income properties and, in fact, higher than the highest rate of return on income properties. According to Realtyrates.com, Developer's Survey, subdivisions and PUD' s actual discount rates for 500+ units ranged between 14.07% to 34.62%.

Banks are currently charging approximately

7.54% (prime rate 5.54%) plus 2% for loan costs. In land

Considering loan costs, liquidity risks, property taxes and profit for the holding period before a sale could occur, a rate higher than any of the above in dictated yield would be required. premium above the yield rate on secure income properties for an investment in development like the subject property. A 6% premium on the 10.0% rate reported

light of these facts and analysis, the appraisers believe it is reasonable to require at least 6% for secured income

properties produces a discount rate 0fapproximately 14%. It has been the appraisers' experience over the last several years that discount rates on vacant land have ranged from 12% to as much as 25%. In general, it is believed that a rate of 14.0% is appropriate for the subject. In order to run a single Discounted Cash Flow for the subject, it was necessary to make an will be in place and that

analysis based on the estimated time period that the land development absorption study estimate.

the number of lots projected by the developer coincides with the estimate by the Market Profiles

As has been explained, the subject lots are projected to be absorbed in one year. The bulk lot sales are scheduled throughout the one year absorption period. This is consistent with Market Profiles "land take down" absorption estimates for all product types. Sales prices for the bulk lots sales are anticipated to remain stable for the first year and then are likely to increase. However, we have used a zero inflation assumption during our cash flow. A non-constant assumption would have resulted in a higher discount rate selection. page for our detailed Cash Flow Analysis. This analysis results in a discounted "as is" value of the land with the bond amount in place for the residential lots. dollar Please refer to the following

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOR2\IANDY PLACE -S_MNTA ANA, C._LIFORNLk 92705,, PHONE 714.580-7056 F.kX 714.550-7057 61

DISCOUNTED CASH FLOW ANALYSIS

CFD 2004-3 Planteng Naa t

Prcpe_y Types: RE$. IMP. LOTS

II of IoUU,_l IZB

Price per un_l $ t37,000

Tctlll $24,388,000 00

FSUBTOT_

17S

$137,DO0

$24._.000.DO

iTOTAL DISCOUNTRATE;

'

T=4.S,ae.'000.00 1 14.00%

DEVELOPMENT COSTS G &A COSTS REAL ESTATE TAXES MARKETING COSTS

SO88.2CO 2,00% 2.00% 2,00%

I,YEARS RES, IMP LOTS

't 178

2 0

2, 0

4 0

2,

10

11

12

t3

14

15

_E

TOTAL YEARS

TOT _kL LOTS TOTAL ACRES ITOTAL REVE NU F..E (Y A._.

_7B.IX_

$24,38_ _.00

$0 00

$0 DO

$0 00

$000

$0DO

$0CO

SDCO

SO DO

$0 _)

$0CO

SO CO

$0 CO

$0 CO

$24,386,C_3_ CO

EXP,_NSE_
DEVELOPMENT COSTS G & A COSTS REAL TAXES MARKETING COSTS SOS8,260 DO _187,720.00 SO.00 $487,720.CO S0.DO 0 0 0 $1.863,e40,00 $22,522,31Ei0 O,ET?19_,% $1g,75#1,456 0DO llO 00 SODO $0 00 _DO SO SO $0 SO00 S0 0,CO0000% $0 0DO SO 00 $-00(3 $0,00 $0CO SO $0 S0 SOCO S0 0.000000% $0 000 $S00 $-0 IX} SO 130 S0.DO $0 $0 SO $0CO S0 0.000000% $(3 0CO $O0O $-0 00 $0CO $0CO $0 $0 S0 $0CO S0 0000000% $0 S0 SOCO $-0 00 SO00 $0.DO $0 SO $o $000 $0 O,COC_CO% $0 $0 SO DO $'0.DO |D.CO $0rDO SO $o $0 $0 DO SO O.COCO00% $(_ $0 SOOQ S_000 SD.CO SO00 $0 $0 SO $000 S0 0 000C00% SO S0 S0.CO IF0.00 $0CO SO.00 SO $o $0 S0.CO $0 0 000G00% $0 $0 SOC_3 _0.CO $0D0 S0.00 $0 $o $0 S0,CO $(3 $0 S0.CO $-00(3 $000 $0DO $0 SO $o $0.00 SO $0 $_.CO S-0CO $O,0ZJ SO00 $0 So $o $000 $0 SO S0.CO $-0.00 SO(_) SO.00 $0 $0 $0 $00030 S0 SO SODO $-000 $0,C(] $0.00 SO _ $0 $0 CO $0 D.(XX)O00% SO $0 SOCO S-DO0 .$0,CO S0.DO $0 SO $0 SO.DO $0 O.DO0000% $_ S0 $0.00 _0CO S0.DO $0. CO $0 $0 $o SO00 $0 0000000% $0 SO88,20000 $4e,7,720 CO $0DO $48_,'r 20 C(i $0 CO $0CO $000 $9oo $1,883,64000 $02,522,360 I ODOOCO% $_,}'F_6,45_5

I TOTAL EXPENSE,S: Net Cash F_ow; Prlsen_ V_d_ Factor: Prisartl ValUeOf Cash FI_:

O.OODOCO% 0000000% SO SO

O,COOCO0% D00CO00% StY SO

i:lndicated

Net

Present

Value

II

$19,'/._,.156

Source F,rsl Arne_c_n Cornrr_rcJal Real Eslala Sere_ces

DISCOUNTED
CFD 2CO4-3 F1_ng/_ea 2

CASH FLOW ANALYSIS

Property Types: RES. iMP. LOTS

S of IoUunil 128

Prt8 pM unll $137.0CO

Tolel E17.536.0(X1.00

ISUETOTAL

128

$137.0_0

$t7.536.0G0.00

IT OT_" DIECOUNTRATE:

_.,=_14. ,,_ .00 1 00%

DEVELOPMENT COSTS a & A COSTS REAL ESTATE TAXES MARKETING COSTS

_38.721 2.00 '/, 2.00% 2.00%

i YEARS RES. IMP LOTS

1 128

2 0

3 0

4 0

10

1t

12

13

14

15

16

TOTAL YEARS t28

TOTAL LOT5 TOTAL ACRES I TOTAL REVENUE/YEAR

128.00

| 17,536.1_C,00

$0.00

$0 CO

$OCO

SO(_

$0 (30

f,0CO

SODO

SOCO

$0 IX)

S0 CO

$0CO

_9CO

$0CO

$ t 7.536.CO0 CO

,,.ExPE....... ,..,S_
DEVELOPMENT COSTS G & A COSTS REAL TAXES MARKETING COSTS =638,721,DO SO50.720.00 $O_OD $350,?20,00 $0.00 O O ITOTAL EXPENSES Net C_sh Ftow: PTlletll VIIu4 FZK:ior: Prelenl Va_ueo/Cash Flow: 0 $1,340,165_CO $1e,195,839 0,E?7193% $14,206,876 0.CO SO.DO S0.CO SO.CO SO.00 SO SO $0 SO.CO $0 0.COOCO0% S0 0.DO S0,DO $+0CO $0DO SODO SO tO $0 S0.DO $0 0,0CO(X;O% $0 D,CO SO.DO Fr0.CO S0,CO $000 $0 SO $0 S0.O0 $0 0.DODO00% $0 0CO S0.D0 $-0CO SO.CO SO00 SO $0 SO SODO $0 0.COCO00% $0 $0 $0.DO Fr0.CO S0,CO SODO $0 $0 $0 S0.CO SO 0.DO00(_O% $0 SO S0.DO Fr0CO $0CO SO 00 $0 $S SO S0.CO $0 0,000000% $0 $0 S0.DO Fr0.DO SO,DO $0.00 $0 $0 SO $ODO SO 0000000% $0 S0 SO,DO Fr0,DO S0.CO SOCO SO S0 $o S0,CO SO 0.CO00CO% SO S0 S0.DO Fr0.CO S0.CO SODO $0 _0 So $000 $0 O.0CO000% $0 $0 S0.DO Fr0,CO SO,CO SO.DO $0 SO $0 $0.00 S0 0000000% $0 $0 SOCo Fr0CO SO, CO 130DO _ _ $o S0.DO 50 30 $0CO FrOCO SO00 St) CO $0 $0 SO $000 SO S0 $0.DO FrO.CO SOCO $0 DO $0 $0 SO S0.CO SO $0 S0,DO Fr0_O0 $0CO $0 DO $0 $0 $o S0,CO .T_ S0 S0.DO $_)00 $0_CO St) DO $0 $0 SO S0,DO $0 $638_721.CO $350,720.DO $0CO $350,720 00 $0DO $0 CO $0,DO $0CO $1,340,161 CO $_6,195 839 I 000000% S t4,206,876

0 DOO(X]O% 0000000% $0 SO

0.COODO0% 0+DOO(X_0% 0,COOCO0% SO $0 $0

I'lndicated

Net

Present

Value

i!

sl4,11)6_?_

DISCOUNTED CASH FLOW ANALYSIS

CFD 2004-3 Ptar_ Area 3

Prop_ly Types: RES. tMP. LOTS

S Of lob'unit 86

Price pet unll $1ST,GOO

TOIII $t"_,7S_,000,00

IS_STOTrI_.

I_

'

$I$7,000

$11,782,0C0.00

ITOTAI.' 0t _,OUNT

, PATE:

, t'

tl t,?U, OoO'O0 1 14.90%

DEVELOPMENT COSTS O A COSTS REN. ESTATE TAJ(ES MARKETING COSTS

$029.t41 2,00% 2.00% 2.00%

JYEARS RES iMP LOTS

1 66

2 0

3 O

4 O

10

11

_2

13

14

f8

16

TOTAL yEARS

TOTAL LOTS TOTAL ACRES JTOTAL REVENUEtYEAR

_N_00

$1 1,782,000,00

SO00

$0.00

$0.00

$01_3

$0 0030

$0.00

S0C_

SQ.00

$00C

$000

S0.C<}

$_.00

$00(3

$11,782,00000:)

DEVELOPMENT COSTS G & A COSTS REAL TAXES MARKETING COSTS

$429,141.00 $235,640,00 $0.00 $235,640,00 $0,00 0 0 0

O.g0 $0,_0 SOGO $000 S0.GO SO $0 $0 $0.00 $0 O.OC_OGO% $0

S.00 $000 $`0,00 $0,00 $0.00 SO SO $0 $0,GO $0 0 C00000% SO

0,00 $0GO $`0,00 $0.00 $0.00 $0 SO $0 S0,GO SO O,COCC0% $0

0,00 S0.GO $`0GO 10,00 $0 00 SO $0 SO $000 S0 0000000% $0

$0 $0,00 $`0.GO SO00 $QGO SO $0 SO $000 $0 0 0C0300% $0

SO $0.00 $`D,00 $0,00 $0 00 $0 $0 $0 $0,00 SO 0 O00CCO% $0

$0 $0,00 $0.00 $0,00 $0,00 $0 $0 $0 $000 $0 O.GO(XICO% S0

$0 $000 $0.00 $0,00 $0 00 $0 SO SO $00O $0 0 0C<3000% $0

$0 $0,00 $`0GO SO GO $000 $0 $0 SO $0.00 $0 0 GOO(X_% $0

SO $0.00 $-0,00 $000 $0.00 $0 $0 $0 $0,00 $0 0 OO00CO% $0

$0 $0(X_ $'000 S0,GO S0.GO SO SO SO $500 $0 0,000C00% $0

$0 $000 $0.00 S0,00 $0,00 $0 $_ SO $000 _ 0 000GO0% $0

$0 $0,00 $0,00 $0,00 $0 00 $0 $0 $0 $0 CO SO O 0000C0% S0

$0 $0,00 $0,00 $0 GO S00G $0 $_ SO $0.00 I_) 0,000000% S0

$0 $0,00 $-0,00 $000 S0.GO SO _ $0 $000 $0 0 0000C0% $0

$429,14 f.00 $235,640 00 $000 $235,e40 00 $0._ $000 SO 00 $0.00 $000,42100 $10,681,879 I 00QOOO% $8,548,245

I TOTAL EXPENSES: NOI Cash FI_: Presenl Value Factor: Prese*ll Value of CIIsPIFlow:

$000,421.00 $t0,S81,579 0,877193% $9,545,245

iindicated Net Present Va_ue

II

$0._.*,,2,,1_

S,ourc,e F,rst Ar_fican

Commerc+a_Rea_ Estate Se_ic,_s

DISCOUNTED CASH FLOW ANALYSIS

CFD 2OO,4-3

P(opwly Types: RES, iMP, LOTS

If o/JoUuni( 133

ptica pet ut_| $_3T,(]O0

Tolll $18.221,0OO._O

JSUSTOTAL.

133

S13T,CO0

$tB.22L000.00

DISCOUNT RATE;

14.00%

OEVELOPMENT COSTS G A COSTS REAL ESTATE TAXES MARKETING COSTS

_3,87 t 2.00% 2.00% 200%

;,YEARS RES. IMPLOTS

t 133

2 0

3 0

4 0

10

11

_2

13

14

15

16

TOTAL YEARS 133

TOTAL LOTS TOTAL ACRES ITOTAL REVENUE/YEAR ERPE SES

133.00

$18,22LCO0 C0

$0CO

$0CO

SO.CO

SO, D0

$0CO

$000

$0.CO

$0,60

$OL_0

$000

SO00

$0CO

$000

$1B,22 I,CO0,00 I

_3,ETt.CO O & ACOSTS REAL TAXES MARKETING COSTS $364,420.00 SO.CO $384,420.00 SO.00 0 O 0 I TOTAL EXPENSES: Net Cash Flow: Presen( Value Facim: Pres(mtVllue o_Calh Flow: $1,392,E1LCO $16,B28,489 0,8111B3% $14.761,B32

O.GO $000 SO.CO $0.00 J0.CO $0 SO $0 $(3.00 $0 0.000000% $0

O.CO $0.00 _0.CO S0,CO $0CO SO $0 SO $0CO $0 0,000000% $0

0.CO S0,CO $-0.CO SO,00 $0.00 $0 SO $0 S0.CO SO O 0(X)O00% $0

O.CO SO00 $-0,CO SO00 $0,CO $0 SO $0 S0.CO SO O,O00000% $0

$0 $0CO $-0CO S0.CO $0.00 $0 SO $0 SO(X) $0 0.000000% $0

SO $0CO $-0 CO S0(X) S0,CO SO $0 $0 $0CG $0 O,OODDO0% $0

So SOCO $_CO S0.CO $0.00 $0 $0 SO $0130 SO OCO00CO% $0

$0 SOCO $-DCO $0.00 $0,00 SO $0 $0 $0CO SO 0000000% $0

$0 SO00 $-O.CO S0.CO SO,CO SO $0 $0 SOCO $0 0000000% $0

$-_'-SOCO $'0 CO S0,CO SOCO $0 $0 $0 $000 $0

$0 S0,CO $_CO SO00 SOCO $0 $0 $3 S0.CO $0

SO S0.CO $-0CO S0,CO SO00 SO SO $0 S0.CO $0 0000000% SO

$0 SOCO $-000 SOCO SOCO SO SO $0 110,00 $0 0000000% SO

So _.CO $-O.CO $0 CO $0CO $0 $0 $0 $0CO $0 0,000000% S0

$o $0_0 $-0 CO $0.00 $0CO SO $0 $0 $0CO $0 0000000% $0

_6e3.efl

Co

$364.420,CO SO0(] $364,420.CO S0,co $0 CO SOCO $0CO $1,392,5t1 CO I $16,828,489 t GC00CO% $14,761,832

O,ODDCO0% 0000000% $0 SE"

IIIndica

ed

Net

Present

Value

II

$14,761,,32

S,o_rc_: F_rstAmerican C_mrnat =alReal Ellata S_ce!

DISCOUNTED CASH FLOW ANALYSIS

CFD 2004-3 Ptlnn/n0 Area 5

Properly Types: RES. IMP. LOTS

# o_IoVunil | t0

Price pit Unlt $13T,CO0

TOIil $15,0T0.000.DO

I SUSTOTAL

t10

Sr 37,_

$ I S.070.000._

i TOTAl1" I .... I DISCO_3NT RATE:

....

_ii 1_10_01000"00 14.00%

OEVELOPMENT COSTS G & A COSTS REAL ESTATE TAXES MARKETING COSTS

S548,CO1 2.00% 2,C0% 2 00%

IYEARS RES. IMPLOTS

1 110

2 0

3 0

4 0

10

11

12

13

14

t5

18

TOTAL YEARS 110

TOTAL LOTS TOTAL ACRES ] TOTAL REVENUFJYEAR EXP N ES

110.00

$15,070,0(X).CO

SO,CO

to00

to,00

to00

S0CO

SO00

toco

SO00

to00

SO, CO

S0,CO

$00(_

to,CO

St 5,070.CO0 Co

O T COSTS G & A COSTS REAL TAXES M/'_RKETINGCOSTS

$54_.1K)1.00 $30%/,00.00 SO,(;O $301.400.00 SO{X) 0 o

0,00 SO.00 to,00 SO.CO $000 SO SO SO SO.CO $0 O.GO0000% $0

O.CO SO.00 $'0CO SO,CO SO.O0 $0 $0 $0 to.00 $0 0,000000% $0

0.00 SO.O0 $0.CO sO,CO SO,O0 l0 SO SO I;0,00 $0 0.QO0000% SO

0,00 $000 $'0.CO S0,CO SO,CO SO =0 SO $000 $0 0,CCOCO0% S0

$0 SO00 $'0CO S0,CO to O0 $0 $o $0 S0.CO $0 0.0CO000% $0

$0 SO._ $--0 CO $0.00 $0.00 $0 $o to SO00 $0 Q CO0(]_0% $0

SO SOCO f_0.00 SO.CO SO,CO SO SO S0 S0(X) $0 O.CO(]OCO % $0

SO SO.00 $'0,CO to, CO SO.O0 SO $o SO toco to

$0 SOr00 Ik0.co $0,00 SO,O0 $0 $0 $0 toCO $0

$0 $0.00 $'O.00 $O.00 $0.00 SO SO SO S0.CO $0

to S0.C0 $'0.00 sOCO SO,CO $0 SO to $000 $0

SO SO.00 t'O.CO SO.CO SO.OQ $0 So SO S0.CO $0

SO SO.CO S'0,CO t0,CO SO00 SO to $0 SO,CO SO

SO SO00 I_O,CO SOC(] SO.O_ $0 to to $00(3 to 0,00CO00% SOl

$0 SO,O0 S--O.CO SOCO SO.OO S0 SO SO $OCO SO 0,000000% $0

$54B,COt.CO $30'[,/*CO.CO _0CO $301.40000 SO.CO i0CO SOCO SO.O0 $1,151.701.00 S13.91B,299 1 COOOCO% $12,209,034

! TOTAL EXPENSES: Nel C.ish Flow: Pro, enl V_ue FaX:lot: Preis_ll Va]ue of CIsh FLOW:,

0 $1.151,701.00 $13,918,299 0.877193% $12,209,D34

0 OC(]_(]O% Q 0COOG_% to SO

0 COOCOQ% G.CKX]C(X_% 0.COCO(X)% O.OCO(X)0 % $0 $_ $0 _

i Ir_dica(ed

Net

Present

Vatue

II

StZ,.l(19p_4

SO_t_: FIfs_ AmericanCor_meroal Re#l Estale Ser_s

Summary

of Valuations:

SUM OF THE VALUES CONCLUSION Discounted Bulk Value $19,757,000 $14,207,000 $9,545,000 $14,762,000 $12,209,000 $70,408,000 $71,000,000

Subject Planning Area 1 Planning Area 2 Planning Area 3 Planning Area 4 Plarming Area 5 CFD 2004-3

Lots 178 128 86 133 110 635 Rounded

Source: First American Commercial Real Estate Services

'

FIRST

AMERICAN

COMMERCIAL PLACE

REAL

ESTATE

SERVICES _. 92705e

-- APPRAISAL 714.580-7056

AND

EVALUATION

1217 NOR_\L_'qDY

eS_kNTA _M'qA, C,LLIFORNL

PHONE

FA_X 714.550-7057

67

VALUATION SUMMARY The following values are the estimated values of the property as of June 17, 2005. The estimated value of the residential parcel, discounted for the time and cost of absorption, assuming the proposed Assessment District Financing is in place and ready for funding, is as follows: SEVENTY ONE MILLION $71,000,000 DOLLARS

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOtL\fl-kNDY PLACE oS_<TA ANA, CALIFORNL-k 92705o PHONE 714.580-7056 FAX 714.550-7057

68

CERTIFICATION We certify that to the best of our knowledge and belief: During the completion of the assignment, we did personally inspect the property that is the subject of this report (except as specifically noted). We have no present or contemplated future interest in the real estate or personal interest with respect to the subject matter or the parties involved in this appraisal report, and our employment in this matter is not in any manner contingent upon anything other than the delivery of this report. We have no bias with respect to the property that is the subject of this appraisal or the parties involved with this assignment. Our compensation was not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value as estimated, the attainment of a stipulated result or the occurrence of a subsequent event directly related to the intended use of this report. This report is not based upon a requested minimum valuation, specific valuation or the approval of a loan. The statements of fact contained in this appraisal report, upon which the analyses, opinions and conclusions expressed herein are based, are true and correct. This evaluation report sets forth all of the limiting conditions (imposed by the terms of my assignment or by the undersigned) affecting the analyses, opinions and conclusions contained in this report. The analyses, opinions and conclusions were developed and this appraisal report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice as promulgated by the Appraisal Foundation for an evaluation report. We alone have prepared the personal, unbiased professional analyses, opinions conclusions conceming real estate that are set forth in this appraisal report. and

William V. Shrewsbury, MAI, is a "Certified General Real Estate Appraiser" within the State of California. William V. Shrewsbury's Certification Number is AG004522. Jaimie Z. Basso's OREA License No. is AT031532. This appraisal report is invalid unless all signature pages have been signed. We certify that to the best of my knowledge and belief the reported analyses, opinions and conclusions were developed and this report has been prepared in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. We certify that the use of this report is subject to the requirements relating to review by its duly authorized representatives. of the Appraisal Institute

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOF,.,\Lh/qDY PLACE -S_h'qTA ANA, C._LIFORNL_ 92705,, PHONE 714.580-7056 FAX 714.550-7057 69

We are competent to appraise this particular property type and have appraised similar property types in the area. Disclosure of the contents of this appraisal report is governed by the Bylaws and Regulations of the Appraisal Institute.

The Appraisal Institute conducts voluntary programs of continuing education for its designated members. MAIs who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, William V. Shrewsbury has completed continuing education program of the Appraisal Institute. the requirements of the

William V. Shrewsbury, MAI Senior Vice President California Certification No. AG004522

icense No. AT031532

FIRST AMERICAN COMMERCIAL REAL EST&TE SERVICES -- APPRAISAL AND EVALUATION 1217 NOR,\L-kNDY PLACE eSANTA ANA, C_LIFORNIA 92705e PHONE 714.580-7056 FAX 714.550-7057

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QUALIFICATIONS OF WILLIAM V. SHREWSBURY, MAI

PROFESSIONAL

BACKGROUND

Actively engaged as a real estate appraiser and consulting appraiser with forty years experience. I am Senior Vice President, Real Estate Appraisal/Commercial Division, of First American Commercial Real Estate Services located at: 1217 Normandy Place Santa Ana, California 92705 Previously engaged as President of Interstate Appraisal Corporation and Director of Real Estate Appraisal with The Irvine Company. PROFESSIONAL ORGANIZATIONS

Member of the AppraiSal Institute with MAI designation. Licensed Real Estate Appraiser, State of California, "Certified General Real Estate Appraiser". t I '. Member of the Intemational Association of Assessing Officers with the Accredited Assessment Evaluation (CAE) designation. I am also a member of the Orange County Assessment Appeals Board. A licensed California Real Estate Broker. EDUCATION Real Estate Special Courses: Essentials of Residential Design and Structure Intermediate Real Estate Appraisal, Courses I, II, III, IV, V Real Estate Principles Commercial Investment Property Advanced Real Estate Appraisal Real Estate Law Real Estate Practices Real Estate Finance Subdivision Analysis Engineering

Qualifications of William V. Shrewsbury, MAI Page Two Courses Sponsored by Appraisal Institute: Principles, Methods, Techniques of Real Estate Appraising Urban Properties Techniques of Capitalization Residential Appraising Appraising Leasehold Estates Capitalization A Standards of Professional Practice A and B COURT QUALIFICATIONS Qualified as an expert witness. SCOPE OF APPRAISAL Vacant Land Various large land holdings such as the 1,700 acres, planned community (Village of Woodbridge); 350 acres, planned community (Village of Deerfield); 1,000 acres, planned community (University Park); 1,200 acres, planned community (Village of Turtle Rock); 650 acres, commercial development (Newport Center); 10,000 acres, planned community, coastal area; 77,000 acres, land holdings of The Irvine Company. Also various land holdings from San Diego County to Los Angeles County. Residential Single-family dwellings, multiple-family throughout Southern California. Commercial Shopping centers (neighborhood and sub-regional), retail stores, general office buildings (lowand high-rise), service stations, carwash, parking lots and medical office buildings. Industrial Warehouses, industrial condominiums Special Purpose Churches, marinas, television studio, restaurant, parks, nursery, golf courses, tennis club, lessor and lessee interests, packing house operation and fractional interests. and highly improved industrial buildings. dwellings, condominiums and mobile home parks EXPERIENCE

ADDENDUM

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APPENDIX MARKET

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MARKET FEASIBILITY AND ABSORPTION ANALYSIS (TERRA LAGO) COMMUNITY FACILITIES DISTRICT- PHASE ONE INDIO, CALIFORNIA

JULY 2005

Prepared for: CITY OF INDIO 100 Civic Center Mall Indio, California 92202

Prepared by: MARKET PROFILES 200 North Tustin Avenue, Suite 102 Santa Ana, California 92705 Telephone Number: 714/546-3814 Facsimile Number: 7141546-0953

Market Profiles www.marketprofilesinc.com

Real Estate Research

Market Profiles and ('ons l_ltants for

over 30 year_

July 1,2005 Mr. Roy Stephenson CITY OF INDIO 100 Civic Center Mall Indio, California 92202 RE: MARKET FEASIBILITY AND ABSORPTION ANALYSIS COMMUNITY FACILITIES DISTRICT- PHASE I TERRA LAGO

Dear Mr. Stephenson: This market report presents Market Profile's evaluation of the market opportunities relating to the residential tracts that compose Terra Lago Community Facilities District in the City of Indio. The Assessment District consists of 635 lots that are located in the Shadow Hills district in the northern portion of the City of Indio. The study evaluated the depth of demand for new homes in the CoacheUa Valley, as well as, the competitive conditions within the local Indio marketplace. Briefly, the research findings indicate that market demand is ample to support the development and sale of the proposed new homes. Competitive evaluations of the price structures that are anticipated for the homes are presented in Section I of the repor-I, and the sales absorption rates that are projected for each of the subject residential tracts are presented at the end of that section, The report has been reorganized as follows: Section Section Section Section I - Summary of Findings and Conclusions II -- Market Demand Analysis III - Summary of Competition IV- Supporting Documentation

We appreciate the opportunity to work with you in evaluating the opportunities for development of new homes in the City of tndio. Please call if you have any questions. Boyd Martin directed the study effort and David Dickey served as project manager. Sincerely, MARKET PROFILES

Boyd D_ Martin Chairman

200 North Tustin Avenue, (714) 546_3814

David W. Dickey Senior Economist

&'utte 102, ,$'anta Ana, Fax (714) 546-0953 Ca. 9?705

Market

Profiles

TABLE OF CONTENTS
SECTION I DESCRIPTION PAGE NO,

SUMMARY OF FINDINGS AND CONCLUSIONS Introduction ......................................................................................... Property Location and Description...................................................... Description of Subject Homes............................................................. The Market Opportunity ...................................................................... Existing New Home Competition ........................................................ Future New Home Competition ........................................................... Price Positioning Analysis ................................................................... Premiums for Lake and Golf Course Frontage ................................... Projected Sales Absorption.................................................................

I-I I-1 I-3 I-4 I-5 I-7 I-7 I-8 I-9

II

ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST Introduction........................................................................................ Employment Growth .......................................................................... Demographic Profile .......................................................................... Housing Profile .................................................................................. New Home Sales Trends ................................................................... Price Trends ...................................................................................... Projected New Home Demand ..........................................................

I1-1 I1-1 11-3 11-4 11-4 11-5 11-6

III

SUMMARY OF COMPETITION Introduction ...................................................................................... New Home Competition.................................................................... InventoryTrends ............................................................................... Sales Rates ...................................................................................... Most Competitive New Home Projects.............................................. Proposed New Home Development ..................................................

II1-1 II1-1 111-2 111-2 111-2 ill-4

IV

SUPPORTING DOCUMENTATION (Available with Hard Copy)

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Market

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LIST OF EXHIBITS
EXHIBIT SEC]IONI.. I-1 I-2 I-3 I-4 I-5 I-6 I-7 DESCRIPTION SUMMARYOI FINDINGS AND CONCLUSIONS

Regional Site Location Map Neighborhood Site Location Map Summary of Proposed Home Prices, Terra Lago Phase One, June 2005 Projected Annual New Home Demand, Coachella Valley, 2005-2006 Summary of New Home Developments, Shadow Hills, July 2005 Price and Product Characteristics, Indio Comps New Home Sales Rates by Price Range, Coachella Valley, First Quarter 2OO5 Quarterly Absorption Schedule, Terra Lago Community Facilities District, Phase One, City of Indio

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SECTION II -- ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST I1-1 11-2 Coachella Valley Submarket Areas Employment Growth, Riverside / San Bernardino Bi-County Region and Southern California, 1980-2006 Hotel Room Sales, Coachella Valley, 1988-2004 Demographic Profile, Coachella Valley and Riverside County Housing Profile, Coachella Valley and Riverside County, 2005 Housing Stock Profiles, Coachella Valley Cities, 2000 New Home Sales Quarter 2005 by Submarket Area, Coachella Valley, 1992_First

11-3 11-4 11-5 11-6 11-7

:l I
Market Profiles

LIST OF EXHIBITS
EXHIBIT 11-8 DESCRIPTION Average New Home Price, Detached Product, Submarket Area, 1998-Third Quarter 2004 Coachella Valley by

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New Home Sales by Price Range, Detached Product, Coachella Valley, 2003-First Quarter 2005 New Home Sales Distributed by Price Range, Indio-Coachella Submarket Area and Coachella Valley, First Quarter 2005 Housing Growth Summary, Riverside County and the Coachella Valley Market Area, 1980-2009 Projected Annual New Home Demand, Coachella Valley, 2005-2006

11-10

I1-11

11-12

SECTION III - SUMMARY OF COMPETITtOI_ II1-1 Summary of New Home Developments, Valley, First Quarter 2005 Detached Product, Coachella

111-2

New Home Market Summary by Submarket Area, Detached Product, First Quarter 2005 Summary of New Home Developments, Indio-Coachella Submarket Area, First Quarter 2005 Summary of New Home Developments, Shadow Hills, July 2005 New Home Projects Location Map Development Status Report, City of Indio, June 2005

111-3

111-4 111-5 111-6

III

IllI

SECTION I
SUMMARY OF FINDINGS AND CONCLUSIONS
II lllI I I II

MarketProfiles, Inc,

SECTION I SUMMARY OF FINDINGS AND CONCLUSIONS

INTRODUCTION This section presents a summary of the market opportunities identified with respect to the new homes that are proposed to be constructed within the Terra Lago Community Facilities District (CFD) in the City of Indio. The homes consist of five tracts that compose Phase I of the Terra Lago planned community. Based upon the anticipated price structure of the homes, a forecast of sales absorption has been formulated and is presented at the end of this Section I of the report (see Exhibit I-8). PROPERTY LOCATION AND DESCRIPTION The subject property consists of 635 residential lots that are contained within five residential tracts that will be developed by four quality builders. The subject tracts are situated within the larger Shadow Hills community that is located in the northern portion of the City of Indio north of the Interstate 10 Freeway. The master-planned community of Terra Lago is located less than one mile north of Interstate-10 at the northeast corner of Golf Center Parkway and Avenue 43. The community is bisected by the Coachella Canal, an extension of the All American Canal, that runs southeastward through the property, The northern edge of the Terra Lago community abuts lhe base of the foothills at the northern boundary of the City of Indio. The property extends southward to Avenue 44, To the east of the property is open desert. About one mile to the northwest off of Jackson Street are six new home subdivisions within the Shadow Hills community that are currently marketing homes. These subdivisions are discussed below, The location of the subject property is shown from a regional viewpoint in Exhibit I-1, and Exhibit I-2 shows the property in a local context. All of the sites offer convenient access to the 1-10 Freeway. There are a wide variety of good quality retail shops and services located along Highway 11 in downtown Indio about three miles southwest. A major expansion of the indio Fashion Mall is planned that would increase the size from its current 220,000 square feet and transform it into a "lifestyle center". Within the Shadow Hills community, a 500,000 square foot power center is planned for a site located at the northwest comer of Interstate 10 and Monroe Street, Development of this center is anticipated to begin in mid- to late-2005. In addition, a neighborhood retail center with a supermarket has been approved for a 10acre parcel at the northwest corner of Jackson Street and Avenue 42. Given the large

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number of homes being constructed in the vicinity, it is reasonable to assume that its development will be initiated in advance of the completion of all of the subject homes. Currently, there is an elementary school and a junior high school located on the south side of Interstate 10. However, the Desert Sands School District has announced plans to build a new high school north of Interstate 10 at Jefferson Street and Avenue 39. The property on which the high school will be built ultimately will also include new elementary and middle schools, forming a K through 12 campus. The new high school will be ready to open in 2008, but timetables for construction of the elementary and middle schools have not been established. Higher education facilities located in the Coachella Valley area include: College of the Desert, a two-year community college located in Palm Desert; the Coachella Valley Campus of California State University San Bernardino (CSUSB), which recently opened its initial phase of development in Palm Desert on a site at Cook Street and Frank Sinatra Drive; and Chapman University, with an extension and degree program offered at facilities in Palm Desert. In addition, UC Riverside (UCR) will be building a twobuilding complex on a portion of the same site on which CSUSB is building its campus. The UCR satellite campus will house graduate-level academic programs in entrepreneurship, a center for UCR research in the area and the university's outreach programs and services, with initial facilities planned to open in early-2005. The subject property is one mile east of the 18-hole, Par-3 Indio Municipal Golf Course, the only night-lighted course in the Coachella Valley. The Indio Municipal Course is planned to undergo an expansion and renovation to be reconfigured into a Par 60 Executive Course, Two major Indian casinos, Spotlight 29 Casino and Fantasy Springs Casino, are located less than three miles from the subject project, near the intersection of Golf Center Drive and Interstate 10. Both of these facilities are undergoing significant improvement and expansion programs. The Terra Lago community will offer several major amenities. The community will be constructed around the existing Landmark Golf Club that includes two 18-hole championship golf courses. The subject homes in the Phase I of the community will be constructed around a 22-acre private lake that will offer boat access. Phase I will also include a recreation complex that will consist of a clubhouse, pool, and tennis complex. In addition, each tract will have a neighborhood park.

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MarketProfiles,tnc. DESCRIPTION OF SUBJECT HOMER As currently proposed, the homes that are planned for construction on the subject properties consist of five product lines that will be marketed independently of one another by four different homebuilders. Each of the homebuilders is highly experienced and has consistentlydemonstrated the ability to construct and market quality homes in a timely and professional manner. The five product lines are summarized in Text Table I-1 below. The homes will offer a variety of design configurations that will appeal to a broad mix of household types including families with children, young married couples, move-down households, retired couples, and second home buyers. TEXT TABLE I-1 SUMMARY OF PROPOSED NEW HOMES TERRA LAGO CFD Minimum Lot Size % Mix 27.7% 20.3% 13.6% 17.4% 21.0% 100.0% (Sq. Ft.) 5,000 7,200 8,400 6,000 3,300 3,300-8,400

Number Tract # 31601-2 31601-3 31601-4 31601-5 31601 Builder Woodside Homes . Lennar Homes Lennar Homes Ryland Homes Ashbrook Homes of Lots 178 128 86 110 133

Home Size Range (SF) 1,658-2,407 2,092-2,660 2,595-3,120 1,987-2,591 2,100-2,500 1,658-3-_1_--

Total / Range 635 Source: S unCal P roperties, Market Profiles

The home prices that are currently proposed for each of the tracts are shown in Exhibit I-3, Although subject to revision, it is anticipated that each builder will construct homes that are in reasonable conformance with the proposed targets that are presented in this report. The sale pdces shown are stated in today's dollars, exclusive of future inflation or price appreciation that is likely to occur. The projected sales absorption rates for the subject new home subdivisions are predicated upon the home prices and sizes that are. shown in Exhibit I-3 (see PROJECTED SALES ABOSRPTION below). Depending upon the degree that the actual home prices and sizes may differ from those shown, the absorption projections may require appropriate adjustments.

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Market Profiles, Inc.

In addition to the base sale prices of the subject Terra Lago homes, many of the homes will command substantial premiums primarily for views of the lake and golf course. The values of the view premiums and the number of homes that will be able to command such premiums within each neighborhood are summarized in Exhibit I-3. The values of the premiums were derived based on a review of premiums that are currently being commanded by new home subdivisions with comparable views (see PREMIUMS FOR LAKE AND GOLF COURSE FRONTAGE below). THE MARKET OPPORTUNITY New home sales in the Coachella Valley have been strong over the past three years. The sales volume reached 5,768 homes in 2003 and 5,851 homes were sold in 2004. In the first quarter of 2005, sales totaled 1,331 homes. Although this is a strong sales figure, it is below the 2,052 sales that were reported in the first quarter of 2004. For analysis purposes, the Coachella Valley has been divided into five submarket areas. The boundaries of the submarkets are shown in Exhibit I1-1in Section II of this report, Each of the submarket areas has unique characteristics. The Indio-Coachella submarket consists of the cities of Indic and Coachella and the immediately surrounding unincorporated areas. New home sales in the Indio-Coachella submarket area have accelerated over the past three years. Sales increased from 241 homes in 1999 to 591 in 2001, then sales jumped to 1,217 homes in 2002 and to 2,890 homes in 2003. Sales continued strong in 2004 with 2,596 homes sold. Moderate home prices have been a major attractor of homebuyers to the submarket. In the first quarter of 2005, new home sales in the Indio-Coachella submarket totaled 585 homes. This figure is below the 872 homes that were reported sold in the first quarter of 2004, The Indio-Coachella submarket accounted for 44 percent of all new detached homes sold in the Coachella Valley during the first quarter of 2004. The high proportional share captured by the submarket is due to three major factors as follows: 1. Moderate home prices. 2. Shortages of moderately priced new homes in other areas of the Valley. 3. Increasing homebuyer perceptions of Indic as a desirable residential location.

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The demand for new homes in the Coachella Valley is projected to average 4,500 homes per year over the next two years (see report Section II). The projected distribution of demand by price range is shown in Exhibit I-4. Market demand is spread across a wide range of prices from under $300,000 to over $1,000,000. The majority of the new homes sold to date in Indio have been purchased by households that were seeking a moderately priced primary home. During the first quarter of 2005, the Indio-Coachella submarket area accounted for 89 percent of all homes sold in the Coachella Valley that were priced below $400,000. New supplies of homes priced under $400,000 have emerged in the communities of Desert Hot Springs and Coachella, However, the community of Indio will continue to dominate the market for moderately priced homes. It is projected that, on a sustained basis, the IndioCoachella submarket area will capture roughly 45 percent of the total annual new home sales in the Coachella Valley. This equates to a sales volume of about 2,000 homes per year. Given the continued availability of very low mortgage interest rates (i.e., near 6%), the volume of new home sales in the Indio market area may surpass the projection of sustained annual sales of 2,000 homes. The sustained forecast assumes that interest rates will eventually rise by at least one half percentage point, resulting in a moderation in new home demand within the submarket, In addition, it is assumed that the competitive conditions within the City of Indio will intensify and that other communities in the Coachella Valley will offer larger numbers of moderately priced new homes than they have in recent months. EXISTING NEW HOME COMPETITION There were 78 new home subdivisions that were active throughout the Coachella Valley duringthe first quarter of 2005. Descriptionsof these projects are included in Section III of this report, There are 12 new home subdivisionscurrently active in Shadow Hills area. These 12 subdivisions are most relevant to the subject properties. The 12 projects are summarized in Exhibit I-5 and the most pertinent projects are described below. The fastest selling subdivisionin Shadow Hills is Bella Tlerra. The first 40 of these 3and 5-bedroom homes have been sold at a rate of 8.12 homes per week. The base prices range from $379,990 to $419,990 for plans that range in size from 1,895 to 2,629 square feet ($159.75 to $200.52 per sq. ft.). The homes are sited on 8,000 square foot lots (minimum) Another fast selling subdivision is Foxstone by KB Home. All 63 homes that were released during the first quarter were sold equating to a sales rate of 4.88 homes per

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week. The project has another 182 homes remaining to be sold in subsequent phases. The base prices of these homes range from $307,990 to $368,990 for 2- and 3bedroom plans that range in size from 1,517 to 2,526 square feet ($146.07 to $203.02 per sq. ft.). The neighborhood is gated and the minimum lot size is 8,000. The 132-1ot Sienna subdivision recently opened in Shadow Hills. The base prices of the homes range from $394,990 to $447,990 for 3- and 4-bedroom plans that range in size from 2,448 to 3,143 square feet ($142.54 to $161.35 per sq. ft.). The 263-1ot Shadow Ranch subdivision by Family Development sold out of 30 homes at a rate of 3.0 homes per week. These homes range $394,990 to $489,990 for 3-, 4-, and 5-bedroom plans that range in size 3,247 square feet ($150.90 to $180.77 per sq. ft.). The minimum lot square feet. its first phase in price from from 3,185 to size is 8,500

The Desert Collection is a gated subdivision of 142 homes. The base prices of these 3-bedroom homes range from $364,990 to $414,990 for plans that range in size from 1,610 to 2,266 square feet ($183.13 to $226.70 per sq. ft.). The first 73 homes were sold at a rate of 3.31 homes per week, The minimum lot size is 7,200 square feet. The new community of Talavera in northeastern most Indio recently opened with four new home subdivisions offering homes for sale. The homes range in price from $299,999 to $416,990. The minimum lot size for all of the homes in Talavera is 8,000 square feet. The Venecia homes are the smallest being offered in Talavera. They consist of 3- and 4-bedroom plans that range in size from 1,576 to 1,947 square feet with base prices ranging from $299,999 to $333,990 ($171.54 to $190.35 per sq. ft.). Twenty-five of the 45 homes in the first phase release were sold at a rate of 1.76 homes per week. The homes in the Florencia subdivision in Talavera range in size from 1,855 to 2,380 with base prices ranging from $330,000 to $370,000 ($155.46 to $179.45 per sq. ft.). Of the 44 homes in the first phase, 26 were sold at a rate of 5.93 homes per week. Also in Talavera, the Alicante homes consist of 3-, 4-, and 5-bedroom plans that range in size from $389,540 to $404,990 (130.68 to $156.25 per sq. ft.). Two thirds of the 33 homes released in the first phase have been sold at a rate of 3.61 homes per week. The largest homes being offered in Talavera are those in the Genova subdivision. The base prices of these homes range from $396,990 to $416,990 for 2-, 3- and 5-bedroom plans that range in size from 2,848 to 3,280 square feet ($127.64 to $139.39 per sq. ft.).

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Eighteen homes have been sold at a rate of 1.9 homes per week. FUTURE NEW HOME COMPETITION There are approximately 7,500 new homes within more than 40 subdivisions that are proposed for future development in the City of Indio (see report Section III). With this scale of proposed activity, it is projected that the Indio market area will experience a competitive environment for the next several years. However, the Indio market has been experiencing an under supplied market condition (see Section III) and the homes that are planned for development will be constructed in a phased manner over the next several years. It is projected that competitive conditions over the next three years will be more intense than those currently being experienced in the Indio marketplace, however, generally healthy demand-supply conditionsare projected to be maintained. The majority of the new homes that will be constructed in Indio over the next few years will be located in and around the Shadow Hills community located north of Interstate 10 Freeway. In addition to the 1,400-plus homes that will be developed within the subject Terra Lago community, there are more than 2,700 homes that are planned for construction elsewhere in the Shadow Hills community. The majority of these homes will be constructed over the next three to four years. A summary of the 2,723 homes that will be part of the City of Indio Assessment District 2004-VSD is presented in Section III of this report. All of these homes will be located in the Shadow Hills community primarily to the west of the Terra Lago community. The prices of the homes will generally range between $300,000 and $500,000. Two subdivisions by Family Development located in the AD 2004-VSD are under construction and are actively selling homes (see Exhibit I-5). Also located north of the 1-10 Freeway is the site of the Andreas Ranch that will include 937 homes within a private, gated community. This property is located north of Avenue 38 at Jefferson Street. PRICE POSITIONING ANALYSIS The subject new homes that are proposed for development within Phase I of the Terra Lago community will offer an assortment of designs that will appeal to a variety of household types. The price positioning of the subject homes compared to the existing new home projects that are located in Shadow Hills is shown in Exhibit I-6. The home prices shown in the exhibits are base prices, exclusive of location premiums or other upgrades. Exhibit I-6 shows that the anticipated price structure of the majority of the subject homes (shown with solid lines) positions them well within the price structures of the existing new home projects in Shadow Hills (shown with dashed lines). This is a favorable price

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positioning for the subject homes given the high quality community image that the subject Terra Lago community is anticipated to establish within the Indio marketplace. The subject residential tracts will be contained within an attractive and cohesive community context that will offer major amenities that are not available to the existing new home competitors in Shadow Hills. PREMIUMS FOR LAKE AND GOLF COURSE FRON_TA.,GE Many of the subject homes that are proposed for Phase I of the Terra Lago community will be adjacent to the lake or to the existing Landmark golf course, The resultingviews will create opportunities to command substantial premiums for those homes. View premiums that are currently being commanded by new home projects in the Coachella Valley range up to $250,000. The amount of the premium is influenced by the quality of the view and by the value of the home. The maximum premiums generally range from ten percent to 33 percent of the home value. Within the City of Indio, the highest view premiums that are currently being commanded are for homes with frontage on the Indian Palms golf course. Premiums of up to about $100,000 and 20 percent of the home value are being commanded within Indian Palms. The Indian Palms golf course is of lesser quality than the Landmark Golf Club that is part of the Terra Lago community. Currently, there are two new home subdivisions in Rancho Mirage that are marketing homes that have lake views. Both of these subdivisions are located within the private Santo Tomas community. The premiums for lake frontage in this community range up to $200,000 and equate to as much as 40 percent of the home price. Based on the anticipated quality of the lake and golf course views that will be created in Phase I of the Terra Lago community, it is concluded that the subject homes that will have lake or golf course frontage will be able to command view premiums of about $100,000. The estimated premiums that can be commanded by the subject new home tracts are summarized in Exhibit !-3. The number of homes that will have lake and golf course frontage have been estimated based on preliminary land use maps. In addition to the major view premium, the sale prices of many of the subject homes will, appropriately, include additional premiums for less significant characteristics such as larger lot size, desirable location (such as a cul.de-sac), etc. Premiums of $1,000 to $15,000 have been successfully commanded by new home subdivisions in Shadow Hills. Such premiums are common among virtually all of the competitive new home subdivisions in this marketplace.

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MarketProfiles,Inc. PROJECTED SALES ABSORPTION The sales rates among the 78 new home projects that were selling detached homes in the Coachella Valley during the first quarter of 2005 ranged widely from 0.08 to 7,9 homes per week. The average sales rate was 1.73 homes per week per project. The sales rates of the 12 Shadow Hills projects that are shown in Exhibit I-5 range from 0.81 to 8.12 homes per week. The average sales rate is 3.43 homes per week and the median rate is 3.0 homes per week. The sales rates of these homes are very favorable in part due to the fact that many of them recently opened and sales rates tend to be more rapid in the initial marketing phases, then taper off in later phases. A healthy volume of new home sales is projected to be maintained in the Indio submarket area over the next two years. It is anticipated that each of the builders that will be marketing the subject homes has demonstrated a substantial track record of successful development and marketing of new homes throughout Southern California. Based on the estimated pdce positioning of the subject homes, it is projected that the five product lines will generate sales rates ranging from 0.75 to 2.0 homes per week. The sales rate that is projected for each product line is shown in Text Table I-2 below.

TEXT TABLE I-2 PROJECTEDWEEKLY SALES RATES BY TRACT TERRA LAGO COMMUNITY FAClUTIES DISTRICT

1 31601-2 2 31601-3 3 ___ 31601-4 4 31601-5 5 31601

5,000 7,200 8,400 ......... 6,000 3,300

178 128 86 110 133 .......

2.0 1,5 1.0 0.75 0.75 ]

* Homes perweek. Source:MarketProfiles

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Market Profiles, Inc.

The sales projection for each of the product lines relates primarily to the price structure of the homes. The subject homes that are anticipated to be offered at the lowest prices are projected to generate the most rapid sales rates. Historical experience has demonstrated that new homes with lower prices typically sell more rapidly than those with higher prices, Exhibit I-7 shows that this pattern generally holds throughout the Coachella Valley. However, the home price is not necessarily the determining factor in the sales experience. Other factors include the specific neighborhood location within the community, the design and construction quality of the homes, and the marketing program of the builder, The sales rates that are projected for the subject homes are conservative relative to the experience of new home projects that are currently marketing homes in the Shadow Hills community. The sales rates also take into consideration the general market environment that is anticipated to prevail over the marketing lives of the subject new home tracts. The projected sales rates are based on the assumption that market conditions will be moderately less favorable than those that were experienced in the Indio marketplace during 2004. The erosion of market conditions is expected to occur over the next few months due to a moderate rise in mortgage interest rates and to a slowdown in the resale market sector that has already occurred. As the new home market cools, the rate of increase in home prices will slow and this will decrease the sense of urgency that was evident among homebuyers in 2004. The projected moderation in new home market activity is expected to be accompanied by an increase in the competitive intensity within the Indio marketplace. The number of new home projects that will be active within the Shadow Hills community is projected to increase from the current 12 projects to 15 or more projects by late-2006. However, on balance, between eight and ten projects are expected to be marketing homes within the community at any given time over the next three years. A tabular summary of the projected absorption schedule for the subject homes is presented in Exhibit I-8. The sales forecasts describe the rate of closed transactions calculated from the date of the first closings that are anticipated for each of the new home tracts, Presale activity is projected to result in the sale of ten percent of the homes and is reflected in the first month of closings. The absorption schedules assume that the sales programs will not be interrupted by long periods when the homes are temporarily sold out due to the construction schedule or other delays. The timing of the first closings for each of the tracts has been estimated based on anticipated construction schedules that are yet to be finalized and, thus, are subject to change.

1-10

MARKET PROFILES, INC.

274211x1-1,2,3,4,5,6,7,8.xls

MARKET

PROFILES,

INC.

27421 lxl-1,2,3,4,5.6,7,8.xls

EXHIBIT I-3 SUMMARY OF PROPOSED HOME PRICES TERRA LAGO PHASE ONE JUNE 2005

31601-2

178

5,000

31601-3

128

7,200

$289,900 $301,990 $309,990 $319,990 $342.000 $372,000 $392,000 $426,000 $446,000 $466,000 $450,990 $465,990 $470,990 $480,990 $475,990 $490,990 $399,000 $425,500 $450.000

1,350 1,898 2,259 2,407 2,09:_ 2,434 2,660 2,595 2,803 3,120 1,987 2,164 2.230 2,408 2,348 2,591 2,100 2,275 2,500

$215 $159 $137 $133 $163 $153 $147 $164 $159 $149 $227 $215 $211 $200 $203 $189 $190 $187 $180

31601-4

86

8,_,00

31601-5

110

6,000

31601

133

3,300

Estimated Lot Premium Summary

31601-2 31601-3 31601-4 31601 31601-5

Lake Open Space Open Space Golf Course Lake

$100,000 $30,000 $50,000 $t00,000 $100,000

22 12 4 34 103

$12,360 $2,813 $2,326 $30,909 $77,444

Basesale priceexclusiveof lot premiumsor upgrades. All pncesare statedin today'sdollars. ** Averagesale price including majorlot premiums.

MARKET PROFILES, INC.

27421 lx1-1,2,3,4,5,6,7,8.xls

EXHIBIT I-4 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006 PRICE RANGE* Under $300,000 $300,000-$350,000 $350,000-$400,000 $400,000-$450,000 $450,000-$500,000 $500,000-$750,000 $750,000-$1,000,000 $1,000,000 and Over F'OTAL AVERAGEANNUALSALES 500 750 900 650 450 550 450 250 4,500 % OFTOTAL 11.1% 16.7% 20.0% 14.4% 10.0% 12.2% 10.0% 5.6% 100.0%

PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006

10D0 --

90(3

800

...............

700

.............

600 500

...........

40O

30O AVER/_GE ANNUAL $_LIES I [

200 100 0 L Under $3OO.OO0-$35O,O00- $400,000. $450,0O0. $500.OO0- $750,000-$1,000,000 $300,000 $350,000 $400,000 $4.rK],000 $500,000 $750,000 $1,000,000 _ndOver

".,ll i

* Prices Source:

stated Market

in today's Profiles

dollars

excluding

future

inflation

or appreciation

MARKET PROFILES,

INC.

274211x1-1,2,3,4,5,6,7,8.xls

EXHIBIT 1.5 SUMMARY OF NEW HOME DEVELOPMENTS SHADOW HILLS JULY 2005

QTALAVIERA DR HORTON BELLA TIERRA Q SHADOW HILLS FAMILY DEVELOPMENT THE OESERT COLLECTION __.SHADOW HILLS REYNOLDS COMMUNITIES "IrHEEL DORADO COLLECTION _ SHADOW HILL5 CENTURY VINTAGE HOMES FLORENCIA_TALAVERA DR HORTON FOXSTONE KB HOME OENOVA Q TALAVERA DR HORTON SHADOW RANCH (_ SHADOW HILLS I FAMILY DEVELOPME N,T I . SIENNA O SHADOW HILLS RYLAND HOMES THE VENTANA COLLECTION _ SHADOW HILLS CENTURY VINTAGE HOMES VENECIAAT TALAVERA DR HORTON VILLA ESTATES II _ SHADOW HILLS CENTURY VINTAGE HOMES

3.31 8.12 1.75 0.17 2.18 3.10 1,9_ 2.58 2.35 0.84 3.47 1.46

3.31 8.12 2.6I 1.49 5.28 4.88 1.90 5.53 2.35 0.81 3.47 1.46

$389,540 $404,990 $379.990 $419.990 $375.990 $419,990 $339,990 $424,990 $330,000 $370,000 $326,000 $387,000 $396,990 $416,990 $414.990 $509.990 $394.990 $447,990 $299,990 $339,990 $299,990 $333,990 $294,990 $394,990

2,493 3,099 1,895 2,629 1.610 2.266 1.720 2.778 1.855 2,380 1,517 2,526 2,848 3,267 2,185 3,247 2,448 3,143 1,208 1.843 1.576 1.947 1.302 2.735

$130.68 $156.25 $159.75 $200.52 $183.13 $226.70 $152.98 $197.67 $155.46 $179.45 $146.07 $203.02 $127.64 $139.39 $157.06 $189.93 $142.54 $161.35 $184.47 $248.33 $171.54 $190.35 $144.42 $226.56

20-May-05 01-Jun-05 06-Nov-04 22-Mar-03 01-Jura05 12-Feb-05 30-Apt-05 01-Feb-05 13-Apt-05 22-Mar-03 16-May-05 01-Oct-03

8,000 8,000 7.200 6.000 8,000 8,000 8,001 8,000 8,000 6,000 8,000 7,200

105 56 142 198 121 245 110 263 132 241 100 137

22 40 90 178 26 100 18 t22 28 97 25 134

22 40 17 2 26 37 16 30 28 10 25 11

11 2 8 6 18 0 1 0 24 2 20 3

72 14 44 14 77 145 91 233 80 142 55 0

INDIO TALAVERA INDIO SHADOW HILLS INDIO SHADOW HILLS tNDIO SHADOW HILLS INDIO TALAVERA INDIO SHADOW HILLS INDIO TALAVERA INDIO SHADOW HILLS INDIO SHADOW HILLS INDIO SHADOW HILLS INDIO TALAVERA INDIO SHADOW HILLS

MARKETPROFILES, INC.

PAGE5 OF 9

274211x1+1.2.3,4,5.6.7.8.xis

I-6 PrEXHIBIT oouc C tHACTER,IST,CSl ,No,o COMPS I

',:_iiii_i'=iii_:_'; : ;;:: -_..... i:i_-:_:7.iii:- ':.

:i!

..- .... .""

_:,: : :,I,-

_ $370,000

,A ..... _

v . --'"

, , ,

T"

. ........

, .-'" ,.- ,....

o.-'.3"_" _ - _ ....

, , ,

, ,

-...-4__':_----_

$270,000 .......... : i;:, .:i ..................... _.,_: , ._-::-_: = _._:_s .:: -: _:_, _:j 1.200 1,300 1,400 1,500 1,600 1,70_ 1.800 1,900 2,000 2,100 2.280 2,300 2,400 2,500 2,60_ 2,700 2,B00 2,9_ 3,000 3,100 3200 3,300

SQUARE FEET
_Terra _Ter_a ..... I_ago31601-2 Lago 31601 Florencia @ Talavera.6000 S011 Lot,Ind _ _o -..-IB----Te_a Lago31601-3 ,---H-,.- Te_raLa@o 32601-5 - _.... -Alicante@ Talavera, 6000 Sqfl Lot,Inrlio The El DoradoCotJeclion @ ShadowHills,6000 Sqfl Lot,Inolio _='_"_-Ter_a La@o 31601-4 - - 4.- - - BellsTierra @ ShadowHills,8000 StiffLot, lndlo - - _ - .C._nova@ Talave_a,8001 Sqft Lol. Irtdio - - -_ - - Sienna@ ShadowHills, 800(]Sqff Lot, Ir_llo : I ...... _ Tt',eVe_ana Collection @ Shadow Hills.6000 Sq_tLot, Indlo -Villa Eslates II @ ShadowHalls, 7200 Sqft Lol. Indio

- '0- - Fox.stone800 , 0 Sqfl Lot, Indio - -X- -Shadow Rancih @ ShadowHil_s.8000 Sqft Lot,lndio - 0 -The De._erl Cellec_ie_@ Shadow Hilt72 s, 00 _,ft Lot Italia - .(k -Venec=a AI Talavera,8000 Sqft Lot,Indio

RESI]EI_TAL T_i_kL_:: f_'.LqP:E T P_CGL_

MARKETPROFILES,INC

27421 lx1-i ,2,3.4,5,6,7,8._1s

:!

EXHIBIT i-7 NEW HOME SALES RATES BY PRICE RANGE COACHELLA VALLEY FIRST QUARTER 2005

Under $300,000 $300.000-$400000 $400,000-$500,000 $500,000-$600,000 $600,000-$700,000 $700,000-$800,000 $800,000-$900,000 $900,000-$1,000,000 $1,000,000 & Over

1.11 2.24 1.26 0.07 1.09 1.11 0.00 0.08 0.07

0.52 - 2.04 0.54 - 7.87 0.25 - 3.0 0.08- 1.04 0.5 - 2.0 0.12 - 2.87 0 0.37- 1.25 0.24 - 1.63

8 24 15 4 7 7 0 3 7

* Excludesprojects with sales ratesover 10 homes per week.

MARKET PROFILES, INC.

27421 lx1-1,2,3,4,5,6,7,8.xls

EXHIBIT I-8 QUARTERLY ABSORPTION SCHEDULE TERRA I_AGO COMMUNITY FACILITIES DISTRICT -. PHASE I CITY OF INDIO

;,

:__. 2':

1 31601-2 2 31601-3 3 31601-4 4 31601-5 5 31601

178

2.00

38 38 24 24 16 16

26 64 19 ,43 13 29 16 16 17 17

26 90 19 62 13 42 10 26 10 26

26 116 19 82 13 55 10 36 10 36

26 142 19 101 ,I 13 68 10 45 10 46

26 168 19 121 13 81 10 55 10 56

10 178 7 128 5 86 10 65 10 65 10 75 10 75 10 84 10 85 10 94 10 95 10 I0,4 10 104 6 110 10 114 10 124 9 133

Cumulative Closed 128 1.50 Cumulative Closed 86 1.00 Cumulative Closed 110 0.75 Cumulative Closed 133 0.75 Cumulative Closed

Closed sale transactions. "" Averageweekly sales rate over the life of the project. Source: Market Profiles

MARKET

PROFILES

INC

274211l-1,2,3,4,5.6,7.8.xls

.I I

IIII L

....

1SV03_10.-I QNVIAI30 ONISNOH QNV 0 Nl"lO_lO_O'ffE!OI_ONOO3

!! N01103S
_, , I I II ......... ,,_!1 I

Market Profiles, Inc

SECTION II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST

INTRODUCTION This section presents a review of the major factors that influence the demand for new homes in the City of Indio in the Coachella Valley area of Riverside County. Factors evaluated in the demand analysis include demographic profiles of the Coachella Valley and of the City of Indio, employment growth, new home sales and inventory trends, and home price trends. Based on the data analysis, a forecast of housing demand distributed by price range has been formulated for the Coachella Valley. The Coachella Valley includes all of the cities and communities located between Palm Spdngs and Desert Hot Springs on the northwest to the cities of La Quinta and Coachella on the southeast, The Coachella Valley is divided into five submarket areas as shown in Exhibit I1-1. The Indio submarket consists of the cities of Indio and Coachella and the immediately surrounding unincorporated areas. EMPLOYMENT GROWTH The demand for new homes in the Coachella Valley is influenced by the economic vitality of Riverside County and of all of Southern California. Tourist expenditures and second home purchases are important elements of the Valley's economy, The strength of locally based, primary home purchases is dependent upon the vitality of the tourism industry, which, in turn, is dependent upon the strength of the national and Southern California economies. Exhibit 11-2presents a historical summary of employment growth throughout Southern California and in the Riverside/San Bernardino bi-county region. From 1997 through 2000, employment in Southern California increased at a healthy average annual rate of 3.0 percent. During the same period, employment in Riverside and San Bernardino counties increased at a very strong rate of 5.2 percent per year. The rate of employment growth began to decline through the first three quarters of 2001 due to rising interest rates and a slowing national economy. Following the attack on the World Trade Center in September, job growth came to a virtual halt in the fourth quarter of 2001. Total employment in Southern California increased by 1.2 percent for the year 2001. The slowdown in growth that began in late-2001 carried over into 2002 and 2003. However, total employment in the Riverside-San Bemardino bi-county region increased at healthy rates of 3.0 percent (31,800 jobs) in 2002, and 3.5 percent (37,700 jobs) in 2003. This is a favorable performance compared to Los Angeles and Orange counties, which both i

i i

I1-1

Market

Pfofil@$, Inr;.

experienced modest declines in employment during 2002 and 2003. Job growth in the Riverside-San Bemardino region improved to 4.5 percent in 2004 (50,500 jobs). Favorable rates of job growth are expected to be maintained through the next couple of years. However, the pace of growth is projected to moderate to about 3.5 percent in 2005 and 2006. The projected expansion of the regional economy over the next few years will support continued healthy demand for new residential units. Southern California's continuously expanding employment base will result in substantial demand for new homes in the Coachella Valley. Locally, the Valley's economy has benefited from new employment opportunities relating to the approval of Proposition 1A which authorized the establishment of Las Vegas-style casinos with slot machines on Indian lands in California. As a result, several major casino projects have been completed or are in vadous states of the development process in the Coachella Valley. These projects are projected to add several hundred jobs to the Valley's employment base and to attract several thousand more visitors to the region. This growth will have a stimulating influence on the demand for new homes in the Coachella Valley. The first major impacts of the casino expansions were felt in 2001. Casino and hotel projects recently completed and planned include the following: I_1 The Augustine Casino, south of the City of Coachella, opened for business in 2004. The casino employs approximately 300 persons. r] The Morongo Band of Mission Indians recently completed construction of a $250 million casino resort hotel on a site located a few miles west of Palm Springs on the north side of Interstate 10. The project is expected to create 4,000 new jobs over the next fwe years. When completed it will be one of the largest gaming destinations on the West Coast. El A $90 million, 125,000 square foot casino recently opened in 2004 north of Rancho Mirage. [] The Agua Caliente Band of Cahuilla Indians announced in January plans to expand the Agua Caliente Casino by additional 65,000 square feet, add a new 14-story hotel with 400-rooms, and add 350,000 square feet of retail space. These various projects will be on the Agua Caliente Reservation at the comer Bob Hope Drive and Ramon Road, which is an unincorporated area of Riverside County. [] In Palm Springs, the Spa Resort Casino opened in 2004. The $95 million gaming facility has 30 tables, 1,000 slot machines, an entertainment lounge, and four restaurants.

11-2

Markel Profiles, tnc

[] Construction has begun on the first phase of a 300-acre resort and corporate development located in Palm Springs. The Indian Oasis Resort and Corporate Center will ultimately include a lO-story hotel, 290 condominium units, an 18-hole golf course, a 100,000 square foot shopping center, and 500,000 square feet of office space. In 2003, the growth of the Coachella Valley's economy was affected by the slowdown in tourism that began in 2001. Exhibit 11-3 shows that hotel revenues in the Valley declined by 4.8 and 3.2 percent in 2001 and 2002, respectively. This drop in visitor activity had a dampening effect on the demand for new homes in the Valley. Despite the slowdown, sales of new homes increased from 2001 to 2002 (see NEW HOME SALES TRENDS below). Since 2003, however, tourism has started to rebound, with hotel room revenues increasing by 2.4 percent in 2003 and 4.3 percent in 2004. Further improvement in hotel revenues is projected for 2005. The projected improvement in the health of the Southern California economy over the next two years will strengthen the underlying demand for new homes in the Coachella Valley. The volume of visitors to the Valley will recover and grow, while the financial state and the confidence levels of new home buyers will improve. DEMOGRAPHIC PROFILE Exhibit 11-4presents population and income profiles of the CoacheUa Valley, the City of Indio. and Riverside County. There are 365,648 persons residing in the Valley. The populationhas grown at a strong pace of 4.1 percent per year since 2000. The Valley's populationis projected to grow at a rate of 38 percent per year over the next five years Although the percentage rate of growth is declining, the growth rate in absolute terms is projected to remain near recent levels. The average household size in the Coachella Valley is 2.68 persons. This is a low figure resulting from a large proportion of one and two person households. Nearly two thirds (64%) of the market area's households consist of one or two persons, compared to 54 percent countywide. The large proportion of small households is partly due to a large retired population. Nineteen percent of the population is over 65 years of age. Countywide this age group accounts for 14 percent of the population. lhe population of the City of Indio is 61,516 persons. At 3.46 persons, lhe average household size in the city is much larger than that of the Coachella Valley as a whole. The city has a much larger proportion of family households with children than do the other communities in the Valley.

11-3

Market Profile,_, Inc.

The income profile of the Valley's households is very diverse. Households are distributed across a broad range of annual incomes from under $25,000 (21%) to over $100,000 (20%). The median income of the Coachella Valley's household's is $44,240. This is a modest figure that is 8.6 percent below the countywide median figure of $48,384_ The median income of households in Indio is $39,477. HOUSING PROFILE Exhibit 11-5shows a profile of the existing housing stock of the Coachella Valley. Single family detached homes account for 46 percent of the Valley's housing stock compared to a countywide proportion of 61 percent. The median housing value in the Coachella Valley is $238,378 (existing homes). This figure is slightly below the figure for Riverside County of $245,354. However, the Valley's housing stock is very diverse. The Valley has a greater than typical proportion of the least expensive homes, as well as, of the most expensive homes. Twenty five percent of the Valley's housing stock is valued below $150,000 compared to 22 percent countywide. However, the Valley also has a higher proportion of homes valued over $400,000 (24% versus 18% countywide). Exhibit11-6 showsthe vacancy characteristicsof the Coachella Valley housing stockby city. Housingvacancy rates are very high in the City of Palm Desert, as well as, in the cities of Indian Wells, La Quinta, Palm Spdngs, and Rancho Mirage. These high vacancy rates of over 30, 40, and even 50 percent are to due the highincidence of second home ownership in these cities. Assuming an underlying vacancy rate of five to ten percent, second home ownership in these cities ranges from 20 to 45 percent of the total housing stock. The proportion of second homes in the City of Indio is relatively low. The proportion of second home ownership in the city is estimated to be about ten percent. However, this proportion is projected to increase over the next five years. NEW HOME SALES TRENDS Exhibit 1t-7presents a summary of new home sales in the Coachella Valley distributed by submarket area. The volume of sales in the Valley declined from a peak of 3,356 in 1989 to 953 in 1993 due to the effects of the regional recession that began in rnid-1990. Sales activity remained moderate from 1993 through 1997, then accelerated to 2,226 homes sold in 1998 and to 3,330 homes in 2000. Sales for 2001 fell to 2,510 homes due to a general slowdown in economic growth in Southern California. Sales increased to 4,236 homes in 2002. The jump in sales in 2002 was due to several factors as discussed in PROJECTED NEW HOME DEMAND below. Sales activity continued to increase strongly in 2003 and 2004 with 5,768 homes sold in 2003 and 5,851 homes sold in 2004.

11-4

Market Profiles, Inc

Sales in the Coachella Valley totaled 1,331 homes in the first quarter of 2005. This is a strong sales figure, however, it is well below the 2,052 sales that were reported in the first quarter of 2004. The geographic pattern of new home sales in the Coachella Valley has shifted over the past few years. Excluding the Indio-Coacheila submarket, sales activity among the other submarket areas varied significantly from year to year. The sales fluctuations have been due largely to supply considerations. Sales in the Palm Desert submarket dropped from 1,313 homes in 2002 to 383 homes in 2003 due to a decline in home supply. Alternatively, home sales in the Palm Springs-Cathedral City submarket (including Desert Hot Springs) increased from 393 homes in 2002 to 1,161 homes in 2004 due an increase in supply. The shifting geographic pattern of sales activity is likely to continue in the future. More sales activity is expected to emerge in Palm Desert since the city has recently ended its moratorium on development in its northern sector, In contrast to fluctuating sales activity in the other submarket areas of the Valley, new home sales in the Indio-Coachella Submarket have consistently increased over the past three years. Sales jumped from 591 homes in 1999 to 1,217 homes in 2002 and 2,890 homes in 2003. New home sales in the Indio-Coachella Submarket continued to accelerate in 2004 with sales totaling 2,596. Moderate home prices have been a major attractor of homebuyers to the submarket (see PRICE TRENDS below). In the first quarter of 2005, new home sales in the Indio-Coachella Submarket totaled 585 homes. This figure is below the 872 homes that were reported sold in the first quarter of 2004. PRICE TRENDS Exhibit11-8 shows the average price of new homes sold each quarter in the five submarket areas of the Coachella Valley. The average price of a detached home sold in the Coachella Valley in the first quarter of 2005 was $487,063. The average sale price has fluctuated from quarter to quarter due the changing mix of product offerings. Although the prices of individual homes have risen significantly, the average sale price of all homes has risen only moderately over the past four years due to the increase in the sales volume of modestly priced homes located in the Indio-Coachella submarket area. The average price of a new home sold in the Indio-Coachella submarket during the first quarter of 2005 was $381,349. This figure is40 percent higher than the average sale Pdce for the first quarter of 2004 of $272,163. However, the average sale price has not changed significantly over the past three quarters.

11-5

Market Profiles, Inc.

Exhibit 11-9 shows the quarterly pattern of new home sales in the Coachella Valley market area distributed by price range. Sales are spread across a broad price spectrum ranging from under $200,000 to well over $400,000. Dunng 2004 and 2005, there is a clear pattern of decreasing sales of lower priced homes as the price structure of new homes in the Valley has shifted upward. In the first quarter of 2004, 50 percent of the new homes sold were priced under $300,000. By the first quarter of 2005, that proportion had dropped to just 6.7 perce nt. Exhibit I1-10 shows that the Indio-Coachella submarket area dominated the sales of homes in the Coachella Valley in first quarter 2005 that were priced under $400,000. PROJECTED NEW HOME DEMAND The primary factors that have contributedto strong new home sales in the Coachella Valley the local job-creating projects outlined above, and very low mortgage interest rates. Supported by favorable regionaland nationaleconomictrends, job growth withinthe Valley is projected to continue at a favorable pace. And, although mortgage interest rates are expected to rise moderately, a healthy volume of new homes sales is projected to be sustained within the Coachella Valley. Based on the data analysis, it is projected that the demand for new homes in the Coachella Valley will average 4,500 homes per year over the next five years. With 5,851 homes sold, the 2004 sales volume surpassed the projected annual demand of 4,500 homes. However, it is projected that the pace of sales will moderate in 2005 and 2006. The demographic factors that underlie the housing demand forecast are summarized in Exhibit I1-11. The majodty of the demand will be fueled by the primary buyer segment (i.e., owner occupants as opposed to second home owners), including retired households. Second home buyers, including pre-retirement buyers, are projected to account for just over one quarter of the demand. The great majority of the buyers that are active in the community of Indio consist of primary home buyers consisting primary of first time buyers and local move-up households. The Coachella Valley new home market is diverse. Exhibit 11-12shows the projected average annual demand for new homes distributed by price range. Market demand is spread across a wide range of prices from under $300,000 to over $1,000,000. The majority of the demand for new homes in the Indio-Coachella submarket emanates from primary resident households. Primary homebuyers are responsible for lhe high volume of demand below the $400,000 price level as shown in Exhibit 11-12.

11-6

MARKETPROFILES, INC.

27421lx2-1,2.3,4,5,6,7xLs

EXHIBIT 11-2 EMPLOYMENT GROWTH RIVERSIDE-SAN BERNARDINO BI-COUNTY REGION AND SOUTHERN CALIFORNIA t980 - 2006 Riverside & San Bernardino Counties Tota! [_,,,:: ::_;:_ s{_: Percr_l EmptoyT_lent 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1,252,700 1,210,700 1,170,700 1,120,200 1,082,500 1.050,700 1,010,100 960,300 903,800 863,100 824,800 801,700 772,800 755,900 751,500 741,500 735,200 689,200 647,700 610.900 574.400 536,700 495,700 465,700 452,600 458,900 452,000 Decrease 42,000 40,000 PROJECTED 50,500 37.700 31,800 40,600 49,800 56,500 40,700 38,300 23,100 28,900 16,900 4,400 10,000 6,300 46,000 41,500 36,800 36,500 37,700 41,000 30,000 13,100 (6,300) 6,900 N.A... Change 3.5% 3.4% 4.5% 3.5% 3.0% 4.0% 5.2% 6.3% 4.7% 4.6% 2.9% 3.7% 2.2% 0.6% 1.3% 0.9% 6.7% 6.4% 6.0% 6.4% 7.0% 8.3% 6.4% 2.9% -1.4% 1.5% N.A. Southern California Total !ncreascJ' Percent [:_mploymellt 8,464,400 8,296,400 8,161,300 8,039,300 8,050,500 8,063,200 7,966,600 7,750,300 7,529,300 7,283.600 7,066,800 6,940,800 6,816,100 6,780,400 6,883,300 7,088,300 7,268,900 7,165,800 6,975,400 6,734,100 6,493,200 6,267,100 6,029,300 5,762,500 5,708,600 5,844,400 5,755,_100 Decrease 168,000 135,100 122,000 (11,200) (12,700) 96,600 216,300 221,000 245,700 216,800 126,000 124,700 35,700 (102,900) (205,000) (180,600) 103,100 190,400 241,300 240,900 226,100 237,800 266,800 53,900 (135,800) 89,300 N.A. Change 2.0% 1.7% 15% -0.1% -0.2% 1.2% 2.8% 2.9% 3.4% 3.1% 1.8% 1.8% 0.5% -1.5% -2.9% -2.5% 1.4% 2.7% 3.6% 3.7% 3.6% 3.9% 4.6% 0.9% -2.3% 1.6% N.A.

Source: California EmploymentDepartment,Market Profiles

MARKET PROFILES, INC.

27421 lx2-1,2.3,4,5,6,7_xls

EXHIBIT 11-3 HOTEL ROOM SALES COACHELLA VALLEY 1988 - 2004

2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988

$362 $347 $339 $350 $368 $347 $311 $287 $265 $244 $232 $220 $225 $224 $226 $209 $185

4.2% 2.4% -32% -4.8% 6.1% 11.6% 8.4% 8.3% 8.6% 5.2% 5.5% -2.2% 0.4% -0.9% 8.1% 13.0% N.A_

$23,352 $22,440 $22,521 $23,528 $25,126 $23,954 $21,988 $20,523 $17,545 $16,200 $15,200 $14,539 $14,306 $14,617 $15,400 $14,384 N.A.

4.1% -0.4% -4.3% -6.4% 4.9% 8.9% 7.1% 17.0% 8.3% 6.6% 4.5% 1.6% -2.1% -5.1% 7.1% N.A. N.A.

Source: Wheler's

Desert Letter, Market Profiles

MARKET PROFILES. INC.

27421 lx2,1,2,3,4,5,6,7.xls

E.XHIBIT 11-4 DEMOGRAPHIC PROFILE COACHELLA VALLEY AND RIVERSIDE COUNTY CITY OF INDIO COACHELLA VALLEY RIVERSIDE COUNTY

DESCRIPTION POPULATION 2010 Projection 2005 Estimate 2000 Census 1990 Census Growth 2005-2010 Growth 2000-2005 Growth 1990-2000 HOUSEHOLDS 2010 Projection 2005 Estimate 2000 Census 1990 Census Growth 2005-2010 Growth 2000-2005 Growth 1990-2000 2005 ESTIMATED POPULATION BY RACE WHITE BLACK ASIAN & PACIFIC ISLANDER OTHER RACES TWO OR MORE 2005 ESTIMATED POPULATION HIS PANIC ORIGIN 2005 OCCUPIED UNITS OWNER OCCUPIED RENTER OCCUPIED AVERAGE PERSON PER HH 2005 EST. HOUSEHOLDS BY INCOME UNDER $15,000 $15,000 TO $24,999 $25,000 TO $34,999 $35,000 TO $49,999 $50,000 TO $74,999 $75,000 TO $99,999 $100,000 TO $149,999 $150,000 TO $249,999 $250,000 TO $499,999 $500,000 AND OVER 2005 EST. AVERAGE HOUSEHOLD INCOME 2005 EST. MEDIAN HOUSEHOLD INCOME 2005 EST. PER CAPITA INCOME Source:Claritas,MarketProfiles

N.A. 61,515 49,116 37,554 N.A. 25 25% 30 79%

435,809 365,648 303,579 222,945 19.19% 20.45% 36.17%

2,155,693 1,843,493 1,545,387 1,170,413 16.94% 19.29% 32.04%

N.A. 17,532 13,871 11,003 N.A26.39% 26.07% 61,516 47.71% 2.30% 1.83% 44.21% 3.96% 78.15%

160,815 135,402 113,516 85,186 18.77% 19.28% 33.26% 365,648 67 85% 2.03% 2.47% 23.31% 3.51% 51.79% 132,010 67.58% 32.42% 2.68 132,010 9.20% 11.83% 12.36% 16.86% 19.10% 11.06% 10.58% 5.76% 2.14% 1.12% $65,569 $44,240 $24,481

694,251 597,519 506,218 402,067 16. t9% 18.04% 25.90% 1,843,493 62.92% 6.19% 4.32% 20.69% 4.73% 40.14% 597,519 69.39% 30.61% 3.03 597,519 12.86% 11.75% 11.38% 15.69% 19.36% 12.-16% 11.33% 3.97% 1.08% 0.41% $63,592 $48,384 $20,892

3.46 17,532 15.31% 15,21% 13.63% 19.61% 17.69% 8.37% 7.08% 2.02% 0.75% 0.33% $51,732 $39,477 $14,979

MARKET

PROFILES,

INC

27421 t x 2-1,2,3,4,5,6,7,x

Is

COACHELLA

EXHIBIT 11-5 HOUSING PROFILE VALLEY AND RIVERSIDE COUNTY 2005 )N COACHEI LA VALLEY 189,200 45.85% 16.17% 2.18% 12.20% 2.05% 5.37% 14.07% 2.11% 91,511 10.34% 2.74% 11.60% 16.36% 23.37% 12.05% 7.08% 8.72% 3.66% 4.08% $238,378 189,200 19.44% 7.26% 10.13% 25.93% 19.34% 10.00% 5.61% 1.39% 0.90% RIVERSIDE COUNIY 689,903 61.26% 7,12% 1.38% 9.29% 1.93% 4.56% 13.30% 1.15% 414,642 8.51% 2.36% 10.77% 15.62% 28.27% 16.72% 8.19% 6.27% 1.66% 1.71 % $245,354 689,903 18.94% 6.84% 11.02% 25.23% 17.00% 9.84% 6.69% 2.22% 2.21%

DESCRIPTI

YEAR ROUND uNITS IN STRUCTURE SINGLE FAMILY DETACHED SINGLE FAMILY ATTACHED DOUBLE UNITS 3 TO 19 UNITS 20 TO 49 UNITS 50+ UNITS MOBILE HOME OR TRAILER ALL OTHER OWNER OCCUPIED PROPERTY VALUES UNDER $80,000 $80,000 TO $99,999 $100,000 TO $149,999 $150.000 TO $199,999 $200,000 TO $299,999 $300,000 TO $399,999 $400,000 TO $499,999 $500,000 TO $749,999 $750,000 TO $999,999 $1,000,000+ MEDIAN PROPERTY VALUE HOUSING BUILT BUILT BUILT BUILT BUILT BUILT BUILT BUILT BUILT U NITS BY YEAR BU ILT 1999 TO PRESENT 1995 TO 1998 1990 TO 1994 1980 TO 1989 1970 TO 1979 1960 TO 1969 1950 TO 1959 1940 TO 1949 1939 OR EARLIER

Source. Claritas. Market Profiles

MARKET

PROFILES.

INC.

274211 x2-1,2,3,4,5,6,7.xls

EXHIBIT 11-6 HOUSING STOCK PROFILES COACHELLA VALLEY CITIES 2000 Multi. City Detached 8,785 763 8.7% 3,074 104 3.4% 3,775 523 13.9% 2,436 1,195 49.1% 7,658 602 7.9% 9,471 2,496 26.4% 11,120 2,530 22.8% 10,163 2,040 20.1% 4,312 1,554 36.0% 60,794 11,807 19.4% Attar;hod 2,575 1,412 54.8% 316 0 0.0% 180 35 19.4% 909 427 47.0% 877 212 24.2% 1,272 483 38.0% 9,551 5,081 53.2% 6,191 3,046 49.2% 3,626 1,525 42.1% 25,497 12,221 47.9% Far_Jly 3,829 608 15.9% 1,141 49 4.3% 2,504 330 13.2% 597 361 60.5% 5,196 662 12.7% 762 314 41.2% 6,201 947 15.3% 12,379 4,617 37.3% 1,735 842 48.5% ,,, 34,344 8,730 25.4% 13,_obiie
HO11]5

Other
Mi$,

Total
LJl]it5

_cTty
Housing Units Vacant Units Percent Vacant Coachella Housing Units Vacant Units Percent Vacant Desert Hot Springs Housing Units Vacant Units Percent Vacant ,. ....... Indian Wells Housing Units Vacant Units Percent Vacant Indio Housing Units Vacant Units Percent Vacant La Quinta Housing Units Vacant Units Percent Vacant 'Palm Desert Housing Units Vacant Units Percent Vacant Palm Springs Housing Units Vacant Units Percent Vacant Rancho Mirage Housing Units Vacant Units Percent Vacant Totals for Cities Housing Units Vacant Units Percent Vacant Riverside County Housing Units Vacant Units Percent Vacant 2,521 697 35.6% 451 52 11.5% 567 318 56.1% 8 0 0.0% 2,716 1,220 44.9% 258 15 5.8% 1,190 205 17.2% 2,172 689 31.7% 1,253 476 38.0% 11,136 3,872 34.8% 103 61 59.2% 0 O 0.0% 0 0 0.0% 0 0 0.0% 452 315 69.7% 0 0 0.0% 9 9 100.0% 74 47 63.5% 717 629 87.7% 1,355 1,061 78.3% 17,813 3,741 21.0% 4,982 205 4.1% 7,026 1,206 17.2% 3,950 1,983 50.2% 16,899 3,011 17.8% 11,763 3,308 28.1% 26,071 8,772 31.2% 30,979 10,439 33.7% 11,643 5,026 43.2% 133,126 37,691 28.3%

356,447 29,374 8.2%

42,300 13,495 31.9%

103,066 14,881 14.4%

76,411 16,247 21.3%

6,450 4,459 69.1%

584,674 78,456 13.4%

Source: 2000 U.S Census, Market Profiles MARIkEI PROFILES,INC. 27421lx2_-1,2.3.4.5,6.7 xls

EXHIBIT 11-7 NEW HOME SALES BY SUBMJ_RKET AREA COACHELLA VALLEY 1992 THROUGH FIRST QUARTER 2005

,Palm Spnngs.Cathedral Cit Rancho Mirage Palm Desert 1_8Quanta Indio-Coachella

13 12 65 123 O

154 23 85 208 270

167 35 150 331 270

4 T 145 _ 0

283 15 110 417 31B

267 22 255 494 318

32 25 t 30 142 36

155 27 122 550 231

187 52 252 692 267

16 11 44 56 7

133 6 223 449 232

" 149 17 267 505 239

39 7 144 25 7

73 66 426 358 t42

112 73 570 383 149 '

39 3 117 13 34

53 144 6z_ 337 165

92 147 763 350 199

46 0 10 11 2.4 91

53 218 1.159 520 485

99 218 1,15g 531 209

Xo_,ls

. 213 I 740 ] 953 233 11.121 31,35e3_S j't..0.8 I5 1,4SO13.4]'=,043 11,177Z22 I.!,06S ll,2_7! 2O6]'t,34S Jl,SS't

]2,135 12.,2.26

Pal m Springs-Cathedral Rancho Mirage Palm Desert La Quinla Indlo_Coachella Totals 5FA= Att.aohed ProducS t; FD = DetacheP d roduct Source: ResiclenT tra ls nd l ,_ Ma . _e'lPr_ksi 24t

MARKErPROFILE$I,HC.

274211y2-1.2,3,_,,5.5,7.xt=

EXHIBIT 11-8 AVERAGE NEW HOME PRICE OETACHED PRODUCT COACHELLA VALLEY BY SUBMARKET AREA 1998 THROUGH THIRD QUARTER 2004

2005-1 2004-4 -3 -2 -1 2003-4 -3 -2 -t 2002-4 -3 -2 -1 2001-4 -3 -2 -1 2000-4 -3 -2 -1 1999-4 -3 -2 -1 1998-4 -3 -2 -1

$487,063 $499,631 $457.466 $510,106 $361,324 $346,358 $313,006 $296,622 $340,765 $300,454 $281,557 $340.713 $312r 116 $329,280 $255,805 $296,827 $324,701 $324,022 $287,569 $284,240 $333,048 $306.379 $277,309 $356.066 $311 t993 $261,202 $244.795 $241,970 $254.635

$462,322 $360,870 $299,834 $304,485 $279,160 $305,670 $217,490 $256,104 $336,465 $238,373 $223,604 $225,636 $214,903 $20'[ ,729 $186,125 $t 89,472 $217r298 ' $194,660 $214,066 $231,023 $204_60..2 $168,613 $169,002 $163,783 $156_986 $142,881 $131,435 $132,544 $122,826

$736,646 $717,860 $658,127 $590,519 $496,667 $468,964 $448.814 $425,579 $447,426 $441,490 $454,508 $440,543 $441,411 $445,032 $452,987 $442,205 $437,138 $414.786 $412.485 $394,995 $405.141 $412,549 $358,096 $350,545 $382,024 $359,811 $398,290 $329,771 $307,834

$521 254 $508,513 $485,217 $535,581 $611,757 $375,655 $332,545 $337,418 $287,891 $276,209 $248,836 $292,771 $277,911 $268,632 $247,040 $256,930 $249,576 $286,109 $339.922 $270.721 $318,494 $330,83'2 $294,27I $290.086 $338,503 $270.587 $247,275 $238,423 $242.658

$792,518 $729,686 $724.240 $749.098 .$567.776 $676.643 $505,884 $429,891 $567,382 $489,195 $477,517 $456,337 $420,302 $503,068 $363,954 $396,384 $426,394 $399,754 $317,687 $320,949 $430,968 $372,182 $310,590 $473.375 $322,317 $271,954 $254,547 $253.779 $298,036

$381,349 $388,340 $359,647 $411,898 $272,163 $243,005 $204,431 $218.396 $214.492 $229,710 $184,27t $204,472 $196,025 $189,480 $185,520 $202,200 $188,030 $181,196 $174,732 $159,021 $169,353 $I 62,632 $159,317 $164,763 $159,636 $153,273 $144,043 $142,302 $144_500

.....

Source:Residential Trends, MarketProfiles MARKETPROFILES,INC. 274211 x2-8,9.10,11.12 xls

EXHIBIT 11-9 NEW HOME SALES BY PRICE RANGE DETACHED PRODUCT COACHELLA VALLEY 2003 THROUGH FIRST QUARTER 2005

Pri_,_ __,,:,:_i:. ., Under $150,000 $150-175,000 $175-200,000 $200-250,000 $250-300,000 $300-400,000 $40.0,000 & Up Totals * Q = Quarter

:_ _ 71 66 73 151 115 176 2.45 897

_.d Q_ ._r_ Q 112 157 152 324 269 308 280 1,602 87 108 94 176 159 100 209 933

4ti_ _' 74 177 178 621 350 288 551 2,239 2 126 215 295 381 499 513 2,031 4 25 54 126 161 249 1142 1,761 0 5 10 81 159 412 530 1,197 0 0 0 12 128 174 336 650 2 0 0 -1 64 451 448 964

Source:Residentia Tlrends,Market Profiles

MARKET PROFILESINC, ,

27421 lx2-8.9,1(;,11,12,xls

EXHIBIT I1-10 NEW HOME SALES DISTRIBUTED BY PRICE RANGE INDIO-COACHELLA SUBMARKET AREA AND THE COACHELLA VALLEY FIRST QUARTER 2005 Number of Homes* Sold Prlce iRange Under $200,000 $200-$250,000 $250-$300,000 $300-$350,000 $350-$400,000 $400,000 & Up Totals
* Detached Source: homes. Trends, Market Profiles

2 0 57 242 157 127 585

2 (1) 64 264 187 448 964

Residential

MARKET PROFILES, INC.

27421 lx2-8,9,10,11,12.xls

EXHIBIT I1-11 HOUSING GROWTH SUMMARY RIVERSIDE COUNTY AND THE COACHELLA VALLEY MARKET AREA 1980. 2009 Riverside-San Bernardino Co.s Riverside Cl Coachella Valle, Primary

1990 to ! 2000
!

735,200 1,010,100
I

N A. 27,490 40,120 43,000

402,067 506,218 597.519 694,251

N.A. _0,415 18,260 19,346

85,186 113,516 135,402 160,815

N.A. 2,833 4r377 5,083

N.A 1,841 2,845 3,300

N.A. 992 1,532 1,783

N.A 552 854 1,200

tO IO

I 2005j 1,210,700
J

20101 1,425,700
J

* Riverside/San Bemardino hi-county region. Source'. Calif. Employment Development Dept., Clairtas, Market Profiles

MARKET PROFILES, INC.

274211x2-8,9,10,11.12.xls

EXHIBIT I1-t2 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006 PRICE RAN(iE _ Under $300,000 $300,000-$350,000 AVi !RAGE ANNUAL SALES 500 750 % OF TOTAL 11.1% 16.7%

$350,000-$400,000 $400,000-$450,000
$450,000-$500,000 $500,000-$750,000 $750,000-$1,000,000 $1,000,000 and Over TOTAL

900 650
450 550 450 250 4,500

20.0% 14.4%
10.0% 12.2% 10.0% 5.6% 100_0%

PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006

1000 900 80(3 ................. . -

700 600 5oo 400 -. .......

300 200 1oo o Under $300.000 F $300.000$350.000

I -" 1

tmAVERAGE ANNUAL SALES

$3-50o00L_ $400,000.- $450,000$400.000 $450.000 $500.000

$500,000$750,000

$'/'50,000- $1,000,000 $1.000.000 and Over

* Pricesstatedin today's dollarsexcluding futureinflation or appreciation_ Source:MarketProfiles

MARKET

PROFILES,

INC.

2,/,421 lx2-8,9,10,11,12

xls

SECTION III
SUMMARY OF COMPETITION
I II I I I I Ir mlmml i _-

Market

Profiles,

Inc

SECTION Iil SUMMARY OF COMPETITION

INTRODUCTION This section presents a review of the existing new home competition throughout the Coachella Valley and within the community of Indio. For analysis purposes, the Coachella Valley is divided into five submarket areas. The boundaries of the submarkets are shown in Exhibit I1-1(report Section II), The Indio-Coachella submarket area is composed of the cities of Indio and Coachella and the immediately surrounding unincorporated areas. The data that is presented in this section is based on a quarterly audit of all new home projects that are active in the Coachella Valley. The home prices and sales data that are presented in this market report represent the market circumstances as of the end of the first quarter 2005 audit period which ended in mid-April. The sale prices of the new homes that are being marketed in the Shadow Hills area have been updated as of earlyJuly. NEW HOME COMPETITION During the first quarter of 2005, there were 78 subdivisions marketing new detached homes in the Coachella Valley. Exhibit II1-1 presents a tabular summary of the 78 projects. The projects account for a total of 15,042 homes, of which 8,213 homes have been offered for sale and all but 559 of the homes offered have been sold. This is a low unsold inventory level as discussed below (see INVENTORY TRENDS). The Coachella Valley new home market is very diverse. Exhibit 111-2 shows a summary of new home activity within each of the Valley's five submarket areas (detached product). The Indio-Coachella and the Indian Wells-La Quinta submarkets had the largest number of active new home subdivisions during the first quarter period with 26 and 24 projects, respectively. The Indio-Coachella submarket generated the highest sales volume during the quarter with 585 homes sold. The sales of new homes in the submarket were aided by the moderate prices of the homes. The average sales price was $381,349 compared to $792,518 in the nearby La Quinta-lndian Wells submarket, Exhibit 111-3presents a summary of the 26 projects that were active in the IndioCoachella submarket during the first quarter of 2005. Detailed profiles of each of the projects are included in Section IV of his report. The 26 projects account for 7,330 homes, of which 3,722 have been offered for sale and only 155 of those remain unsold. Seventeen of the new home projects are located in Indio and nine are located in Coachella. With 3,200 homes, the retirement community of Sun City in Indio (Shadow

II1-1

Market Profiles, Inc.

Hills) accounts for nearly accounting for 344 homes, Indio. Descriptions of the (see MOST COMPETITIVE

half of the homes. An additional three of the projects, are located within the Indian Palms Country Club, also in most competitive new home projects are presented below NEW HOME PROJECTS).

INVENTORY TRENDS The total of 559 new detached homes that remain unsold (including homes under construction, completed, and pre-selling) throughout the Coachella Valley is a favorable unsold inventory figure. As a rule, a balance between the unsold inventory at the end of a quarter and the number of homes sold during the quarter is indicative of a healthy market condition (i.e., 1:1 unsold to sold ratio). Thus, compared to the sales volume of 964 homes sold during the first quarter period, the unsold inventory of 559 homes at the end of the first quarter of 2005 is indicative of a favorable market condition (0.58:1 unsold to sold ratio). Exhibit 111-2 shows that inventory restricted than elsewhere in the 2005, the unsold inventory in compared to firstquarter sales of conditions in the Indio-Coachella submarket are more Coachella Valley. At the end of the first quarter of the Indio-Coachella submarket totaled 155 homes 585 homes (0.26:1 unsold to sold ratio).

SA,LES RATES Exhibit II1-1 shows the weekly sales rate for each of the new home projects in the CoachelJa Valley. The sales rates are shown as "Cumulative" and "Current Quarter" rates. The Cumulative sales rate describes the rate of sales generated since the date of opening of each project, and the Current Quarter sales rate describes the rate of sale during the first quarter period. Cumulative sales rates range widely from 0.08 to 7.9 homes per week. The average cumulative sales rate is 1.73 homes per week per project, The new home projects that are most similar to the subject development are those that are located in the Shadow Hills community of north Indio. During the first quarter of 2005, there were 12 new home subdivisions active in the Shadow Hills community. These projects are summarized in Exhibit 111-4. The cumulative sales rates among those seven subdivisions range from 0.31 to 7.87 homes per week. The average sales rate is 2.79 homes per week and the median rate is 1.64 homes per week. MOST COMPETITIVE NEW HOME PROJECTS The new home subdivisions that are most relevant to the subject properties are those that are located within the Shadow Hills community located north of the 1-10 Freeway (see Exhibit 111-4),The 12 projects are described below and their locations are shown in Exhibit 111-5.

111-2

Market Profiles. Inc.

The fastest selling subdivision in Shadow Hills is Bella Tierra (map #1 ). The first 40 of these 3- and 5-bedroom homes have been sold at a rate of 8.12 homes per week. The base prices range from $379,990 to $419,990 for plans that range in size from 1,895 to 2,629 square feet ($159.75 to $200.52 per sq. ft.). The homes are sited on 8,000 square foot lots (minimum). Another fast selling subdivision is Foxstone by KB Home (map #8). All 63 homes that were released during the first quarter were sold equating to a sales rate of 4.88 homes per week. The project has another 182 homes remaining to be sold in subsequent phases. The base prices of these homes range from $307,990 to $368,990 for 2- and 3-bedroom plans that range in size from 1,517 to 2,526 square feet ($146.07 to $203.02 per sq. ft.). The residents pay a homeowners fee of $100 per month, plus CFD taxes. The neighborhood is gated and the minimum lot size is 8,000 The 132Jot Sienna subdivision recently opened in Shadow Hills (map #7). The base prices of the homes range from $394,990 to $447,990 for 3- and 4-bedroom plans that range in size from 2,448 to 3,143 square feet ($142.54 to $161.35 per sq. ft.). The 263-1ot Shadow Ranch subdivision by Family Development (map #3) sold out its first phase of 30 homes at a rate of 3.0 homes per week. These homes range in price from $394,990 to $489,990 for 3-, 4-, and 5-bedroom plans that range in size from 3,185 to 3,247 square feet ($150.90 to $180.77 per sq. ft.). The residents pay a homeowners fee of $95 per month for green belt maintenance. The minimum lot size is 8,500 square feet. The Desert Collection is a gated subdivision of 142 homes (map #2). The base prices of these 3-bedroom homes range from $364,990 to $414,990 for plans that range in size from 1,610 to 2,266 square feet ($183.13 to $226.70 per sq. ft.). The residents pay a homeowners fee of $75 per month. The first 73 homes were sold at a rate of 3.31 homes per week. The minimum lot size is 7,200 square feet. There are two subdivisions still active within one private, gated neighborhood developed by Century Vintage Homes. The three subdivisions are The Ventana Collection, The El Dorado Collection, and Villa Estates II (map #'s 4, 5, & 6). The homeowners will pay dues of $50 per month for maintenance of the private streets, plus an assessment district fee. The Ventana Collection consists of 2- and 3-bedroom homes that range in size from 1,208 to 1,843 square feet with base prices ranging from $299,990 to $339,990 ($184.47 to $248.33 per sq. ft.). Of the 198 homes in this tract, 87 have been sold at a rate of 0.81 homes per week. The base prices of the homes in The El Dorado Collection range from $339,990 to

111-3

Market Profiles. Inc.

$424,990 for 2- and 3-bedroom plans that range in size from 1,720 to 2,778 square feet ($152.98 to $197.66 per sq. ft.). Of the 198 homes in this tract, 176 have been sold at a rate of 1.64 homes per week. The Villa Estates II homes have base prices ranging from $294,990 to $394,990. These 3- and 4-bedroom homes range in size from 1,302 to 2,735 square feet ($144.42 to $226.56 per sq. ft.). Of the 137 homes in this subdivision, 123 have been sold at a rate of 1.53 homes per week. The new community of Talavera in northeastern most indio recently opened with four new home subdivisions offering homes for sale (map #'s 9 through 12), The homes range in price from $299,999 to $416,990. The minimum lot size for all of the homes in Talavera is 8,000 square feet. 1-heVenecia homes are the smallest being offered in Talavera. They consist of 3- and 4-bedroom plans that range in size from 1,576 to 1,947 square feet with base prices ranging from $299,999 to $333,990 ($171.54 to $190.35 per sq. ft.). Twenty-five of the 45 homes in the first phase release were sold at a rate of 1.76 homes per week. The homes in the Florencla subdivision in Talavera range in size from 1,855 to 2,380 witl_base prices ranging from $330,000 to $370,000 ($155.46 to $179.45 per sq. ft.). Of the 44 homes in the first phase, 26 were sold at a rate of 5.93 homes per week. Also in Talavera, the Alicante homes consist of 3-, 4-, and 5-bedroom plans that range in size from $389,540 to $404,990 (130.68 to $156.25 per sq. ft.). Two thirds of the 33 homes released in the first phase have been sold at a rate of 3.61 homes per week. The largest homes being offered in Talavera are those in the Genova subdivision. The base prices of these homes range from $396,990 to $416,990 for 2-, 3- and 5-bedroom plans that range in size from 2,848 to 3,280 square feet ($127.64 to $139.39 per sq. ft.). Eighteen homes have been sold at a rate of 1.9 homes per week_ PROPOSED NEW HOME DEVELOPMENT There are approximately 7,500 new homes within more than 40 subdivisions that are proposed for future development in the City of Indio. These projects are summarized in Exhibit 111-6. With this scale of proposed activity, it is projected that the Indio market area will experience a competitive environment for the next several years. However, the market is currently undersupplied and the homes that are planned for development will be constructed in a phased manner over the next several years. It is projected that competitive conditions will be more intense than those currently being experienced in the Indio marketplace, however, generally healthy demand-supply conditions are projected to be maintained.

111-4

Market Profiles, Inc.

The majority of the new homes that will be constructed in Indio over the next few years will be located in and around the Shadow Hills community located north of Interstate 10 Freeway. In addition to the 1,400-plus homes that will be developed within the subject Terra Lago community, there are more than 2,700 homes that are planned for construction elsewhere in the Shadow Hills community. The majority of these homes will be constructed over the next three to four years. A summary of the 2,723 homes that will be part of the City of Indio Assessment District 2004-VSD is presented in Texl Table II1-1on the following page. All of these homes will be located in the Shadow Hills community to the west of the Terra Lago community. The prices of the homes will generally range between $350,000 and $500,000 The two subdivisions by Family Development are under construction and are actively selling homes (see Exhibit 111-4). Also located north of the 1-10 Freeway is the site of the Andreas Ranch that will include 937 homes within a private, gated community. This property is located north of Avenue 38 at Jefferson Street.

111-5

MarketProfiles, Inc

TEXT TABLE II1-1 SUMMARY OF PROPOSED HOMES ASSESSMENT DISTRICT 2004-VSD

Affresco 32401 Vista Laguna 32402 ._ Paradiso 31815 Desert Trace 30643 Sandhurst 30778 323O4 Shadow Ranch 32149 Haciendas 31686 31974 31975 Bella Tierra 306O5 Vineyards 31562

Rilington Communities D.R. Horton Ponderosa Lenna r Ashbrook Corn's KB Home Ryland Homes J.D. Desert Dev.

275 363 185 225 111 247 132 59 123 I _

1,900-3,100 2,200-3,600 2,700-3,500 2,000-2,600 2,176-2,902 1,512-2,513 _2,520-3,130 1,870-2,586

I .

Family Dev. Beazer Homes

263

2,700-3,800

147 1O2 137 Family Dev. Alpine Group Total Lot. 56 298 2,723

2.000-3 000

1,900-2,600 1,500-2,600

II
* Preliminarydata. Source MarkotProfiles

111-6

F_..I( NIBIT II1-1 SUMMARYOF NE'WHOMEDEVELOPMENTS DETACHEDPRODUCT COACHELl_ '.t_ LLEY F!RST QUAE rF.R 2_0_

;=RO_LE$ Ih .%

P/'JGE ' OF4

27417,1 _,1 ._.3A.5_.mPJ

EXHIBIT II].'l "3,UMf&&RY 0 F NL='_ i"Ot#E OE4flELO_MENT:S; 0ETA CHF-J'JPROOIC _; COAC_E_ _ V/;LLE_

I_'V:tFE . 'r PPIO Fh.E$,: IrK..

p,l_

_"C_-4

27421' [3-12,$,4,$,_ d,_

EXHIBIT II1-1 SUMMARYOF NEI_ HIOMEOEVELOPMEktTS OETACHE0 _ROIDUCT COAI:;HF.J.JL, k VA Lli.lPt" FIR_ITQUARTER _OD5

t,_RKE'tPROFk_S IN(:: ,

P,_ '- C_ 4

Z_'4, 11 ?, ;_-'.,:.3, _i, II.X III

SUI_MARY

I::XNIBI1r HII.f OF' N_ HOME DEVELOPMEN'T'_. DE _'_CPIEE r'j PRO'DUCT COACHELLA VALLEY PIRST QUARTF._ 1,_Odl

EXHIBIT 111-2 NEW HOME MARKET SUMMARY BY SUBMARKET AREA DETACHED PRODUCT FIRST QUARTER 2005 ...... INDIAN WELLS-LA QUiNTA INDIO-COACHELLA =PALMDESERT IPALM SPRINGS-CATHEORAL CITY RANCHO MIRAGE SINGLE FAMILY DETACHED TOTAL Source: Residential Trends, Market Profiles # S_k__ _f .. 24 26 4 19 5 78 0.88 3.18 0.94 1.17 1.03 1.73 -_ i $792,518 $381,349 $521,254 $462,322 $736,646 $487,063 2,976 2,147 2,322 2,216 2,768 2,341 $266.28 $177.64 $224.50 $208.64 8266.15 $208.08 3,575 7,330 453 3,091 593 15,042 1,869 3,137 326 1,502 415 7,249 195 585 26 136 22 964 259 155 12 104 29 559 1,447 4,038 115 1,485 149 7,234

MARKET PROFILES, INC.

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EXHIBIT 111-4 SUMMARY OF NEW HOME DEVELOPMENTS SHADOW HILLS J ULY Z005

1 2 4

ALICANTE Q "rALAVERA OR HORTC)N BELLA TIERRA QSHADOW HILLS FAMILY DEVELOPMENT THE DESERTCOLLECTION_SHADOWHILLS REYNC)LDSCOMMUN|TIES

3,31 812 1.75 0.17 2.18 3.10 1.90 2.58 2.35 0.84 3.47"' 1.46

3.31 8.12 261 1.49 5.28 4.88 1.90 5.53 2.35 0.81 3.47 1.46'

$389,540 $404,990 $379,990 $419,990 $375,990 $419.990 $339.990 $424,990 $330,000 $370,000 $326,000 $387,000 $396,990 $416,990 $414,990 $509.990 $394.990 $447,990 $299,990 $339,990 $299,990 $333,990 $294,990 $394,990

2,493 $130.68 3,099 $156.25 1,895 $159.75 2,629 $200.52 1,610 $183.13 2,266 $226.70 1,720 2,778 1;855 2,380 1,517 2,526 2,@48 3,267 2,185 3,247 2,448 3,143 1,208 1,843 11576 1.947 1,302 2,735

20-May-05 01-Jun-05 06-Nov-04

8,000 8,000 7.200" 6.000 8,000 8,000 8,001 8.00,D 8.000 6000 8,000 7,200

105 56 142 198 12t 245 110 263 132 241 100 137

22 40 90 '1'78 "26 10o 18 122 28 97 25 134

22 40 17 2 26 37 I8 30 28 10 25 11

11 2 8 6 18 0 1 0 24 2'" 20 3

72 14 44 14 77 i45 91 233 80 142 55 0

IN TALAVERA tNDIO SHADOW HILLS INDIO SHADOW HILLS tNDI(_ SHADOW HILL_ INDIO TALAVERA INDIO SHADOW HILLS INDIO TALAVERA INDIC) SHADOW HILLS INDIC) SHADOW HILLS INDIO SHADOW HILLS INDIC) TALAVERA INOIO SHADOW HILLS

THE EL DORADO COLLECTIOH (_ SHADOW HILLS CENTURY VINTAGE HOMES 10 FLORENCIA_TALAVERA DR HORTC)N 8 FOXSTONE KB HOME 11 GENOVA@TALAVERA DR HORTON 3 tSHADOWRANCH_SHADOW'HILLS FAMILY DEVELC)PMENT 7 SIENNA_ SHADOW HILLS RYLANDHOMES 5 THE VEN'[ANA COLL.ECTION _ SHADOW HILLS CENTURY VINTAGE HOMES t2 VENECIAATTALAVERA .... DR HORTON 8 VILLAES_TATESII_SI-IADOWHILLS CENTURY VINTAGE HOMES

$152.98 22-Mar-03 $197.67 $155+46 01-Jun-05 $179.45 $146.07 12-Feb-05 $20302 $127.64 30-Apr-05 $139.39 $157.06 0t-Feb-.05 $189.93 $i42.54 13-Apr-05 $161.35 $184_47 22-Mar-03 $248.33 $171.54 16-May-05 $190.35 $444.42 0'i-(Dct-03 $226.56

MARKET PROFILES IN ,C

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27421 Ix3-1,2,3,4 5,6.xls

alVINNOIJ.V:::)0"I qJ.OarO_ld 31NOH M3N

(.J'lli .LIBIHX:::I

EXHIBIT 111-6 DEVELOPMENT S'rATUS REPOR'I" CiTY OF INDIO JUNE 2005 SINGLE FAMILY ATTACHED RECENTLY APPROVED OR UNDER CONSTRUCTION 1 Mor'Rar!_ De 0[o EA 05-02-425 PMP 5-3-42 CZ 5-2-631 DR 5-3-162 To construc_ 60 residential Jotson 60 appmx 11.36 acres Note:from RV )ark To SFH 0 lot linehomesgat_ community $out,hw_sc t omer of Madison St. MadisonSt, LLC & Doroll_y Lane (760) 773-9024 3J1(](2005

SINGE FAMILY DETACHED RECENTLY APPROVEDOR UNDER CONSTRUCTION 2 Barcelona TM 32411 138 To allo_ the subdivtsior_ of 40 1 acresinto 138 singlefamily homes 1/2 rrdleeast of the inters_=.ction IBeazer Homes o! Monroeand Avenue 50 Rytard , Homes 5/27/20,05

3 Corlinaat Terra Lago Plannincj Area 5 4 Hacter'zla

TM 31601

110

To constructt 10 single familyhome.s locatedwithin the Terra Lago Withi_ Ihe Terra Lago rnaste_lannedcomrrvJ_ity comrnLm Tract 316_6to subdl_le 80 acres into284 singlefamilylots including _,%=stslde of Golf Center Parkwaynorth of Avenue 43

--

DesignRev=ew5-1157 TM 05-01-420 PMP 05-D1-37 EA 05-0137 ier_aoveMap ........ 32339 & 32340 TM 04-7-410 TM 04-7411Changeof Zone 04-7-622 Design Re_qew 04-9 1':kll DR 05-1-156

284

Be , az:er Homes 94_))285-29(]0 $DI Communities LLC Atln: Sam Yoo 951) 676-7000

1_ 15_2005

5 !lndkJ78

238

Tracl 328,69)To subdivide 78.5 acresfor238 singlefamilytlomes,

Avenue40 andJefferso_n St. APN 679-110-005

1/1_2005

6 Slons_eld Developmenl

96

Northof Avenue 50, westof TM 32339; To subdivi d e5z4g acres Inlo96 res_den[ialots7M 32340; Hve jort hS_eel and soulh of A nue49

SlonefleldDevelopment A rt t.I63 94 _McCu 5B1-4.6 8/31/2004 ...

7 Espana

,471 To cons b ruc! 47 1 sing fa mily reskle _e e son 1 60. 67 le ac res

GenerallyIocaled on the n orlhea f Mams SI. and Avestcornero 4D. APN 679-D70-0_2

Regency Horr_s Peter Solonm,n (760) 770-7373

1/20/2005

,To allowthe construclJonof 36 new 8 Ranr_.ho Verde Des=gn123 Review 04-6 36 single-familyresudneces & To allow 8oulhweslcomer of Dr. Caneor_ W.E.W. Construction !twoslo_ honteson 7.18 acres o1 iBIvd,analCalhoun$1reet 760-343.5102 !vacantland 6130f2004

rVb-',. PR RKE7 OFILES, INC.

27421 lx:3.-I 2,3,4 5,6xls

EXHIBIT 111-6 DEVELOPMENT STATUS REPORT CITY OF tNDIO JUNE 20O5

"-rill iiTininn iUliDi

"--

............

9 Ici_$tacleVida

TM 33276

M xed ocatel nor hof Ave . 38 and a cir es use developmenttDtaling656 I e ast of W ast hmg lon St

/Jame s2Tay I (916) .7-0lor ,066

IJ'l5/20_5

10!The B.ndge st Jel_rson

DR 04- t O_ 1:39

124

To reviewavchileclure& landscape Southeastcomer of Avenue 46 iThe Bridge @ Jefferson, plans to allowforthe cortstruction of andJeffersonSkeet LLC Ted Van -Huise_ 124 sir_te-(amilyhomes Bre_7 t:P0-200..4485

10/13/2004

!11 SonoraWells (FormerlyVista Laguna)

DR 05-5-161

363 !o _T n o co 9 3.3 _truc acre ts 363 (TM si3 n 2 g 40 lef2 a)mily Ilomas a No ndAve rthwe . st 41 comer sou_of of Jhe acks alor_ l St Kel DR ley Herren MVchelle a mencan canal (949) 4426 199

5_2005

APPROVED, NO RECORD OF DEVELOPMENT To subdivide80 acres'ofrecant land Northof i-10 freeway, between into275 single Pamily lotswflh pnvale MonrowSlreetand Jackson Mickle Riley Rilington streets,and three streeL northof the AI! Arnedcan Communi_es rec_eational/refantiobasinco n mmon 760-47!-5460 Canal ares IDle. To subdi_de 4.41 acre_ m_o 24 residential lots m Ihe RH zone, also To conslruct24 Singlefamily residences Tosubdi_qde 16.35 acres mid 56 South of FredWanng Dnve, west of ClintonStreet

12 AffTeSO0

TentativeMap 32401 TM 04-6-408

275

7_'6/2004

DesignRenew 04_. 13 Villa OiVinci !117 TM 32425 {TM !04-5-406) Tentative Map 30605; 04-3-402 TM 31974; 0.4-2.. 15 Desert lake. LLC 400 TM 31975, 04-2. 401 TenlativeMap 31689 TM 04-1-39B DesignRe_,w 03-9 17 Aldea at Waling _95Tentative Map 31692; 03-9-392 34 257 24

Fou_TowersOevelopn'_er_t! 760-333-3405 5f12/201)4

14 Buena V'tsta

56

Northof Ave.44, west of Golf

singlefamilyhomes CenterPartway TM 31974; To subdivide29.i)7 acres isle 105 SFH West Side of GolfCenter TM 31975; To subdl_kJe 39.48 acres Parkway,northof Avenue43 into 152 SFH To sttbcliv=de 160 acresof land into 480 singlefamilyhomes To subdivide7,14 ames of vacant land isle 34 single family res_dentlaP Cllnlon oSUth fstreetWad Fred ng. west of I Iotawith prtvaleslreels, Northeastcornero_'Avenue40 andAdams Sbreet

F mily lopment Ra udy HDeve ererra {7601.900_-8989 Deserl Lake Randy Remhad (909) 605-9456 Peter Solomon (760) 770-7373

3J3k2004

2/4]2004

16 RegencyHo_mesC ; orona4o

480

I]29t2064

GHn .A oPa MaGonza Group, faslma LLC [760) 322-3422

9,'3C_2003

MARKET

PROFILES,

tHC.

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ii

EXHIBIT 1{I.6 DEVELOPMENT STATUS REPORT CITY OF INDIO JUNE 2005

.... illfllil_ ........

_IIT_=

II1|J_'

.....................

TenlativeMap 31389 03-9-391; 18 indian PalmsCech,an Ranch SpecificPlan Eslates Arnendmenl95.9-5 ProjectMaster Plan 03929
rw,r

I"I"o subdivide16.13 acres into82 82 single-familyresidentiallots;To estat21ish [ariduse regulalfons Indian Palms Counlr'y, Club developmentstandards an destgn gu_delirP_.s and To amend the rand use desi_rmtion TO allowfor the developmentof851 F._ese E d qu_pme_ T A McConnelt 7601347-8486 9/5/2003

19 Terra LogoEast

32462 (04-11-417)) TM 32341 ('I'M 04 tl 416} TM 32288 (TM D4-I 1-415)"I'M 32287 (TM (]4-11 4_,

=u-O'Iu

_ nil

f 11ftJ2CO4

527

dwe|lirlgunits of various denslly North of Avenue 44 befween ISuncat typeson 563.34 acres Golf CenterParkway and Dillion Gary V_lliams {DeductingdevelOplT_enls a[maffy Road: Lar'_lmarkLakesGolf (760I)775-6373 Jccounted for iri _[s report 527 units Course remainin Terra Lago} Review of architecturaldes,gnsaMid Southwesl oorner of Jackson SL AshbrookCo mmunitk_s frontyard landscaping for 1 t t single and Ave 41 Bruce Maize temi[yhomesl_|hlrl Tract30643 (760) 200-929_ GeneralPlan Amendment & TenlativeMap for 49 acres for 123 sirlglefamily homes To subdivide274.96 acresof land soulh of Ave 42 between JacksonSL 8, Van BurenSI APN 679-3 t 0-0(]7

20 Sandstoneal Desed Trace

OesEJnR 136 eview 049 General Plan

111

_Z1_'2004

21 Estates at SandhLvst

Amend 4-11-64 T en tativeMap (}411 -4 19 Parcel Map 31463 Pro_cl Master Plan i)3-8 28; Spec_c Plan 03-8.14 Tentative Map 31562; TM 0_-8388 TentativeMap 30606; TM 037387; Pro_ect Master Plan03-7-27 DesignReview 03-7 85

123

Sun Dese_rt Homes LLC 76(1 775-500,0

11/4/2004

221Ar_reas Ranch

937

i23 Lmry Hughes

208

into 937 single familyrestdenliallots fora private gatedcommunityIn an EE and RL zone To subdivide80 acresinto _38 s_ngle family hon'P_.s m a gated o0mmunity To subd_de 9 7T ac_esi,to I 1 resIdential Io_s

North of 1.10_'eeway north side TR CO of A_enue38 at _e nort_erly Tom Rielly itermmus of JeffersonSlreet {949) 719-4975

5/16/2003

East of Golf CenterParkwayon Larry Hughes AvemJe44 (76_) 578-0139 South side OfAvenue 50 west of JacksonStreet Lupe W_L_on (760} 7716237

8fl/2003

! 24 Lupe WatsonVisla Montarla ' Estates

11

7/29/2003

26 Centennial Homes CathounEstates

31

To oonstruct 31 single-family detacho(Ims idences Construclfenof 53 single family homeso_n 7,96 acresw_ optional" Casita'

Nodh side of Dr CartoonBird west of CaIhounStreet

Cenlennlal Homes Derek Scolt415-899-1_2

7f16/2003

27 First PacificDevelopment; BellasaraII PENDING

DesignRmaew D3-7: 84 ConditionalUse 53 Permit;03-7-794 _

located on Wayne Street _nthe IndianPalms CounlryClub. ,,

First Pacifica Devetopment;Eric French 7tt5/2003 909-841-1379 I

MARKET

PROFILES

_HC

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234

56

x_

EXHIBIT 111-6 DEVELOPMENT STATUS REPORT CITY OF INDIO JUNE 2005 I ..... 11111 .... "Ir .... TM 3234DTM 04-7410 TM 04-7-411 Change of Zone 047-622 36 i To subdivide36.64 acres tnto 36 1_IT l_I......... r StonermldDevelopment A_tMcCufl 949-581-4663

28 i,Stonefleld Oevelopment

Norlh of Avenue 50, west of residentiallois To changethe zomng HjorthStreel and southof designa#onon _g,33 acresfrom Avenue49 CErR-1 & CEIR-2 Io CEIR -IJ2

8/31/2004

12g Woo_srde Homes

IDR 05-01-158

t79
. ,,

Northwestc_rne.rof Golf Center Pleasant'Valv.-y-Investments Tn6 o o co 1,nst 27 racr uct17g es single fami_ homes P_rkway andAvenue 43 within Paul K/off Terra Logo (949) 648-4_80 .,, To sub-diXie 3g acres into 138 slnglefamlyhomes in a gal:e_f community To considerIhe site plan and a rchitectu[efor 225 singlefamily homes To construct7 SFH's on 2.43 acres approvedTM 30605 !Locateon northwestcomer of Kevm M anmng Avenue 48 & Jackson St, 760 404-1900 AI the southeastcomer of Monroe Street are/Avenue 40

2f15/20t)5

3(} Wh_ie Ranch

TM 31473

t38

3t8/2005

31 ,SanMilan at Paradiso 32 Belle "13erra 2

TM 31815 TM 33291

225 7

LennarHomes

4t7J'20_5 lJ24,t2005

Northwestcomer of Ave. 44 ann Rudy Hefrera Gaff Center Parkway (760) 990-6969

"
33 PonderosaVillas ;DR05-4-170 165 To construct185single family horrmsAve41 & MonroeSt, ('TM 31815 410 Lois) TM 331)04,To sulx:liwde epprox 2,14 774

Po_de,o H _ 0me5 LI _n_

Pamela Hardey (925) 460-8981 3/24t2005

34 PoloEstatesResidential

PMP 06-03.44 TM 05-3-431 EA 5-2424

acres into774 Iot_. $F loisp411 rBnge Locatedel the northwest comer Jim HildeL)rand in sizefrom 5000 sq 1t Io I t,000 sqfl of Ave. 52 and Jackson St (925) 682-4830 CILister Product lotsv_ll range from 4,240 sq ftto ,5..,25s 0q fl Ri60 lin) gt onCo mm (7 77 9-070 5 unities

3_15/2005 ., :_110/2005

35 Avante

5-3 1P 50 TM I)5!SP0 3-430 PM 5-3-43

Mixeduse projc eialo ct for 14.9 SFH oKT ] M';N 149 office commer _ 54 47 a_es hwe t corner of Burr St. & Vert toer Rs d, 33239

36 Aliante

TM 05-3-428 PMP 05-3-41 DR 05-3163

TM 33293 Development of 40 acres Northof Avenue 44, east of Golf Rudy Herrera 130 into 130res,dentialIoLs and a 3 acre Center Parlcway 060) 900-6969 parldopenspacearea, Oesignreview to construct86 single Gol! Center Parkway and s to_ y ,single family homes Tract Avenue 44 Trecl 31501-4 316 0 1 Lennar Homes (2'60) 325-3791

3,t8.t2005

Mar quesa ta Te Plannin gAs re 3rra Logo

DR 05-3-161

86

_8/2(]05

R_V_RKE PR T OFILES, {NC

Z7421 lx_l,2,3,4,,S,6.x_

EXHIBFr 111.6 DEVELOPMENT STATUS REPORT CITY OF IND_O JUNE 2005

...............

III ..... 05-3-16 050 03 CUP -82g DR TM 1)5--02-425 Tmcl 33014 GPA05-2-68 DR 05-2-161 Oe=lgnRewew 05-2 160Tentative Tract Map 33165 t28

"iTiii-" Desogn review to construd 128 singlefamilyhomes

_iliri

llli

i ............

38 Cordobaat Terra Lago

Golf Center Parkway and Avenue 44 Tract 31601-3

Len_f Homes (760) 325-3791

2.J15E2005

39 Villa La Jolla

14

To conslruct14 residenlialhomeson !Southof JohnNobresand West 4 Tov_rs development 3.3 acres _Arabia Guy ElzJony 760-3,33-3405 TO subdivlde6.92 acres into 27 stogie-familyresidential Land divisionof 9.6 Acres rnthe Northesstcomer of Jefferson Streel& WestwardHo Roger $nellenberger (760) 784-5097 Palnci_. Aiken (760) 347-0778

2.J1412005

40 Indian SprtngsCC

27

I/Z4/Z005

41 PatriclaAiken;IndloRanchos TentativePaicel Country EstatesArea Map 04-16-332 Design Revc, w 0410-142 Condilional Use Permit04-10823 Ch angeof Zon e11-i 04-, 11-626 PMP 0436 TentativeMap 331)12; 04-11-418

_ndio Ran_os CountryEstatesarea West side of Monroe. between intofoo_(4) two acre single-family 49_ Ave. & 5D1Jh Avenue relldenfal lots To conslucl56 onHto_/and twostorysingle family residenfal unlIs on 16.35 acres To sulxlivlde 16.6 acresinto25 res=dentla lotsand15 l lettered_ots

10/4/20,04

42 Buena Tiena
ii

56

!1f8 mile nodh oi' Avenue44 and Rudy and Raymond westof Goff CenterParkway Herrem (760) 90,0-8989 I.as Bougelnvilleas LLC Judar_e Clerk/Dennm Fr 7 60 ee -773 man -9024

i |

11116/2004

! 43 La$ BougamvJlleas. LLC

25

for streef,landscal_ngandretenlion, NorthofAvenue 50, east of also To changethe zoningkorn JeffersonStre=l CEIR-2 To CEIR-I/Z

7f"2"/'F2004

44 Windsongat DesertTraee

Oes4gnReview 04-7 247 130 I

home_on 80.26 acres of agricultural Northeas{corner of MDmoe and TiM Lokkesmoe 909587-33 0a 8slalInc To _ and consttucl witt_nTTM 2473 single-fa 0643 mity Av , enue 41 KB Ho me Co

--

SOURCE Ci_ of Indio.ManketProfiles

MARKET

PROFILES,

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APPENDIX

FORM OF BOND COUNSEL OPINION

[Dated the Date of Closing]

City of Indio 17866 Sierra Highway Canyon Count_, California 91351

$ City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Members of the Board of Trustees: We have acted as bond counsel to the City of Indio (the "City") in connection with the issuance of the $ aggregate principal amount of City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"), pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, or the Government Code of the State of California (the "Act") and pursuant to a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"). We have examined the Act and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the District contained in the Fiscal Agent Agreement and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing we are of the opinion, under existing law, as |bllows: 1. The Fiscal Agent delivered by the District legally valid and binding binding obligation of the terms. Agreement has been duly and validly authorized, executed and and, assuming such Fiscal Agent Agreement constitutes the obligation of the Fiscal Agent, constitutes the legally valid and District, enforceable against the District in accordance with its

2. The Bonds constitute valid and binding limited obligations of the District as provided in the Fiscal Agent Agreement, and are entitled to the benefits of the Fiscal Agent Agreement. 3. The Bonds are secured by a valid pledge of the Special Taxes and all moneys in the funds and accounts under the Fiscal Agent Agreement, including all amounts derived

F-l

from the investment of such moneys, subject to the application conditions as set forth in the Fiscal Agent Agreement.

thereof on the terms and

4. The Internal Revenue Code of 1986 (the "Code") sets forth certain requirements that must be met subsequent to the issuance and delivery of the Bonds tbr interest thereon to be and remain excluded from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issue of the Bonds. The District has covenanted in the Fiscal Agent Agreement to maintain the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In our opinion, under existing law, interest on the Bonds is exempt from personal incomc taxation of the State of Calitbrnia and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. We are further of thc opinion that under existing statutes, regulations, rulings and court decisions, the Bonds are not "specified private activity bonds" within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)). Except as stated in the preceding three paragraphs, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other bond counsel. No opinion is expressed herein on the accuracy, Statement or other offering materials relating to the Bonds. completeness or sufficiency of the Official

The rights of the owners of the Bonds and the enforceability of the Bonds and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. The enforceability of the Bonds and the Fiscal Agent Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whcther considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California.

F-2

Our opinions are based on existing law, which is subject to change. Such opinions are further !,_s_J ,,_ ,,m_knowledge of facts as of the date hereof. We assume no duty to update or supplement our opin_on,_ t_, _ellcct any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in _eliance upon the representations and covenants referenced above.

Respectfully

submitted,

F-3

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APPENDIX FORMS OF CONTINUING CONTINUING

G AGREEMENTS

DISCLOSURE

DISCLOSURE

AGREEMENT

(City of lndio Community Facilities District No. 2004-3 (Terra Lago))

This Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September 1, 2005, is executed and delivered by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Union Bank of California, N.A., as dissemination agent (the "Dissemination Agent") hereunder, in connection with the issuance of the $ City of lndio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. I) (the "'Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"). The District and the Dissemination Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District and the Fiscal Agent for the benefit of the Beneficial ()_acrs of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report or any addendum thereto provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "City" shall mean City of Indio, California. "Disclosure Representative" shall mean the City Manager of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time. "'Dissemination Agent" shall mean the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the District and which has filed with the Fiscal Agent a written acceptance of such designation.

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"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository tbr purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at hllp:/_www.sec.gov. "Participating Underwriter" shall mean any of the original underwriters required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean each National Repository and each State Repositow "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended ti-om time to time. "State" shall mean the State of California. "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Reports may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. If the District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f). Furthermore, upon receipt of a written request of any Beneficiary Owner, the Dissemination Agent shall provide a copy of the Annual Report to such Beneficial Owner. (b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the District shall provide the Annual Report to the Dissemination Agent and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District and the Fiscal Agent of such failure to receive the Annual Report. The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and Fiscal Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report. of the Bonds

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(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) to the extent information is known to it, file a report with the District and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. include by reference the following: The District's Annual Report shall contain or

(i) The audited financial statements of the City, prepared in accordance with generally accepted accounting principles in effect from time to time. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a 10rmat similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (ii) The balance in the Reserve Account held under the Fiscal Agent Agreement.

(iii) Total assessed valuation (per the Riverside County Assessor records) of all parcels currently subject to the Special Tax within the District, showing the total assessed valuation for all land and the total assessed valuation for all improvements within the District and distinguishing between the assessed value of developed property and undeveloped property. (iv) Identification of each parcel for which any Special Tax payment is delinquent, together with the following information respecting each such parcel: (A) the amount delinquent; (B) the date of each delinquency; (C) in the event a foreclosure complaint has been filed respecting such delinquent parcel and such complaint has not yet been dismissed, the date on which the complaint was filed; and (D) in the event a foreclosure sale has occurred respecting such delinquent parcel, a summary of the results of such foreclosure sale. (v) The number of certificates of occupancy issued by the City and the principal amount of prepayments of the Special Tax with respect to the District for the prior Fiscal Year. (vi) A land ownership summary listing property owners responsible for more than five percent (5%) of the annual Special Tax levy, as shown on the Riverside County Assessor's last equalized tax roll prior to the September next preceding the Annual Report date.

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(vii) The principal amount of the Bonds outstanding Fund (along with a statement of the Reserve Requirement) preceding the Annual Report date.

and the balance in the Reserve as of the September 30 next

(viii) A description of the status of the facilities being constructed with proceeds of the Bonds as of the date of the Annual Report (but only so long as such facilities are not completed), and the balance in the Acquisition and Construction Fund as of the September 30 next preceding the Annual Report date (but only until such fund is closed). (ix) The number of building permits issued in the District during the prior Fiscal Year. Taxes generated by the developed parcels and

(x) The amount of Special undeveloped parcels within the District.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. 2. 3. 4. 5. 6. 7. principal and interest payment delinquencies; non-payment related defaults; modifications to rights of Bondholders;

optional, contingent or unscheduled bond calls; defeasances; rating changes; adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds; unscheduled difficulties; unscheduled difficulties; draws on the debt service reserves reflecting financial

8.

9.

draws

on

credit

enhancements

reflecting

financial

10.

substitution of credit or liquidity providers, or their failure to pertbrm;

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11.

release, substitution or sale of property securing repayment of the Bonds.

(b) The Dissemination Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Dissemination Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Dissemination Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "'actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent or the Dissemination Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. Neither the Fiscal Agent nor the Dissemination Agent shall have any responsibility to determine the materiality of any of the Listed Events. (c) Whenever the District obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the District has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the District determines that the Listed Event would not be material under applicable federal securities laws, the District shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Fiscal Agent Agreement. SECTION 6. Termination of Reporting Obligation. The District's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(f). SECTION 7. Dissemination A_ent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure

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Agreement, and may discharge any such Dissemination Agent, with or without appointing a suc_essor Dissemination Agent. The Dissemination Agent shall not be responsible in any _a_ler for the content of any notice or report prepared by the District pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the District and the _iscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor _hall the Dissemination Agent be responsible for filing any report not provided to it by the District in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to any amendment so requested by the District) provided, neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated i)er:_on with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the !_'.de at the time of the original issuance of the Bonds, after taking into account any amendments o_ interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either.(i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial reformation or operating data being presented by the District. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, _n addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District shall

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have no obligation under this Agreement to update such information A,mual Report or notice of occurrence of a Listed Event.

or include it in any future

SECTION 10. Default. In the event of a failure of the District or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent (at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisthctory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisthction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific pertbrmance by court order, to cause the District or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the District or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION ll. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination A_gent. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders, or any other party. The Dissemination Agent shall have no liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Agreement. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

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SECTION 12. Notices. Any notices or communications to d_i_ Disclosure Agreement may be given as follows: To the District:

to or among any of the parties

City of Indio Community Facilities District No. 2004-3 c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Phone: (760) 342-6580 Fax: (760) 342-6597 Union Bank of California, N.A. 120 South San Pedro Street, Suite 400 Los Angeles, California 90012 Attn: Corporation Trust Department Phone: (213) 972-5674 Fax: (213) 972-5694

To the Fiscal Agent:

Any person may, by written notice to the other persons listed above, designate a different address _ lclephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and ltol&.,_s and Beneficial Owners from time to time of the Bonds, and shall create no rights in any othe_ i_crson or entity. SECT1ON 14. Counterparts. This Disclosure Agreement may be executed in several :oumerparts, each of which shall be an original and all of which shall constitute but one and the same instrument. CITY OF INDIO COMMUNITY FACILITIES

DISTRICT NO. 2004-3 (TERRA LAGO)

By City Manager of the City of Indio

UNION BANK OF CALIFORNIA, Dissemination Agent

N.A., as

By Authorized Representative

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EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party:

City of lndio Community Facilities District No. 2004-3 (Terra Lago) City of lndio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Name of Bond Issue:

Date of Issuance:

September

,2005

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The District anticipates that the Annual Report will be filed by .] Dated: UNION BANK OF CALIFORNIA, on behalf of District N.A.,

cc: Issuer

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DEVELOPER

CONTINUING DISCLOSURE AGREEMENT ([NAME OF PROPERTY OWNER])

This Developer Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September 1, 2005, is executed and delivered by , [type of entity] (the "Property Owner") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent") and acting in its capacity as Dissemination Agent hereunder, in connection with the issuance of the $ City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "'Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September l, 2005 (the "'Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "Issuer") and the Fiscal Agent. The Property Owner, the Dissemination Agent and the Fiscal Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Property Owner, the Dissemination Agent and the Fiscal Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, five percent (5%) or more of the outstanding voting securities of such other Person, (b) any Person whose outstanding voting securities of five percent (5%) or more are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person; for purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Annual Report" shall mean any Annual Report or its addendum provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Assumption Agreement" means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Agreement (as modified for such Major Owner's development and financing plans with respect to Improvement Area No. 1 of the District), whereby such Major Owner or Affiliate agrees to provide annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereol; respectively, with respect to the portion of the property in Improvement Area No. 1 of the District owned by such Major Owner and its Affiliates and, at the option of the Property Owner or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof.

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"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, t_ vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons _Ming Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the of the Property Owner or his or her designee, or such other officer or employee as the Property Owner shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time. "Dissemination Agent" shall mean the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Property Owner and which has filed with the Fiscal Agent a written acceptance of such designation. "District" Lago). "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "Major Owner" shall mean an owner (including all Affiliates of such owner) of land in _mprovement Area No. 1 of the District responsible in the aggregate for 20% or more of the armual special taxes levied in Improvement Area No. 1 of the District. _'National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at http://www.sec.gov. "Participating Underwriter" shall mean any of the original underwriters required to comply with the Rule in connection with offering of the Bonds. "Person" means an individual, a corporation, company, a trust, any unincorporated organization thereof. of the Bonds shall mean City of Indio Community Facilities District No. 2004-3 (Terra

a partnership, an association, a joint stock or a government or political subdivision

"Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(h)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. _'Special Taxes'" shall mean the special taxes to be levied on the property owned by the Property Owner within Improvement Area No. 1 of the District. "State" shall mean the State of California.

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"State Repository" shall mean any public or private repository or entity designated by the S_._mas a state repository for the purpose of the Rule and recognized as such by the Securities _,_ Eachange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) Property Owner shall, or, upon written direction, shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement with a copy to the Fiscal Agent and the Issuer. Not later than fifteen (15) Business Days prior to said date, Property Owner shall provide the Annual Report to the Dissemination Agent. Property Owner shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent and the Issuer to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent, the Issuer and the Fiscal Agent may conclusively rely upon such certification of Property Owner and shall have no duty or obligation to review such Annual Report. The Annual Report may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include i>r ret>rence other information as provided in Section 4 of this Disclosure Agreement. If Pr_:pc_y Owner's fiscal year changes, it shall give notice of such change in the same manner as ior a Listed Event under Section 5(t). (b) If the Fiscal Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Fiscal Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State P ep,:,,qtory, if any in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) to the extent Owner and (if the certifying that the Agreement, stating was provided. information is known to it, file a report with the Issuer, the Property Dissemination Agent is not the Fiscal Agent) the Fiscal Agent Annual Report has been provided pursuant to this Disclosure the date it was provided and listing all the Repositories to which it

SECTION 4. Content of Annual Reports. contain or include by reference the following:

The Property Owner's

Annual Report shall

(i) Relating to all property owned by Property Owner within Improvement Area No. 1 of the District (the "Property"), a summary of the Property Owner's development activity on the Property during the Property Owner's last fiscal year: (A) number of acres/lots owned by the Property Owner or its Affiliates as of the end of the applicable fiscal year or a more recent date, (B) progress of construction activities on the Property as of the end of the applicable fiscal year G-12

or more recent date, and (C) number of acres/lots sold by Property Owner or its Affiliates to end use_",or builders as of the end of the applicable fiscal year or a more recent date. (ii) Any material changes in the information relating to the Property Owner and/or the Property contained in the Official Statement under the caption "THE DISTRICT" and "THE DEVELOPMENT." (iii) A description of the status of any land purchase Property (other than sales to individual homebuyers). contracts with regard to the

(iv) A description of any change in the legal structure of the Property Owner and/or the financial condition of the Property Owner that would materially interfere with its ability to complete the development plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN" and "THE MASTER DEVELOPER AND THE DEVELOPERS" (the "Development Plan") or to pay its Special Taxes. (v) A description of any material changes in the Development Plan.

(vi) A pro forma financing statement relating to the Development Plan detailing (A) amount spent to date, (B) the remaining costs to complete the Development Plan including timing of such disbursements and (C) the source of financing for such remaining development
co_ts.

(vii) A description of any previously undisclosed entitlements for the Property. (viii) An update of the status of any previously Section 5 hereof.

material amendment

to the land use

reported

Listed Event described

in

(ix) A statement as to whether or not the Property Owner and all of its Affiliates paid, prior to their becoming delinquent, all special taxes levied on the property owned by the Property Owner and such Affiliates within Improvement Area No. 1 and if such Property Owner or any of such Affiliates is delinquent in the payment of such special taxes, a statement identifying each entity that is so delinquent, specifying the amount of each such delinquency and describing any plans to resolve such delinquency. (x) A description of any material changes in the financing plan of the Property Owner for the Development Plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN - Development and Financing Plans -Improvement Area No. 1" (the "Financing Plan") and the causes or rationale for such changes. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Property Owner or related entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Property Owner shall clearly identify each such other document so included by reference.

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SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Property Owner shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: I. bankruptcy or insolvency proceedings commenced by or against Property Owner or a partner or Affiliate thereof that would materially interfere with its ability to complete the Development Plan or to pay its Special Taxes; 2. the Property; failure to pay any taxes, special taxes or assessments due with respect to

3. filing of a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof seeking damages, or a judgment in a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof, which could have a significant impact on the Property Owner's ability to pay Special Taxes or to sell or develop the Property; 4. any conveyance by the Property Owner of property to an entity that is not an Affiliate of such Property Owner, the result of which conveyance is to cause the transferee to become a Major Owner; 5. any denial or termination of credit, any denial or termination of, or default under, any line of credit or loan or any other loss of a source of funds that could have a material adverse affect on the Property Owner's most recently disclosed Financing Plan or the ability of the Property Owner or any Affiliate to pay Special Taxes when due; 6. any significant Owner's property; amendments to land use entitlement for the Property

7. any previously undisclosed governmentally-imposed commencement or continuation of development of the Property; 8. any previously undisclosed challenges to development of the Property; legislative,

preconditions

to

administrative

or

judicial

9. any material change in the alignment, design or likelihood of Completion of significant public improvement being constructed by the Property Owner affecting the Property, including major thoroughfares, sewers, water conveyance systems and similar facilities; and 10. 6. (b) The Fiscal Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events. or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request The assumption of any obligation by a Major Owner pursuant to Section

G-14

that the Property Owner promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Fiscal Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Fiscal Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. The Fiscal Agent shall have no responsibility to determine the materiality of any of the Listed Events. (c) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or otherwise, the Property Owner shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Property Owner has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Property Owner shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the Property Owner determines that the Listed Event would not be material under applicable federal securities laws, the Property Owner shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) If the Dissemination Agent has been instructed by the Property Owner to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. SECTION 6. Duration of Reporting Obligation. (a) All of the Property Owner's obligations hereunder shall commence on such date as property owned by the Property Owner is responsible for payment of 20% or more of the special taxes in Improvement Area No. 1 and shall terminate (except as provided in Section 11) upon (i) the legal defeasance, prior redemption or payment in full of all the Bonds or (ii) so long as the Bonds are outstanding, at such time as property owned by the Property Owner is no longer responsible for payment of 20% or more of the special taxes in Improvement Area No. 1. Upon the occurrence of any such termination or suspension prior to the final maturity of the Bonds, the Property Owner shall give notice of such termination or suspension in the same manner as for a Listed event under Section 5. (b) If a portion of the property in Improvement Area No. 1 of the District owned by the Property Owner, or any Affiliate of Property Owner, is conveyed to a Person that, upon such conveyance, will be a Major Owner, the obligations of Property Owner hereunder with respect to such property owned by such Major Owner and its Affiliates shall be assumed by such Major Owner or by an Affiliate thereof and the Property Owner obligations hereunder will be terminated. In order to effect such an assumption, such Major Owner or Affiliate shall enter

G-15

into an Assumption Agreement. The entering into an Assumption Agreement by such Major ()w_er or Affiliate shall be a condition precedent to the conveyance of such property and the Property Owner shall provide a copy of the executed Assumption Agreement to the Fiscal Agent and the Issuer prior to such conveyance. SECT1ON 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Property Owner pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the Property Owner, the Issuer and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Property Owner in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Property Owner, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to _,.oyamendment so requested by the Property Owner) provided, neither the Fiscal Agent nor the I_._ emination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the-opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Property Owner shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Property Owner.

G-16

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be &v,:med to prevent the Property Owner from disseminating any other information, using the q_c,ins of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Property Owner chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Property Owner shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Property Owner or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent (at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Property Owner or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default _mte_ the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Property Owner or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agg_n_. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Property Owner agrees to indemnify and save the Dissemination Agent and Fiscal Agent, their officers, directors, employees and agents (the "Indemnified Party"), harmless against any loss, expense and liabilities which they may incur arising out of or in the reasonable exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding losses, expenses or liabilities due to any Indemnified Party's respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Property Owner for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all reasonable expenses, legal fees and advances made or incurred by. the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the Property Owner, the Bondholders, or any other party. Neither the Fiscal Agent or the Dissemination Agent shall have any liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related

G-17

to or arising from this Agreement. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Notices. Any notices or communications to this Disclosure Agreement may be given as follows: To the Issuer: to or among any of the parties

City of lndio Community Facilities District No. 2004-3 (Terra Lago) c/o City of Indio 100 Civic Center Mall lndio, California 92201 Attn: City Manager Telephone: (760) 342-6580 Facsimile: (760) 342-6597 Union Bank of California, N.A. 120 S. San Pedro Street, 4 th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694 Agent: Union Bank of California, N.A. 120 S. San Pedro Street, 4th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694

To the Fiscal Agent:

To the Dissemination

To the Property Owner:

Attn: Telephone: Facsimile:

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Property Owner, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

G-18

SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. [PROPERTY OWNER], [type of entity]

By Name: Title:

UNION BANK OF CALIFORNIA, as Dissemination

N.A.,

Agent and Fiscal Agent

By Authorized Officer

G-19

EXHIBIT A

NOTICE TO REPOSITORIES

OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party: Name of Bond Issue: City of lndio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) September, 2005

Date of Issuance:

NOTICE IS HEREBY GIVEN that the Property Owner has not provided an Annual Report with respect to the above-named Bonds as required by the Developer Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The Property Owner anticipates that the Annual Report will be filed by .] Dated: UNION BANK OF CALIFORNIA, on behalf of Property Owner N.A.,

cc: Issuer Property Owner

G-20

APPENDIX BOOK-ENTRY

ONLY SYSTEM

7he information in this section concerning DTC: and DTC _"book-entry sw'tem has been obtained /i'om sources that lssuer believes to be reliable, but Issuer takes no responsibilio_/br the accuracy thereof The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's parmership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the each issue of the Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to die provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S, equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in dcp,)s_ted securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S, securities brokers and dealers, banks, trust companies, cleming corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and .Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and nonU.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

H-I

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTCs partnership nomincc, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds: DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customcrs. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners well be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to thcm of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of thc Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & CoPs consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Fiscal Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.

It-2

23

15c2-12 CERTIFICATE with reference to City of lndio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

The undersigned, a duly authorized representative of the City of Indio, acting on behalf of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District"), hereby certifies that there was delivered to Southwest Securities, Inc., as underwriter (the "Underwriter") of the above-captioned bonds (the "Bonds") a Preliminary Official Statement (including the cover page, the introduction and the appendices thereto) relating to the above-captioned Bonds, dated August 19, 2005, which the District has deemed to be final as of the date thereof for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12"), except for information permitted to be omitted therefrom under Rule 15c2-12. The District approves of the use and distribution by the Underwriter of the Preliminary Official Statement. Dated: August 19, 2005 CITY OF INDIO

By

Ci__a_e_rif_

_k_'_

45655340.1

24

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Purchase Contract September 7, 2005

City o f Indio Community Facilities District No. 2004-3 (Terra Lago) 100 Civic Center Mall Indio, California 92201 Ladies and Gentlemen: Southwest Securities, Inc. (the "Underwriter") hereby offers to enter into the following agreement with the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District"). Upon the acceptance hereof by you, this offer will be binding upon the District and the Underwriter. This offer is made subject to (i) the written acceptance hereof by you and (ii) withdrawal by the Underwriter upon written notice (by telegraph or otherwise) delivered to you at any time prior to the acceptance hereof by you. 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements set forth herein, the Underwriter hereby agrees to purchase from the District, at the Closing Time on the Closing Date (both as defined herein), and the District hereby agrees to sell and deliver to the Underwriter, $26,330,000 aggregate principal amount of City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds shall be dated the date of their delivery and shall mature on September 1 in the years shown on Exhibit A hereto, shall bear interest at the rates shown on Exhibit A hereto and shall be subject to mandatory redemption from sinking fund payments, in the amounts and on the dates shown in the Fiscal Agent Agreement. Interest on the Bonds shall be payable each March 1 and September 1 to maturity or earlier redemption of the Bonds, beginning March 1, 2006. The purchase price for the Bonds shall be an amount equal to $25,824,283.00 (being the aggregate principal amount thereof ($26,330,000.00), less an underwriter's discount of $434,445.00 and less net original issue discount of $71,272.00). (The date of such payment and delivery is referred to herein as the "Closing Date," the hour and date of such delivery and payment is referred to herein as the "Closing Time," and the other actions contemplated hereby to take place at the time of such payment and delivery being herein sometimes called the "Closing"). 2. The Bonds. The Bonds shall be described in, and shall be issued and secured pursuant to, the provisions of the Constitution and the laws of the State of California including the provisions of the Mello-Roos Community Facilities Act of 1982, as amended (the "Act"), a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and

45635998.2

between the District and Union Bank of Califomia, N.A., as the fiscal agent (the "Fiscal Agent"), authorizing the issuance of the Bonds. The Bonds are being issued for the purpose of (a) financing certain public capital improvements within the boundaries of Improvement Area No. 1 of the District (including the payment of certain development impact fees) (b) funding capitalized interest on the Bonds through September 1, 2006, (c) funding a reserve fund for the Bonds, and (d) paying costs associated with the issuance of the Bonds. The Bonds are secured by and payable from Net Taxes (as defined in the Fiscal Agent Agreement). The Bonds shall be payable and shall be subject to redemption as provided in the Fiscal Agent Agreement and shall be as described in the Preliminary Official Statement of the District dated August 19, 2005 (the "Preliminary Official Statement") and the Official Statement of the District dated of even date herewith. Such Official Statement, including the cover page and the appendices thereto, relating to the Bonds, as amended to conform to the terms of this Purchase Contract and with such changes and amendments thereto as have been mutually agreed to by the District and the Underwriter, are hereinafter referred to as the "Official Statement." The District and Union Bank of California, N.A., as dissemination agent (the "Dissemination Agent") will enter in a Continuing Disclosure Agreement, dated as of September 1, 2005 (the "Continuing Disclosure Agreement"), in order to assist the Underwriter in complying with the requirements of Securities Exchange Commission Rule 15c2-12(b)(5). This Purchase Contract, the Fiscal Agent Agreement Agreement are referred to herein as the "Basic Documents." and the Continuing Disclosure

3. Offering by the Underwriter. It shall be a condition to the District's obligations to sell and to deliver the Bonds to the Underwriter and to the Underwriter's obligation to purchase, to accept delivery of and to pay for the Bonds that the entire principal amount of the Bonds shall be issued, sold and delivered by the District and purchased, accepted and paid for by the Underwriter at the Closing. It is understood that the Underwriter proposes to offer the Bonds for sale to the public (which may include selected dealers) at prices or yields as set forth on the cover page of the Official Statement. Concessions from the public offering price may be allowed to selected dealers. It is understood that the initial public offering price and concessions set forth in the Official Statement may vary after the initial public offering. It is further understood that the Bonds may be offered to the public at prices other than the par value thereof. The net premium on the sale of the Bonds to the public, if any, shall accrue to the benefit of the Underwriter. 4. Official Statement, Delivery of Other Documents, Use of Documents. (a) The District hereby authorizes the use by the Underwriter of the Preliminary Official Statement and the Official Statement (including any supplements or amendments thereto) and the Fiscal Agent Agreement and the information therein contained, in connection with the public offering and sale of the Bonds.

45635998.2

(b) The District shall deliver to the Underwriter, within seven business days from the date hereof, such number of copies of the final Official Statement executed on behalf of and approved for distribution by the District as the Underwriter may reasonably request in order for the Underwriter to comply with the rules of the Municipal Securities Rulemaking Board and Rule 15c2-12(b)(4) under the Securities Exchange Act of 1934. (c) As soon as practicable following receipt thereof, the Underwriter shall deliver the Official Statement, and any supplements or amendments thereto, to a nationally recognized municipal securities information repository. 5. Representations, Warranties and Agreements represents, warrants and agrees as follows: of the District. The District

(a) The District is a community facilities district duly organized and validly existing under the laws of the State of California. (b) The District has full legal right, power and authority (i) to enter into the Basic Documents, (ii) to sell, issue and deliver the Bonds to the Underwriter as provided herein; and (iii) to carry out and consummate the transactions on its part contemplated by the Basic Documents and the Official Statement. (c) By all necessary official action, the City of Indio (the "City"), on behalf of the District, has duly authorized and approved the Basic Documents, has duly authorized and approved the Preliminary Official Statement and the Official Statement, has duly authorized and approved the execution and delivery of, and the performance by the District of the obligations in connection with the issuance of the Bonds on its part contained in the Bonds and the Basic Documents, and the consummation by it of all other transactions contemplated by the Basic Documents in connection with the issuance of the Bonds. (d) To the best of its knowledge, the District is not in any material respect in breach of or default under any applicable constitutional provision, law or administrative regulation of any state or of the United States, or any agency or instrumentality of either, or any applicable judgment or decree, or any loan agreement, indenture, bond, note, resolution, agreement (including, without limitation, the Fiscal Agent Agreement) or other instrument to which the District is a party which breach or default has or may have an adverse effect on the ability of the District to perform its obligations under the Fiscal Agent Agreement, and no event has occurred and is continuing which with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; and the execution and delivery of the Bonds and the Basic Documents, and compliance with the provisions on the District's part contained therein, will not conflict in any material way with or constitute a material breach of or a material default under any constitutional provision, law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the District is a party nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of

45635998.2

the District or under the terms of any such law, regulation or instrument, provided by the Bonds and the Fiscal Agent Agreement.

except as

(e) To the best of its knowledge, all authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the matter which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by, the District of its obligations in connection with the issuance of the Bonds under the Basic Documents have been duly obtained, except for such approvals, consents and orders as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Bonds; except as described in or contemplated by the Official Statement, all authorizations, approvals, licenses, permits, consents and orders of any governmental authority, board, agency or commission having jurisdiction of the matters which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by, the District of its obligations under the Fiscal Agent Agreement have been duly obtained. (t) The Bonds when issued will conform to the descriptions thereof contained in the Official Statement under the captions "INTRODUCTORY STATEMENT" and "THE BONDS;" and the Basic Documents when executed and delivered will conform to the descriptions thereof contained in the Official Statement under the captions "INTRODUCTORY STATEMENT," "THE BONDS," "SECURITY FOR THE BONDS," and "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT." (g) The Bonds, when issued, authenticated and delivered in accordance with the Fiscal Agent Agreement, and sold to the Underwriter as provided herein, will be validly issued and outstanding obligations of the District, entitled to the benefits of the Fiscal Agent Agreement, and upon such issuance and delivery, the Fiscal Agent Agreement will provide, for the benefit of the owners from time to time of the Bonds, the legally valid and binding pledge of and lien and security interest it purports to create. (h) As of the date hereof, there is no action, suit, proceeding, inquiry or investigation, notice of which has been served on the District, at law or in equity before or by any court, government agency, public board or body, pending or to the best knowledge of the officer of the District executing this Purchase Contract, threatened against the District, affecting the existence of the District or the titles of its officers to their respective offices, or affecting or seeking to prohibit, restrain or enjoin the sale, issuance or delivery of the Bonds or the pledge and lien on the Special Taxes pursuant to the Fiscal Agent Agreement, or contesting or affecting as to the District the validity or enforceability of the Act, the Bonds or the Basic Documents, or contesting the taxexempt status of interest on the Bonds, or contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement, or contesting the powers of the District for the issuance of the Bonds, or the execution and delivery or adoption by the District of the Basic Documents, or in any way contesting or challenging the consummation of the transactions contemplated hereby or thereby; nor, to the best knowledge of the District, is there any basis for any such action, suit, proceeding, inquiry

45635998.2

or investigation, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity of the Act, as to the District, or the authorization, execution, delivery or performance by the District of the Bonds or the Basic Documents. (i) The District will fumish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order (x) to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate (y) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and will use its best efforts to continue such qualifications in effect so long as required for the distribution of the Bonds; provided, however, that the District shall not be required to execute a general or special consent to service of process or qualify to do business in connection with any such qualification or determination in any jurisdiction, provided, that the Underwriter shall bear all costs in connection with the District's action under (x) and (y) herein, and (z) assure or maintain the tax-exempt status of the interest on the Bonds. (j) As of the date thereof, the Preliminary Official Statement does not, except for the omission of certain information permitted to be omitted in accordance with Rule 15c2-12, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein with respect to the District, in light of the circumstances under which they were made, not misleading. (k) At the time of the District's acceptance hereof, and (unless an event occurs of the nature described in paragraph (m) of this Section 5) at all times subsequent thereto up to and including the date of the Closing, the Official Statement does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that these representations and warranties of the District shall apply only to the information contained in the Official Statement relating to the District. (1) If the Official Statement is .supplemented or amended pursuant to paragraph (m) of this Section 5, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such paragraph) at all times subsequent thereto up to and including the date of the Closing, the Official Statement as so supplemented or amended will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that these representations and warranties of the District shall apply only to the information contained in the Official Statement relating to the District. (m) If between the date of this Purchase Contract and that date which is 25 days after the end of the underwriting period (as determined in accordance with Section 14 hereof) any event known to the District shall occur affecting the District which might adversely affect the marketability of the Bonds or the market prices thereof, or which might cause the Official Statement, as then supplemented or amended, to contain any

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untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the District shall notify the Underwriter thereof, and if in the opinion of the Underwriter such event requires the preparation and publication of a supplement or amendment to the Official Statement, the District will at its expense prepare and furnish to the Underwriter a reasonable number of copies of such supplement to, or amendment of, the Official Statement in a form and in a manner approved by the Underwriter. (n) The District will refrain from taking any action, or permitting any action to be taken, with regard to which the District may exercise control, that results in the loss of the tax-exempt status of the interest on the Bonds. (o) Any certificate signed by the City on behalf of the District and delivered to the Underwriter pursuant to the Fiscal Agent Agreement, this Purchase Contract or any document contemplated thereby shall be deemed a representation and warranty by the District to the Underwriter as to the statements made therein. (p) The District will cause the proceeds from the sale of the Bonds to be paid to the Fiscal Agent for the purposes specified in the Fiscal Agent Agreement and the Official Statement. So long as any of the Bonds are outstanding and except as may be authorized by the Fiscal Agent Agreement, the District will not issue or sell any bonds or other obligations, other than the Bonds sold thereby, the interest on and premium, if any, or principal of which will be payable from the payments to be made under the Fiscal Agent Agreement. (q) The District shall honor all other covenants on its part contained in the Fiscal Agent Agreement which are incorporated herein and made a part of this Purchase Contract. 6. Reserved.

7. Closing. At 8:00 a.m., Los Angeles time, on September 15, 2005, or on such earlier date or as soon thereafter as practicable, as may be mutually agreed upon by the District and the Underwriter, the District will, subject to the terms and conditions hereof, cause the Fiscal Agent to deliver to the Underwriter, the Bonds, in definitive form duly executed by the Fiscal Agent, together with the other documents hereinafter mentioned; and the Underwriter will accept such delivery and will pay the purchase price of the Bonds at the offices of Fulbright & Jaworski L.L.P., Los Angeles, California as set forth in Section 1 hereof by delivering federal or other immediately available funds in the amount of such purchase price to the Fiscal Agent. The Bonds shall be prepared in fully registered form without coupons in authorized denominations and registered in the name of the Underwriter. 8. Closing Conditions. The Underwriter has entered into this Purchase Contract in reliance upon the representations and warranties of the District contained herein, and in reliance upon the representations and warranties to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the District of its obligations hereunder, both as of the date hereof and as of the date of the Closing. Accordingly, the Underwriter's

45635998.2

obligations under this Purchase Contract to purchase, to accept delivery of and to pay for the Bonds shall be conditioned upon the performance by the District of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing, and shall also be subject to the following additional conditions: (a) The representations and warranties of the District contained herein shall be true, complete and correct on the date hereof and on and as of the date of the Closing, as if made on the date of the Closing; (b) At the time of the Closing, the Fiscal Agent Agreement shall be in full force and effect in accordance with its terms and shall not have been amended, modified or supplemented and the Official Statement shall not have been supplemented or amended, except in any such case as may have been agreed to by the Underwriter; (c) At the time of the Closing, all necessary official action of the District and of the other parties thereto relating to the Basic Documents shall have been taken and shall be in full force and effect and shall not have been amended, modified or supplemented in any material respect; (d) Subsequent to the date hereof, there shall not have occurred any change in or affecting particularly the District or the Bonds, as the foregoing matters are described in the Official Statement, which in the reasonable opinion of the Underwriter materially impairs the investment quality of the Bonds; (e) At or prior to the Closing, the Underwriter shall have received copies of each of the following documents: (1) The Official Statement and each supplement or amendment, if any, thereto, executed by a designated officer of the City on behalf of the District; (2) A copy of the Fiscal Agent Agreement, executed by the District and the Fiscal Agent; (3) Underwriter; A copy of this Purchase Contract, executed by the District and the

(4) Certificate of the District with respect to the matters described in Section 5 and in paragraphs (a), (b), (c) and (d) of this Section 8; (5) An opinion (the "Final Approving Legal Opinion"), dated the date of the Closing and addressed to the District, of Fulbright & Jaworski L.L.P., Bond Counsel for the District, substantially in the form set forth in Appendix F to the Official Statement; (6) A supplemental opinion, dated the date of the Closing and addressed to the Underwriter, of Fulbright & Jaworski L.L.P., Bond Counsel for the District, in substantially the form attached hereto as Exhibit B;

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(7) An Opinion, dated the date of the Closing and addressed to the Underwriter, of the Special Counsel for the District, in substantially the form attached hereto as Exhibit C; (8) Reliance letters, dated the date of the Closing and addressed to the Underwriter and the Fiscal Agent, respectively, of Fulbright & Jaworski L.L.P., Bond Counsel for the District, regarding the final approving opinion; (9) An opinion, dated the date of the Closing and addressed to the Underwriter, of Fulbright & Jaworski L.L.P., Disclosure Counsel, in substantially the form attached hereto as Exhibit D; (10) A certificate dated the date of the Preliminary Official Statement from property owners within Improvement Area No. 1 of the District, together with bring-down certificate dated the Closing Date in substantially the forms attached hereto as Exhibit E and F; (11) Transcripts of all proceedings relating to the authorization issuance of the Bonds certified by the City Clerk of the City; (12) An opinion of counsel to the Fiscal Agent to the effect that: and

(i) Due Organization and Existence - the Fiscal Agent has been duly organized and is validly existing and in good standing, with full corporate power to undertake the trust duties and obligations under the Fiscal Agent Agreement; (ii) Corporate Action - the Fiscal Agent has duly authorized, executed and delivered the Fiscal Agent Agreement, and by all proper corporate action has authorized the acceptance of the duties and obligations of the Fiscal Agent under the Fiscal Agent Agreement and to authorize in such capacity the authentication and delivery of the Bonds; (iii) Due Authorization, Execution and Delivery - assuming due authorization, execution and delivery by the District, the Fiscal Agent Agreement is the valid, legal and binding agreement of the Fiscal Agent, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights in general and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law); (13) The general resolution of the Fiscal Agent authorizing the execution and delivery of certain documents by certain officers of the Fiscal Agent, which resolution authorizes the execution and delivery of the Fiscal Agent Agreement;

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(14) A certificate of the Fiscal Agent, dated the date of Closing, certifying that, subject to the limitations provided herein, the Fiscal Agent represents and warrants and agrees with the Underwriter that as of the date of Closing: (i) Due Organization and Existence - the Fiscal Agent is duly organized and existing as a national banking association in good standing under the laws of the United States of America having the full power and authority to enter into and perform its duties under the Fiscal Agent Agreement and to authenticate and deliver the Bonds to the Underwriter pursuant to the terms of the Fiscal Agent Agreement; (ii) No Conflict - to the best of the knowledge of the Fiscal Agent, after due investigation, the execution and delivery by the Fiscal Agent of the Fiscal Agent Agreement and the authentication and delivery by the Fiscal Agent of the Bonds, and compliance with the terms thereof will not, in any material respect, conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Fiscal Agent is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Fiscal Agent or any of its activities or properties, or result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Fiscal Agent. (iii) No Litigation - to the best of the knowledge of the Fiscal Agent, no litigation has been served upon the Fiscal Agent to restrain or enjoin the Fiscal Agent's participation in, or in any way contesting the powers of the Fiscal Agent with respect to, the transactions contemplated by the Fiscal Agent Agreement; (15) Executed copies of the Continuing Disclosure Agreements substantially in the form presented in Appendix G to the Official Statement; (16) A copy of the appraisal report;

(17) A certificate dated the Closing Date, signed by an authorized principal of First American Commercial Real Estate Services (the "Appraiser"), in a form satisfactory to the Underwriter and its counsel to the effect that (i) the individual signing the certificate is an authorized representative of the Appraiser, and as such, is familiar with the facts certified and is authorized and qualified to certify the same; (ii) in the opinion of the Appraiser the assumptions made in the appraisal report with respect to the District, dated as of June 17, 2005 (the "Appraisal"), are reasonable; (iii) that the Appraiser is not aware of any event or act which has occurred since the date of the Appraisal which, in its opinion, would materially and adversely affect the conclusion as to the appraised value

45635998.2

reached in the Appraisal; (iv) the Appraiser consents to the reproduction of the Appraisal as Appendix D to the Official Statement and to the references to the Appraiser and the Appraisal made in the Official Statement; (v) that the Official Statement has been reviewed on behalf of the Appraiser and to the best knowledge of the Appraiser the statements concerning the Appraisal and the value of the property contained under the captions "SECURITY FOR THE BONDS Appraisal" and "SPECIAL RISK FACTORS - Appraised Value; Land Value" are true, correct and complete in all material respects and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (vi) the District and the Underwriter are entitled to rely on the Certificate; (18) A copy of the Market Absorption Study (the "Market Absorption Study") prepared by Market Profiles (the "Market Consultant"); (19) A certificate from the Market Consultant to the following effect (i) the individual signing the certificate is an authorized representative of the Market Consultant, and as such, is familiar with the facts certified and is authorized and qualified to certify the same; (ii) in the opinion of the Market Consultant the assumptions made in the Market Absorption Study are reasonable; (iii) that the Market Consultant is not aware of any event or act which has occurred since the date of the Market Absorption Study, which, in its opinion, would materially and adversely affect the conclusions of the Market Absorption Study; (iv) the Market Consultant consents to the reproduction of the Market Absorption Study as Appendix E to the Official Statement and to the references to the Market Consultant and the Market Absorption Study made in the Official Statement; (v) the Market Consultant certifies that as of the date of the certificate the Market Absorption Study contained in the Official Statement and the statements in the Official Statement under the caption "THE DEVELOPMENT - Absorption Study" insofar as such statements purport to summarize the Market Absorption Study, are accurate in all material respects and do not omit to state a material fact necessary in order to make the statement contained therein, in the light of the circumstances under which they are made, not misleading and no events or occurrences have been ascertained by the Market Consultant as have come to its attention that would substantially adversely change the opinions set forth in the Market Absorption Study; and (vi) the District and the Underwriter are entitled to rely on the Certificate; (20) A certificate from Harrell & Company Advisors, LLC in the form acceptable to the Underwriter. (21) A certificate from Albert A. Webb Associates ("Special Tax Consultant") to the effect that (i) the Special Tax if applied in accordance with the terms as set forth in the Rate and Method of Apportionment of Special Tax for Community Facilities District No. 2004-3 (Terra Lago) (the "Special Tax Formula"), after deducting Administrative Expenses, will annually yield sufficient

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10

revenue to make timely payments of debt service on the Bonds, provided that information and other data supplied by the District, by the Developers, by the Appraiser, by the Underwriter or by any of their agents, which has been relied upon by the Special Tax Consultant is true and correct, (ii) the Special Tax, if collected in the maximum amounts permitted pursuant to the Special Tax Formula on the Closing Date, would generate at least 110% of the maximum debt service payable with respect to the Bonds payable from such Special Tax during each fiscal year, based on a debt service schedule supplied by the Underwriter and the net taxable footage or acreage projection and other data provided by the Developers to the Special Tax Consultant and confirmed in the certificates of the Developers previously delivered to the Special Tax Consultant and relied upon by the Special Tax Consultant, (iii) the information supplied by such firm for use in the sections of the Official Statement captioned "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" is true and correct as of the date of the Official Statement and as of the Closing Date, and (iv) the description of the Special Tax Formula contained in the section of the Official Statement captioned "SECURITY FOR THE BONDS -- Rate and Method of Apportionment of Special Taxes" is correctly presented in all material respects; and (22) Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the date of the Closing, of the District's and the District's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance or satisfaction by the District on or prior to the date of the Closing of all the agreements then to be performed and conditions then to be satisfied by it. All the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Purchase Contract shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to Bond Counsel and the Underwriter. The opinions and other documents presented as exhibits to this Purchase Contract or as Appendices to the Official Statement shall be deemed satisfactory provided they are substantially in the forms attached as exhibits to this Purchase Contract or as Appendices to the Official Statement. If the District shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Bonds contained in this Purchase Contract, or if the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Bonds shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and neither the Underwriter nor the District nor the District shall be under any further obligation hereunder. 9. Termination. The Underwriter shall have the right to terminate the Underwriter's obligations under this Purchase Contract to purchase, to accept delivery of and to pay for the Bonds by notifying the District in writing or by telegram, of their election to do so, if, after the execution hereof and prior to the Closing: (a) the United States has become engaged in

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11

hostilities which have resulted in a declaration of war or a national emergency; (b) there shall have occurred the declaration of a general banking moratorium by any authority of the United States or the States of New York or California; (c) an event shall have occurred or been discovered as described in paragraph (m) of Section 5 and paragraph (n) of Section 6 hereof which in the opinion of the Underwriter requires the preparation and publication of disclosure material or a supplement or amendment to the Official Statement; (d) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency in the State of California, or a decision by any court of competent jurisdiction within the State of California shall be rendered which, in the Underwriter's reasonable opinion, materially adversely affects the market price of the Bonds; (e) legislation shall be introduced, by amendment or otherwise, or be enacted by the House of Representatives or the Senate of the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation or official statement by or on behalf of the Securities and Exchange Commission or other governmental agency having jurisdiction of the subject matter shall be made or proposed, to the effect that the issuance, offering or sale of obligations of the general character of the Bonds, or the Bonds, as contemplated hereby or by the Official Statement, is or would be in violation of any provision of the Securities Act of 1933, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Fiscal Agent Agreement Act of 1939, as amended and as then in effect, or with the purpose or effect of otherwise prohibiting the issuance, offering or sale of obligations of the general character of the Bonds or the Bonds, as contemplated hereby or by the Official Statement; (f) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange; (g) the New York Stock Exchange, or other national securities exchange or association or any governmental authority, shall impose as to the Bonds, or obligations of the general character of the Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by or the charge to the net capital requirements of broker-dealers; (h) trading in securities on the New York Stock Exchange or the American Stock Exchange shall have been suspended or limited or minimum prices have been established on either such exchange; or (i) any action shall have been taken by any government in respect of its monetary affairs which, in the reasonable opinion of the Underwriter, has a material adverse effect on the United States securities market. If this Purchase Contract shall be terminated pursuant to Section 8 or this Section 9, or if the purchase provided for herein is not consummated because any condition to the Underwriter's obligation hereunder is not satisfied or because of any refusal, inability or failure on the part of the District to comply with any of the terms or to fulfill any of the conditions of this Purchase Contract, or if for any reason the District shall be unable to perform all of its obligations under this Purchase Contract, neither the District nor the District shall be liable to the Underwriter for damages on account of loss of anticipated profits arising out of the transactions covered by this Purchase Contract. 10. Payment of Costs and Expenses. (a) All costs and expenses incident to the sale and delivery of the Bonds to the Underwriter, including, but not limited to: (i) the fees and expenses of the District and its Counsel, Disclosure Counsel and other consultants; (ii) the fees and expenses of the appraisers, market absorption consultants, accountants, advisers and any other experts or consultants retained by the City or District, including the fees and expense of the

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12

Special Tax Consultant; (iii) the fees and expenses of Bond Counsel; (iv) all costs and expenses incurred in connection with the preparation and printing of the Bonds; (v) all expenses in connection with the preparation, printing, distribution and delivery of the Preliminary Official Statement, the Official Statement and any amendment or supplement thereto; (vi) California Municipal Statistics fees, and (vii) the fees and expenses of the Fiscal Agent and its counsel shall be payable by the District from the proceeds of the Bonds. (b) The Underwriter shall pay all advertising expenses in connection with the public offering of the Bonds and all other expenses incurred by it in connection with its public offering and distribution of the Bonds, including Underwriter's Counsel fees and expenses. 11. Representations, Warranties and Agreements to Survive Delivery. The representations, warranties, indemnities, agreements and other statements of the District and the Underwriter or their officers or partners set forth in, or made pursuant to, this Purchase Contract will remain operative and in full force and effect regardless of any investigation made by or on behalf of the District or the Underwriter or any controlling person and will survive delivery of and payment for the Bonds. 12. Notices. Any notice or other communication Contract may be given by delivering the same in writing: To the District: to be given under this Purchase

City of Indio Community Facilities District No. 2004-3 (Terra Lago) c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attention: City Manager Southwest Securities Inc. 620 Newport Center Drive, Suite 300 Newport Beach, California 92660 Attention: Francis Mayers

To the Underwriter:

13. Parties in Interest. This Purchase Contract is made solely for the benefit of the District and the Underwriter (including the successors or assigns of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. All of the District's representations, warranties and agreements contained in this Purchase Contract shall remain operative and in full force and effect, regardless of: (i) any investigations made by or on behalf of the Underwriter; (ii) delivery of and payment for the Bonds pursuant to this Purchase Contract; and (iii) any termination of this Purchase Contract. 14. Determination of End of the Underwriting Period. For purposes of this Purchase Contract, the End of the Underwriting Period for the Bonds shall mean the earlier of (a) the day of the Closing unless the District has been notified in writing by the Underwriter, on or prior to the day of the Closing, that the "end of the underwriting period" for the Bonds for all purposes of Rule 15c2-12 of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934 (the "Rule") will not occur on the day of the Closing, or (b) the

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13

date on which notice is given to the District by the Underwriter in accordance with the following sentence. In the event that the Underwriter has given notice to the District pursuant to clause (a) above that the "end of the underwriting period" for the Bonds will not occur on the day of the Closing, the Underwriter agrees to notify the District in writing as soon as practicable following the "end of the underwriting period" for the Bonds for all purposes of the Rule. 15. Effectiveness. This Purchase Contract shall become effective upon the execution of the acceptance by the designee of the District and shall be valid and enforceable at the time of such acceptance. 16. Headings. The headings of the sections of this Purchase Contract are inserted for convenience only and shall not be deemed to be a part hereof. 17. Governing Law. This Purchase Contract shall be construed in accordance with the laws of the State of California. 18. counterparts. Counterparts. This Purchase Contract may be executed in any number of

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14

If the foregoing is in accordance with your understanding of the Purchase Contract please sign and return to us the enclosed duplicate copies hereof, whereupon it will become a binding agreement among the District, the District and the Underwriter in accordance with its terms. Very truly yours, SOUTHWEST SECURITIES, INC.

Title___ Accepted: This 7th day of September, 2005 CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO)

By: Finance Director of the City of Indio

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I 5

If the foregoing is in accordance with your understanding of the Purchase Contract please sign and return to us the enclosed duplicate copies hereof, whereupon it will become a binding agreement among the District, the District and the Underwriter in accordance with its terms. Very truly yours, SOUTHWEST SECURITIES, INC.

By: Title Accepted: This 7th day of September, 2005 CITY OF INDIO COMMUNITcY FACILITIES DIST CT .2004-3 (TE LAGO)

Finance Director of the City of Indio

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Exhibit A

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Maturity Date (September 1) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030 2035 2035

Principal Amount $385.000 370.000 395.000 425.000 460.000 495.000 515.000 535.000 560,000 585,000 610,000 640,000 670,000 705,000 4,080,000 5,210,000 6,690,000 3,000,000

Coupon 3.35% 3.40 3.70 3.90 4.00 4.15 4.25 4.25 4.375 4.50 4.60 4.70 4.75 4.85 5.00 5.10 5.15 5.15

Yield 3.20% 3.40 3.70 3.90 4.05 4.20 4.30 4.40 4.50 4.60 4.70 4.80 4.85 4.95 5.05 5.10 5.15 5.15

A- 1

Exhibit B

Supplemental Opinion of Fulbright & Jaworski L.L.P. Addressed to the Underwriter

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

[Closing Date]

Southwest Securities, Inc. 620 Newport Center Drive, Suite 300 Newport Beach, California 92660 Ladies and Gentlemen: We have acted as Bond Counsel to the City of Indio Community Facilities District No. 2004-3 (Terra Lago), a community facilities district established under the Constitution and the laws of the State of California (the "District"), in connection with the issuance of $26,330,000 aggregate principal amount of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds are being issued by the District under the Mello-Roos Community Facilities Act of 1982 and pursuant to a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent, for the purpose of financing certain public capital improvements within the District. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Fiscal Agent Agreement. As Bond Counsel, we have examined copies certified to us as being true and complete copies of the proceedings of the District in connection with the issuance of the Bonds. We have also examined such certificates of officers of the District and others as we have considered necessary for the purposes of this opinion. This opinion is limited to matters governed by the laws of the State of California and Federal securities laws of the United States, and we assume no responsibility with respect to the applicability or effect of laws of any other jurisdiction. Based upon the foregoing, it is our opinion that: 1. The Fiscal Agent Agreement is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended. as an indenture

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B-1

2. amended.

The Bonds are exempt from registration pursuant to the Securities Act of 1933, as

3. As of the date of the Official Statement, dated September 7, 2005, relating to the Bonds, the information contained in the Official Statement under the captions "INTRODUCTORY STATEMENT," "THE BONDS," "SECURITY FOR THE BONDS" and "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT," insofar as such statements expressly summarize certain provisions of the Bonds and the Fiscal Agent Agreement is accurate in all material respects. We are furnishing you this opinion letter at the request of the District solely for your benefit as the Underwriter of the Bonds, and it is not to be used, circulated, quoted or otherwise referred to for any other purpose, nor is it to be referred to in whole or in part in the Official Statement relating to the Bonds or any other document, except that it may be included in, and reference may be made to it in any list of, the closing documents pertaining to the delivery of the Bonds. Respectfully submitted,

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B-2

Exhibit C

Opinion of Special Counsel to the District Addressed to the Underwriter

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

[Closing Documents]

Southwest Securities, Inc. 620 Newport Center Drive, Suite 300 Newport Beach, Califomia 92660 Ladies and Gentlemen: We have acted as Special Counsel to the City of Indio (the "City") and City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") in connection with the issuance and delivery of $26,330,000 principal amount of City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). Terms not defined herein shall be as defined in the Purchase Contract dated September 7, 2005 between the District and Southwest Securities, Inc. (the "Purchase Contract"). Based on the foregoing, we are of the opinion that: 1. The City is a general law city duly organized and validly existing under the Constitution and laws of the State of California; 2. The District is duly organized and validly existing as a community facilities district under the laws of the State, with full legal right, power and authority to issue the Bonds and to perform all of its obligations under the Bonds and the Basic Documents; 3. To the best of such counsel's knowledge, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending or threatened against the City or the District affecting the existence of the City or the District or the title of their officers to their respective offices, or which would materially adversely affect the ability of the District to perform its obligations hereunder or under the Bonds or the Basic Documents or seeking to restrain or to enjoin the development of property within the District, the issuance, sale, or delivery of the Bonds or the exclusion from gross income for federal income tax purposes or State personal income taxes of interest on the Bonds, or the application of the proceeds thereof as described in the Official Statement, or the collection or application of the Special Tax to pay the principal of and interest on the Bonds, or in any way

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contesting or affecting the validity or enforceability of the Bonds or the Basic Documents or any action of the District contemplated by any of said documents or the accuracy or completeness of the Preliminary Official Statement or the Official Statement; 4. The City Council (the "Council") on behalf of the District has duly and validly adopted the resolutions and ordinance relating to the formation of the District, the levying of Special Taxes and issuance of the Bonds (collectively, the "Procedural Resolutions"), at meetings of the Council which were called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting at the time of adoption, and such Procedural Resolutions are now in full force and effect and have not been amended; 5. The District has duly authorized the preparation and delivery of the Preliminary Official Statement and the Official Statement and has duly authorized, executed and delivered the Bonds and the Basic Documents, and the Bonds and the Basic Documents constitute legal, valid and binding obligations of the District, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought and to limitations on remedies imposed in actions against public entities in the State; 6. To the best of such counsel's knowledge, the City and the District are not in breach of or in default under any applicable law or administrative rule or regulation of the State or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, fiscal agent agreement, contract, agreement or other instrument to which the City or the District is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the City or the District to perform their obligations under the Procedural Resolutions, the Bonds or any Basic Documents or which, with the passage of time or the giving of notice or both, would constitute an event of default thereunder; 7. The adoption of the Procedural Resolutions and the execution and delivery of the Bonds and the Basic Documents, and compliance with the provisions of each, did not and will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, ordinance, resolution, indenture, fiscal agent agreement, contract, agreement or other instrument to which the City or the District is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the District to perform its obligations under the Bonds or any Basic Documents; 8. All approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the ability of the District to execute, deliver and perform its obligations under

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the Bonds or any Basic Document have been obtained or made and are in full force and effect; and 9. Without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement, but on the basis of their participation in conferences with representatives of the City, the District, Bond Counsel, representatives of the Underwriter and others, and their examination of certain documents, no information has come to their attention which would lead them to believe that the information with respect to the City and the District in the Official Statement, as of its date and as of the Closing Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that no opinion or belief need be expressed as to any of the appendices of the Official Statement or any other financial, statistical or economic data or forecasts, numbers, charts, graphs, estimates, projections, assumptions or expressions of opinion, or any information about valuation or appraisals, or any information about the Developer, the book-entry or DTC contained in the Official Statement). Very truly yours,

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Exhibit D

Opinion of Fulbright & Jaworski L.L.P., Disclosure Counsel

$26,33O,OOO City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

[Closing Date]

City of Indio Community Facilities District No. 2004-3 (Terra Lago) 100 Civic Center Mall Indio, California 92201 Southwest Securities, Inc. 620 Newport Center Drive, Suite 300 Newport Beach, California 92660 Ladies and Gentlemen: We have acted as Disclosure Counsel to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "Issuer") with respect to the issuance of the captioned bonds (the "Bonds"). The Bonds are being issued pursuant to the provisions of the Constitution and the laws of the State of Califomia, including the provisions of the Mello-Roos Community Facilities Act of 1982, as in existence on the Closing Date or as thereafter amended from time to time. The Bonds shall be issued and secured pursuant to the Fiscal Agent Agreement, dated as of September 1, 2005, by and between the Issuer and Union Bank of Califomia, N.A., as fiscal agent, authorizing the issuance of the Bonds. The Bonds are more fully described in the Official Statement of the Issuer dated September 7, 2005 (the "Official Statement"). The Bonds are being purchased pursuant to the provisions of a Purchase Contract (the "Purchase Contract") dated September 7, 2005, by and between the Underwriter and the Issuer. Capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Official Statement. In rendering this opinion, we have reviewed such records, documents, certificates and opinions, and made such other investigations of law and fact as we have deemed necessary or appropriate. This opinion is limited to matters governed by the Federal securities law of the United States, and we assume no responsibility with respect to the applicability or effect of the laws of any other jurisdiction.

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In our capacity as Disclosure Counsel to the Issuer, we have rendered certain legal advice and assistance to you in connection with the preparation of the Official Statement. Rendering such legal advice and assistance involved, among other things, discussions and inquiries concerning various legal matters, review of certain records, documents and proceedings, and participation in conferences with, among others, your representatives and representatives of the Special Tax Consultant, the Appraiser, the Market Consultant, the District, the City and their counsel, if any, and other consultants at which conferences the contents of the Official Statement and related matters were discussed. On the basis of the information made available to us in the course of the foregoing (but without having undertaken to determine or verify independently, or assuming any responsibility for, the accuracy, completeness or fairness of any of the statements contained in the Official Statement), no facts have come to the attention of the personnel in our firm directly involved in rendering legal advice and assistance in connection with the preparation of the Official Statement which cause us to believe that the Official Statement as of its date (excluding therefrom financial, engineering and statistical data; forecasts, projections, estimates, assumptions and expressions of opinions; statements relating to the treatment of the Bonds or the interest, discount or premium related thereto for tax purposes under the law of any jurisdiction; and the statements contained in the Official Statement under the caption "CONCLUDING INFORMATION - Tax Exemption," and in the Appendices thereto, as to all of which we express no view) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. During the period from the date of the Official Statement to the date of this opinion, except for our review of the certificates and opinions regarding the Official Statement delivered on the date hereof, we have not undertaken any procedures or taken any actions which were intended or likely to elicit information concerning the accuracy, completeness or fairness of any of the statements contained in the Official Statement. We are furnishing this opinion to the Issuer and to the Underwriter, as Disclosure Counsel to the Issuer, pursuant to the Purchase Contract, solely for your benefit as Issuer and Underwriter, respectively, of the Bonds. This opinion is rendered in connection with the transaction described herein, and may not be relied upon by you for any other purpose. This opinion shall not extend to, and may not be used, circulated, quoted, referred to, or relied upon by, any other person, firm, corporation or other entity without our prior written consent. Our engagement with respect to this matter terminates upon the delivery of this opinion to you at the time of the closing relating to the Bonds, and we have no obligation to update this opinion. Very truly yours,

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Exhibit E

Certificate of

TO:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Ladies and Gentlemen: Reference is made to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), relating to the Bonds. This certificate is delivered pursuant to Section (8)(e)(10) of the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of ., a [type of entity] (the "Developer"), and the undersigned, on behalf of the Developer, further certifies as follows: 1. The Developer is duly organized and validly existing under the laws of the State of California, is duly qualified to conduct business in California, and has all requisite right, power and authority (i) to execute and deliver this Certificate, and to execute and deliver at Closing (as defined in the Purchase Contract) its Continuing Disclosure Agreement (the "Continuing Disclosure Agreement") dated as of September 1, 2005 and (ii) to undertake all of the transactions on its part contemplated by the Continuing Disclosure Agreement and described in the Preliminary Official Statement. 2. As set forth in the Preliminary Official Statement, the Developer owns a portion of the property within Improvement Area No. 1 of the District (the "Property"). The Developer makes the representations herein with respect to all of such parcels. Except as otherwise described in the Preliminary Official Statement, the Developer is, and the Developer's current expectation is that the Developer shall remain, the developer of the Property. Except as otherwise described in the Preliminary Official Statement, the Developer has not entered into an agreement for development or management of the Property by any entity other than the Developer. 3. The Developer has, or will have prior to Closing, duly authorized the execution and delivery at Closing of its Continuing Disclosure Agreement, and is duly authorized to perform the obligations on its part to be performed thereunder. To the undersigned's actual

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knowledge after due inquiry, the Developer has not previously failed to comply with any obligations imposed upon it under Rule 15c2-12 of the Securities and Exchange Commission under the Securities Exchange Act of 1934. 4. Except as disclosed in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, the Developer and its Affiliates (as defined in the Continuing Disclosure Agreement) are not in breach of or in default under any applicable law or administrative regulation of the State of California or the United States, or any agency or instrumentality of either, which breach or default would in any way materially and adversely affect the proposed Continuing Disclosure Agreement, or the Developer's ability to pay the special taxes of the District (the "Special Taxes"), and to the actual knowledge of the Developer after due inquiry, no event has occurred and is continuing which with the passage of time or giving of notice, or both, would constitute such a breach or default; and to the actual knowledge of the Developer after due inquiry, the execution and delivery at Closing by the Developer of its Continuing Disclosure Agreement and compliance with the provisions thereof will not conflict with or constitute a breach of or default under any law or administrative regulation applicable to the Developer. 5. Except as disclosed in the Preliminary Official Statement, the Developer is not in breach of or in default under any applicable judgment or decree or any loan agreement, option agreement, development agreement, indenture, fiscal agent agreement, bond, note, resolution, agreement or other instrument to which the Developer is, or will upon issuance of the Bonds be, a party or otherwise subject which breach or default would in any way materially and adversely affect its proposed Continuing Disclosure Agreement, or its ability to pay the Special Taxes, and no event has occurred and is continuing that with the passage of time or giving of notice, or both, would constitute such a breach or default; and the execution and delivery at Closing by the Developer of its Continuing Disclosure Agreement and compliance with the provisions thereof will not conflict with or, constitute a breach of or default under any judgment, decree, loan agreement, indenture, fiscal agent agreement, bond, note, resolution, agreement or other instrument to which the Developer is a party or otherwise subject which breach or default would in any way materially and adversely affect its Continuing Disclosure Agreement, its ability to develop the Property or its ability to pay the Special Taxes. 6. Except as described in the Preliminary Official Statement, the Developer has no loans outstanding and unpaid and no lines of credit secured by the Property. 7. Except as set forth in the Preliminary Official Statement, no litigation is pending (with service of process to the Developer or any Affiliate, having been accomplished) or, to the actual knowledge of the Developer after due inquiry, threatened (a) to restrain or enjoin collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Bonds, (b) to restrain or enjoin the execution of and performance of the Developer's obligations under its proposed Continuing Disclosure Agreement, (c) to restrain or enjoin development of the Property, (d) in any way contesting or affecting the validity of the Special Taxes, its proposed Continuing Disclosure Agreement or any other document, license, permit or approval necessary to the performance on the Developer's part under its proposed Continuing Disclosure Agreement or (e) which would in any way materially and adversely affect its ability to develop the Property or to pay Special Taxes.

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8. Except as set forth in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, no litigation is pending (with service of process to the Developer or any Affiliate, having been accomplished), or, to the actual knowledge of the Developer after due inquiry, threatened against the Developer or any Affiliate, involving the Developer or any Affiliate, or any of the property or assets under the control of the Developer or any Affiliate, that involves the possibility of any judgment or uninsured liability which may materially and adversely affect the ability of the Developer to develop the Property as described in the Preliminary Official Statement or to pay Special Taxes. 9. As of the date thereof, except as clarified below, the Preliminary Official Statement, solely with respect to information contained therein with respect to the Developer and Affiliates thereof, property ownership within the District, the Developer's development plan, the Developer's financing plan, the Developer's lenders and contractual arrangements as set forth under the captions "CONTINUING DISCLOSURE," "THE DEVELOPMENT PLAN," "SPECIAL RISK FACTORS -- Endangered and Threatened Species," "THE DISTRICT" and "THE MASTER DEVELOPER AND THE DEVELOPERS" is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 10. The Developer has full power and authority to own and develop the Property, and to carry on its business as presently conducted and as described in the Preliminary Official Statement. 11. The Developer covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Developer and its Affiliates will not bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body, that in any way seeks to challenge or overturn the formation of the District, to challenge the adoption of the Ordinance levying Special Taxes within the District, to invalidate the District, or any of the Bonds or any refunding obligations, or to invalidate the special tax liens imposed under Section 3115.5 of the Streets and Highways Code based on recordation of the notices of special tax lien relating thereto. The foregoing covenant shall not prevent the Developer in any way from bringing any other action, suit or proceeding including, without limitation, an action or suit contending that the Special Tax has not been levied in accordance with the methodologies contained in the District's Rate and Method of Apportionment of Special Taxes pursuant to which the Special Taxes are levied, an action or suit with respect to the application or use of the Special Taxes levied and collected, or an action or suit to enforce the obligations of the District under the Fiscal Agent Agreement or any other agreements between the Developer and the District. 12. Except as disclosed in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, no other public debt secured by a tax or assessment on the land in the District is in the process of being authorized and no assessment districts or community facilities districts have been or are in the process of being formed that include any portion of the land within the District.

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13. Except as described in the Preliminary Official Statement, the Developer has not assumed any obligations under any judgment, decree, contract or otherwise, that would materially interfere with the Developer's execution and performance of its obligations under the proposed Continuing Disclosure Agreement or which would in any way materially and adversely effect its ability to develop the Property or to pay Special Taxes. 14. To the undersigned's actual knowledge, after due inquiry, the Developer and its Affiliates have not previously defaulted in any material amount or manner and which default has not been cured or remedied, in payment of, or are not currently delinquent on, any ad valorem, assessment or special tax obligations in any jurisdiction. 15. The Developer has received a copy of the Rate and Method of Apportionment containing the prepayment formula. The Developer acknowledges that any prepayment of the levy of the Special Taxes with respect to any parcel of property shall only be made in accordance with said terms. 16. The Developer intends to comply with the provision of the Mello-Roos Community Facilities Act relating to the Notice of Special Tax in connection with the sale of the Property. 17. The Developer is solvent and no proceedings are pending or, to the actual knowledge of the Developer after due inquiry, threatened in which the Developer may be adjudicated as bankrupt or discharged from any and all of its debts or obligations or granted an extension of time to pay its debts or obligations or a reorganization or readjustment of its debts or be subject to control or supervision of the Federal Deposit Insurance Corporation. 18. All Affiliates of the Developer are solvent and no proceedings are pending, or to the actual knowledge of the Developer after due inquiry, threatened in which the Affiliates of the Developer may be adjudicated as bankrupt or discharged from any or all of their respective debts or obligations, or granted an extension of time to pay their respective debts or obligations, or be allowed to reorganize or readjust their respective debts or obligations or be subject to control or supervision of the Federal Deposit Insurance Corporation, the result of which would materially interfere with the Developer's execution and performance of its obligations under the proposed Continuing Disclosure Agreement or which would in any way materially and adversely effect its ability to develop the Property or to pay Special Taxes. 19. The Developer has not filed for, nor is the Developer aware of, a reassessment of the assessed value of the Property. 20. To the actual knowledge of the Developer after due inquiry, there are no claims, disputes, suits, actions or contingent liabilities (i) of the Developer or (ii) of the Affiliates of the Developer which may materially or adversely affect the development of the Property. 21. To the actual knowledge of the Developer after due inquiry, there are no claims, disputes, suits, actions or contingent liabilities among, by and between the Developer or its financial partners, Affiliates or any contractors working in the District which may materially adversely affect the development of the properties within the District or the payment of the Special Taxes.

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22. Based upon its current development plans, including, without limitation, its current budget, the Developer anticipates that it will have sufficient funds to carry on its business as presently conducted and as described in the Preliminary Official Statement and to pay Special Taxes assessed against the Property from time to time owned by the Developer and does not anticipate that the District will be required to resort to the Reserve Account for payment of principal of or interest on the Bonds due to the Developer's nonpayment of Special Taxes. However, none of the Developer or its Affiliates is obligated to make any additional capital contribution or loan to the Developer at any time and neither the Developer nor its Affiliates are obligated to contribute additional capital for the payment of Special Taxes. 23. All information submitted by, or on behalf of, the Developer to the City, the District, the Special Tax Consultant or the Underwriter in connection with the issuance of the Bonds, to First American Commercial Real Estate Services (the "Appraiser") in connection with the preparation of the appraisal relating to the District and to Market Profiles in connection with the market absorption study relating to the District was, at the time of submission, and is as of the date of this certificate, to the actual knowledge of the Developer, true and correct. 24. The Developer consents to the issuance of the Bonds. The Developer acknowledges and agrees that the proceeds of the Bonds will be used for the improvements, as described in the Preliminary Official Statement, and that the costs of acquisition and construction of such improvements are estimates. Any increase in costs in excess of the estimated costs relating to improvements will reduce the improvements which may be financed by the District, and neither the District nor the City has any obligation to provide moneys to pay for any such costs. 25. As to information indicated in Section 9 hereof concerning the Developer, its Affiliates and development within the District, and subject to the limitations and exclusions set forth in Section 9, the Developer agrees to indemnify and hold harmless, to the extent permitted by law, the City and the District, and their officials, and employees and each person, if any, who controls any of the foregoing within the meaning of Section 15 of the Securities Act of 1933, as amended, or of Section 20 of the Securities Exchange Act of 1934, as amended against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified party may become subject under any statute or at law or in equity or otherwise, and shall reimburse any such indemnified party for any legal or other expense incurred by it in connection with investigating any claims against it and defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state, in the final Official Statement or in any amendment or supplement to such final Official Statement, a material fact necessary to make the statement therein, in light of the circumstances under which it was made not misleading. This indemnity provision shall not be construed as a limitation on any other liability which the Developer may otherwise have to any indemnified party, provided that in no event shall the Developer be obligated for double indemnification. 26. The Developer agrees to execute its Continuing Disclosure Agreement in the form attached as Appendix G of the Preliminary Official Statement, with such additional changes as may be agreed upon by the Developer.

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27. If between the date hereof and the date of the Closing any event relating to or affecting the Developer or the development shall occur of which the Developer has actual knowledge after due inquiry which might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Developer shall notify the District and the Underwriter and if in the opinion of counsel to the District or the Underwriter such event require the preparation and publication of a supplement or amendment to the Official Statement, the Developer shall cooperate with the District in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to counsel to the District and to the Underwriter. 28. For a period of 90 days after the issuance of the Bonds, if any event relating to or affecting the Developer or the development shall occur as a result of which it is necessary, in the opinion of the Underwriter or counsel to the District, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Developer shall cooperate with the District and the Underwriter in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to the Underwriter and counsel to the District which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to a purchaser, not misleading. 29. The Developer agrees to deliver a Certificate dated the date of issuance of the Bonds at the time of issuance of the Bonds in substantially the form attached hereto.

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30. On behalf of the Developer, I have reviewed the content of this Certificate and have met with counsel to the Developer, for the purpose of discussing the meaning of its contents. DATED: September 7, 2005 , a [type of entity]

By: Name: Title:

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Exhibit F

Bring-Down Certificate of

TO:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Reference is made to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), dated September 7, 2005. This certificate is delivered pursuant to the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. A copy of a Certificate dated September 7, 2005 delivered by , a [type of entity] (the "Developer") is attached hereto as Exhibit A (the "Certificate"). The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of the Developer and the undersigned, on behalf of the Developer, further certifies as follows: 1. date hereof. Each statement made in the Certificate is affirmed and restated as if made on the

2. No event has occurred since the date of the Preliminary Official Statement which has adversely affected or will materially and adversely affect the business, properties, operations, prospects or financial condition of the Developer or its Affiliates which would materially and adversely affect the development of the Property by the Developer or its ability to pay Special Taxes. 3. The Developer has received the Official Statement relating to the Bonds, and each statement made in the Certificate referring to the Preliminary Official Statement is affirmed as if it relates to the Official Statement. 4. Each statement made in the Certificate referring to the proposed Continuing Disclosure Agreement is affirmed as if it relates to the Continuing Disclosure Agreement as executed and delivered.

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5. The Continuing Disclosure Agreement conforms to the description thereof contained in the Official Statement and the references to and summary of the Continuing Disclosure Agreement in the Official Statement are accurate in all material respects. 6. The Developer has duly authorized the execution and delivery of its Continuing Disclosure Agreement, is duly authorized to perform the obligations on its part to be performed thereunder, and its Continuing Disclosure Agreement constitutes the legal, valid and binding obligations of the Developer, enforceable against it in accordance with its terms. DATED: September 15, 2005 ., a [type of entity]

By: Name: Title:

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25

NEW ISSUE---BOOK-ENTRY In the exempt on the federal herein.

ONLY

NOT RATED

opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, under existing law, the interest on the Bonds is from'personal income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 from the gross income of the owners thereof for income tax purposes and is not an item of preference for purposes of the federal alternative minimum tax. See "TAX MATTERS" RIVERSIDE COUNTY

STATE OF CALIFORNIA

$26,330,000 CITY OF INDIO

COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1)
Due: September 1, as shown on the inside front cover hereof

Dated: Date of Delivery

The City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") are being issued by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District"), which was established by the City of Indio (the "City"), pursuant to a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent.Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"), and will be secured as described herein. The Bonds are being issued to (i) finance the acquisition of capital facilities fees and certain public improvements serving property within Improvement Area No. 1 of the District ("Improvement Area No. 1"), (ii) fund a reserve account for the Bonds, (iii) fund capitalized interest through September 1, 2006, and (iv) pay the costs of issuance of the Bonds. See "THE FINANCING PLAN" herein. The Bonds will be issued in denominations of $5,000 or any integral multiple thereof, shall mature on September 1 in each of the years and in the amounts, and shall bear interest as shown on the inside front cover hereof. Interest on the Bonds shall be payable on each March 1 and September 1, commencing March 1, 2006 (the "Interest Payment Dates") to the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, by check mailed on such Interest Payment Date or by wire transfer to an account in the United States of America made upon instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds. The Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Bonds. Individual purchases of the Bonds will be made in book-entry form only. Principal of and interest and premium, if any, on the Bonds will be payable by DTC through the DTC participants. See "THE BONDS--Book-Entry System" herein. Purchasers of the Bonds will not receive physical delivery of the Bonds purchased by them. The Bonds are subject to optional redemption, mandatory sinking fund redemption and special mandatory Tax prepayments prior to maturity as set forth herein. See "THE BONDS---Redemption" herein. redemption from Special

The Bonds are limited obligations of the District. The Bonds are payable solely from the Net Taxes (as defined herein), comprised of Special Taxes (as defined herein) to be levied on and collected from the owners of the taxable land within Improvement Area No. 1, and from certain other funds pledged under the Fiscal Agent Agreement, all as further described herein. The Special Taxes are to be levied according to a Rate and Method of Apportionment of Special Tax approved by the qualified electors within Improvement Area No. 1 on July 20, 2005. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. SEE THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED "SPECIAL RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED, IN ADDITION TO THE OTHER MATI'ERS SET FORTH HEREIN, IN CONSIDERING THE INVESTMENT QUALITY OF THE BONDS. This cover page contains certain information read the entire Official Statement to obtain for quick reference only. It is not a complete summary of the Bonds. Investors information essential to the making of an informed investment decision. should

The Bonds are offered when, as and if issued, subject to approval as to their legality by Fulbright & Jaworski L.L.P., Los Angeles, Califomia, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by the Oty Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel to the City with respect to the issuance of the Bonds. It is anticipated that the Bonds will be available for delivery on or about September 15, 2005.

SECURITIES SOUTHWEST
Member of SWS Group Dated: September 7, 2005

$26,330,000 CITY OF INDIO

COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) SPECIAL TAX BONDS, SERIES 2005 (IMPROVEMENT AREA NO. 1) Maturity Dates, Principal Amounts, Interest Rates and Yields* (Base CUSIPt 455697) $7,350,000Serial Bonds Maturity Date September 1 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Principal Amount $385,000 370,000 395,000 425,000 460,000 495,000 515,000 535,000 560,000 585,000 610,000 640,000 670,000 705,000 Interest Rate 3.35% 3.40 3.70 3.90 4.00 4.15 4.25 4.25 4.375 4.50 4.60 4.70 4.75 4.85 Reoffering Yield 3.20% 3.40 3.70 3.90 4.05 4.20 4.30 4.40 4.50 4.60 4.70 4.80 4.85 4.95 CUSIPt AA 0 AB 8 AC 6 AD 4 ALE 2 AF 9 AG 7 AH 5 AJ 1 AK 8 AL 6 AM 4 AN 2 AP 7

$4,080,000 5.00% $5,210,000 5.10% $6,690,000 5.15% $3,000,000 5.15% Special

Term Bond maturing September I, 2025, Term Bond maturing September 1, 2030, Term Bond maturing September 1, 2035, Escrow Term Bond maturing September

Yield 5.05% CUSIP_ AQ 5 Yield 5.10% CUSIPt AR 3 Yield 5.15% CUSIPt AS 1 1, 2035, Yield 5.15% CUSIPt AT 9

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

CITY OF INDIO, CALIFORNIA

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

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

Bond Counsel and Disclosure Counsel Fulbright & Jaworski L.L.P. Los Angeles, California Financial Advisor Harrell & Company Advisors, LLC Orange, California Underwriter Southwest Securities, Inc. Newport Beach, California Underwriter's Counsel Jones Hall, A Professional Law Corporation San Francisco, California Special Tax Consultant Albert A. Webb Associates Riverside, California Appraiser First American Commercial Real Estate Services Santa Ana, California Market Absorption Consultant Market Profiles Inc. Santa Ana, California Fiscal Agent Union Bank of California, N.A. Los Angeles, California

No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations in connection with the offer or sale of the Bonds described herein, other than as contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the City, the District, and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation of such by the City, the District or the Underwriter. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with its responsibilities to investors under thc federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinion stated herein are subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the affairs of the City, the District or any major property owner within the District since the date hereof. The Official Statement is submitted in connection with the sale of Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS ACTING AS AGENTS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAW OF ANY STATE.

TABLE

OF CONTENTS

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

l 1 1 1 2 2 2 2 3 3 3 4 4 4 6 6 6 10 10 11 11 11 12 12 14 14 16 17 18 18 20 21 22 24 24 24 25 25 26 26 27 29 29 33 33 33 34 34 34 34

TABLE

OF CONTENTS (continued)

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

36 36 36 37 37 38 38 38 39 39 39 40 41 42 42 42 43 44 44 44 44 45 45 45 45 46 48 48 48

APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX

A B C D E F G H

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES ................ CITY OF INDIO SUPPLEMENTAL INFORMATION ........................................... SUMMARY OF FISCAL AGENT AGREEMENT .................................................. APPRAISAL REPORT ............................................................................................. MARKET ABSORPTION STUDY .......................................................................... FORM OF BOND COUNSEL OPINION .................................................................. FORMS OF CONTINUING DISCLOSURE AGREEMENTS ................................ BOOK-ENTRY ONLY SYSTEM .............................................................................

A-1 B-1 C-1 D- 1 E-1 F-I G-1 H- 1

ii

OFFICIAL

STATEMENT

COMMUNITY

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

LAGO)

INTRODUCTORY General

STATEMENT

This Official Statement, including the cover page, the inside cover page and the Appendices hereto, is provided to furnish certain information in connection with the issuance and sale by the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") of its Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") in the aggregate principal amount of $26,330,000 being issued in connection with the financing of capital facilities fees and certain public improvements servicing Improvement Area No. 1 of the District ("Improvement Area No. 1"). The Bonds will be issued pursuant to the provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"), and pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections 53311 et seq. of the Government Code of the State of California) (the "Act"). The Act was enacted by the California Legislature to provide an alternate method of financing certain public facilities and services, especially in developing areas. Once duly established, a community facilities district is a legally constituted governmental entity established for the purpose of financing specific facilities and services within defined boundaries. Subject to approval by a two-thirds vote of the qualified electors within a community facilities district and compliance with the provisions of the Act, a community facilities district may issue bonds and levy and collect special taxes to repay its bonds. The Bonds will be issued in denominations of $5,000 each or any integral multiple thereof and will be dated and bear interest from the date of their deliver, at the rates set forth on the inside cover page hereof. See "'THE BONDS." The Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Bonds. Individual purchases of the Bonds will be made in book-entry form only. Principal of and interest and premium, if any, on the Bonds will be payable by DTC through the DTC participants. See "THE BONDS -- Book-Entry System" herein. Purchasers of the Bonds will not receive physical delivery of the Bonds purchased by them. Use of Proceeds The Bonds are being issued to finance capital facilities fees and the acquisition and/or construction of certain public improvements serving property within Improvement Area No. 1, to fund a reserve account for the Bonds, to fund capitalized interest on the Bonds through September 1, 2006, and to pay the costs of issuance of the Bonds. See "THE FINANCING PLAN" herein. Security for the Bonds The Bonds are secured by the pledge of Net Taxes and the other amounts in the Special Tax Fund (other than amounts in the Administrative Expense Account therein). Net Taxes are defined as Special

Taxes minus an amount equal to the Administrative Expense Requirement. Special Taxes means the amount of all special taxes authorized to be levied within Improvement Area No. 1, together with the proceeds collected from the sale of property pursuant to the foreclosure provision of the Fiscal agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions. See "SECURITY FOR THE BONDS - General." The District has established a Reserve Account pursuant to the Fiscal Agent Agreement. The Reserve Account will be funded from the proceeds of the Bonds in the initial amount of $1,758,080. The Reserve Requirement as of any date of calculation will be an amount equal to the lowest of (1) 10% of the original proceeds of the Bonds, less accrued interest, if any, less original issue discount, if any, plus original issue premium, if any, or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds. See "'SECURITY FOR THE BONDS - Reserve Account." Special Escrow Fund A portion of the proceeds established under the Fiscal Agent Construction Fund upon satisfaction Escrow Fund." If these conditions redeem Bonds. See "THE BONDS The District The District consists of approximately 364.96 gross acres comprising two improvement areas on which the Terra Lago community and the facilities and improvements associated therewith are to be located. Improvement Area No. 1 consists of approximately 174.80 acres, approximately 135.75 acres of which are slated for residential development and 39.05 acres of which are open space, and Improvement Area No. 2 ("Improvement Area No. 2") which consists of approximately 190.16 acres, 173.76 acres of which are slated for residential development and 16.4 acres of which are open space. At buildout, it is anticipated that Improvement Area No. 1 will contain 635 residential dwelling units and Improvement Area No. 2 will contain 849 residential dwelling units. See "THE DISTRICT" for further information regarding the District and "THE DEVELOPMENT" for further information regarding the Terra Lago community. The Bonds are being issued to finance certain public improvements serving properties within Improvement Area No. 1 only and are not financing public improvements in Improvement Area No. 2. No Special Taxes levied on property in Improvement Area No. 2 is or will be security for the Bonds. See "THE FINANCING PLAN" herein. The Special Tax On July 20, 2005, at an election held pursuant to the Act, the landowners who comprised the qualified electors of the District authorized the District to incur bonded indebtedness in Improvement Area No. 1 in an aggregate amount not to exceed $30,000,000, and approved a Rate and Method of Apportionment of Special Tax (the "Rate and Method") to be levied within and for Improvement Area No. 1 to pay the principal of, and interest on, the authorized bonded indebtedness and approved an appropriations limit for Improvement Area No. 1 equal to the maximum amount of bonded indebtedness authorized to be incurred for Improvement Area No. 1. See "APPENDIX A -- RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." Foreclosure Covenant of the Bonds will be deposited into the Special Escrow Fund to be Agreement. These funds will be released to the Acquisition and of certain conditions. See "SECURITY FOR THE BONDS - Special are not met, the amounts in the Special Escrow Fund will be used to - Redemption."

The District has covenanted for the benefit of the owners of the Bonds that, under certai__ circumstances described herein, the District will commence judicial foreclosure proceedings with- respc_, i

to delinquent Special Taxes on property within the District, and will diligently pursue such proceedings to completion. See "SECURITY FOR THE BONDS - The Special Taxes" and "SECURITY FOR THE BONDS - Covenant for Superior Court Foreclosure." In addition, see "SECURITY FOR THE BONDS Direct and Overlapping Debt" for a discussion of additional debt payable on a parity with the Bonds. Limited Obligations NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. See the section of this Official Statement entitled "SPECIAL RISK FACTORS" for a discussion of certain risk factors which should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Bonds. Further Information Brief descriptions of the Bonds, the security for the Bonds, special risk factors, the District, the City, the Master Developer or the Developers (as such terms are hereinafter defined) and other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the Bonds, the Fiscal Agent Agreement, resolutions and other documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Bonds, the Fiscal Agent Agreement, such resolutions and other documents. All such descriptions are further qualified in their entirety by reference to laws and to principles of equity relating to or affecting generally the enforcement of creditors' rights. For definitions of certain capitalized terms used herein and not otherwise defined, and a description of certain terms relating to the Bonds, see "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT" hereto. Copies of such documents may be obtained from the office of the City Manager of the City. Forward Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect, .... estimate," "project," "budget" or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the captions "THE DEVELOPMENT" and "THE MASTER DEVELOPER AND THE DEVELOPERS." THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY

UPDATES OFFICIAL

OR REVISIONS STATEMENT.

TO THE FORWARD-LOOKING

STATEMENTS

SET FORTH IN TillS

CONTINUING

DISCLOSURE

It is anticipated that the District will be developed by ibur developers (the "Developers") as further described herein under the heading "THE MASTER DEVELOPER AND THE DEVELOPERS." The District and the Developers, other than Ryland Homes of California, Inc. ("Ryland"), have separately covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data relating to Improvement Area No. 1 (collectively, the "Annual Reports"), and to provide notices of the occurrences of certain enumerated events, if material. The Annual Reports will be filed with each Nationally Recognized Municipal Securities Information Repository and with the appropriate State intbrmation depository, if any. The notices of material events will be filed with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). The specific nature of information to be contained in the Annual Reports or the notice of material events is summarized in "APPENDIX G -- FORMS OF CONTINUING DISCLOSURE AGREEMENTS." These covenants have been made by the District and the Developers in order to assist the Underwriter in complying with the Rule. The District has never failed to comply in all material respects with any previous undertakings with regards to said Rule to provide annual reports or notices of material events. The Developers have never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events.

ESTIMATED

SOURCES

AND USES OF FUNDS

The estimated sources and used of funds relating to the issuance of the Bonds is set forth below: Sources of Funds PrincipalAmount of the Bonds ...., ..................................................................... Less: Net Original Issue Discount ........................................................ Total Sources ............................................................................ Uses of Funds Deposit to Acquisition and Construction Fund .................................................. Deposit to Reserve Account ............................................................................... Deposit to Interest Account (t) Deposit to Costs of Issuance Account (2)............................................................. Underwriter's Discount ...................................................................................... Deposit to Special Escrow Fund (3) Total Uses .................................................................................

$26,330,000.00 (71,272.00) $26,258,728.00 $19,497,172.37 1,758,080.00 1,234,030.63 335,000.00 434,445.00 3,000,000.00 $26.258,728,00

(i) Capitalizedinterestthrough September 1, 2006 (2_ Includes fees for Bond Counsel, Disclosure Counsel, FinancialConsultant, the Appraiser, the Market AbsorptionConsultant, legal and financial consultant costs of the Developers, the Fiscal Agent and its counsel, costs of printing the Official Statement,and other costs of issuance of the Bonds. (4) To be released to the Acquisition and Construction Fund upon satisfaction of certainconditions. See "SECURITY FOR THE BONDS- SpecialEscrow Fund. THE FINANCING PLAN

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

responsibilities of the Master Developer. The inability of the Master Developer to finance any shortfall may have an adverse effect on the Developers' ability to complete the development as contemplated. The Improvement following table sets forth a description of the improvements to be constructed Area No. 1, along with the estimated costs associated with each item. CITY OF INDIO CFD 2004-3 IMPROVEMENT AREA NO. 1 IMPROVEMENTS/FEES FUNDED FROM SPECIAL in

TAX BONDS Phase 1 Prqiect Total $ 225,000.00 1,000,000.00 53,975.00 254,000.00 444,500.00 504,190.00 99,060.00 4,489,471.00 1,262,380.00 $8,332,576.00 $5,588,000.00* 1,974,850.00 80,645.00 $7,643,495.00 $ 355,268.00 68,576.00 591,956.00 1,508,875.00 133,800.00 610,411.00 1,186,300.00 814,222.00 1,862,900.00 150,000.00 35,000.00 141,897.00 263,471.00 503,437.00 $8,226,113.00 (1,705,011.63) $6,521,101.37 $22,497,172.37

Quant Unit Ci_ Fees Storm Drainage Fees Fire Station Mitigation Fee Sheriff/Police Fee Park Fee Bridge/Major Street Impact Fees TUMF Water Meter Fee Water Capital Improvement Fees Park Capital Impact Fee Other Fees School Fees Sewer Connection Capacity Sewer Service Fees Capital Costs Reimbursable Site Preparation Grading Surface Improvements Landscaping Storm Drainage Traffic Control Water Sewer Engineering Soils Engineering Blueprints Repairs for Inspection Dry Utilities Contingency 450 635 635 635 635 635 635 1484 635 Acres EA EA EA EA EA EA EA EA

New Unit Price 500 85 400 700 794 156 3,025.25 1,988

Fees

635 EA 635 EA 635 EA

8,800 3,110 127

to Developer

Shortfall - to be Reimbursed to Suncal from Phase 2 Net Available for Suncal Reimbursement Phase 1 Bond Proceeds * $3,000,000 available to be paid when released from Escrow Fund.

THE BONDS Description of the Bonds

The Bonds will be issued as fully registered bonds, in denominations of $5,000 each or any integral multiple thereof within a single maturity and will be dated and bear interest from the date of their delivery (the "Dated Date"), at the rates set forth on the inside cover page hereof. The Bonds will be issued in fully registered form, without coupons. Interest on the Bonds will be paid in lawful money of the United States of America semiannually on March 1 and September 1 of each year (each, an "'Interest Payment Date"), commencing on March 1, 2006. Interest on the Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) such date of authentication is an Interest Payment Date in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication, or (iii) the date of authentication is prior to the close of business on the first Record Date occurring after the issuance of such Bond, in which event interest shall be payable from the dated date of such Bond; provided, however, that if at the time of authentication of such Bond, interest is in default, interest on that Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment on that Bond, interest on that Bond shall be payable form its dated date. The Bonds will mature on September 1 in the principal amounts and years as shown on the inside cover page hereof and are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption as shown below. Redemption Optional Redemption Subject to the limitations set forth below, the Bonds maturing on or after September l, 2016 may be redeemed, at the option of the District from any source of funds, prior to maturity on any date on or after September 1, 2015, in whole, or in part in the order of maturity selected by the District and by lot within a maturity, at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption: Redemption Dates September September September l, 2015 through August 31, 2016 1, 2016 through August 31, 2017 1, 2017 and thereafter Redemption Prices 102.0% 101.0 100.0

In the event the District Request of the District to the principal amount of the Bonds but no more than 90 days prior Fiscal Agent.

elects to redeem Bonds as provided above, the District shall give Written Fiscal Agent of its election to so redeem, the redemption date and the to be redeemed. The notice to the Fiscal Agent shall be given at least 60 to the redemption date, or such shorter period as shall be acceptable to the

Mandatory

Redemption

from Special Tax Prepayments

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

1, 2005 through August 31, 2009 1, 2009 through August 31, 2015 1,2015 and thereafter

103.0% 102.5 As Provided for Optional Redemption

In connection with such redemption, the District may also apply amounts in the Reserve Account which will be in excess of the Reserve Requirement as a result of such Special Tax prepayment to redeem Bonds as set forth above. Mandatory_ Sinking Fund Redemption The Bonds maturing on September l, 2025, September 1, 2030 and September 1, 2035 and the Special Escrow Term Bonds maturing on September 1, 2035 shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account, on September 1,2021, September 1, 2026, September 1,2031 and September 1, 2007, respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Bonds so called for redemption shall be selected by the Fiscal Agent by lot and shall be redeemed at a redemption price for each redeemed Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows: Bonds (CUSIP 455697 AQ 5) Maturing on September Redemption Date (September 1) 2021 2022 2023 2024 2025 (maturity) 1, 2025

Principal Amount $740,000 775,000 815,000 855,000 895,000

Bonds (CUSIP 455697 AR 3) Maturing on September Redemption Date (September 1) 2026 2027 2028 2029 2030 (maturity)

1, 2030

Principal Amount $940,000 990,000 1,040,000 1,090,000 1,150,000

Bonds (CUSIP 455697 AS I) Maturing Redemption Date (September !) 2031 2032 2033 2034 2035 (maturity)

on September

1, 2035

Principal Amount $1,205,000 1,270,000 1,335,000 1,405,000 1,475,000

Special Escrow Term Bonds (CUSIP 455697 AT 9) Maturing on September Redemption Date (September 1) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Redemption Date (September 1) 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 (maturity)

l, 2035

Principal Amount $45,000 50,000 55,000 60,000 65,000 65,000 70,000 75000 75 000 80 000 85 000 90 000 90 000 95 000

Principal Amount 100,000 105,000 110,000 120,000 125,000 130,000 135,000 145,000 150,000 160,000 165,000 175,000 185,000 195,000

If during the Fiscal Year immediately preceding one of the sinking fund redemption dates specified above the District purchases Bonds, at least 45 days prior to the redemption date, the District shall notify the Fiscal Agent by Written Request of the District as to the principal amount purchased and the amount of Bonds so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce such upcoming Sinking Fund Payment for the applicable maturity of the Bonds. All Bonds purchased pursuant to this subsection shall be cancelled pursuant to the Fiscal Agent Agreement. In the event of a partial redemption of the Term Bonds pursuant to optional redemption or mandatory redemption from Special Tax prepayments, each of the remaining Sinking Fund Payments for such Term Bonds, as described above, will be reduced, as nearly as practicable, on a pro rata basis.

Redemption

from Special Escrow.

The Special Escrow Term Bonds (CUSIP 455697 AT 9) maturing on September 1, 2035 are subject to mandatory redemption, pro rata, on September 1, 2007, or on such later date as is permitted under this Fiscal Agent Agreement, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, from amounts available in the Special Escrow Fund. Notice of Redemption When Bonds are due for redemption under the Fiscal Agent Agreement, the Fiscal Agent shall give notice, in the name of the District, of the redemption of such Bonds; provided, however, that a notice of a redemption to be made from other than from Sinking Fund Payments shall be conditioned on there being on deposit on the redemption date sufficient money to pay the redemption price of the Bonds to be redeemed. Such notice of redemption shall (a) specify the CUSIP numbers (if any), the bond numbers and the maturity date or dates of the Bonds selected for redemption, except that where all of the Bonds of a maturity are subject to redemption, or all the Bonds of one maturity, are to be redeemed, the bond numbers of such issue need not be specified; (b) state the date fixed for redemption and surrender of the Bonds to be redeemed; (c) state the redemption price; (d) state the place or places where the Bonds are to be redeemed; (e) in the case of Bonds to be redeemed only in part, state the portion of such Bond which is to be redeemed; (f) state the date of issue of the Bonds as originally issued; (g) state the rate of interest borne by each Bond being redeemed; and (h) state any other descriptive information needed to identify accurately the Bonds being redeemed as shall be specified by the Fiscal Agent. Such notice shall further state that on the date fixed for redemption, there shall become due and payable on each Bond, or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 60 days prior to the redemption date, the Fiscal Agent shall mail a copy of such notice, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register. The actual receipt by the Owner of any Bond or the original purchaser of any Bond of notice of such redemption shall not be a condition precedent to redemption, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. Effect of Notice of Redemption Notice of redemption having been duly given, as described above, and the amount necessary for the redemption havin.g been made available for that purpose and being available therefor on the date fixed for such redemption: (1) The Bonds, or portions thereof, designated tbr redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in the Fiscal Agent Agreement, anything in the Fiscal Agent Agreement or in the Bonds to the contrary notwithstanding; (2) Upon presentation and surrender thereof at the office of the Fiscal Agent, the redemption price of such Bonds shall be paid to the Owners thereof; (3) As of the redemption date the Bonds, or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds, or portions thereof, shall cease to bear further interest; and (4) As of the date fixed for redemption no Owner of any of the Bonds, or portions thereof so designated for redemption shall be entitled to any of the benefits of this Fiscal Agent Agreement, or to

any other rights, except with respect to payment of the redemption redemption date from the amounts so made available. The Fiscal Agent

price and interest accrued

to the

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

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

10

Schedule following is the annual debt service schedule sinking fund redemptions. DEBT SERVICE Year Ending (September 1) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Total for the Bonds, assuming no redemptions other

SCHEDULE Annual Debt Service $1,234,030.63 1,668,962.50 1,686,065.00 1,701,167.50 1,718,977.50 1,739,570.00 1,758,080.00 1,754,190.00 1,753,955.00 1,757,612.50 1,754,250.00 1,754,062.50 1,756,882.50 1,757,425.00 1,755,965.00 1,757,137.50 1,755,245.00 1,756,345.00 1,755,187.50 1,756,772.50 1,755,842.50 1,756,465.00 1,754,280.00 1,754,287.50 1,756,230.00 1,754,855.00 1,754,557.50 1,755,655.00 1,757,890.00 1,756,005.00 $51,887,950.63

Principal $ -0385,000 415,000 445,000 480,000 520,000 560,000 580,000 605,000 635,000 660,000 690,000 725,000 760,000 795,000 835,000 875,000 920,000 965,000 1,015,000 1,065,000 1,120,000 1,175,000 1,235,000 1,300,000 1,365,000 1,435,000 1,510,000 1,590,000 1,670,000 $26,330,000

lnterest $1,234,030.63 1,283,962.50 1,271,065.00 1,256,167.50 1,238,977.50 1,219,570.00 1,198,080.00 1,174,190.00 1,148,955.00 1,122,612.50 1,094,250.00 1,064,062.50 ! ,031,882.50 997,425.00 960,965.00 922,137.50 880,245.00 836,345.00 790,187.50 741,772.50 690,842.50 636,465.00 579,280.00 519,287.50 456,230.00 389,855.00 319,557.50 245,655.00 167,890.00 86,005.00 $25,557,950.63

SECURITY

FOR THE BONDS

THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE IMPROVEMENT AREA NO. 1, NO OTHER REVENUES OR TAXES ARE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL

11

OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES OF IMPROVEMENT AREA NO. 1 AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. The Bonds are secured by a pledge of Net Taxes and the other amounts in the Special Tax Fund (other than amounts in the Administrative Expense Account therein). Net Taxes is defined as Special Taxes minus an amount equal to the Administrative Expense Requirement. Special Taxes means the amount of all special taxes (the "Special Taxes" or the "Special Tax") received by the District with respect to Improvement Area No. 1, together with the proceeds collected from the sale of property pursuant to the foreclosure provision of the Fiscal Agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions. In the event that delinquencies occur in the receipt of the Special Taxes within Improvement Area No. 1 in any fiscal year, the District may increase its Special Tax levy on property within Improvement Area No. 1 in the following fiscal year up to the maximum amount permitted under the Rate and Method. Under no circumstances, however, will Special Taxes levied against any parcel used for private residential purposes be increased by more than I0 percent as a consequence of delinquency or default by the owner of any other parcel or parcels within Improvement Area No. I. Although the Special Tax levy on property within Improvement No. 1 may be increased, Special Taxes resulting from the increase may not be available to cure any delinquencies for a period of one year or more. In addition, an increase in the Special Tax levy may adversely affect the ability or willingness of property owners to pay their Special Taxes. See "Rate and Method of Apportionment of Special Taxes" below and "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" hereto for a description of the District's procedures for levying Special Taxes within Improvement Area No. I, and "SPECIAL RISK FACTORS - Insufficiency of Special Taxes." OWNERSHIP OF THE BONDS IS SUBJECT TO A SIGNIFICANT DEGREE OF RISK. POTENTIAL INVESTORS ARE ADVISED TO CAREFULLY READ THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED "SPECIAL RISK FACTORS." The Special Taxes The Special Taxes are to be apportioned, levied and collected according to the Rate and Method for Improvement Area No. 1. See "- Rate and Method of Apportionment of Special Taxes" below and "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" hereto. Beginning in Fiscal Year 2006-2007 and so long as any Bonds issued under the Fiscal Agent Agreement are Outstanding, the District has covenanted to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement. Subject to the maximum special tax rates, the Rate and Method is formulated to result in the levy each year of an amount of such payment of principal, premium, if any, and interest, replenishment of the Reserve Account and related administrative expenses; however, see "SPECIAL RISK FACTORS" for a discussion of certain factors affecting the actual timely collection of such Special Tax levies. Special Tax Fund Pursuant to the Fiscal Agent Agreement, there is established a "Special Tax Fund" to be held and maintained by the Fiscal Agent. In the Special Tax Fund there is further established and created an

12

Interest Account, a Principal Account, a Redemption Expense Account.

Account,

a Reserve Account

and an Administrative

The amounts on deposit in the foregoing funds and accounts will be held by the Fiscal Agent in trust and the Fiscal Agent will invest and disburse the amounts in such funds and accounts in accordance with the provisions of the Fiscal Agent Agreement and will disburse investment earnings thereon in accordance with the provisions of the Fiscal Agent Agreement. The District will, on each date on which it receives Special Taxes, transfer the Special Taxes to the Fiscal Agent for deposit in the Special Tax Fund in accordance with the terms of the Fiscal Agent Agreement to be held in trust. The Fiscal Agent will first deposit into the Administrative Expense Account of the Special Tax Fund an amount equal to the Administrative Expense Requirement and shall then transfer the amounts on deposit in the Special Tax Fund on the dates and in the amounts set tbrth in the Fiscal Agent Agreement, in the following order of priority, to: 1. 2. 3. 4. 5. 6. The Interest Account of the Special Tax Fund; The Principal Account of the Special Tax Fund; The Redemption Account of the Special Tax Fund;

The Reserve Account of the Special Tax Fund; The Administrative The Surplus Fund. Tax Fund and time amounts by the Fiscal Expense Fund Expense Account of the Special Tax Fund; and

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

Interest Account and Principal Account of the Special Tax Fund. The principal of and interest due on the Bonds until maturity, other than principal due upon redemption, will be paid by the Fiscal Agent from the Principal Account and the Interest Account of the Special Tax Fund, respectively. At least five Business Days prior to each March 1 and September 1, the Fiscal Agent will make the following transfers from the Special Tax Fund first to the Interest Account and then to the Principal Account; provided, however, that to the extent that deposits have been made in the Interest Account or the Principal Account from the proceeds of the sale of an issue of the Bonds, or otherwise, the transfer from the Special Tax Fund need not be made; and provided, further, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made up by an immediate transfer from the Reserve Account: 1. To the Interest Account, an amount such that the balance in the Interest Account five Business Days prior to each Interest Payment Date will be equal to the installment of interest due on the Bonds on said Interest Payment Date and any installment of interest due on a previous Interest Payment Date which remains unpaid. Moneys in the Interest Account shall be used for the payment of interest on the Bonds as the same become due. 2. To the Principal Account, an amount such that the balance in the Principal Account five Business Days prior to September 1 of each year, commencing September 1, 2007 shall at least equal the

13

principal payment due on the Bonds maturing on such September 1 and any principal payment due on a previous September 1 which remains unpaid. Moneys in the Principal Account will be used for the payment of the principal of such Bonds as the same become due at maturity. Redemption Account of the Special Tax Fund. On each September l on which a Sinking Fund Payment is due, after the deposits have been made to the Interest Account and the Principal Account of the Special Tax Fund, the Fiscal Agent will next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account five Business Days prior to each September 1 equal to the Sinking Fund Payment due on any Outstanding Bonds on such September 1; provided, however, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency will be made up by an immediate transfer from the Reserve Account. Moneys so deposited in the Redemption Account will be used and applied by the Fiscal Agent to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedule set forth in the Fiscal Agent Agreement and in any Supplemental Fiscal Agent Agreement tbr such Term Bonds. Reserve Account Moneys in the Reserve Account will be used solely for the purpose of paying the principal of, including Sinking Fund Payments, and interest on any Bonds when due in the event that the moneys in the Interest Account and the Principal Account of the Special Tax Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are insufficient to make a Sinking Fund Payment when due. If the amounts in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund are insufficient to pay the principal of, including Sinking Fund Payments, or interest on any Bonds when due, the Fiscal Agent will withdraw from the Reserve Account for deposit in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund, as applicable, moneys necessary for such purposes. Whenever moneys are withdrawn from the Reserve Account, after making the required transfers under the Fiscal Agent Agreement, the Fiscal Agent will transfer to the Reserve Account from available moneys in the Special Tax Fund, or from any other legally available funds which the District elects to apply to such purpose, the amount needed to restore the amount of such Reserve Account to the Reserve Requirement. Moneys in the Special Tax Fund will be deemed available for transfer to the Reserve Account only if the Fiscal Agent determines that such amounts will not be needed to make the deposits required to be made to the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund. If amounts in the Special Tax Fund or otherwise transferred to replenish the Reserve Account are inadequate to restore the Reserve Account to the Reserve Requirement, then the District will include the amount necessary fully to restore the Reserve Account to the Reserve Requirement in the next annual Special Tax levy for property within Improvement Area No. 1 to the extent of the maximum permitted Special Tax rates. Anything to the contrary in the Fiscal Agent Agreement notwithstanding, the District may, at any time, substitute an Alternate Reserve Account Security for cash in the Reserve Account. Special Escrow Fund The Special Escrow Fund is established under, the Fiscal Agent Agreement. The Fiscal Agent shall make a disbursement from the Special Escrow Fund to the Acquisition and Construction Fund upon receipt of a certificate of the Authorized Representative of the City (the "Administrator") directing the Fiscal Agent to release funds from the Special Escrow Fund. Upon receipt of such certificate, the Fiscal Agent shall deposit the disbursement to the Acquisition and Construction Fund, in an amount specified by the Administrator in a written certificate. The transfers referred to in the preceding sentence shall only be

14

made on any Business Day on or prior to the Initial Escrow Close Date or any Revised Escrow Close Date (as such terms are defined below) and any ccrtificate of the Administrator requesting any such draw _,hall be presented to the Fiscal Agent by the District at least l0 days (or such lesser number of days as agreed to by the Fiscal Agent) prior to the date for the transfer to be made. At any time after the Delivery Date and prior to the release of all moneys held in the Special Escrow Fund, the Developer may provide the District with funds so that the District may cause a formal appraisal to be prepared, at the expense of the Developer, consistent with the appraisal standards of the City to determine the Improvement Area No. 1 Value (the "Additional Appraisal"). If the Administrator approves the Additional Appraisal and the Improvement Area No. 1 Value established by the Additional Appraisal indicates that additional moneys are to be released from the Special Escrow Fund consistent with the City's policy of maintaining a value-to-lien ratio and Special Tax coverage ratio as described below, then the Administrator will cause a written notice be provided to the Fiscal Agent ibr the release _;famounts to the Acquisition and Construction Fund. (i) Value-to-Lien Ratio. The Improvement Area No. 1 Value (not including the value of any parcel that is then delinquent in the payment of Special Taxes) shall be at least three times the sum of: (a)the aggregate principal amount of all Bonds then Outstanding, less the principal amount of any Bonds representing amounts (if any) to remain on deposit in the Special Escrow Fund following the proposed disbursement, plus (b) the aggregate principal amount of any fixed assessment liens on the parcels in the District subject to the levy of Special Taxes, plus (c) a portion of the aggregate principal amount of any and all other community facilities district bonds or ass_/ssment district assessment liens then outstanding and payable at least partially from special taxes or assessments to be levied on parcels of land within the District (the "Prior Bonds") equal to the aggregate principal amount of the Prior Bonds multiplied by a fraction, the numerator of which is the amount of special taxes and special assessments levied for the Prior Bonds on parcels of land within the District, and the denominator of which is the total amount of special taxes and special assessments levied for the Prior Bonds on all parcels of land against which the special taxes and special assessments are levied to pay the Prior Bonds (such fraction to be determined based upon the maximum special taxes which could be levied in the year in which maximum annual debt service on the Prior Bonds occurs), based upon information from the most recent available Fiscal Year. (ii) Minimum Value TeSt. The Improvement Area No. 1 Value (including only those parcels of real property in the District then constituting "Undeveloped Property," as defined in the Rate and Method of Apportionment relating to Improvement Area No. 1), shall be at least two and one-half times (a) the sum of the amounts referred to in clauses (a), (b) and (c) of (i) above which are determined by the District's special tax consultant to be allocable to the parcels of Undeveloped Property assuming that for (a) above the special tax consultant shall allocate to Developed Property that portion of the principal amount of the Outstanding Bonds for which the maximum annual debt service is equal to the aggregate Assigned Special Tax in the then Fiscal Year for all then Developed Property (as the terms "Assigned Special Tax" and "Developed Property" are defined in the Rate and Method of Apportionment), and otherwise not taking into account the principal amount of any Bonds representing amounts (if any) to remain on deposit in the Special Escrow Fund following the proposed disbursement). (iii) Special Tax Coverage. The maximum Special Taxes that may be levied in each Fiscal Year on parcels that are not then delinquent in the payment of Special Taxes shall be at least one hundred ten percent (110%) of the then Maximum Annual Debt Service, based upon the Rate and Method of Apportionment of Special Taxes of Improvement Area No. 1.

15

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

may

On and after July 15, 2007 (the "Initial Escrow Close Date"), the Fiscal Agent shall make no further disbursements from the Special Escrow Fund, and on September 1, 2007 (the "Initial Escrow Redemption Date"), the Fiscal Agent shall use amounts in the Special Escrow Fund to redeem the Bonds to the maximum extent possible on the Initial Escrow Redemption Date, as described above. Notwithstanding the foregoing, the Initial Escrow Close Date (and any Revised Escrow Close Date established pursuant to this paragraph) and the Initial Escrow Redemption Date (and any Revised Escrow Redemption Date established pursuant to this paragraph) may be extended from time to time upon receipt by the Fiscal Agent, not later than one Business Day prior to the Initial .Escrow Close Date (or, if extended pursuant to the terms of this paragraph, the then applicable Revised Escrow Close Date), of a Written Request requesting such extension and stating (a) the new date after which amounts in the Special Escrow Fund will no longer be subject to disbursement pursuant to the Fiscal Agent Agreement (the "Revised Escrow Close Date") which date shall be at least 45 days but not more than 90 days prior to the date such amounts are to be used to redeem the Bonds as described in the following clause (b), and (b) the new date on which the Bonds are to be subject to mandatory redemption from the amounts held in the Special Escrow Fund (the "Revised Escrow Redemption Date"), which date shall be an Interest Payment Date. In no event will the Revised Escrow Redemption Date be extended beyond the earliest date following the third anniversary of the issuance of the Delivery Date on which the Bonds may be redeemed pursuant to the terms thereof. On or after any Revised Escrow Close Date the Fiscal Agent shall make no further disbursements from the Special Escrow Fund and on the Revised Escrow Redemption Date the Fiscal Agent shall use amounts in the Special Escrow Fund to redeem the Bonds to the maximum extent possible on the Revised Escrow Redemption Date. Rate and Method of Apportionment of Special Taxes

The following is a summary of certain provisions of the Rate and Method. This summary does not purport to be comprehensive and reference should be made to the Rate and Method attached hereto as Appendix A. All capitalized terms not defined in this section have the meanings set forth in the Rate and Method. Each Fiscal Year, commencing with the 2006-2007 Fiscal Year, all Parcels of Taxable Property within the District shall be categorized into the applicable Improvement Area and classified as either Developed Property, Undeveloped Property, Public Property and/or Property Owner's Association Property that is not Exempt Property and shall be subject to the levy of Special Taxes in accordance with the Rate and Method of Apportionment. See "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." Parcels of Developed Property shall further be classified as Residential Property or Non-Residential Property. A Parcel of Residential Property shall further be classified as Single Family Property or Multifamily Residential Property. Single Family Property shall be further categorized based on the Residential Floor Area for such Parcel, which is determined based on the square footage shown on the building permit for such Single Family Property. There are two zones established within Improvement Area No. 1 and such zones are taxed at different rates ("Zone A" and "Zone B"). Commencing with Fiscal Year 2006-2007 and for each following Fiscal Year, the City shall levy the Special Tax on all Taxable Property within Improvement Area No. 1 until the amount of Special Taxes equals the Special Tax Requirement for Improvement Area No. 1 in accordance with the following steps:

16

First: The Special Tax shall be levied on each Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax rate as needed to satisfy the Special Tax Requirement for Improvement Area 1, Zone A and Zone B; Second: If additional moneys are needed to satisfy the Special Tax Requirement for Improvement Area No. 1, Zone A and Zone B, after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property within Improvement Area No. 1, Zone A and Zone B at up to 100% of the Maximum Special Tax for Undeveloped Property; and Third: If additional moneys are needed to satisfy the Special Tax Requirement for the Bonds after the first two steps have been completed, then for each Assessor's Parcel of Developed Property whose Assigned Special Tax is the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement. No Special Taxes levied on property of the Bonds. Covenant for Superior Court Foreclosure within Improvement Area No. 2 are security for repayment

In the event of a delinquency in the payment of any installment of Special Taxes, the District is authorized by the Act to order institution of an action in the Superior Courts of the State to foreclose any lien therefor. In such action, the real property subject to the Special Taxes may be sold at a judicial foreclosure sale. The ability of the District to foreclose the lien of delinquent unpaid Special Taxes may be limited in certain instances and may require prior consent of the property owner in the event the property is owned by or in receivership of the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal agencies. See "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure" and "SPECIAL RISK FACTORS - Tax Delinquencies." Such judicial foreclosure proceedings are not mandatory. However, in the Fiscal Agent Agreement, the District has covenanted for the benefit of the Owners of the Bonds that it (i) will commence judicial foreclosure proceedings against all parcels owned by a property owner where the aggregate delinquent Special Taxes on such parcels is greater than $5,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes were due and (ii) will commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied for such Fiscal Year, and (iii) will diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid; provided, however, that the District may elect to defer foreclosure proceedings on any parcel so long as the amount in the Reserve Account of the Special Tax Fund is at least equal to the Reserve Requirement and such delinquencies will not cause moneys in the Reserve Account to be withdrawn on the next succeeding Interest Payment Date. The District may, but is not obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Account of the Special Tax Fund at the Reserve Requirement. There could be a default or a delay in payments to the owners of the Bonds pending prosecution of foreclosure proceedings and receipt by the District of foreclosure sale proceeds, if any, and subsequent transfer of those proceeds to the City. However, up to the maximum amount permitted under the applicable Rate and Method, the District may adjust the Special Taxes levied on all property within the District to provide the amount required to pay debt service on the Bonds. Under current law, a judgment debtor (property owner) has at least 140 days from the date of service of the notice of levy in which to redeem the property to be sold. If a judgment debtor fails to redeem and the property is sold, his only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action a foreclosure sale is set aside, the

17

judgment is revived, the judgment creditor is entitled to interest on the revised judgment and any liens extinguished by the sale are revised as if the sale had not been made (Section 701.680 of the Code of Civil Procedure of the State of California). No Obligation of the City Upon Delinquency

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

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

18

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

2004-05 Local Secured Assessed Valuation: $24,144,014 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Desert Community College District Desert Sands Unified School District Desert Sands Unified School District Lease Tax Obligations City of Indio Assessment District No. 90-1 City of Indio Community Facilities District No. 2004-3 Coachella Valley Recreation and Park Reassessment District No. 01-1 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT % Applicable 0.056% 0.102 0.240 2.713 100. 0.828 DEBT Debt 8/1/05 $ 38,703 139,709 53,676 52,632 (1) 35,935 $320,655

OVERLAPPING GENERAL FUND OBLIGATION DEBT: Riverside County General Fund Obligations Riverside County Board of Education Certificates of Participation Desert Sands Unified School District Certificates of Participation City of Indio Certificates of Participation Coachella Valley County Water District, I.D. No. 71 Certificates of Participation Coachella Valley Recreation and Park District Certificates of Participation TOTAL GROSS OVERLAPPING GENERAL FUND OBLIGATION DEBT Less: Riverside County self-supporting obligations TOTAL NET OVERLAPPING GENERAL FUND OBLIGATION DEBT GROSS COMBINED TOTAL DEBT NET COMBINED TOTAL DEBT

0.023% 0.023 0.240 1.010 0.100 0.202

$142,910 2,809 35,436 35,754 9,530 5,383 $231,822 4,722 $227,100 $552,477 $547,755 (2)

( 1) Excludes Mello-Roos Act bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2004-05 Assessed Valuation: Direct Debt ........................................................................... - % Total Direct and Overlapping Tax and Assessment Debt ....... 1.33% Gross Combined Total Debt ................................................... 2.29% Net Combined Total Debt ....................................................... 2.27% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/05:$0 Source: California Municipal Statistics, Inc.

19

Estimated

Effective

Tax Rate obligations tbr a sample developed

property

Set forth below is the estimated fiscal year 2006/07 tax within Zone A and Zone B of Improvement Area No. 1. ESTIMATED FOR FISCAL YEAR 2006/07 A SAMPLE DEVELOPED AREA NO.

TAX OBLIGATION PROPERTY 1, ZONE A) Prqiected Amount

(IMPROVEMENT

Projected Sales Price (Based on a Home Size of 1,800 Square Feet) Ad Valorem Property Taxes: Basic Levy (1.00%) Desert Sands Unified School District G.O. Bond (0.09581%) Coachella Valley Water District Debt Service (0.02080%) Desert Community College District Debt Service (0.01994%) Total General Property Taxes (1.13655%)

$351,500.00

3,515.00 336.77 73.11 70.09 3,994.97

Assessment, Special Taxes & Parcel Charges: Coachella Valley Recreation and Park District Reassessment Landscaping & Lighting District - Estimate (1) City of Indio CFD No. 2004-3 (Improvement City of Indio CFD No. 2004-l (2) Total Assessments Projected Projected & Parcel Charges Area No. l)

District No. 01-1 - Estimate

54.00 115.00 2,467.83 367.20

$ $

3,004.03 6,999.00 2.00%

Total Property Tax Effective Tax Rate

_) Anticipated lighting and landscape district to service the development, (2) Special taxes for the City of Indio CFD No. 2004-1 (Police, Fire and Paramedic Services) increase annually by 2%. Source: Albert A. Webb Associates.

20

ESTIMATED FOR

FISCAL YEAR 2006/07 A SAMPLE DEVELOPED (IMPROVEMENT AREA

TAX OBLIGATION PROPERTY 1, ZONE B) Proiected Amount

Projected Sales Price (Based on a Home Size of 1,800 Square Feet) Ad Valorem Property Taxes:

$431,500.00

Basic Levy (1.00%) Desert Sands Unified School District G.O. Bond (0.09581%) Coachella Valley Water District Debt Service (0.02080%) Desert Community College District Debt Service (0.01994%) Total General Property Taxes (1.13655%)

4,315.00 413.42 89.75 86.04 4,904.21

Assessment, Special Taxes & Parcel Charges: Coachella Valley Recreation and Park District Reassessment Landscaping & Lighting District - Estimate 0) City of Indio CFD No. 2004-3 (Improvement City of Indio CFD No. 2004-1 (2) Total Assessments Projected Projected & Parcel Charges Area No. 1)

District No. 01-1 - Estimate

54.00 I 15.00 3,158.59 367.20

$ $

3,694.79 8,599.00 2.00%

Total Property Tax Effective Tax Rate

_J) Anticipated lighting and landscape district to service the development. _2_ Special taxes for the City oflndio CFD No. 2004-1 (Police, Fire and Paramedic Services) increase annually by 2%. Source: Albert A. Webb Associates.

Appraisal The Bonds are secured by Special Taxes sale of delinquent parcels. Therefore, the ability which may include amounts realized upon foreclosure of the District to meet debt service on the Bonds may

depend on the ability of delinquent parcels to generate sufficient proceeds upon foreclosure sale to pay delinquent Special Taxes. The City has commissioned First American Commercial Real Estate Services, Santa Ana, California (the "Appraiser") to perform an appraisal (the "Appraisal") of the property values of parcels within the District. See "APPENDIX D -- APPRAISAL REPORT" hereto. The Appraisal was prepared with a date of value of June 17, 2005. In the opinion of the Appraiser, the discounted "bulksale" value of the properties within Improvement Area No. 1, as of the date of value stated in the Appraisal, is $71,000,000, the portion to be deposited which is 3 times the aggregate principal amount of Bonds issued in the Special Escrow Fund). See "APPENDIX D -- APPRAISAL (excluding REPORT"

for description of the valuation methodology. The Appraiser's value estimates reflect certain absorption assumptions set forth in the Appraisal including the sale of finished properties to "end users." In addition, the Appraiser's estimate refers to the sale of lots to developers or investors who will ultimately sell off to "end users." Also, the land development costs furnished by the Master Developer represent the costs estimated at the time of the Appraisal for developing the tract within Improvement Area No. I. There can be no assurance that property values set forth in the Appraisal will not decrease, or that at any time the amount that could be realized upon sale of a particular parcel in a foreclosure sale for nonpayment of Special Taxes will equal that parcel's appraised value.

21

Maximum

Special Tax Coverage tax and undeveloped taxes per

The following table sets forth a summary of estimated developed Developer in Improvement Area No. ! for the years 2006 through 2012.

SUMMARY OF ESTIMATED DEVELOPED TAX AND UNDEVELOPED TAXES PER DEVELOPER COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1) Year Ending Estimated Developed Tax Estimated Undeveloped Woodside Lennar Ryland Taxes Ashbrook Total Total Estimated Taxes

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

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

22

SPECIAL COMMUNITY

TAXES AND DEBT SERVICE

FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1)

Estimated Assigned Special Taxes 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 $1,874,058 1,892,799 1,911,727 1,930,844 1,950,152 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654 1,969,654

Admin. Costs $(35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000) (35,000)

Estimated Net Taxes $1,839,058 1,857,799 1,876,727 1,895,844 1,915,152 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654 1,934,654

Debt Service $1,668,963 1,686,065 1,701,168 1,718,978 1,739,570 1,758,080 1,754,190 1,753,955 1,757,613 1,754,250 1,754,063 1,756,883 1,757,425 1,755,965 1,757,138 1,755,245 1,756,345 1,755,188 1,756,773 1,755,843 1,756,465 1,754_280 1,754 288 1,756 230 1,754 855 1,754 558 1,755 655 1,757 890 1,756 005

Coverage 110.2% 110.2 110.3 110.3 110.1 110.0 110.3 110.3 110.1 110.3 110.3 110.1 110.1 110.2 110.1 110.2 110.2 110.2 110.1 110.2 110.1 110.3 110.3 110.2 110.2 110.3 110.2 110.1 110.2

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

23

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

THE DISTRICT On May 18, 2005, the City Council adopted a Resolution of Intention to form a community facilities district under the Act, to levy a special tax and to incur bonded indebtedness for the purpose of financing the improvements. After conducting a noticed public hearing, on July 20, 2005, the City Council adopted the Resolution of Formation, which established the District (consisting of Improvement Area No. 1 and Improvement Area No. 2) and set forth the Rate and Method of Apportionment for the levy and collection of Special Taxes. On July 20, 2005, an election was held within Improvement Area No. 1 in which the landowners eligible to vote unanimously approved the incurrence of bonded indebtedness in an amount not to exceed $30,000,000 and the levy of the Special Tax within Improvement Area No. 1. The Bonds are secured by Special Taxes payable by the property owners within Improvement Area No. 1 only and not Improvement Area No. 2. The District expects to issue bonds in the future, the proceeds of which will be used to finance certain public facilities in Improx_ement Area No. 2 and which, when issued, will be secured by Special Taxes levied on taxable parcels within the Improvement Area No. 2. The District consists of approximately 364.96 gross acres known as the Terra Lago comprising two Improvement Areas - Improvement Area No. 1 consists of approximately 174.80 acres, approximately 135.75 acres, of which are slated for residential development and 39.05 acres of which are open space, and Improvement Area No. 2 which consists of approximately 190.16 acres, 173.76 acres of which are slated for residential development and 16.4 acres of which are open space. At buildout, it is anticipated that Improvement Area No. 1 will contain 635 residential dwelling units and Improvement Area No. 2 will contain 849 residential dwelling units. See "THE DEVELOPMENT" for further information regarding the Terra Lago housing community. The Bonds are being issued to finance the acquisition of public improvements serving properties within Improvement Area No. 1 only and not Improvement Area No. 2. See "THE FINANCING PLAN" herein.

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

24

owners will have the ability to pay the Special Taxes or that, even if they have the abifity, they will choose to pay such taxes. An owner may elect not to pm _ the Special Taxes when due and cannot be legally compelled to do so. Neither the District nor any Bondowner will have the ability at any time to seek payment from the Developers or any subsequent owners of properW within the District of any Special Tax or any principal or interest due on the Bonds, or the abili(v to control who becomes a subsequent owner of any property within the District. See "SECURITY FOR THE BONDS" and "SPECIAL RISK FACTORS" herein. The Master Developer and the Developers have provided the inJbrmation set forth under the heading "THE DEVELOPMENT" and "THE MASTER DEVELOPER AND THE DEVELOPERS. " No assurance can be given that all injbrmation is" complete. Although the Developers currently own all of the property within Improvement Area No. 1, the Developers intend to build and sell the residential properties to individual homeowners. When such sales occur, the ownership oj the land within Improvement Area No. 1 will become more diversified. No assurance can be given that development of the property will be completed, that it will be completed in a timely manner or that it will occur as described herein. General Improvement Area No. 1 consists of a total of 174.80 gross acres, 135.7 of which are slated for residential development comprising 635 residential lots and 39.05 acres of open space. The residential lots are contained within five residential tracts that will be developed by four merchant builders. See "THE MASTER DEVELOPER AND THE DEVELOPERS." The subject tracts are situated within the larger area generally known as "Shadow Hills" that is located in the northern portion of the City of Indio north of the Interstate 10 Freeway. The master-planned community of Terra Lago is located less than one mile north of Interstate-10 at the northeast corner of Golf Center Parkway and Avenue 43. The community is bisected by the Coachella Canal, an extension of the All American Canal, that runs southeastward through the property. The northern edge of the Terra Lago community abuts the base of the foothills at the northern boundary of the City of Indio. The property extends southward to Avenue 44. To the east of the property is open desert. About one mile to the northwest off of Jackson Street are six new home subdivisions within the Shadow Hills community that are currently marketing homes. For a further discussion of the community and the surrounding area, see "APPENDIX E - MARKET ABSORPTION STUDY." Availability of Water for Construction

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

25

meters until the end of the Summer take any such action. No assurance can future that may impact the timely manner. Any delay debt service on the Bonds. Public Facilities

Conservation

Period.

The Indio Water Authority

does not expect to

be made that the lndio Water Authority will not take similar actions in the ability of the Developers to proceed with their respective developments in a in development may have an adverse impact on the District's ability to pay See "SPECIAL RISK FACTORS - Failure to Develop Properties."

A description of the public facilities proposed to be financed for Improvement Area No. 1 is contained in the Funding and Acquisition Agreement by and between the City and the Master Developer (the "Funding and Acquisition Agreement"). These public facilities consist of in-tract public facilities that arc within and required to develop Improvement Area No. 1 and backbone public facilities, both within and outside the District, required to serve the entire District or both Improvement Areas. The costs of many of the backbone public facilities are eligible to be financed by either of the Improvement Areas. In addition, pursuant to the Agreement of Formation of Mello-Roos Community Facilities District No. 2004-3 (the "Development Agreement"), the costs of many of the backbone public facilities are eligible to be financed with the proceeds of bonds including, without limitation, the Bonds. The Master Developer has identified two development phases within Terra Lago. Phase 1 currently includes Improvement Area No. 1 and Phase 2 includes Improvement Area No. 2. The Master Developer completed mass grading of Improvement Area No. 1 prior to the sale of the tracts contained therein to the Developers. With respect to the major backbone public infrastructure improvements required to serve Improvement Area No. 1, as of August 1, 2005, approximately 98% of such infrastructure improvement for Improvement Area No. 1, including sewer, water, storm drain, dry utilities and landscaping improvements, had been completed. The backbone public infrastructure improvements required to serve Improvement Area No. 2 are expected to be completed by December, 2006. As of July, 2005, the Master Developer had expended approximately $25 million for the mass grading and major backbone public infrastructure improvements for Improvement Area No. 1. Initial funding for the work completed by Master Developer has been provided by internal sources. To the extent available, costs of the public facilities with respect to Improvement Area No. 1 will be funded from proceeds of the Bonds. The City will not be obligated to pay for the public facilities except from amounts on deposit in the applicable Acquisition and Construction Fund once established with respect to each of the Improvement Areas. The City makes no warranty, express or implied, that the proceeds of the bonds deposited and held in the applicable Acquisition and Construction Fund, and any investment earnings thereon, will be sufficient to pay for the Improvements. Environmental Assessment

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

26

Development

and Financing

Plans - Improvement

Area No. 1

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

FACILITIES DISTRICT NO. 2004-3 (TERRA (IMPROVEMENT AREA NO. 1)

Tract # 31601-2 31601-3 31601-4 31601-5 31601-7 Source: The Developers

Builder Woodside Homes Lennar Homes Lennar Homes Ryland Homes Ashbrook Homes

Number of Lots 178 128 86 110 133

Final Map Approval May 4, 2005 July 6, 2005 July 6, 2005 July 6, 2005 August 3, 2005

Expected Completion of On-Site Infrastructure and Grading June, June, June, June, June, 2006 2006 2006 2006 2006

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

27

SUMMARY OF PROPOSED NEW HOMES COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA (IMPROVEMENT AREA NO. I) Minimum Lot Size (So. Ft.) 5,000 7,200 8,400 6,000 3,300 3,300-8,400

LAGO)

Tract # 31601-2 31601-3 31601-4 31601-5 31601

Builder Woodside Lennar Lennar Ryland Ashbrook Total / Range Homes Homes Homes Homes Homes

Number of Lots 178 128 86 110 133 635

% of Lots 27.7% 20.3 13.6 17.4 21.0 100.0%

Home Size Range (SF) 1,658-2,407 2,092-2,660 2,595-3,120 1,987-2,591 2,100-2,500 1,658-3,120

Source: SunCal Properties, Market Profiles

SUMMARY OF PROPOSED SPECIAL TAXES COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) (IMPROVEMENT AREA NO. 1) Number of Lots 128 86 110 133 178 635 Special Tax $391,552 300,601 320,447 467,673 393,786 $1,874,058

Tract # 31601-3 31601-4 31601-5 31601 31601-2

Builder Lennar Homes Lennar Homes Ryland Homes Ashbrook Homes Woodside Homes Total

AvE Tax $3,059 3,495 2,913 3,516 2,212

% of Total 21% 16 17 25 21 100%

Source: SunCal Properties, Market Profiles

Development of the infrastructure improvements within hnprovement Area No. 1 is being overseen by the Master Developer in accordance with the provisions of the separate purchase agreements entered into between the Master Developer and each of the Developers. (see "THE MASTER DEVELOPER AND THE DEVELOPERS" below). As of August 1, 2005, four building permits had been issued within Improvement Area No. 1 for the Model Park located in Tract No. 31601-2 owned by Woodside Portofino, Inc. There is no assurance that amounts necessary to finance the site development costs within Improvement Area No. 1 will be available fi'om the Master Developer, the Developers, or any other source, when needed. Neither the Master Developer nor the Developers are under any legal obligation of any kind to expend funds for the development of the property within District. Any contribution or loans by the Master Developer or the Developers, whether to fund costs of development within Improvement Area No. 1 or to pay special taxes, is entirely voluntary. The public infrastructure improvements associated with Improvement Area No. 2 are not being financed with the proceeds of the Bonds.

28

Absorption

Study

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

THE MASTER The Master Developer

DEVELOPER

AND THE DEVELOPERS

Indio Land Ventures/SunCal Companies. Indio Land Ventures LLC, a Delaware limited liability corporation ("Indio Land Ventures") acquired the raw land comprising Improvement Area No. 1 and Improvement Area No. 2 on January 1, 2003. Indio Land Ventures has since sold the five tracts of Improvement Area No. 1 to the following merchant builders: Ashbrook (40.70 acres owned by Terra Lago, 133, L.P.), Ryland Homes (32.65 acres), Woodside Portofmo, Inc. (38.75 acres) and Lennar Homes (62.70 acres owned by MW Housing Managers III Cal Pets) as further described below. See also "THE DEVELOPMENT.'" Indio Land Ventures remains the owner of all the property contained in Improvement Area No. 2 which comprises approximately 190.16 acres, approximately 173.76 acres are slated for residential development and 16.4 acres are open space. SunCal Properties ("SunCal") is the developer of the property owned by Indio Land Ventures in Improvement Area No. 2 and SunCal remains the Master Developer in connection with the implementation of the infrastructure in Improvement Area No. 1 in accordance with the provisions of the respective purchase agreements entered into between the Master Developer and each of the Developers. Founded in 1973, SunCal has developed at least 20 projects located mostly in Southern California. Current developments include Tesoro Del Valle in Los Angeles, Fairway Canyon in Beaumont, and Summerland Ranch in Calimesa. More information about SunCal can be found on the company's website, www.suncal.com. This Internet address is included for reference only, and the information on this ]nternet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this Internet site. Provided below is a partial listing of recent regional projects and developments undertaken by

SunCal.

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

29

Indio Land Ventures is owned by SCC/Indio Land, LLC, a Delaware limited liability corporation, which is owned by SCC Mezz Ventures, a Delaware limited liability corporation, which ill turn is owned by SCC Acquisitions, LLC, a Delaware limited liability corporation. SCC Acquisitions, LLC is owned by SCC Acquisitions, Inc. and Nevada Sun Investment Co., a Nevada corporation. Indio Land Ventures is also owned by LB Indio Land Ventures LLC, A Delaware limited liability company, which is wholly owned by PAMI LLC, a Delaware limited liability corporation, which in turn is owned by Lehman Brothers Entities. Indio Land Ventures is jointly' managed by Sun Cal and Lehman Brothers. The Developers Ryland Homes. Ryland Homes of California, Inc., a Delaware corporation ("Ryland Homes") is a subsidiary of The Ryland Group, Inc., headquartered in Calabasas, California and listed on the NYSE under the symbol "RYL'. Ryland Homes acquired 32.65 gross developable acres in March of 2005 comprising 110 lots, 76 of which are located in Zone A of Improvement Area No. ! and 34 of which are located in Zone B. All of these are graded lots and are ready to have houses built on them. Ryland Homes plans to build 110 single family detached homes, thirty-six of which will be single story, and seventy-four of which will be two story, all of which are expected to be completed and sold by the end of 2006 and which shall be self-funded by Ryland Homes from monies on hand and not from any loan or other funding mechanism. The name of the development is Cristalo @ Terra Lago. Founded in 1967, Ryland has built more than 225,000 homes and currently operates in 27 markets across the country. Current developments include Rosemont in San Marcos, Meadows in Perris, and Hermosa in Coachella. More information about Ryland Homes can be found on the company's website, www.ryland.com. Tkis lnternet address is included for reference only, and the information on this Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this ]nternet site. Provided below is a partial listing of recent regional projects and developments undertaken by Ryland Homes and their principal participants and the date of completion of those projects. Proiect Rosemont Oasis-Sorano Oasis-Orviento Serenada Pasatiempo Oasis-Palermo Waterford Meadows Hermosa Concord Estates Sienna Number of Units 68 250 304 127 88 217 74 139 120 128 132 Jurisdiction San Marcos Menifee Menifee Murrieta French Valley Menifee San Marcos Perris Coachella French Valley Indio Completion Date

April 2004 May 2004 July 2004 September 2004 September 2004 November 2004 December 2004 Est. December 2005 Est. February 2006 Est. May 2006 Est. June 2006

Woodside Portofino. Woodside Portofino, Inc. ("Woodside Portofino") is a special purpose corporation formed to acquire and develop the property located within Improvement Area No. 1 which it acquired in February 2005. It is an affiliate of Woodside Homes of California, Inc., which is the homebuilder/contractor for construction of homes on the land owned by Woodside Portofino, Inc. in Improvement Area No. 1. Both Woodside Portofino, Inc. and Woodside Homes of California, Inc. are wholly-owned subsidiaries of Woodside Group, Inc., a privately owned holding company. Its subsidiaries are homebuilding companies with operations in northern, central, and southern California, 3O

Phoenix, Las Vegas, Jacksonville, Washington D.C., Denver, Minnesota, San Antonio, and Utah. The Woodside Group has no legal or contractual obligation to contribute funds to Wood_ide Portofino, either to complete the project or to pay the Special Taxes. Woodside Portofino acquired 38.75 gross acres of land in Improvement Area No. 1 in February of 2005, 33.05 of which are developable acres on which it is planned that 179 single-family residences be built on 158 lots located in Zone A and 20 lots located in Zone B which shall be self-funded by Woodside Portofino from monies on hand and not from any loan or other funding mechanism. None of these residences have been built on to date. The project is to be called Portofino @ Terra Lago. More information about Woodside Homes can be found on the company's website, www.woodsidegroupinc.com. This Internet address is included for reference only, and the information oll this h2ternet site is not a part of this Ojficial Statement or incorporated bv re/erence into this 0I_cial Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this Internet site. Provided below is a listing of recent regional projects and developments undertaken Homes' Southern California Division and the dates of completion for those projects. Proiect Aberdeen Mahogany Marquis Nelson Oak Creek Park Lane Serrano Sienna Solana Summerset Traditions Westcreek PA 1 Westcreek PA 3 Woods Valley Number of Units 175 121 127 116 124 185 136 108 103 160 134 105 85 79 Jurisdiction Yucaipa Temecula Temecula Riverside Riverside Riverside Victorville Victorville Victorville Victorville Riverside Victorville Victorville San Diego by Woodside

Completion Date Est. November, 2005 January, 2005 June, 2005 February, 2005 March, 2005 Est. December, 2005 Est. December, 2005 Est. August, 2005 April, 2005 Est. December, 2005 Est. December, 2005 Est. December, 2005 Est. December, 2005 May, 2005

WHP Terra Lago 133/Ashbrook. WHP Terra Lago 133, a California Limited Partnership ("WHP Terra Lago"), owns 40.70 gross acres of the land in Improvement Area No. 1 acquired in May, 2005, 17.60 of which are to be developed into 133 residential units arranged in three duplex building types withy several zero lot line homes on 30 lots located in Zone A of Improvement Area No. 1 and 103 lots located in Zone B. Two lots comprising 23.10 acres will not be used for residential improvements but will be developed to provide for a clubhouse and adjoining lake. Buildout for the residential units is expected to be completed in mid-2007 and shall be self-funded by Ashbrook from monies on hand and not from any loan or other funding mechanism. The property held by WHP Terra Lago is being developed by Ashbrook Development Company, Inc., doing business as Ashbrook Communities ("Ashbrook"). WHP Terra Lago is an affiliate of Ashbrook which is the homebuilder/contractor for construction of homes on the land owned by WHP Terra Lago in Improvement Area No. 1. Ashbrook has no legal or contractual obligation to contribute funds to WHP Terra Lago either to complete the project or pay Special Taxes in connection therewith. Ashbrook is a privately-held home building and land development company that was formed in April 1995 by Timothy McGowan and Richard Crook. Ashbrook Communities' recent developments

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include Buenavida in San Marcos, Saint Augustine and Santo Tomas in Rancho Mirage, Pasadera in La Quinta, Blossom Valley in Lakeside, and Murrieta in Murrieta. More information about Ashbrook can be found on the company's website, at www.ashbrookcommunities.com. This Internet address is included .for reference only, and the information on this lnternet site is not a part of this Official Statement or incorporated by reference into this O[ficial Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this Internet site. Provided below is a partial listing of regional projects and developments undertaken by Ashbrook and their principal participants within the last five years and the date of completion of those projects. Number of Units Buenavida Perris Meadows Hemet 196 Saint Augustine Pasadera Blossom Valley Santo Tomas Murrieta Desert Trace 408 177 196 137 92 44 152 289 111 Jurisdiction San Marcos Perris Hemet Rancho Mirage La Quinta Lakeside Rancho Mirage Murrieta Indio Completion Date

2003 1999 2004 2004 February 2005 2004 2006 (estimated) 2003 February 2007

MWHousing Partners llI/Lennar Corporation. Two tracts of land comprising a total of 62.70 acres located in Improvement Area No. 1 are owned by MW Housing Partners III ("MW Housing Partners") are being developed by Lennar Homes, an affiliate of Lennar Corporation, a publicly traded company listed on the New York Stock Exchange under the trading symbol "LEN". Both tracts owned by MW Housing Partners, comprising a total of 214 lots, are located in Zone A of Improvement Area No. 1 and which shall be self-funded by Lennar Homes from monies on hand and not from any loan or other funding mechanism. Lennar Corporation, together with its subsidiaries, operates primarily as a geographically diversified builder of single-family homes throughout major metropolitan markets in Arizona, California, Colorado, Florida, Illinois, Maryland, Minnesota, Nevada, New Jersey, North Carolina, South Carolina, Texas, and Virginia. Through its 68 homebuilding divisions, Lennar Corporation delivered approximately 23,899 homes in 2001, 27,393 homes in 2002 and 32,180 homes in 2003. MW Housing Partners is an affiliate of Lennar Homes which is the homebuilder/contractor for construction of homes on the land owned by MW Housing Partners in Improvement Area No. 1. Neither Lennar Homes nor Lennar Corporation have any legal or contractual obligation to contribute funds to MW Housing Partners either to complete the project or pay Special Taxes in connection therewith. Lennar Corporation is subject to the periodic reporting requirements of the Exchange Act of 1934, as amended (the "Exchange Act") and, accordingly, files periodic financial and other information with the Securities and Exchange Commission (the "Commission") on a regular basis, including but not limited to its annual report on Form 10-K and its quarterly reports on Form 10-Q. More information about Lennar Homes and Lennar Corporation can be found on the company's website, www.lennar.com. This Internet address is included for reference only, and the information on this Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this lnternet site.

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Current projects under development Project La Morada Las Plumas Sunburst Vista Serena Cala Rosa Paradiso Cordoba @ Terra Lago Marquesa @ Terra Lago Desert River Estates La Quinta del Oro La Quinta Desert Villas Esplanade Escena

by Lennar Homes include the following: Jurisdiction Coachella Coachella Indio lndio lndio Indio Indio Indio lndio La Quinta La Quinta La Quinta Palm Springs Completion 2007 2006 2005 2006 2006 2008 2008 2008 2006 2005 2008 2006 2007 Date

Number of Units 171 87 131 l 11 118 225 128 86 123 141 132 268 240

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

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

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

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

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

In recent years, citizens of a number of local communities in Southern California, including citizens of the County of Riverside, the County of Orange and the County of San Diego, have placed measures on the ballot designed to control the rate of future growth in those areas. It is possible that future initiatives could be enacted and become applicable to the development proposed to be conducted within Improvement Area No. 1 (the "'Development") and could, if applied retroactively, negatively impact the ability of the Developers to complete the proposed Development. Bondowners should assume that any event that impacts the ability to develop land in Improvement Area No. I could cause the land values within Improvement Area No. 1 to decrease and could affect the willingness and ability of the owners of land within Improvement Area No. 1 to pay the Special Taxes when due. See "SECURITY FOR THE BONDS - Appraisal." In evaluating the investment quality of the Bonds, investors should assume that the possible enactment of more restrictive land use regulations by the City or the County of Riverside, or by voter initiative presents a substantial risk to the timely construction and completion of development, except with respect to units for which building permits have already been issued and substantial work and liabilities have been incurred in good faith reliance thereon prior to the date of adoption of any such land use regulations. The failure to complete the Development as planned, or substantial delays in the completion of the Development, due to litigation or other causes may reduce the value of the property within Improvement Area No. 1, and will increase the amount of Special Taxes to be paid by the owners of undeveloped property and may affect the willingness and ability of the owners of land within Improvement Area No. 1 to pay the Special Taxes when due. Depending on the nature of the Development eventually approved and completed, the value of the land within Improvement Area No. 1 may be reduced. Failure to Develop Properties Land development operations are subject to comprehensive Federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health

34

requirements, as well as numerous other matters. There is always the possibility that such approvals will noi be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental requirements would adversely affect land development operations. In addition, there is the risk that lawsuits challenging the City's approval of the Development will be instituted. Under current California law, it is generally accepted that proposed development is not exempt from future land use regulations until building permits have been properly issued and substantial work has been performed and substantial liabilities have been incurred in good faith reliance on such permits. Development of certain portions of the land within the District is contingent upon construction or acquisition of major public improvements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, gas, telephone and electrical facilities, as well as local in-tract improvements including site grading. While certain of these improvements have been or are expected to be constructed with proceeds of the Bonds, there can be no assurance that all of these improvements will be constructed. The cost of these public and private in-tract and off-site improvements could increase the public and private debt for which the land within Improvement Area No. 1 provides security. This increased debt could reduce the willingness and/or ability of the property owners to pay the annual Special Taxes levied against their property. In addition, there is the risk that future governmental restrictions, including but not limited to, governmental policies restricting or controlling development within the District will be enacted. Should a court of competent jurisdiction determine that the vesting tentative maps do not exempt the Development from future initiatives approved by the voters or regulations adopted by the City more restrictions and requirements on development within the District could be imposed pursuant to such initiatives or regulations. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Initiatives" above. Moreover, there can be no assurance that the means and incentive to conduct land development operations within Improvement Area No. 1 will not be adversely affected by a future deterioration of the real estate market and economic conditions of future local, State and federal governmental policies relating to real estate development, the income tax treatment of real property ownership, or the national economy. A slowdown of the development process and the absorption rate could adversely affect land values and reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Bonds. Another risk to the Bondowners involves the value of undeveloped property. The inability or failure to develop property due to adverse regulatory or economic conditions may reduce the value of undeveloped property. The undeveloped property also provides less security to the Bondowners should it be necessary for the District to foreclose on undeveloped property in Improvement Area No. 1 due to the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within Improvement Area No. 1 as currently proposed will likely reduce the diversity of ownership of land within Improvement Area No. 1, making the Bondowners more dependent upon timely payment of the Special Tax levied on the undeveloped property. Because of the current concentration of ownership of the undeveloped property in the affiliated landowners, the timely payment of the Bonds depends upon the willingness and ability of the present owners of the undeveloped property to pay the Special Taxes levied on the undeveloped property when due. See "'SPECIAL RISK FACTORS - Concentration of Ownership" above. A slowdown or stoppage in the continued development of Improvement Area No. 1 could reduce the willingness and ability of such owners to make Special Tax payments on undeveloped property, and could greatly reduce the value of such property in the event it has to be foreclosed upon.

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Disclosure

to Future Homebuyers

Pursuant to Section 53328.3 of the Act, the District has recorded a Notice of Special Tax Lien in the Office of the Riverside County Recorder. The sellers of property within the District are required to give prospective buyers a Notice of Special Tax in accordance with Sections 53340.2 and 53341.5 of the Act. While title companies normally refer to the Notice of Special Tax Lien in title reports, there can be no guarantee that such reference will be made or the seller's notice given or, if made and given, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a home or commercial facility or the lending of money thereon. Failure to disclose the existence of the Special Taxes may affect the willingness and ability of future owners of land within Improvement Area No. 1 to pay the Special Taxes when due. Parity Taxes and Special Assessments The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is coequal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The Special Taxes have priority over all existing and future private liens imposed on the property. The District, however, has no control over the ability of other entities and districts to issue indebtedness secured by special taxes or assessments payable from all or a portion of the property within Improvement Area No. 1. In addition, the landowners within Improvement Area No. 1 may, without the consent or knowledge of the District, petition other public agencies to issue public indebtedness secured by special taxes or assessments. Any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes. See "SECURITY FOR THE BONDS - Direct and Overlapping Debt." Appraised Value; Land Value

The value of land within Improvement Area No. 1 is an important factor in evaluating the investment quality of the Bonds. In the event that a property owner defaults in the payment of Special Tax installments, the District's only remedy is to judicially foreclose on that property. Prospective purchasers of the Bonds should not assume that the property within Improvement Area No. 1 could be sold for the assessed or appraised value described in the Official Statement at a foreclosure sale for delinquent Special Tax installments or for an amount adequate to pay delinquent Special Tax installments. Reductions in property values within Improvement Area No. 1 due to a downturn in the economy or the real estate market, events such as earthquakes, droughts, or floods, stricter land use regulations, threatened or endangered species or other events may adversely impact the security underlying the Special Taxes. The property values set forth in the various tables herein are the property values determined by the Appraiser. The Appraisal was prepared for the purpose of estimating and confirming the minimum market value of the property in Improvement Area No. 1 as of June 17, 2005 in its as is condition on the basis of certain assumptions. Prospective purchasers of the Bonds should not assume, however, that the land within Improvement Area No. 1 could be sold for the appraised amount described herein at the present time or at a foreclosure sale for delinquent Special Taxes. See the Appraisal included as Appendix D hereto for a brief description of the analysis used and assumptions made by the Appraiser. The actual value of the property is subject to future events that might render invalid the assumptions relied upon by the Appraiser in determining the appraised value. The actual market value of the property is subject to future events such as a downturn in the economy, and occurrences of certain acts of nature, all of which could adversely impact the value of the land in Improvement Area No. 1 which is the security for the Bonds. As discussed herein, many factors

36

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

Under the Rate and Method, in Improvement Area No. 1 will be detached developed property on the Assessor's Parcel. See "APPENDIX

TAXES" and "SECURITY FOR THE BONDS - Rate and Method of Apportionment of Special Taxes." Accordingly, to the extent property is not developed, collection of the Special Taxes will be dependent on the willingness and ability of the owners of undeveloped property to pay such Special Taxes when due. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Initiatives" and "Failure to Develop Properties" above for a discussion of the risks associated with undeveloped property. The Act provides that, if any property within Improvement Area No. 1 not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by a girl or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts. MOREOVER, IF A SUBSTANTIAL PORTION OF LAND WITHIN IMPROVEMENT AREA NO. I

37

BECAME EXEMPT FROM THE SPECIAL TAX BECAUSE OF PUBLIC OWNERSHIP, OR OTHERWISE, THE MAXIMUM SPECIAL TAX WHICH COULD BE LEVIED UPON THE REMAINING ACREAGE MIGHT NOT BE SUFFICIENT TO PAY PRINCIPAL OF AND INTEREST ON THE BONDS WHEN DUE AND A DEFAULT COULD OCCUR WITH RESPECT TO THE PAYMENT OF SUCH PRINCIPAL AND INTEREST. Tax Delinquencies Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of, and interest on, the Bonds are derived, will be billed to the properties within Improvement Area No. 1 on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Special Tax installment payments cannot be made to the County Tax Collector separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and Special Tax installment payments in the future. See "SECURITY FOR THE BONDS - Reserve Fund" and "SECURITY FOR THE BONDS -

Covenant for Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the District is obligated to follow under the Fiscal Agent Agreement, in the event of delinquency in the payment of Special Tax installments. Future Indebtedness At the present time part of the land within Improvement Area No. 1 has not been improved. The cost of any additional improvements may well increase the public and private debt for which the land in Improvement Area No. I provide security, and such increased debt could reduce the ability or desire of property owners to pay the Special Taxes levied against the land in Improvement Area No. 1. In addition, in the event any additional improvements or fees are financed pursuant to the establishment of an assessment district or another district formed pursuant to the Act, any taxes or assessments levied to finance such improvements way have a lien on a parity with the lien of the Special Taxes. See "SECURITY FOR THE BONDS - Direct and Overlapping Debt." Natural Disasters The District, like all California communities, may be subject to unpredictable seismic activity, fires due to the vegetation and topography, or flooding in the event of significant rainfall. According to the seismic safety element of the City's General Plan, the City is located in a seismically active region. As a result, Improvement Area No. 1 could be impacted by a major earthquake from the numerous faults in the area. Seismic hazards encompass both potential surface rupture and ground shaking. The occurrence of seismic activity, fires or flooding in or around the District could result in substantial damage to properties in Improvement Area No. 1, which, in turn, could substantially reduce the value of such properties. As a result of the occurrence of such an event, a substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when due, and the reserve fund for the Bonds may become depleted. In addition, the value of land in Improvement Area No. 1 could be diminished in the aftermath of such natural events, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes.

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Endangered

and Threatened

Species

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

A serious risk in terms of the potential reduction in the value of a parcel within Improvement Area No. 1 is a claim with regard to a hazardous substance. In general, the owners and operators of a parcel within Improvement Area No. 1 may be required by law to remedy conditions of such parcel relating to release or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of the property whether or not the owner or operator had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the parcels within Improvement Area No. 1 be affected by a hazardous substance, will be to reduce the marketability and value of such parcel by the costs of remedying the condition, because the prospective purchaser, upon becoming the owner, will become obligated to remedy the condition just as the seller is. Further it is possible that liabilities may arise in the future with respect to any of the parcels resulting from the current existence on the parcel of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the current existence on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly affect the value of a parcel within Improvement Area No. 1 that is realizable upon a delinquency. As described in the Phase 1 Environmental Assessment, certain areas within Improvement Area No. 1 have been excavated to remove contaminated or stained soil but no remediation has been recommended and further investigation was not warranted. See "THE DEVELOPMENT -Environmental Assessment." Bankruptcy and Foreclosure

The payment of property owners' taxes and the ability of Improvement Area No. 1 to foreclose " the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings, may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the State relating to judicial foreclosure. See "SECURITY FOR THE BONDS Covenant for Superior Court Foreclosure." In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinion) will be qualified, as to the enforceability of the various legal

39

instruments, by moratorium, rights of creditors generally.

bankruptcy,

reorganization,

insolvency

or other similar laws affecting

the

In addition, bankruptcy of a property owner (or a property owner's partner or equity owner) would likely result in a delay in procuring Superior Court foreclosure proceedings unless the bankruptcy court consented to permit such foreclosure action to proceed. Such delay would increase the likelihood of a delay or default in payment of the principal of, and interest on, the Bonds and the possibility of delinquent tax installments not being paid in full. Under 11 U.S.C. Section 362(b)(18), in the event of a bankruptcy petition filed on or after October 22, 1994, the lien for ad valorem taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bondowners should be aware that the potential effect of 11 U.S.C. Section 362(b)(18) on the Special Taxes depends upon whether a court were to determine that the Special Taxes should be treated like ad vatorem taxes tbr this purpose. On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed after the filing of the bankruptcy petition were declared to be "administrative expenses" of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the property and retain all the proceeds of the sale except the amount of the pre-petition taxes. According to the court's ruling, as administrative expenses, post petition taxes would be paid, assuming that the debtor had sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise), it would at that time become subject to current ad valorem taxes. The Act provides that the Special Taxes are secured by a continuing lien which is subject to the same lien priority in the case of delinquency as ad valorem taxes. No case law exists with respect to how a bankruptcy court would treat the lien for Special Taxes levied after the filing of a petition in bankruptcy. Glasp]y_lis controlling precedent on bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Taxes, the amount of Special Taxes received from parcels whose owners declare bankruptcy could be reduced. Property Controlled by FDIC

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

40

with sound business practice arid the orderly administration of the institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent. The Policy Statement states that the FDIC generally will not pay non ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Act and a special tax formula which determines the special tax due each year, are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC's federal immunity. The FDIC has filed claims against one California county in United States Bankruptcy Court contending, among other things, that special taxes authorized under the Act are not ad valorem taxes and therefore not payable by the FDIC, and seeking a refund of any special taxes previously paid by the FDIC. The FDIC is also seeking a ruling that special taxes may not be imposed on properties while they are in FDIC receivership. The Bankruptcy Court ruled in favor of the FDIC's positions and, on August 28, 2001, the United States Court of Appeals for the Ninth Circuit affirmed the decision of the Bankruptcy Court, holding that the FDIC, as an entity of the federal government, is exempt from post-receivership special taxes levied under the Act. This is consistent with provision in the Law that the federal government is exempt from special taxes. The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to a parcel in which the FDIC has an interest, although prohibiting the lien of the FDIC to be foreclosed on at a judicial foreclosure sale would likely reduce the number of or eliminate the persons willing to purchase such a parcel at a foreclosure sale. Owners of the Bonds should assume that the District will be unable to foreclose on any parcel owned by the FDIC. Such an outcome would cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment of the Bonds. The District has not undertaken to determine whether the FDIC or any FDIC-insured lending institution currently has, or is likely to acquire, any interest in any of the parcels, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. Billing of Special Taxes A special tax formula can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in turn, along with various other factors, can lead to problems in the collection of the special tax. In some community facilities districts, taxpayers have refused to pay the special tax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by the District. Under provisions of the Act, the Special Taxes are billed to the properties within Improvement Area No. 1 which were entered on the Assessment Roll of the County Assessor by January 1 of the previous Fiscal Year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Ordinarily, these Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular

41

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

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

Within the limits of the Rate and Method, the District may adjust the Special Taxes levied on all property within Improvement Area No. 1 to provide the amount required each year to pay annual debt service on the Bonds and to replenish the Reserve Account to an amount equal to the Reserve Requirement. However, the amount of Special Taxes that may be levied against particular categories of property is subject to the maximum tax rates set forth in the applicable Rate and Method. In the event of significant Special Tax delinquencies, there is no assurance that the maximum tax rates for property in Improvement Area No. 1 would be sufficient to meet debt service obligations on the Bonds. See "SECURITY FOR THE BONDS - The Special Taxes" and "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." Exempt Properties So long as certain conditions are met, each Rate and Method provides that the District shall not levy a Special Tax on Property classified as Exempt Property. Under the Rate and Method, the Board will not levy Special Taxes on public property, Property Owner's Association property within the District or property comprising the golf course (located in Improvement Area No. 2) as well as certain other parcels specified in Improvement Area No. 2. Exempt Property status will be assigned in the chronological order in which property in the District becomes included in such categories of Exempt Property. In addition, the Act provides that properties or entities of the State, federal or local government are exempt from the Special Taxes; provided, however, the property within Improvement Area No. 1 acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Taxes, will continue to be subject to the Special Taxes. The Act further provides

42

that if property subject to the Special Taxes is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Taxes with respect to that property is to be treated as if it were a special assessment. The constitutionality and operation of these provisions of the Act have not been tested. In particular, insofar as the Act requires payment of the Special Taxes by a federal entity acquiring property within Improvement Area No. 1, it may be unconstitutional. If for any reason property within Improvement Area No. l becomes exempt from taxation by reason of its status under the Rate and Method, or by reason of its ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitation of the maximum authorized rates, the Special Taxes will be reallocated to the remaining taxable properties within Improvement Area No. 1. This would result in the owners of such property paying a greater amount of the Special Taxes and could have an adverse impact upon the timely payment of the Special Taxes. California Constitution Article XIIIC and Article XIIID

On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which articles contain a number of provisions affecting the ability of the District to levy and collect both existing and future taxes, assessments, fees and charges. According to the "Official Title and Summary" of Proposition 218 prepared by the California State Attorney General, Proposition 218 limits the "'authority of local governments to impose taxes and property-related assessments, fees and charges." On July 1, 1997 California State Senate Bill 919 ("SB 919") was signed into law. SB 919 enacted the "Proposition 218 Omnibus Implementation Act," which implements and clarifies Proposition 218 and prescribes specific procedures and parameters for local jurisdictions in complying with Articles XIIIC and XIIID. Article XIIID of the State Constitution reaffirms that the proceedings for the levy of any Special Taxes by the District under the Act must be conducted in conformity with the provisions of Section 4 of Article XIIIA. The District has completed its proceedings for the levy of Special Taxes in accordance with the provisions of Section 4 of Article XIIIA. Under Section 53358 of the California Government Code, any action or proceeding to review, set aside, void, or annul the levy of a special tax or an increase in a Special Tax (including any constitutional challenge) must be commenced within 30 days after the Special Tax is approved by the voters. Article XIIlC removes certain limitations on the initiative power in matters of local taxes, assessments, fees and charges. The Act provides for a procedure, which includes notice, hearing, protest and voting requirements, to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting a resolution to reduce the rate of any special tax if the proceeds of that tax are being utilized to retire any debt incurred pursuant to the Act unless such legislative body determines that the reduction of that tax would not interfere with the timely retirement of that debt. Although the matter is not free from doubt, it is likely that exercise by the voters of the initiative power referred to in Article XIIIC to reduce or terminate the Special Tax is subject to the same restrictions as are applicable to the Board, as the legislative body of the District, pursuant to the Act. Accordingly, although the matter is not free from doubt, it is likely that Proposition 218 has not conferred on the voters the power to repeal or reduce the Special Taxes if such repeal or reduction would interfere with the timely retirement of the Bonds. It may be possible, however, for voters or the Board, acting as the legislative body of the District, to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the Bonds.

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Proposition 218 and the implementing legislation have yet to be extensively interpreted by the courts; however, the California Court of Appeal in April 1998 upheld the constitutionality of Proposition218's balloting procedures as a condition to the validity and collectibility of local governmental assessments. A number of validation actions for and challenges to various local governmental taxes, fees and assessments have been filed in Superior Court throughout the State, which could result in additional interpretations of Proposition 218. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and the outcome of such determination cannot be predicted at this time with any certainty. Ballot Initiatives and Legislative Measures

Proposition 218 was adopted pursuant to a measure qualified for the ballot pursuant to California's constitutional initiative process; and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the Legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the District or other local districts to increase revenues or to increase appropriations or on the ability of a landowner to complete the development of property. See "SPECIAL RISK FACTORS - Future Land Use Regulations and Growth Control Initiatives" above. No Acceleration The Bonds do not contain a provision allowing for their acceleration in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement or upon any adverse change in the tax status of interest on the Bonds. There is no provision in the Act or the Fiscal Agent Agreement for acceleration of the Special Taxes in the event of a payment default by an owner of a parcel within Improvement Area No. 1. Pursuant to the Fiscal Agent Agreement, a Bond Owner is given the right for the equal benefit and protection of all Bond Owners to pursue certain remedies described in "APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT." Loss of Tax Exemption As discussed under the caption "CONCLUDING INFORMATION - Tax Exemption," in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the District has covenanted in the Fiscal Agent Agreement not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Internal Revenue Code of 1986, as amended. Interest on the Bonds could become includable in gross income for purposes of Federal income taxation retroactive to the date the Bonds were issued, as a result of acts or omissions of the City or the District in violation of the Code. Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the optional redemption or mandatory sinking fund redemption provisions of the Fiscal Agent Agreement. Limitations on Remedies

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

44

discretion. Additionally, the Bonds are not subject to accelcration in the event of the breach of any covenant or duty under the Fiscal Agent Agreement. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Bond Owners. Enforceability of the rights and remedies of the Bond Owners, and the obligations incurred by the District, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor's rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against joint powers authorities in the State. See "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure." Limited Secondary Market As stated herein, investment in the Bonds poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risk of investment in the Bonds should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Bonds or, if a secondary market exists, that the Bonds can or could be sold for any particular price. No application has been made for a credit rating for the Bonds, and it is not known whether a credit rating could be secured either now or in the future for the Bonds.

CONCLUDING Underwriting

INFORMATION

The Underwriter purchased the Bonds at a purchase price of $25,824,283, representing the principal amount of the Bonds less an Underwriter's discount of $434,445.00 and less Net Original Issue Discount of $71,272.00. The Underwriter intends to offer the Bonds to the public initially at the prices set forth on the inside cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers. Legal Opinion The legal opinion ofFulbright & Jaworski L.L.P., Los Angeles, California, approving the validity of the Bonds, in substantially the form set forth in APPENDIX F hereto, will be made available to purchasers of the Bonds at the time of original delivery. A copy of the legal opinion for the Bonds will be provided with each definitive bond. Bond Counsel has not undertaken on behalf of the Owners or the Beneficial Owners of the Bonds to review the Official Statement and assumes no responsibility to such Owners and Beneficial Owners for the accuracy of the information contained herein. Certain legal matters will be passed upon for the City by the City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, Disclosure Counsel to the City with respect to the issuance of the Bonds. Jones Hall, A Professional Law Corporation, San Francisco, California, has acted as counsel to the Underwriter.

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Tax Exemption The Internal Revenue Code of 1986 (the "Code"), imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to maintain the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In the opinion of Fulbright & Jaworski L.L.P., Bond Counsel, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Bond Counsel is also of the opinion that, assuming compliance with the aforementioned covenant, the Bonds are not "specified private activity bonds" within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on the Bonds owned by a corporation may affect the computation of its alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)). To the extent that a purchaser of a Bond acquires that Bond at a price that exceeds the aggregate amount of payments (other than payments of qualified stated interest within the meaning of section 1.1273-1 of the Treasury Regulations) to be made on the Bonds (determined, in the case of a callable Bond, under the assumption described below), such excess will constitute "bond premium" under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt obligation must be amortized on a constant yield, economic accrual, basis; the amount of premium so amortized will reduce the owner's basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. In the case of a purchase of a Bond that is callable, the determination whether there is amortizable bond premium, and the computation of the accrual of that premium, must be made under the assumption that the Bond will be called on the redemption date that would minimize the purchaser's yield on the Bond (or that the Bond will not be called prior to maturity if that would minimize the purchaser's yield). The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when a Bond owned by such owner is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Bond to the owner. The excess, if any, of the stated redemption price at maturity of Bonds of a maturity over the initial offering price to the public of the Bonds of that maturity set forth on the cover of this Official Statement is "original issue discount" under the Code. Such original issue discount accruing on a Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and exempt from California personal income tax to the same extent as would be stated interest on the Bond. Original issue discount on any Bond purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Bond accruing during each period is added to the adjusted basis of such Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Bond. The Code includes certain provisions relating to the accrual of original issue discount in the

46

case of purchasers of Bonds who purchase to the initial offering.

such Bonds other than at the initial offering price and pursuant

Any person considering purchasing a Bond at a price that includes bond premium should consult his or her own tax advisors with respect to the amortization and treatment of such bond premium, including, but not limited to, the calculation of gain or loss upon the sale, redemption or other disposition of the Bond. Any person considering purchasing a Bond of a maturity having original issue discount should consult his or her own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering and at the original offering price, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the ownership of the Bonds. No assurance can be given that future legislation, or amendments to the Code, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of interest on the Bonds from personal income taxation by the State of California or of the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Furthermore, Bond Counsel expresses no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of bond counsel if such advice or approval is given by counsel other than Bond Counsel. Although Bond Counsel is of the opinion that interest on the Bonds is exempt from state personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner's federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Bonds. The nature and extent of these other tax consequences will depend upon the owner's other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds or, in the case of a financial institution, that portion of an owner's interest expense allocated to interest on the Bonds, (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the Bonds, (iii) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Bonds, may be subject to federal income taxation under section 1375 of the Code for Subehapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Bonds and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel has expressed no opinion regarding any such other tax consequences. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City and the District described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the District as the "taxpayer,"

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and the Owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the District may have different or conflicting interest from the Owners. Further, the disclosure of the initiation of an audit may adversely affect the market price of the Bonds, regardless of the final disposition of the audit. No Litigation A certificate of the District to the effect that no litigation is pending or threatened concerning the validity of the Bonds will be furnished to the Underwriter at the time of the original delivery of the Bonds. Neither the City nor the District are aware of any litigation pending or threatened which questions the existence of the District or the City or contests the authority of the District to levy and collect the Special Taxes or to issue the Bonds. No Rating on the Bonds The Bonds are not rated and the District does not anticipate Miscellaneous All of the preceding summaries of the Fiscal Agent Agreement, other applicable legislation, agreements and other documents are made subject to the provisions of such documents and do not purport to be complete documents of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. This Official Statement does not constitute a contract with the purchasers of the Bonds. or of estimates, of fact, and no applying for a rating on the Bonds.

Any statements made in this Official Statement involving matters of opinion whether or not so expressly stated, are set forth as such and not as representations representation is made that any of the estimates will be realized.

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The City Council of the City of Indio has duly authorized dclivcr this Official Statement on behalf of the District.

the City Manager

to execute

and

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

FACILITIES

DISTRICT

By

/s/Glenn

Southard

City Manager of the City of lndio on behalf of the City of Indio Community Facilities District No. 2004-3 (Terra Lago)

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[THIS PAGE INTENTIONALLY

LEFT BLANK]

APPENDIX RATE AND METHOD

A OF SPECIAL TAXES

OF APPORTIONMENT

A-I

[THIS PAGE INTENTIONALLY

LEFT BLANK]

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO) CITY OF INDIO, CALIFORNIA A Special Tax (all capitalized terms are defmed m Section A., Definitions below) shall be applicable to each Parcel of Taxable Property located within the boundaries of Community Facilities District No. 2004-3 (TERRA LAGO). The amtmm of Special Tax to be levied m each Improvement Area m each Fiscal Year, commencing in Fiscal Year 2005-2006 on a Parcel shall be determined by the City Council of The City of Indio, acting in its capacity as the legislative body of the CFD by applying the appropriate Special Tax for Developed Property, Undeveloped Property and Public Property and/or Property Owner's Association Property that is not Exempt Property as set fot*_h in Sections B., C., ari.dD., below. All of the real property within the CFD, unless exempted by law or by the provisions h_reof in Section E., shall be taxed for the purposes, to the extent and m the manner hen:in provided. A. DEFINITION 8 "l_he terms h_cinaftei set forth have the following meanings: "Acre or Acreage" means the aoeage of a Parcel as indicated ml the most recent Assessor's Parcel Map, or if the land area is not shown on the Assessor's Prate1 Map, the land area shown on the applicable Final Map, parcel map, condomim'um plan, ca other similar instrument. "Aef' means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part I of Division 2 of Title 5 of the California Government Code of the State of California. "Administrative Expenses" means all actual or reasonably estimated costs and expenses of the District that are chargeable or allocable to the applicable Improvement Area to carry out its duties as the administrator of the CFD as allowed by the Act, which shall include without limitation, all costs and expenses arising out of or resulting from the annual levy and collection of the Special Tax, trust fees, rebate complimme calculation fees, and leg-,d issues, or actual, potential or threatened litigation involving the CFD, continuing disclosure undertakings of the District as imposed by applicable laws and regulations, cotrmJunication with bondholders and normal administrative expenses. "Administrator" means aa official of the District, or designee thereof, respomible for determining the levy and collection of the Special Taxes. "Assessor's Parcel Map" meam an official map of the Assessor of Lhe County of Riverside designating parcels by Assessor's Parcel number. "Assigned Special 'Fax" means the Special Tax for each Land Use Category of Developed Property, as detenninod in accordam, with Sc.ctiot_C.l.a., below.
City of Indio Comm_aity Facilities Dbttict No. 2004-3 (Terra Lag,o) Augest 17, 2005 Page 1

"Backup Special Tax" means the Special Tax of that name described in Section E below. "Bonds" means any bonds or other mdebteclncss (as defined in the Act) issued by an Improvement Area of the CFD and scouted by the levy of Spoci',d Taxes within such Improvement Area. "Boundary Map" means a map showing the territory area within the boundaries of CFD 2004-3 identified on EXHIBIT "'A" "CFD" means Commtmity Facilities District No. 2004-3 (TERRA LAGO) of the District established pursuantto the Act. "Council" means The City of lndio City Council "County" means the County of Riverside. "Developed Property" means all Parcels of Taxable Property, not classified as Undeveloped Property, Public Property and/or Property Owner's Assoeialion Property that are not Exempt Property pursuant to the provisions of S_'tion E. below: (i) that arc included in a Final Map that was recorded prior to ;lanuaty 1't preceding the Fiscal Year in which the Special Tax is being levied and (ii) a building permit for new construction has been issued prior to April 1 *t preceding the Fiscal Year in which the Special Tax is being levied, 'Exempt lh-operty" means any Parcel, which is exempt from Special Taxes pursuant to Section E., below. "Final Map" means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of a condominium plan pursuant to C.alLfomia Civil Code 1352 that creat_ individual lots for which building permits may be issued without further subdivision. "F'meal Year" means the period starting on July I and ending on the following June 30. "Improvement Area(s_" means Improvement Area I, Zone A or Zone B or Improvement Area 2, Zone A or Zone B as geographically identified on EXHIBIT "B". "Improvement Area 1, Zone A" means the specific area identified on EXHIBIT "B" as Imp, ovement Area 1, Zone A of the CFD. "Improvement Area 1, Zone B" means the specific area identified on EXHIBIT "13" as Improverneat Area 1, Zone B of the CFD. "Improvement Area 2, Zone A" means the specific area identified on EXHIBIT "B'" as Improvement Area 2, Zone A of the.CFD. "Improvement Area 2, Zone B" means the specific area identified ore EXHIBIT "B" as Improvement Area 2. Zone B of the CFD,
City of Indio August 17, 2005

Community FacifitiesDistri_a No. 2004-.3 (TerraLago)

Page2

"Indenture" means the bond indenture, fiscal agent agreement, trust agreement, resolution or othe_ instrument pursuant to which Bondg are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or suppleanenting the same. "Land Use Category" means any of the categories listed in Tables I, 2, 3, 4 and 5. "Maximum Special Tax" means the maximum Special Tax, detexrmned in accordance with Section C., which can be levied in any Fiscal Year on any Parcel. "Mdtifamily Residential Property" means any Parcel of Developed Property thai consists of a building or buildings comprised or attached residential ,mits available for rental by the general public, or for sale to an end user, and may be reader common management. "Non-Residential Property" means all Parcels of Developed Property for which a building permit was issued for any type of non-residential use. "Parcel(s)" moans a lot or parcel shown on an Assessor's Parcel Map with an assigned parcel number valid at the time the Special Tax is carolled for the Fiscal Year fox which the Speuial Tax is being levied. "Property Owner's Association Property" means any Parcel within the boundary of the CFD, which, at the time the Special Tax is chilled for the Fiscal Year for which the Special Tax is being levied has been conveyed, dedicated to, or irrevocably dediealed to a property owner association, including any master or sub-association. "Proportionately" means tbr (i) Developed Property that the ratio of the actual Special Tax levy to the Assigned Sp_ial Tax is the same for all Parcels of Developexi Property, and Undeveloped Property, Public Property and/or Property Owner's Association Property thai Js not Exe_apt Property pursuant to Section E,, that the ratio of the actual Special Tax levy per aca_ to the Maximum Special Tax per acre is the same for all such Pmcels. "Public Prol_erty" means any Pa_c_i within the bolmdary of the CFI) which, at the time the Special 'l'ax is enrolled for the Fiscal Year for which the Sl_r.eial Tax is being levied, is used for rights-of-way or any other purpose and is owned by, dedicated to, or inevocably offered for dedication to the Federal Govertmmnt, the State of California, the County, City or rely other local jttrisdietion, provided, however, that any ptopcxty leased by a public agency to a private entity and subject to taxation under Section 53340.1 of the Act shall be taxed and clae_ifled according to its use. "Residential Floor Area" means all of the square footage of living area of" a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio or similar area on a Parcel. The determination of Residential Floor Area shall be made by reference to the building permit(a) fox the Parcel or similar official do_atmen! means selected by the Administrator. Once such determination has been made for a Parcel. it shall remain fixed in all future Fiscal Years. "Residential Prol_rty" means all Parcels of Developed Property for which a building August17,201_5 Page3

Cityof/a_lio Community FacilitiesDistrictNo.2004-3{Terra Lago)

permit has been issued for purposes of constructing one or more residential dwelling units. "Single Family Property" means all Parcels of Residc_ntial Property, other than Multifamily Residential Property, for which building permits have been issued for detached or attached residential units. "Special Ta_(_)" Taxable Property, meam the spe_ia! tax to be levied in each Fiscat Year on each Parcel of

"Special Tax Requirement(s)" means that amoum required in any Fiscal Year to pay for Special Tax Re_quJ.reme_at for Imp.rovement Area 1, Zone A or Zone B, or for Special Tax Requirement for lauprovement Area 2, Zone A or Zone B. "Special Tax Requirement for Improvement Area 1" means that amount required in any Fiscal .Year within Improvement Area 1 of the CFD to pay: (i) annual debt service on all outstanding Bonds due in the calendar year which onune_lces in such Fiscal Year;, (ii) periodic costs on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds; (iii) Administrative Expenses; (iv) an amount equal Io any auticipated shortfall due to Special Tax delinquency in theprio_ Fiscal Ye_; and (v) any mounts required to establish or repleafish any reserve funds for the outstanding Bonds; less (vi) a credit for funds available to reduce the annual Special Tax levy as determined ptwsuanl to the Indenture. "Special Tax Requirement for Improvement Area 2" means that amount requ/.redin any Fiscal Year within Improvenmut Area 2 of the CFD to pay: (i) annual debt service on all outstanding Bonds due in the calendar year which commences in such Fiscal Year; (ii) periodic costs on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds; (iii) Administrative F, xpenscs; (iv) an amount equal to any anticipated shortfall due to Special Tax delinquency in tbc prior Fiscal Year; and (v) any amounts required to establish or replenish any reserve funds for the outstanding Bonds; I_,s (vi) a credit for funds available to reduce the annual Special Ta_, levy as determineat pursuant to the Indenture. 'Waxable Prol_rty s' means all Parcels in an Improvement Area which have not prepaid pursuant to Section H., ot are not exempt from O_o Spex.'ial Tax pursuant to law or Section E., below. "Undeveloped Property" means all Taxable Propexty trot classified as Developed Property, Public property and/or Property Owner's Association Property that is riot Exempt Property pursuant to the provisions of Section iL

,p i

City of ladio CommuaRy Facilities District No. 2004-3 (l'en'a Lago)

Aught 17, 2005 Page 4

A. ASSIGNMENT TO LAND USE _ATEG_O_RY Each Fiscal Year, commencing with the 2005-2006 Fiscal Year, all Parcels of Taxable Property within the CFD shall be categorized into the applicable Improvement Area and classified as either Developed Property, Undeveloped Property, Public Property and/oF l_operty Owner's Association Property that is not Exempt Property pursuant to the provisions in Section E., and shall be subject to the levy of Special Taxes m accordance with this Rate and Method of Apportionment as determined pursuant to Sections C., and D,, below. Parcels of Developed Property shall fisher be classified as Residential Property or NonResidential Property. A Parcel of Residential Property shall further be classified as Single Family Property or Multi family Residential Property. Single Family Property shall be further categorized based on the Residential Floor Area for such Parcel. C. MAXIMUM SPECIA L TAX RATE 1. Developed Property The Maximum Special "lax for each Parcel of Single Family Property within its applicable Improvement Area shall be the applicable Assigned Special Tax described in Table l, 2, 3, or 4. The Maximum Special Tax foreach Parcet of Non-Residentia Pl roperty withinits applicable Improvement Areashall be theAssigned Special Tax described inTableI,2, 3 or4. a. As,simaed Special Tax The Assigoed Special Tax for each Parcel of Developed applicable Impxovement Area is shown in Table 1, 2, 3, or 4. Property within its

=J_

City of _dio Cotmnunity Facilitie_ District No. 2004-3(Terra Lago)

Augnst17.2005 Page5

TABLE 1 Assigned Special Taxes for Property within Im _rovement Area 1, Zone A
. , ,... ; ...::_l_," ; _ _, '_ , -. :v. :....c_, c c_, _ _ ._-_..... -.:..:v..._'. _ _ I. _ _ ":_-_'_'_"'_;)_':'.;';!9!:,l:i_!!:"'.:!._!

...... ,," :_.... ,..i.:'-..,.'..,,_ ., :_ ..........

:.=..:_. ,., },l

,:,_ii;::i" i::::'i"ii_."' ' .'

Single Single Single Single

Single

Family Famil_ Family Family

Property ,.Prope_ Property Property,

I' [

III I[

Fa11_ily Pl__Opl_y

Single Famil 7 Property _S.ingleFamil]/Property Single Family Property SingleF .a_ailyPrope_ !Single Family Property Single Family, Property Single Family Property Single Family Pr0perty !Shtsle Family Property , [S__gle Family Property [Multi.Family Property Non Residential Property

,, DU DU DU . DU DU DU .D.U DU i DU DU DU DU DU DO DU Aere ... Acre

Less than 1,501 SF 1,501 SF to 1,625 SI_'* 1,626 SF to 1,750 SF 1,751SF to 1,900 SF 1,901 SF to ,,1,950 SF 1,951 SF to 2,100 SF 2,101 SFto2,150SF . 2,151 SF to 2,250 SF 2,25I 2,301 2,401 2,501 SFto 2,300SF SF to 2,400 SI_" SF to 2,500 SF SF to 2,550 SF

$1,828.87 $2,028.55 $2,228.22 $2,467.83 , $2,547.70. $2,605.98 $2,681_53 $2,832.63 $2,908.19 $3,059.29 $3,102.46 $3,175.86 $3,249.25 $3,616.22 $4,O56.57 $20,460.00 $2_0,..460..00

Ii

27551,SF to2,600SF 2,60!'SF to 2,850 SF Over 2,850 SF NIA N/A

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

City of lrtdio Community Facilities Di,st_ict No. 2004-3 gl'erra Lago)

August 17. _05Page 6

TABLE 2 Assigned Special Taxes for ProI_rty within

.... ...... _ ..........

,_ _.: .'........._'_":. ' ........ ..... ......... _... .....

_ ...... ._:_..... ,_: _,

, _ollll_/,1 !!1 i_:_._"_'" _i

_'_"_.. ...... ,..... : _

'"

"'_'_"_'_""_'_' '_ "'""

SingleFamily Prol_rty ......... DU Less than 1,501 SF Single Family Property DU 1,50.1 SF to 1,625 SF Single Family Property DU i!,626 SF _ 1,750 SF iSingle Family Property DU ii,751 SF to 1 _900 SF :Sin#e Family Propert)_ DU i!,901 SF to 1,950 SF ISin_le Family Propert)_ DU !I,951 SF to 2,100 SF !Single Family Property .......... DU !2,101 SF to 2,150 SF iSingleFamily.Property DU 12_lS!..SFto 2,250SF Single Family _perty ..... DU 2,251 SF to 2,300 SF .... Single Family Prop_y DU Over 2,300 SF Multi Family Property Acre .... N/A Non Residct_tial Property Acre I_..A ......

$2,519.63 $2,719.31 $2,918.98 $3,158.59 $3,238.46 $3,372.29 $3,469.43 $3,523,39 $3,771,64 $3,965_91 $20,460.00 $20,460.09

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

TABLE, 3 Assigned Special Taxes for Property within lmlZ_ovementAr_ 2, Zone A

......

"!!'_':._::':'::i'.._,,':"" '. '.'_':" . '

.. ,. *.t.* -- .

,:_: '

_'_

_.

:._ _ s_"

_,_

_'-'"_ ,,.'._,,,,, _:.:,,u._:_ ur:,_ H t "

t _ I t_ T: _

_,_

.n,

_.

'_

|_

_,_,

:,

_,_s .. _:_ _.._ _:,_

_ =_ '---_'. .... :'" _:'.:

L_'t_._ " .::..

:_:.:.:..

.-..............

_ ,_ :.

:: ::;_:'::' .%x:'1_L 2.

_tt

U{It*LI'.'._'.%_2:':*'%;t:X_%::::X_ ::1:."

'

........
......... ' " :_l |_v": ........ _"

_'"
_:'" i_....

I
'"|_":_.

"_' '>_I Ib|_tl_l_r;i_tF.'_ q:.

_........ 'i!{ :_._. _" _ _'_'__P.'_

_'---' _'..:,_ _._,_

_(" _

_ :,._-:.'.'.-,'.-'_'._'-.;.._'_DI) "_'_,:._k2::_ ''_'. itS 'e >,_ :,.._ "

:_.i _ _'--,"

' _:_:"_:--_;"*'

_ _"__l_ _H': :_ '_@:.'/'"_'_:_..7..'.,

;ingle Family Property ;in#e Family Property Sirtgle Family Propert_ Single.Family' _y ........... Multi FmnilyProPerty Non Residen tial Propmy -7" I .....
._., _ i .72

..,.1_. ss than 1, ,501 SF __DU ! ,501 SF to 2,000 S.F.. DO 12_001SF to 2,500 SF I) U iOver 2,500 SF Acre .N./A.. ....... .... Acre _ N / A I I ,
...... tel ii

$1,677.77 $2,4,11.70 $3,162.90 $3,905.47 $22,304._ $22,304'00

On each July 1, commencing on July ], 2007, for a period of five O) y_ars, until July 1, 2012, the Assigned Special Ta;_ shall be increased by ooe percent (1.00%) of the amou,qt in effect in the prior Fiscal Year.
.__ itl

Cityof Indio Commanity FacilitiesDistrict No.200-3(Terra I.ago)

August17,21305 Page '7

TABLE 4 Assigned Special Taxes fox Property within Improvement Area 2, Zone B

I
"::

' _ IIIiI,.,,,. ,,,......_-_ :..,_,,.,._ !t1111t1111il : ..,ill_Tr _.' ._:: ',::,;,ll!,lll_tl_it_:.:.' .... ......... <' .......I .................. >l ill,l,t . ,,,:< ........ ............... " .... ........ ............. ":_lllI_l"II lll.r i II _,ll ...... _ t.. I Illl_l_lllll_il;lllll,'_l_" l!htfb" :'_""""': /.._':"_::.--"::".r:':"=-::_;r,;;_l; ' _!I I.._"f,:,l_ ' t i '_ .... _ :_!_i
,:.. =. I . I I .
{:,.-<'::;"L:'._" b. IIl_'t _:. If I]:t: _:'"') IIlillll$11 ' "i_1 "_" . II$1 _'_ ly.lt; :_:1_3")1;_ _111 iiIIII I lit i . 11 J'."l

Single FamilyPropext_ Single Family Property .... . Stngle,,Family Propet_ ... Single F_y Property ........ Multi Family Property Non Residentild Propp_y ....... I

DU DU_. DO i_U Acre Acre

Less than 2t001_SF 2,001 SF to 2,500 SF 2,501 SF to 3,000 SF Over 3,000 SF N/A '.- '..... N/A..

$3,154.9-7 $3,905A7 $4,648.04 $4,665.31 $22.304.00 $22,304.00

On each July 1, commcaxcing on $uly 1, 2007, for a p_riod of five (5) years, until ffuly 1, 2012, the Assigned Special Tax shah ix: increased by one percent (1.00%) of the amomit in _fect in the prior Fiscal Year.

1. Undeveloped Property The Maximtml Special Tax for each Parcel of Undeveloped Improvement Area is shown in Table 5 below. Prol_m_ within each

T aL $
Undeveloped Property Maximum SI_ial
.... . ' .

Tax Rate

........!_%ii .if"'ii::f:._.i="'"i_ f" "_t'.=:.:: ::::' :. :_:'_.'i" : il .......... :'._'-:::'.:)'.7_i ........ <i"_='_i{_{_:_'".'"!' ', ........................... I"'_ L ........... .......... _X tlfltXk,-..=... ..... _ d_:T :..c.':.': .::: :, .:_ ,}:I_ .'.IF':'l!X,_,_htg': ' .'_.'.'i-f,_'_,'e , . + =i;_i_'"_ . . ...... _.._t,_ou_ ,,t?l_,_:l#l.t.:._9 .._i..tm . ,

I - O.adcv._.loi_ Pt dolemy.
2 Ul'l.devlcJo _1_ Property .

Acre
__

$20,460.00
Yg22,304.l'i0

On each July 1, oomxlleaLcing Oil July I, 2007, for a pcriod of five (5) years, until July 1, 2012, the Maximum Special Tax shall be increased by one percent (1.00%) of the afflot_t in effect, in the pri_ Fiscal Year.

2. Public l_roperty and/or Property Owner's Association Property that is not Exempt Property pursuant to the provisions of Section E. The Maximum Special Tax for each Parcel of Public Property and/or Property Owners
City oF I.mlio Coramtmity Facilities District No. 2004-_ (Terra/..ago) August 17, 2005 Page 8

Association Property that is not Exempt Property pursuant to the provisions of Section E.. within each Improvement Area shall be the applicable Undeveloped Property Maximum Special Tax 1"atepet Acre m Table 5. D. METHOD .QF APPORTIONMENT OF THE SPECIAL TAX

Commencing with Fiscal Year 2005-2006 and for each following Fiscal Year, the Council shall levy the Special Tax on all Taxable Properly in each Improvement Area until the amotmt of Special Taxes equals the applicable Special Tax Requirement for each Improvement Area m accordance with the following steps:

1. Improvement Area 1 _: The Special Ta_ shall be levied on each Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax rate as needed to satisfy the Special Tax Requirement for Improvement Area 1, Zone A and Zone B. Second: If addRional moneys are needed to satisfy the Special Tax Requirement for Improvement Area 1, Zone A and Zone B, after the frrst step has been completed, the Special Tax shall be levied l_oportionately on each Parcel of Undeveloped Property within Improvement Area 1, Zone A and Zone B at irp to 100% of the Maximum Special Tax for Undeveloped Property, Third: If additional moneys are needed to satisfy the Sp_'ial Tax Requirement after the first two steps have been completed, then for each Assessor's Parcel of Developed Property whose Assigned Special Tax is the Backup Special Tax shall be increased Proportionately from the AssJ}_ed Special Tax up m 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement. 2. Improvement Area 2

Fir.....g" _: llxe Special Tax shall be levied on each Parcel of Developed Property at up to 100% of file applicable Assigned Special Tax rate as needed to satisfy the Special Ta_ Requirement for Improvement Area 2, Zone A and Zone B. S_on__..__. If dd: additional moneys are needed to satisfy the Special Tax Reqairemeaat for Improvement Area 2, Zone A and Zone B, after the f'ttst step has beta completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property within Improvement Area 2, Zone A and Zone B at up to 100% of the Maximum Special Tax for Undeveloped Property; Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then for each A_essor's Part.,el of Developed Property whose Assigned Special Tax is the Backup Slxx,'ial Tax shall be increased Proportionately from the Assigned Special Tax up to 100% of the Backup Special Tax as needed to satisfy the Special Tax Requirement. City of Indio CommuaityFacilitiesDistrictNo.2004-3(TerraLago) August17,2005 Page 9

Notwithstanding the above, under no circumstances will the Special Taxes levied against any Parcel of Residential Property within au Improvement Area be increased by rnor_ than ten percent (10%) per Fiscal Year as a consequence of delinquency or d_fault by the owner of any other Pared within all Improvement Area of the CFD. E. BA_ _KUI_, SPECIAL TAXES Each Fiscal Year, each Assessor's Parcel of Developed Property classified as Residential Property shall be subject to a Backup Special Tax. In each Fiscal Year. the Backup Special Tax rate for Developed Property classified as Residential Property within a Final Map shall be the rate per Lot calcutated according to the following formula: RxA L The terms above have the following meanings: B -- Backup Special Tax per Lot in each Fiscal Year g "- Maximum Special Tax rate per Acrefor Undeveloped Property for the applicable Fiscal Year A = Acreage of Developed Property classified or to be classified as Residential Property in such Final Map L = Lots in the Final Map which are classified or to be classified as Residential Property

Notwithstanding the foregoing, if all or may9ortion of the Final Map(s) deserihext in the preceding paragraph is subsequently changed or modified, then the Backup Special Tax for each Assessor's Parcel of Developcgl Property classified or to be classified as Residential Property in such Final Map Area that is changed or modified shall be a rareper sq_lare foot of Acreage calculated as follows: !. Determine the total Backup Special Tax anticipated to apply tO the changed at modified Final Maps

2. The result of paragraph 1 above shall be divided by the Acreage of Developed Property classified or to be classified as Residential Property which is ultimatdy expected to exist in such changed or mtxtified Final Map Area, as reasonably determined by the City. 3. The result of paxagraph 2 above shall be divided by 43,560. The result is the Backalp Special Tax per square foot of Acreage which shall be applicable to Assessor's Parcels of Developed Property classified as Residential propm'ty in such changed or modified Final Map Area for all remaining Fiscal Years in which the Special Tax may be levied. F. EXEMIrl'ION8
City of India Commun/ty Facilitlcs District No. 2004-3 (Terra Lago) August 17, 2005 Page IO

The Council shall not levy Special Taxes on Public Property, Property Owner's A._ociation Property or Golf Course Property within each Improvement Area or Rivexside County Assessor Paz_l Numbers 601-150-024 and 601-270-018 located within Improvement Area 2 of the CFD. Exempt Property status will be assigned by the Administrator in the chronological order in which property becomes Public Property, Property Owner's Association Property or Golf Course Property. G. MANNER OF COLLECTION The Special Tax shall be collected in the same manner and at the same time as ordinary at/ valorem property taxes and shall be subject to the same penalties, the _rne procedure, sale and lien priority in the case of delinquency; p_ovided, however, that the Administrator may directly bill the Special Tax, may collect Special Taxes at a differeat time or in a diffemnl manner ff necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on Parcels having delinquent Special Taxes a.s permitted by the Act if necessary to meet the financial obligations of the CFD. IL APPEALS Any taxpayer may file a written appeal of the Special Tax on hi._aer Parcel(s) with t.be Administrator, provided that the appellant is currem in hisPaer payments of Special Taxes. Dm-Lng pendency of an appeal, all Special Taxes previously levied must be paid on or before the payment date established when the levy was made, The appeal mum specify the reasons why the appellant claims the Special Tax is in error. The Administrator shag review the appeal, meet with the appellant ff the Administrator deems necessary, and advise the appellant of its determination. If the Administrator agrees with the appellant, the Administrator shall graat a credit to eliminate or reduce future Special Taxes on the appellanl's Parcel(s). No refunds of lxeviously paid Special Taxes shall be made. The Administrator shall interpret this Rate and Method of Appoxtionment and make determinations relative to the anaual levy and administration of the Special Tax and any taxpayer who appeals, as herein specified. I. _REPAYMI_NT O.FSPECIAL TAX The following definitions apply to this Section H: "Outstanding Bonds" means all previously issued boDds issued a_d seoaed by the levy of Special Taxes, whicb wi]l remain outstanding after the furst intezest and/or principal payment date following the cament Fiscal Year, excluding bonds to be redeemed at a later date with the proce..e.ds of prior prepayments of Maximum Special Taxes. i. Prepayment in Full

The Maximum Special Tax obligation may only be prepaid ",rodpemtaaently satisfied by a Parcel of Developed Property, and/or Undeveloped Property for which a building permit has been issued, and Public Property and/or Property Owner's.Association Propertt yhat is not Exempt Prolxa'ty pursuant to SectiOn E. The Maximum Special Tax obligation applicable to city oflndio Commlmity Facilities DistrictNo. 2004-3(l'erta Lago) August17,2005 Page 11

such Parcel may be fully prepaid and the obligation of the Parcel to pay the Special Tax permancndy satisfied as described herein; provided that a prepayment may be made only if there are no delinquent Special Taxes with respect to such Parcel at the time of prepayment. An owner of a Parcel intending to prepay the Maximum Special Tax obligation shall provide the Administrator with w_tten notice of intent to prepay, and within 5 business days of receipt of such notice, the Administrator shall notify such owner of the amount of the non-r_undable deposit determined to cover the costto be incurred by the CFD m calculating theproper amount of a prepayment. Within15 daysof receipt of suchnonrefundable deposit th , eAdministrato sh rall notify suchowner of theprepayment amountof such Parcel. Prepayment must be made not less than 60 days prior to any redemption date for any Bonds to be redeemed with the proceeds of such prepaid Special Taxes. The Prepayment Amount (dcfmexi below') shall be calculated (capitalized terms as defined below):. Bond Rexlcmption Amount plus Redemption Premium plus Defeasance Amount plus Administrative Fees and Expense_ less Reserve Fund Credit Total: equals Prepayment Amount As of the proposed date of prepayment, the Prepayment Amount (defined bdow) shall be calculated as follows: as summarized below

1. 2.

Confirm that no Special Tax delinquencies apply to such Parcel. For Parcels of Developed Property, compute the Maximuni Special Tax for the Parcel to be prepaid. For Parcels of Undeveloped Property to be prepaid, compute the Maximtlm Special Tax for that Parcel as though itwas akeady designzXcd as Dcvclope.d Plol_tty , based upon the braiding permit which tins arcady bccn Lssucd for that Parcel. For Parcels of Public Property and/or Property Owner's Association Property to be prepaid, compute the Maximum Special Tax for that Parcel. Divide the Maximum Special Tax computed pttrsuam to paragraph 2 by the total estimated Maximum Special Taxes based on the Developed Property Special Tax which could be charged, less any Parcels which have been prepaid. Multiply the quotient computed pursuant to paragraph 3 by the Outstanding Bouds to compute the amotmt of Outstanding Bonds to be retired and prepaid (the "Bond Redemption Amount"). Multiply the Bond Redemption Amount computed pursuant to paragraph 4 by the applicable redemption premium, ff any, on the Outstanding Bonds to bc tedecmed (the "'Redemption Premium"). Compute the amount rteeded to pay interest on the Bond Redemption Amount from August17, 2005 Page12

3.

4.

5.

6.

City of Imlio Community Facilities Distri_N t o, 2004-3(Terra Lago)

the first bond iJlterest and/or principal payment date following the current Fiscal Year until the earliest redemption date for the Outstanding Bonds, 7. Determine tile Special Taxes levied on the Parcel in the om'ent Fiscal Year which have not yet been paid. Compute the amount the Administrator reasonably expects to derive from the remvestnltmt of the Prepayment Amount less the Administrative Fees and Expenses from the date of prepayment until the redemption date for the Outstanding Bonds to be redeemed with the prepayment. Add the amounts computed pursuant to paragraphs 6 and 7 and subtract the amount compmed pursuant to paragraph 8 (the "'Defeasance Amount"). Verify the administrative fees and expertses, including the costs of computation of the prepayment, the costs to invest the prepaym_t proceeds, the costs of redeeming the Outstanding Bonds, and the costs of recording any notices to evidence the prepayment and the redemption (the "Adm.iniatrative Fees and Expenses"). The reserve fund credit (the "R_erve Fund Credit") shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the Indenture) in effect after the redemption of Outstanding Bonds as a result of the prepayment from the balance in the reserve fund on the prepayment dale, but in no event shals l uch amount be less than zero. The Maximum Special Tax prcpaymm_t is equal to the sum of the amcmnts computed pursuant to paragraphs 4, 5, 9 and ]0, less the amount computed pursuant to paragraph 11 (the "PrepaymentAmoun'). From the Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 9. and I I shall be deposited into the appropriate fund a_ e._blished under the Indemure and be used to retire Oulslanding Bonds or make debt service payments. The amouot computed pursuant to paragraph 10 shall be retained by the CFD.

8.

9.

10.

II.

12.

13.

1he Prepayment Amcmnt may be sufficient to redeem other than a $5,000 increment of Bonds, In such cases, the increment above $5,000 or integral mldtiple thereof will be retained in the appropriate fund established ,ruder the Indenture to be used with tt_e next prepayment of bonds or to make debt service payments. As a result of the payment of the current Fiscal Year's Special Tax levy as determined under paraglaph 7 (above), the Administrator shall rmove the current Fiscal Year's Special Tax levy for sud) Parcel from the County tax rolls. With _speet to any Parcel that is prepaid, the Board shall cause a suitable notice to be recorded in compliance with the Act, to hldicate the prepayment of Special Taxes and the release of the Special Tax lien on such Parcel, and the obligation of such Paxcel to pay the Special Tax shall cease.
City of Irdio Communhy Facilities Dislriot No. 2004-3 (Terra [,ago) August 17, 2005 Page 13

Notwithstanding the foregoing, no Special "Fax prepayment shall be allowed unless the amount of Maximum Special Taxes that may be levied on Taxable Property both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds. Tenders of Bond.,; in prepayment of Maximum Special Taxes may be accepted upon the terms and conditions established by the Board pursuant to the Act. However, the use of Bond tenders shall only be allowed on a case-by-ease basis as specifically approved by the Board.

2.

Prepayment in Part

The Maximum Special Tax on a Parcel of Develol_d Property or Undeveloped Property for which a building permit has been issued may be partially prepaid in increments of $2,1XI0. The amotmt of the prepayment shah be calculated as in Section H.1; except that a partial prepayment shall be calculated a_ording to the following formula: PP'-'P_x F These terms have the following meaning: PP = the partial lxepayment P_.= the Prepayment Amount calculated according to Section IL 1 F = rite pea-centby which the owner of the Parcel(s) is partially prepaying the Maximum Special Tax. The owner of a Parcel who desires to partially prepay the Maximum Special Tax shall notify the Administrator of (i_ such owner's intent to partially prepay the Maximum Special Tax, (ii) the amount of paxtial prepayment expressed in increments of $2,000, and (iii) the company or agency that will be acting as the escrow agent, ff applicable and within 5 days of receipt of such notice, the Administrator shall notify such property owner of the amount of the non refundable deposit determined to cover the cost to be mcun_ by the CFT) in calculating the proper amount of a partial prepayment. Within 15 business days of rex_ipt of such n_m-refundable deposit, the Administrator shall notify such owner of the partial prepayment amount of such Parcel. Partial prepayment must be made not less than 60 days prior to any redemption date for any Bonds to be redeemed with the proceeds of such prepaid Special Taxes, With respect to any Parcel that is partially prepaid, the Administrator ,*,hall(i) distribute the fimds remitted to it according to Paragraph 13 of Section H.I, and 0i) indicate in the re_.ords of the CFD that there has been a partial prepayment of the Maximum Special Tax and that a portion of file Maximum Special Tax equal to the outstanding perematage (I.00 - 1_) of the remaining Ma,dmum Speeiat Tax shall continue to be authorized to be levied on such Pmxx:l pursuant to Section D.

_7

' "

Cityof hxlio Commtmity FacilitiesDt,_tdeN t o. 2004-3.(Terrl. aago)

August17,200.5 Page 14

J. TERM OF THE sPECIAL TAX For each year that any Bonds are outstanding the Special Tax shall be levied on all Parcels subject to the Special Tax. If any delinquent Special Taxes remain uncollected prior to or after all Bonds are retired, the Special Tax may be levied to the extent necessary to reimburse the CVD for uncollected Special Taxes associated with the levy of such Special Taxes, but not later than the Fiseal Year.

City of ladio Community Facilities District No. 2_.t4-3 (Terra Lago)

---

August 17, 2005 Page 15

[THIS PAGE INTENTIONALLY

LEFT BLANK]

APPENDIX CITY OF INDIO

B INFORMATION

SUPPLEMENTAL

The following information concerning the City of Indio is presented as general background data. l'he Bonds are payable solely from unpaid Assessments as described in the Official Statement. The Bonds are not an obligation of the City, and the taxing power of the City is not pledged to the payment of the Bonds (except to the limited extent described herein). General Information In 1893, Indio became one of 12 townships in the County of Riverside and was incorporated in 1930 and encompasses 24.8 square miles. It is a general law city with a council-manager form of municipal government. The City Council is composed of a Mayor and four members elected bi-annually at large to four-year alternating terms with the mayor rotating on an annual basis. Positions of City Manager and City Attorney are filled by appointments of the City Council. Indio is the geographic mid point of both Riverside County and the Coachella Valley. It is known as both a desert resort and a major agricultural area. Indio is about 75 miles north of the California-Baja California Mexican border and 120 miles east of the center of the Riverside metropolitan complex and 30 miles southeast of Palm Springs. It is the halfway point for all the weekly Southern Californians who make the weekend and holiday trips to the Colorado River and the Glamis Off Road recreational facilities. Indio's neighboring communities are La Quinta to the west, unincorporated areas of Riverside County to the south, the City of Coachella to the east and unincorporated Riverside County land to the north. Home of the National Date Festival, Shalimar Sports Center's satellite off-track wagering facility and international polo matches, Indio welcomes tens of thousands of visitors each year. Governmental Services

The City provides a broad range of services to its citizens which include police protection, water service, trash collection, street construction and maintenance, parks and recreation, planning and zoning, housing and community development, building inspection and general and administrative support services. It cooperates with Riverside County in the provision of fire protection and with Coachella Valley Water District for flood control. The Indio Police Department operates from one station and has 49 sworn officers serving the community. The City maintains five parks and the Coachella Valley Recreation District operates a 39,000 square foot comprehensive recreational facility in the City. Transportation Interstate 10 connects Indio with Los Angeles, San Diego and Phoenix, Arizona. 86 and 111 provide access to neighboring communities and Palm Springs. Commercial rail service to Indio is provided by Southern Pacific Railroad. Airport and State Highways

Air cargo and passenger flight services are provided at the Palm Springs International at nearby Bermuda Dunes and Thermal Airports. Population Table No. B-1 summarizes population surrounding cities and Riverside County. growth between 2001 and 2005

for the City of Indio,

B-I

TABLE NO. B-1 CHANGE IN POPULATION CITY OF INDIO, SURROUNDING CITIES* AND RIVERSIDE 2001 - 2005 INDIO Year 2001 2002 2003 2004 2005 Population 50,464 52,507 55,155 60,175 66,118 Percentage Chan_e SURROUNDING Population 113,040 115,918. 120,631 123,309 130,556 CITIES Percentage Change

COUNTY

RIVERSIDE Population 1,590,473 1,654,220 1,726,754 1,807,858 1,877,000

COUNTY Percentage Change

4.0% 5.0 9.1 9.9

2.5% 4.1 2.2 5.9

4.0% 4.4 4.7 3.8

% Change Between 2001 - 2005

31.0%0

15.5%

18.0%

* Surrounding cities include Palm Springs, Palm Desert, Indian Wells and Coachella. Source: State of California Department of Finance.

Employment

and Industry

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

B-2

TABLE NO. B-2 RIVERSIDE/SAN BERNARDINO/ONTARIO MSA WAGE AND SALARY WORKERS BY INDUSTRY (in thousands) Industry Government Other Services Leisure and Hospitality Educational and Health Services Professional and Business Services Financial Activities Information Trade, Transportation Service Producing Retail Trade Wholesale Trade Manufacturing Nondurable Goods Durable Goods Goods Producing Construction Natural Resources and Mining Total Nonfarm Farm Total (all industries) and Utilities 2000 192.1 35.0 100.8 102.2 97.0 34.8 12.9 212.2 127.4 38.3 34.5 85.6 80.1 1.3 1,154.2 21.7 1.175.9 2001 200.2 37.1 104.4 106.0 101.7 38.2 14.6 219.4 132.2 41.6 34.4 84.1 88.4 1.2 1,203.5 20.9 1.224.4 2002 212.7 38.1 107.2 112.4 106.8 39.5 14.1 226.3 137.5 41.9 33.4 82.0 90.9 1.2 1,244.0 20.3 1.264.3 2003 211.6 38.4 109.0 115.8 115.4 42.6 13.9 236.3 142.7 43.5 33.7 82.4 99.0 1.2 1,285.5 20.3 _ 2004 211.5 38.8 115.2 117.7 125.2 45.3 13.8 250.4 151.8 44.4 34.5 85.5 110.8 1.2 1,346.1 18.8 1.364.9

Source: State of California Employment Development Department.

The major employers operating June 30, 2005 area as follows: Name of Employer

within the City and their respective

number

of employees

as of

Number

of Employees 900 525 445 226 142 115 100 100 100 100

Product/Service Government Casino Medical Hospital Government Department Store Physical Therapy Grocery Store Farm Produce Concrete Telephone Service

County of Riverside Fantasy Springs Casino John F. Kennedy Memorial Hospital City of Indio Sears Roebuck & Company Desert Orthopedic Center Super Saver Food Dimare Company Granite Construction GTE Source: City oflndio. 2004 data not yet available.

B-3

Personal Income Personal income information for Riversidc County, the State of California and the United States are summarized in Table No. B-3. TABLE NO. B-3 EFFECTIVE BUYING INCOME COUNTY, CALIFORNIA AND UNITED 1999 - 2003 Count. State of California $39,942 44,464 43,532 42,484 42,924 for smaller geographical

RIVERSIDE

STATES

Yea._.....Er 1999 2000 2001 2002 2003 Note:

Riverside

United States $37,233 39,129 38,365 38,085 38,201 areas such as the City of

$35,145 39,293 37,480 38,691 39,321 Personal income data not available Indio. 2004 data not yet available.

Source: Sales and Marketing Management, "Survey of Buying Power. "'

Commercial

Activity

The following table summarizes the volume of retail sales and taxable transactions for the City of Indio for 1999 through 2003. TABLE NO. B-4 CITY OF INDIO TOTAL TAXABLE TRANSACTIONS (in Thousands) 1999 - 2003 Total Taxable Transactions ($000's) 401,104 473,781 531,686 536,126 589,327

Year 1999 2000 2001 2002 2003

Retail Sales ($000's) 318,955 385,117 444,519 450,141 504,197

% Change

Retail Sales Permits 496 560 612 699 743

% Change

Issued Sales Permits 1,169 1,204 1,250 1,481 1,636

20.7% 15.4 1.3 12.0

18.1% 12.2 0.8 9.9

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

B-4

The following

table compares

taxable transactions

for the City oflndio

and surrounding

cities.

TABLE NO. B-5 CHANGE IN TOTAL TAXABLE TRANSACTIONS INDIO AND SURROUNDING CITIES (in thousands) 1999 - 2003 % Change 1999 - 2003 46.9% 35.5 40.3 10.9 79.2

City INDIO Palm Springs Palm Desert Indian Wells Coachella

1999 $ 401.104 542,041 1,098,211 63,611 113,485

2000 $ 473,781 601,316 1,217,986 68,599 132,640

2001 $ 531,686 623,956 1,211,069 62,958 146,254

2002 $ 536,126 617,260 1,209,385 57,178 155,831

2003 $ 589,327 675,487 1,296,730 67,186 176,051

Source: State of California Board of Equalization. 2004 data not yet available. Taxable transactions by type of business summarized in Table No. B-6. for the City of Indio for 1999 through 2003 are

TAXABLE

TABLE NO. B-6 CITY OF INDIO TRANSACTIONS BY TYPE OF BUSINESS (in thousands) 1999 - 2003 1999 2000 2001 2002 2003

Retail Stores Apparel Stores General Merchandise Stores Food Stores Eating/Drinking Places Home Furnishings and Appliances Building Materials and Farm Implements Auto Dealers/Suppliers Service Stations Other retail stores Total Retail Stores All Other Outlets Total All Outlets $ 6,304 48,362 30,749 37,763 9,276 46,350 95,464 24,138 20,549 318,955 82,149 $ 8,090 51,256 34,011 42,343 22,404 46,344 130,246 29,073 21,350 385,117 88,664 $ 7,651 51,293 36,761 42,707 27,503 43,136 185,893 27,255 22,320 444,519 87,167 $531,686 $ 7,380 48,720 39,208 39,710 30,794 40,158 191,899 27,889 24,383 450,141 85,985 $536,126 $ 7,599 50,580 43,369 43,666 35,800 54,461 206,886 33,789 28,047 504,197 85,130 $589,327

$401.10____44$473,781

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

B-5

Building Activity The following table summarizes fiscal years from 2000 through 2004. building activity valuations for the

City of lndio for the five

BUILDING

TABLE NO. B-7 CITY OF INDIO ACTIVITY AND VALUATION (in thousands) 2000 - 2004 200__.! $74,439,017 16,374,150 $90,813,167 200.___2 $142,813,529 9,085,542 $151,899,071 200__.__3 $230,927,525 9,401=352 $240,328,877 200__._44 $394,347,500 56,330,897 $450,678,397

200.___0.0 Total Residential Total Commercial Total Valuation Source: City of Indio. $60,913,897 26,509,455 $90,423,352

B-6

APPENDIX SUMMARY

OF FISCAL AGENT AGREEMENT

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

"Acquisition and Construction pursuant to the Fiscal Agent Agreement.

Fund" means

"Act" means the Mello-Roos Community seq. of the California Government Code.

Facilities

Act of 1982, as amended,

Sections

53311 et

"Administrative Expense Account" means the account by such name in the Special Tax Fund created and established pursuant to the Fiscal Agent Agreement. "Administrative Expense Administrative Expenses. Requirement" means for any Fiscal Year, an amount necessar to pay

"Administrative Expenses" means the administrative costs with respect to the calculation and collection of the Special Taxes, including all attorneys' fees and other costs related thereto, the fees and expenses of the Fiscal Agent, any fees for credit enhancement for the Bonds which are not otherwise paid as Costs of Issuance, any costs related to the District's compliance with State and federal laws requiring continuing disclosure of information concerning the Bonds and the District, and any other costs otherwise incurred by the City staff on behalf of the District in order to carry out the purposes of the District as set forth in the Resolution of Formation and any obligation of the District under the Fiscal Agent Agreement. "Annual Debt Service" means the principal amount of any Outstanding Bonds payable in a Bond Year either at maturity or pursuant to a Sinking Fund Payment and any interest payable on any Outstanding Bonds in such Bond Year, if the Bonds are retired as scheduled. "Alternate Reserve Account Security" means one or more surety bonds, bond insurance policies, or other form of guaranty from a municipal bond insurer for the benefit of the Fiscal Agent meeting the requirements therefor in the Fiscal Agent Agreement in substitution for or in place of all or any portion of the Reserve Requirement. "Authorized Investments" means any of the following which at the time of investment investments under the laws of the State for the moneys proposed to be invested therein: are legal

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

C-I

(2) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): U.S. Export-Import Bank ("Eximbank") or fully guaranteed certificates of beneficial ownership

Direct obligations Farmers Home Administration Certificates Federal Financing Bank

("FmHA") of beneficial ownership

Federal Housing Administration General Services Administration Participation Government

Debentures

("FHA")

certificates Association ("GNMA" or "Ginnie Mac") bonds

National Mortgage GNMA-guaranteed GNMA-guaranteed

mortgage-backed pass-through

obligations

t3.S. Maritime Administration Guaranteed U.S. Department Title XI financing (HUD)

of Housing and Urban Development Project Notes Local Authority New Communities Bonds Debentures

- U.S. government

guaranteed

debentures

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

guaranteed

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

C-2

Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") Participation certificates

Senior debt obligations Federal National Mortgage Association ("FNMA" or "Fannie Mae")

Mortgage-backed Student Loan Marketing

securities and senior debt obligations ("SLMA" or "Sallie Mae")

Association

Senior debt obligations Resolution Funding Corp. ("REFCORP") obligations system-wide bonds and notes

Farm Credit System CM. - Consolidated

(4) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor's of "AAAm-G", "AAAm" or "AAm", and, if rated by Moody's, rated "Aaa", "Aal" or "Aa2" (including those of the Fiscal Agent and its affiliates). (5) Certificates of deposit secured at all times by collateral described in (1) and/or (2) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral. (6) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC or which are with a bank rated "AA" or better by Standard & Poor's and "Aa" or better by Moody's (including those of the Fiscal Agent and its affiliates). (7) provided that Investment Agreements with any corporation, including banking or financial institutions,

(a) the long-term debt of the provider of any such investment agreement is rated, at the time of investment, at least "AA" and "Aa" by the Rating Agency (without regard to gradations of plus or minus within such category), and (b) any such investment agreement is collateralized with United States Treasury or agency obligations which at least equal 102% of the principal amount invested thereunder, and (c) any such agreement shall include a provision to the effect that, in the event the long-term debt rating of the provider of such agreement is downgraded below "AA-" or below "Aa" by the applicable Rating Agency, the District has the right to withdraw or cause the Fiscal Agent to withdraw all funds invested in such agreement and thereafter to invest such funds pursuant to the Fiscal Agent Agreement. (8) Commercial better by Standard & Poor's. paper rated, at the time of purchase, "Prime - 1" by Moody's and "A-1" or

C-3

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

and

(10) Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of"Prime - l" or "A3" or better by Moody's and "A-1" or "A" or better by Standard & Poor's. (l l) Repurchase agreements collateralized by FHLMCs with any registered broker/dealer subject to the jurisdiction or any commercial bank insured by the FDIC, if unsecured and unguaranteed obligation rated "P-1" or "A3" Standard & Poor's; provided: (a) the transaction; a mastcr repurchase and agreement Direct Obligations, GNMAs, FNMAs or Securities Investors" Protection Corporation such broker/dealer or bank has an uninsured, or better by Moody's, and "A-1" or "A-" by

or specific written repurchase

agreement

governs

(b) the securities are held free and clear of any lien by the Fiscal Agent or an independent third party acting solely as agent ("Agent") for the Fiscal Agent, and such third party is (i) a Federal Reserve Bank, (ii) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $50 million, or (iii) a bank approved in writing for such purpose by Financial Guaranty Insurance Company, and the Fiscal Agent shall have received written confirmation from such third party that it holds such securities, free and clear of any lien, as agent for the Fiscal Agent; and (c) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the Fiscal Agent; and (d) the repurchase agreement has a term of 180 days or less, and the Fiscal Agent or the Agent will value the collateral securities no less frequently than weekly and will liquidate the collateral securities if any deficiency in the required collateral percentage is not restored within two business days of such valuation; and (e) the fair market value of the securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103% (12) (13) Local Agency Investment Any other investment Fund ("LAIF") of the State of California. by law to make.

which the District is permitted

"Authorized Representative of the District" means the Mayor, Vice Mayor, City Manager, Finance Director, or any other person or persons designated by the City Council of the City. "Bond Counsel" means an attorney at law or a firm of attorneys selected by the District of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia. "Bond Register" means the books which the Fiscal Agent shall keep or cause to be kept on which the registration and transfer of the Bonds shall be recorded.

C-4

"Bondowner" registered.

or "'Owner" means the person

or persons

in whose name or names any Bond is

"Bond Year" means the twelve month period commencing on September 2 of each year and ending on September 1 of the following year, except that the first Bond Year for the Bonds shall begin on the Delivery Date and end of the first September 1 which is not more than 12 months after the Delivery Dale. "Business Day" means a day which is not a Saturday or Sunday or a day of the year on which banks in New York, New York, Los Angeles, California, or the city where the corporate trust office of the Fiscal Agent is located, are not required or authorized to remain closed. "Code" means the Internal Revenue Code of 1986 and any Regulations, rulings, judicial decisions, and notices, announcements, and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it. "Costs of Issuance" means the costs and expenses incurred in connection with the issuance and sale of the Bonds, including the acceptance and initial annual fees and expenses of the Fiscal Agent and its counsel, legal fees and expenses, costs of printing the Bonds and the preliminary and final official statements for the Bonds, fees of financial consultants and all other related fees and expenses, Bonds, as set forth in a written certificate of an Authorized Representative. "Costs of Issuance Account" means the account by such name in the Acquisition Construction Fund created and established pursuant to the Fiscal Agent Agreement. "Defeasance (a) (b) Government Securities" Cash United States Treasury Certificates, Series -- "SLGS") Notes and Bonds (including State and Local means any of the following: and

(c) Direct obligations of the U.S. Treasury which have been stripped by the U.S. Treasury itself, e.g., CATS, TIGRS and similar securities. (d) The interest component of Resolution Funding Corp. strips which have been stripped by request to the Federal Reserve Bank of New York and are in book-entry form. (e) & Poor's. Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard

(f) Obligations issued by the following and credit of the United States: U.S. Export-Import ownership Bank - direct obligations

agencies which are backed by the full faith

or fully guaranteed

certificates

of beneficial

Farmers Home Administration Federal Financing Bank

- certificates

of beneficial ownership

General Services Administration

- participation

certificates

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U.S. Maritime

Administration

- guaranteed

Title X! financing

U.S. Department of Housing and Urban Development (HUD) - Project Notes, Local Authority Bonds, New Communities Debentures - U.S. government guaranteed debentures, U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds. "Delivery Date" purchasers thereof. means the date on which the Bonds were issued and delivered to the initial

"Depository" shall mean The Depository Trust Company, New York, New York, and its successors and assigns as securities depository for the Certificates, or any other securities depository acting as Depository under the Fiscal Agent Agreement. "_District" means City of Indio Community Facilities pursuant to the Act and the Resolution of Formation. District No. 2004-3 (Terra Lago) established

"Fiscal Agent" means Union Bank of California, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States of America, at its principal corporate trust office in Los Angeles, California, and its successors or assigns, or any other bank or trust company which may at any time be substituted in its place as provided in the Fiscal Agent Agreement and any successor thereto. "Fiscal Agent Agreement" means the Fiscal Agent Agreement, Fiscal Agent Agreement approved pursuant to Article 6 hereof. "Fiscal Year" June 30. "Improvement means the period beginning on July together with any Supplemental

1 of each year and ending on the next

following

Area No. 1" means Improvement

Area No. 1 of the District.

"Improvement Area No. 1 Value" means the market value, as of the date of the appraisal or tax roll described below, of all parcels of real property in Improvement Area No. 1 subject to the levy of the Special Taxes and not delinquent in the payment of any Special Taxes then due and owing, including with respect to such non-delinquent parcels the value of the then existing improvements and any facilities to be constructed or acquired with. any amounts then on deposit in the Acquisition and Construction Fund, as determined by reference to (i) an appraisal performed within six (6) months of the date of any proposed release of moneys from the Special Escrow Fund by an MAI appraiser (the "Appraiser") selected by the District, or (ii) in the alternative, the assessed value of all such non-delinquent parcels and improvements thereon as shown on the then current County real property tax roll available to the District. The District shall not be liable to the Owners, the Underwriter or any other person or entity in respect of any appraisal provided for purposes of this definition or by reason of any exercise of discretion made by any Appraiser pursuant to this definition. "'Independent Financial Consultant" means a financial consultant or special tax consultant or finn of either such consultants generally recognized to be well qualified in the financial consulting or special tax consulting field, appointed and paid by the District, who, or each of whom: (1) (2) is, in fact, independent and not under the domination of the District;

does not have any substantial

interest, direct or indirect, in the District; and

C-6

(3) is not connected with the District as a member, officer or employee who may be regularly retained to make annual or other reports to the District. "Interest Account" means the account by such name created Fund pursuant to the Fiscal Agent Agreement. and established

of the District, but

in the Special Tax

"'Interest Payment Date" means each March 1 and September 1, commencing March I, 2006; provided, however, that, if any such day is not a Business Day, interest up to the Interest Payment Date will be paid on the next succeeding Business Day. "Investment Agreement" means one or more agreements for the investment of funds of the District complying with the criteria therefor as set forth in Subsection (7) of the definition of Authorized Investments. "Maximum Annual Debt Service" means the maximum sum obtained the final maturity of the Bonds by adding the following for each Bond Year: (1) the principal amount of all Outstanding maturity or pursuant to a Sinking Fund Payment; and (2) the interest payable on the aggregate Bond Year if the Bonds are retired as scheduled. "Moody's" means Moody's means Bonds payable for any Bond Year prior to

in such Bond Year either

at

principal

amount of all Bonds Outstanding

in such

Investors Service, its successors Taxes minus an amount

and assigns. to the Administrative Expense

"Net Taxes" Requirement.

Special

equal

"Nominee" shall mean the nominee of the Depository, which determined from time to time pursuant to the Fiscal Agent Agreement. "Outstanding" except: (1) Bonds theretofore Agent Agreement; cancelled or surrendered for cancellation or "Outstanding Bonds" means all Bonds

may be the Depository,

as

theretofore

issued

by the District,

in accordance

with the Fiscal

(2) Bonds for payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Fiscal Agent Agreement; and (3) Bonds which have been surrendered to the Fiscal Agent for transfer or exchange pursuant to the Fiscal Agent Agreement or for which a replacement has been issued pursuant to the Fiscal Agent Agreement. "Participants" shall mean those broker-dealers, banks and other financial time for which the Depository holds Bonds as securities depository. "Person" means bodies and other entities. natural persons, firms, corporations, partnerships, institutions from time to

associations,

trusts, public

C-7

"Principal Account" means the account by such name in the Special established pursuant to the Fiscal Agent Agreement.

Tax Fund created

and

"Principal Office of the Fiscal Agent" means the office of the Fiscal Agent located in Los Angeles, California or such other office or offices as the Fiscal Agent may designate from time to time, or the office of any successor Fiscal Agent where it principally conducts its business of serving as Fiscal Agent under indentures pursuant to which municipal or governmental obligations are issued. "Project" means those public facilities and/or capital fees described in the Resolution of Formation that are to be acquired, constructed or financed within and outside of the District, including all engineering, planning and design services and other incidental expenses related to such facilities and other facilities, if any, authorized by the qualified electors within the District from time to time. "Project Costs" means the amounts necessary to finance the Project, to create and replenish any necessary reserve funds, to pay the initial and annual costs associated with the Bonds, including, but not limited to, remarketing, credit enhancement, Fiscal Agent and other fees and expenses relating to the issuance of the Bonds and the formation of the District, and to pay any other "incidental expenses" of the District, as such term is defined in the Act. "Rating Agency" means Moody's and Standard & Poor's, or both, as the context requires. preceding an Interest Payment Date,

"'Record Date" means the fifteenth day of the month regardless of whether such day is a Business Day.

"Redemption Account" means the account by such name created and established Tax Fund pursuant to the Fiscal Agent Agreement. "Regulations" means the regulations adopted or proposed by the Department time to time with respect to obligations issued pursuant to section 103 of the Code. "Representation Depository as described Letter" shall mean the Blanket Letter of Representations in the Fiscal Agent Agreement.

in the Special

of Treasury

from

from the District to the

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

in the Special Tax

"Reserve Requirement" means, as of any date of calculation, an amount equal to the lowest of (1) 10% of the original proceeds of the Bonds, less accrued interest, if any, less original issue discount, if any, plus original issue premium, if any, or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds. The District may originally fund the Reserve Account with an Alternate Reserve Account Security or may at any time substitute an Alternate Reserve Account Security for the cash on deposit in the Reserve Account to satisfy the Reserve Requirement pursuant to the Fiscal Agent Agreement. "Resolution of Formation" means Resolution No. 9025 adopted by the City Council of the City on July 20, 2005, pursuant to which the City formed the District. "Sinking Fund Payment" means the annual payment to be deposited in the Redemption Account to redeem a portion of the Term Bonds in accordance with the schedule set forth in the Fiscal Agent Agreement.

C-8

"Special Taxes" means the taxes authorized to be levied within Improvement Area No. 1 by the District in accordance with the Resolution of Formation, the Act and the voter approval obtained at the July 20, 2005 election in the District, together with prepayments thereof and the proceeds collected from the sale of property pursuant to the foreclosure provisions of the Fiscal Agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions, and any additional special taxes authorized to be levied by the District from time to time which are pledged by the District to '/he repayment of the Bonds. "Special Tax Fund" means the fund by such name created and established Agent Agreement. "Standard assigns, "Supplemental Fiscal Agent Agreement" means amending or supplementing the Fiscal Agent Agreement. "Surplus Fund" Agent Agreement. any supplemental fiscal agent agreement & Poor's" means Standard & Poor's, a division pursuant to the Fiscal

of McGraw-Hill,

its successors

and

means the fund by such name created

and established

pursuant

to the Fiscal

"Tax Certificate" means the certificate by that name to be executed by the District on a Delivery Date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code. "Underwriter" means the institution purchase contract for the sale of the Bonds. "Written Representative. Request of the District" or institutions, if any, with whom the District enters into a

means

a request

in writing

executed

by an Authorized

INVESTMENTS Moneys held in any of the funds and accounts under the Fiscal Agent Agreement shall be invested at the Written Request of the District in accordance with the limitations set forth below only in Authorized Investments which shall be deemed at all times to be a part of such funds and accounts. Any loss resulting from such Authorized Investments shall be credited or charged to the fund or account from which such investment was made, and any investment earnings on a fund or account shall be applied as follows: (i) investment earnings on all amounts deposited in the Special Tax Fund (other than the Reserve Account), Acquisition and Construction Fund and Surplus Fund and each Account therein shall be deposited in those respective funds and accounts, and (ii) all other investment earnings shall be deposited in the Interest Account of the Special Tax Fund; provided, however, investment earnings in the Reserve Account shall be deposited in the Interest Account of the Special Tax Fund only to the extent moneys in such Reserve Account exceed the Reserve Requirement. Moneys in the funds and accounts held under the Fiscal Agent Agreement may be invested by the Fiscal Agent at the Written Request of the District received at least 2 Business Days prior to the investment date, from time to time, in Authorized Investments subject to the following restrictions: (1) Moneys in the Interest Account, the Principal Account and the Redemption Account of the Special Tax Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on such dates so

C-9

as to ensure the payment of principal

due.

of, premium, if any, and interest on the Bonds as the same become

(2) Moneys in the Acquisition and Construction Fund shall be invested in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available without penalty, as close as practicable to the date the District estimates the moneys represented by the particular investment will be needed for withdrawal from the Acquisition and Construction Fund. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, amounts in the Acquisition and Construction Fund on the Delivery Date for the Bonds shall not be invested at yields greater than those set forth in the Tax Certificate. (3) One-half of the amount in the Reserve Account of the Special Tax Fund may be invested only in Authorized Investments which mature not later than two years from their date of purchase by the Fiscal Agent, and one-half of the amount in the Reserve Account may be invested only in Authorized Investments which mature not more than three years from the date of purchase by the Fiscal Agent; provided that such amounts may be invested in an Investment Agreement to the final maturity of the Bonds so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with the Fiscal Agent Agreement; and provided that no such Authorized Investment of amounts in the Reserve Account shall mature later than the respective final maturity date of the Bonds. (4) In the absence of Written Request of the District providing investment directions, the Fiscal Agent shall invest solely in Authorized Investments specified in clause (4) of the definition thereof. The Fiscal Agent shall sell at the best price obtainable, or present for redemption, any Authorized Investment whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such Funds and Accounts or from such Funds and Accounts. For the purpose of determining at any given time the balance in any such Funds and Accounts, any such investments constituting a part of such Funds and Accounts shall be valued at their cost, except that amounts in the Reserve Account shall be valued at the fair market value thereof and marked to market at least annually. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, the Fiscal Agent shall not be responsible for any loss from investments, sales or transfers undertaken in accordance with the provisions of the Fiscal Agent Agreement. The Fiscal Agent may act as principal or agent in connection with the acquisition of any Authorized Investments. Any Authorized Investments that are registrable securities shall be registered in the name of the Fiscal Agent. The Fiscal Agent is authorized, in making or disposing of any investment permitted by the Fiscal Agent Agreement, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Fiscal Agent or for any third person or dealing as principal for its own account. COVENANTS AND WARRANTY under the Fiscal Agent

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

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

C-10

(1) Punctual Payment; Against Encumbrances. The District covenants that it will receive all Special Taxes in trust and will immediately deposit such amounts with the Fiscal Agent, and the District shall have no beneficial right or interest in the amounts so deposited except as provided by the Fiscal Agent Agreement. All such Special Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth in the Fiscal Agent Agreement, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the District. The District covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every Bond issued under the Fiscal Agent Agreement, together with the premium, if any, thereon on the date, at the place and in the manner set forth in the Bonds and in accordance with the Fiscal Agent Agreement to the extent that Net Taxes are available therefor, and that the payments into the Funds and Accounts created under the Fiscal Agent Agreement will be made, all in strict conformity with the terms of the Bonds and the Fiscal Agent Agreement, and that it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Fiscal Agent Agreements and of the Bonds issued under the Fiscal Agent Agreement. The District will not mortgage or otherwise encumber, pledge or place any charge upon any the Net Taxes except as provided in the Fiscal Agent Agreement, and will not issue any obligation security having a lien or charge upon the Net Taxes superior to or on a parity with the Bonds. Nothing the Fiscal Agent Agreement shall prevent the District from issuing or incurring indebtedness which payable from a pledge of Net Taxes which is subordinate in all respects to the pledge of Net Taxes repay the Bonds. (2) Levy_ of Special Tax. Beginning in Fiscal Year 2006-07 under the Fiscal Agent Agreement are Outstanding, the legislative body the Special Tax in an amount sufficient, together with other amounts on and available for such purpose, to pay (1) the principal of and interest Administrative Expenses, and (3) any amounts required to replenish the Tax Fund to the Reserve Requirement. of or in is to

and so long as any Bonds issued of the District covenants to levy deposit in the Special Tax Fund on the Bonds when due, (2) the Reserve Account of the Special

(3) Commence Foreclosure Proceedings. The District covenants for the benefit of the Owners of the Bonds that it (i) will commence judicial foreclosure proceedings against all parcels owned by a property owner where the aggregate delinquent Special Taxes on such parcels is greater than $5,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes were due and (ii) will commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied for such Fiscal Year, and (iii) will diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid; provided, however, that the District may elect to defer foreclosure proceedings on any parcel so long as the amount in the Reserve Account of the Special Tax Fund is at least equal to the Reserve Requirement and such delinquencies will not cause moneys in the Reserve Account to be withdrawn on the next succeeding Interest Payment Date. The District may, but is not obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Account of the Special Tax Fund at the Reserve Requirement. The District Fund. (4) Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Net Taxes or; other funds in the Special Tax Fund (other than the Administrative Expense Account therein), or which might impair the security of the Bonds then Outstanding; provided that nothing contained in the Fiscal Agent covenants that it will deposit the proceeds of any foreclosure in the Special Tax

C-11

Agreement shall require the District to make any such payments contest the validity of any such claims.

so long as the District in good faith shall

(5) Books and Accounts. The District will keep proper books of records and accounts, separate from all other records and accounts of the District, in which complete and correct entries shall be made of all transactions relating to the levy of the Special Tax and the deposits to the Special Tax Fund. Such books of records and accounts shall at all times during business hours be subject to the inspection of the Fiscal Agent or of the Owners of the Bonds then Outstanding or their representatives authorized in writing. (6) Tax Covenants, The District covenants that it shall take all actions necessary in order that interest on the Bonds be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes, and that it shall not use or invest, and shall not permit the use or investment of, and shall not omit to use or invest Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes. (7) Reduction of Maximum Special Taxes. The District finds and determines that, historically, delinquencies in the payment of special taxes authorized pursuant to the Act in community facilities districts in Southern California have from time to time been at levels requiring the levy of special taxes at the maximum authorized rates in order to make timely payment of principal of and interest on the outstanding indebtedness of such community facilities districts. For this reason, the District determines that a reduction in the maximum Special Tax rates authorized to be levied on parcels in the District below the levels provided in the Fiscal Agent Agreement would interfere with the timely retirement of the Bonds. The District determines it to be necessary in order to preserve the security for the Bonds to covenant, and, to the maximum extent that the law permits it to do so, the District does covenant, that it shall not initiate proceedings to reduce the maximum Special Tax rates for the District, unless, in connection therewith, (i) the District receives a certificate from one or more Independent Financial Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in the District as of the July 1 preceding the reduction, the maximum amount of the Special Tax which may be levied on then existing Developed Property (as defined in the Rate and Method of Apportionment of Special Taxes then in effect in the District) in each Bond Year for any Bonds Outstanding will equal at least 110% of the sum on the estimated Administrative Expenses and gross debt service in that Bond Year on all Bonds to remain Outstanding after the reduction is approved, and (ii) the District finds that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds. For purposes of estimating Administrative Expenses for the foregoing calculation, the Independent Financial Consultant shall compute the Administrative Expenses for the current Fiscal Year and escalate that amount by two percent (2%) in each subsequent Fiscal Year. (8) Covenants to Defend. The District covenants that in the event that any initiative is adopted by the qualified electors in the District which purports to reduce the maximum Special Tax below the levels specified in the Fiscal Agent Agreement or to limit the power of the District to levy the Special Taxes for the purposes set forth in the Fiscal Agent Agreement, it will commence and pursue legal action in order to preserve its ability to comply with such covenants. (9) Limitation on Right to Tender Bonds. The District covenants that it will not adopt any policy pursuant to Section 53341.1 of the Act permitting the tender of Bonds to the District in full payment or partial payment of any Special Taxes.

C-12

(10) Continuing Disclosure. The District covenants to comply with the term of the Continuing Disclosure Agreement executed by it with respect to the Bonds. AMENDMENTS TO FISCAL AGENT AGREEMENT

Supplemental Fiscal Agent Agreements or Orders Not Requiring Bondowner Consent. The District may from time to time, and at any time, without notice to or consent of any of the Bondowners, adopt Supplemental Fiscal Agent Agreements for any of the following purposes: (1) to cure any ambiguity, to correct or supplement any provisions in the Fiscal Agent Agreement which may be inconsistent with any other provision in the Fiscal Agent Agreement, or to make any other provision with respect to matters or questions arising under the Fiscal Agent Agreement or in any additional resolution or order, provided that such action is not materially adverse to the interests of the Bondowners; (2) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in the Fiscal Agent Agreement, other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with the Fiscal Agent Agreement as theretofore in effect or which further secure Bond payments; (3) to modify, amend or supplement the Fiscal Agent Agreement in such manner as to permit the qualification of the Fiscal Agent Agreement under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, or to comply with the Code or regulations issued thereunder, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Owners of the Bonds then Outstanding; or (4) to modify, alter or amend the rate and method of apportionment of the Special Taxes in any manner so long as such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the District to an amount which is less than that permitted under the Fiscal Agent Agreement; or (5) to modify, alter, amend or supplement which is not materially adverse to the Bondowners. the Fiscal Agent Agreement in any other respect

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

C-13

District shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplemental Fiscal Agent Agreement. The Fiscal Agent shall, at the expense of the District, cause notice of the proposed Supplemental Fiscal Agent Agreement to bc mailed, by first class mail, postage prepaid, to all Bondowners at their addresses as they appear in the Bond Register. Such notice shall briefly set forth the nature of the proposed Supplemental Fiscal Agent Agreement and shall state that a copy thereof is on file at the office of the Fiscal Agent for inspection by all Bondowners. The failure of any Bondowners to receive such notice shall not affect the validity of such Supplemental Fiscal Agent Agreement when consented to and approved by the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding as required by the Fiscal Agent Agreement. Whenever at any time within one year after the date of the first mailing of such notice, the Fiscal Agent shall receive an instrument or instruments purporting to be executed by the Owners of a majority in aggregate principal amount of the Bonds Outstanding, which instrument or instruments shall refer to the proposed Supplemental Fiscal Agent Agreement described in such notice, and shall specifically consent to and approve the adoption thereof by the District substantially in the form of the copy referred to in such notice as on file with the Fiscal Agent, such proposed Supplemental Fiscal Agent Agreement, when duly adopted by the District, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the Bonds have consented to the adoption of any Supplemental Fiscal Agent Agreement, Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination. Upon the adoption of any Supplemental Fiscal Agent Agreement and the receipt of consent to any such Supplemental Fiscal Agent Agreement from the Owners of not less than a majority in aggregate principal amount of the Outstanding Bonds in instances where such consent is required pursuant to the provisions of the Fiscal Agent Agreement, the Fiscal Agent Agreement shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Fiscal Agent Agreement of the District and all Owners of Outstanding Bonds shall thereafter be determined, exercised and enforced under the Fiscal Agent Agreement, subject in all respects to such modifications and amendments. Notation of Bonds; Delivery of Amended Bonds. After the effective date of any action taken as provided in the Fiscal Agent Agreement, the District may determine that the Bonds may bear a notation, by endorsement in form approved by the District, as to such action, and in that case upon demand of the Owner of any Outstanding Bond at such effective date and presentation of his Bond for the purpose at the office of the Fiscal Agent or at such additional offices as the Fiscal Agent may select and designate for that purpose, a suitable notation as to such action shall be made on such Bonds. If the District shall so determine, new Bonds so modified as, in the opinion of the District, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Outstanding Bond at such effective date such new Bonds shall be exchanged at the office of the Fiscal Agent or at such additional offices as the Fiscal Agent may select and designate for that purpose, without cost to each Owner of Outstanding Bonds, upon surrender of such Outstanding Bonds. EVENTS OF DEFAULT; Events default": (a) Default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; of Default. REMEDIES events shall constitute an "event of

Any one or more of the following

C-14

(b) Default in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; or (c) Except as described in (a) or (b), default shall be made by the District in the observance of any of the agreements, conditions or covenants on its part contained in the Fiscal Agent Agreement or the Bonds, and such default shall have continued for a period of 30 days after the District shall have been given notice ifi writing of such default by the Fiscal Agent or the Owners of 25% in aggregate principal amount of the Outstanding Bonds. The District agrees to give notice to the Fiscal Agent immediately upon the occurrence of an event of default under (a) or (b) above and within 30 days of the District's knowledge of an event of default under (c) above. The Fiscal Agent shall not be deemed to have knowledge of any event of default described in (c) above unless a responsible officer shall have actual knowledge thereof or the Fiscal Agent shall have received written notice at its Principal Office. Remedies of Owners. Following the occurrence of an event of default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated: (1) By mandamus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the members, officers and employees of the District, and to compel the District or any such members, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in the Fiscal Agent Agreement; (2) By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or (3) By a suit in equity to require the District and its members, account as the fiscal agent of an express trust. officers and employees to

Nothing in the Fiscal Agent Agreement, the Bonds shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners thereof at the respective dates of maturity, as provided in the Fiscal Agent Agreement, out of the Net Taxes and other amounts pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in the Fiscal Agent Agreement. A waiver of any default or breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the Act or by the Fiscal Agent Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners. If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the District and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. No remedy in the Fiscal Agent Agreement conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given under the Fiscal Agent Agreement or now or hereafter existing, at law or in

C-15

equity or by statute or otherwise, and may be exercised other remedy conferred by the Act or any other law.

without

exhausting

and without regard to any

In case the moneys held by the Fiscal Agent after an event of default pursuant to (a) or (b) above shall be insufficient to pay in full the whole amount so owing and unpaid upon the Outstanding Bonds, then all available amounts shall be applied to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. DEFEASANCE Defeasance. If the District shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in the Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement, then the Owner of such Bond shall cease to be entitled to the pledge of Net Taxes, and, other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond under the Fiscal Agent Agreement shall thereupon cease, terminate and become void and be discharged and satisfied. In the event of a defeasance of all Outstanding Bonds pursuant to the Fiscal Agent Agreement, the Fiscal Agent shall execute and deliver to the District all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay over or deliver to the District's general fund all money or securities held by it pursuant to the Fiscal Agent Agreement which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds. Any Outstanding Bond shall be deemed to have been paid if such Bond is paid in any one or more of the following ways: (a) by paying or causing to be paid the principal such Bond, as and when the same become due and payable; of, premium, if any, and interest on

(b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; or (c) by depositing with the Fiscal Agent or another escrow bank appointed by the District, in trust, noncallable Defeasance Securities, in which the District may lawfully invest its money, in such amount as will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; then, at the election of the District, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the District under the Fiscal Agent Agreement and any Supplemental Fiscal Agent Agreement with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District contained in certain section of the Fiscal Agent Agreement or any covenants in a Supplemental Fiscal Agent Agreement relating to compliance with the Code. Notice of such election shall be filed with the Fiscal Agent not less than ten days prior to the proposed defeasance date, or such shorter period of time as may

C-16

be acceptable to the Fiscal Agent. In connection with a defeasance under (b) or (c) above, there shall be provided to the District a verification report from an independent nationally recognized certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank to pay and discharge the principal of, premium, if any, and interest on all Outstanding Bonds to be defeased in accordance with the Fiscal Agent Agreement, as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant)'to the effect that the Bonds being defeased have been legally defeased in accordance with the Fiscal Agent Agreement and any applicable Supplemental Fiscal Agent Agreement. If a forward supply contract is employed in connection with an advance refunding to be effected under (c) above, (i) such verification report shall expressly state that the adequacy of the amounts deposited with the bank under (c) above to accomplish the refunding relies solely on the initial escrowed investments and the maturity principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and (ii) the applicable escrow agreement executed to effect an advance refunding in accordance with (c) above shall provide that, in the event of any discrepancy or difference between the terms of the forward supply contract and the escrow agreement, the terms of the escrow agreement shall be controlling. Upon a defeasance, the Fiscal Agent, upon request of the District, shall release the rights of the Owners of such Bonds which have been defeased under the Fiscal Agent Agreement and any Supplemental Fiscal Agent Agreement and execute and deliver to the District all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance under the Fiscal Agent Agreement of all Outstanding Bonds, the Fiscal Agent shall pay over or deliver to the District any funds held by the Fiscal Agent at the time of a defeasance, which are not required for tile purpose of paying and discharging the principal of, premium, if any, or interest on the Bonds when due. The Fiscal Agent shall, at the written direction of the District, mail, first class, postage prepaid, a notice to the Bondowners whose Bonds have been defeased, in the form directed by the District, stating that the defeasance has occurred.

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[THIS PAGE INTENTIONALLY

LEFT BLANK]

APPENDIX APPRAISAL

REPORT

D-l

[THIS PAGE INTENTIONALLY

LEFT BLANK]

APPRAISAL
COMMUNITY

REPORT
NO. 2004-3

FACILITIES DISTRICT CITY OF INDIO INDIO, CALIFORNIA

PREPARED

FOR:

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

PREPARED

BY:

WILLIAM V. SHREWSBURY, MAI/SENIOR VICE PRESIDENT JAIM]E Z. BASSO/ASSOCIATE APPRAISER FIRST AMERICAN COMMERCIAL REAL ESTATE APPRAISAL AND VALUATION DMSION 1217 EAST NORMANDY PLACE SANTA ANA, CALIFORNIA 92705 PH" (714) 564-8982 / FAX: (714) 564-8985 DATE OF VALUE: JUNE 17, 2005 DATE OF REPORT: JULY 15, 2005 Copyright2005 by First AmericanCommercialRealEstate Services Appraisaland ValuationDivision.. All rights reserved.Unlesswith the priorwrittenpermissionof First AmericanCommercialReal EstateServicesAppraisaland ValuationDivision,no partmay be reproduced, recordeds , tored ina databaseor retrievalsystem ortransmitted by electronic,photocopyor anyothermeans,whetherineye-readable ormachine-readable form,microfilmor otherwise. SERVICES

Firs t Am edcan
Commercial
July 15, 2005

Real Estate

Services,

Inc.
File No. 614

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

Re:

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

Dear Mr. Stephenson: In response to your authorization, we have prepared the following narrative appraisal report concerning the market value of the fee simple interest in the above-referenced real estate. Based on the investigation and analyses undertaken, our experience as real estate appraisers and subject to the definitions, assumptions and limiting conditions contained in this appraisal report, the following opinions have been formed based on the current market data as of June 17, 2005.

The estimated value of the residential parcels, discounted for the time and cost of absorption, assuming the proposed Community Facilities District No. 2004-3 financing is in place and ready for funding, is as follows: SEVENTY ONE MILLION $71,000,000 DOLLARS

Mr. Roy Stephenson July 15, 2005 Page Two The definitions of value are as such: Market Value As-Is: Means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions or qualifications as of the date of inspection. Market Value: Means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) (2) (3) (4) (5) Buyer and seller are typically motivated; Both parties are well informed or well advised and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

The narrative appraisal report which follows sets forth the results of our investigations and analyses, pertinent facts about the area and the property, comparable data and the reasoning which, in part, led to the conclusions set forth. This report is intended to be in conformance with and is subject to the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute, the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and in compliance with CDIAC appraisal guidelines. Respectfully submitted,

William V. Shrewsbury, MAI Senior Vice President California OREA License No. AG004522

/_o_ciate A'lSpraiser California OREA License No. AT031532 WVS:pa

SUMMARY

OF SALIENT

FACTS AND CONCLUSIONS

EFFECTIVE INTEREST

DATE OF APPRAISAL: APPRAISED:

June 17, 2005 Fee simple. See page 13 of this report See page 13 of this report Five tracts (zones) of land to be developed under Community Facilities District No. 20043. PA PA PA PA PA 1: 2: 3: 4: 5: Tract Tract Tract Tract Tract No. No. No. No. No. 31601-2 31601-3 31601-4 31601-5 31601-5 (178 Lots) (128 Lots) (86 Lots) (133 Lots) (110 Lots) 635 LOTS

LEGAL DESCRIPTION: OWNERSHIP: SITE:

TOTAL

LOCATION:

Various parcels described in the report herein located in the City of Indio. PARCEL NOS,: CFD 2003-4 is comprised of Assessor's Parcel Numbers 601-290-003, 601-290-008 and portions of 601-270-013, 601-270-015, and 601-270-006.

ASSESSOR'S

THOMAS

BROTHERS

GRID:

Riverside County, B5, and B6

5410-H5

and 541 l-A5, A6,

SITE: -Shape: -Earthquake Hazard: -Flood Hazard: -Environmental Issues: -Zoning: -Taxes: ADVANTAGES OF SUBJECT:

Five separate tracts of land. Irregular None. See Site Description in this report. See Site Description in this report. Various residential uses. See Site Description in this report. See Property Tax Summary. Good location within a strong developing area of Indio and surrounding desert communities. None apparent.

DISADVANTAGES

OF SUBJECT:

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOR.z\La`NDY PL.a.CE *S._NTA ANA, C,_LIFORNL-X_ 92705* PHONE 714.580-7056 FAX 714.550-7057

MARKETABILITY TYPICAL BUYER: MAJOR

FOR SALE/

The most likely purchaser of the subject site is a large developer interested in bulk purchase of the entire parcel. The 10 Freeway Corridor, the City oflndio the surrounding desert communities. and

AREA INFLUENCE:

HIGHEST AND BEST USE: -"As Is" Vacant:

Developed as set forth in the proposed Master Plan for the Community Facilities District 20043. $71,000,000

FINAL VALUE ESTIMATE: Discounted Bulk Value

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TABLE OF CONTENTS TRANSMITTAL SUMMARY LETTER ................................................. ................................ 2 4 6 8 8 8 8 8 9 9 9 11 12 12 13 13 13 14 14 21 24 25 25 25 25 27 27 27 27 27 27 28 28 28 28 29 29 29 29

OF FACTS AND CONCLUSIONS

TABLE OF CONTENTS

...................................................

INTRODUCTION ......................................................... Purpose of the Report .................................................. Intended Use of the Report ............................................. Intended Users of the Report ............................................ Scope of the Appraisal ................................................. Dates of Inspection and Valuation ........................................ Statement of Work Product/Dates of Report Preparation ...................... Premises, Assumptions and Limiting Conditions ............................ Special Limited Conditions ............................................ Definitions and Reporting Standards ..................................... Property Rights Appraised ............................................. Property Identification ................................................ Ownership ......................................................... Legal Description .................................................... AREA DESCRIPTION .................................................... Riverside County Overview ............................................ City of Indio ........................................................ Summary .......................................................... NEIGHBORHOOD DATA ................................................. Immediate Surroundings/Neighborhood .................................. Primary Neighborhood Access and Secondary Routes ....................... Distances and Directions from the Subject Neighborhood to Major Business Districts ........................................... SITE DATA ................ ............................................. Site Analysis ....................................................... Location ........................................................... Important Site Characteristics .......................................... Ingress/Egress and Exposure ........................................... Utilities and Services Available to the Subject Properties' Neighborhood Size and Shape ...................................................... Adjacent Properties .................................................. Topography ........................................................ Proposed Uses ...................................................... Soil and Subsoil Conditions ............................................ Earthquake, Flood, and Other Nuisances and Hazards ....................... Street Improvements ................................................. Easements, Restrictions and Encroachments ...............................

........

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Essential Zoning Provisions ............................................ CC&Rs/Private Restrictions, Governing Use .............................. Functional Adequacy of Site ........................................... Tax and Assessment Data ............................................. MARKET CONDITIONS .................................................. Physical and Locational Considerations .................................. Legal Considerations ................................................. Market Feasibility ................................................... Discounting ........................................................ mGHEST AND BEST USE ................................................ Highest and Best Use -- As Vacant ..................................... VALUATION METHODOLOGY ........................................... Basis of Valuation ................................................... Valuation Approaches ....................................

29 29 29 29 37 37 38 38 42 44 45 48 48 48 49 49 50 56 58 59 59 59 60 62 67 68 69 71 70

............

DIRECT COMPARISON APPROACH ...................................... Introduction ........................................................ Analysis of Comparable Sales .................... _ ..................... Single-Family Residential Land Sales Comparison Approach Analysis .......... Reconciliation of Finished Lots Value Concluded Land Value ................. DEVELOPMENTAL ANALYSIS ........................................... Absorption ......................................................... General, Administrative, Taxes, Development Costs, Profit and Marketing Costs ............................................ Discount Rate ....................................................... DISCOUNTED SUMMARY VALUATION CASH FLOW ANALYSIS OF VALUATIONS SUMMARY ...................................

............................................

.................................................

CERTIFICATION APPRAISER'S

........................................................ QUALIFICATIONS .........................................

ADDENDUM ............................................................ -Absorption Study

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INTRODUCTION

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

The estimated "as is" value of the residential acreage discounted absorption, assuming the proposed CFD funding is in place. The estimated retail market Financing has been funded. Intended Use of the Report It is these appraisers' named CFD 2004-3. conditions detailed understanding below value of the subject property,

assuming

the proposed

CFD

that this appraisal report is to be used for CFD bond financing and limiting to be in this report, This report is intended

The opinions set forth are subject to the premises, assumptions and throughout

conformance with and is subject to the Code of Professional of the Appraisal Foundation. It is also made in conformance

Ethics and Standards of Professional Appraisal Practice to the guidelines set out by CDIAC.

Practice of the Appraisal Institute and the Uniform Standards of Professional

Intended Users of the Report The intended users of the report are The City of Indio officials, underwriters, counsel and potential investors only. Scope of the Appraisal As a part of this appraisal, the appraisers analyses. Only the Direct Comparison Cash Flow Analysis, made a number of independent investigations and

Approach and a form of the Income Approach, known as have been utilized. The Cost Approach was felt

the Discounted inapplicable. 1. 2. 3. 4. All conclusions

The investigations

and analyses undertaken

include the following:

Review of area demographic and economic information. Review and analysis of the market activity for the various components of the subject property as well as the market for master planned communities. Accumulation and confu'mation of land sales similar in use to the parcels comprising the subject property. Discussions with City planners, buyers, developers and other knowledgeable persons in the area. reached axe presented in a self-contained, fully documented narrative appraisal

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report. Dates of Inspection and Valuation is expressed or V.

The effective date of value in this report is June 17, 2005. No future valuation implied by this report. Shrewsbury, MAI. The property was last inspected

on June 17, 2005 by William

Statement of Work Product/Dates

of Report Preparation

The data used in this report was collected, verified and analyzed by William V. Shrewsbury, MAI. This report was prepared between the dates of June 1, 2005 and July 15, 2005. Premises_ Assumptions and Limiting Conditions assumptions and

The analyses and opinions set forth in this report are subject to the following limiting conditions.

The valuation of the subject property is based, in part, on the cgnceptual specific land use plan proposed by the various developers. It is further assumed that all gpvemmeiital approvals have been granted to allow such a plan. The "as is" condition is based upon the project being developed as defined in this report. We reserve the right to alter the conclusion of the estimated values contained in this report in the event that any change in the development costs occur or there is a change in the specific land use plan as to the number of dwelling units or acreage for any one of the defined land uses. The value contained in this report is further conditioned upon the project being developed as defined within the body of the Community Facilities District 2004-3. We assume no responsibility for matters legal in character, nor do we render any opinion as to title which is assumed to be good and marketable, and that the premises are assumed to be free and clear of all deeds of trust, leases, use restrictions and reservations, covenants, conditions, easements, cases or actions pending, tax liens and bonded indebtedness (unless otherwise specified). No survey, legal or engineering analysis of this property has been made by me. It is assumed that the legal description and area computations furnished are reasonably accurate. In the absence of a survey, no opinion is made nor responsibility taken for encroachments or undisclosed easements (if any). A current soils report was not furnished to this appraiser for review. Therefore, we assume that the soil conditions at the subject site are suitable for the existing development. This appraisers reserve the right to alter his conclusions of value if so warranted by a soils report for the subject property. Oil, gas, mineral rights and subsurface rights were not considered in making this appraisal unless otherwise stated and are not a part of the appraisal, if any exist. This appraisers will not be required to give testimony or attendance in court or any other governmental hearing by reason of this appraisal unless arrangements have previously been made. In the event this appraiser is subpoenaed for a deposition, judicial or administrative proceeding and is ordered to produce this appraisal report and files, this appraiser will immediately notify the employer. This report has not been prepared for court testimony nor is the undersigned prepared for such testimony at this time. If court testimony becomes necessary, advance arrangements will have to be made and reasonable compensation for such additional services would have to be mutually agreed upon. The liability of First American Commercial Real Estate Services Inc. is limited to the client and to the fee actually received. There is no accountability, obligation or liability to any third party. If this report is placed in the hands of anyone other than the client, the client is responsible for making such third party aware of all limiting conditions and assumptions of the assignment and related discussions.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOtL.\LM_'-D PLACE *S,M-NTAANA, CALIFORNL a. 92705* PHONE 714.580-7056 * F,MX714.550-7057

First American Commercial Real Estate Services, Inc. is not responsible for any costs incurred to discover or correct any deficiencies of any type in the subject property; physical, financial and/or legal. The client agrees that First American Commercial Real Estate Services Inc. and the analysts will be held harmless in the case of lawsuits involving limited partnerships, syndication or stock offerings in real estate (brought on by a lender, partner or part-owner, tenant or any other party), and the client will pay any and all awards, settlements of any type, regardless of the outcome. It has been assumed that the subject improvement suffers no structural damage or termite infestation and that Urea-Formaldehyde Foam (UFFI), asbestos or other hazardous materials may have been used in its construction. It is the responsibility of the client, lender or user of this report to check for these items. These appraisers will appear at the deposition, judicial or administrative hearing with his appraisal report and files and will answer all questions unless the employer provides the appraiser with legal counsel who then instructs him/her not to appear, instructs him/her not to produce ce_ain documents or instructs him/her not to answer certain questions. These instructions will be overridden by proper court orderwhich the appraisers will follow if legally required to do so. It shall be the responsibility of the employer to obtain a protective order. The appraisers assumcno responsibili forany ty conditions notreadily observabl fromhis e /he r r elated customary inspectiofth on e subject andwhichmight affect thevaluation excepting those itcms specifically mentioned inthis report. No opinion isintended to bc expressed regarding matters that requirl eegal expertis or e specialized investigat orknowl ion edge beyondthat customarie ly mployed by the real estat a e ppraiser. Thedate ofvaluefor , which the opinions ofvalue arc expressed inthis report, is June17, 2005.The dollar amountofthis value opinion is based on thepurchasing powerofthe United States dolla on r that date. These appraisers assumeno responsibil fi or ty changes ineconomic orphysical conditions occurring after thedate ofthis report that may affect thevaluation opinion statei dnthir sepor'Maps,pl c ats andexhibits included hereia nrefor illustrat on ion ly, asan aid for thereader invisualizi ma ng tters discusse wd ithin the report. Theyshould notbe considered assurveys orrelie uponfor d anyother purpose, norshould they bc removed from, reproduced orusedapart fromthir seport. No considerati hasbe on engiven inthis appraistop al ersona prop l erty located on thepremise; only thereal estate hasbeenconsidcred unless otherwis sp e ecified. Informatic on ontaine i d nthis report hasbccngathcrcfro d msourcew shichare believe t d obc reliaba le nd. where feasibl h e a , sbccnverifie No d. responsibility is assumedfor the accuracofinforma y tisupplied on by others. Areacalculations anddimensions used arc for relatia vppr e aisc aomp l arison purposes only. There is no such thing asa completely exact mcasurcmcnt anddefinitions canvary. Any sketcoriden h tifi survey ed ofthe property includei dnthis report is only for thepurpose ofassisting the reader to visualize the property. This opinion of value is intended to be an opinion of value for a point estimate of time only. These appraisers, in rendering this opinion, assume no responsibility for subsequent management, economic or physical factors which may or may not affect said conclusions or opinion. The allocation of total value to land or to buildings, if shown in this report, is invalidated if used separately in conjunction with any other appraisal and, ifa lease or partial interest valuation is given, the sum of the parts may or may not equal the entire fee simple interest in the real estate. This appraisers estimate that the marketing time to sell the property is within 12 months. The estimated income and expense estimates used in the Discounted Cash Flow Section do not constitute an audit of this project and should not be misconstrued as such. Estimated income and expenses shown arc for appraisal purposes only and represent a combination of judgments based on marketing data, experience and estimated expenses. Expenses and income used are to bc considered stabilized; actual income and expenses may be different. In this appraisal assignment, the existence of potentially hazardous materials and/or existence of toxic waste, which may or may not be present on the property, has not been considered. This appraiser has not been notified of the existence of any such items; however, the appraiser is not qualified to detect such substances. It is suggested that the reader consult with a qualified expert in the field for the possible presence of such materials and the potential cost of correction, if found.

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Flood zones have either been confirmed with the county or city of the property. If the flood zone has not been confirmed with the city, then the flood zone has been researched by looking at the National Flood Insurance Program's FIRM (Flood Insurance Rate Map). Although the FIRM panel has been researched, We are not a flood engineer and bear no responsibility for its accuracy. If there is any question as to the validity of the FIRM panel, then I suggest that the client do an independent search, confirming the subject and panel with the National Flood Insurance Program in Washington, D.C. The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible noncompliance with requirements of ADA in estimating the value of the property. The signatory of this appraisal report is a member of the Appraisal Institute and is licensed by the State of California. The Bylaws and Regulations of the Institute require each member and candidate to control the uses and distribution of each appraisal report signed by such member or candidate. Therefore, except as hereinal_er provided, the party for whom this appraisal report or evaluation was prepared may distribute copies of this appraisal or evaluation report in its entirety to such third parties as may be selected by the party for whom this appraisal report was prepared. However, selected portions of this appraisal report shall not be given to third parties without the prior written consent of the signatory of this app.rgisalreport..(No_ing is to be removed, particularly conclusions of value. The entire report is to be presentea at all times.) runner, neither all nor any part of this appraisal report shall be disseminated to the general public by the use of advertising media, public relations media, news media, sales media or other media for public communication without the prior written consent of the signatory of this appraisal report, particularly as to value conclusions, the identity oftbe appraiser or any reference to the Appraisal Institute or to the designations granted by the organization. Any future seismic earthquakes in the Southland may have a detrimental influence upon value. We have examined the property from the exterior to see if there are any structural problems. As a result, we cannot say whether the structure has been affected by any earthquakes. In addition, we do riot know whether this structure can withstand another earthquake. Since we have no direct evidence relating to this issue, we did not consider possible structural damage in estimating the value of the property. Acceptance of and/or use of this report by the client or any third party constitutes acceptance of the above conditions. First American Commercial Real Estate Services Inc. and the analysts' liability extends only to the stated client, not subsequent parties or users, and is limited to the amount of the fee received. The appraisers assume that the flood information provided by the County of Riverside is accurate; however, if it is different, then the appraiser does not take responsibility.

Special Limited Conditions It should be noted that considerable contained in the Market Absorption by Market Profiles. Absorption weight has been considered in the absorption assumptions Study CFD 2004-3, City oflndio, dated July 2005, prepared

assumptions

set forth in the report call for the sale of finished or investors who by SunCal costs furnished

properties to "end users."

Our estimate refers to the sale of lots to developers Also, the land development at this time for developing reflect these assumptions.

will ultimately sell off to "end users."

Companies represent the costs estimated 2004-3 development. Our value estimates

the tract within the CFD We reserve the right to cost estimates.

amend our value estimate should they amend their absorption and/or development

Definitions and Reporting

Standards The

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

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term "highest and best use" is defmed in that section of this report. In addition, other standards are presented with respect to "personal property" and "self-contained appraisals."
Market Value I Means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) (2) (3) (4) (5) Buyer and seller are typically motivated; Both parties are well informed or well advised and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. Dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Market Value As-Is Means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions or qualifications as of the date of inspection. 2 Fee Simple Estate 3 Absolute ownership unencumbered by any other interest or estate subject only to the four powers of government. Cash Equivalency Definition The definition of marketvalue contains within it the concept of cash equivalency. The following paragraph elaborates on this concept as contained within the definition of market value used by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC): In applying this definition of market value, adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs thatare normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third-party financial institution that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession, but the dollar amount of any adjustment should approximate the market's reaction to the financing or concessions based on the appraiser's judgement.'

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

1Office of theComptrollerof the Currencyunder 12 CFR, Part 34, Subpart C - Appraisals,34.42 Definitions(f). 2Clarification:The property may be partially complete (only structural framework up and not enclosed); it maybe physicallycompletebut only partiallyleased upor sold out or it may alreadybe "stabilized." _TheDictionaryof Real Estate Appraisal, SecondEdition, published by the American Institute of Real Estate Appraisers, 1989,p. 120. 4Federal National MortgageAssociation (FNMA)and the Federal Home Loan Mortgage Corporation(FHLMC).

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Property Identification/Ownership This property is an appraisal of the land and improvements as follows: PA 1: PA 2: PA 3: PA 4: PA 5: TOTAL Woodside Homes Lennar Homes Lennar Homes Ashbrook Comm. Ryland Homes Tract 31601-2 Tract 31601-3 Tract 31601-4 Tract 31601-5 Tract 31601-5 located in the zones or tracts set forth 178 Lots 128 Lots 86 Lots 133 Lots 110 Lots 635 LOTS

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

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AREA DESCRIPTION

Riverside County_ Overview Riverside County consists of 24 individual cities and numerous unincorporated Riverside-San Bemardino Metropolitan Statistical communities, as

of 2005. Riverside County is typically grouped with adjacent San Bemardino County to form the Area (MSA), and the area is commonly referred to as the Inland Empire.

The major urbanized incorporated Riverside

areas are located in the westem

portion

of the county. Peripheral such

The major areas such as desert

cities include Riverside, County, known

Corona and Moreno Valley. Valley, includes

Temecula and Moreno Valley are the most active areas for new growth. as the Coachella

The desert area of world-famous

communities

as Palm Springs, Rancho Mirage, Palm Desert and Indian Wells. Riverside County County to the north, the state of

is bounded by Orange County to the west, San Bemardino

Arizona to the east, and San Diego County and Imperial County to the south, as the map on the next page indicates.

The following section summarizes trends in Riverside County.

the general population,

employment,

income and retail sales

Riverside County Population Trends As of January 2003, the countywide population stood at approximately 1,726,754 residents, in

2004 it was 1,807,858, and 2005 the population was 1,877,000. natural increase and in-migration changed accounted

Annual population

gains from

for a 2.90% increase per year.

The future rate of growth within the county will depend availability experience of developable land, availability climates, and public policy toward growth.

on a number of factors including and regional economic to

of water, the national

The areas within the county which will continue growth will be the peripheral

the largest share of the new population

area between

Corona and the Temecula Valley and the Moreno Valley area.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES - APPRAISAL AND EVALUATION 1217 NOIL\L-kNDY PLACE *SANTA ANA, C_LLIFORNL-k 92705* PHONE 714.580-7056 F.LX 714.550-7057

14

RIVERSIDECOUNTY REGIONALMAP
" '\ i " / _ -Ludlo;_'-" _ ! "-_MoJave : ...... x,, ' N"a .... tio '_. _ . '_V ' )_

I
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"

Va_|_y rine C ..... Ma Twen ty norps ine PBase alms

.
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ANGEL,#S <' ' - ' ; ' .....

tPear" ,. ""_ -.-,_, " 5 ake ..... I C Ity_, I .L /.. o" ... o.... Big Beap. r ssanGor t.z -'" _. Llignlana ................. go_ _,. .... aJ:dino , Mouniai_t
11114.99jfl ,_r "

".

:!7.<_, . :__ adi z Lake , . _:i!_ "<,_ '_..i_; DanbyLake .... =z_ _-; .-:m . _!,} _;;. ,. ; _'__':'

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Tree ",

""Uc=[i I'P ........ --' SUB]ECT PROPERTY CFD 20LAGO 04-3 TERRA Valley. i .... _ " { ..... "....... Palm S .... _" Jacinto Cathe( City National Lake Skinner ............ ,t. ..... FallbrOka "' " .... -"'" S: A N -.. Springs Warner D E"G O 'CahOilla i.R." iinta \ \t rVlecca ..... -.. ', " "'"t E R. IIO ,, "

... __.:.:, ..... / D. E Big Wash "_ i' }' I _I _n

Dry

ake DeSert _i_. 't<'_i!_" enter

95

i._7.. / I_i i;il O Z 'i N Chocolate Mountain Gunnery Range 78 7_ _' i [.LA PAZ

................................................................ i;:::J
Santa Rosa Momitain_ WilderLiess Bori_g_" ' Sp ......... dngs ';."

78)Anza.Borrego -:'_ Desert 8tate Park

: : Westmorlan_

, "

...

Pine ! ;rove _ ' " '

A_, L Bard0

0 mi

20

40

60

Copyright 1988-2003 Microsoft Corp. and/or its suppliers. All rights reserved, http:llwwwmicrosoft,cornlstreet= Copyrigh12002 by GeographicData Technology. Inc. All rights reserved. 2002 Navigation Technologies.All rights reserved. This data includes information taken with permission from Canadian authorities 1991-2002 Government of Canada (StatisticsCanada and/or GeomaticsCanada), all rights reserved.

Riverside County Employment Employment

Trends Bemardino MSA,

data for Riverside County is compiled for the entire Riverside-San construction

which includes both Riverside County and San Bernardino County. These counties have a diverse economy with manufacturing, and tourism as the major industry groups. The most employment.

common measure of employment The following information

growth is the increase in non-agricultural

in italics was taken from Market Profiles,

Inc.'s Feasibility Report

dated July I, 2005. Employment Growth

The demand for new homes in the Coachella Valley is influenced by the economic vitality of Riverside County and all of Southern California. Tourist expenditures and second home purchases are important elements of the Valley's economy. The strength oflocally based, primary home purchases is dependent upon the vitality of the tourism industry, which, in turn, is dependent upon the strength of the national and Southern California economies. From 1997 through 2000, employment in Southern California increased at a healthy average annual rate of 3.0 percent. During the same period, employment in Riverside and San Bernardino counties increased at a very strong rate of 5.2 percent per year. The rate of employment growth began to decline in the first three quarters of 2001 due to rising interest rates and a slowing national economy. Following the attack on the World Trade Center in September, job growth came to a virtual halt in the fourth quarter of 2001. Total employment in Southern California increased by 1.2 percent for the year 2001. The economic weakness experienced in the late fourth quarter of 2001 carried over into 2002 and2003 andemployment in Southern California declined slightly each of those years. Positive job growth is projected to be reestablished in 2004 and employment is projected to grow by 1.5 percent in 2004, improving to 2. 2 percent in 2005. Employment growth in Riverside County is monitored by the State along with San Bernardino County On a combined, bi-county basis. Employment in the bi-county region is projected to grow by about 2.5 percent in 2004, and the rate of job growth is projected to improve to 3.5 percent in 2005. Southern California "scontinuously expanding employment base will result in substantial demand for new homes in the Coachella Valley. Locally, the Valley's economy has begun to benefit from new employment opportunities relating to the recent voter approval of Proposition 1A which authorized the establishment of Las Vegas style casinos with slot machines on Indian lands in California. As a result, several major casino projects have been completed or are in various states of the development process in the Coachella Valley. These projects are projected to add several hundred jobs to the Valley's employment base and to attract several thousand

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EXHIBIT 11-2 EMPLOYMENT GROWTH RIVERSIDE-SAN BERNARDINO BI-COUNTY REGION AND SOUTHERN CALIFORNIA 1980 - 2006 IRiverside & San Bernardino Counties Total Increase/ Percent Employment Decrease Change 2006 1,252,700 42,000 3.5% 2005 1,210,700 40,000 3.4% PROJE!CTED 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1,170,700 1,120,200 1,082,500 1,050,700 1,010,100 960,300 903,800 863,100 824,800 801,700 772,800 755,900 751,500 741,500 735,200 689,200 647,700 610,900 574,400 536,700 495,700 465,700 452,600 458,900 452,000 50,500 37,700 31,800 40,600 49,800 56,500 40,700 38,300 23,100 28,900 16,900 4,400 10,000 6,300 46,000 41,500 36,800 36,500 37,700 41,000 30,000 13,100 (6,300) 6,900 N.A. 4.5% 3.5% 3.0% 4.0% 5.2% 6.3% 4.7% 4.6% 2.9% 3.7% 2.2% 0.6% 1.3% 0.9% 6.7% 6.4% 6.0% 6.4% 7.0% 8.3% 6.4% 2.9% -1.4% 1.5% N.A. Southern California Total Increase/ Percent Employment Decrease Change 8,464,400 168,000 2.0% 8,296,400 135,100 1.7% 8,161,300 8,039,300 8,050,500 8,063,200 7,966,600 7,750,300 7,529,300 7,283,600 7,066,800 6,940,800 6,816,100 6,780,400 6,883,300 7,088,300 7,268,900 7,165,800 6,975,400 6,734,100 6,493,200 6,267,100 6,029,300 5,762,500 5,708,600 5,844,400 5,755,100 122,000 (11,200) (12,700) 96,600 216,300 221,000 245,700 216,800 126,000 124,700 35,700 (102,900) (205,000) (180,600) 103,100 190,400 241,300 240,900 226,100 237,800 266,800 53,900 (135,800) 89,300 N.A. 1.5% -0.1% -0.2% 1.2% 2.8% 2.9% 3.4% 3.1% 1.8% 1.8% 0.5% -1.5% -2.9% -2.5% 1.4% 2.7% 3.6% 3.7% 3.6% 3.9% 4.6% 0.9% -2.3% 1.6% N.A.

Source: CaliforniaEmployment Department, MarketProfiles

MARKET PROFILES, INC.

274211x2-1,2,3,4,5,6,7.xls

more visitors to the region. This growth will have a stimulating influence on the demand for new homes in the Coachella Valley. The first major impacts of the casino expansion were felt in 2001. Casino projects recently completed and planned include the following: opened for business in

The Augustine Casino, south o! the City ol Coachella, 2004. The casino employs approximately 300persons.

The Morongo Band o! Mission Indians recently completed construction o! a $250 million casino resort hotel on a site located a few miles west o! Palm Springs on the north side of Interstate 10. The project is expected to create 4, 000 new iobs over the next l_ve years. When completed it will be one of the largest gaming destinations on the West Coast. A $90 million, 125,000 square foot casino recently Rancho Mirage. opened in 2004 north of

The Aclua Caliente Band o! Cahuilla Indians announced in January plans to expand the Aclua Caliente Casino by additional 65, 000 square feet, add a new 14 story hotel with 400-rooms, and add 350,000 scluare !eet of retail space. These various proiects will be on the Aclua Caliente Reservation at the corner o! Bob Hop Drive and Ramon Road, which is an unincorporated area of Riverside

County.
In Palm Springs, the Spa Resort Casino opened in 2004. The $95 million gaming faciliIv has 30 tables, 1,000 slot machines, an entertainment lounge, and four restaurants. Construction has begun on the first phase of a 300-acre resort and corporate development located in Palm Springs. The Indian Oasis Resort and Corporate Center will ultimately include a l O-storv hotel, 290 condominium units, an 18-hole goll course, a 100, 000 square foot shopping center, and 500, 000 square feet of office space.

In 2003, the :_'owth o! the Coachella Vallev's economy was affected bv the slowdown in tourism that began in 2001. Hotel revenues in the Valley declined by 4. 8% and 3. 2% in 2001 and 2002, respectively. This drop in visitor activity had a dampening effect on the demand for new homes in the Vallep. Nevertheless, the sales of new homes increased in 2002 compared to 2001 (see New Home Sales Trends below). Since 2003, however, tourism has started to rebound, with hotel room revenues increasing by 2. 4 percent in 2003 and 4. 3 percent in 2004. Further improvement in hotel revenues is projected for 2005. The projected improvement in the health of the Southern California economy over the next two years will strengthen the underlying demand for new homes in the Coachella Valley. The volume o/visitors to the Valley will recover and grow, while the financial state and the confidence levels of new home buyers will improve. Demographic and Housing Profile

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

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year over the next five years. Although the percentage rate of growth is declining, the growth rate in absolute terms is projected to remain near recent levels. The average household size in the Coachella Valley is 2. 68persons. This is a low figure resulting from a large proportion of one and two-person households. Nearly two-thirds (64%) of the market area's households consist of one or two persons, compared to 54percent countywide. The large proportion of small households is partly due to a large retired population. Nineteen percent of the population is over 65 years of age. Countywide this age group accounts for 14 percent of the population. The population of the City of lndio is 61,516persons. At 3.46persons, the average household size in the city is much larger than that of the Coachella Valley as a whole. The city has a much largerproportion offamily households with children than do the other communities in the Valley. The income profile of the Valley's households is very diverse. Households are distributed across a broad range of annual incomes from under $25,000 (21%) to over $100,000 (20%). The median income of households in the Coachella Valley is $44,240. This is a modest figure that is 8. 6% below the countywide median figure of $48, 384. The median income of households in lndio is $39,477.

Housing Profile Single family detached homes account for 46percent of the Valley's housing stock compared to a countywide proportion of 61 percent. The median housing value in the Coachella Valley is $238,378 (existing homes). This figure is slightly below the figurefor Riverside County of $245,354. However, the Valley's housing stock is very diverse. The Valley has a greater than typical proportion of the least expensive homes and of the most expensive homes. Twenty five percent of the Valley's housing stock is valued below $150,000 compared to 22% countywide. However, the Valley also has a higher proportion of homes valued over $400,000 (24% versus 18% countywide). Housing vacancy rates are very high in the City of Palm Desert, as well as in the Cities of Indian Wells, La Quinta, Palm Springs and Rancho Mirage. These high vacancy rates of over 30%, 40% and even 50% are due to the high incidence of second home ownership in these cities. Assuming an underlying vacancy rate of five to ten percent, second home ownership in these cities ranges from 20 to 45 percent of the total housing stock. The proportion of second home ownership in the City of lndio is relatively low. The proportion of second home ownership in the city is estimated to be about ten percent. However, this proportion is projected to increase over the next five years. New Home Sales Trends The volume of sales in the Valley declined from a peak of 3,356 in 1989 to 953 in 1993 due to the effects of the regional recession that began in mid-1990. Sales activity remained moderate from 1993 through 1997, then accelerated to 2,226 homes sold in 1998 and to 3,330 homes in 2000. Sales for 2001fell to 2,510 homes due to a general slowdown in economic growth in Southern California Sales increased to 4,236 homes in 2002. Sales activity continued to increase in 2003 and in 2004 with 5, 768 homes sold in 2003 and 5, 851 homes sold in 2004.

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The geographic pattern of new home sales in the Coachella Valley has shifted over the past few years. Excluding the lndio-Coachella submarket, sales activity among the other submarket areas varied significantly from year to year. The sales fluctuations have been due largely to supply considerations. Sales in the Palm Desert submarket dropped from 1,313 homes in 2002 to 383 homes in 2003 due to a decline in home supply. Alternatively, homes sales in the Palm SpringsCathedral City submarket (including Desert Hot Springs) increased from 393 homes in 2002 to 1,161 homes in 2004 due to an increase in supply. The shifting geographic pattern of sales activity is likely to continue in the future. More sales activity is expected to emerge in Palm Desert since the city has recently ended its moratorium on development in its northern sector. In contrast to fluctuating sales activity in the other submarket areas of the valley, new home sales in the lndio-Coachella Submarket have consistently increased over the past three years. Sales jumped from 591 homes in 1999 to 1,217 in 2002 and2,890 homes in 2003. New home sales in the Indio-Coachella Submarket continued to accelerate in 2004 with sales totaling 2,596. Moderate home prices have been a major attractor of home buyers to the submarket. Price Trends The average price of a detached home sold in the Coachella Valley in the third quarter of 2005 was $487, 063. The average sale price has fluctuated from quarter to quarter due to the changing mix of product offerings. Although the prices of individual homes have risen significantly, the average sale price of all homes has risen only moderately over the past 4 years due to the increase in the sales volume of modestly-priced homes located in the lndio-Coachella submarket area. The average price of new homes sold in the lndio-Coachella submarket during the first quarter of 2005, was $381,349. This figure is 40percent higher than the average sale price for the first quarter of 2004 of $2 72,163. Sales are spread across a broad price spectrum ranging from under $200,000 to over $400,000. During 2004 and 2005, there is a clear pattern of decreasing sales oflower priced homes as the price structure of new homes in the Valley has shifted upward In the first quarter of 2004, 50% of the new homes sold were priced under $300,000. By the first quarter of 2005, that proportion has dropped to just 6. 7%. The lndio-Coachella submarket area dominated the sales of homes in the Coachella first quarter 2005 that were priced under $400,000. Profected New Home Demand The primary factors that have contributed to strong new home sales in the Coachella Valley the local job-creating projects outline above, and very low mortgage interest rates. Supported by favorable regional and national economic trends, job growth within the Valley is projected to continue at a favorable pace. And, although mortgage interest rates are expected to rise moderately, a healthy volume of new homes sales is projected to be sustained within the Coachella Valley. Based on the data analysis, it is projected that the demand for new homes in the Coachella Valley will average 4,500 homes per year over the next five years. With 5,851 homes sold, the 2004 sales volume surpassed the projected annual demand of 4,500 homes. However, it is projected that the pace of sales will moderate in 2005 and 2006. Valley in

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The majority of the demand will be fueled by the primary buyer segment (i. e., owner occupants as opposed to second home owners), including retired households. Second home buyers, includingpre-retirement buyers, are projected to account for just over one quarter of the demand The great majority of the buyers that are active in the community of lndio consist of primary home buyers consisting primary of first time buyers and local move-up households. The Coachella Valley new home market is diverse. Market spread across a wide range of prices from under $300,000 to over $1,000,000. The majority of the demand for new homes in the IndioCoachella submarket emanates from primary resident households. Primary homebuyers are responsible for the high volume of demand below the $400, O00 price level.

Riverside County Transportation Riverside County is served by a major airport, Ontario International, Bemardino County. international flight capabilities. miles west of Riverside. Los Angeles International which is located in San national and 60

Several major airlines have flights into Ontario, providing Also, Palm Springs has its own airport.

Airport is located approximately

A network of freeways links most urbanized areas of the county.

The major north-south

arterial

are the Devore Freeway (Interstate 15) and the Escondido Freeway (Interstate 215). The Riverside Freeway (State Highway 91), the Pomona Freeway (State Highway 60) and the San Bernardino Freeway (Interstate 10) provide east-west access to the desert communities and Los Angeles.

Riverside County Amenities Within a two-hour drive of the County of Riverside are ocean and mountain famous desert communities ski resorts. World-

such as Palm Springs are also found in Riverside County.

Riverside County Conclusion Riverside County is the fastest growing county in the Southem population and employment. real estate values in general. The county remains employment become diversified with an ever-growing California region in terms of expansion. It has

poised for considerable

base which should be a positive factor on

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

of the City of Riverside,

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130 miles southeast of the City of Los Angeles and 529 miles south of San Francisco. of lndio was incorporated May 16, 1930. The city consists of approximately and is bounded by unincorporated

The City

24.8 square miles

Riverside County {o the north and south, the City ofLa Quinta

to the west and Coachella to the east. Please refer to the location map earlier in this section. Population The City oflndio has had dramatic population increases in the last 30 years. Growth from 1970

to 2000 has been from a population of 14,469 to 45,700 as of January 1,2000, and four years later it was 66,118, reflecting a 22.7% increase. within the Coachella be the development Population shifts from other suburban developments

Valley have been a key factor in Indio's growth in recent years, as well as of the east and southern sections of the city.

the progression in growth to the east away from Palm Springs. Most future growth in the city will

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

lndio's families have an average income and education

Transportation The City of Indio has a variety of transportation transportation facilities available. Rail is available Overnight by Union Truck is is delivery Pacific main line. Amtrak passenger rail service is available in Indio and Palm Springs.

has two carriers for direct daily service to Los Angeles. San Francisco, San Diego, Phoenix and Mexicali. Airport, 20 miles northwest, and an 8,500-foot runway.

offered to Los Angeles, available. (Alaska

Air transportation The Bermuda

Palm Springs International

is served by nine airlines Dunes County-owned

being the largest), general facilities

Airport, a private general aviation facility, is located in adjacent Bermuda Dunes. a 5,000-foot runway. Bus transportation is available by Greyhound.

Desert Resorts Regional Airport, 7 miles southeast in Thermal, has general aviation facilities and The SunLine Transit Agency Center. 130 miles provides local bus service throughout the Coachella The nearest ports are Los Angeles/Long southwest. Highways California 111 northwest/southwest; Beach, Valley from the Indio Transportation 133 miles west, and San Diego,

serving Indio are the 1-10 west to Los Angeles and California

and east to Phoenix;

86 (NAFTA Highway) south to Brawley and

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El Centro in Imperial County, Yuma, Arizona, and Mexicali and Mexico City, Mexico. Industrial There are 1,341 acres in the City limits zoned for industry. land is no longer available. Community Characteristics The city has numerous facilities available. In the health-related area Indio has one full-service service. This is available in parcels ranging City-owned

in size from to 200 acres. Included in this acreage total are 20 industrial parks.

hospital, with 130 beds; a 24-hour emergency Seventy-one physicians/surgeons,

care facility; and a base for paramedic and 8 chiropractors

18 dentists, 9 optometrists

practice in Indio.

With regard to education, the Desert Sands Unified School District has 14 elementary 5 middle schools, 3 high schools and 1 continuation school. build a K- 12 campus, near the subject property, north of Interstate The high school should be completed Education Center to expand educational University; California State University,

schools, to

The School District is planning

10 at Jefferson and Avenue 39.

in 2008. College of the Desert is opening up the Valley opportunities in Indio. The facility will partner with of Redlands offer

several universities to offer distance learning on a "per class" basis. Chapman College; National San Bernardino; and University

programs in Palm Desert/Palm

Springs leading to bachelor's

and graduate degrees.

Of cultural interest, the community has two direct TV channels and one cable system (MediaOne). Indio has 36 churches, 2 libraries, 1 daily newspaper, 3 weekly newspapers, 4 banks, 2 savings arts

and loans, 7 parks, 1 sports complex, 1 community center and 5 parks. and private golf courses; 200-acre waterskiing and fishing.

1 theater with eight screens and 1 live performing facilities include:

center. Neighboring Coachella has 13 churches,

1 library, 1 bank, 1 boxing club, 1 radio station, over 90 public

Other regional recreational Lake Cahuilla

Park (County);

and Salton Sea for boating,

Indio offers many recreational

facilities including

the Indio Municipal

Golf Course, Heritage Golf Club, among the polo, swimming, a variety of

Palms, Indian Springs, President's tennis, mountain biking, hiking,

Club at Indian Palms and Landmark opportunities four wheeling and off-roading.

city's seven public courses. Other recreational activities for the outdoor enthusiast.

include equestrian,

Indio provides

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The median sales price for new and existing homes is $377,449, Estate May 2005 Report. The medium and upper-medium developments,

according to the Desert Real

housing stock is growing quickly. the

Indio has a number of newer developments such as The Shadow Hills residential Ventanas, and Palazzo.

where prices range from $300,000 to over $400,000, such as the E1 Dorado Collection, area with

There are also new homes being built in the Indio Ranchos

many prices exceeding $300,000. There are 40 hotel/motels,

areas.

with approximately

2,500 rooms in Indio. There are 20 mobile home and Indio and surrounding unincorporated

parks, with 3,000 spaces, in the Cities of Coachella

Summary Indio is strategically located in the Coachella Valley as a service and retail center for a strong agriresort and recreational economy. A major interstate highway (Ibusiness and rapidly expanding

10) and railroad (Union Pacific) offer excellent transportation sector, all of which provide a healthy economy attractive emerging industry sectors, including: cluster and home improvement/home relocation/consolidation Auto Mall, Metropolitan

service for an emerging industrial Indio hosts several include:

for investment.

golf industry manufacturing

cluster, agricultural industry

furnishings industry cluster. Recent developments

of county facilities, including courts, Dash Golf Carts, Matzie Golf, I- 10 8 Theater, JFK Hospital expansion, East Valley Education Center and

the new casinos being developed.

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NEIGHBORHOOD

DATA

Immediate

Surroundings/Neighborhood map identifying the subject properties As can be seen on this neighborhood in relation to the map, the subject

On the following page is a neighborhood City of Indio and surrounding properties areas.

are located in the north central section of the City of Indio.

CFD 2004-3 is located north of Interstate and industrial expansion

10, at the northeast comer of Golf Center Parkway and 111 Corridors within the southwestern has absorbed much workers are

Avenue 43. The City of Indio has become a focal point of much of the residential, commercial along the I-10 and Highway

Coachella Valley region in which the subjects are located. and importation from other areas. Unskilled

This expansion

of the skilled labor pool and created demands for skills which are available only through training and, for the most part, semi-skilled available in adequate supply.

The subject property is judged to be conducive to a single-family, competitive development. with similar developments within the immediate At present, the commercial

detached housing development, market areas of the subject

area is along Highway 1t 1 and Jackson Street. Routes

Primary_ Neighborhood

Access and Secondary

The primary access to this neighborhood subject property.

is by automobile with some limited bus access. This is

supported by the close proximity of the I-10 Freeway, located approximately 1 mile south of the

Distances and Directions from the Subject Neighborhood

to Major Business Districts

Major urban areas in the vicinity of the subject property include the City of Riverside and County seat, located approximately located approximately 78 miles west of the subject property, and the City of Palm Springs, The City of Ontario, which is home to the Ontario 100 miles northwest of the subject property. from agricultural/desert steady growth is expected 15 miles northwest.

International Airport, is located approximately In summary, the immediate neighborhood land uses to residential and commercial to continue.

is going through a transition

uses. As previously mentioned,

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NEIGHBORHOOD MAP

C
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I A

!
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ibezon

E'

111}

"..

La QI Iinta

'

_,, _oachella,\

--"x
Copyright @ 1988-2003 Microsoft Corp. and/or its suppliars. NI rights reserved, http:flwww.mlcrosoft.conVstreets Technologies. All righls reserved. This data includes information Copyright 2002 by Geographic Data Technology, Inc. All rights reserved (Stalistics Canada and/or Geomatics Canada), all rights reserved @ 2002 Navigation

.
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laken with permission

1'
from Canadian authorities

2'
1991-2002

3'
Government of Canada

SITE DATA

Site Analysis:

The subject site description is based on a personal inspection of the subject property and discussions with developers, as well as a review of plat maps, Assessor's Maps and land use plans. The subject property consists of five separate tracts, located in the City ofIndio. A map showing the outline of the residential tracts is included on the map at the end of this section. The tracts have generally level topography. The market area is well supported by various residential developments. Average to good proximity and freeway access. No apparent negative factors were observed. Access to and circulation within the developments are depicted on the map at the end of this section. The design of the internal collectors appears to allow for adequate travel lanes in each direction. Additionally, there will be sidewalks and landscaping on both sides of the roadways. All roads will be constructed to City of Indio standards. The roadways will be dedicated to the City of Indio upon completion and maintained by the City through the assessments of a community service agency. The tracts will be valued assuming a finished map is in place and the lots are in a "readyto build" condition. They will also be valued, discounted back to an "as is" condition, with the assessment infrastructure in place. The land development costs have been furnished by SunCal Companies and are presented and applied in our market value analysis.

Location:

Important Site Characteristics: Positive Site Characteristics: Negative Site Characteristics: Ingress/Egress and Exposure:

Utilities and Services Available to the Subject Properties' Neighborhood:

Utilities and services are furnished by the followir_g agencies/companies: Electricity: Natural Gas: Water: Waste Water: Imperial Irrigation District Southem California Gas City of Indio Valley Sanitary District

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27

Telephone: Fire: Police: Transit:

Verizon County of Riverside Indio Police Department Sun Line Transit Agency

Rates for these utilities, to be provided and applied to the subject properties, are generally competitive with the Riverside County area as a whole. All the aforementioned utilities have source proximate to or directly to the subject zones. Size and Shape: The zones of the CFD 2004-3 project following approximate sizes and densities.
LAND USE SUMMARY PA Total Acreage* Total Residential Acreage** 33.05 33.95 24.25 17.60 26.9 135.75 # of Lots Density Based on Total Acreage 3.78 3.50 3.32 3.20 4.22 3.60 Density Based on Residential Acreage 5.38 3.77 3.55 7.55 4.10 4.87

lines

consist of the

1 2 3 4 5 TOTAL

47.09 36.58 25.67 41.56 26.01 176.91

178 128 86 133 110 635

Source: FACRES * Information obtained from Tract Maps **Information obtained from the Master Plan Map

The tracts are irregular in shape and will be identified such in the CFD 2004-3. Adjacent Properties:

as

The land area adjacent to the subject tracts is either vacant or improved with residential developments, similar to the proposed uses for the subject. The land is generally level. For a summary of the specifics and projected prices of the residential product type proposed for these tracts, the reader is referred to the Price and Absorption Study of the subject tracts prepared by Market Profiles of Tustin, California. A portion of that report is included within this appraisal report.

Topography: Proposed Uses:

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Soil and Subsoil Conditions:

A soils report was not provided

for review.

Based on the nature of this report, we have assumed the soil is of suitable load-bearing capacity for the proposed development and indicated highest and best use of the site under study.

Earthquake, Flood, and Other Nuisances and Hazards:

The subject property is not located in an environmentally hazardous area per the City of Indio. The site is considered a seismically active area, as is all of Southern California. There are, however, no known active faults on or immediately adjacent to the site, and the hazard of surface fault ruptures is considered very low. All of the parcels in CFD 2004-3 are located in Flood Zone B, Map Page and Community PanelNumber 0602550002, dated May 1, 1985.

Street Improvements:

In general, the subject tracts will have finished roads and utility access completed. A title report was not available for our review. We have assumed there are no easements or encroachments which could adversely affect the value of the subject property. The appraisers reserve the right to alter their conclusion of value if subsequent information indicates a change is warranted. The subject tracts in CFD 2004-3 consists of residential land use sites within the Master Planned Community. There are Covenants, Conditions and Restrictions (CC&Rs). First American Commercial Real Estate Services Appraisal and Valuation Division assumes these do not have an adverse effect upon value. The sites appear functionally adequate for the proposed development as described in the developer's proposed plan. In California, all real property is assessed at 100% of full cash value (which is interpreted to mean market value of the fee simple interest) as determined by the County Assessor. Generally, a reassessment occurs only when a property is sold (or transferred) or when new construction occurs (as differentiated from replacing existing construction). Assessments for properties that were

Easements, Restrictions and Encroachments:

Essential Zoning Provisions: CC&Rs/PrivateRestrictions, Governing Use:

Functional Adequacy

of Site:

Tax and Assessment

Data:

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acquired before the tax year 1975/76 were stabilized as of the tax year 1975/76. Property taxes are limited by State law to 1% of the assessed value plus voter-approved obligations. Taxes are payable in two equal installments, which become delinquent after December 10 and April 10, respectively. The existing parcels are not currently assessed by individual lot parcel numbers by the Riverside County Tax Assessor. Total taxes will ultimately reflect the presence of the CFD bonds, the creation of which is the purpose of this appraisal.

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MASTER PLAN

....

COMMUNITY MASTER PLAN

........

:'""

TERRA
INDIO.

- LAGO

CALIFORNIA

INDIO LAND VENTURES, LLC, SUNCAL COMPANIES

_II('H,_t 'd._I)DtL_ AS_OCI^TES

._,
.,.,n a.h,._s_,

32288

.......

MARKET

CONDITIONS

Physical and Locational

Considerations characteristics of the five planning areas of the subject CFD No.

The physical and locational

2004-3 are considered to be very good. The sites are all located in a master planned development in a developing area of Indio. The subject referred to as Phase 1 of the Master Plan, will include a 22 acre private lake with boat access, two golf courses and a recreation clubhouse, pool and a tennis complex. park. The planning areas are currently surrounded, complex, complete with land.

In addition each tract will have it's own neighborhood to a large degree, by undeveloped

Currently, strong growth is seen as imminent economy stays stabilized as it presently is.

surrounding

the subject tracts as long as the

As noted in the Site Description

section of this report, the subject's Engineering development

sizes and topographies

are

adequate for residential development. the use outlined in the proposed perspective, a variety of residential

and site work is necessary to accommodate plans but from a physical possible. and locational

uses are physically

Access to all zones is considered good. Accessibility residential constructed land uses to be developed on the zones and access roads are extended,

and location would allow for a variety of as planned. As residential units are and retail support use

the demand for residential

should increase, thereby increasing an already good economic

environment.

The five subject zones, as currently proposed, will consist of the following family units: P_AA 1 2 3 4 5 Lots 178 128 86 133 110

detached

single-

TOTAL

635

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The subject properties

will consist of predominately

single-family

residential

developments. near the subject

This appears to be a logical extension of the existing residential area. The land will physically accommodate

developments

the proposed density.

Legal Considerations The legal factors influencing governmental regulations the highest and best use of the subject properties are primarily

such as zoning and building codes.

The subject zones and tracts are zoned for residential uses within the Terra Lago Master Planned Community. requirements There are no other existing entitlements other than current City of Indio building covenants and restrictions associated for the tracts. There will be some conditions, however,

with the tract developments; expected to negatively

these are mostly cosmetic in nature and would not be

affect the lot value.

The developers'

conceptual

plan for the subject developments

are currently use.

being developed.

Based on the ultimate approval of the developer's conceptual plan, which includes all residential use, the proposed development Market Feasibility the subject property will be considered. The is assumed to be a legally conforming

In this section, market conditions that influence major factor requiring consideration or its financial feasibility. or market feasibility.

is the attractiveness

of the subject as a real estate investment

Financial feasibility

is based, to a large degree, on market acceptance

The pathway of the growth in Riverside County has been concentrated the Coachella Valley.

in several growth "nodes." Jacinto, Murrieta and

These nodes of growth include the Cities of Corona, Riverside, Hemet/San

The City of Indio has historically been known as primarily The area was characterized

an affordable

housing community.

by mobile home parks and subdivisions

of small homes, and small

detached residential product targeting the first-time buyer and/or the empty nester, retirement or winter resident market.

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The current conceptual plans proposed for the subject tracts appears to be the highest and best use of the subject property when analyzed from a market perspective. as the subject, we have endeavored supportable development the market conditions In valuing property such to analyze the market conditions and compare the anticipated plan currently in place. Where possible, if of the product type proposed for the subject, it

uses with the conceptual

support the development

is assumed that a purchaser of the subject property would develop the site with a similar use. In the case of land uses outlined in the conceptual plan that are deemed not supportable by market conditions, alternative uses are considered. report for the land use, a determination Based on the data and analysis of the Market Profiles is made as to whether the development plan for the plan is

subject site is the highest and best use of the land. This market-supported

development

then used to estimate the value of the subject site in the Valuation section of this appraisal report.

The following analyses of the market conditions and absorption rates by product are used as tests of reasonableness rather than a full detailed market analysis of the subject project. A number of to help in our analysis. The most important was the report

marketing reports were reviewed

prepared by Market Profiles, Inc. The following Profiles, Inc.'s Feasibility Report dated July 2005. New Home Competition

information

in italics was taken from Market

During the first quarter of 2005, there were 78 subdivisions marketing new detached homes in the Coachella Valley. The 78projects account for a total of 15,042 homes of which 8,213 homes have been offered for sale and all but 559 of the homes offered have been sold. This is a low unsold inventory level The Coachella Valley new home market is very diverse. The lndio-Coachella and the lndian Wells-LaQuinta submarkets had the largest number of active new home subdivisions during the first quarter period with 26 and 24 projects, respectively. The lndio-Coachella submarket generated the highest sales volume during the quarter (585 homes). The sales of new homes in the submarket were aided by the moderate prices of homes. The average sales price was $381,349 compared to $792,518 in the nearby LaQuinta-lndian Wells submarket. There were 26 new home subdivisions that were active in the lndio-Coachella Submarket during the first quarter of 2005. The 26projects account for 7,330 homes, of which 3, 722 have been offered for sale and only 155 of those remain unsold. Seventeen of the new home projects are located in Indio andnine are located in Coachella. With 3,200 homes, the retirement community of Sun City in Indio (Shadow Hills) accounts for nearly half of the homes. An additional three of the projects, accounting for 344 homes are located within the lndian Palms Country Club, also in lndio.

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lnvento_

Levels

The total of 559 new detached homes that remain unsold (including homes under construction, completed, and pre-selling) throughout the Coachella Valley is a favorable unsold inventory figure. As a rule, a balance between the unsold inventory at the end of a quarter and the number of homes sold during the quarter is indicative of a healthy market condition (i.e., 1:1 unsold to sold ratio). Thus, compared to the sales volume of 964 homes sold during the first quarter period, the unsold inventory of 559 homes at the end of the first quarter of 2005 is indicative of a favorable market condition (0.58:1 unsold to sold ratio). Inventory conditions in the lndio/Coachella submarket area are even more restricted than elsewhere in the Coachella Valley. At the end of the first quarter of 2005, the unsold inventory in the Indio/Coachella submarket totaled 155 homes compared to fourth quarter sales of 585 homes (0. 26:1 unsold to sold ratio). Sales Rates The sales rates include "Cumulative" and "Current Quarter" rates. The Cumulative sales rate describes the rate of sales generated since the date of opening of each project, and the Current Quarter sales rate describes the rate of sale during the third quarter period. Cumulative sales rates range widely from O.08 to 7. 9 homes per week sales rate is 2. 79 homes per week per project. The average cumulative

The new home projects that are most similar to the subject development are those that are located in the Shadow Hills community of north Indio. During the first quarter of 2005, there were seven new home subdivisions active in the Shadow Hills community. The cumulative sales rates among those seven subdivisions range from 0.31 to 7.87 homes per week. The average sales rate is 2. 79 homes per week and the median rate is 1.64 homes per week.. Most Competitive New Home Projects The new home subdivisions that are most relevant to the subject properties are those that are located within the Shadow Hills community located north of the 1-10 Freeway. The seven projects are described below. The fastest selling subdivision in Shadow Hills is Bella Tierra. The first 40 of these 3- and 5bedroom homes have been sold at a rate of 8.12 homes per week. The base prices range from $379,990 to $419,990 for plans that range in size from 1,895 to 2,629 square feet ($159. 75 to $200.52 per sq. ft.). The homes are sited on 8, 000 square foot lots (minimum). Another fast selling subdivision is Foxstone by KB Home. All 63 homes that were released during the first quarter were sold equating to a sales rate of 4.88 homes per week. The project has another 182 homes remaining to be sold in subsequent phases. The base prices of these homes range from $307,990 to $368,990 for 2- and 3-bedroom plans that range in size from 1,517 to 2, 526 square feet ($146. 07 to $203.02 per sq. ft. ). The residents pay a homeowners fee of $100 per month, plus CFD taxes. The neighborhood is gated and the minimum lot size is 8, 000 square feet.

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The 132-lot Sienna subdivision recently opened in Shadow Hills. The base prices of the homes range from $394,990 to $44 7,990for 3- and 4-bedroom plans that range in size from 2,448 to 3,143 square feet ($142.54 to $161.35 per sq. ft.). The 263-1ot Shadow Ranch subdivision by Family Development sold out its ftrst phase of 30 homes at a rate of 3. 0 homes per week. These homes range in price from $394,990 to $489,990 for 3-, 4-, and 5-bedroom plans that range in size from 3,185 to 3,24 7 square feet ($150. 90 to $180.77 per sq. ft.) The residents pay a homeowners fee of $95 per month for green belt maintenance. The minimum lot size is 8, 500 square feet. The Desert Collection is a gated subdivision of 142 homes. The base prices of these 3-bedroom homes range from $364,990 to $414,990forplans that range in size from 1,610 to 2, 266 square feet ($183.13 to $226. 70per sq. ft.). The residents pay a homeowners fee of $ 75 per month. The first 73 homes were sold at a rate of 3. 31 homes per week. The minimum lot size is 7,200 square feet. There are two subdivisions still active within one private, gated neighborhood developed by Century Vintage Homes. The three subdivisions are The Ventana Collection, The El Dorado Collection, and Villa Estates 11. The homeowners will pay dues of $50 per month for maintenance of the private streets, plus an assessment district fee. The Ventana Collection consists of 2- and 3-bedroom homes that range in size from 1,208 to 1,843 square feet with base prices ranging from $299,990 to $339,990 ($184. 47 to $248.33 per sq. ft.). Of the 198 homes in this tract, 87 have been sold at a rate of O.81 homes per week. The base prices of the homes in The EI Dorado Collection range from $339,990 to $424,990for 2- and 3-bedroom plans that range in size from 1, 720 to 2, 778 square feet ($152.98 to $197.66 per sq. ft.). Of the 198 homes in the tract, 176 have been sold at a rate of 1.64 homes per week. The Villa Estates II homes have base prices ranging from $294,990 to $394,990. These 3- and 4-bedroom homes range in size from 1,302 to 2, 735 square feet ($144. 42 to $226.56per sq. ft.). Of the 137 homes in the subdivision, 123 have been sold at a rate ofl.53 homes per week. The new community of Talavera in northeastern most Indio recently openedwith four new home subdivisions offering homes for sale. The homes range inprice from $299,999 to $416,990. The minimum lot size for all of the homes in Talavera is 8, 000 square feet. The Venecia homes are the smallest being offered in Talavera. They consist of 3- and 4-bedroom plans that range in size from 1, 576 to 1, 94 7 square feet with base prices ranging from $299,999 to $333,990 ($171.54 to $190.35 per sq. ft.). Twenty-five of the 45 homes in the first phase release were sold at a rate of 1.76 homes per week. The homes in the Florencia subdivision in Talavera range in size form 1,855 to 2,380 with base prices ranging from $330,000 to $370,000 ($155.46 to $179.45per sq. ft.). Of the 44 homes in the first phase, 26 were sold at a rate of 5.93 homes per week. Also in Talavera, the Alicante homes consist of 3-, 4-, and 5-bedroom plans that range in size from $389,540 to $404,990 ($130. 68 to $156.25per sq. ft.). Two thirds of the 33 homes released in the first phase have been sold at a rate of 3.61 homes per week.

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The largest homes being offered in Talavera are those in the Genova subdivision. The base prices of these homes range from $396,990 to $416,990for 2-, 3-, and 5-bedroom plans that range in size from 2,848 to 3,280 square feet ($127. 64 to $139.39 per sq. ft.). Eighteen homes have been sold at a rate of 1.9 homes per week.

Proposed New Home Development There are approximately 7,500 new homes within more than 40 subdivisions that are proposed for future development in the City of lndio. With this scale of proposed activity, it is projected that the Indio market area will experience a competitive environment for the next several years. However, the market is currently undersupplied and the homes that are planned for development will be constructed in a phased manner over the next several years. It is projected that competitive conditions will be more intense than those currently being experienced in the lndio marketplace, however, generally healthy demand-supply conditions are projected to be maintained. The majority of the new homes that will be constructed in lndio over the next few years will be located in and around the Shadow Hills community located north of Interstate 10 Freeway. In addition to the 1,400-plus homes that will be developed within the subject Terra Lago community, there are more than 2, 700 homes that are planned for construction elsewhere in the Shadow Hills community. The majority of these homes will be constructed over the next three to four years. There will be 2, 723 homes that will be part of the City of lndio Assessment District 2004-VSD. All of these homes will be located in the Shadow Hills community to the west of Terra Lago community. The prices of the homes will generally range between $350,000 to $500,000. The two subdivisions by Family Development are under construction and are actively selling homes. Also located north of the 1-10 Freeway is the site of the Andreas Ranch that will include 937 homes within a private, gated community. This property is located north of Avenue 38 at Jefferson Street.

Diseountinl_ In order to obtain an "as is" value, the finished lots need to be analyzed considering would take to sell them off. Consideration

the time it

needs to be given to the costs to finish the lots and Our

the various costs associated with marketing and holding the lots during this time period.

absorption rate estimates are by land product which were compared to the estimated absorption rates from the Market Profiles Market Consultants expectations report dated July 2005. Our absorption estimate assumed are very similar to those outlined in that report. Our absorption is within a reasonable range.

a purchase of the subject tracts by a merchant builder. advised by Market Profiles Market Consultants Based on the tracts that are being analyzed,

It appears the absorption rate projection

it is estimated

that a period of one year would be

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required to sell the land associated with the proposed residential 635 residential infrastructure lots. Our absorption estimate

tracts. This includes a total of proforma and

is tied to the developer's

costs as well as Market Profiles Consultants' absorption study.

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HIGHEST

AND BEST USE

Highest and Best Use 5 is an appraisal concept which has been defined as follows: 1. The reasonable and probable use that supports the highest present value of vacant land 6 or improved property, as defined, as of the date of appraisal. The reasonably probable and legal use of land or sites as though vacant, found to be physically possible, appropriately supported, financially feasible and that results in the highest present land value. The most profitable use.

2.

3.

Implied in these definitions is that determination benefits of that use to individual property owners.

of highest and best use takes into account the development goals as well as the Hence, in certain situations the highest and conservation, wildlife habitats and

contribution of a specific use to the community and community

best use of land may be for parks, greenbelts, preservation,

the like. A use which does not meet the needs of the public will not meet the above highest and best use criteria.

The determination

of the highest and best use opinion, therefore, requires a separate analysis for as if vacant. must Secondly, the highest and best use of the property, to consider any deviation of the existing be analyzed

the land as legally permitted, with their improvements, improvements

from the ideal.

"For highest and best use of both land as though vacant and The criteria are that the highest and best use (3) financially feasible and (4) maximally sequentially; it makes no difference that or if such

property as improved, a use must meet four criteria.

must be (1) physically possible, (2) legally permissible, productive. These criteria should usually be considered

a use is financially feasible if it is physically impossible a use is not legally permitted. ''7

to construct an improvement

5The Appraisal of Real Estate, 9th Edition, published by the American Institute of Real Estate Appraisers, Chicago, IL, p. 269. 6Tbe questions to be answered in this analysis are: If the land is, or were vacant, what use should be made of it? What type of building or other improvement, if any, should be constructed on the land, and when? 7The Appraisal of Reai Estate, 9th Edition, published by the American Institute of Real Estate Appraisers, Chicago, IL, p. 274.

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Highest and Best Use -- As Vacant Physical Considerations Location/Topography/Size: As set forth previously, the subject parcel sizes are more than adequate for proposed single-family development. The parcel comprising the subject properties are regular in their configuration, however, it results in no significant development limitations. The properties should have adequate drainage when completed per City of Indio requisites. The location of the properties are situated within what should continue to be developing residential areas. Therefore, it would appear as though a planned residential type of land use would be feasible. Utilities/Flood Zone: The properties are located in areas designated with a flood zone risk. All of the planning areas are located within Flood Zone B, an area of minimal to moderate flood hazrd. The Community Panel is 0602550602 revised May 1, 1985. This is defined as areas between limits of the 100-year flood and 500-year flood; or certain areas subject to 100-year flooding with average depths less than one foot or where the contributing drainage area is less than one square mile; or areas protected by levees from the base flood and are no significant hazard. The parcels have access to public water, sewer, electricity, natural gas and telephone lines. Therefore, they appear to have no potential deficiency from a utility or flood zone development standpoint. Conclusion: No soils report has been reviewed by us. Overall, there appears to be no adverse soil conditions of which the appraisers are aware. The shape of the parcels are irregular, however, this results in no specific development limitation. From a physical standpoint, the sites are considered adequate for various types of residential development as regulated and dictated by the master plan zoning. The nature of the surrounding market is likely to support these uses.

Legally Permissible Legal Factors: The legal factors affecting a site and its potential uses are often the most restrictive. These would typically be governmental regulations such as zoning and building codes. The developers' proposed plans are based on residential developments. The existing zoning will permit residential and limited commercial use development. Considering the nature of the surrounding developments and the subject's zoning classifications, the

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proposed developments highest and best use. Conclusion:

appear

to meet the legal criteria

for

From a legally permissible standpoint, the subject is restricted by the zoning under the General Plan of the City of Indio. The subject appears to be feasible for development with residential uses within the Master Planned Community over the next several years. As discussed in the Market Condition section of the area description for the City of Indio, there has been a resurgence of Riverside County home sales, commercial and industrial real estate activity over the 2003-05 period. The market has been very strong over this period and all indications indicate this will continue and stabilize. The majority of the existing housing inventory in the area is priced competitively and the majority of the demand appears to be generated by the lower price range market. Sales of homes under $250,000 are limited, and the future inventory of homes in the $250,000 to $300,000 category are decreasing. This pattern is expected to continue as the existing lower priced inventory is sold out and is slowly replaced by similar homes which reflect the necessary higher price for finished single-family lots to be commercially viable. The Coachella Valley submarket has continued to capture a representative share of the Riverside County sales. This market share can be attributed to the lower priced concentration of new home supply which is available in the area. The submarket should continue to capture a good share of sales due to the erosion of alternative lower price supply in most of the other submarkets. The Coachella Valley submarket should continue to experience a good rate of activity among products priced $300,000. The lack of new single-family homes that can be brought to market at prices under $300,000 will continue to place limits on future total sales volume. This factor forms a primary opportunity for the subject areas to successfully enter the Riverside market. While the overall Riverside market should continue to experience a period of concentration, Coachella Valley's residential product, targeted to the under-supplied, lower-priced, conventional single-family detached market, should experience a positive market response if priced properly. We believe the subject tracts have the potential to meet with good market acceptance. The previous factors, coupled with the acquisition cost of the land, development costs consideration and the potential absorption level, should provide the highest return to the subject sites. Therefore, the proposed development is

Financial Feasibility and Maximum Productivity

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financially feasible and maximally productive if brought into the development arena under the right set of economic circumstances such as those we are currently experiencing. The highest and best use as of the date of value is a timely development of the various projects according to the developer's proposed development plan. The current economic environment would indicate this be initiated as soon as possible. Physical and Locational Characteristics The physical and locational characteristics of the subject residential property have previously been described in this report. The subject's location is considered good for residential use. The subject has average proximity to various employment centers in the Coachella Valley. Commercial and retail services are also close by. In addition, the physical possibility of the potential development, based on the present zoning, appears to be feasible. The size, shape and topography physically possible. Legal Considerations of the sites makes development

The legal factors influencing the highest and best use of the subj.ect property are primarily government regulations, such as zoning and building codes. The tracts zoning allows development to residential as reported by the City oflndio. It is assumed that any development will be built in conformance with the developing codes and other governmental regulations. Based upon this assumption, the stated legal consideration for highest and best use is supportable. The regional economy as well as the national economy has been recovering nicely for residential development since the early '90s in the desert area. A survey of some of the more established residential developments in the Indio area supports the potential resurgence of residential development. Physical, legal and market considerations have been analyzed to evaluate the highest and best use of the tracts. This analysis is presented to evaluate the type of use which will generate the greatest level of future benefits possible from the properties. Based on the purpose of this appraisal, the highest and best use would be to develop to residential, which is the highest and best
use.

Financially

Feasible

Conclusion:

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VALUATION

METHODOLOGY

Basis of Valuation Valuation informed appraisal; is based persons; upon general consideration and specific background experience; opinions of qualified, phase of the

of all data gathered

during

the investigative

and analysis

of all market data available

to the appraiser.

Valuation

Approaches to value are available to the appraiser: the Cost Approach, the Direct vacant known

Three basic approaches Comparison Approach

and the Income Approach. Approach

Since the subject sites are essentially and a form of the Income Approach in estimating

land parcels, only the Direct Comparison as the Discounted "as if finished" Cost Approach Cash Flow Analysis value.

have been utilized

the market value of the

fee simple

This approach calculates either the replacement or reproduction cost estimate of the subject property improvements new (maintaining comparable quality and utility). Losses in value are then subtracted from this value. Losses are sustained through depreciation, age, wear and tear, functionally obsolescent features and economic factors affecting the property. The net value is then added to the estimated land value to provide a total value estimate. The Cost Approach is not applicable in this particular appraisal. Direct Comparison Approach This approach is based upon the principle that the value of a property tends to be set by the price at which comparable properties have recently been sold or for Whichthey can be acquired. This approach requires a detailed comparison of sales of comparable properties with the subject property. One of the main requisites, therefore, is that a sufficient number of transactions of comparable properties be available to provide an accurate indicator of value and that accurate information regarding price, terms, property description and proposed use be obtained through interview and observation. Income Approach This approach is based upon the theory that the value of property tends to be set by the expected income therefrom to the owner. It is, in effect, the capitalization of expected future income into present worth. This approach requires an estimate of net income, an analysis of all expense items, the selection of a capitalization rate and the processing of the net income stream into a value estimate. The Income Approach is applicable in this particular appraisal in a form known as a Discounted Cash Flow Analysis wherein projected sales of the subject portions to developers who will ultimately develop the land are discounted into a present value estimate. Methodology Due to the fact that the subject property consists of a vacant parcel of land, only the Direct Comparison Approach and a form of the Income Approach (Discounted Cash Flow Analysis) have been utilized.

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DIRECT Introduction The Direct Comparison

COMPARISON

APPROACH

Approach is based upon the premise that when a property is replaceable to acquire an equally as the Principle of in making the decision and

in the market, its value tends to be set by the purchase price necessary desirable substitute property, assuming no costly delay is encountered the market is reasonably Substitution) informed. In appraisal practice,

this is known

A search was undertaken to identify recent sales of comparable searched for comparable family developments. data was average. sales of small to medium-sized, In our survey, eleven single-family

properties.

In our survey, we of singleThe area of the

bulk acreage transactions sales were uncovered.

sales covered the northeastern portions of the Coachella Valley. The quality and quantity of the Of the sales uncovered, the most relevant were selected and are set forth in is provided in the (able on the this report. A summary of the most comparable sales information

following page. The data sheets are located before the sales location map.

_This approach is a method of analyzing the subject property by comparison of actual sales of similar properties. These sales are evaluated by weighing both overall comparability and the relative importance of such variables as time, terms of sale, location of sale property, lot characteristics, improvement characteristics and amenities (if any).

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ESTATE

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Analysis of Comparable

Sales sales have been analyzed on a price per buildable lot basis. The were based upon price per lot. A more detailed the comparable sales used in the analysis.

For comparison, the comparable The following table summarizes description of each transaction

comparables were compared to the subject and final conclusions

is included in the pages following the table.

SINGLE-FAMILY RESIDENTIAL COMPARABLE SALES # 1. 2. 3. 4. 5. Location PA 1 subject development, Indio, CA PA 2 subject development, Indio, CA PA 3 subject development, Indio, CA PA4 subject development, Indio, CA PA 5 subject development, Indio, CA Sale Date Mar 05 Mar05 Mar 05 May 05 Mar 05 Cash Equivalent Sale Price** $17,281,075 $14,728,625 $11,689,842 $18,619,937 $13,934,365 Total Acres 47.09 36.58 25.67 41.56 26.01 Lots 178 128 86 133 1L0 Finished Lot Costs $113,500 $132,000 $152,000 $151,000 $141,000

Source: First American Commercial Real Estate Services ** Sale of land in Blue Top Condition

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50

Datum No. 1

This is within the subject master plan, known as Planning Area 1. This sale took place on March 1,2005 for $17,281,075 for the blue top conditioned land. The finished lot estimate was reported at $113,500 for a density of 3.78 lots per acres. This sale is located on the NEC of Golf Center Parkway and Avenue 43. Only 33.05 acres will be used for residential, giving the residential acreage a density of 5.38 lots per acre.

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51

Datum No. 1

This is within the subject master plan, known as Planning Area 1. This sale took place on March 1,2005 for $17,281,075 for the blue top conditioned land. The finished lot estimate was reported at $113,500 for a density of 3.78 lots per acres. This sale is located on the NEC of Golf Center Parkway and Avenue 43. Only 33.05 acres will be used for residential, giving the residential acreage a density of 5.38 lots per acre.

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51

Datum No. 2

This sale is within the subject development and is known as Planning Area 2, Tract No. 316013. The total price is $14,728,625 and took place on March 28, 2005. The finished lot price is estimated at $132,000. The density is 3.50 units per acre. It is located north of Avenue 44 and east of Golf Center Parkway.

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52

Datum No. 3

The sale is within the subject development and is known as Planning Area 3 Tract No. 31601-4. The total price is $11,689,842 and is estimated at $152,000 per f'mished lot. This sale took place on March 28, 2005. The size is 25.67 acres and has a density of 3.32 lots per acre. This is located within Tract No, 31601-4 and is located on Avenue 44, east of Golf Center Parkway, in the City of Indio.

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53

Datum No. 4

The is a sale within the subject development and is known as Planning Area 4, Tract No. 316015. The total price is $18,619,937 and is estimated at $151,000 per finished lot. This sale took place on May 18, 2005. The size is 41.56 acres and a density of 3.20 lots per acre. This is located North of Avenue 44 and east of Golf Center parkway, in the City oflndio. Only 17.6 acres will be used as residential acreage, based on the residential acreage, the density would be 7.55 units per acre. The remaining acreage is for the lake.

FIRST AMERICAN COMMERCIAL REAL ESTATE 1217 NOR.z\L:_NDY PI_.-kCE eS.MN'TA A_NA, CALIFOR_'qL_

SERVICES -- APPRAISAL AND EVALUATION 92705e PHONE 714.380-7036 F.LX 714.530-7057

54

Datum No. 5

The is a sale is within the subject development and is known as Planning Area 5, Tract No. 31601-5. The total price is $13,934,365 or $141,000 per finished lot. This sale took place on March 25, 2005. The size is 26.01 acres and a density of 4.22 lots per acre. This is located north of Avenue 44, north of Tract No. 61601-4, and just south of the golf course driving range.

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55

Single-Family

Residential

Land Sales Comparison

Approach

Analysis The adjustments

Five comparable sales were used to estimate the value of the subject properties. a 3plied and derivation of each are set forth in the following
LAND SALES ANALYSIS Sale I Unadjusted Price/SF Property Subtotal Financing Terms Subtotal Conditions Subtotal Market Conditions Subtotal Other Adiustments Location Parcel Physical Characteristics Legal Encumbrances Availability Zoning Highest and Best Use Amenities Total Other Adjustments Value Indication I for Subject Commercial of Utilities 0% 0% 0% 0% 0% 0% 0% 0% $113,500 0% 0% 0% 0% 0% 0% 0% 0% $132,000 0% 0% 0% 0% 0% 0% 0% 0% $152,000 0% 0% 0% 0% 0% 0% 0% 0% $151,000 0% 0% 0% 00,4 00,4 0% 0% 0%_ $141,000 I of Sale Rights $I 13,500 0% $113,500 0% $113,500 0% $113,500 0% $113,500 ADJUSTMENTS Sale 2 $132,000 0`4 $132,000 0% $132,000 0% $132,000 0% $132,000 Sale 3 $152,000 0% $152,000 0% $152,000 0% $152,000 0% $152,000 Sale 4 $151,000 0% $151,000 0% $151,000 0% $151,000 0% $151,000 Sale $ $141,000 0% $141,000 0% $141,000 0% $141,000 0% $141,000

grid.

Source: First American

Real Estate Services

The adjustments Property

made are discussed below: A transaction price is always predicated on the real property interests conveyed. The real property rights being valued in this appraisal are the fee simple interests assuming community facility district assessments under 2004-3 are in place. Consideration was given to the influence of financing terms and arrangements. However, all of the sales were either all cash or market financed and were adjusted where warranted.

Rights Conveyed:

Financing:

Condition

of Sale:

Each of the property transfers included herein was an arm's length transaction where the buyers and sellers were not under undue duress. No adjustment was made.

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REAL ESTATE ,kNA, CALIFORNL_,

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56

Date of Sale (Changes in Market

Conditions):

All of the comparable sales occurred between March 2005 and May 2005 Our research indicates that the market has been very strong within this period. Our analysis considered price level increases since March 2005 in homes as well as residential lots. Based on Market Data information we have not made any adjustments to the comparable sales.

Location:

Adjustments were made to the data for differences in the location of the comparable properties. Consideration was given to variances in underlying land values, visibility, access and schools, as well as average sale prices of homes. Location adjustments were applied to the comparable sales where appropriate. However, the sales data did not permit the derivation of location adjustments through paired sales data analysis that was felt to be highly supportive. A number of other variables contained in the data set prohibit reasonable grouping of the sales. The market data was subsequently considered on a broader basis to identify general patterns which would indicate the need for location adjustments. No adjustment was necessary.

Physical

Characteristics:

Physical characteristics include such things as the parcel size and market appeal. In general, assuming all other factors are similar, larger developments will sell for less than smaller ones on a per lot basis due to the economics of constructing and operating larger developments. In addition, unit prices for most real estate products tend to decline as the number of units purchased increases. The subject property is part of a master planned community and all of the comparable sales where within that community.

Size:

It is difficult to measure from the market variances in size, therefore, the market data was considered a broader basis. No adjustment was made. The subject property will have a lake, two-golf courses and a club house. All of the comparables were located in the master planned community and no adjustment was necessary.

Amenities:

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Reconciliation of Finished Lots Value Concluded Land Value The adjusted land values concluded for the subject range from $113,500 to $152,000 per lot. The average or mean value is $137,900, while the median value is $132,750. The concluded estimate of land value for the subject is $137,000 per lot, which results in the following land value indicated for the subject:
SUM OF THE FINISHED LOT VALUES RECONCILIATION SUMMARY Estimated Lot Value Lots 635 $137,000 Indicated Value $86,995,000

Source: First American Commercial Real Estate Services

We have concluded $87,000,000

at $137,000

for a finished

lot, that indicates a value of $86,995,000,

or

Rounded.

FIRST AMERICAN COMMERCIAL 1217 NOtL_,L_qDY PLACE S_qTA

REAL ESTATE ANA, C_LIFORNL_.

SERVICES -- APPRAISAL AND EVALUATION 92705 PHONE 714.580-7056 F_LX 714.550-7057

58

DEVELOPMENTAL

ANALYSIS

Following is a summary of an estimated analysis of the costs of development the subject property. of the subject zones.

and absorption

for

The cash flow analysis takes into account the time and cost of absorption

The reader should note that this is an analysis of typical investor thinking and not a projection or future value estimate. This analysis is to estimate the value of the Community prior to full absorption, and after full absorption. Facilities District No. 2004-3 at completion,

Absorption Market feasibility deals with market conditions which influence the subject property. The major factors in considering whether a development lot values in relationship to the competition is feasible in the market are the potential finished and the subject's market segment, as well as the

demand for reasonably priced finished lots within that market. Based on Market Profiles Consultants' study, the builders' proforma and our analysis, it is our builders over a

opinion the subject lots could be sold out to initial purchasers proposed one year development General, Administrative,

or merchant

time frame. For our cash flow we used 1 year. Costs, Profit and Marketing Costs The office field other

Taxes, Development

We have estimated the overhead, real estate tax and marketing costs for the subject parcel. category of "Overhead" covers all overhead and management, expenses, supervision miscellaneous accountants, personnel, expenses. the management insurance Marketing premiums, expenses travel and including vehicle the developer's expenses, and staff, along with supporting clerical/secretarial,

include not only sales commissions We have utilized

but also

brochures, advertising,

closing costs borne by the seller, and any other items required to attract a successful transfer. 2% for general and by similar

and secure buyers to complete administration projects. The estimated percentage Assessment

costs and 2% for marketing

for costs based upon rates experienced

District

and ad valorem

tax cost is not computed The tax calculations

on an exact have been

formula, rather it is on a per acre or unit basis.

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NORz\LkN-DY PLACE *S.,MNTA ANA, CALIFOR.NL_t 92705* PHONE 714.580-7056 F.,MX 714.550-7057

59

approximated at a rate of 2% of the estimated value during the sell-off period, reflecting bonds and finished condition of the land.

the

Development

cost proforma has been provided by SunCal Companies. the cost per lot is $39,425.74.

The total costs for the contribution is

subject tracts is $25,035,347, $3,168,656 or $4,990.01 Discount Rate

The developer

per lot, leaving a residual for the bond of $21,866,691.

The final element in the discounted

cash flow analysis is the discount rate. Since we have used

a format which incorporates a partial profit in the discount rate, the rate will need to cover the investment in the land and compensate for all the risks and effort in developing was added as a line item in our cash flow. the land, which

The discount rate used in our analysis reflects time, risk and return for this development. experience assumptions with other similar developments have been undertaken indicates

Our a

that the larger and more complex

property, the greater the discount rate required.

It should be noted that the discounted

cash flow

on a before-tax

basis and before the effects of financing.

Different types of investments

require widely varying rates of return. The lowest rates are those A "safe" rate is represented by the return on U.S. Government at higher risk, is corporate bonds were selling can be much alternative,

attached to the safest investments.

Treasury rates, as of June 2005 was 4.37%. Another

bonds. As of the effective date of this appraisal, long high-yield corporate at average yield rates of 5.40%. However, even high-yield corporate an investment in development land like the subject property.

bonds are less risky than

Bond investments

smaller than the amount needed to buy the subject land, the bonds are far more liquid and there is a larger pool of potential buyers. yield rate on high-yield Consequently, the discount rate should be higher than the

corporate bonds. investor' s initial

According to the 2005 second quarter, Investor Survey published by Realtyrates.com, 8.78% to 22.01%. The subject land is not an income property.

in various types of improved real estate (incoming properties) required an average yield between It requires an enormous construction, investment and it will require cash infusions to cover infrastructure overhead and carrying costs. development

It would be very difficult to find a buyer for a quick sale if the

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOtL\LANDY PI-,_CE eS,MqTA _M'qA, CALIFORNL_ 92705e PHONE 714.580-7056 FAX 714.550-7057

60

property had to be liquidated.

Therefore, the yield rate should be substantially

higher than the

average 12.0% return on income properties and, in fact, higher than the highest rate of return on income properties. According to Realtyrates.com, Developer's Survey, subdivisions and PUD' s 14.07% to 34.62%. actual discount rates for 500+ units ranged between

Banks are currently charging approximately Considering

7.54% (prime rate 5.54%) plus 2% for loan costs.

loan costs, liquidity risks, property taxes and profit for the holding period before In

a sale could occur, a rate higher than any of the above in dictated yield would be required. light of these facts and analysis, the appraisers believe it is reasonable

to require at least 6% in development for secured land

premium above the yield rate on secure income properties for an investment like the subject property. A 6% premium on the 10.0% rate reported

income

properties produces a discount rate of approximately

14%. It has been the appraisers' for the subject.

experience

over the last several years that discount rates on vacant land have ranged from 12% to as much as 25%. In general, it is believed that a rate of 14.0% is appropriate In order to run a single Discounted Cash Flow for the subject,

it was necessary

to make an

analysis based on the estimated time period that the land development absorption study estimate. As has been explained, the subject lots are projected to be absorbed sales are scheduled throughout the one year absorption period. Profiles "land take down" absorption estimates lots sales are anticipated for all product types.

will be in place and that

the number of lots projected by the developer coincides with the estimate by the Market Profiles

in one year. The bulk lot with Market Sales prices for the bulk dollar

This is consistent

to remain stable for the first year and then are likely to increase.

However, we have used a zero inflation assumption during our cash flow. A non-constant assumption would have resulted in a higher discount rate selection. page for our detailed Cash Flow Analysis. This analysis results in a discounted the residential lots.

Please refer to the following

"as is" value of the land with the bond amount in place for

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOtL\IANDY PLACE S_X4TA ANA, C__,IFORNLk 92705 PHONE 714.580-7056 F,M,x_ 714.550-7057 61

DISCOUNTED CASH FLOW ANALYSIS

CFD2004"3 Pim'Vt _U I

PropMly Types: RES.IMP.LOTS

IllOflot/trait Isdce_ un4 I Z8 $13r.000

Told $24+31,000,00

JSUBTOTAL

178

$137,0DO $24,366,000.00 I

EJmnw_ OEVELOPMENT COSTS O&A COSTS REAL ESTATE TAXES MARKETINC GOSTS

$884.200 2.DO% 2.00% 2.00%

!YEARS RES. IMPLOTS

1 178

2 0

2 0

4 0

10

tl

12

13

14

15

16

TOTAL YEARS 178

TOTAL LOTS TOTAL ACRES I TOTAL REVENUFJYEAR EX,"__',,',3 DEVELOPMENT COSTS O&^ COSTS REAL TAXES MARKETING COSTS

178.CO SO4,31_.DOO.DO 10.00 SO.00 SO.00 SO.DO S0.D0 SO.CO SO.DO SO.00 0 0 S0.DO SO+DO SO.DO SO.DO SO.DO $24.3CO,CO0.CO

SOIm,2CO+DO $481,)'20.CO II0.00 S4M,TDO.00 SO.DO 0 o o $1.863,640.DO I_,l_t, 3_ 0.Mrt63% $19.756,456

0.DO SO.00 SO.CO SO.00 SO.DO SO' SO SO SO.DO SO 0.COO000% SO

0.00 SO.00 SO.DO SO.DO SO+DO SO SO SO SO.00 $0 0.DODO00% $0

0.00 SO.00 SO.DO S_DO I_DO SO SO SO SO.DO SO 0.0DOCO0% SO

0.DO SO.DO S'0.DO SO+DO SO.DO SO So SO SO.DO SO 0.DODOOQ% S0

SO SO.DO $.O+CO S_CO _00 SO SO SO SO.DO SO 0.000000% SO

SO S(_00 SO_0 S_CO SO.DO SO SO SO SO.DO S0 0+DODODO% SO

$0 SO.DO $-0.DO SO-DO S(_DO SO So SO S0+DO SO O.DO(OOD% SO

SO SO.DO SO.CO SO,DO SO.DO SO SO SO SO,DO SO

SO SO.DO F0.00 S0.DO SO+00 SO SO SO SO+CO SO

SO SO.00 S'0.DO SO.DO SO+DO SO 1o SO SO,DO $0

SO SO.DO SO+00 SO.DO SO.DO SO SO SO $0.CO $0

SO S0.DO SO.DO SO.DO SO.DO SO SO SO SO.DO S0

SO SO+DO SO100 SO.CO SO-DO SO SO SO SO.DO SO

SO SO,0S $-0,DO SO.DO SO*DO S0 SO $o SO-DO $0

SO $0.00 S0.DO 1IS.00 S0.DO SO SO SO

S_U_.2DO.DO S4_,720.DO SO.DO $48;',720.DO S0.CO SO.00 So.so SO CO

!TOTAL EXPENSES: Ned CUh Flaw; PresellVide4 Facin_ PrelenlValue ofClml+ Flow:

SO.DO $1,1M3.640.CO S0 $22,522,360 t.00DODO% $1g+75S.4_

0.0DOODO% 0+0DO(X)0%0.0O0DO0%0DODO00% 0.000000% 0.DOODOO% 0.DODO0O% 0.(XXXX)0% $0 SO $0 SO SO SO $0 SO

':+lncl cared Net Present Value

II

s,.._+_6

SourceF+rSi ,_rlllr+caC n ot+_lm'cJiiI Rea_ E|lale So_ces

DISCOUNTED
CFD2004-3 _ng Area2

CASH FLOW ANALYSIS

ProiNmc Tyl ly a4s: RES.IMP.LOTS

J ofIoUu_41Prir_ I_w unil Tola_ t28 $137,0(30 $t7,556.0DO.00

ISUETOTAL

128

$13T,DO0 StT,534,DOO.00

DEVELOPMENT COSTS O S A COSTS REALESTATE TAXES MARKETING COSTS

N38,72I 2,00% 2.00% 2.00%

IYEARS RES. IMPLOTS

I t28

2 0

3 0

4 O

10

I1

12

t3

14

15

te

TOTALYEARS 128

TOTAL LOTS TOTAL ACRES 1TOTAL REVENUErCEAR

128,00 $1T.S36,DOO.DO SO.00 SO.DO SO.DO S0.00 SODO SO.00 SO.00 SO.00 0 0 SO00 $0DO SO.CO SO.DO SO00 St7,5:_,000.00

,,,e_m,_ COSTS
a &ACOSTS REALTAXES MARKETING COSTS

m.,_,=o
f_S0.720.00 S0.DO S,lkq). 720._1 so.(Io o 0 o $ t,340.161.00 $16,1DO.839 0,871193% $14._.BTE 0,_%

oDo
so.00 so.DO so.0O so.DO SO SO So so.D0 SO

o Do
so.DO $-O.DO SO.0O so.DO SO so SO so,DO so 0,000000%

oDo
SO.DO _O.DO SO.QO $o.oo SO so so so,DO so 0.000000% so

oDo
SO.DO $-0.DO 14).00 so.DO SO SO so S0.DO $0 0,DO0000% SO

so
so.00 $-0,00 SO.(Xi so.DO SO so So S0,DO $0 0DODO00% SO

so
so.DO I-0.00 SO.DO soDO so SO SO S0.DO $0 0,0DO000% SO

so
so,DO S-0.DO SO,00 so.DO so so so so.DO $0 0.000000% SO

.
SO.00 F0.00 so.00 so.DO SO so SO S0.DO so

so
so.00 $-O.DO so.00 I;O.OO SO SO so so.DO SO

.
SO.DO $-0.00 $O00 SO.DO SO SO So SO.00 so

so
so.DO $-ODO so.00 so.DO so SO So so.DO so

So
SO.DO S-0.DO $0.00 so.DO So SO So S0,DO so

so
so.DO $43.00 SO.00 SO.DO $0 SO so SO.DO SO

so
so.DO S-0.DO S0.DO SO.DO SO so SO SO.00 SO

so ._.721 oo
SO,00 S-0.00 SO,00 SO.DO so $0 so SO.00 SO $350,720.00 SO,DO $350.T20.00 so.DO SO.OO SO.DO SO.DO $1,340,161.00 $16,195,1)39 1.000000% $t4.20G.76

]TOTAL EXPENSES: NMCHh Flow: Pmmw_ Va_ i m Fac_'; P_'IIImlVadue ol CashFlow:

0,000000% 0,DODODO% 0.0DOO(X)%0,00(3000% 0.00DODO%0.DOODO0% 0.0(XX)DO%0,DO(O00% so SO SO SO So so SO SO

SO

so

find Gated Net Present

Value

!I

sl4,2t_q?_

S_r_: FirslAmair.anCog_nerczzd Read Estate Ser_rAs

DISCOUNTED
CFO 20C4-3 F_innln_ gee 3

CASH FLOW ANALYSIS

Prc_erty TypeS; RES.IMP.LOTS

II O/Iot/unlt PriceINKunit Tolat 86 S13T,0QO $11,TS2,000.(]0

tSUSTOTAL

M "

$i=T,000Stl.7_.DO0.00 I

ITOTN? DISCOUNR T ATE:

$i 1.762.000.00 14.00_

DEVELOPMENT COSTS G ACOSTS REAL ESTATE TAXES MARKETING COSTS

$429,14 I 2.DO% 2.00% 2.00%

IYEARS RES, IMPLOTS

1 Be

2 0

3 O

4 0

t0

tl

12

t3

14

IS

16 TOTALYEARS I 66

TOTAL LOTS TOTAL ACRES ! TOTAL REVENUF._EAR

CO.O0 $1t,7S2,COCO O SO.DO S0.DO SO.DO I;0.o0 SO.DO SOCO SO.DO SO.CO 0 0 SO.DO S0.CO SO,DO SO.DO SO,DO S1 t,TS2,0CO.CO I

DEVELOPMENT COSTS G & ACOSTS REALTAXES MARKETING COSTS

_ki2g.141.Do SO215,e40.CO S0.IX) $235,640.00 SO.DO o o o sg00,421.IX) StO,Ml,Sll; 0.677193% $9.545.,9.45

O.DO SO.DO SO.IX) SO.IX) SO.DO SO So SO S0,DO SO O,0000DO% SO

0.00 SO.DO |-O.CO SO.IX) SO.DO SO So SO SO,IX) So 0.00DO_ So

0.00 SO.DO $-0.CO SO,IX) SO.DO SO SO SO SO,DO S0 0.000_ SO

0.DO SO.DO S-0,IX) SO.IX) SO.DO SO SO SO SO.IX) SO 0.000000% SO

$0 SO.DO S-0,00 $0.00 SO.OO SO So SO SO.00 SO 0.000000% $0

SO SO.CO . $-0.IX) SO.IX) SO.DO SO SO So SO,IX) SO 0O0Q_ $0

$0 SO,DO ll-0,00 SO.IX) SO.DO SO SO SO SO,DO SO O.0(_ SO

SO SO.DO S0.IX) SO,IX) SO.DO SO SO SO SO.CO So

SO SO.DO SO.CO SO.IX) So.DO SO SO So S0,CO SO

SO SO.DO $-0DO SO.IX) SO.DO SO SO SO So,IX) SO

SO SO.DO SO.IX) SO.IX) SO.DO SO SO SO SO,IX) SO

$o SO.DO SO.00 SO.00 So,CO SO So SO So.IX) SO

SO $0.CO SO.IX) SO.IX) So.oo SO SO SO SO.IX) SO

SO SO.DO F0.00 10.00 So.DO SO SO SO SO'IX) So

SO SO.DO S0.IX) SO.IX) SO,DO SO So SO SO,IX) So

S429,141.00 |235,1_40.DO SO.00 |215,M0,00 l;o.oo SO.DO So.DO SO'DO $900,421,00] $10,1RI1,579 1.000000%

1TOT/_EXPENSES: . N_ CeshFlaw: PreurdVadue Fac_: P;'uerdV_ueo4Cash FLOW:

0.000000% 0.000000% 0.DOQQOO% 0.000000% 0.000000% 0.DOODO0% 0.000000% g0(_% SO So So SO S0 $0 SO SO

S9.545.245

!!Indicated Ne[Present Value

II

st_._.Z.L_

Source: F_il hne_can_mer

clllnmll E|tall)Ser_s

DISCOUNTED CASH FLOW ANALYSIS

CFID 2004-3 PlarevnA grea 4

Properly Typos; RES.IMP.LOTS

JOI IOUU_I Pricepe(unll Total 133 S137,0CO S18,221,QOO.00

I SUBTOTAL

t33

S137,000

|1S,221,DO0.00I

1 |TOTAL OISCOUNT RATS:

Sl8.g_'1.0'00.00 1 14.00%

DEVELOPMENT COSTS G A COSTS REALESTATE TAXES MARKETING COSTS

:11_L1.5 I 7 2.00% 2,00% 2.00%

IYEARS RES. IMPLOTS

1 133

2 0

3 0

4 0

10

11

12

t3

14

15

16

TOTALYEAR&t33 i

TOTAL LOTS TOTAL ACRES 1TOTAL REVENUE/YEN_

1:)3.00 118,221.CO0.DO SO.CO SO.DO SO.00 SO.CO $0.CO 10.00 SO.CO SO,DO 0 0 SO.0O SO,CO SO.CO $O.0O SO.CO $18,221,0CO.CO I

OEVELOPMENT COSTS O &ACOSTS REAL TAXES MARKETING COSTS

SO63,671.00 S3S4,420.DO 110.00 F_,4DO.GO SO.DO o o o Sl,392.511.00 S16J2&.48g 0.811183% $14.761,1132

0.00 SO.DO SO.00 SO.00 SO.DO SO SO SO SO.DO SO

0.00 SO.DO SO.CO SO.DO S0.DO $o SO SO SO.DO SO

0,00 SO.00 S-0.00 SO.DO SO.DO SO SO SO SO.CO SO 0.000000% SO

0.00 SO.DO S0.CO SO,00 $0.(30 SO SO SO SO.DO SO G._DODO% SO

SO S0.CO SO.DO SO.DO SO,00 So SO SO SO.DO SO O.(_DODO% SO

SO S0.CO S-0.00 SO.DO SO.CO SO SO SO SO.00 SO O.OOGCOO% SO

SO S0.CO S0.CO SO.00 SO.00 SO SO SO SO.DO SO 0,00_00% SO

SO SO.CO .I;-0.00 SO.DO SO.DO SO SO SO SO.00 SO

SO SO.CO SO.DO SO,D0 $0.DO So SO SO SO.00 SO

S0 SO.CO SO.CO ,50.00 $0.DO SO SO SO SO.CO SO

SO SO.DO SO.00 SO,DO SO.DO SO SO SO SO.CO SO

SO S0.CO SO.DO SO,DO SO.00 SO SO SO S0.00 10

$0 SO.CO I-0.00 SO.00 SO.DO SO SO SO SO.CO $0

SO SO.DO tO.CO SO,00 SO.SO so SO SO SO.DO SO

SO S0.CO $-0.CO SO.DO SO,CO SO SO SO SO.00 S0 0.000000% SO

SO63.571.CO I._4,420.DO SO.DO S364,420,DO SO,DO so.co SO.DO SO.CO Sl.302.511.00I $16,828_4g 1.0(X]_0% $14,761,832

I TOTAL EXPENSES: NelCash Flow: P_'eSeN Vllue Fact_x; Present ValueolCashFlow:

O,SODODO% O,DOGDO0% SO SO

O.G_(X]0% O,ODO(X]0% 0.0(]0000% O._DODO% 0.DO0_0% SO SO $0 SO SO

O.(XX]ODO% 0.000000% SO S0

Jllnd catedNet Present Value

II

s14,?61,toz

Soural: Fir_ _

C_ivnerall Rill Ellltl _r.ll

DISCOUNTED CASH FLOW ANALYSIS

CFD2004-3 PtmNr_/Vu 6

Property Typel: RE:S. iMP,LOTS

II o4Iot/u_ Priceperunit I tO $137.0(X)

Tolal $15,070,000.00

[SUeTOT_.

110

m_,o_ m,oTo.ooo. J oo

n)t_. .....

018COUNT RATE:

sls.o?o.ooo I .oo
14,00_,

DEV1ELOPMENT COSTS O &ACOSTS REAL ESTATE TAXES MARKETING COSTS

f_901 2.00% 2.00% 2.00%

IYEARS RES*tMPLOTS

1 110

2 0

3 0

4 0

10

11

12

13

14

t5

16

TOTAL YEARS 110

TOTAL LOTS TOTAL ACRES ]TOTN.REVENUE/YEAR

1 lO.Oo $15,070,000.O0 SO.GO SO, GO SO.GO SO.O0 SO.O0 SO.O0 IO.00 SO.QO O O SO+00 $O.OO SO,00 $O.00 SOOO $15,070,0OO.00

DEVELOPMEN COST T S G&ACOSTS REAL TAXES MAJ_hlG I_T8

154S,901,00 13OI.400.00 S0.00 S_lOt ._.00 So.o0 o 0 0 |1,151,701.00 St_918,299 0.1177_93% S 12.209.034

0.00 SO.O0 $0._ SO.00 SO.OO SO So So SO.gO SO 0.00Q00_4 SO

0.00 14).00 S-0.00 $O,00 Io.oo SO SO SO SO.00 SO 0.000000% SO

0.00 SO.O0 S-0.00 10.00 SO.OO SO So SO S0.O0 $0 0.000000% SO

0.00 SO.m} S-0.0o I[,0,00 SO.OO SO SO So $0.00 SO

SO SO.00 S-0.00 S0.00 So,oo SO SO SO S0.OO SO 0.000000% $0

SO SO,00 S-000 $0.00 $o.oo SO SO SO SO.O0 S0 0.000000% SO

SO SO.CO S-.o.00 SO.00 $o.oo SO SO SO SO.00 SO 0.O0_00% $0

$0 SO.00 I-0.00 SO.00 SO.OO SO SO SO SO.OO SO

SO SO.00 S-0.e0 SO._ SO.OO SO SO $o SO00 S0

SO S0.00 S-O.eO S0.o0 SOOO So SO SO SO.00 SO

SO SO.O0 S.0.00 SO.00 SO.OO SO SO SO SO.DO SO

SO SO.00 $-0.eO S0.0O SO.OO SO to SO SO.(XI SO

SO So.00 S-0.00 S0.00 So.oo SO SO SO SO.00 $0

SO SO.O0 S-O.0o SO.00 SO,O0 SO so SO SO.GO SO

SO So.00 S-0.O0 $0.o0 SOOO S0 SO SO SO.O0 SO

$S48,901.00 $301,400.00 t0.oo $201.400.oo So.oo SO+OO SO.OO So.co S1,151,701.00 S13.Sle,299 1.000(_)% S 12.20g.034

ITOTALEXPENSES: NetC41sh Row: Pvuen[Vllul Fackx: PrsumlV4dt,O GICNh Fk:_

0.000000% SO

0.000000% 0.0Q0000% 0000000% 0.(]O00(X)%0.000000% 0.000000% O.00000O%0.000000% SO SO SO SO SO SO SO S0

+l:_lndica NetPresent ted Value

Jl ssz,zz_,o._4

Source: First&meriw1C t, _li

RealEztaleSer_ces

Summary of Valuations:

SUM OF THE VALUES CONCLUSION Discounted Bulk Value $19,757,000 $14,207,000 $9,545,000 $14,762,000 $12,209,000 270,408,000 $71,000,000

Subject Planning Area 1 Planning Area 2 Planning Area 3 Planning Area 4 Planning Area 5 CFD 2004-3

Lots 178 128 86 133 110 635 Rounded

Source: First American Commercial Real Estate Services

FIRST AMERICAN COMMERCIAL 1217 NORI\L-kNDY PLkCE eSANTA

REAL ESTATE ANA, CALIFORNL2k 67

SERVICES -- APPRAISAL AND EVALUATION 92705e PHONE 714.580-7056 FAX 714.550-7057

VALUATION

SUMMARY

The following values are the estimated values of the property as of June 17, 2005.

The estimated value of the residential parcel, discounted assuming the proposed Assessment District Financing is as follows: SEVENTY ONE MILLION $71,1)00,000

for the time and cost of absorption, is in place and ready for funding, DOLLARS

FIRST AMERICAN COMMERCIAL REAL ESTATE 1217 NORI\LkNDY PLACE eSANTA _A2,IA,C_LIFORNL_

SERVICES -- APPRAISAL AND EVALUATION 92705e PHONE 714.580-7056 FAX 714.550-7057

68

CERTIFICATION We certify that to the best of our knowledge and belief: During the completion of the assignment, we did personally inspect the property that is the subject of this report (except as specifically noted). We have no present or contemplated future interest in the real estate or personal interest with respect to the subject matter or the parties involved in this appraisal report, and our employment in this matter is not in any manner contingent upon anything other than the delivery of this report. We have no bias with respect to the property that is the subject of this appraisal or the parties involved with this assignment. Our compensation was not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value as estimated, the attainment of a stipulated result or the occurrence of a subsequent event directly related to the intended use of this report. This report is not based upon a requested minimum approval of a loan. valuation, specific valuation or the

The statements of fact contained in this appraisal report, upon which the analyses, opinions and conclusions expressed herein are based, are true and correct. This evaluation report sets forth all of the limiting conditions (imposed by the terms of my assignment or by the undersigned) affecting the analyses, opinions and conclusions contained in this report. The analyses, opinions and conclusions were developed and this appraisal report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice as promulgated by the Appraisal Foundation for an evaluation report. We alone have prepared the personal, unbiased professional analyses, opinions conclusions concerning real estate that are set forth in this appraisal report. and

William V. Shrewsbury, MAI, is a "Certified General Real Estate Appraiser" within the State of California. William V. Shrewsbury's Certification Number is AG004522. Jaimie Z. Basso's OREA License No. is AT031532. This appraisal report is invalid unless all signature pages have been signed. We certify that to the best of my knowledge and belief the reported analyses, opinions and conclusions were developed and this report has been prepared in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. We certify that the use of this report is subject to the requirements relating to review by its duly authorized representatives. of the Appraisal Institute

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NO1Lt\L-kNDY PLACE *SANTA ANA, CALIFORNL_, 92705o PHONE 714.580-7056 * FAX 714.550-7057

69

,"

We are competent to appraise this particular property type and have appraised similar property types in the area. Disclosure of the contents of this appraisal report is governed by the Bylaws and Regulations of the Appraisal Institute.

The Appraisal Institute conducts voluntary programs of continuing education for its designated members. MAIs who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, William V. Shrewsbury has completed continuing education program of the Appraisal Institute. the requirements of the

William V. Shrewsbury, MAI Senior Vice President California Certification No. AG004522

cense No. AT031532

FIRST AMERICAN COMMERCIAL REAL ESTATE SERVICES -- APPRAISAL AND EVALUATION 1217 NOIL\LkNDY PLACE eSANTA ANA, C,M_,IFORNIA 92705e PHONE 714.580-7056 FA.X 714.550-7057

70

QUALIFICATIONS OF WILLIAM V. SHREWSBURY, MAI

PROFESSIONAL

BACKGROUND

Actively engaged as a real estate appraiser and consulting appraiser with forty years experience. I am Senior Vice President, Real Estate Appraisal/Commercial Division, of First American Commercial Real Estate Services located at: 1217 Normandy Place Santa Ana, California 92705 Previously engaged as President of Interstate Appraisal Corporation and Director of Real Estate Appraisal with The Irvine Company. PROFESSIONAL ORGANIZATIONS

Member of the Appraisal Institute with MAI designation. Licensed Real Estate Appraiser, State of California, "Certified General Real Estate Appraiser". Member of the International Association of Assessing Officers with the Accredited Assessment Evaluation (CAE) designation. I am also a member of the Orange County Assessment Appeals Board. A licensed California Real Estate Broker. EDUCATION Real Estate Special Courses: Essentials of Residential Design and Structure Intermediate Real Estate Appraisal, Courses I, II, III, IV, V Real Estate Principles Commercial Investment Property Advanced Real Estate Appraisal Real Estate Law Real Estate Practices Real Estate Finance Subdivision Analysis Engineering

Qualifications of William V. Shrewsbury, Page Two

MAI

Courses Sponsored by Appraisal Institute: Principles, Methods, Techniques of Real Estate Appraising Urban Properties Techniques of Capitalization Residential Appraising Appraising Leasehold Estates Capitalization A Standards of Professional Practice A and B COURT Qualified as an expert witness. SCOPE Vacant Land Various large land holdings such as the 1,700 acres, planned community (Village of Woodbridge); 350 acres, planned community (Village of Deerfield); 1,000 acres, planned community (University Park); 1,200 acres, planned community (Village of Turtle Rock); 650 acres, commercial development (Newport Center); 10,000 acres, planned community, coastal area; 77,000 acres, land holdings of The Irvine Company. Also various land holdings from San Diego County to Los Angeles County. Residential Single-family dwellings, multiple-family throughout Southem California. Commercial Shopping centers (neighborhood and sub-regional), retail stores, general office buildings (lowand high-rise), service stations, carwash, parking lots and medical office buildings. Industrial Warehouses, industrial condominiums and highly improved industrial buildings. dwellings, condominiums and mobile home parks OF APPRAISAL EXPERIENCE QUALIFICATIONS

Special Purpose Churches, marinas, television studio, restaurant, parks_ nursery, golf courses, tennis club, lessor and lessee interests, packing house operation and fractional interests.

ADDENDUM

ENGAGEMENT

LETTER

ABSORPTION

STUDY

[THIS PAGE INTENTIONALLY

LEFT BLANK]

APPENDIX MARKET

E STUDY

ABSORPTION

E-l

[THIS PAGE INTENTIONALLY

LEFT BLANK]

MARKET FEASIBILITY AND ABSORPTION ANALYSIS (TERRA LAGO) COMMUNITY FACILITIES DISTRICT - PHASE ONE INDIO, CALIFORNIA

JULY 2005

Prepared for: CITY OF INDIO 100 Civic Center Mall Indio, California 92202

Prepared by: MARKET PROFILES 200 North Tustin Avenue, Suite 102 Santa Ana, California 92705 Telephone Number: 714/546-3814 Facsimile Number: 7141546-0953

Market Profiles www.marketprofilesinc.com

Real Estate

Research

Market Profiles and Cons ultants.for

over 30 ye_r_

July 1,2005 Mr. Roy Stephenson CITY OF INDIO 100 Civic Center Mall Indio, California 92202 RE: MARKET FEASIBILITY AND ABSORPTION ANALYSIS COMMUNITY FACILITIES DISTRICT- PHASE I TERRA LAGO

Dear Mr. Stephenson: This market report presents Market Profile's evaluation of the market opportunities relating to the residential tracts that compose Terra Lago Community Facilities District in the City of Indio. The Assessment District consists of 635 lots that are located in the Shadow Hills district in the northern portion of the City of Indio. The study evaluated the depth of demand for new homes in the Coachella Valley, as well as, the competitive conditions within the local Indio marketplace. Briefly, the research findings indicate that market demand is ample to support the development and sale of the proposed new homes. Competitive evaluations of the price structures that are anticipated for the homes are presented in Section I of the report, and the sales absorption rates that are projected for each of the subject residential tracts are presented at the end of that section. The report has been reorganized as follows: Section Section Section Section I - Summary of Findings and Conclusions II -- Market Demand Analysis III - Summary of Competition IV- Supporting Documentation

We appreciate the opportunity to work with you in evaluating the opportunities for development of new homes in the City of lndio. Please call if you have any questions. Boyd Martin directed the study effort and David Dickey served as project manager. Sincerely, MARKET PROFILES

Boyd D. Martin Chairman

200 North Tuxtin Avenue, (714) 546_3814

David W. Dickey Senior Economist

Suite 102, Santa Aria, C_ 92705 Fax (714) 546-0953

I . J_J_.T/_ 'L[.._,_.::_; L L..

Market

Profiles

TABLE OF CONTENTS
SECTION I DESCRIPTION PAGE NO.

SUMMARY OF FINDINGS AND CONCLUSIONS Introduction ......................................................................................... Property Location and Description ...................................................... Description of Subject Homes ............................................................ The Market Opportunity ...................................................................... Existing New Home Competition ........................................................ Future New Home Competition ........................................................... Price Positioning Analysis ................................................................... Premiums for Lake and Golf Course Frontage ................................... Projected Sales Absorption .................................................................

kl I-1 I-3 I-4 I-5 I-7 I-7 I-8 I-9

II

ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST Introduction ........................................................................................ Employment Growth .......................................................................... Demographic Profile .......................................................................... Housing Profile .................................................................................. New Home Sales Trends ................................................................... Price Trends ...................................................................................... Projected New Home Demand ..........................................................

I1-1 I1-1 11-3 11-4 11-4 11-5 11-6

!11

SUMMARY OF COMPETITION Introduction ...................................................................................... New Home Competition .................................................................... Inventory Trends ............................................................................... Sales Rates ...................................................................................... Most Competitive New Home Projects .............................................. Proposed New Home Development ..................................................

II1-1 II1-1 111-2 111-2 111-2 !11-4

IV

SUPPORTING DOCUMENTATION

(Available with Hard Copy)

I''1

L, } {:LLiL'Li:

Market

Profiles

LIST OF EXHIBITS
EXHIBIT SECflON I-1 I-2 I-3 I-4 I-5 I-6 I-7 DESCRIPTION ....SUMMARY OF FINDINGS AND CONCLUSIONS Regional Site Location Map Neighborhood Site Location Map Summary of Proposed Home Prices, Terra Lago Phase One, June 2005 Projected Annual New Home Demand, Coachella Valley, 2005-2006 Summary of New Home Developments, Shadow Hills, July 2005 Price and Product Characteristics, Indio Comps New Home Sales Rates by Price Range, Coachella Valley, First Quarter 2005 Quarterly Absorption Schedule, Terra Lago Community Facilities District, Phase One, City of Indio

I-8

SECTION II - ECONOMIC BACKGROUND I1-1 11-2

AND HOUSING DEMAND FORECAST

Coachella Valley Submarket Areas Employment Growth, Riverside / San Bemardino Southern California, 1980-2006 Hotel Room Sales, Coachella Valley, 1988-2004 Demographic Profile, Coachella Valley and Riverside County Housing Profile, Coachella Valley and Riverside County, 2005 Housing Stock Profiles, Coachella Valley Cities, 2000 New Home Sales by Submarket Quarter 2005 Area, Coachella Valley, 1992-First Bi-County Region and

11-3 11-4 11-5 11-6 11-7

Market

Profiles

LIST OF EXHIBITS
EXHIBIT 11-8 DESCRIPTION Average New Home Price, Detached Product, Coachella Valley by Submarket Area, 1998-Third Quarter 2004 New Home Sales by Price Range, Detached Product, Coachella Valley, 2003-First Quarter 2005 New Home Sales Distributed by Price Range, Indio-Coachella Submarket Area and Coachella Valley, First Quarter 2005 Housing Growth Summary, Market Area, 1980-2009 Riverside County and the Coachella Valley

11-9

11-10

I1-11

11-12

Projected Annual New Home Demand, Coachella Valley, 2005-2006

_ECTION III - SUMMARY OF COMPETITION II1-1 Summary of New Home Developments, Valley, First Quarter 2005 Detached Product, Coachella

111-2

New Home Market Summary by Submarket Area, Detached Product, First Quarter 2005 Summary of New Home Developments, Indio-Coachella First Quarter 2005 Submarket Area,

111-3

111-4 111-5 111-6

Summary of New Home Developments, Shadow Hills, July 2005 New Home Projects Location Map Development Status Report, City of Indio, June 2005

II

___

I II

SECTION I
SUMMARY OF FINDINGS AND CONCLUSIONS
' ' ' II I I i . . I

Market Profiles, Inc.

SECTION I SUMMARY OF FINDINGS AND CONCLUSIONS

INTRODUCTION This section presents a summary of the market opportunities identified with respect to the new homes that are proposed to be constructed within the Terra Lago Community Facilities District (CFD) in the City of Indio. The homes consist of five tracts that compose Phase I of the Terra Lago planned community. Based upon the anticipated price structure of the homes, a forecast of sales absorption has been formulated and is presented at the end of this Section I of the report (see Exhibit I-8). PROPERTY LOCATION AND DESCRIPTION The subject property consists of 635 residential lots that are contained within five residential tracts that will be developed by four quality builders. The subject tracts are situated within the larger Shadow Hills community that is located in the northern portion of the City of Indio north of the Interstate 10 Freeway. The master-planned community of Terra Lago is located less than one mile north of Interstate-10 at the northeast corner of Golf Center Parkway and Avenue 43. The community is bisected by the Coachella Canal, an extension of the All American Canal, that runs southeastward through the property. The northern edge of the Terra Lago community abuts the base of the foothills at the northern boundary of the City of Indio. The property extends southward to Avenue 44. To the east of the property is open desert. About one mile to the northwest off of Jackson Street are six new home subdivisions within the Shadow Hills community that are currently marketing homes. These subdivisions are discussed below. The location of the subject property is shown from a regional viewpoint in Exhibit I-1, and Exhibit I-2 shows the property in a local context. All of the sites offer convenient access to the I-10 Freeway. There are a wide variety of good quality retail shops and services located along Highway 11 in downtown Indio about three miles southwest. A major expansion of the indio Fashion Mall is planned that would increase the size from its current 220,000 square feet and transform it into a "lifestyle center". Within the Shadow Hills community, a 500,000 square foot power center is planned for a site located at the northwest comer of Interstate 10 and Monroe Street. Development of this center is anticipated to begin in mid- to late-2005. In addition, a neighborhood retail center with a supermarket has been approved for a 10acre parcel at the northwest corner of Jackson Street and Avenue 42. Given the large

I-1

MarketProfiles,Inc.

number of homes being constructed in the vicinity, it is reasonable to assume that its development will be initiated in advance of the completion of all of the subject homes. Currently, there is an elementary school and a junior high school located on the south side of Interstate 10. However, the Desert Sands School District has announced plans to build a new high school north of Interstate 10 at Jefferson Street and Avenue 39. The property on which the high school will be built ultimately will also include new elementary and middle schools, forming a K through 12 campus. The new high school will be ready to open in 2008, but timetables for construction of the elementary and middle schools have not been established. Higher education facilities located in the Coachella Valley area include: College of the Desert, a two-year community college located in Palm Desert; the Coachella Valley Campus of California State University San Bernardino (CSUSB), which recently opened its initial phase of development in Palm Desert on a site at Cook Street and Frank Sinatra Ddve; and Chapman University, with an extension and degree program offered at fadlities in Palm Desert. In addition, UC Riverside (UCR) will be building a twobuilding complex on a portion of the same site on which CSUSB is building its campus. The UCR satellite campus will house graduate-level academic programs in entrepreneurship, a center for UCR research in the area and the university's outreach programs and services, with initial facilities planned to open in early-2005. The subject property is one mile east of the 18-hole, Par-3 Indio Municipal Golf Course, the only night-lighted course in the Coachella Valley. The lndio Municipal Course is planned to undergo an expansion and renovation to be reconfigured into a Par 60 Executive Course. Two major Indian casinos, Spotlight 29 Casino and Fantasy Spdngs Casino, are located less than three miles from the subject project, near the inter_ection of Golf Center Drive and Interstate 10. Both of these facilities are undergoing significant improvement and expansion programs. The Terra La9o community will offer several major amenities. The community will be constructed around the existing Landmark Golf Club that includes two 18-hole championship golf courses. The subject homes in the Phase I of the community will be constructed around a 22-acre private lake that will offer boat access. Phase I will also include a recreation complex that will consist of a clubhouse, pool, and tennis complex. In addition, each tract will have a neighborhood park.

I-2

Market Profiles, inc.

DESCRIPTION OF SUBJECT HOMES As currently proposed, the homes that are planned for construction on the subject properties consist of five product lines that will be marketed independently of one another by four different homebuilders. Each of the homebuilders is highly experienced and has consistently demonstrated the ability to construct and market quality homes in a timely and professional manner. The five product lines are summarized in Text Table I-1 below. The homes will offer a variety of design configurations that will appeal to a broad mix of household types including families with children, young married couples, move-down households, retired couples, and second home buyers. TEXT TABLE I-1 SUMMARY OF PROPOSED NEW HOMES TERRA LAGO CFD Minimum Lot Size % Mix (Sq. Ft.) 27.7% 5,000 20_3% ..... 7,200 13.6% 8,400 1..7 .-4% 6.000 21.0% 3,300 100.0%.. 3,300-8,400

Tract # Builder 31601-2 Woodside Homes 31601 ----3-- Lennar Homes 31601-4 Lennar Homes 31601:5 Ryland Homes 31601 Ashbrook Homes Total I Range
Source: SunCal Properties,

Number of Lots 178 !28 86 110 133 635

Home Size Range (SF) 1,658-2,407 2,092-2,660 2,595-3,120 ! ,987-2,591 2,100-2,500 1,658-3,120

Market Profiles

The home prices that are currently proposed for each of the tracts are shown in Exhibit I-3. Although subject to revision, it is anticipated that each builder will construct homes that are in reasonable conformance with the proposed targets that are presented in this report. The sale pdces shown are stated in today's dollars, exclusive of future inflation or price appreciation that is likely to occur. The projected sales absorption rates for the subject new home subdivisions are predicated upon the home prices and sizes that are shown in Exhibit I-3 (see PROJECTED SALES.ABOSRPTION below). Depending upon the degree that the actual home prices and sizes may differ from those shown, the absorption projections may require appropriate adjustments.

I-3

Mo_el Profiles, Inc.

In addition to the base sale prices of the subject Terra Lago homes, many of the homes will command substantial premiums primarily for views of the lake and golf course. The values of the view premiums and the number of homes that will be able to command such premiums within each neighborhood are summarized in Exhibit I-3. The values of the premiums were derived based on a review of premiums that are currently being commanded by new home subdivisions with comparable views (see PREMIUMS FOR LAKE AND GOLF COURSE FRONTAGE below). THE MARKET OPPORTUNITY New home sales in the Coachella Valley have been strong over the past three years. The sales volume reached 5,768 homes in 2003 and 5,851 homes were sold in 2004. In the first quarter of 2005, sales totaled 1,331 homes. Although this is a strong sales figure, it is below the 2,052 sales that were reported in the first quarter of 2004. For analysis purposes, the Coachella Valley has been divided into five submarket areas. The boundaries of the submarkets are shown in Exhibit I1-1 in Section II of this report, Each of the submarket areas has unique characteristics. The indio-Coachella submarket consists of the cities of Indio and Coachella and the immediately surrounding unincorporated areas. New home sales in the Indio-Coachella submarket area have accelerated over the past three years. Sales increased from 241 homes in 1999 to 591 in 2001, then sales jumped to 1,217 homes in 2002 and to 2,890 homes in 2003. Sales continued strong in 2004 with 2,596 homes sold. Moderate home prices have been a major attractor of homebuyers to the submarket. in the first quarter of 2005, new home sales in the Indio-Coachella submarket totaled 585 homes. This figure is below the 872 homes that were reported sold in the first quarter of 2004. The Indio-Coachella submarket accounted for 44 percent of all new detached homes sold in the Coachella Valley during the first quarter of 2004, The high proportional share captured by the submarket is due to three major factors as follows: 1. Moderate home prices. 2. Shortages of moderately priced new homes in other areas of the Valley. 3. Increasing homebuyer perceptions of Indio as a desirable residential location.

I-4

Market Profiles, Inc.

The demand for new homes in the Coachella Valley is projected to average 4,500 homes per year over the next two years (see report Section II). The projected distribution of demand by price range is shown in Exhibit I-4. Market demand is spread across a wide range of prices from under $300,000 to over $1,000,000. The majority of the new homes sold to date in Indio have been purchased by households that were seeking a moderately pdced pdmary home. During the first quarter of 2005, the Indio-Coachella submarket area accounted for 89 percent of all homes sold in the Coachella Valley that were priced below $400,000. New supplies of homes priced under $400,000 have emerged in the communities of Desert Hot Springs and Coachella. However, the community of Indio will continue to dominate the market for moderately priced homes. It is projected that, on a sustained basis, the IndioCoachella submarket area will capture roughly 45 percent of the total annual new home sales in the Coachella Valley. This equates to a sales volume of about 2,000 homes per year. Given the continued availability of very low mortgage interest rates (i.e., near 6%), the volume of new home sales in the Indio market area may surpass the projection of sustained annual sales of 2,000 homes. The sustained forecast assumes that interest rates will eventually rise by at least one half percentage point, resulting in a moderation in new home demand within the submarket. In addition, it is assumed that the competitive conditions within the City of Indio will intensify and that other communities in the Coachella Valley will offer larger numbers of moderately priced new homes than they have in recent months. EXISTING NEW HOME COMPETITION There were 78 new home subdivisionsthat were active throughout the Coachella Valley during the first quarter of 2005. Descriptions of these projects are included in Section III of this report. There are 12 new home subdivisions currently active in Shadow Hills area. These 12 subdivisions are most relevant to the subject properties. The 12 projects are summarized in Exhibit I-5 and the most pertinent projects are described below. The fastest selling subdivisionin Shadow Hills is Bella Tlerra. The first 40 of these 3and 5-bedroom homes have been sold at a rate of 8.12 homes per week. The base prices range from $379,990 to $419,990 for plans that range in size from 1,895 to 2,629 square feet ($159.75 to $200.52 per sq. ft.). The homes are sited on 8,000 square foot lots (minimum). Another fast selling subdivision is Foxstone by KB Home. All 63 homes that were released during the first quarter were sold equating to a sales rate of 4.88 homes per

I-5

MarketProfiles.tnc

week. The project has another 182 homes remaining to be sold in subsequent phases. The base prices of these homes range from $307,990 to $368,990 for 2- and 3bedroom plans that range in size from 1,517 to 2,,526 square feet ($146.07 to $203.02 per sq. ft.). The neighborhood is gated and the minimum lot size is 8,000. The 132-1ot Sienna subdivision recently opened in Shadow Hills. The base prices of the homes range from $394,990 to $447,990 for 3- and 4-bedroom plans that range in size from 2,448 to 3,143 square feet ($142.54 to $161.35 per sq. ft.). The 263-1ot Shadow Ranch subdivision by Family Development sold out of 30 homes at a rate of 3.0 homes per week. These homes range $394,990 to $489,990 for 3-, 4-, and 5-bedroom plans that range in size 3,247 square feet ($150.90 to $180.77 per sq. ft.). The minimum lot square feet. The Desert Collection is a gated subdivision of 142 3-bedroom homes range from $364,990 to $414,990 1,610 to 2,266 square feet ($183.13 to $226.70 per sold at a rate of 3.31 homes per week, The minimum its first phase in price from from 3,185 to size is 8,500

homes, The base prices of these for plans that range in size from sq. ft.) The first 73 homes were lot size is 7,200 square feet.

The new community of Talavera in northeastern most Indio recently opened with four new home subdivisions offering homes for sale. The homes range in price from $299,999 to $416,990. The minimum lot size for all of the homes in Talavera is 8,000 square feet. The Venecia homes are the smallest being offered in Talavera. They consist of 3- and 4-bedroom plans that range in size from 1,576 to 1,947 square feet with base prices ranging from $299,999 to $333,990 ($171.54 to $190.35 per sq. ft.). Twenty-five of the 45 homes in the first phase release were sold at a rate of 1.76 homes per week. The homes in the Florencia subdivisionin Talavera range in size from 1,855 to 2,380 with base pdces ranging from $330,000 to $370,000 ($155.46 to $179.45 per sq. ft.). Of the 44 homes in the first phase, 26 were sold at a rate of 5.93 homes per week. Also in Talavera, the Alicante homes consist of 3-, 4-, and 5-bedroom plans that range in size from $389,540 to $404,990 (130.68 to $156.25 per sq. ft.). Two thirds of the 33 homes released in the first phase have been sold at a rate of 3.6t homes per week. The largest homes being offered in Talavera are those in the Genova subdivision. The base prices of these homes range from $396,990 to $416,990 for 2-, 3- and 5-bedroom plans that range in size from 2,848 to 3,280 square feet ($127.64 to $139.39 per sq. ft.).

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Manet Profiles, Inc_

Eighteen homes have been sold at a rate of 1.9 homes per week. FUTURE NEW HOME COMPETITION There are approximately 7,500 new homes within more than 40 subdivisions that are proposed for future development in the City of Indic (see report Section III). With this scale of proposed activity, it is projected that the Indic market area will experience a competitive environment for the next several years. However, the Indic market has been experiencing an under supplied market condition (see Section III) and the homes that are planned for development will be constructed in a phased manner over the next several years. It is projected that competitive conditions over the next three years will be more intense than those currently being experienced in the Indic marketplace, however, generally healthy demand.supply conditions are projected to be maintained. The majority of the new homes that will be constructed in Indic over the next few years will be located in and around the Shadow Hills community located north of Interstate 10 Freeway. In addition to the 1,400-plus homes that will be developed within the subject Terra Lago community, there are more than 2,700 homes that are planned for construction elsewhere in the Shadow Hills community. The majority of these homes will be constructed over the next three to four years. A summary of the 2,723 homes that will be part of the City of Indic Assessment District 2004-VSD is presented in Section III of this report. All of these homes will be located in the Shadow Hills community primarily to the west of the Terra Lago community. The prices of the homes will generally range between $300,000 and $500,000. Two subdivisions by Family Development located in the AD 2004-VSD are under construction and are actively selling homes (see Exhibit I-5). Also located north of the I-I0 Freeway is the site of the Andreas Ranch that will include 937 homes within a private, gated community. This property is located north of Avenue 38 at Jefferson Street. PRICE POSITIONING ANALYSIS The subject new homes that are proposed for development within Phase I of the Terra Lago community will offer an assortment of designs that will appeal to a variety of household types. The price positioning of the subject homes compared to the existing new home projects that are located in Shadow Hills is shown in Exhibit I-6. The home prices shown in the exhibits are base prices, exclusive of location premiums or other upgrades. Exhibit I-6 shows that the anticipated price structure of the majority of the subject homes (shown with solid lines) positions them well within the price structures of the existing new home projects in Shadow Hills (shown with dashed lines). This is a favorable pdce

I-7

Ma_'et Profiles, Inc.

positioning for the subject homes given the high quality community image that the subject Terra Lago community is anticipated to establish within the Indio marketplace. The subject residential tracts will be contained within an attractive and cohesive community context that will offer major amenities that are not available to the existing new home competitors in Shadow Hills. PREMIUMS FOR LAKE AND GOLF COURSE FRONTAGE Many of the subject homes that are proposed for Phase I of the Terra Lago community will be adjacent to the lake or to the existing Landmark golf course. The resulting views will create opportunities to command substantial premiums for those homes. View premiums that are currently being commanded by new home projects in the Coachella Valley range up to $250,000. The amount of the premium is influenced by the quality of the view and by the value of the home. The maximum premiums generally range from ten percent to 33 percent of the home value. Within the City of Indio, the highest view premiums that are currently being commanded are for homes with frontage on the Indian Palms golf course. Premiums of up to about $100,000 and 20 percent of the home value are being commanded within Indian Palms. The Indian Palms golf course is of lesser quality than the Landmark Golf Club that is part of the Terra Lago community. Currently, there are two new home subdivisions in Rancho Mirage that are marketing homes that have lake views. Both of these subdivisions are located within the private Santo Tomas community. The premiums for lake frontage in this community range up to $200,000 and equate to as much as 40 percent of the home price. Based on the anticipated quality of the lake and golf course views that will be created in Phase I of the Terra Lago community, it is concluded that the subject homes that will have lake or golf course frontage will be able to command view premiums of about $100,000. The estimated premiums that can be commanded by the subject new home tracts are summadzed in Exhibit I-3. The number of homes that will have lake and golf course frontage have been estimated based on preliminary land use maps. In addition to the major view premium, the sale pdces of many of the subject homes will, appropdately, include additional premiums for less significant characteristics such as larger lot size, desirable location (such as a cul-de-sac), etc. Premiums of $1,000 to $15,000 have been successfully commanded by new home subdivisions in Shadow Hills. Such premiums are common among virtually all of the competitive new home subdivisions in this marketplace.

I-8

MarketProfiles,Inc, PROJECTED SALES ABSORPTION The sales rates among the 78 new home projects that were selling detached homes in the Coachella Valley dudng the first quarter of 2005 ranged widely from 0.08 to 79 homes per week. The average sales rate was 1.73 homes per week per project. The sales rates of the 12 Shadow Hills projects that are shown in Exhibit I-5 range from 0.81 to 8.12 homes per week. The average sales rate is 3.43 homes per week and the median rate is 3.0 homes per week. The sales rates of these homes are very favorable in part due to the fact that many of them recently opened and sales rates tend to be more rapid in the initial marketing phases, then taper off in later phases. A healthy volume of new home sales is projected to be maintained in the Indio submarket area over the next two years. It is anticipated that each of the builders that will be marketing the subject homes has demonstrated a substantial track record of successful development and marketing of new homes throughout Southern California. Based on the estimated pdce positioning of the subject homes, it is projected that the five product lines will generate sales rates ranging from 0.75 to 2.0 homes per week. The sales rate that is projected for each product line is shown in Text Table I-2 below.

TEXT TABLE I-2 PROJECTED WEEKLY SALES RATES BY TRACT TERRA LAGO COMMUNITY FACILITIES DISTRICT

1 31601-2 2 31601-3 3 31601-4 4 31601-5 5 31601

5,000 7,200 8,400 6,000 3,300

17'8 128 86 110 133

2.0 1.5 1.0 0.75

.= .

....

0.75

* Homes perweek. Source: MarketProfiles

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MarketProfiles,Inc_

The sales projection for each of the product lines relates pdmadly to the pdce structure of the homes. The subject homes that are anticipated to be offered at the lowest prices are projected to generate the most rapid sales rates. Historical experience has demonstrated that new homes with lower pdces typically sell more rapidly than those with higher prices. Exhibit I-7 shows that this pattern generally holds throughout the Coachella Valley. However, the home price is not necessarily the determining factor in the sales experience. Other factors include the specific neighborhood location within the community, the design and construction quality of the homes, and the marketing program of the builder. The sales rates that are projected for the subject homes are conservative relative to the experience of new home projects that are currently marketing homes in the Shadow Hills community. The sales rates also take into consideration the general market environment that is anticipated to prevail over the marketing lives of the subject new home tracts. The projected sales rates are based on the assumption that market conditions will be moderately less favorable than those that were experienced in the Indio marketplace during 2004. The erosion of market conditions is expected to occur over the next few months due to a moderate rise in mortgage interest rates and to a slowdown in the resale market sector that has already occurred. As the new home market cools, the rate of increase in home prices will slow and this will decrease the sense of urgency that was evident among homebuyers in 2004. The projected moderation in new home market activity is expected to be accompanied by an increase in the competitive intensity within the Indio marketplace. The number of new home projects that will be active within the Shadow Hills community is projected to increase from the current 12 projects to 15 or more projects by late-2006. However, on balance, between eight and ten projects are expected to be marketing homes within the community at any given time over the next three years. A tabular summary of the projected absorption schedule for the subject homes is presented in Exhibit I-8. The sales forecasts describe the rate of closed transactions calculated from the date of the first closings that are anticipated for each of the new home tracts. Presale activity is projected to result in the sale of ten percent of the homes and is reflected in the first month of closings. The absorption schedules assume that the sales programs will not be interrupted by long periods when the homes are temporarily sold out due to the construction schedule or other delays. The timing of the first closings for each of the tracts has been estimated based on anticipated construction schedules that are yet to be finalized and, thus, are subject to change.

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MARKET PROFILES, INC.

274211x1-1,2,3,4,5,6,7,8,xls

MARKET

PROFILES,

INC.

27421 lxl-1,2,3,4,5,6,7,8.xls

EXHIBIT I-3 SUMMARY OF PROPOSED HOME PRICES TERRA I_AGO PHASE ONE JUNE 2005

31601-2

178

5,000

31601-3 31601-4 31601-5

128 86 ' 110

' 7,200 8,_,00 6,000

3:1601

133....

3,300

$289,900 $301,990 $309,990 $319,990 $342,000 $372,000 $392,000 $426,000 $446;000 $466,000 $450,990 $465,990 .$470,990 $480,990 $475,990 $490,990 $399,000 $425,500 $450,000

1,350 1,898 2,259 2,407 2,093 2,434 2,660 2,595 2,803 3,120 1,987 2,164 2,230 2,408 2,348 2,591 2,100 2,275 2,500

$215 $159 $137 $133 $163 $153 $147 $164 $159 $149 $227 $215 $211 $200 $203 $189 $190 $187 $180

Estimated

Lot Premium Summary

31601-2 31601-3 31601-4 31601 31601-5

Lake Open Space Open Space Golf Course Lake

$100,000 $30,000 $50,000 $100,000 $100,000

22 12 4 34 103

$12,360 $2,813 $2,326 $30,909 $77,444

* Base sale price exclusive of lot premiumsor upgrades. All pricesare stated in today's dollars. ** Average sale price includingmajorlot premiums.

MARKET PROFILES. INC.

274211xl-l,2,3.4,5,6,7,8.xls

EXHIBIT I-4 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006 PRICE RANGE* Under $300,000 $300,000-$350,000 $350,000-$400,000 $400,000-$450,000 $450,000-$500.000 $500,000-$750,000 $750,000-$1,000,000 $1,000,000 and Over TOTAL AVERAGE ANNUAL 500 750 900 650 450 550 450 250 4.500 SALES %/o OF TOTAL 11.1% 16.7% 20.0% 14.4% 10.0% 12.2% 10.0% 5.6% 00.0%

PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006

1000 -- .

g00

800

....

700

600

500

4O0 ,: 300 AVER/_GE ANNUAL $_LE$ I

200 100

0 Under $300,000

i $3OO.O00- $350,000$350,000 $400,000 $400,000. $450.0o0$4-G0,000 $500,000

-4.-. $500.000- $750,000-$1,000,000 $750,0D0 $1.000.000 and Over

* Pricesstatedin today'sdollarsexcluding futureinflationor appreciation Source: MarketProfiles

MARKET

PROFILES,

INC_

27421 lx1-1,2,3,4,5,6,

7,B.xls

EXHIBIT 1.5 SUMMARY OF NEW HOME DEVELOPMENTS SHADOW HILLS JULY 2005

."_ TALAVERA DR HORTON DELLA TIERRA (_ SHADOW HILLS FAMILY DEVELOPMENT THE DESERT COLLECTION _,SHADOW HrLL,S REYNOLDS COMMUNITIES ITHE EL DORADO COLLECTION (_ SHADOW HILL_ CENTURY VINIAGE HOMES FLORENCIA(_ TALAVERA DR HORTON FOXSTONE KB HOME GENOVA O TALAVERA DR HORTON SHADOW RANCH (_ SHADOW HILLS FAMILY DEVELOPMENT SIENNA e SHADOW HILLS RYLANDHOMES THEVENTANA COLLECTION _ SHADOW HILLS CENTURY VINTAGE HOMES VENEClA AT TALAVERA DR HORTON VILLA ESTATES II _SHADOWHILL_ CENTURY VINTAGE HOMES

3.31 8 12 t.75 0.17 2.18 3.10 1.90 2.58 235 0.84 3.47 1.46

3.31 8.12 2.6I 1.49 5.28 4.88 1.90 5.53 2.35 0.81 3.47 1.46

$389,540 $404,990 $379.990 $419.990 $375.990 $419,990 $339,990 $424,990 $330,000 :$370,000 $326,000 $387,000 $396,990 $416,990 $414.990 $509.990 $394.990 $447r990 $299,990 $339,990 $299,990 $333,990 $294,990 $394,990

2,493 $130.68 20-May-05 3,099 $156.25 1,895 2,629 t.610 2.266 1.720 2.778 1.855 2,380 1,517 2,526 2,848 3,267 2,185 3,247 2,448 3,143 1,208 1.843 f,576 1.947 1.302 2.735 $159.75 $2D0.52 $183.13 $225.70 $152.98 $197.67 $155.46 $179,45 $146.07 $203.02 $127.64 $139.39 $157.06 $189.93 $142.54 $161.35 $184.47 $248.33 $171.54 $190.35 $144,42 $228.56 01-Jun-O5 06-Nov-04 22-Mar--03 01-Jura05 12-Fsb-05 30-Apr-05 01-Feb-05 13-Apt-05 22-Mar-03 16-May-05 01-Oct-03

8,000 8,000 7,200 6.000 8,000 8,000 8,001 8,000 8,000 6,000 8,000 7,200

105 56 142 198 121 245 110 263 132 241 100 137

22 40 90 178 26 100 18 t22 28 97 25 134

22 40 17 2 26 37 18 30 28 10 25 11

11 2 8 6 18 0 1 0 24 2 20 3

72 14 44 14 77 145 91 233 80 142 55 0

INDIO TALAVERA INDIO SHADOW HILLS INDIO SHADOW HILLS INDtO SHADOW HILLS INDIO TALAVERA INDIO SHADOW HILLS INDIO TAL.AVEP._ INDIO SHADOW HILLS INDIO SHADOW HILLS INDIO SHADOW HILLS INDIO TALAVERA INDIO SHADOW HILLS

MARKEP TROFILES INC . .

PAGE 5 OF9

274211x1-1.2,3,4,5,6,7.8.xls

$520,000 :_.. ................... ....... _ ....

......... ::il;iz;:

EXHIBIT'I PRIC*. PR D OO C UC HA" T *CTE"ISTmCSl '"'coMPs, I

:i

$420,000 ....................................

._:" "

.......

_ ; _:"_"

...-''""
_370 j000

'; ".'. -.m-,_ ..... "A"e'""A"""_"

..... " _ :--J : : :

e
...................

"
....

--

+;;22

:
::

_;

"
=,

"

...................................

'j

"" " ; @_. : :.:.-..--_'_-- .:. e-'"i.;,"w .... ..-"'4' . $320,000 ................ - ............................................................... . ..-- -_ . _." , ---...

:: : :i I _ .... = _- -C._i:ii!_!_, _

$270,000
1.200

'
1.300 t,400 1.51)0 1,600 1,700 t.800 1,900 2,000

'
2,100 2.200

,
2,300 2,400 2,500

,
2.600

:: :: ,..-:;_:::::::i :,. ,_ .... ,;-,_;:_=_i,!_----_ ...... =_ _:: :'_.-_

2.700 2,800 2,900 3,00t) 3,11)0 3.200 3,3g0

SQUARE FEET
_Terta _'-_*_Terra _Terra l_ago 31801-2 Lago 31601-4 lago 31601 -..-IB-'--Terra _Terra Lago 31601-3 Lago 31601-5 Talavera, 80Q0 Sqfl Lot, Indio

- O -AIIcanta _ ...... - _ - * - -

- - +- - -Bells Tierra I_ Shadow Hills, 8000 Sqf_ Lo_, lndio ..... Florencia @ Talavera. 80(]0 Sqft Lot, Indio

The El Dorado Col_er.Ji<_n @ Shadow Hills, 6000 Sqft Lot, Imdio - -Fox.stone, 800(] Sqfl Lot, Indio - -Sh_lo_ Ranch @ Shadow Hills, 8(100 Sql_ Lot,lnlio

- - d_ - -C__r_ova@ Talave_a, 8001 Sqft Lot, Ir_dio I : (

I i

- - -X- - -Sienna @ Shadow Hills, 80,0(1Sqff Lot, Indlo ...... _ The Ventana Cof.le,ction @ Shadow Hills. 6000 Sq_ Lot, ]ndio -Villa Estates II @ Shadow FrillS. 7200 Sqff 1.ol. Indio
i I_J_5 ii i Ii i i ii i i ii

-The Deserl ColleClion @ Shadow Hills, 7200 Sqtt Lot. Ir_i0

- - 4,- - -Venec_a AI Talavera, 8000 Sqft LoL tndio

i ii i

I I_OI,RC_ RESI]ENT/_. "_=:EkI_k ; _KET

MARKET PROFILES, INC.

27421 Ix1-1,2,3A,5,8,7,B.xis

EXHIBIT I-7 NEW HOME SALES RATES BY PRICE RANGE COACHELLA VALLEY FIRST QUARTER 2005

Under $300,000 $300,000-$400,000 $400,000-$500,000 $500,000-$600,000 $600,000-$700,000 $700,000-$800,000 $800,000-$900,000 $900,000-$1,000,000 $1,000,000 & Over

1.11 2.24 1.26 0.07 1.09 1.11 0.00 0.08 0.07

0.52 - 2.04 0.54 - 787 0.25 - 3.0 0.08- 1.04 0.5 - 2,0 O.12 - 2.87 0 0.37- 1.25 024 - 1.63

8 24 15 4 7 7 0 3 7

* Excludesprojectswith sales rates over 10 homes per week.

MARKET PROFILES, INC.

274211x1-1,2,3,4,5,6,7,8.xls

TERRA

EXHIBIT I-8 QUARTERLY ABSORPTION SCHEDULE L.AGO COMMUNITY FACILITIES DISTRICT CITY OF INDIO

.- PHASE

Closed Saie Transactions

....... 1stQtr

1 31601-2 2 31601-3 3 4 4 3160131601-5 31601 5

178 2.00 Cumulative Closed 128 1.50 Cumulative Closed 86 1.00 110 Cumul ative Clo0.75 sed " ' Cumulative Closed Cumul 1at 33 ive Clos 0,75 ed

38 38 24 24 16 16
.....

26 64 19 43 13 16 29 16 17 1 7

26 90 19 62 13 10 42 26 2 10 6

26 26 116 142 19 19 82 101 13 .........'/3 ' 10 55 36 36 10 10 68 45 46 10

26 168 19 121 13 ' 10 81 55 ,,, 56 10

10 178 7 128 5 10 86 65 65 10

.......... 10 75 75 10 i0 .... 84 j 85 10 I 10 94 9 10 5 10 I04 104 10 6 110 1 10 14 124 10 133 9

"Closed sale transactions. "* Average weekly sales rate over the life of the project. Source: Market Profiles

MARKETPROFILES.INC

27421lx1-1,2,3,4,5 6,7.$.xls

SECTION II
ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST

Market Profiles, Inc

SECTION II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST

INTRODUCTION This section presents a review of the major factors that influence the demand for new homes in the City of Indio in the Coachella Valley area of Riverside County. Factors evaluated in the demand analysis include demographic profiles of the Coacheila Valley and of the City of Indio, employment growth, new home sales and inventory trends, and home pnce trends. Based on the data analysis, a forecast of housing demand distributed by price range has been formulated for the Coachella Valley. The Coachella Valley includes all of the cities and communities located between Palm Springs and Desert Hot Springs on the northwest to the cities of La Quinta and Coachella on the southeast. The Coachella Valley is divided into five submarket areas as shown in Exhibit I1-1. The Indio submarket consists of the cities of Indio and Coachella and the immediately surrounding unincorporated areas. EMPLOYMENT GROWTH The demand for new homes in the Coachella Valley is influenced by the economic vitality of Riverside County and of all of Southern CaUfomia Tourist expenditures and second home purchases are important elements of the Vailey's economy, The strength of locallybased, primary home purchases is dependent upon the vitality of the tourism industry, which, in turn, is dependent upon the strength of the national and Southern California economies. Exhibit 11-2presents a historical summary of employment growth throughout Southern California and in the Riverside/San Bernardino bi-county region. From 1997 through 2000, employment in Southern California increased at a healthy average annual rate of 3.0 percent. During the same period, employment in Riverside and San Bemardino counties increased at a very strong rate of 5.2 percent per year. The rate of employment growth began to decline through the first three quarters of 2001 due to risinginterest rates and a slowing national economy. Following the attack on the World Trade Center in September, job growth came to a virtual halt in the fourth quarter of 2001, Total employment in Southern California increased by 1,2 percent for the year 2001. The slowdown in growth that began in late-2001 carried over into 2002 and 2003 However, total employment in the Riverside-San Bemardino bi-county region increased at healthy rates of 3.0 percent (31,800 jobs) in 2002, and 3,5 percent (37,700 jobs) in 2003. This is a favorable performance compared to LosAngeles and Orange counties, whichboth

I1-1

Market

Profiles,

Inc.

experienced modest declines in employment during 2002 and 2003. Job growth in the Riverside-San Bernardino region improved to 4.5 percent in 2004 (50,500 jobs). Favorable rates of job growth are expected to be maintained through the next couple of years. However, the pace of growth is projected to moderate to about 3.5 percent in 2005 and 2006. The projected expansion of the regional economy over the next few years will support continued healthy demand for new residential units. Southern California's continuously expanding employment base will result in substantial demand for new homes in the Coachella Valley. Locally, the Valley's economy has benefited from new employment opportunities relating to the approval of Proposition 1A which authorized the establishment of Las Vegas-style casinos with slot machines on Indian lands in California. As a result, several major casino projects have been completed or are in various states of the development process in the Coachella Valley. These projects are projected to add several hundred jobs to the Valley's employment base and to attract several thousand more visitors to the region. This growth will have a stimulating influence on the demand for new homes in the Coachella Valley. The first major impacts of the casino expansions were felt in 2001. Casino and hotel projects recently completed and planned include the following: 13 The Augustine Casino, southof the City of Coachella, opened for business in 2004. The casino employs approximately 300 persons. [] The Morongo Band of Mission Indians recently completed construction of a $250 millioncasino resort hotel on a site located a few miles west of Palm Springs on the north side of Interstate 10. The project is expected to create 4,000 new jobs over the next five years. When completed it will be one of the largest gaming destinations on the West Coast. I_ A $90 million, 125,000 square foot casino recently opened in 2004 north of Rancho Mirage. El The Agua Caliente Band of Cahuilla Indians announced in January plans to expand the Agua Caliente Casino by additional65,000 square feet, add a new 14-story hotel with 400-rooms, and add 350,000 square feet of retail space. These various projects will be on the Agua Caliente Reservation at the comer Bob Hope Drive and Ramon Road, which is an unincorporated area of Riverside County. O In Palm Springs, the Spa Resort Casino opened in 2004. The $95 million gaming facility has 30 tables, 1,000 slot machines, an entertainment lounge, and four restaurants.

11-2

Market Profiles,/nc

{3 Construction has begun on the first phase of a 300-acre resort and corporate development located in Palm Springs, The Indian Oasis Resort and Corporate Center will ultimately include a 10-story hotel, 290 condominium units, an 18-hole golf course, a 100,000 square foot shopping center, and 500,000 square feet of office space. In 2003, the growth of the Coachella Valley's economy was affected by the slowdown in tourism that began in 2001. Exhibit 11-3 shows that hotel revenues in the Valley declined by 4.8 and 3.2 percent in 2001 and 2002, respectively. This drop in visitor activity had a dampening effect on the demand for new homes in the Valley. Despite the slowdown, sales of new homes increased from 2001 to 2002 (see NEW HOME SALES TRENDS below). Since 2003, however, tourism has started to rebound, with hotel room revenues increasing by 2.4 percent in 2003 and 4.3 percent in 2004. Further improvement in hotel revenues is projected for 2005. The projected improvement in the health of the Southern California economy over the next two years will strengthen the underlying demand for new homes in the Coachella Valley. The volume of visitors to the Valley will recover and grow, while the financial state and the confidence levels of new home buyers will improve. DEMOGRAPHIC PROFILE Exhibit 11-4presents population and income profiles of the Coachella Valley, the City of Indic, and Riverside County. There are 365,648 persons residing in the Valley. The population has grown at a strong pace of 4.1 percent per year since 2000, The Valley's population is projected to grow at a rate of 3.8 percent per year over the next five years Although the percentage rate of growth is declining, the growth rate in absolute terms is projected to remain near recent levels. The average household size in the Coachella Valley is 2.68 persons. This is a low figure resulting from a large proportion of one and two person households. Nearly two thirds (64%) of the market area's households consist of one or two persons, compared to 54 percent countywide. The large proportion of small households is partly due to a large retired population. Nineteen percent of the population is over 65 years of age. Countywide this age group accounts for 14 percent of the population. The population of the City of Indic is 61,516 persons. At 3.46 persons, the average household size in the city is much larger than that of the Coachella Valley as a whole. The city has a much larger proportion of family households with children than do the other communities in the Valley.

11-3

Market Profiles, Inc.

The income profile of the Valley's households is very diverse. Households are distributed across a broad range of annual incomes from under $25,000 (21%) to over $100,000 (20%). The median income of the Coachella Valley's household's is $44,240. This is a modest figure that is 8.6 percent below the countywide median figure of $48,384. The median income of households in Indio is $39,477. HOUSING PROFILE Exhibit 11-5shows a profile of the existing housing stock of the Coachella Valley, Single family detached homes account for 46 percent of the Valley's housing stock compared to a countywide proportion of 61 percent. The median housing value in the Coachella Valley is $238,378 (existing homes). This figure is slightly below the figure for Riverside County of $245,354. However, the Valley's housing stock is very diverse, The Valley has a greater than typical proportion of the least expensive homes, as well as, of the most expensive homes. Twenty five percent of the Valley's housing stock is valued below $150,000 compared to 22 percent countywide. However, the Valley also has a higher proportion of homes valued over $400,000 (24% versus 18% countywide). Exhibit 11-6 shows the vacancy characteristics of the Coachella Valley housing stock by city. Housing vacancy rates are very high in the City of Palm Desert, as well as, in the cities of Indian Wells. La Quinta, Palm Spdngs, and Rancho Mirage. These high vacancy rates of over 30, 40, and even 50 percent are to due the high incidence of second home ownership in these cities. Assuming an underlying vacancy rate of five to ten percent, second home ownership in these cities ranges from 20 to 45 percent of the total housing stock. The proportion of second homes in the City of Indio is relatively low. The proportion of second home ownership in the city is estimated to be about ten percent. However, this proportion is projected to increase over the next five years. NEW HOME SALES TRENDS Exhibit 11-7presents a summary of new home sales in the Coachella Valley distributed by submarket area. The volume of sales in the Valley declined from a peak of 3,356 in 1989 to 953 in 1993 due to the effects of the regional recession that began in mid-1990. Sales activity remained moderate from 1993 through 1997, then accelerated to 2,226 homes sold in 1998 and to 3,330 homes in 2000. Sales for 2001 fell to 2,510 homes due to a general slowdown in economic growth in Southern California. Sales increased to 4,236 homes in 2002. The jump in sales in 2002 was due to several factors as discussed in PROJECTED NEW HOME DEMAND below. Sales activity continued to increase strongly in 2003 and 2004 with 5,768 homes sold in 2003 and 5,851 homes sold in 2004.

11-4

Market Profiles, Inc

Sales in the Coachella Valley totaled 1,331 homes in the first quarter of 2005. This is a strong sales figure, however, it is well below the 2,052 sales that were reported in the first quarter of 2004. The geographic pattern of new home sales in the Coachella Valley has shifted over the past few years. Excluding the Indio-Coachella submarket, sales activity among the other submarket areas varied significantly from year to year. The sales fluctuations have been due largely to supply considerations. Sales in the Palm Desert submarket dropped from 1,313 homes in 2002 to 383 homes in 2003 due to a decline in home supply. Alternatively, home sales in the Palm Springs-Cathedral City submarket (including Desert Hot Springs) increased from 393 homes in 2002 to 1,161 homes in 2004 due an increase in supply. The shifting geographic pattern of sales activity is likely to continue in the future. More sales activity is expected to emerge in Palm Desert since the city has recently ended its moratorium on development in its northern sector. In contrast to fluctuating sales activity in the other submarket areas of the Valley, new home sales in the Indio-Coachella Submarket have consistently increased over the past three years. Sales jumped from 591 homes in 1999 to 1,217 homes in 2002 and 2,890 homes in 2003. New home sales in the Indio-Coachella Submarket continued to accelerate in 2004 with sales totaling 2,596. Moderate home prices have been a major attractor of homebuyers to the submarket (see PRICE TRENDS below). In the first quarter of 2005, new home sales in the Indio-Coachella Submarket totaled 585 homes. This figure is below the 872 homes that were reported sold in the first quarter of 2004. PRICE TRENDS Exhibit 11-8shows the average price of new homes sold each quarter in the five submarket areas of the Coachella Valley. The average price of a detached home sold in the Coachena Valley in the first quarter of 2005 was $487,063. The average sale price has fluctuated from quarter to quarter due the changing mix of productofferings. Although the prices of individual homes have risen significantly, the average sale price of all homes has risen only moderately over the past four years due to the increase in the sales volume of modestly priced homes located in the Indio-Coachella submarket area. The average price of a new home sold in the Indio-Coachella submarket during the first quarter of 2005 was $381,349. This figure is 40 percent higher than the average sale price for the first quarter of 2004 of $272,163. However, the average sale price has not changed significantly over the past three quarters.

11-5

Exhibit il-9 shows the quarterly pattern of new home sales in the Co area distributed by price range. Sales are spread across a broad price from under $200,000 to well over $400,000. During 2004 and 2005, there is of decreasing sales of lower priced homes as the price structure of new homes in the has shifted upward. In the first quarter of 2004, 50 percent of the new homes sold we priced under $300,000. By the first quarter of 2005; that proportion had dropped to just 6.7 percent. Exhibit I1-10shows that the Indio-Coachella submarket area dominated the sales of homes in the Coachella Valley in first quarter 2005 that were priced under $400,000. PROJECTED NEW HOME DEMAND The primary factors that have contributed to strongnew home sales in the Coachella Valley the local job-creating projects outlined above, and very low mortgage interest rates. Supported by favorable regional and national economic trends, job growth withinthe Valley is projected to continue at a favorable pace. And, although mortgage interest rates are expected to rise moderately, a healthy volume of new homes sales is projected to be sustained within the Coachella Valley. Based on the data analysis, it is projected that the demand for new homes in the Coachella Valley will average 4,500 homes per year over the next five years. With 5,851 homes sold, the 2004 sales volume surpassed the projected annual demand of 4,500 homes. However, it is projected that the pace of sales will moderate in 2005 and 2006. The demographic factors that underlie the housing demand forecast are summarized in Exhibit I1-11. The majority of the demand will be fueled by the primary buyer segment (i.e., owner occupants as opposed to second home owners), including retired households. Second home buyers, including pre-retirement buyers, are projected to account for just over one quarter of the demand. The great majority of the buyers that are active in the community of Indio consist of primary home buyers consisting primary of first time buyers and local move-up households. The Coachella Valley new home market is diverse. Exhibit 11-12 shows the projected average annual demand for new homes distributed by price range. Market demand is spread across a wide range of prices from under $300,000 to over $1,000,000. The majority of the demand for new homes in the Indio-Coachella submarket emanates from pdmary resident households. Primary homebuyers are responsible for the high volume of demand below the $400,000 price level as shown in Exhibit 11-12.

11-6

MARKET PROFILES, INC.

27421 lx2-'I ,2.3,4,5,6,7.xls

EXHIBIT 11-2 EMPLOYMENT GROWTH RIVERSIDE-SAN BERNARDINO BI-COUNTY REGION AND SOUTHERN CALIFORNIA 1980 - 2006 Riverside & san Bernardino Counties Tota! _nr:,e_._ se.' Per,.;,.2_t 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 _.mployment 1,252,700 1,210,700 1,170,700 1,120,200 1,082,500 1,050,700 1,010,100 960,300 903,800 863,100 824,800 801,700 772,800 755,900 751,500 741,500 735,200 689.200 647,700 610.900 574,400 536,700 495,700 465,700 452,600 458,900 452,000 Decrease 42,000 40,000 PROJECTED 50,500 37,700 31,800 40,600 49,800 56,500 40,700 38,300 23,100 28,900 16,900 4,400 10,000 6,300 46,000 41,500 36,800 36,500 37,700 41,000 30,000 13,100 (6,300) 6,900 N.A. Change 3.5% 3.4% 4.5% 3.5% 3.0% 4.0% 5.2% 6.3% 4.7% 4.6% 2.9% 3.7% 2.2% 0.6% 1.3% 0.9% 6.7% 6.4% 6.0% 6.4% 7.0% 8.3% 6.4% 2.9% -1.4% 1-5% N.A. Southern California Totai increase/ Percent Emp!oy_t_e_t 8,464,400 8_400 8,161,300 8,039,300 8.050,500 8,063,200 7,966,600 7,750,300 7,529,300 7,283,600 7,066,800 6,940,800 6,816,1 O0 6,780,400 6,883,300 7,088,300 7,268,900 7,165,800 6,975,400 6,734,100 6,493,200 6,267,100 6,029,300 5,762,500 5,708,600 5,844,400 5,755,100 Decrease 168,000 135,_100 122.000 (11,200) (12,700) 96,600 216,300 221,000 245,700 216,800 126,000 124,700 35.700 (102,900) (205,000) (180,600) 103,100 190,400 241,300 240,900 226,100 237,800 266,800 53,900 (135,800) 89,300 N.A. Ct_ange 2.0% 1.7% 1.5% -0.1% -0.2% 12% 2.8% 2.9% 3.4% 3.1% 1.8% 1.8% 0.5% -1.5% -2.9% -2.5% 1.4% 2.7% 3.6% 3.7% 3.6% 3.9% 4.6% 0.9% -2.3% 1.6% N.A.

Source:CaliforniaEmploymentDepartment,Market Profiles

MARKET PROFILES, INC.

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EXHIBIT 11-3 HOTEL ROOM SALES COACHELLA VALLEY 1988 - 2004

2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988

$362 $347 $339 $350 $368 $347 $311 $287 $265 $244 $232 $220 $225 $224 $226 $209 $185

4.2% 2.4% -3.2% -4.8% 6.1% 11.6% 8.4% 8.3% 8.6% 5.2% 5.5% -2.2% 0.4 % -0.9% 8.1% 13.0% NA.

352 $22,440 $22,521 $23,528 $25,126 $23,954 $21,988 $20,523 $17,545 $16,200 $t 5,200 $14,539 $14,306 $14,617 $15,400 $14,384 N.A.

4.1% -0.4% -.4.3% -6.4% 4.9% 8.9% 7.1% 17.0% 8.3% 6.6% 4.5% 1.6% -2.1% -5.1% 7.1% N.A. N.A.

Source:

Wheeler's

Desert Letter, Market Profiles

MARKET PROFILES, INC_ 27421 lx2-1,2,3,4,5,6,7 xls

EXHIBIT il-4 DEMOGRAPHIC PROFILE COACHELLA VALLEY AND RIVERSIDE COUNTY

POPULATION 2010 Projection 2005 Estimate 2000 Census 1990 Census Growth 2005-2010 Growth 2000-2005 Growth 1990-2000 HOUSEHOLDS 2010 Projection 2005 Estimate 2000 Census 1990 Census Growth 2005-2010 Growth 2000-2005 Growth 1990-2000 2005 ESTIMATED POPULATION BY RACE WHITE BLACK ASIAN & PACIFIC ISLANDER OTHER RACES TWO OR MORE 2005 ESTIMATED POPULATION HISPANIC ORIGIN 2005 OCCUPIED UNITS OWNER OCCUPIED RENTER OCCUPIED AVERAGE PERSON PER HH 2005 EST. HOUSEHOLDS BY INCOME UNDER $15,000 $15,000 TO $24,999 $25,000 TO $34,999 $35,000 TO $49,999 $50,000 TO $74,999 $75,000 TO $99,999 $100,000 TO $149,999 $150,000 TO $249,999 $250,000 TO $499,999 $500,000 AND OVER 2005 EST. AVERAGE HOUSEHOLD INCOME 2005 EST. MEDIAN HOUSEHOLD INCOME 2005 EST. PER CAPITA INCOME Source:Clarilas,Market Profiles N.A. 17,532 13,871 11,003 N.A. 26.39% 26.07% 61,516 47.71% 2.30% 1.83% 44.21% 3.96% 78.15% 160,815 135,402 113,516 85,186 18.77% 19.28% 33.26% 365,648 67 85% 2.03% 2.47% 23.31% 3.51% 51.79% 132,010 67.58% 32.42% 2.68 132,010 9.20% 11.83 % 12,36% 16.86% 19.10% 11.06% 10.58% 5.76% 2.14% 1.12% $65,569 $44,240 $24.481 694,251 597,519 506,218 402,067 16.19% 18.04% 25.90% 1,843,493 52.92% 6.19% 4.32% 20.69% 4.73% 40.14% 597,519 69.39% 30.61% 3_03 597,519 12.86% 11.75% 11.38% 15.69% 19.36% 12.16% 11.33% 3.97% 1.08% 0.41% $63,592 $48,384 $20,892 N.A. 61,516 49,116 37,554 N.A. 25 25% 30 79% 435,809 365,648 303,579 222,945 19.19% 20.45% 36.17% 2,155,693 1,843,493 1,545,387 1,170,413 16.94% 19.29% 32.04%

3.46 17,532 15.31% 15.21% 13.63% 19,61% 17.69% 8.37% 7.08% 2.02% 0.75% 0.33% $51,732 $39,477 $14,979

MARKET PROFILES. INC

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COACHELLA

EXHIBIT 11-5 HOUSING PROFILE VALLEY AND RIVERSIDE 2005

COUNTY RIVERSIDE COUN IY 689,903 61.26% 7,12% 1.38% 9.29% 1.93% 4,560/0 13.30% 1.15% 414,642 8.51% 2.36% 10.77% 15,62% 28.27% 16.72% 8.19% 6.27% 1.66% 1.71% $245,354 689,903 18.94% 6.84% 11.02% 25.23% 17.00% 9.84% 6.69% 2.22% 2.21%

DESCRIPTION YEAR ROUND UNITS IN STRUCTURE SINGLE FAMILY DETACHED SINGLE FAMILY ATTACHED DOUBLE UNITS 3 TO 19 UNITS 20 TO 49 UNITS 50+ UNITS MOBILE HOME OR TRAILER ALL OTHER OWNER OCCUPIED PROPERTY UNDER $80,000 $80,000 TO $99,999 $100,000 TO $149,999 $150,000 TO $199,999 $200,000 TO $299,999 $300,000 TO $399,999 $400,000 TO $499,999 $500,000 TO $749,999 $750,000 TO $999,999 $1,000,000+ MEDIAN PROPERTY HOUSING BUILT BUILT BUILT BUILT BUILT BUILT BUILT BUILT BUILT VALUE VALUES

COACHELLA VALLEY 189,200 45.85% 16.17% 2.18% 12.20% 2.05% 5,37% 14.07% 2.11% 91,511 10.34% 2.74% 11.60% 16.36% 23.37% 12.05% 7.08% 8.72% 3.66% 4.08% $238,378 189,200 19.44% 7.26% 10.13% 25,93% 19.34% 10.00% 5.61% 1.39% 0-90%

U NITS BY YEAR BU ILT 1999 TO PRESENT 1995 TO 199B 1990 TO 1994 1980 TO 1989 1970 TO 1979 1960 TO 1969 1950 TO 1959 1940 TO 1949 1939 OR EARLIER

Source. Claritas. Market Profiles

MARKET PROFILES. INC_

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EXHIBIT II-6 HOUSING STOCK PROFILES COACHELLA VALLEY CITIES 2000

Cathedral City Housing Units Vacant Units Percent Vacant Coachella Housing Units Vacant Units Percent Vacant Desert Hot Springs Housing Units Vacant Units Per cent Vacant i=,, Indian Wells Housing Units Vacant Units Percent Vacant ,, Indio Housing Units Vacant Units Percent Vacant [La Quinta Housing Units Vacant Units Percent Vacant !Palm Desert Housing Units Vacant Units Percent Vacant Palm Springs Housing Units Vacant Units Percent Vacant Rancho Mirage Housing Units Vacant Units Percent Vacant Totals for Cities Housing Units Vacant Units Percent Vacant Riverside County Housing Units Vacant Units Percent Vacant

8,785 763 8,7% 3,074 104 3.4% 3,775 523 13.9% 2,436 1,195 49.1% 7,658 602 7.9% 9,471 2,496 26.4% 11,120 2,530 22.8% 10,163 2,040 20.1% 4,312 1,554 36.0% 60,794 11,807 19,4%

2,575 1,412 54.8% 316 0 0.0% 180 35 19.4% 909 427 47.0% 877 212 24.2% 1,272 463 38.0% 9,551 5,081 53.2% 6,191 3,046 49.2% 3,626 1,525 42.1% 25,497 12,221 47.9%

3,829 608 15.9% 1,141 49 4.3% " 2,504 330 13.2% 597 361 60.5% 5,196 662 12 . 7% i=, , 762 314 41.2% 6,201 947 15.3% 12,379 4,617 37.3% 1,735 842 48.5% "" 34,344 8,730 25.4%

2,521 897 35.6% 451 52 11.5% 567 318 56,1% 8 0 0.0% 2,716 1,220 44.9% 258 15 5.8% 1,190 205 17.2% 2,172 689 31.7% 1,253 476 38.0% 11,136 3,872 34.8%

103 61 59.2% 0 0 0.0% 0 0 00% 0 0 0.0% 452 315 69.7% 0 0 0.0% 9 9 100.0% 74 47 63.5% 717 629 87.7% 1,355 1,061 78.3%

17,813 3,741 21.0% 4,982 205 4.1% 7,026 1,206 17.2% 3,950 1,983 50.2% 16,899 3,011t 17.8% 11,7631 3,3081 28.1% 28,071 8,772 31.2% 30,979 10,439 33.7% 11,643 5,026 43.2% 133,126 37,691 28.3%

.,,,..

.,.

356,447 29,374 8,2%

42,300 13,495 31.9%

103,066 14,881 14.4%

76,411 16,247 21.3%

6,450 4,459 69.1%

584,674 78,456 13.4%

Source: 2000 U.S. Census, Market Profiles MARI_ETPROFILES, INC. 274211x2-I ,2,3,4,5,6,7 xls

EXHIBIT 11.7 NEW HOME SALES BY SUBMARKET AREA COACHELLA VALLEY 1992 THROUGH FIRST QUARTER 2005

PaJrn$pnngs-Cathedral Cit Rancho Mirage Palm Des,srt La Qutnta Indio..Coachella

13 12 65 I23 0

154 23 85 208 270

167 35 150 331 270

4 7 145 _ o

263 15 110 417 31B

267 22 255 494 318

32 25 t30 142 36

155 27 122 550 231

187 52 252 592 267

16 11 44 56 7

133 6 223 449 232

149 17 267 505 239

39 7 144 25 7

73 66 426 358 142

112 73 570 383 14g

39 3 117 13 34

53 144 646 337 165

92 147 763 350 199

46 0 10 11 24 91

53 218 1 159 520 185

99 218 1,169 531 209

Totals

213 I -f40 I 953' 233 111123 }i, ,35S 365 }t.0.8S }1,4S0 !34 J1,043 I1,'i77 '222 t.l,0S5 11,'2'S i 7206,

11,345']1,551

,,12,_135 12,;",26 I

Palm Springs-CathedraICit Ranr..hoMirage Palm Desert La Quinla Indio-Coachell_

52 0 C) 46 45

293 297 917 1,004 196

345 297 917 1,05D 241

17 0 0 59 5

379 256

396 256

10 0 0 0 10

303 282 708 616 581

313 282 708 616 591

24 0 0 16 33

369 530 1,313 767 t,184

393 530 1,313 783 1,217

48 0 0 17 32

785 655 383 99D

833 655 383 1,O07

83 0 37 92 0

1,078 375 176 1.414 2,596

1,161 375 213 1,5D6 2,596

100 0 40 227 0

136 22 26 195 585

236 22 66 422 585

931 931 1+224 1283 459 464

2,115_ 2,890

Totals

I.+3I2.-70,.J2.asO e! 13.2,+ 1, 3.33020 'J2.,=1 +2 O .S,O.73 14,m3 14.2:m . m-_ ISm , ,I1._.+'+_..2 8 J,+03 Is.sin , 367 [ ms,] + ,.33'

SFA= At_.ac_ed Product S ; FD= Delwiched Product Sour{_: Reac e t, nlistTn_nds li.nage1 Profiles

MARKET PROFILESIN , C.

274211y2-1.2,3,,t,5.B,7._=

EXHIBIT 11-8 AVERAGE NEW HOME PRICE DETACHED PRODUCT COACHELLA VALLEY BY SUBMARKET AREA 1998 THROUGH THIRD QUARTER 2004

2005-1 2004-4 -3 -2 -1 2003-4 -3 -2 -1 2002-4 -3 -2 -1 2001-4 -3 -2 -1 2000-4 -3 -2 -1 1999-4 -3 -2 -1 1998-4 -3 -2 -1

$487,063 $499,631 ,$457.466 $510,106 $361,324 $346,358 $313,006 $296,622 $340,765 $300,454 $281,557 $340.713 $312r116 $329,280 $255,805 $296,827 $324,701 $324,022 $287,569 $284,240 $333,048 $306,379 $277,309 $356,066 $311_993 $261,202 $244,795 $241,970 $254.635

$462,322 $360,870 $299,834 $304,485 $279,160 $305,670 $217,490 $256,104 $336,465 $238,373 $223,604 $225,636 $214,903 $201,729 $186,125 $189,472 $217r298 $194,660 $214,066 $231,023 $204v60.2 $168,613 $169,002 $163,783 $156w986 $142,881 $131,435 $132,544 $122,826

$736,646 $717,860 $658,127 $590,519 $496,667 $468,964 $448.814 $425,579 $447,426 $441,490 $454,508 $440,543 $441,411 $445,032 $452,987 $442,205 $437,138 $414.78ho $412.485 $394,995 $405,141 $412,549 $358,096 $350,545 $382,024 $359,811 $398,290 $329,771 $307,834

$521 254 $5081513 $485,217 $535,581 $611,757 $375.655 $332,545 $337,418 $2871891 $276,209 $248,836 $292,771 $277,911 $268,632 $247,040 $256,930 $249_576 $286,109 $339,922 $270,721 $318,494 $330,832 $294,271 $290,086 $338,503 $270,587 $247,275 $238,423 $242.658

$792,518 $729,686 $724,240 $ 749,098 . ,$567.776 $676.643 $505,884 $429,891 $567_382 $489,195 $477,517 $456,337 $420,302 $503,068 $363,954 $396,384 $426,394 $399,754 $317,687 $320,949 $430,968 $372,182 $310,590 $473,375 $322,317 $271,954 $254,547 $253.779 $298,036

$381,349 $388,340 $359,647 ,$411,898 $272,163 $243,005 $204,431 $218.396 .. $214.492 $229,710 $184,27t $204,472 $196r025 $189,480 $185,520 $202,200 $1881030 $181,196 $174,732 $159,021 $169,353 $162,632 $159,317 $164,763 $159,636 $153,273 $144,043 $142,302 $144,500

SourceR : esidentiTre al ndsM , arket Profiles MARKET PROFILES, INC. 274211 x2-8,9.10,11.12 xis

EXHIBIT 11-9 NEW HOME SALES BY PRICE RANGE DETACHED PRODUCT COACHELLA VALLEY 2003 THROUGH FIRST QUARTER 2005

.........
Under $150,000 $150-175,000 $175-200,000 $200-250,000 $250-300,000 I$300-400,000 :$40.0,000& Up Totals * Q = Quarter 71 66 73 151 115 176 245 ,,8,97 112 157 152 324 269 308 280 1,602 87 108 94 176 159 100 209 933 74 177 178 621 350 288 551 2,239 2 126 215 295 381 499 513 2,031 4 25 54 128 161 249 1142 1,761 0 5 10 81 159 412 530 1,197

.......
0 0 0 12 128 t74 336 650 2 0 0 -1 64 451 448 964

Source: Residential Trends, Market Profiles

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EXHIBIT I1-10 NEW HOME SALES DISTRIBUTED BY PRICE RANGE INDIO.COACHELLA SUBMARKET AREA AND THE COACHELLA VALLEY FIRST QUARTER 2005 Numl_er of Homes* Sold Pric; _;_an_je Under $200,000 $200-$250,000 $250-$300,000 $300-$350,000 $350-$400,000 $400,000 & Up Totals
* Detached homes. Source: Residential Trends, Market Profiles

Coachella 2 0 57 242 157 127 585

Valley 2 (1) 64 264 187 448 964

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EXHIBIT I1-11 HOUSING GROWTH SUMMARY RIVERSIDE COUNTY AND THE COACHELLA VALLEY MARKET AREA t980 - 2009 Riverside-San Bernardino Co.s Riverside Coachella Valle, Houstn

735,200 1,010,100 1,210,700 1,425,700

N.A. 27,490 40,120 43,000

402,067 506,218 597.519 694,251

NJ_. 10,415 18,260 19,346

85,186 113,516 135,402 160,815

N.A. 2,833 4,377 5,083

NA. 1,841 2,845 3,300

N.A. 992 1,532 1,783

N.A 552 854 1,200

* RiversidelSan Bemardino hi-county region Source:Calif. Employmen Development t Dept.,Ctairtas M , arketProfiles

MARKET PROFILESI ,NC.

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EXHIBIT 11-t2 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006 PRICE RANGE r Under $300,000 $300,000-$350,000 $350,000-$400,000 $400,000-$450,000 $450,000-$500,000 $500,000-$750,000 $750,000-$1,000,000 $1,000,000 and Over TOTAL AVERAGE ANNUAL 500 750 900 650 450 550 450 250 4,500 SALES % OF TOTAL 11.1% 16.7% 20.0% 14.4% 10.0% 12.2% 10.0% 5,6% 100.0%

PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY 2005-2006

1000 900 ................ ...........

B0g

_0 500 7 40 g0 O

._

Under $300,000

$300,000$350,000

$350,0ou_ $400,000

$400,000$450,000

$450,000$500.000

$500,0O0. $750,000

$750,000-$1,000,000 $1,000,000 and Over

Pricesstatedin today's dollarsexcluding futureinflationorappreciation. Source: MarketProfiles

MARKET

PROFILES.

INC.

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SECTION III
SUMMARY OF COMPETITION

Market Profiles, Inc

SECTION Iil SUMMARY OF COMPETITION

INTRODUCTION This section presents a review of the existing new home competition throughout the Coachella Valley and within the community of Indio. For analysis purposes, the Coachella Valley is divided into five submarket areas. The boundaries of the submarkets are shown in Exhibit I1-1 (report Section II). The Indio-Coachella submarl<et area is composed of the cities of Indio and Coachella and the immediately surrounding unincorporated areas. The data that Lspresented in this section is based on a quarterly audit of all new home projects that are active in the Coachella Valley. The home prices and sales data that are presented in this market report represent the market circumstances as of the end of the first quarter 2005 audit period which ended in mid-April. The sale prices of the new homes that are being marketed in the Shadow Hills area have been updated as of earlyJuly. NEWHOME COMPETITION During the first quarter of 2005, there were 78 subdivisions marketing new detached homes in the Coachella Valley. Exhibit II1-1 presents a tabular summary of the 78 projects. The projects account for a total of 15,042 homes, of which 8,213 homes have been offered for sale and all but 559 of the homes offered have been sold. This is a low unsold inventory level as discussed below (see INVENTORY TRENDS). The Coachella Valley new home market is very diverse. Exhibit 111-2 shows a summary of new home activity within each of the Valley's five submarket areas (detached product), The Indio-Coachella and the Indian Wells-La Quinta submarkets had the largest number of active new home subdivisions during the first quarter period with 26 and 24 projects, respectively, The Indio-Coachella submarket generated the highest sales volume during the quarter with 585 homes sold. The sales of new homes in the submarket were aided by the moderate prices of the homes. The average sales price was $381,349 compared to $792.518 in the nearby La Quinta-lndian Wells submarket. Exhibit 111-3presents a summary of the 26 projects that were active in the IndioCoachella submarket during the first quarter of 2005. Detailed profiles of each of the projects are included in Section IV of his report. The 26 projects account for 7,330 homes, of which 3,722 have been offered for sale and only 155 of those remain unsold. Seventeen of the new home projects are located in lndio and nine are located in Coachella. With 3,200 homes, the retirement community of Sun City in Indio (Shadow

II1-1

Market Profiles, #_c.

Hills) accounts for nearly accounting for 344 homes, Indio. Descriptions of the (see MOST COMPETITIVE

half of the homes. An additional three of the projects, are located within the Indian Palms Country Club, also in most competitive new home projects are presented below NEW HOME PROJECTS).

INVENTORY TRENDS The total of 559 new detached homes that remain unsold (including homes under construction, completed, and pre-selling) throughout the Coachella Valley is a favorable unsold inventory figure. As a rule, a balance between the unsold inventory at the end of a quarter and the number of homes sold during the quarter is indicative of a healthy market condition (i.e., 1:1 unsold to sold ratio). Thus, compared to the sales volume of 964 homes sold during the first quarter period, the unsold inventory of 559 homes at the end of the first quarter of 2005 is indicative of a favorable market condition (0.58:1 unsold to sold ratio). Exhibit 111-2 shows that inventory conditions in the Indio-Coachella submarket are more restricted than elsewhere in the Coachella Valley. At the end of the first quarter of 2005, the unsold inventory in the Indio-CoacheUa submarket totaled 155 homes compared to first quarter sales of 585 homes (0.26:1 unsold to sold ratio). SALES RATES Exhibit II1-1 shows the weekly sales rate for each of the new home projects in the Coachella Valley. The sales rates are shown as "Cumulative" and "Current Quarter" rates. The Cumulative sales rate describes the rate of sales generated since the date of opening of each project, and the Current Quarter sales rate describes the rate of sale during the first quarter period. Cumulative sales rates range widely from 0.08 to 7.9 homes per week. The average cumulative sales rate is 1.73 homes per week per project. The new home projects that are most similar to the subject development are those that are located in the Shadow Hills community of north Indio. Dudng the first quarter of 2005, there were 12 new home subdivisions active in the Shadow Hills community. These projects are summarized in Exhibit 111-4. The cumulative sales rates among those seven subdivisions range from 0.31 to 7.87 homes per week. The average sales rate is 2.79 homes per week and the median rate is 1.64 homes per week. MOST COMPETITIVE NEW HOME PROJECTS The new home subdivisions that are most relevant to the subject properties are those that are located within the Shadow Hills community located north of the 1-10 Freeway (see Exhibit 111-4).The 12 projects are described below and their locations are shown in Exhibit 111-5.

111-2

Market Profiles. inc.

The fastest selling subdivision in Shadow Hills is Bella Tierra (map #1 ). The first 40 of these 3- and 5-bedroom homes have been sold at a rate of 8.12 homes per week. The base prices range from $379,990 to $419,990 for plans that range in size from 1,895 to 2,629 square feet ($159.75 to $200.52 per sq. ft.). The homes are sited on 8,000 square foot lots (minimum). Another fast selling subdivision is Foxstone by KB Home (map #8). All 63 homes that were released during the first quarter were sold equating to a sales rate of 4.88 homes per week. The project has another 182 homes remaining to be sold in subsequent phases. The base prices of these homes range from $307,990 to $368,990 for 2- and 3-bedroom plans that range in size from 1,517 to 2,526 square feet ($146.07 to $203.02 per sq. ft.). The residents pay a homeowners fee of $100 per month, plus CFD taxes. The neighborhood is gated and the minimum lot size is 8,000. The 132_1ot Sienna subdivision recently opened in Shadow Hills (map #7). The base prices of the homes range from $394,990 to $447,990 for 3- and 4-bedroom plans that range in size from 2,448 to 3,143 square feet ($142.54 to $161.35 per sq. ft.). The 263-1ot Shadow Ranch subdivision by Family Development (map #3) sold out its first phase of 30 homes at a rate of 3.0 homes per week. These homes range in price from $394,990 to $489,990 for 3-, 4-, and 5-bedroom plans that range in size from 3,185 to 3,247 square feet ($150.90 to $180.77 per sq. ft.). The residents pay a homeowners fee of $95 per month for green belt maintenance. The minimum lot size is 8,500 square feet. The Desert Collection is a gated subdivision of 142 homes (map #2). The base prices of these 3-bedroom homes range from $364,990 to $414,990 for plans that range in size from 1,610 to 2,266 square feet ($183.13 to $226.70 per sq. ft.). The residents pay a homeowners fee of $75 per month. The first 73 homes were sold at a rate of 3.31 homes per week. The minimum lot size is 7,200 square feet. There are two subdivisions stillactive within one private, gated neighborhood developed by Century Vintage Homes. The three subdivisions are The Ventana Collection, The El Dorado Collection, and Villa Estates II (map #'s 4, 5, & 6). The homeowners will pay dues of $50 per month for maintenance of the private streets, plus an assessment district fee, The Ventana Collection consists of 2- and 3-bedroom homes that range in size from 1,208 to 1,843 square feet with base prices ranging from $299,990 to $339,990 ($184.47 to $248.33 per sq. ft.). Of the 198 homes in this tract, 87 have been sold at a rate of 0.81 homes per week. The base prices of the homes in The El Dorado Collection range from $339,990 to

111-3

Market Profiles Inc ,.

$424,990 for 2- and 3-bedroom plans that range in size from 1,720 to 2,778 square feet ($152.98 to $197.66 per sq. ft.). Of the 198 homes in this tract, 176 have been sold at a rate of 1.64 homes per week. The Villa Estates II homes have base pdces ranging from $294,990 to $394,990. These 3- and 4-bedroom homes range in size from 1,302 to 2,735 square feet ($144.42 to $226.56 per sq. ft.). Of the 137 homes in this subdivision, 123 have been sold at a rate of 1.53 homes per week. The new community of Talavera in northeastern most Indio recently opened with four new home subdivisions offering homes for sale (map #'s 9 through 12). The homes range in price from $299,999 to $416,990. The minimum lot size for all of the homes in Talavera is 8,000 square feet. The Venetia homes are the smallest being offered in Talavera. They consist of 3- and 4-bedroom plans that range in size from 1,576 to 1,947 square feet with base prices ranging from $299,999 to $333,990 ($171.54 tO $190.35 per sq. ft.). Twenty-five of the 45 homes in the first phase release were sold at a rate of 1.76 homes per week. The homes in the Fiorencla subdivision in Talavera range in size from 1,855 to 2,380 with base pdces ranging from $330,000 to $370,000 ($155.46 to $179.45 per sq. ft.). Of the 44 homes in the first phase, 26 were sold at a rate of 5.93 homes per week. Also in Talavera, the Alicante homes consist of 3-, 4-, and 5-bedroom plans that range in size from $389,540 to $404,990 (130.68 to $156.25 per sq. ft.). Two thirds of the 33 homes released in the first phase have been sold at a rate of 3.61 homes per week. The largest homes being offered in Talavera are those in the Genova subdivision. The base prices of these homes range from $396,990 to $4t6,990 for 2-, 3- and 5-bedroom plans that range in size from 2,848 to 3,280 square feet ($127.64 to $139.39 per sq. ft.). Eighteen homes have been sold at a rate of 1.9 homes per week. PROPOSED NEW HOME DEVELOPMENT There are approximately 7,500 new homes within more than 40 subdivisions that are proposed for future development in the City of Indio. These projects are summarized in Exhibit 111-6. With this scale of proposed activity, it is projected that the Indio market area will experience a competitive environment for the next several years. However, the market is currently undersupplied and the homes that are planned for development will be constructed in a phased manner over the next several years. It is projected that competitive conditions will be more intense than those currently being experienced in the Indio marketplace, however, generally healthy demand-supply conditions are projected to be maintained.

111-4

Market Profiles, Inc.

The majority of the new homes that will be constructed in Indio over the next few years will be located in and around the Shadow Hills community located north of Interstate 10 Freeway. In addition to the 1,400-plus homes thai will be developed within the subject Terra Lago community, there are more than 2,700 homes that are planned for construction elsewhere in the Shadow Hills community. The majority of these homes will be constructed over the next three to four years. A summary of the 2,723 homes that will be part of the City of Indio Assessment District 2004-VSD is presented in Text Table II1-1 on the following page. All of these homes will be located in the Shadow Hills community to the west of the Terra Lago community. The prices of the homes will generally range between $350,000 and $500,000. The two subdivisions by Family Development are under construction and are actively selling homes (see Exhibit 111-4). Also located north of the 1-10 Freeway is the site of the Andreas Ranch that will include 937 homes within a private, gated community. This property is located north of Avenue 38 at Jefferson Street.

111-5

MarketProfiles,Inc

TEXT TABLE II1-1 SUMMARY OF PROPOSED HOMES ASSE_

!
! Affresco 32401 Vista Laguna 32402 Paradiso 31815 Desert Trace 30643 Sandhurst 30778 323O4 Shadow Ranch 32149 Haciendas 31686 31974 31975 Bella Tierra 30605 Vineyards 31562 * Preliminarydata Source Markot Profiles Family Dev. Alpine Group Total Lots, Family Dev Beazer Homes 147 I O2 137 56 298 2,723 Rilington Communities D.R. Horton Ponderosa Lennar Ashbrook Corn's KB Home Ryland Homes J.D. Desert Dev 275 363 1B5 225 111 247 132 59 123 263

!
1,900- 3,100 2,200-3,600 2,700-3,500 2,000-2,600 2.176-2,902 1,512-2,513 2;520-3,130 1,870-2,586 2,700-3,800

2,000-3,000

1,900-2,600 1,500-2,600

111-6

EXHIBITIll,1 SIJMMARYOF NEW HOME InLrVELOPAqENTS DETACHED PRODUCT COACHEUI.AVJI,_ FIRST QUARTER 2_S

_b_leE3 , =ROPLE_II_ .

Pp.GIEO , F4

Z_4,?. ':r 1 .. 'J I 2,3A,$,6.m

EXHIBIT II1-1 SUMMARYOF MEWHOME DEVELOPMENTS DETACHED PROD4JCT COACNELL.A VALLE_ EJRST CILIA RTER 2NS

i/_PJE _ TPROFM_: i. I_C.

P._,G 2 _E (3F4

27421_ ' 12.3.4,5_r_

EXHIBITII1-1 SUMMARY OF NEW HIOMEOEVELOIPMEHTS DETACHED PRODUCT COACHELLAUA FIRST QUARTER _005

EXHIBIT]Jiif SUMMARYOF HEW HOME DEvElOPMENTS DETACHEDPRODUCT COACHELLA VALLEY FIRSTQUAMTI_ 2,aDd;

14ARl',k-i' P_OF1LE,5 INC .

P_J_E 4 CIF $

2?4:21 lx_-..23,._,8_

EXHIBIT 111-2 NEW HOME MARKET SUMMARY BY SUBMARKET AREA DETACHED PRODUCT FIRST QUARTER 2005

INDIANWELLS-LAQUJNTA INDIO-COACHELLA PALMDESERT PALM SPRINGS-CATHEDRALCITY RA. NCHOMJRAGE

24 26 4 19 5

0.88 3.18 0.94 1.17 1.03 1.73

$792,518 2,976 $266.28

3,575

1,869 3,137 326 1,502 415

195 585 26 136 22 964

259 155 12 104 29 559

1,447 4,038 115 1,485 149 7,234

$381,349 2,147 $177.64 7,330 $521,254 2,322 $224.50 453

$462,322 2,216 $208.64 3,091 $736,646 2,768 $266.15 593

JSINGLEFAMILY DETACHEDTOTAL 78 Source:ResidentialTrends,Market Profiles

$487,063 2,341 $208.08 15,042 7,249

MARKETPROFILES, tNC+

274211x3-1,2.3,4,5,6.xls

EXHIBIT 111-3 SUMMARY OF NE'W HOME. OEVELOFMEHT._ INDIO,COAC H ELlA SUBMARKET AREA FIRST QUARTER 290|

1.00 BELI.A Q iNOIA,N PALMS COUNTRY CLUB FIRST PACIFICA DEVELOPMENT CORP ESPERAI_B.A Q DESERT RIVER ESTATES LENNAR HOMES FOX:STONE KB HOME HERMOSA RYLANC,HOMES LA COLONIA RTV DEP_ELOPMENT LAMORADA ILENNAR HOMES LAPALOMA K, HOVNANIAN,'FORECAST HOMES LA PALOMA ESTATES K. HOVNA.NeAN,,FOREC,/4,ST HOMES LAS BRI_S NORTH RANCHO INDIO CENTURY VINTAGE HOMES !I.AS PLUMA$ ,, LF.NNA_ HOMES MONTAGE _.SANTA ROSA 0.30 1.57 ?.81' 4.43 3.62

t.88 0.25 1.80 7,87 4.8 2._,_ $327,990 IP_n.990 r_439,990 $_75,099 $749,990 $307,900 $388,990 $297,9_0 $344,900 $33f,9J0 $409,900 S342._J0 $51.._090 S_og.ggo 8350,900 $_$,900

1,349 SlS2A._ 05-Jul-03 2f019 6178.26 1,704 $_09.41 2,101 $229.45 3,16B $187.40 4,002 $2.13.38 1,517 $146.07 2,526,1203.02 t.549 $177.B2 1,940 $162.37 1,910 $17t.54 2.300 $173,.B1 2.258 S13,5.95 2.839 8151 .a9 1,743 $147.97 2,372 $177214 1,848 $t37.60 2,677 1,527 2,735 2,092

8.e00

175 121 133 245 120 Z73 1"71 249 185 224 87 159 76 147 132 Z63

172 10 81 63 67 119 15 11.3 30 Z15 19 138 22 123 111 30

lS 4 22 53 ;'1 58 15 -6 30 2 19 2 16 0 0 30 -9 4,9 t6 43 12 33 11 10 56 18

3 3 3 0 0 0 D 5 10 9 0 12 14 12 0 0 34 0 0 3 10 3 7 12 t 14

0 108 49 1,82 23 154 156 13 125 0 68 O 40 12 21 2;33 2,350 58 4 _ 12 13 104 126 0 0 STAND.ALONE INDIO INDIAN PALMS CC INDCO JNDt0 SHADOW HILLS COACHELL.4 STAND-J_ONE COACHELLA STANO-hLONE CC, ACHELLA STAND-ALONE CQACHELLP, STAND-ALONE COACHELLA STAND-ALONE INDIO RANCHO IND40 COACHELLA STAND-ALONE INOIO STAND-ALON'E INDIO INDth,N PALMS CC INDI0 ] INOIAN PALMS CC INDO SI-IADOWHILLS ]NOLO SHADOW HILLS INOIO SUN CiTY COACHELLA STAND-ALONE 'tNOIQ STANIO-.Ar,.ONE INDIO SHADOW HILL3 INDIO SI-P,DOW HILLS INDIO STANC,-,N..ONE INDIO SHADOW HILLS INDIO LAS COU NAS COACHELLA STAP,!O4_ONE INDIO SI--I_OW HILLS

26-JuP,.04. 4.500 21-May-04 12-Feb-06 21TNov-O4 24-May..04 21,7a0 8,000 6,ODE, 6,110

1S.[, 15.00 -0,3,7 2.50 0,14 4.75 0,.14 123 000 0.00 3,00 -0.57 3.06 2.34 2.50

Og,.Apr-O5 6,000 15-Ma_-04 15-Jan-05 6._30 6.(X]0

S3gS,g00 1.61 $189,900 1369,990 4.75 $335,980

_1"18.18 $93.23 19-Sep-02 8.000 $192.75 $139,05 124dar-CL5 6.000

$365,9(K) 2,032 $160.60 2.87 $714,900 I,B01 $236.51 Oil-May-04 13000 $798,900 3,_u_. ,,$274.65 9.40 $37B,NO 1,62S $203.77 20-Mar-04 $4L:_.900 2.073 $207.88 0.86 $3S_'.gO0 1,624 $206.76 22_epo1 $412,830 1 ,NO' $238.85 1.38 $255,g00 1.6,80 $152._2 01-OcI-B] $429.900 2720 $204,tl4 3.rj0 $3g4.gGO 2.185 1150.gO 01-Feb,-0$ $4_.990 3,247 $1_,.T7 10,4_$275,900 1,181 St67.t)1 15-Oc1_0 _k35,990 2,586 $244._2 3.52 $_J_9,990 1,_5_2 $147.12 01-Nov-04 $310,990 _4,,990 1'324.gD0 $364,990 $414,990 $339,990 I424,91_ _20,900 $759,600 2,175 't,tr'_ 2,00B 1,61D 2,286 1,720 2,778 2,743 3,600 $I_..1|4 $t61._4 $17g,_'9 $183.13 $,228,70 $t52.96 $197.$6 1_.11.08 .S233.15 27--M_"04 0_-Nov-Q4 22-M1"-03 28-Al_r-04 22-Met-03 04-Sep-D4 01-S,ep-03 01-0_t-03 6,000 4,750 6,11X_ B,000 4,,_ 6,400 "_.,_00 ?,200 6J_O0 13,1)C0 6,000 7.200 7,000 7,200

V_SMANfGONZALF_..S RHAPSODY_INOIANPAUVISCOUN'lrRYCLU|B FIRST PACIFIC,& DEVELOPMENT CO, RP RIOYALI_IS1A_INOIAMPALMSCOUNI"RYCLILIB FIRS[ PACIFICA DEVELOPMENrlr CORP SANI]tlURSTCOVE_SHADOWHILL$ JEFF HAYDEN SHAIX)W RANCR _ SHIA.DOW HILL5 FAMILY DEVELOPMENT SUN aTYSHADOW HILLS PULTE HOMES CORPORATtON SLIMCREST B_RHOME5 SUNBURST LENNA_ HOMES lrHERSERTC_:}LLEC_nON_SHADO_THILL._ REYNOLDS COMMUNITIES THE EL OORADO COLUECTION eSHADOW CENTURYVINTAGE HOMES THE ORCI.IARO FAMILY DEVE].OPMENT

3,2_]9 816 139 135 142 196 93, 198 184 173 137 8,1 131 73 176 77 837 46 172 1/3

1.21_ 2.47 2.66 HILLS 0.80 2.35 0.72 021 3.62 120 3.31 1.64 1,57

"R-IEVENITANA COLLECTION _ SHADOW HILLS CENTURY VINTAGE HOMES THE'VISTAS_LASCOUNAS GHA COMPANIES TIERRA DEL SOL tNNOVATWE RESORT COMMUNITIES VII,JI.AESTAI'_SII_SHADOWNILLS CENTURY V]NTA{

0,Bt $299,950 t,206 $184.47 $338,11_0 1.,84_, $248.33 t.53 $309,B00 1,7[;O $171.81 &'354,_0' 2,068 $162,29 204 $136,990 1,104 $1"11,66 $330,_ 1 ,_ $184,86 1.53 $294,ggo 1,302 8144.42

$ou_

Resk_rYIml Tmr'_Os, Msrxed Profllee

MARKE',._ROFILE_ INC. ,

PAC.-E t I_= 1

274.211x3-12345,6,,4"..

EXHIBIT 111-4 SUMIII_,RY OF MEW HOME DEVELOPMENTS SHADOW HILLS JULY Z005

_TALAVERA DR HORTON 1 2 4 10 8 il BELLATIERRAI_SHADOWHILLS FAMILY DEVELOPMENT THE DESERT COLLECTION @ SHADOW HILLS REYNOLDS COMMUNITIES THE EL DORADO COLLECXION _ ,_HADOW HILLS CENTURY VINTAGE HOMES FLORENClA___,TALAVERA DR HORTON FOXSTONE KB HOME

3.31 8.12 1.75 0.17 "2,18 3.10 1.90 2.58 235 0.84 3.47 1,46

3.31 8.12 2'61 1.49 5.28 4.88 1.90 5.53 2.35 0.61 3.47 1.46

$389,540 $404,990 $379,990 $419,990 $375,990 $419.990 $339'.990 $424,990 $33(),000 $370,000 $328,000 $387,000 $396,990 $416,990 $414,990 $509.990 $394.995 $447,990 $299,990 $339,990 $299,990 $333,990 $294,990 $394,990

2,493 3,099 1,895 2,629 1,610 2,266

$130.68 $156.25 $159.75 $200.52 $183.13 $226.70

20-May-05 01-Jun-05 06-Nov-04 22-Mar-03 01-Jun_5 12-Feb-05 30-Apr-05 01-Feb-05 13-Apr-O5 22-Mar-03 16-May-05 01-Oct-03

8,000 8.000 7.20'0" 6.000 8,000 8,000 8,001 8.000 8.000 6.000 8,000 7,200

105 58 142

22 40 90

22 40 "'1"_' 2 26 37 18 30 28 10 25 11

1t 2 8 6 t8 0" 1 0 24 2 20 3

72 14 44 14 77 I45 91 233 60 142 55 0

INI TALAVERA FNOlO SHADOW HILLS INDIO SHADOW HILLS INDIO SHADOW HILLS INDIO TALAVERA INDIO SHADOW HILLS INDIO TALAVERA INDIO SHAOOW HILLS INDIO SHADOW HILLS INDIO SHADOW HILLS INOIO TALAVERA INOlO SHADOW HILLS

1,720 $152.98 2.778 $197.67 1,855 $155.46 2,380 $179.45 1,517 $146,07 2,526 $203.02 2,94e 3,267 2,165 3,247 2,44,8 3,143 t,208 1.843 1,576 1.947 1,302 2,736 $127,64 $139.39 $157.0'6 $189.93 $142.54 $161.35 $184.47 $24833 $171.54 $190.35 $144.42 $226.56

198 ..... 178 12t 245 110 263 132 241 100 t37 :;6 100 18 122 28 97 25 134

GENOVAi_TALAVERA "" DR HORTON 3 SHA[)OW RANCH _ SHADOW HILLS FAMILY DEVELOPMENT 7 rSIENNA@SHADOWHILLS ..... RYL,A, ND HOMES 5 THEVENr[ANA COLLECTION _ SHADOW HILLS CENTURY VfNTAGE HOMES 42 VENECIAATTALAVERA DR HORTON Q SHADOW HILLS

MARKET PROFILES IN , C

PAGE1 OF1

27421 lx3.1,2,3.4 5,6._ds

EXHIBIT DEVELOPMENT CiTY JUNE

111-6 REPORT

STATUS OF INDIO 2005

SINGLE FAMILY ATTACHED RECENTLY APPROVED OR UNDER CONSTRUCTION

[EA 05.(}2..425 pMp ]_._..__..] To co nstruc_6(] residential [ors on community

iSoutt_wes, comer of Medison St.lMadison St , LLC

3/10(2005

s,.G=
2. Barcelona

FA.ILY.*C.EO
TM 32411

___ J
138 To allow the subdivlsiolt of 40.1 acres in'_o 138 stngle family homes I/2 r_le east of the irdersection of Monroe and Avenue 50 Beazer Homes 5/27/21X]5

Codina at Terra L.ago 3 Planning Area 6

....

TM 31601

110

To c_tru_ 110 single family homes located within the Terra Lago _hin Ihe Terra La_o master'planned comn'NJnity commLmity Tract 31686 to subdivide 80 acres Weststcle of Golf Center into 284 single family lots tnclu01ing. Parkway north of Avenue 43

Ryland Homes

--

Hacler_a

Design Rev=ew 5-1157

284

B, eazer Horr_s {94_ 285-26_00

t_'l 5_005

5 lndk_ 78

TM 05-01..420 PMP (]5-D1-37 F_A05-0137 i e_[auve Map ...... 32339 & 32349 TM 04-7-410 TM 04-7411 Change of Zone 04-7-622 Oestgn Review 04-9

238

I{Tracl 32869') To subdivide 78.5 acres for 238 stngle family homes,

Aver_Je 40 and Jeffefso_ ,St. APN 679-110-005

SOl Commuc_ities LCC Atln: Sam Yoo (. 951) 676-7000

1]1B12005

Slor'_efield Develepmenl

96

TM 32339; To sulxli_de 52.46 acres North of A_,u_ 50, w_st (;f inlo 96 residential lots TM 33.34_: HJontl $_eel and soulh of Avenue 49

$1one_elcl Deve_)prnent Art McCu_ 949_581 -,$663

8,_31720D4

7 Espana

DR D5-1-156

471

T o consbru {471 si.ngl fa m reside nces c o n 160 87 e ac re sily

Generally Iocaled on the rmrl t 4D. comer of Adarns St. itrlhe_ Ave APN 679-D70-0(_2

Regency Horn,es Peter Solorno_ (760') 770-7373 1_20_2005

To _llow the cOnstruclJonof 36 r_ew 8 Rancho Verde Design Review 04-6 123 36 'single-family mstdnecea & TO allow two slory'h_rnes on 7.18 ac_es of vacant _and _OLr_dhwest cornel of O r. Carreor_ W,E,W. Construction Blvd. and Calhoun Slreet 76(]-343-5102 6_j0/200A

M,_RKETPROFILES,INC.

274211>r.32 -1 ,3,4 5,6xls

EXHIBIT 111.6 DEVELOPMENT STATUS REPORT CITY OF INDIC JUNE 2005

r.............
g Fiestade V_da TM 33276

lii-Z

.... i_i ....

iTi111

_"1 James Taylor _9 t6) 257-0,06_

itl ...... I'-1_'_ 120_35

Mixeduse developmentt[)taling 656 locatednorthof Ave. 38 and acres east of Wash=,-lgloS nt

10 The I_ndge at Jel_rson

DR 04-_139

124

To mvlewarchileclure & landscape Southeastcomer of Avenue 46 _tansto allowfor the c_)rlstrLction of arEIJeffersonSkeet 124 sin<jie-family homes

The Bridge@ Jefferson. LLC Ted Van -HutsenBmrt 76,0-200-4485

1_13,_2004

SonoraWells 11 _'FormerlyVistaLaguna)

DR05-5-161

363

To o n9 co 3. n 3acres struct 363 ('TIM smgl 32402 efa )milyhomas andAve Nodhwe .st 4c 1o set meJth r of of Ja the cks ao ll n St Kei{_ D.R Hort_nMichelle americancanal 941}_ 442-6199

5,,'cJ,r2005

,APPROVED,NO RECORD OF DEVELOPMENT To suhdivlrJe 60 acres of vscar_ land Nort_ of I-1t}flre_way,between into 275 single familylots w_lh pnvale Monrow Slreetand Jackson Mickle Riley Rilinglon streels,and _hree street nodhof the AIFAmerican Communilies rec,reationai/re_ntion basincommon Canal 760-471-5460 area lois. T_)subdi_de 4.41 acres into24 13 ',Villa OiVinci IDesigrt Renew 04-5 117 TM 32425 (TM 04-5-406) Tental_ve Map 30605;04-3-402 TM 31974; 04-2400 TM 31975, 04-2401 !TenlativeMap ;31689TM 04-1-39B DesignReview03-9 _5,TentativeMap 31692; 03,-9-392 24 residenliallois m Ihe RH zone, atso Soulh of Fred Wanng Dnve, To const'ut24 Singlefamily west of Clinton Street residences To subdiede 16.35 acres inlo56 singtefamilyhomes TM 31974; Tosubdl_de 29.07 acres inlo 105 SFH TM 31975; To subdivide39.48 acres into152 SFH To subdivide160 acres oflandinto 480 single family i'_mes Northof Ave. 44, west at Golf CenterParkway" West Side of Golf Center Parkway, northof Avenue43 FOL_ Tov_ers Development 5,'l?.J20rJ,4 760o333-3405

12 AffTeSCO

TenLatlveMap 32401 TM 04-6--408 275

7,r6f2004

14 Buena Vista

56

Famy ily D ela opment-_ Rud H eev rerr (7601900-6_g Deserl Lake RandyRe_nhart (909) 605-9456 Peter Solomon (760) 770-T'-373 GHA Palama Group, LLC ManoGonzates [760) 322-3422

3J3JZOO4

15 Desert lake. LLC

257

?J4_'2004

16

,RegencyHocnes;Coronado

480

Northeastcorner of Avenue 40 iar_ Adams S_set

1129._2DG4

t 7 Aldeaal Wanng

34

To subdiwde7,14 acresof vacant Southof FredWadng. west of land iri|o 34 single family residential ClintonStreel lotswithpnvale streels,

9_30_20B3

MARKET PROFILES, INC .......

">74'_11_3-1 2 3 45 _ x s

EXHIBIT 1II-6 DEVELOPMENT STATUS REPORT CITY OF INDIO JUNE 2005 ........... IITI Tenla_e Map .... _ .......... To subdiv=de18.13 acres _nta 82 iIRI1i'il ..................... r__serlEquipment T A McConnell 780) 347-8486

31389 O3-9-391: 18 Indian PalmsCochfari Ranch SpecllicPlan Eslales Arnendmenl 95-9-5 ProjectMa_ter Plan 03 -9-29 r rvlr' _g'o" lU I rvI 32462 _04-11-417J) TM 32341 (TM 04tf-418} TM 32288 GM 04-11-415)TM 32.287(TM 04-11A_.=_ D e6 signReview04-9. 13 General Plan 21 Estates at Sandhutst Amend 4-11-64 T entativeMap 0411-419 Parcel Map 31463 Proiecl Master Ptan I)3-8-28; Spec_c Plan 03-8-14 "Tentative Map 31_62; TM 03-8388 TentativeMap 30606, TM 03-7387; ProjectMaster Plan 037-27 DesignReview 03-7 85 DesignRewew 03-7 184 CondflionalUse ,Permit; 03-7-794

82

single-familyresidentialIot_; To establishlarld iJse regulaliens, Indian Palrr_s CounlryClub developmentstandard,, ar_ldesign guidelinesand To amen_lthe ta_ use designation. '

9/5/2003

19 Terra LogoEast

527

To allow for the developmentof 851 dwellingunits ofvanous density North of Avenue44 between Suncal typeson 563.34 acres Goll CenterParkway and Dillion Gary _liarns (Deductingdeveloprnenlsa[rea_ Road: Lar'_lms_ Lakes Golf (760'_775-6373 accountedfor in _is report. 527 units Course remainIn Terra Logo)

11fIt200_1

20 Sandst_n,ealOeset Trace

Revfewof archliecturaldes=gns and 111 front yard landscaping for 111 sir_jle-So rJ_h sl_br oo o mmunities and Avw e estoo 41 rnerof Jackson SL A Bra ce M ak iC ze familyhorr_,swilhm Tract 30643 (760) 200-9290 General Pta_ Atnendrnem& Tenlalive Map for 41)acresf0r 123 singlefamilyI'mmes To subdivide274.96 acresof far_ into _37 smgle-farnfl'.r _ eslde_'_allets for a privategatedcornmunily tn an F_.E and RL zone To subdivide 80 acresini0 _8 single family home_m a gated ootnrnunity Te sul:ldiw_'e 9.77 acres into 11 restolenlialots soulh of Ave, 42 betv_en Jackson SL & Van Buren SI, APN 679-3t04167

9_21S2004

123

SunDesert Homes LLC 760775-50_

11/4/2004

22 Ar_reas Ranch ............ 23 LarryHughes

937

Northof 1-10freeway,norlll side TR. CO. ef Avens ue38 at l_e norl_ er_ ly Tom Rie lly terminu of Jeffe rsonS lree (949_7 19 -4975 ........... East of Golf CenterParkway on Larry Hughes Avenue 44. (760) 578-0139 Southsidleof Aven_Je 543, _yesl. Lupe Watson of Jackson S_'eet. (-/'60)771-6237

5/16,t2003

208 .... 11

Silt2003

24 Lupe Watson Vista Men,aria Estates

7_2/2003

26 CentennfatHomes ICathoun Estates

31

To _0nstruct 31 slngle-farr_ly detached_esidences ConstrucUon of 53 singlefamily homeson 7.96 acres wt_ optional" Casita"

Nodh side of Dr. CarreonBlvd.. Cenlenntal HernesDerek west of CaIhounStreet. Scolt415-8_g-1962

7f16t2003

27 First PacificDevelopment', BellasaraU PENDING

53

loca_d on Wayne_ S_reet_nthe Indian Palms CountryClul_.

F D irs eve tPac tol_rnen ifica t; EricFrench 9_-841-1379

7t15_201)3

MAFIKET

PROFILES_

t_HC

2742.1 lx3-1,2.3,_1

5,6

EXHIBIT 111-6 DEVELOPMENT STATUS REPORT CiTY OF INDIO JUNE 2005 lr ......... -_ TM 323407M 04-7- I 410 TM 04-7-41t J Change c)fZone I)4-[ 36 7-622 ., ,/ ...._1 I 1........................... Sterte_eldOevelopment Art M cCu4 ll 663 _49-581-

28 S_onefieldDevelopment

To subdivide38.64 acre_ _nto 36 resldenliallois To change the zemng Norlh af Avenue50, west of designationon g.g 33 a_es from Hj Stre A vo erth nue 49el and south _f CErR-1 & CEIR-2 Io CEIR -I/2

8/3112004

29 WoodsrdeHomes

DR 05-01-158

3,0 WhittierRanch

TM 31473

TOcolnstruct179 single fatuityhomes Northwestcornet o! Golf Center on 61 27 acres Park_vay and Avenue 43 wilhm Terra Logo To sub-di_te 39 acres ,rite 13_ Locatedon northwestcomer of 138 s=nglefamly homesin a gated Avenue 4B& Jackson St. community t 79

Pleasant Valley Inves Pa ul K tm i-off er_ts (949) 848-4_80 Kevm Manning 76,0404-1900

2/15t20I)5

3_Sd2DD5

....
31 San Milan at Paradise TM 31815 225 32 Belle"13enra 2 ' '33 PonderosaVillas !DR 05--4-170 TM 33291 7

,h, see l,i

archi_c'lule for 225 singlefamily =homes To construct 7 SFH's on 2.43 acres approvedTM 30605 AI Ihe southeastcomer of MonroeStreet and Avenue4(]

...........
LennarHomes 4_'7/2D,05 Northwestcomer of Ave.44 and Rudy Herrera Geff Center Parkv,'ay (760) 990-6989 Po_nderosa Hor_esII _nc Pamela Hardey (925) 460-8981 1/24/2005

185 To construct1B5 single larnit ho_ y Ave 41 & Monrne , St. _rM 31815 41(] Lots) TIM331)1)4, To subdiv=de approx214 774

3t24,_005

34 iPoloEstates Residential _

PMP 05-03.-44TM [ :2 )5 4 4-3-431EA 5-2-

acresInto774 lois.SF loiswiJI range Locatedat the northwestcomer Jim Hitdet)rand in size rom 5000ot sq fl Illra o 1f ,0_ ro sqft (925) 682-4830 Clust ef rP[oductl s v_i ngef m of Ave. 52 and JacksonSt 4,240 sq ft to 5,250 sq fi Mixed use projectfor 149 SFH and Northwest corne( of Burr St. & of __. ,e mmercialon 54.47 acJres TM Vetoer Rd. 3323 9co Rilington Communities (760) 779-0705

3/15/2005

35 Avante

SP (],5-3-15TM D513-430PMP 05-343

149

3,'10/2005

36 Aliante

TM 05-3-428 PMP 05-3-41 DR 05-3!163

iTM 33293 Deve.loprnn et of 40 acres Nort_of Avenue 44, east of Golf Rudy Herrera 130 int_130 res=dential lots and a 3 acre CenterParkway Cf60} 90{3-691],9 park/openspacearea,
r, _,

3/8._006

37 Marquesaat Terra Laga , PlanningArea 3

DR 05-3-161

86

Designre_-=wto construct86 sir_le Golf Center Parkwayand stm'y,singlefamily homes TraCt Avenue 44 Tract 31691-4 31601

;Lennar Homes (760")325-3791

3/St2(]Q5

M_.RKEP T_OFILES IN , C

7.7421 _x_'1,2,3,,_,.5, x_6

EXHIBff 111-6 D EVELOP MENT STATUS REPORT CITY OF IND_O JUNE 2005 ..... M "" CUP 05-03-829 DR 05-3-160 ITM05"02-425T_acl 33014 GPA 05-2-66 DR (]5-2-161 Deegn Rewew 05-2 160 TentativeTract Map 33165 ' "="_ '_-':--_ t28 Design re_=w to construcl128 singlefamily hort'_..s " i_llrll GolfCenter Parkwayand Avenue44 "Tract31601.3 n I I -I............. 2_r15/2005

38 Cordobaat Terra Lago

Len_r Homes "760) 325-3791

39 Villa La Jolla

14

To conslruct14 residenlial homesor= South of John NoblesandWest 4 Towersdevelopment 3.3 acres ofArabi_ Guy Elziony 760-333-3405 To subdivtde6.92 acres_nto 27 stogie-family residential Land'divlsi'on of 9.6 Acres rn 1he Ne_th_st _omerof Jellerso_ Streel & WestwardHe ..... Roger S_ellenbecger '760) 7845097

2J14,'2005

40 IndianSpringsCC

27

1/24/2005

141 P atricleAiken;Ir _dla Ranchos T e n tati veParcel Country EstatesAr ea M a p 04-1(]-332 DesignRev_w 0442 BuenaTierTa ,. 1(]-142Condilienal Use Permit 04-10. 82.3 Changeof Zone 041!-626 PMP 04-1 !36 TentativeMap 33012;04-11-41B

ln Ra ncl_os Cou ryEstatesarea e st side af5 Mo roe betwee n indio tofo u(4}two acrnt e singl e-Pamily W 4g _hA ve. & D_nA ve.n ue resldenQalees l To constud56 one-storyandtwostorystrain familyresidenlialunits on 16.35 acres To subdivide16.6 acresinto25 residentiallots and 15 letteredlots

Pnlrtcis Ai ke_78 ("/'60}34 7_07

10.,'4/20,04

56

It8 mileftodhot_Avenue 4.4and Rudyand Raymond He_reca wesof GolfCenter Parkway Las Bougaln_lleasLLC

11/16/2004

_43 Las Bouga=nvilleas L, LC

25

fo street,lar'_lscap_ng and retenlion, Jeorlhof ffersonN AvenUes 5B,east tree| of also 1"ochangethe zoningflrorn CEIR-2 To CEIR-t/2 TO cons1:nJcl 247 sirlgle-famity....

Judnr_eFreemanClarlo'Den7 n/2 ts7,_004 76(]-773*9024 --

44 !V_ndsong at DesertTrace

,13_Des Rev, _gr_ ew04-7

247

Tim L homes on 80.26 acresofagricultu_t Ave Nrtl' n_ ue4 'as_ tcrnerfM_rMrear_'KSHr nokkesmoe eCaslallnc tan<l witl_n TTM 30643 J0g-5_.7-3308

SOURCECi_ _f Indio.M_d_e'_ Profiles

I_kRKET PROFILES INC . .

._74211x3_1.2,3.4,5

,_.xls

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APPENDIX

F OPINION

FORM OF BOND COUNSEL

[Dated the Date of Closing]

City of lndio 17866 Sierra Highway Canyon Country, California 91351

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Members of the Board of Trustees: We have acted as bond counsel to the City of Indio (the "City") in connection with the issuance of the $26,330,000 aggregate principal amount of City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"), pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, or the Government Code of the State of California (the "Act") and pursuant to a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"). We have examined the Act and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the District contained in the Fiscal Agent Agreement and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing we are of the opinion, under existing law, as follows: 1. The Fiscal Agent delivered by the District legally valid and binding binding obligation of the terms. Agreement has been duly and validly authorized, executed and and, assuming such Fiscal Agent Agreement constitutes the obligation of the Fiscal Agent, constitutes the legally valid and District, enforceable against the District in accordance with its

2. The Bonds constitute valid and binding limited obligations of the District as provided in the Fiscal Agent Agreement, and are entitled to the benefits of the Fiscal Agent Agreement. 3. The Bonds are secured by a valid pledge of the Special Taxes and all moneys in the funds and accounts under the Fiscal Agent Agreement, including all amounts derived

F-1

flown the investment of such moneys, subject to thc application conditions as set tbrth in thc Fiscal Agent Agreement.

thereof on the terms and

4. The Internal Revenue Code of 1986 (the "Code") sets tbrth certain requirements that nlust be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from the gross income of the owners thereof tbr federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issue of the Bonds. The District has covenanted in the Fiscal Agent Agreement to maintain the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In our opinion, under existing law, interest on the Bonds is exempt from personal income taxation of the State of Calitbmia and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. We are further of the opinion that under existing statutes, regulations, rulings and court decisions, the Bonds are not "specified private activity bonds" within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not be treated as an item of tax preference for purposes of computing the altemative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings over the alternative minimum taxable.income being an adjustment to alternative minimum taxable income {determined without regard to such adjustment or to the alternative tax net operating loss deduction)). Except as stated in the preceding three paragraphs, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other bond counsel. No opinion is expressed herein on the accuracy, completeness Statement or other offering materials relating to the Bonds. or sufficiency of the Official

The rights of the owners of the Bonds and the enforceability of the Bonds and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. The enforceability of the Bonds and the Fiscal Agent Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California.

F-2

Our opinions are based on existing law, which is subject to change. Such opinions are thrther based oil our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereatier come to our attention or to reflect any changes in any law that may thereafter occur o1"become effective. Moreover, our opinions are not a guarantee of resull and are not binding on the Internal Revenue Service: rather, such opinions represent our legal .judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

Respectfully submitted,

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APPENDIX FORMS OF CONTINUING CONTINUING

G AGREEMENTS

DISCLOSURE

DISCLOSURE

AGREEMENT

(City of Indio Community Facilities District No. 2004-3 (Terra Lago))

This Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September 1, 2005, is executed and delivered by the City of lndio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Union Bank of California, N.A., as dissemination agent (the "Dissemination Agent") hereunder, in connection with the issuance of the $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"). The District and the Dissemination Agent covenant and agree as follows: SECTION I. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District and the Fiscal Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2- i 2(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report or any addendum thereto provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "City" shall mean City of Indio, California. "Disclosure Representative" shall mean the City Manager of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time. "Dissemination Agent" shall mean the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the District and which has filed with the Fiscal Agent a written acceptance of such designation.

G- 1

"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set tbrth in the SEC website located at http: /ww,_v.sec. gov. "'Participating Underwriter" shall mean any of the original underwriters required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean each National Repository and each State Repository "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of California. "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. {a) The District shall, or shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Reports may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. If the District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f). Furthermore, upon receipt of a written request of any Beneficiary Owner, the Dissemination Agent shall provide a copy of the Annual Report to such Beneficial Owner. (b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the District shall provide the Annual Report to the Dissemination Agent and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District and the Fiscal Agent of such failure to receive the Annual Report. The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and Fiscal Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report. of the Bonds

G2

(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State RepositoD', if any in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) to the extent information is known to it, file a report with the District and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. include by reference the following: The District's Annual Report shall contain or

(i) The audited financial statements of the City, prepared in accordance with generally accepted accounting principles in effect from time to time. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (ii) The balance in the Special Escrow Fund held under the Fiscal Agent Agreement.

(iii) Total assessed valuation (per the Riverside County Assessor records) of all parcels currently subject to the Special Tax within Improvement Area No. 1 of the District, showing the total assessed valuation for all land and the total assessed valuation for all improvements within Improvement Area No. 1 of the District and distinguishing between the assessed value of developed property and undeveloped property. (iv) Identification of each parcel for which any Special Tax payment is delinquent, together with the following information respecting each such parcel: (A) the amount delinquent; (B) the date of each delinquency; (C) in the event a foreclosure complaint has been filed respecting such delinquent parcel and such complaint has not yet been dismissed, the date on which the complaint was flied; and (D) in the event a foreclosure sale has occurred respecting such delinquent parcel, a summary of the results of such foreclosure sale. (v) The number of certificates of occupancy issued by the City and the principal amount of prepayments of the Special Tax with respect to Improvement Area No. 1 of the District for the prior Fiscal Year. (vi) A land ownership summary listing property owners responsible for more than five percent (5%) of the annual Special Tax levy, as shown on the Riverside County Assessor's last equalized tax roll prior to the September next preceding the Annual Report date.

G-3

(vii) The principal amount of the Bonds outstanding and the balance in the Reserve Account (along with a statement of the Reserve Requirement) as of the September 30 next preceding the Annual Report date. (viii) A description of the status of the facilities being constructed with proceeds of the Bonds as of the date of the Annual Report (but only so long as such facilities are not completed), and the balance in the Acquisition and Construction Fund as of the September 30 next preceding the Annual Report date (but only until such fund is closed). (ix) The number of building permits issued in Improvement Area No. l of the District during the prior Fiscal Year. (x) The amount of Special Taxes generated by the developed undeveloped parcels within Improvement Area No. 1 of the District. parcels and

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference. SECTION 5. Reportin_ of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: l. 2. 3. 4. 5. 6. 7. principal and interest payment delinquencies; non-payment related defaults; modifications to rights of Bondholders; optional, contingent or unscheduled bond calls; defeasances; rating changes; adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds; unscheduled difficulties; unscheduled difficulties; draws on the debt service reserves reflecting financial

8.

9.

draws

on

credit

enhancements

reflecting

financial

G-4

10. 11.

substitution of credit or liquidity providers, or their failure to pertorm; release, substitution or sale of property securing repayment of the Bonds.

(b) The Dissemination Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (t) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Dissemination Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Dissemination Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent or the Dissemination Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. Neither the Fiscal Agent nor the Dissemination Agent shall have any responsibility to determine the materiality of any of the Listed Events. (c) Whenever the District obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the District has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). (e) If in response to a request, under subsection (b), the District determines that the Listed Event would not be material under applicable federal securities laws, the District shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Fiscal Agent Agreement. SECTION 6. Termination of Reporting Obligation. The District's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District /;hall give notice of such termination in the same manner as for a Listed Event under Section 5(0.

G-5

SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the District and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the District in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to any amendment so requested by the District) provided, neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: " (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in

G-6

addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the District or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent (at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and lees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the District or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. .. SECTION 1i. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination A_ent. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders, or any other party. The Dissemination Agent shall have no liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Agreement. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

(}-7

SECTION 12. Notices. Any notices or communications to this Disclosure Agreement may be given as Iollows: To the District:

to or among any of the parties

City of lndio Community Facilities District No. 2004-3 c/o City of Indio 100 Civic Center Mall lndio, Calitbrnia 92201 Attn: City Manager Phone: (760) 342-6580 Fax: (760) 342-6597 Union Bank of California, N.A. 120 South San Pedro Street, Suite 400 Los Angeles, California 90012 Attn: Corporation Trust Department Phone: (213) 972-5674 Fax: (213) 972-5694

To the Fiscal Agent:

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners fi'om time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2004-3 (TERRA LAGO)

By City Manager of the City of Indio

UNION BANK OF CALIFORNIA, Dissemination Agent

N.A., as

By Authorized Representative

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EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party:

City of Indio Community (Terra Lago)

Facilities District No. 2004-3

Name of Bond Issue:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Date of Issuance:

September 15, 2005

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The District anticipates that the Annual Report will be filed by .] Dated: UNION BANK OF CALIFORNIA, on behalf of District N.A.,

cc: Issuer

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DEVELOPER

CONTINUING DISCLOSURE AGREEMENT ([NAME OF PROPERTY OWNER])

This Developer Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of September l, 2005, is executed and delivered by , [type of entity] (the "Property Owner") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent") and acting in its capacity as Dissemination Agent hereunder, in connection with the issuance of the $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "issuer") and the Fiscal Agent. The Property Owner, the Dissemination Agent and the Fiscal Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Property Owner, the Dissemination Agent and the Fiscal Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, five percent (5%) or more of the outstanding voting securities of such other Person, (b) any Person whose outstanding voting securities of five percent (5%) or more are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person; for purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Annual Report" shall mean any Annual Report or its addendum provided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Assumption Agreement" means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Agreement (as modified for such Major Owner's development and financing plans with respect to Improvement Area No. 1 of the District), whereby such Major Owner or Affiliate agrees to provide annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in Improvement Area No. 1 of the District owned by such Major Owner and its Affiliates and, at the option of the Property Owner or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section ! 1 hereof.

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"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the of the Property Owner or his or her designee, or such other officer or employee as the Property Owner shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time. _'Dissemination Agent" shall mean the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Property Owner and which has filed with the Fiscal Agent a written acceptance of such designation. "District" Lago). "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "Major Owner" shall mean an owner (including all Affiliates of such owner) of land in Improvement Area No. 1 of the District responsible in the aggregate for 20% or more of the annual special taxes levied in Improvement Area No. 1 of the District. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at http://www.sec.gov. "Participating Underwriter" shall mean any of the original underwriters required to comply with the Rule in connection with offering of the Bonds. of the Bonds shall mean City of Indio Community Facilities District No. 2004-3 (Terra

"Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Special Taxes" shall mean the special taxes to be levied on the property owned by the Property Owner within Improvement Area No. 1 of the District. "State" shall mean the State of California.

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"_State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) Property Owner shall, or, upon written direction, shall cause the Dissemination Agent to, not later than February 15 of each year, commencing February 15, 2006, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement with a copy to the Fiscal Agent and the Issuer. Not later than fifteen (15) Business Days prior to said date, Property Owner shall provide the Annual Report to the Dissemination Agent. Property Owner shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent and the Issuer to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent, the Issuer and the Fiscal Agent may conclusively rely upon such certification of Property Owner and shall have no duty or obligation to review such Annual Report. The Annual Report may be provided in electronic format to each Repository and may be provided through the services of a "Central Post Office" approved by the Securities and Exchange Commission. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. If Property Owner's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(t"). (b) If the Fiscal Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Fiscal Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) to the extent Owner and (if the certifying that the Agreement, stating was provided. information is known to it, file a report with the Issuer, the Property Dissemination Agent is not the Fiscal Agent) the Fiscal Agent Annual Report has been provided pursuant to this Disclosure the date it was provided and listing all the Repositories to which it

SECTION 4. Content of Annual Reports. contain or include by reference the following:

The Property Owner's

Annual Report shall

(i) Relating to all property owned by Property Owner within Improvement Area No. l of the District (the "Property"), a summary of the Property Owner's development activity on the Property during the Property Owner's last fiscal year: (A) number of acres/lots owned by the Property Owner or its Affiliates as of the end of the applicable fiscal year or a more recent date, (B) progress of construction activities on the Property as of the end of the applicable fiscal year G-12

or more recent date, and (C) number of acres/lots sold by Property Owner or its Affiliates to end users or builders as of the end of the applicable fiscal year or a more recent date. (ii) Any material changes in the information relating to the Property Owner and/or the Property contained in the Official Statement under the caption "'THE DISTRICT" and "THE DEVELOPMENT." (iii) A description of the status of any land purchase contracts with regard to the Property (other than sales to individual homebuyers). (iv) A description of any change in the legal structure of the Property Owner and/or the financial condition of the Property Owner that would materially interfere with its ability to complete the development plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN" and "THE MASTER DEVELOPER AND THE DEVELOPERS" (the "Development Plan") or to pay its Special Taxes. (v) A description of any material changes in the Development Plan.

(vi) A pro forma financing, statement relating to the Development Plan detailing (A) amount spent to date, (B) the remaining costs to complete the Development Plan including timing of such disbursements and (C) the source of financing for such remaining development costs. (vii) A description of any previously undisclosed entitlements for the Property. (viii) An update of the status of any previously Section 5 hereof. material amendment to the land use

reported

Listed Event described

in

(ix) A statement as to whether or not the Property Owner and all of its Affiliates paid, prior to their becoming delinquent, all special taxes levied on the property owned by the Property Owner and such Affiliates within Improvement Area No. 1 and if such Property Owner or any of such Affiliates is delinquent in the payment of such special taxes, a statement identifying each entity that is so delinquent, specifying the amount of each such delinquency and describing any plans to resolve such delinquency. (x) A description of any material changes in the financing plan of the Property Owner for the Development Plan described in the Official Statement under the caption "THE DEVELOPMENT PLAN - Development and Financing Plans -Improvement Area No. 1'" (the "Financing Plan") and the causes or rationale for such changes. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Property Owner or related entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Property Owner shall clearly identify each such other document so included by reference.

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SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Property Owner shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. bankruptcy or insolvency proceedings commenced by or against Property Owner or a partner or Affiliate thereof that would materially interfere with its ability to complete the Development Plan or to pay its Special Taxes; 2. the Property; failure to pay any taxes, special taxes or assessments due with respect to

3. filing of a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof seeking damages, or a judgment in a lawsuit against Property Owner or, to the Property Owner's actual knowledge, a partner or Affiliate thereof, which could have a significant impact on the Property Owner's ability to pay Special Taxes or to sell or develop the Property; .. 4. any conveyance by the Property Owner of property to an entity that is no_ an Affiliate of such Property Owner, the result of which conveyance is to cause the transferee to become a Major Owner; 5. any denial or termination of credit, any denial or termination of, or default under, any line of credit or loan or any other loss of a source of funds that could have a material adverse affect on the Property Owner's most recently disclosed Financing Plan or the ability of the Property Owner or any Affiliate to pay Special Taxes when due; 6. any significant Owner's property; amendments to land use entitlement for the Property

7. any previously undisclosed governmentally-imposed commencement or continuation of development of the Property; 8. any previously undisclosed challenges to development of the Property; legislative,

preconditions

to

administrative

or judicial

9. any material change in the alignment, design or likelihood of completion of significant public improvement being constructed by the Property Owner affecting the Property, including major thoroughfares, sewers, water conveyance systems and similar facilities; and 10. 6: (b) The Fiscal Agent shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such person of the event, and request The assumption of any obligation by a Major Owner pursuant to Section

!i

i'.
i

G-14

that the Property Owner promptly notify the Dissemination Agent m writing whether or not to report the event pursuant to subsection (f) and promptly direct the Fiscal Agent whether or not to report such event to the Bondholders. In the absence of such direction the Fiscal Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Fiscal Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "'actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. The Fiscal Agent shall have no responsibility to determine the materiality of any of the Listed Events. (c) Whenever the Property Owner obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or otherwise, the Property Owner shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Property Owner has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Property Owner shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (i). (e) If in response to a request under subsection (b), the Property Owner determines that the Listed Event would not be material under applicable federal securities laws, the Property Owner shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) If the Dissemination Agent has been instructed by the Property Owner to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. SECTION 6. Duration of Reporting Obligation. (a) All of the Property Owner's obligations hereunder shall commence on such date as property owned by the Property Owner is responsible for payment of 20% or more of the special taxes in Improvement Area No. 1 and shall terminate (except as provided in Section 11) upon (i) the legal defeasance, prior redemption or payment in full of all the Bonds or (ii) so long as the Bonds are outstanding, at such time as property owned by the Property Owner is no longer responsible for payment of 20% or more of the special taxes in Improvement Area No. 1. Upon the occurrence of any such termination or suspension prior to the final maturity of the Bonds, the Property Owner shall give notice of such termination or suspension in the same manner as for a Listed event under Section 5. (b) If a portion of the property in Improvement Area No. 1 of the District owned by the Property Owner, or any Affiliate of Property Owner, is conveyed to a Person that, upon such conveyance, will be a Major Owner, the obligations of Property Owner hereunder with respect to such property owned by such Major Owner and its Affiliates shall be assumed by such Major Owner or by an Affiliate thereof and the Property Owner obligations hereunder will be terminated. In order to effect such an assumption, such Major Owner or Affiliate shall enter

G-15

into an Assumption Agreement. The entering into an Assumption Agreement by such Major Owner or Affiliate shall be a condition precedent to the conveyance of such property and the Property Owner shall provide a copy of the executed Assumption Agreement to the Fiscal Agent and the Issuer prior to such conveyance. SECTION 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Property Owner pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the Property Owner, the Issuer and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Property Owner in a timely manner and in a form suitable for filing. SECTION 8_. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Property Owner, Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and Dissemination Agent shall agree to any amendment so requested by the Property Owner) provided, neither the Fiscal Agent nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Property Owner shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Property Owner.

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SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set tbrth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Property Owner chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Property Owner shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Property Owner or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent (at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Property Owner or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Property Owner or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of .Fiscal Agent and Dissemination _. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Property Owner agrees to indemnify and save the Dissemination Agent and Fiscal Agent, their officers, directors, employees and agents (the "Indemnified Party"), harmless against any loss, expense and liabilities which they may incur arising out of or in the reasonable exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding losses, expenses or liabilities due to any Indemnified Party's respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Property Owner for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the Property Owner, the Bondholders, or any other party. Neither the Fiscal Agent or the Dissemination Agent shall have any liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related

G-17

to or arising from this Agreement. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Notices. Any notices or communications to this Disclosure Agreement may be given as follows: To the Issuer: to or among any of the parties

City of lndio Community Facilities District No. 2004-3 (Terra Lago) c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Telephone: (760) 342-6580 Facsimile: (760) 342-6597 Union Bank of California, N.A. 120 S. San Pedro Street, 4 th Floor Los Angeles, California 90012 Attn: Corporation Trust DePartment Telephone: (213) 972-5676 Facsimile: (213) 972-5694

To the Fiscal Agent:

To the Dissemination Agent: Union Bank of California, N.A. 120 S. San Pedro Street, 4 th Floor Los Angeles, California 90012 Attn: Corporation Trust Department Telephone: (213) 972-5676 Facsimile: (213) 972-5694 To the Property Owner:

Attn: Telephone: Facsimile:

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Property Owner, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

;:

G-18

SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. [PROPERTY OWNER], [type of entity]

By Name: Title:

UNION BANK OF CALIFORNIA,

N.A.,

as Dissemination Agent and Fiscal Agent

By Authorized Officer

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EXHIBIT A

NOTICE TO REPOSITORIES

OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party: Name of Bond Issue: City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) September 15, 2005

Date of Issuance:

NOTICE IS HEREBY GIVEN that the Property Owner has not provided an Annual Report with respect to the above-named Bonds as required by the Developer Continuing Disclosure Agreement, dated as of September 1, 2005, with respect to the Bonds. [The Property Owner anticipates that the Annual Report will be filed by .] Dated: UNION BANK OF CALIFORNIA, on behalf of Property Owner N.A.,

cc: issuer Property Owner

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APPENDIX BOOK-ENTRY

ONLY SYSTEM

The injbrmation in thLs" section concetwing DTC. and DTC's book-entry system has been obtained J?om sources that Issuer believes to be reliable, but Issuer takes no responsibili O, ./_r the accuracy therec?[_ The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will bc issued as iully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the each issue of the Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to die provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S, equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S, securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and nonU.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

H-1

To lacilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTCs partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds: DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participams, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners well be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co, (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible atler the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative ofDTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Fiscal Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.

H-2

26

CERTIFICATE OF INCUMBENCY

I, Andrew R. Ball, do hereby certify that I am the duly qualified and appointed Assistant Secretary of Union Bank of California, N. A.

I further certify that the following are true and correct specimen signatures of said named employees and their signing authorities as designated by the Trust Executive Officer of Union Bank of California, N. A., and defined in the accompanying resolution.

NAME

TITLE

CLAS S

SIGNATURE

Alison T. Braunstein

Vice President

A, D, E

I,_

, _

t (( [kt

-"

IN WITNESS WHEREOF, I have set my hand of this Association this 15th day of September, 2005.

7-/'z,_'--'J Andrew R. Ball Assistant Secretary

_ _"" "J .._. .._.-_

UNION

BANK

OF CALIFORNIA

I certify that the attached resolution was adopted by the Board of Directors of Union Bank of California, N.A., at a regular meeting of said Board held on April 26, 2000.

I further certify that the attached resolution now stands on the records of the books of the Corporation and has not been modified, repealed or set aside in any manner whatsoever and is now in full force and effect.

Dated: September 15, 2005

,,%

..... ,

Andrew R, Ball Assistant Secretary

UNION

BANK

OF CALIFORNIA

Union Bank of California, N.A. April 26, 2000

TRUST SERVICES RESOLUTION OF AUTHORITY

WHEREAS, the Bank is duly authorized and empowered to act as trustee, executor, personal representative, administrator, guardian or conservator of estates, assignee, receiver, custodian, escrow agent, agent or in any ether fiduciary capacity permitted by law (hereinafter referred to collectively as "Trust Services"); WHEREAS, it is the Board's intention to authorize and empower the officers/employees designated in this Resolution, in the Bank's name and on its behalf, at such times and under such circumstances and on such terms and conditions as such officers/employees may deem proper, under the Bank's seal, as necessary, to execute and deliver such documents and perform such acts as shall be necessary for the Bank to provide Trust Services; and WHEREAS, it is the Board's further intention to authorize and empower the ISAM Executive Officer and the Wealth Management Executive as designated by the President and Chief Executive Officer or his/her designee to designate in writing the identity of and the manner in which such officers/employees may execute and deliver such documents and perform such actions. A. General Trust Services

RESOLVED that any employee designated in writing as a Class A signer by the ISAM Executive Officer or The Wealth Management Executive Officer is authorized and empowered as hereinabove set forth to sign, execute and deliver: 1. Any instruments or other documents by which the Bank agrees or declines to or resigns from performing Trust Services and to execute such further instruments and documents and to perform any other act necessary to implement such acceptance, declination or resignation; Any instruments or other documents and to perform any other act necessary to discharge its duties and obligations in performing Trust Services, including, but not limited to: a. Proxies to vote corporation stock or shares standing in the name of the Bank, as Fiduciary, or to attend and vote at any meeting such stock or shares; b. Any instruments, documents or agreements relating to insurance affecting any property, business or security held by the Bank, in its performance of Trust Services; c. Petitions, accountings, reports and returns of sale, and all other pleadings, declarations and documents filed in probate or other court proceedings by the Bank, in its performance of Trust Services;

2.

d. Checks against Trust funds, drafts and official checks issued by this Bank, the amount of which does not exceed the signing authority limit of the signer(s); e. Guaranties of signatures to various documents (other than assignments of stock certificates, bonds and other securities which are covered by separate authorization through the Securities Transfer Agents Medallion Program). No signer is authorized to guarantee the signer's own signature; f. Documents necessary to purchase, endorse, transfer, sell, assign, pledge, encumber, hypothecate, lease, release, convey, deliver or request payment or reissue of any and all certificates for shares of stock of corporations, bonds, stock warrants and rights, deposit receipts for stocks and bonds, promissory notes, warrants for irrigation and reclamation districts, debentures, voting trust certificates, money market instruments, commercial paper, repurchase agreements and banker's acceptances, investment agreements, and any and all other documents or instruments representing or evidencing any equity or debt interest in corporations, governmental entities or in personal property, standing in the name of or owned or to be purchased by the Bank in its performance of Trust Services; and g. Any other instruments, documents or agreements necessary to and connected with the provision of general Trust Services. B. Trust Real Estate Activities RESOLVED that, with regard to any interest in real property to which the Bank performance of Trust Services, or which it manages in its performance of Trust employee designated in writing as a Class B signer by the Wealth Management Officer is authorized and empowered as hereinabove set forth to sign, execute 1. holds title in its Services, any Executive and deliver:

Grant deeds, mineral deeds, quit claim deeds, fiduciary's warranty deeds, statutory warranty deeds, fulfillment deeds, secured or unsecured notes upon the real property, leases or extensions, modifications or amendments thereof, construction contracts, property management agreements, or purchase or sale agreements; Requests to any trustee or trustees named in any deed of trust for a full or partial reconveyance of the property covered by such deed of trust; Trust checks, escrow instructions, closing settlement statements, property management agreements, construction contracts, indemnification letters, petitions and depositions in legal actions, multiple listing agreements, excise tax affidavits, tax appeals, forfeiture documents, notices to vacate; and Any other legal document or instrument not heretofore enumerated which is required in the management, as specified by each trust or agency agreement, of such real property.

2.

3.

4.

C. Global Custody Activities RESOLVED that any officer designated in writing as a Class C signer by the ISAM Executive Officer is authorized and empowered as hereinabove set forth:

1. 2.

To accept and transact foreign exchange contracts related to clients' account activities; To sign any documents or instruments as may be required to conduct business with a sub-custodian bank or foreign tax authority; To authorize electronic transmission of data and information; and To sign, execute and deliver any other legal document or instrument not heretofore enumerated which is required in the conduct of global custody activities. Activities

3. 4.

D. Trust Operations

RESOLVED that any employee designated in writing as a Class D signer by the ISAM Executive Officer is authorized and empowered as hereinabove set forth to sign, execute and deliver: 1. 2. Trust checks, certifications of balances or asset holding; and Any other documents, instruments, or contracts as may be required to participate in any securities depository for securities held by the Bank, in its performance of Trust Services, and to provide cash management and accounting services to trust clients.

E. Trust Security Services Activities RESOLVED that any officer designated in writing as a Class E signer by the ISAM Executive Officer is authorized and empowered as hereinabove set forth to sign, execute and deliver: 1. Documents necessary to purchase, endorse, transfer, sell, assign, pledge, encumber, hypothecate, lease, release, convey, deliver or request payment or reissue of any and all certificates for shares of stock of corporations, bonds, stock warrants and rights, deposit receipts for stocks and bonds, promissory notes, warrants for irrigation and reclamation districts, debentures, voting trust certificates, money market instruments, commercial paper, repurchase agreements and banker's acceptances, investment agreements, and any and all other documents or instruments representing or evidencing any equity or debt interest in corporations, governmental entities or in personal property, standing in the name of or owned or to be purchased by the Bank, in its performance of Trust Services; To sign certificates for securities deposited, interim certificates and other certificates for or on behalf of this Bank as depositary or agent; and To sign, countersign, certify, register, authenticate and identify all bonds, notes, interim certificates, share certificates, certificates of stock, voting trust certificates, depository receipts, warrants, participation certification or similar instruments for or in respect of which the Bank may be acting as trustee, agent or custodian.

2.

3.

F. Mutual Fund Support Services and Activities RESOLVED that any officer designated in writing as a Class F signer by the ISAM Executive Officer is authorized and empowered as hereinabove set forth to sign, execute and deliver:

1.

Any instrument, trust, contract or other document by which the Bank agrees or declines to act or resigns as custodian, transfer agent, fund accountant or other service provider to registered or unregistered investment companies or other collective investment entities ("mutual fund support services"); Any instrument, or other document and to perform any other act necessary or desirable to comply with applicable law and regulation in the provision of mutual fund support services, including but no limited to: a. Any registration, application, filing, update, amendment or other document necessary to commence or continue operation of mutual fund support services permissible under applicable law and regulation; and b. Any regulatory filings, accountings, reports, mailings, exemptive applications, requests for advice or rulings required by or desirable under applicable law to be prepared in connection with the provision of mutual fund support services.

2.

G. Tax Activities RESOLVED that any officer designated in writing as a Class G signer by the Wealth Management Executive Officer is authorized and empowered as hereinabove set forth to sign, execute, and submit local, state and federal tax returns or other filings, applications, extensions, requests for rulings or reports by the Bank as may be necessary or desirable in its performance of Trust Services or as a sponsor of a common trust fund or collective investment fund. H. Securities Transfer Aqents Medallion Pro.qram ("STAMP") RESOLVED that any officer designated in writing as a Class H signer by the ISAM Executive Officer or Wealth Management Executive Officer is authorized and empowered as hereinabove set forth to guarantee signatures on securities and stock or bond powers as a participant in the Securities Transfer Agents Medallion Program ("STAMP"), except that no signer is authorized to utilize this authority for signature or endorsement guarantees on other documents or to guarantee the signer's own signature. I. Trade Order Entry Activities

RESOLVED that any officer designated in writing as a Class I signer by the ISAM Executive Officer or Wealth Management Executive Officer is authorized and empowered as herein above set forth to electronically enter security trades, to purchase or sell securities held in all types of accounts, using the SEI Trade Order Entry (TOE) system in its performance of Trust Services. FURTHER RESOLVED that the ISAM Executive Officer and the Wealth Management Executive Officer empowered in this Resolution to designate employees and officers to carry out various activities on behalf of the Bank may delegate, in writing, his/her authority to so

designate to a senior officer(s) with the ISAM or Wealth Management Divisions, as appropriate. Such delegations of authority are to be filed with the Corporate Secretary and are to be reviewed as appropriate. FURTHER RESOLVED that this Resolution of Authority shall be effective as of April 26, 2000 and that, effective as of that date, the Trust Signing Authority Resolution adopted by this Board on May 26, 1999 is hereby superseded.

bdr0004.16 5

27

CERTIFICATE OF FISCAL AGENT The undersigned, a duly authorized officer of Union Bank of California, N.A. (the "Bank") does hereby certify as follows: 1. The Fiscal Agent is duly organized and existing as a national banking association in good standing under the laws of the United States of America having the full power and authority to enter into and perform its duties under the Fiscal Agent Agreement and to authenticate and deliver the Bonds to the Underwriter pursuant to the terms of the Fiscal Agent Agreement. 2. To the best of the knowledge of the Fiscal Agent, after due investigation, the execution and delivery by the Fiscal Agent of the Fiscal Agent Agreement and the authentication and delivery by the Fiscal Agent of the Bonds, and compliance with the terms thereof will not, in any material respect, conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Fiscal Agent is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Fiscal Agent or any of its activities or properties, or result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Fiscal Agent. 3. To the best of the knowledge of the Fiscal Agent, no litigation has been served upon the Fiscal Agent to restrain or enjoin the Fiscal Agent's participation in, or in any way contesting the powers of the Fiscal Agent with respect to, the transactions contemplated by the Fiscal Agent Agreement. This certificate is delivered pursuant to Section 8(e)(14) of the Purchase Contract, dated September 7, 2005 (the "Purchase Contract"), by and between the District and Southwest Securities, Inc. Capitalized terms not otherwise defined in this certificate shall have the meanings set forth in the Purchase Contract.

Dated: September 15, 2005

UNION BANK OF CALIFORNIA, N.A., as Fiscal Agent

IAuthorized Officer

45655340.1

28

Exhibit A Initial Issue Price Certificate September 15, 2005 City of indio Indio, California Fuibright & Jaworski L.L.P. Los Angeles, California Gentlemen and Ladies: We have served as the underwriter in connection with the issuance by City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "CFD") of its $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). As such, we have been involved in the structuring and marketing of the Bonds. We hereby certify that: (i) based on our records and other information available to us which we believe to be correct, as of September 7, 2005 (the "Sale Date") we had offered or reasonably expected to offer all of the Bonds in a bonafide initial offering to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at an initial offering price not greater than that shown on the cover of the Official Statement relating to the Bonds (the "Official Statement"); (ii) based on our records and other information available to us that we believe to be correct, at least 10 percent of the Bonds were sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at the initial offering price shown on the cover of the Official Statement; (iii) at the time we agreed to purchase the Bonds, based upon then prevailing market conditions, we had no reason to believe any of the Bonds would be initially sold to the public (excluding such bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at an initial offering price greater than the fair market value thereof; (iv) based upon the initial offering prices, the aggregate issue price of the Bonds is $26,258,728.00 (the Bonds having been sold with net original issue discount of $71,272.00) and the yield on the Bonds (within the meaning of section 148(a) of the Code) is 5.0191%; and

45655812.1

A-1

City of Indio Fulbright & Jaworski L.L.P. September 15, 2005 Page 2

(v) it is our view, based upon our extensive experience in marketing and maintaining a market for obligations having terms and credit arrangements similar to those of the Bonds, that the establishment and funding of the Reserve Account contemplated under the Fiscal Agent Agreement, by and between the District and Union Bank of California, N.A., as Fiscal Agent, dated as of September 1, 2005, relating to the Bonds in the amount of the Reserve Requirement is customary for municipal obligations bearing terms and creditworthiness similar to the Bonds, that the expected funding of the Reserve Account was a vital factor in the marketing of the Bonds at the interest rates obtained, and that the availability of the Reserve Account or a similar security may be reasonably expected to be necessary to the maintenance of an orderly secondary market for the Bonds. SOUTHWEST SECURITIES, INC.

Title: By:_

456558121

A-2

29

RECEIPT FOR THE BONDS

The undersigned, on behalf of Southwest Securities, Inc. does hereby acknowledge receipt this date of $26,330,000 aggregate principal amount of City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"), and confirms that all conditions to the purchase of the Bonds have been satisfied or are hereby waived. Dated: September 15, 2005 SOUTHWEST as Underwriter SECURITIES, INC.

Title

___'_

45655340.1

30

FULBRIGHT
A
555 I::_EGISTERED SOUTH LOS

(_ ,JAWORSKI
LIMITED FLOWER ANGELES, WWW. FU LIABILITY STREET. CALIFORNIA LBRIGHT.CO M PARTNERSHIP 41ST 90071

L.L.P.
FLOOR

TELEPHONE:

(213)

892-9200

FACSIMILE:

(213)

892-9494

September 15, 2005

City of Indio 100 Civic Center Mall Indio, California 92201 $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. t)

Members of the City Council: We have acted as Bond Counsel to the City of Indio (the "City") in connection with the issuance of the $26,330,000 aggregate principal amount of City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"), pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, of the Government Code of the State of California (the "Act") and pursuant to a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"). We have examined the Act and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the District contained in the Fiscal Agent Agreement and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing we are of the opinion, under existing law, as follows: 1. The Fiscal Agent Agreement has been duly and validly authorized, executed and delivered by the District and, assuming such Fiscal Agent Agreement constitutes the legally valid and binding obligation of the Fiscal Agent, constitutes the legally valid and binding obligation of the District, enforceable against the District in accordance with its terms.

45655767.1

AUSTIN

[DALLAS

I_ONG

KONG

HOUSTON

LONDON

Los

ANGELES

MINNEAPOLIS

MUNICH

NEW

YORK

SAN

ANTONIO

WASHINGTON

DC

City of Indio September 15, 2005 Page 2

2. The Bonds constitute valid and binding limited obligations of the District as provided in the Fiscal Agent Agreement, and are entitled to the benefits of the Fiscal Agent Agreement. 3. The Bonds are secured by a valid pledge of the Net Taxes (as defined in the Fiscal Agent Agreement) and all moneys in the funds and accounts under the Fiscal Agent Agreement, including all amounts derived from the investment of such moneys, subject to the application thereof on the terms and conditions as set forth in the Fiscal Agent Agreement. 4. The Internal Revenue Code of 1986 (the "Code") sets forth certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issue of the Bonds. The District has covenanted in the Fiscal Agent Agreement to maintain the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In our opinion, under existing law, interest on the Bonds is exempt fi'om personal income taxation of the State of California and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. We are further of the opinion that under existing statutes, regulations, rulings and court decisions, the Bonds are not "specified private activity bonds" within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)). Except as stated in the preceding three paragraphs, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other bond counsel.
45655767.1

City of Indio September 15, 2005 Page 3

No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering materials relating to the Bonds. The rights of the owners of the Bonds and the enforceability of the Bonds and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' fights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. The enforceability of the Bonds and the Fiscal Agent Agreement is subject to the effect of general principles of equity, including, without limitation, concepts ofmateriality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California. Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

Respectfully submitted,
" h

45655767.1

,,0

FULBRIGHT
A $55 REGISTERED SOUTH LOS

(S( JAWORSKI
LIMITED FLOWER ANGELES. WWW. FU LIABILITY STREET, CALIFORNIA LBRIGHT.COM PARTNERSHIP 41ST 90071

L.L.P.
FLOOR

TELEPHONE:

(213)

892-9200

FACSIMILE:

(213)

892-9494

September 15, 2005

Southwest Securities, Inc. 620 Newport Beach Drive, Suite 300 Newport Beach, California 92660 $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1 Ladies and Gentlemen: We have acted as Bond Counsel to the City of Indio (the "City") in connection with the issuance of the $26,330,000 aggregate principal amount of the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). We have this day released to the City our final approving legal opinion with respect to the Bonds. You are authorized to rely on such opinion as if the same were addressed to you. The Bonds are being issued by the City of Indio Community Facilities District No. 20043 (Terra Lago) (the "District") under the Mello-Roos Community Facilities Act of 1982, as amended, and pursuant to a Fiscal Agent Agreement, dated as of September 1, 2005 (the "Fiscal Agent Agreement"), by and between the District and Union Bank of California, N.A., as fiscal agent, for the purpose of financing certain public capital improvements within the District. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Fiscal Agent Agreement or the Purchase Contract, dated September 7, 2005, between the District and Southwest Securities, Inc., as applicable. As Bond Counsel, we have examined copies certified to us as being true and complete copies of the proceedings of the District in connection with the issuance of the Bonds. We have also examined such certificates of officers of the District and others as we have considered necessary for the purposes of this opinion. This opinion is limited to matters governed by the laws of the State of California and Federal securities laws of the United States, and we assume no responsibility with respect to the applicability or effect of laws of any other jurisdiction.

45655767.1

AUSTIN

DALLAS HONG KONG HOUSTON LONDON LOS ANGELES MINNEAPOLIS MUNICH

NEW YORK SAN ANTONIO

WASHINGTON

DC

Southwest Securities, Inc. September 15, 2005 Page 2

Based upon the foregoing, it is our opinion that: 1. The Fiscal Agent Agreement is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended. 2. The Bonds are exempt from registration under the Securities Act of 1933, as amended.

3. The information contained in the Official Statement, dated September 7, 2005, relating to the Bonds, as of its date, under the captions "INTRODUCTORY STATEMENT," "THE BONDS," "SOURCES OF PAYMENT FOR THE BONDS" and "SUMMARY OF THE FISCAL AGENT AGREEMENT," insofar as such information expressly summarizes certain provisions of the Bonds and the Fiscal Agent Agreement, is accurate in all material respects. 4. The District is duly organized and validly existing as a community facilities district under the laws of the State, with full legal right, power and authority to issue the Bonds and to perform all of its obligations under the Bonds and the Basic Documents. 5. The City Council (the "Council") on behalf of the District has duly and validly adopted the resolutions and ordinance relating to the formation of the District, the levying of Special Taxes and issuance of the Bonds (collectively, the "Procedural Resolutions"), at meetings of the Council which were called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting at the time of adoption, and such Procedural Resolutions are now in full force and effect and have not been amended. 6. The District has duly authorized the preparation and delivery of the Preliminary Official Statement and the Official Statement and has duly authorized, executed and delivered the Bonds and the Basic Documents, and the Bonds and the Basic Documents constitute legal, valid and binding obligations of the District, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought and to limitations on remedies imposed in actions against public entities in the State. 7. To the best of our knowledge, the City and the District are not in breach of or in default under any applicable law or administrative rule or regulation of the State or the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, fiscal agent agreement, contract, agreement or other instrument to which the City or the District is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the City or the District to perform their obligations under the Procedural Resolutions, the Bonds or any Basic Documents or which, with the passage of time or the giving of notice or both, would constitute an event of default thereunder. 8. The adoption of the Procedural Resolutions and the execution and delivery of the Bonds and the Basic Documents, and compliance with the provisions of each, did not and will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State or the United States of America, or of any department, division, agency
45655767.1

Southwest Securities, Inc. September 15, 2005 Page 3

or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, ordinance, resolution, indenture, fiscal agent agreement, contract, agreement or other instrument to which the City or the District is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the ability of the District to perform its obligations under the Bonds or any Basic Documents. 9. All approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the ability of the District to execute, deliver and perform its obligations under the Bonds or any Basic Document have been obtained or made and are in full force and effect. We are furnishing you this opinion letter at the request of the District solely for your benefit, and it is not to be used, circulated, quoted or otherwise referred to for any other purpose, nor is it to be referred to in whole or in part in the Official Statement relating to the Bonds or any other document, except that it may be included in, and reference may be made to it in any list of, the closing documents pertaining to the delivery of the Bonds.

Respectfully submitted,

45655767.1

32

FULBRIGHT
A 555 REGISTERED SOUTH LOS

(_ JAWORSKI
LIMITED FLOWER ANGELES, WWW. FU LIABILITY STREET, CALIFORNIA LBRIGHT.COM PARTNERSHIP 41ST

L.L.P.
FLOOR

90071

TELEPHONE:

(213)

892-9200

FACSIMILE:

(213)

892-9494

September 15, 2005

City of Indio 100 Civic Center Mall Indio, California 92201 Southwest Securities, Inc. 620 Newport Beach Drive, Suite 300 Newport Beach, California 92660 $26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1 Ladies and Gentlemen: We have acted as Disclosure Counsel to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") with respect to the issuance of the captioned bonds (the "Bonds"). The Bonds are being issued pursuant to the provisions of the Constitution and the laws of the State of California, including the provisions of the Mello-Roos Community Facilities Act of 1982, as in existence on the Closing Date. The Bonds shall be issued and secured pursuant to the Fiscal Agent Agreement, dated as of September 1, 2005, by and between the District and Union Bank of California, N.A., as fiscal agent, authorizing the issuance of the Bonds. The Bonds are more fully described in the Official Statement of the District dated September 7, 2005 (the "Official Statement"). The Bonds are being purchased pursuant to the provisions of a Purchase Contract (the "Purchase Contract") dated September 7, 2005, by and between the Underwriter and the District. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Official Statement. In rendering this opinion, we have reviewed such records, documents, certificates and opinions, and made such other investigations of law and fact as we have deemed necessary or appropriate. This opinion is limited to matters governed by the Federal securities law of the United States of America, and we assume no responsibility with respect to the applicability or effect of the laws of any other jurisdiction.

45655767.1

AUSTIN

DALLAS

HONG KONG HOUSTON LONDON LOS ANGELES

MINNEAPOLIS

MUNICH NEW YORK

SAN

ANTONIO

WASHINGTON

DC

City of Indio Southwest Securities, Inc. September 15, 2005 Page 2

In our capacity as Disclosure Counsel to the District, we have rendered certain legal advice and assistance to the District in connection with the preparation of the Official Statement. Rendering such legal advice and assistance involved, among other things, discussions and inquiries concerning various legal matters, review of certain records, documents and proceedings, and participation in conferences with, among others, representatives of the City of Indio, the Financial Advisor, the Developers, the Appraiser, the Market Absorption Analyst and their respective counsel, if any, and other consultants at which conferences the contents of the Official Statement and related matters were discussed. On the basis of the information made available to us in the course of the foregoing (but without having undertaken to determine or verify independently, or assuming any responsibility for, the accuracy, completeness or fairness of any of the statements contained in the Official Statement), no facts have come to the attention of the personnel in our firm directly involved in rendering legal advice and assistance in connection with the preparation of the Official Statement which cause us to believe that the Official Statement as of its date (excluding therefrom financial, engineering and statistical data; forecasts, projections, estimates, assumptions and expressions of opinions; statements relating to the treatment of the Bonds or the interest, discount or premium related thereto for tax purposes under the law of any jurisdiction; and the statements contained in the Official Statement under section entitled "TAX MATTERS," and in the Appendices thereto, as to all of which we express no view) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. During the period from the date of the Official Statement to the date of this opinion, except for our review of the certificates and opinions regarding the Official Statement delivered on the date hereof, we have not undertaken any procedures or taken any actions which were intended or likely to elicit information concerning the accuracy, completeness or fairness of any of the statements contained in the Official Statement. We are furnishing this opinion to the District and to the Underwriter, as Disclosure Counsel to the District, pursuant to the Purchase Contract, solely for your benefit. This opinion is rendered in connection with the transaction described herein, and may not be relied upon by you for any other purpose. This opinion shall not extend to, and may not be used, circulated, quoted, referred to, or relied upon by, any other person, firm, corporation or other entity without our prior written consent. Our engagement with respect to this matter terminates upon the delivery of this opinion to you at the time of the closing relating to the Bonds, and we have no obligation to update this opinion.

Respectfully submitted,

45655767.1

33

KOTKIN & ASSOCIATES,APLC

120 Vavts. SurrE 460 ":"A_,soV,_JO.CA 92656
TELEPttONE: 1949_ 916-3420 o:0 FACSIMILE: 19491 916-3422 0:o WWW.KO'IKJ.Nt_&_W_CJ,)M

EDwaRD Z. Ko__

E_z_m L MA_Y_
RANDY S. SNYDER PAm_hSCAL

C. Hop_ E__

September 15, 2005

Southwest Securities, Inc. 620 Newport Center Drive, Suite 300 Newport Beach, California 92660

Re:

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1)

Ladies and Gentlemen: We have acted as Special Counsel to the City of Indio (the "City") and City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") in connection with the issuance and delivery of $26,330,000 principal amount of City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds"). Terms not defined herein shall be as defined in the Purchase Contract dated September 7, 2005 between the District and Southwest Securities, Inc. (the "Purchase Contract"). Based on the foregoing, we are of the opinion that: 1. The City is a general law city duly organized and validly existing under the Constitution and laws of the State of California; and 2. To the best of such counsel's knowledge, without independent investigation, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending or threatened against the City or the District affecting the existence of the City or the District or the title of their officers to their respective offices, or which would materially adversely affect the ability of the District to perform its obligations hereunder or under the Bonds or the Basic Documents or seeking to restrain or to enjoin the development of property within the District, the issuance, sale, or delivery of the Bonds or the exclusion from gross income for federal income tax purposes or State personal income taxes of interest on the Bonds, or the application of the proceeds thereof as described in the Official Statement, or the collection or application of the Special Tax to pay the principal of

September 12, 2005 Southwest Securities, Inc. Page 2 of 3

and interest on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds or the Basic Documents or any action of the District contemplated by any of said documents or the accuracy or completeness of the Preliminary Official Statement or the Official Statement. Very truly yours, KOTKIN & ASSOCIATES, APLC

/,

_-

v-

v-v

_,M

' _v--

Ellzab_h L. Martyn,/_sq. Assistant City Attorney City of Indio

-/

ELM/che

34

t,_mbeJ " , 2005 ( ] , of Im i, o, Califi nia _thwest 5; curities Inc. ,vportBf oh, California City ,f Indio Community Facilities District No. 2004-3 (Terra Lago) Spet:ial Tax Bonds, Series 2005 (Improvement Area No. 1) ties and I entlemen: n a Vi(e I'resident and Senior Counsel of Union Bank of California, N.A., (the "Fiscal ent"), _:nclhave acted as counsel on the Fiscal Agent's behalf in connection with the cution a_t:ldelivery of that certain Fiscal Agent Agreement dated as of September 1, 2005 : "Fiscal, \gent Agreement") between the City of Indio Community Facilities District No. )4-3 (_e_':a Lago) (the "District") and the Fiscal Agent with respect to the above-captioned lds (the "',_onds"). :hat coral:,ction I have reviewed the following: (i) the Fiscal Agent Agreement; (ii) that tain CorL nuing Disclosure Agreement dated as of September 1, 2005 (the "Disclosure reement' _between the City and the Fiscal Agent in its capacity as fiscal agent and :_ semin_,ti,',n agent; (iii) the Articles of Association and Bylaws of the Fiscal Agent and ,.olutior_s :,fthe Fiscal Agent with respect to signing authority; and (iv) such other records, :,_:umenls,:nstruments and certificates of public officials and the Fiscal Agent, as I have :_ ::reed nec ',,'ssaryfor the purpose of rendering the opinions set forth herein. renderint: this opinion, I have relied upon the facts and information obtained from the J:',ords of_:i:e Fiscal Agent, officers of the Fiscal Agent, and other sources believed by me to .',reliable, imd I have not undertaken to independently verify the accuracy of the factual _tters re,I:_ _sented, warranted, or certified in such documents. I have reviewed only copies I:the docl:L: :aents, and I have assumed that such copies conform to the originals, which ::mmption [ have not independently verified. liLave froth _:rassumed that each party to the Fiscal Agent Agreement and the Disclosure , ;reemenl:. other than the Fiscal Agent has the power to enter into and perform its obligations ::L ereunder, has duly authorized, executed and delivered the Fiscal Agent Agreement and the ifsclosure _kgreement, and that the Fiscal Agent Agreement and the Disclosure Agreement itch con,';ti :ates the legal, valid and binding obligation of each party thereto other than the iscal Age1Lt.

City of Indio Southwest Securities Inc. September 15, 2005 Page 2 Terms used herein which are defined in the Fiscal Agent Agreement shall have the respective meanings set forth therein unless otherwise defined herein. Based upon and subject to the foregoing, I am of the opinion that: 1. The Fiscal Agent is a national banking association, duly organized, validly existing and in good standing under the laws of the United States of America, and has full power and authority to enter into the Fiscal Agent Agreement and the Disclosure Agreement; 2. The Fiscal Agent has duly authenticated and delivered the Bonds in accordance with the Fiscal Agent Agreement; 3. The Fiscal Agent has duly authorized, executed and delivered the Fiscal Agent Agreement and the Disclosure Agreement and the Fiscal Agent Agreement and the Disclosure Agreement constitute the legal, valid and binding obligations of the Fiscal Agent enforceable in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limited by the rights of creditors generally; and 4. No consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Fiscal Agent is or will be required for the valid execution and delivery by the Fiscal Agent of the Fiscal Agent Agreement or the Disclosure Agreement or the valid authentication and delivery of the Bonds. I express no opinion at to any matter other than as expressly set forth above, and, in connection therewith, I specifically express no opinion as to the status of the Bonds or the interest thereon and further express no opinion regarding any federal securities laws, including but not limited to the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended, and any state securities or "Blue Sky" law, or any federal, state or local tax law. This opinion is as of the date hereof, and I have undertaken no, and hereby disclaim any, obligation to advise you of any change in any matter set forth herein. Further, this opinion neither implies, not should it be viewed to imply, an approval or recommendation of any investment in any Bonds.

City of Indio Southwest Securities Inc. September 15, 2005 Page 3 I do not express my opinion as to the effect of any law other than the law of California federal laws of the United States of America on the matters referred to herein. and the

This opinion is furnished by me solely for your benefit and may not, without my express written consent, be relied upon by any other person.

1_qlS S. PENTON Vice President and Senior Counsel j sp/ppm/05-9799-24409

35

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) Certificate of First American Commercial Real Estate Services

As authorized representative of First American Commercial (the "Appraiser"), I hereby state and certify that:

Real Estate Services

(i) the individual signing the certificate is an authorized representative of the Appraiser, and as such, is familiar with the facts certified and is authorized and qualified to certify the same; (ii) in the opinion of the Appraiser the assumptions made in the appraisal report with respect to the District, dated as of June 17, 2005 (the "Appraisal"), are reasonable; (iii) that the Appraiser is not aware of any event or act which has occurred since the date of the Appraisal which, in its opinion, would materially and adversely affect the conclusion as to the appraised value reached in the Appraisal; (iv) the Appraiser consents to the reproduction of the Appraisal as Appendix D to the Official Statement and to the references to the Appraiser and the Appraisal made in the Official Statement; (v) that the Official Statement has been reviewed on behalf of the Appraiser and to the best knowledge of the Appraiser the statements concerning the Appraisal and the value of the property contained under the captions "SECURITY FOR THE BONDS - Appraisal" and "SPECIAL RISK FACTORS - Appraised Value; Land Value" are true, correct and complete in all material respects and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (vi) the District and the Underwriter are entitled to rely on this certificate. This certificate is delivered pursuant to Section 8(e)(17) of the Purchase Contract, dated September 7, 2005 (the "Purchase Contract"), by and between the District and Southwest Securities, Inc. Capitalized terms not otherwise defined in this certificate shall have the meanings set forth in the Purchase Contract. Dated: September 15, 2005 FIRST AMERICAN COMMERCIAL SERVICES REAL ESTATE

By_

45655340.1

APPRAISAL REPORT (See Appendix D of Official Statement)

Documentl

1-

36

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) Certificate of Market Profiles, Inc. As authorized representative of Market Profiles, Inc. (the "Market Consultant"), hereby state and certify that I

(i) the individual signing the certificate is an authorized representative of the Market Consultant, and as such, is familiar with the facts certified and is authorized and qualified to certify the same; (it) in the opinion of the Market Consultant the assumptions made in the Market Absorption Study, dated July l, 2005 (the "Market Absorption Study"), are reasonable; (iii) that the Market Consultant is not aware of any event or act which has occurred since the date of the Market Absorption Study, which, in its opinion, would materially and adversely affect the conclusions of the Market Absorption Study; (iv) the Market Consultant consents to the reproduction of the Market Absorption Study as Appendix E to the Official Statement and to the references to the Market Consultant and the Market Absorption Study made in the Official Statement; (v) the Market Consultant certifies that as of the date of the certificate the Market Absorption Study contained in the Official Statement and the statements in the Official Statement under the captions "THE DEVELOPMENT" insofar as such statements purport to summarize the Market Absorption Study, are accurate in all material respects and do not omit to state a material fact necessary in order to make the statement contained therein, in the light of the circumstances under which they are made, not misleading and no events or occurrences have been ascertained by the Market Consultant as have come to its attention that would substantially adversely change the opinions set forth in the Market Absorption Study; and (vi) the District and the Underwriter are entitled to rely on this certificate. This certificate is delivered pursuant to Section 8(e)(19) of the Purchase Contract, dated September 7, 2005 (the "Purchase Contract"), by and between the District and Southwest Securities, Inc. Capitalized terms not otherwise defined in this certificate shall have the meanings set forth in the Purchase Contract. Dated: September 15, 2005 MARKET PROFILES, INC.

' VAu(horizec_ RepreSentative

45655340.1

MARKET

ABSORPTION

STUDY

(See Appendix

E of Official Statement)

Documentl

- 1 -

37

$26,330,000 City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) Certificate of Albert A. Webb Associates As authorized representative Consultant"), I hereby state and certify that of Albert A. Webb Associates (the "Special Tax

(i) the individual signing the certificate is an authorized representative of the Albert A. Webb Associates, and as such, is familiar with the facts certified and is authorized and qualified to certify the same; (it) the Special Tax if applied in accordance with the terms as set forth in the Rate and Method of Apportionment of Special Tax for Community Facilities District No. 2004-3 (Terra Lago) (the "Special Tax Formula"), after deducting Administrative Expenses, will annually yield sufficient revenue to make timely payments of debt service on the Bonds, provided that information and other data supplied by the District, by the Developers, by the Appraiser, by the Underwriter or by any of their agents, which has been relied upon by the Special Tax Consultant is true and correct; (iii) the Special Tax, if collected in the maximum amounts permitted pursuant to the Special Tax Formula on the Closing Date, would generate at least 110% of the maximum debt service payable with respect to the Bonds payable from such Special Tax during each fiscal year, based on a debt service schedule supplied by the Underwriter and the net taxable footage or acreage projection and other data provided by the Developers to the Special Tax Consultant and confirmed in the certificates of the Developers previously delivered to the Special Tax Consultant and relied upon by the Special Tax Consultant; (iv) the information supplied by such firm for use in the sections of the Official Statement captioned "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" is true and correct as of the date of the Official Statement and as of the Closing Date; (v) the description of the Special Tax Formula contained in the section of the Official Statement captioned "SECURITY FOR THE BONDS -- Rate and Method of Apportionment of Special Taxes" is correctly presented in all material respects; and (vi) the District and the Underwriter are entitled to rely on this certificate. This certificate is delivered pursuant to Section 8(e)(21) of the Purchase Contract, dated September 7, 2005 (the "Purchase Contract"), by and between the District and Southwest Securities, Inc. Capitalized terms not otherwise defined in this certificate shall have the meanings set forth in the Purchase Contract or the Official Statement (as defined in the Purchase Contract). Dated: September 15, 2005 ALBERT A. WEBB ASSOCIATES

Authorized Representative

45655340 1

38

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

In our capacity as Independent FinancialAdvisor for the City of Indio (the "City'_ with respect to the above-captioned obligations (the "Bonds'_, we are advising the City as follows: 1. That the undersigned is an authorized officer of Harrell & Company Advisors, LLC (herein, the "Financial Advisor'S, and as such is familiar with the facts herein certified and is authorized and qualified to certify the same; That the Financial Advisor has acted as such to the City in connection with the issuance of the Bonds; That, based upon our participation in the preparation of the Official Statement, nothing has come to our attention that would lead us to believe that the Official Statement (except as to the information pertaining to the Developers or the Development, DTC or its book-entry system and statistical data and the section entitled "Tax Matters" included therein about which no opinion is expressed) contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

2.

3.

Sincerely, H_ & COMPANY _DVlSORS,LLC

Title: Ma'na_ingDirector

39

Certificate of Indio Land Ventures LLC

TO:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Ladies and Gentlemen: Reference is made to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), relating to the Bonds. This certificate is delivered pursuant to Section (8)(e)(10) of the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of Indio Land Ventures LLC, a Delaware limited liability corporation (the "Master Developer"), and the undersigned, on behalf of the Master Developer, further certifies as follows: 1. The Master Developer is duly organized and validly existing under the laws of the Delaware, is duly qualified to conduct business in California, and has all requisite right, power and authority (i) to execute and deliver this Certificate, and to execute and deliver at Closing (as defined in the Purchase Contract) and (ii) to undertake all of the transactions on its part described in the Preliminary Official Statement. 2. As of the date thereof, except as clarified below, the Preliminary Official Statement, solely with respect to information contained therein with respect to the Master Developer and affiliates thereof, property ownership within the District, the Master Developer's development plan and contractual arrangements as set forth under the captions "THE DEVELOPMENT PLAN," "SPECIAL RISK FACTORS -- Endangered and Threatened Species," "THE DISTRICT" and "THE MASTER DEVELOPER AND THE DEVELOPERS" is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. All information submitted by, or on behalf of, the Master Developer to the City, the District, the Special Tax Consultant or the Underwriter in connection with the issuance of the Bonds, to First American Commercial Real Estate Services (the "Appraiser") in connection with the preparation of the appraisal relating to the District and to Market Profiles in connection with the market absorption study relating to the District was, at the time of submission, and is as of the date of this certificate, to the actual knowledge of the Master Developer, true and correct. 1

45655629.1

4. The Master Developer consents to the issuance of the Bonds. The Master Developer acknowledges and agrees that the proceeds of the Bonds will be used for the improvements, as described in the Preliminary Official Statement, and that the costs of acquisition and construction of such improvements are estimates. Any increase in costs in excess of the estimated costs relating to improvements will reduce the improvements which may be financed by the District, and neither the District nor the City has any obligation to provide moneys to pay for any such costs. 5. As to information indicated in Section 3 hereof concerning the Master Developer, its affiliates and development within the District, and subject to the limitations and exclusions set forth in Section3, the Master Developer agrees to indemnify and hold harmless, to the extent permitted by law, the City and the District, and their officials, and employees and each person, if any, who controls any of the foregoing within the meaning of Section 15 of the Securities Act of 1933, as amended, or of Section 20 of the Securities Exchange Act of 1934, as amended against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified party may become subject under any statute or at law or in equity or otherwise, and shall reimburse any such indemnified party for any legal or other expense incurred by it in connection with investigating any claims against it and defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state, in the final Official Statement or in any amendment or supplement to such final Official Statement, a material fact necessary to make the statement therein, in light of the circumstances under which it was made not misleading. This indemnity provision shall not be construed as a limitation on any other liability which the Master Developer may otherwise have to any indemnified party, provided that in no event shall the Master Developer be obligated for double indemnification. 6. If between the date hereof and the date of the Closing any event relating to or affecting the Master Developer or the development shall occur of which the Master Developer has actual knowledge after due inquiry which might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Master Developer shall notify the District and the Underwriter and if in the opinion of counsel to the District or the Underwriter such event require the preparation and publication of a supplement or amendment to the Official Statement, the Master Developer shall cooperate with the District in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to counsel to the District and to the Underwriter. 7. For a period of 90 days after the issuance of the Bonds, if any event relating to or affecting the Master Developer or the development shall occur as a result of which it is necessary, in the opinion of the Underwriter or counsel to the District, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Master Developer shall cooperate with the District and the Underwriter in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to the Underwriter and counsel to the District which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to 2

45655629.1

make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to a purchaser, not misleading. 8. The Master Developer agrees to deliver a Certificate dated the date of issuance of the Bonds at the time of issuance of the Bonds in substantially the form attached hereto.

45655629.1

9. On behalf of the Master Developer, I have reviewed the content of this Certificate and have met with counsel to the Master Developer, for the purpose of discussing the meaning of its contents. DATED: September 7, 2005 INDIO LAND VENTURES LLC, a Delaware limited

liability _a_on By: /" Ill, , _] ?,d.c.,e.d _lJEF#

45655629.1

Bring-Down Certificate of Indio Land Ventures LLC

TO:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Reference is made to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), dated September 7, 2005. This certificate is delivered pursuant to the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. A copy of a Certificate dated September 7, 2005 delivered by Indio Land Ventures LLC, a Delaware limited liability corporation (the "Master Developer") is attached hereto as Exhibit A (the "Certificate"). The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of the Master Developer and the undersigned, on behalf of the Master Developer, further certifies as follows: 1. date hereof. Each statement made in the Certificate is affirmed and restated as if made on the

2. No event has occurred since the date of the Preliminary Official Statement which has adversely affected or will materially and adversely affect the business, properties, operations, prospects or financial condition of the Master Developer or its Affiliates which would materially and adversely affect the development of the Property by the Master Developer. 3. The Master Developer has received the Official Statement relating to the Bonds, and each statement made in the Certificate referring to the Preliminary Official Statement is affirmed as if it relates to the Official Statement.

DATED: September 15, 2005

INDIO LAND VENTURES LLC, a Delaware limited

liability co By: i_,

tion _ _:_ / __

45655623.1

Certificate of Ryland Homes of California, Inc.

TO:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Ladies and Gentlemen: Reference is made to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), relating to the Bonds. This certificate is delivered pursuant to Section (8)(e)(10) of the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of Ryland Homes of California, Inc., a Delaware Corporation (the "Developer"), and the undersigned, on behalf of the Developer, further certifies as follows: 1. The Developer is duly organized and validly existing under the laws of the State of California, is duly qualified to conduct business in California, and has all requisite right, power and authority (i) to execute and deliver this Certificate, and to execute and deliver at Closing (as defined in the Purchase Contract) and (ii) to undertake all of the transactions on its part described in the Preliminary Official Statement. 2. As set forth in the Preliminary Official Statement, the Developer owns a portion of the property within Improvement Area No. 1 of the District (the "Property"). The Developer makes the representations herein with respect to all of such parcels. Except as otherwise described in the Preliminary Official Statement, the Developer is, and the Developer's current expectation is that the Developer shall remain, the developer of the Property. Except as otherwise described in the Preliminary Official Statement, the Developer has not entered into an agreement for development or management .of the Property by any entity other than the Developer. 3. The Developer has, or will have prior to Closing, failed to comply with any obligations imposed upon it under Rule 15c2-12 of the Securities and Exchange Commission under the Securities Exchange Act of 1934. 4. Except as disclosed in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, the Developer and its affiliates are not in breach of or in default under any applicable law or administrative regulation of the State of California or the United States, or any agency or instrumentality of either, which breach or default would in any

45654886.1

way materially and adversely affect the Developer's ability to pay the special taxes of the District (the "Special Taxes"), and to the actual knowledge of the Developer after due inquiry, no event has occurred and is continuing which with the passage of time or giving of notice, or both, would constitute such a breach or default; and to the actual knowledge of the Developer after due inquiry, the execution and delivery at Closing by the Developer of its compliance with the provisions thereof will not conflict with or constitute a breach of or default under any law or administrative regulation applicable to the Developer. 5. Except as disclosed in the Preliminary Official Statement, the Developer is not in breach of or in default under any applicable judgment or decree or any loan agreement, option agreement, development agreement, indenture, fiscal agent agreement, bond, note, resolution, agreement or other instrument to which the Developer is, or will upon issuance of the Bonds be, a party or otherwise subj ect which breach or default would in any way materially and adversely affect its ability to pay the Special Taxes, and no event has occurred and is continuing that with the passage of time or giving of notice, or both, would constitute such a breach or default; and the execution and delivery at Closing by the Developer of its compliance with the provisions thereof will not conflict with or, constitute a breach of or default under any judgment, decree, loan agreement, indenture, fiscal agent agreement, bond, note, resolution, agreement or other instrument to which the Developer is a party or otherwise subject which breach or default would in any way materially and adversely affect its ability to develop the Property or its ability to pay the Special Taxes. 6. Except as described in the Preliminary Official Statement, the Developer has no loans outstanding and unpaid and no lines of credit secured by the Property. 7. Except as set forth in the Preliminary Official Statement, no litigation is pending (with service of process to the Developer or any Affiliate, having been accomplished) or, to the actual knowledge of the Developer after due inquiry, threatened (a) to restrain or enjoin collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Bonds, (b) to restrain or enjoin development of the Property, (c) in any way contesting or affecting the validity of the Special Taxes, and (d) which would in any way materially and adversely affect its ability to develop the Property or to pay Special Taxes. 8. Except as set forth in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, no litigation is pending (with service of process to the Developer or any Affiliate, having been accomplished), or, to the actual knowledge of the Developer after due inquiry, threatened against the Developer or any Affiliate, involving the Developer or any Affiliate, or any of the property or assets under the control of the Developer or any Affiliate, that involves the possibility of any judgment or uninsured liability which may materially and adversely affect the ability of the Developer to develop the Property as described in the Preliminary Official Statement or to pay Special Taxes. 9. As of the date thereof, except as clarified below, the Preliminary Official Statement, solely with respect to information contained therein with respect to the Developer and Affiliates thereof, property ownership within the District, the Developer's development plan, the Developer's financing plan, the Developer's lenders and contractual arrangements as set forth under the captions "THE DEVELOPMENT PLAN," "SPECIAL RISK FACTORS --

45654886.1

Endangered and Threatened Species," "THE DISTRICT" and "THE MASTER DEVELOPER AND THE DEVELOPERS" is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 10. The Developer has full power and authority to own and develop the Property, and to carry on its business as presently conducted and as described in the Preliminary Official Statement. 11. The Developer covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Developer and its Affiliates will not bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body, that in any way seeks to challenge or overturn the formation of the District, to challenge the adoption of the Ordinance levying Special Taxes within the District, to invalidate the District, or any of the Bonds or any refunding obligations, or to invalidate the special tax liens imposed under Section 3115.5 of the Streets and Highways Code based on recordation of the notices of special tax lien relating thereto. The foregoing covenant shall not prevent the Developer in any way from bringing any other action, suit or proceeding including, without limitation, an action or suit contending that the Special Tax has not been levied in accordance with the methodologies contained in the District's Rate and Method of Apportionment of Special Taxes pursuant to which the Special Taxes are levied, an action or suit with respect to the application or use of the Special Taxes levied and collected, or an action or suit to enforce the obligations of the District under the Fiscal Agent Agreement or any other agreements between the Developer and the District. 12. Except as disclosed in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, no other public debt secured by a tax or assessment on the land in the District is in the process of being authorized and no assessment districts or community facilities districts have been or are in the process of being formed that include any portion of the land within the District. 13. To the undersigned's actual knowledge, after due inquiry, the Developer and its Affiliates have not previously defaulted in any material amount or manner and which default has not been cured or remedied, in payment of, or are not currently delinquent on, any ad valorem, assessment or special tax obligations in any jurisdiction. 14. The Developer has received a copy of the Rate and Method of Apportionment containing the prepayment formula. The Developer acknowledges that any prepayment of the levy of the Special Taxes with respect to any parcel of property shall only be made in accordance with said terms. 15. The Developer intends to comply with the provision of the Mello-Roos Community Facilities Act relating to the Notice of Special Tax in connection with the sale of the Property.

45654886.1

16. The Developer is solvent and no proceedings are pending or, to the actual knowledge of the Developer after due inquiry, threatened in which the Developer may be adjudicated as bankrupt or discharged from any and all of its debts or obligations or granted an extension of time to pay its debts or obligations or a reorganization or readjustment of its debts or be subject to control or supervision of the Federal Deposit Insurance Corporation. 17. All Affiliates of the Developer are solvent and no proceedings are pending, or to the actual knowledge of the Developer after due inquiry, threatened in which the Affiliates of the Developer may be adjudicated as bankrupt or discharged from any or all of their respective debts or obligations, or granted an extension of time to pay their respective debts or obligations, or be allowed to reorganize or readjust their respective debts or obligations or be subject to control or supervision of the Federal Deposit Insurance Corporation, the result of which would in any way materially and adversely effect its ability to develop the Property or to pay Special Taxes. 18. The Developer has not filed for, nor is the Developer aware of, a reassessmem of the assessed value of the Property. 19. To the actual knowledge of the Developer after due inquiry, there are no claims, disputes, suits, actions or contingent liabilities (i) of the Developer or (ii) of the Affiliates of the Developer which may materially or adversely affect the development of the Property. 20. To the actual knowledge of the Developer after due inquiry, there are no claims, disputes, suits, actions or contingent liabilities among, by and between the Developer or its financial partners, Affiliates or any contractors working in the District which may materially adversely affect the development of the properties within the District or the payment of the Special Taxes. 21. Based upon its current development plans, including, without limitation, its current budget, the Developer anticipates that it will have sufficient funds to carry on its business as presently conducted and as described in the Preliminary Official Statement and to pay Special Taxes assessed against the Property from time to time owned by the Developer and does not anticipate that the District will be required to resort to the Reserve Account for payment of principal of or interest on the Bonds due to the Developer's nonpayment of Special Taxes. However, none of the Developer or its Affiliates is obligated to make any additional capital contribution or loan to the Developer at any time and neither the Developer nor its Affiliates are obligated to contribute additional capital for the payment of Special Taxes. 22. All information submitted by, or on behalf of, the Developer to the City, the District, the Special Tax Consultant or the Underwriter in connection with the issuance of the Bonds, to First American Commercial Real Estate Services (the "Appraiser") in connection with the preparation of the appraisal relating to the District and to Market Profiles in connection with the market absorption study relating to the District was, at the time of submission, and is as of the date of this certificate, to the actual knowledge of the Developer, true and correct. 23. The Developer consents to the issuance of the Bonds. The Developer acknowledges and agrees that the proceeds of the Bonds will be used for the improvements, as described in the Preliminary Official Statement, and that the costs of acquisition and construction

45654886.1

of such improvements are estimates. Any increase in costs in excess of the estimated costs relating to improvements will reduce the improvements which may be financed by the District, and neither the District nor the City has any obligation to provide moneys to pay for any such costs. 24. As to information indicated in Section 9 hereof concerning the Developer, its Affiliates and development within the District, and subject to the limitations and exclusions set forth in Section 9, the Developer agrees to indemnify and hold harmless, to the extent permitted by law, the City and the District, and their officials, and employees and each person, if any, who controls any of the foregoing within the meaning of Section 15 of the Securities Act of 1933, as amended, or of Section 20 of the Securities Exchange Act of 1934, as amended against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified party may become subject under any statute or at law or in equity or otherwise, and shall reimburse any such indemnified party for any legal or other expense incurred by it in connection with investigating any claims against it and defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state, in the final Official Statement or in any amendment or supplement to such final Official Statement, a material fact necessary to make the statement therein, in light of the circumstances under which it was made not misleading. This indemnity provision shall not be construed as a limitation on any other liability which the Developer may otherwise have to any indemnified party, provided that in no event shall the Developer be obligated for double indemnification. 25. If between the date hereof and the date of the Closing any event relating to or affecting the Developer or the development shall occur of which the Developer has actual knowledge after due inquiry which might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Developer shall notify the District and the Underwriter and if in the opinion of counsel to the District or the Underwriter such event require the preparation and publication of a supplement or amendment to the Official Statement, the Developer shall cooperate with the District in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to counsel to the District and to the Underwriter. 26. For a period of 90 days after the issuance of the Bonds, if any event relating to or affecting the Developer or the development shall occur as a result of which it is necessary, in the opinion of the Underwriter or counsel to the District, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Developer shall cooperate with the District and the Underwriter in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to the Underwriter and counsel to the District which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to a purchaser, not misleading.

45654886.1

27. The Developer agrees to deliver a Certificate dated the date of issuance of the Bonds at the time of issuance of the Bonds in substantially the form attached hereto.

45654886.1

28. On behalf of the Developer, I have reviewed the content of this Certificate and have met with counsel to the Developer, for the purpose of discussing the meaning of its contents. DATED: September 7, 2005 RYLAND HOMES OF CALIFORNIA, a Delaware Corporation

By:

_ Name: _t._-_ Title: _,ee-

'_,._,.,.,,,/ie_

_'_

P,x,,',,_,.k _ - _:.J,_,, ._,..-. _,t, ,,,.s,.$ G:,--

45654886.1

Bring-Down Certificate of Ryland Homes of California, Inc.

TO:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Reference is made to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), dated September 7, 2005. This certificate is delivered pursuant to the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. A copy of a Certificate dated September 7, 2005 delivered by Ryland Homes of California Inc., a Delaware Corporation (the "Developer") is attached hereto as Exhibit A (the "Certificate"). The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of the Developer and the undersigned, on behalf of the Developer, further certifies as follows: 1. date hereof. Each statement made in the Certificate is affirmed and restated as if made on the

2. No event has occurred since the date of the Preliminary Official Statement which has adversely affected or will materially and adversely affect the business, properties, operations, prospects or financial condition of the Developer or its Affiliates which would materially and adversely affect the development of the Property by the Developer or its ability to pay Special Taxes. 3. The Developer has received the Official Statement relating to the Bonds, and each statement made in the Certificate referring to the Preliminary Official Statement is affirmed as if it relates to the Official Statement. DATED: September 15, 2005 RYLAND HOMES OF CALIFORNIA, a Delaware Corpo_

Title: _e...

_;_,A.s

_ _)_.,J_,_.. _e,'-

"

45655162.1

Certificate of WHP Terra Lago 133

TO:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Ladies and Gentlemen: Reference is made to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), relating to the Bonds. This certificate is delivered pursuant to Section (8)(e)(10) of the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of WHP Terra Lago 133, a California Limited Partnership (the "Developer"), and the undersigned, on behalf of the Developer, further certifies as follows: 1. The Developer is duly organized and validly existing under the laws of the State of California, is duly qualified to conduct business in California, and has all requisite right, power and authority (i) to execute and deliver this Certificate, and to execute and deliver at Closing (as defined in the Purchase Contract) its Continuing Disclosure Agreement (the "Continuing Disclosure Agreement") dated as of September 1, 2005 and (ii) to undertake all of the transactions on its part contemplated by the Continuing Disclosure Agreement and described in the Preliminary Official Statement. 2. As set forth in the Preliminary Official Statement, the Developer owns a portion of the property within Improvement Area No. 1 of the District (the "Property"). The Developer makes the representations herein with respect to all of such parcels. Except as otherwise described in the Preliminary Official Statement, the Developer is, and the Developer's current expectation is that the Developer shall remain, the developer of the Property. Except as otherwise described in the Preliminary Official Statement, the Developer has not entered into an agreement for development or management of the Property by any entity other than the Developer. 3. The Developer has, or will have prior to Closing, duly authorized the execution and delivery at Closing of its Continuing Disclosure Agreement, and is duly authorized to perform the obligations on its part to be performed thereunder. To the undersigned's actual knowledge after due inquiry, the Developer has not previously failed to comply with any obligations imposed upon it under Rule 15c2-12 of the Securities and Exchange Commission under the Securities Exchange Act of 1934.

45654879.1

4. Except as disclosed in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, the Developer and its Affiliates (as defined in the Continuing Disclosure Agreement) are not in breach of or in default under any applicable law or administrative regulation of the State of California or the United States, or any agency or instrumentality of either, which breach or default would in any way materially and adversely affect the proposed Continuing Disclosure Agreement, or the Developer's ability to pay the special taxes of the District (the "Special Taxes"), and to the actual knowledge of the Developer after due inquiry, no event has occurred and is continuing which with the passage of time or giving of notice, or both, would constitute such a breach or default; and to the actual knowledge of the Developer after due inquiry, the execution and delivery at Closing by the Developer of its Continuing Disclosure Agreement and compliance with the provisions thereof will not conflict with or constitute a breach of or default under any law or administrative regulation applicable to the Developer. 5. Except as disclosed in the Preliminary Official Statement, the Developer is not in breach of or in default under any applicable judgment or decree or any loan agreement, option agreement, development agreement, indenture, fiscal agent agreement, bond, note, resolution, agreement or other instrument to which the Developer is, or will upon issuance of the Bonds be, a party or otherwise subject which breach or default would in any way materially and adversely affect its proposed Continuing Disclosure Agreement, or its ability to pay the Special Taxes, and no event has occurred and is continuing that with the passage of time or giving of notice, or both, would constitute such a breach or default; and the execution and delivery at Closing by the Developer of its Continuing Disclosure Agreement and compliance with the provisions thereof will not conflict with or, constitute a breach of or default under any judgment, decree, loan agreement, indenture, fiscal agent agreement, bond, note, resolution, agreement or other instrument to which the Developer is a party or otherwise subject which breach or default would in any way materially and adversely affect its Continuing Disclosure Agreement, its ability to develop the Property or its ability to pay the Special Taxes. 6. Except as described in the Preliminary Official Statement, the Developer has no loans outstanding and unpaid and no lines of credit secured by the Property. 7. Except as set forth in the Preliminary Official Statement, no litigation is pending (with service of process to the Developer or any Affiliate, having been accomplished) or, to the actual knowledge of the Developer after due inquiry, threatened (a) to restrain or enjoin collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Bonds, (b) to restrain or enjoin the execution of and performance of the Developer's obligations under its proposed Continuing Disclosure Agreement, (c) to restrain or enjoin development of the Property, (d) in any way contesting or affecting the validity of the Special Taxes, its proposed Continuing Disclosure Agreement or any other document, license, permit or approval necessary to the performance on the Developer's part under its proposed Continuing Disclosure Agreement or (e) which would in any way materially and adversely affect its ability to develop the Property or to pay Special Taxes. 8. Except as set forth in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, no litigation is pending (with service of process to the Developer or any Affiliate, having been accomplished), or, to the actual knowledge of the

45654879.1

Developer after due inquiry, threatened against the Developer or any Affiliate, involving the Developer or any Affiliate, or any of the property or assets under the control of the Developer or any Affiliate, that involves the possibility of any judgment or uninsured liability which may materially and adversely affect the ability of the Developer to develop the Property as described in the Preliminary Official Statement or to pay Special Taxes. 9. As of the date thereof, except as clarified below, the Preliminary Official Statement, solely with respect to information contained therein with respect to the Developer and Affiliates thereof, property ownership within the District, the Developer's development plan, the Developer's financing plan, the Developer's lenders and contractual arrangements as set forth under the captions "CONTINUING DISCLOSURE," "THE DEVELOPMENT PLAN," "SPECIAL RISK FACTORS -- Endangered and Threatened Species," "THE DISTRICT" and "THE MASTER DEVELOPER AND THE DEVELOPERS" is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 10. The Developer has full power and authority to own and develop the Property, and to carry on its business as presently conducted and as described in the Preliminary Official Statement. 11. The Developer covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Developer and its Affiliates will not bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body, that in any way seeks to challenge or overturn the formation of the District, to challenge the adoption of the Ordinance levying Special Taxes within the District, to invalidate the District, or any of the Bonds or any refunding obligations, or to invalidate the special tax liens imposed under Section 3115.5 of the Streets and Highways Code based on recordation of the notices of special tax lien relating thereto. The foregoing covenant shall not prevent the Developer in any way from bringing any other action, suit or proceeding including, without limitation, an action or suit contending that the Special Tax has not been levied in accordance with the methodologies contained in the District's Rate and Method of Apportionment of Special Taxes pursuant to which the Special Taxes are levied, an action or suit with respect to the application or use of the Special Taxes levied and collected, or an action or suit to enforce the obligations of the District under the Fiscal Agent Agreement or any other agreements between the Developer and the District. 12. Except as disclosed in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, no other public debt secured by a tax or assessment on the land in the District is in the process of being authorized and no assessment districts or community facilities districts have been or are in the process of being formed that include any portion of the land within the District. 13. Except as described in the Preliminary Official Statement, the Developer has not assumed any obligations under any judgment, decree, contract or otherwise, that would materially interfere with the Developer's execution and performance of its obligations under the

45654879.1

proposed Continuing Disclosure Agreement or which would in any way materially and adversely effect its ability to develop the Property or to pay Special Taxes. 14. To the undersigned's actual knowledge, after due inquiry, the Developer and its Affiliates have not previously defaulted in any material amount or manner and which default has not been cured or remedied, in payment of, or are not currently delinquent on, any ad valorem, assessment or special tax obligations in any jurisdiction. 15. The Developer has received a copy of the Rate and Method of Apportionment containing the prepayment formula. The Developer acknowledges that any prepayment of the levy of the Special Taxes with respect to any parcel of property shall only be made in accordance with said terms. 16. The Developer intends to comply with the provision of the Mello-Roos Community Facilities Act relating to the Notice of Special Tax in connection with the sale of the Property. 17. The Developer is solvent and no proceedings are pending or, to the actual knowledge of the Developer after due inquiry, threatened in which the Developer may be adjudicated as bankrupt or discharged from any and all of its debts or obligations or granted an extension of time to pay its debts or obligations or a reorganization or readjustment of its debts or be subject to control or supervision of the Federal Deposit Insurance Corporation. 18. All Affiliates of the Developer are solvent and no proceedings are pending, or to the actual knowledge of the Developer after due inquiry, threatened in which the Affiliates of the Developer may be adjudicated as bankrupt or discharged from any or all of their respective debts or obligations, or granted an extension of time to pay their respective debts or obligations, or be allowed to reorganize or readjust their respective debts or obligations or be subject to control or supervision of the Federal Deposit Insurance Corporation, the result of which would materially interfere with the Developer's execution and performance of its obligations under the proposed Continuing Disclosure Agreement or which would in any way materially and adversely effect its ability to develop the Property or to pay Special Taxes. 19. The Developer has not filed for, nor is the Developer aware of, a reassessment of the assessed value of the Property. 20. To the actual knowledge of the Developer after due inquiry, there are no claims, disputes, suits, actions or contingent liabilities (i) of the Developer or (ii) of the Affiliates of the Developer which may materially or adversely affect the development of the Property. 21. To the actual knowledge of the Developer after due inquiry, there are no claims, disputes, suits, actions or contingent liabilities among, by and between the Developer or its financial partners, Affiliates or any contractors working in the District which may materially adversely affect the development of the properties within the District or the payment of the Special Taxes. 22. Based upon its current development plans, including, without limitation, its current budget, the Developer anticipates that it will have sufficient funds to carry on its business 4

45654879.1

as presently conducted and as described in the Preliminary Official Statement and to pay Special Taxes assessed against the Property from time to time owned by the Developer and does not anticipate that the District will be required to resort to the Reserve Account for payment of principal of or interest on the Bonds due to the Developer's nonpayment of Special Taxes. However, none of the Developer or its Affiliates is obligated to make any additional capital contribution or loan to the Developer at any time and neither the Developer nor its Affiliates are obligated to contribute additional capital for the payment of Special Taxes. 23. All information submitted by, or on behalf of, the Developer to the City, the District, the Special Tax Consultant or the Underwriter in connection with the issuance of the Bonds, to First American Commercial Real Estate Services (the "Appraiser") in connection with the preparation of the appraisal relating to the District and to Market Profiles in connection with the market absorption study relating to the District was, at the time of submission, and is as of the date of this certificate, to the actual knowledge of the Developer, true and correct. 24. The Developer consents to the issuance of the Bonds. The Developer acknowledges and agrees that the proceeds of the Bonds will be used for the improvements, as described in the Preliminary Official Statement, and that the costs of acquisition and construction of such improvements are estimates. Any increase in costs in excess of the estimated costs relating to improvements will reduce the improvements which may be financed by the District, and neither the District nor the City has any obligation to provide moneys to pay for any such costs. 25. As to information indicated in Section 9 hereof concerning the Developer, its Affiliates and development within the District, and subject to the limitations and exclusions set forth in Section 9, the Developer agrees to indemnify and hold harmless, to the extent permitted by law, the City and the District, and their officials, and employees and each person, if any, who controls any of the foregoing within the meaning of Section 15 of the Securities Act of 1933, as amended, or of Section 20 of the Securities Exchange Act of 1934, as amended against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified party may become subject under any statute or at law or in equity or otherwise, and shall reimburse any such indemnified party for any legal or other expense incurred by it in connection with investigating any claims against it and defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state, in the final Official Statement or in any amendment or supplement to such final Official Statement, a material fact necessary to make the statement therein, in light of the circumstances under which it was made not misleading. This indemnity provision shall not be construed as a limitation on any other liability which the Developer may otherwise have to any indemnified party, provided that in no event shall the Developer be obligated for double indemnification. 26. The Developer agrees to execute its Continuing Disclosure Agreement in the form attached as Appendix G of the Preliminary Official Statement, with such additional changes as may be agreed upon by the Developer. 27. If between the date hereof and the date of the Closing any event relating to or affecting the Developer or the development shall occur of which the Developer has actual

45654879.1

knowledge after due inquiry which might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Developer shall notify the District and the Underwriter and if in the opinion of counsel to the District or the Underwriter such event require the preparation and publication of a supplement or amendment to the Official Statement, the Developer shall cooperate with the District in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to counsel to the District and to the Underwriter. 28. For a period of 90 days after the issuance of the Bonds, if any event relating to or affecting the Developer or the development shall occur as a result of which it is necessary, in the opinion of the Underwriter or counsel to the District, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Developer shall cooperate with the District and the Underwriter in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to the Underwriter and counsel to the District which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to a purchaser, not misleading. 29. The Developer agrees to deliver a Certificate dated the date of issuance of the Bonds at the time of issuance of the Bonds in substantially the form attached hereto.

45654879.1

30. On behalf of the Developer, I have reviewed the content of this Certificate and have met with counsel to the Developer, for the purpose of discussing the meaning of its contents. DATED: September 7, 2005 WHP TERRA LAGO 133, a California Limited Partnership

By: Name.. A_lex_ "k_is" Title: Its Authorized Signatory

45654879.1

Bring-Down Certificate of WHP Terra Lago 133

TO:

City of Indio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Reference is made to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), dated September 7, 2005. This certificate is delivered pursuant to the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. A copy of a Certificate dated September 7, 2005 delivered by WHP Terra Lago 133, a California Limited Partnership (the "Developer") is attached hereto as Exhibit A (the "Certificate"). The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of the Developer and the undersigned, on behalf of the Developer, further certifies as follows: 1. date hereof. Each statement made in the Certificate is affirmed and restated as if made on the

2. No event has occurred since the date of the Preliminary Official Statement which has adversely affected or will materially and adversely affect the business, properties, operations, prospects or financial condition of the Developer or its Affiliates which would materially and adversely affect the development of the Property by the Developer or its ability to pay Special Taxes. 3. The Developer has received the Official Statement relating to the Bonds, and each statement made in the Certificate referring to the Preliminary Official Statement is affirmed as if it relates to the Official Statement. 4. Each statement made in the Certificate referring to the proposed Continuing Disclosure Agreement is affirmed as if it relates to the Continuing Disclosure Agreement as executed and delivered. 5. The Continuing Disclosure Agreement conforms to the description thereof contained in the Official Statement and the references to and summary of the Continuing Disclosure Agreement in the Official Statement are accurate in all material respects.

45655152.1

6. The Developer has duly authorized the execution and delivery of its Continuing Disclosure Agreement, is duly authorized to perform the obligations on its part to be performed thereunder, and its Continuing Disclosure Agreement constitutes the legal, valid and binding obligations of the Developer, enforceable against it in accordance with its terms. DATED: September 15, 2005 WHP TERRA LAGO 133, a California Limited Partnership/i . By: {L_ (__,_ Narn_: Al_xf_akis Title: Its Attt_orized Signatory

45655152,1

Certificate of Woodside Portofino, Inc.

TO:

City of lndio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Ladies and Gentlemen: Reference is made to the City of lndio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), relating to the Bonds. This certificate is delivered pursuant to Section (8)(e)(10) of the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of Woodside Portofino, Inc. a California Corporation (the "Developer"), and the undersigned, on behalf of the Developer, further certifies as follows: 1. The Developer is duly organized and validly existing under the laws of the State of California, is duly qualified to conduct business in California, and has all requisite right, power and authority (i) to execute and deliver this Certificate, and to execute and deliver at Closing (as defined in the Purchase Contract) its Continuing Disclosure Agreement (the "Continuing Disclosure Agreement") dated as of September 1, 2005 and (ii) to undertake all of the transactions on its part contemplated by the Continuing Disclosure Agreement and described in the Preliminary Official Statement. 2. As set forth in the Preliminary Official Statement, the Developer owns a portion of the property within Improvement Area No. 1 of the District (the "Property"). The Developer makes the representations herein with respect to all of such parcels. Except as otherwise described in the Preliminary Official Statement, the Developer is, and the Developer's current expectation is that the Developer shall remain, the developer of the Property. Except as otherwise described in the Preliminary Official Statement, the Developer has not entered into an agreement for development or management of the Property by any entity other than the Developer. 3. The Developer has, or will have prior to Closing, duly authorized the execution and delivery at Closing of its Continuing Disclosure Agreement, and is duly authorized to perform the obligations on its part to be performed thereunder. To the undersigned's actual knowledge after due inquiry, the Developer has not previously failed to comply with any obligations imposed upon it under Rule 15c2-12 of the Securities and Exchange Commission under the Securities Exchange Act of 1934.

45654843.1

4. Except as disclosed in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, the Developer and its Affiliates (as defined in the Continuing Disclosure Agreement) are not in breach of or in default under any applicable law or administrative regulation of the State of California or the United States, or any agency or instrumentality of either, which breach or default would in any way materially and adversely affect the proposed Continuing Disclosure Agreement, or the Developer's ability to pay the special taxes of the District (the "Special Taxes"), and to the actual knowledge of the Developer after due inquiry, no event has occurred and is continuing which with the passage of time or giving of notice, or both, would constitute such a breach or default; and to the actual knowledge of the Developer after due inquiry, the execution and delivery at Closing by the Developer of its Continuing Disclosure Agreement and compliance with the provisions thereof will not conflict with or constitute a breach of or default under any law or administrative regulation applicable to the Developer. 5. Except as disclosed in the Preliminary Official Statement, the Developer is not in breach of or in default under any applicable judgment or decree or any loan agreement, option agreement, development agreement, indenture, fiscal agent agreement, bond, note, resolution, agreement or other instrument to which the Developer is, or will upon issuance of the Bonds be, a party or otherwise subject which breach or default would in any way materially and adversely affect its proposed Continuing Disclosure Agreement, or its ability to pay the Special Taxes, and no event has occurred and is continuing that with the passage of time or giving of notice, or both, would constitute such a breach or default; and the execution and delivery at Closing by the Developer of its Continuing Disclosure Agreement and compliance with the provisions thereof will not conflict with or, constitute a breach of or default under any judgment, decree, loan agreement, indenture, fiscal agent agreement, bond, note, resolution, agreement or other instrument to which the Developer is a party or otherwise subject which breach or default would in any way materially and adversely affect its Continuing Disclosure Agreement, its ability to develop the Property or its ability to pay the Special Taxes. 6. Except as described in the Preliminary Official Statement, the Developer has no loans outstanding and unpaid and no lines of credit secured by the Property. 7. Except as set forth in the Preliminary Official Statement, no litigation is pending (with service of process to the Developer or any Affiliate, having been accomplished) or, to the actual knowledge of the Developer after due inquiry, threatened (a) to restrain or enjoin collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Bonds, (b) to restrain or enjoin the execution of and performance of the Developer's obligations under its proposed Continuing Disclosure Agreement, (c) to restrain or enjoin development of the Property, (d) in any way contesting or affecting the validity of the Special Taxes, its proposed Continuing Disclosure Agreement or any other document, license, permit or approval necessary to the performance on the Developer's part under its proposed Continuing Disclosure Agreement or (e) which would in any way materially and adversely affect its ability to develop the Property or to pay Special Taxes. 8. Except as set forth in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, no litigation is pending (with service of process to the Developer or any Affiliate, having been accomplished), or, to the actual knowledge of the

45654843.1

Developer after due inquiry, threatened against the Developer or any Affiliate, involving the Developer or any Affiliate, or any of the property or assets under the control of the Developer or any Affiliate, that involves the possibility of any judgment or uninsured liability which may materially and adversely affect the ability of the Developer to develop the Property as described in the Preliminary Official Statement or to pay Special Taxes. 9. As of the date thereof, except as clarified below, the Preliminary Official Statement, solely with respect to information contained therein with respect to the Developer and Affiliates thereof, property ownership within the District, the Developer's development plan, the Developer's financing plan, the Developer's lenders and contractual arrangements as set forth under the captions "CONTINUING DISCLOSURE," "THE DEVELOPMENT PLAN," "SPECIAL RISK FACTORS -- Endangered and Threatened Species, .... THE DISTRICT" and "THE MASTER DEVELOPER AND THE DEVELOPERS" is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 10. The Developer has full power and authority to own and develop the Property, and to carry on its business as presently conducted and as described in the Preliminary Official Statement. 11. The Developer covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Developer and its Affiliates will not bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body, that in any way seeks to challenge or overturn the formation of the District, to challenge the adoption of the Ordinance levying Special Taxes within the District, to invalidate the District, or any of the Bonds or any refunding obligations, or to invalidate the special tax liens imposed under Section 3115.5 of the Streets and Highways Code based on recordation of the notices of special tax lien relating thereto. The foregoing covenant shall not prevent the Developer in any way from bringing any other action, suit or proceeding including, without limitation, an action or suit contending that the Special Tax has not been levied in accordance with the methodologies contained in the District's Rate and Method of Apportionment of Special Taxes pursuant to which the Special Taxes are levied, an action or suit with respect to the application or use of the Special Taxes levied and collected, or an action or suit to enforce the obligations of the District under the Fiscal Agent Agreement or any other agreements between the Developer and the District. 12. Except as disclosed in the Preliminary Official Statement, to the actual knowledge of the Developer after due inquiry, no other public debt secured by a tax or assessment on the land in the District is in the process of being authorized and no assessment districts or community facilities districts have been or are in the process of being formed that include any portion of the land within the District. 13. Except as described in the Preliminary Official Statement, the Developer has not assumed any obligations under any judgment, decree, contract or otherwise, that would materially interfere with the Developer's execution and performance of its obligations under the

45654843.1

proposed Continuing Disclosure Agreement or which would in any way materially and adversely effect its ability to develop the Property or to pay Special Taxes. 14. To the undersigned's actual knowledge, after due inquiry, the Developer and its Affiliates have not previously defaulted in any material amount or manner and which default has not been cured or remedied, in payment of, or are not currently delinquent on, any ad valorem, assessment or special tax obligations in any jurisdiction. 15. The Developer has received a copy of the Rate and Method of Apportionment containing the prepayment formula. The Developer acknowledges that any prepayment of the levy of the Special Taxes with respect to any parcel of property shall only be made in accordance with said terms. 16. The Developer intends to comply with the provision of the Mello-Roos Community Facilities Act relating to the Notice of Special Tax in connection with the sale of the Property. 17. The Developer is solvent and no proceedings are pending or, to the actual knowledge of the Developer after due inquiry, threatened in which the Developer may be adjudicated as bankrupt or discharged from any and all of its debts or obligations or granted an extension of time to pay its debts or obligations or a reorganization or readjustment of its debts or be subject to control or supervision of the Federal Deposit Insurance Corporation. 18. All Affiliates of the Developer are solvent and no proceedings are pending, or to the actual knowledge of the Developer after due inquiry, threatened in which the Affiliates of the Developer may be adjudicated as bankrupt or discharged from any or all of their respective debts or obligations, or granted an extension of time to pay their respective debts or obligations, or be allowed to reorganize or readjust their respective debts or obligations or be subject to control or supervision of the Federal Deposit Insurance Corporation, the result of which would materially interfere with the Developer's execution and performance of its obligations under the proposed Continuing Disclosure Agreement or which would in any way materially and adversely effect its ability to develop the Property or to pay Special Taxes. 19. The Developer has not filed for, nor is the Developer aware of, a reassessment of the assessed value of the Property. 20. To the actual knowledge of the Developer after due inquiry, there are no claims, disputes, suits, actions or contingent liabilities (i) of the Developer or (ii) of the Affiliates of the Developer which may materially or adversely affect the development of the Property. 21. To the actual knowledge of the Developer after due inquiry, there are no claims, disputes, suits, actions or contingent liabilities among, by and between the Developer or its financial partners, Affiliates or any contractors working in the District which may materially adversely affect the development of the properties within the District or the payment of the Special Taxes. 22. Based upon its current development plans, including, without limitation, its current budget, the Developer anticipates that it will have sufficient funds to carry on its business 4

45654843.1

as presently conducted and as described in the Preliminary Official Statement and to pay Special Taxes assessed against the Property from time to time owned by the Developer and does not anticipate that the District will be required to resort to the Reserve Account for payment of principal of or interest on the Bonds due to the Developer's nonpayment of Special Taxes. However, none of the Developer or its Affiliates is obligated to make any additional capital contribution or loan to the Developer at any time and neither the Developer nor its Affiliates are obligated to contribute additional capital for the payment of Special Taxes. 23. All information submitted by, or on behalf of, the Developer to the City, the District, the Special Tax Consultant or the Underwriter in connection with the issuance of the Bonds, to First American Commercial Real Estate Services (the "Appraiser") in connection with the preparation of the appraisal relating to the District and to Market Profiles in connection with the market absorption study relating to the District was, at the time of submission, and is as of the date of this certificate, to the actual knowledge of the Developer, true and correct. 24. The Developer consents to the issuance of the Bonds. The Developer acknowledges and agrees that the proceeds of the Bonds will be used for the improvements, as described in the Preliminary Official Statement, and that the costs of acquisition and construction of such improvements are estimates. Any increase in costs in excess of the estimated costs relating to improvements will reduce the improvements which may be financed by the District, and neither the District nor the City has any obligation to provide moneys to pay for any such costs. 25. As to information indicated in Section 9 hereof concerning the Developer, its Affiliates and development within the District, and subject to the limitations and exclusions set forth in Section 9, the Developer agrees to indemnify and hold harmless, to the extent permitted by law, the City and the District, and their officials, and employees and each person, if any, who controls any of the foregoing within the meaning of Section 15 of the Securities Act of 1933, as amended, or of Section 20 of the Securities Exchange Act of 1934, as amended against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified party may become subject under any statute or at law or in equity or otherwise, and shall reimburse any such indemnified party for any legal or other expense incurred by it in connection with investigating any claims against it and defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state, in the final Official Statement or in any amendment or supplement to such final Official Statement, a material fact necessary to make the statement therein, in light of the circumstances under which it was made not misleading. This indemnity provision shall not be construed as a limitation on any other liability which the Developer may otherwise have to any indemnified party, provided that in no event shall the Developer be obligated for double indemnification. 26. The Developer agrees to execute its Continuing Disclosure Agreement in the form attached as Appendix G of the Preliminary Official Statement, with such additional changes as may be agreed upon by the Developer. 27. If between the date hereof and the date of the Closing any event relating to or affecting the Developer or the development shall occur of which the Developer has actual

45654843.1

knowledge after due inquiry which might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Developer shall notify the District and the Underwriter and if in the opinion of counsel to the District or the Underwriter such event require the preparation and publication of a supplement or amendment to the Official Statement, the Developer shall cooperate with the District in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to counsel to the District and to the Underwriter. 28. For a period of 90 days after the issuance of the Bonds, if any event relating to or affecting the Developer or the development shall occur as a result of which it is necessary, in the opinion of the Underwriter or counsel to the District, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Developer shall cooperate with the District and the Underwriter in the preparation of an amendment or supplement to the Official Statement in form and substance satisfactory to the Underwriter and counsel to the District which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to a purchaser, not misleading. 29. The Developer agrees to deliver a Certificate dated the date of issuance of the Bonds at the time of issuance of the Bonds in substantially the form attached hereto.

45654843,1

30. On behalf of the Developer, i have reviewed the content of this Certificate and have met with counsel to the Developer, for the purpose of discussing the meaning of its contents. DATED: September 7, 2005 WOODSIDE PORTOFINO INC., a California Corporation

Name: leggy e_ Title: Secretary

45654843.1

Bring-Down Certificate of Woodside Portofino, Inc.

TO:

City of lndio Community Facilities District No. 2004-3 (Terra Lago) and Southwest Securities, Inc.

Reference is made to the City of Indio Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement Area No. 1) (the "Bonds") and to the Purchase Contract (the "Purchase Contract") by and between the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District") and Southwest Securities, Inc. (the "Underwriter"), dated September 7, 2005. This certificate is delivered pursuant to the Purchase Contract. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Purchase Contract. A copy of a Certificate dated September 7, 2005 delivered by Woodside Portofino, Inc., a California Corporation (the "Developer") is attached hereto as Exhibit A (the "Certificate"). The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer of the Developer and the undersigned, on behalf of the Developer, further certifies as follows: 1. date hereof. Each statement made in the Certificate is affirmed and restated as if made on the

2. No event has occurred since the date of the Preliminary Official Statement which has adversely affected or will materially and adversely affect the business, properties, operations, prospects or financial condition of the Developer or its Affiliates which would materially and adversely affect the development of the Property by the Developer or its ability to pay Special Taxes. 3. The Developer has received the Official Statement relating to the Bonds, and each statement made in the Certificate referring to the Preliminary Official Statement is affirmed as if it relates to the Official Statement. 4. Each statement made in the Certificate referring to the proposed Continuing Disclosure Agreement is affirmed as if it relates to the Continuing Disclosure Agreement as executed and delivered. 5. The Continuing Disclosure Agreement conforms to the description thereof contained in the Official Statement and the references to and summary of the Continuing Disclosure Agreement in the Official Statement are accurate in all material respects.

45655158.1

6. The Developer has duly authorized the execution and delivery of its Continuing Disclosure Agreement, is duly authorized to perform the obligations on its part to be performed thereunder, and its Continuing Disclosure Agreement constitutes the legal, valid and binding obligations of the Developer, enforceable against it in accordance with its terms. DATED: September 15, 2005 Woodside Portofino, Inc., a Califomaia Corporation

19

By:

_'___ a._ _t_c_ Name: _g_y P_eyn_so Title: Secretary

45655158.1

40

STATE

OF

CALIFORNIA DEBT AND INVESTMENT ADVISORY

Phil State Treasu rer Angelide and Chais r COMMISSION

CALIFORNIA

915 CAPITOL MALL, ROOM 400 P.O. BOX 942809 SACRAMENTO, CA 94209-0001 TELEPHONE: (916) 653-3269 FAX: (916) 654-7440 July TO: Daniel Kim LLP F1 27, 2005

Fulbright & Jaworski 555 S Flower St 41st Los Angeles, CA 90071

FROM:

Executive

Director

RE:

ACKNOWLEDGEMENT

OF

REPORT

OF

PROPOSED

DEBT

ISSUANCE

Section 8855(k) of the California Government Code requires written notice to be given to the California Debt and Investment Advisory Commission (CDIAC) no later than 30 days prior to the proposed sale of any public agency debt issue. The Commission issuance: CDIAC Issuer: Project: Proposed Proposed Date Amount: Sale Date: Nbr: acknowledges your written notice of the following proposed debt

2005-1400 Indio Terra August July Lago 24, 27, IA No 2005 1

$26,000,000.00

Notice

Received:

2005 and the Official Statement (or offering of sale date. Any questions regarding to the CDIAC staff at (916) 653-3269.

Please submit the Report of Final Sale circular) on _his issue within 45 days reporting requirements may be directed Cc: Michael Finance Busch DLrector

REPORT OF PROPOSED DEBT ISSUANCE

California Debt and Investment Advisory Commission 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 FAX: (916) 654-7440 Completion and timely submittal of this form to the California Debt and Investment Advisory Commission (CDIAC) at the above address will assure your compliance with existing California State law and will assist in the maintenance of a complete database of public debt in California. Thank you for your cooperation. For Office CDIAC Use Only NO:

ISSUER ISSUE

NAME: NAME:

CiD Special

of Indio Tax Bonds, Series 2005 (Improvement Area No. 1)

Please specify type/name of project: PROPOSED IS ANY [] No SALE DATE: OF THE

Terra Lago August DEBT 24, 2005 FOR REFUNDING? $ 2 PRINCIPAL TO BE SOLD: $ 26,000,000

PORTION [] Contact: Michael Finance

Yes, proposed

amount

for refunding

Issuer Name: Title: Address: Phone:

Busch Director Mall, lndio, CA 92202 Issuer Located Counsel, in [] Issuer, [] Financial Riverside Advisor, or [] Lead Underwriter) County who

100 Civic Center (760) 342-6560

Filing Contact: Name of Individual (representing: [] Bond completed this form and may be contacted for information: Name: Firm/Agency: Address: Phone: Send Danny Kim & Jaworski L.L.P. Los Angeles,

Fulbright

865 South Figueroa (213) 892-9320

Street, 29th Floor,

California E-mail:

90017-2576 dkim@fulbright.com

acknowledgement/copies

to:

Danny

Kim at above

address.

FINANCING BOND

PARTICIPANTS: Fulbright & Jaworski L.L.P. Advisors, Securities, LLC Inc.

COUNSEL:

FINANCIAL

ADVISOR:

Harrell

& Company Southwest

UNDERWRITER\PURCHASER:

IS THE Under Under

INTEREST State law: Federal law:

ON THE [] _

DEBT

EXEMPT

FROM [] []

TAXATION? YES (tax-exempt) YES (tax-exempt) If the issue is federally tax-exempt, for the purpose of alternative minimum tax? [] Yes, preference item [] No, not a preference is interest a specific preference item

NO (taxable) NO (taxable)

item

TYPE

OF SALE:

[]

Competitive

[]

Negotiated

I Section prior require 2 Section willtin public 53583(c)(2)(B) two weeks sale after of the CaliJbrnia the bonds are Government sold, Code requires explaining that any local agency why selling refimding bonds at private to sell sale or on a negotiated at private basis shall send a written basis statement, of at to the CDIAC the reasons the local agency determined the bonds sale or on a negotiated instead 8855(g) to the sale. information of the California Under or private California ftnancing, Government Government or after in the report Code requires Section sale the issuer 8855( 0, of any proposed "The issuer new public offering, "' debt issue a report to give written shall, of final notice than of the proposed 45 days after statement sale to the CDIAC the signing to the commission. no later than 30 days contract may Code offinal of any new public submit debt issue not later of the bond purehase

in a negotiated

the acceptance

of a bM in a competitive that is considered

sale and official

The Commission

to be submitted

appropriate.

G:CDIAC\2OOOproposeform

doc,

9/21_)0

Error! Unknown

document

property

name.

CDIAC: Report of Proposed Debt Issuance

Page 2

TYPE OF DEBT INSTRUMENT NOTE [] [] [] [] [] [] [] [] [] [] Bond anticipation {BAN) Grant obligation (GAN) Other note (Please specify below.) (OTHN) Revenue anticipation (RAN) Tax allocation (TALN) Tax and revenue anticipation (TRAN) Tax anticipation (TAN) BOND [] [] [] [] [] [] [] [] [] [] was checked: Conduit revenue (Private obligor) (CRB) General obligation (GOB) Limited tax obligation (LTOB) Other bond (please specify below.) (OTHB) Public lease revenue (PLRB) Revenue (Pool) (RB) Revenue (Public enterprise) (PERB) Sales tax revenue (STRB) Special assessment (SAB) Tax allocation (TAB)

Commercial paper (CP) Certificates of participation/leases (COPL) Other (Please specify below.) (OTH) bond/Other"

Please specify if "Other note/Other SOURCE(S) [] [] [] [] [] [] [] OF REPAYMENT

Special Tax Bonds

Bond proceeds (BDPR) General fund of issuing jurisdiction (GNFD) Grants (GRNT) lntergovernmental transfers other than grants (ITGV) Local obligations (LOB) Private obligor payments (POP) Other (Please specify.) (OTHS): OF FINANCING

[] [] [] [] [] []

Property tax revenues (PRTX) Public enterprise revenues (PER) Sales tax revenues (SATR) Special assessments (SA) Special tax revenues (SPTR) Tax-increment (TI)

PURPOSE(S) [] [] [] [] [] [] [] [] [] [] [] [] [] [] [] []

Cash flow, interim financing (CFIF) Project, interim financing (PIF) College/university housing (CUH) Multifamily housing (MFH) 3 Single-family housing (SFH) 3 Health care facilities (HCF) Hospital (HOSP) Other/multiple health care purposes (equipment; etc.) (OMHC) College/university facility (CUF) K-12 school facility (KSCH) Other/multiple education uses (equipment, etc.) (OMED) Student loans (SL(') Redevelopment, multiple uses (RD) (CMDV)

[] [] [] [] [] [] [] [] [] [] [] [] [] [] [] [] [] [] [] [] [] []

Airport (APRT) Bridges and highways (BRHI) Convention center (CCTR) Equipment (EQUP) Flood control/storm drainage (FLDS) Multiple capital improvements and public works (MCAP) Other capital improvements and public works (OCAP) Parking (PRKG) Parks/open space (PRKO) Ports and marinas (PRTS) Power generation/transmission

(PWR)

Prisons/jails/correctional facilities (PRSN) Public building (laB) Public transit (PTR) Recreation and sports facilities (RCSP) Seismic safety improvements/repair (SSI) Solid waste recovery facilities (SWST) Street construction and improvements (SCI) Wastewater collection and treatment (WSTW) Water supply/storage/distribution Insurance/pension funds (IPF) Other than listed above (OTH) (WTR)

Conmercial development

Industrial development (INDV) Pollution control (PC)

Please Specify type/name of project:

3

Terra La_o

Certain local government issuers of housing bonds are required to obtain a certification requirements prior to issuance of the bonds to financing single_ or multifamily housing.

from

the State

Treasurer

attesting

to their compliance

with the State

housing reporting

G:CDlAC\2000proposeform doc, 9/2_i0(_

Error! Unknown document property name.

41

REPORT OF FINAL SALE

California Debt and Investment Advisory Commission 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 FAX: (916) 654-7440 Under Calilbrnia Government Code Section 88550), "The issue of any new public debt issue shall, not later than 45 days after the signing of the bond purchase contract in a negotiated or private financing, or after the acceptance of a bid in a competitive offering, submit a report of final sale and official statement to the Commission. The Commission may require information to be submitted in the report of final sale that is considered appropriate." ISSUER NAME: City oflndio

For Office Use Only

CDIAC #:

(If pool bond, list participants) ISSUE NAME: IF THIS Community Facilities District No. 2004-3 (Terra Lago) Special Tax Bonds, Series 2005 (Improvement WHICH ISSUANCE STATUTE IS IT AUTHORIZED Sales Agreement, UNDER? Lease... [] 4) Housing Revenue Bond Law Area No. 1)

IS A POOLED

FINANCING,

[] 1) Marks-Roos Local Bond Pooling Act [] 2) JPA Law & Industrial Development Bond Law [] 5) Other WILL A VALID ACTION BE PURSUED: September 7, 2005 FOR REFUNDING? $ [] No

[] 3) Installment

[] Yes

[]

Unknown SOLD: $ 26,330,000

ACTUAL

SALE DATE:

PRINCIPAL _

IS ANY PORTION [] No

OF THE DEBT

[] Yes. refunding amount (including costs)

Issuer Contact: Name: Title: Address: Phone: Michael Busch Finance Director 100 Civic Cener Mall, Indio, CA 92201 760/342-6560 ISSUER LOCATED IN [] Issuer, [] Financial Riverside Advisor, or COUNTY [] Lead Underwriter) who

Filing Contact: Name of individual (representing: [] Bond Counsel, completed this form and may be contacted for information: Name: Daniel Kim. Esq. Fulbright & Jaworski L.L.P.

Firm/Agency: Address: Phone:

555 South Flower Street, 41st Floor, Los Angeles, California 213/892-9320

90071 dkim@fulbright.com

E-Mail: to: Stuart Clapp at Fulbright & Jaworski L.L.P. an invoice for the CDIAC

Send acknowledgement/copies Name of individual Name: Firm: Address: Phone: to whom

issue fee should be sent: z

Francis Mayers Southwest Securities, Inc. 620 Newport Center Drive, Suite 300, Newport Beach, CA 92660 949/717-2000

I Section 53583(e)(2)(B) oJthe California Government Code requires that an), local agency selling refunding bonds at private sale or on a negotiated basis shall send a written statement, within two weeks after the bonds are sold, to the CDIAC explaining the reasons why the local agency determined to sell the bonds at a private sale or on a negotiated basis instead of at public sale. 2 This fee is authorized by Section 8856 of the California Government Code and is charged to the lead undetavriter or purchaser of the issue. The fee is administratively set by the Commission. The currentfee schedule may be obtainedfrom CDIAC.
G:\CDIACk2000new final doc 9/200( Error! Ilnknown document property name.

CDIAC:

Report

of Final Sale (Firm name) OFFICE LOCATION (City/State) Orange, CA Newport Beach, CA Los Angeles, CA Los Angeles, CA

Pal_e 2

FINANCING PARTICIPANTS FINANCIAL ADVISOR:

Harrell & Company Advisors, LLC Southwest Securities, Inc.

LEAD UNDERWRITER/PURCHASER: BOND COUNSEL: TRUSTEE/PAYING

Fulbright & Jaworski L.L.P. AGENT: Union Bank of California, N.A.

MATURITY [] Attached MATURITY [] Serial (S)

SCHEDULE [] Included in Official Statement STRUCTURE [] Term (Y)

IS THE INTEREST TAXATION?

ON THE DEBT EXEMPT

FROM

Under State Law: [] No (taxable) Under Federal Law: [] No (taxable)

[] Yes (tax-exempt) [] Yes (tax-exempt)

[] Serial and term bonds or two or more term (B) FINAL FIRST MATURITY OPTIONAL DATE: CALL September DATE: 1,2035 1,2015 [] Yes [] No

If the issue is federally tax-exempt, is interest a specific preference item for the purpose of alternative minimum tax? [] Yes [] No

September

INTEREST

TYPE:

[] NIC

[] TIC

[] Variable

SENIOR/SUBORDINATE OFFICIAL [] Enclosed

STRUCTURE

INTEREST COST: CAPITAL APPRECIATION ISSUANCE BOND:

5.1256 % [] Yes [] No

STATEMENT/OFFERING [] None Prepared

MEMORANDUM:

WAS THE ISSUE INSURED [] No [] Bond Insurance (I) [] Letter of Credit (L) [] State Intercept Program (Y) [] Other (O) GUARANTOR: ENHANCEMENT INDICATE

OR GUARANTEED?

COSTS AND FEES:

A) Management Fee B) Total Takedown C) Underwriter Expenses Underwriter Spread or Discount

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 71,272.00 434,445.00 104,925.00 50,000.00 60,500.00 0.00 0.00 4,000.00 115,575.00 335,000.00

D) Bond Counsel EXPIRATION RATING: DATE: E) Disclosure Counsel F) Financial Advisor G) Rating Agency H) Credit Enhancement l) Trustee Fee J) Other Expenses Total Issuance Costs K) ORIGINAL ISSUE PREMIUM L) ORIGINAL ISSUE DISCOUNT M) NET ORIGINAL ISSUE DISCOUNT/PREMIUM

CREDIT

(For example, "AAA" or "Aaa") [] Not rated [] Rated Standard & Poor's: Fitch: Moody's: Other: REASON FOR NEGOTIATED REFUNDINGS If the issue is a negotiated refunding, indicate the reason(s) why the bonds were issued at a private or negotiated versus a competitive sale. [] (1) Timing of the sale provided more flexibility than a public sale [] (2) More cost savings were expected to be realized than a public sale [] (3) More flexibility in debt structure was available than a public sale [] (4) Issuer able to work with participants familiar with issue/r than a public sale [] (5) All of the above [] (6) Other (please specify)

FOR OFFICE

USE ONLY

FEE:

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document

property name.

42

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Blanket Issuer Letter of Representations
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Attention:Underwnm_g Depaztment-- Eligibility The Depository T.rmRCompany 55 Water Screet50 _ th Floor New York. NY 10041-0099 Ladies and Gendemen: This letter sees forthour understandingwith respectto ell issues (the "SeeuritiesDthat Issuer shallrequest be madeeligiblefordeposit.byThe DepositoryTrustCompany('DTC'). To induce DTC to ac_egtthe 5ecm-ities as eligiblefor depositat DTC,andto actin a_orc]aaoe with DTC'sRules with respect m the _,urides, Issuerrepresents m DTC that Issuer will comply widathe requirementssta_edin DTC_ Operational Arrxngements, as they maybe amendedfrom time to time.

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43

FUNDING, CONSTRUCTION AND ACQUISITION AGREEMENT by and between CITY OF INDIO AND INDIO LAND VENTURES, LLC

45636102.1

TABLE OF CONTENTS

ARTICLE I Section 1.1 ARTICLE II Section 2.1 Section 2.2 Section 2.3 ARTICLE III Section Section Section Section Section Section ARTICLE IV Section Section Section Section Section Section Section Section ARTICLE V Section Section Section Section Section ARTICLE VI 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 3.1 3.2 3.3 3.4 3.5 3.6

DEFINITIONS ................................................................................................. Definitions .................................................................................................. FUNDING ........................................................................................................ Proceedings ................................................................................................ Bonds ......................................................................................................... Proceeds ..................................................................................................... CONSTRUCTION OF PUBLIC FACILITIES ...............................................

1 1 4 4 4 4 5 5 5 5 5 5 5 6 6 6 6 7 8 9 9 9

Plans ........................................................................................................... Construction ............................................................................................... Relationship to Public Works .................................................................... Contractor .................................................................................................. Contracts and Change Orders .................................................................... Construction Election ................................................................................. ACQUISITION AND PAYMENT .................................................................. Inspection ................................................................................................... Agreement to Sell and Purchase Public Facilities ..................................... Requests ..................................................................................................... Payment Requests ...................................................................................... Payment ...................................................................................................... Restrictions on Payments ........................................................................... Defective or Nonconforming Work ........................................................... Modification of Discrete Components .......................................................

OWNERSHIP AND TRANSFER OF PUBLIC FACILITIES ....................... 9 5.1 5.2 5.3 5.4 5.5 Conveyance of Land and Easements for Receiving Agency ..................... 9 Evidence and Insurance ........................................................................... 10 Facilities Constructed on Private Lands .................................................. 10 Facilities Constructed on City Land ........................................................ 10 Maintenance and Warranties .................................................................... 10 INSURANCE ................................................................................................. Requirements ........................................................................................... Evidence of Insurance .............................................................................. 11 11 11

Section 6.1 Section 6.2

ARTICLE VII Section 7.1 Section 7.2 ARTICLE VIII Section Section Section Section Section Section Section Section Section Section Section Section Section Section

REPRESENTATIONS,

WARRANTIES AND COVENANTS ................... 11

Covenants and Warranties of the Owner .................. ............................... 11 Indemnification and Hold Harmless ........................................................ 12 GENERAL ..................................................................................................... 12 12 12 13 13 13 13 13 14 14 14 14 14 14 14 A-1 B-1

8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12 8.13 8.14

Consent .................................................................................................... Liability of the City .................................................................................. Audit ........................................................................................................ Fees .......................................................................................................... Notices ..................................................................................................... Severability .............................................................................................. Successors and Assigns ............................................................................ Other Agreements .................................................................................... Waiver ...................................................................................................... Merger ...................................................................................................... Parties in Interest ...................................................................................... Amendment .............................................................................................. Counterparts ............................................................................................. Governing Laws .......................................................................................

EXHIBIT A - ELIGIBLE PUBLIC FACILITIES LIST ............................................................ EXHIBIT B - PAYMENT REQUEST NO. __ .....................................................................

EXHIBIT C - FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT .................... C-1

ii

THIS FUNDING, CONSTRUCTION AND ACQUISITION AGREEMENT, dated as of September 1, 2005 is by and between the City of Indio, a municipal corporation and a general law city (the "City") and Indio Land Ventures, LLC, a California limited liability company (the "Owner"). RECITALS WHEREAS, the City has undertaken proceedings to form the City of Indio Community Facilities District No. 2004-3 (Terra Lago) (the "District"), authorize the levy of special taxes within the District, and authorize the issuance of the Bonds pursuant to the Act to fund the acquisition and construction of the Public Facilities and related costs. The City will use the proceeds of the Bonds to, among other things, finance the Actual Cost of the Public Facilities. WHEREAS, the Public Facilities are within the vicinity of or of benefit to the City, and the City and the Owner will benefit from a coordinated plan of financing, design, engineering and construction of the Public Facilities and the development of the land. WHEREAS, the Owner and the City wish to finance the acquisition of the Public Facilities and the payment therefor by entering into this Agreement for the acquisition of the Public Facilities and payment for Discrete Components thereof as shown in Exhibit A hereto (as it may be amended and supplemented) with funds in the Improvement Fund. WHEREAS, the City and the Receiving Agencies have determined that they will obtain no advantage from undertaking the construction of the Public Facilities, and that the provisions of this Agreement require that the Public Facilities constructed by the Owner be constructed as if they had been constructed under the direction and supervision of the Receiving Agency. Notwithstanding the foregoing, upon mutual agreement of the City, the Owner and the Receiving Agency, the City or its designee or Receiving Agency or its designee may construct any of the Public Facilities, financed in whole or in part with funds in the Improvement Fund, as set forth in Section 4.6 below. WHEREAS, in consideration of the mutual promises and covenants set forth herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the City and the Owner agree that the foregoing recitals, as applicable to each, are true and correct and further make the agreements set forth herein. ARTICLE I DEFINITIONS Section 1.1 Definitions. The following terms shall have the meanings ascribed to them in this Section 1.1 for purposes of this Agreement. Unless otherwise indicated, any other terms, capitalized or not, when used herein shall have the meanings ascribed to them in the Fiscal Agent Agreement (as hereinafter defined). "Acceptance Date" means the date the Receiving Agency approves a Payment Request.

"Acceptable Title" means title to land or interest therein, in form acceptable to the Receiving Agency, free and clear of all liens, taxes, assessments, leases, easements and encumbrances, whether or not recorded, other than exceptions that do not interfere with the actual or intended use of the land or interest therein. "Act" means the Mello-Roos Community Facilities Act of 1982, as amended, being chapter 2.5, part 1, Division 2, Title 5, or the Government Code of the State of California. "Actual Cost" means the cost of a Public Facility or a Discrete Component, which cost may include: (i) the actual hard costs for the construction of such Public Facility or Discrete Component, including labor, materials and equipment costs, (ii) the costs incurred in preparing the Plans for such Public Facility or Discrete Component and the related costs of environmental evaluations of the Public Facility or Discrete Component, (iii) the fees paid to governmental agencies for obtaining permits, licenses or other governmental approvals for such Public Facility or Discrete Component, (iv) professional costs associated with such Public Facility or Discrete Component, such as engineering, legal, accounting, inspection, construction staking, materials testing and similar professional services; (v) costs directly related to the construction and/or acquisition of a Public Facility or Discrete Component, such as costs of payment, performance and/or maintenance bonds, and insurance costs (including costs of any title insurance required hereunder); (vi) the value of any real property or interests therein ("Real Estate") that (1) are required for the development of any Public Facility such as temporary construction easements, haul roads, etc., and (2) are required to be conveyed with the Public Facility, in an amount equal to the actual cost of the Real Estate purchased from such independent third party. The City shall not purchase such Real Estate from the Owner. Actual Cost shall not include any internal or overhead costs of Owner. "Affiliate" means any entity owned, controlled or under common ownership or control by or with, as applicable, the Owner and includes all general partners of any entity which is a partnership. Control shall mean ownership of more than fifty percent (50%) of the voting power of or ownership interest in the respective entity. "Agreement" means this Funding, Construction with any Supplement hereto. and Acquisition Agreement, together

"Bonds" means the bonds, notes or other indebtedness of the District issued to generate proceeds for the Improvement Fund. "CFD Report" means the Community Facilities District Report prepared by the Special Tax Consultant relating to the District. "City" means the City of Indio, California. "Construction Election" shall have the meaning set forth in Section 3.6 below. "County" means the County of Riverside, California. "Director" means the Director of Public Works of the City, or his designee acting as such under this Agreement. 2

"Discrete Component" means (i) a component of a Public Facility that the City and the Receiving Agencies have agreed can be separately identified, inspected and completed, and can be the subject of a Payment Request hereunder, and (ii) categories of costs relating to each Public Facility as described in Exhibit A hereto. "District" means City of Indio Community Facilities District No. 2004-3 (Terra Lago), a community facilities district organized and existing under the laws of the State of California. "District Representative" means the City Manager or his designee. "Fiscal Agent" means the fiscal agent identified in the Fiscal Agent Agreement, or any successor thereto acting as fiscal agent under the Fiscal Agent Agreement. "Fiscal Agent Agreement" means a fiscal agent agreement between the City and the Fiscal Agent, providing for, among other matters, the issuance of the Bonds and the establishment of the Improvement Fund, as it may be amended or supplemented from time to time. "Improvement Agreement" shall have the meaning set forth in Section 2.3 below. "Improvement Fund" means the Acquisition and Construction Fund and any account within the Acquisition and Construction Fund established by a Fiscal Agent Agreement relating to the issuance of the Bonds of the District, from which the Purchase Price of the Public Facilities shall be paid and from which Actual Costs of the Public Facilities may be financed in accordance with the Construction Election. "Owner" means Indio Land Ventures, LLC, a California limited liability company. "Payment Request" means a document, substantially in the form of Exhibit B hereto, to be used in requesting a payment of a Purchase Price. "Plans" means the plans, specifications, schedules and related construction contracts for the Public Facilities and/or any Discrete Components thereof approved pursuant to applicable standards of the applicable Receiving Agency. As of the date of this Agreement, the City standards for construction are incorporated in the City of Indio Standard Plan and are supplemented from time to time by standards set forth in the Green Book, CALTRANS Standard Plan and Specification, Standard Specifications for Public Works Construction (SSPWC), of the Southern California Chapter of the American Public Works Association and the Southern California Districts of the Associated General Contractors of California. "Public Facility" or "Public Facilities" means one or more of the public facilities described in Exhibit A hereto which are eligible to be financed out of the Improvement Fund. "Purchase Price" means the amount paid by the District for a Public Facility and/or any Discrete Components thereof in an amount equal to the Actual Cost of such Public Facility or Discrete Component.

"Receiving Agency" means the City or other governmental entity that will own, operate and maintain a Public Facility when completed and acquired. "Resolution of Formation" means the resolution Council of the City on July 20, 2005. of formation adopted by the City

"Special Tax Consultant" means Albert A. Webb Associates or any other special tax consultant designated by the City. "Supplement" means a written document amending, supplementing or otherwise modifying this Agreement and any exhibit hereto, including any amendments to the list of Public Facilities and Discrete Components in Exhibit A, and/or the addition to Exhibit A of additional Public Facilities (and Discrete Components) to be financed with the proceeds of the Bonds deposited in the Improvement Fund. ARTICLE FUNDING Section 2.1 Proceedings. The City shall conduct all necessary proceedings under the Act for the issuance, sale and delivery of the Bonds. Section 2.2 Bonds. The City shall not be obligated to pay the Purchase Price of the Public Facilities or any Discrete Components thereof except from amounts on deposit in the Improvement Fund. The City makes no warranty, express or implied, that the proceeds of the Bonds deposited and held in the Improvement Fund, and any investment earnings thereon, will be sufficient to pay the Purchase Price of all of the Public Facilities. Section 2.3 Proceeds. The proceeds of the Bonds shall be deposited, held, invested, reinvested and disbursed as provided in the Fiscal Agent Agreement. A portion of the proceeds of the Bonds will be set aside in the Improvement Fund. Moneys in the Improvement Fund shall be deposited, held, invested, reinvested and disbursed therefrom in accordance with the provisions of the Fiscal Agent Agreement and the applicable provisions hereof for payment of all or a portion of the Purchase Price of the Public Facilities (including payment of the Purchase Price of Discrete Components thereof), all as herein provided. The funds on deposit in the funds and accounts established by or pursuant to the Fiscal Agent Agreement including the Improvement Fund, shall be invested in accordance with the Fiscal Agent Agreement, as applicable. The Owner acknowledges that any lack of availability of amounts in the Improvement Fund to pay the Purchase Price of the Public Facilities or any Discrete Components thereof shall in no way diminish any obligation of the Owner with respect to the construction of or contributions for public facilities and mitigation measures required in connection with the project within the District by any development or other agreement to which the Owner is a party, or any governmental approval to which the Owner is subject (collectively, the "Improvement Agreements"). II

ARTICLE III CONSTRUCTION OF PUBLIC FACILITIES

Section 3.1 Plans. To the extent and at the time required by the Improvement Agreements, the Owner shall cause Plans to be prepared for the Public Facilities. The Owner shall obtain the written approval of the Plans in accordance with applicable ordinances and regulations of the applicable Receiving Agencies. Section 3.2 Construction. This Agreement shall not expand, limit or otherwise affect any obligation of the Owner under any Improvement Agreement. All Public Facilities shall be constructed in accordance with the Improvement Agreements and the approved Plans. Unless otherwise directed by the City or the City Attorney, any works, improvements, appliances, or facilities authorized to be made, constructed, or acquired under this Agreement and the Act and which are not in existence and installed in place on or before the date of adoption of the Resolution of Formation, shall be constructed pursuant to at least three (3) qualified bids for the contracts by means of an informal bidding process reasonably acceptable to the City. Additionally, the construction contracts shall require the payment of the prevailing rate of per diem wages for work of a similar character in the locality of the City and not less than the prevailing rate of per diem wages for holiday and overtime work, as provided in Section 1771 et seq. of the California Labor Code. Section 3.3 Relationship to Public Works. This Agreement is for the acquisition of the Public Facilities and payment for Discrete Components thereof by the Receiving Agency from moneys in the Improvement Fund and is not intended to be a public works contract. The City and the Owner agree that the Owner shall award all contracts for the construction of the Public Facilities and the Discrete Components thereof to be constructed by the Owner, and that this Agreement is necessary to assure the timely and satisfactory completion of such Public Facilities and the Discrete Components thereof. From time to time at the request of the District Representative or the Owner, the Owner and the District Representative shall meet and confer regarding matters arising hereunder with respect to the Public Facilities, Discrete Components and the progress in constructing and acquiring the same, and as to any other matter related to the Public Facilities or this Agreement. Section 3.4 Contractor. In performing this Agreement, the Owner is an independent contractor and not an agent or employee of the City. The City shall not be responsible for making any payments to any contractor, subcontractor, agent, consultant, employee or supplier of the Owner. Section 3.5 Contracts and Change Orders. The Owner shall be responsible for entering into all contracts and any supplemental agreements (commonly referred to as "change orders") required for the construction of the Public Facilities to be constructed by the Owner, and all such contracts and supplemental agreements shall be submitted to the Director. Section 3.6 Construction Election. The Owner and City, or the Owner and a Receiving Agency, may mutually elect (the "Construction Election") to cause any or all of the

Public Facilities or a Discrete Component thereof to be constructed by the City or Receiving Agency, if applicable, and financed out of the Improvement Fund in accordance with the terms and conditions described in this Section 3.6 and the Improvement Agreements and subject to the availability of sufficient funds, including the proceeds of the Bonds. If the Owner and City, or the Owner and a Receiving Agency, make the Construction Election with respect to a Public Facility, the Owner shall transfer Acceptable Title to the land or right-of-ways then owned by the Owner on and over such real property on which the Public Facility is to be constructed. Upon completion of a Public Facility or Discrete Component thereof for which a Construction Election has been made, payment shall be made pursuant to Section 4.4 below for any Actual Costs thereof incurred by the Owner prior to the Construction Election. ARTICLE IV ACQUISITION AND PAYMENT Section 4.1 Inspection. No payment hereunder shall be made by the City to the Owner for a Public Facility or Discrete Component thereof until the Public Facility or Discrete Component thereof, if applicable, has been inspected by the City. Unless otherwise provided in a Supplement, the City shall make or cause to be made regular on-going site inspections of the Public Facilities to be acquired hereunder. For Public Facilities to be acquired by other public entities or utilities, the Owner shall be responsible for obtaining such inspections and providing written evidence thereof to the Director. Section 4.2 Agreement to Sell and Purchase Public Facilities. The Owner hereby agrees to sell to the City, and the City hereby agrees to purchase from the Owner, the Public Facilities, including the Discrete Components thereof, constructed by the Owner for their respective Purchase Prices, subject to the terms and conditions hereof. The City shall not be obligated to purchase any Public Facility until the Public Facility is completed and the Acceptance Date for such Public Facility has occurred; provided that the City has agreed hereunder to make payments to the Owner for Discrete Components of Public Facilities. The Owner acknowledges that the Discrete Components have been identified for payment purposes only, and that the City shall not accept a Public Facility of which a Discrete Component is a part until the entire Public Facility has been completed. The City acknowledges that the Discrete Components do not have to be accepted by the Receiving Agency as a condition precedent to the payment of the Purchase Price therefor, but any such payment shall not be made until the Discrete Component has been completed in accordance with the Plans therefor. Section 4.3 Requests. In order to receive the Purchase Price for a completed Public Facility or Discrete Component, inspection thereof under Section 4.1, if applicable, shall have been made and the Owner shall deliver to the District Representative and the Director: (i) a Payment Request in the form of Exhibit B hereto for such Public Facility or Discrete Component, and (ii) if payment is requested for a completed Public Facility, (a) if the property on which the Public Facility is located is not owned by the Receiving Agency at the time of the request, a copy of the recorded documents conveying to the Receiving Agency Acceptable Title

to the real property on, in or over which such Public Facility is located, as described in Section 6.1 hereof, (b) a copy of the recorded notice of completion of such Public Facility (if applicable), and (c) an assignment of the warranties and guaranties for such Public Facility, as described in Section 5.5 hereof. Section 4.4 Payment Requests. Upon receipt of a Payment Request (and all accompanying documentation), the Director shall conduct a review in order to confirm that such request is complete, that such Discrete Component or Public Facility identified therein was constructed substantially in accordance with the Plans therefor, and to verify and approve the Actual Cost of such Discrete Component or Public Facility specified in such Payment Request. The Director may seek the assistance of the Special Tax Consultant in determining any of the foregoing. The Director shall conduct each such review in an expeditious manner and the Owner agrees to reasonably cooperate with the Director in conducting each such review and to provide the Director with such additional information and documentation as is reasonably necessary for the Director to conclude each such review. For any Public Facilities to be acquired by another Receiving Agency, the Owner shall provide evidence acceptable to the Agency that such Public Facilities are acceptable to such Receiving Agency. Within ten (10) business days of receipt of any Payment Request, the Director shall notify the Owner whether such Payment Request is complete, and, if not, what additional documentation must be provided. If such Payment Request is complete, the Director will provide a written approval or denial of the request within thirty (30) days of its submittal. If the Director disapproves any Payment Request, it shall provide written notice of disapproval to the Owner within such thirty (30) day period stating in reasonable detail the reasons for such disapproval and the changes to the Payment Request necessary to obtain the Director's approval. The Director's review of any Payment Request shall be made on a Public Facility and/or Discrete Component basis such that the Director shall approve for payment any Public Facilities and/or Discrete Components covered by a Payment Request that comply with the requirements of this Agreement even if the Director disapproves other Public Facilities and Discrete Components included as part of the same Payment Request. If the Director disputes the Actual Cost of any Public Facility or Discrete Component covered by the Payment Request, the Director shall approve for payment an amount equal to the Actual Cost thereof the Director determines is appropriate (which shall not be less than the amounts of contracts and change orders previously reviewed by the Director) and shall deliver notice of disapproval of the remaining amount. If the Director disapproves any revised Payment Request, the Director will provide a written notice of approval or denial to the Owner within ten (10) business days after receipt of the revised Payment Request, which notice shall describe in reasonable detail the reason for the denial, if applicable. The Director shall only be entitled to withhold approval for payment of a Discrete Component (other than the final Discrete Component of any Public Facility) to be owned by the City that is the subject of a Payment Request if (i) the Owner has not provided conditional lien releases for labor and materials provided in connection with such Discrete Components (provided that this basis for disapproval shall not apply if the Owner has provided payment bonds to the City or the applicable Receiving Agency in connection with the Improvement Agreements or has provided bonds protecting the Receiving Agency from mechanics' liens by parties that have not provided lien releases in a form satisfactory to the Director), (ii) the Discrete Component has not been constructed substantially in accordance with the Plans, (iii) the

Director disputes the Actual Cost of any Public Facility or Discrete Component stated in the Payment Request or (iv) the Owner is delinquent in paying its special taxes. The Director shall only be entitled to withhold approval for payment of any Public Facility to be owned by the City (or the final Discrete Component of any such Public Facility) if (i) a notice of completion executed in the form described in California Civil Code Section 3093, has not been recorded for the Public Facility and final conditional lien releases for labor and materials provided in connection with such Public Facilities have not been submitted to the Director (provided that this requirement shall not apply if the Owner has provided to the City a payment bond in connection with the Improvement Agreements or provides a bond protecting the City from mechanics' liens made by parties that have not provided such lien releases in a form acceptable to the Director), (ii) the Public Facility has not been constructed substantially in accordance with the Plans, (iii) the Director disputes the Actual Cost of any Public Facility or Discrete Component stated in the Payment Request or (iv) the Owner is delinquent in paying its special taxes. The City shall only be entitled to withhold payment for any Public Facilities to be owned by a Receiving Agency other than the City if the Owner does not provide the Director with evidence that the Receiving Agency has accepted the Public Facility. Nothing in this Agreement shall be deemed to prohibit the Owner from contesting in good faith the validity or amount of any mechanics' or materialman's lien nor limit the remedies available to the Owner with respect thereto so long as such delay in performance shall not subject the Public Facilities or any Discrete Portion thereof to foreclosure, forfeiture or sale. In the event that any such lien is contested, the Owner shall only be required to post or cause the delivery of a bond in an amount equal to the amount in dispute with respect to any such contested lien, so long as such bond is drawn on an obligor and is otherwise in a form acceptable to the Director. Section 4.5 Payment. Upon approval of the Payment Request (or any portion thereof) by the Director, the Director shall sign the Payment Request and forward the same to the District Representative. Upon receipt of the approved Payment Request, the District Representative shall, within five (5) business days of receipt of the approved Payment Request, cause the same to be paid, to the extent of funds then on deposit in the Improvement Fund. Any approved Payment Request not paid due to an insufficiency of funds in the Improvement Fund shall be paid promptly following the deposit into the Improvement Fund of additional proceeds of the Bonds, earnings on the Improvement Fund or other funds transferred pursuant to the Fiscal Agent Agreement. The Purchase Price paid hereunder for any Public Facility or Discrete Component shall constitute payment in full for such Public Facility or Discrete Component, including, without limitation, payment for all labor, materials, equipment, tools and services used or incorporated in the work, supervision, administration, overhead, expenses and any and all other things required, furnished or incurred for completion of such Public Facility or Discrete Component, as specified in the Plans.

Section 4.6 Restrictions on Payments. Notwithstanding any other provisions of this Agreement, the following restrictions shall apply to any payments made to the Owner under Sections 4.2 and 4.5 hereof: A. Amounts of Payments. Payments for each Discrete Component or Public Facility will be made only in the amount of the Purchase Price for the respective Discrete Component or Public Facility. The City understands that the CFD Report is an estimate based on the best information available at that moment in time. The City agrees that the actual cost of a Discrete Component or Public Facility may fluctuate from the budgeted amounts. The City agrees that the owner has the latitude to increase or decrease the reimbursement of a Discrete Component or Public Facility, as actual costs are determined. In no case will the total reimbursement to the owner exceed the total amount of funds derived from the sale of the bonds for such purpose. Nothing herein shall require the City in any event (i) to pay more than the Actual Cost of a Public Facility or Discrete Component; or (ii) to make any payment beyond the available funds in the Improvement Fund for such Public Facilities or Discrete Components. The parties hereto acknowledge and agree that all payments to the Owner for the Purchase Prices of Facilities or Discrete Components are intended to be reimbursed to the Owner for services provided or costs incurred by the Owner or moneys already expended or incurred by the Owner to third parties in respect of such Public Facilities and/or Discrete Components. B. Frequency. Unless otherwise agreed to by the Director, no more than one Payment Request shall be submitted in any calendar month although a Payment Request may relate to more than one Public Facility or Discrete Component. Section 4.7 Defective or Nonconforming Work. If any of the work done or materials furnished for a Public Facility or Discrete Component are found by the Director to be defective or not in substantial accordance with the applicable Plans: (i) if such finding is made prior to payment for the Purchase Price of such Public Facility or Discrete Component hereunder, the Director may withhold payment therefor until such defect or nonconformance is corrected, or (ii) if such finding is made after payment of the Purchase Price of such Public Facility or Discrete Component, the Receiving Agency and the Owner shall act in accordance with the applicable Improvement Agreement, if any. Section 4.8 Modification of Discrete Components. Upon written request of the Owner, the Director shall consider modification of the description of any Discrete Component. Any such modification shall be subject to the written approval of the Director, which approval the Director may withhold in his sole discretion, and shall not diminish the overall Public Facilities to be provided pursuant to the Improvement Agreements. ARTICLE V OWNERSHIP AND TRANSFER OF PUBLIC FACILITIES Section5.1 Conveyance of Land and Easements for Receiving Agency. Acceptable Title to all property on, in or over which each Public Facility to be acquired by the Receiving Agency will be located, shall be conveyed to the Receiving Agency by way of grant

deed, quitclaim, or dedication of such property, or easement thereon, in accordance with the applicable Improvement Agreement, if any. The Owner agrees to assist the Receiving Agency in obtaining such documents as are required to obtain Acceptable Title with respect to these Public Facilities funded pursuant to this Agreement. Completion of the transfer of title to land shall be accomplished prior to the payment of the Purchase Price for a Public Facility (or the last Discrete Component thereof) and shall be evidenced by recordation of the acceptance thereof by the Receiving Agency. Section 5.2 Evidence and Insurance. Within fifteen (15) calendar days upon the request of the City, the Owner shall furnish to the City a preliminary title report for such land not previously dedicated or otherwise conveyed to the City, for review and approval prior to the transfer of Acceptable Title to a Public Facility to the City. Within ten (10) calendar days, the Director shall approve the preliminary title report unless it reveals a matter which, in the judgment of the Director, could materially affect the City's use of any part of the property or easement covered by the preliminary title report for the purpose for which such property or easement is being conveyed. In the event the Director does not approve the preliminary title report, the City shall not be obligated to accept title to such Public Facility or pay the Purchase Price for such Public Facility (or the last Discrete Component thereof) until such objections to title have been cured to the satisfaction of the Director. The failure of the Director to provide written approval to the Owner shall be deemed to be a disapproval. Section 5.3 Facilities Constructed on Private Lands. If any Public Facilities to be acquired are located on privately-owned land, the owner thereof shall retain title to the land and the completed Public Facilities until acquisition of the Public Facilities under Article V hereof. Pending the completion of such transfer and where the Owner has received any payment for any such Public Facility or a Discrete Component thereof, the Owner shall be responsible for maintaining the land and any Public Facilities or Discrete Components in good and safe condition. Notwithstanding the foregoing, subject to the terms of the applicable Improvement Agreement, upon written request of the Receiving Agency before payment for any Discrete Component of such a Public Facility, the Owner shall convey or cause to be conveyed Acceptable Title thereto in the manner described in Section 5.1 hereof. Section 5.4 Facilities Constructed on City Land. If the Public Facilities to be acquired are on land owned by the City, the City hereby grants to the Owner a license to enter upon such land for purposes related to the construction (and maintenance pending acquisition) of the Public Facilities. The provisions for inspection and acceptance of such Public Facilities otherwise provided herein shall apply. Section 5.5 Maintenance and Warranties. The Owner shall maintain each Discrete

Component of any Public Facility constructed by the Owner in good and safe condition until the Acceptance Date of the Public Facility of which such Discrete Component is a part. Prior to the Acceptance Date, the Owner shall be responsible for performing any required maintenance on any completed Discrete Component or Public Facility constructed by the Owner. On or before the Acceptance Date of the Public Facility, the Owner shall assign to the Receiving Agency, to the extent assignable, all of Owner's rights in any warranties, guarantees, maintenance obligations or other evidence of contingent obligations of third persons with respect to such Public Facility. The Owner shall maintain or cause to be maintained each Public Facility

10

constructed by the Owner for such period and for such purpose, all in accordance with the applicable Improvement Agreement. After the Acceptance Date, the Owner shall not be responsible for maintaining such Public Facility. Any warranties, guarantees or other evidences of contingent obligations of third parties with respect to the Public Facilities to be acquired by the City shall be delivered to the Director as part of the transfer of title. ARTICLE VI

INSURANCE Section 6.1 Requirements. The Owner shall, at all times prior to the final Acceptance Date of all Public Facilities, maintain, deliver to the City evidence of and keep in full force and effect, or cause to be maintained, delivered to the City evidence of and kept in full force and effect, the insurance policies required pursuant to the Improvement Agreements. All of the Owner's insurance policies shall contain an endorsement providing that written notice shall be given to the City at least 30 calendar days prior to termination, cancellation, or reduction of coverage in the policy and an endorsement extending coverage to the City and its agents as an additional insured, in the same manner as the named insured as respects liabilities arising out of the performance of any work related to the Public Facilities. Such insurance shall be primary insurance as respects the interest of the City, and any other insurance maintained by the City shall be excess and not contributing insurance with the insurance required hereunder. The foregoing requirements as to the insurance coverage to be maintained by the Owner are not intended to and shall not in any manner limit or qualify the liabilities and obligations assumed by the Owner under this Agreement. Section 6.2 Evidence of Insurance. The Owner shall furnish to the City, from time to time upon request, a certificate of insurance regarding each insurance policy required to be maintained by the Owner hereunder. ARTICLE VII REPRESENTATIONS, WARRANTIES AND COVENANTS The Owner represents and

Section 7.1 Covenants and Warranties of the Owner. warrants for the benefit of the City as follows:

A. Organization. The Owner is a California limited liability partnership, is in compliance with the laws of the State of California, and has the power and authority to own its property and assets and to carry on its business as now being conducted and as now contemplated. B. Authority. The Owner has the power and authority to enter into this Agreement, and has taken all action necessary to cause this Agreement to be executed and delivered, and this Agreement has been duly and validly executed and delivered by the Owner.

11

C. Binding Obligation. This Agreement is a legal, valid and binding obligation of the Owner, enforceable against the Owner in accordance with its terms. D. Financial Records. Until one year after the final acceptance of all the Public Facilities, the Owner covenants to maintain proper books of record and account for the construction of the Public Facilities and all costs related thereto. Such accounting books shall be maintained in accordance with generally accepted accounting principles, and shall be available for inspection by the City or its agent at any reasonable time during regular business hours on reasonable notice. E. Plans. The Owner represents that it has obtained or will obtain approval of the Plans for the Public Facilities constructed by the Owner from all appropriate departments of the City and from any other public entity or public utility Receiving Agency from which such approval must be obtained. The Owner further agrees that the Public Facilities constructed by the Owner have been or will be constructed in compliance with such approved plans and specifications and any supplemental agreements (change orders) thereto, as approved in the same manner. Section 7.2 Indemnification and Hold Harmless. The Owner shall assume the defense of, indemnify, and hold harmless the City, its officers, directors, employees and agents and each of them, from and against all actions, damages, claims, losses or expenses of every type and description to which they may be subjected or put, by reason of, or resulting from the Owner's non-payment under contracts between the Owner and its consultants, engineers, advisors, contractors, subcontractors and suppliers in the provision of the Public Facilities, or any claims of persons employed by the Owner or its agents to construct the Public Facilities. Notwithstanding the foregoing, no indemnification is given hereunder for any action, damage, claim, loss or expense directly attributable to the intentional acts or gross negligence of the City, or its officers, directors, employees or agents hereunder or otherwise with respect to the Public Facilities or payment therefor. No provision of this Agreement shall in any way limit the Owner's responsibility for payment of damages resulting from the operations of the Owner and its agents, employees or contractors. ARTICLE VIII

GENERAL Section 8.1 Consent. This Agreement may be terminated by the mutual written consent of the City and the Owner, and all or any portion of the moneys in the Improvement Fund may be used to pay for same, and the Owner shall have no claim or right to any further payments for the Purchase Price of Public Facilities or Discrete Components hereunder, except as otherwise may be provided in such written consent. Section 8.2 Liability of the City. The Owner agrees that the City's obligations to make any payments hereunder are restricted entirely to the moneys, if any, in the Improvement Fund together with any amounts transferred thereto under the provisions of the Fiscal Agent Agreement and from no other source. No City Councilmember or City staff member, employee

12

or agent shall incur any personal liability hereunder to the Owner or any other party by reason of their actions hereunder or execution hereof. Section 8.3 Audit. The City shall have the right, during normal business hours and upon the giving of five (5) business days' prior written notice to the Owner, to review all books and records of the Owner pertaining to costs and expenses incurred by the Owner in relation to any of the Public Facilities, and any bids taken or received for the construction thereof or materials therefor. Section 8.4 Fees. In the event that any action or suit is instituted by any party against the other(s) arising out of this Agreement, the parties in whose favor final judgment shall be entered shall be entitled to recover from the other parties all costs and expenses of suit, including reasonable attorneys' fees. Section 8.5 Notices. Any notice, payment or instrument required or permitted by this Agreement to be given or delivered to either party shall be deemed to have been received when personally delivered, or transmitted by telecopy or facsimile transmission (which shall be immediately confirmed by telephone and shall be followed by mailing an original of the same within twenty-four hours after such transmission), or three (3) business days following deposit of the same in any United States Post Office, registered or certified mail, postage prepaid, addressed as follows: City: City of Indio 100 Civic Center Mall Indio, CA 92201 Attention: City Manager Indio Land Ventures, LLC c/o SunCal Companies, Inc. 42-960 Golf Center Parkway Indio, CA 92203 Attention: Gary Williams

Owner:

Each party may change its address or addresses for delivery of notice by delivering written notice of such change of address to the other party. Section 8.6 Severability. If any part of this Agreement is held to be illegal or unenforceable by a court of component jurisdiction, the remainder of this Agreement shall be given effect to the fullest extent possible. Section 8.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. The Owner may assign their rights pursuant to this Agreement to a purchaser (an "Assignee") of a portion or portions of the property which is/are located within the District (the "Property"). The Owner may assign to the Assignee the responsibility for the construction of all or a portion of the Public Facilities which remain to be constructed and the right to receive payment of the Purchase Price for Public Facilities and Discrete Components thereof previously completed by the Owner. The Owner and Assignee shall provide to City such reasonable proof as it may require that such Assignee is the 13

purchaser of such portion(s) of the Property. Such Assignee shall, as a condition to receiving payment of a Purchase Price, enter into an assignment and assumption agreement with the City and the Owner, in the form attached hereto as Exhibit C, whereby such Assignee agrees, except as may be otherwise specifically provided therein, to assume the obligations of the Owner pursuant to this Agreement with respect to such Public Facilities and to be bound thereby. Section 8.8 Other Agreements. The obligations of the Owner hereunder shall be that of a party hereto. Nothing herein shall be construed as affecting the City's or Owner's rights, or duties to perform their respective obligations, under other agreements, use regulations or subdivision requirements relating to the development. This Agreement shall not confer any additional rights, or waive any rights given, by either party hereto under any development or other agreement to which they are a party. Section 8.9 Waiver. Failure by a party to insist upon the strict performance of any of the provisions of this Agreement by the other party, or the failure by a party to exercise its rights upon the default of the other party, shall not constitute a waiver of such party' s right to insist and demand strict compliance by the other party with the terms of this Agreement thereafter. Section 8.10 Merger. No other agreement, statement or promise made by any party or any employee, officer or agent of any party with respect to any matters covered hereby that is not in writing and signed by all the parties to this Agreement shall be binding. Section 8.11 Parties in Interest. Nothing in this Agreement, expressed or implied, is intended to or shall be construed to confer upon or to give to any person or entity other than the City and the Owner any rights, remedies or claims under or by reason of this Agreement or any covenants, conditions or stipulations hereof, and all covenants, conditions, promises, and agreements in this Agreement contained by or on behalf of the City or the Owner shall be for the sole and exclusive benefit of the City and the Owner. Section 8.12 written Supplement provide for, among Discrete Components Amendment. This Agreement may be amended, from time to time, by hereto and executed by the City and the Owner. Such Supplement may other things, the acquisition of additional Public Facilities (including thereof). This Agreement may be executed in counterparts, each of

Section 8.13 Counterparts. which shall be deemed an original.

Section 8.14 Governing Laws. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

14

IN WITNESS WHEREOF, year first-above written.

the parties have executed this Agreement as of the day and "CITY" CITY OF INDIO

By:

Mayor

"OWNER" INDIO LAND VENTURES, LLC, a California limited liability company

By:

IN WITNESS WHEREOF, year first-above written.

the parties have executed this Agreement as of the day and "CITY" CITY OF INDIO

By: Mayor

"OWNER" 1NDIOLAND VENTURES, LLC, a California limited liability company

EXHIBIT A ELIGIBLE PUBLIC FACILITIES LIST The following public works cost categories are eligible for reimbursement/acquisition as discrete components of a Public Facility.

A-1

Facilities to be Financed with Proceeds of the Bonds Under the Resolution of Intention and the Community Facilities District Report, the Community Facilities District is authorized to finance the following Public Facilities: Street Facilities. "Street Facilities" consist of certain road and appurtenant drainage facilities required as a condition for the development of the property in the Community Facilities District, which will be owned by the City, and may include street improvements to Terra Lago Parkway, Lago Vista Boulevard, Lago Brezza Drive, Golf Center Parkway, Avenue 44 and Avenue 43. Water Facilities. "Water Facilities" consist of certain water facilities required as a condition of development of the property in the Community Facilities District, which will be owned by Indio Water Authority, and may include water improvements in Terra Lago Parkway, Lago Vista Boulevard, Lago Brezza Drive, Golf Center Parkway, Avenue 44. Sewer Facilities. "Sewer Facilities" consist of certain sewer facilities required as a condition of development of the property in the Community Facilities District, which will be owned by Valley Sanitary District, and may include sewer improvements in Terra Lago Parkway, Lago Vista Boulevard, Lago Brezza Drive, Avenue 44 and Avenue 43. Flood Control Facilities. "Flood Control Facilities" consist of certain flood control and storm water drainage facilities required as a condition for the development of the property in the Community Facilities District, which will be owned by the Coachella Valley Water District and may include storm drain improvements to Terra Lago Parkway, Lago Vista Boulevard, Lago Brezza Drive, Golf Center Parkway. Estimated Facilities Costs. The Bonds are anticipated to provide the following amounts for the acquisition and construction of the Public Facilities: Street Facilities Water Facilities Sewer Facilities Flood Control Facilities Related Site Improvements Total: $1,382,530 1,694,946 1,322,867 642,448 3,183,322 $8,226,113

EXHIBIT B PAYMENT REQUEST NO. __

The undersigned Indio Land Ventures, LLC (the "Owner") hereby requests payment in the total amount of $ for the Public Facilities (as defined in the Funding, Construction and Acquisition Agreement by and between the City of Indio (the "City") and the Owner, and described in Exhibit A to that Agreement), all as more fully described in Attachment 1 hereto. In connection with this Payment Request, the undersigned hereby represents and warrants to the City and the District as follows: 1. He (she) is a duly authorized officer of the Owner, qualified to execute this Payment Request for payment on behalf of the Owner and is knowledgeable as to the matters set forth herein. 2. To the extent that this payment request is with respect to a completed Public Facility or Discrete Component, the Owner has submitted or submits herewith to the City, if applicable, as-built drawings or similar plans and specifications for the items to be paid for as listed in Attachment 1 hereto with respect to any such Public Facility, and such drawings or plans and specifications, as applicable, are true, correct and complete. 3. All costs of the Public Facilities or Discrete Component for which payment is requested hereby are Actual Costs (as defined in the Agreement referenced above) and have not been inflated in any respect. The items for which payment is requested have not been the subject of any prior payment request submitted to the City. 4. Supporting documentation (such as third party invoices, lien releases cancelled checks) is attached with respect to each cost for which payment is requested. and

5. The Public Facilities or Discrete Components for which payment is requested was constructed in accordance with the requirements of the Acquisition Agreement. 6. The Owner is in compliance with the terms and provisions of the Acquisition Agreement and no portion of the amount being requested to be paid was previously paid. 7. The Purchase Price for the Public Facilities or Discrete Component (a detailed calculation of which is shown in Attachment 1 hereto for each Public Facility or Discrete Component) has been calculated in conformance with the terms of Section 4.4 of the Acquisition Agreement.

B-1

I hereby declare under penalty of perjury that the above representations and warranties are true and correct.

Owner: INDIO LAND VENTURES, LLC

CITY AND DISTRICT: Payment Request Approved for Submission to Trustee By:

By: Authorized Representative of Owner Date:

Public Works Director Date:

B-2

ATTACHMENT 1 SUMMARY OF PUBLIC FACILITIES AND DISCRETE COMPONENTS TO BE ACQUIRED AS PART OF PAYMENT REQUEST NO. __ Ref. No. Facility/Discrete Component Actual Cost Disbursement Requested

[List here all Facilities for which payment is requested, and attach support documentation]

B-3

EXHIBIT C FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT Pursuant to a Funding, Construction and Acquisition Agreement dated as of September 1, 2005 (the "Agreement") by and between the City of Indio ("City") and Indio Land Ventures, LLC, a California limited liability company (the "Owner"), which Agreement is hereby incorporated herein by this reference, and for good and valuable consideration, receipt of which is hereby acknowledged, the undersigned agree as follows: 1. The assignment and assumption provided for under this Assignment and Assumption Agreement ("Assignment") is made together with the sale, transfer or assignment of all or a part of the property subject to the Agreement. The property sold, transferred or assigned together with this Assignment is included within the District and described in "Attachment 1" attached hereto and incorporated herein by this reference (the "Subject Property"). 2. Indio Land Ventures, LLC, as the assignor hereof (the "Assignor") hereby grants, sells, transfers, conveys assigns and delegates to ("Assignee"), all of Assignor's rights, title, interest, benefits, privileges, duties and obligations arising under or from the Agreement with respect to the Subject Property and the Public Facilities authorized to be funded with respect to the District. 3. Assignee hereby accepts the foregoing assignment and unconditionally assumes and agrees to perform all of the duties and obligations of Assignor arising under or from the Agreement as owner of the Subject Property. 4. The sale, transfer or assignment of the Subject Property and the assignment and assumption provided for under this Assignment are the subject of additional agreements between Assignor and Assignee. Notwithstanding any term, condition or provision of such additional agreements, the rights of the City arising under or from the Agreement and this Assignment shall not be affected, diminished or defeated in any way, except upon the express written agreement of the City. 5. Assignor and Assignee execute this Assignment pursuant to Section 8.7 of the Agreement, and the City evidences its consent to this Assignment by signing below.

C-1

IN

WITNESS

WHEREOF,

the

parties

have

executed

this

Assignment

on

ASSIGNOR: INDIO LAND VENTURES, LLC, a California limited liability company

By: Authorized Signatory

ASSIGNEE:

By: Name: Title:

CITY: CITY OF INDIO

By: Its: City Manager

C-2

ATTACHMENT-1 DESCRIPTION OF SUBJECT PROPERTY

C-3

44

JOINT COMMUNITY (VALLEY

FACILITIES

AGREEMENT

SANITARY

DISTRICT)

THIS JOINT COMMUNITY FACILITIES AGREEMENT, is made and entered into as of this 9th day of June, 2005, by and among the CITY OF INDIO (hereinafter called "City"), on behalf of itself and in connection with the proposed City of Indio Community Facilities District No. 2004-3 (Terra Lago) (hereinafter referred to as the "CFD"), the VALLEY SANITARY DISTRICT (hereinafter called "District"), and INDIO LAND VENTURES, LLC, a California limited liability company (the "Developer"). WHEREAS, pursuant to the request of the Developer, the City Council of the City intends to form the CFD pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, commencing with California Government Code Section 53311, et seq. (the "Act"), and designate two improvement areas within the CFD to provide financing of public improvements relating to the proposed residential development within the CFD; and WHEREAS, the City and the Developer are considering entering a Funding, Construction and Acquisition Agreement (the "Acquisition Agreement") regarding the financing of such public improvements; and WHEREAS, the District is a public agency organized and existing under the laws of the State of California, and is authorized to provide public infrastructure which will be beneficial to the owners and lessees of the property within the boundaries of the proposed CFD; and WHEREAS, the Developer is causing the construction and installation of the public infrastructure related to the development of the land within said CFD; and WHEREAS, the improvements to be acquired pursuant to the CFD proceedings include certain facilities that will be under the ownership, management and control of the District (the "Facilities"); and WHEREAS, a general description of the Facilities is attached as Exhibit A. WHEREAS, the City, the District and the Developer desire at this time to enter into this Agreement pursuant to the provisions and authorization of Section 53316.2 of the Act. NOW, THEREFORE, IT IS MUTUALLY AGREED among the parties as follows: ARTICLE RECITALS SECTION 1. That the above recitals are all true and correct. I

,%
45578226.1 (Indio CFD 2004-3 (Terra [ago))

ARTICLE II BENEFITS SECTION 2. The City and the District agree that this Agreement beneficial to their respective residents. ARTICLE III would be

PROCEEDINGS SECTION 3. City shall continue to conduct proceedings for the formation of the CFD and financing the acquisition of improvements by the proposed CFD, including the Facilities. This Agreement is subject to the power of the legislative body of the City to abandon the proceedings at any time prior to the effective date of this Agreement and the right of the Developer to protest the assessment proceedings at any time prior to the confirmation of the assessments by the City. ARTICLE IV

PLANS AND SPECIFICATIONS SECTION4. The District shall review and process for approval all plans, specifications and drawings (the "Plans") as modified and amended, and provide all inspections necessary and required for the construction and installation of the Facilities, all in accordance with its usual and customary procedures. The Developer or its successor shall pay (in the amount in effect at the time of payment) all permit fees, inspection fees, connection fees and other fees customarily charged by the District, prior to the Delivery Date (as defined herein). ARTICLE V CONSTRUCTION BY THE DEVELOPER

SECTION 5. In order to expedite the proceedings and to initiate the construction of the Facilities, the Developer or its designee may fund, construct and install all or some of the Facilities in accordance with the Plans. Upon a successful sale of the CFD Bonds (the "Bonds"), the City shall then pay to the Developer in accordance with the Acquisition Agreement the costs and expenses of the Facilities funded and/or constructed by the Developer, subject only to the terms and conditions of the Acquisition Agreement. ARTICLE IMPROVEMENT VI FUND

SECTION 6. Upon the issuance of Bonds, the City shall establish an improvement fund (the "Improvement Fund") into which shall be deposited a portion of the proceeds from the sale of Bonds in accordance with the Acquisition Agreement. The Improvement Fund shall be used exclusively for the purposes set forth in the Acquisition Agreement.

45578226.1 (lndio CFD 2004-3 (Terra I_ago))

ARTICLE VII PAYMENT SECTION 7. All payments required to be made by City under this Agreement shall be made solely and exclusively from the Improvement Fund in accordance with the terms of the indenture of trust, resolution of issuance, fiscal agent agreement or similar agreement, as applicable, for the Bonds and the Acquisition Agreement. The City shall not be obligated to make any such payment from any other funds or monies of the City. Neither the City nor the Developer has any expectation of contribution from the District. The District shall not be required to expend any funds in connection with said project unless agreed upon by amendment to this Agreement or by separate contract. Any charges for the facilities in excess of funds on deposit in the Improvement Fund shall be borne by the Developer. If excess funds are in the Improvement Fund and not allocated to a facility under the Acquisition Agreement, then such amounts may be used for overcharges or facilities hereunder. ARTICLE VIII OWNERSHIP OF FACILITIES SECTION 8. Upon completion of the Facilities in accordance with the Plans, and the payment of the acquisition price of the Facilities from the proceeds of the Bonds, the Facilities shall be dedicated to the District (the "Delivery Date"). ARTICLE IX AUTHORIZATION; EFFECTIVE DATE

SECTION 9. This Agreement is made pursuant to the authorization of Section 53316.2 of the Act. The effective date of this Agreement shall be upon formation of the CFD, if and when formed. ARTICLE X TERMINATION SECTION 10. In the event that the City has not formed the CFD and sold the Bonds within 24 months of the adoption of the Resolution of Intention, this Agreement shall automatically terminate and be of no further force or effect. Additionally, the Developer shall have the right to terminate this Agreement by written notice to the City and the District at any time prior to adoption of the Resolution of Intention to form the CFD, or if the City rejects formation of the CFD or the issuance of the Bonds.

45578226.1 (lndio CFD 2004-3 (Term Lago))

ARTICLE XI INDEMNIFICATION SECTION 11. The Developer agrees to indemnify and hold harmless the City, the District, and their respective officers, officials and employees from and against all claims, damages, losses, and expenses including attorneys' fees arising out of the performance of the work described herein caused by any willful misconduct, gross negligent or negligent act, or omission of the Developer or anyone ,directly or indirectly employed by the Developer including, but not limited to, consultants, engineers, advisors, contractors and subcontractors. The Developer also agrees to indemnify and hold harmless the City and the District, and their respective officers, officials, employees and volunteers from and against all claims, damages, losses, and expenses, including attorney fees, arising from a legal challenge by a purchaser or lessee that such party did not receive notice of the levy of the assessment as required under State law and the act, or that such notice was defective or misleading, the issuance of the Bonds and this Agreement. The City and the District may make all reasonable decisions with respect to its representation in any legal proceeding covered by this Section 11. If during such proceeding a settlement demand is made and the Developer is willing to satisfy the settlement demand and indemnify the City and/or the District from residual liability, but the City and/or the District rejects such settlement demand, the Developer's indemnity obligation in the proceeding shall from that point forward not exceed the amount of the settlement demand. Notwithstanding any language to the contrary in this Section 11, the Developer shall have no indemnity obligations to the District and its officers, officials, employees and volunteers for claims that arise from the sole gross negligence or willful misconduct of the District and its officers, officials, employees and volunteers, and the Developer shall have no indemnity obligations to City and its officers, officials, employees and volunteers for claims that arise from the sole gross negligence or willful misconduct of the City and its officers, officials, employees and volunteers. City acknowledges that it is solely responsible for the formation, implementation and administration of the CFD, subject to the Developer's indemnification and hold harmless of City pursuant to this Section 11, and that the District's involvement is strictly limited to approval of this Agreement consenting to the financing of the Facilities through the CFD.

45578226.1 (lndio CFD 2004-3 (Terra I_ago))

ARTICLE XII NOTICE SECTION 12. Any notices authorized or required by this Agreement shall be deemed to have been given when deposited in the United States mail, postage prepaid, addressed to the persons below listed: TO THE CITY: City of Indio 100 Civic Center Mall Indio, CA 92202 Attention: City Manager Valley Sanitary District 45-500 Van Buren Indio, CA 92201 Attention: General Manager Indio Land Ventures, LLC c/o SunCal Companies 42-960 Golf Center Parkway Indio, CA 92203 Attention: Gary Williams

TO THE DISTRICT:

TO THE DEVELOPER:

Any party may change its address by giving notice in writing to the other parties. ARTICLE XIII GOVERNING LAW SECTION 13. This Agreement and any dispute arising hereunder shall be governed by and interpreted in accordance with the laws of the State of California. ARTICLE XIV

AMENDMENTS SECTION 14. This Agreement may be amended or modified solely in writing signed by the City, the District and the Developer. Waivers of any terms and provisions of this Agreement must be in writing and must be signed by the party to be bound by such waiver,

45578226. I (lndio CFD 2004-3 (Terra l_ago))

ARTICLE XV COUNTERPARTS SECTION 15. be deemed an original. This Agreement may be executed in counterparts, each of which shall

ARTICLE

XVI

CONFLICT WITH ACQUISITION AGREEMENT SECTION 16. Acquisition Agreement, otherwise stated herein. In the event of any conflict between this Agreement and the the terms and conditions of this Agreement shall prevail unless

ARTICLE ATTORNEYS'

XVII FEES

In the event that any action or suit is instituted by any party against another arising out of this Agreement, the party in whose favor final judgment shall be entered, shall be entitled to recover from the other party all costs and expenses of suit, including reasonable attorneys' fees.

45578226.1 (Indio CFD 2004-3 (Terra Lago))

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the day and year first hereinabove written.

CITY OF INDI,(_

Name: Glenn Southard Title: City Manager

J g ATTEST:

By: City Clerk

[Signature Pages to Joint Community Facilities Agreement Continued on Next Page]

45578226. I (lndio CFD 2004-3 (Terra Lago))

CALIFORNIA

ALL-PURPOSE

ACKNOWLEDGMENT

State of California

County oft, . ,_/_,_ _,_/ ,,_jr./_7/e , On Jzz/ .9_.o_._personally

uate

before
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[] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their to the within instrument and acknowledged to me that signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

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my hand and official seal.

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Thoughthe information belowis not required by law, it may provevaluableto personsrelyingon thedocument and couldpreventfraudulent removaland reattachment of this formto anotherdocument. Description Attached Title or Type ofof Do cument: Document _,_7 _ Document Date: Jl,_/t._ _ _O-_
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Signer(s) Other Than Named Above: Capacity(ies) Claimed bySigner(s) . Signer's Name: ___/_t_t Ja_7_/t _.-_69 / ,_ Individual [] Corporate Officer-- Title(s): -_ Partner-- E] Limited [] General
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Attorney in Fact L_ Trustee Guardian or Conservator X Other: _/'______,_'Jf

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C3 Other: Signer Is Representing:

Signer Is Representing:

2004 National

Notary Association

9350 De Soto Ave., P.O. Box 2402 Chatsworth,

CA 91313-i_2

Item No. 5907

Reorder:

Call Toll-Free

1-800-876-6827

VALLEY SANITARY DISTRICT

Title: President ATTEST:

Name: Merr]tt W. Wiseman Title: Secretary APPROVED AS TO FORM: BEST BEST & KRIEGER, LLP

By: Robert Hargreaves General Counsel to Valley Sanitary District

[Signature Pages to Joint Community Facilities Agreement Continued on Next Page]

45578226.1 (Indio CFD 2004-3 (Terra I_ago))

INDIO LAND VENTURES, LLC, a California limited liability company

'-t_. e_.. ,_._ Gary C. Williams Vice President SunCal Companies

45578226. I (lndio CFD 2004-3 (Terra Lago))

EXHIBIT DESCRIPTION

OF FACILITIES

Sewer Improvements including 18-inch diameter sewer main in Avenue 44 all adjacent to Tracts 31601-2 through -5, 31601, 32288, 32462-2, 32462, 32341-2 through -5, and 32341 and including 12-inch and 8-inch sewer main and 4-inch diameter sewer laterals (to serve each lot), together with appurtenances and appurtenant work, all in the interior public rights-of-way.

45578226.1

(Indio CFD 2004-3 (Terra Lago))

A-1

45

JOINT COMMUNITY (IMPERIAL

FACILITIES

AGREEMENT DISTRICT)

IRRIGATION

THIS JOINT COMMUNITY FACILITIES AGREEMENT, is made and entered into as of this 16th day of June, 2005, by and among the CITY OF INDIO (the "City"), on behalf of itself and in connection with the proposed City of Indio Community Facilities I_istrict No. 20043 (Terra Lago) (hereinafter referred to as the "CFD"), the IMPERIAL IRRIGATION DISTRICT (the "District") and INDIO LAND VENTURES, LLC, a California limited liability company (the "Developer"). WHEREAS, pursuant to the request of the Developer, the City Council of the City intends to form the CFD pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, commencing with California Government Code Section 53311, et seq. (the "Act"), and designate two improvement areas within the CFD to provide financing of public improvements relating to the proposed residential development within the CFD; and WHEREAS, City and the Developer are considering entering a Funding, Construction and Acquisition Agreement (the "Acquisition Agreement") regarding the financing of such public improvements; and WHEREAS, the District is an irrigation district organized under the California Irrigation District Law, codified at Section 20500 et seq. of the California Water Code, and is a public agency organized and existing under the laws of the State of California, and is authorized to provide public infrastructure which will be beneficial to the owners and lessees of the property within the boundaries of the proposed CFD; and WHEREAS, the Developer is causing the construction and installation of the public infrastructure related to the development of the land within said CFD; and WHEREAS, the improvements to be acquired pursuant to the CFD proceedings include certain facilities that will be under the ownership, management and control of the District (the "Facilities"); and WHEREAS, a general description of the Facilities is attached as Exhibit A; and WHEREAS, the City, the District and the Developer desire at this time to enter into this Agreement pursuant to the provisions and authorization of Section 53316.2 of the Act. NOW, THEREFORE, IT IS MUTUALLY AGREED among the parties as follows: ARTICLE I RECITALS SECTION 1. That the above recitals are all true and correct.

45578199.1

ARTICLE II BENEFITS SECTION 2. The City and the District agree that this Agreement would be beneficial to their respective residents and/or customers. ARTICLE III PROCEEDINGS SECTION 3. The City shall continue to conduct proceedings for the formation of the CFD and financing the acquisition of improvements by the proposed CFD, including the Facilities. This Agreement is subject to the power of the legislative body of the City to abandon the proceedings at any time prior to the effective date of this Agreement and the right of the Developer to protest the establishment of the CFD at any time prior to the formation of the CFD by the City. ARTICLE IV liD REGULATIONS_ POLICIES AND PROCEDURES SECTION4. The District shall review and process for approval, all plans, specifications and drawings (the "Plans") as modified or amended, and provide all inspections necessary and required for the construction and installation of the Facilities, all in accordance with its usual and customary procedures. All IID regulations, policies and procedures governing the Sale and Use of Electric Energy, including, but not limited to, those relating to the creation of electrical infrastructure, shall apply to this Agreement. The Developer or its successor shall pay all permit fees, inspection fees, connection fees and other fees customarily charged by the District, prior to the Delivery Date (as defined herein). ARTICLE V CONSTRUCTION BY DEVELOPER

SECTION 5. In order to expedite the proceedings and to initiate the construction of the Facilities in accordance with the Plans, the Developer or its designee may fund, construct and install all or some of the Facilities. Upon a successful sale of the CFD Bonds (the "Bonds"), the City shall then pay to the Developer in accordance with the Acquisition Agreement the costs and expenses of the Facilities funded and/or constructed by the Developer, subject only to the terms and conditions of the Acquisition Agreement. ARTICLE VI IMPROVEMENT FUND SECTION 6. Upon the issuance of Bonds, the City shall establish an improvement fund (the "Improvement Fund") into which shall be deposited a portion of the proceeds from the
45578199.1

sale of Bonds in accordance with the Acquisition Agreement. The Improvement Fund shall be used exclusively for the purposes set forth in the Acquisition Agreement. ARTICLE VII PAYMENT SECTION 7. All payments required to be made by City under this Agreement shall be made solely and exclusively from the Improvement Fund in accordance with the terms of the indenture of trust, resolution of issuance, fiscal agent agreement or similar agreement, as applicable, for the Bonds and the Acquisition Agreement. The City shall not be obligated to make any such payment from any other funds or monies of the City. Neither the City nor the Developer has any expectation of contribution from the District. The District shall not be required to expend any funds in connection with said project unless agreed upon by amendment to this Agreement or by separate contract. Any charges for the facilities in excess of funds on deposit in the Improvement Fund shall be borne by the Developer. If excess funds are in the Improvement Fund and not allocated to a facility under the Acquisition Agreement, then such amounts may be used for overcharges or facilities hereunder. ARTICLE VIII OWNERSHIP OF FACILITIES SECTION 8. Upon completion of the Facilities in accordance with the Plans, and the payment of the acquisition price of the Facilities from the proceeds of the Bonds, the Facilities shall be dedicated to the District (the "Delivery Date"). ARTICLE IX AUTHORIZATION_ EFFECTIVE DATE SECTION 9. This Agreement is made pursuant to the authorization of Section 53316.2 of the Act. The effective date of this Agreement shall be upon formation of the CFD, if and when formed. ARTICLE X TERMINATION SECTION 10. In the event that the City has not formed the CFD and sold the Bonds within 24 months of the adoption of the resolution of intention to form the CFD, this Agreement shall automatically terminate and be of no further force or effect. Additionally, the Developer shall have the right to terminate this Agreement by written notice to the City and the District at any time prior to adoption of the resolution of intention to form the CFD, or if the City rejects formation of the CFD or the issuance of the Bonds.

45578199.1

ARTICLE XI INDEMNIFICATION SECTION 11. The Developer shall defend and indemnify the District and/or the City, from any liability, claims, suits, actions, losses, expenses, fees, or costs of any kind, so long as such things are in relation to, as a consequence of, arising out of, or in any way attributable actually, allegedly or impliedly, in whole or in part, to the performance of this Agreement by the Developer or its agents or sub-contractors. However, the Developer shall not be required to indemnify and hold harmless the District and/or the City as set forth above for liability attributable to the willful misconduct or gross negligence of the District or the City, as the case may be. ARTICLE NOTICE SECTION 12. Any notices authorized or required by this Agreement shall be deemed to have been given when deposited in the United States mail, postage prepaid, addressed to the persons below listed: TO THE CITY: City of Indio 100 Civic Center Mall Indio, CA 92202 Attention: City Manager Imperial Irrigation District 333 East Barioni Blvd. Imperial, CA 92251 Attention: General Manager Indio Land Ventures, LLC c/o SunCal Companies 42-960 Golf Center Parkway Indio, CA 92203 Attention: Gary Williams Xll

TO THE DISTRICT:

TO THE DEVELOPER:

Any party may change its address by giving notice in writing to the other parties. ARTICLE XIII

GOVERNING LAW SECTION 13. This Agreement and any dispute arising hereunder shall be govemed by and interpreted in accordance with the laws of the State of California.

45578199.1

ARTICLE XIV AMENDMENTS SECTION 14. This Agreement may be amended or modified solely in writing signed by the City, the District and the Developer. Waivers of any terms and provisions of this Agreement must be in writing and must be signed by the party to be bound by such waiver. ARTICLE XV COUNTERPARTS SECTION 15. be deemed an original. This Agreement may be executed in counterparts, each of which shall ARTICLE XVI CONFLICT WITH ACQUISITION AGREEMENT SECTION 16. Acquisition Agreement, otherwise stated herein. In the event of any conflict between this Agreement and the the terms and conditions of this Agreement shall prevail unless ARTICLE XVII ATTORNEYS' FEES In the event that any action or suit is instituted by any party against another arising out of this Agreement, the party in whose favor final judgment shall be entered, shall be entitled to recover from the other party all costs and expenses of suit, including reasonable attorneys' fees. [Remainder of Page Intentionally Left Blank]

45578199.1

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first hereinabove written.

CITY OF INDID Name: Gl_/nn_outhared Title: City Manager ATTEST: !

City Clerk

(_

[Signature Pages to Joint Community Facilities Agreement Continued on Next Page]

45578199.1

IMPERIAL IRRIGATION DISTRICT

Name: Title:

Roclg"/ffl/ Maldonado j. Pre t ATTEST:

By: _ d_ __ Name://Gloria A. Rivera Title: VSecretary, Board of Directors

APPROVED AS TO FORM: HORTON KNOX CARTER & FOOTE, LLP

General Counsel to Imperial Irrigation District

[Signature Pages to Joint Community Facilities Agreement Continued on Next Page]

45578199.1

INDIO LAND VENTURES, LLC, a Califomia limited liability company

Gary C. Williams Vice President SunCal Companies

_-

45578199.1

EXHIBIT A DESCRIPTION OF FACILITIES FOR IMPERIAL IRRIGATION DISTRICT

Trenching,

Conduit_ Cabling_ and Connection

Fees

Includes trenching and conduit for electric facilities within the public rights-of-way and easements in Tracts 31601, 31601-2 through -5, 32288, 32462, 32462-2, 32341, and 32341-2 through -5, appurtenances and appurtenant work and within a public right-of-way along Golf Center Parkway from Avenue 43 to Avenue 42, along Ave 44 adjacent to the southern property line of Tracts 31601-3 & 31601-4 and along Ave 43 adjacent to the southern property line of Tract 31601-1, and cabling and conduit fees for Imperial Irrigation District in Tracts 31601, 31601-2 through -5, 32288, 32462, 32462-2, 32341, and 32341-2 through -5. As reflected in the Engineer's Report for Community Facilities District #2004-3 (Terra Lago).

45578199.1

A-1

46

AG_E_fori__ON OF _O_ROOS_O_i__S NO. 200_3

_DI_C_

indio Lanti_mtures, LLC. aDelawarc _imitcdLiab_ to_as :SunCal, antl_e:iCi_of_o(Ci_):agree<as_follows. I. Purpose_ofAgreement: SunCal has an appmv_ project ("T_ra _0"

Companyi!_cminaiter referred

_or_the "Projcet'r) for :approximately _fies

1484

filed,an>applica_on fori,_e _City:_o:form M__s_Eommnni_ "C:_)':_d to ;_sue:_n_:_!.to.:::_ce:<for_;__._ements,_for

.DiVOt 2004-3 :.(the ;_he:?_oject. Such

agreem_:a_:set,_:,here:_antt_:;,_o_:_by_su_h_potides. :2..: A_pfion-:,of_C_ _orm_0n_fl:<BondD.o_ments:

:City< ;_<_,::!place-oni_e ?Ci_,_nn_,),agenda:for ,_ _18, 2_5, and ,recommend for appmval,,:'bo_ i:the;_R_s_i _l_on;:_lntenfion._o Est_tish' _e! :- C_. and, the _esolution of Intenfion::_.-Jnct_.:_ad_'.b_ess,._.:_ut.::m._:E_bit:_ :_ed-..and meo_mte_ The _,_anfl, :_e_0tLo_'onment'::for'the _xes/('_'D _:.is: ,an e_bit :_o,_the R_sotufion of Int_tion.'and_!pm_Toi'_:lmme:,_ons:as.,weB!as::_fora !l:.%,<_r commencing :2007_8 for. 5 '.yoars,-_h :_r',ito !:_._;,_:_ .,o_y,,zs sa...--.imt .;,m,:.the _:_ _e amount .of <this e_r-:_ :not ,serve::as::_e_ent ;in,any :_ture:agmement between:_the parties purstmnt .to approVedCity 901icies. 3. :Water C_pital:Improvement _Fees: In considemfion.efthe,C_ formation and issuance ofbonds, Sunaal Shall pay tothe City, from. CFD proceeds, -all,water capital improvement'fees_for ....the :entire,.Project (Phase I .and :Phase H):m_erate.:of $3025:.25tresidential ,unit,for:the,:_-_number .vf,_nits (now,.e_ 'at 1_84):at the _time:of issuance,of the Phase Lbonds..-When_the P.hase!.:llbonds are issued, SunCal shall be reimbursed, without interest,:,J_om:;theproceeds_of_daePhase _bond:issuanee for the prepayment ofthewatereapital improvement payments. 4. -Payment of Other City Capital ImprovementFees: Except as to storm drain fees, SunCal shall pay all other capital impact .fees for roads, parks (other :than Quimby Act fees), traffic signals, and police and fire facilities at the time(s)set out:in the applicable City ordinances; notwithstanding, in consideration ofthe benefits provided to City
1

by this Agreement, SunCal shall be credited with fee payments for all amounts in excess of those for capital improvement fees as adopted by City Ordinance Nos. 1422 and 1423 on May 4, 2005. It is the intention of the parties that based upon this credit SunCal will not owe or pay increased capital impact fees as set out here to the City for the duration of the Project. A. Notwithstanding the City's current storm drain fee of approximately $7000 pergross acre, as a result of its installation of storm drain facilities, SunCal shall pay storm drain fees :in the amount of $500 per gross acres, payable upon application for building permits. 5. Provision of Fire Station on Dedicated Site: The conditions of approval of the Project require that SunCal donate a 2-acre fire station site. As additional consideration for the formation and funding of the CFD pursuant to this Agreement, the CFD shall fund a 3-bay fire station on that site, and will provide fire capital appurtenances as aUowed under the applicable law and as designated by the Fire Department. The cost of such station shall not exceed _ million to the CFD, of which $550,000 consists of fire capital facilities fees already owing by SunCal under Section 4 above and to be paid with proceeds of the CFD. 6. Dedication of Reservoir Site for the North Indio Pressure Zone: At such time as this reservoir facility has been designed by City and the design provided to SunCal, SunCal shall provide an appropriate legal or metes and bounds description and thereafter by grant deed shall eonvey to City the reservoir site shown on the August 24, 2004, TKC exhibit (Reservoir Option 1, elevation 200 serving the future North Pressure Zone). This requirement is for title only and no representation for use is made; City shall be responsible for any and all permits under MSHCP, if required. 7. Fluctuation of CFD Proceeds: The parties understand that positive or negative fluctuation in interest rates or home prices affects the proceeds of the CFD. Any increase in such proceeds will first be used to reimburse SunCal for a funding shortfall for eligible facilites up to $750,000. Thereafter, additional spendable proceeds shall be apportioned equally to capital projects designated by each party. Prior to the issuance of bonds for Phase II improvements, each party shall designate the capital facilities to be funded from such additional spendable proceeds. 8. Eligible Facilities: SunCal has installed a 24" water line in Golf Center Parkway which will be reimbursed with CFD proceeds and dedicated to the City. Upon formation and funding of the CFD, all existing reimbursement agreements between the City and SunCal entered into regarding such water line prior to such formation and funding date of this Agreement shall be of no further force and effect.
2

9. iP.lanningArea 9-Tentative

TractMap 32287"

_e potential :xe_nfiflement _of _A,9 :of__e _Pxojeet _ be reviewed sepam_iy :_from _:the exis_g :entiflemcnts-,uader ;,ilae _jeet and :_ have :no _impaeton_ojeet _nfiflements or :_ Agreement. 10. ImplementationofA_,_ent. _e _;_s _agree _that_iiflaey _ un_e _:_any additional acts :fhat may_be ,necessary or appropriate_o give:_-foreeand effect _ _e::terms and iintentofthis agreement, 11. Attorneys' Fees: _h,pa_y, _to:,this,_euat :_ _ua-all _aRoraeys' fees and ,costs arismg ifrom-_hat::_s own counsel in corm_on writh_ _ent, _the matters referredto herein, and ,all =_lated ma_rs. _ _h iah_ :be appli_le _to ,this entire ,,agreement. 12. EntireAgreement: _ _:_t_:i_ it_ _e_re:_:_ilt,,_e_ _-flae,_es _as: to :flae _di:_ute :and _,wai,ver _ereof.

o _aver_i_any_rm 13. _Law:

:or,:eon_tion,o_,_diis::_gr_ment,::_! be a co_in_

This Agreement is,entered into, :aad_ laws o_e:Stat of C_omia. 1_. Effective .Date: _mem 15. Assignment: This Agreement maybe assignedonly 16. No Third Party Beneficiary: This Agreement isfor the benefitontyof elaimingto be a third pat_y beneficiary.

be construed and interptaed ,in a_ordanee

with the

shall be_effeetive upon_the date of execution by bothparties.

with the prior written consent of the other party.

the parties hereto and is notenforeeable

byan entity

IN WITNESS WHEREOF; the parties authorized to do so have executed this Agreement the dates set out below

as of

CITY:

FES

IR ,MAYOR

ATTEST:

CITY CLERIC
SUNCAL:

_q ..------_ _ . x..._.a_-L_ GARY C. WILLIAMS Vice-President, SunCal Corp. Coachella Valley For lndio Land Ventures, LLC