$10,225,000 CITY OF INDIO - CA.gov

NEW ISSUE-BOOK-ENTRY ONLY NOT RATED

In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, under existing law the interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest on the Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 (the "Code") from the gross income of the owners thereof for federal income tax purposes and is not an item of preference under section 57(a) of the Code for purposes of the federal alternative minimum tax. See "TAX .MATTERS" herein.

STATE OF CALIFORNIA

$10,225,000 CITY OF INDIO

RIVERSIDE COUNTY

COMMUNITY FACILITIES DISTRICT NO. 2006-1 (SONORA WELLS) SPECIAL TAX BONDS, SERIES 2006

Dated: Date of Delivery Due: September 1, as shown on the inside front cover hereof

The City of Indio Community Facilities District No. 2006-1 (Sonora Wells) Special Tax Bonds, Series 2006 (the "Bonds") are being issued by the City of Indio Community Facilities District No. 2006-1 (Sonora Wells) (the "District"), which was established by the City of Indio (the "City''), pursuant to a Fiscal Agent Agreement, dated as of October 1, 2006 (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 certain capital facilities fees relating to and public improvements serving property within the District and certain other City public improvements, (ii) fund a reserve account for the Bonds, (iii) fund capitalized interest through September 1, 2007, 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, 2007 (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, special mandatory redemption from Special Tax prepayments and special mandatory redemption from the Special Escrow Fund prior to maturity as set forth herein. See 11THE 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 the District, 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 the District on July 19, 2006.

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 TO THE LIMITED EXTEm DESCRIBED HEREIN. EXCEPT FOR THE NET TAXES OF THE DISTRICT, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMEm 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 OF THE DISTRICT AND AMOUNTS HELD UNDER THE FISCAL AGEm AGREEMEm AS MORE FULLY DESCRIBED HEREIN.

SEE THE SECTION OF THIS OFFICIAL STATEMEm ENTITLED "SPECIAL RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED, IN ADDITION TO THE OTHER MATTERS SET FORTH HEREIN, IN CONSIDERING THE INVESTMEm QUALITY OF THE BONDS.

This cover page contains certain information for quick reference only. It is not a complete summary of the Bonds. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision.

The Bonds are offered when, as and if issued, subject to approval as to their legality by Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by the City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel to the City with respect to the issuance of the Bonds. It is anticipated that the Bonds will be available for delivery on or about October 18, 2006.

Memberaf SWS Group

Dated: October 4, 2006


COMMUNITY FACILITIES DISTRICT NO. 2006-1 (SONORA WELLS) SPECIAL TAX BONDS, SERIES 2006

Maturity Dates, Principal Amounts, Interest Rates and Yields

(Base CUSIPt 455697)

$3,195,000 Serial Bonds

Maturity Date Principal Interest Reoffering September 1 Amount Rate Yield

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

$150,000 3.900% 3.900% 160,000 4.100 4.100 175,000 4.200 4.200 190,000 4.300 4.300 205,000 4.400 4.400 215,000 4.500 4.500 220,000 4.625 4.625 230,000 4.600 4.700 245,000 4.700 4.800 255,000 4.900 4.900 265,000 4.850 4.940 280,000 4.875 4.970 295,000 5.000 5.000 310,000 5.000 5.030

$1,790,000 5.050% Term Bonds due September 1, 2026, Yield 5.070% CUSIPt: CS9 $5,240,000 5.125% Term Bonds due September 1, 2036, Yield 5.125% CUSIPt: CT7

CUSIPt

CC4 CD2 CEO CF7 CG5 CH3 CJ9 CK6 CL4 CM2 CNO CPS CQ3 CRl

t Copyright 2006, 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 Gene Gilbert, Mayor

Ben Godfrey, Mayor Pro Tern Michael H. Wilson, Councilrrember

Lupe Ram:JS Watson, Counci I rrember Melanie Fesmire, Counci I rrember

CITY STAFF Glenn Southard, City Manager

Michael Busch, Finance Di rector Jim Snith, Director ofPublicWorks

Cynthia Hernandez, City Clerk

PROFESSIONAL SERVICES

Bond Counsel and Disclosure Counsel Fulbright& Jaworski L.L.P.

Los Angeles, California

Financial Advisor Harrell & Company Ad.tisors, LLC

Orange, California

Underwriter Southwest Securities, Inc. Ne.vport Beach, California

Underwriter's Counsel McFarlin & Anderson LLP

Lake Forest, California

Special Tax Consultant Muni Financial

Terrecula, California

Appraiser Harris Realty Appraisal

Ne.vport Beach, California

Market Absorption Consultant Market Profiles Inc.

SantaAna, 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 b,I 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 b,I 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 corrpleteness, and is not to be construed as a representation of such b,I the City, the District or the Underwriter. The Underwriter has pro.tided the follo.ving 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 suqject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any irrplication that there has been no change in the affairs of the City, the District or any major property o.vner within the District since the elate hereof. The Official Statement is subrritted 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 OVERALL OT 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 TOTI ME 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

Page

INTRODUCTORY STATEMENT ............................................................................................................. 1 General ........................................................................................................................................... 1 Use of Proceeds .............................................................................................................................. 1 Security for the Bands .................................................................................................................... 1 The District ..................................................................................................................................... 2 The Special Tax .............................................................................................................................. 2 Foreclosure CO.tenant ..................................................................................................................... 2 Li nited Obi igations ........................................................................................................................ 2 Further lnformation ......................................................................................................................... 3 Forward Looking Statements .......................................................................................................... 3

CONTINUING DISCLOSURE ................................................................................................................... 3 ESTIMATED SOURCES AND USES OF FUNDS .................................................................................. .4 THE FINANCING PLAN ........................................................................................................................... 5 THEBONDS ............................................................................................................................................... 5

Description of the Bands ................................................................................................................ 5 Redemption ..................................................................................................................................... 6 The Fiscal Agent ............................................................................................................................. 9 Boak-£ ntry System ......................................................................................................................... 9 Debt Service Schedule .................................................................................................................. 10

SECURITY FOR THE BONDS ................................................................................................................ 11 General ......................................................................................................................................... 11 The Special Taxes ......................................................................................................................... 11 Special Tax Fund .......................................................................................................................... 12 Reserve Account ........................................................................................................................... 13 Rate and Method of Apportionment of Special Taxes .................................................................. 14 CO.tenant for Superior Court Foreclosure ..................................................................................... 15 No Obligation of the City Upon Delinquency .............................................................................. 16 No Parity Obligations ................................................................................................................... 16 Direct and Overlapping Debt ........................................................................................................ 16 Estimated Effective Tax Rate ....................................................................................................... 18 Appraisal ....................................................................................................................................... 18 Assigned Special Tax Ccwerage ................................................................................................... 19

THE CITY ................................................................................................................................................. 19 THE DISTRICT ......................................................................................................................................... 20 THE DEVELOPMENT ............................................................................................................................. 20

General ......................................................................................................................................... 20 Entitlement Status and Prqj ected Development Schedule ............................................................ 22 Financing Plan .............................................................................................................................. 23 Absorption Study .......................................................................................................................... 23

THE DEVELOPER ................................................................................................................................... 24 SPECIAL RISK FACTORS ...................................................................................................................... 25

Concentration of OWnershi p ......................................................................................................... 25 Risks of Real Estate Secured Investments Generally ................................................................... 25 Terrorist Attacks ........................................................................................................................... 26 Future Land Use Regulations and GrONth Control I nitiatives ...................................................... 26 Acjjustable Rate and Non-Conventional Mortgages ..................................................................... 26 Failure to Develop Properties ....................................................................................................... 27 Disclosure to Future Hornebuyers ................................................................................................ 28 Parity Taxes and Special Assessments .......................................................................................... 28 Appraised Value; LandValue ....................................................................................................... 28

TABLE OF CONTENTS (continued)

Page

Value to Lien Ratios ..................................................................................................................... 29 I nsuffi ci ency of Special Taxes ...................................................................................................... 29 Tax Delinquencies ........................................................................................................................ 30 Natural Disasters ........................................................................................................................... 30 Endangered and Threatened Species ............................................................................................. 30 Hazardous Substances ................................................................................................................... 31 Bankruptcy and Foreclosure ......................................................................................................... 31 Property Control led b,,' FDIC. ....................................................................................................... 32 Billing of Special Taxes ................................................................................................................ 33 Collection of Special Taxes .......................................................................................................... 33 Maximum Special Tax Rates ........................................................................................................ 34 Exempt Properties ......................................................................................................................... 34 California Constitution ArticleX I I IC and Article X 111 D ............................................................. 35 Ballot Initiatives and Legislative Measures .................................................................................. 36 No Acceleration ............................................................................................................................ 36 Loss of Tax Exerrption ................................................................................................................. 36 Li ni tati ons on Remedies .............................................................................................................. 36 Linited Secondary Market ........................................................................................................... 37

CONCLUDING INFORMATION ............................................................................................................ 37 Underwriting ................................................................................................................................. 37 Legal Opinion ............................................................................................................................... 37 Tax Exemption .............................................................................................................................. 38 No Litigation ................................................................................................................................. 39 No Rating on the Bands ................................................................................................................ 40 Miscellaneous ............................................................................................................................... 40

APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES ................ A-1 APPENDIX B - CITY OF INDIOSUPPLEMENTAL INFORMATION ........................................... B-1 APPENDIX C - SUMMARY OF FISCAL AGENT AGREEMENT .................................................. C-1 APPENDIX D - APPRAISAL REPORT ............................................................................................. 0-1 APPENDIX E - MARKET ABSORPTION STUDY .......................................................................... E-1 APPENDIX F - FORM OF BOND COUNSEL OPINION .................................................................. F-1 APPENDIX G - FORMS OF CONTINUING DISCLOSURE AGREEMENTS ................................ G-1 APPENDIX H - BOOK-ENTRY ONLY SYSTEM ............................................................................. H-1

ii

OFFICIAL STATEMENT


COMMUNITY FACILITIES DISTRICT NO. 2006-1 (SONORA WELLS) SPECIAL TAX BONDS, SE RI ES 2006

INTRODUCTORY STATEMENT

General

This Official Statement, including the ccwer page, the inside ccwer page and the Appendices hereto, is prcwided to furnish certain information in connection with the issuance and sale by the City of Indio Community Facilities District No. 2006-1 (Sonora Wells) (the" District") of its Special Tax Bonds, Series 2006 (the "Bonds") in the aggregate principal amount of $10,225,000 being issued in connection with the financing of certain capital facilities fees relating to and public irnprcwements serving the District and certain other City public irnprcwements. The Bonds will be issued pursuant to the prcwisions of a Fi seal A gent Agreement, dated as of October 1, 2006 ( the " Fi seal A gent 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 Cornrnunity Facilities Act of 1982, as amended (Sections 53311 et seq. of the Gcwernment Code of the State of California) (the" Act'').

The Act was enacted by the California Legislature to prcwide an alternate method of financing certain public facilities and services, especially in de.tel oping areas. Once duly established, a cornrnunity facilities district is a legally constituted gcwernmental entity established for the purpose of financing specific facilities and services within defined boundaries. Suqject to apprcwal by a two-thirds vote of the qualified electors within a community facilities district and corrpliance with the prcwisions of the Act, a cornrnunity facilities district rnay 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 frorn the date of their delivery, at the rates set forth on the inside ccwer 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 rnade in book-entry forrn only. Principal of and interest and prerniurn, 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 Bands purchased by them

Use of Proceeds

The Bonds are being issued to finance certain capital facilities fees relating to the de.teloprnent of property within the District and the acquisition and;br construction of certain public irnprcwements serving property within the District and certain other City public i rnprcwements, to fund a reserve account for the Bonds, to fund capitalized interest on the Bonds through September 1, 2007, and to pay the costs of issuance of the Bonds. See 'THE DEVELOPMENT - 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 Adninistrative Expense Account therein). Net Taxes are defined as Special

Taxes minus an am:Junt equal to the Administrative Expense Requirement. Special Taxes means the am:JUnt of all special taxes authorized to be levied within the District, together with the proceeds collected from the sale of property pursuant to the foreclosure prc:wision of the Fiscal Agent Agreement for the delinquency of such Special Taxes remaining afterthe 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 am:Junt of $685,137.50. The Reserve Requirement as of any date of calculation will be an am:JUnt equal to the lo.vest of (1) 1036 of the issue price (as defined pursuant to section 148 of the Code), (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."

The District

The District consists of approximately 98.99 gross acres in a development kno.vn as "Sonora Wells." At buildout, it is anticipated that the District will contain 363 residential d.velling units. See 'THE DEVELOPMENT" for further information regarding the Sonora Wells housing community. See 'THE DISTRICT" herein.

The Special Tax

On J uly 19, 2006, at an election held pursuant to the A ct, the I andONners who comprised the qualified electors of the District authorized the District to incur bonded indebtedness in an aggregate am:JUnt not to exceed $12,000,000, apprc:wed a Rate and Method of Apportionment of Special Tax (the "Rate and Method'), apprcwed the levy of the Special Taxes within the District to pay the principal of, and interest on, the authorized bonded indebtedness, and apprc:wed an appropriations limit for the District equal to the maximum amount of bonded indebtedness authorized to be incurred for the District. See "SECURITY FOR THE BONDS," "THE DISTRICT" and"APPENDIX A- RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES."

Foreclosure Co.tenant

The District has co.tenanted for the benefit of the o.vners 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 corrpletion. See "SECURITY FOR THE BONDS - The Special Taxes" and "SECURITY FOR THE BONDS - Co.tenant for Superior Court Foreclosure."

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 TO THE LIMITED EXTENT DESCRIBED HEREIN. EXCEPT FOR THE NET TAXES OF THE DISTRICT, 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 OF THE DISTRICT AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN.

2

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 Bands.

Further Information

Brief descriptions of the Bonds, the security for the Bonds, special risk factors, the District, the City, the De..reloper (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 descri pti ons herei n of the Bands, the Fi seal A gent Agreement, resol uti ons and other documents are qualified in their entirety b,I reference to the forms thereof and the information with respect thereto included i n the B ands, the Fi seal A gent Agreement, such resol uti ons and other documents. A 11 such descriptions are further qualified in their entirety b,I 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 rel ati ng to the Bands, 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 b,I 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 b,I the terminology used such as "plan," "expect," "estimate," "prqject," "budget'' or sinilar words. Such forward-I ooki ng statements incl ude, but are not I i mi ted to certain statements contained i n the information underthe captions 'THE DEVELOPMENT" and "THE DEVELOPER."

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 homes within the District will be developed b,I Western Pacific Housing, Inc., a Delaware corporation (the "Developer") as further described herein under the headings "THE DEVELOPER" and "THE DEVELOPMENT." The District and the Developer have separately co.tenanted for the benefit of o.vners of the Bonds to pro.tide certain financial information and operating data relating to the District (collectively, the "Annual Reports") and to pro.tide notices of the occurrences of certain enumerated events, if material. The Developer's disclosure obligations will terninate upon the occurrence of certain events, including at such ti me as the De.tel aper is responsible for I ess than 25% of the Special Taxes.

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

3

material e..rents 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 e.tents is sumnarized in "APPENDIX G - FORMS OF CONTINUING DISCLOSURE AGREEMENTS." These co.tenants have been made b,I the District and the De.teloper in order to assist the Underwriter in corrplying with the Rule. Neither the City nor the District has ever failed to corrply in all material respects with any pre..rious undertakings with regards to said Rule to pro.tide annual reports or notices of material events. The officers of the Developer involved in the issuance of the Bonds are not .M'are of any failures b,I the De..reloper to corrply in all material respects with any pre..rious undertakings b,I it with regard to said Rule to pro.tide 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 belo.v:

Sources of Funds Principal Amount of the Bonds .......................................................................... .

Less: Original Issue Discount.. ............................................................ .. Less: Underwriter's Discount ............................................................... .

Total Sources ............................................................................ . Uses of Funds Deposit to A cqui siti on and Construction Fund .................................................. . Deposit to Special Escro.v Fund 11 ...................................................................... . Deposit to Adni nistrative Expense Account.. .................................................... . Deposit to Reserve Account ............................................................................... . Deposit to I nterest Account 21 ............................................................................ .. Deposit to Costs of Issuance Account 31 ............................................................ ..

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

$10,225,CXXl.OO ( 1 3, 802. 90)

(204,500.00) $1 O,CXX,,697.10

$8,375,887.49 275,CXXl.OO

25,CXXl.OO 685,137.50 426,672.11 219,CXXl.OO

$1O,CXX,,697.10

(l) Upon receipt of a written certificate of the District stating that all of the horres within the District have begun construction (i.e. ~abs poured) and that the annual NetT axes projected to be generated at bui ldout from Developed Property (as defined in the Rate and Method) equals at least 110% of the Maximum Annual Debt Service, the Fiscal Agent shall transfer all funds held in the Special EscrC>N Fund to the Acquisition and Construction Fund. To the extent the 110% test is not me~ the Fiscal Agent shall transfer a proportionate amount held in the Special EscrC>N Fund to the Acqui~tion and Construction Fund and the remainder will remain on deposit in the Special Escrow Fund until January 15, 2009, when it shall be transferred by the Fiscal Agent to the Redemption Account of the Special Tax Fund to be applied to the redemption of the Bond~

121 Capitali2Ed interest through September l, 2007. 131 Includes fees for Bond Counsel, Disclosure Counsel, Financial Consultant, the Appraiser, the Market Absorption Consultant,

the Fiscal Agent and its counsel, costs of printing the Official Stateme~ and other costs of issuance of the Bonds.

4

THE FINANCING PLAN

The proceeds of the Bonds will used to finance certain capital facilities fees relating to and public impr0.tements serving properties within the District and certain other City public imprcwements. Such eligible fees and imprcwements and estimated costs thereof are set forth belo.v. Any shortfall in financing these impr0.tements are the responsibilities of the Developer. The inability of the Developer to finance any shortfall may have an ad.terse effect on the De..reloper's ability to complete the development as con tempi ated.

The follo.ving table sets forth a description of the capital facilities fees and public imprcwements eligible to be financed in the District, along with the estimated costs associated with each item.

Description of Eligible Fees and Public Facilities

City Fees Fire Facilities Fee Police Facilities Fee Building Impact Park Fee Bridge Crossing Storm Drain Facilities Fee Traffic Signal Fee Subtotal

Other City Capital Facilities Prqjects

Public Facilities Storm Drain I mpr0.tements - Avenue 41 Storm Drain I mpr0.tements - Jackson Street Storm Drain Soft Costs Water System Sewer System Off-Site Street I mpr0.tements Fair Share Allocation for Street Signals,

Ramp Expansion & Avenue 40 Vacation Subtotal

Total

Estimated Costs111

$ 176,857 30,438

143,955 720,918 250,891 707,209 90,423

$2,120,692

$1,696,553

$ 612,400 666,300 264,259

1,668,834 1,392,550

622,322

219,352 $5,446,016

$9,263,261

111 The Bond proceeds to be depo~ted in the Acquisition and Construction Fund equal $8,375,887.49, which is less than the total eligible capital facilities fees and public irrprCNerrent costs. To the extent certain release tests are rre~ up to $275,000of additional proceeds from the Special E scro.v Fund are expected to be available to fi nanc::e such costs.

THE BONDS

Description of the Bonds

The Bonds will be issued as fully registered bonds, in denoninations 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

5

delivery (the "Dated Date"), at the rates set forth on the inside cc:wer 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, 2007. Interest on the Bands wi 11 be calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on the Bands shal I 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 afterthe issuance of such Bond, in which event interest shal I be payable from the dated date of such Band; prc:wi ded, ho.vever, 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 Band shal I be payable form its dated date.

The Bands wi 11 mature on September 1 in the principal amounts and years as sho.vn on the inside cc:wer page hereof and are suqject to optional redemption, special mandatory redemption and mandatory sinking fund redemption as described belo.v.

Redemption

Opti anal Redemption

Suqj ect to the Ii nitations set forth bel ON, the Bands maturing on or after September 1, 2009 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, 2008, in whole, or in part in the order of maturity selected b,I the District and b,l lot within a maturity, at the follo.ving redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption:

RedenJ)tion Dates

September 1, 2008 through August 31, 2014 September 1, 2014 through August 31, 2015 September 1, 2015 through August 31, 2016 September 1, 2016 and thereafter

R ederrpti on Prices

103.036 102.0 101.0 100.0

In the event the District elects to redeem Bonds as prc:wided abcwe, the District shall give a Written Request of the District to the Fiscal Agent of its election to so redeem, the redemption date and the principal amount of the Bonds to be redeemed. The notice to the Fiscal Agent shall be given at least 60 but no more than 90 days prior to the redemption date, or such shorter period as shal I be acceptable to the Fi seal A gent.

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Mandatory Rederrotion from Special Tax Prepayments

The Bands are suqj ect 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 follo.ving redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued i nterest to the date of redemption:

RedeOJJl:ion Dates

March 1, 2007 through March 1, 2014 September 1, 2014 through August 31, 2015 September 1, 2015 through August 31, 2016 September 1, 2016 and thereafter

R ederroti on Prices

103.036 102.0 101.0 100.0

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 Bands as set forth alx:we.

Special Mandatory Sinking Fund Redemption

The Bonds maturing on September 1, 2026 and September 1, 2036 (collectively, the "Term Bonds") shall be called before maturity and redeemed, from the mandatory Sinking Fund Payments that have been deposited into the Redemption Account, on September 1, 2022 and September 1, 2027, respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth belo.v. 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 amountthereof, plus accrued interesttothe redemption date, without premium, as folio.vs:

Term Bands Maturing on September 1, 2026

Redemption Date (September 1)

2022 2023 2024 2025 2026 (maturity)

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Principal Amount

$325,000 340,000 355,000 375,000 395,000

Term Bands Maturing on September 1, 2036

Redemption Date (September 1)

2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 (maturity)

Principal Amount

$415,000 435,000 460,000 480,000 505,000 530,000 560,000 585,000 620,000 650,000

If during the Fiscal Year immediately preceding one of the sinking fund rederrption dates specified aro..re 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 Bands so purchased shal I be credited at the ti me of purchase, to the extent of the ful I principal amount thereof, to reduce such upconing Sinking Fund Payment for the applicable maturity of the Bonds. All Bonds purchased pursuant to this subsection shall be cancelled pursuant to the Fiscal A gent Agreement.

In the event of a partial rederrption of the Term Bonds pursuant to optional redemption or mandatory rederrption from Special Tax prepayments, each of the remaining Sinking Fund Payments for such Term Bands, as described aro..re, wi 11 be reduced, as nearly as practicable, on a pro rata basis.

Special Mandatory Redemption from Special Escro.v Fund

The Bonds are suqject to special mandatory redemption, on a pro rata basis, on March 1, 2009, from amounts, if any, transferred from the Special Escro.v Fund to the Redemption Account of the Special Tax Fund pursuant to the Fiscal Agent Agreement, at a redemption price equal to the principal thereof to be redeemed plus interest thereon to the redemption date, without premium

Notice of R ederrpti on

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; pro.tided, ho.vever, 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 rederrption price of the Bonds to be redeemed. Such notice of rederrption shall (a) specify the CUSI P numbers (if any), the bond numbers and the maturity date or dates of the Bands selected for redemption, except that where al I of the Bands of a maturity are suqject 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 B ands to be redeemed; ( c) state the redemption price; ( cl) state the pl ace or pl aces where the B ands 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

8

thereof cal I eel for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, i nterest thereon shal I 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 cop,1 of such notice, b,I first class mail, p:istage prepaid, to the respective owners thereof at their addresses appearing on the Bond Register. The actual receipt b,I the owner of any Bond or the original purchaser of any Bond of notice of such rederrption shall not be a condition precedentto 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 Bands, or the cessation of i nterest on the rederrpti on date.

Effect of Notice of Redemption

Notice of redemption having been duly given, as described alx:we, and the amount necessary for the redemption having been made available for that purp:ise 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 rederrption price thereof as pro.tided in the Fiscal Agent Agreement, anything in the Fiscal Agent Agreement or in the Bonds to the contrary notwithstanding;

(2) U pan presentation and surrender thereof at the office of the Fiscal Agent, the redemption price of such Bands shal I be paid to the owners thereof;

( 3) As of the redemption date the Bands, or porti ans thereof so desi gnat eel for redemption shal I be deemed to be no I anger Outstanding and such Bands, or porti ans thereof, shal I cease to bear further i nterest; and

( 4) As of the date fixed for redemption no owner of any of the Bands, 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 avai I able.

The Fiscal Agent

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

B ook--E ntry System

The Dep:isitory Trust Company, NewY ork, New York ("DTC"), will act as securities dep:isitory 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, underthe book-entry system maintained b,I 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 noninee, Cede & Co., b,I the Fiscal Agent, so long as DTC or Cede & Co. is the registered o.vner 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."

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Debt Service Schedule

The follo.ving is the annual debt service schedule for the Bonds, assuning no rederrptions other than mandatory si nki ng fund rederrpti ans.

DEBT SERVICE SCHEDULE

Year Ending Annual (Septerrber 1) Principal Interest Debt Service

2007 $440, 884.41 440,884.41 2008 $150,000.00 507,087.50 657,087.50 2009 160,000.00 501,237.50 661,237.50 2010 175,000.00 494,677.50 669,677.50 2011 190,000.00 487,327.50 677,327.50 2012 205,000.00 479,157.50 684,157.50 2013 215,000.00 470,137.50 685,137.50 2014 220,000.00 460,462.50 680,462.50 2015 230,000.00 450,287.50 680,287.50 2016 245,000.00 439,707.50 684,707.50 2017 255,000.00 428,192.50 683,192.50 2018 265,000.00 415,697.50 680,697.50 2019 280,000.00 402,845.00 682,845.00 2020 295,000.00 389,195.00 684,195.00 2021 310,000.00 374,445.00 684,445.00 2022 325,000.00 358,945.00 683,945.00 2023 340,000.00 342,532.50 682,532.50 2024 355,000.00 325,362.50 680,362.50 2025 375,000.00 307,435.00 682,435.00 2026 395,000.00 288,497.50 683,497.50 2027 415,000.00 268,550.00 683,550.00 2028 435,000.00 247,281.26 682,281.26 2029 460,000.00 224,987.50 684,987.50 2030 480,000.00 201,412.50 681,412.50 2031 505,000.00 176,812.50 681,812.50 2032 530,000.00 150,931.26 680,931.26 2033 560,000.00 123,768.76 683,768.76 2034 585,000.00 95,068.76 680,068.76 2035 620,000.00 65,087.50 685,087.50 2036 650,000.00 33,312.50 683,312.50

Total $10,225,000.00 $9,951,326.95 $20, 176,326.95

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SECURITY FOR THE BONDS

General

NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT, THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN. EXCEPT FOR THE NET TAXES OF THE DISTRICT, 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 OF THE DISTRICT AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN.

The Bonds are secured b,I a pledge of Net Taxes of the District and the other amounts in the Special Tax Fund (other than amounts in the Adninistrative 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 (the "Special Taxes" or the "Special Tax'') received b,I the District with respect to the District, together with the proceeds collected from the sale of property pursuant to the foreclosure prcwision of the Fiscal Agent Agreement for the delinquency of such Special Taxes remaining afterthe payment of all the costs related to such foreclosure actions.

In the event that delinquencies occur in the receipt of the Special Taxes within the District in any fiscal year, the District may increase its Special Tax levy on property within the District in the follo.ving fiscal year up to the maximum amount permitted under the Rate and Method. Under no circumstances, ho.vever, will Special Taxes levied against any parcel used for private residential purposes be increased by more than 10 percent of the prior year's levy as a consequence of delinquency or default by the o.vner of any other parcel or parcels within the District. Although the Special Tax levy on property within the District 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 (up to the maximum amount permitted under the Rate and Method) may adversely affect the ability or willingness of property o.vners to pay their Special Taxes. See "Rate and Met hod of Apportionment of Special Taxes'' belo.v and "APPENDIX A -RATE AND METH OD OF APPORTIONMENT OF SPECIAL TAXES" hereto for a description of the District's procedures for levying Special Taxes within the District, 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 The District. See"- Rate and Method of Apportionment of Special Taxes" belo.v and "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" hereto.

Beginning in Fiscal Year 2007-2008 and so long as any Bonds issued under the Fiscal Agent Agreement are Outstanding, the District has co.tenanted to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and avai I able for such purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, (3) an amount

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equal to any anticipated shortfall due to Special Tax delinquencies in the prior Fiscal Year, and (4) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement. Suqject 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 and interest, replenishment of the Reserve Account and related administrative expenses; ho.ve..rer, see "SPECIAL RISK FACTORS" for a discussion of certain factors affecting the actual timely collection of such Special Tax le.ties.

Special Tax Fund

Pursuant to the Fiscal Agent Agreement, there is established a "Special Tax Fund' to be held and maintained b,I the Fiscal Agent. In the Special Tax Fund there is further established and created an Interest Account, a Principal Account, a Rederrption Account, a Reserve Account and an Adninistrative Expense Account.

The amounts on deposit in the foregoing funds and accounts will be held b,I the Fiscal Agent in trust and the Fiscal Agent will invest and disburse the amounts in such funds and accounts in accordance with the pr0.tisions of the Fiscal Agent Agreement and will disburse investment earnings thereon in accordance with the pr0.tisions 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 follo.ving order of priority, to:

1. The I nterestAccount of the Special Tax Fund;

2. The Principal Account of the Special Tax Fund;

3. The Rederrption Account of the Special Tax Fund;

4. The Reserve Account of the Special Tax Fund;

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

6. The Surplus Fund.

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

Interest Account and Principal Account of the Special Tax Fund. The principal of and interest due on the Bonds until maturity, other than principal due upon redemption including sinking fund redemption, will be paid b,I 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 follo.ving transfers from the Special Tax Fund firsttothe I nterestAccount and then to the Principal Account; pr0.tided, ho.ve..rer, 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

12

otherwise, the transfer from the Special Tax Fund need not be made; and pro.tided, further, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made up b,I 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 forthe payment of interest on the Bands 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 shal I at least equal the principal payment due on the Bands maturing on such September 1 and any principal payment due on a previous September 1 which remains unpaid. Moneys in the Principal Account will be used for the payment of the principal of such Bonds as the same become due at maturity.

Redemption Account of the Special Tax Fund. On each September 1 on which a Sinking Fund Payment is due, after the deposits have been made to the Interest Account and the Principal Account of the Special Tax Fund, the Fiscal Agent will next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account five Business Days prior to each September 1 equal to the Sinking Fund Payment due on any Outstanding Bonds on such September 1; pro.tided, hcwe..rer, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency wi 11 be made up b,I an immediate transfer from the Reserve Account. Moneys so deposited in the Redemption Account will be used and applied b,I 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.

All prepayments of Special Taxes shall be deposited in the Redemption Account to be used to redeem Bands on the next date for which notice of redemption can timely be given. OnJ anuary 15, 2009, amounts remaining in the Special Escro.v Fund and not released to the Acquisition and Construction Fund shall be deposited in the Redemption Account. See "ESTIMATED SOURCES AND USES OF FUNDS" herein.

Surplus Fund. Moneys deposited in the Surplus Fund shall be transferred b,I 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 mandatory 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 insufficienttherefor, (ii) to the Reserve Account in orderto replenish the ReserveAccounttothe Reserve Requirement, and (iii) to the Administrative Expense Account of the Special Tax Fund to pay A dmi ni strative Expenses to the extentthatthe amounts on deposit in the A dni ni strative 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. The amounts in the Surplus Fund are not pledged to the repayment of the 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

13

Account of the Special Tax Fund are insufficient to pay the principal of, including Sinking Fund Payrrents, 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 Rederrption Account of the Special Tax Fund, as applicable, moneys necessary for such purposes.

Whenever moneys are withdriM'n from the Reserve Account, after making the required transfers under the Fiscal Agent Agreerrent, 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 Requirerrent. Moneys in the Special Tax Fund will be deerred 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 Rederrption 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 Requirerrent, then the District will include the amount necessary fully to restore the Reserve Account to the Reserve Requirerrent in the next annual Special Tax levy for property within the District to the extent of the maxi mum permitted Special Tax rates, hcwever, Special Taxes on a Residential Property may not be increased more than HJ% from the prior Fi seal Y ear.

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

If the Special Escrcw Fund is not released in full and a proportionate amount of Bonds are redeerred on March 1, 2009, the Reserve Requirerrent will be reduced proportionately.

Rate and Method of Apportionment of Special Taxes

The follOMng is a sumrary of certain prc:wisions of the Rate and Method. This sumrary does not purport to be comprehensive and reference should be made to the Rate and Method attached hereto as Appendix A All capitali:zed term; not defined in this section have the rreanings set forth in the Rate and Method.

Each Fiscal Year, comrrencing with the 2CXX'i-2007 Fiscal Year, all Parcels of Taxable Property shall be categorized and classified as either Developed Property, Apprcwed Property, Undeveloped Property, Public Property and;br Property owner's Association Property that is not Exerrpt Property and shall be suqject to the levy of Special Taxes in accordance with the Rate and Method of Apportionrrent. See "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." A parcel is classified as Developed Property when building pernit has been issued with respect to such parcel. 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 Fanily Property according to its appropriate Land Use Category based on the Residential Floor Area of such Parcel.

Comrrencing with Fiscal Year 2007-2008 and for each follcwing Fiscal Year, the City shall levy the Special Tax on all Taxable Property until the amount of Special Taxes equals the Special Tax Requirerrent in accordance with the follcwing steps:

First: The Special Tax shall be levied Proportionately on each Parcel of Developed Property at upto 10036 of the applicable Assigned Special Tax rate as needed to satisfy the Special Tax Requirerrent;

Second: If additional moneys are needed to satisfy the Special Tax Requirerrent after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Apprc:wed

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Property (parcels included in a final map that has been recorded but no building permit has been issued) at upto10036 of the Maximum Special TaxforApprc:wedProperty; and

Thi rd: I f addi ti anal moneys are needed to satisfy the Special Tax R equi rement after the fi rst two steps have been corrpleted, the Special Tax shall be levied Proportionately on each Parcel of U ndevelopecl Property at upto 10036 of the Maximum Special Tax for Undeveloped Property;

Fourth: If additional moneys are needed to satisfy the Special Tax Requirement after the first three steps have been completed, the Special Tax to be levied on each Parcel of Developed Property whose Maximum Special Tax is derived b,I the application of the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Special Tax;

Fifth: I f addi ti anal money are needed to satisfy the Special Tax R equi rement after the first four steps have been completed, the Special Tax to be levied Proportionately on each Parcel of Public Property and;br Property owner's Association Property that is not Exerrpt Property at up to 10036 of the Maximum Special Tax.

Notwithstanding the abcwe, under no circumstances will the Special Taxes levied against any Parcel of Residential Property be increased b,I more than ten percent (1036) per Fiscal Year as a consequence of delinquency or default b,I the o.vner of any other Parcel.

Co.tenant for Superior Court Foreclosure

In the event of a delinquency in the payment of any installment of Special Taxes, the District is authorized b,I 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 suqject 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 Ii mited in certain instances and may require prior consent of the property o.vner in the event the property is o.vned b,I 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. Ho.vever, in the Fiscal Agent Agreement, the District has co.tenanted for the benefit of the owners of the B ands that:

(a) if the District deternines that (i) any o.vner o.vns one or more parcels suqject to a Special Tax is delinquent in an aggregate amount of $3,CXXl or more, or (ii) any o.vner of a parcel of Apprc:wed Property or Undeveloped Property suqject to the Special Tax is delinquent in the payment of one Installment of Special Taxes when due, then the District will send or cause to be sent a notice of del i nquency ( and a demand for i mmedi ate payment thereof) to the property o.vner within 45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings will be commenced b,I the District within 120 days of such determination, to the extent permissible under applicable law. An "Installment" of Special Tax is defined as the i nstal I ment of Special Tax that becomes deli nquent after any December 1 O or A pri I 1 0.

(b) if the District determines that the total amount of delinquent Special Tax for the prior Fiscal Year forthe District (including the total of delinquencies under paragraph (A) albo.te), exceeds 5% of the total Special Taxes due and payable for the prior Fiscal Year, the District will notify or cause to be notified al I property o.vners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency) within 45 days of such deternination, and will commence foreclosure proceedings within 120 days of such deternination against each parcel of land in the District with a Special Tax delinquency, to the extent pernissible under applicable law.

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There could be a default or a delay in payrrents to the o.vners of the Bonds pending prosecution of foreclosure proceedings and receipt b,I the District of foreclosure sale proceeds, if any, and subsequent transfer of those proceeds to the District. Ho.vever, up to the maxi mum amount pernitted under the applicable Rate and Method, the District may aqjust the Special Taxes levied on all property within the District to pr0.tide the amount required to pay debt service on the Bonds, but not more than a 1036 increase on a Residential Property from the prior Fiscal Year.

U nder current I aw, a j udgrrent debtor ( property o.vner) has at I east 140 clays from the date of service of the notice of levy in which to redeem the property to be sold. If ajudgrrent debtor fails to redeem and the property is sold, his only rerredy 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 judgrrent is revived, thejudgrrent creditor is entitled to interest on the revisedjudgrrent and any liens extinguished b,I 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 Agreerrent for the payrrent of the principal of or interest on the Bonds if a delinquency occurs in the payrrent of any Special Taxes. See "SECURITY FOR THE BONDS - CO.tenant for Superior Court Foreclosure" for a discussion of the District's obligation to foreclose Special Tax liens upon delinquencies.

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 of the District and other amounts deposited in the Special Tax Fund and secured b,I a lien and charge upon such amounts equal to the lien and charge securing the Bonds.

Direct and Overlapping Debt

Set forth bel ON is the exi sti ng authorized indebtedness payable from taxes and assessrrents that may be levied on property within the District. In addition, other public agencies may issue additional indebtedness at any tirre, without the consent or apprcwal of the City or the District.

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CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 20<X,-1 (SONORA WELLS)

DIRECT AND OVERLAPPING DEBT

2CXX,-07Local SecuredAssessedValuation: $24,321,900

DIRECT AND OVER LAPPI NG TAX AND ASSESSMENT DEBT:

Desert Comrrunity College District Desert Sands Unified School District Desert Sands Unified School District Lease Tax Obligations City of I ndioCommunity Facilities District No. 2006-1 City of Indio Assessment District No. 90-1 Valley Sanitary District Assessment District No. 2004-VSD Crachella Valley Recreation and Park Reassessment District No. 01-1 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

OVERLAPPING GENERAL FUND DEBT:

Riverside County General Fund Obligations Riverside County Pension Obligations Riverside County B rard of Education Certificates of Participation Desert Sands Unified School District Certificates of Participation City of Indio Certificates of Participation Crachella Valley County Water District, I .D. No. 71 Certificates of Participation

Crachella Valley Recreation and Park District Certificates of Participation TOTAL GROSS OVERLAPPING GENERAL FUND DEBT

Less: Riverside County self-5upporting obligations TOTAL NET OVERLAPPING GENERAL FUND DEBT GROSS COMBINED TOTAL DEBT NETCOMBINEDTOTAL DEBT

111 Based on 2005-06 ratios. 121 Excludes Mello-Roos Act bonds to be sold.

% Applicable 111

0.047% 0.087 0.204

100. 0.043

15.3f0 0.627

0.019!6 0.019 0.019 0.204 0.716 0.149

0.168

Debt 9 /1 ,(16 $ 29,613

223,824 39,872

(2)

755 1,359,053

25456 $1,678,573

$119,792 75,401 2,136

28,570 23,807 12,710

4309 $266,725

3.722 $263,003

$1,945,298131

$1,941,576

131 Exel udes tax and ra,enue anticipation notes, enterprise ra,enue, mortgage ra,enue and tax al I ocati on bonds and non-bonded capital lease obligations.

Ratios to 2006-07 Assessed Valuation: Direct Debt - % Total Direct and Overlapping Tax and Assessment Debt .............. 6.90!6 G ross Combined Total Debt ........................................................... 8. 00!6 Net Combined Total Debt .............................................................. 7. 98!6

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6;30,(16: $0

Source: California Municipal Statistics Inc.

17

Estimated Effective Tax Rate

Set forth belo.v is the estimated fiscal year 2006;07 tax obligations for a sarrple developed property within the Di strict.

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

Projected Sales Price (Based on a Home Size of 2.600 Square Feet)

Ad Valorem Property Taxes: Basic La,y (1.00!6) Desert Sands Unified School DistrictG.O. Bond Coachella Valley Water District Debt Service Desert Community College District Debt Service

Total Gen er al Property Taxes ( 1.1 Z¥, )

Assessment, Special Taxes& Parcel Charges: Coachella Valley Recreation and Park District Reassessment District No. 01-1 -Estimate Coachella Valley Water District, Waterf-,e.ver Standt,,, Charges Valley Sanitary DistrictA.D. No. 2004-VSD City of lndioCFD No. 2006-1 (Sonora Wells) City of lndioCFD No. 2004-1111

Total Assessments & Parcel Charges

P roj ected Total Property Tax Projected Effective Tax Rate

Projected A nnunt

$300.490

$3,805 292

79 76

$4,252

$52 40

330 1,864

375

$2,661

$6,912 1.82%

'" Special taxes forthe City of Indio CFD No. 2004-l (Police, Fire and Pararredic Services) increase annually lJ,, "l'/o.

Source: Special Tax Consultant.

Appraisal

The Bonds are secured b,I Special Taxes which may include amounts realized upon foreclosure sale of delinquent parcels. Therefore, the ability of the District to rreet 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 comnissioned Harris Realty Appraisal, Newport Beach, 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 August 1, 2006. In the opinion of the Appraiser, the discounted "bulk-sale'' value of the properties within the District, as of the date of value stated in the Appraisal, is $41,000,000, which is approximately 3.54 times the aggregate principal amount of Bonds issued, excluding any direct or 0.terlapping debt other than the $1,359,053 Valley Sanitary District Assessrrent District No. 2004-VSD bonds. See "APPENDIX D - APPRAISAL REPORT" for description of the valuation rrethock:Jlogy. The Appraiser's value estimates reflect certai n absorption assumptions set forth i n the Appraisal i ncl udi ng 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 developrrent costs furnished b,I the Developer represent the costs estimated at the tirre of the Appraisal for developing the tract within the District. There can be no assurance that property values set forth in the Appraisal will

18

not decrease, or that at any tirre the an'Dunt that could be realized upon sale of a particular parcel in a for eel osure sale for nonpayrrent of Special Taxes wi 11 equal that parcel's appraised val ue.

Assigned Special Tax C0.terage

The follo.ving tables sho.v the debt service c0.terage achieved on the Bonds assuming absorption rates sho.v in the Absorption Study, with the Special Tax levied at the Assigned Special Tax, and excluding debt service on any 0.terlapping debt. See "THE DEVELOPMENT - Absorption Study" herein.

SPECIAL TAXES AND DEBT SERVICE COMMUNITY FACILITIES DISTRICT NO. 20<X,-1 (SONORA WELLS)

Estimated Assigned Admin. Estimated Debt

Special Taxes Costs Net Taxes Service C0.tera~

2007 _Jl) _Jl)

2008 $748,42l'1 $(25,CXX)) $723,422 $657,088 1.10 2009 755 835131

' (25,CXX)) 730,835 661,238 1.10

2010 763,375 (25,CXX)) 738,375 669,678 1.10 2011 771,056 (25,CXX)) 746,056 677,328 1.10 201i41 778,737 (25,CXX)) 753,737 684,158 1.10

111 Interest through Septerrlier 1, 2007 has been capitalized. 1,1 Includes $325,759 of Special Tax expected to be paid 0y the Da,eloper. 131 Includes $137,425 of Special Tax expected to be paid 0y the Da,eloper. 141 Assigned Special Taxes and Maximum Annual Debt Service do not change through rraturity of the Bonds. 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 oftirre that the Bonds are Outstanding. The City and the District have no control cwer the an'Dunt of additional indebtedness that may be issued in the future b,I other public agencies, the payrrent of which is secured b,I the levy of a tax or an assessrrent, whether on a parity with or subordinate to the Special Taxes. See "SPECIAL RISK FACTORS - Appraised Value; Land Value." In addition, the number of units and size of homes can change cwer the course of the developrrent. The prqjections are based on home sizes pro.tided b,I the Developer. If smaller homes are constructed, Special Taxes may be reduced and the Backup Special Tax may have to be levied. See "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" and"- Estimated Effective Tax Rate'' abOJe.

THE CITY

The City is located approximately 120 miles east of Los Angeles in the Coachella Valley, surrounded b,I the San Jacinto Mountains to the east and the Santa Rosa Mountains to the south. I ts 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 becarre one of 12 to.vnships in the County of Riverside and was incorporated as a general law city in 1930 with a council-manager form of municipal go..rernrrent. The City Council is composed of a Mayor and four rrembers 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 b,I appointrrents of the City Council. See "APPENDIX B - CITY OF INDIO SUPPLEMENTAL INFORMATION" herein.

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THE DISTRICT

On June 7, 2cn;, the City Council ack:Jpted 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 purp:ise of financing the imprcwements. After conducting a noticed public hearing, on July 19, 2cn;, the City Council adopted the Resolution of Formation, which established the District and set forth the Rate and Method of Apportionment forthe levy and collection of Special Taxes within the District.

On July 19, 2cn;, an election was held within the District in which the landoNners eligible to vote unanimously appr0.ted the i ncurrence of bonded indebtedness in an amount not to exceed $12,000,000and the le.;y of the Special Tax within the District.

See "THE DEVELOPMENT" belo.v for information regarding the Sonora Wells prqject.

THE DEVELOPMENT

U npai d Special Taxes do not constitute a personal i ndebtedness of the De.tel aper, its a ffi I i ates or any subsequent o.vners of the parcels within the District and the Developer has made no enforceable connitment 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 De.tel aper has or any subsequent o.vners wi 11 have the abi I ity to pay the Special Taxes or that, even if they have the ability, they will choose to pay such taxes. An o.vner may elect not to pay the Special Taxes when due and cannot be legally compelled to do so. Neither the District nor any Bondo.vner will have the ability at any time to seek payment from the De..reloper or any subsequent o.vners of property within the District of any Special Tax or any principal or interest due on the Bonds, or the ability to control who becomes a subsequent o.vner of any property within the District. See"SECURllYFORTHE BONDS" and"SPECIAL RISK FACTORS" herein.

The Developer has pro.tided the information set forth under the headings "THE DEVELOPMENT" and "THE DEVELOPER." No assurance can be given that all information is complete. Although the De..reloper currently o.vns all of the property within the District, the Developer intends to build and sell the residential properties to individual horneo.vners. When such sales to individual horreo.vners occur, the o.vnership of the land within the District will become more diversified. No assurance can be given that de..relopment of the property will be completed, that it will be cCJl11)ieted in a timely manner or that it wi 11 occur as described herein.

General

The De..reloper anticipates the de.telopment of 363 single-family units on approximately 98.99 gross acres kno.vn generally as "Sonora Wells" (the "Prqject"). Except for the p:issible re-issuance of building permits associated with the De..reloper's anticipated re-plotting of 192 lots as described belo.v, the Developer has taken all actions necessary to obtain the required entitlements for such land and has a current plan of de..reloprnentwith respect to the land within the District of constructing and selling all 363 of the planned single-family residential homes to individual hornebuyers. The Prqject is expected to be constructed in one tract and to have nine (9) construction phases. The follo.ving table sets forth the expected product nix to be constructed.

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SUM MARY OF PROPOSED NEW HOM ES COMMUNITY FACILITIES DISTRICT NO. 2CXX,-1

OF THE CITY OF INDIO (SONORA WELLS)

Approximate Home Plan/ Estimated Estimated Base

Community Size (sq. ft.) No. of Units ( 1) Home Price (2)

Sonora Wells Plan 1 - 1,844 28 $346,490 (363 homes) Pl an 2 - 2,089 25 $353,990

Plan 3 - 2,322 16 $376,490 Pl an 4 - 2,402 67 $380,490 Plan 5 - 2,787 16 $403,990 Pl an 6 - 3,023 81 $418,490 Plan 7 - 3,273 60 $432,990 Plan 8- 3,608 70 $450,990

Total 363 ---------------------------Source: The De.tel aper. (1) Represents the expected product mix resulting from re-plotting the Prqject, as described belo.v. ( 2) Base home prices sho.vn reflect prices as of September 21, 2cn; and exclude the Devel aper' s estimate of lot premiums, the sale of options, extras, and any incentives or price reductions.

The De..reloper has obtained initial building pernits for all 363 lots, which were in various stages of development ranging from near finished lots to completed homes as of September 21, 2cn;. As of this same date, the De..relaper has been considering re-plotting 192 of the 363 lots to include more of the larger floor plans. The De..reloper anticipates that building permits for these lots are expected to be reissued beginning in N0.tember 2cn; with the last building pernit being issued no later than February 2008. If the De..relaper does not build more of the larger homes in accordance with this proposed replotting, amounts in the Special Escro.v Fund will be used to redeem Bonds on March 1, 2009. See "ESTIMATED SOURCES AND USES OF FUNDS" herein.

As of September 21, 2cn;, the De..relaper had constructed eight (8) model homes and 14 production homes, which production homes have been conveyed to individual hornebuyers. An additional 149 homes were in various stages of construction.

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The De.tel aper closed 40 homes in September 2cn;. The De.tel aper' s current business pl an is to close an average of approximately 13 homes each month from October 2cn; through September 2008 for a total of 363 homes. As of September 21, 2cn;, sale contracts had been executed for 67 homes, in addition to the 14 homes already conveyed to homebuyers. As of this same elate, there have been 78 cancellations in home sales b,I potential homebuyers. When cancellations have occurred, it has been the De..reloper's plan to re-release the lots to the market with updated pricing. Of the 78 cancellations, 13 were re-sold and closed escrcw in August 2cn;, 43 have been re-sold and are pending close of escro.v, and 22 remained unsold as of September 21, 2cn;. Upon re-releasing the units to the market, base home prices typically have remained the same, but the De..relaper has offered incentives;price reductions to potential homebuyers. Of the 67 homes in escro.v as of September 21, 2cn;, incentives/price reductions have been offered in the fol lo.vi ng ranges:

$0-$10,999 $11,000-$20,999 $21,000-$50,000 $50,000t

43 homes ?homes

15 homes 2 homes

Excluding the two (2) homes with incentives;price reductions ewer $50,000, the average incentives/price reductions for the remaining 65 homes is $13,736. The abcwe information is not presented to illustrate any specific historical trend or future prqjection of home sales, cancellations and incentive/price reductions as cancellations and incentives;price reductions could increase and the rate of sales could slo.v compared to what is described abcwe.

Entitlement Status and Prqjected De..relopment Schedule

The Final Tract Map for the Prqject was apprc:wed on May 16, 2cn; for 363 single--fanily detached dwel Ii ng units. The fol Io.vi ng table sets forth the prqj ected de.tel opment schedule for the Prqject as of August 2cn;.

PROJECTED DEVELOPMENT SCHEDULE COMMUNITY FACILITIES DISTRICT NO. 2006-1

OF THE CITY OF INDIO (SONORA WELLS)

Commencement of Grading

Completion of Site I mprc:wements

1st Phase Sales Release

Last Phase Sal es Rel ease

1st Delivery of Homes

Last Home Closing

111 Actual. Source: The Da,eloper

22

August 2oos< 11

December 2007

December 2005111

June 2008

August 2000 11

September 2008

Financing Plan

The follo.ving table sets forth the Developer's estimated costs of completing the Prqject and the anticipated sources of monies to be spent therefore.

(1)

(2)

(3)

(4)

Sources

Uses

1. CFD Bond Proceeds 2. I nternal Financing

Total Sources

1. Fees & Permits 111

2. Direct Costs 121

3. Indirect Costs 131

4. Operating Costs 141

Total Uses

$ 6,954,334 85,399,046

$92,353,380

$4,451,598 86,254,109

728,274 919,399

$92,353,380

Various fees, including fees related to plan check, building perrrits, irrpact fees, school fees, and sewer and water connection. Includes cost of land, site da,elopment (i.e. off site and in-tract imprCNements), architecture, and vertical construction. Includes supervision, CNerhead, general I iabil ity insurance and warranties. Includes financing costs, m1rketing costs, and general and adrrinistrative costs.

Source: The Da,eloper.

As of August 1, 2cn;, the total land development and home construction budget to complete the Prqject was estimated to be $92,353,380, of which the Developer had incurred $59,695,969 in costs. As of this same date, the remaining cost to complete the Prqjectwas estimated to be $32,657,411.

To the extent available, costs of the public facilities and the capital impact fees with respect to the Prqjectwill be funded from proceeds of the Bonds. The District makes no warranty, express or implied, that the proceeds of the Bonds deposited and held in the applicable funds or any investment earnings thereon, wi 11 be sufficient to pay for the necessary public faci Ii ti es and capital i mpact fees. Bond proceeds to be deposited in the Acquisition and Construction Fund are expected to be less than the eligible public facilities and capital impact fees b,I approximately $612,000. To the extent the backbone infrastructure i mprc:wements and capital impact fees are not funded from the proceeds of the Bands, the Developer is expected to finance such imprc:wements from internal sources, including funds pro.tided b,I the Developer's parent company D.R. Horton (described belo.v).

There is no assurance that amounts necessary to finance the site development costs within the District or home construction costs will be available from the Developer, D.R. Horton, or any other source, when needed. Neither the Developer nor D.R. Horton or any other affiliate is under any legal obligation to expend funds for the development of the property within the District, including the payment of capital impact fees or Special Taxes, or for construction of the homes.

Absorption Study

A market feasibility and absorption analysis dated August 2, 2cn; (the "Absorption Stud/') has been prepared b,I Market Profiles Inc., Santa Ana, California, atthe request of the City in connection with the issuance of the Bonds. The study evaluated the depth of demand for ne.v homes in Coachella Valley,

23

as well as, the competitive market demand within the local Indio marketplace. The Absorption Study indicates the existence of softening market conditions within the Coachella Valley. The Absorption Study, ho.vever, indicated that a healthy volurre of new home sales is prqjected to be maintained in the Indio submarket area ewer the next two years and that market demand is arrple to support the developrrent and sale of the proposed new horres within the Sonora Wells developrrent. The Absorption Study prqjects that the Sonora Wells sale program will generate an average rate of sale of between 1.5 and 2.0 homes per week c:werthe marketing life of the subdivision with full buildout in the fourth quarter of 2009. This prqjected sales rate is based on the assumption that market conditions will be moderately less favorable than those that were experienced in the Indio marketplace during the first half of 2oa=;. Competitive evaluations of the price structures that are anticipated and prqjected sales absorption rates for the District, as well as further information regarding the Absorption Study, its assumptions and conclusions, are set forth in "APPENDIX E - MARKET ABSORPTION STUDY."

THE DEVELOPER

The property o.vner is Western Pacific Housing, Inc., a Delaware corporation (the" Developer" or "Western Pacific"). Western Pacific is a subsidiary of D.R. Horton, Inc., a Delaware corporation ("D.R. Horton"), a public company whose common stock is traded on the New York Stock Exchange(" NYSE") under the syrrbol "DHI". Western Pacific is marketing its homes in the District under the trade narre "D.R. HortonArrerica's Builder".

D.R. Horton is suqject to the information requirerrents of the Exchange Act and in accordance therewith files reports, proxy staterrents and other information with the SEC. Such filings, particularly the Annual Report on Form 10-K and its most recent Quarterly Report on Form 10-Q, may be inspected and copied at the public reference facilities maintained b,I the SEC at 450 Fifth Street, N.W ., Washington, D.C. 20549 at prescribed rates. Such files can also be accessed ewer the Internet at the SE C's website at www.sec.gcw. In addition, the aforerrentioned material may also be inspected at the office of the NYSE at 20 Broad Street, New York, NY 10005.

D.R. Horton and its subsidiaries, including the Developer, design, construct, market and sell si ngl e--fani ly residences, to.vn homes and condomi ni urns primarily to entry-I evel and mcwe---up buyers and is a geographically diverse homebuilder in the United States of Arrerica D.R. Horton and its subsidiaries closed approximately 51,172 homes and had approximately $13.9 billion in consolidated revenues for the twelve months ended September 30, 2005. D.R. Horton believes that, on a combined basis, the company is one of the largest horrebuilders in Southern California and in the State of California based on the number of uni ts constructed.

D.R. Horton and its subsidiaries also pro.tide mortgage banking and title agency services to many of their homebuyers.

More information about D.R. Horton can be found on the company's website, www.drhorton.com. This Internet address is included for reference only, and the information on this Internet site is not a part of this Official Staterrent or incorporated b,I reference into this Official Staterrent. No representation is made in this Official Staterrent as to the accuracy or adequacy of the information contained on this Internet site.

24

http://www.sec.gcv

http://www.drhorton.com

The Orange County~nland Empire division of D.R Horton based in Irvine, California is responsible for the development of the Prqject. Pr0.tided belcw is a sampie listing of recent prqjects undertaken, and in some cases corrpleted, by this division.

No.of Type of Project Name C ityJL_ cx:ation Lots Development Price Range Square Feet Completed

Springbrook Murrieta 111 SFR $370,990- 2,604-3, 505 June 2006 454,990

The Ranch SanJ acinto 148 SFR $308,990- 2,379-3,676 June 2005 395,990

Harmony Perris 378 SFR $281,990- 2,327-4,206 Under Grcwe 455,000 construction

Celebrations Moreno 262 SFR $317,000- 2,379-3,676 Under Valley 387,000 construction

SPECIAL RISK FACTORS

The follONing is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more of the events discussed herein could ad.tersely affect the ability or willingness of property cwners in the District to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the District to make full and punctual payments of debt service on the Bond. In addition, the occurrence of one or more of the events discussed herein could ad.tersely affect the value of the property in the District.

Concentration of Ownership

As buildout and market absorption continues within the District, property cwnership within the District can be expected to become diversified. Lack of diversity of cwnership presents a risk to Bondcwners, in that failure of a large taxpayer within the District 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 Bondcwners will be suqject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) ad.terse changes in local market conditions, such as changes in the market value of real property in the vicinity of the District, 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, g0.ternment rules (including, without limitation, zoning I.M's 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 else.vhere in the country or other parts of the world affecting supply of building materials that may cause delays in construction.

25

Terrorist Attacks

The terrorist attacks of September 11, 2001 and subsequent military and/or terrorist activities in this country and abroad have, in the past, contributed to slONdONns of the national as well as the State's c:werall econoITTy'. None of the City, District orthe Developer can predict the likelihood of future terrorist attacks or the I ong-term econoni c i rrpact caused b,I such attacks. Future terrorist attacks may result in a slONdONn of home sales and a decrease in land values within the District.

Future Land Use Regulations and GrONth 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 grONth in those areas. It is possible that future initiatives could be enacted and become applicable to the development prop:ised to be conducted within the District (the "Development") and could, if applied retroactively, negatively impact the ability of the Devel aper to complete the proposed Development. B ondONners should assume that any event that impacts the ability to develop land in the District could cause the land values within the District to decrease and could affect the willingness and ability of the ONners of land within the District to pay the Special Taxes when due. See "SECURITY FOR THE BONDS - Appraisal." HONever, all building pernits have been issued for the Development.

In evaluating the investment quality of the Bonds, investors should assume that the p:issible enactment of more restrictive land use regulations b,I the City or the County of Riverside, or b,I 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 the District, and will increase the amount of Special Taxes to be paid b,I the ONners of undeveloped property and may affect the willingness and ability of the ONners of land within the District to pay the Special Taxes when due. Depending on the nature of the Development eventually apprc:wed and completed, the value of the land within the District may be reduced.

Adjustable Rate and Non-Conventional Mortgages

Si nee the end of 2002, many persons have financed the purchase of ne.v homes using I oans with little or no dONnpayment and with adjustable interest rates that start ION and are suqject to being reset at higher rates on a specified date or upon the occurrence of specified conditions. Many of these loans allON the borrONer to pay interest only for an initial period, in some cases up to 10 years. Currently, in Southern California, a substantial portion of outstanding home loans are acjjustabie rate loans at historically ION interest rates. In the opinion of some economists, the significant increase in home prices in this time period has been driven, in part, b,I the ability of home purchasers to access adjustable rate and non-conventional loans. If interest rates on ne.v loans increase and if the interest rates on existing acjjustable rate loans are reset (and payments are increased) there could be a decrease in home sales due to the inability of purchasers to qualify for loans with higher interest rates. Such a decrease in home sales could, eventually, result in a decrease in home prices. Such a reduction in home prices could result in recent homebuyers having loan balances that exceed the value of their homes, given their ION dONnpayments and smal I amount of equity in their homes.

26

Homecwners in the District who purchase their homes with aqjustable rate and non-conventional I oans with no or I ON do.vnpayments may experience difficulty in maki ng thei r I oan payments due to automatic mortgage rate increases and rising interest rates. This could result in an increase in the Special Tax delinquency rate in the District and cir.M's on the Reserve Account. If there were significant delinquencies in Special Tax collections in the District and the Reserve Account was fully depleted, there could be a default in the payment of principal of and interest on the Bonds.

If mortgage loan defaults increase, bankruptcy filing by such homecwners could also increase. Bankruptcy filings by homeo.vners with delinquent Special Taxes would delay the commencement and completion of foreclosure proceedings to collect delinquent Special Taxes. See "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure" belo.v.

Failure to Develop Properties

Land development operations are suqject to comprehensive Federal, State and local regulations. Apprcwal is required from various agencies in connection with the layout and design of developments, the nature and extent of impr0.tements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. There is always the possibility that such appr0.tals will not be obtained on a timely basis. F ai I ure to obtain any such agency appr0.tal or satisfy such g0.ternmental requirements would ad.tersely affect I and development operations. In addition, there is the risk that lawsuits chal I engi ng the City's appr0.tal of the Development wi 11 be instituted.

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

Development of certain portions of the land within the District is contingent upon construction or acquisition of major public impr0.tements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, gas, telephone and electrical facilities, as well as local in-tract impr0.tements including site grading. While certain of these impr0.tements have been or are expected to be constructed with proceeds of the Bands, there can be no assurance that al I of these i mpr0.tements wi 11 be constructed. The cost of these public and private in-tract and off-site imprcwements could increase the public and private debt for which the land within the District pro.tides security. This increased debt could reduce the willingness and/or ability of the property o.vners to pay the annual Special Taxes levied against thei r property.

More0.ter, there can be no assurance that the means and incentive to conduct land development operations within the District will not be ad.tersely affected by a future deterioration of the real estate market and economic conditions of future local, State and federal g0.ternmental policies relating to real estate development, the income tax treatment of real property o.vnershi p, or the nati anal econoITTy'. A slo.vdONn of the development process and the absorption rate could ad.tersely affect land values and reduce the ability or desire of the property o.vners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Bands.

Another risk to the BondONners involves the value of undeveloped property. The inability or failure to develop property due to ad.terse regulatory or economic conditions may reduce the value of undeveloped property. The undeveloped property also pro.tides less security to the Bondo.vners should it be necessary for the District to foreclose on undeveloped property in The District due to the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within the District as currently proposed will likely reduce the diversity of o.vnership of land within the District, making the BondONners more dependent upon timely payment of the Special Tax levied on the undeveloped property and o.vned

27

b,I the De..reloper. Because of the current concentration of o.vnershi p of the unde..rel oped property in the De..reloper, the tirrely payrrent of the Bonds depends upon the willingness and ability of the present o.vner of the undeveloped property to pay the Special Taxes le.tied on the undeveloped property when due. See "SPECIAL RISK FACTORS - Concentration of ownership'' alx:we. A slo.vdo.vn or stoppage in the continued development of The District could reduce the willingness and ability of the Developer to make Special Tax payrrents on undeveloped property, and could greatly reduce the value of such property in the event it has to be foreclosed upon.

Disclosure to Future H ornebuyers

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 comnercial facility or the lending of money thereon. Failure to disclose the existence of the Special Taxes may affect the willingness and ability of future o.vners of land within the District 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 assessrrents levied b,I other agencies (such as the Valley Sanitary District Assessrrent District No. 2004-\/SD assessrrent of approximately $3,745 per lot) and is coequal to and independent of the lien for general property taxes regardless of when they are imposed upon the sarre property. The Special Taxes have priority ewer all existing and future private liens imposed on the property. The District, ho.ve..rer, has no control cwer the ability of other entities and districts to issue indebtedness secured b,I special taxes or assessrrents payable from all or a portion of the property within the District. In addition, the lando.vners within the District may, without the consent or kno.vledge of the District, petition other public agencies to issue public indebtedness secured b,I special taxes or assessrrents. Any such special taxes or assessrrents 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 the District is an important factor in evaluating the investrrent quality of the Bonds. In the event that a property o.vner defaults in the payrrent of Special Tax installrrents, the District's only rerredy is to judicially foreclose on that property. Prospective purchasers of the Bonds should not assurre that the property within the District could be sold for the assessed or appraised value described in the Official Staterrent at a foreclosure sale for delinquent Special Tax installrrents or for an amount adequate to pay delinquent Special Tax installrrents. Reductions in property values within the District due to a do.vnturn in the econoITTy' or the real estate market, e..rents such as earthquakes, droughts, or floods, stricter land use regulations, threatened or endangered species or other e..rents may ad.tersely impact the security underlying the Special Taxes.

The property values set forth herein are the property values determined b,I the Appraiser. The Appraisal was prepared for the purpose of estimating and confirming the ninirnum market value of the property in the District as of August 1, 2cn; in its as is condition on the basis of certain assumptions. Prospective purchasers of the Bonds should not assurre, ho.vever, that the land within the District could be sold for the appraised amount described herein at the present tirre or at a foreclosure sale for

28

delinquent Special Taxes. See the Appraisal included as Appendix D hereto for a brief description of the analysis used and assurrptions made by the Appraiser. The actual value of the property is suqject to future events that night render invalid the assurrptions relied upon by the Appraiser in deternining the appraised val ue.

The actual market value of the property is suqject to future events such as a dcwntum in the econOITiy', and occurrences of certain acts of nature, al I of which could adversely i rrpact the value of the land in the District which is the security for the Bonds. As discussed herein, many factors could adversely affect property values or prevent or delay land development within the District. 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 "col I ateral" supporting the wi 11 i ngness of property o.vners to pay their special taxes and assessrnents ( and, i n effect, their general property taxes as wel I). The val ue-to--l i en ratio is mathematical ly 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, ho.vever, be viewed as a guarantee for credit-worthiness. Land values are rnore volatile in the early stages of a development, and are especially sensitive to economic cycles. A do.vntum of the econOITiy' or other market factors such as i ncrease i n bui I ding materials cost or I abor cost to construct homes 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 prqjects. Further, the value-to-lien ratio cited for a bond issue is an average. Individual parcels in a cornrnunity facilities district may fall albove or belo.v the average, sornetirnes even belo.v a 1: 1 ratio. (With a ratio belo.v 1 :1, the land is worth less than the debt on it.) If property o.vnership in a cornrnunity facilities district is highly concentrated during the early stages of developrnent, the delinquency of a major property o.vner 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. Althoughjudicial foreclosure proceedings can be initiated rapidly, the process can take several years to complete, and the bankruptcy courts may irrpede 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 0.terlapping 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 abOJe entitled "SECURITY FOR THE BONDS - Direct and overlapping Debt." See "SECURITY FOR THE BONDS - EstimatedAppraisedValue-to--lien Ratios."

Insufficiency of Special Taxes

Underthe Rate and Method, the annual amount of Special Tax to be levied on each taxable parcel in the District will be based primarily on whether such parcel is developed or not and, for detached developed property on the square footage. See "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" and "SECURITY FOR THE BONDS - Rate and Method of Apportionment of Special Taxes." Although under the Rate and Method, a parcel is considered "Developed' when a building permit is issued, it may remain undeveloped as to irnpr0.ternents for an extended period of time. Accordingly, to the extent property is not developed, collection of the Special Taxes will be dependent on the willingness and ability of the o.vners of undeveloped property to pay such Special Taxes when due. See "SPECIAL RISK FACTORS - Future Land Use Regulations and GrONth

29

Control Initiatives'' and"- Failure to Develop Properties'' alx:we for a discussion of the risks associated with undeveloped property.

The Act pr0.tides that, if any property within the District not otherwise exempt from the Special Tax is acquired b,I a publ i c entity through a negotiated transaction, or b,I a gift or de.ti se, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act pr0.tides that, if property suqject to the Special Tax is acquired b,I a public entity through eni nent domain proceedings, the obi i gati on 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 eninent domain award. The constitutionality and operation of these pr0.tisions of the Act have not been tested in the courts. MOREOVER, IF A SUBSTANTIAL PORTION OF LAND WITHIN THE DISTRICT BECAME EXEMPT FROM THE SPECIAL TAX BECAUSE OF PUBLIC OWNERSHIP, OR OTHERWISE, THE MAXIMUM SPECIAL TAX WHICH COULD BE LEVIED UPON THE REMAINING ACREAGE MIGHT NOT BE SUFFICIENT TO PAY PRINCIPAL 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 prcwisions 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 the District on the regular property tax bills sentto o.vners 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 urwi 11 i ngness or i nabi I ity of a property o.vner to pay regular property tax bills as e..ridenced b,I property tax delinquencies may also indicate an urwillingness 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 -CO.tenant for Superior Court Foreclosure," for a discussion of the prcwisions which apply, and procedures which the District is obligated to follo.v underthe Fiscal Agent Agreement, in the event of delinquency in the payment of Special Tax installments.

Natural Disasters

The District, like all California communities, may be suqject to unpredictable seismic activity, fires due to the vegetation and topography, or flooding in the e..rent 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, the District could be impacted b,I 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 the District, which, in turn, could substantially reduce the value of such properties. As a result of the occurrence of such an e..rent, a substantial portion of the property o.vners may be unable or urwilling to pay the Special Taxes when due, and the reserve fund for the Bonds may become depleted. In addition, the value of land in the District 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.

Endangered and Threatened Species

On a regular basis, ne.v species are proposed to be added to the State and federal protected species lists. Any action b,I the State or federal g0.ternments to protect species located on or acjjacent to the property within the District could negatively affect the Developer's ability to complete the

30

de.telopment of the properties within the District as planned. This, in turn, could reduce the ability or willingness of the property o.vners 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. All nitigation fees required to be paid with respect to endangered or threatened species in the District have been paid.

Hazardous Substances

A serious risk in terms of the potential reduction in the value of a parcel within the District is a clairnwith regard to a hazardous substance. In general, the o.vners and operators of a parcel within the District rnay be required b,I I aw to rerredy conditions of such parcel relating to rel ease or threatened releases of hazardous substances. The federal Comprehensive Environrrental Response, Compensation and Liability Act of 1980, sornetirres referred to as "CERCLA" or the "Superfund Act," is the rnost well kno.vn and widely applicabie of these laws, but California laws with regard to hazardous substances are also sinilarly stringent. Under rnany of these laws, the o.vner or operator is obligated to rerredy a hazardous substance condition of the property whether or not the o.vner or operator had anythi ng to do with creating or handling the hazardous substance. The effect, therefore, should any of the parcels within the District be affected b,I a hazardous substance, will be to reduce the marketability and value of such parcel b,I the costs of rerredying the condition, because the prospective purchaser, upon becoming the o.vner, will become obligated to rerredy the conditionjust as the seller is.

Further it is possible that liabilities rnay 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 rnay arise in the future resulting from the current existence on the parcel of a substance not presently classified as hazardous but which rnay in the future be so classified. Further, such liabilities rnay arise not simply from the existence of a hazardous substance but from the rrethod in which it is handled. All of these possibilities could significantly affect the value of a parcel within the District that is realizable upon a delinquency.

Bankruptcy and Foreclosure

The payrrent of property o.vners' taxes and the ability of the District to foreclose the lien of a delinquent unpaid Special Tax pursuantto its ccwenantto pursuejudicial foreclosure proceedings, rnay be linited b,I bankruptcy, insolvency or other laws generally affecting creditors' rights or b,I the laws of the State relating to judicial foreclosure. See "SECURITY FOR THE BONDS - Co.tenant for Superior Court Foreclosure." In addition, the prosecution of a foreclosure could be delayed due to rnany reasons, including cro.vded 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 appr0.ting legal opinion) will be qualified, as to the enforceability of the various legal instrurrents, b,I rnoratoriurn, bankruptcy, reorganization, insolvency or other sinilar laws affecting the rights of creditors generally.

In addition, bankruptcy of a property o.vner (or a property o.vner's partner or equity o.vner) would likely result in a delay in procuring Superior Court foreclosure proceedings unless the bankruptcy court consented to pernit such foreclosure action to proceed. Such delay would increase the likelihood of a delay or default in payrrent of the principal of, and interest on, the Bonds and the possibility of del i nquent tax i nstal I rrents not bei ng paid i n ful I .

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 advalorerntaxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. BondONners should be aware that the potential effect of 11 U.S.C.

31

Section 362(b)(l 8) on the Special Taxes depends upon whether a court were to determine that the Special Taxes should be treated like advaloremtaxes forthis purpose.

OnJ uly 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 b,I Snohomish County in the State of Washington after the date that the property o.vner filed a petition for bankruptcy were not entitled to priority ewer 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 al I 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--peti ti on 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 adninistrative expenses may be allo.ved to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise), it would at that time become suqject to current ad val orem taxes.

The Act pro.tides that the Special Taxes are secured b,I a continuing lien which is suqject to the same lien priority in the case of delinquency as advaloremtaxes. No case law exists with respect to ho.v a bankruptcy court would treatthe lien for Special Taxes levied afterthe filing of a petition in bankruptcy. Glasply is controlling precedent on bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Taxes, the amount of Special Taxes received from parcels whose o.vners declare bankruptcy could be reduced.

Property Controlled by FDIC

The District's ability to collect interest and penalties specified b,I 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 sinilar federal agencies has or obtains an interest. The District is not aware of any such interest of a federal agency in the land within the District. OnJ une 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 b,I a ne.v Policy Statement effective January 9,1997 (the "Policy Statement''). The Policy Statement pro.tides that real property o.vned b,I the FDIC is suqject 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 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 o.ved at the rate pro.tided under state law, to the extent the interest payment obligation is secured b,I 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 o.vned property are secured b,I a valid lien (in effect before the property became o.vned b,I the FDIC), the FDIC will pay those claims. The Policy Statement further pro.tides that no property of the FDIC is suqject to levy, attachment, garnishment, foreclosure or sale withoutthe FDI C's consent. In addition, the FDIC will not pernit a lien or security interest held b,I the FDIC to be elininated b,I foreclosure withoutthe FDIC's consent.

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The Policy Statement states that the FDIC generally will not pay non ad valoremtaxes, 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 i rrposed 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 imp:ised each year and therefore cc:wered b,I the FDIC's federal immunity.

The FDIC has filed claims against one California county in United States Bankruptcy Court contendi ng, among other things, that special taxes authorized under the A ct are not ad val orem taxes and therefore not payable b,I the FDIC, and seeking a refund of any special taxes previously paid b,I the FDIC. The FDIC is also seeking a ruling that special taxes may not be irrposed on properties while they are in FDIC receivership. The Bankruptcy Court ruled in favor of the FDIC's p:isitions 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 gcwernment, is exempt from p:ist--receivership special taxes levied under the Act. This is consistent with prcwision in the Law that the federal gcwernment 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 ajudicial 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 o.vned b,I 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 Ii kely to acqui re, any i nterest in any of the parcels, and therefore expresses no view concerning the likelihood thatthe risks described abcwewill materialize while the Bonds are outstanding.

Billing of Special Taxes

A special tax formula can result in a substantially heavier property tax burden being irrposed 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 b,I the District.

Under prc:wisions of the Act, the Special Taxes are billed to the properties within the District which were entered on the Assessment Roll of the County Assessor b,I January 1 of the previous Fiscal Year on the regular property tax bills sent to o.vners of such properties. Such Special Tax installments are due and payable, and bearthe 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 unwi 11 i ngness or i nabi I ity of a property o.vner to pay regular property tax bi 11 s as evidenced b,I property tax deli nquenci es may al so i ndi care an unwi 11 i ngness or inability to make regular property tax payments and installment payments of Special Taxes in the future. See "SECURITY FOR THE BONDS -Co.tenant for Superior Court Foreclosure," for a discussion of the prc:wisions which apply, and procedures which the District is obligated to follo.v, in the event of del i nquency in the payment of i nstal I ments 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 the District be paid in a timely manner. It is p:issible that delays in the payment of debt service may be the result of the County processi ng subdivisions or b,I the transfer of o.vnershi p of property wi thi n

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the District. The District has co.tenanted in the Fiscal Agent Agreerrent under certain conditions to institute foreclosure proceedings against property with delinquent Special Taxes in order to obtain funds to pay debt service on the Bands. If fared osure proceedings were instituted, any mortgage or deed of trust holder could, but would not be required to, ad.tance 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 pri nci pal and interest payrrents to the o.vners of the B ands 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 suqject to foreclosure and sale at ajudicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Taxes installrrent. Although the Act authorizes the District to cause such an action to be comrrenced 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 - Co.tenant for Superior Court Foreclosure."

As of September 8, 2cn;, the City's 14 bonded assessrrent districts (the "Financing Districts") had an c:werall delinquency rate of 2.7ffYo with respect to special assessrrents, with the lo.vest delinquency rate being 0.0036 in Assessrrent District No. 2004-3 and the highest delinquency rate being 4.01% in Assessrrent District No. 2004-2. The City is not .M'are of the causes forthe increased delinquencies in its other Financing Districts or in other jurisdictions or whether increases in delinquencies may occur in the future with respect to the Di strict. In J une 2cn;, I eners requesting payrrent of special assessrrents were sent on behalf of the City to property o.vners who County records indicate were delinquent in the payrrent of special assessrrents. See "SECURITY FOR THE BONDS - Co.tenant for Superior Court Foreclosure" for a discussion of the prc:wisions which apply and procedures which the City is obligated to follo.v under the Fiscal Agent Agreerrent, in the event of delinquencies in the payrrent of Special Taxes. See "SPECIAL RISK FACTORS- Bankruptcy and Foreclosure'' and "-Property Controller b,I FDIC" herein for a discussion regarding bankruptcy, foreclosure, policies of the Federal Deposit Insurance Corporation and regarding payrrents b,I other federal agencies that may affect the payrrent and collection of Special Taxes and linitthe District's ability to foreclose on the lien of Special Taxes.

Maximum Special Tax Rates

Within the limits of the Rate and Method, the District may acjjust the Special Taxes levied on all property within the District to pro.tide 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 Requirerrent. Ho.vever, the amount of Special Taxes that may be levied against particular categories of property is suqject 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 the District 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 rret, each Rate and Method pro.tides that the District shall not levy a Special Tax on property classified as Exempt Property. Under the Rate and Method, the City Council will not levy Special Taxes on public property, Property owner's Association property within the District as well as certain other parcels specified in the District. 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 pro.tides that properties or entities of the State, federal or local gcwernrrent are exempt from the Special Taxes; pro.tided, ho.vever, the property within the District acquired b,I a

34

publ i c entity through a negotiated transaction or b,I gift or devise, which is not otherwise exerrpt from the Special Taxes, will continue to be suqject to the Special Taxes. The Act further pro.tides that if property suqject to the Special Taxes is acquired b,I 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 prc:wisions of the Act have not been tested. In particular, insofar as the Act requires payment of the Special Taxes b,I a federal entity acquiring property within the District, it may be unconstitutional.

If for any reason property within the District becomes exerrpt from taxation b,I reason of its status under the Rate and Method, or b,I reason of its o.vnership b,I a nontaxable entity such as the federal gcwernment or another public agency, suqject to the limitation of the maximum authorized rates, the Special Taxes will be reallocated to the remaining taxable properties within the District. This would result in the o.vners of such property paying a greater amount of the Special Taxes and could have an ad.terse impact upon the timely payment of the Special Taxes.

California Constitution ArticleX 111 C and ArticleX 111 D

On Nc:wember 5, 1996, the voters of the State apprc:wed Prop:isition 218, the so-called "Right to Vote on Taxes Act." Prop:isition 218 added Articles XI I IC and X 111 D to the State Constitution, which articles contain a number of prc:wisions 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 Prop:isition 218 prepared b,I the California State Attorney General, Prop:isition 218 linits the "authority of I ocal gcwernments to i mp:ise taxes and property,el ated assessments, fees and charges." On J uly 1, 1997 California State Senate Bill 919 ("SB 919'') was signed into liM'. SB 919 enacted the "Prop:isition 218 Omnibus lrrplementation Act," which irrplements and clarifies Prop:isition 218 and prescribes specific procedures and parameters for local jurisdictions in corrplyingwith Articles XI I IC and XIIID.

Article X 111 D of the State Constitution reaffirm, that the proceedings for the levy of any Special Taxes b,I the District under the Act must be conducted in conformity with the prc:wisions of Section 4 of Article XI I IA. The District has corrpleted its proceedings for the levy of Special Taxes in accordance with the prc:wisions of Section 4 of Article XI I IA. Under Section 53358 of the California Gc:wernment 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 apprc:wed b,I the voters.

Article XIIIC remcwes certain limitations on the initiative po.ver in matters of local taxes, assessments, fees and charges. The Act pro.tides for a procedure, which includes notice, hearing, protest and voting requirements, to alter the rate and method of apportionment of an existing special tax. Ho.vever, 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 uti Ii zed to reti re any debt incurred pursuant to the A ct uni ess 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 b,I the voters of the initiative po.ver referred to in Article XI I IC to reduce or terminate the Special Tax is suqject to the same restrictions as are applicable to the Board, as the legislative body of the District, pursuant to the Act. Accardi ngly, although the matter is not free from doubt, it is I ikely that Prop:isition 218 has not conferred on the voters the po.ver to repeal or reduce the Special Taxes if such repeal or reduction would interfere with the timely retirement of the Bands.

It may be possible, ho.vever, for voters orthe 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 belo.v the

35

existing levels. Furtherrmre, no assurance can be given with respect to the future levy of the Special Taxes in armunts greater than the armunt necessary for the ti rrely reti rerrent of the Bands.

Proposition 218 and the irrplerrenting legislation have yet to be extensively interpreted by the courts; hcwe..rer, the California Court of Appeal in April 1998 upheld the constitutionality of Proposition 218's balloting procedures as a condition to the validity and collectibility of local gc:wernrrental assessrrents. A number of validation actions for and challenges to various local gc:wernrrental taxes, fees and assessrrents 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 wi 11 ul ti mately be deterni ned by the courts with respect to a number of the matters discussed alx:we, and the outcorre of such deternination cannot be predicted at this tirre with any certainty.

Ballot Initiatives and Legislative Measures

Proposition 218 was adopted pursuant to a rreasure 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 linitations or established ninirnum funding prc:wisions for particular activities. From tirre to tirre, 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 Ii mitati ons on the abi I ity of the State, the District or other I ocal districts to increase re..renues or to increase appropriations or on the ability of a landcwner to complete the developrrent of property. See "SPECIAL RISK FACTORS- FutureLandUseRegulationsandGrcwthControl Initiatives" abcwe.

NoAcceleration

The Bonds do not contain a prc:wision allcwing for their acceleration in the event of a payrrent default or other default under the terms of the Bonds or the Fiscal Agent Agreerrent or upon any ad.terse change in the tax status of interest on the Bonds. There is no prcwision in the Act or the Fiscal Agent Agreerrent for acceleration of the Special Taxes in the event of a payrrent default by an cwner of a parcel within the District. Pursuant to the Fiscal Agent Agreerrent, 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."

Lass of Tax Exemption

As discussed underthe caption "CONCLUDING INFORMATION - Tax Exemption," in orderto maintain the excl usi on from gross i ncorre for federal i ncorre tax purposes of the i nterest on the Bands, the District has co.tenanted in the Fiscal Agent Agreerrent not to take any action, or fail to take any action, if such action or failure to take such action would ad.tersely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Internal Revenue Code of 1986, as arrended. I nterest on the B ands could become incl udabl e in gross i ncorre for purposes of Federal i ncome 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 e..rent of taxability occur, the Bonds are not suqject to early redemption and will remain outstanding to maturity or until redeerred under the optional redemption or mandatory sinking fund redemption prc:wisions of the Fiscal AgentAgreerrent.

Limitations on Remedies

Rerredies available to the Bond owners may be limited by a variety of factors and may be inadequate to assure the ti rrely payrrent of principal of and interest on the Bands or to preserve the tax-exempt status of the Bands. Bond Counsel has Ii mited its opinion as to the enforceabi I ity of the

36

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 discretion. Additionally, the Bonds are not suqject 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 linitation of remedies may entail risks of delay, linitation 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 suqject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or sinilar I.M's relating to or affecting the enforcement of creditor's rights generally, new 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 pcwers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police pcwers inherent in the sovereignty of the State and its governmental oodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies againstjoint pcwers 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 wi 11 be a secondary market for purchase or sale of the Bands 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 kncwn whether a credit rating could be secured either new or in the future forthe Bonds.

CONCLUDING INFORMATION

Underwriting

The Underwriter purchased the Bonds at a purchase price of $10,CXX'i,697.10, representing the principal amount of the Bonds less an Underwriter's discount of $204,500.00 and less an Original Issue Discount of $13,802.90. 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 Bands to the public. The U nderwri ter may offer and sel I the Bands to certain dealers ( i ncl udi ng dealers depositing Bonds into investment trusts) at prices lcwer than the public offering prices, and such dealers may real I cw any such discounts on sales to other dealers.

Legal Opinion

The legal opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, approving the validity of the Bonds, in substantially the form set forth in APPENDIX F hereto, will be made available to purchasers of the Bonds at the time of original delivery. A copy of the legal opinion forthe 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 revie.v the Official Statement and assumes no responsibility to such owners and B enefi ci al owners for the accuracy of the information contained herei n. Certai n I egal

37

matters will be passed upon for the City t,,,, the City Attorney and t,,,, Fulbright & J.M'orski L.L.P., Los Angeles, California, Disclosure Counsel to the City with respect to the issuance of the Bonds. McFarlin & Anderson LLP, Lake Forest, California, has acted as counsel to the Underwriter.

Tax Exemption

The Internal Revenue Code of 1986 (the" Code''), i rnposes certain requirements that rnust be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 1 03( a) of the Code frorn the gross i ncome of the o.vners thereof for federal i ncome tax purposes. Noncorrpliancewith such requirements could cause the interest on the Bonds to be included in the gross income of the o.vners thereof for federal income tax purposes retroactive to the date of issuance of the Bands. The District has co.tenanted to maintain the exclusion of the interest on the Bands frorn the gross income of the o.vners thereof for federal income tax purposes.

In the opinion of Fulbright & Jaworski L.L.P., Bond Counsel, under existing liM', interest on the Bonds is exerrpt frorn personal income taxes of the State of California and, assuming compliance with the aforementioned co.tenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code frorn the gross income of the o.vners thereof for federal income tax purposes. Bond Counsel is also of the opinion that, assuming corrpliance with the aforementioned co.tenant, 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 Bands wi 11 not be treated as an itern of tax preference for purposes of cornputi ng the alternative rninirnurntax imposed t,,,, section 55 of the Code. The receipt or accrual of interest on the Bonds o.vned t,,,, a corporation may affect the computation of its alternative ninirnurn taxable income, upon which the alternative rninirnurn tax is imposed, to the extent that such interest is taken into account in determining the aqjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings ewer the alternative rninirnurn taxable income being an acjjustment to alternative ninirnurn taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)) .

The excess, if any, of the stated redemption price at maturity of Bonds of a maturity cwer the initial offering price to the public of the Bonds of that maturity set forth on the ccwer of this Official Statement is "original issue discount'' underthe Code. Such original issue discount accruing on a Bond is treated as interest excluded frorn the gross income of the o.vner thereof for federal income tax purposes and exempt frorn California personal income tax to the same extent as would be stated interest on the B ond. Original issue discount on any Bond purchased at such i ni ti al offeri ng price and pursuant to such initial offering will accrue on a seniannual basis ewer the terrn of the Bond on the basis of a constant yield method and, within each seniannual 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 prc:wisions relating to the accrual of original issue discount in the case of purchasers of Bonds who purchase such Bonds otherthan at the initial offering price and pursuant to the initial offering.

Any person considering purchasing a Bond of a maturity having original issue discount should consult his or her o.vn tax ad.tisors with respect to the tax consequences of o.vnership of Bonds with original issue discount, including the treatment of purchasers who do not purchase i n the original offeri ng and at the original offering price, the allo.vance 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 rninirnurntaxes.

Bond Counsel has not undertaken to ad.ti se in the future whether any events after the date of issuance of the Bands may affect the tax status of i nterest on the B ands or the tax consequences of the

38

o.vnership of the Bonds. No assurance can be given that future legislation, or arrendrrents to the Code, if enacted into law, will not contain prcwisions that could directly or indirectly reduce the benefit of the exemption of interest on the Bonds from personal incorre taxation b,I the State of California or of the exclusion of the interest on the B ands from the gross i ncome of the o.vners thereof for federal i ncorre 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 ad.tice or appr0.tal of bond counsel if such ad.ti ce or appr0.tal is given b,I 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 o.vners thereof for federal income tax purposes, an o.vner's federal, state or local tax liability may be otherwise affected b,I the o.vnership or disposition of the Bands. The nature and extent of these other tax consequences wi 11 depend upon the o.vner' s other items of income or deduction. Without liniting the generality of the foregoing, prospective purchasers of the Bonds should be .M'are 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 o.vner's interest expense allocated to interest on the Bonds, (ii) with respect to insurance companies suqject to the tax imposed b,I section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves b,115 percent of the sum of certain items, including interest on the Bonds, (iii) interest on the Bonds earned b,I certain foreign corporations ck:ling business in the United States could be suqject to a branch profits tax imposed b,I section 884 of the Code, (iv) passive investrrent income, including interest on the Bonds, may be suqject 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 investrrent incorre, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirerrent 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 investrrent income, including interest on the Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel has expressed no opinion regardi ng any such other tax consequences.

Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgrrent based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and co.tenants of the District described abOJe. 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 comrrenced, under current procedures the Service is Ii kely to treat the District as the "taxpayer," 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 ad.tersely 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 tirre of the original delivery of the Bonds. Neitherthe City nor the District are .M'are 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.

39

No Rating on the Bonds

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

Miscellaneous

All of the preceding summaries of the Fiscal Agent Agreement, other applicable legislation, agreements and other documents are made suqj ect to the pro.ti sions of such documents and do not purport to be comp! ete documents of any or al I of such pro.ti si ons. Reference is hereby made to such documents on file with the City for further information in connection there.vith.

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

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 esti mates wi 11 be realized.

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

CITY OF INDIO COMMUNITY FACILITIES DISTRICT NO. 2006-1 (SONORA WELLS)

By /s/Glenn Southard City Manager of the City of Indio on behalf of the City of

Indio Community Facilities District No. 2CXX'i-1 (Sonora Wells)

40

APPENDIX A

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES

A-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR CITY OF INDIO

COMMUNITY FACILITIES DISTRICT NO. 2006-1 (SONORA WELLS)

A Special Tax (all capitalized terms are defined in Section A. Definitions below) shall be applicable to each Parcel of Taxable Property located within Community Facilities District No. 2006-1 (Sonora Wells). The amount of Special Tax to be levied and collected in the CFD each Fiscal Year, commencing in Fiscal Year 2006-2007, on a Parcel shall be determined by the City Council of the City oflndio, acting in its capacity as the legislative body of the CFD by applying the appropriate Special Tax for Developed Property, Approved 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 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 City that are chargeable or allocable to the CFD 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, any litigation or other legal services involving the CFD, continuing disclosure undertakings of the City as imposed by applicable laws and regulations, communication with bondholders and normal administrative expenses.

"Administrator" means an official of the City, or designee thereof, responsible for determining the levy and collection of the Special Taxes.

"Approved Property" means all Parcels of Taxable Property: (i) that are included in a Final Map that was recorded prior to the January 1st preceding the Fiscal Year in which the Special Tax is being levied, and (ii) that have not been issued a building permit prior to the June 1st preceding the Fiscal Year in which the Special Tax is being levied.

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

City oflndio Community Facilities District No. 2006-1 (Sonora Wells)

February 13, 2006 Page 1

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

"Backup Special Tax" means the Special Tax amount set forth in Section C. l. b. below.

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

"CFD" means Community Facilities District No. 2006-1 (Sonora Wells) of the City oflndio established pursuant to the Act.

"City" means the City of Indio.

"City Council" means the City Council of the City oflndio acting as the legislative body of the CFD under the Act.

"County" means the County of Riverside.

"Developed Property" means all Parcels of Taxable Property, not classified as Approved Property, 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) for which a building permit for new construction has been issued prior to June 1st preceding the Fiscal Year in which the Special Tax is being levied.

"Exempt Property" means any Parcel or portion of a 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 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.

"Indenture" means the bond indenture, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which CFD 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 Table 1.

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

"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)" means a lot or parcel shown on an Assessor's Parcel Map within the CFD with an assigned parcel number as of January 1 preceding the Fiscal Year for which the Special Tax is being levied.

"Property Owner's Association Property" means any Parcel within the boundaries of the CFD, which, as of January 1 preceding the Fiscal Year for which the Special Tax is being levied, has been conveyed, dedicated to, or irrevocably offered for dedication to a property owner association, including any master or sub-association.

"Proportionately" means for 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 for Approved Property, 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, as of January 1 preceding 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. Once such determination has been made for a Parcel, it shall remain fixed in all future Fiscal Years.

"Residential Property" means all Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwelling units.

"Single Family Property" means all Parcels of Residential Property, for which building permits have been issued for detached or attached residential units.

"Special Tax(es)" means the special tax(es) to be levied within the CFD in each Fiscal Year on each Parcel of Taxable Property.

"Special Tax Requirement" means that amount required in any Fiscal Year 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; (vi) pay directly for acquisition or construction of CFD facilities eligible



under the Act to the extent that the inclusion of such amount does not increase the Special Tax levy on Undeveloped Property; less (vii) a credit for funds available to reduce the annual Special Tax levy as determined pursuant to the Indenture.

"Taxable Property" means all Parcels within the CFD, 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, Approved Property, Public Property and/or Property Owner's Association Property that is not Exempt Property pursuant to the provisions of Section E.

B. ASSIGNMENT TO LAND USE CATEGORY

Each Fiscal Year, commencing with the 2006-2007 Fiscal Year, all Parcels of Taxable Property shall be categorized and classified as either Developed Property, Approved 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 according to its appropriate Land Use Category based on the Residential Floor Area of such Parcel.

C. MAXIMUM SPECIAL TAX RATE

1. Developed Property

The Maximum Special Tax for each Parcel of Residential Property that is classified as Developed Property shall be the greater of: (i) the applicable Assigned Special Tax described in Table I, or (ii) the amount derived by application of the Backup Special Tax.

The Maximum Special Tax for each Parcel of Non-Residential Property shall be the Assigned Special Tax described in Table I.

a. Assigned Special Tax

City oflndio

The Assigned Special Tax for each Parcel of Developed Property is shown in Table I below. On each July I, commencing July I, 2007, the Assigned Special Tax for the prior Fiscal Year shall be increased by an amount equal to one percent (I%). The escalation factor will be applied for a period of five (5) years. Following the 2011/12 Fiscal Year, no further escalation factors will be applied to the Maximum Special Tax.

Community Facilities District No. 2006-1 (Sonora Wells) February 13, 2006

Page 4

TABLE 1

Assigned Special Taxes for Developed Property

Assigned Taxable Special Tax Per

Land Use Cate~ory Unit Residential Floor Area Taxable Unit

1 - Single Family Property D/U Less than 1,851 sq. ft. $1,639

2 - Single Family Property D/U 1,851 sq. ft. to2,100sq. ft. $1,728

3 - Single Family Property D/U 2, 101 sq. ft. to 2,350 sq. ft. $1,830

4 - Single Family Property D/U 2,351 sq. ft. to 2,600 sq. ft. $1,864

5 - Single Family Property D/U 2,601 sq. ft. to 2,850 sq. ft. $2,015

6 - Single Family Property D/U 2,851 sq. ft. to3,100sq. ft. $2, 107

7 - Single Family Property D/U 3, 101 sq. ft. to 3,350 sq. ft. $2,202

8 - Single Family Property D/U Greater than 3,350 sq. ft. $2,325

9 - Non-Residential Property Acre NIA $13,003

b. Backup Special Tax

When a Final Map is recorded, the Backup Special Tax for the Parcels of Residential Property within such Final Map shall be determined by multiplying the Undeveloped Property Maximum Special Tax rate per Acre by the total Acreage of Taxable Property excluding the Acreage associated with Public Property and/or Property Owner's Association Property that is not Exempt Property pursuant to Section E. in such Final Map and dividing such amount by the number of Parcels in such Final Map (i.e. the number of residential lots).

If a Final Map includes Parcels for which building permits for residential construction and non-residential construction may be issued, then the Backup Special Tax for each Parcel of Residential Property shall be computed exclusive of the allocable portion of total Acreage attributable to Parcels for which building permits for nonresidential construction may be issued.

Notwithstanding the foregoing, if parcels of Residential Property are subsequently changed of modified by recordation of a lot line adjustment or similar instrument, then the Backup Special Tax shall be recalculated to equal the amount of Backup Special Tax that would have been generated if such change did not take place.

On each July I, commencing July I, 2007, the Backup Special Tax for the prior Fiscal Year shall be increased by an amount equal to one percent (I%). The escalation factor will be applied for a period of five (5) years. Following the 2011/12 Fiscal Year, no further escalation factors will be applied to the Backup Special Tax.

2. Approved Property

The Maximum Special Tax for each Parcel of Approved Property shall be the Backup Special Tax computed pursuant to Section C. l. b.



3. Undeveloped Property

The Maximum Special Tax for each Parcel of Undeveloped Property shall be $13,003 per Acre. On each July I, commencing July I, 2007, the Maximum Special Tax for the prior Fiscal Year shall be increased by an amount equal to one percent (I%). The escalation factor will be applied for a period of five (5) years. Following the 20ll/l2 Fiscal Year, no further escalation factors will be applied to the Maximum Special Tax.

4. 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 Association Property that is not Exempt Property pursuant to the provisions of Section E, shall be $13,003. On each July 1, commencing July 1, 2007, the Maximum Special Tax for the prior Fiscal Year shall be increased by an amount equal to one percent (I%). The escalation factor will be applied for a period of five (5) years. Following the 20ll/12 Fiscal Year, no further escalation factors will be applied to the Maximum Special Tax.

D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX

Commencing with Fiscal Year 2006-2007 and for each following Fiscal Year, the City Council shall levy the Special Tax on all Taxable Property until the amount of Special Taxes equals the applicable Special Tax Requirement in accordance with the following steps:

First: The Special Tax shall be levied Proportionately 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;

Second: If additional moneys are needed to satisfy the Special Tax Requirement after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Approved Property at up to 100% of the Maximum Special Tax for Approved Property;

Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property;

Fourth: If additional moneys are needed to satisfy the Special Tax Requirement after the first three steps have been completed, the Special Tax to be levied on each Parcel of Developed Property whose Maximum Special Tax is derived by the application of the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Special Tax;

Fifth: If additional moneys are needed to satisfy the Special Tax Requirement after the first four steps have been completed, the Special Tax shall be levied Proportionately on each Parcel of Public Property and/or Property Owner's Association Property that is not Exempt



Property pursuant to the provisions of Section E. at up to 100% of the Maximum Special Tax.

Notwithstanding the above, under no circumstances will the Special Taxes levied against any Parcel of Residential Property 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.

E. EXEMPTIONS

The Administrator shall classify the following Assessor Parcel(s) as exempt property: (i) Public Property, (ii) Property Owner's Association Property, and (iii) Assessor's Parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement; provided, however, that no such classification shall reduce the sum of all Taxable Property to less than 55.47 Acres. Notwithstanding the preceding sentence, the Administrator shall not classify an Assessor's Parcel described in this paragraph as exempt property if such classification would reduce the sum of all Taxable Property to less than 55.47 Acres. Assessor's Parcels which cannot be classified as exempt property because such classification would reduce the Acreage of all Taxable Property within Improvement Area No. 2 to less than 55.47 Acres shall be prepaid in full pursuant to Section H. prior to the transfer or dedication of such property. Until the Maximum Special Tax obligation is prepaid as provided for in the preceding sentence, the Public Property and/or Property Owner's Association Property within the CFD shall be subject to the levy of the Special Tax as provided for in the fifth step in Section D.

F. 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 City 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.

G. 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 except for those relating to the last Fiscal Year levy.

H. PREPAYMENT OF SPECIAL TAX



The following definitions apply to this Section H:

"CFD Pnblic Facilities" means $11,000,000 expressed in 2006 dollars, which shall increase by the Construction Inflation Index on July 1, 2006, and on each July 1 thereafter, or such lower number as (i) shall be determined by the Administrator as sufficient to provide the public facilities under the authorized bonding program or (ii) shall be determined by the City Council concurrently with a covenant that it will not issue any more Bonds to be supported by Special Taxes, as levied under this Rate and Method of Apportionment.

"Construction Fund" means an account specifically identified in the Indenture to hold funds which are currently available for expenditure to acquire or construct public facilities eligible under the Act.

"Construction Inflation Index" means the annual percentage change in the Engineering News-Record Building Cost Index for the City of Los Angeles, measured as of the calendar year which ends in the previous Fiscal Year. In the event this index ceases to be published, the Construction Inflation Index shall be another index as determined by the Administrator that is reasonably comparable to the Engineering News-Record Building Cost Index for the City of Los Angeles.

"Future Facilities Costs" means the CFD Public Facilities minus public facility costs available to be funded through existing construction or escrow accounts or funded by the Outstanding Bonds, and minus public facility costs funded by interest earnings on the Construction Fund actually earned prior to the date of prepayment.

"Outstanding Bonds" means all Bonds previously issued and secured by the levy of Special Taxes within the CFD, 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, Approved 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 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 non-refundable deposit, the Administrator shall notify such owner of the prepayment amount for 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) shall be calculated as summarized below (capitalized terms as defined below):

Bond Redemption Amount plus Redemption Premium plus Future Facilities Amount 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:

Paragraph No.: 1. Confirm that no Special Tax delinquencies apply to such Parcel.

2. For Parcels of Developed Property, compute the Maximum Special Tax for the Parcel to be prepaid. For Parcels of Approved Property or 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.

3. Divide the Maximum Special Tax computed pursuant to paragraph 2 by the total estimated Maximum Special Taxes within the CFD, based on the Developed Property Special Tax which could be charged, less any Parcels which have been prepaid.

4. 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").

5. 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").

6. Compute the Future Facilities Costs.

7. Multiply the quotient computed pursuant to paragraph 3 by the amount determined pursuant to paragraph 6 to compute the amount of Future Facilities Costs to be prepaid (the "Future Facilities Amount").

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



9. Determine the Special Taxes levied on the Parcel in the current Fiscal Year which have not yet been paid.

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

11. Add the amounts computed pursuant to paragraphs 8 and 9 and subtract the amount computed pursuant to paragraph 10 (the "Defeasance Amount").

12. 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").

13. 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.

14. The Maximum Special Tax prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 7, 11 and 12, less the amount computed pursuant to paragraph 13 (the "Prepayment Amount").

15. From the Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 11, and 13 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 7 shall be deposited into the Construction Fund. The amount computed pursuant to paragraph 12 shall be retained by the CFD.

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 9 (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 City Council 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.



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 City Council 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 City Council.

2. Prepayment in Part

The Maximum Special Tax on a Parcel of Developed Property or a Parcel of Approved 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. l; except that a partial prepayment shall be calculated according to the following formula:

These terms have the following meaning:

PP ~ the partial prepayment PE ~ the Prepayment Amount calculated according to Section H. l 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 15 of Section H. l, 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.

I. 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 2041-2042 Fiscal Year.



APPENDIX B

CITY OF INDIOSUPPLEMENTAL INFORMATION

The follo.ving information concerning the City of Indio is presented as general background data. The Bonds are payable solely from unpaid Assessrrents as described in the Official Staterrent. The Bonds are not an obligation of the City, and the taxing p:wer of the City is not pledged to the payrrent of the Bands ( except to the Ii mited extent described herein).

General Information

In 1893, Indio became one of 12 to.vnships in the County of Riverside and was incorporated in 1930 and encompasses 24.8 square niles. It is a general law city with a council-manager form of municipal gcwernrrent. The City Council is composed of a Mayor and four rrenibers 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 b,I appointrrents of the City Council. Indio is the geographic nid point of both Riverside County and the Coachella Valley. It is kno.vn as both a desert resort and a major agricultural area. Indio is about 75 nil es north of the California-Baja California Mexican border and 120 nil es east of the center of the Los Angeles rretropoiitan corrplex and 30 nil es 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. I ndio'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. Horne of the National Date Festival, Shalimar Sports Center's satellite off-track wagering facility and international polo matches, Indio wel corres tens of thousands of visitors each year.

Gcwernmental Services

The City pro.tides 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 developrrent, building inspection and general and administrative support services. It cooperates with Riverside County in the pro.tision of fire protection and with Coachella Valley Water District for flood control. The Indio Police Departrrent 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 recreati anal faci Ii ty i n the City.

Transportation

Interstate 1 O connects I ndiowith Los Angeles, San Diego and Phoenix, Arizona State Highways 86 and 111 pro.tide access to neighboring communities and Palm Springs.

Comrrercial rai I service to Indio is pro.tided b,I Southern Pacific Rai I road.

Air cargo and passenger flight services are pro.tided at the Palm Springs International Airport and at nearb,I Bermuda Dunes and Thermal Airports.

Population

Table No. B-1 summarizes population grONth between 2002 and 2oa=; for the City of Indio, surrounding cities and Riverside County.

B-1

TABLE NO.B-1 CHANGE IN POPULATION

CITY OF I NDI 0, SURROUND! NG CITIES* AND RIVE RSI DE COUNTY 2002- 2006

INDIO SURROUND! NG CITIES RIVERSIDE COUNTY Percentage Percentage Percentage

Year Population Change Population Change Population Change

2002 52,495 115,892 1,653,847 2003 55, 141 5.036 120,600 4.1% 1,726,321 4.4% 2004 60,167 9.1 123,293 2.2 1,807,624 4.7 2005 66,539 10.6 131,369 6.6 1,888,311 4.5 2006 71,654 7.7 136,048 3.6 1,953,330 3.4

% Change Between 2002- 2006 36.5% 17.4% 18.1%

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

Source: State of California Department of Finance.

E mpl O{ment and I nclustry

The City of I nclio is located in the Riversicle;San Bernarclino;Ontario labor market area. Six major job categories constitute 75.936 of the work force. They are gcwernment (18.1%), service producing (17.3%), professional and business services (10.936), leisure and hospitality (10.036), goods producing (9.936) and educational and health services (9.7%). The February 2006 unemplO{ment rate in the Riversicle;San Bernarclino;Ontario area was 4.7%. The State of California February 2006 unemplO{ment rate ( unadj ustecl) was 5.4% .

B-2

TABLE NO.B-2 RIVE RSI DE;SAN BERNARDI NO/ONTARIO MSA

WAGE AND SALARY WORKERS BY INDUSTRY 111

(in thousands)

Industry 2002 2003 2004

G c:wernment 211.6 215.2 211.9 Other Services 37.6 37.9 38.9 Leisure and Hospitality 107.3 108.8 115.4 Educational and Health Services 110.9 115.2 118.2 Professional and Business Services 102.7 109.6 121.0 Financial Activities 38.7 40.7 44.5 Information 14.3 13.9 13.7 Transportation, Warehousing and Utilities 45.4 47.9 52.4 Service Producing

Retai I Trade 132.4 138.6 146.0 W hol esal e Trade 40.7 43.3 43.3

M anufacturi ng Nondurable Goods 33.0 33.1 34.2 Durable Goods 81.6 81.2 84.2

Goods Producing Construction 85.7 91.9 103.6 Natural Resources and Mining 1.1 1.3 1.2

Total Nonfarm 1,043.0 1,078.6 1,128.5 Farm 17.6 19.3 16.2 Total ( al I i ndustri es) 1,060.6 1,097.9 1,144.7

--------------------(1) Annually, as of February 2006. Source: State of California Errpl0yrnent Da,eloprnent Department

2005 2006

221.5 225.5 40.7 41.3

120.9 124.3 119.6 121.1 128.4 135.8 47.9 49.7 14.5 14.3 58.5 60.8

160.5 165.5 48.0 50.5

34.7 34.3 85.5 84.7

113.8 122.5 1.3 1.3

1,195.8 1,231.6 16.2 16.0

1,212.0 1,247.6

The major empiO{ers operating within the City and their respective number of empiO{ees as of June 30, 2005 area as fol Io.vs:

Name of E mplcyer

County of Riverside Fantasy Springs Casino John F. Kennedy Memorial Hospital City of Indio Sears Roebuck & Company Desert Orthopedic Center Super Saver Food Di mare Company Granite Construction GTE

Source: Cityoflndio. 2006datanotyetavailable.

Number of Employees Product;Service

900 Gc:wernment 525 Casino 44 5 Medi cal Hospital 226 Gc:wernment 142 Department Store 11 5 Physical Therap,1 100 Grocery Store 100 Farm Produce 1 00 Concrete 100 Telephone Service

B-3

Personal I ncome

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

TABLE NO.B-3 EFFECTIVE BUYING INCOME

RIVE RSI DE COUNTY, CALI FORNI A AND UNITED STATES 2000- 2004

Year

2000 2001 2002 2003 2004

Riverside County

$39,293 37,480 38,691 39,321 40,275

State of California United States

$44,464 $39,129 43,532 38,365 42,484 38,085 42,924 38,201 43,915 39,324

Note: Personal income data not available for smaller geographical areas such as the City of Indio. 2005 data not yet available.

Source: Sales and Marketing Management," Survey of Buying Po.ver."

Commercial Activity

The follo.ving table summarizes the volume of retail sales and taxable transactions forthe City of Indio for 2000 through 2004.

Year

2000 2001 2002 2003 2004

Retail Sales ($000's)

385,117 444,519 450,141 504,197 627,217

TABLE NO.B-4 CITY OF INDIO

TOTAL TAXABLE TRANSACTIONS (in Thousands)

2000- 2004

Total Taxable Retail Sales Transactions

% Change Permits ($000's) % Change

560 473,781 15.4% 612 531,686 12.2% 1.3 699 536,126 0.8

12.0 743 589,327 9.9 24.4 789 737,344 25.1

Source: State of California Board of Equalization. 2005 data not yet available.

B-4

I ssued Sal es Permits

1,204 1,250 1,481 1,636 1,673

The fol Io.vi ng table compares taxable transactions for the City of I ndi o and surrounding cities.

TABLE NO.B-5 CHANGE IN TOTAL TAXABLE TRANSACTIONS

INDIOANDSURROUNDING CITIES (in thousands)

2000- 2004

.Q!y 2000 2001 2002 2003 2004

INDIO $ 473,781 $ 531,686 $ 536,126 $ 589,327 $ 737,344 Palm Springs 601,316 623,956 617,260 675,487 747,391 Palm Desert 1,217,986 1,211,CX,9 1,209,385 1,296,730 1,433,296 Indian Wells 68,599 62,958 57,178 67,186 73,SCXi Coachella 132,640 146,254 155,831 176,051 208,854

--------------------Source: State of California Board of Equalization. 2005 data not yet available.

% Change 2000- 2004

55.6% 24.3 17.7 7.6

57.5

Taxable transactions by type of business for the City of Indio for 2000 through 2004 are summarized in Table No. B-6.

TABLE NO.B-6 CITY OF INDIO

TAXABLE TRANSACTIONS BY TYPE OF BUSINESS (in thousands)

2000- 2004

2000 2001 2002 2003

Retail Stores Apparel Stores $ 8,090 $ 7,651 $ 7,380 $ 7,599 General Merchandise Stores 51,256 51,293 48,720 50,580 Food Stores 34,011 36,761 39,208 43,369 Eati ng;Dri nki ng Places 42,343 42,707 39,710 43,666 Horne Furnishings and

Appliances 22,404 27,503 30,794 35,800 Building Materials and

Farm Implements 46,344 43,136 40,158 54,461 Auto Dealers;Suppliers 130,246 185,893 191,899 2CX'i,886 Service Stations 29,073 27,255 27,889 33,789 Other retai I stores 21,350 22,320 24,383 213,047

Total Retail Stores 385,117 444,519 450,141 504,197

A 11 Other Out I ets 88,664 87167 85,985 85,130

Total All Outlets $473,781 $531,686 $536,126 $589,327

--------------------Source: State of California Board of Equalization. 2005 data not yet available.

B-5

2004

$ 7,928 48,294 44,248 51,714

N/A

95,870 251,537 41,701 85,925

627,217

110,127

$737,344

BuildingActivity

The follo.ving table sumnarizes building activity valuations for the City of Indio for the five fiscal years from 2002 through 2006.

Total Residential Total Commercial Total Valuation

Source: City of Indio.

TABLE NO. B-7 CITY OF INDIO

BUILDING ACTIVITY AND VALUATION (in thousands)

2002

$142,813, 529 9,085,542

$151,899,071

2002- 2006

2003

$230,927,525 9,401,352

$240,328,877

B-6

2004

$394,347,500 56,330,897

$450,678,397

2005

$348,388,006 69,101,091

$417,489,097

2006

$535,602,415 37,006,257

$572,608,672

APPENDIX C

SUMMARY OF FISCAL AGENT AGREEMENT

The follCMing is a sumrary of certain provisions of the Fiscal Agent Agreernent, and is supplernental to the sumrary of other prOJisions of such docurnent described else.vhere in this Official Staternent. This sumrary does not purport to be corrprehensive or definitive, and reference should be rrade to such docurnent for full and corrplete staternent of its prOJisions. All capitali:zed term; used but not otherwise defined in this Appendix shall have the rneanings assigned to such term; in the Fiscal Agent Agreernent.

DEFINITIONS

Unless the context requires, the follCMing terms shall have the follo.ving rneanings:

"Acquisition and Construction Fund' means the fund b,t such narne created and established pursuant to the Fi seal A gent A greernent.

"Act" rneans the Mello-Roos Comnunity Facilities Act of 1982, as amended, Sections 53311 et seq. of the California Governrnent Code.

"Adninistrative Expense Account'' rneans the account b,t such name in the Special Tax Fund created and established pursuant to the Fi seal A gent Agreement.

"Adninistrative Expense Requirernent" rneans for any Fiscal Year, an arnount necessary to pay Adninistrative Expenses.

"Adninistrative Expenses" rneans 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 and its counsel, any fees for credit enhancement for the Bands which are not otherwise paid as Costs of Issuance, any costs related to the District's cornpiiance with State and federal laws requiring continuing disclosure of inforrration concerning the Bonds and the District, and any other costs otherwise incurred b,t the City staff on behalf of the District in orderto carry outthe purposes of the District as set forth in the Resolution of Forrration 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 rraturity or pursuant to a Sinking Fund Payrnent and any interest payable on any Outstanding Bonds in such BondY ear, if the Bonds are retired as scheduled.

"A I tern ate Reserve Account Security" rneans one or more surety bonds, bond insurance pol i ci es, or other forrn of guaranty frorn a municipal bond insurer for the benefit of the Fiscal Agent rneeting the requirements therefor in the Fiscal Agent Agreement in substitution for or in place of all or any portion of the Reserve R equi rernent.

"Authorized I nvestments" rneans any of the fol I CMi ng which at the ti rne of i nvestment are I egal i nvestrnents under the I aws of the State for the rnoneys proposed to be invested therein:

(1) Direct obligations of the United States of Arnerica (including obligations issued or held in book-entry forrn on the books of the Departrnent of the Treasury, and CATS and TIGRS) or

C-1

obligations the principc1.I of and interest on which are unconditionally guaranteed b,t the United States of Arrerica ("Direct Obi igations").

(2) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed b,t any of the follo.ving federal agencies and provided such obligations are backed b,t the full faith and credit of the United States of Arrerica (stripped securities are only permitted if they have been stripped b,t the agency itself):

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

Direct obi i gati ons or ful ly guaranteed certificates of beneficial o.vnershi p

Farrrers HorneAdninistration (" FmHA")

Certificates of beneficial o.vnershi p

Federal Fi nanci ng Bank

Federal Housing A dni ni strati on Debentures (" FHA")

General ServicesAdninistration

Participation certificates

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

G N MA-guaranteed mortgage-backed bonds

G N MA-guaranteed pass-through obi i gati ans

U.S. M ari ti rre A dni ni strati on

GuaranteedTitleX I financing

U.S. Dei:artrrent of Housing and Urban De.1elopment (HUD)

Prqj ect N ates

Local Authority Bands

New Communities Debentures-U.S. governrrent guaranteed debentures

U.S. Public Housing Notes and Bonds-U.S. governrrent guaranteed public housi ng notes and bonds

(3) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed b,t any of the follo.ving non-full faith and credit U.S. governrrent agencies (stripped securities are only pernined if they have been stripped b,t the agency itself:

Federal Harre Loan Bank System

Senior debt obi i gati ans

C-2

Federal Harre Loan Mortgage Corporation ("FHLMC" or" Freddie Mac")

Participation certificates

Senior debt obi i gati ons

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 obi i gati ons

Resolution Funding Corp.(" REFCORP") obligations

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

(4) Money market funds registered under the Federal lnvestrrent Conµiny Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating b,t Standard & Poor's of "AAAm-G" "AAAm'' or "AAm'' and if rated h, M,vvl,,'s rated "Aaa'' "Aal" or "Aa2" (including ' ' ' uy VUl..lf, ' those of the Fiscal Agent and its affiliates).

(5) Certificates of deposit secured at all tirres b,t collateral described in (1) and;br (2) above. Such certificates must be issued b,t comrrerci al banks, savi ngs and I oan associations or mutual savings banks. The collateral must be held b,t a third party and the Bondholders must have a perfected first security interest i n the col I ateral.

(6) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured b,t FDIC or which are with a bank rated "AA" or better b,t Standard & Poor's and "Aa' or better b,t Moody's (including those of the Fiscal Agent and its affiliates).

( 7) I nvestrrent A greerrents with any corporation, i ncl udi ng banki ng or financial i nsti tuti ons, provided that

( a) the I ong-term debt of the provider of any such i nvestrrent agreerrent is rated, at the tirre of investrrent, at least "AA" and "Aa' b,t the Rating Agency (without regard to gradations of plus or ninus within such category), and

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

( c) any such agreerrent shal I incl ude a provision to the effect that, in the event the I ong-term debt rating of the prwi der of such agreerrent is dcwngraded bel ON "AA .2• or bel ON

"Aa' b,t the applicable Rating Agency, the District has the right to withdraw or cause the Fiscal Agent to withdraw all funds invested in such agreerrent and thereafter to invest such funds pursuant to the Fi seal A gent A greerrent.

( 8) Comrrerci al paper rated, at the ti rre of purchase, " P ri rre - 1 " b,t M ocxly' s and "A-1 " or better b,t Standard & Poor' s.

C-3

( 9) B ands or notes issued b,t any state or muni ci pc1.I i ty which are rated b,t Moody's and Standard & Poor's in one of the two highest rating categories assigned b,t such agencies.

(10) Federal funds or bankers acceptances with a rrnximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obi i gati on rating of" Prime - 1" or "A 3" or better b,t Moody's and "A-1" or "A" or better b,t Standard& Poor's.

(11) Repurchase agreements collateralized b,t Direct Obligations, GNMAs, FNMAs or FHLMCs with any registered broker;tlealer sul::iject to the Securities Investors' Protection Corporation jurisdiction or any commercial bank insured b,t the FDIC, if such broker/dealer or bank has an uninsured, unsecured and unguaranteed obligation rated "P-1" or "A3" or better b,t Moody's, and "A-1" or "A.l.' b,t Standard & Poor's; prwided:

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

(b) the securities are held free and clear of any lien b,t the Fiscal Agent or an independentthird pc1.rty 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 b,t Financial Guaranty Insurance Compc1.ny, 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

( cl) the repurchase agreement has a term of 180 days or I ess, and the Fi seal A gent 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 val uati on; and

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

(12) Local Agency Investment Fund(" LAI F") of the State of California

(13) Any other investment which the District is pernitted b,t law to make.

"Authorized Representative of the District'' means the Mayor, Vice Mayor, City Manager, Finance Director, or any other person or persons designated b,t the City Council of the City.

"Bond Counsel" means an attorney at law or a firm of attorneys selected b,t the District of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued b,t 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

" B and Register" means the books which the Fi seal A gent shal I keep or cause to be kept on which the registration and transfer of the Bands shal I be recorded.

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" B ondo.vner" or "ONner" rreans the person or persons in whose name or names any Bond is registered.

"Band Year" rreans the twelve month period cornrrenci ng on September 2 of each year and ending on September 1 of the follo.vingyear, exceptthatthe first BondY ear forthe 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" rreans a day which is not a Saturday or Sunday or a day of the year on which banks in NewY ork, NewY ork, Los Angeles, California, or the city where the corporate trust office of the Fi seal A gent is I ocated, are not required or authorized to remain closed.

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

"Costs of Issuance" rreans 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, I egal fees and expenses, costs of printing the Bands and the prel i ni nary and final official staterrents 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 of the District.

"Costs of Issuance Account'' rreans the account 0y such narre in the Acquisition and Construction Fund created and established pursuant to the Fiscal Agent Agreerrent.

"Defeasance Securities" rreans any of the follo.ving:

(a) Cash

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

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

(cl) The interest component of Resolution Funding Corp. strips which have been stripped b,t requesttothe Federal Reserve Bank of NewY ork and are in book-entry form.

(e) & Poor's.

Pre,efunded municipal bonds rated "Aaa'' b,t Moody's and "AAA" b,t Standard

(f) Obligations issued 0y the follo.ving agencies which are backed b,t the full faith and credit of the United States:

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

Farrrers Harre Administration -certificates of beneficial o.vnership

Federal Financing Bank

General ServicesAdninistration -participation certificates

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U.S. Maritirre Adninistration -guaranteedTitleX I financing

U.S. Dei;artrrent of Housing and Urban De.1elopment (HUD) -Prqject Notes, Local Authority Bonds, Ne.v Comnunities Debentures -U.S. gcwernrrent guaranteed debentures, U.S. Public Housing Notes and Bonds -U.S. gcwernrrent guaranteed public housing notes and bonds.

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

"Depository" shall rrean The Depository Trust Corrpany, New York, New York, and its successors and assigns as securities depository for the Certificates, or any other securities depository acti ng as Depository under the Fi seal A gent A greerrent.

"District'' rreans City of Indio Cornrnunity Facilities District No. 2006-1 (Sonora Wells) establ i shed pursuant to the A ct and the R esol uti on of F orrrati on.

"Fiscal Agent" rreans Union Bank of California, N.A., a national banking association duly organized and existing under and b,t virtue of the laws of the United States of Arrerica, at its principll corporate trust office in Los Angeles, California, and its successors or assigns, or any other bank or trust corrp3.ny which rray at any tirre be substituted in its place as prwided in the Fiscal AgentAgreerrent and any successor thereto.

"Fiscal Agent Agreerrent" rreans the Fiscal Agent Agreerrent, together with any Supplerrental Fi seal A gent A greerrent approved pursuant to the Fi seal A gent A greerrent.

"Fiscal Year" rreans the period beginning on July 1 of each year and ending on the next follo.vingJ une 30.

"Independent Financial Consultant" rreans a financial consultant or special tax consultant or firrn of either such consultants generally recognized to be well qualified in the financial consulting or special tax consulting field, appointed and plid b,t the District, who, or each of whom

(1) is, in fact, independent and not underthe donination of the District;

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

(3) is not connected with the District as a rrernber, officer or ernplO{ee of the District, but who rray be regularly retained to rrake annual or other reports to the District.

" I nterest Account" rreans the account b,t such name created and establ i shed in the Special Tax Fund pursuant to the Fi seal A gent A greerrent.

"Interest Payrrent Date" rreans each March 1 and September 1, comnenci ng March 1, 2007; provided, ho.ve.1er, that, if any such day is not a Business Day, interest up to the Interest Payrrent Date will be plid on the next succeeding Business Day.

" I nvestrrent A greerrent'' rreans one or rnore agreerrents for the i nvestrrent of funds of the District complying with the criteria therefor as set forth in Subsection (7) of the definition of Authorized I nvestrrents.

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"Maxi rrum Annual Debt Service" means the maximum sum obtained for any Band Year priorto the final maturity of the Bonds 0y adding the follo.ving for each BondY ear:

( 1) the pri nci pl! amount of al I Outstanding Bands payable in such Band Year either at maturity or pursuant to a Sinking Fund Payment; and

(2) the interest payable on the aggregate principal amount of all Bonds Outstanding in such B and Y ear if the Bands are reti red as scheduled.

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

"Net Taxes" means Special Taxes ninus an amount equal to the Administrative Expense R equi rement.

"Noninee'' shall mean the noninee of the Depository, which may be the Depository, as deterni ned from ti me to ti me pursuant to the Fi seal A gent Agreement.

"Outstanding'' or "Outstanding Bonds" means all Bonds theretofore issued 0y the District, except:

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

(2) Bonds for payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bands are to be redeemed prior to the maturity thereof, notice of such redemption shal I have been given as prwided 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" shal I mean those broker-dealers, banks and other financial i nstituti ans from ti me to time for which the Depository holds Bonds as securities depository.

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

"Principal Account" means the account 0y such name in the Special Tax Fund created and establ i shed pursuant to the Fi seal A gent 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 pursuanttowhich municipal or gwernmental obligations are issued.

"Prqject" means those public facilities and;br 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 0y the qualified electors within the District from time to time.

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"Prqject Costs" means the armunts necessary to finance the Prqject, to create and replenish any necessary reserve funds, to l'.0-Y the initial and annual costs associated with the Bonds, including, but not linited to, rerrarketing, credit enhancerrent, Fiscal Agent and other fees and expenses relating to the issuance of the Bands and the forrrati on of the District, and to l'.0-Y any other "incidental expenses" of the District, as such term is defined i n the A ct.

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

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

"Redemption Account" means the account 0y such narre created and established in the Special Tax Fund pursuanttothe Fiscal AgentAgreerrent.

"Regulations" rreans the regulations adopted or proposed 0y the Dei:artrrent of Treasury from tirre totirre with respect to obligations issued pursuantto section 103 of the Code.

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

" Reserve Account" means the account 0y such narre created and establ i shed in the Special Tax Fund pursuant to the Fi seal A gent A greerrent.

"Reserve Requirerrent" rreans, as of any date of calculation, an armunt equal to the lo.vest of (1) W36 of the original proceeds of the Bands, I ess accrued i nterest, if any, I ess ori gi nal issue discount, if any, plus original issue prenium, if any, or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds. The District rray originally fund the Reserve Account with an Alternate Reserve Account Security or rray at any ti rre substitute an Alternate Reserve Account Security for the cash on deposit in the Reserve Account to satisfy the Reserve Requirerrent pursuant to the Fi seal A gent A greerrent.

"Resolution of Forrration" means Resolution No. 9128 adopted 0y the City Council of the City onJ uly 19, 2006, pursuant to which the City formed the District.

"Sinking Fund Payrrent'' rreans the annual payrrent to be deposited in the Redemption Account to redeem a portion of the Term Bands i n accordance with the schedule set forth in the Fi seal A gent Agreerrent.

"Special Taxes" means the taxes authorized to be levied within the District in accordance with the R esol uti on of F orrrati on, the A ct and the voter apprwal obtai ned at the J uly 19, 2006 election i n the District, together with prepc1yrrents thereof and the proceeds col I ected from the sale of property pursuant to the foreclosure provisions of the Fiscal Agent Agreerrent for the delinquency of such Special Taxes remaining afterthe pc1yrrent of al I the costs related to such foreclosure actions, and any additional special taxes authorized to be levied 0y the District from tirre to tirre which are pledged 0y the District to the repayrrent of the B ands.

"Special Tax Fund" rreans the fund 0y such narre created and establ i shed pursuant to the Fi seal Agent Agreerrent.

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

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"Supplemental Fiscal Agent Agreement'' means any supplemental fiscal agent agreement amending or supplementing the Fi seal A gent Agreement.

"Surplus Fund' means the fund b,t such name created and established pursuant to the Fiscal A gent Agreement.

''Tax Certificate" means the certificate b,t that name to be executed b,t the District on a Delivery Date to establish certain facts and expectations and which contains certain covenants relevant to cornpl iance with the Code.

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

"Written Request of the District" means a request in writing executed b,t an Authorized Representative.

I NVE STM E NTS

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 belo.v only in Authorized I nvestments which shal I be deemed at al I ti mes 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 folio.vs: (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; prwided, ho.vever, 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 b,t 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 I nvestments sul::ij ect to the fol I ONi ng 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 b,t 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 b,t 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 b,t 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 b,t 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 b,t the Fiscal Agent;

C--9

provided that such arrounts rray be invested in an Investment Agreement to the final rraturity of the Bonds so long as such armunts rray be withdrawn at any time, without penalty, for application in accordance with the Fi seal A gent Agreement; and provided that no such Authorized I nvestment of arrounts in the Reserve Account shall rrature laterthan the respective final rraturity 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 rederrption, any Authorized Investment whenever it rray be necessary to do so in order to provide moneys to meet any payment or transferto such Funds and Accounts or from such Funds and Accounts. Forthe purpose of deternining 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 arrounts in the Reserve Account shall be valued at the fair market value thereof and rrarked to rrarket 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 ortransfers undertaken in accordance with the prwisions of the Fiscal Agent Agreement. The Fiscal Agent rray 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 rraking or disposing of any investment pernined b,t 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 o.vn account.

COVENANTS AND WARRANTY

Warranty. The District shall preserve and protect the security pledged under the Fiscal Agent Agreement to the B ands against al I cl ai ms and derrands of al I persons.

Cwenants. So long as any of the Bonds issued under the Fiscal Agent Agreement are Outstanding and unpaid, the District makes the follo.ving cwenants with the Bondo.vners under the provisions of the Act and the Fiscal Agent Agreement (to be performed b,t the District or its proper officers, agents or errpl oyees), which cwenants are necessary and desirable to secure the Bands and tend to rrake them more rrarketable; provided, ho.vever, that said covenants do not require the District to expend any funds or moneys otherthan the Special Taxes and other amounts deposited to the Special Tax Fund:

(1) Punctual Payment; Against Encumbrances. The District cwenants that it will receive all Special Taxes in trust and will immediately deposit such arrounts with the Fiscal Agent, and the District shall have no beneficial right or interest in the amounts so deposited except as provided b,t 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 cwenants that it wi 11 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 prenium, if any, thereon on the date, at the place and in the rranner set forth in the Bonds and in accordance with the Fi seal A gent A greementto the extentthat Net Taxes are avai I able therefor, and that the payments i nto the Funds and Accounts created underthe Fiscal Agent Agreement will be rrade, all in strict confornity 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 A gent Agreements and of the B ands issued under the Fi seal A gent Agreement.

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The District will not rmrtgage or otherwise encurrber, pledge or place any charge upon any of the Net Taxes except as prwi ded in the Fi seal A gent Agreement, and wi 11 not issue any obi i gati on or security having a lien or charge upon the Net Taxes superiorto or on a parity with the Bonds. Nothing in the Fiscal Agent Agreement shal I pra,ent 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 Bands.

(2) Levy of Special Tax. Beginning in Fiscal Year 2007-08 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 armunt sufficient, together with other armunts on deposit in the Special Tax Fund and avai I able for such purpose, to pay ( 1 ) the pri nci pal of and interest on the B ands when due, ( 2) the Adninistrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve R equi rement.

(3) Commence Foreclosure Proceedings. The District cwenants for the benefit of the Owners of the Bands that:

Fund.

(a) if the District deternines that (i) any o.vner o.vns one or more parcels sul::iject to a Special Tax is delinquent in an aggregate armunt of $3,000 or more, or (ii) any o.vner of a parcel of Undeveloped Property sul::iject to the Special Tax is delinquent in the payment of one Installment of Special Taxes when due, then the District will send or cause to be sent a notice of delinquency (and a demand for immediate paymentthereof) to the property o.vner within 45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings will be commenced b,t the District within 120 days of such deternination, to the extent pernissible under applicable law. An" Installment" of Special Tax is defined as the installment of Special Tax that becomes del i nquent after any Decerrber 1 O or A pri I 1 0.

(b) if the District deternines that the total amount of delinquent Special Tax for the prior Fiscal Year for the District (including the total of delinquencies under paragraph (a) abOJe), exceeds 5% of the total Special Taxes due and payable for the prior Fiscal Year, the District will notify or cause to be notified al I property o.vners who are then del i nquent in the payment of Special Taxes (and demand immediate payment of the delinquency) within 45 days of such deternination, and will commence foreclosure proceedings within 120 days of such deterni nation agai nst each parcel of I and i n the District with a Special Tax deli nquency, to the extent pernissible under applicable law.

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 night impair the security of the Bonds then Outstanding; provided that nothing contained in the Fiscal Agent 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 shal I at al I ti mes duri ng business hours be sul::ij ect to the i nspecti on of

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the Fiscal Agent or of the ONners of the Bonds then Outstanding or their representatives authorized in writing.

(6) Tax Covenants. The District cwenants that it shall take all actions necessary in order that interest on the B ands be and rerrai n excl uded pursuant to section 1 03( a) of the Code from the gross income of the o.vners thereof for federal i ncorne tax purposes, and that it shal I not use or invest, and shal I not pernit the use or investment of, and shall not onit 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 rranner that if made or onitted, 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 o.vner thereof for federal i ncorne tax purposes.

(7) Reduction of Maximum Special Taxes. The District finds and deternines that, historically, delinquencies in the pc1yment 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 deternines that a reduction in the maximum Special Tax rates authorized to be levied on parcels in the District belo.v the levels prwided 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 cwenant, 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 there.vith, (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 imprwements existing in the District as of theJ uly 1 preceding the reduction, the maximum amount of the Special Tax which rray 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 11()36 of the sum on the estirrated Administrative Expenses and gross debt service in that Bond Year on all Bonds to rerrain Outstanding after the reduction is apprwed, and (ii) the District finds that any reduction rrade under such conditions will not acwersely affect the interests of the ONners of the Bonds. For purposes of estirrating Adninistrative Expenses for the foregoing calculation, the Independent Financial Consultant shall compute the Adninistrative Expenses for the current Fiscal Year and escalate that amount 0y two percent (2%) in each subsequent Fiscal Year.

(8) Cwenants to Defend. The District cwenants that in the event that any initiative is adopted 0y the qualified electors in the District which purports to reduce the maximum Special Tax belo.v the levels specified in the Fiscal Agent Agreement or to linitthe po.ver 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 orderto preserve its ability to comply with such cwenants.

(9) Linitation on Right to Tender Bonds. The District cwenants that it will not adopt any policy pursuant to Section 53341.1 of the Act pernitting the tender of Bonds to the District in full payment or i:artial i:avment of any Special Taxes.

( 1 O) Continuing Di sci osure. The District cwenants to comply with the term of the Continuing Disclosure Agreement executed 0y it with respect to the Bands.

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AMENDMENTS TO FISCAL AGENT AGREEMENT

Supplemental Fiscal Agent Agreements or Orders Not Requiring Bondo.vner Consent. The District may from time to time, and at any time, without notice to or consent of any of the Bondo.vners, adopt Supplemental Fiscal Agent Agreements for any of the follo.ving purposes:

( 1) to cure any arrbi gui ty, to correct or supplement any prwi si ons i n the Fi seal A gent Agreement which may be inconsistent with any other prwision in the Fiscal Agent Agreement, or to make any other prwi si on with respect to matters or questions ari si ng under the Fi seal A gent Agreement or in any additional resolution or order, prwidedthatsuch action is not materially acwersetothe interests of the B ondo.vners;

(2) to add to the covenants and agreements of and the !irritations and the restrictions upon the District contained in the Fiscal Agent Agreement, other cwenants, agreements, limitations and restrictions to be observed b,t the District which are not contrary to or inconsistent with the Fiscal Agent Agreement as theretofore in effect or which further secure B ond 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 si rri lar federal statute hereafter in effect, or to corrply with the Code or regulations issued thereunder, and to add such other terms, conditions and prwi si ons as may be perm tted b,t said act or si rri I ar federal statute, and which shall not materially acwersely 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 i n any manner so I ong as such changes do not reduce the maxi mum Special Taxes that may be I e.1i ed in each year on property within the District to an amount which is less than that perrritted under the Fiscal Agent Agreement; or

(5) to modify, alter, amend or supplement the Fiscal Agent Agreement in any other respect which is not material ly acwerse to the B ondo.vners.

Supplemental Fiscal Agent Agreements or Orders Requiring Bondo.vner Consent. Exclusive of the Supplemental Fiscal Agent Agreements described in the Fiscal Agent Agreement, the Owners of not I ess than a majority in aggregate principal amount of the Bands Outstanding shal I have the right to consent to and apprwe the adoption b,t the District of such Supplemental Fiscal Agent Agreements as shall be deemed necessary or desirable b,t 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, ho.ve.1er, that nothing in the Fiscal Agent Agreement shall perrrit, or be construed as perrritting, (a) an extension of the maturity date of the principal, or the payment date of i nterest on, any Bond, ( b) a reduction i n the pri nci pal amount of, or redemption prerri um on, any Bond orthe rate of interest thereon, (c) a preference or priority of any Bond over any other Bond, or (cl) 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 Outstandi ng.

If at any time the District shall desire to adopt a Supplemental Fiscal Agent Agreement, which pursuant to the terms of the Fi seal A gent Agreement shal I requi re the consent of the B ondo.vners, 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, b,t first class mail, postage

C-13

prepaid, to all Bondo.vners at their addresses as they appear in the Bond Regster. Such notice shall briefly set forth the nature of the proposed Supplerrental Fiscal Agent Agreerrent and shall state that a COP{ thereof is on file at the office of the Fiscal Agent for inspection b,t all Bondo.vners. The failure of any Bondo.vners to receive such notice shall not affect the validity of such Supplerrental Fiscal Agent Agreerrent when consented to and apprwed b,t the ONners of not less than a majority in aggregate pri nci pal amount of the B ands Outstanding as required b,t the Fi seal A gent A greerrent. W hen ever at any tirre within one year after the date of the first mailing of such notice, the Fiscal Agent shall receive an i nstrurrent or i nstrurrents purporting to be executed b,t the ONners of a majority in aggregate principal amount of the B ands Outstanding, which i nstrurrent or i nstrurrents shal I refer to the proposed Supplerrental Fiscal Agent Agreerrent described in such notice, and shall specifically consent to and approve the adoption thereof b,t the District substantially in the form of the COP{ referred to in such notice as on file with the Fiscal Agent, such proposed Supplerrental Fiscal Agent Agreerrent, when duly adopted b,t the District, shall thereafter become a part of the proceedings for the issuance of the Bonds. In deternining whether the ONners of a majority of the aggregate principal amount of the Bonds have consented to the adoption of any Suppl errental Fi seal A gent A greerrent, Bands which are o.vned b,t the District or b,t any person directly or indirectly controlling or controlled b,t 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 deterni nation.

U pon the adoption of any Suppl errental Fi seal A gent A greerrent and the recei pt of consent to any such Supplerrental Fiscal Agent Agreerrent from the ONners 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 Fi seal A gent A greerrent, the Fi seal A gent A greerrent shal I be, and shal I be deerred to be, modified and arrended i n accordance there.vi th, and the respective rights, duties and obi i gati ons under the Fiscal Agent Agreerrent of the District and all Owners of Outstanding Bonds shall thereafter be deternined, exercised and enforced under the Fiscal Agent Agreerrent, sul::iject in all respects to such modifications and arrendrrents.

Notation of Bonds; Delivery of Amended Bonds. Afterthe effective date of any action taken as provided in the Fiscal Agent Agreerrent, the District may determine that the Bonds may bear a notation, b,t endorserrent in form apprwed b,t the District, as to such action, and in that case upon demand of the ONner of any Outstandi ng B ond 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 deternine, new Bonds so modified as, in the opinion of the District, shall be necessary to conform to such action shal I be prepared and executed, and in that case upon demand of the ONner of any Outstanding Bond at such effective date such ne.v 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 ONner of Outstanding Bands, upon surrender of such Outstanding Bands.

EVENTS OF DEFAULT; REMEDIES

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

( a) Default in the due and punctual payrrent of the pri nci pal of or redernpti on preni um, if any, on any B ond when and as the same shal I becorre due and payable, whether at maturity as therein expressed, b,t declaration or otherwise;

(b) Default in the due and punctual payrrent of the interest on any Bond when and as the sarre shal I become due and payable; or

C-14

(c) Excer,t as described in (a) or (b), default shall be rrade O)' the District in the observance of any of the agreerrents, conditions or cwenants on its pm contained in the Fiscal Agent Agreerrent or the Bonds, and such default shall have continued for a period of 30 days afterthe District shall have been given notice in writing of such default O)' the Fiscal Agent or the ONners of 25% in aggregate principal amount of the Outstanding Bands.

The District agrees to give notice to the Fiscal Agent imnediately upon the occurrence of an event of default under (a) or (b) abOJe and within 30 days of the District's kno.vledge of an event of default under (c) above. The Fiscal Agent shall not be deerred to have kno.vledge of any event of default descri bed i n ( c) abOJe uni ess a responsi bl e officer shal I have actual kno.vl edge thereof or the Fi seal A gent shall have received written notice at its Principc1.I Office.

Remedies of Owners. Follo.vingthe occurrence of an event of default, any ONner shall have the right for the equal benefit and protection of all ONners similarly situated:

(1) By rrandarnus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the rrembers, officers and errplO{ees of the District, and to carpel the District or any such rrembers, officers or errpl O{ees to perform and carry out their duties under the A ct and their agreerrents with the ONners as prwided in the Fiscal AgentAgreerrent;

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

(3) By a suit in equity to require the District and its rrembers, officers and emplO(ees to account as the fi seal agent of an express trust.

Nothing in the Fiscal Agent Agreerrent, the Bonds shall affect or impc1.ir the obligation of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective ONners thereof at the respective dates of maturity, as prwided in the Fiscal Agent Agreerrent, out of the Net Taxes and other amounts pledged for such pc1.yrrent, or affect or impc1.ir the right of action, which is also absolute and unconditional, of such ONners to institute suit to enforce such payrrent O)' virtue of the contract embodied in the B ands and in the Fi seal A gent A greerrent.

A waiver of any default or breach of duty or contract O)' any ONner shal I not affect any subsequent default or breach of duty or contract, or impair any rights or rerredies on any such subsequent default or breach. No delay or omission O)' any ONner to exercise any right or po.ver accruing upon any default shall impc1.ir any such right or po.ver or shall be construed to be a waiver of any such default or an acquiescence therein, and every po.ver and rerredy conferred upon the ONners O)' the Act or O)' the Fiscal Agent Agreerrent rray be enforced and exercised from tirre to tirre and as often as shall be deemed expedient O)' the ONners.

If any suit, action or proceeding to enforce any right or exercise any rerredy is abandoned or deterni ned adversely to the ONners, the District and the ONners shal I be restored to their forrrer positions, rights and rerredi es as if such suit, action or proceeding had not been brought or taken.

No remedy i n the Fi seal A gent A greerrent conferred upon or reserved to the ONners is intended to be exclusive of any other rerredy. Every such rerredy shall be cumulative and shall be in addition to every other rerredy given under the Fi seal A gent A greerrent or no.v or hereafter existing, at I aw or in equity or O)' statute or otherwise, and may be exercised without exhausting and without regard to any other rerredy conferred O)' the A ct or any other I aw.

C-15

In case the rmneys held b,t the Fiscal Agent after an e.1ent of default pursuant to (a) or (b) above shall be insufficient to pay in full the whole armunt so ONing and unpaid upon the Outstanding Bonds, then all available armunts shall be applied to the payrrent of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installrrent of interest over any other i nstal I rrent of interest, ratably to the aggregate of such pri nci pal 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 B ond the interest due thereon and the pri nci pal thereof, at the ti rres and in the manner stipulated in the Fiscal Agent Agreerrent or any Supplerrental Fiscal Agent Agreerrent, then the owner of such Bond shall cease to be entitled to the pledge of Net Taxes, and, other than as set forth belON, all covenants, agreerrents and other obligations of the District to the owner of such Bond under the Fi seal A gent A greerrent shal I 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 Agreerrent, the Fiscal Agent shall execute and deliver to the District all such instrurrents as may be desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay wer or deliver to the District's general fund all money or securities held b,t it pursuant to the Fiscal Agent Agreerrent which are not required for the payrrent of the principal of, prenium, 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 fol I ONi ng ways:

( a) b,t paying or causi ng to be paid the pri nci pal of, preni um, if any, and interest on such B ond, as and when the sarre becorre due and payable;

(b) b,t depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the armunts then on deposit in the Special Tax Fund (exclusive of the Adninistrative 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) b,t deposi ti ng with the Fi seal A gent or another escrON bank appointed b,t the District, in trust, noncallable Defeasance Securities, in which the District may lawfully invest its money, in such armunt 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 sarre shal I becorre due and payable;

then, at the election of the District, and notwithstanding that any Outstanding Bands shal I not have been surrendered for payrrent, all obligations of the District under the Fiscal Agent Agreerrent and any Supplerrental Fiscal Agent Agreerrent with respect to such Bond shall cease and terninate, except for the obi igation 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 cwenants of the District contained in certain section of the Fiscal Agent Agreerrent or any cwenants in a Supplerrental Fiscal Agent Agreerrent 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 tirre 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

C-16

A gent or the escro.v bank to pay and discharge the pri nci pal of, preni um, if any, and i nterest on al I Outstanding B ands to be def eased i n accordance with the Fi seal A gent Agreement, as and when the same shal I become due and payable, and an opinion of Bond Counsel (which rray 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 appiicable Suppiemental Fiscal Agent Agreement. If a forward supply contract is employed in connection with an advance refunding to be effected under (c) abo.ie, (i) such verification report shall expressly state that the adequacy of the amounts deposited with the bank under (c) abcwe to accomplish the refunding relies solely on the initial escro.ved investments and the rraturity principal thereof and interest i ncorne thereon and does not assume perforrrance under or compliance with the forward supply contract, and (ii) the applicable escro.v agreement executed to effect an ad.lance refunding in accordance with (c) abcwe shall prwide that, in the event of any discrepancy or difference between the terms of the forward suppiy contract and the escro.v agreement, the terms of the escro.v agreement shal I be control I i ng.

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 rray 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 b,t the Fiscal Agent at the time of a defeasance, which are not required for the purpose of paying and discharging the principal of, prenium, if any, or interest on the Bonds when due. The Fiscal Agent shall, atthewritten direction of the District, mail, first class, postage prepaid, a notice to the Bondo.vners whose Bonds have been defeased, in the form directed b,t the District, stating that the defeasance has occurred.

C-17

APPENDIX D

APPRAISAL REPORT

D-1

APPRAISAL REPORT

COMMUNITY FACILITIES DISTRICT NO. 2006-1 SONORA WELLS

CITY OF INDIO

Prepared for:

CITY OF INDIO 100 Civic Center Mall

Indio, CA 92201

James B. Harris, MAI Berri J. Cannon Harris

Harris Realty Appraisal 5100 Birch Street, Suite 200 Newport Beach, CA 92660

August2006

Mr. Jim Smith Director of Public Works CITY OF INDIO 100 Civic Center Mall Indio, CA 92201

Re: Community Facilities District No. 2006-1 Sonora Wells

Dear Mr. Smith:

5100 Birch Street, Suite 200 Newport Beach, California 92660 949-851-1227 FAX 949-851-2055

www.harris-appraisal.com August10,2006

In response to your authorization, we have prepared a self-contained appraisal report that addresses all of the property within the boundaries of the City of Indio Community Facilities District No. 2006-1 (CFO No. 2006-1). This appraisal includes an estimate of Market Value of all the property subject to special tax. This land is under the ownership of the builder, D. R. Horton, holding title as Western Pacific Housing, Inc. As of the date of value, the land within Final Tract Map No. 32402 is improved to near finished lot condition. In addition there are 8 model homes completed and Phases 1 through 4 and a portion of Phase 5 are under unit construction. Closings for Phase 1 are expected to begin the end of August or beginning of September 2006. As of the date of value, 78 homes were reported as being in escrow.

According to the specific guidelines of the California Debt and Investment Advisory Commission (CDIAC), each ownership is valued in bulk, representing a discounted value to that ownership as of the date of value. The District is under one ownership as of the date of value. The development of Sonora Wells (CFO No. 2006-1) is proposed for 363 single family detached dwelling units on minimum 7,200 square foot lots.

Based on the investigation and analyses undertaken, our experience as real estate appraisers, and subject to all the premises, assumptions and limiting conditions set forth in this report, the following opinion of Market Value is formed as of August 1, 2006.

CFD NO. 2006-1

FORTY-ONE MILLION DOLLARS

$41,000,000

http://www.harris-appraisal.com

Mr. Jim Smith August10,2006 Page Two

Community Facilities District No. 2006-1, under the ownership of Western Pacific Housing, Inc., contains 99±. gross acres, and is proposed for 363 residential dwelling units. The builder has provided engineering site cost for the site development. According to the City's Community Facilities Report prepared by MuniFinancial and the City's Financial Advisor, proceeds from CFO No. 2006-1 of approximately $8,277,000 are for City of Indio fees and public improvements. This value estimate is contingent upon the funding of Community Facilities District No. 2006-1.

The self-contained report that follows sets forth the results of the data and analyses upon which our opinion of value is, in part, predicated. This report has been prepared for the City of Indio for use in the sale of bonds for Community Facilities District No. 2006-1. The intended users of this report are the City of Indio, its underwriter, legal counsel, financial advisor, consultants, and potential bond investors. This appraisal has been prepared in accordance with and is subject to the requirements of The Appraisal Standards for land secured financing as published by the California Debt and Investment Advisory Commission; the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; and the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

We meet the requirements of the Competency Provision of the Uniform Standards of Professional Appraisal Practice. A statement of our qualifications appears in the Addenda.

Respectfully submitted,

~C~i~ AG009147

~H~ri~ U~o~!!·

SUMMARY OF FACTS AND CONCLUSIONS

EFFECTIVE DATE OF APPRAISAL August 1, 2006

DATE OF REPORT August 10, 2006

INTEREST APPRAISED Fee Simple Estate, subject to special tax liens

LEGAL DESCRIPTION According to the Community Facilities District Report prepared by MuniFinancial, dated July 19, 2006, CFD No. 2006-1 is located in the City of Indio and is identified as Assessor Parcel No. 679-220-005. The District can also be identified a Final Tract Map No. 32402, Lots 1 through 363.

OWNERSHIP Western Pacific Housing, Inc.

SITE CONDITION The land is graded to near finished lot condition. In addition, 8 model homes are complete and unit construction is nearing completion in Phase 1, consisting of 49 dwelling units. Phases 2, 3, 4 and 5 are also under unit construction.

PROPOSED IMPROVEMENTS The proposed detached products will be built on a minimum lot size of 7,200 square feet with dwelling unit sizes ranging from 1,844 to 3,608 square feet. The current plans are to build 363 detached homes.

HIGHEST AND BEST USE Continued development of detached single-family homes.

VALUATION CONCLUSION CFD No. 2006-1 $41,000,000

iii

TABLE OF CONTENTS

Section

Transmittal Letter ............................................................................................................ .

Summary of Facts and Conclusions................................................................................. iii

Table of Contents............................................................................................................. iv

Introduction........................................................................................................................ 1

Area Description............................................................................................................... 12

Site Analysis ..................................................................................................................... 31

Improvement Description .. .. .... .... .. .... ......................................... .............. .... . . . . . . . . .. .. .. ...... 39

Highest and Best Use ...... .. .. .. .. .. .. .. . . . . .. .. .. . . . . . . . . . .... . . .. . . . . . .. .. .. .. ......................... .... .. .. .. . . . .. .. 43

Valuation Methodology..................................................................................................... 55

Valuation of CFO No. 2006-1 ........................................................ .................................. 57

Valuation of Finished Lots ......................................................... ...................................... 57

Valuation of Completed Dwellings and Dwellings Under Construction .......................... 74

Valuation Conclusion .................................................................. .. .. .. . . . . . .. .. .. .... .... .. .. .. .. .. . . 76

Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Addenda

Qualifications Site Construction Cost Summary Market Profiles Report (Portion)

iv

HRA INTRODUCTION

Purpose of the Report

The purpose of this appraisal is to estimate the Market Value for the fee simple

estate, subject to special tax liens for all the property within Community Facilities District

No. 2006-1 for the City of Indio in Riverside County. The purpose of this appraisal is to

estimate the "as is" Market Value of the land and improvements under the ownership of

the builder, D. R. Horton, holding title as Western Pacific Housing, Inc.

The opinions set forth are subject to the assumptions and limiting conditions set

forth in this appraisal, and the appraisal guidelines as set forth by the City of Indio.

Function of the Report and Intended Use

It is our understanding that this appraisal report is to be used for Community

Facilities District bond financing purposes only. The subject property is described more

particularly within this report. The bonds are issued pursuant to the Mello-Roos

Community Facilities Act of 1982, as amended. The maximum authorized bond

indebtedness for CFO No. 2006-1 is $12,000,000.

Client and Intended Users of the Report

This report was prepared for our client, the City of Indio. The intended users of the

report include the City of Indio; its legal counsel, underwriter, financial advisor,

consultants, and potential bond purchasers.

Scope of the Assignment

According to the CDIAC guidelines, the total value conclusion includes the "as is"

estimate of Market Value for CFO No. 2006-1 under the ownership of the builder. This is

a fully documented self-contained appraisal report. Any lands designated for park, open

space or civic uses within this CFO, and not subject to special tax are not included in this

assignment.

CONSULTING REAL ESTATE APPRAISERS

1

HRA The residential land and improvements are valued in their "as is" condition as of

the date of value. All of the 363 lots are in at least near finished lot condition. Eight model

homes are complete (Plans 1 through 8). Phases 1 through 5 are under unit construction

with escrow closings expected to begin the end of August or beginning of September

2006. The community of Sonora Wells has been in an active sales program since

December 10, 2005. As of the date of value, 163 homes were reported as released for

sale and of those 78 were reported in escrow.

We have analyzed the subject property based upon the proposed uses and our

opinion of its highest and best use. We have searched for sales of residential land and

new similar product to estimate the value of the subject property.

The following paragraphs summarize the process of collecting, confirming

and reporting of data used in the analysis.

1. Gathered and analyzed demographic data from sources including the California Department of Finance (population data), Employment Development Department of the State of California (employment data), City of Indio (zoning information, building permit trends), Indio Chamber of Commerce (local demographic trends), Hanley Wood Market Intelligence (housing sales, inventory levels, and absorption), and sales personnel of comparable projects (market trends of individual home sales). Subject information was gathered from the builder and its consultants.

2. Inspected the subject's neighborhood and reviewed proposed product and similar products for consideration of Highest and Best Use of the proposed lots.

3. Gathered and analyzed comparable merchant builder land sales within the Coachella Valley market area, and residential detached unit sales, within the subject's primary and secondary market areas. Data were gathered from sources including, Comps.com, brokers, appraisers, builders active in the area and developers within the Riverside County area. Where feasible, data were confirmed with both the buyer and seller.


2

HRA Date of Value and Report

The opinion of Market Value expressed in this report is stated as of August 1,

2006. The date of the appraisal report is August 10, 2006.

Date of Inspection

The subject property was inspected on several occasions, with the most recent on

August 9, 2006.

Property Rights Appraised

The property rights appraised are those of the fee simple estate subject to special

tax liens of the real estate described herein.

Property Identification

According to the recorded Tract Map No. 32402, CFD No. 2006-1 contains 99±

gross acres. Please refer to the CFD Boundary map on the next page. The taxable

property within CFD No. 2006-1 is identified as Lots 1 through 363 of Tract No. 32402.

The District is located in north Indio at the northwest corner of Avenue 41 and Jackson

Street in the City of Indio, approximately one mile north of 1-10.

Legal Description and Ownership

All of the land and improvements are under the ownership of the builder, D. R.

Horton, holding title as Western Pacific Housing, Inc. According to the CFD report

prepared by MuniFinancial dated July 19, 2006, CFD No. 2006-1 encompasses all of

Assessor Parcel No. 679-220-005. The District is further identified as Tract No. 32402.

The taxable property within the District will be lots 1 through 363, which are proposed for

363 single family detached dwelling units.


3

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<=-130) DECOeOI I006

41ST

PROPOSED BOUNDARY MAP OF COMMUNITY FACILITIES DISTRICT NO. 2006-1

(SONORA WELLS) CITY OF INDtO

COUNTY OF RIVERSIDE STATE Of CALlfCRNIA.

~ I J I I I I ',:1_!) .. Ll ~ -1: I I I In~ ,.; Vl .

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~

AVENUE

FUii ~ CfflCf: llf M QTT a.nae OIF Karr Of' IHDIO 1HIS £._ Clo\Y « . -I HEIEIY C(R'll'Y 1Wi.T lH£ W!l'lN IIAP H)IIMG !'Ra'OSe!> IIOUM),l,IIIES OF QlY CT. 110K1 ~ f,',CII.J'1'ES DmRIC'I HO. ZOOS-I (sawfrA~ N)IO. COlMTY Of RMRSll[,. 5TA1E OIF CIJ..FOffilA. WM ~Pl'ft()IO BY ltt~ OF nl£ aTY CITY

19pl.? At I< R£CU..JJI mi:.t~ n:4:U=.: DAY DF

a~~; .ch,,•·®' CITY Of IIIDIO

nm 1H5 ?l.~ o.o.Y rs ~"-- 200&. i..t 111£ HDUR DF Jt.... O"Cl.OCK ~'!HE 80(I( PNJE: :JL... Of' IIN'S fJF ASSES5MfN'l' AND

·~~,.T~~-n:tt lfflCEOf' ti:tE ~~~~,~ COUK1'I'

9.. · ~ 0 UN. ?Mk Mtf'f ,1/1,./). ... :t -..,.,, , ;i,., .. -1;. • COUNTY RECCfllOt i. i

~ w""""' ~ ... ;_~F\l.l)-t.P'l\ttit\SS"ESSO~-t!LU-R~2 lHI: UNE!I AND OIMOISCNS Of EM:11 Ul'T OR l'lffia SH()'al (l,j '11115 II.JI' :!MAU. BE 1":ISE UNO ,v;o OCMEN~ IIS StlONt or.. 'lit! IIIV£ltSID£ tllll.NlY ~ MAI'S f'l)ll nl05E PAl!C£I.S usm).

ll'E RM:llSlllt CCIM11' ,\5SE$SOIB MN'S SHIU. ll0'10tf mt IL.I. O£TMS COICEltllN; ll'E L.JIES NO IJl,IEIISIONS llf SUCH =.Oii PlriRCEU.

LEGEND CF.O. SOlMDAR'I'

I ~ l ffit loo" (f 200'

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CD 0 c: ::::J a. Ill ::::!. CD en 0 ..... C') "T1 c z 0 . I\.) 0 0 0) I

..Jo,

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HRA Property History

The appraisers have been provided with a Land and Lot Purchase Contract

Summary, provided by the builder. The appraisers have also reviewed a recorded Grant

Deed, Document No.2004-0804194. The two documents refer to Tentative Tract Map

No. 32402 transferring from Rilington Communities, LLC to Western Pacific Housing,

Inc. on October 12, 2004. The indicated purchase price was $23,845,000 for raw land

with an approved tentative tract map proposed for 363 dwelling units. The indicated

price equates to $65,689 per proposed unit.

Definitions

Market Value 1

The most probable price in terms of money 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, 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:

(a) Buyer and seller are typically motivated.

(b) Both parties are well informed or well advised, and each acting in what he considers his own best interest.

(c) A reasonable time is allowed for exposure in the open market.

(d) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto.

(e) 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.

Fee Simple Estate2

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

1 Part 563, subsection 563.17-1a(b)(2), Subchapter D, Chapter V, Title 12, Code of Federal Regulations.

2 The Dictionary of Real Estate Appraisal, Third Edition, published by The Appraisal Institute, 1993, P. 140


5

HRA Fee Simple Estate Subject to Special Tax and Special Assessment Liens Empirical evidence (and common sense) suggests that the selling prices of properties encumbered by such liens are discounted compared to properties free and clear of such liens. In new development projects, annual special tax and/or special assessment payments can be substantial, and prospective buyers take this added tax burden into account when formulating their bid prices. Taxes, including special taxes, are legally distinct from assessments.

The Market Value included herein, reflects the value potential buyers would consider given the special taxes of Community Facilities District No. 2006-1.

Retail Value Retail value should be estimated for all fully improved and sold properties. Retail value is an estimate of what an end user would pay for a finished property under the conditions requisite to a fair sale.

Blue-Top Graded Parcel Blue-top graded parcel includes streets cut and padded lots to blue-top with utilities stubbed to the parcel and perimeter streets in.

Finished Site3

Land that is improved so that it is ready to be used for a specific purpose. (Improvements include padded lot, streets and utilities to the lot, and all fees required to issue a building permit paid.)

Mass-Graded Parcels Mass-graded parcel with utilities stubbed to the site and perimeter streets in.

Assumptions and Limiting Conditions

The analyses and opinions set forth in this report are subject to the following

assumptions and limiting conditions:

Standards Rule ("S.R.") 2-1 (c) of the "Standards of Professional Appraisal

Practice" of the Appraisal Institute requires the appraisers to "clearly and accurately

disclose any extraordinary assumption or limiting condition that directly affects an

appraisal analysis, opinion, or conclusion." In compliance with S.R. 2-1(c) and to assist

3 Ibid, P. 334


6

HRA the reader in interpreting the report, the following contingencies, assumptions and limiting

conditions are set forth as follows:

Contingencies of the Appraisal The appraisal is contingent upon the successful issuance and funding of bonds for Community Facilities District No. 2006-1 through the City of Indio. The special tax formula was prepared on behalf of the City by Muni Financial.

The Market Value estimate reported in this report reflects a portion of the funding for the infrastructure improvements and fees from the proceeds of CFD No. 2006-1. The public improvements and fees subject to reimbursement include fire and police facilities fees, building impact fees, park fees, bridge crossing, storm drain facilities fees, traffic signal fees and other City capital facilities projects. In addition, the CFD is proposed to reimburse for storm drain improvements along Avenue 41 and Jackson Street, storm drain soft costs, water and sewer systems, off-site street improvements and fair share allocation for street signals, ramp expansion and Avenue 40 vacation. The total construction funds and fees with contingency are estimated at $8,277,000. Of those funds, approximately $6,581,000 are for reimbursement to the builder for site improvements and City fees. If the CFD is not funded and/or the amount or timing of the reimbursements should change, the value opinion stated herein could change. Please refer to the Valuation section for further detail of the reimbursements and timeline for reimbursement.

The infrastructure costs and grading costs have been provided for our review by the builder. According to the builder the costs have been prepared with input from their engineer and actual contracts. It is assumed that all conditions for site development as indicated in the Conditions of Approval are included in the infrastructure costs. A specific assumption of this appraisal report is that the costs are accurate.

Assumptions and Limiting Conditions No responsibility is assumed by your appraisers for matters that are legal in nature. No opinion of title is rendered, and the property is appraised as though free of all encumbrances and the title marketable. No survey of the boundaries of the property was undertaken by your appraisers. All areas and dimensions furnished to your appraisers are presumed to be correct.

The date of value for which the opinions of Market Value are expressed in this report is August 1, 2006. The dollar amount of this value opinion is based on the purchasing power of the United States dollar on that date.


7

HRA 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.

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.

The appraisers have requested, but have not been provided with a soils or geotechnical report. A Phase 1 Environmental Site Assessment report was provided for our review. The report was prepared by Proterra Consulting, Inc., dated October 29, 2004. The recommendations and conclusions of the report were that there were no significant environmental concerns observed on the property. No additional environmental investigation appeared warranted. For purposes of this appraisal, the soil is assumed to be of adequate load-bearing capacity to support all uses considered under our conclusion of Highest and Best Use.

The appraisers have been provided with one AL TA policy prepared by Fidelity National Title Insurance Company, dated October 12, 2004 (order no. 9778794). The policy covers Assessor Parcel No. 679-220-005, which is CFO No. 2006-1. For purposes of the appraisal, we are not aware of any easements, encroachments or restrictions that would adversely impact the value of the subject property. A "Notice of Special Tax Lien" for CFO No. 2006-1 was not disclosed. A copy of the title report is retained in the appraisers' work files.

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.

Since earthquakes are common in the area, no responsibility is assumed for their possible impact on individual properties, unless detailed geologic reports are made available.

The appraisers have inspected as far as possible by observation, the land; however, it was impossible to personally inspect conditions beneath the soil. Therefore, no representations are made as to these matters unless specifically considered in the report.

The appraisers assume no responsibility for economic or physical factors that may occur after the date of this appraisal. The appraisers, in rendering these opinions, assume no responsibility for subsequent changes in


8

HRA management, tax laws, environmental regulations, economic, or physical factors that may or may not affect said conclusions or opinions.

No engineering survey, legal, or engineering analysis has been made by us of this property. It is assumed that the legal description and area computations furnished are reasonably accurate. However, it is recommended that an analysis be made for exact verification through appropriate professionals before demising, hypothecating, purchasing or lending occurs.

Unless otherwise stated in this report, the existence of hazardous substances, including without limitation asbestos, polychlorinated biphenyls, petroleum leakage, or agricultural chemicals, which may or may not be present on the property, or other environmental conditions, were not called to the attention of nor did the appraisers become aware of such during the appraisers' inspection. The appraisers have no knowledge of the existence of such materials on or in the property unless otherwise stated. The appraisers, however, are not qualified to test for such substances or conditions.

The presence of such substances such as asbestos, urea formaldehyde, foam insulation, or other hazardous substances or environmental conditions may affect the value of the property. The value estimated herein is predicated on the assumption that there is no such condition on or in the property or in such proximity thereto that it would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in the field of environmental impacts upon real estate if so desired.

The cost and availability of financing help determine the demand for and supply of real estate and therefore affect real estate values and prices. The transaction price of one property may differ from that of an identical property because financing arrangements vary.

The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used.

The forecasts of future events that influence the valuation process are predicated on the continuation of historic and current trends in the market.

The property appraised is assumed to be in full compliance with all applicable federal, state, and local environmental regulations and laws, and the property is in conformance with all applicable zoning and use ordinances/restrictions, unless otherwise stated.


9

HRA 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 a 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 on the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of the ADA in estimating the value of the property.

The appraisers have personally inspected the subject property; however, no opinion as to structural soundness of existing improvements or conformity to any applicable building code is made. The appraisers assume no responsibility for undisclosed structural deficiencies/conditions. No consideration has been given in this appraisal to personal property located on the premises; only the real estate has been considered unless otherwise specified.

We shall not be required, by reason of this appraisal, to give testimony or to be in attendance in court or any governmental or other hearing with reference to the property without prior arrangements having first been made with the appraisers relative to such additional employment.

In the event the appraisers are subpoenaed for a deposition, judicial, or administrative proceeding, and are ordered to produce their appraisal report and files, the appraisers will immediately notify the client.

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

James B. Harris is a Member, and Berri J. Cannon Harris is an Associate Member, of the Appraisal Institute. The Bylaws and Regulations of the Institute require each Member and Associates to control the uses and distribution of each appraisal report signed by such Member or Associates. Except as hereinafter provided, possession of this report, or a copy of it, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraisers and in any event only with properly written qualification and only in its entirety. The City of Indio, its


10

HRA underwriter, financial advisor and legal counsel may publish this report in the Official Statement for this Community Facilities District.

Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute or the MAI designation) shall be disseminated to the public through advertising media, public relations, news media or any other public means of communication without the prior consent and approval of the undersigned.

The acceptance of and/or use of this appraisal report by the client or any third party constitutes acceptance of the following conditions:

The liability of Harris Realty Appraisal and the appraisers responsible for this report is limited to the client only and to the fee actually received by the appraisers. Further, there is no accountability, obligation or liability to any third party. If the appraisal report is placed in the hands of anyone other than the client for whom this report was prepared, the client shall make such party and/or parties aware of all limiting conditions and assumptions of this assignment and related discussions. Any party who uses or relies upon any information in this report, without the preparer's written consent, does so at his own risk.

If the client or any third party brings legal action against Harris Realty Appraisal or the signer of this report and the appraisers prevail, the party initiating such legal action shall reimburse Harris Realty Appraisal and/or the appraisers for any and all costs of any nature, including attorneys' fees, incurred in their defense.


11

HRA AREA DESCRIPTION

The following section of this report will summarize the major demographic and

economic characteristics such as population, employment, income and other pertinent

characteristics for the Southern California region, Riverside County, the City of Indio and

the subject market area.

Southern California Regional Overview

The Southern California region, as defined in this report, encompasses six

individual counties including Los Angeles, Orange, Riverside, San Bernardino, San

Diego, and Ventura Counties. The Southern California region extends from the California

Mexico border on the south to the Tehachapi mountain range on the north and from the

Pacific Ocean on the west to the California-Arizona border on the east. The region covers

an estimated 38,242 square miles and embodies a diverse spectrum of climates,

topography, and level of urban development. Please refer to the following page for a

location map.

Population

The Southern California region has added about 7.7 million new residents since

1980 as indicated in the table shown on page 14. According to the California Department

of Finance, the most recent data available indicate that as of January 2006, the regional

population stood at over 21.1 million. If the region were an individual state, it would rank

as one of the most populous in the nation.

Since 1981, annual population gains from natural increase and immigration have

ranged from a low of 131,400 persons in 2002 up to 568,645 persons in 1989. These

figures represent annual gains of 0.7% to 3.5%. During the past five years, the population

of the six-county Southern California region grew by 1.2% to 2.0% per annum.


12

HRA

40 60 80

CC)NSlJI . .TINC.J F\li\L_ lS1;\·: i::: APPHAISEHS

13

HRA As of January 2006 the population of the six-county area stood at 21, 147,200

persons. Looking toward the future it is estimated that the region's population will continue

to climb as new residents seek out the southern California area. During the economic

downturn from 1992 through 1996, and continuing through 2006, the population growth

rate declined compared to the growth experienced in the late 1980s.

Population Trends 1980-2006

Average Annual Change Year Pogulation Number Percent

19801 13,359,673 1981 13,571,785 212,112 1.6% 1982 13,868,390 296,605 2.2% 1983 14,179,920 311,530 2.2% 1984 14,483,010 303,090 2.1% 1985 14,795,200 312,190 2.2% 1986 15,189,600 394,400 2.7% 1987 15,613,100 423,500 2.8% 1988 16,027,400 414,300 2.7% 1989 16,460,900 433,500 2.7% 1990 17,029,545 568,645 3.5% 1991 17,232,000 202,455 1,2% 1992 17,539,200 307,200 1.8% 1993 17,746,100 206,900 1.2% 1994 17,862,000 115,900 0.7% 1995 17,949,300 87,300 0.5% 1996 18,041,500 92,200 0.5% 1997 18,223,500 182,000 1.0% 1998 18,467,800 244,300 1.3% 1999 18,750,300 282,500 1.5% 2000 19,187,500 437,200 2.3% 2001 19,522,500 335,000 1.7% 2002 19,919,900 397,400 2.0% 2003 20,299,100 379,200 1.9% 2004 20,629,300 330,200 1.6% 2005 20,902,600 273,300 1.3%

·2006 21,147,200 244,600 1.2%

1 April 1, 1980, 1990, and 2000, all other years January 1 Source: California Department of Finance. 5106

The future rate of growth will depend on a number of factors that may dramatically

affect the region. Some of the major factors include availability of developable land,

availability of water, national economic climate, and public policy toward growth and the

assimilation of a large number of new foreign immigrants. The continued growth of the


14

HRA population within the region, even during periods of economic slow down, provides a

positive indicator as to the desirability of the Southern California region.

Employment

In conjunction with the population growth, a key indicator of the region's economic

vitality is the trend in employment. The most common measure of employment growth is

the change in non-agricultural wage and salary employment. The table below illustrates

the non-agricultural wage and salary employment trends in Southern California.

Year

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

1 2005 benchmark

Southern California Region Employment Trends

1983-20051

Average Annual Change Employment

5,691,000 5,960,100 6,198,400 6,384,500 6,664,000 6,903,800 7,096,000 7,288,100 7,104,000 6,900,700 6,798,100 6,833,900 6,957,800 7,084,100 7,300,900 7,546,800 7,767,800 7,985,900 8,082,300 8,073,100 8,102,100 8,224,600 8,362,000

Number Percent

269,100 238,300 186,100 279,500 239,800 192,200 192,100 (184,100) (203,300) (102,600)

35,800 123,900 126,300 216,800 245,900 221,000 218,100 96,400 (9,200) 29,000

122,500 137,400

4.7% 4,0% 3.0% 4.4% 3.6% 2.8% 2.7%

(2.5%) (2.9%) (1.5%) 0.5% 1.8%. 1 .. 8% 3,1% 3.4% 2.9% 2.8% 1.2%

(0.1%) 0.4% 1 ,5% 1;7%

Source: Employment Development Department 5/06

In the Southern California region, average annual non-agricultural employment has

grown from 5,691,000 jobs in 1983, to a then peak employment of 8,082,300 in 2001.


15

HRA Employment declined to 8,073,100 in 2002. This decline was mostly caused by a 40,100

job decrease in Los Angeles County. In 2005, employment climbed to a new record level,

8,362,000. This was in spite of Los Angeles County only adding an additional 20,000:!:

jobs. This represents an increase of over 280,000 new jobs over the past five years.

As the economy entered into an economic recession during the latter part of 1990,

employment growth slowed. The average annual gain in 1990 was approximately

192, 100 jobs or 2.7%. In 1992 when the full weight of the recession was felt, area

employment suffered the highest annual decline in jobs registered in the last decade,

losing nearly 204,000 jobs or a percentage decrease of 2.9%. This was followed by

further employment declines of 102,600 jobs in 1993. It appears that by the middle of

1994, the economic recovery finally began to take hold in the Southern California region.

The adverse employment issues experienced in the prior three years had abated. In

1997, total non-agricultural employment stood at 7 .2 million, finally exceeding the prior

high in 1990. As of year-end 2002, employment was over 8.0 million. Forecasts prior to

September 11, 2001, indicate that job growth would continue to be positive in 2001 and

increase moderately over the next one to two years. However, with the terrorist attack on

the United States and the conflict with Iraq, most economists are saying we were in a flat

to slightly declining economy, during 2002 and first half of 2003, but that we began

recovery during the second half of 2003. 2003 showed a small increase over the previous

high mark in 2001. 2004 had a moderate gain over 2003. Employment gains have

recovered in 2005 with an additional 137,400 new jobs or a 1.7% increase.

Employment among the individual industry categories reflects some fundamental

regional changes in the economy during the past decade. The level of mining activity in

Southern California continues to steadily decline as reflected in the consistent decrease in

mining employment. Construction employment, as of · 1989, was at a high level in

response to the level of construction activity that had occurred in the region during the

past five years. During the period from 1991 through 1994, construction employment

declined in response to decreased residential and commercial construction activity. From


16

HRA 1994 through 2005, as the economy rebounded, residential construction increased

bringing back more than the construction jobs lost during the recession.

Total manufacturing employment in the region has exhibited little gain from the

levels recorded in 1980. Due to the high labor, land, and capital costs in most of the

Southern California region, some manufacturing firms have expanded or relocated their

manufacturing operations outside of the area.

The Southern California economy, which historically depended heavily on

aerospace and defense related employment, has been dealt a double blow. First from the

reduction of the space program and reduced defense spending which affected

manufacturers and suppliers, and second from the closure of several military bases which

has had a ripple effect throughout the local economy. Areas heavily dependent on military

spending will be impacted as the units are deployed abroad.

The finance, insurance, and real estate ("FIRE") employment category grew

rapidly as the economy recovered from the 1981-1982 national recession. As the

economy entered a new recessionary cycle, the FIRE employment sector exhibited little

growth from 1991 through 1995. Some of the manufacturing and aerospace jobs

permanently displaced from the economy were slowly being replaced with administrative,

marketing and research employment. It is reasonable to assume that similar stagnant

growth in this area will be experienced during the current economy.

The employment group that has contributed most to the employment growth in the

region is the service sector. Since 1980, the majority of all new jobs have been created in

the service category. The service sector was the leader in new job growth during the

years that followed the economic recovery from the 1990 recession.

Government employment tends to mirror the growth of the population that it

services. It is expected that government employment will grow at a rate similar to the area

population. The future employment growth in the Southern California region is expected

to continue but at a level moderately lower than recent years. Factors that will affect


17

HRA employment growth include the direction of the national economy, wage levels, housing

prices, and population trends. Given the national disaster of September 11, 2001,

government should not experience layoffs; on the contrary, growth particularly in the

defense sector should occur. However, the California state budget deficit has negatively

impacted both state and local government employment.

Riverside Countv

Riverside County consists of 24 individual cities and numerous unincorporated

communities. Riverside County is typically grouped with adjacent San Bernardino County

to form the Riverside-San Bernardino Metropolitan Statistical Area ("MSA"). This area is

commonly called the Inland Empire. Riverside County is bounded by Orange County to

the west, San Bernardino to the north, the state of Arizona to the east, and San Diego

County to the south.

The major urbanized areas are located in the western portion of the County. The

major incorporated cities include the cities of Riverside, Corona, and Moreno Valley.

These areas were the most active areas for new growth during the mid 1980's until the

recession took hold during 1990. The area which encompasses Lake Elsinore, Murrieta,

Menifee Valley and Temecula has also experienced rapid growth since the mid 1980's.

The areas that have experienced the most active growth during the 1980s also suffered

the most during the lengthy recession. However, since 1996, residential activity has

increased due to downsizing of product with more affordable pricing, and the general

improvement in the regional economy.

Population

Riverside County has more than tripled its population, adding approximately

1,290,000 new residents since 1980 as illustrated in the following table. As of the 2000

Census, the countywide population stood at 1,545,387 residents. The 2006 estimate by

the State of California indicates that the County had 1,953,300 residents on January 1,

2006. Annual population gains, from natural increase and immigration, have ranged from

44,813 persons in 2001 up to 81,300 persons in 2004. From 1991 to 1996, the rate of


18

HRA

growth in population declined moderately each year. Recent gains of 44,799 to 81,300

persons represent annual changes of 2.9% to 4.7%.

The future rate of growth within the County will depend on a number of factors.

Some of the major factors include availability of developable land, availability of water,

national and regional economic climate and public policy toward growth.

The areas within the County that will continue to experience the largest share of

the new population growth will be the Corona-Riverside area and the area between Lake

Elsinore, Sun City and Temecula.

Year

1980 1885 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Riverside County Population Trends

1980-2006

Average Annual Change Po12ulation Number Percent

663,199 815,100 30,380 4.6%

1,170,413 71,063 6.0% 1,223,200 52,787 4.5% 1,268,800 45,600 3.7% 1,304,400 35,600 2.8% 1,332,000 27,600 2.1% 1,356,600 23,600 1.8% 1,381,900 26,300 1.9% 1,400,400 18,500 1:3% 1,447,200 46,800 3.3% 1,473,300 26,100 1.8% 1,545,387 72,087 4.9% 1,590,200 44,813 2.9% 1,653,800 63,600 4.0% 1,726,300 72,500 4.4% 1,807,600 81,300 4.7% 1,888,300 80,700 4.5% 1,953,300 65,000 3.4%

April 1. 1980. 1990. 2000; all other years January 1. Source: California Department of Finance. U.S. Census 5/06


19

HRA Employment

Employment data for Riverside County are compiled for the entire MSA, which

includes San Bernardino and Riverside Counties. These counties have a diverse

economy, with manufacturing, construction and tourism being the major industry groups.

In conjunction with the rapid population growth experienced in the past two decades, the

employment base has continued to grow and diversify. The Inland Empire's

unemployment rate is moderately above the Southern California average and similar to

the State. The higher unemployment rate is due to the seasonal nature of agricultural

employment in the area. The following exhibit illustrates the area's unemployment

compared to California as of May 2006. Unemployment rates have declined 64% from the

recession high of 12.2% in 1993.

California Inland Empire

Labor Force

17,716,500 1,713,000

Unemployment

4.6% 4.3%

The most common measure of employment growth is the increase in

nonagricultural employment. Nonagricultural employment is outlined in the following

exhibit. During the 1980's the Inland Empire's employment base expanded rapidly as the

area moved away from its military and government oriented employment base to a more

fully diversified economy.

Nonagricultural employment has grown from an annual average of 443, 100 jobs in

1983 to 1,235,400 jobs in 2005. This represents an increase of over 792,000 new jobs

created in San Bernardino and Riverside Counties during the past 22 years. Job gains

peaked in 1990 with 67,000 new jobs. Since 2000, job increases have ranged from

34, 100 new jobs to a near record increase of 59,300 new jobs in 2004. The percentage

increases have ranged from 3.2% to 5.2%. The following table illustrates the annual

employment trends from 1983 through 2005. In May 2006, the non-agricultural

employment had increased to 1,246,200, a 2.1 % increase from May 2005.


20

HRA Employment among the individual industry categories reflects changes in the

Inland Empire economy during the past decade. Construction employment gains

generally mirror the regional economy. In response to the high level of construction

activity that occurred in the County during the period from 1984 to 1989, construction

employment reached nearly three times the level recorded in 1982. From 1992 through

1995, construction employment declined in response to decreased building activity. The

2005 levels were more than double the 1993 low.

San Bernardino-Riverside MSA Employment Trends

1983-2005

Average Annual Change Year Employment Number Percent

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

2005 Benchmark

443,100 473,600 514,100 551,400 588,700 625,100 668,200 735,200 741,600 751,500 755,800 772,800 801,700 824,800 863,200 903,800 960,300

1,010,100 1,050,700 1,084,800 1,119,400 1,178,700 1,235,400

30,500 40,500 37,300 37,300 36,400 43,100 67,000 6,400 9,900 4,300

17,000 28,900 23, 100 38,400 40,600 56,500 49,800 40,600 34,100 34,600 59,300 56,700

Source: Employment Development Department 5/06

6.9% 8.6% 7.3% 6.8% 6.2% 6.9%

1.0.0% 0.9% 1.3% 0.6% 2.2% 3.7% 2.9% 4.7% 4.7% 6:3% 5:2% 4.0% 3.2% · 3.2% 5.3% 4.8%

The number of manufacturing jobs in the Inland Empire has increased over 45%

from the levels recorded in 1991. However, manufacturing jobs declined 5.5% from the

2000 high of 120,000 jobs to 113,400 jobs by 2003, but increased back to 120,200 in


21

HRA

2005. Due to the high labor and capital costs in Los Angeles and Orange Counties,

manufacturing firms have expanded or relocated some of their manufacturing operations

to Riverside and San Bernardino counties to take advantage of the labor force and lower

land costs.

Transportation and public utilities employment tend to mirror population growth. In

the Inland Empire the finance, insurance and real estate ("FIRE") category is still a small

segment of the employment picture.

A significant number of the new jobs created in the last 15 years have been

created in the service sector. The service sector will continue to play a major role in

employment growth during the next few years. Government employment is a major

employment sector in the Inland Empire due to the rapid growth.

The future employment growth in the Inland Empire is expected to continue as

more firms relocate to the area to take advantage of lower land prices and the abundant

labor pool. Factors that will affect employment growth include the direction of the state

and national economy, and consumer confidence. Due to the terrorist attack on

September 11, 2001 and the Iraq conflict, consumer confidence was negatively impacted.

Most economists report that we were in a flat economy in 2002 and the first half of 2003,

but that we began recovery during the second half of 2003. The recovery continued into

2006.

Income

The average household income in Riverside County is estimated to be $64,601.

The median household income stands at $49, 128. These figures are moderately below

the Southern California region average. The lower income level is due to the lower wages

in agriculture, manufacturing, service and government employment. The household

income distribution for Riverside County is illustrated in the following table.


22

HRA

County of Riverside Household Income Distribution

2006 Income Range

Less than $15, 000 $15,000 - $24,999 $25,000 - $34,999 $35,000-$49,999 $50,000 -$74,999 $75,000 - $99,999

$100,000- $149,999 $150,000 or more

Total

Median Household Income Average Household Income

1/ Percent of total distribution Source: Claritas 5/06

Retail Sales

Households

79,214 77,692 70,749 97,465

121,784 77,360 74,100 35,544

628,908

Percent 1/

12.60% 11.56% 11..20% 15.50% 19.36% 12.30% 11.78% 5.66%

100.0%

$49,128 $64,601

Retail demand continues to be fueled by the growth in population as outlined

previously. For Riverside County, taxable retail sales have increased from $3.9 billion in

1985 to over $7.1 billion by 1994 and to over $18.7 billion by 2004. During the past seven

years, annual changes have ranged from an increase of $768 million in 1998 to an

increase of $2.7 billion in 2004, as shown on the next table. Data for 2005 are not

available as of the date of this report, although on a statewide basis, retail sales were

reportedly up over 7% in 2005.

The increases in retail sales are due to the exceptionally high County population

growth rates experienced during the period from 1983 through 1990. During the period

from 1991 through 1993, retail sales were stagnant due to the economic recession. From

1994, and continuing through 2004, there was a significant rebound in retail sales. Official

state reports for 2005 will not be released until later this year. In the future, retail sales

growth should mirror the population growth in the County.


23

HRA

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Riverside County Retail Sales Trends 1/

1985-2004

Taxable Retail Sales

{OOO's}

Average Annual Change Number

$3,974,400 $4,338,628 $4,868,644 $5,486,787 $6,257,222 $6,596,974 $6,389,890 $6,684,107 $6,716,783 $7, 131,216 $7,435,414 $8,003,061 $8,508,010 $9;276,44$

$10,685,724 $12,190,474 $13,173,281 $14,250,753 $16,030,952 $18,715,949

(OOO's} Percent

$319,632 $364,228 $530,016 $618,143 $770,435 $339,752 ($207,084) $294,217

$32,596 $414,513 $304,196 $567,647 $504,949 $768,438

$1,409,278 . $1,504,750

$982,807 $1,077,472 $1,780,199 $2,684,997

8.7% 9.2%

12.2% 12.7% 14.0% 5.4%

(3.1%) 4.6% 0.5% 6.2% 4.3% 7.6% 6.3% 9.0%

15.2% 14.0% 8.1% 8.2%

12.5% 16.7%

1/ Taxable Retail Sales Total (not adjusted for inflation) Source: State Board of Equalization 5/06

Transportation

Riverside County is served by a major airport, Ontario International, located in

adjoining San Bernardino County. Several major airlines have flights into Ontario, while

international flights can be booked out of Los Angeles International Airport.

A network of freeways links most urbanized areas of the County. The major north

south arterials are the Corona (15) and Escondido (215) Freeways. The Pomona

Freeway (60) provides east-west access to the Los Angeles area and the desert areas of

Riverside County. The Riverside Freeway (91) provides access to Orange and Los

Angeles Counties.

Environmental Concerns

The Endangered Species Act of 1973 precludes any activity that constitutes a

taking of a federally listed endangered species except by permit. Numerous areas within


24

HRA Riverside County have been identified as containing potential habitat of the Stephen's

Kangaroo Rat, a listed species. The evidence of habitation by this rat has resulted in

delays or substantial revisions of proposed developments. The California Department of

Fish and Game is currently reviewing the status of additional wildlife for possible inclusion

on a list of endangered or threatened species. A Multiple Species Habitat Conservation

Plan (MSHCP) was approved by the County Board of Supervisors on June 17, 2003. The

MSHCP is a comprehensive, multi-jurisdictional effort that includes the County and 14

cities. This plan focuses on the conservation of 146 species. The MSHCP consists of a

reserve system of approximately 500,000 acres of which 347,000 acres are within public

ownership and approximately 153,000 acres are in private ownership. The purchase of

the privately owned lands will be funded by an adopted fee. A MSHCP fee of $1,651 per

dwelling unit is imposed for housing built in the MSHCP area.

In summary, the region exhibited very strong population and employment growth

during the 1980 to 1989 period. The recession of the early 1990s had significantly slowed

population growth and resulted in overall job losses from 1990 to 1995. Over the past

seven years, as the economy recovered, population and employment growth have been

stronger than during the prior growth years of the 1980s. The long-term outlook for the

region remains positive as the elements of abundant affordable land and labor still exist.

Future growth will, however, continue to be affected by the trends in the overall economy.

Riverside County's economic environment should follow a path similar to that of the other

Southern California counties.

The subject property is located in the City of Indio within the Coachella Valley of

Riverside County. Please refer to the next page for a copy of the neighborhood map

indicating the District's location in the City of Indio. The Coachella Valley is situated in

the eastern portion of Riverside County and extends from the Banning Pass on the

west to the Salton Sea on the southeast. The Coachella Valley consists of over 500

square miles and includes the cities of Indio, Palm Springs, La Quinta, Cathedral City,

Coachella, Desert Hot Springs, Rancho Mirage, Indian Wells, and Palm Desert.


25

HRA

Neighborhood Map

'.l§tll8ve

Omi 2 3 4

26

HRA

The City of Indio is situated in the southeastern portion of Coachella Valley. Indio

incorporated in 1930 and encompasses approximately 25±_ square miles. The City is

located approximately 120 miles east of Los Angeles about 75 miles north of the

California-Baja California Mexican border. Indio is bounded by the City of Coachella to

the east, La Quinta to the west, and unincorporated Riverside County to the south and

north.

The Coachella Valley is known for their recreational resorts, including PGA West,

Stouffer's Esmeralda Resort, Marriott's Desert Springs Resort and Spa, Hyatt Grand

Champions Resort, La Quinta Hotel, Rancho Las Palmas and Mission Hills. The City of

Indio is known as both a desert resort and a major agricultural area. Indio is home of

the National Date Festival, Shalimar Sports Center's satellite off-track wagering facility

and international polo matches. The City welcomes tens of thousands of visitors each

year.

The City of Indio has several large mixed-use projects currently in the planning

stages that will include condominiums, one or two entertainment complexes, hotels,

retail and office uses. One project is the $350,000,000, 48-acre project known as Polo

Square. This project is current planned to include 450 condominiums, a 10-story 250-

room hotel, a 4-story 120-room extended-stay hotel, 350,000 square feet of retail space

and restaurants and 200,000 square feet of office space. The condominiums are

proposed to range from $200,000 to close to $1,000,000. It is envisions to attract both

seasonal and permanent residents. Discussions for several other projects include a

power center, 18-screen movie theatre and more.

Population

As of January 2006, Indio had a population of over 71,600 persons, which is an

increase of 7.7%±_ from 2005. The City is projected to grow to over 150,000 permanent

residents in the next several years according to the City's Chamber of Commerce.


27

HRA

Income Levels

The City of Indio has an estimated 2006 median household income of $40,702,

and an average household income of $53,007. This reflects the high number of retirees

and service workers. The average household in Indio has 3.5± people. The cost of

living in Indio and the Coachella Valley is about 32% below the cost of living in the Los

Angeles region.

Retail Sales

In 2004, the City generated retail sales of $627,217,000, which is a 24.4%

increase in one year. Retail sales grew over 15% in 2001, prior to the September 11,

2001 terrorist attack, which negatively impacted most tourist destinations. Retail sales

grew at only 1.3% for the following year. However, in 2003, retail sales rebounded to

12% and doubled in 2004 to 24.4%.

Transportation

The Coachella Valley and Indio are served by Interstate 10, which runs along the

northern portion of the Coachella Valley. The 1-10 is one of the State's principal transit

routes. State Highway 111 connects to the Interstate 10 freeway at the Palm Springs

off-ramp located at the north end of the City of Palm Springs. Highway 111 continues

south to Palm Canyon and then southeast along the base of the San Jacinto Mountains

where it connects to Interstate 10 in the City of Indio. Highway 111 serves as the major

commercial arterial street through Palm Springs and provides primary access with the

surrounding resort communities.

The Palm Spring International Airport is at the center of the transportation

network for the region. The Union Pacific Railroad runs parallel to Interstate 10 from the

southeast to the northwest along the City's northern border, with Amtrak

transcontinental service.


28

HRA Immediate Surroundings

The subject property is located in the northeast portion of the City, north of

Interstate 10, and south of the All American Canal. The subject property is located at

the northwest corner of Jackson Street and Avenue 41, approximately one mile north of

the Interstate 1 O Freeway. In general the land to the west and north of the District

consists of undeveloped natural open space, agricultural fields, and a few scattered

older dwellings. There are several residential subdivisions in an active sales program

within one mile of the subject tract.

Primary access to the District is by Jackson Street which connects to the 1-10

Freeway approximately one mile south of the site. Approximately three miles south of

the District is a wide variety of good quality retail shops and services located along

Washington Boulevard. Within the Shadow Hills community, to the east and south of

the District, is a proposed supermarket. Two miles southwest of the District a 500,000

square foot power center is also planned.

A new elementary school is currently under construction approximately two miles

west of the District. According to the Desert Sands School District, there are plans to

build a K through 12 school in the Shadow Hills community.

Conclusion

The economy has experienced economic growth since the second half of 2003,

due largely to increased consumer and business spending. Inflation is reported to

remain moderate, which should keep mortgage rates from rising too high while the

economy gains strength. The Coachella Valley's housing boom has shown signs of

slowing over the past 8±. months. Building permit activity has continued to grow since

2001 to the present time.

According to the first quarter 2006 Hanley Wood Market Intelligence report, the

median detached unit base sales price for the Desert communities reached $389, 124,

which was a 3.4% increase from the prior year. The median sales price per square foot is


29

HRA $188.00. However, sales activity has decreased significantly. There were 740 sales

reported during the first quarter of 2006 compared to 1,258 sales the first quarter of 2005.

This indicates a 41.2% decrease in sales from the same time last year. The Desert

communities experienced the greatest decline in sales in all of the Riverside County sub

markets. The significant decline could be due to the areas sensitivity to both permanent

residents and the second home market which is typically one of the first markets to

experience declining sales and prices in a softening residential market.


30

HRA

SITE ANALYSIS

General

The subject property of this appraisal is identified as Community Facilities District

No. 2006-1 in the City of Indio, commonly known as the subdivision of Sonora Wells.

According to the recorded tract map 32402, the District includes 99± gross acres to be

developed with 363 single family detached units on a minimum lot size of 7,200 square

feet. The subject parcel has undergone significant grading, infrastructure improvements

and vertical construction is underway on 174 residential units. Sonora Wells is a

residential subdivision consisting of eight floor plans built by one merchant builder, D.R.

Horton.

Location

The District is located in the western portion of the Coachella Valley in the City of

Indio. The site is located at the northwest corner of Avenue 41 and Jackson Street,

south of the All American Canal. In general the land to the west and north of the District

consist of undeveloped natural open space, agricultural fields, and a few scattered

older dwellings. There are several subdivisions offering similar product to that of Sonora

Wells located within one mile to the east and south of the District.

Current Site Condition

Rough grading began in August 2005 and as of the date of value all of the lots

were in near finished lot condition. All of the 363 building permits have reportedly been

issued. Phases 1 2, 3, 4 and 5 are under unit construction with closing scheduled to

begin the end of August 2006 for a portion of Phase 1. There are 163 lots within the

first four phases of development in various stages of unit construction. Phase 5 has just

recently begun construction with 11 of the 51 lots improved with slabs. The builder is

anticipating the entire project to be sold to individual homeowners by September 2008.

There are 8 model homes completed.


31

HRA The builder has provided an itemized summary of the site costs for the

development of Sonora Wells. Based on our review of the costs and interview with a

representative of the builder, total site construction costs are $37,089,641. Reportedly,

as of August 1, 2006, $21,567, 132 of the costs have been spent. The costs to complete

site construction, including all development fees and that satisfy all the Conditions of

Approval is $15,522,509.

Size and Shape

The overall shape of CFO No. 2006-1 is irregular and contains 98.985± gross

acres, proposed for 363 dwelling units, according to Final Tract Map No. 32402. The

following page shows a copy of the recorded tract map.

Soils and Geology

The appraisers have requested but have not been provided with a soils or

geotechnical engineering report for the District. However, given the current condition of

the site, that is; graded to finished lot condition, it is assumed that the site is suitable for

the proposed development. It is further assumed that any recommendations included in

a soils or geotechnical report were considered in building foundation design and site

preparation. It is a specific assumption of this appraisal that the soil engineer's

recommendations were followed in the grading of the site, and that the site is

su,itable for development as proposed.

Topography and Drainage

As of the date of value, the subject property was under site construction. The

general topography of the site is relatively level. Prior to construction, the site was

comprised of scattered desert brush and other desert vegetation.

Although the site is generally level, there is a slight downward slope toward the

south and southeast, which is consistent with the regional topography. Upon construction

of the subdivision, most on-site run-off will be channeled into the streets where it is

collected by curbs and gutters and carried into storm drains located at various locations


32

HRA

Tract Map No. 32402

I . I . I •

I I . I . I . I . I . ! f . I I . I . I . I ' I ' I ' I i . I I

-i---£ JACKSON ';;R~E-E-T---~) __ J __

JACKSON STRCE:T LOT -.....


33

HRA

along the streets. It is a specific assumption of this appraisal that the builder has fulfilled

all grading and drainage requirements of the City of Indio prior to construction of the

dwelling units.

Zoning

The subject property is zoned RL/RPD2, by the City of Indio. This zone allows for

residential uses. The zone designation allows for development consistent with the

recorded final tract map according to a planner at the City. According to the City's

planner, the site is designated as Residential Low/Residential Planned Development 2 in

the City's General Plan. The zoning and General Plan allow for single family detached

dwelling units on a minimum lot size of 7 ,200 square feet. Tract Map 32402 allows for 363

buildable lots on 7,200 square foot minimum lots. The map recorded on May 16, 2006 as

Document No. 2006-0353937.

As proposed, the subject project appears to be a legally conforming use. The

subject property is in conformance with all zoning requirements, and is assumed to be in

conformance with all governmental regulations.

Access and Circulation

The subject property is located at the most northerly end of the City of Indio,

north of Interstate 10. The City of Indio is located approximately 120 miles east of Los

Angeles. 1-10 is one of the State's major transit routes and runs from the southeast in a

northwesterly direction and connects the southern United States with the West Coast in

Los Angeles. The subject property is accessed by Jackson Street which offers full

interchange facilities with 1-10 approximately one mile south of the District.

The Palm Spring International Airport is at the center of the transportation

network for the region. The Union Pacific Railroad runs parallel to 1-10 from the

southeast to the northwest along the City's northern border, with Amtrak

transcontinental service.


34

HRA The onsite streets are improved with one lane in each direction, concrete curbs,

and gutters, street lights and below ground utilities. Sidewalks are installed at the

completion of home development. A portion of Phase 1 has sidewalks and front

landscape completed.

Easements

The appraisers have been provided with an AL TA Report for Assessor Parcel

No. 679-220-005, which comprises the District. The report was prepared by Fidelity

National Title Company on October 12, 2004.

The report did not mention any easements, restrictions or conditions that would

adversely impact the value of the subject property. It is a specific assumption of this

appraisal that all easements and encumbrances affecting the property are not

detrimental to value. A copy of the policy is retained in the appraisers' work files. A

"Notice of Assessment Lien" for CFO No. 2006-1 was not disclosed.

Utilities

The subject property is served by the following companies/agencies:

Electricity Water Gas Sewer

Telephone Police Fire

Imperial Irrigation District City of Indio Southern California Gas Company Valley Sanitary District Verizon Indio Police Department County of Riverside

Earthquake, Flood Hazards, and Nuisances

The subject property, as of the date of valuation, was not located in a designated

Earthquake Study Zone as determined by the State Geologist. However, according to the

Environmental Site Assessment report: "The northwest-southwest trending San Andreas

fault zone dominates the geology of the Coachella Valley. The Banning, Mission Creek

and Garnet Hill faults (which are part of the San Andreas fault system) divide the

Coachella Valley into four distinct hydrogeologic subbasins, as the faults are generally


35

HRA impermeable to groundwater flow. Groundwater characteristics in the area of the subject

site are governed by the features of the Whitewater River subbasin, which is bound by

the Garnet Hill fault to the northwest, and the San Jacinto and Santa Rosa Mountains to

the west and south. Groundwater in the Whitewater River subbasin generally flows in a

southeasterly direction from the main recharge area near San Gorgonio Pass towards the

Salton Sea." However, all of Southern California is subject to seismic activity.

The subject property is located in a Zone "C" flood designated area according to

Federal Emergency Management Agency Community Panel No. 06025500020 effective

date May 1, 1985. This designation references an area that is outside the 500-year flood

plain. Flood insurance is not required. No other nuisances or hazards were observed on

physical inspection of the subject property as of the date of value.

Environmental Issues

The builder has provided a Phase 1 Environmental Site Assessment for the

subject property. The report was prepared by Proterra Consulting, Inc. on October 29,

2004 for D.R. Horton. The conclusion of the report was that there were no significant

environmental conditions observed on the subject site or adjacent properties. Based on

the lack of Recognized Environmental Conditions associated with the subject site,

additional environmental investigation appeared unwarranted at the time of the report. It

is a specific assumption of this report that the District is not impacted by any

negative environmental issues.

Taxes and Special Assessments

The District can be identified as Assessor Parcel No. 679-220-005. The assessor

parcel has property taxes as shown on the following table. Pursuant to Proposition 13,

passed in California in 1978, current Assessed Values may or may not have any direct

relationship to current Market Value. The subject's current tax is based on its prior use,

undeveloped land. Real estate tax increases are limited according to Proposition 13 to a

maximum of 2% per year plus bonds, if any. If the property is sold, real estate taxes are

normally subject to modification to the then current Market Value.


36

HRA

APN

679-220-005

Assessed Values and Taxes 2005-06 AV. Land AV. Imps AV. Total

$23,845,000 -0- $23,845,000

R.E. Taxes

$272, 129.94

The subject property falls within the taxing jurisdiction of the Riverside County

Assessor's office. The applicable tax rate area is 007-104. The published annual tax

rate in this area is 1.11749%. As of the date of value, the property taxes for the subject

property were reported as paid in full for 2005/2006, according to the County's web site.

The City's Special Tax Consultant, MuniFinancial, estimated the Special Tax per

dwelling unit which is expected to range between $1,639 for the smallest unit to $2,325

for the largest unit. The tax for the undeveloped land is estimated at $13,003 per acre.

The total annual taxes are estimated to be approximately 1.8% of the base sales

price of the dwelling, based on first phase pricing.

Homeowners Association

The Sonora Wells development will offer common area amenities for the

homeowners which includes one neighborhood pool, parks and tot lot. The

Homeowners Association dues are estimated at $120.00 per month per dwelling.

Site Improvements

As of the date of value, the site is under construction. Site work began in August

2005 and the 363 lots were improved to near finished lot condition in July 2006. The

only remaining work needed is construction of the sidewalks which is completed as the

dwellings are constructed. A portion of Phase 1, which is nearing unit completion, has

sidewalks installed and front landscape completed.

Construction of the 8 model homes began in December 2005 and were

completed in April 2006. Construction of production homes began in March 2006 and

has continued to the present time. Currently Phases 1 through 5 are under unit


37

HRA construction and range from slabs to near completed dwellings. Escrow closings are

anticipated to begin for a portion of Phase 1 the end of August 2006.

The builder has provided a total budget for site development of $37,089,641 or

$102,175 per dwelling unit. The builder has provided the costs incurred to date of

$21,567, 132 which equates to costs to complete of $15,522,509. The costs to complete

site construction reportedly include all development fees and satisfy all the Conditions

of Approval and the current development plans for Sonora Wells.


38

HRA

IMPROVEMENT DESCRIPTION

General

The appraisers have been provided with a sales brochure that illustrates the

eight floor plans for the proposed improvements within the District. However, we have

not received specifications on the products. Inspection of the 8 completed model

homes indicates that the proposed quality of construction is similar to currently selling

products in the Indio marketplace. For purposes of this appraisal, we have assumed

that the quality of construction, functional utility, amenities and features will meet

market demand for new product in the subject's market area.

The following table summarizes the proposed unit sizes and brief description for

the proposed homes within the District.

CFO No. 2006-1 - Sonora Wells Price/

Plan Bedrooms Baths Sguare Feet Base Price Sg.Ft, 1 3 2:0 1,844 $353,590 $191.75 2 .3 2.5 2,089 $372,245 $178.19 3 3 2.5 2,322 $380,090 $163.69 4 4 3.0 2,402 $384,585 $160:11 .5 4 3.0 2,787 $413,9~5 $148.22 6 5 4.0 3,023 $425,335 $140.70 7 5 3.5 3,273 $437,235 $133.59 8 4 3.5 3,608 $465,195 $128.93

The above prices are as of August 1, 2006. The builder has provided a summary

of the base prices since the first phase was released on December 10, 2005. Based on

a review of the base price history, prices have increased from phase to phase, but at a

much more moderate rate than in 2005 and before. Prices have typically increased by

$1,000 to $2,000 per floor plan per phase.

Incentives currently include $5,000 to $10,000 for using the builder's lender and

closing costs, plus $5,000 to $10,000 in actual price reduction. The sales agent

reported $20,000 per sale as a maximum incentive at this time. The project is also


39

HRA

offering broker co-ops that range from 3% to 5%. Estimating an average price of

$404,000 (assumes an equal unit distribution) and a 4% broker co-op, indicates an

addition $16,000 could be reduced from the current base asking prices. For valuation

purposes we will be deducting $35,000 from the average priced unit.

According to a review of the builder's escrow summary, the project has 78 units

in escrow as of the date of value. The project has been in an active sales program for

71/:, months which indicates an overall absorption rate of over 10 units per month.

According to an interview with the sales agent, cancellations continue to be an issue

with contingent buyers. The contingent buyers are often not able to sell there homes

and therefore cancel their escrows at Sonora Wells. According to the sales agent,

because of this issue, the builder is no longer accepting contingent buyers.

The following is a list of some of the general construction specifications that are

assumed for the detached single-family homes within CFD No. 2006-1.

Construction Units are of Class "D" construction; wood frame and stucco siding with several elevation choices.

Foundations Foundations are poured concrete.

Structural Frame Consists of 2" x 4" and 2" x 6" wood framing.

Roofs Roofs are of concrete tile.

Windows Vinyl dual glazed windows.

Site Improvements Front and rear yard blockwall fencing and front yard landscape with automatic sprinklers. RV access is available when lot size permits.

Floor Covering Floor coverings are wall-to-wall carpet in all living areas. Entries are of ceramic tile and kitchen, bathrooms and laundry room are of vinyl.


40

HRA Interior Finish Custom trowelled ceiling and painted drywall.

Heating/HVAC Energy efficient central air conditioning and gas forced air heating.

Kitchens Kitchens will be equipped with oak cabinets and ceramic tile countertops. Each kitchen will include a range, oven, garbage disposal, and dishwasher.

Bathrooms Master bathrooms will have double sinks with cultured marble vanities, wood cabinets, and separate fiberglass shower and tub. Secondary bathrooms will have double sinks with cultured marble vanities, combination fiberglass tub/shower, and wood cabinets.

Garage Garage doors are two car sectional steel roll-up with concrete driveways.

Fireplace One fireplace.

Laundry Facilities Interior laundry rooms

Options Numerous options and upgrades will be available including flooring, cabinet, and countertop upgrades. Most options and upgrades provided at competing, similar quality developments will be offered.

Functional Utility

It is an assumption of this appraisal that all of the floor plans are functional, and

competitive with current design standards.

Remaining Economic Life

The total/remaining economic life, according to the Marshall Valuation Service, is

considered to be 50 years from date of completion.


41

HRA Conclusion of the Improvements

Based on the review of the product information and physical inspection of the

models at Sonora Wells, we are of the opinion that the quality of the project will be

average and will generally meet buyer expectations for the subject's marketplace. As

previously discussed the Sonora Wells subdivision is under construction. The following

table summarizes the phases, lot numbers and general condition of site construction as of

the date of value.

42

HRA

HIGHEST AND BEST USE

The term highest and best use is an appraisal concept that has been defined as

follows:

The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity4

.

The determination of highest and best use, therefore, requires a separate analysis

for the land as legally permitted, as if vacant. Next, the highest and best use of the

property with its improvements must be analyzed to consider any deviation of the existing

improvements from the ideal. "The highest and best use of both land as though vacant

and property as improved must meet four criteria. The highest and best use must be:

legally permissible, physically possible, financially feasible, and maximally productive.

These criteria are often considered sequentially. "5 The four criteria interact and,

therefore, may also be considered in concert. A use may be financially feasible, but it is

irrelevant if it is physically impossible or legally prohibited.

Legally Permissible Use

The legal factors affecting the site and its potential uses are often the most

restrictive. These would typically be government regulations such as zoning and building

codes.

The subject property is located in the City of Indio in Riverside County. The land

is zoned RL/RPD2, Residential Low/Residential Planned Development 2 in the City's

General Plan and zone designation. The zoning and General Plan allow for single

family detached dwelling units on a minimum lot size of 7,200 square feet. The zone

4 The Dictionary of Real Estate Appraisal, 4th Edition, Pub. by the Appraisal Institute, Chicago, IL., p. 135.

5 The Appraisal of Real Estate, 1oth Edition, Pub. by the Appraisal Institute, Chicago, IL., p. 280.


43

HRA

allows for single family detached homes consistent with the recorded final tract map.

The proposed uses are considered a legal and conforming use.

Physically Possible Use

CFO No. 2006-1 is irregular in shape and contains approximately 98.985 gross

acres according to the recorded tract map. The site has a level topography that is under

site construction and unit construction. The Sonora Wells development is a natural

extension of existing residential developments in North Indio.

All normal utilities are available to serve the subject site. All of the 363 proposed

lots are in near finished lot condition with utilities stubbed to each buildable lot. Access is

considered to be good via the 1-10 Freeway. This appraisal considers the benefits and/or

improvements that are to be funded by Communities Facilities District No. 2006-1.

Based on the physical analysis, the subject property appears to be viable for

numerous types of development based on its size and topography. However, the site's

location would suggest the lands have a primary use of residential development due to

the adjacent developments.

Financial Feasibility and Market Conditions

The financial feasibility of the development of the subject property is based on its

ability to generate sufficient income and value in excess of the costs to develop the

property to its highest and best use. Please refer to the Valuation section of this report,

which gives support to the financial feasibility of CFO No. 2006-1.

It is not in the scope of this appraisal assignment for the appraisers to conduct an

extensive independent market study/absorption analysis, but it is the appraisers'

responsibility to address the reasonableness of the conclusions of any market study

which has been prepared by outside firms for the subject property.


44

HRA

The appraisers have reviewed an independently prepared absorption analysis

which relates to the subject property, CFO No. 2006-1. This independent study is titled

Market Feasibility and Absorption Analysis, Community Facilities District 2006-1

(Sonora Wells). Indio, CA, prepared by Market Profiles, dated July 2006. A copy of a

portion of the absorption analysis summary is included in the Addenda of this report.

The following table summarizes the estimated quarterly absorption to homeowners by

Market Profiles.

CFD No. 2006-1 Estimated Absorption Summary

Jul 2006

Year 111 Qtr 2•d Qtr 3"' Qtr 41".Qtr AnnuallJl

2006 0 0 75 2.6 101

2007 26 26 26 26 104

2008 23 23 23 23 92

2009 19 19 19 i 66

Totals 68 68 143 84 363

General Market Conditions - Riverside County

The Inland Empire housing market has continued to increase in demand and

price over the past several years. As in the past, the increased housing prices in

Orange, San Diego and Los Angeles counties have encouraged buyers to look at

alternative locations for homes. The Riverside County housing prices as of March 2006

were up 4.0% over the same month last year. The median detached new home price in

the County was $448,823 in March 2006, according to a survey by the Hanley Wood

Market Intelligence. Although up 4.0% from the end of the first quarter 2005, the

median price is up only 0.75% from the fourth quarter 2005 level, and down 1.7% from

the record high median price of $456,699 in the third quarter of 2005. San Bernardino

County had a median price of $371,836, up 7.7% in one year, but down 15.0% from

September 2005. New home sales volume for the quarter, is down 27.0% from the first

quarter of 2005. No new home submarkets had sales increases. All submarkets had

declines. The subject property is located in the Desert submarket, which had a 41.2%

decline in sales from one year ago. For all of 2005, all submarkets declined in their


45

HRA

sales, with a decline of 13.6% for all of Riverside County, compared to 2004. During the

first quarter of 2006, all submarkets continued their decline, with a decline of 27% from

the sales rate in the first quarter of 2005. The subject's submarket had the largest

decline in sales for the first quarter of 2006 for Riverside County.

Beginning in 1996/1997 and continuing through 2005, significant price increases

occurred and incentives and concessions disappeared. The general consensus is that

demand for residential land exceeded supply over the 8± year period. Both land sales

and home sales have shown annual double-digit appreciation from 1996/1997 through

2005. Current mortgage rates, although higher than a year ago, are at low historical

levels.

The current projections for the housing market indicate that we are seeing a

general weakness in sales and appreciation. Most economists are predicting a return to

a more balanced and normal market within the next 12 to 24 months. The past several

years of record high sales volume and record high appreciation appears to have

stabilized, causing property values to plateau or even decline in some areas. Most

markets throughout Southern California plateaued during the last quarter of 2004 and

the first six weeks of 2005. However, between February and November 2005, sales

prices and sales rates improved. During the past seven months sales have appeared to

weaken in most markets.

There have been significant increases in cancellation rates particularly by

investors; slower sales in general, increased inventory and rising interest rates.

Incentives and concessions appear to have returned in most markets. First concessions

were seen, which were difficult to quantify as most sales agents were often not

forthright in this information. It appears that the amount of concessions and/or

incentives can vary for a home that may have just fallen out of escrow and is now

standing inventory, to homes that may not be ready to close escrow for 3 to 4 months.

However, in some markets we have seen actual price reductions, particularly for

projects that have just entered the market. The recent residential home decline appears


46

HRA

to have started in November 2005. There is a delay in the time it takes for prices to

adjust to reduced sales. The slow down in sales activity appears to have hit the higher

end markets harder than the more affordable markets. According to sales agents and

most builders, incentives, other than price reductions, have not proven very effective in

stimulating sales. However, incentives are reported to be important, particularly to first

time home buyers.

While overall inventory is up, the impact is to a more normal market especially

when it comes to supply and demand. Job creation was good over the past 36 months

of recovery from the previous recession and the economy is still growing at a

reasonable pace overall. Given the supply of new residential product in the Indio

market, the subject tract should continue to sell at a moderate rate with appropriate

adjustments to the sale price. Cancellations continue to occur particularly with

contingent buyers. Buyers are not able to sell their existing homes and have had to

cancel escrows at the new tracts. Reportedly at the subject tract, they are no longer

taking contingent buyers.

More and more news articles report that home prices reached a maximum level,

and have started to decline in 2006. Although most do not believe we have been in a

housing bubble, the current data clearly indicates a change in the residential market.

We are of the opinion that the housing market will remain weak throughout 2006, with

decrease in sales prices in some markets.

Inventory of available homes in the Riverside County marketplace has reportedly

tripled in the last year. However, home prices are remaining relatively consistent. The

rising mortgage rates are considered the number one reason for the slow down in sales

and stagnate prices. In addition the investor market has almost disappeared in most

markets which has hurt demand. Reportedly the entry-level and mid-market homes are

not seeing as much of a slowdown as the higher priced homes.


47

HRA The Southern California market in May 2006, showed home sales falling to their

lowest level in seven years while prices flattened. The State, as a whole, could lose

jobs in real estate related industries as housing prices flatten and sales slow. But the

current consensus is that this would not cause the state's economy to enter into a

recession. The economists at UCLA are predicting a "soft-landing" for the remainder of

2006 and 2007. A "soft-landing" is generally considered a continued slowing sales pace

with very modest appreciation or maybe even a slight decline. This slow down is

generally expected to continue for one to two years, at which time the market is

expected to be back in balance again, with "normal" appreciation; slightly more than the

rate of inflation. Most economists are predicting slower growth as opposed to a

slowdown in the housing market as well as the economy.

Builders within Riverside County sold 4,202 new single-family detached homes

and 762 condominiums during the second quarter of 2006. Both are significant declines

from the fourth quarter of 2005, and from the second quarter of 2005. This represents a

decrease of 46.3% for detached product and 14% for attached product over the second

quarter of 2005. The bulk of the detached homes sold in Riverside County during the

second quarter of 2006 is priced over $450,000 and comprises 56%.±. of the total sales.

Sales of homes priced between $350,000 to more than $550,000 continue to see the

most activity, comprising 95%.±. of the detached market. The number of active detached

projects in Riverside County increased by 12 projects during the second quarter of

2006. The submarket with the greatest number of projects are the Desert and South

submarkets.

Standing (completed, but unsold) detached inventory increased almost 200% in

the second quarter of 2006 compared to the second quarter of 2005 to 366 units in

Riverside County. At the current sales rate, that is about a two-week supply of detached

homes. Detached total (built, under construction, planned) unsold inventory consisted

of 26,437 units at the end of the second quarter of 2006, which is up from 25,259 units

as of June 2005. At the current sales rates, this level of inventory equates to a 16.8

month supply, which is up from 13 months 12 months ago.


48

HRA

According to an interest rate survey published weekly in The Los Angeles Times,

the typical 30-year, fixed rate conforming loan was between 6.25% and 6. 75% as of the

date of this report. Mortgage rates have been in the 5.50% to 6.00% range over the

past year, following more than a year of rates in the 6.00% range. While a slight

increase in rates may impact demand, we do not anticipate a significant drop in

demand as long as rates remain near or below the 8.00% level.

General Market Conditions - Coachella Valley

The Inland Empire and Coachella Valley are no longer considered bedroom

communities or only second home markets. However, this could be one of the reasons

that the Desert market appears to be suffering somewhat more than other markets in

Riverside County. They are negatively impacted by both the primary homebuyer

purchasing fewer homes and the second homebuyer. Typically when a downturn in the

residential market occurs, the second home market is impacted more than other

markets.

The Desert submarket, as defined by Hanley Wood Market Intelligence,

includes the areas of Bermuda Dunes, Cathedral City, Coachella, Desert Hot Springs,

Indian Wells, Indio, La Quinta, Palm Desert, Palm Springs, Rancho Mirage and

Thousand Palms.

During the second quarter of 2006, in the Desert submarket, 7 new home sales

were for homes with a base price between $200,000 and $249,999. The $250,000 to

$299,999 price range accounts for 6 detached sales, the $300,000 to $349,999 price

range accounts for 78 detached sales, the $350,000 to $399,999 price range accounts for

107 detached sales, the $400,000 to $449,999 price range accounts for 93 detached

sales, the $450,000 to $549,999 price range accounts for 101 detached sales, and the

$550,000+ price range accounts for 225 detached sales. The median price was

$446,686, an increase of 10.4% in one year. Detached sales volumes in the first six

months of 2006 decreased 42.2% to 1,421 units, from the same period last year.


49

HRA

The subject's pricing is generally within the demand range. Sonora Wells ranges

from $346,990 to $465, 195 for the 8 floor plans. Four of the plans are within the

strongest demand range and the larger four units are slightly above.

The inventory of new homes in the Desert submarket increased during the

second quarter 2006. Standing inventory as of June 2006 was at 199 homes compared

to 51 homes the prior year. Speculative inventory, units under construction plus

standing inventory, was at 886 dwelling units in June 2006 compared to only 182

dwelling units one year ago. The current Speculative inventory suggests a 3.4 month

supply compared to last year at this time which indicated a 2 week supply. This is

consistent with input from builders, developers, sales agents and persons familiar with

the Desert market, who believe that the market was "over heated" even before the

change in the residential market. Therefore, the larger number of product currently

selling and the decreased demand in homes, would indicate a very competitive market

for the subject tract. It is reasonable to assume that further incentives or price

reductions could occur while inventory is absorbed and a return to a more balanced

market occurs within the next 18± months.

Feasibility

It is our opinion, after surveying the competitive projects and analyzing the pricing,

design, location differences and other pertinent factors, that the subject property should

experience average absorption for the current market conditions.

The table on the following pages reports the prices and absorption of 16

currently selling residential developments and the subject in the City of Indio. The

majority of the tracts are experiencing overall absorption rates between 4 and 6 units

per month for similar projects in the North Indio marketplace. This absorption is lower

than what was estimated for the subject by Market Profiles, which was around 8 units

per month for the subject. According to Market Profiles, the higher absorption was

estimated due to the significant number of floor plans offered at Sonora Wells,

compared with other subdivisions.


50

HRA

No. Project/Location 1 Sonora Wells

DR Horton Indio SUBJECT

2 Sienna Ryland Homes Indio

3 Cristallo Ryland Homes Indio

4 Ponderosa Villas Ponderosa Homes Indio

5 Foxstone KB Home Indio

6 Bella Tierra Family Development Indio

7 Alicante DR Horton Indio

8 Venecia DR Horton Indio

Total Lot Price Size Units Size Range .B!n.9! 363 7,200 $353,590 1,844

$372,245 2,089 $380,090 2,322 $384,585 2,402 $413,085 2,787 $425,335 3,023 $437,235 3,273 $365,195 3,608

132 8,000 $359,990 2,448 $372,990 2,635 $412,990 3,143

133 6,000 $422,990 1,987 $435,990 2,185 $442,990 1,987 $445,990 2,358 $461,990 2,446

187 8,200 $437,150 2,598 $462,915 2,868 $482,460 3,183 $484,320 3,276

247 8,000 $328,990 1,517 $345,990 1,880 $357,990 2,081 $364,990 2,180 $380,990 2,526

63 8,000 $394,990 1,895 $435,990 2,259 $454,990 2,629

187 8,000 $395,990 2,493 $439,990 2,700 $458,990 3,099

180 8,000 $328,990 1,576 $333,990 1,721 $358,990 1,947


51

$/Sq. Ft. No. Sold Overall Range Start Dt. Mo.Abs. $191.75 78 9.9 $178.19 Dec-05 $163.69 $160.11 $148.22 $140.70 $133.59 $101.22

$147.05 75 4.8 $141.55 Apr-05 $131.40

$212.88 28 2.8 $199.54 Oct-05 $222.94 $189.14 $188.88

$168.26 17 7.4 $161.41 Jun-06 $151.57 $147.84

$216.87 166 9.2 $184.04 Feb-05 $172.03 $167.43 $150.83

$208.44 57 3.7 $193.00 Apr-05 $173.07

$158.84 107 7.4 $162.96 May-05 $148.11

$208.75 100 6.5 $194.07 Apr-05 $184.38

HRA

No. Project/Location 9 Genova

DR Horton Indio

10 Florencia DR Horton Indio

11 Marquesa Lennar Homes Indio

12 Cordoba Lennar Homes Indio

13 Portofina Woodside Homes Indio

14 Palazzo Rilington Communities Indio

15 Hacienda Beazer Homes Indio

16 Sandstone Ashbrook Communities Indio

17 Shadow Ranch Family Development Indio

Total Lot Price Size Units Size Range Range 192 8,000 $414,990 2,848

$464,990 2,988 $486,990 3,267

190 8,000 $362,990 1,855 $377,990 1,956 $395,990 2,380

86 8,400 $510,990 2,595 $532,990 2,803 $567,990 3,120

128 7,200 $377,990 2,092 $402,990 2,434 $427,990 2,660

179 5,500 $510,990 1,658 $532,990 1,898 $567,990 2,239

2,293 148 7,200 $454,990 1,996

$469,990 2,163 $483,990 2,527 $476,990 2,637 $594,990 3, 161

147 7,200 $371,714 1,815 $390,990 2,056 $409,990 2,366 $451,678 2,656 $454,321 2,756

111 8,000 $415,000 2,176 $395,000 2,456 $400,000 2,607 $430,000 2,902

263 8,000 $429,000 2,185 n/a 2,518 n/a 2,710 n/a 2,906

$564,000 3,247


52

$/Sq. Ft. No. Sold Overall Range Start Dt. Mo.Abs. $145.71 93 6.0 $155.62 Apr-05 $149.06

$195.68 99 6.6 $193.25 May-05 $166.38

$196.91 50 5.4 $190.15 Nov-05 $182.05

$180.68 45 4.9 $165.57 Nov-05 $160.90

$308.20 39 3.9 $280.82 Oct-05 $253.68

$227.95 59 3.9 $217.29 May-05 $191.53 $180.88 $188.23

$204.80 58 4.9 $190.17 Aug-05 $173.28 $170.06 $164.85

$190.72 9 0.7 $160.83 Aug-05 $153.43 $148.17

$196.34 136 7.4 $0.00 Feb-05 $0.00 $0.00

$173.70

HRA

Sonora Wells is currently experiencing overall absorption of 10± units per month,

however, they have been accepting contingent buyers. Reportedly, this is no longer

being offered at Sonora Wells due to the resulting high cancellation rates when

potential buyers are not able to sell their existing homes. A survey of the competing

subdivisions indicated that they do not typically accept contingent buyers. There are a

few subdivisions that will accept contingent buyers only when their existing home is in

escrow and scheduled to close within 30± days of entering escrow at Sonora Wells.

Maximally Productive

In considering what uses would be maximally productive for the subject property,

we must consider the previously stated legal considerations. We are assuming the land

uses allowed under the RURPD2 Zone with the City of Indio are the most productive

uses that will be allowed at the present time. Current zoning and approved uses indicate

that other alternative uses are not feasible at this time.

Once market conditions stabilize, demand for affordable residential product in

Riverside County and the Coachella Valley market area should continue. It is our

opinion that development as proposed provides the highest land value and is, therefore,

maximally productive.

Conclusion

Legal, physical, and market considerations have been analyzed to evaluate the

highest and best use of the property. This analysis is presented to evaluate the type of

uses that will generate the greatest level of future benefits possible from the land.

After reviewing the alternatives available and considering this and other

information, it is the opinion of the appraisers that the highest and best use for the

subject property, as vacant and as improved, is for residential development similar to

that proposed for the subject property. The projects appear to have the location,

features, and pricing structure to obtain a good sales rate under normal financing and

market conditions.


53

HRA As Vacant

After reviewing the alternatives available and considering this and other

information, it is these appraisers' opinion that ultimate development of a single-family

detached for-sale development, similar to the current proposed product, is considered the

highest and best use of the property.

As Improved

The proposed use is a legal use of the land and the value of the land as

improved far exceeds the value of the sites if vacant. This means that the proposed

improvements contribute substantial value to the site. Based on these considerations, it

is our opinion that the proposed improvements constitute the highest and best use of

the subject property.


54

HRA

VALUATION METHODOLOGY

Basis of Valuation

Valuation is based upon general and specific background experience, opinions of

qualified informed persons, consideration of all data gathered during the investigative

phase of the appraisal, and analysis of all market data available to the appraiser.

Valuation Approaches

Three basic approaches to value are available to the appraiser:

Cost Approach

This approach entails the preparation of a replacement or reproduction cost estimate of the subject property improvements new (maintaining comparable quality and utility) and then deducting for losses in value sustained through age, wear and tear, functionally obsolescent features, and economic factors affecting the property. This is then added to the estimated land value to provide a value estimate.

Income Approach

This approach is based upon the theory that the value of the property tends to be set by the expected net 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.

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 sufficient transactions of comparable properties are 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.


55

HRA

Static Residual Analysis is used to estimate the merchant builder land value. From the estimated base retail home price, all costs associated with the home construction including direct construction costs, indirect construction costs, financing and profit are deducted. Following the deduction of costs, the residual figure is an estimate of the merchant builder land value.

The Direct Comparison Approach for residential land is used in valuing the fee

simple interest, when sufficient recent comparable sales are available. The Income

Approach is typically used when appraising income producing properties. This approach

is not applicable in the valuation of land as land is not typically held to generate monthly

income, but rather purchased to construct an end product which may or may not generate

income. The Cost Approach is not an appropriate tool in the valuation of land.

Valuation of finished lots is completed by the Direct Comparison Approach with

similar recent merchant builder land sales. The Static Residual Analysis is also used for

valuation purposes as it more closely reflects current market conditions. Because of the

current market conditions we have not given any additional improvement value to the

lots that are improved with slabs or that have just started framing. Therefore, Phases 4

through 9 will be valued as near finished lots.

The District has been improved with eight model homes and 117 production

homes are under construction and improved from framed with roofs loaded to almost

completed. The product being built by the builder is considered the highest and best

use of the land. Therefore, the partially completed improvements are considered to add

value. The units under construction are valued based on a conservative estimate of

their completion. This percentage is applied to the estimated average base sales price

of the average size home in the project for an indication of value. Sonora Wells as been

in a sales program for 7% months and has reported 78 homes in escrow as of the date

of value. Escrow closings are scheduled to begin the end of August or beginning of

September 2006.


56

HRA

VALUATION OF CFD NO. 2006-1

General Information

The District is to be built-out by one merchant builder with eight floor plans within

the Sonora Wells subdivision. As previously discussed, the project is under unit

construction with eight completed model homes. The site has been under construction

since August 2005 and all 363 lots are improved to near finished lot condition. A portion

of Phase 1 includes finished lots. The subdivision known as Sonora Wells has been in

a sales program since December 10, 2005 and as of the date of value, 78 homes are

reportedly in escrow. Escrow closing are expected to begin the end of August 2006.

The first portion of the Valuation section will address the lots that have not begun

unit construction or that have recently started unit construction but with minimal

improvements. This section will value the 238 lots within Phases 5 through 9 of the

District. Finished lot value will be estimated by both the Direct Comparison Approach

and the Static Residual Analysis. From the estimated value of the finished lots a

deduction for the costs to complete all site construction and satisfy the Conditions of

Approval will be made. Consideration to the proceeds of this bond sale will off-set a

portion of the costs to complete.

Direct Comparison 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. In

appraisal practice, this is known as the Principle of Substitution.

This approach is a method of analyzing the subject property by comparison of

actual sales of similar properties, when available. 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, and lot characteristics. For the purpose of


57

HRA this report, the unit of comparison utilized is the price per unit for the residential land.

Please refer to the following page that summarizes the sales considered similar to the

subject parcel.


58

8 z (JJ c c:; z G)

JJ \[! r

c:n m co (JJ

');! '--, m

~ u )'; ijj m JJ (JJ

No. 1 NWC Avenue 41 & Jac1<son ::itreet

lndlO Subject

No.2 N/0 All American Canal

btw Jacl<son & Monroe tits. lndlO

No.3 N/0 Avenue 44

1:/U c;o1t center LJnve lndlO

No.4 N/0 Avenue 44

E/0 Golf Center Drive 1nct10

No. 5 W/S Golf Center Parkway

Btwn. Avenues 42nd & 44th Indio

Land Sale Surriin~~ Indio MarketArea?: ·

Merchant Buildi!r1f3arceJs

Sale ... /1..o·J···.'.·•.'.·. i~.;~J···:·.·.J.. Pficl¢/. Finish~d Date'. oi,ize,:Ofct:P~' ,?>: ~o:t:_c · . f:'rice/Lot

Western Pacific Housing, Inc. 10/04 7,200 Rilington Communities, LLC

Rilington Communities N/A

Lennar Homes of Calif. LB Indio Land

Ryland Homes LB Indio Land

10/04 7,200

3/05 7,200

5/05 7,200

363 $65,689 $143,000

275 $63,709 $105,709

128 $115,067 $132,000

133 $140,000 $151,000

Sold as raw land wt approved tentative map

Sold as raw land wt approved tentative map

Sold near finished lot final tract map

Sold near finished lot final tract map

Beazer Homes NIA

7/05 7,200 147 $52,639 $124,375 Sold in raw condition wt approved tentative map

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

Price/Lot:

Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:

Land Sale Data No. 1 - Subject

Northwest corner of Jackson Street and Avenue 41, Indio

TR 32402

Western Pacific Housing, Inc.

Rilington Communities, LLC

99.±_ gross acres

363

7,200 square feet

Residential

To construct 363 single-family residences between 1,844 and 3,608 square feet. Current pricing is between $353,590 and $465, 195

October 12, 2004

$23,845,000

$65,689.±_

$143, 000.±_

Raw land with an approved tentative tract map

All cash to seller

Buyer, purchase and sale agreement, public record

Subject parcel


60

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

Price/Lot:

Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:

Land Sale Data No. 2

North of All American Canal, between Jackson Street and Monroe Street, Indio

N/A, Shadow Hills Community

Rilington Communities

N/A

89.4 gross acres

275

7,200 square feet

Residential

To construct 275 single-family residences

October 12, 2004

$17,520,000

$63,709.:!:_

$105,709±

Raw with a tentative tract map

All cash to seller

Public records

This comparable is located in the immediate area of the subject.


61

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

Price/Lot:

Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:


North of Avenue 44, east of Golf Center Drive, Indio

Tract No. 31601-3

Lennar Homes of California

LB Indio Land

35.58 gross acres

128

7,200 square feet

Residential

To construct 128 single-family residences within the Cordoba subdivision. Homes range in size from 2,092 to 2,660 square feet. Current pricing is between $377,990 and $427,990.

March 28, 2005

$14,728,625

$115,067±

$132,000

Near finished lots with final tract map

All cash to seller

Public records

Within the Terra Lago MPC; Planning Area 2


62

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

Price/Lot:

Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:


North of Avenue 44, east of Golf Center Parkway, Indio

Tract No. 31601-5

Ryland Homes

LB Indio Land

41.56 gross acres

133

7,200 square feet

Residential

To construct 133 single-family residences

May 18, 2005

$18,619,937

$140,000:t,

$151,000±

Near finished lots with final tract map

All cash to seller

Public records

Within the Terra Lago Planned Community; Planning Area 4


63

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

Price/Blue-top Lot:

Finished Lot Cost:

Site Condition:

Financing:

Verification:

Comments:


West side of Golf Center Parkway between Avenue 42 and Avenue 44, Indio

N/A

Beazer Homes

N/A

39.55 gross acres

147

7,200 square feet

Residential

To construct 147 single-family residences within the Hacienda development. Homes range in size from 1,815 to 2,756 square feet. Current prices are between $371,714 and $454,321.

July 2005

$7,738,000

$52,639.±.

$124,375±

Raw land with approved tentative tract map

All cash to seller

Public records

Within the Shadow Hills Community


64

HRA We have surveyed residential sales in the Indio market area. The 5 sales are the

comparables considered most helpful in valuing the subject property. Data No. 1 is the

sale of the subject. We have reviewed and inspected all of the data items. The data

includes the finished lot prices for merchant builder parcels.

The comparable land sales have sold in a raw to near finished lot condition. Costs

to bring the land from the condition at the time of sale to finished lot condition were made

available by the builders to analyze the data. Therefore, the analysis will conclude at an

indication of finished lot value for the subject parcel.

Analysis

Financing

All of the comparable sales were all cash transactions or financing considered to

be cash, therefore, no adjustments for financing were warranted.

Property Rights Conveyed

All of the comparables involved the transfer of the fee simple interest. The

subject's fee simple interest is appraised in this report, and therefore, no adjustment is

warranted.

Time of Sale

During the past 8 years, Southern California has sharply rebounded from its

lengthy recession. Demand for land sales has dramatically exceeded supply. Prices paid

for residential land increased annually by 15% to 20% and more from 1997 to 2003.

However, the second half of 2004 saw a leveling of land prices, only to increase again in

February 2005. Over the lat six to nine months, land prices have stabilized or declined in

some markets. While home prices have continued up, the number of sales of both

existing and new homes have declined significantly. This trend is also seen in the

remainder of the Southern California residential market. The comparable sales have

occurred between October 2004 and July 2005. We are of the opinion that a time

adjustment is not warranted.


65

HRA Conditions of Sale

Typically, adjustments for conditions of sale reflect the motivations of the buyer

and the seller in the transfer of real property. The conditions of sale adjustment reflects

the difference between the actual sales price of the comparable and its probable sales

price if it were sold in an arms-length transaction with typical motivations. Some

circumstances of comparable sales that will need adjustment include sales made under

duress, eminent domain transactions and sales that were not arm's length. All of the

transactions were reported to be arm's length in nature. Accordingly, no adjustment is

indicated.

Location

The location adjustment is based on proximity to existing infrastructure and

employment. The 5 sales are located in the City of Indio. An adjustment does not

appear indicated except for Data No. 4 which has a superior specific site location.

Entitlement/Map Status

All of the sales are entitled. No adjustment is required.

Tax Rate

The subject is expected to have an average overall tax rate around 1.8% of base

sales price. Because the comparable sales all have similar CFDs, no adjustment is

required. The merchant builders of the land are aware of the various taxes and have

factored the impact of the higher tax rates into the prices paid for the land.

Lot Size

The comparables have minimum lot sizes of 7,200 square feet. The minimum lot

sizes for the subject is also 7,200 square feet.

Number of Lots

A downward adjustment has been made to comparables 3, 4 and 5 due to the

lower number of proposed homes, and expected shorter absorption time.


66

HRA Finished Lot Value by Direct Comparison

Please refer to the next page for the adjustment grid of the 5 comparable land

sales. The adjusted finished lot values range from $106,000 to $120,800 per lot for all

of the comparables except Data No. 1, the subject sale. The subject sale indicates a

finished lot price of $143,000 giving consideration to the proceeds of CFO No. 2006-1.

However, the indicated price does not appear to be supported by the other comparable

sales.

As previously discussed, the residential market has been changing significantly

over the past six to eight months. Sales have slowed dramatically, incentives are being

offered, prices have started to be reduced and cancellations are on the increase. In a •

rapidly changing market the better indication of land value is estimated by the Static

Residual Analysis which reflects current sales prices and market conditions. Page 69

begins the discussion of the Static Residual Analysis for the Sonora Wells subdivision.


67

:c JJ

Land Sale Adjustments )>

CFD 2006-1 Market Area Merchant Builder Pan;;els

Data No./ Sale No. Lot Finished Time Adj. Approved Lot Number Adjusted Location Date Lots Size (SF) Lot Cost Time Lot Cost Location Map Size of Lots Finished Lot

No.1 10/04 363 7,200 $143,000 0% $143,000 0% 001o 0% 0% $143,000 NWC Avenue 41

0 & Jackson Street 0 Indio z (fJ Subject c c:; z No. 2 10/04 275 7,200 $106,000 0% $106,000 001o 0% 0% 0% $106,000 Gl JJ N/0 All American Canal m btw Jackson & Monroe Sis. )>

0) .--

Indio m 00 (fJ

c;;! No.3 '-,

m 0% $118,800 )> N/0 Avenue 44 3/05 128 7,200 $132,000 0% $132,000 0% 0% -10%

" E/0 Golf Center Drive " JJ Indio )>

en m JJ No. 4 (fJ

N/0 Avenue 44 5/05 133 7,200 $151,000 0% $151,000 -10% 001o Oo/o -10% $120,800 E/0 Golf Center Drive

Indio

No.5 N/0 Avenue 44 7/05 147 7,200 $124,500 0%

EIS Golf Center Drive $124,500 0% 0% 0% -10% $112,050

Indio

HRA Static Residual Analysis to Finished Lot Value

The merchant builder land is valued by the Direct Comparison Approach and by

the Static Residual Analysis. The purpose of this analysis is to estimate a value for the

land assuming no direct construction has taken place. This method is particularly helpful

when development for a subdivision represents the highest and best use and when

competitive house sales are available. Reportedly, this analysis is by far the most

commonly used by merchant builders when determining price for land.

This analysis is useful for projects that will have a typical holding period of one to

two years which represents the typical holding period sought by merchant builders. The

Static Residual Analysis best replicates the investor's analysis when determining what

can be paid for the land based on proposed product. Purchase of the land is simply

treated as one of the components necessary to build the houses to sell to the

homeowner. When all the components of the end-product can be identified and

reasonable estimates of costs and profit can be allocated, the Static Residual Analysis

becomes the best indicator of value to a merchant builder for a specific product. Specific

product information is available, which makes this analysis particularly meaningful.

The analysis uses an estimated average base sales price for a specific product,

then deducts the various costs including direct costs of construction, marketing, taxes and

overhead, costs to finish the lot, as well as the required profit margin to attract an investor

in light of the risks and uncertainties of the project. This analysis is most helpful when

significant lot and or view premiums are not present. When negotiating land price,

builders typically will consider the value of lot premiums when they are significant, but

typically do not give the premiums full consideration. When a downturn in the market

occurs or a slight stall in a sales program, premiums are typically the first to be negotiated

away.

End-product Sales Price

The analysis uses the average base sales price without lot premiums. Our

estimate of sales price includes a review of the subject's current sales prices included


69

HRA

within the Improvement Description section of this report, review of actively selling

projects in the market area, and a review of the Market Profiles market absorption

study. We have assumed an equal distribution of floor plans to estimate the average

sales price for the Sonora Wells subdivision. The estimated average price is $403,920.

From this price we are deducting the estimated $35,000 of possible price reductions

which could be realized due to incentives being offered, price reductions and broker co

ops. Therefore, the estimated net average base sales price is $ 368,920.

Direct Development Costs

The builder has provided direct construction costs to build each of the eight floor

plans. We have also interviewed local builders in the Riverside County market area for

estimates of direct construction costs for similar products. Based on our understanding of

the proposed quality of construction, home size and functional utility, and giving

consideration to the recent increases in construction costs, we have estimated direct

construction costs of $58.00 per square foot, for the average unit size.

Indirect construction costs have been estimated at 4% of sales price, which is

found to be an industry standard used for this analysis.

General and Administrative

General and administrative costs are estimated at 3% of retail value. This category

covers such expenses as administrative, professional fees, real estate taxes, HOA dues,

and miscellaneous costs. This estimate is typical and consistent with the market.

Marketing and Warranty

Marketing and sales expenses plus warranty costs are estimated at 6% of retail

value. This category covers such expenses as advertising and sales commissions and

home warranties. This estimate is typical and consistent with the market.


70

HRA Developer Profit

The line item for profit reflects the required margin to attract an investor in light of

the risk and uncertainties of the specific project. This analysis assumes a finished lot and

no on-site construction. Therefore, additional risk of development is unknown.

Based on surveys of builders and developers, profit requirements are typically

between 7% and 10% of revenues, with occasional responses down to 6% and as high

as 12%. These profit estimates are for projects that can be constructed and sold out in

a two year period. Higher profits can be required for longer construction/sellout periods

and riskier projects. Lower profits can be accepted in inexpensive land cost areas

where homes sell quickly. The subject property is proposed for detached products on a

minimum lot size of 7,200 square feet in an area of moderating demand in Riverside

County. Once built, the project could be sold out within 3% years, according to the

Market Profiles report. This estimate appears to be supported by the sales at

comparable tracts, giving consideration to the number of floor plans offered at Sonora

Wells and the wide range of potential homebuyers it reaches. However, the absorption

time could be longer if market conditions continue to deteriorate. We are estimating a

10% builders profit for the remaining 238 proposed homes.

Interest During Holding Period

A typical allowance for financing during the holding period has been between 4%

and 6%. Due to the lenders requiring higher equity participation from the builders, the

allowance for profit has been decreased. Based on recent interviews with builders in the

subject's market area, we have chosen a 5% deduction for financing during the holding

period.

Site Costs

Because this analysis residuals to a finished lot condition, deductions for costs to

bring to a finished lot condition are not required. The following page illustrates the Static

Residual Analysis for the Sonora Wells subdivision which reflects the current base sales

prices, potential incentive package and a typical cost for broker co-ops.


71

HRA

Plan No. Size Base Price 1 1,844 $318,590 2 2,089 $337,245 3 2,322 $345,090 4 2,402 $349,585 5 2,787 $378,085 6 3,023 $390,335 7 3,273 $402,235 8 3,608 $430,195

Average 2,669 $368,920

Land Sonora Wells by D. R. Horton Ratios 7, 200 Square Foot Minimum Lots 238 Homes Proposed

Average Retail Value of Improvements $368,920 $138.25 (Per sq. ft.)

Average Dwelling Size (Sq. Feet) 2,669 Direct Building Cost Per Sq. Ft. $58.00 $154,773 Indirect Construction Costs 4.00% $14,757 General & Administrative Costs 3.00% $11,068 Marketing and Warranty Costs 6.00% $22,135 Builder's Profit 10.00% $36,892 Interest During Holding Period 5.00% $18,446 Costs to bring to Finished Lot None

Finished Lot Value Estimate $110,849 Rounded to: il lQ,QQ!!

Finished Lot 0.30


72

HRA Finished Lot Value by Static Residual Analysis

The indicated finished lot value is $110,000, which is within the range indicated

by the Direct Comparison Approach.

Conclusion of Finished Lot Value

Based on a review of the indicated finished lot values by the Direct Comparison

Approach, we have concluded that the value indicated by the Static Residual Analysis

is the best indication of value, given the current market conditions.

There are 238 lots within the District valued as finished lots. From the indicated

value a deduction for the costs to complete is made. Consideration is also given to the

construction fund proceeds from the sale of CFO No. 2006-1. The following table

illustrates the estimate value for the 238 lots within the District in near finished

condition.

238 finished lots $110,000/lot; Less costs to complete: Plus proceeds from CFO No. 2006-1:

$26, 180,000 ($15,522,509) $ 6,581.000

Estimated Value 238 Near Finished Lots: $17,238.491


73

HRA

Valuation 8 Model Homes within Sorona Wells

As previously discussed, CFD No. 2006-1 is improved with 8 model homes. The

model homes have interior and exterior upgrades. The model homes are valued based

on the current base sales price for each floor plan. A deduction of $30,000 to $40,000

in potential incentives, price reductions and broker co-ops is made to each floor plan.

Due to the exterior and interior upgrades to the model homes, an increase of 10%± of

the base value is added. The 10%± recapture rate is considered reasonable for the

floor plans based on their interior and exterior upgrades. Therefore, we are valuing

each floor plan based on the current base sales price, less potential incentive and price

reductions and adding approximately 10% per model for the interior and exterior

upgrades.

Base Inventive, price Model Estimated Plan Sales. Price reductions·& broker co-o~ U~grades Value

1 $353,590 $30,000 $35,000 $358,000 2 $372,245 $32,000 $37,000 $377,000 3 $380,090 $33,000 $38,000 $385,000 4 $384,585 $33,000 $38,000 $389,000 5 $413,085 $35,000 $40,000 $418,000 6 $425,335 $36,000 $42,000 $431,000 7 $437,235 $37,000 $43,000 $443,000 8 $465,190 $40,000 $45,000 i470,000

TOTAL: $3,271,000

Value of the 117 Dwelling Units under Construction

There are 174 dwelling units under construction as of the date of value. Only the

117 dwelling units with material unit construction are given additional value above a

finished lot value. Phase 1, consisting of 49 dwelling units, is expected to start closing

escrows the end of August 2006. Phase 2, consisting of 40 dwelling units, is scheduled

to start closing escrows the end of September 2006. Phase 3, consisting of 28 dwelling

units, is currently scheduled to start closing escrows in mid-November 2006. Phases 4

and 5 have recently started unit construction and are expected to start closing escrows

in January 2007 through August 2007. The balance of the project is expected to


74

HRA complete escrow closing in September 2008, according to the builder. Only phases 1

through 4 are valued with consideration to their partial unit construction.

The units under construction were valued based on our inspection of the

property. An estimate of completion (stated as a percent) of each unit as of the date of

value is used to value the units. The estimate of completion has been arrived at with

input from merchant builders and review of numerous cost estimates. That percent is

then applied to the estimated sales price as of the date of value for the average floor

plan within Sonora Wells. Ten units within Phase 1 were nearly complete, with front

landscape in. The balance of Phase 1 was improved from wrapped with roof loaded to

color coat with roofs complete. The 10 units within Phase 1 are estimated to be 90%

complete. The remaining 39 units within Phase 1 are estimated to be 50% complete.

Phases 2 and 3 are improved from framed to framed with roofs loaded. The 20 units in

Phase 2 and 28 units in Phase 3 are estimated to be 40% complete. Please refer to

the following table that summarizes the units under construction and estimated value.

Phase 1 - 10 units@ 90% complete X $368,920 = $3,320,280 Phase 1 - 39 units@ 50% complete X $368,920 = $7,193,940 Phase 2 - 40 units@ 40% complete X $368,920 = $5,902,720 Phase 3 - 28 units @40% complete X $368,920 = $4, 131,904

Value Estimate for 117 Units Under Construction: $20,548,844

Total Value Estimate for CFO No. 2006-1

Value Estimate for 238 Near Finished Lots:

Value Estimate for 8 Completed Model Units:

Value Estimate for 117 Units Under Construction:

$17,238,491

$ 3,271,000

$20.548.844

VALUE ESTIMATE CFO No. 2006-1: $41,058,335 Rounded: $41,000,000


75

HRA

VALUATION CONCLUSION

Based on the investigation and analyses undertaken, our experience as real estate

appraisers, and subject to all the premises, assumptions and limiting conditions set forth

in this report, the following opinion of Market Value is formed as of August 1, 2006.

Community Facilities District No. 2006-1

FORTY-ONE MILLION DOLLARS

$41,000,000

The above value is contingent upon the successful issuance of Community

Facilities District No. 2006-1, which is estimated to fund approximately $8,277,000 for

infrastructure improvements and fees for the City of Indio.


76

HRA CERTIFICATION

We hereby certify that during the completion of this assignment, we personally

inspected the property that is the subject of this appraisal and that, except as specifically

noted:

We have no present or contemplated future interest in the real estate or personal interest or bias with respect to the subject matter or the parties involved in this appraisal.

To the best of our knowledge and belief, the statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are based, are true and correct.

Our engagement in this assignment was not contingent upon developing or reporting predetermined results. The compensation is 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 estimate, the attainment of a stipulated result, or the occurrence of a subsequent event.

The appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan.

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 & Standards of Professional Appraisal Practice of the Appraisal Institute, which include the Uniform Standards of Professional Appraisal Practice.

As of the date of this report, James B. Harris has completed the requirements of the continuing education program of the Appraisal Institute.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions.

No one provided professional assistance to the persons signing this report.

The use of this report is subject to the requirements of the Appraisal Institute

relating to review by its duly authorized representatives. In furtherance of the aims of the

Appraisal Institute to develop higher standards of professional performance by its


77

HRA Members, we may be required to submit to authorized committees of the Appraisal

Institute copies of this appraisal and any subsequent changes or modifications thereof.


/~~~ Berri J. Cannon Harris Vice President AG009147

ames B. Harris, MAI President AG001846


78

ADDENDA

@l]J}&ifLU!?Urt;;&i uU@fM~

HARRIS REAL TY APPRAISAL 5100 Birch Street, Suite 200 Newport Beach, CA 92660

(949) 851-1227

QUALIFICATIONS OF

JAMES B. HARRIS, MAI

PROFESSIONAL BACKGROUND

Actively engaged as a real estate analyst and consulting appraiser since 1971. President and Principal of Harris Realty Appraisal, with offices at:

5100 Birch Street, Suite 200 Newport Beach, California 92660

Before forming Harris Realty Appraisal, in 1982, was employed with Real Estate Analysts of Newport, Inc. (REAN) as a Principal and Vice President. Prior to employment with REAN was employed with the Bank of America as the Assistant Urban Appraisal Supervisor. Previously, was employed by the Verne Cox Company as a real estate appraiser.

PROFESSIONAL ORGANIZA T/ONS

Member of the Appraisal Institute, with MAI designation No. 6508 Director, Southern California Chapter - 1998, 1999 Chair, Orange County Branch, Southern California Chapter -1997 Vice-Chair, Orange County Branch, Southern California Chapter - 1996 Member, Region VII Regional Governing Committee - 1991 to 1995, 1997, 1998 Member, Southern California Chapter Executive Committee -1990, 1997 to 1999 Chairman, Southern California Chapter Seminar Committee - 1991 Chairman, Southern California Chapter Workshop Committee - 1990 Member, Southern California Chapter Admissions Committee - 1983 to 1989 Member, Regional Standards of Professional Practice Committee-1985 -1997

Member of the International Right-of-Way Association, Orange County Chapter 67.

California State Certified Appraiser, Number AG001846

EDUCATIONAL A CT/VITI ES

B.S., California State Polytechnic University, Pomona, 1972.

Successfully completed the following courses sponsored by the Appraisal Institute and the Right-ofWay Association:

Course I-A Course 1-B Course II Course IV Course VI Course VIII Course SPP Course 401

Principles of Real Estate Appraisal Capitalization Theory Urban Properties Litigation Valuation Investment Analysis Single-Family Residential Appraisal Standards of Professional Practice Appraisal of Partial Acquisitions

Has attended numerous seminars sponsored by the Appraisal Institute and the International Rightof-Way Association.

TEACHING AND LECTURING ACTIVITIES

Seminars and lectures presented to the Appraisal Institute, the University of California-Irvine, UCLA, California Debt and Investment Advisory Commission, Stone & Youngberg and the National Federation of Municipal Analysts.

MISCELLANEOUS

Member of the Advisory Panel to the California Debt and Investment Advisory Commission, regarding Appraisal Standards for Land Secured Financing (March 2003 through June 2004)

LEGAL EXPERIENCE

Testified as an expert witness in the Superior Court of the County of Los Angeles and the County of San Bernardino and in the Federal Bankruptcy Courts five times concerning the issues of Eminent Domain, Bankruptcy, and Specific Performance. He has been deposed numerous times concerning these and other issues. This legal experience has been for both Plaintiff and Respondent clients. He has prepared numerous appraisals for submission to the IRS, without having values overturned. He has worked closely with numerous Bond Counsel in the completion of 100 Land Secured Municipal Bond Financing appraisals over the last five years.

SCOPE OF EXPERIENCE

Feasibility and Consultive Studies

Feasibility and market analyses, including the use of computer-based economic models for both land developments and investment properties such as shopping centers, industrial parks, mobile home parks, condominium projects, hotels, and residential projects.

Appraisal Projects

Has completed all types of appraisal assignments from San Diego to San Francisco, California. Also has completed out-of-state appraisal assignments in Arizona, Florida, Georgia, Hawaii, Nevada, New Jersey, Oklahoma, Oregon, and Washington.

Residential

Residential subdivisions, condominiums, planned unit developments, mobile home parks, apartment houses, and single-family residences.

Commercial

Office buildings, hotels, motels, retail store buildings, restaurants, power shopping centers, neighborhood shopping centers, and convenience shopping centers.

Industrial

Multi-tenant industrial parks, warehouses, manufacturing plants, and research and development facilities.

Vacant Land

Community Facilities Districts, Assessment Districts, master planned communities, residential, commercial and industrial sites; full and partial takings for public acquisitions.

QUALIFICATIONS OF

BERRI J. CANNON HARRIS

PROFESSIONAL BACKGROUND

Actively engaged as a real estate appraiser since 1982. Vice President of Harris Realty Appraisal, with offices at:

5100 Birch Street, Suite 200 Newport Beach, California 92660

Before joining Harris Realty Appraisal was employed with Interstate Appraisal Corporation as Assistant Vice President. Prior to employment with Interstate Appraisal was employed with Real Estate Analysts of Newport Beach as a Research Assistant.

PROFESSIONAL ORGANIZATIONS

Candidate of the Appraisal Institute for the MAI designation. Co-Chair, Southern California Chapter Hospitality Committee - 1994 - 1998 Chair, Southern California Chapter Research Committee - 1992. 1993

Women in Commercial Real Estate, Member Orange County Chapter. Chair, Special Events - 1998 - 2003 Second Vice-President - 1996, 1997 Treasurer - 1993, 1994, 1995 Chair, Network Luncheon Committee - 1991, 1992

California State Certified Appraiser, Number AG009147

EDUCATIONAL ACTIVITIES

B.S., University of Redlands, Redlands, California

Successfully completed the following courses sponsored by the Appraisal Institute:

Principles of Real Estate Appraisal Basic Valuation Procedures Capitalization Theory and Techniques - A Capitalization Theory and Techniques - B Report Writing and Valuation Analyses Standards of Professional Practice Case Studies in Real Estate Valuation

Has attended numerous seminars sponsored by the Appraisal Institute. Has also attended real estate related courses through University of California-Irvine.

LECTURING ACTIVITIES

Seminars and lectures presented to UCLA, California Debt and Investment Advisory Commission, and Stone & Youngberg.

MISCELLANEOUS

Member of the Advisory Panel to the California Debt and Investment Advisory Commission, regarding Appraisal Standards for Land Secured Financing (March 2003 through June 2004)

SCOPE OF EXPERIENCE

Appraisal Projects

Has completed all types of appraisal assignments from San Diego to San Francisco, California. Also has completed out-of-state appraisal assignments in Arizona and Hawaii.

Residential

Residential subdivisions, condominiums, planned unit developments, mobile home parks, apartment houses, and single-family residences.

Commercial

Office buildings, retail store buildings, restaurants, neighborhood-shopping centers, strip retail centers.

Industrial

Multi-tenant industrial parks, warehouses, manufacturing plants, and research and development facilities.

Vacant Land

Residential sites, commercial sites, industrial sites, large multi-unit housing, master planned unit developments, and agricultural acreage. Specializing in Community Facilities District and Assessment District appraisal assignments.

PARTIAL LIST OF CLIENTS

Bank of America Bank One Commerce Bank Downey S&L Assoc. Fremont Investment and Loan First Los Angeles Bank Institutional Housing Partners

Army Corps of Engineers California State University Caltrans City of Aliso Viejo City of Beaumont City of Corona City of Costa Mesa City of Encinitas City of Fontana City of Fullerton City of Hemet City of Hesperia City of Honolulu City of Huntington Beach City of Indian Wells City of Irvine City of Lake Elsinore City of Loma Linda City of Los Angeles City of Moreno Valley City of Newport Beach City of Oceanside

Lending Institutions

NationsBank Preferred Bank Santa Monica Bank TokaiBank Union Bank Universal S&L Assoc. Wells Fargo Bank

Public Agencies

City of Palm Springs City of Perris City of Riverside City of San Marcos City of Tustin City of Victorville County of Orange County of Riverside County of San Bernardino Eastern Municipal Water District Orange County Sheriff's Department Ramona Municipal Water District Rancho Santa Fe Comm. Services District Capistrano Unified School District Hemet Unified School District Hesperia Unified School District Romoland School District Saddleback Valley Unified School District Santa Ana Unified School District Val Verde Unified School District Yucaipa-Calimesa Unified School District

Developers and Landowners

DMB - Ladera Foothill Ranch Company Hon Development Co. Irvine Apartment Communities The Irvine Company.

Arter & Hadden Bronson, Bronson & McKinnon Bryan, Cave, McPheeters & McRoberts Richard Clements Cox, Castle, Nicholson Gibson, Dunn & Crutcher Hill, Farrer & Burrill

Lennar Homes Rancho Mission Viejo Santa Margarita Company Shapell Industries Sterling Development

Law Firms

McClintock, Weston, Benshoof, Rochefort & MacCuish

Palmiri, Tyler, Wiener, Wilhelm, & Waldron Sonnenschein Nath & Rosenthal Strauss & Troy Wyman, Bautzer, Rothman, Kuchel &

Silbert

SITE DEVELOPMENT COST SUMMARY

su2:: 0. ,. Horton Pi:oducticn Page l Summ<>ry by Cost Code oate B/OJ/OG

'Jr.rs ion, OC9::0679

" of OS/01/06

20750000 Sonora Well:. ·" Budget Total Opoo Actcu,\l Remaining • Projected H

Original chg Order:; R;;,vi:;;ed Ccm11itcted ?OJ Contract Current To Date 1'0 Camplete Spent Comp Final Over/Under c Code -··-···-···

DIRECT REVEmJE Ol !!CME SALES REVENUE 01000 ,~. S11les Reve

' LAND r,r:o ' ""' COSTS lO LMID I\CQUlS!T!0!-1 10050 Lcrnd Cost :3. a4s,ooo 23,S-15,ooo 2J. a.is, ooo 23,945,000 100. 0 100 0 " 845, 000 ' 10050 1510 10070 ,,cquisition Legal 7 ,407 7, 407 7. 407 7, 407 100. 0 100 0 7, 407 ' 10070 1510 10090 Other Land Acq Cost 192,500 282, 500 :!SJ, 500 202. SOD 100. 0 lOO 0 282, 500 ' 10090 1510 1011':l Title Escro·.i Clos;in 10140 Escrow Fees s, 961 5. 961 5, 961 5, 961 100 .0 100 0 s. 9-61 ' lOUO 1510 10150 Closing Co5t.'I s. 318 B. Jla B, 318 B, 318 100.0 100 0 B, 313 10150 1510

10110 Title Escrow Clo 14,::?79 14, 279 1-1. 279 H.279 100. 0 100 .o H,27!1 T 10110 1510

1090il "" 121 Adju:;;tment

-········-· " !.,'!ID ACQU!SJTlOtt 2-1.149,186 2-l, l-19, 186 24.l49.1S6 24,149,186 100 0 100 .o 24,H9.la'5 T lO 1510

...... -.. -· ·-·-·· lOS99HI LA!"ffi ' ,CQ FKOM Mt,ST 2~.149,1B6 2-l, 14-9.1S6 100. 0 24. 149, 186 24,l·:9,lai, T 10999111 1510

109991N 109990UT wurn ' ACQ FP.OM HAST

0 10999HI 1510 109990tJT LANO ' ACQUISITIOll O ·24.149,186 -24,149.186 100 .0 ·2~. 149,.186 ·24, 149, lS.; 0 109990U1' 1510

" PROFESSIONAL 5:i:RVICE 12000 tngineering 12010 Civil Engineer Of 751.000 463,0~0 1,214,040 1,214,040 7),332 1,1-10,706 73,))2 94 .o 94 .o 1,214,0-10 ' 12010 1510 12030 Civil Engineer Su 5-14, 500 26, -l,00 SS0,900 570, 900 Hil,SBS 409, 015 111, aas " ' " ' seo, soo ' 12020 1510 12030 Elect deal Engine :n.100 21.100 21, 100 13,715 7. 385 13, 715 " 0 l5 .o 21.100 ' 12030 1510 120;;0 Soil:;; Engineer 10,500 252, 350 262,l!SO 252,850 60, 155 192,685 70,165 " . ' 7:! .) 262, l!SO ' 12ll60 1510 .... -... --- ........... -·-·--···-· 12000 Engin~f>ring 1,)06,000 772,1190 2,07S.890 osa. aso 309, 098 l, 749. 792 )29,09S 6-1 .2 a.:. 2 2.01a,s90 T 12000 1510

l..lllO Planning 1::1120 Aerial Topography ), 500 -3, 500 12120 1510 12130 An:h11eolog-; ' eal lS. 000 -13,500 l. 500 1, 500 1. 500 10, 0 100 0 1, 500 f 12130 1510 121-10 Biological S1.1rvey 6, 193 3, 59J <;. 765 9, 7BS 5. 111 -l. 67-l 5. 111 " ' " • 9, 785 ' 12140 1510 1:!150 Enviromn~otal Rep 4. 274 4,:n.1 "-· :n-i 4, 274 ,oo 0 mo 0 4. 274 ' 1.2150 1510 1:!160 !.and,a:ape ,,rchite 75,000 96. 560 171.560 171,SliO 40. soo 130. 760 ~o.soo " ' "

, 171,560 ' 12160 1510 1:!200 Special Processor 50,000 50,000 ~5. ooo 15< 44, 8.;6 5, 154 " ' 89, 7 50,000 ' 12200 1510 1:!210 Utcility Consultan 63.~50 ·62.300 !. 150 l, 150 1. 150 100 0 100. 0 1, 150 12210 .!.510 12220 Mi~celLmeous Coo 22.758 :!:? , 758 10, 4-12 "' 10.322 12,416 " ' 45 .4 22. 756 122:!0 151.0

12110 Plannin9 213. 143 47, 884 261, 027 243,711 46.185 197. 526 63.501 75. 7 75. 7 261. 027 T 12110 1510 ------·····

" ?ROftSSIONAL SER.II l,519,14.3 620,77-l 2,3)9,917 2.302.601 355,:!8) l,947.3lS 392,599 83 .2 a3 .2 2,339, 917 T l2 1510

····--··-·-12999(:l PRO.SVCS FROH MASTI:R 2,339, 917 :!,))'l,917 100.0 :l,3)9.917 , . 339. 917 T 12999IN 1510

12999!ll 129990trr PRO.SVCS FROM MASTER

0 129991N 151.0 1;19990UT PROFESSIOHAL SERVICE -2,339,917 -2.3)9,917 100 .0 ·1,339.~17 -:::,339,917 0 129990UT 1510

" BOIIDS 14.000 ilcinds 8-l, 312 84,312 Je. 401 38.~07 -:5. 905 45. 6 " 84. 31~ f 14000 1510 14010 Ca.~ll Bond:. 333, 100 J33 .100 333.100 333, 100 100 .o 100 .!'.I )33.100 F 14010 1510 14990 il.e(11ndable Eond!l -)33.100 ·33l. l00 ·333,100 .)J),100 F 1-1990 1510

" c!OIIDS B4, 312 s-:, 31:! 371. 507 371, 507 -~S7,195 -l-lO .6 100 .o ll4.3U T H 1510

" PER."HTS 15005 Conditional Vze '" l, oso l, 990 1, 990 1. 990 100 0 100 0 l, 590 ' 16005 1510 16020 Grading 313,266 -150,000 163, 266 69,410 69.~10 93. 856 . , 42 .5 163, :?66 F 16020 1510 160~0 Hou,ae Building 1,100,100 -Bl, 850 l. 025, 250 !IH, 711 UH,711 151, 5)9 " ' 81-J l,026,250 ' 16030 1510 16080 ;;all 15,000 15, 000 15,000 15,000 ' 16080 1510 16090 Wll.t.et System _.,

" ,oo 0 " " ' 160'..iO 1510 16100 ~1i!lC. 5:?. 2-lS ·l.090 51, 15!1 H.887 l-l, as1 16,:!71 " " ., 51, 1sa ' 16100 1510

" P£R!-:!ITS l. {69. SH ·J]l,850 1,257.66·1 9-ll. HS ;l-ll,045 316,666 74. 8 1-:. a 1.257,711 " T " 15.!.0

n FEES 17004 Ccmnunicy Fae Pi~ JS. 000 1s. ooo . 000 so. 000 so.ooo 100 too 0 50.000 ' l 7004 1510 170~0 Final "'' Filing 13, S•IS 486 . on 14. 031 14,Q31

1(5.931 ,00 100 0 14, 031 ' 17040 1510 l7066 Hou!le ln~pection 111,185 65, JS•l " ,569 174,B19 145, 1a1 -:'.!9. 63e " 16 .6 176,569 ' 17066 1510 17070 lmprvmnt Plo1n '"' 234,BSl ·Z. 365 " . ;15 ~3.330 83.330 145,1S5 " 35 .!I J32,Sl5 ' 17070 1510 17140 Occupancy 228,394 -145,562 • . a32 82. 5]2 52, S3'2 ' l 7140 1510 17150 P;.r;; 756. 000 927,2JO 1. 68 , aJo 1,657,942 l,667,94~ 1$. 356 " " 1. 683, 830 ' 17150 1510 17160 Precise Grade Pln 6. 000 • 000 "' 750 5, 250 " ., 10 6. 000 ' 17160 1510 17l 10 School 999, 19) ·79],115 -- " . ens 2,204.635 2, 204. 635 1.443 " ' "- 2, 206, 078 ' 17110 1510

5Hl:? D. •- Hot con PrO<iuction Page SuITTTnnq., by Co&t Cod,:, Date 6/03/06

Vera ion, OC:120679 Ao of OB/01/06

.:!0750000 Sonora 11el111 ·" Budget • Total Op;;m Ac:tual Remaining Projected M

Original Chg Orders Revived Committed PO/Contract current To Date To Complete S'pent Comp Final Over/Uodet c Corle

17180 Sewer system 796, 059 -796,059 ' 17190 1510 17190 Sewe, Syst cl.eneE i 1,0S!!,000 1.089.000 4, 40S -1., -1oa 1,084,5-93 ., ., l,0~9,000 F 17190 1510 17200 Sewer Syst l!OU!!e 12, 705 1. sao 14,595 14., 555 14, 585 100 .o "' ' 14, 585 F 17200 1510 17210 Se1o1er Syst !'ln Ch a, 6-1 o :?. J90 10,930 10,930 10,930 100 ,0 "' 10,930 F 1721.0 1510 17220 S~w"r S,'!:t Imp:rvm 969, 210 12S, 956 l, 096, 1G6 1,098,166 l.09B,16!i 100 .o "' l,09S,16!i F 17220 1510 17274 Traffic Impact 156, 300 56, 196 .:!12,4.9,; 121. 994 121, 994 90, SO.:! 57 ,,:_ 57. 21J,-196 F 11:n-:. 1510 17250 Transportation 6.;1, :n5 1i1. 991 789,226 679,627 679, 627 109, 599 65 .1 " H9.J26 F 17280 1510 172!:10 liater System 21,650 21, 550 J, 354 3, 35·1 ta, 296 15 .5 " :n,65o F 17290 1510 17)20 Water Syst t>ln Ch " "" -2, 010 H,848 6,679 6, 679 32.169 17.2 n JS,648 F l 7320 1510 17)40 Water Meter m "' 281, 778 155,875 155,875 125, :103 55 ,3 SS 2a1, 11a F 17)40 1510 17)50 Mi.!lcell.!n<.!OUS 773. 016 444, 635 1,211,651 l,1!'.11,709 1,181,795 35, 862 97 .1 97. l 1,217,651 F 17350 1.510 17360 ?..efundable Oeposi -6,032,298 -6,032,296 -fi 1132 ~"B -6,032,298 v 17)60 1510

-- . --- ----. -.. ----- J-- -- ---- --- ........ >-, ..... ····-------" FEES J,14S,351 45,536 3,19),887 7,472,9H 1-15, 181 7,327, 7H -4.,133,54.J.:!29.4 100 .o 3,193,887 T " 1510

- - .. -- ----- -- --- -- --- - . ----- -.. -- --- ---- - -- . -----------175'3HN !'"EES,FMTS,E!IDS <R MA 4,535,863 4.535,863 100.0 4,535,863 4,535,863 T l79991N 1510

1799HN 17999001' FEES. PM'tS , ENOS FR "-'

' 17999I?I 1510 l 79990UT FEE:S, PERMITS ' BONDS -4, 535, 863

" DR..'./HOI\ COSTS ·4, 535, 86J 100 .o -~. 535,863 ·-1,535,86) D 179990UT 1.510

18000 O..pt of 11.e.,1 Est.ate 18010 Consultant Das " " " " 100 .o 100 ,0 " F 18010 1510 18020 Filing Fees DU ~0.405 20,405 13.630 13.630 6, 775 66 .i, 66 .B 20,405 F 15020 1510 18030 Leg.il DU 35.000 35,000 30,769 ]0,769 4, 231 87. 9 67. 9 '.!5,000 F UOJO 1510 -. -. --- ---- -·-·------- -- -- --- --- - ··---------18000 Dept of Rea.1 "' 55,430 55,4)0 44 ,42-1 4-l, 4.:!-1 11,006 ao .1 80 .1 55, 4]0 T 111000 1510

1S070 Home Owners As,:;ocia uoao Eud.get Conoul.tant 8. 950 e, 9SO 0, 9so 3 ,400 s. S50 J, 400 6~ ,0 62. 0 B, 950 F 1eoao 1510

. --- ------. ---·------- -------···- . -----. -- --18070 ·- Owneri; A~GO 8, 950 e, 950 a. ;1so 3. 4.00 5. 550 3, 400 6.:! .o 62, 0 B. 950 T 16070 1510

,; DRE/!tOA COSTS 64, 31iO 64,3BO " ]74 3, -100 49. 974 14,406 77 .6 " 64, 380 T " lSlO

lii9990UT DRE/UOA ALLOCATION O ·64. '"' -64. 380 100 .0 -64, ]80 -64.HO ' 1B9990UT 1510

" LAND COSTS 1'l999IU

--- --.. -·-. ·-··------ --· .. -- . --- . ---- -. ·- -. LAND ACQ E. DEV co, 6,241,)20 24,HB,026 31, os:,, ),16 ]5, 2:?6, 247 503, 863 34, 722, 383 -3,697,370 111. 7 100 .o 31,0JS,014 -64, ]32 T ' 1510

ms IHPROVEMDIT COST

" GRADU/G 20020 Clear and Grub H,S!",O ·44.SSO ' 200.:!0 1520 20030 Construction Wate 50, 000 -29,550 20, 450 la, 652 18. 652 1, 198 91. J 91. 2 20,450 ' 20030 1520 200,:0 Demolition 25.000 ·15,0B7 9, 913 9, 913 9, ')1] 100 .o 100.0 9, 913 F 200<\0 1520 20050 """ Control 110, 000 111.ata 221,Bla 221,Bla 12,265 209, 553 12,265 94 .5 94 .5 221,BlS ' 20050 1520 2ooeo Grad.in9 Rough 2.324,.:!73 a69. 120 ). 193. 993 3,193,99] 20, 344 ],1'13,649 20,3-1-l 99 .4 99 .-1 l,193,99) ' :iooao 1520 20090 Grad.ing - Finish 65),-100 ,;a. 653 702, 053 702,053 502,619 199, 4)4 502,619 ia .4 2B .4 702,05] ' J0090 1520 :!0100 Import Mn.t .. ,dal 3-to,2ao 340,.:!SO 339,974 162,900 l '17. 074 163,206 52.0 52 .0 3"10,280 F 20100 1520 .:!01•10 Erosion Control 36), 000 :!92. 000 655,000 332, 387 203,S35 120. 55.:! 526,44.8 19 .6 19 .6 655,000 ' 20140 1520

··-·-····-- ----------· ----------- -... ·- -- ---" G?.JIDING 3,510,52) L 57J, 9S-l 5,14:!,507 4,810,7B9 901. 963 l. 916, B26 1,226,681 76 .2 71'.i .2 5,143.507 T ::10 1520

" SEWER 21000 Sewer Syotem Cont 731. 236 a2, 024 813,:).60 !113, :!60 813,260 100. 0 100. 0 813,260 , JlOOO 1520 21005 OEftract Sewjlr 5y 33. 950 ·33,950 ' ~1005 1520 21010 8acl:flo-o1 Prs,vente l, l:!O - l, 320 F JlOlO 1520 21030 L~teral!l 350, J9S 449,351 799, 646 799, 645 15S, 700 ,;-10, 94.5 15B. 701 " l !10.2 799,646 F 21030 15.:!0 --. --- . -- .. " S£WE!l l, 116. 801 4:16,105 1,612,906 1,612,905 1se. 100 l,~54, 205 lSB, 701 " " . ' l,6lJ. '" T " 1520

" STDSH DP..l\IN 22000 Storm Drain Cont<: 10, 000 710,842 720,B42 7.:!0,S42 s:n, o9o 193, 752 527, 090 " . , " . ' 720,842 F 3.:!000 lSJO 22005 Off tract Storm Sy 512,970 512, no 512,870 -169,170 -ll, 700 469,:?70 " ' " . ' 512, (HO ' 22005 15.:!0 22020 Cati::-h sa,.in!l Ja9, 100 · 6~, 020 3.:!S,680 125,660 9, 300 316,380 5, 300 " " . ' 325,680 ' 22020 15.:!0

" 5TOill-l DP.JI.IU ]~9. 700 1,159,75:! 1,559,492 1,559,)92 1, 005, "' ss3, a1:: 1, 005 '" JS .5 35. S 1.559,492 T 22 15.:!0

" WATE,. 23000 tl~ter System Cont 1,631,085 50,429 l, 6Bl, 514 1,566,025 ' "' 5ti3, 625 117,889 93, 0 9}.0 l.6Sl,514 F 33000 1520 230:10 tlat2r Hetero (not 24, sos 24,505 24.505 24, 505 24. sos 2-l, 505 ' ::1)090 1520

------·-··· " WATE:R 1,,:,;1,oes 74, 9J4 1, 706. H9 l,5'.10,SJO 26,905 1,563,625 HJ,JH 91. 7 '.11.7 1, 701', 019 T " 1520

34 STR..0:ET IMP'ROVEffi'.NTS 24000 Concrete 24010 Sidew.,11:c 39@,HS J98, HS J9!1, -145 39a. 445 398 , 445 J?B,4~5 ' 2-1010 15:!0 240JO Curb ' Guttc::- 555,~26 SBS, 026 525,531 l], 75.; -191, 7}B ,a "" !D.-1 SJ .4 569, B.:!6 24020 1520

51412 o. ,_ Horton Prociucticn Page Summary by Cost Code Datu 8/03/06 Version, OC920679 ;,s o< OB/01/06

20750000 S<mora Wells .?J

lludset Total Dpeo J\ccual Remaining ProJected M Original Ch9 Orders Revised Committed PO/Contract current To Date To Complete Spent Comp Pinill Over/Under c Code . -- -- -... --24035 Of!i:ract Concrete 250. 000 ·250, 000

' 240]5 1520 -----------2.J.000 Con1crete :?50. 000 7.38,271 5188,:!71 5123, 976 .J.32. 239 491. 738 4',6,5]3 .J.',.5 49. 3 988,271 T 24000 15:?0

:!4040 Paving 24046 Ptwing-Special " 140,]]9 140,3]9 140,)]'.l 140. JJ51 240-16 1520 2-1050 Paving 2, '1515. 6;>3 ·598,0SO l.6'H,60J l.605.600 28-1 "' 1,321,l:?l 576,-182 65. 6 651 .6 1,891,60) 24.050 1520 24010 Decorative Paving 16. 000 -16, 000 24070 1520

l-1040 ?av ins 2,511.693 ·-Ii) 151 031, 51-1:l 1,605,600 '"' "' 1,:;21,121 716, 821 64 .a 6·L5 2, OJ?, 942 T 24040 1520

2~080 rinishing HOSO Street Signs 2B,60o -HOO 21, 800 23, i;JO "· 630 27, BOO ~1. aoo ' 24090 1520 H110 B.:irric:ades/Traf f i 24, JiS -24. }75

' HllO 1520

24080 Finillhing 52,915 -2",, 175 27, BOO 23, 6.30 23,630 27, 1100 21, soo T 2-10110 1520

···-------- ·- ..... -. --" STREIT HJPIIO'/EHE!l 2,Bl•J.,668 239,J-15 3,054,0l.3 2,553,206 74.o,J4.a l,!112,BSS 241,155 59 ... 59.4 l, 054, 013 T 2-1 1520

" DRY lITILITIES 25000 Lighting 25010 Street Light!! 153, 960 ·4.J., 169 109, 791 109, 790 97, 745 12, 0-15 " "' 11.0 11.0 1051. 791 F 25010 1520 ·---·--···- --- -.. -- . -- -······---- ---- -- -·· -. 25000 Lighting 153, 960 -4.-1., 169 109, 791 109, 790 ')1, 745 12, 0-15 " 146 lLO 11.0 109, 791 T 25000 1520

25050 Joint T1·en.::-h 9~5, $)4 1, 369, 466 2,2515,300 2, 271, 2511 3451,024 1,922,2)5 )13,055 aJ .a aJ .a 2, 295, 300 ' 25050 1520 ------····· .. -. -- . -. -- ·- --- ---- . -25050 Joint T.rench 925, eJi 1,369,-166 ~,295,JOO 2,l7l.25B 349,024 1,922,235 ]73,065 113 .a SJ .a 2,295.300 T 25050 1520

25070 E.l.,ctric 25080 Backbone system E 1?5.205 -61!1, 955 116,250 116,250 116,250 100.0 100 .0 116, 250 ' 25080 1520 :15100 Noo Refundable ' 5-19,600 549.600 ll'.l, 000 119, 000 430,600 21. 1 :n .1 549, 600 ' 25100 1520 .'.!5102 E!octric: il.efund!l

----------- ----·--·-·· -----------25070 Ele1ctric 735, 205 ·651, 355 665, aso :?35. 250 235,250 4)0, 600 35.J- JS .J 665,850 T 25070 1520

25110 Telephone :2:n20 Backbone Syst Te 12,990 l.'.!, 9$0 l.'.!, 950 12, 990 100.0 100.0 1:. 990 ' 25120 1520 25140 Reimbursements ·~ -20,000 -.'.!0, 000 -10, 000 ·.'.!O, 000 ' 2514.0 15:;!0 ··--------- ----. -- . -.. ---25110 Telephone -i,010 -1, 010 ll, 990 ll,990 -l0,000 us .J -7, 010 T 25110 1520

25150 """ 25160 llilckbone system G :HJ, 000 -213. 000

' 25160 1520 251RO Stub Fees G 90, 180 ·90,780

' 25180 1520 25190 Reimbursements G -303, 7il0 270,295 -J3,·IB5 -33,485 ·33,485 ' 25190 1520 ------····- ----------- ··-·- ..... .... ··---------25150 Ga, -3J, 4115 -33.485 -33,485 ·}3.485 T 25150 1520

25200 Other Utilities -. --- -... --

" Cli."f trrILITIES l, 914, 9519 1, 215,-14.i J.030,446 2,6251',29!1 -1-16, 166 2.lSl,520 8-11,926 72.0 i1 .o 3,030,446 T " 1520

" F!WC!NG &. WALLS 26000 Fencing 26004 Other Fencing 151, 125 JJ2, 7;9 483,904 470, 70-9 31-1., 789 95, 920 :;a;, 984 19.S 19. B .JBJ,904 :!600,1 1520 ... --- .... - ------·-·· 26000 Fencing 151,125 .332, 119 UJ, 904 470, "109 37-1, 189 95, 920 JS?. 984 1;..a " 463, 904 T 26000 1520 26010 Walla 3,000, 000 1,6.60,198 4,6ao. ;99 4,680, 198 ,. 05-1, 657 1,626,140 3,054,658 34. 7 3-1.1 4.680, 193 ' 26010 1510 26090 Retaining Wall l l l l l l ' 26090 1520 . -... -.. --- -----. --- .. 26010 Walls 3, 000, 000 1,660.?'H 4,680.1;19 4, 600, '/9~ 3,054,658 l, 626, 140 J,054.559 3-l. 1 3-1. 1 4,690. 199 T .'.!6010 1520

" FE'!lCING" &. WA!,LS 3, 151. 125 2,0lJ,578 5, 164, 10) s, 151, 508 J,429,-1.47 -------···· .. --- -----.

1,122.060 J,Hl,643 33.:; 33 .3 5. 15.J., 10) T .'.!6 1520 26110 BOND EXOllERATION 26120 Street ltepai:" Repla "' '" ],';3. 000 ]6),000 )~3. 000 F 261JO 1520

.'.!6110 """ SAOl1E?.ATIOI/ )6J, "" 363. 000 J6],000 ){,3, 000 T 26110 1520

" AME:IUTIES 27010 Common Area 21020 !lo,rdscape ,. "' 9, 000 9, 000 ;), 000 ' 27020 1520 21025 L.am:lscape "- '" )J), )51 ]'}8, )57 169, 950 169, 950 398,351 3~a. m ' J7025 1520 270)0 Pool And Spa "' "' ,oo. 000 15:i, 300 15!,,JCO 200,000 200, "' ' 21030 1520 27060 e=l Houae 100 '" 100, 000 100,000 100, 000 ' 270(;0 1520 27070 e=l Furniture 30.000 30, 000 20,000 .'.!0, 000 ' 21070 1520 27015 Patk Furniture 4, 000 .;, ooa 4, 000 4, 000 ' 27015 1520 .'.!1080 Pool Fencing 10, 000 10, 000 10. 000 !0,000 ' 2?080 1520

514.12

20750000 Sonora Welli::

27010

27130

28 28000 28010 2$040 28055

:rn

28200 28201 28205 2a:no 2:8215 28220 292JS 2ano 2!1235 2S240 28245 28250 28255

28:!

28800 28610

289

Cc1m1on Area

Mailboxeo; Group

t..•1EIUT[ES

LlllmSG\PE & l'!l,IlrrE»i'I. Lands cap!! Maintenance Enrty l..ando;c.::p!l Front ·;ard Land

LAflDSCAPi': ~ MAllIT

Temporary Power Ta;r..porary Power/0 Temp/Construction Utilities - WIP i\rchitecture Slueprint:J Street Cluirning Structura.l .:ng·Di Temporary Fencing Theft-WIP Title 2~ Consulta Tra:Jh Remo,:al-h'!P Vanda.li:Jffl·h'IP

CAP!TAtIZED HlDlR

Supervision Arlo;istant Supe:rvi

SALJ\RIES PROOUC

20 99601,)'T Sl7E IMPR TO OTiiER

2B9990\1T SITE IMPl!OV. ALLOC 299'B H!IIW COST COt.fTUIGi::UC

29999

2999~111

2~9990trr

J 3a110 3CIH.O 30150 30170

" 32015 32020 )2030 Jl040 32060 32070 )2090 32100 )2170 J2laO

• ., ~0001 40020 40021 40040 40050 ~0070

l!AP.D COST COITTHIGEIK

H,\RD cmn F?.OM MASTI;;

HARD COST CONTINCENC

SITE !MPROVEHENT C

HWIR'E:C-r COSTS Construction Trai Rent Field E...~ Supplies Field Ut ili tiei:; - Indirec

GEUE?.At. C<llIDITIOJIS Temporar,· Labor Chemical Toi lets Construction Selle Construction Sign Equipmo:mt Rental Gas/Oil/Mi le age Glass Replacement Guard Service Subdivision Clean Storage Cont.lin<.!r

GSNI:RAL COtlO!TI0/1

iHDllECT COSTS

Dl:!CCT COSTS START

?ermits Certificates .lnd !n

House Utillt',' Ser-~ Excavation/Grading Concrete

?oundation Con

.P,J

Budget Original Chg Orders Re·~ii:;ed

41S.OOO

90. 750

SOB. 750

1, 951, 575 )6,000 50.000

671.200

2,910.775

66 :!59 66 J59 66 259

125 000 50,000 66,259 25,000 66. 259 66, 259

2, 000 66, 259 66. 262

323, )57

-36, JOO

2ll7,057

161,019 -17,000 -:!.4, ~:11 7S2,410

912, 002

115, 241 -1, 70)

-40,000 27:!,97S

55.000 2)5, 000

51, 610 28, 617

-10,177 1, 900

-22. 702

7H,)57

54, 450

795, ao1

2,122.594 19,000 35,573

1,653,610

3.SJ0.'77

181.500 64. 556 26, :!59

397, 9H 105,000 301,:!59

76:, 610 94, 876 56. 082 3. 900

66,259 43.560

7)2. 075 635,754 1,417,0)9

100.000 80,000

180,000

1,405,515 -1.405.74.9

l,~05,819 -1,405,749

:!0,427,)20 7,431.259

19,lao ·l0.000 35. 890 10.890

47.050 117,975

99.698 3, 6)0

150. 562 5. 4~5

26, 300 8),.J.90 59. 895 18, 513

612. 578

718, 6311

100,000 80,000

1110. 000

J7,B5B,579

19,280 40, 000 35, 890 10,890

47,050 117,975

99,658 3, 630

150,582 5, 445

26, 300 93,490 59,895 lS,SlJ

612,57B

716,6JB

o. R. Horton Production Summar:,, by co~t Code Version, OC920G79 A,:; o! oa/01/of

Page Dace •

8/03/0G

Total Ooen i',ctual ?.emainlog Committed PO/Co~tract CUrrem:: To Dau, To Complete Sper.t Corr.p

Projected M

)29,250

3:!9, 250

1,425,734 19, 000 )5, 57)

7-1::!, 523

2.l22,a30

149, 143 50,2)6

7. 263 -401, 91B

97, 99::! 62.2)7 77,545 as, 20,1

J. 900 26,500

!i, ]77

973,400

5, 027

5, 037

27, 6:83, 31!G

-17, 693. 3116

-,0

2),446,136

10. 431 12, 57)

7, 489 2, 852

7, 528 49.4~3 57. a53

m 24, 427

"' 550 43. 560

'.l, 520 4, .J.75

191.963

2J5, 313

329,250

329,250

l,3H,SB·l 19,000 35, 573

142, 5:3

2,111.s00

)::! 540

"' 10,650

" l, 406

4, 500 6, 200

55,816

9, 20,. 739

7. 621l

2, 220

9, 500

HO 34, s0..:

2. 520

56, 991

56. 991

110. 850

110. 950

116.60-l 49, 779

7, :!63 )91, 268

91, 992 62, lH 76, HO 0s.2aa

J, 900 24,000

m

917. 5B4

5, 037

s. 0)7

27,683,396

·J7,66).3llli

1~.2)9.393

10,.J.)7 12. 57) 7, 469 2, a52

49, H.J SS, 633

m 14, 927

G£5

"" !I, 676

4 .. 175

1J4, :n1

Fina.! Over/Undet: C cod,

741, 357

54, .;50

795, i107

::!, 011, 744 19,000 35, 573

l. li53, 610

), 719, 927

64.B9E 14., 777 18, 996 .10, 650

7, 008 239, os.s

1, 406 5, 588

56, Oi12

S·I. 450

795, 807

5 ., 5.:.i 2.122,59~ 19, 000 ]5, 57)

l,65).610

'., 2.9 3,EJO, 777

64 6~ .::! 77,l 77.1 :1.1 27.7 98.3 97.4 9J.J 93.) 20 20.6 9S 99.2 9J S3 .1

100 0 100.0 36 2 36.2

.4. .4

181, 500 64,556 26.253

401. 91!1 105, 000 301,259 17, 54b 94,876 56,082 3, 900

66, 259 43, 560

505,l)l 64.7 b4.5 1.422. 716

94,963 5.0 !LO 80,000

174,963 2.e 2.B

100, 000 ao,ooo

!BO, 000

T 27010

F 271]0

'!' 27

F 28000 F HOlO F 2804 0

28055

28101 F H205 F 2S210

) , 940 :" 25215 P 2S:.l20 F 2S22S

93,i F 28230 F 28:035 F 2e240 F 28245 F 28250 F 25255

4,877T282

F 2aaoo F 28910

T 29ll

15::!0

1520

1520

1520 l5JO 1520 1520

1520

1520 1520 1520 1520 1520 1520 1520 1520 1520 1520 1520 1520

1520

1524 1524

1524

100.0 27,68.3,3B6 27,6B3,386 T 283980UT 1520

100.0 -:n,6aJ.3Bli -21,6.el,JB6 F 2a9990UT 1520

'"

13,524.,058 '\51.l

B,843 54.1 27,4::!7 31.4 20,401 20.9

0, 038 2L:!

4.7. 050 68, 532 44, 065

J, 087 135,655

4, 780 25, 690 74,iil4 59, 895 14,029

"' SS '

" " ' ' 1' '.J

10.4

100. o

54 .1 ]1.4. 20. 9 2G .2

4l. 9

" ' 15 " 9. 9

2 .3 10 .~

24 .2

477,607 22.0 22.0

550,31~ 23.4 23.4

70 F 29999 1520

'"

l.9, 2eo 40, 000 35,890 10,890

4.7, oso 117, 975

99,659 J, 6-30

150. 582 5, 445

26,JOO aJ, 490 59,B95 111, SU

61:!,578

718,5)8

T 29999

70 T 29959!?1

F 30110 F 30140 F ]0150 F 30170

F 32015 F 3;?020 ? 32DJO F 320·10 F 32060 F 32070 F 32090 F J2100 F J2170 F 321SO

T 32

T

1520

1520

1520

1520

1525 1525 1525 1525

1525 1525 1525 1525 1SJ5 15.25 1525 1525 1525 15::!5

1525

1525

514 12 ,. ,. nor ton Production Page ' Surr,=::7 by Cost C<xle Date 8/03/06 v.,rsicm, OC'.l2(H>19 ,\i; of OS/01/06

20750000 Sonora weuz . " Budget Total ""'" Act,nl Remaining ' Projected " Original Chg Orders Revised Comnitted PO/Contract Current TO !'.late To complete Spent Comp Final Over/Under ' Code

-----·----- -----·-------40070.1 Tr.:,nch ' Form Con 2,::,20,.;oo 2,220,600 2,225.795 793, 7-15 1,432,051. 793,745 6L5 2, 22s. ;,is S, 195 ' 40070. l 1533 40070. 2 Pour Coo 1,41J, 109 1,413,109 1.413,109 504,1155 909, 254 504, 1156 " .J l,413,109 F 40070.2 1533 {0070.99 iletention Foundat 4.0J. 746 40], 7·<5 403, 74,;: 350.996 52. 750 350,996 D ' 403, 746 ' ~0070.9:1 1533 --- ---- ---- -- -----. --- -------··--4007Q l'oundatioit 4,037,-155 ~.037,455 4,042,650 1,649,595 2.393,054 l.549,596 s, s, 4, 042, 650 s, 195 T ~0070 1533

10090 Flatwork - Concre ,\0090 Dd·.-eway5 Flatwor 415, 600 415, eoo 415,800 '115, BOO F 4.0090.l 1533

-----. -- .. -40090 flatwork Coo 415, 800 415,800 ~15, BOO 415, aoo T 40090 153l

- ------- . --40050 Concrete 4.453,255 4,453,:255 4,042,550 1,549,596 l,393,054 2, 065, l96 SJ. 7 SJ. 7 4.456,450 5, 195 T ~0050 1533

40110 Wiring 40120 Electrical liiring 40120.l Rough Eleccrical an.469 100,994 912,462 913, 247 693, 697 21-1. 350 696,564 22 .5 912, 914. m F 40120.l 1533 40120 Fini!ih Electrical 273,623 33. 844 312,466 312, 466 :299,689 12,777 2€1.lH 4 .1 273,S!H ·3B, 575 ?' 40120 .2 1533 40120 " Retention 109,449 15. 538 124, :1e1 124, 987 119,876 5, 111 104. 597 4 .1 109. 1oa ·15,279 i' 401:'.0. 99 1533

--······--- --40120 Electrical Wiri 1,134,5;0 155,J75 1,349,915 1,350.700 l, llS,452 232, 238 l,064.,275 17 .l 17.9 l, 296, 513 -53.402 T 40120 1533

40130 Fi:<:ture11 E 67,843 4. 340 72, U3 6'5, 755 53,682 12,073 64,657 16. 7 76, 730 4, 547 ' 40130 1533 - -- -- ---- - ··--------- ----·····-- ----------- --- . -·-. --- -----------

40130 Fi,;tures 51, 843 4. 340 72,lE3 65, 755 53, ,:;a:; 12,073 6~, 657 16. 7 15. 7 76. 730 4,547 '!' 40130 1533

40160 c.ible iV Wiring 40170 Phone/Data Wiring 40170 Rough Fhone/D.-ita 79,460 79.460 60. a5o 56,607 12,043 77, 607 15 .2 89.€50 10,190 ' 40110, l 1532 40170 ., Finish Phone/Data 52,0:20 52.020 52, O:;!O 49, 613 2, 406 4.9, 613 ... 52,0lO ' 4.0170.2 1533

----------· ----------- ·-· --- -- -.. - .... --... --10170 Phone/Data Wiri u1. -tao 131,4&0 120, 570 106.-::rn 14.. 450 127. 220 11.0 lG .2 14.1. 670 10,190 T 40170 15)3

40190 Sprinkler System 40"2.10 Interconi Syntems 1, :250 l, 250 l, 250 l, 250 1,250 ' 40210 1533

----------· ---- ---- -. 40210 Interco"' Syetem l, 250 1. 250 1, :!SO L 250 l, 250 T 10210 1533

40220 "'"'"" Th"'a.crtt , S<!C 26,729 u;,7JO 2,, 720 :lG, 7:l.O 26, 720 ' •Hl2:;?0 1533

---·····---40220 Homa Theatre 26. 720 2fi, 720 26, 720 :::6. 720 26. 720 T 40220 1533

---- --- . -. - ---··------40110 Wirin9 !,393,863 159, 715 l,553,578 1,565.295 l,30G,53S 2511. 760 1,204,123 16. 7 16 .B l, 542. ee3 -l0.595 T -10110 153)

402)0 llVAC 40230 .1 Rough HV,\ 768. 55.; 1.7, 030 785,584 561., 227 490,6·16 10, 5a1 S24., 704 9 .o 895.365 109, 7Sl F 40230 1533 40230.2 ?.A.U. Set INA 294,799 6. 406 301, :!OS 224.. 464 209,003 15, ·161 339,449 '.' 354.910 5), 705 F 40230 15)) 402)0.3 ;,inish av;. l, 401 l, 401 1, 401 1,-:01 l, 401 l.4.01 F 402JO 3 153] 40230.99 ;;:etention !NA 36, 733 2, 135 40. asa 40, 966 .15,7H 5. 154 108,873 12 .6 114.0J6 7), 156 P -IOZJO 9~ 1533

----------- . -.. --- ----40:?)0 HV,',C 1, 103, -\BS 25,571 l.129,059 627, 960 736, 764 91, 196 1.274,507 a.' .., l, 365, 703 2)6,64'1 T 40:!30 1533

402-1.0 Plumbing 40:::40.1 Underground Plumbi 899,4.90 899. 490 1.011, 745 199, 752 811, 99) 195, 737 " 1,007,730 106, 240 ' 40240. 1533 40:!40 .2 Top out " 574, 6'!. 7 674,617 674, 617 540,352 134,265 540, 352 " 674, 617 F 40240,2 15.13 4.0:!40 .3 Finish H 4.49, 74.5 449, 7..\5 449, 745 4,;,9, 745 449, 145 449, 74.S ' -10240.3 1533 40240.99 Retention " 22~.672 224, a12 224, 872 224,872 224,87~ 22~, 872 ' 40240.99 1533

----. ---- -- -----------~OJ40 Flumhlrig 2,HS,724 2.HB,724 2,J50,".i79 1,414, 721 9.\6, 2se l,'ll0,706 " 40. 2 2, 356. 96'l l0~.:!40 T 40240 1533

. -- - ---- --- -···· .. --.

" START 9, 199.3.30 185,266 9,304.616 6, 796, 06'l 5,107.616 3,6a9,2.;:a 6, 034, 731 )9. 3 37. 9 9, 7J3. 999 339, 384 T " 1533 ., FRN-1!;; 42000 Carpentry 42010 co1rpent,:y Rough 4:;010.1 Fi:r!lt Floor Wall5 :;, OB3, 336 2,0S3,336 1,191.-151 492,saa 698,863 1,4.91,880 33 .6 2, EID, 742 107, 407 ' '<2010 .1 153] 42010 ' '"' Floor Walls l,092,736 l, 082, 736 l,0112, 736 591,201 491,535 591,201 ..\5 .4 1, OB2, 7J6 F ·l2010.l 153) 42010 '=' Sheathing 61S. 706 618, 706 618. 706 387,94.) 230, 763 387.943 37 .3 618, 706 ' 'l:2010.3 1533 42010 Frame Insp. C<,r 309, ]53 309, JSJ 309, 353 252, 777 S6, 576 252, 777 18 .) 309, 353 ' 42010.4 1533 -!:2010 Lumber Carpen tr 'l.,OlS,333 4.,015.333 4,015,3].3 1,278,00) 2,7.17,310 l,2H,OO] 6B .2 .\,015.333 F 42010.S 15.13 ·12010. 7 Labor Carpe.ntr/ 15,871 15, S71 11,021 11,021 lS,671 15.871 F'~lOl0.7 15.13

42010 Carpentry ;:tau e. 125,335 B.125, 335 7,228,60tl 3, OlJ, 533 4,215.068 ·L 017, 675 51. 9 " a. 2J2. 742 107, 407 T 42010 153l

4102.0 carpentry :i.ni.!lh .JJ020 !"rarne. so, C11rpe 5'.l:2, 54.il -286. 945 245, 604 149. 575 95,014 54, 501 :2J1.3e1 22 .2 21:15. 868 40, 264. ' 42020. l 1533 42020 C6i.laze Carpentr 199,020 92,971 2n, S91 2H,991 ;!66,590 25, 401 266,590 .. ' 291, 991 ' 420.:lll.2 1533 420:?0 Finish c.-irpentr 225,858 -6, 021 219, 837 219, 6)7 209,978 9, 859 209. 979 .., 219, 1137 ' 42020.3 1533 4:20:20 .:><te:rior Carpen ,;4, 531 ·l, 120 62, 1!10 62. BlQ ;;2. eio 62, 810 02, R!O ' ..\2020.4 1533

~2020 Carpentry Fin l,0::!l.957 -20.l, 715 820, :!42 72-1,213 6H, ~51 89, 761 770, 744 10. 9 10.4 S60. S06 ~o. 26-1 T -12020 15]3

51-112 ,. ,. Horton Prod1.1ct.ion P3ge ' Summary b;, Co.:t Code Oiite 8/03/06 Vet!lion, OC9?.0oi79 A, o< 08/01/05

J0750000 Sonora, Wells .PJ

!ludget Total Cpen Actual Remaining • Projected ' Orig.!.nal Chg Orders Reviced Ccmnltted PO/Contract Current To Date To COmplet.e Spent Comp Final over/Under c Code --. ···-. --.

.;2000 Carpentry 9,147.292 -201,715 a. 9.;5 ,577 7,952,SlJ 3,6·17,984. .;,30.;,a29 4,78B,--119 ·IB .1 -,17 .J 9,09J,24B l·l7, ,;71 T 4.2000 15).)

4.2025 Heather ·!ltripping 36. 322 36. 322 37,423 J5.2B9 2, 133 39,199 5.' ~1.322 5, 000 ' 42025 1533

--l:!025 Weather- "t rippin )6, 322 ]b, 322 3"/, ~22 35,28~ 2, 133 39, 189 5.' S. 2 41,Jn s, 000 T 42025 1533

42030 Cleanup -12030.1 llo.igh clean.ip 132, 03B -1, 014 130. '" n. U6 91, 136 130,22--1 130. 224 42030. l 1533 42030.2 Plaster Cleanup n.112 ". "' 91.112 91. 112 91,112 91. 112 ' 42030 1533 42030.J Final Cleanup 52, 078 ". "' 52, o7a 52.078 S2,07B SJ,078 --1:030 1533 42030.4 Finich Cleo1n.ip 26. 039 26,039 26, 0]9 2&. 039 26,039 26, 039 ' 42030.4 1533

·-- -·-. -- -- -------···-420)0 Cleo1nup 301, :!66 ·l, 51--1 299,45:! 260, )6,1 :!60. 36--1 :!!-19, 452 299,452 T 42030 153]

42040 Fi rep late",; 42060 Metal Fi~epl 42060.l "' lloxes Fiif'pl H6, 670 95. 790 50,BBO 9--1. 020 14--1,900 144, 900 ' --12060.1 1533

--.. -- ----- .. -. -. --------··· ---- --. ·-. - ·-· 42060 Hetal Fir 146, 670 95. 7!.10 50,BBO 94,0JO 35.l 14-1. 900 U,i, 900 T --12060 15!3

-!2070 Faces Firepl 14, 329 lL 329 14, 240 U,2--10 H,240 F 42070 153? -----··-·-· -----------

·120"/0 Faces Pi1.· 14,329 H,329 14, 240 U.,240 14,240 T 42070 15)1

·-----·---- --- --- ---. - -- ·-- ...... ---- . ----·-42040 fireplaces 160, 999 110. 119 50, 890 109, 260 32. 0 15!:', 140 159,HO T 42040 1533

43120 Windows 42120.l Windows set/Oeliv 676.009 6, 454 682,462 --195, 812 128, 877 366, 93--1 347,555 53. a 714, 489 32,027 F --12120.1 1533 --12120 Sliding Doors 38.196 "' 311, B--14 24,717 6, 2--13 18. 475 20. 939 47 .6 39, 3H "" F --12120 153)

---- ----- -- ---··------ --·--·····- . ·-- -- -- ---421:!0 Windows 7H, 205 7, 101 72l. 306 520,529 135, 120 385,--109 3611, 394 SJ .-1 51.1 753, S03 32, --197 T 421:!0 1533

-121GO Roofing ,121GO.l Loaded Roof 933,--118 -6,356 937, 06:! 7115, 162 ol.32,595 355, 567 571. --195 311 .4 927, 062 ' --1:::160. 1 153] 42160.2 Laid >=< 331, 0--19 -2,648 329,olOl 3211. -101 312,925 lS, 476 312,925 .. ' 32!1, --101 ' 42160.2 153] 42160.3 Pick up Roof 198,62'.! -l,589 197, 040 197. 0--10 l.i:!7, 755 9. 2i6 187, 755 .. , 1!17, 0•10 ' 4llb0 ' !53)

--- ---·. ·- - -·. ·- ---- -- --- -- --. --. --12160 Rooflng l,453.096 -10,593 1,--152,50] l,313,603 933, 275 Jae. 3:28 1,072,175 2b. 2 2,;. 2 L,452,503 T 42160 1533

421 "/0 Decking -121110 Sheet Metal 42150.l Sheet Metal 163, 629 ·II, 8.;8 1.54, 781 126. 011 bll, 796 57,215 97, 7-l.6 37. 0 1.54., 961 "' F --12180.1 1533 42180.2 sheet Metal 3fl, ,180 -], 199 JS, lBO 35.180 H,l-15 l, 035 34.145 ' 35.lBO ' 42180.2 1533 42150.3 ;.ir Vence 19, 2--10 -1, 350 1,. 89:J 17, 1190 17,073 "' 17,073 "' 17,890 I'" 42180.3 1533

·-. ·-- -· -. --1.21110 Sht!et: Metal 221. J4S -13. --197 Z07. 851 "' "' 120,014 59,067 148.,964 28. 4 20 ,,I 208, 031 180 T 421BO 153)

" Fi'.AME: 11, 583, 529 -220,51B 11,66),011 10,-IH, m S,H2,lb--1 '!. lB:?, 6--16 6, S24, 852 4--1 .4 4L2 12,007,499 34--1, ~IIB T " 1533

" TEXTIIRE --1-1000 Insulation •1.4000 l Prelim in.Sula 2:?9,257 4. 833 234,090 22'1, 6--15 215,100 9, 5.;5 2--l<i, 150 "' 255, 695 2l,E05 f 44000.l 1533 44000 .2 Halls In:iula lll . .;JS ) '2:!:! 1J4,660 lH,660 128, 530 6, 130 128, 530 '-' 13·1,660 ' -1--1000.:? 1533

----- -... -- -··-------- --------·-· 4--1000 Insulation 360. ,:;95 a, os5 368, 750 JS9. 305 3-13, 630 15,675 JN.680 u .. , 390. 3SS 21, 605 T 44000 1533

--1~025 Sidin9 44030 StUCtco -14030.1 !.ath Stucco l,246,606 1.246,606 l,OU,7S6 966, 583 47,17) 1,199.433 ,.. l,246,606 --1-1030. l 1533 44030.2 Scratch Stucco 1.239,035 1,239,035 1, 2)9, 035 1, lBl, 319 57,655 l,lS!,379 4. 7 1,235,035 ' 4--1030 ' 1533

·---------- ······----- ·- ... -- ----,14030 Stucco 2, .is5. 640 :!,4B5,540 2,252. 790 '· 147,962 10.;, 11211 2, 380, 1112 4 .:: '-' 2,--1!15,640 T 4--1030 1533

440--10 Drywall 440-10.1 Stock ' 1.1:15.477 H,1;;,: l,22.9,6·11 l,00],513 950, 877 44.6)6 l.:!21,817 }.6 l. ::66, 513 36,1172 ' -1.;o.;o 153) --14040 Hang "'" Hail ' 1.140,00) 41. 756 l. lBl. 759 1, 181, 759 1.12!1,lH 52,581 l, 129, 178 .., 1. 181, 759 F 44040 1533

4-1040 Orfwall 2, 335, .;!IO 75,920 2,--111,--100 ::, 185. ::12 2,0SS,055 !17, 217 2,351,055 '-' "' 2,448,272 36,1172 1' -1.-1.040 1531

~4.050 i'ainting H050.l Prime Paint 256,116 256, 116" 232, 141 185, ·169 Hi, 672 2611, )::7 ,a . ' 314. !199 511. SBJ 44050.l l53J 4.;050.2 Exterior Pain\:. t69. 6G6 l<i':.666 !G9,666 1'11, 750 27, :116 Hl, 150 16 ; 1,;9, 666 4·1050 1533 44050.J Interior Pain~ 16~,666 169, 666 169, 666 157,259 12, --106 151, 2S'J ' Hi9, 666 4--1050.) 1533 H050.4 e'i.nal Paint 56,555 56.555 56, SSS 53. 931 ::?. 5:?4 53.931 ., 56,555 ' H050.4 15)3

~4050 Paini:ing G52 "' 652, 002 6211, 021 5]6,409 89. 618 G2l. 2<i"/ 13. 8 l:? ·" 710, 11115 58, 883 T ~,050 1533 - --- --.. --·

H TB'XTURO: s. 533. "" a J. 975 5,917,792 5.425,394 5.ll!l.056 307,J]B S, 727,Sl'l. s. 2 5. l 6, 035.152 117,360 T H 1533

-··------ ---~·-··

5H12

20150000 sonora Wells

" 45000 45000 l 'l.5000 99

.,:5000.11

45000

45010 450'.!0 45030

450:J,O

45042

.\5042

450H

45010

45060 45090 45090.1 45090. 93

45090

45060

45110 45120

45120

45140

-1.5140

45110

45150 ·151~0 4S1GO 99

4511'0

45150

45180 452'.!0 45230

45150

45232.l

45:!32

45234

45234

452~0

4524 0

~5250

45250

.;S'.!10 45'.!ao

~52JO

FINAL Cabinets Cabinet Ini;tall

Retention c.ibin

Cabinet · t>'.'1ter

C.:ibinets

countertops Ceramic Tile Coun Cultured ~larble c

cultured Mnrbl

Granite Counterto

Granite Counte

Other Countertops

Counter tops

Tubs & Showers Fiberglass Secondary Tubs r. Retention Fiberg

Fiberglass

Tubs , showers

St.iir P.ailin9s Wood Handrails

Wood Handro1ils

Ornmnental Iron

Ornamental rro

Stair ij.ailin9s

Garage Door & apene Gara9e Door

Retention · Gara

Garage Door

Gnrage Door & Op

Doors Shower Wardrobe

Doors

Precast Concrete

Precast Colullllls

Finish Ha.rch1a.re

Mirrors

Mirrors

Appliances

Applian,;er;

Flooring Carpet

Flooring

central Va,:uum

.,J

Budget Original Chg Orders Revised

506, 0411 11'5. -106

63. 256

63, :?56

734. 711

J23.l11 130.628

1JO,E28

453, 799

811, 500 30.\,617

29, 74-6

42:!, 86)

422. 86)

90, 14 9

::n,400

31,400

12J,S49

39,46J a. 263

9J,J30

97 • 730

70, 6-10 ~o. 093

110. 733

41,S2S

41,528

SJ, 052

82.052

33, oos

)). 005

194, 010

19.\,010

7B3. 894

783, e94

3, 669

a. 669

-sa.soo -5. )06

·590

-94,395

·94, 3 95

10, 445

10,-145

·'.l, 793

-2 193

·4 682

-.\, 682

506, 049 165,406

63, 256

63.256

734,111

)21. 840 120.628

130. 628

462. 468

299, 311 29.157

328,468

229,.\68

100, 594

100, 59.\

37, .\00

37. 400

137, 994

B9 • .\67 B, 263

9J,7JO

9J,JJO

10, 6.\0 40,093

110, JlJ

41, 5211

41. 523

79, JS!!

19, 259

J). 005

33 005

199. 223

!ll9,J29

13),694

D. R. Horton Production Summary by Co~t Code Version, CC9:>.ClU1'> ,\r: of 09/01/06

Total . . Open , ,\ctual . Remaining Cetanitted PO/Contract Current TO Date To Complete Spent Comp

610, 474 63. J56 63, 25&

63, 256

136. 911J

215, 103 109, 725

108, 725

9, 385

B, JBS

306,531

10,551 262,411 29, lSJ

302,119

302.119

90, 7.\8

90, 7411

37,400

JJ.400

129, 149

96, 943 9, l63

95, 206

95.206

69, 3115 -lJ, 97J

117,)62

41,528

41. 529

511, 636

SB. 636

29,149

39,149

232.6!14

B6S, 990

859,990

1, 650

522.606 57, 509 60.572

50. 572

161, 342 102, S69

102, %5

8, JBS

9, ll!S

5B6. 744

6, 946 2111.511

;M,37:l

249, 736

249. 736

91, n,;

87,316

34,)00

34. 300

121. 616

84. osg 7,H2

92,000

92. 000

66,370 -13, ,43

110,313

41, 528

·U,52!

-1.0, J07

40,207

21. 761

27,167

231. €84

23:1. 684

690, 307

690, 30J

1. 650

87, B6B 5, 74J 2, 684

2. 6ll4

33, 161 5, 856

s. 856

12,393

52,000

J, 605 43, 500 4, IIJII

52, 3-83

52,JBJ

3. 432

3, 100

J, 100

6, 532

2. 0a5 m

J. J06

3, 206

J, 015 4, OJ.;

1, 049

18.429

18,429

1. Ja2

1, 382

179,683

119,683

519,5H 11.4 159,659 J.S

60.512 4 .::!

60,572 4.J 4.2

739,166 lJ.l 11.5

225,)42 10.2 120,409 ~ .s

120.409 ~.S 4.G

8,395

8, JBS

280, 926

635,062 11.2 1.6

6. 946 257,513 U.7

2-1.ss.i 1r;.1

289,0.JJ 16.0 15.J

289,0)J 16.0 15.3

103,316 L4

103.316 3.4 J.2

34.300 a.J 34,JOO 8.3 8.J

131,616 4.7 4.5

98.883 7,942 3.9

106,625 3.3 :?.9

106,825 3.3 2.9

75,470 4.3 43,795 10.1

41,528

-11, s2a

62,006 23.3

62,006 23.3 22.9

32,]&7 4.2

32,361 4.2 4.1

251,495

251,495

788. 932 22.9

788.932 22.9 19.6

1. 650

Page Date ' B/03/06

Projected • . M Final Over/Under C Code

60J, 402 165. 406 6), ;!55

63 256

83S. 065

359, 103 126.265

126, 265

a. Jes

a, JBS

29J,309

6SJ. 062

10.551 301,.\33

29,432

Hl,416

341.4:16

106, 748

106, 148

)J, 400

3',400

144, 14!

101. 765 s. 263

no. 011

110, 031

7B.4A5 47,829

126.314

41, 52S

so.·D5

ao. 435

JJ, 7.\9

33, 74!:>

;!51.495

251,•\95

969.615

968.615

l. 650

101,354 F 45000 15)3 F 45000.l 15)] ? 45000.99 1533

T 45000 11 1533

101,354 T 45000

-72, 7JJ F 45020 ·-1,363 i' .\SOJO

-4,363 T 4SOJO

I!, JBS F 45042

8, 365 T "15042

2!13, 309 F 4504"1

224., 594 T 45010

1533

15)] 1533

1533

1533

1533

1533

1533

10, 551 F 45030 1533 2,122 F 45090.l 1533

275 F 45090.99 1533

12, !!49 T .\5090

12, 9-18 T 45060

6, lS<l F 45120

6. 154 T 45120

F 45140

T 45140

6. 154 T 45110

1533

1533

15)3

1533

1533

1533

15)3

12, 301 l' 45160 1533 ? 45160.99 1533

l~.301 T 45160

12, 301 'I' .\5150

J,B.45 F 45i20 7, 736 F 45230

15, SSl T 45180

1533

1533

1533 153'.l

15)3

P .\5212.l 1533

T 45232 1533

l, 177 F 45234

l, 177 T "15234

74.·l F 45240

62, 167 F 4S250

62, 167 T 45250

184. 721 F .\5280

184. 721 'I' 45]70

1,650 F 45320

1533

1533

15]]

1533

1533

lSJJ

1533

1533

1533

Sl.;12 o. ,. Horton Production Page " Surrmary by Co11t Code Date 8/03/06 Version, OC9:!0679 .. of oe/01/06

20750000 Sonora \,lel l:; .pJ

Budget Total Open Actual Remaining • Proje.cted " Original Chg Ordere Revised CrnnirJ.tted PO/Contract Current To Dace To Complete Spe.nt Comp Final over/Under c Code ··------·---- --.. -.... --· --· -··-. .\SJJO C1,ncral Vaeuum 1, ;;so l, 650 l, 650 1. 650 1, 650 T -lS).'.!0 15)3

.\5330 Move-in Cleans 68, 1193 66,B93 59, 775 57, OOJ J, 773 66,lJO '.o 68,393 F ·l5330 1533 45330 Hove-in Cleans 611. g93 .;g, 893 59,775 57, 002 ::?, 773 66, l:!O '-' '., 68, 893 T 45330 1533 .:5350 Fencing .:5350 Landscapin'¥ ~53SO House Services

" FlNi\L 3,150,767 -Bl,757 J,068,010 3,311,97& 2,892,2.\2 .\19, 736 ....... ··- -

3,271,665 13. 7 1.1..\ 3,691,401 623, 391 T 45 1533 .\5700 DESIGN snroto ITEMS ~5710 Window Treatment,; 29,6::01 29,691 29,691 29, 6>'1 29,691 ' 45710 1533 ·--·-··-·-- ·- .... -. --. ··--·-···-· ·····-····· ·------···· ····· ----- -----------.\5700 DESIGN STUDIO m 29, 691 29,691 2;:i, 691 29,691 29,691 T ~S700 1S33

" COOMO" '""' ---- .... ·-· ... -·- .... - ··-·······-0IR£CT COSTS ::>0,067,4.-12 -34, 01-1 Jo,033,-1::a 27,9SS,7SB lS,3!39, 769 9,598,909 21, BBS, 7S.\ 32.0 JO .5 31.·1!7,Nl 1,.\54, Jl-1 T ' 1SJ3

' IND!Ri':CT Pi!o.n:cr PAY!'; 6 scs & f'!KTG CAPJTJI.Ll 60 SALES OFFICE 60030 Display ], 000 -2, 2B.\ n,

"' m 100.0 100 ' "' ' 60030 1542 60080 Entrance I-lats 2, 500 2. 500 1, 220 l, 220 l, :!BO .\B .e " ., 2, 500 : 6ooao 15.\2 60090 Floor el= Inkings ::! , 000 3, 6]5 5, 635 6, 102 6. 102 lOB .3 100 .0 Ii, lOJ "' f" 60090 1542 60100 i!enderingll 4, 000 24, 300 H,JOo 27, 845 27. 845 "' 98 .4 " ., 18, 300 ' 60100 1542 60110 sales Office Access ] • 000 -1, 651 l, 34.9 1, 941 l, 941 HJ .9 "' .o 1, 9.\1 "' ' bOllO 15.\2 -· -- ... -... ··-····--·· 60 SALES OFFIC£ 14, 500 24. 000 JC,500 37. 823 ]7, 823 l, 736 98 .2 95 .6 3!l, 55::> l, 059 T 60 15.\:!

" AGENCY PRODUCTION 61000 Logo Design 9, 000

_, 7, 995 7, 995 1, ,;;is 100 0 100.0 1, 995 ' 61000 1544 blOlO Stationa~y Dellign H,000 ·S, 000 9, 000 2, 22e J. 228 S, 772 " ' 24 .a 9, 000 ' 61010 1544 61020 o.esign 15,000 15.000 11., 526 11, 526 3, 475 " ' 76 .a 15,000 ' 61020 15.\4 61030 Media Production :!6, o_oo -6, 783 19, 217 7, 087 7, 097 12, 1.]0 " ' )6 .9 19,217 ' 61030 154-1 610.\0 Ad Prnduction 20,000 20,000 6, 6!14 6, 684 ll, 316 ]] .4 )] .4 20,000 ' 610,;o 1544 61050 Photo9raphy a, ooo 9, 000 a, ooo a, ooo ' 61050 15-l.\ 1ao80 Other Collateral H> 5, 000 -4. 450 "' "' 822 H9.-l 100. 0 "' "' ' 61080 15.\-l

61 AGEHCY PRODUCTION 96, 000 -16. :us 71), 762 36,]41 36, 341 .. -··--. --- -··········

43.693 45 .6 45.~ ao, OJ.\ 272 T 61 154<1

" MODELS 62040 Conversion Costs 100,000 -100, 000

' 62040 1546 62050 Design Revisions

"' "' 100.0 .iso 450 ' ;;2050 15.\6 ··········- -- --.. --··- -. ·-- --" MODELS 100,000 -100.000 "' "' 100 .o 450 "' T6' 1546

62.9991H MODELS FROM MASTER m <50 "' "' ' 629S9Hl 15·16 6299~ MODELS ALLOCATION ·450 -450 100. 0 -450 -450 ' 629990\JT 15-lla " SJGll P!!.ODTJCTIOH/IliST 63000 Hodel Signs 63010 Other OU!lite Sign ' 16,000 7. 900 23, 900 26,892 26,E92 n, 100. O 26, 892 2, 992 F 6J010 15-18 63020 Onsite Fla9s 5, 500 1, 550 7, 050 9, 635 9, 6)5 "' 100.0 9, 635 2, 505 F 63020 15-lS 63020 Offsite Sign Produc 5, 500 -5. 500

F 63030 154.8 ---. -- -···. -----····-· •••• - ••• - - + -·-----···· " SIGN PRODUCTIONi I 27. 000 J. 950 30,950 ]6,528 ]6, 528 118 .o 100. 0 36, 528 5,5711T6J 1548

·····---·-· SLS & Mr.."TG C."\PIThL! :!37,500 ·BB, :!BB 1-ls', :!12 111.142 111, 142 45,4~8 74. 5 71.0 156,570 7, )50 T ' l542

" SLS II. MICTG PElUOD ' 6.\000 F!Xli:D COSTS 6.\010 Grand Opening Event 5, 000 S, 000 4, 445 4, .\45 SS, ea .9 aa. 9 5, 000 ' 64010 1550 ·······--·-64000 FlXf::D COSTS s. 000 5, 000 ·I. 445 4, 4.\5 "' SB. 9 .. . ' S, ODO T 64000 l550 640JO MOD::L HCME loUIHITEliMI 6.\050 St.if! Training l, SDO l, soo 1, 005 1. 005 495 67 .o " ., L, 500 ' o-1050 15.\'J 64070 Office Supplies 22,000 -10, 000 l:!, 000 9, l.\O 9. 140 ~. a,;o " " ' l:!, 000 ' 5·1070 1549 54100 Computer Renc;a! 15,000 -15,000

' G·UOO 1549 6~110 Utilit ie!l 40,000 -5, 000 35,000 35,407 ]5, .\07 "' 100.0 )5,407 "' ' 64110 1S49 64130 l-lainten3nc" 4S,OOO -s. 000 40. 000 ~l. 357 12, 025 9. 33J 30,6Sll 23 . ; 2J -3 40.000 F 54120 1549 64130 Cle<1nin9 50,000 .:,, 000 ~5,ooo ~, 95; 4. 9sa 40, 042 u . ' 11. 0 .\5, 000 F 54130 15.\9 5.\150 LanO:;c:ape H.iintenan 60.DOO ·)9,000 U, 000 3, 505 1, 875 l, 730 19,270 • . , B .2 21, 000 F 6•HSO 15.\~ 6~160 L:indac.ipo Co Lo: 12, 000 -12,000

' 6.\160 15·19 64170 ~lants Maintenance u.ooo ·8, 000 6, 000 2 ,480 2 . .\SO l, 520 41.3 41.3 6. 000 ' 6~170 1549 64175 Model Conversion Co 150, 000 150,000 12, 715 12,716 1J7.2B2 '_, .. , 150, 000 ' Hl75 1549 --·········

107SCOOO Sono,:a Wells

64190 64200 64:?10 64230 64.240 6.:265

64190

64~70 64250 6.:34.0

6.;270

6070 64)71 6.:..uo

64371

64-100 64-140 64450 6H6D

64.440

64500 64550

6~]70

" 65000

"

" 699

" n no 71000 '11 712 nJ

"' 71605 71610 719 71970 71975 71994 71995 719%

71000

" 7:lO

" " ' " " " B299:i0\JT 93JOO BJJDO

" S9998Hl

MODEL HOME MA!tlTE

MONTHLY COSTS Newspapers M;i.gadnec Direct Mail/Flierc/ Hailers Shared Lender Mkt P.

HOIJTHL ·{ COSTS

OT!!EP. COSTS Retainer Revisions

on!':.R COSTS

SIGN PRODUCTIOll' Signage

aui;; Stops/bootlegs

Signage

Monthly T,;<1iler Ren Other lldvertising a Other Advertising Other Promotional

Other Adve:rtisin

Public Relations Web Design &. Mainte

StGtl ?RODUCTION

HOSTESS Hostess

HOSTESS

SLS &. MKTG PEP.[0

CONTINGENCY Otrrs!m: FLOOl!.lNG ESCROW CLOSING COSTS wNUWm COSTS

ST,\.'lT

'"""""" FRA.'1E Tntn.lRE FUJAL CUSTOHO:R REt.r.TIONS

Public Relations Homeown~ Manuals

AOMl?HSTI!ATlVB ?ublic Relati,;,ns Homeowner Hanuals 5!11.111 Toot,, &. Suppl !"leld Office supplies

ADMINISTAATIVE

COMMISSIONS HOUSE SM.ES COMMtSSI DfCOR COMMISSIONS OI"TlOfl COMMISSlotlS

CARRY COSTS LOAN FEES INTERES1' NOll·SPEC'lFIC IHTERES t!Otl SPEC INT EXP A

Property Tilxez Property Taxes

DRE/HOA/OTIIER COS

OTIIER C,\RRY COSTS DRE'/HOA cos-rs t.LL

·" Budget

Original Ch9 Orders

JSB. '"' SJ, 500

65,000 -JS. 000 JO, 000 ·4. 000 18, 000 :? • liil 11.000 U, 000

3. 8)9

1,1,1. 000 -10,000

17, ODO -4, 000 5, 500 B, 000

22,500 4, 000

10, 000 10,000

10,000 10,000

30,000 99,574

12, 000 -12. 000 6, 000 -6, 000

1&, 000 "11!. 000

10,615 11, ]!!5

sa. ooo 11], 57~

25,000 -4, 7&6 ...........

25,000 -4. 7!16

512 ,500 1ss, 2aa

0. R- Horton Production

s~;~i~n~Y ~;~o~~e " of OB/01/06

Total Op•" Actual Re·;ised COtmllitted PO/Concrac:t Current To Oate

310,500 90,669 13, 900 76, 769

60,000 72, 950 72.950 :?6. 000 22,081 22, 081 ;!0,161 18,705 19, 705 :lLOOO :n. 991 :l),891 l, 9"39 2, )60 J, 360

··········· 134, 000 1J9,9B7 1)9. 937

1),000 a . .iJ9 9, ~29 lJ, 500 15,400 15,400

··········· 26.500 2), 9J9 :?J ,8:?9

ZO, 000 22, 79-1 l2. 794

20,000 Jl. 79~ 12, 79~

129,574 133, 957 .133, 957

.......... ~----------

10.615 12,5]2 12. 53:l 11, 3a5 11,365 11. 325

........... 171,57<1 1B0,66B 180,661!

20, :?14 26,525 26,525 ·········· .... ------. . ....... ··-

20,2H 26, 5:?5 :?6, 525 ...........

667, ,aa 466, l:?3 13, 900 452, 223

l, 576 1, 516 7, lll 7, 113

m m 80.; '" " "

9, 636 9. 636

9, 53;; 9, 6)6

329, 49,;

]29, 496 ]:?9.496

6•l, 360 64,JBO

Page ' Date d/OJ/06

Remaining ' Projected M To Complete Spent c=p Fi~a1 Over/Under c Code

..... .. . . . . ............. 2J.i, 1Ja " J.j. 7 JlO, 907 "' T 6·1020 1549

lJl.6 "' 7~. 950 12. :150 ' 64200 1550 J, 919 84. 9 " 26, 000 ' 64210 1550 l, •\56 92. B " 20, 161 ' 64J)O 1550

"' 99.6 " 24., 000 ' 64240 1550 l, 479 61 .5 " l. 839 ' 6.i'.!65 1550

6. 953 104 .5 95 .3 146, 950 lJ,950 T 64190 1550

·L571 " . a " ., 13,000 ' 64280 1550 lH.l 100. 0 15. 400 l, 900 ' 64)40 1550

.\, 571 B9. 9 B1.9 29, <100 1, 900 T ,HJ70 1550

lH.O 100 .o 22, 794 2, 7!14. ' 643EO 1550

'" . , 100 .0 Jl,794 2, 794 T 54371 1550

lOJ .-1 100.0 133, 957 "· 363 64400 1549

64450 1550 64460 1550

. -··· ...... T 64HO 1550

118 .1 "' 0 lJ.532 1, 917 F 54500 1549 100.0 '" 0 ll,JS5 F 64550 1549

··········· 105. J 100. 0 11!0,666 9, 094 T 64370 1550

lJl.2 100.0 26.525 6, )11 ' 65000 1551

m I.OD .o :?6, 525 6.Jll T SS 1551

:!46,227 67. 7 64 .a 698,449 30,661 T 64 1550

100 .o 1. 576 1. 576 ' 71970 1571 100 .o 7, 1:!.l 7 .113 ' 71975 1571 100 .0 m m ' 71994 1571 100 .o "' '" ' 71995 1571 100 .o " " ' 71996 1571

··········· 100. O 9, 626 9, 636 T m 1571

··········· 100 .o :!, 636 9,636 T 71000 1570

100 .o 329,496 F BJ]OO 16i?O

100. O ]29.496 3:?9.496 T Bl 16BO

~4, JBO 64.HO F 69'}!18ltl 1690

Sl~lZ

:!0750000 .Sonora Welh ·" l!udget

odgina.l Chg Orde:,;,;; Revioed

On!E1". CARRY COSTS

C,\i'.R Y COSTS -----·-----

20750000 Sonora Wells s1,4a;,oa:: Jl,OJ0,!109 :10,S16,9:ll

0. IL Horton ?roduction Summ.lry lly Co!lt Code

Vern ion, OC9:l0679 ;,~ o! - oa/Ol/06

Total Open Actual Co11mdtted PO/Contriil:"t C!.1<'rent To P.tte

.......... -64, l!iO 6-1. 380

j9!,87G J9J,976 . ---- ...... ii7,867,2JO 2a.111. 261 59, 695, :169

Remaining • To complete Spent Comp

------ ... --100. 0

100 .o --. ---·· -.. n,5s1.-111 66 .o 6 .. :.6

Page Date

Projected . Final over/Under

-----------6~,JBO ;,~. Jae

1:11.a15 l:13.876 -----------

:12,353,381 1,aJ6,J90

M c

T

T

'° ~/03/06

Code

"' •

1690

lGOO

MARKET PROFILES REPORT (a part)

EXHIBIT 1-6 PROJECTED QUARTERLY ABSORPTION SCHEDULE

SONORA WELLS COMMUNITY FACILITIES DISTRICT 2006-1 CITY OF INDIO

* Projected average weekly sales rate over the remaining marketing life of the project.

Source: Market Profiles

MARKET PROFILES, INC. 289211 x1-1,2,3,4,5,6.x

APPENDIX E

MARKET ABSORPTION STUDY

E-1

MARKET FEASIBILITY AND ABSORPTION ANALYSIS COMMUNITY FACILITIES

DISTRICT 2006-1 (SONORA WELLS)

INDIO, CALIFORNIA

August 2006

Pre pared for: CITY OF INDIO

100 Civic Center Mall Indio, California 92202

Pre pared by: MARKET PROFILES

200 North Tustin Avenue, Suite 102 Santa Ana, California 92705

Telephone Number: 714/546-3814 Facsimile Number: 714/546--0953

=="::iLllB.Mb Q 121•1

Market Profiles www. marketprofi I es inc .com

http://www.marketprofilesinc.com

__ U.... ____ M_a_rk_e_t_P_ro_f_il_es ________ _ 1.'t''):' Real Estate Research and Consultants for CNer 30years

August 2, 2006

Mr. Michael P. Busch CITY OF INDIO 100 Civic Center Mall Indio, California 92202

RE: MARKET FEASIBILITY AND ABSORPTION ANALYSIS COMMUNITY FACILITIES DISTRICT 2006-1 - SONORA WELLS

Dear Mr. Busch:

This market report presents Market Profile's evaluation of the market opportunities relating to the new horne subdivisions that compose the Cornrnunity Facilities District 2006-1 consisting of the Sonora Wells subdivision. The CFO consists of363 residential lots that are located in the Shadow Hills area of the city. The study evaluated the depth of demand for new hornes in the Coachella Valley, as well as, the competitive conditions within the local Indio marketplace.

Briefly, the research findings indicate that market demand is arnple to support the development and sale of the proposed new hornes. Competitive evaluations of the price structures of the hornes are presented in Section I of the report, and the sales absorption rate that is projected for the Sonora Wells subdivision is presented at the end of that section.

The report has been reorganized as follows: Section I - S urnrnary of Findings and Conclusions Section II -Market Demand Analysis Section Ill - Surnrnary ofCornpetition Section IV - Supporting Documentation

We appreciate the opportunity to work with you in evaluating the opportunities for development of new hornes in the City of Indio. Please call if you have any questions. Boyd Martin directed the study effort and David Dickey served as project manager.

Sincerely, MARKET PROFILES

Chairman

J)~ 4) JJdy: David W. Dickey Senior E conorni st

200 North Tustin Avenue, Suite 102, Santa Ana, Ca. 92705 (714) 546-3814 Fax (714) 546-0053

TABLE OF CONTENTS

=::"Ydl..a.Mb 91 T 1P1

Market Profiles

SECTION DESCRIPTION PAGE NO.

SUMMARY OF FINDINGS AND CONCLUSIONS Introduction ......................................................................................... 1-1 Property Location and Description ...................................................... 1-l Description of Subject Homes ............................................................. 1-2 The Market Opportunity ...................................................................... 1-3 Existing New Home Competition ........................................................ 1-4 Future New Home Competition ........................................................... 1-5 Price Positioning Analysis ................................................................... 1-5 Projected Sales Absorption ................................................................. 1--6

II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST Introduction ........................................................................................ 11-1 E mployme nt G rowth .......................................................................... 11-1 Demographic Profile .......................................................................... 11-3 Housing Profile .................................................................................. 11-3 New Home Sales Trends ................................................................... 11-4 Price Trends ...................................................................................... 11-5 Projected New Home Demand .......................................................... 11-5

Ill SUMMARY OF COMPETITION Introduction ....................................................................................... 111-1 New Home Competition .................................................................... 111-1 Inventory Trends ............................................................................... 111-2 Sales Rates ...................................................................................... 111-2 Most Competitive New Home Projects .............................................. 111-2 Proposed New Home Development .................................................. 111-7

IV SUPPORTING DOCUMENTATION (Available with Hard Copy)

LIST OF EXHIBITS

EXHIBIT DESCRIPTION

=::"Ydl..a.Mb 91 T 1P1

Market Profiles

SECTION I - SUMMARY OF FINDINGS AND CONCLUSIONS

1-1

1-2

1-3

1-4

1-5

1--6

Regional Site Location Map

Neighborhood Site Location Map

Projected Annual New Home Demand, Coachella Valley, 2006-2007

Summary of New Home Developments, North Indio, Second Quarter 2006

Price and Product Characteristics, North Indio Competition

Projected Quarterly Absorption Schedule, Sonora Wells Community Facilities District 2006-1, City of Indio

SECTION II - ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST

11-1

11-2

11-3

11-4

11-5

11--6

11-7

11--8

11--9

Coachella Valley S ubmarket Areas

Employment Growth, Riverside / San Bernardino Bi-County Region and Southern California, 1980-2006

Hotel Room Sales, Coachella Valley, 1988-2005

Demographic Profile, Coachella Valley, City of Inda and Riverside County

Housing Profile, Coachella Valley and Riverside County, 2006

Housing Stock Profiles, Coachella Valley Cities, 2000

New Home Sales by S ubmarket Area, Coachella Valley, 1993 Through Second Quarter 2006

Average New Home Price, Detached Product, Coachella Valley by SubmarketArea, 2001 Through Second Quarter 2006

New Home Sales Distributed by Price Range, Indio-Coachella Submarket Area and the Coachella Valley, Second Quarter 2006

EXHIBIT

11-10

11-11

LIST OF EXHIBITS

DESCRIPTION

=::"YJl.a.Mb 91 T 121

Market Profiles

Housing Growth Summary, Riverside County and the Coachella Valley Market Area, 1990-2011

Projected Annual New Home Demand, Coachella Valley, 2006-2007

SECTION Ill - SUMMARY OF COMPETITION

111-1

111-2

111-3

111-4

111-5

111--6

Summary of New Home Developments, Detached Product, Coachella Valley, Second Quarter 2006

New Home Market Summary by S ubmarket Area, Detached Product, Second Quarter 2006

Summary of New Home Developments, Indio-Coachella S ubmarket Area, Second Quarter 2006

Summary of New Home Developments, North Indio, Second Quarter 2006

New Home Projects Location Map

Development Status Report, City of Indio, July 2006

ii

SECTION I SUMMARY OF FINDINGS

AND CONCLUSIONS

Market Profiles, Inc.

SECTION I SUMMARY OF FIN DINGS 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 of the Community Facilities District (CFO) 2006-1 in the City of Indio. The subject homes are those that compose the Sonora Wells subdivision of 363 lots that is located in the northern area of the city known as Shadow Hills. The first major phase of 75 homes is presently nearing completion and construction has begun on an additional 122 homes. The homes are being built and marketed by D.R. Horton, Inc. Based upon the current price structure of the homes, a forecast of sales absorption has been formulated and is presented at the end of this Section I of the report (see Exhibit 1--6).

The exhibits that are referenced in the text are located following the last page of text within each section of the report.

PROPERTY LOCATION AND DESCRIPTION The subject property consists of 363 residential lots with a minimum lot size of 7,200 square feet The subdivision is located at the northwest corner of Jackson Street and Avenue 41 in the northern portion of the City of Indio, about one mile north of the Interstate 10 Freeway. The location of the subject property is shown from a regional viewpoint in Exhibit 1-1, and Exhibit 1-2 shows the property in a local context The Sonora Wells subdivision is bounded by Jackson Street on the east, Avenue 41 on the south, Gore Street on the west, and the All American Canal on the north.

The land to the west and north of the property consists of undeveloped natural open space, agricultural fields, and a few scattered homes. Immediately to the east and south of the property are the new home subdivisions consisting of The EI Dorado Collection and The Ventana Collection to the west, and Sandstone and Sienna to the south (see Exhibit 1-4). There are 23 new home subdivisions located within and immediately surrounding the Shadow Hills community that are currently marketing homes. These subdivisions are discussed below.

The primary access to the subject property is via Jackson Street which connects with the 1-1 O Freeway about one mile south of the site. About two miles furtherto the south there are a wide variety of good quality retail shops and services located along Washington Boulevard including two supermarkets and drug stores. Within the Shadow Hills community, a supermarket is proposed to be located about one half mile south of the subject site, and a 500,000 square foot power center is planned for a site

1-1


located at the northwest comer of Interstate 1 O and Monroe Street about two miles southwest of the subject property.

There is a new elementary school under construction located about two miles west of the subject property. In addition, the Desert Sands School District has announced plans to build a new K through 12 campus in the Shadow Hills community north of Interstate 1 O atJ efferson Street and Avenue 39, about one half mile south of the site.

DESCRIPTION OF SUBJECT HOMES The subject Sonora Wells homes consist of eight floor plans of 3--, 4--, and 5--bedroom homes that range in size from 1,844 to 3,608 square feet The floor plans are summarized in Text Table 1-1 below. The homebuilder, D.R. Horton, Inc., is highly experienced and has consistently demonstrated the ability to construct and market quality homes in a timely and professional manner.

Plan Bdrms

1 3

2 3

3 3

4 4

5 4

6 5

7 5

8 4

TEXT TAB LE 1-1 SUMMARY OF NEW HOMES

CFO 2006-1 - SONORA WELLS

Baths Base Price Square Feet

2 $372,245 1,844

2.5 $380,090 2,089

2.5 $380,090 2,322

3 $384,585 2,402

3 $413,085 2,787

4 $425,335 3,023

3.5 $437,235 3,273

3.5 $465, 195 3,608 Source: DR Horton, Market Profiles

1-2

Price Per Sq. Ft.)

$201.87

$181.95

$163.69

$160.11

$148.21

$140.69

$133.58

$128.93


In addition to the base prices shown above, the sale prices of many of the subject homes will include additional premiums for 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 5 hadow Hills. 5 uch premiums are common among virtually all of the competitive new home subdivisions in this marketplace.

The sale prices of the subject 5 onora Wells homes are subjectto discounting in the form or various financial incentives that are commonplace in the Indio marketplace at the presenttime. These discounts are discussed below (see PRICE POSITIONING ANALYSIS).

THE MARKET OPPORTUNITY New home sales in the Coachella Valley have been strong over the past three years. The sales volume averaged 5,646 homes per year from 2003 through 2005. In the first half of 2006, sales totaled 2, 133 homes. This activity is well below the 2,911 homes that were sold in the first half of 2005. Most of the new home projects in the Valley are reporting slower sales activity in 2006 than in 2005.

For analysis purposes, the Coachella Valley has been divided into five submarket areas. The boundaries of the submarkets are shown in Exhibit 11-1 in Section II of this report. Each of the submarket areas has unique characteristics. The Indio-Coachella submarket consists of the cities of Indio and Coachella and the immediately surrounding unincorporated areas.

New home sales in the Indio-Coachella submarket have been consistently strong for 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 remained strong in 2004 and 2005 with sales of 2,596 and 2,519 homes, respectively. Moderate home prices have been a major attractor of home buyers to the submarket (see PRICE TRE NOS below). In the first half of 2006, 1, 144 homes were sold in the Indio-Coachella submarket area compared to 1,325 homes sold in the first half of 2005.

The Indio-Coachella submarket accounted for over half of all new detached homes sold in the Coachella Valley during the first half of 2006. The high proportional share captured by the submarket is due to three major factors as follows:

1. Moderate home prices. 2. 5 hortages of moderately priced new homes in other areas of the Valley. 3. Increasing homebuyer perceptions of Indio as a desirable residential location.

1-3


The demand for new homes in the Coachella Valley is projected to average 4,200 homes per year over the next two years (see report Section II). The projected distribution of demand by price range is shown in Exhibit 1-3.

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 second quarter of 2006, the Indio-Coachella submarket area accounted for 69 percent of all homes sold in the Coachella Valley that were priced below $450,000. New supplies of homes priced under $450,000 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 to 50 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.

EXISTING NEW HOME COMPETITION There were 117 new home subdivisions that were marketing detached homes throughout the Coachella Valley during the second quarter of 2006. This compares to 87 subdivisions that were active during the second quarter of 2005. Descriptions of the 117 active projects are included in Section Ill of this report. There are 23 new home subdivisions currently active in and around the Shadow Hills area of northern Indio (compared to 11 subdivisions that were active in this area one year ago). These 23 subdivisions are most relevant to the subject properties. The projects are summarized in Exhibit 1-4, and more complete descriptions of these projects are presented in Section Ill of this report.

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). At the end of the second quarter of 2006, there were 1,415 homes that remained unsold throughout the Coachella Valley (including homes still under construction) compared to a volume of 916 homes that were sold during the second quarter period. This unsold inventory of 1,415 homes is indicative of a somewhat over-supplied market condition (i.e., 1.5:1 unsold to sold ratio). However, inventory conditions in the Indio-Coachella submarket are more balanced than elsewhere in the Coachella Valley. At the end of the second quarter of 2006, the unsold inventory in the Indio-Coachella submarket totaled 617 homes compared to second quarter sales of607 homes (1.01 :1 unsold to sold ratio).

Over the past year, the number of unsold detached homes in the Coachella Valley has increased from 641 homes in mid-2005 to 1,415 homes in mid-2006. Most of the

1-4


increase in inventory was due to slower sales activity throughout the Valley. The unsold inventory in the Indio-Coachella submarket area increased from 243 homes to 617 homes overthe past 12 months.

FUTURE NEW HOME COMPETITION There are over 10,000 new homes that are proposed for future development in the City of Indio (see report Section Ill). Over half of these homes are located in major communities that will be developed in a phased manner over the next several years. Nevertheless, with this scale of proposed activity, it is projected that the Indio market area will experience a highly competitive environment for the next several years.

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 1 O Freeway.

PRICE POSITIONING ANALYSIS With eight floor plans, the subject Sonora Wells homes offer an assortment of floor plan designs that appeal to a variety of household types. This broad selection of plans has facilitated the marketing program resulting in a favorable rate of sale. The price positioning of the subject homes compared to the existing new home projects that are located in and around the Shadow Hills area is shown in Exhibit 1-5. The exhibit shows that the Sonora Wells product line spans the entire range of product that is being offered by the competition.

Exhibit 1-5 shows that the price structure of the subject homes (shown with the solid line) positions them below the price structures of most of the new home competition (shown with dashed lines). The subject price structure is well below the prices of the homes that are in the two subdivisions that are located adjacent to the subject property on the south - Sandstone and Sienna. This is a favorable price positioning for the subject homes.

The home prices shown in the exhibits are the published base prices, exclusive of location premiums or other upgrades. Sales agents among the new home projects in Indio have consistently indicated that the market is slowing and that most builders are offering substantial sales incentives in order to stimulate their rate of sale (see PROJECTED SALES ABSORPTION below). These incentives typically consist of mortgage interest rate discounts, free decorator upgrades, and reduced closing costs. In addition, many builders have offered a 3.0 percent commission to the local brokerage community in order to facilitate sales. The largest incentives are given for homes that are nearing completion or that are completed. Price discounts of up to $70,000 have been reported for homes that were nearing completion. The builders that are public

1-5


corporations are offering the largest incentives on their homes that are nearly completed, while the smaller private builders appear to be offering less liberal incentives.

Currently, the sales agents at the subject Sonora Wells subdivision are offering $5,000 against closing costs and a 1.0 percentage point mortgage interest discount, along with negotiated decorator upgrades. In addition, some transactions are transferred to D.R. Horton's corporate representatives to negotiate further financial incentives andpr discounts.

Due to softening market conditions, some builders have adjusted their base prices downward during 2006. The published base prices at the Sienna subdivision were recently reduced by about $40,000 to $50,000. The prices among D.R. Horton's Genova homes in the Talavera community were recently reduced by roughly $10,000. However, the base prices of most of the new home subdivisions in Indio have continued to be adjusted upward periodically. The base prices of the subject Sonora Wells homes have been adjusted upward just slightly (roughly $7,000) since the project's opening in late-2005.

Because the concessions and price reductions are given on a case by case basis, it is not possible to ascertain nor to predict the specific discounts that are being negotiated. Further, the size of the incentive package is related to the construction status of the homes which is in a constant state of change within each subdivision. And finally, the Coachella Valley experiences seasonal variations relating to the weather that also influence the sales programs of home builders. The current summer season is the slowesttime of the year.

Based on the research findings, it is estimated that competitive conditions in the Indio marketplace will require that the "effective" sale price of the Sonora Wells homes be between 3.0 and 8.0 percent below the published base prices shown in Text Table 1-1 above (see page 1-2).

PROJECTED SALES ABSORPTION Exhibit 1-5 shows the sales rates of the active new home subdivisions. 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 second quarter period. The cumulative sales rates among those subdivisions range widely from 0. 12 to 8.07 homes per week. The average sales rate is 1.34 homes per week. The rate of sale among individual projects tends to be more rapid in the initial marketing phases than in later phases when buyer interest typically tapers off.

1--6


To date, the subject Sonora Wells subdivision has generated a favorable sales rate of about 2.2 homes per week. Construction has begun on 197 of the 363 homes and 79 of the homes have been sold since sales began in late-2005 (approximately November). The broad selection of eight floor plans enables the homes to appeal to a wide range of home buyers thereby facilitating the sales program. Exhibit 1-5 illustrates the broad of floor plans that is offered.

A healthy volume of new home sales is projected to be maintained in the Indio submarket area over the next two years. Given the sales success that has been demonstrated by the subject Sonora Wells subdivision to date, along with the favorable price positioning of the subject homes, it is projected that the Sonora Wells sale program will generate an average rate of sale of between 1.5 and 2.0 homes per week over the marketing life of the subdivision. This sales rate is based on the base sales prices that are shown in Text Table 1-1 (plus location and lot premiums), assuming that sales incentives equivalent to between 3.0 and 8.0 percent will continue to be offered. The projected sales rates take into consideration the general market environment that is anticipated over the marketing life of the subject new home subdivision, together with the typical decline in sales rate that can be expected in the later marketing phases. The projected sales rate is based on the assumption that market conditions will be moderately less favorable than those that were experienced in the Indio marketplace during the first half of 2006.

A tabular summary of the projected absorption schedule for the subject Sonora Wells homes is presented in Exhibit 1--6. The sales forecast describes the rate of closed transactions. The absorption schedules assume that the sales programs will not be interrupted by periods when the homes are temporarily sold out due to construction scheduling or other delays.

1-7

Co ri ht @ 2005 Mcrosott Co , and/or its s:u

MARKET PROFILES, INC.

EXHIBIT 1-1 REGIONAL SITE LOCATION MAP

Thousand ,Palms

LIFORNIA

289211 xl -1,2, 3,4, 5,6.xls


EXHIBIT 1-2 NEIGHBORHOODS ITE LOCATION MAP

289211 xl -1,2, 3,4, 5,6.xls

EXHIBIT 1-3 PROJ ECTEDANNUAL NEW HOME DEMAND

COACHELLA VALLEY 2006-2007

PRICE RANGE* AVERAGE ANNUAL SALES % OF TOTAL

Under $300,000 300 7.1% $300,000-$350,000 700 16.7% $350,000-$400,000 1,000 23.8% $400,000-$450,000 750 17.gJ,6 $450,000-$500,000 500 11.gJ,6 $ 500,000-$750,000 500 11.gJ,6

$750,000-$1,000,000 300 7.1% $1,000,000 and Over 150 3.6%

TOTAL 4,200 100.0%

PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY

2006-2007

Under $300.000- $350.000- $400.000- $450.000- $500.000- $750.000-$1.000.000 $300,000 $350,000 $400,000 $450,000 $500,000 $750,000 $1,000,000 and Over

*Prices stated in today's dollars excluding future inflation or appreciation.

Source: Market P rofile s


EIAVERPGE ANMJAL SALES

28921 lxl-l ,2,3,4,5,6.xls

Development;Oeveloper ALICANTE@ TALAVERA

DR HORTON BELLA TIERRA@ SHADOW HILLS

FAMILY DEVELOPMENT CORDOBA@ TERRA LAGO

LENNAR HOMES CRIS TALLO@ TERRA LAGO

RYLAND HOMES FLORENCIA@ TALAVERA

DR HORTON FOXSTONE@ SHADOW HILLS

KB HOME GENOVA@ TALAVERA

DR HORTON HACIENDA@ SHADOW HILLS

BEAZER HOMES MARQUESA@ TERRA LAGO

LENNAR HOMES MOUNTAIN ES TATES @ SHADOW HILLS

JEFF HAYDEN PALAZZO@ SHADOW HILLS

RILING TON COMMUNITIES PONDEROSA VILLAS@ PARADISO

PONDEROSA HOMES PORTOFINO@ TERRA LAGO

WOODS IDE HOMES SAN MILAN@ PARADISO

LENNAR HOMES SANDSTONE OF DESERT TRACE

ASHBROOK COMMUNITIES SHADOW RANCH@ SHADOW HILLS

FAMILY DEVELOPMENT SIENNA@ SHADOW HILLS

RYLAND HOMES SONORA WELLS@ SHADOW HILLS

DR HORTON SUN CITY THE SAN MARIN COLLECTION

PULTE HOMES CORPORATION THE DESERT COLLECTION@ SHADOW HILLS

REYNOLDS COMMUNITIES THE EL DORADO COLLECTION@ SHADOW HIL

CENTURY VINTAGE HOMES THE VENTANA COLLECTION@ SHADOW HILLS

CENTURY VINTAGE HOMES VENECIA@ TALAVERA

DR HORTON

23 Total ProJects Average Per Development

Source: Residential Trends, Market Profiles


EXHIBIT 1-4 SUMMARY OF NEW HOME DEVELOPMENTS

NORTH INDIO SECOND QUARTER 2006

Sales Mfeek Ranges Sales Lots 1ze/ Total Total CurQtr CurQtr Cum ~ Start Density Units Sold* Sold

l.55 1.45 $422,227 2,493 $155.65 30-Apr-05 8,000 187 90 22

$482,386 3,099 $169.36

0.23 0.90 $399,990 1,895 $173.06 30-Apr-05 8,000 63 55 3

$454,990 2,629 $211.07 0.84 0.97 $367,990 2,092 $157.13 5-Nov-05 7,200 125 34 11

$417,990 2,660 $175.90 l.00 0.81 $437,160 1,987 $196.90 l 5-0ct-05 6,000 110 31 13

$464,309 2,358 $220.01

0.78 l.54 $367,690 1,855 $172.01 30-Apr-05 8,000 193 96 11

$409,405 2,380 $198.21 l.08 2.31 $328,990 1,517 $150.82 12-f eb-05 8,000 247 169 15

$380,990 2,526 $216.86 l.71 l.20 $406,990 2,848 $142.90 30-Apr-05 8,000 192 75 24

$478,990 3,267 $154.28

l.28 l. 19 $364,490 1,815 $161.46 20-Aug-05 7,200 147 55 18

$444,990 2,756 $200.82 0.00 l.02 $500,990 2,595 $177.24 l--Sep-05 8,400 86 45 0

$552,990 3, 120 $193.05 0.00 0.12 $407,000 1,891 $173.14 17---fVlar-06 8,000 123 2 0

$499,000 2,882 $21 5.23

l.28 0.93 $427,990 1,996 $179.65 14---fVlay-05 7,200 151 56 18

$589,990 3,161 $214.42 2.00 2.00 $437, 150 2,598 $147.83 3--:J un-06 8,200 187 10 10

$484,320 3,276 $168.26 0.14 l. 13 $341,990 1,658 $169.23 l 5-0ct-05 5,500 179 43 2

$404,990 2,393 $206.26

l.51 l.73 $380,490 2,092 $159.95 10-0ec-05 7,800 223 52 21

$425,490 2,660 $181.87 0.28 0.22 $420,000 2, 176 $158.51 6-Aug-05 8,000 111 11 4

$460,000 2,902 $193.01 -0.85 l.92 $429,990 2, 185 $175.27 1-f eb-05 8,000 263 144 -12

$569,990 3,247 $196.79

-0.15 l.07 $369,000 2,448 $131.74 23-Apr-05 8,000 132 68 -2

$414,080 3, 143 $154.07 l.38 2.24 $353,590 1,844 $127.72 l 4-Nov-05 7,200 363 74 18

$460,835 3,608 $191.75 12.85 8.07 $266,900 1,257 $182.61 8cJ ul-05 4,500 1,300 420 180

$546,900 2,971 $212.33

0.53 l.46 $389,990 1,610 $193.72 6-Nov-04 7,200 144 126 7

$438,990 2,266 $242.22 0.07 l.25 $370,990 1,720 $155.14 22---fVlar-03 6,000 227 214 l

$430,990 2,778 $215.69 0.23 0.66 $299,990 1,208 $189.90 22---fVlar-03 6,000 115 113 3

$349,990 1,843 $248.33

0.84 l.64 $328,990 1,576 $184.38 30-Apr-05 8,000 180 102 12

$358,990 1,947 $208.75

28.58 35.83 5,048 2,085 379

l.24 l.56

PAGE 40F 7

Remain Community I Unsold ForDev MasterPlan

10 87 INDIO

TALAVERA 8 0 INDIO

SHADOW HILLS 12 79 INDIO

TERRA LAGO 15 64 INDIO


TALAVERA 18 60 INDIO


TALAVERA 22 70 INDIO





STAND-ALONE 3 133 INDIO


PARADISO 15 85 INDIO









TALAVERA

400 2,563

289211 xl-1, 2, 3,4, 5,6.xls

UJ \,! er: c.. UJ ...J <( Vl

UJ Vl <(

"'

$550,000

$500,000

$450,000

$400,000

$350,000

$300,000

EXHIBIT 1-5 PRICE AND PRODUCT CHARACTERISTICS

NORTH INDIO COMPETITION

,- --r---,----T----r---,----r---,----r---,--------,---

- - - ~- - - - ~ - - - -:- - - - ~ - - - -:- - - - ~ - - - -~-; Jt-4"':':: _-: ~ :":: -! I l I I I )," I I

~ I ~

' " ,i,' ' ' " ' ' '

••

' ' ,, ' ' .. ·:lt --i----;;-r----,,,,,,._----i-

1 ~::,,. "f' I I

' '' . '

,, '

' t '

-i- - - - -j - - - - i- - - -

I ~,:,,,, I I

I ...... I I /(' ~'_ ... ~ .. --+---r""· I I .,,,,.11f: I I -~ ~ ~,,> I •••• , •••• , •• <)'

;' '

' ' ' ' I ,.,."'~ I ., " ~ ,. <"""' I

~1" " ....... I "'.... .,.- - - - - - --t - - - -!- - - --., ..... -_::_ - - r - - - ---1-

1 ) I I I

' '

' ' •••• -0 I I I - • ~ " I

I I I I I I I AL.,,><.,"'"1 I I I I I l I ! I I I I I I I ~"VI I I I I I I l I ! I I I I I+ I ¢1'" I I I I I I I l I ! I I I I I,#" 1...," I I I I I I ! I l I I

- - - -I - - - - +- - - - -1- - - - + - ~.:o-r~_,,_ .. _ .. -+ ___ - I- ___ --j ____ l- ___ -I - _______ -1- ___ + ___ -!- ___ -+ ___ - l- ___ --j ____ I- __ _

' ' ~-I- - - - t- - - - - - - - - - - - - -

1,400 1,500 1,600 1,700 1,800 1,900 2,000 2, 100 2,200 2,300 2,400 2,500 2,600 2,700 2,800 2,900 3,000 3, 100 3,200 3,300 3,400 3,500 3,600 3,700

SQUARE FEET

- -<> - Alicante Florencia Genova + Venecia - -I: - Bella Tierra · ·-¢> · ·Foxstone

~- ·Shadow Ranch -~ Sienna • • 0 • • Desert Collection - -e- · Palazzo ~~~ ... ~~Sandstone ---SONORA WELLS

SOURCE RESIDENTIAL TRENDS, MARKET PROFILES

MARKET PROFILES, INC. 289211 xl -1,2,3,4, 5,6.xls

EXHIBIT 1--6 PROJ ECTED QUARTERLY ABSORPTION SCHEDULE

SONORA WELLS COMMUNITY FACILITIES DISTRICT 2006-1 CITY OF INDIO

* Projected average weekly sales rate over the remaining marketing life of the project.


MARKET PROFILES, INC. 2892l lxl-l,2,3,4,5,6.xls

SECTION II ECONOMIC BACKGROUND

AND HOUSING DEMAND FORECAST


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. The factors evaluated in the demand analysis include the demographic profile of the Coachella Valley, regional and local employment growth, residential construction, 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.

The Coachella Valley includes all of the cities and communities located between P aim 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 11-1. The Indio-Coachella submarket consists of the cities of Indio and Coachella and the surrounding unincorporated areas.

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

Exhibit 11-2 presents a historical summary of employment growth throughout Southern California and in the Riverside pan Bernardino bi-county region. From 1997through 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 percentforthe year 2001.

The slowdown in growth that began in late-2001 carried over into 2002 and 2003, and total employment in Southern California was static in 2002 and 2003. However, employment in the Riverside-San Bernardino bi-county region increased at a healthy rate of 3.2 percent per year. This is a favorable performance compared to Los Angeles and Orange counties,

11-1


which both experienced modest declines in employment during 2002 and 2003. Job growth in the Riverside-San Bernardino region improved to 5.3 percent in 2004, and continued strong in 2005 with an increase of 4.8 percent The rate of job growth is projected to be moderate overthe next couple of years averaging about 3.0 percent per year. Overall job growth for Southern California is projected to average 1.4 percent per year.

Southern California's 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 lA 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 has had 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:

D The Augustine Casino, south of the City of Coachella, opened for business in 2004. The casino employs approximately 300 persons.

D The Morongo Band of Mission Indians recently completed construction of the first major phase ofa $250 million casino resort hotel on a site located a few miles west of P aim 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

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

D The Agua Caliente Band ofCahuilla Indians announced 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 atthe corner Bob Hope Drive and Ramon Road, which is an unincorporated area of Riverside County.

D 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.

D Construction has begun on the first phase of a 300--acre resort and corporate development located in P aim Springs. The Indian Oasis Resort and Corporate

11-2


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.

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, tourism has rebounded with hotel room revenues increasing by 2.4 percent in 2003 and 4.3 percent in 2004. Further improvement in hotel revenues occurred in 2005 with total hotel revenues up by 7.7 percent compared to 2004.

DEMOGRAPHIC PROFILE Exhibit 11-4 presents population and income profiles of the Coachella Valley, the City of Indio, and Riverside County. There are 389,616 persons residing in the Valley. The population has grown at a strong pace of 4.7 percent per year since 2000.

The average household size in the Coachella Valley is 2.7 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. Eighteen percent of the population is over65 years of age. Countywide this age group accounts for 12 percent of the population.

The population of the City of Indio is estimated to be 67,777 persons. At 3.47 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.

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 (27"/o) to over $75,000 (26% ). The median income of the Coachella Valley's household's is $44,838. This figure is about nine percent below the countywide median figure of $49, 128. The median income of households in Indio is $40,702.

HOUSING PROFILE Exhibit 11-5 shows a profile of the existing housing stock of the Coachella Valley. Single family detached homes account for 47 percent of the Valley's housing stock compared to a countywide proportion of62 percent The median housing value in the Coachella Valley is $286,892 (all existing homes). This figure is somewhat below the figure for Riverside County of$302,075, however, the Valley's housing stock is very diverse. The Valley has a

11-3


greater than typical proportion of the least expensive homes, as well as, of the most expensive homes. Twenty nine percent of the Valley's housing stock is valued below $200,000 compared to 25 percent countywide. However, the Valley has a higher proportion of homes valued over $750,000 (12% versus 6% 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, P aim Springs, 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 11-7 presents a summary of new home sales in the Coachella Valley distributed by submarket area. The volume of sales in the Valley totaled only 1,356 homes in 1993 due to the effects of the regional recession that began in mid-1990. Sales activity remained moderate through 1997, then accelerated to 2,226 homes sold in 1998 and to 3,330 homes in 2000. Sales for 2001 fell to 2,51 O homes due to a general slowdown in economic growth in Southern California. Sales subsequently jumped to 4,236 homes in 2002, and sales activity continued to increase strongly in 2003 with 5,768 homes sold. In 2004 and 2005, the sales volume averaged about 5,600 homes per year. The sales volume forthe first half of 2006 totaled 2, 133 homes. This figure is 27 percent below the sales volume forthe first half of 2005 (2,911 homes). Most of the new home projects in the Valley are reporting slower sales activity in 2006 than in 2005.

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 factors. Sales in the P aim Desert submarket dropped from 1,313 homes in 2002 to 383 homes in 2003 and have remained slow since then due to a decline in new home supply. Alternatively, home sales in the La Quinta submarket increased from 783 homes in 2002 to 1,506 homes in 2004. Sales in the Palm Springs-Cathedral City submarket have risen, due in part to increased activity in Desert Hot Springs. 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 ended its moratorium on development in its northern sector.

11-4


In contrast to fluctuating sales activity in the other submarket areas of the Valley, new home sales in the Indio-Coachella submarket have been consistently strong for 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 remained strong in 2004 and 2005 with sales of 2,596 and 2,519 homes, respectively. Moderate home prices have been a major attractorofhomebuyers to the submarket(see PRICE TRE NOS below). In the first half of 2006, 1, 144 homes were sold in the Indio-Coachella submarket area

compared to 1,325 homes sold in the first half of 2005.

PRICE TRENDS Exhibit 11--8 shows the average price of new homes sold each quarter in the five submarket areas of the Coachella Valley. The average price of a detached home sold in the Coachella Valley in the second quarter of 2006 was $514,668. This figure is below the average sale price of $582,641 in the first quarter of the year. However, the movement in the average new home sale price is not indicative of the underlying trend in new home prices which has been consistently upward. Exhibit 11--8 shows thatthe average sale price has fluctuated from quarter to quarter. This is due the constantly changing mix of product offerings throughoutthe Coachella Valley. The primary reason thatthe average sale price of new homes has not reflected this increase is that the increase in the sales volume of modestly priced homes located in the Indio-Coachella submarketarea has keptthe overall average price down.

The average price of a new home sold in the I ndio--Coachella submarket during the second quarter of 2006 was $401,512. This figure is virtually the same as the average sale price for the first quarter ($403,747).

Exhibit 11--9 shows the price distribution of new homes sold during the second quarter of 2006 in the Indio-Coachella submarket area and throughoutthe Coachella Valley. Sales are spread across a broad price spectrum ranging from under $300,000 to over $800,000. The Indio-Coachella submarket dominated the sales of homes in the Coachella Valley that were priced under $450,000.

PROJECTED NEW HOME DEMAND The primary factors that have contributed to strong new home sales in the Coachella Valley include job growth throughout Southern California, the local job-creating projects outlined above, and very low mortgage interest rates. Supported by generally healthy regional and national economic trends, job growth within the Valley is projected to continue at a favorable pace. And a healthy volume of new homes sales is projected to be sustained within the Coachella Valley, despite the expected rise in mortgage interest rates.

Based on the data analysis, it is projected thatthe demand for new homes in the Coachella Valley will average 4,200 homes per year overthe next five years.

11-5


The demographic factors that underlie the housing demand forecast are summarized in Exhibit 11-10. 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 including first time buyers and local move-up households.

The purpose for including the employment growth trends in Exhibit 11-10 is to show the underlying growth factors that are at work in the region. The employment data show that regional job trends are projected to be a positive factor in support of household growth and of new home sales.

The Coachella Valley new home market is diverse. Exhibit 11-11 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 primary resident households. Primary home buyers are responsible forthe high volume of demand below the $450,000 price level as shown in Exhibit 11-11.

The price distribution of demand that is shown in Exhibit 11-11 is intended to represent a realistic or "effective" forecast of the potential for new home sales in the market area. The price distribution of demand is based upon the preferences of homebuyers as demonstrated by recent sales histories (see Exhibit 11--9). Based on demographics, the potential exists forthe sale of large numbers of homes priced below $350,000. However, buyers have shown strong resistance to purchasing lower priced homes that significantly compromise the design of the home as compared to a traditional detached home. Nevertheless, due to affordability issues, it is projected that concepts such as town homes or high-density cluster concepts will begin to gain acceptance in this market among pricesensitive and first-time buyers. The cost realities of constructing new homes dictate that the demand for new homes priced under $300,000 generally describes the demand potential that exists for attached products, or for other high-density concepts. New home products that are marketed between $300,000 and $350,000will begin to consist largely of small lot subdivisions or homes in the least desirable locations.

11--6

EXHIBIT 11-1 COACHELLA VALLEY SUB MARKET AREAS

MARKET PROFILES, INC. 28921 lx2-l ,2,3,4,5,6,7.xls

EXHIBIT 11-2 EMPLOYMENT GROWTH

RIVERSIDE-SAN BERNARDINO Bl-COUNTY REGION AND SOUTHERN CALIFORNIA

1980-2007

Riverside & San Bernardino Co.s Southern California Total Increase/ Percent Total Increase/ Percent

Year Employment Decrease Change

2007

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

1,309,400

1,272,400

PROJECTED

1,235,400

1, 178,700

1, 119,400

1,084,800

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

37,000

37,000

56,700

59,300

34,600

34, 100

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.

2.9%

3.0%

4.8%

5.3%

3.2%

3.2%

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.

Employment Decrease Change

8,602,000

8,482,000

8,362,000

8,224,600

8, 102, 100

8,073, 100

8,082,300

7,985,900

7,767,800

7,547,000

7,300,900

7,084,200

6,957,800

6,833,900

6,798,400

6,900,800

7, 103,900

7,285,600

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

120,000

120,000

137,400

122,500

29,000 (9,200)

96,400

218,100

220,800

246, 100

216,700

126,400

123,900

35,500 (102,400)

(203, 100)

(181,700)

119,800

190,400

241,300

240,900

226, 100

237,800

266,800

53,900 (135,800)

89,300 N.A.

1.4%

1.4%

1.7%

1.5%

0.4%

--0.1%

1.2%

2.8%

2.9%

3.4%

3.1%

1.8%

1.8%

0.5% -1.5%

-2.9%

-2.5%

1.7%

2.7%

3.6%

3.7%

3.6%

3.9%

4.6%

0.9%

-2.3%

1.6% N.A.

Source: California E rnployrnent Department, Market Profiles

MARKET PROFILES, INC. 2892l lx2-l,2,3,4,5,6,7.xls

Year 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988

EXHIBIT 11-3

HOTEL ROOM SALES COACHELLA VALLEY

1988 -2005

Room Revenue Percent Revenue ($ Millions) Change Per Room

$390 7. 7"/o $25,291 $362 4.3% $23,352 $347 2.4% $22,440 $339 -3.2% $22, 521 $350 -4.8% $23,528 $368 6.1% $25, 126 $347 11.6% $23,954 $311 8.4% $21,988 $287 8.3% $20,523 $265 8.6% $17,545 $244 5.2% $16,200 $232 5.5% $15,200 $220 -2.2% $14,539 $225 0.4% $14,306 $224 --0. g'/o $14,617 $226 8.1% $15,400 $209 13.0% $14,384 $185 N.A. N.A.

5 ource: Wheeler's Desert Letter, Market Profiles


Percent Change

8.3% 4.1% --0.4% -4.3% --6.4% 4.9% 8.g'/o 7.1%

1 7.Cf'/o 8.3% 6.6% 4.5% 1.6% -2.1% -5.1% 7.1% N.A. N.A.

2892l lx2-l,2,3,4,5,6,7.xls

EXHIBIT 11-4 DEMOGRAPHIC PROFILE

COACHELLA VALLEY CITY OF INDIO AND RIVERS IDE COUNTY

COACHELLA CITY OF RIVERSIDE DESCRIPTION VALLEY INDIO COUNTY

POPULATION 2006 Estimate 389,616 67,777 1,948,363 2000 Census 303,580 49, 116 1,545,387 1990 Census 222,946 37,554 1,170,413

Growth 2000-2006 28.34% 37.99% 26.08% Growth 1990-2000 36.17% 30.79% 32.04%

HOUSEHOLDS 2006 Estimate 143,366 19,276 628,908 2000 Census 113,518 13,871 506,218 1990 Census 85, 187 11,003 402,067

Growth 2000-2006 26.29% 38.97% 24.24% Growth 1990-2000 33.26% 26.07% 25.90%

2006 ESTIMATED POPULATION BY RACE 389,616 67,777 1,948,363 WHITE 67.09% 47.16% 62.01% BLACK 1.98% 2.20% 6.14% ASIAN & PACIFIC ISLANDER 2.77% 2.03% 4.83% OTHER RACES 23.72% 44.62% 21.00% TWO OR MORE 3.60% 3.98% 4.87%

2006 ESTIMATED POPULATION HISPANIC ORIGIN 49.18% 78.70% 40.75%

2006 OCCUPIED UNITS 143,366 19,276 628,908 OWNER OCCUPIED 67.82% 58.39% 69.81% RENTER OCCUPIED 32.18% 41.61% 30.19% AVERAGE PERSON PER HH 2.70 3.47 3.04

2006 EST. HOUSEHOLDS BY INCOME 143,366 19,276 628,908 UNDER $15,000 13.57% 14.60% 12.60% $15,000 TO $24,999 13.23% 14.81% 11.56% $25,000 TO $34,999 12.48% 13.09% 11.25% $35,000 TO $49,999 16.34% 19.75% 15.50% $50,000TO $74,999 17.89% 18.12% 19.36% $75,000 TO $99,999 9.49% 8.91% 12.30% $100,000 TO $149,999 9.43% 7.47% 11.78% $150,000 TO $249,999 4.77% 2.16% 4.10% $250,000 TO $499,999 1.84% 0.76% 1.13% $500,000 ANDOVER 0.96% 0.34% 0.43%

2006 EST. AVERAGE HOUSEHOLD INCOME $66,364 $53,007 $64,601 2006 EST. MEDIAN HOUSEHOLD INCOME $44,838 $40,702 $49, 128 2006 EST. PER CAPITA INCOME $24,619 $15,301 $21,129 Source: C laritas, Market Profiles

MARKET PROFILES. INC. 289211 x2-l ,2,3,4,5,6,7.xls

EXHIBIT 11-5 HOUSING PROFILE

COACHELLA VALLEY AND RIVERSIDE COUNTY

2006

COACHELLA RIVERSIDE DESCRIPTION VALLEY COUNTY

EST. HOUSING UNITS BY UNITS IN STRUCTURE 189, 113 707,448 1 Unit Attached 1 5.80'/o 6.89% 1 Unit Detached 46.66% 62.15% 2 Units 2.21% 1.35% 3 to 19 Units 12.27% 9.1 O'/o 20 to 49 Units 2.03% 1.89% 50 or More Units 5.38% 4.50'/o Mobile Home or Trailer 13.67% 13.02% Boat, RV, Van, etc. 2.00'/o 1. 1 O'/o

EST.ALL OWNER-OCCUPIED HOUSING VALUES 97,225 439,044 UNDER $80,000 8.64% 7.04% $80,000 TO $99,999 1.88% 1.47% $100,000 TO $149,999 6.75% 5.85% $1 50,000 TO $199,999 12.1 O'/o 11.04% $200,000 TO $299,999 23.73% 24.17% $300,000 TO $399,999 15.65% 21.32% $400,000 TO $499,999 8.50'/o 11.76% $500,000 TO $749,999 11.07% 11.36% $750,000 TO $999,999 5.18% 3.13% $1 ,000,000+ 6.50'/o 2.87%

MEDIAN PROPERTY VALUE $286,892 $302,075

HOUSING UNITS BY YEAR BUILT 189, 113 707,448 BUILT 1999TO PRESENT 19.65% 21.05% BUILT 1995TO 1998 7.26% 6.67% BUil T 1990 TO 1994 10.13% 10.75% BUILT 1980TO 1989 25.89% 24.60'/o BUILT 1970TO 1979 19.24% 16.53% BU IL T 1 960 TO 1969 9.95% 9.57% BUILT 1950TO 1959 5.60'/o 6.52% BUil T 1940 TO 1949 1.39% 2.16% BUILT 19390R EARLIER 0.90'/o 2.15%

Source: Claritas, Market Profiles

MARKET PROFILES. INC. 289211 x2-l .2.3.4.5.6.7.xls

City Cathedral City

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

EXHIBIT 11--6 HOUSING STOCK PROFILES COACHELLA VALLEY CITIES

2000

Multi-Detached Attached Family

8,785 2,575 3,829 763 1,412 608

8.7% 54.8% 15.9%

3,074 316 1, 141 104 0 49

3.4% O.a'lo 4.3%

3,775 180 2,504 523 35 330

13.9% 19.4% 13.2%

2,436 909 597 1, 195 427 361

49.1% 47.a'/o 60.5%

7,658 877 5, 196 602 212 662

7.CJ'lo 24.2% 12.7%

9,471 1,272 762 2,496 483 314

26.4% 38.a'/o 41.2%

11, 120 9,551 6,201 2,530 5,081 947

22.8% 53.2% 15.3%

10, 163 6, 191 12,379 2,040 3,046 4,617

20.1% 49.2% 37.3%

4,312 3,626 1,735 1,554 1,525 842

36.a'lo 42.1% 48.5%

60,794 25,497 34,344 11,807 12,221 8,730 19.4% 47.<J'/o 25.4%

356,447 42,300 103,066 29,374 13,495 14,881

8.2% 31.<J'/o 14.4%

Source: 2000 U.S. Census, Market Profiles


Mobile Other Total Homes Misc. Units

2,521 103 17,813 897 61 3,741

35.6% 59.2% 21.a'lo

451 0 4,982 52 0 205

11.5% O.a'lo 4.1%

567 0 7,026 318 0 1,206

56.1% O.a'lo 17.2%

8 0 3,950 0 0 1,983

O.a'lo O.a'lo 50.2%

2,716 452 16,899 1,220 315 3,011

44.<J'/o 69.7% 17.8%

258 0 11,763 1 5 0 3,308

5.8% O.a'lo 28.1%

1, 190 9 28,071 205 9 8,772

17.2% 100.a'/o 31.2%

2, 172 74 30,979 689 47 10,439

31.7% 63.5% 33.7%

1,253 717 11,643 476 629 5,026

38.a'/o 87.7% 43.2%

11, 136 1,355 133, 126 3,872 1,061 37,691

34.8% 78.3% 28.3%

76,411 6,450 584,674 16,247 4,459 78,456 21.3% 69.1% 13.4%

2892 l lx2-l ,2,3,4,5,6,7.xls

1993

S ubmarket SFA* SFD* Total

Palm Springs-Cathedral Cir 4 263 267

Rancho Mirage 7 15 22

Palm Desert 145 110 255

Indian Wells-la Quinta 77 417 494

Indio-Coachella 0 318 318

Totals 233 I 1. 123 I 1,356

2000 S ubmarket SFA* SFD* Total

Palm Springs-Cathedral Cir 17 379 396

Rancho Mirage 0 256 256

Palm Desert 0 931 931

Indian Wells-la Quinta 59 1,224 1,283

Indio-Coachella 5 459 464

Totals 81 I 3,249 I 3,330 * S FA =Attached Procluct; S FD = Detached Procluct

Source: Residential Trends, Market P tofiles

rvt4RKET PROFILES, INC.

1994

SFA* SFD*

32 155

25 27

130 122

142 550

36 231

EXHIBIT 11-7 NEW HOME SALES BY SUB MARKET AREA

COACHELLA VALLEY 1993 THROUGH SECOND QUARTER 2006

1995 1996

Total SFA* SFD* Total SFA* SFD* Total

187 16 133 149 39 73 112

52 11 6 17 7 66 73

252 44 223 267 144 426 570

692 56 449 505 25 358 383

267 7 232 239 7 142 149

365 I 1,085 I 1.450 134 11,04311.177 222 I 1,065 I 1.287

2001 2002 2003 SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total

10 303 313 24 369 393 48 785 833

0 282 282 0 530 530 0 655 655

0 708 708 0 1,313 1,313 0 383 383

0 616 616 16 767 783 17 990 1,007

10 581 591 33 1,184 1,217 32 2,858 2,890

20 I 2,490 I 2,510 73 I 4. 163 I 4,236 97 I 5,671 I 5.768

1997 1998 1999

SFA* SFD* Total SFA* SFD* Total S FA* SFD* Total

39 53 92 46 53 99 52 293 345

3 144 147 0 218 218 0 297 297

117 646 763 10 l, 159 1,169 0 917 917

13 337 350 11 520 531 46 1,004 1,050

34 165 199 24 185 209 45 196 241

206 I 1.345 I 1,551 91 I 2. 135 I 2.226 143 I 2.101 I 2.850 I 2004 2005 lST HALF 2006

SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total

83 1,078 1,161 185 806 991 107 353 460

0 375 375 0 167 167 0 33 33

37 176 213 252 103 355 133 18 151

92 1,414 1,506 436 850 1,286 36 309 345

0 2,596 2,596 0 2,519 2,519 0 1,144 1,144

212 I 5,639 I 5,851 873 14,44515,318 276 I 1,857 I 2. 133

289211 x2-l ,2,3,4,5,6,7.xls

Coachella Quarter Valley

2006-2 $514,668 -1 $582,641

2005-4 $500, 197 -3 $455,776 -2 $468,413 -1 $487,063

2004-4 $499,631 -3 $457,466 -2 $510,106 -1 $361,324

2003-4 $346,358 -3 $313,006 -2 $296,622 -1 $340,765

2002-4 $300,454 -3 $281,557 -2 $340,713 -1 $312,116

2001-4 $329,280 -3 $255,805 -2 $296,827 -1 $324,701

EXHIBIT 11--8 AVERAGE NEW HOME PRICE

DETACHED PRODUCT COACHELLA VALLEY

BY SUB MARKET AREA 2001 THROUGH SECOND QUARTER 2006 Indio/ Palm Springs/ Rancho

Coachella Cathedral City Mirage Palm Desert

$401,512 $532,864 $796,470 $668,067 $403,747 $421,068 $645,268 $709,900 $416,448 $406,822 $749,515 $668,567 $391,122 $413,075 $753,384 $598,486 $402,360 $397,788 $757,523 $625,674 $381,349 $462,322 $736,646 $521,254 $388,340 $360,870 $717,860 $508,513 $359,647 $299,834 $658,127 $485,217 $411,898 $304,485 $590,519 $535,581 $272, 163 $279, 160 $496,667 $611,757 $243,005 $305,670 $468,964 $375,655 $204,431 $217,490 $448,814 $332,545 $218,396 $256, 104 $425,579 $337,418 $214,492 $336,465 $447,426 $287,891 $229,710 $238,373 $441,490 $276,209 $184,271 $223,604 $454,508 $248,836 $204,472 $225,636 $440,543 $292,771 $196,025 $214,903 $441,411 $277,911 $189,480 $201,729 $445,032 $268,632 $185,520 $186,125 $452,987 $247,040 $202,200 $189,472 $442,205 $256,930 $188,030 $217,298 $437,138 $249,576

Indian Wells/ La Quinta

$862,537 $1,166,962 $751,012 $588,660 $674,862 $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


MARKET PROFILES, INC. 2989l lx2-S,9, l 0, l l, 12, 13.xls

EXHIBIT 11--9 NEW HOME SALES DISTRIBUTED BY PRICE RANGE

INDIO--COACHELLA SUB MARKET AREA AND THE COACHELLA VALLEY

SECOND QUARTER 2006

Indio- Coachella

Price Range Coachella Valley

Under $300,000 40 69

$300-$350,000 119 1 51

$350-$400,000 178 255

$400-$450,000 152 236

$450-$500,000 90 139

$500-$550,000 17 28

$550-$600,000 1 63

$600-$650,000 0 21

$650-$700,000 0 0

$700-$750,000 0 12

$750-$800,000 0 6

$800,000& Up 10 107

Totals 607 1,087


MARKET PROFILES, INC. 2989l lx2~,9, 10, l l, 12, 13.xls

Riverside-San

1990 735,200 N.A. to

2000 1,010, 100 27,490 to

2006 1,272,400 43,717 to

2011 1,482,400 42,000

EXHIBIT 11-10 HOUSING GROWTH SUMMARY

COACHELLA VALLEY MARKET AREA 1990-2011

85, 186 N.A. N.A.

113,516 2,833 1,841

143,366 4,975 3,234

167,212 4,769 3, 100

* Riverside,5an Bernardino bi-county region.

Source: Calif. E rnployrnent Development Dept., C lairtas, Market Profiles


N.A. N.A.

992 552

1,741 970

1,669 1, 100

298911x2-8,9,10, 11, 12, 13.xls

EXHIBIT 11-11 PROJ ECTEDANNUAL NEW HOME DEMAND

COACHELLA VALLEY 2006-2007

PRICE RANGE* AVERAGE ANNUAL SALES % OF TOTAL

Under $300,000 300 7.1% $300,000-$350,000 700 16.7% $350,000-$400,000 1,000 23.8% $400,000-$450,000 750 17.Wo $450,000-$500,000 500 11.Wo $ 500,000-$750,000 500 11.Wo

$750,000-$1,000,000 300 7.1% $1,000,000 and Over 150 3.6%

TOTAL 4,200 100.0%

PROJ ECTEDANNUAL NEW HOME DEMAND COACHELLA VALLEY

2006-2007

Under $300.000- $350.000- $400.000- $450.000- $500.000- $750.000- $1.000.000 $300,000 $350,000 $400,000 $450,000 $500,000 $750,000 $1,000,000 and Over

*Prices stated in today's dollars excluding future inflation or appreciation.


liilAVERi'GE ANMJAL SALES

MARKET PROFILES, INC. 29891 lx2-ll,9, 10, 11, 12, 13.xls

SECTION Ill SUMMARY OF COMPETITION

INTRODUCTION

SECTION Ill SUMMARY OF COMPETITION


This section presents a review of the existing new home competition throughout the Coachella Valley and within the community of Indio. For analysis purposes, the Coachella Valley is divided into five submarket areas. The boundaries of the submarkets are shown in Exhibit 11-1 (report Section II). The Indio-Coachella 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 second quarter 2006 new home audit period which ended in mid--:J uly 2006.

NEW HOME COMPETITION During the second quarter of 2006, there were 117 subdivisions marketing new detached homes in the Coachella Valley. Exhibit 111-1 presents a tabular summary of the 117 projects. The projects account for a total of 17,976 homes, of which 9,692 homes have been offered for sale and all but 1,415 of the homes offered have been sold. This unsold inventory level has risen significantly over the past year 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 (for detached product). The Indio-Coachella and the Palm Springs-Coachella Valley submarkets had the largest number of active new home subdivisions during the second quarter period with 47 and 33 projects, respectively. The Indio-Coachella submarket generated the highest sales volume during the quarter with 607 homes sold. The sales of new homes in the submarket were aided by the moderate prices of the homes. The average sales price was $401,512 compared to $862,537 in the nearby Indian Wells-la Quinta submarket

Exhibit 111-3 presents a summary of the 47 projects that were active in the IndioCoachella submarket during the second quarter of 2006. The 47 projects account for 8,582 homes, of which 4,380 have been offered for sale and 617 of those remain unsold. Thirty four of the new home projects are located in Indio and 13 are located in Coachella. With over 3,386 homes, the master planned community of Shadow Hills in Indio accounts for 39 percent of the homes. An additional five of the projects,

111-1


accounting for 592 homes, are located within the Indian Palms Country Club, also in Indio. Descriptions of the most competitive new home projects are presented below (see MOST COMPETITIVE NEW HOME PROJECTS).

INVENTORY TRENDS 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 916 homes sold during the second quarter period, the unsold inventory of 1,415 homes at the end of the second quarter of 2006 is indicative of a somewhat over-supplied market condition (1.5:1 unsold to sold ratio). However, Exhibit 111-2 shows that inventory conditions in the Indio-Coachella submarket are more balanced than elsewhere in the Coachella Valley. At the end of the second quarter of 2006, the unsold inventory in the Indio-Coachella submarket totaled 617 homes compared to second quarter sales of 607 homes (1.01 :1 unsold to sold ratio).

Over the past year, the number of unsold detached homes in the Coachella Valley has increased from 641 homes in mid-2005 to 1,415 homes in mid-2006. Most of the increase in inventory was due to slower sales activity throughout the Valley.

SALES RATES Exhibit 111-1 shows the weekly sales rate for each of the new home projects in the Coachella Valley. The sales rates are shown as "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 second quarter period. Cumulative sales rates range widely from zero to 8.07 homes per week. The average cumulative sales rate is 0.95 homes per week per project

The new home projects that are most similar to the subject development are those that are located in and around the Shadow Hills community in north Indio. During the second quarter of 2006, there were 23 new home subdivisions active in this area of the city, including 11 subdivisions that were active in the Shadow Hills community. These 23 projects are summarized in Exhibit 111-4. The cumulative sales rates among those subdivisions range widely from 0. 12 to 8.07 homes per week. The average sales rate is 1.34 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 and around the Shadow Hills area located north of the 1-1 O Freeway (see Exhibit 111-4). These projects are described below and their locations are shown in Exhibit 111-5.

111-2


The following four subdivisions are part of the master planned community of Talavera:

Venecia is a 180--lot, gated subdivision of 3- and 4--bedroom homes. With a cumulative sales rate of 1.64 sales per week, only three homes remain unsold in Venecia (map #1). The base prices range from $328,990 to $358,990 for plans that range in size from 1,576 to 1,947 square feet ($184.38 to $208.75 per sq. ft.). The minimum lot size is 8,000 square feet with homeowners association (HOA) dues of $133 per month.

Genova is a 192--lot gated subdivision of 2--, 3- and 5--bedroom homes. With a cumulative sales rate of 1.2 sales per week, only seven homes remain unsold in Genova (map #2). The base prices range from $406,990 to $478,990 for plans that range in size from 2,848 to 3,267 square feet ($142.9 to $154.28 per sq. ft.). The homes in this gated community are sited on 8,000 square foot lots (minimum) with HOA dues of $133 per month.

D.R. Horton's Florencia has sold a cumulative of 1.54 homes per week with base prices ranging from $367,690 to $409,405. This 193 unit, three bedroom, gated community ranges from 1,855 to 2,380 square feet ($172.01 to $198.21 per sq. ft) with a minimum lot size of 8,000 square feet (map #3). HOA dues for this community are $133 per month.

The base prices of the homes in Alicante range from $422,227 to $482,386 for 3--, 4- and 5- bedroom plans that range in size from 2,493 to 3,099 square feet ($155.65 to $169.36 per sq. ft.). Of the 187 homes in this community, 90 have been sold at a cumulative rate of 1.45 homes per week (map #4). Alicante's HOA fees are $133 per month and this gated community's minimum lot size is 8,000 square feet

The base prices of the homes in Sun City range from $266,900 to $546,990 with a floorplan range of 1,257 to 2,971 square feet ($182.61 to $212.33 per sq. ft.). Of the 1,300 homes in this active adult community, 180 have been sold at a rapid rate of 8.07 homes per week. The minimum lot size for this golf community is 4,500 square feet (map #5). HOA dues are $175 per month and CFO fees are $360 per year.

The following two developments are part of the master planned community of Paradiso:

Ponderosa Villas is one of the fastest selling subdivisions in Paradiso. As of mid--:J uly 2006, ten homes have been sold with a cumulative sales rate of 2.00 homes per week. The base prices of the homes range from $437, 150 to $484,320 for 3--, 4--, and 5--bedroom plans that range in size from 2,598 to 3,276 square feet ($147.83 to $168.26 per sq. ft.). This golf community's minimum lot

111-3


size is 8,000 square feet (map #6). HOA dues are $21 O per month and CFO fees are $700 per year.

San Mi Ian is a 223--lot subdivision of 3- and 4--lbedroom homes. With a cumulative sales rate of 1.73 sales per week, only eight homes remain unsold in the gated community of San Milan (map #11). The base prices range from $380,490 to $425,490 for plans that range in size from 2,092 to 2,660 square feet ($159.95 to $181.87 per sq. ft). The homes are sited on 7,800 square foot lots (minimum) and HOA dues are $125 per month and CFO fees are 0.2% of purchase price peryear.

The base prices of the homes in Sandstone of Desert Trace, a stand-alone community range from $420,000 to $460,000 for 2- and 3--lbedroom plans that range in size from 2, 176 to 2,902 square feet ($158.51 to $193.01 per sq. ft). Of the 111 homes in this tract, 11 have been sold at a rate of 0.22 homes per week. The homes are sited on 8,000 square foot lots (minimum) (map #9) with HOA fees of $119 per month.

The following 11 developments are located in Shadow Hills:

The Palazzo gated subdivision consists of 151 homes with base prices that range from $427,990 to $589,990 (map #7). The 2--, 3--, and 4--lbedroom homes range in size from 1, 996 to 3, 161 square feet ($1 79.65 to $214.42 per sq. ft). There were 18 homes sold during the second quarter, for a sales rate of 1.28 homes per week. The homes are sited on lots of 7,200 square feet (minimum) and HOA dues are $59 per month.

Another fast-selling subdivision is Foxstone by KB Home (map #8). Approximately 70 percent of the 247 homes in this neighborhood have been sold at a rate of 2.31 homes per week. The base prices of the homes range from $328,990 to $380,990 for 2-and 3--lbedroom plans that range in size from 1,517 to 2,526 square feet ($150.82 to $216.86 per sq. ft). Residents pay a homeowners fee of $100 per month. The neighborhood is gated and the minimum lot size is 8,000 square feet

Sonora Wells (subject property) is a 363--lot subdivision of 3-4--and 5--lbedroom homes. With a cumulative sales rate of 2.24 sales per week, 56 homes remain unsold in the gated community of Sonora Wells. The base prices range from $353,590 to $460,835 for plans that range in size from 1,844 to 3,608 square feet ($173.06 to $211.07 per sq. ft). The homes are sited on 7,200 square foot lots (minimum) with HOA dues of $120 per month.

The Sienna subdivision consists of 132 lots with a minimum size of 8,000 square feet (map #10). The base prices of the homes in this gated community range

111-4


from $369, 990 to $414, 990 for 3- and 4--bedroom plans that range in size from 2,448 to 3,143 square feet ($131.74 to $154.07 per sq. ft). The first 68 homes have been sold at a rate of 1.07 homes per week and HOA dues are $118 per month.

There are two product lines still active within one gated neighborhood developed by Century Vintage Homes. The two products are The Ventana Collection and The EI Dorado Collection (map #'s 12 and 13). 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 $349,990 ($189.90 to $248.33 per sq. ft). Of the 115 homes in this tract, 11 5 have been sold at a rate of 0.66 homes per week. Both the Shadow Ranch and El Dorado Collections have HOA fees of $50 per month plus an assessment district fee.

The base prices of the homes in The EI Dorado Collection range from $370,990 to $430, 990 for 2- and 3--bedroom plans that range in size from 1,720 to 2,778 square feet ($155. 14 to $21 5.69 per sq. ft). Of the 227 homes in this tract, 214 have been sold at a rate of 1.25 homes per week.

One of the fastest selling subdivisions in 5 hadow Hills is the 263--lot 5 hadow Ranch subdivision by Family Development (map #14). As of mid--:J uly, 144 of the homes had been sold at a cumulative rate of 1.92 homes per week. The base prices of the homes range from $429,990 to $569,990 for 3--, 4--, and 5--bedroom plans that range in size from 2, 185 to 3,247 square feet ($175.27 to $196.79 per sq. ft). The residents pay a homeowners fee of $95 per month for greenbelt maintenance. The minimum lot size is 8,000 square feet with HOA dues of $95 per month.

The Mountain Estates gated subdivision consists of 123 lots with minimum sizes of 8,000 square feet (map #15). This 3- bedroom community base prices range from $407,000 to $499,000 with floorplans that range from 2,448 to 3, 143 square feet ($131.74 to $154.07 per sq. ft). Of the 13 homes for sale on these 8,000 square foot lots, two have been sold at a rate of 0. 12 homes per week. HOA dues for this community are $150 per month.

Hacienda is a 3- and 4- bedroom community with base prices that range from $364,490 to $444,990. The cumulative sales rate for this 147 home project is 1. 19 sales per week with floorplans that range from 1,815 to 2,756 square feet ($161.46 to $200.82 per sq. ft). The homes in this community have a minimum of 7,200 square feet for its lot size with HOA dues of $93 per month (map# 16).

Bella Tierra is a 63--lot subdivision of 3-and 5--bedroom homes (map #17). With a cumulative sales rate of 0.90 sales per week, only eight homes remain unsold

111-5


in Bella Tierra. The base prices range from $399,990 to $454,990 for plans that range in size from 1,895 to 2,629 square feet ($173.06 to $211.07 per sq. ft). The homes are sited on 8,000 square foot lots (minimum).

The Desert Collection is a gated subdivision of 144 homes (map #18). The base prices of these 3--bedroom homes range from $389,990 to $438,990 for plans that range in size from 1,61 Oto 2,266 square feet ($193.72 to $242.22 per sq. ft). The residents of this gated community pay HOA dues of $75 per month and CFO fees of $15 per month. The first 126 homes were sold ata rate of 1.46 homes per week and the minimum lot size for this community is 7,200 square feet

The following four communities are part of the master planned community Terra Lago:

Marquesa by Lennar Homes is an 86 unit subdivision that consists of homes ranging from 2,595 to 3, 120 square feet ($177.24 to $193.05 per sq. ft). With a base price range of $500,990 to $552,990, the 3-and 4--bedroom golf community of Marquesa has sold a cumulative of 1.02 homes per week. The minimum lot size for the Terra Lago golf community is 8,400 square feet and HOA dues are $253 per month (map #19).

The 11 O home, three-bedroom golf community of Cristallo, by Ryland Homes, has sold 31 homes with a cumulative sales rate of 0.81 homes per week (map #20). Cristallo's base prices range from $437, 160 to $464,309 with 3--bedroom floorplans from 1,987 to 2,385 ($196.90 to $220.01 per sq. ft). The homes are sited on a minimum 6,000 square foot lot with $253 per month in HOA dues and a 0.6 percent community funds district assessment fee.

The Portofino subdivision consists of 179 lots with a minimum lot size of 5,500 square feet The base prices of the homes range from $341,990 to $404,990 for 3- and 4--bedroom plans that range in size from 2,448 to 3, 143 square feet ($169.23 to $206.26 per sq. ft). The first 30 homes of this golf and gated community have been sold at a rate of 1.13 homes per week (map #21). The minimum lot size of Portofino is 5,500 square feet with HOA dues oft $198 per month and CFO fees at 0.7 percent per year.

Cordoba is a 125--lot subdivision of 3-and 4--bedroom homes. With a cumulative sales rate of 0.97 sales per week, currently 12 homes remain unsold in Cordoba (map# 22). The base prices range from $367,990 to $417,990 for plans that range in size from 2,092 to 2,660 square feet ($157. 12 to $175.9 per sq. ft). The homes are sited on 7,200 square foot lots (minimum) with a monthly HOA fee of $253.

111--6


PROPOSED NEW HOME DEVELOPMENT There are over 10,000 new homes that are proposed for future development in the City of Indio. These projects are summarized in Exhibit 111--6. Over half of these homes are located in major communities that will be developed in a phased manner over the next several years. Nevertheless, with this scale of proposed activity, it is projected that the Indio market area will experience a highly competitive environment for the next several years.

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 1 O Freeway.

111-7

Sales;Week Deve lo pme nt ;Dev el ope r CurQtr C"m 500SERIES@ CAMPANILE 0.08 0.62

WESSMANiGONZALES 700SERIES@ CAMPANILE 0.31 0.83

WESSMANiGONZALES ADOBE COLLECTION@ SANTO TOMAS 0.20 1.03

ASHBROOK COMMUNITIES ALICANTE@ TALAVERA 1.55 1.45

DR HORTON ALTA 0.50 0.21

DEVCON CONSTRUCTION AMALFI COLLECTION@ TUSCANA C. c. 0.30 0.63

SUNRISE COMPANY ANASTACIA 0.00 0.55

GHACOMPANIES ANDALUSIA@ CORAL MOUNTAIN 0.69 2.79

DRUMMOND COMPANY AQUA DULCE 0.33 0.51

GHACOMPANIES AVIARA@ MISS IONS HORES 1.16 0.47

DISTINGUISHED HOMES AZURE@ MISSION SHORES 0.33 0.58

DISTINGUISHED HOMES BELLA CLANCY 0.00 0.00

GHACOMPANIES BELLA TIERRA@ SHADOW HILLS 0.23 0.90

FAMILY DEVELOPMENT BELLAGIO COLLECTION@ TUSCANA C. C. 0.30 0.42

SUNRISE COMPANY BILTMORE COLONY-DETACHED 0.63 0.63

NEXUS COMMUNITIES CALAROSA@ INDIAN PALMS C.C. 1.30 1.13

LENNAR HOMES CAMPANERO POINTE 0.16 0.46

GHACOMPANIES CARMELA@ LA QUINTA --0.69 0.87

TAYLOR WOODROW HOMES CASA BELLA@ INDIAN PALMS COUNTRY CLUB 0.00 0.23

FIRST PACIFICA DEVELOPMENT CORP. CASSIA@ RIO VISTA VILLAGE 0.50 0.50

ASHBROOK COMMUNITIES CIMMARON COVE 0.28 1.72

GHACOMPANIES CITRUS COLLECTION 0.16 0.09

CAPITAL PACIFIC HOMES CORAL COLLECTION@ TRILOGY 1.61 2.24

SHEA HOMES




SECOND QUARTER 20CXi Ranges Sales Lots 1ze/

~ Start Density $482,395 2,079 $209.69 l 5-0ct--05 5,200 $554,230 2,643 $232.03 $529,900 2,573 $198.67 l 5-0ct--05 7,500 $669,520 3,370 $209.57 $606,940 2,280 $255.01 l-Oec--03 9,200 $618,990 2,385 $268.85 $422,227 2,493 $155.65 30-Apr--05 8,000 $482,386 3,099 $169.36

$1,533,518 3,000 $481.71 15-:J an--05 14,000 $1,615,503 3,305 $511.17 $1,268,000 2,790 $393.51 1-S ep--03 10,000 $1,395,000 3,545 $454.48 $373,500 1,556 $228.39 l 0-Dec --05 7,200 $413,400 1,810 $240.03

$1,125,000 2,895 $388.60 l 5-0ec--05 9,900 $2,050,000 5,089 $432.24 $316,900 1,700 $166.77 16-0ct--05 7,200 $344,900 2,068 $186.41 $584,990 2,557 $214.77 l 5--May--05 8,100 $629,990 2,931 $228.77 $520,000 1,928 $253.53 3--Nov--03 6,000 $574,900 2,235 $273.50

$2,800,000 4,521 $619.33 10--Mar--06 13,000 $3,900,000 4,890 $797.54 $399,990 1,895 $173.06 30-Apr--05 8,000 $454,990 2,629 $211.07

$1,501,000 3,676 $394.99 1-S ep--03 12,000 $1,625,000 4,114 $414.43 $799,000 1,911 $418.10 5--0ct--05 2,500

$1,150,000 2,728 $421.55 $353,490 1,631 $2CXi. l 7 l 5--Aug--05 5,000 $383,490 1,860 $216.73 $299,900 1,700 $167.26 4-:l an--06 9,000 $345,900 2,068 $176.41 $690,075 2,685 $250.87 l 7-Sep--05 11,000 $764,420 3,047 $257.16 $429,990 1,704 $214.17 26-:Jun--04 4,500 $449,990 2,101 $252.34 CLUSTER $357,000 1,481 $236.97 20--May--06 6,500 $373,000 1,574 $242.30 $394,900 1,486 $238.07 l 5-Nov--04 4,500 $575, 700 2,293 $271.67

$1,349,000 3,586 $362.81 14-Nov--05 8,000 $1,399,006 3,856 $376.18 $358,990 1,355 $259.65 24--Aug--02 4,000 $447,990 1,712 $264.93

PAGE 1 OF 13

Total Total CurQtr Remain Community/ Units Sold Sold Unsold ForDev Mas terP Ian 100 23 l 11 66 CATHEDRAL CITY

CAMPANILE 106 31 4 10 65 CATHEDRAL CITY

CAMPANILE 136 136 2 0 0 RANCHO MIRAGE

SANTO TOMAS 187 90 22 10 87 INDIO

TALAVERA 67 16 6 6 45 PALM SPRINGS

STAND-ALONE 215 95 4 5 115 INDIANWELLS

TUS CANA COUNTRY CLUB 36 16 0 20 0 INDIO

STAND-ALONE 680 81 9 49 550 Li\ QUINTA

CORAL MOUNTAIN 126 19 4 31 76 DESERT HOTS PRINGS

STAND-ALONE 65 28 14 8 29 RANCHO MIRAGE

MISS IONS HORES 99 82 4 17 0 RANCHO MIRAGE

MISS IONS HORES 20 0 0 8 12 RANCHO MIRAGE

STAND-ALONE 63 55 3 8 0 INDIO

SHADOW HILLS 221 64 4 0 157 INDIANWELLS

TUS CANA COUNTRY CLUB 19 19 19 0 0 PALM SPRINGS

BILTMORE COLONY 118 52 17 18 48 INDIO

INDIAN PALMS C.C. 31 12 2 12 7 DESERT HOTS PRINGS

STAND-ALONE 101 36 -'l 8 57 Li\ QUINTA


INDIAN PALMS COUNTRY CLUB 100 3 3 11 86 CATHEDRAL CITY

RIO VISTA VILLAGE 169 148 4 21 0 CATHEDRAL CITY


CITRUS COUNTRY CLUB 648 454 21 14 180 Li\ QUINTA

TRILOGY

28921 lx3--1,2,3,4,5,6.xls

Sales;Week Deve lo pme nt ;Dev el ope r CurQtr Cum CORDOBA@ TERRA LAGO 0.84 0.97

LENNAR HOMES CORTONA COLLECTION@ TUSCANA C. C. 0.22 0.36

SUNRISE COMPANY COURTYARD@ CAMPANILE 0.58 0.75

WESSMANiGONZALES CRISTALLO@ TERRA LAGO 1.00 0.81

RYu\ND HOMES DESERT COVE 0.00 0.31

SILVER OAKS COMMUNITIES DESERT WILLOWS 0.00 0.53

LTV BUILDER DEVELOPERS, INC. DIAMOND SPRINGS 1.62 1.62

BARE LAND DEVELOPERS DOMINION 0.32 0.11

LENNAR HOMES EAGLE POINT --0.42 0.93

ALPINE DEVELOPMENT GROUP EL DORADO COLLECTION@ MOUNTAINGATE l&I --0.46 1.40

CENTURYVINTAGE HOMES ELEMENTS@ RIO DEL SOL --0.23 0.14

DAMON SIS KIN ES PANA@ RIO DEL SOL 0.00 0.21

DAMON SIS KIN ESPERANZA@ DESERT RIVER ESTATES 0.33 1.19

LENNAR HOMES FIORE@ RENAISSANCE 0.58 0.46

TRANS WEST HOUSING FLORENCIA@TALAVERA 0.78 1.54

DR HORTON FOUR SEASONS -CANYON COLLECTION 3.33 1.17

K. HOVNANIAN;FORECAST HOMES FOUR SEASONS -PALM COLLECTION 1.25 1.12

K. HOVNANIAN;FORECAST HOMES FOXDALE ESTATES --0.25 1.21

GHACOMPANIES FOXSTONE@ SHADOW HILLS 1.08 2.31

KB HOME GENOVA@ TALAVERA 1.71 1.20

DR HORTON HACIENDA@ SHADOW HILLS 1.28 1.19

BEAZER HOMES LA CANTE RA 0.23 0.78

VISTA Li\ QUINTA LLC LA COLONIA I 0.00 1.08

RT\/ DEVELOPMENT





~ Start Density $367,990 2,092 $157.13 5--Nov--05 7,200 $417,990 2,660 $175.90

$2, 133,000 4,916 $427.75 1-S ep--03 13,000 $2,324,000 5,433 $433.88 $359,900 1,561 $219.47 l 5-0ct--05 3,600 $436,585 1,982 $230.55 $437, 160 1,987 $196.90 l 5-0ct--05 6,000 $464,309 2,358 $220.01 $739,990 2,318 $291.42 10-Dec--05 10,000 $771,990 2,649 $319.23 $195,000 1,200 $162.50 l--Oct--03 3,600 $253,000 1,400 $180.76 $455,000 1,726 $234.22 5-f'-Jlay-05 7,200 $475,000 2,028 $263.61

$1,300,000 2,878 $414.14 15-Sep-04 9,000 $1,830,000 4,246 $451.70 $297,530 1,427 $167.06 20--Aug--05 6,500 $371, 710 2,225 $208.50 $359,990 1,518 $197.98 12-:l ul--03 8,200 $549,990 2,778 $274.87 $659,990 2,300 $276.66 9-0ec--04 7,200 $829,990 3,000 $286.95 $449,990 1,500 $294.36 7-0ec--04 4,500 $470,990 1,600 $299.99 $805,990 3,168 $222.38 21--f'-Jlay--04 21,780 $889,990 4,002 $254.41 $585,990 2,462 $227.63 l 9-Apr--04 8,000 $653,990 2,873 $248.02 $367,690 1,855 $172.01 30-Apr--05 8,000 $409,405 2,380 $198.21 $426,990 2,288 $165.20 10-Dec--03 6,000 $486,990 2,825 $186.62 $377,990 1,900 $185.53 10-Dec--03 5,000 $392,990 2,102 $206.83 $343,000 1,586 $181.94 8-0ct--05 9,600 $379,000 2,083 $216.26 $328,990 1,517 $150.82 l 2-feb--05 8,000 $380,990 2,526 $216.86 $406,990 2,848 $142.90 30-Apr--05 8,000 $478,990 3,267 $154.28 $364,490 1,815 $161.46 20--Aug--05 7,200 $444,990 2,756 $200.82 $739,900 2,297 $244.15 18-:J un--05 7,200 $849,900 3,481 $323.87 $366,890 1,910 $163.46 24--f'-Jlay--04 6,110 $518,990 3,175 $192.08

PAGE 20F 13

Total Total CurQtr Remain Community/ Units Sold Sold Unsold ForDev Mas terP Ian 125 34 11 12 79 INDIO

TERRA u\GO 122 54 3 0 68 INDIANWELLS

TUS CANA COUNTRY CLUB 83 28 7 3 52 CATHEDRAL CITY

CAMPANILE 110 31 13 15 64 INDIO

TERRA u\GO 36 9 0 24 3 u\QUINTA

STAND-ALONE 93 77 0 16 0 DESERT HOTS PRINGS

STAND-ALONE 20 13 13 5 2 DESERT HOTS PRINGS

STAND-ALONE 16 11 4 5 0 RANCHO MIRAGE

STAND-ALONE 91 43 -6 20 28 DESERT HOTS PRINGS

STAND-ALONE 250 217 -6 10 23 PALM SPRINGS

MOUNTAIN GATE 68 12 -3 6 50 CATHEDRAL CITY

RIO DEL SOL 48 18 0 6 24 CATHEDRAL CITY

RIO DEL SOL 133 131 4 2 0 INDIO

DESERT RIVER ES TATES 63 53 7 10 0 u\QUINTA


TALAVERA 254 157 40 17 80 PALM SPRINGS

FOUR SEASONS 222 151 15 15 56 PALM SPRINGS

FOUR SEASONS 59 46 -3 13 0 DESERT HOTS PRINGS


SHADOW HILLS 192 75 24 7 110 INDIO

TALAVERA 147 55 18 22 70 INDIO

SHADOW HILLS 60 43 3 14 3 u\QUINTA

STAND-ALONE 273 119 0 0 154 COACHELLA

STAND-ALONE

28921 lx3--1,2,3,4,5,6.xls

Sales;Week Deve lo pme nt ;Dev el ope r CurQtr C"m LA MORADA 0.84 1.64

LENNAR HOMES LA PALOMA 0.53 1.91

K. HOVNANIAN;FORECAST HOMES LA PALOMA ESTATES 2.97 1.56

K. HOVNANIAN;FORECAST HOMES LA PASADA-LIMITED EDITION 0.08 0.81

FAR WEST DEVELOPMENT LA PLACITA 0.08 0.38

CENTENNIAL HOMES LAS PLUMAS 0.08 1.25

LENNAR HOMES LAS VENTANAS@ PGA WEST 0.25 0.23

CALIFORNIA COVE COMMUNITIES INC. LOS PORTALES@ RIO VISTA VILLAGE 0.16 0.15

ASHBROOK COMMUNITIES LUMINAIRE 0.38 0.62

ASHBROOK COMMUNITIES MARIPOSA@ TRILOGY 1.00 1.06

SHEA HOMES MARQUESA@TERRA LAGO 0.00 1.02

LENNAR HOMES MONTAGE@ SANTA ROSA 0.46 1.33

WESSMANiGONZALES MONTANA DE ORO 2.66 2.66

D. L. FREEMAN, INC. MONTE SE RE NO 0.00 0.00

ASHBROOK COMMUNITIES MONTECITO@ RIO DEL SOL 0.00 0.18

DAMON SIS KIN MOUNTAIN ESTATES@ SHADOW HILLS 0.00 0.12

JEFF HAYDEN NAVARRA@ AVALAR 0.66 1.86

CENTENNIAL HOMES PALAZZO@ RIO DEL SOL 0.00 0.11

DAMON SIS KIN PALAZZO@ SHADOW HILLS 1.28 0.93

RILINGTON COMMUNITIES PARADISES PRINGS 0.58 0.82

DORAMA LLC PASEOVISTA 0.00 0.60

SOUTHERNS UN CONSTRUCTION PIAZZAS ERENA 0.38 0.32

K. HOVNANIAN;FORECAST HOMES POINT HAP PY RANCH --0.07 0.16

EHLINE COMPANY PONDEROSA VILLAS@ PARADISO 2.00 2.00

PONDEROSA HOMES





~ Start Density $371,990 2,258 $148.28 9--Apr--05 6,000 $420,990 2,839 $164.74 $316,410 1,743 $148.00 l 5--May--04 6,000 $351,CXiO 2,372 $181.53 $335,530 1,846 $139.41 15-:J an--05 6,000 $401,090 2,877 $181.76 $481,835 2,258 $188.32 22-:l an--05 8,820 $504,900 2,681 $213.39 $745,900 2,590 $264.85 l 5-Sep--05 8,445 $830,900 3,005 $320.81 $370,990 2,092 $154.63 l 2--Mar--05 6,000 $406,990 2,632 $177.33

$1,499,000 3,710 $386.30 26--May--04 11,500 $1,675,000 4,336 $404.04 $385,000 1,590 $199.22 30--Mar--06 6,500 $465,000 2,334 $242.13 $705,000 2,249 $310.44 ll--Mar--06 6,200 $719,000 2,316 $313.47 $466,990 1,821 $252.23 24--Aug--02 5,000 $545,990 2,163 $256.44 $500,990 2,595 $177.24 1-S ep--05 8,400 $552,990 3,120 $193.05 $917,900 2,601 $281.75 8--May--04 13,000 $955,900 3,382 $352.90 $439,500 2,000 $205. l 5 29--May--06 5,300 $449,500 2,191 $219.75 ZERO-lOT-llNE

$1,305,000 2,701 $419.67 2-:l un--06 14,000 $1,395,000 3,324 $483.15 $499,990 1,600 $277.77 6--Nov--04 4,600 $529,900 1,800 $318.74 $407,000 1,891 $173.14 17--Mar--06 8,000 $499,000 2,882 $215.23 $297,990 1,402 $143.66 10-Dec--05 6,500 $362,900 2,526 $212.54 $580,900 2,000 $285.66 8--0ct--04 6,000 $699,900 2,400 $291.62 $427,990 1,996 $179.65 l 4--May--05 7,200 $589,990 3,161 $214.42 $309,990 1,258 $175.27 l 5--May--04 7,000 $419,990 2,334 $246.41 $539,900 1,881 $267.80 30-:J ul--04 4,300 $654,900 2,315 $334.83 $551,114 2,690 $193.30 20--Mar--05 12,000 $592,685 3,066 $204.87 $799,900 2,800 $265.74 l--May--04 8,355

$1,CXi9,900 3,551 $307.10 $437, 150 2,598 $147.83 3-:J un--06 8,200 $484,320 3,276 $168.26

PAGE 30F 13

Total Total CurQtr Remain Community/ Units Sold Sold Unsold ForDev Mas terP Ian 171 105 11 0 66 COACHELLA



STAND-ALONE 64 61 l 3 0 CATHEDRAL CITY

STAND-ALONE 20 16 l 4 0 PALM DESERT

STAND-ALONE 87 85 l 2 0 COACHELLA


PGA WEST 78 2 2 14 62 CATHEDRAL CITY

RIO VISTA VILLAGE 61 10 5 20 31 PALM SPRINGS


TRILOGY 86 45 0 19 22 INDIO

TERRA Li\GO 150 149 6 l 0 INDIO


STAND-ALONE 89 0 0 11 78 PALM SPRINGS

STAND-ALONE 73 16 0 2 55 CATHEDRAL CITY


SHADOW HILLS 159 54 8 9 96 COACHELLA

AVAL.i\R 83 10 0 6 67 CATHEDRAL CITY


SHADOW HILLS 415 92 7 34 289 DESERT HOTS PRINGS

STAND-ALONE 65 61 0 4 0 PALM DESERT


STAND-ALONE 72 19 -1 21 32 Li\ QUINTA


STAND-ALONE

28921 lx3--1,2,3,4,5,6.xls

Sales;Week Deve lo pme nt ;Dev el ope r CurQtr C"m PORTOFINO@ TERRA LAGO 0.14 1.13

WOODSIDE HOMES PRADO 0.57 1.11

RILINGTON COMMUNITIES PUERTAAZUL 0.25 0.80

PACIFIC SANTA FE PUESTA DEL SOL@ LOS JAR DINES 0.00 0.10

RYu\ND HOMES QUAIL RUN@ RANCHO SANTANA 0.46 0.40

LENNAR HOMES RANCHO MARIPOSA 0.84 1.23

J &R MONTANA LLC RANCHO SANTANA 0.60 1.07

DESERT ELITE, INC. RHAPSODY@ INDIAN PALMS COUNTRY CLUB 0.33 0.47

FIRST PACIFICA DEVELOPMENT CORP. RIDGE GATE@ HIDDEN CANYON 0.08 0.67

TRANS WEST HOUSING RIDGE VIEW@ HIDDEN CANYON 0.41 0.63

TRANS WEST HOUSING ROYAL VISTA@ INDIAN PALMS COUNTRY CLUB 0.23 0.54

FIRST PACIFICA DEVELOPMENT CORP. SALIDA DEL SOL@ LAS JAR DINES 1.00 0.70

RYu\ND HOMES SAN MILAN@ PARA DIS O 1.51 1.73

LENNAR HOMES SANDSTONE OF DESERTTRACE 0.28 0.22

ASHBROOK COMMUNITIES SANTA FE COLLECTION@ SANTO TOMAS 0.30 0.29

ASHBROOK COMMUNITIES SANTA ROSA COLLECTION@ TRILOGY 1.23 0.62

SHEA HOMES SHADOW RANCH@ SHADOW HILLS --0.85 1.92

FAMILY DEVELOPMENT SIENNA@ SHADOW HILLS --0.15 1.07

RYu\ND HOMES SOMERS ET 1.25 1.59

KB HOME SONORA WELLS@ SHADOW HILLS 1.38 2.24

DR HORTON STONE CREEK RANCH --0.07 0.00

TOLL BROTHERS, INC.





~ Start Density $341,990 1,658 $169.23 l 5-0ct--05 5,500 $404,990 2,393 $206.26 $339,900 1,885 $143.88 1-:l an--06 6,600 $459,900 3,077 $183.63 $392,990 1,380 $284.77 l l-Nov--03 3,800 $529,990 1,740 $309.87 CLUSTER $329,990 2,082 $147.92 l 0-Dec--05 6,000 $368,335 2,490 $158.49 $550,000 2,742 $189.12 15-feb--06 8,800 $575,000 3,026 $200.58 $334,990 1,542 $171.24 17-:l un--05 7,000 $369,990 2,073 $217.24 $584,900 2,130 $225.25 l--Oct--05 9,800 $694,900 2,913 $274.60 $434,990 1,825 $238.35 20--Mar--04 6,800 $504,990 2,073 $243.60 $865,000 3,180 $267. l O 23--Mar--04 10,000 $929,000 3,478 $275.28 $688,408 2,383 $248.71 23--Mar--04 10,000 $754,350 3,033 $288.88 $387,900 1,624 $2CXi.76 22-Sep--Ol 4,750 $412,900 1,997 $238.85 CLUSTER $290,990 1,549 $176.36 10-Dec--05 6,000 $346,990 1,942 $187.85 $380,490 2,092 $159.95 l 0-Dec--05 7,800 $425,490 2,660 $181.87 $420,000 2,176 $158.51 6-Aug--05 8,000 $460,000 2,902 $193.01 $870,990 3,109 $271.84 l-Oec--03 17,000 $917,990 3,376 $288.19 $584,990 2,398 $232.93 24--Aug--02 6,000 $644,990 2,769 $243.94 $429,990 2,185 $175.27 l-feb--05 8,000 $569,990 3,247 $196.79 $369,000 2,448 $131.74 23-Apr--05 8,000 $414,080 3,143 $154.07 $316,990 1,560 $147.66 1-S ep--05 6,100 $367,990 2,492 $203.19 $353,590 1,844 $127.72 14-Nov--05 7,200 $460,835 3,608 $191.75 $917,975 2,779 $260.02 6-:J an--06 10,000

$1,075,975 4,138 $330.32

PAGE 40F 13

Total Total CurQtr Remain Community/ Units Sold Sold Unsold ForDev Mas terP Ian 179 43 2 3 133 INDIO

TERRA u\GO 232 30 8 18 184 COACHELLA

STAND-ALONE 127 110 3 17 0 u\QUINTA


LOS JARDINES 59 8 6 22 29 u\QUINTA


STAND-ALONE 141 42 8 11 88 u\QUINTA

STAND-ALONE 76 57 4 18 l INDIO

INDIAN PALMS COUNTRY CLUB 85 80 l 5 0 u\QUINTA

HIDDEN CANYON 84 75 5 9 0 u\QUINTA

HIDDEN CANYON 166 137 3 9 20 INDIO

INDIAN PALMS COUNTRY CLUB 155 21 12 5 129 COACHELLA

LOS JARDINES 223 52 21 8 163 INDIO

PARADISO 111 11 4 15 85 INDIO

SHADOW HILLS 39 39 3 0 0 RANCHO MIRAGE

SANTO TOMAS 144 126 16 2 16 u\QUINTA

TRILOGY 263 144 -12 30 89 INDIO

SHADOW HILLS 132 68 -2 22 42 INDIO

SHADOW HILLS 153 70 15 9 74 COACHELLA


SHADOW HILLS 71 0 -1 15 56 u\QUINTA

STAND-ALONE

28921 lx3--1,2,3,4,5,6.xls

Sales;Week Deve lo pme nt ;Dev el ope r CurQtr C"m STONE GATE 0.15 0.31

TRANS WEST HOUSING SUN CITY THE SAN MARIN COLLECTION 12.85 8.07

PULTE HOMES CORPORATION SUNSPRING HOMES --0.14 0.58

YEOMAN ASSOCIATES TAPESTRY@ ESPLANADE 0.33 1.71

LENNAR HOMES TERRACINA 0.21 0.21

TRANS WEST HOUSING THE BRIDGE @ J E FFE RSON --0.07 0.72

LENNAR HOMES THE COVE@ PALM SPRINGS --0.15 0.21

ASHBROOK~NNOVATIVE COMMUNITIES THE DESERT COLLECTION@ SHADOW HILLS 0.53 1.46

REYNOLDS COMMUNITIES THE EL DORADO COLLECTION@ MOUNTAIN VIE1 --0.61 1.19

CENTURY VINTAGE HOMES THE EL DORADO COLLECTION@ SHADOW HILLS 0.07 1.25

CENTURY VINTAGE HOMES THE ENCLAVE@ SUNRISE 0.16 0.60

BAYS HORE DEVELOPMENT THE PALMS OF LA QUINTA 0.25 0.25

FIRST PACIFICA DEVELOPMENT CORP. THE VENTANA COLLECTION@ MOUNTAIN VIEW 0.61 1.75

CENTURY VINTAGE HOMES THE VENTANA COLLECTION@ SHADOW HILLS 0.23 0.66

CENTURY VINTAGE HOMES THE VILLAS @ MOUNTAIN VIEW C. C. 1.60 0.97

TOLL BROTHERS, INC. THE VISTAS @ LAS COLINAS 2.14 1.18

GHACOMPANIES THE VISTAS @ MOUNTAIN VIEW C. C. 2.80 0.74

TOLL BROTHERS, INC. VALENCIA 0.21 0.50

FORTE RESIDENTIAL VENECIA@ TALAVERA 0.84 1.64

DR HORTON VENTANA COLLECTION@ MOUNTAINGATE I & II 0.30 1.32

CENTURY VINTAGE HOMES VERSAILLES --0.30 1.32

REGENCY HOMES VILLA DEL SOL@ RIO VISTA 0.00 0.37

SOL PACIFIC, LLC. VISTA ESCONDIDA 2.00 2.00

LENNAR HOMES VISTA HACIENDA 0.83 0.44

CANADAY & COMPANY VISTA SERENA@ INDIAN PALMS C.C. 0.69 0.78

LENNAR HOMES WESlWARD SHADOWS@ LA QUINTA 0.00 0.23

LA QUINTA NORTH PARTNERS LP l l 7Total P roJects 73 36 11096 Average Per Development 063 0 95 Source: Residential Trends, Market Profiles





~ Start Density $724,990 3,154 $221.09 l-feb--06 15,000 $831,990 3,763 $229.86 $266,900 1,257 $182.61 8-:J ul--05 4,500 $546,900 2,971 $212.33 $279,990 1,211 $187.14 15-:J ul--00 7,200 $309,990 1,603 $231.20 $417,490 l ,8CXi $208.08 11-:l un--03 8,000 $462,990 2,225 $231.16 $645,900 2,454 $224.89 11-:l un--05 10,000 $660,900 2,872 $269.31 $589,990 2,514 $226.37 28-feb--06 8,000 $629,990 2,783 $234.68 $349,990 1,487 $187.73 17-feb--06 7,200 $529,990 2,823 $235.36 $389,990 1,610 $193.72 6--Nov--04 7,200 $438,990 2,266 $242.22 $349,990 1,518 $158.38 l 7-0ct--03 5,000 $439,990 2,778 $230.55 $370,990 1,720 $155.14 22--Mar--03 6,000 $430,990 2,778 $215.69 $747,900 2,800 $267. l O 6-:J an--06 10,000 $912,900 3,275 $278.74 $864,000 2,550 $332.73 5--Mar--03 11,000

$1,525,000 4,047 $376.82 $309,990 1,211 $192.30 l 7-0ct--03 5,000 $349,990 1,820 $255.97 $299,990 1,208 $189.90 22--Mar--03 6,000 $349,990 1,843 $248.33 $788,975 2,631 $277.31 1-:l an--03 9,000 $844,975 3,047 $299.87 CLUSTER $328,285 1,700 $173.17 4-S ep--04 7,200 $358,125 2,068 $193.10

$1,250,975 3,741 $321.90 1-:l an--03 12,750 $1,352,975 4,167 $334.39 $322,990 1,646 $167.60 l-Oct--05 7,000 $415,990 2,482 $196.22 $328,990 1,576 $184.38 30-Apr--05 8,000 $358,990 1,947 $208.75 $354,990 1,211 $214.28 12-:l ul--03 5,600 $389,990 1,820 $293.13 $654,900 2,205 $250.50 l 5-Nov--02 8,500

$1,649,900 5,107 $323.06 $366,000 1,597 $220.96 7-feb--04 5,200 $399,950 1,810 $229.17 $309,990 2,000 $150.04 13-Apr--ili 3,600 $336,990 2,246 $154.99 $309,990 1,629 $161. 79 2 l--Aug--05 9,000 $359,990 2,225 $190.29 $353,490 1,609 $2CXi.95 l 5--Aug--05 5,000 $383,490 1,853 $219.69 $595,000 3,060 $193.81 1-:l an--06 9,800 $595,000 3,070 $194.44

PAGE 5 OF 13

Total Total CurQtr Remain Community/ Units Sold Sold Unsold ForDev Mas terP Ian

37 7 2 12 18 BERMUDA DUNES STAND-ALONE

1,300 420 180 80 800 INDIO SHADOW HILLS

194 184 -2 10 0 DESERT HOTS PRINGS STAND-ALONE

275 275 4 0 0 Li\ QUINTA ESP Li\NADE

16 12 3 4 0 PALM DESERT STAND-ALONE

124 13 -1 16 95 INDIO STAND-ALONE

500 4 -2 11 485 PALM SPRINGS STAND-ALONE

144 126 7 18 0 INDIO SHADOW HILLS

179 168 -" 11 0 DESERT HOTS PRINGS MISS ION LAKES C. C.

227 214 l 11 2 INDIO SHADOW HILLS

52 15 2 6 31 PALM SPRINGS STAND-ALONE

53 45 3 8 0 Li\ QUINTA THE PALMS

255 247 8 8 0 DESERT HOTS PRINGS MISS ION LAKES C. C.


225 178 16 44 3 Li\ QUINTA MOUNTAIN VIEW C. C.

184 114 30 11 59 INDIO Li\S COLINAS

150 137 28 9 4 Li\ QUINTA MOUNTAIN VIEW C. C.

108 20 3 10 78 COACHELLA STAND-ALONE

180 102 12 3 75 INDIO TALAVERA

234 205 4 13 16 PALM SPRINGS MOUNTAIN GATE

274 250 -4 16 8 RANCHO MIRAGE STAND-ALONE

72 47 0 15 10 CATHEDRAL CITY RIO VISTA

281 24 24 5 252 COACHELLA STAND-ALONE

153 20 10 16 117 DESERT HOTS PRINGS STAND-ALONE

111 36 9 12 63 INDIO INDIAN PALMS C.C.

26 6 0 12 8 Li\ QUINTA STAND-ALONE

17,976 8,776 916 1,415 7,785

28921 lx3--1,2,3,4,5,6.xls

#of Community Projects

INDIAN WE LLS-lA QUINTA 27

INDIO--COACHE LLA 47

PALM DESERT 3

PALM SPRINGS-CATHEDRAL CITY 33

RANCHO MIRAGE 7

SINGLE FAMILY DETACHED TOTAL 117



EXHIBIT 111-2 NEW HOME MARKET SUMMARY

BY SUB MARKET AREA DETACHED PRODUCT

SECOND QUARTER 2006

Sales Averages Per Week Price Sqft $;Sqft

0.71 $862,537 2,887 $298.77

1.34 $401,512 2,220 $180.86

0.40 $668,067 2,571 $259.83

0.72 $532,864 2,231 $238.85

0.54 $796,470 2,862 $278.29

1.23 $514,668 2,355 $218.54

Total Total CurQtr Remain Units Sold Sold Unsold ForDev

4,232 2,260 155 339 1,633

8,582 3,763 607 617 4,202

105 93 4 12 0

4,408 2, 114 127 393 1,901

649 546 23 54 49

17,976 8,776 916 1,415 7,785

2892 l l x3-l ,2, 3,4, 5,6.xls

Salesi\Neek

Development/Developer CurQtr C"m

LA COLONlA. I 0.00 l.08

Rl\l DEVELOPMENT LA MORADA 0.84 l.64

LENNAR HOMES LA PALOMA 0.53 l.91

K. HOVNANIAN;FORECAS THOMES LA PALOMA ES TATES 2.97 l.56

K. HOVNANIAN;FORECAS THOMES LAS PLUMAS 0.08 l.25

LENNAR HOMES PRADO 0.57 l.11

RILINGTON COMMUNITIES PUESTA DEL SOL@ LOS JAR DINES 0.00 0.10

RYLAND HOMES RANCHO MARIPOSA 0.84 l.23

J &R MONTANA LLC NAVARRA@ AVALAR 0.66 l.86

CENTENNIAL HOMES SALIDA DELSOL@ LAS JAR DINES 1.00 0.70

RYLAND HOMES SOMERSET 1.25 l.59

KB HOME VALENCIA 0.21 0.50

FORTE RESIDENTIAL VISTA ESCONDIDA 2.00 2.00

LENNAR HOMES

ALICANTE@ TALAVERA 1.55 l.45

DR HORTON ANASTACIA 0.00 0.55

GHACOMPANIES BELLA TIERRA@ SHADOW HILLS 0.23 0.90

FAMILY DEVELOPMENT CALAROSA@ INDIAN PALMS CC. 1.30 l.13

LENNAR HOMES CASA BELLA@ INDIAN PALMS COUNTRY CLUB 0.00 0.23

FIRST PACIFICA DEVELOPMENT CORP. CORDOBA@ TERRA LAGO 0.84 0.97

LENNAR HOMES CRISTALLO@ TERRA LAGO 1.00 0.81

RYLAND HOMES ESPERANZA@ DESERTRIVER ESTATES 0.33 l.19

LENNAR HOMES FLORENCIA@ TALAVERA 0.78 l.54

DR HORTON FOXS TONE @ SHA DOW HILLS 1.08 2.31

KB HOME GENOVA@ TALAVERA 1.71 l.20

DR HORTON HACIENDA@ SHA DOW HILLS 1.28 l.19

BEAZER HOMES MARQUESA@ TERRA LAGO 0.00 l.02

LENNAR HOMES MONTAGE@ SANTA ROSA 0.46 1.33

WESSMANf:,ONZALES MONTANA DE ORO 2.66 2.66

D. L FREEMAN, INC. MOUNTAIN ES TATES @ SHA DOW HILLS 0.00 0.12

JEFF HAYDEN PALAZZO@ SHA DOW HILLS 1.28 0.93

RILINGTON COMMUNITIES PONDEROSA VILLAS@ PARADISO 2.00 2.00

PONDEROSA HOMES PORTOFINO@ TERRA LAGO 0.14 l.13

WOODS IDE HOMES RHAPSODY@ INDIAN PALMS COUNTRY CLUB 0.33 0.47

FIRST PACIFICA DEVELOPMENT CORP. ROYAL VISTA@ INDIAN PALMS COUNTRY CLUB 0.23 0.54

FIRST PACIFICA DEVELOPMENT CORP. SAN MILAN@ PARADISO 1.51 l.73

LENNAR HOMES SANDSTONE OF DESERT TRACE 0.28 0.22

ASHBROOK COMMUNITIES SHA DOW RANCH@ SHA DOW HILLS --0.85 l.92

FAMILY DEVELOPMENT SIENNA@ SHA DOW HILLS --0.15 l.07

RYLAND HOMES SONORA WELLS@ SHADOW HILLS 1.38 2.24

DR HORTON SUN CITY THE SAN MARIN COLLECTION 12.85 8.07

PULTE HOMES CORPORATION THE BRIDGE@J EFFERSON --0.07 0.72

LENNAR HOMES THE DESERT COLLECTION@ SHADOW HILLS 0.53 l.46

REYNOLDS COMMUNITIES

MAR KET PROFILES, INC

EXHIBIT 111---3 SUMMARY OF NEW HOME DEVELOPMENTS

INDIO--COACHE LLA SUB MARKET AREA SECOND QUARTER 2()(Xj

Ranges Sales LotS rZE/

~ Start Dens 1ty

COACHELLA

$366,890 1,910 $163.46 24--May-04 6, 110

$518,990 3, 175 $192.08 DETACHED $371,990 2,258 $148.28 9--Apr--05 ,ooo $420,990 2,839 $164.74 DETACHED $316,410 1,743 $148.00 l 5-May-04 ,ooo $351,060 2,372 $181.53 DETACHED $335,530 1,846 $139.41 15--:1 an--05 ,ooo $401,090 2,877 $181.76 DETACHED $370,990 2,092 $154.63 l 2--Mar--05 ,ooo $406,990 2,632 $177.33 DETACHED $339,900 1,885 $143.88 1--:1 an--06 0600 $459,900 3,077 $183.63 DETACHED $329,990 2,082 $147.92 l O--Dec--05 ,ooo $368,335 2,490 $158.49 DETACHED $334,990 1,542 $171.24 17--:1 un--05 7.000 $369,990 2,073 $217.24 DETACHED $297,990 1,402 $143.66 l O--Dec--05 '500 $362,900 2,526 $212.54 DETACHED $290,990 1,549 $176.36 l O--Dec--05 ,ooo $346,990 1,942 $187.85 DETACHED $316,990 1,560 $147.66 l--5ep--05 '100 $367,990 2,492 $203.19 DETACHED $322,990 1,646 $167.60 l-Oct--05 7.000 $415,990 2,482 $196.22 DETACHED $309,990 2.000 $150.04 l 3-Apr--06 3.600 $336,990 2,246 $154.99 DETACHED

INDIO

$422,227 2,493 $155.65 30-Apr--05 8.000 $482,386 3,099 $169.36 DETACHED $373,500 1,556 $228.39 l O--Dec--05 7,200

$413,400 1,810 $240.03 DETACHED $399,990 1,895 $173.06 30-Apr--05 8.000 $454,990 2,629 $211.07 DETACHED $353,490 1,631 $206.17 l 5-Aug-05 5.000 $383,490 1,860 $216.73 DETACHED $429,990 1,704 $214.17 26--:lun--04 4,500

Total

Urn ts

273

171

249

165

87

232

110

112

159

155

153

108

281

187

36

63

118

121 $449,990 2, 101 $252.34 CLUSTER DETACHED $367,990 2,092 $157.13 5--Nov--05 7,200 125 $417,990 2,660 $175.90 DETACHED $437, 160 1,987 $196.90 l 5-0ct--05 ,ooo 110 $464,309 2,358 $220.01 DETACHED $805,990 3, 168 $222.38 21--May-04 21,780 133 $889,990 4,002 $254.41 DETACHED $367,690 1,855 $172.01 30-Apr--05 8.000 193 $409,405 2,380 $198.21 DETACHED $328,990 1,517 $150.82 l 2--feb--05 8.000 247 $380,990 2,526 $216.86 DETACHED $406,990 2,848 $142.90 30-Apr--05 8.000 192 $478,990 3,267 $154.28 DETACHED $364,490 1,815 $161.46 20--Aug-05 7,200 147 $444,990 2, 756 $200.82 DETACHED $500,990 2,595 $177.24 l--5ep--05 8.400 86 $552,990 3, 120 $193.05 DETACHED $917,900 2,601 $281.75 8-May-04 13,000 150 $955,900 3,382 $352.90 DETACHED $439,500 2.000 $205.15 29--May--06 5,300 60 $449,500 2, 191 $219.75 ZERO-LOT-LINE $407,000 1,891 $173.14 l 7--Mar--06 8.000 123 $499,000 2,882 $215.23 DETACHED $427,990 1,996 $179.65 l 4--May--05 7,200 151 $589,990 3, 161 $214.42 DETACHED $437, 150 2,598 $147.83 3--:1 un--06 8,200 187 $484,320 3,276 $168.26 DETACHED $341,990 1,658 $169.23 l 5-0ct--05 5,500 179 $404,990 2,393 $206.26 DETACHED $434,990 1,825 $238.35 2o-Mar-04 '800 76 $504,990 2,073 $243.60 DETACHED $387,900 1,624 $206.76 22--5ep-Ol 4,750 166 $412,900 1,997 $238.85 CLUSTER DETACHED $380,490 2,092 $159.95 l O--Dec--05 7,800 223 $425,490 2,660 $181.87 DETACHED $420,000 2, 176 $158.51 6-Aug--05 8.000 lll $460,000 2,902 $193.01 DETACHED $429,990 2, 185 $175.27 l--feb-05 8.000 263 $569,990 3,247 $196.79 DETACHED $369,000 2.448 $131.74 23-Apr--05 8.000 132

$414,080 3, 143 $154.07 DETACHED $353,590 1,844 $127.72 14--Nov--05 7,200 363 $460,835 3.608 $191.75 DETACHED $266,900 1,257 $182.61 8--:1 ul-05 4,500 1,300

$546,900 2,971 $21 2.33 DETACHED $589,990 2,514 $226.37 28--feb--06 8.000 124 $629,990 2, 783 $234.68 DETACHED $389,990 1,610 $193.72 6-Nw-04 7,200 144 $438,990 2,266 $242.22 DETACHED

PAGE70Fl3

Total CurQtr Remain C omm.J n 1ty I Sold Sold Unsold ForDev MasterPlan

119 0 0 154 COACHELLA

STAND-ALONE 105 11 0 66 COACHELLA



STAND-ALONE 85 l 2 0 COACHELLA



LOS JAR DINES 68 11 16 28 COACHELLA


AVALAR 21 12 5 129 COACHELLA

LOS JAR DINES 70 15 9 74 COACHELLA



STAND-ALONE

90 22 10 87 INDIO

TALAVERA 16 0 20 0 INDIO

STAND-ALONE 55 3 8 0 INDIO

SHADOW HILLS 52 17 18 48 INDIO

INDIAN PALMS CC. 25 0 17 79 INDIO

INDlA.N PALMS COUNTRY CLUB 34 11 12 79 INDIO

TERRA LAGO 31 13 15 64 INDIO

TERRA LAGO 131 4 2 0 INDIO

DESERT RIVER ESTATES 96 11 14 83 INDIO





TERRA LAGO 149 6 l 0 INDIO






TERRA LAGO 57 4 18 l INDIO



PARADISO 11 4 15 85 INDIO

SHADOW HILLS 144 -12 30 89 INDIO




SHADOW HILLS 13 -1 16 95 INDIO


SHADOW HILLS

289211 x3-l,2,3,4,S,6.xls

Salesi\Neek Development/Developer CurQtr C"m THE EL DORADO COLLECTION@ SHADOW HILLS 0.07 l.25

CENTURY VINTAGE HOMES THE VENTANA COLLECTION@ SHADOW HILLS 0.23 0.66

CENTURY VINTAGE HOMES THE VISTAS @ LAS COLINAS 2.14 l.18

GHACOMPANIES VENECIA@ TALAVERA 0.84 l.64

DR HORTON VISTA SERENA@ INDIAN PALMS C.C. 0.69 0.78

LENNAR HOMES 47 Total Pro Jee ts 47 60 6314

Average Per Development l 01 l 34

Source: Residential Trends. Market Profiles

MAR KET PROFILES. INC.

EXHIBIT 111--3 SUMMARY OF NEW HOME DEVELOPMENTS

INDIO--COACHE LLA SUB MARKET AREA SECOND QUARTER 2()(Xj

Ranges Sales LotS rZE/

~ Start Dens 1ty

$370.990 1.720 $155.14 22--Mar--03 ,ooo $430.990 2. 778 $215.69 DETACHED $299.990 1.208 $189.90 22--Mar--03 ,ooo $349.990 1.843 $248.33 DETACHED $328.285 1.700 $173.17 4--5ep-04 7.200 $358.125 2.068 $193.10 DETACHED $328.990 1.576 $184.38 30-Apr--05 8,000 $358.990 1.947 $208.75 DETACHED $353.490 1,609 $206.95 l 5-Aug-05 5,000 $383.490 1.853 $219.69 DETACHED

PAGE 80F 13

Total Total CurQtr Remain C omm.J n 1ty I Urn ts Sold Sold Unsold ForDev MasterPlan

227 214 l 11 2 INDIO SHADOW HILLS


184 114 30 11 59 INDIO LAS COLINAS

180 102 12 3 75 INDIO TALAVERA

lll 36 9 12 63 INDIO INDIAN PALMS C.C.

8 582 3 763 607 617 4 202

289211 x3-l.2.3.4.S.6.xls


NORTH INDIO SECOND QUARTER 2006

4 ALICANTE@ TALAVERA l.55 1.45 $422,227 2,493 $155.65 30-Apr-05 8,000 187 90 22 10 87 INDIO

DR HORTON $482,386 3,099 $169.36 TALAVERA 17 BELLA TIERRA@ SHADOW HILLS 0.23 0.90 $399,990 1,895 $173.06 30-Apr-05 8,000 63 55 3 8 0 INDIO

FAMILY DEVELOPMENT $454,990 2,629 $211.07 SHADOW HILLS 22 CORDOBA@ TERRA LAGO 0.84 0.97 $367,990 2,092 $157.13 5-Nov-05 7,200 125 34 11 12 79 INDIO

LENNAR HOMES $417,990 2,660 $175.90 TERRA LAGO 20 CRIS TALLO@ TERRA LAGO l.00 0.81 $437,160 1,987 $196.90 l 5-0ct-05 6,000 110 31 13 15 64 INDIO

RYLAND HOMES $464,309 2,358 $220.01 TERRA LAGO 3 FLORENCIA@ TALAVERA 0.78 l.54 $367,690 1,855 $172.01 30-Apr-05 8,000 193 96 11 14 83 INDIO

DR HORTON $409,405 2,380 $198.21 TALAVERA 8 FOXSTONE@ SHADOW HILLS l.08 2.31 $328,990 1,517 $150.82 12-f eb-05 8,000 247 169 15 18 60 INDIO

KB HOME $380,990 2,526 $216.86 SHADOW HILLS 2 GENOVA@ TALAVERA l.71 l.20 $406,990 2,848 $142.90 30-Apr-05 8,000 192 75 24 7 110 INDIO

DR HORTON $478,990 3,267 $154.28 TALAVERA 16 HACIENDA@ SHADOW HILLS l.28 l. 19 $364,490 1,815 $161.46 20-Aug-05 7,200 147 55 18 22 70 INDIO

BEAZER HOMES $444,990 2,756 $200.82 SHADOW HILLS 19 MARQUESA@ TERRA LAGO 0.00 l.02 $500,990 2,595 $177.24 l--Sep-05 8,400 86 45 0 19 22 INDIO

LENNAR HOMES $552,990 3, 120 $193.05 TERRA LAGO 15 MOUNTAIN ES TATES @ SHADOW HILLS 0.00 0.12 $407,000 1,891 $173.14 17---fVlar-06 8,000 123 2 0 13 108 INDIO

JEFF HAYDEN $499,000 2,882 $21 5.23 SHADOW HILLS 7 PALAZZO@ SHADOW HILLS l.28 0.93 $427,990 1,996 $179.65 14---fVlay-05 7,200 151 56 18 14 81 INDIO

RILING TON COMMUNITIES $589,990 3,161 $214.42 SHADOW HILLS 6 PONDEROSA VILLAS@ PARADISO 2.00 2.00 $437, 150 2,598 $147.83 3--:J un-06 8,200 187 10 10 2 175 INDIO

PONDEROSA HOMES $484,320 3,276 $168.26 STAND-ALONE 21 PORTOFINO@ TERRA LAGO 0.14 l. 13 $341,990 1,658 $169.23 l 5-0ct-05 5,500 179 43 2 3 133 INDIO

WOODS IDE HOMES $404,990 2,393 $206.26 TERRA LAGO 11 SAN MILAN@ PARADISO l.51 l.73 $380,490 2,092 $159.95 10-0ec-05 7,800 223 52 21 8 163 INDIO

LENNAR HOMES $425,490 2,660 $181.87 PARADISO 9 SANDSTONE OF DESERT TRACE 0.28 0.22 $420,000 2, 176 $158.51 6-Aug-05 8,000 111 11 4 15 85 INDIO

ASHBROOK COMMUNITIES $460,000 2,902 $193.01 SHADOW HILLS 14 SHADOW RANCH@ SHADOW HILLS -0.85 l.92 $429,990 2, 185 $175.27 1-f eb-05 8,000 263 144 -12 30 89 INDIO

FAMILY DEVELOPMENT $569,990 3,247 $196.79 SHADOW HILLS 10 SIENNA@ SHADOW HILLS -0.15 l.07 $369,000 2,448 $131.74 23-Apr-05 8,000 132 68 -2 22 42 INDIO

RYLAND HOMES $414,080 3, 143 $154.07 SHADOW HILLS SUB SONORA WELLS@ SHADOW HILLS l.38 2.24 $353,590 1,844 $127.72 l 4-Nov-05 7,200 363 74 18 56 233 INDIO

DR HORTON $460,835 3,608 $191.75 SHADOW HILLS 5 SUN CITY THE SAN MARIN COLLECTION 12.85 8.07 $266,900 1,257 $182.61 8cJ ul-05 4,500 1,300 420 180 80 800 INDIO

PULTE HOMES CORPORATION $546,900 2,971 $212.33 SHADOW HILLS 18 THE DESERT COLLECTION@ SHADOW HILLS 0.53 l.46 $389,990 1,610 $193.72 6-Nov-04 7,200 144 126 7 18 0 INDIO

REYNOLDS COMMUNITIES $438,990 2,266 $242.22 SHADOW HILLS 13 THE EL DORADO COLLECTION@ SHADOW HIL 0.07 l.25 $370,990 1,720 $155.14 22---fVlar-03 6,000 227 214 11 2 INDIO

CENTURY VINTAGE HOMES $430,990 2,778 $215.69 SHADOW HILLS 12 THE VENTANA COLLECTION@ SHADOW HILLS 0.23 0.66 $299,990 1,208 $189.90 22---fVlar-03 6,000 115 113 3 0 2 INDIO

CENTURY VINTAGE HOMES $349,990 1,843 $248.33 SHADOW HILLS VENECIA@ TALAVERA 0.84 l.64 $328,990 1,576 $184.38 30-Apr-05 8,000 180 102 12 3 75 INDIO

DR HORTON $358,990 1,947 $208.75 TALAVERA

Source Residential Trends, Market Profiles

MARKET PROFILES, INC. PAGE 9 OF 13 289211 x3-l, 2, 3,4, 5,6.xls

EXHIBIT 111-5 NEW HOME PROJECTS LOCATION MAP

MARKET PROFILES, INC. 289211 x3-l ,2,3,4,5,6.xls

RECENTLY APPROVED OR UNDER CONSTRUCTION

Victoria Palms Condo, LLC DR 06-1-208, CUP 06 1-853

PENDING

2 INDIAN PALMS EXPANSION TM 05-8-435, DR 05-8 189

PRE-PLANNING

3 Polo Square

RECENTLY APPROVED OR UNDER CONSTRUCTION

4 Lido at Terra Lago

5 Espana

6 Indio 78

7 Stonefield Development

8 Rancho Verde

9 White Sta Ilion

l O Villa Di Vinci

11 Tireste at Talavera

12 Brighton Properties, LLC; ("Richert'')

Design Review 05-11-200

DR 05-1-156

TM05-0l-420PMP 05-0 l-37EA 05-01-37

Tentative Map 32339 & 32340 TM 04-7-410 TM 04-7-411 Change of Zone 04-7--622 Design Review 04--9-134

Design Review 04--6-123

DR 6--7-186, TM 6-7-433, CZ 6-7-637, GPA 6-7-380

Design Review 04-5-117 TM 32425 (TM 04 5-406)

Design Review 06-2-210

TM 34191, 05-11-438 Change of Zone 05-11 639

420

261

450

133

471

238

96

36

53

24

65

126

EXHIBIT 111-6

DEVELOPMENT STATUS REPORT

CITY OF INDIO

JULY2006

To construct 420 residential condominium units

Northwest corner of Avenue 49 and Victoria Palms Associates, Monroe street LLC (760) 360--8001

To construct 261 condo units, in addiition E isenhcwer Dr. and north of Odium to a 72 room hotel and conference

O ~H~ = To sul:x:livide 48 acres into 450 condominium units, a 250--room hotel, a

The property is north of Highway 150--room extended stay hotel, 50,000 square feet of retail space, and 200,000 111 and is bisected by Shields Roa

square feet of office space.

To construct 133 units on 41.56 acres Avenue 44 and Golf Center Parkway

To construct 471 single family residence Generally located on the northeast corner of Adams St and Ave 40.

on 160.67 acres AP N 679-070-002

(Tract 32869) To subdivide 78.5 acres Avenue 40 andJ efferson St. for 238 single family homes, AP N 679-110-005

TM 32339; To subdivide 52.49 acres into North of Avenue 50, westofHjorth % residential lots TM 32340; Street and south of Avenue 49

To allow the construction of 36 new Southwest comer of Dr. Carreon

single-family residneces & To allow two 8 lvd. and Calhoun street story homes on 7.18 acres of vacant land

Dave Weirnart (608) 252-1877

ohn Megay and William Swank

Ashbrook Communities / Erica Kane (760) 200--9290

Regency Hornes Peter Solomon (760) 770-7373

Beazer Hornes

Stonefield Development Art McCull 949-581 -4663

W .E.W. Construction 760-343-5102

TM 33292 to construct 53 single family homes in a private gated community

North side of Ave. 50 east of Hjorth Rudy Herrera (760) 9'.)0--8989

To sul:x:livide 4.41 acres into 24 residential lots in the RH zone, also To construct 24 Single family residences

To construct 65 single family detached residences

To sul:x:livide 35.2 acres into 126 single family homes & zone change from EE to RL

South of Fred Waring Drive, west of Four Towers Development Clinton Street 760-333-3405

Located at Avenue 38 and Dune Palms Road.

South of Avenue 44, west of Harrison Street

Sheffield Communities

Alpine Development (760)-601-0159

l ~ 2;2006

8~ 1;2005

11 ;8;2005

l ;20;2005

l ~ 8;2005

81) l ;2004

61)0;2004

7 ~ 5;2005

5~ 2;2004

2;2;2006

l l /l 8;2005

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

EXHIBIT 111-6 DEVELOPMENT STATUS REPORT

CITY OF INDIO JULY2006

ProJect Name File Name Units Request Location Owner S ubm1tted

Continued

APPROVED, NO RECORD OF DEVELOPMENT

Barcelona TM 32411 138 To allow the subdivision of 40. l acres l (2 mile east of the intersection of

Beazer Hornes 5 /27 /2005 into 138 single family homes Monroe and Avenue 50

To subdivide 80 acres of vacant land into North of 1-10 freeway, between Mickie Riley R ilington

Tentative Map 32401 275 single family lots with private streets, Affresco

TM 04-6-408 275

and three recreational;letention basin Monrcw Street andJ ackson street, Communities 7,6 /2004

common area lots. north of the All American Canal 760-471-5460

TM 05-3-428 PMP 05 TM 33293 Development of 40 acres into

North of Avenue 44, east of Golf Rudy Herrera Aliante

3-41 DR 05-3-163 130 130 residential lots and a 3 acre

Center P atkway (760) 900-6989 3'3/2005 parkf)pen space area.

Tentative Map 30605; To sul:x:livide 16.35 acres into 56 single North of Ave. 44, west of Golf Family Development

Buena Vista 04-3-402

56 family homes Center P atkway

Rudy Hererra 3;3/2004 (760) 900-6989

TM 31974; To subdivide 29.07 acres into Desert Lake

Desert lake, LLC TM 31974; 04-2-400

257 105 S FH West Side of Golf Center Park.way,

Randy Reinhart 2/1/2004 TM 31975; 04-2-401 TM31975; To subdivide 39.48 acres into north of Avenue 43 152 S FH

(909) 605-9456

Regency Hornes; Coronado Tentative Map 31689

480 To sul:x:livide 160 acres of land into 480 Northeast corner of Avenue 40 and Peter Solomon

l /29/2004 TM 04-1-398 single family homes Adams Street (760) 770-'7373

Tentative Map 31389 To sul:x:livide 16.13 acres into 82 single-

Indian Palms Cochran Ranch 03--9-391; Specific family residential lots; To establish land Desert Equipment T.A.

Estates P Ian Amendment 95--9 82 use regulations, development standards, Indian Palms Country Club McConnell 9fi /2003 5 Project Master Plan and design guidelines and To amend the (760) 347-8486 03-'l-29 land use designation.

Larry Hughes ("Montevina") Tentative Map 31562;

208 To sul:x:livide 80 acres into 298 single East of Golf Center Park.way on Larry Hughes

8/1 /2003 TM 03-8-388 family homes in a gated community Avenue 44. (760) 578-0139

Lupe Watson Vista Montana Tentative Map 30606;

To sul:x:livide 9.77 acres into 11 South side of Avenue 50, west of Lupe Watson Estates

TM 03-7-387; Project 11 residential lots ackson Street. (760) 771-6237

7 /29/2003 Master P Ian 03-7-27

Centennial Homes Design Review 03-7-31

To construct 31 single-family detached North side of Dr. Carreon Blvd., Centennial Hornes Derek 7~6/2003

Calhoun Estates 85 residences west of Calhoun Street. Scott 41 5--899-1962

First Pacific Development; - Construction of 53 single family homes located on Wayne Street in the First Pacifica Development; Bellasara II

84 Conditional Use 53 on 7.96 acres with optional" Casita" Indian Palms Country Club. Eric French; 909---841-1379

7 ~ 5/2003 ~ .

PENDING

Royal Vista II phases 11& 12 Design Review 06-2-

27 Construction of 27 single family homes Situated within Indian Palms First Pacifica Development

1~7/2006 209 Country Club Corp. (909) 798-3688

Tentative Map 34192 Subdivision of 40 acres into 132 North of Avenue 42, east of

Oasis /Trendarnerica (TM 05-12-440) & 132 residential lots for a private gated Madison Street & west of Monroe

Randy Reinhart 503---804-12/1 /2005

Development PMP 05-12-46 EA5-12 community Street

9600 447

Las Plumas TM 33875 (TM 05-12-

171 Subdivision of 38.03 acres into 171 East of Jackson, south of future

S amrrry Castro 760-399-5646 11 /28/2005 439) residential lots, with a 2---a.cre park Avenue 49

Whittier Ranch TM 31473 138 To sub-divide 39 acres into 138 Located on northwest corner of Kevin Manning

3'3/2005 singlefamly homes in a gated community Avenue 48 & Jackson St. 760 404-1900

Continued

ProJect Name File Name Units

28 Ponderosa Villas DR 05-4-170 185

29 Avante SP 05-3-1 5 TM 05-3-

149 430 P MP 05-3-43

TM 05-02-425 Tract 30 Villa LaJ olla 33014GPA05-2-68 14

DR 05-2-161

Design Review 05-2-31 Indian Springs CC 160 Tentative Tract 27

Map 33165

Change of Zone 04-1 l

32 Las Bougainvilleas, LLC 626 P MP 04-11-36

25 Tentative Map 33012; 04-11-418

Design Review 04-7-33 Windsong at Desert Trace 247

130

34 Painted Hills TM 34351 67

APPROVED

P MP 96-6-10 TM 32462 (04-11-417))

35 Terra Lago East TM 32341 (TM 04-11- 351 416) TM 32288 (TM REMAIN 04-11-415) TM 32287 (TM 04-11 -414)

Parcel Map 31463 Project Master P Ian;

501 36 Andreas Ranch 03--8-28; Specific P Ian

REMAIN 03--8-14 Tentative Ma~ 31649; 03-6-389

PENDING

CSP 05-11-16; EA 05 37 Citrus Ranch 3.200

11-443

P MP 05-03-44 TM 05 38 Polo Estates Residential 774

3-431 EA 5-2-424

PRE-PLANNING

39 Sun City S hadcw Hills Expansion - 1.200

SOURCE C1tyoflnd10. Market Profiles

EXHIBIT 111-6 DEVELOPMENT STATUS REPORT

CITY OF INDIO JULY2006

Request Location

To construct 185 single family homes Ave 41 & Monroe St (TM 31815 410 Lots)

Mixed use project for 149 SF H and office Northwest corner of Burr St. & commercial on 54.47 acres TM 33239 Varner Rd.

To construct 14 residential homes on 3.3 South of John Noble sand West of acres Arabia

To sul:x:livide 6.92 acres into 27 single- Northeast corner of Jefferson Street family residential & Westward Ho

To sul:x:livide 16.6 acres into 25 residential lots and 15 lettered lots for street, landscaping and retention, also Tc

North of Avenue 50, east of

change the zoning from CE IR-2 To CE IR efferson Street

l ;2

To construct 247 single-family homes on Northeast corner of Monroe and

80.26 acres of agricultural land within TIM 30643

Avenue 41

To construct 57 single family detached North of Avenue 44, near All homes on 27 acres American Canal

To allow for the development of 851 dwelling units of various density types on

North of Avenue 44 between Golf 563.34 acres

Center P atkway and Dillion Road; (Deducting developments already

Landmark Lakes Golf Course accounted for in this relX)rt, 527 units remain in Terra Lago)

To sul:x:livide 274.% acres of land into 937 single-family residential lots for a

North of 1-10 freeway, north side of

private gated community in an EE and Avenue 38 at the northerly terminus

RL zone of Jefferson Street

Planned Community with 3,200 dwelling East of Dillon, between Ave. 38 and

units, club house; annex 1,559 acres into the city of Indio

Ave.42

TM 33004, To subdivide approx 214 acres into 774 lots.SF lots will range in

Located at the northwest corner of size from 5000 sq ft to 11,000 sq ft Cluster P reduct lots will range from 4,24(

Ave. 52 and Jackson St

sq ft to 5,250 sq ft

To add an additional 1,200 homes on North of the 1-10 Freeway between efferson and Monroe Streets

305 acres directly north of the current (directly north of the existing Sun

Sun City S hadcw Hills Development. City Shadow Hills Development).

Owner S ubm1tted Ponderosa Hornes II Inc Pamela Hardey 3 ;24;2005 (925) 460-6981

R ilington Communities (760) 3~0;2005

779-0705

4 Towers development Guy Etziony 2~4;2005 760-333-3405

Roger Snellenberger (760) 784-5097

l ;24;2005

Las Bougainvilleas LLC udane Clark;Dennis

7 ;27 ;2004 F reernan 760-773-9'.124

KB Horne Coastal Inc. Tim Lokkesrroe -

909-587-3308

Transwest Housing 4~0;2006

S uncal Gary Williams 11 /l ;2004 (760) 775-6373

TR.CO. Tom Rielly 5~6;2003 (949) 719-4975

S unCal; Tosh Neminsky; l l /l 4;2005

(760) 601-3437

~ im Hildebrand 3~ 5;2005 (925) 682-4830

Pulte Home Corporation 7 ;20;2006

APPENDIX F

FORM OF BOND COUNSEL OPINION

[Dated the Date of Closing]

City of Indio 100 Civic Center Mal I Indio, California 92201

$10,225,000 City of Indio

Comnunity Facilities District No. 2CXX'i-1 (Sonora Wells) Special Tax Bonds, Series 2cn;

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 $10,225,000 aggregate principal amount of City of Indio Comnunity Facilities District No. 2CXX'i-1 (Sonora Wells) Special Tax Bonds, Series 2cn; (the "Bonds"), pursuant to the prc:wisions of the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, or the Gc:wernment Code of the State of California (the "Act") and pursuant to a Fiscal Agent Agreement, dated as of October 1, 2cn; (the "Fiscal Agent Agreement''), by and between the City of Indio Community Facilities District No. 2006-1 (Sonora Wells) (the "District'') and Union Bank of California, NA., as fiscal agent (the "Fiscal Agent''). We have exanined the Act and such certified proceedings and other papers as we deem necessary to render this opi ni on.

As to questions of fact material to our opinion, we have relied upon representations of the District contained in the Fi seal A gent Agreement and in the certi fi eel proceedings and certifications of publ i c officials and others furnished to us, without undertalking to verify the same by independent investigation. Without limitation of the foregoing with respect particularly to the opinion set forth in paragraph (4) hereof, we have assume the accuracy and enforceability of certain representations and warranties and co.tenants of the District as set forth in the Fiscal Agent Agreement and the Certificate Pertaining to Arbitrage and the Prc:wisions of Sections 103 and 141-150 of the Code executed and delivered by the City, on behalf of the Distict, in connection with the issuance of the Bonds.

Based upon the foregoing we are of the opinion, under existing law, as folio.vs:

1. The Fi seal A gent Agreement has been duly and val idly 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.

F-1

2. The Bonds constitute valid and binding limited obligations of the District as pr0.tided in the Fiscal Agent Agreement, and are entitled to the benefits of the Fiscal A gent 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 from the investment of such moneys, suqject 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 Bands for interest thereon to be and remain excluded from the gross income of the o.vners thereof for federal income tax purposes. Noncompliance with such requi rements 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 c0.tenanted in the Fiscal Agent Agreement to maintain the exclusion of interest on the Bands from the gross income of the o.vners thereof for federal income tax purposes.

In our opinion, under existing law, interest on the Bonds is exempt from personal income taxation of the State of California and, assuming compliance with the aforementioned co.tenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the o.vners thereof for federal income tax purposes.

We are further of the opi ni on that under exi sti ng statutes, regulations, rul i ngs 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 ni ni mum tax imposed by section 55 of the Code. The receipt or accrual of interest on Bonds o.vned by a corporation may affect the computation of the alternative minimum taxable income, upon which the alternative ni ni mum tax is imposed, to the extent that such interest is taken into account in determining the aqj usted current earnings of that corporation (75 percent of the excess, if any, of such acjjusted current earnings 0.ter the alternative ninimum taxable income being an acjjustment to alternative minimum taxable income (determined without regard to such aqjustment or to the alternative tax net operating I ass deduction)) .

Except as stated in the preceding three paragraphs, we express no opinion as to any federal or state tax consequences of the o.vnershi p or di sposi ti on of the Bands. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bands, or the i nterestthereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the ad.tice or apprcwal of other bond counsel.

No opi ni on is expressed herei n on the accuracy, completeness or sufficiency of the Official Statement or other offering materials relating to the Bands.

The rights of the o.vners of the Bonds and the enforceability of the Bonds and the Fiscal Agent Agreement may be suqject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be suqject to the exercise of j udi ci al di sere ti on i n appropriate cases. The enforceabi Ii ty of the B ands and the Fi seal A gent Agreement is suqject to the effect of general principles of equity, including, without limitation, concepts of

F-2

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 liM', and to the limitations on legal remedies against gcwernmental entities in California.

Our opinions are based on existing liM', which is suqject to change. Such opinions are further based on our kno.vl edge 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 I iM' that may thereafter occur or become effective. M orec:wer, our opi ni ans 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 revie.v of existing liM' that we deem relevant to such opinions and in reliance upon the representations and co.tenants referenced alx:we.


F-3

APPENDIX G

FORMS OF CONTINUING DISCLOSURE AGREEMENT

CONTINUING DISCLOSURE AGREEMENT (City of Indio Community Facilities District No. 2006-1 (Sonora Wells))

This Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of October 1, 2006, is executed and delivered O\f the City of Indio Community Facilities District No. 2006-1 (Sonora Wells) (the "District") and MuniFinanical, as dissemination agent (the "Dissemination Agent") hereunder, in connection with the issuance of the $10,225,CXX) City of Indio Community Facilities District No. 2006-1 (Sonora Wells) Special Tax Bonds, Series 2006 (the "Bonds''). The Bonds are being issued p.,1rsuantto pravisions of a Fiscal Agent Agreement, dated as of October 1 , 2006 ( the " Fi seal A gent Agreement"), O\f and between the Di strict and Union Bank of California, N.A., as fiscal agent (the "Fiscal Agent"). The District and the Dissemination Agent ccwenant and agree as follcws:

SECTION 1. Punpse of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered O\f the District and the Dissemination Agent for the benefit of the B enefi ci al Owners of the B ands and i n order to assi st the P arti ci pati ng U nderwri ter i n compl yi ng 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 captalized term used in this Disclosure Agreement unless ctherwise defined in this Section, the follcwing capitalized terms shall have the fdlcwing meanings:

"Annual Report" shal I mean any Annual Report or any addendum thereto pravi ded O\f the District p.,1rsuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

"Beneficial Owner" shal I mean any person which (a) has the pavver, directly or indirectly, to vcte or consent with respect to, orto dispose of cwnershi p of, any Bands (including persons hol di ng B ands through nomi nees, depositories or other i ntermedi ari es), or ( b) i s treated as the cwner of any Bands 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 desi gnee, or such ct her officer or employee as the City shal I desi gnate i n wri ti ng to the Fi seal Agent and Di ssemi nation Agent from ti me to ti me.

"Dissemination Agent" shall mean M uniFinancial, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing O\f the District and which has filed with the Fi seal 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 app-cwed by the Securities and Exchange Commission are set forth in the SEC website located at http: I fwww. sec.cp..t.

" P arti ci pati ng U nderwri ter" shal I mean any of the ori gi nal underwriters of the B ands required to comply with the Rule in connection with offering of the Bonds.

" Repository" shal I 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 meantheStateofCalifornia

"State Repository" shall mean any public or p-ivate 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. Prcwision of Annual Repats.

(a) The District shall, or shall cause the Dissemination Agent to, not laterthan February 15 of each year, commencing February 15, 2007, p-avide 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 prcwided in electronic format to each Repository and may be prcwi ded through the services of a "Central Post Office" apprcwed 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 cther information as prcwided in Section 4 of this Disclosure Agreement. If the District's fiscal year changes, it shal I give notice of such change in the same manner as for a Li steel Event under Section 5(f). Furthermore, upon receipt of a written request of any Beneficiary Owner, the Dissenination Agent shall pravide a copy of the Annual Report to such Beneficial Owner at such B enefi ci al Owner' s expense.

(b) Nct later than fifteen (15) Business Days prior to the date specified in subsection (a) for prcwiding the Annual Report to Repositories, the District shall pravide the Annual Report to the Dissemination Agent and the Fiscal Agent (if the Fiscal Agent is nct the Di ssemi nation Agent). If by such date, the Di ssemi nation Agent has nct 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 p-avide 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 Dissenination Agent and Fiscal Agent may conclusively rely upon such certification of the District and shall have no duty or oll igation to review such Annual Report.

G-2

(c) If the Dissemination Agent is unable to verify that an Annual Report has ~en p-avided to Rerxisitories O\f the date required in subsection (a), the Dissenination Agent shall send a notice to each Repository orto the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as ExhibtA.

(cl) The Dissemination Agent shall:

(i) determine each year prior to the date for p-aviding the Annual Rerxirt the name and address of each National Repository and the State Repository, if any; and

( i i) to the extent i nformati on i s knavvn to it, fi I e a report with the Di strict and (if the Dissenination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has ~en prcwided pursuant to this Disclosure Agreement, stating the date it was p-avided and listing all the Repositories to which it was p-avided.

SECTION 4. Content of Annual Reports. The District's Annual Rerxirt shall contain or include O\f reference the fol I avvi ng:

(i) The audited financial statements of the City, p-epared in accordance with generally accepted accounting principles in effect from time to time. If the City's audited financial statements are not avai I all e O\f the ti me the Annual Report is required to ~ fi I ed 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 shal I ~ fi I eel in the same manner as the Annual Report when they ~come available.

(ii) The balance in the Acquisition and Construction Fund held underthe Fiscal Agent Agreement as of the Septem~r 30 next p-ecedi ng the Annual Rerxirt date.

(iii) Total assessed valuation (per the Riverside County Assessor records) of all parcels currently subject to the Special Tax within the District, shewing the total assessed valuation for all land and the total assessed valuation for all impravements within the District and di sti ngui shi ng ~tween the assessed value of developed property and undeveloped p-operty.

(iv) Identification of each parcel for which any Special Tax payment is delinquent, together with the fdlewing information respecting each such parcel: (A) the amount delinquent; (B) the date of each delinquency; (C) in the event a foreclosure compaint has ~en filed respecting such delinquent parcel and such comp ai nt has not yet ~en 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 num~r of certificates of occupancy issued O\f the City and the p-incipal amount of p-epayments of the Special Tax with respect to the District forthe p-ior Fiscal Year.

(vi) A I and avvnershi p summary Ii sting p-operty avvners resrxinsi ll e for more than five percent (5%) of the annual Special Tax levy, as shewn on the Riverside County Assessor's last equalized tax rol I p-i or to the Septem~r next preceding the Annual Report date.

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(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.

(vi ii) A descri p:ion of the status of the facilities being constructed with proceeds of the Bonds as of the date of the Annual Report (rut only so long as such facilities are not completed).

(ix) The number of b.Jilding permits issued in the District during the prior Fiscal Year.

(x) The amount of Special Taxes generated O\f the developed parcels and undeveloped parcels within the District.

Any or all of the items listed al:xNe may be included O\f 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 O\f reference is a final official statement, it must be avai I able from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included O\f reference.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the prCNisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the fol I cwi ng events with respect to the B ands, if material :

1 . pri nci pal and i nterest payment del i nquenci es;

2. non-payment related defaults;

3. modifications to rights of B ondhd ders;

4. opti anal, contingent or unscheduled bond cal Is;

5. defeasances;

6. rati ng changes;

7. adverse tax opnions or events adversely affecting the tax--exemp: status of the Bonds;

8. unscheduled draws on the debt service reserves reflecting financial di ffi cul ti es;

9. unscheduled draws on credit enhancements reflecting financial di ffi cul ti es;

10. substitution of credit or liquidity praviders, or their failure to perform;

11. rel ease, substitution or sale of property securing repayment of the Bands.

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(b) The Fiscal Agent shall, within me (1) Business Day of olXaining actual kncwledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, contact the Disclosure Representative, inform such persm of the event, and request that the District promp:ly notify the Dissemination Agent in writing whether or nct to report the event pursuant to subsection (f) and promp:ly direct the Fi seal Agent whether or nct to report such event to the Bmdholders. In the absence of such direction the Dissemination Agent shall not report such event unless ctherwise required to be reported by the Fiscal Agent to the Bmdholders under the Fiscal Agent Agreement. The Disseminatim Agent may cmclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, "actual kncwl edge'' of the occurrence of such Listed Events shal I mean actual kncwl edge by the officer at the corporate trust office of the Fiscal Agent or the Dissemination Agent with regular responsibility for the administratim of matters related to the Fiscal Agent Agreement. Neither the Fiscal Agent nor the Dissemination Agent shall have any responsibility to determine the material i ty of any of the L i sted Events.

(c) Whenever the District olXains kncwledge of the occurrence of a Listed Event, whether because of a nctice from the Disseminatim Agent pursuant to subsection (b) or ctherwise, the District shall as soon as possible determine if such event would be material under appicalle federal securities laws.

(cl) If the District has determined that kncwledge of the occurrence of a Listed Event would be material under appicalle 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 respmse 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 nctify 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 Di strict to report the occurrence of a Listed Event, the Di ssemi natim Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. Nctwithstanding the foregdng, notice of Listed Events described in subsectims (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 Hdders of affected Bonds pursuant to the Fi seal Agent Agreement.

SECTION 6. Termination of Reporting Olligation. The District's obligations under this Disclosure Agreement shall terminate upm the legal defeasance, prior redemp:ion or payment in full of all of the Bmds. If such termination occurs prior to the final maturity of the Bmds, the District shal I give notice of such termination in the same manner as for a Listed Event under Section S(f).

SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Disseminatim Agent to assist it in carrying out its obligatims 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

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rrB.llner forthe content of any notice or report prepared by the District pursuant to this Disclosure Agreement. The initial Dissemination Agent shall ~ MuniFinanical. The Dissemination Agent rray resign by praviding 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 Disserrination Agent~ responsible for filing any report not pravided to it by the District in a timely rrB.llner and in a form suitable for filing.

SECTION 8. Amendment; Waiver. Notwithstanding any other prCNision of this Disclosure Agreement, the District and Dissemination Agent rray amend this Disclosure Agreement ( and the Di ssemi nation A gent shal I agree to any amendment so requested by the District) pravided, the Dissemination Agent shall not ~ obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any pravision of this Disclosure Agreement rray ~ waived, pravided that the follavving conditions are satisfied:

(a) If the amendment or waiver relates to the prCNisions of Sections 3(a), 4, or S(a), it rray only~ rm.de in connection with a change in circumstances that arises from a change in legal requirements, change in lctN, or change in the identity, nature or status of an obligated person with respect to the Bands, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nati anally recognized bond counsel, have complied with the requirements of the R ul e at the ti me of the ori gi nal i ssuance of the B ands, after taki ng i nto account any amendments or interpretations of the Rule, as wel I as any change in circumstances; and

(c) The amendment or waiver either (i) is apprCNed by the Hdders of the Bonds in the same rrB.llner as prCNided 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, rraterially impair the interests of the Holders or Beneficial Owners of the Bonds.

In the event of any amendment or waiver of a prCNision of this Disclosure Agreement, the District shal I descri ~ such amendment in the next Annual Report, and shal I include, as appicable, a narrative explanation of the reason forthe amendment or waiver and its impact on the type ( or, in the case of a change of accounting pri nci pl es, on the presentation) of financial i nf orrrati on or operati ng data ~i ng presented by the Di stri ct.

SECTION 9. Additional Information. Ncthing in this Disclosure Agreement shall ~ 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 i nforrrati on 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 i nforrrati on in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

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SECTION 10. Default. In the event of a failure of the District or the Dissemination Agent to campy with any pravision of this Disclosure Agreement, 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 the Disserrination Agent, as the case may be, to campy with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall nct 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 Disserrination Agent to campy with this Disclosure Agreement shal I be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. Article VI I of the Fi seal A gent Agreement pertai ni ng to the Fi seal A gent i s hereby made app i cable to thi s Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained i n the Fi seal A gent Agreement and the Di ssemi nation A gent shal I be enti tied 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, empoyees 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 liablity, rut 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 pravided 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 prcwided 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 I iab lity 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 remaval of the Di sserri nation Agent and payment of the Bands.

SE CTI ON 12. N cti ces. Any ncti ces or communications to or among any of the parties to this Disclosure Agreement may be given as follcws:

To the District: City of Indio Community Facilities District No. 2006-1 (Sonora W el Is)

c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Phone: ( 760) 342--6500 Fax: ( 760) 342--6597

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To the Fi seal A gent:

To the Di sserni nation Agent:

Union Bank of Califrrnia, 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

Muni Financial 27368 Via I ndustria, Suite 11 O Temecula, California 92590 Attn: Disclosure Group Phone: (951) 972-5674 Fax: (951) 587-3510

Any person rnay, by written nctice to the other persons listed ai:xNe, designate a different address cr telephone nurnber(s) to which subsequent nctices or cornrnunications should be sent.

SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Di strict, the Fi seal A gent, the Di sserni nati on A gent, the P arti ci pati ng U nderwri ter and H d ders and B enefi ci al Owners frorn ti me to ti rne of the Bands, and shal I create no rights in any other person or entity.

SECTION 14. Counterparts. This Disclosure Agreement rnay be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the sarne instrument.

CITY OF INDIOCOMMUNITY FACILITIES DISTRICT NO. 2006-1 (SONORA WELLS)

By ____________________________ _

City Manager of the City of Indio

MUNIFI NANICAL, as Dissemination Agent

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 Facilities District No. 2006-1 (Sonora W el Is)

Name of Bond Issue: City of Indio Community Facilities District No. 2006-1 (Sonora Wells) Special Tax Bonds, Series 2006

Date of I ssuance: October 18, 2006

NOTICE IS HEREBY GIVEN thatthe District has not p-avided an Annual Report with respect to the abave--named Bands as required by the Continuing Disclosure Agreement, dated as of October 1, 2006, with respect to the Bonds. [The District anticipates that the Annual Re[X)rt will be filed by _____________ .]

Dated: ______________ _

MUNI FINANCIAL, on behalf of Di strict

cc: Issuer

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DEVELOPER CONTINUING DISCLOSURE AGREEMENT

This Developer Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of October 1, 2006, is executed and delivered by Western Pacific Housing, Inc., a Delaware corpcration (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 $10,225,CXX) City of Indio Cornrnunity Facilities District No. 2006-1 (Sonora Wells) Special Tax Bonds, Series 2006 (the "Bonds''). The Bonds are being issued pursuant to pravisions of a Fiscal Agent Agreement, dated as of October 1, 2006 (the "Fiscal Agent Agreement"), by and between the City of Indio Cornrnunity Facilities District No. 2006-1 (Sonora Wells) (the "Issuer") and the Fiscal Agent. The Property Owner, the Dissemination Agent and the Fi seal Agent cavenant and agree as fd lcws:

SECTION 1. Punpse 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 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 captalized terrn used in this Disclosure Agreement unless ctherwise defined in this Section, the follcwing capitalized terrns shall have the fdlcwing meanings:

"Affiliate" of another Person means (a) a Person directly or indirectly cwning, control Ii ng, or hd ding with pcwer to vote, five percent ( 5%) or rnore of the outstanding voting securities of such other Person, (b) any Person whose outstanding voting securities of five percent ( 5% ) or rnore are di rectl y or i ndi rectl y cwned, control I eel, or held with pavver to vote, by such cther Person, and ( c) any Person directly or indirectly control Ii ng , control I eel by, or under cornrnon control with, such other Person; for purposes hereof, control means the pavver to exercise a control Ii ng influence aver the management or policies of a Person, uni ess such pcwer is solely the result of an official position with such Person.

"Annual Report" shall mean any Annual Report or its addendum pr0.tided by the Property Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

"Assurn[Xion Agreement" means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the Beneficial Owners containing terrns substantially similar to this Disclosure Agreement (as modified for such Major Owner's development and financing plans with respect to the District), whereby such Major Owner or Affiliate agrees to pravide Annual Reports and notices of Listed Events, setting forth the i nforrnati on described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in the Di strict cwned by such Major Owner and its Affiliates and, at the o[Xion of the Property Owner or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a prOJision substantially in the forrn of Section 11 hereof.

"Beneficial Owner" shal I mean any person which (a) has the pavver, directly or indirectly, to vcte or consent with respect to, orto dispose of cwnershi p of, any Bands (including persons

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hol di ng B ands through nomi nees, depositories or other i ntermedi ari es), or ( b) i s treated as the cwner of any Bands for federal income tax purposes.

"Central Post Office'' means the DisclosureUSA website maintained O\f the Municipal Advisory Council of Texas or any successor thereto, or any other organization or method apprcwed O\f the staff or members of the Securities and Exchange Commission as an intermediary through which issuers may make filings in compliance with the Rule.

"Disclosure Representative'' shall mean the Project Manager, Sonora Wells, of the Property Owner or his or her designee, or such cther officer or empoyee 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 O\f 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. 2006-1 (Sonora Wells).

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

" M aj or Owner" shal I mean an avvner ( i ncl udi ng al I A ffi I i ates of such avvner) of I and i n the District responsible in the aggregate for 2CP/o or more of the annual special taxes levied in the District.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently apprcwed O\f the Securities and Exchange Commission are set forth in the SEC website located at http: I fwww. sec.rpv.

" P arti ci pati ng U nderwri ter" shal I mean any of the ori gi nal underwriters of the B ands required to comply with the Rule in connection with offering of the Bonds.

"Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a gcwernment or political subdivision thereof.

" Repository" shal I mean each National Repository and each State Repository.

"Rule" shall mean Rule 15c2-12(b)(5) adop:ed O\f the Securities and Exchange Commission underthe Securities Exchange Act of 1934, as the same may be amended from time to time.

"Special Taxes'' shal I mean the special taxes to be I evi ed on the property avvned O\f the Property Owner within the District.

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"State" shall meantheStateofCalifITnia

"State Repository" shall mean any public or private repository or entity designated O\f the State as a state repository for the purpose of the Rule and recognized as such O\f the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository.

SECTION 3. PrCNision of Annual Repgts.

(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, 2007, pravide to each Repository and the Participating Underwriter an Annual Reprn 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 February of each year, commencing February 1, 2007, Property Owner shall pravide the Annual Report to the Dissemination Agent. Property Owner shal I pravide 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 Reprn constitutes the Annual Reprn required to be furnished O\f it hereunder. The Dissemination Agent, the Issuer and the Fi seal Agent may conclusively rely upon such certification of Property Owner and shall have no duty or obligation to review such Annual Report. The Annual Reprn may be pravided in electronic format to each Repository and may be pravided through the services of a Central Post Office. The Annual Report may be submitted as a single document IT as separate documents comprising a package, and may include O\f reference other information as pravided in Section 4 of this Disclosure Agreement. If Property Owner's fiscal year changes, it shall give nctice of such change in the same manner as for a Listed Event under Section 5(f).

(b) If the Fiscal Agent is unal:fo to verify that an Annual Report has been pravided to RepositITies O\f the date required in subsection (a), the Fiscal Agent shall send a notice to each Repository IT to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the fITm attached as ExhibtA.

(c) The Dissemination Agent shall:

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

(ii) to the extent information is knavvn to it, file a report with the Issuer, the Property Owner and ( i f the Di ssemi nation A gent i s not the Fi seal A gent) the Fi seal A gent certifying that the Annual Report has been pravided pursuant to this Disclosure Agreement, stating the date it was prCNided and listing all the Repositories to which it was pravided.

SECTION 4. Content of Annual Reports. The Property Owner's Annual Report shall contain IT include O\f reference the fd I cwi ng:

(i) Relating to all property avvned O\f Property Owner within the District (the "Property"), a summary of the Property Owner's development activity on the Property during the Property Owner's I ast fi seal year: (A) number of acres Acts avvned O\f the Property Owner IT its A ffi I i ates as of the end of the appl i cable fi seal year or a more recent date, ( B) progress of

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construction activities on the Property as of the end of the applicable fiscal year or more recent date, and (C) number of acres~ots sold O\f Property Owner or its Affiliates to end users or bui I ders as of the end of the applicable fi seal 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 cap:i on "THE DIS TR I CT" and "THE DEVELOPMENT."

(iii) A description of the status of any land p.,1rchase contracts with regard to the Property ( cther than sales to individual homebuyers).

(iv) A descri p:i on of any change in the I egal structure of the Property Owner andftx 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" (the "Development Plan") orto pay its Special Taxes.

(v) A description of any material changes in the Development Plan.

(vi) A proforma 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 any of its A ffi I i ates cwning any Property paid, prior to their becorring delinquent, all Special Taxes levied on its Property 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 del i nquency and descri bi ng any fl ans to resolve such del i nquency.

(x) A descri p:i on of any material changes in the financing pl an of the Property Owner for the Development Plan described in the Official Statement under the caption "THE DEVELOPMENT - Financing Plan" (the "Financing Plan") and the causes or rationale for such changes.

Any or all of the items listed al:x:Ne may be included O\f 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 O\f reference is a final official statement, it must be avai I able from the Municipal Securities Rulemaking Board. The Property Owner shall clearly identify each such cther document soi ncl uded O\f reference.

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SECTION 5. Reporting of Significant Events.

(a) Pursuantto the pravi sions of this Section 5, the Property Owner shall give, or cause to be given, notice of the occurrence of any of the follcwing events with respect to the B ands, if material :

1. bankruptcy or insolvency proceedings commenced by or aqai nst Property Owner or, if kncw, any Affiliate thereof that would materially interfere with its ability to complete the Development Plan or to pay its Special Taxes;

2. fai I ure to pay any property taxes, special taxes or assessments due with respect to the Property, prior to becomi ng del i nquent;

3. filing of a lawsuit against Property Owner or, to the Property Owner's actual kncwledge, any Affiliate thereof seeking damages, or a judgment in a lawsuit against Property Owner or, to the Property Owner's actual kncwl edge, any A ffi Ii ate thereof, which could have a material adverse effect on the Property Owner's ability to pay Special Taxes orto sell or develop the Property;

4. any conveyance by the Property Owner of the Property to an entity that is not an A ffi Ii ate of such Property Owner, the result of which conveyance is to cause the transferee to become a M ajar Owner;

5. any denial ortermination of credit, any denial ortermination of, or default under, any line of credit or loan or any cther 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 abi I i ty of the Property Owner or any A ffi I i ate thereof cwni ng any Property to pay Special Taxes priorto becorring delinquent;

6. any significant amendments to I and use enti ti ements for the Property;

7. any previously undisclosed gavernmentally--imposed preconditions to commencement or continuation of development of the Property;

8. any previously undisclosed legislative, administrative or judicial chal I enges to devel oprnent of the Property;

9. any material change in the alignment, design or likelihood of competion of significant public impravement being constructed by the Property Owner affecting the Property, including major thoroughfares, sewers, water conveyance systems and similar faci I i ti es; and

10. the assumption of any obligation by a Major Owner pursuantto Section 6.

(b) The Fiscal Agent shall, within one (1) Business Day of olXaining actual kncwledge 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 nctify the Dissemination Agent in writing whether or not to

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report the event pursuant to subsectim (f) and promptly direct the Fiscal Agent whether or nct to report such event to the Beneficial Owners. In the absence of such direction the Fiscal Agent shal I not report such event uni ess otherwise required to be reported by the Fi seal A gent to the Beneficial Owners under the Fiscal Agent Agreement. The Fiscal Agent may cmclusively rely upm such directim (or lack thereof). For purposes of this Disclosure Agreement, "actual kncwl edge'' of the occurrence of such Listed Events shal I mean actual kncwl edge by the officer at the corporate trust office of the Fi seal Agent with regular responsib lity forthe administration of matters related to the Fiscal Agent Agreement. The Fiscal Agent shall have no responsiblity to determine the materiality of any of the Listed Events.

(c) Whenever the Property Owner obtains kncwledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or ctherwi se, the Property Owner shal I as 5001 as possible deterrri ne if such event would be material under appicable federal securities laws.

(cl) If the Property Owner has determined that kncwledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Property Owner shall promptly nctify the Disseminatim Agent in writing. Such notice shall instruct the Di ssemi natim Agent to report the occurrence pursuantto subsecti m (f).

(e) If in response to a request under subsectim (b), the Property Owner determines that the Listed Event would nct be material under app i cable federal securities I aws, the Property Owner shall so nctify the Disseminatim Agent in writing and instruct the Dissemi natim Agent not to report the occurrence pursuant to subsection (f).

( f) I f the Di ssemi nation A gent has been i nstructed 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 Rulemalking Board and the State Repository or the R eposi tori es.

SECTION 6. Duration of Re[X)rting Obligation. (a) All of the Property Owner's obligations hereunder shall commence m such date as property cwned by the Property Owner is responsible for payment of 20'/o or more of the special taxes in the District and shall terminate (exce[X as prCNided in Sectim 11) upon the earliest to occur of (i) the legal defeasance, prior redem[Xion or payment in full of all the Bmds, (ii) so long as the Bonds are outstanding, at such ti me as property cwned by the Property Owner i s no I anger responsi bl e for payment of 20'/o or more of the special taxes in the District, or (iii) upon the prepayment or payment in full of the Special Taxes. Upm the occurrence of any such termination or suspensim prior to the final maturity of the Bmds, 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 the District cwned by the Property Owner, or any Affiliate thereof, 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 cwned by such M aj or Owner and its A ffi I i ates shal I be assumed by such M aj or Owner or by an A ffi I i ate thereof and the Property Owner obi i gati ons hereunder wi 11 be terminated. I n order to effect such an assumption, such Major Owner or Affiliate shall enter into an Assumption Agreement. The

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entering into an Assumption Agreement by such Major Owner or Affiliate shall be a condition p-ecedent to the conveyance of such property and the Property Owner shal I pravi de 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 nct be responsible in any manner for the content of any ncti ce 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 prCNiding thirty days written nctice to the Property Owner, the Issuer and the Fiscal Agent. The Dissemination Agent shall have no duty to p-epare any information report nor shal I the Di sseni nation Agent be responsible for fi Ii ng any report nct p-avided to it by the Property Owner in a timely manner and in a form suitable for filing.

SECTION 8. Amendment; Waiver. Notwithstanding any other prCNision of this Disclosure Agreement, the Property Owner, Dissemination Agent and the Fiscal Agent may amend thi s Di sci osure Agreement ( and the Fi seal A gent and Di ssemi nation A gent shal I agree to any amendment so requested by the Property Owner) pravided, neither the Fiscal Agent nor the Di ssemi nation A gent shal I be obi i gated to enter i nto any such amendment that modifies or increases its duties or obligations hereunder, and any p-avision of this Disclosure Agreement may be waived, prCNi ded that the f d I cwi ng conditions are sa.ti sfi ed:

(a) If the amendment or waiver relates to the prCNisions of Sections 3(a), 4, or S(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 ti me of the original issuance of the Bands, after taking into account any amendments or interpretations of the Rule, as wel I as any change in circumstances; and

(c) The amendment or waiver either (i) is app-aved by the Beneficial Owners in the same manner as prCNided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Beneficial Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the B enefi ci al Owners.

In the event of any amendment or waiver of a prCNision of this Disclosure Agreement, the Property Owner shall describe such amendment in the next Annual Report, and shall include, as appicable, a narrative explanation of the reason forthe amendment or waiver and its impact on the type ( or, in the case of a change of accounting pri nci pl es, on the presentation) of financial information or operating data being presented by the Property Owner.

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SECTION 9. Additimal Information. Ncthing in this Disclosure Agreement shall be deemed to p-event the Property Owner from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any cther means of communication, or including any cther informatim 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 nctice 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 informatim 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 campy with any pravision of this Disclosure Agreement, the Fiscal Agent (at the written request of any P arti ci pati ng U nderwri ter or the B enefi ci al Owners of at I east 2 5% aggregate principal amount of Outstanding Bmds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been p-avided to it or it has been otherwise indemnified to its satisfaction from any cost, liablity, expense or additional charges and fees of the Fi seal Agent whatsoever, including, without I imitation, fees and expenses of its attorneys), or any Beneficial Owner may take such actions as may be necessary and app-opriate, including seeking mandate or specific performance by court order, to cause the Property Owner or Fiscal Agent, as the case may be, to campy with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall nct 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 orthe Fiscal Agentto comply with this Disclosure Agreement shal I be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agent. Article VII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the r:;rotections, limitatims from liablity and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have mly 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 I iab Ii ties which they may incur arising out of or in the reasmable exercise or performance of its pcwers and duties hereunder, including the reasonable costs and expenses (including attorneys fees) of defending against any such claim of liablity, but excluding losses, expenses or liabilities due to any Indemnified Party's respective negligence or willful miscmduct. The Dissemination Agent shall be paid compensatim by the Property Owner for its services p-CNided 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 Disseminatim Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obi i gati on to review any information pravi ded to them hereunder and shal I not be deemed to be acting in any fiduciary capacity for the Property Owner, the Beneficial Owners, or any other party. Neither the Fiscal Agent or the Dissemination Agent shall have any liability to the B enefi ci al Owners or any ct her party for any monetary damages or fi nanci al I i abi I i ty of any ki nd whatsoever related to or arising from this Agreement. The obligations of the Property Owner

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under this Section shall survive resignation or remcwal of the Dissemination Agent and payment of the B ands.

SECTION 12. Nctices. Any nctices or communications to or among any of the parties to this Disclosure Agreement may be given as follcws:

To the I ssuer:

To the Fi seal A gent:

City of Indio Community Facilities District No. 2006-1 (Sonora W el Is) c/o City of Indio 100 Civic Center Mall Indio, California 92201 Attn: City Manager Tel er:*ione: ( 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 Teler:*ione: (213) 972-5676 Facsimile: (213) 972-5694

To the Dissemination Agent: Union Bank of California, N.A. 120 S. San Pedro Street, 4th Floor Los Angeles, California 90012

To the Property Owner:

Attn: Corporation Trust Department Teler:*ione: (213) 972-5676 Facsimile: (213) 972-5694

Western Pacific Housing, Inc. c/o D.R. Horton, Inc. 16755 Von Karman Ave., Suite 200 Irvine, California 92606 Attn: Barbara Murakami, Assistant Vice President, Director of Forward Planning Teler:*ione: (949) 442--6199 Facsimile: (949) 442--6188

Any person may, by written ncti ce to the other persons Ii sted ai:xNe, designate a different address or teler:*ione number(s) to which subsequent nctices 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 Beneficial Owners from time to time of the Bonds, and shall create no rights in any cther person or entity.

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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 i nstrunnent.

WESTERN PACIFIC HOUSING, INC., a Delaware corporation

By~~~~~~~~~~~~~~ Barbara M. M urakarni, Assistant Vice President

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

By~~~~~~~~~~~~~~ A uthori zed Officer

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EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party:

Name of B md I ssue:

Date of I ssuance:

Western Pacific H ousi ng, I nc.

City of Indio Cornrnunity Facilities District No. 2CXXi-1 (Smora Wells) S~cial Tax Bonds, Seri es 2CXXi

October 1 8, 2CXXi

NOTICE IS HEREBY GIVEN that the Pro~rty Owner has nct p-avided an Annual Report with res~ct to the abave--named Bonds as required O\f the Develo~r Continuing Disclosure Agreement, dated as of October 1, 2CXXi, with res~ct to the Bonds. [The Pro~rty Owner anticipates thatthe Annual Reportwi II be filed O\f _____________ .]

Dated: ______________ _

cc: Issuer Pro~rty Owner

UNION BANK OF CALIFORNIA, N.A., m behalf of Pro~rty Owner

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APPENDIX H

BOOK-ENTRY ONLY SYSTEM

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

The Dep:isitory Trust Corrpany (" DTC"), NewY ork, NY, will act as securities dep:isitory for the Bonds. The Bonds will be issued as fully,egistered securities registered in the name of Cede & Co. (DTC's partnership noninee) or such other name as may be requested b,I an authorized representative of DTC. One fully,egistered certificate will be issued for the each issue of the Bonds, each in the aggregate principal amount of such issue, and will be dep:isitedwith DTC.

DTC, the world's I argest dep:isitory, is a Ii ni ted--purp:ise trust company organized underthe 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 pr0.tisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and pr0.tides asset servicing for 0.ter 2 nil lion issues of U.S. and non--U.S. equity issues, corporate and municipal debt issues, and money market instruments from 0.ter 85 countries that DTC's participants ("Direct Participants") dep:isit with DTC. DTC also facilitates the p:ist--trade settlement among Direct Participants of sales and other securities transactions in dep:isited securities, through electronic computerized oook--entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical m0.tement of securities certificates. Direct Participants i ncl ude both U .S. and non--U .S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-o.vned subsidiary of The Dep:isitory Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is o.vned b,I a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, G0.ternment Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as b,I 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 b,I or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The o.vnership 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. B enefi ci al owners are, ho.vever, expected to receive written confi rmati ans pr0.ti di ng detai Is 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 o.vnership interests in the Bonds are to be accomplished b,I entries made on the books of Direct and Indirect Participants acting on behalf of B enefi ci al owners. B enefi ci al owners wi 11 not receive certificates representing their o.vnershi p interests in the Bonds, except in the eventthat use of the oook--entry system forthe Bonds is discontinued.

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http://www.dtcc.com

To facilitate subsequent transfers, all Bonds dep:isited b,I Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested b,I an authorized representative of DTC. The dep:isit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC noninee do not effect any change in beneficial o.vnership. DTC has no kno.vledge 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 thei r holdings on behalf of their customers.

Conveyance of notices and other communications b,I DTC to Direct Participants, b,I Direct Participants to Indirect Participants, and b,I Direct Participants and Indirect Participants to Beneficial owners wel I be gcwerned b,I arrangements among them, suqj ect to any statutory or regulatory requirements as may be in effect from ti me to ti me. B enefi ci al owners of B ands may wish to take certai n steps to augment the transnission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and prop:ised amendments to the Bond documents. For example, B enefi ci al owners of B ands may wish to ascertai n that the noni nee holding the Bands for their benefit has agreed to obtain and transnit notices to Beneficial owners. In the alternative, Beneficial owners may wish to pro.ti de thei r names and addresses to the registrar and request that copies of notices be pro.tided 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 deternine b,l 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 noni nee) wil I consent or vote with respect to the Bonds unless authorized b,I a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as p:issible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other noninee as may be requested b,I 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 sho.vn on DTC's records. Payments b,I Participants to Beneficial owners will be gcwerned b,I 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 noninee, Agent, or Issuer, suqject to any statutory or regulatory requirements as may be in effect from ti me to ti me. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested b,I 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 responsi bi I ity of Direct and I ndi rect Participants.

DTC may discontinue pro.tiding its services as dep:isitory with respect to the Bonds at any time b,I giving reasonable notice to the City or the Fiscal Agent. Under such circumstances, in the event that a successor dep:isitory 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 dep:isitory). In that event, Bond certificates will be printed and delivered.

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$10,225,000 CITY OF INDIO - CA.gov

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