1"EW ISSLE NOT RATED In the opi11io11 o/Rura11 & Tucker LLP. Cos/a :\fcsa. California, Bond Counsel. s11hfccr. howl'\'er lo ,·ert11i11 i./lWli/i,·,11io11.1 dncrihed herein. 1111der

exi.11i11g fall', rhe inrere11 u11 rhe Bu11ds is e.\1111ded _fro111 gro.1.1 income for federal i11cm11<' rax J)llrpo1·e.1· and .rn,11 inlt'l'<'ll i, 11,,1 an ite111 ,;f tax r>refcrcn,·e fur {'llrpuses of rhe Ji·deral alremarire 111ini11111111 rax i111r10.1·nl 011 individuals and corpomti,111.1·. alrhough _fi1r rhe r1111·r,11.1c of ,·0111p111i11g rhe alrenwrii·e 111i11i11111111 rax i111pu11•d on cawi11 corporariun.1 .. 111ch i11rar.11 i.1 wken into account in deren11i11i11g certain i11co111e 1111,I eun1i11g,· In rhefi1rther opinion of Bumi Co1111.1el. 111d1 inrere11 i.1· <'X<'lllfll .fiw11 Califim1i11 per.1011a/ income taxes. See "LEG ·If. :\1.-1 TTERS - T,n l:'\elllf'lion .. .

$2,795,000 COMMUNITY FACILITIES DISTRICT NO. 2002-1

OF THE MURRIETA VALLEY UNIFIED SCHOOL DISTRICT 2002 SPECIAL TAX BONDS

Dated: Date of DeliH~r) Due: September I, as shown helm,

Th-: 2002 Speci,tl Ta.\ Bonds ( the "Bonds") an: being issued under the \kllo-Ruo, Community Facilities Act ,,f I 9N2 ( the "Act") and a Fiscal .-\gent .. \gn.:ement. dated as of March 1. 2002. b, and he1,,een the Communitv Facilitic, District No. 2002-1 of the \1 urricta Valin Unified School Di,tri..:t (the ·-community Fac:ilities Di,trict") :ind State Street Bank and Tr~st Company of California. l\'aticrnal ;\ss,,ci,1tion. as -liscal agent (the "Fisi:al Agent''). and are fnt}abk from rrocecds of Special Taxes (as defined herein) k,ied on rroperty ,1ithin the C,,mmunity Facilities District acc:ording to the rate and method of apportionment of ,pecial tax, as amended. approved hy the 4ualiticd ckctors of 1he C,Hnmunity Facilities District and by the Board of Educatinn of the \1urricta Valley Unified School District ( the "School District"). acting as kgisbti,·c hnd:, of the Comm unit~ Facilities District.

The Board of Education and th..: eligibk lando,1 ncrs in the Community Facilities Distri..:t ha,·c authorin:d the'. i"uc1111:e uf bonds ( c:ollectiveh. the "Bonds") in an aggregate rrinciral amount not to e\ceed S4.000,000. The Bonds are the only serie, of Bonds to he i"ucd pur,u,rnt to thi, authorization.

The;; Bonds are being issued to ( i) finance the ac4uisiti0n and construction of certain school facilities and impr,n cmcnh 10 he m, ned and operated by the School District of benelit to the property in the Community Facilities District, (ii) fund a resene fund for the Bonds. (iii) fund capitalit'ed interest on the Bond, through \larch I. 2004. (iv) pay certain administrative expenses of the Community Facilitil.'., District. and ( ,·) pay the rnsts of issuing the Bonds. Sec '·ESTl\1ATED SOURCES AND USES OF FUNDS" and ''f,\CILITIES TO BE Fil\ ,\J\CED WITH PROCEEDS OF THE -BONDS."

Interest on the Bonds is payahk on Sertember 1. 2002 and semiannually thereafter on each March I and September I The Bonds" ill be issued in denominations of S~.000 or integral multirles of $5.000. The Bonds, when delivered, ,1 ill he initially registered in the name uf Cede & C,i., as nominee of The Depositury Trust Company ("DTC"), New York. Nc1, York. DTC will act as securities dcrository for tl11: Bunds. Sc<: "..\PPE'lDlX L - DTC and the Book-Entry Only S}stcm."

The Bonds art' .whf<'CI tu oprimw/ rede111prion. 111a11datorr redemption from Special Ta., r1repm·111c111s and 1111111dai,1JT ,i11~i11g f)(J_\'111<'111 rede111pri,m hefi;re 11w111rirr. See "TJ/E BO:VDS - Rede111prio11."

THE BOI\DS, THE Il\TEREST THEREO'I, A'ID A'IY PREMilll\1S PAYABLE 01\ THE REDE\IPTIO'I OF A:'\/\' OF THE BO:\DS, ARE :'I.OT Al\ I'IDEBTEO:\ESS OF nu: SCHOOL DISTRICT, THE C0\1Mlll\ITY FACII.ITIES DISTRICT, THE STATE OF CAI.IFOR-1\IA (THE "STATE") OR AI\Y OF ITS POLITICAL St BDIVISIO:'IIS, AND .'.EITHER THE SCHOOL DISTRICT, THE CO'.\I\H:\IT\' ... ACILITIES DISTRICT (EXCEPT TO THE LI\IITED EXTEI\T DESCRIBED HEREII\), THE STATE !'\OR A:'\/\' 01-' ITS POI.ITICAL Sl BDIVISIO'IS IS LIABLE O:'\I THE BO"IDS. 'IEITHER THE FAITH AND CREDIT I\OR nn: TAXI'\(; POWER OF THE SCHOOL DISTRICT, THE C'0\11\ll.'.IT\' FACILITIES DISTRICT (EXCEPT TO THE Lll\1ITED EXTEI\T DESCRIBED HEREII\) OR THE STATE OR A"IY POLITICAL Sl BDIVISIO'l THEREOF IS PLEDGED TO THE PAY\IE"IT OF THE BOI\DS. OTHER THA'\ THE SPECIAL TAXES, '10 TAXES ARE PLEDGED TO THE PAYME.'.T OF THE BOI\DS. THE BO'\DS ARE I\OT A GE.'.ERAI. OBI.IGATIO:'\I OF THE COM\H :'\/IT\' FACILITIES DISTRICT, BlT ARE I.l\1ITED OBLIGATIOI\S OF THE CO\!Ml'J\ITY FA<'II.ITIES DISTRICT PAYABLE SOLELY FROM THE SPECIAL TAXES AS MORE FULY DESCRIBED IN THIS OFFICIAL STATEMEI\T.

\laturih· (September I)

2004 2005 2006 2007 200t-: 2009 2010 2011 2012

MATURITY SCHEDULE

$985,000 Serial Bonds (Base CUSIP: 62719H)

Principal Interest Maturit\' Principal Interest Amount Rate Yield CUSIP (September I) Amount Rate ---$40.000 Hi00% I 00.00~~ HY3 2013 $60.000 :'-.70ll''.i,

40.000 4.300 100.00 HZO 2014 60.000 :-.KOll 40,000 -l.750 100.00 JAJ 2015 65.000 5.900 45,000 5.000 100.00 JBl 2016 70.000 6.000 45,000 5.100 100.00 JC9 2017 75.000 6.100 -15,000 5.~50 10000 JD7 2018 80.000 6.~00 50,000 5.400 100.00 JE5 2019 80.000 6.25() 50,000 5.500 100.00 JF2 2020 85.000 (L~O(l

55.000 5.600 100.00 JGO

$655,000 6.375% Term Bonds due September I, 2026, Priced to Yield 100.00% CllSIP .'.o. 6271911 .IR6 $1,155,000 6.450% Term Bonds due September l, 2033, Priced to Yield 100.00% (TSIP 'lo. 6271911 .JS4

Yield <TSIP 100.00~,, J 118 100.00 J.14 100.00 JKl 100.00 JL9 100.00 J'.\,17 100.00 J~S 100.00 JPO 10000 JQX

Thi., cm·er page co/1/ain.,· cer(<1in infi;n11ario11 for quick nference only. fl is 1101 a s1111111wn o( rhe i.1s11<'. Poro1tial i1rff.1/or., 11111.\I read rhe enrire Offi< ial S1111e111e111 10 ohrain infim11ution e.1.,enrial lo rhc 11w"i11g of an informed im·es1111e111 dl'Ci,io11. lm·e.11111e11t in thl' Bond, i1m1li·e., ris/,,s 11'!1id1 111<1_1'

1101 he appmpriare ji,r .1m11e inl'eslurs. See "BQ.,YDOJ.VSER.\' RISKS" herein for a di1c11.11io11 of special ri.,k Ji/( tun that .,h,mld he ,·onsidacd in ,'l'a!,1111i11g the im·es/111<'11/ qualir_i- o( the Bonds.

The Bonds are offered when. as and if issued and accerted by the Underwriter, suhject to arrroval as to their legality hy Rutan & Tucker LLP. Costa \1esa. California, Bond Counsel. and subject to certain other conditions, Jones Hall.:\ Profcssiunal La\\ Corpuration, San hanL·iscu. California is acting as Disclmun: Cuunsel. Certain legal matters will be passed on for the School District and the Communit} Facilities District h) Rutan & Tucker LLP. srecial counsel to the Curnmunity Facilities District. It is anticipated that the Bond,. in hook-entry form. ,,ill he a1·aiL1hlc fur deli1cr:- on or about April 24. 2002.

Th..: date of this Ollicial Statement is: .-\pril 3. 2002

Stone & Youngberg LLC

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MURRIETA VALLEY UNIFIED SCHOOL DISTRICT

BOARD OF EDUCATION

Austin Linsley, President Kris Thomasian, Clerk of the Board

Kenneth Dickson, /vk111/Jer Margi Wray, Mt'mlJt'I" Judy Rosen, Mc111l1er

SCHOOL DISTRICT STAFF

Chet M. Francisco, Ed.D, S11pai11tc11dc11t Chuck DePreker, Assistant Superintendent, Facilitics/Operatio11al Sa1 1ic1·s

Stacy Coleman, Assistant Superintendent, Business S('rl'ic£'s (Vacmt), Assistant Superintendent, Ed11catio11al Scr1 1ic1'S

Buck DeWeese, Assistant Superintrndrnt, Human Resources

BOND COUNSEL/DISTRICT SPECIAL COUNSEL

Rutan & Tucker LLP Costa Mesa, California

DISCLOSURE COUNSEL

Jones Hall, A Professional Law Corporation San Francisco, California

APPRAISER

Bruce W. Hull & Associates, Inc. Irvine, California

SPECIAL TAX CONSULT ANT and CFO ADMINISTRATOR

David Taussig & Associates, Inc. Newport Beach, California

FISCAL AGENT

State Street Bank and Trust Company of California, National Associc1tion, Los Angeles, California

\ ,~~~ 1- < \.~-Are a Map

Twcnl~ninc Palms \\annc t \irps llasc •

[THIS PAGE INTE1'ffIONALL Y LEFr BLANK]

TABLE OF CONTENTS

Page INTRODUCTION 1 CONTINUINC DISCLOSURE 4 ESTIMATED SOURCES AND USES OF FUNDS 6 FACILITIES TO BE FINANCED WITf I PROCEEDS OF THE BONDS 7 Facilities ,md Fees 7 Impact tviitig,1tilm Agreement 7 THE BONDS 9 General Provisions 9 Authoritv for Issuance 9 Debt Ser~'ice Schedule 11 Redemption 12 No Issuance of Paritv Bonds 13 Registration, Transfer and Exchange 13 SECURITY FOR THE BONDS 15 General 15 Special Taxes 15 Rate and l'viethod 16 Covenant to Foreclose 19 Special Tax Fund 20 Bond Fund 21 Reserve Fund 21 Investment of Monevs in Funds 22 THE SCHOOL DISTRICT 23 General Information 23 Administration and Enrollment 23 THE COMMUNITY FACILITIES DISTRICT 25 General 25 Estimated Maximum Special Tax Proceeds and Debt Service Coverage 25 Appraised Property Value 25 Appraised Value to Burden Ratio 27 Direct and Overlapping Governmental Obligations 28

Pzi£e Estimated Tax BurdL·n on Sin~lc Famih· Home ?,l PROPERTY OWNERSI IIP AND PROPOSED DEVELOPMENT ?,2 Propertv Ownership William Lyon Rhoades Environmental Conditions Proposed Development BOND OWNERS' RISKS Limited Obligation Of the Community bcilities

32 32 33 3-1 35 -lO

District to Pav Debt Sen·ice 40 Levy and Collection of the Special Tax 40 PavmL'nt of Special Tzix is not ;:i Personal 06ligation of the Propertv Owners -ll Apprziised V zilues 41 Property Values and Property Dt'vdopment 42 Concentration of Property Ownership -1-1 Other Possible Clziims Upon the Value of Taxable Property 4-l Exempt Properties -15 Depletion of Reserve Fund 45 Bankruptcy and Foreclosure Delays -15 Disclosure to Future Purchasers -lS No Acceleration Provisions Loss of Tax Exemption 48 Proposition 218 48 LEGAL MA TIERS 50 Legal Opinions 50 Tax Exemption 50 No Litigation 50 NO RATINGS 51 UNDERWRITING 51 PROFESSIONAL FEES 51

APPENDIX A - General Information About the City of Murrieta APPENDIX B - Rate and Method of Apportionment for Community Facilities District No. 2002-1 of

Murrieta Valley Unified School District APPENDIX C - Summary Appraisal Report APPENDIX D - Summary of Fiscal Agent Agreement APPENDIX E - DTC and the Book-Entry Only System APPENDIX F - Form of Issuer Continuing Disclosure Certificate APPENDIX G - Form of Property Owner Disclosure Certificate APPENDIX H - Form of Opinion of Bond Counsel APPENDIX I - Community Facilities District Botmdary Map

(THIS PAGE INTENTIONALLY LEFT BLANK)

OFFICIAL STATEMENT

$2,795,000 COMMUNITY FACILITIES DISTRICT NO. 2002-1

OF THE MURRIETA VALLEY UNIFIED SCHOOL DISTRICT 2002 SPECIAL TAX BONDS

INTRODUCTION

This Official Statement, including the cover page and attached append.ices, is pro\'ided to furnish information regarding the bonds captioned above (the "Bonds") to be issued by Community Facilities District No. 2002-1 of the Murrieta Valley Unified School District (the "Community Facilities District").

Tl1is introduction is !lot 11 su11111111ry of tlzis Official Stntc111rnt. It is only a bri(f description (:f 1111d guide to, 1111d is qualified by, nzore complete and detailed information contained ill tilt' rntire O[fiL·ial Statement, i11d11di11g the cover tJagc and attached appendices, and the doc1m1e11ts s11mmari:t'd or descrilicd i11 tl1is Official Staft'111c11t. A fiill review should be 11111de of the mt ire Official Statc111e11t. The L~[frri11g of tlw Bonds to potmtial imxstors is made only by 111rnns of the entire Official Statemmt.

The School District. The Murrieta Valley Unified School District (the "School District") is located in the southwestern portion of Riverside County (the "County"). The School District covers approximately 167 square miles, and includes all of the City of Murrieta (the "City") and certain unincorporated areas of the County. As of February 25, 2002, fiscal year 2001-02 enrollment for the School District was 13,085 students. See "THE SCHOOL DISTRICT."

The Community Facilities District. The Community Facilities District was formed and established by the School District on January 17, 2002, under the Mello-Roos Community Facilities Act of 1982, as amended ( the "Act"), following a public hearing and a landowner election at which the qualified electors of the Community Facilities District authorized the Community Facilities District to incur bonded indebtedness and approved the levy of special taxes.

The Community Facilities District was formed pursuant to a First Amended and Restated Impact Mitigation and Reimbursement Agreement dated December 13, 2001, among the School District and the property owners in the Community Facilities District (the "Impact tvlitigation Agreement"). See "FACILITIES TO BE FINANCED WITH THE PROCEEDS OF THE BONDS - Impact Mitigation Agreement."

The taxable property within the Community Facilities District is currently owned by hvo home developers (collectively, the "Property Owners"):

• William Lyon, an individual ("William Lyon"); and

• J.P. Rhoades Development, a California corporation ("Rhoades").

For detailed information about the Property Owners, current land uses and proposed development plans for the property in the Community Facilities District see "PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT."

Authority for Issuance of the Bonds. The Bonds are issued pursuant to the Act, certain resolutions adopted by the Board of Education and a Fiscal Agent Agreement, dated as of March 1,

1

2llU2 (thl' "hsc,11 AgL'nl AgrL'L'tnl'nt"), b:-, and bl't\\eL'n thl' Cummunitv FacilitiL'S District ,rnd Stc1tl' StrL'l't Bank and Tru::-it Cc1mp,m:, of Califrnni,1, '.'\:,1tiunal Asc.;oci,1tion, as fiscal ,1gcnt (thL' .. f-i'"'>L ,11 .:\gL'nt' ). SL'L' "Tl IE BO:-\DS ~ Authorit\· for b...,u,mce ...

Purpose of the Bonds. Pwcceds of the Bonds will be used primaril:,.· to fin,lnCL' acquisiti( ln and constructitm c1f certain schoc1l facilities to be O\Yned ,ind operated by the School District in satisfaction pf the t1blig,1tion of the Propt.•rty Owners tP p,1y school facilities fees under the lmp,1et :'\.lit1g,1tiun Ap·eement.

Bnnd 1-1roceeds will also fund a resern.' fund for the Bonds, fund capitali/t.'d interl'st on the Bond::-, through !\larch 1, 200-l, pay certain administratin:- expenses of the Communitv FacilitiL'S District, and pa~' the costs of issuing the Bonds. See "ESTIMATED SOURCES AND USES OF FU\JDS" and "FACILITIES TO BE FINA\JCED WITH PROCEEDS OF THE BONDS."

Sernrit!t and Sources of Payment for the Bonds. The Bonds are secured bv and p,1yah!t.· from ,1 first pledge of the proceeds of the special taxes levied on the property in the Communitv Licilities District ( tht.• "Special Taxes") in accordance \vith the Rate and Method of ApportiLmment for Communitv Facilities District \Jo. 2002-1 of Murrieta Vallev Unified School District (the "Rc11L' and tvlcthod" ) .. The Bonds will be additionally secured by all mc.meys deposited in the Bond Fund, in the Resern' Fund and (until disbursed as pro,·ided in the Fiscal Agent Agreement) in the Speciol Tax Fund. See "SECURITY FOR THE BO\JDS."

The Communitv Facilities District has cm·t.•nanted in the Fiscal Agent AgreL'nwnt to cau...,e foreclosure proceedings to be commenced and prosecuted against certain parcels ,vith delinquent installments of the Special Tax.. For a more detailed description of the foreclosure covenant see "SECURITY FOR THE BONDS - Covenant to Foreclose."

Appraisal. An oppraisal of the property within the Community Facilities District dated February 20, 2002 (the "Appraisal"), ,vas prepared by Bruce W. Hull & Associates, Inc. of Irvine, California (the "Appraiser") in connection with issuance of the Bonds. The purpose of the appraisal \Vas to ascertain the market \·alue of the fee simple estate for the taxable property in the Community Facilities District as of a February 15, 2002 date of value. Subject to the assumptions cont1ined in the Apprc.1isal, the Appraiser estimated that the fee simple interest in the property within the Community Facilities District, subject to the lien of the assessments levied by the City of ~1urrict,1 Assessment District No. 98-1 (the" AD 98-1 lien"), and to the lien of the Special Taxes, had an estimatL'd aggregate value of $18,775,000. See "THE COMMUNITY FACILITIES DISTRICT - Appraised Property Value" and" APPENDIX C - Summary Appraisal Report" for further information on the Appraisal.

Risk Factors Associated with Purclwsing t1Je Bonds. Investment in the Bonds involves risks that may not be appropriate for some investors. See "BOND OWNERS' RISKS" for a discussion of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in considering the investment quality of the Bonds.

Profcssi01wls [m,olved in the Offering. The follovving professionals are pi.uticipating in this financing:

• State Street Bank and Trust Company of California, National Association Los Angeles, California, v,,:ill ser\'t: as the paying agent, registrar, authentication and transfer agent for the Bonds and will perform the functions required of it under the Fiscal Agent Agreement.

• Rutan & Tucker LLP, Costzi !'vlesa, California is serving as Bond Counsel to the Community Facilities District and as special counsel to the Community Facilities District and the School District.

• Jones Ilc1ll, A Professional Law Corporzition, San Fr.rnciSCl), C1lifornia, is acting as Disclosure Counsel to the Community Facilities District.

• The appraisal work was done by Bruce W. Hull & Associ.1tes, Inc. of Irvine, California.

• David Taussig & Associates, Inc., of l\iewport Beach, California, ach.'d i1S special tax consultant to the Community Facilities District and vvill act .1s administrator to the Community Facilities District anl dissemination agent for the Community Facilities District under the Issuer Continuing Disclosure Certificate described belmv.

3

CO:\TINUING DISCLOSURE

Tlic Co1111111111itt1 Facilitil.'s District. Tlw Cnrnmunitv Facilitil's District has C(l\ l'n,rnlL'd in thL' b:-.UL'r C(intinuing DisclLlSllfL' Certificate, the fL1rrrt of \\·hich is set iorth in "APPE:\DI\ I; ~ Form of Communit,· Facilitil's District Disclusurl' Certific,1te" (the "Issuer Continuing Disclusure Certific1te''), fur the bendit of holders and beneficial ownL'rs of the Bonds, to pro\·idL' CL'rtain fin,1ncial infmmatiun ,1nd L1per,1ting d,1ta rcl,1ting to the Communit:· L1cilities District and the Bonds (the "Issul'r Annu,1l Report") b, nL1t later than si:\. months after thL' end of the Communitv facilities District's fisc1l \TM, or December 31 of e,1Ch ve,u, beginning on December 31, 2002. The lssuer Continuing Disclosure Certificc1te also requires the Cummunity Facilities District to provide notices of the occurrence of certain enumL'rated e\·ents, if material.

ThL' lssuer Annual RL'port \.\'ill be filed bv the Community Facilities District, or by the "Dissemin,1tion Agent" (,1s th,1t term is defined in the Issuer Continuing DisclostlrL' Certific1tL') on behalf pf the Community Facilities District, with each Nationallv Recognil'.ed IV1unicipal Securities Infurm,1tiLH1 Repl1sitorv, and ,,·ith the appropriate State repository, if ,1ny (colkctivclv, the ''RepositoriL's"), with a copv to the Fiscal Agent (if different than the Dissemination Agent) and the Underwriter. Anv nl1ticL' of a material e\·ent will be filed bv the Communitv Facilities District, or bv the Dissemin,1tin~ Agent on behalf of the Communitv Facilities District, ,vitl~ the 1\lunicipal Securitie.s Rulemaking Board and the appropriate State repusitory, if any, with a copy to the Fisc,1l Agent (if difkrent th,111 the Dissemination Agent) and the Underwriter.

Thl' specific nature of the information to be contained in the Community Facilities District Annual Rq,ort Llf any notice of a material event is set forth in the Issuer Continuing DisclL1sure Certificate. The cm·enants of the Community Facilities District in the Issuer Continuing Disclosure Certificate h,n·e been madL' in order to assist the Cnderwriter in cumplying with Securities and E:\.change Commission Rule 15c2-12(b )(5) ( the "Rule").

A default under the Issuer Continuing Disclosure Certificate will not, in itself, constitute an b·ent of Default under the Fiscal Agent Agreement, and the sole remedy under the Issuer Continuing Disclosure Certificate in the e,·ent of am· failure of the Communitv Facilities District or the Disseminatiun Agent to comply ,-vill be an action to compel specific performance.

Neither the School District nor the Communitv Facilities District has ever failed to comply, m anv material respect, vvith an undertaking under the RL{le.

The Property Owners. Each Property Owner has covenanted in a Property Owner Continuing Disclosure Certificate, the form of which is set forth in "APPENDIX G - Form of Property Owner Disclosure Certificate" (the "Property Owner Continuing Disclosure Certificate"), for the benefit of holders and beneficial cw.:ners of the Bonds, to pro\·ide certain information relating to the Property Owner and the parcels it ovvns within the Community Facilities District on a semi-annual basis (each a "Property Owner Semi-Annual Report"), and to provide notices of the occurrence of certain enun1erated e\·ents.

Each Propert~· Owner's obligations under its Property O,vner Continuing Disclosure Certificate will terminate on the earlier of (i) legal defeasance, prior redemption or payment in full of all the Bonds, (ii) the date on which the Property Owner's property in the Community Facilities District is no longer responsible for HYu or more of the Special Taxes, or (iii) the date on which the Property Ov,'ner prepays in full all of the Special Taxes attributable to its property in the Community Facilities District.

Each Property Owner Semi-Annual Report ,vill be filed by the respective Property O,vner, or the "Dissemination Agent" (as that term is defined in the Property Owner Continuing Disclosure Certificate) on behalf of the Property O,vner, with the Repositories, with a cupy to the Undervvriter, the

Fiscal Agent (if different than the Dissemination Agent) and tllL' Cummunit\ L1cilitic1s District. Am· notice of a m<1terial e\·ent ,viii be filed by the Property Owner, or b:v the Dissemination Agent tlll behalf of the Property 0,vner, \\·ith the l'vlunicipal Securities Rulcmaking Buard and the appropriate State repository, if any, with a copy to the Underwriter, the Fiscal Agent (if different than the Dissemination Agent) and the Community Facilities District.

The specific nature of the information to be contained in the Propert\· Owner Semi-Annual Reports or the notices of material events is set forth in the Property 0\vner Continuing Disclosure Certificates.

A default under the Property Owner Continuing Disclosure Certificate will not, in itself, constitute an Event of Default under the Fiscal Agent Agreement, and thL' sole remedy under the Property 0,vner Continuing Disclosure Certificate in the event of any failure of a PropL'rty Owner or the Dissemination Agent to comply will be an action to compel specific performance.

William Lyon and Rhoades have each represented that they are not aware of any material defaults in previous undertakings by them to provide periodic continuing disclosure reports or notices of material events.

5

ESTIMATED SOURCES AND USES OF FUNDS

The pn1Cl'l'ds fwm the sale of the Bonds \\'ill bl' deposited into the following funds L'sL1hlisl1l'd b\· the Community Facilities District under the Fiscal Asent Agreement:

~OURCl::S

Princip,11 Amount of Bonds L·.-:c-: Lndenvriter's Discount

Deposit into Bond Fund [II l )c~,osit into Reserve hind [2] Deposit into Costs of Issuance hmd [31 De~,osit into lmpro,ement Fund [)c~,osit into Administrative E:,..pense Fund

S2)9"i,UOU.OO ( h·-L-103 l)l))

S2,7>0,'i%.1U

$~ 18,0'"10. 9() 211,6'>6 26

l C:.\8lJ8. lJ'"1 I ,LJ9 c; ,000. ()()

C:.() [)()l). ()()

[ I J Rq.0 re>L'nt.-- rntl'fl'"t lln thl' 81,nd,; th,1t will accrue thruugh \L,rch I, 2(1() .. L t,, [,,. dq1<>-,1ted 1n lhl' C,1pit,1lized lntere-.t Subaccuunt

[.::'] Equ,11 tu the Re..;t>rn· Requirement \Yith re~pect to the Bund-. "" ,if the cL1te of deliven ,,t thL· B()nd-,_ ['] Include-., cimung uther thini-.:;,;. the feec, and e;,;pen:--.e" uf Bond Coun--d and l)1,-,clil"LITL' ( l'Llll'-L'i. thl'

,:o-,t uf pnntmg thL· Prelimin.ir\· ,rnd tin,11 Official St,1ll'mL'nt-.. tee" ,rnd expcn"e" ,d tlw fsi-,c:,d :\gent. thl' n,-,t uf the 0\pprai-,,1], ,ind the fl'l''- uf the SpL'Cl,11 T,n Cun,ult.mt

6

FACILITIES TO BE FINANCED WITH PROCEEDS OF THE BONDS

Facilities and Fees

Pursuant to the Resolution of Intention adopted by the Community Fc1cilities District on December 13, 2001, the Communitv Facilities District is authorized to finc1ncc "School Facilities," which are defined to include the followi;1g elementary, middle and high school facilities: classrooms, on-site office space at a school, central support and administrati\'e facilities, intL•rim housing, c1nd transportation facilities needed by the School District in order to ser\'e the student population to be generated as a result of development of the property within the Community Facilities District. "School Facilities" also include school sites, furniture, technology and equipment, prm·iding support or services to the foregoing elementary, middle and high school facilities. In each case, School Facilities must have a useful life of at least 5 years.

The School Facilities will be funded with a portion of the proceeds of the Bonds as a prepayment of a portion of each Property Owner's obligation to pay school foes under the Impact Mitigation Agreement (described belmv). The Bonds are anticipated to prn\·idc Sl,l)95,000 for School Facilities, representing all of the Property Owners' required school mitigation fees under the Impact Mitigation Agreement c:rccpt the mitigation fees with respect to one lot known as "Lot lJ," which is currently undevelopable and considered Exempt Property under the Rate and l'vtethod, the mitigation fees for which will be paid in cash if Lot 14 ever receives development entitlements.

The cost of School Facilities to be financed also includes the attributabll' costs of engineering, design, planning, materials testing, coordination, construction staking and construction, together ,vith expenses related to the issuance of the Bonds.

Impact Mitigation Agreement

General. The Community Facilities District was formed pursuant to a First Amended and Restated Impact Mitigation and Reimbursement Agreement dated as of December 13, 2001, by and among the School District and the Property Owners. The Impact Mitigation Agreement establishes a means for financing the Property Owners' respective school impact fee obligations, v.·hich must be paid as a precondition to the development of the property in the Community Facilities District.

The landowner obligations under the Impact Mitigation Agreement are binding on anv successor owners of the real property in the Community Facilities District.

Under the Impact Mitigation Agreement the Property Owners are required to advance up to $50,000 to the School District to finance the costs relating to formation of the Community Facilities District, of which the Property Owners have paid approximately $20,000. All Property Owner advances will be repaid from the proceeds of the Bonds (but only v,:ith the proceeds of the Bonds).

This section contains only a brief summary of the Impact ~·litigation Agreement. Potential purchasers of the Bonds are encouraged to review the entire Impact Mitigation Agreement, which is available from the School District, and which has been recorded in the Official Records of the County.

School Impact Fee Amount. The Impact Mitigation Agreement sets each Property Owner's school impact fees at 56,650 per dwelling unit. Upon the issuance of the Bonds and the School District's receipt of School Fees equal to at least $1,995,000 (equal to 56,650 per dwelling unit based on the construction of 300 dwelling units), the School District will issue a certificate of compliance with respect to the dwelling units to be constructed within the Community Facilities District, regardless of the actual number of assessable square feet of space actually constructed. I\io credits or rebates will be

7

pw, idl'd tu ,111\ Pn1pl'rt~· Owrwr if te\\'L'r ,1SSL'Ss,1hll' ..;qu,HL' fL•L'l oi sp,1CL' is construcll'd th,111 prniL'dl'd in thl' Impact t\litigation Agreement. If thl' ,1mmmb funded through thl' issuance t1f the B()l1tb ,1rc· less th,1n Sl,L)l!~.llll(l, thl' PrnpL'rl\ O\\'J1L•rs \\·ill bl' ublig,1kd to p,1y any rcm,1ining Schuul IL'L'" in c,1--.h prior tti thl' issu.1ncL' iJf a certificate of compliancL' ThL' lmp,Kt \litigation Agreement ,1lso prnvidl's th,1t tlw school imp,1et fl'e with respect tt1 Lot 1-t which i--. currentlv undevelopabk and crnbidcrL·d E\cmpt Prnpcrty under the Rate and tvlcthod., will bl' p,1id in c,1sh if Lot 14 e\'er rl'cciH·-. d.cn·lu1m1ent L'n ti tll'men ts.

s

THE BONDS

General Provisions

The Bonds will be dated their date of delivery and will bear interest at the annual rates set forth on the cover page of this Official Statement, payable semiannually on each l\Lirch 1 and September 1, commencing September 1, 2002 (each, an "Interest Payment Date"). Interest will be calculated on the basis of a 360-day year composed of hvelve 30-day months.

The Bonds ,-vill mature in the amounts and on the dates set forth on the cover page of this Official Statement. The Bonds will be issued in fully registered form in denominations of 55,000 each or any integral multiple of $5,000.

Interest on the Bonds (including the final interest payment upon maturity or earlier redemption) is payable by check of the Fiscal Agent mailed on the Interest Payment Dates by first class mail to the registered Owner thereof at the registered Owner's address as it appears on the registration books maintained by the Fiscal Agent at the close of business on the Record Date preceding the Interest Payment Date, or by wire transfer (i) to DTC (so long as the Bonds are in book-entry form), or (ii) to an account within the United States made on such Interest Payment Date upon written instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds, which instructions will continue in effect until revoked in writing, or until such Bonds are transferred to a new Owner. The principal of the Bonds and any premium on the Bonds are payable by check in lawful money of the United States of America upon surrender of the Bonds at the Principal Office of the Fiscal Agent in Los Angeles, California.

Authority for Issuance

Community Facilities District Resolutions. The Bonds are issued pursuant to the Act and the Fiscal Agent Agreement. In addition, as required by the Act, the Board of Education of the School District has taken the following actions with respect to establishing the Community Facilities District and authorizing issuance of the Bonds:

Resol11tio11s of lntt'lltion: On December 13, 2001, the Board of Education adopted Resolution No. 01/02-21 stating its intention to establish the Community Facilities District and to authorize the levy of a special tax therein. On the same day the Board of Education adopted Resolution No. 01 /02-22 stating its intention to incur bonded indebtedness in an amount not to exceed $-1,000,000 in the aggregate within the Community Facilities District for the purpose of financing the Facilities. See "FACILITIES TO BE FINANCED WITH PROCEEDS OF THE BONDS."

Resolution of Formation: Immediately following a noticed public hearing on January 17, 2002, the Board of Education adopted Resolution No. 01 /02-26 (the "Resolution of Formation"), which established the Community Facilities District and authorized the levy of a special tax within the Community Facilities District.

Re::;o/11tio11 of Necessity: On January 17, 2002, the Board of Education adopted Resolution No. 01 /02-27 declaring the necessity to incur bonded indebtedness in an aggregate amotmt not to exceed $-1,000,000 within the Community Facilities District and submitting that proposition to the qualified electors of the Cornmmuty Facilities District.

Reso/11tio11 Calling Election: On January 17, 2002, the Board of Education adopted Resolution No. 01 /02-28 calling an election by the landowners within the Community Facilities

9

Di..,trict f(1r the ..,,1mL' date ()n the issUL''i lif the lc\·y ()f the Siwcial T,1\. thl' incurrmg rlf li()ndcd indeb!L'dnL'..,.., ,md the establishment of an ,1ppwpri,1tiuns limit.

L1111tl(),1 11T1T El1'L t1011 1111d D1·d11mt11>11 11f R1·~ult.< On J,rnuar,· 17, 2lHl2, an election wa.., lwld within the Community Facilities District in \,·hich the qualified L'IL'Cttirs within the Community r,1eilities District Z1pproved a ballot prnp()sition authorizing the issu,1nce of up tl 1 S.+,OUO,OOll in bL1nd.s tu finance the acquisition and constructiun of the Facilities, the IL•v\· of a special t,1\ and the establishment of an appropriations limit for thL· Communit:· Facilities District. On the s,1me d,1tc, thL' Bot1rd of Education ad.opted Resolution No. Ul/02-291 pursuant to which the Buard of Education approved the carn·ass of the \'L1tes and declared the Communitv racilitie.., Di..,trict to be fullv formed with the authority to IL•vy the Special Taxes, to incur the bonded indd1tl'dness t1nd to h,1n· the established appropriations limit, all vvith respect to the Cummunitv L1cilitic•s District

<:.p1u11/ Tilx Lieu 1111d Le,·ir: A Notice of Special Tt1x Lien was recordL·d in the re,1! property rccrnds of Ri\'erside County on January 29, 2()02, as Document No. 2002-0-tLJ 176.

Ordi111111L°1' Ln 1J1ing SpcL"i11l Taxes: On Februar\' 1-1, 2002, the Bo,ud of Educ1tion ,id.opted Ordin,mce NO. 0 l /02-03 le\'ying the Special Ta:,.; within the Communities Facilities District beginning with the 2001-02 fiscal year.

Res(1/11tio11 A11tlzori:i11g I~~11,111L'1' <f tiII' Boll(f.;: On March 1-l, 2002, the Board of Education ;id opted Resolution No. 01 /02--16 appnn·in)-1; issuance of the Bonds in an amount nnt to L';-,,.ceed $3, UOll ,LlOU.

Sclzool District's Goals and Policies. The School District adopted "Local Agency Coals and Policies for Community Facilities Districts" ( the "Coals and Policies") on September 10, ] LJ98. The Coals ,rnd Pl1licies establish an onfor of priority for financing by rnmmunity facilitie.., districh and certain credit quality requirements for bonds issued bv community facilities districts, nt1mdv a 3: 1 ratio of property \. ,1lue to public debt. (Public debt is defined as community facilities district bunds and other bonds secured by special taxes or special assessments.) Property value mav be based on an appraisal or on assessed \·alues. Although the Goals and Policies do not require the \·alue to dPbt ratio to bc• 3: 1 on a pared by parcel basis, consideratiLm must be given to the ratio v:hen apportioning special taxes to different parcels, to assure that property owners will accept their special tax responsibilities.

The Goals and Policies also require a debt service reserve fund and declare that bonds may not be issued if delinquencies for the collection of taws and assessments are greater than l ou.1;, on the date of issuance of the bonds.

Exceptions to these policies mav be consid.L·red by the School District fur bonds that do not represent an unusual credit risk, either due to credit enhancement or other reasons specified by the School District. In addition, the School District, bv a four-fifths vote of its governing board, mav determine that a bond issue should proceed for specitied public policy reasons without complying vvith the stated policies.

The Goals and Policies also provide for di..,closure of the special tax obligation by developers to subsequent proper!:' owners. Finally, the Goals and Policies establish appraisal standards relating to the valuation of property in order to meet the 3:1 value to public debt ratio.

The School District and the Communitv Facilities District ha\'e determined that issuance of the Bonds conforms with the School District's Goals and Policies.

I()

Debt Service Schedule

The following table presents the annual debt sen·ice on the Bonds (including sinking fund redemptions), assuming there are no optional redemptions.

Year Ending Totc1! September I Princi1,2al Interest I IJ Debt SL·n ice

2002 $ -0- $60,556.51 S60,:i5651 2003 -0- 17L,656.26 171,6"ih.2h 200-1 -10,000 17l,65b.26 21 I ,L1:;n.2n 2005 -10,000 170,136.26 210, I l11.2b 2006 -10,000 168,-116.26 208,-116.26 2007 -15,000 166,516.26 211,516.2(1 2008 -15,000 16-1,266.26 209,2(1(1.2b 2009 -15,000 161,971.26 206, 97 I .2h 2010 50,000 159,608.76 209,608.76 201 l 50,000 156,908.76 206,908.76 2012 55,000 15-1, 158.76 209, 1'18.76 2013 60,000 151,078.76 21 l,078.7b 201-l 60,000 1-17,658.76 207,(/i8.7l1 2015 65,000 l-l-1, 178.70 209, 178.76 2016 70,000 1-10,3-13. 76 210,3-D.76 2017 75,000 136,1-!3.76 211, I-D.76 2018 80,000 131,568.76 2 I l,5h8.76 2019 80,000 126,608.76 206,608.76 2020 85,000 121,608.76 206,608.76 2021 95,000 116,253.76 2 I I ,253.7b 2022 100,000 110, 197.50 210, 197.50 2023 105,000 103,822.50 208,82250 2024 110,000 97,128.76 207,128.7b 2025 120,000 90,116.26 210,1 lb.26 2026 125,000 82,-166.26 207,+66.26 2027 135,000 74,-197.50 209,-!9750 2028 1-15,000 65,790.00 210,790.00 2029 155,000 56,-137.50 2 I l,-l37.50 2030 165,000 -l6,-l-l0.00 211,-WO.OO 2031 175,000 35,797.50 210,797.50 2032 185,000 24,510.00 209,510.00 2033 195,000 12 577.50 207 '177.50

Total: $2,795,000 $3,721,076.73 $6,,"i 16,076.73

[ l] Interest that will accrue through March 1, 200-1, wilt be capitalized with the proceeds of the Bonds.

11

Redemption

Option11l Redemption The BLmds maturing on rn after Septcmbl'r I, 2ll(l-l are c,ubject lli ()1•tiun,1l c1ll and rL'demptil)I1 priur tl1 maturit\·, as a whl1le or in part, pru rata among rn,1turitiec, ,md b\· lot within ,1 maturit\, on anv Interest [\1\·ment Date un ur ,,fter September l, 2002 frurn fundc, deriH'd b\· tlw Communit\· FacilitiL'~ District fru~1 anv SllltrCL', including prepavment Llf the Special T,1\. dep(isite~{ in the Special T,1x Prepayments Sub,1ernunt (as ddint'd in the Fiscal-Agent Agreement) ,1t a redemption price (expresSL'd as a percentage of the principal amount of the Bomb tu be redeemed) as set fur th bclmv, togl'ther with ,1ccnwd interest thereon to tlK' date fixed for redemptiL1ff

Redempti\1l1 Date Redemption Price

Sepll'mber l, 2002 through \larch 1, 2012 Sq,tember l, 2012 and any Interest Payment D,1te then:aftcr

I 02"o I lHl'' o

Afo11datory Sinking Payment Redemption. The Bonds maturing un September L 202ll, are subjL'Ct tL1 rn,1nd,1 tlir:; sinking payment redemption in part on September l, 202 l, and on each September l there,1fter to maturity, bv lot, at a redemption price equal tu the princip,11 ,1mount of the Bonds tL1 be redeemed, together ,vith accrued interest to the date fixed for redemption, \\'ithuut pH'mium, from sinking payments as follows:

Sinking Fund Redemption Date

(September l) 2021 2021. 2023 2024 2025 2026 (maturity)

Sinking Pavments 595,000 100,000 105,000 110,000 120,000 125,000

The Bonds maturing on September 1, 2033, are subject to mandatorv sinking payment redemption in part on September 1, 2027, and on each September 1 thereafter to mc1turity, by lot, at a redemption price equal to the principal amount of the Bonds to be redeemed, together ,vith accrued interest to the d,1te fixed for redemption, without premium, from sinking payments as follmvs:

Sinking Fund Redemption Date

(September I ) 2027 2028 2029 2030 2031 2032 2033 (maturity)

Sinking Pc1vments $135,000

145,000 155,000 165,000 175,000 185,000 195,000

The sinking payment amounts set forth abo\·e will be reduced as a result of any prim partial redemption of the Bonds pursuant to an optional redemption.

Purchase In Lieu of Redemption. In lieu of any redemption, the Fiscal Agent may use and withdraw monevs in the Bond Fund for purchase of outstanding Bonds, at the direction of the Community Facilities District, at public or priYate sale c1s and when, and at such prices (including

12

brokerage and other chargl's) as the Community Facilities District may direct. I lll\\.L'\ cc in nl1 event may Bonds be purchased at a price in excess of their princip..11 ,1mount, plus interest accrued to the date of purchase and any premium \vhich would otherwise be due if the Bonds were to be redeemed in accordance ·with the Fiscal Agent Agreement.

Notice of Redemption. The Fiscal Agent will cause notice of any redemption to be mailed by first class mail, postage prepaid, at least 30 days but not more than 60 days prior to the date fixed for redemption, to the original Purchaser, to the Securities Depositories, to one or more information services, and to the respective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books in the Principal Office of the Fisc.11 Agent. However, mailing of notice of redemption is not a condition precedent to redemption of any Bond, and failure to mail or to receive any redemption notice, or any defect in any redemption notice, ·will not affect the validity of the proceedings for the redemption of Bonds.

Effect of Redemption. From and after the date fixed for redemption, if funds a\·..1ilable for the payment of the principal of, and interest and any premium on, the Bonds so called for redemption are deposited in the Bond Fund, the Bonds so called will cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and no interest will accrue on those Bonds on or after the redemption date specified in the redemption notice.

No Issuance of Parity Bonds

The Community Facilities District has covenanted in the Fiscal Agent Agreement that it will not issue any bonds or place any other charge or lien on any of the Special T..1x Revenues or other amounts or funds pledged to the Bonds superior to or on a parity with the pledge and lien created for the benefit of the Bonds.

Registration, Transfer and Exchange

Registration. The Fiscal Agent will keep or cause to be kept, at its Principal Office, sufficient books for the registration and transfer of the Bonds (the "Bond Register"). The Bond Register will show the series number, date, amount, rate of interest and last known Owner of each Bond and will at all times be open to inspection by the Community Facilities District during regular business hours upon reasonable notice. Upon presentation for this purpose, the Fiscc1l Agent will, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, the ownership of the Bonds on the Bond Register.

The Community Facilities District and the Fiscal Agent will treat the owner of any Bond whose name appears on the Bond Register as the absolute Owner of that Bond for any and all purposes, and the Community Facilities District and the Fiscal Agent will not be affected bv any notice to the contrary. The Commtmity Facilities District and the Fiscal Agent may rely on the address of the O"vner as it appears in the Bond Register for any and all purposes.

Transfers of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the Bond Register by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a dulv vvritten instrument of transfer in a form acceptable to the Fiscal Agent. The cost for any services rendered or any expenses incurred by the Fiscal Agent in connection with any such transfer will be paid by the Communitv Facilities District. The Fiscal Agent v.•ill collect from the Owner requesting such transfer any tax or other governmental charge required to be paid with respect to such transfer.

13

\,\'JwnL'H'r ,un· Blll1d or Bonds ,lfL' surrL'ndL'fl'd fpr tr,rnsfor, thL1 Communit\ J·,1eilitil1'-. I )ic,trict

will L',ccutc (and thl' Fisc,11 Agent will authenticate and ddiYcr) a new Bund <)r Ih1nds, lllr lik.c aggrq~,1tl' princip,11 amount of authorized denominations.

t\:o tr,rnsfers of Bonds will be required tl) he mt1ek (i) 15 days before the dc1tc established b\" the hsc,11 AgL'nt for selection of Bonds fl1r redemption, (ii) with respect to a Bond after th,1t Bond h,1s bL1 en sclcctcd for redemption, or (iii) between a RcCl 1rd D,1 te and the follmving interest Payment D,1tc.

E.wlwngc of Bonds. Bonds may be exchanged at the Principal Office of the Fiscal Agent for a like ,1ggregatc principal amount of Bonds of authorized denominations and of the s,rnw series ,rnd maturitv. The Cl)St for any services rendered or any expenses incurred by the I;iscal Agent in connection with anv such exchange will he paid hv the Community Facilities District. The Fisc.11 AgL1 nt will cullect from the Owner requesting such exchange any t,1x or other governmental charge required tn be p,1id with respect to such exch.:mge.

!\lo exchanges of Bonds will be required to be made (i) 15 days before the date L'Stablished by the Fisc.11 Agent for selection of Bonds for redemption, (ii) with respect to .1 Bond after that Bond h,1s bL'en Sl'kcted for redemption, or (iii) bet,veen a Recurd Date and the follmving interest Pilyment Date.

l.J

SECURITY FOR THE BONDS

General

The payment of the principal of, and interest and any premium on, the Bonds is secured bv a first pledge of the following:

• all revenues derived from the Net Special Taxes, and

• all monevs deposited in the Bond Fund, in the Reserve Fund and, until disbursed as provided in the Fiscal Agent Agreement, in the Special Tax Fund.

Amounts in the Administrative Expense Fund, the Costs of Issuance Fund and the Improvement Fund are not pledged to the repayment of the Bonds. The Facilities to be financed \Vith the proceeds of the Bonds are not in any way pledged to pay the debt service on the Bonds. Any proceeds of condemnation or destruction of any facilities financed with the proceeds of the Bonds are not pledged to pay the debt service on the Bonds and are free and clear of any lien or obligation imposed under the Fiscal Agent Agreement.

"Net Special Taxes" is defined in the Fiscal Agent Agreement as the proceeds of the Special Taxes received by the Community Facilities District, including any scheduled payments, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, but exclllding (i) any penalties or costs of collecting delinquent Special Taxes collected in connection with delinquent Special Taxes, and (ii) the initial $25,000 that will be deposited in the Administrative Expense Fund each year.

Special Taxes

The Community Facilities District has covenanted in the Fiscal Agent Agreement to comply with all requirements of the Act so as to assure the timely collection of Special Taxes, including without limitation, the enforcement of delinquent Special Taxes.

Under the Act and the Fiscal Agent Agreement, the Community Facilities District will levy the Special Taxes by August 10 of each year in an amount required for the following:

• the payment of principal of and interest on any outstanding Bonds becoming due and payable during the ensuing year,

• any necessary replenishment or expenditure of the Reserve Fund, and

• an amount estimated to be sufficient to pay the Administrative Expenses during the ensuing year.

The Special Taxes are expected to be levied against Taxable Property in the Community Facilities District beginning with Fiscal Year 2002-03. The Rate and Method stipulates that Special Taxes will be levied for 33 Fiscal Years after the issuance of the Bonds, but Special Taxes may not be levied after Fiscal Year 2039-40.

The Fiscal Agent Agreement provides that the Special Taxes are payable and will be collected in the same manner and at the same time and in the same installment as the general taxes on real property, and will have the same priority, become delinquent at the same times and in the same

15

pw~1(Htion,11L' ,1l11l 1unt..; ,1nd be,1r the same prPportilmate ~1en,1lties and interest ,1fter dclrnquL'l1L\ ,1-, dll

tl1L' hL'llL'ral taws lln re,11 prnpertv.

B1·Li111,, t/1,· S/'t't i,,1 Tax fl','_1/ i.; li111it1·1i ti, t'11· 111,1"ti11111n1 Sf't'ci11! Tilx r11t,·, .;!'! fi,rth r11 tir1· l<.11ft- a11d :\li'f/z,ld, 11,1 ,1..;o.;111·1111t,' (tlll h· ,\ii't'/1 t/111t, ill th1• t'i't'llf 11( .C:.J't'Li,1/ T11.Y dt'l11l,fllt'lltit's, t/1,' l't'L,'i/1f..; 111 Sp,'Li11l 'f11x1·,

1l'lli, in f;llt, h· c1 1llt'cft'd {// _-.;uf{icit'Jlt ,111101111[:.; /111111_11 x1, 1t'II 1/f'il/' tu p1y 1!t·/it .;t'n 1ict' ()/1 tiz1' Bo11d..;_

Rate and Method

Grncral. The Special Tax is k\·ied and Cl1llected according to the Rate and n.kthod, \\·hich pwvides the means by which the Board of Education may annually' h_,\·y the Special Taxes within the Communit\· FacilitiL'S District, up to the \laximum Special Tax, and to determine the amount of the S~1eci,1I 1,1', th,1t will need to be collected each h-.cz1l Yec1r from the "Ta:-,..able Propertv" within the Communit\· Facilities District.

Tl1L' tollowing is a synopsis of the provisions ()f the Rate and :,.,11ethod, which should be read in conjunction with the complete text of the Rate ,md fvlethod, including its attachments, which is attached as "APPE\JDIX B - Rate and ivlethod of Apportionment for Community Facilities District t'-:o 2002-1 of },,lurrict1 Valle:· Cnified School District." The meaning of the defined terms used in this section are ,h sl'l frnth in APPENDIX B. Thi., .,l'ctio11 11n11,idc., 011/y 11 .,11111111ary u(tlz1· Rafi' i111d ,\frfi1<•d, 111ul i, quali(i,·t! /1_11 111r1n• t.'(llllpll'tl' 1111d dt'tailt'd i11_f1m1wtiu11 u,11t11i11ed i11 the 1'11lll'l' Rah· 1111d A-frtl1nd 11tt11cl1ed ,1s APPL'\JDI.\ B.

A1inimum Amwal Special Tax Requirement. Annually, at the time of levvmg the Special Tax for the Communitv Facilities District, the Board of Education will determine the minimum amount of monev to be le~·ied on Taxable Property in the Community Facilities District (the "!Vlinimum Annual Speci,11 Ta.x Requirement"), 'vvhich will be the c1mo1mt rL·quired in anv Fiscal Year to pay the following:

•

•

•

•

the debt service on all outstanding Bonds (and other indebtedness and lease revenue financing of the Community F.1cilities District), or other periodic costs on all outstanding Bonds or other indebtedness of the Community Facilities District,

Administrative Expenses of the Cummunitv Facilities District (as further described 111

the Rate and Method), ·

the costs associated with the release of funds from an escrow account, if any, ,md

an\' amount required to establish or replenish any reserve funds established m association with the Bonds (or other indebtedness of the Community Facilities District),

It'.,..; any' reserve fund earnings in excess of the resen·e fund requirement which are not allocable to rebatablc arbitrage.

Taxable mid Exempt Property; De11eloped and Undeveloped Property. All Assessor's Pc1rcels within the Community Facilities District will be classified for each Fiscal Year as Taxable Property or Exempt Propert\·, and each Assessor's Parcel of Taxable Property \Vil! be further classified as Developed Property or Undeveloped Property, as defined belmv.

"Taxable Properf.1/' means all Assessor's Parcels that are not Exempt Property.

,. Ext'111pt Propl'rt.1/' is defined to include the following:

lh

• Assessor's Parcels owned by the State ()f C,1liforni,1, FL'derc1l or other luc1l governments,

• Assessor's Parcels that are used as places of worship and arc exempt from ad \·alorc'm property taxes because they are owned by a religious organi1:ation,

• Assessor's Parcels used exclusively by a homeowners' association,

• Assessor's Parcels with public or utility casements making impractiG1l their use for other than the purposes set forth in the easement, or

• other types of Assessor's Parcels, at the reasonable discretion of the Board.

However, the Board may not classify any Assessor's Parcels as exempt if that classification would reduce the Acreage of all Taxable Property to less than -!J.07 acres.

"Developed PrOfJcrty" means all Assessor's Parcels for which Building Permits were issued on or before May 1 of the prior Fiscal Year, provided that such Assessor's Parcels were created on or before January 1 of the prior Fiscal Year and that each such Assessor's Parcel is associated with a Lot, as determined reasonably by the Board.

"Undeveloped Property" means all Assessors Parcels of Taxable Property which are not classified as Developed Property.

Maximum Special Tax, Assigned Annual Special Tax and Backup Annual Special Tt1x. The Maximum Special Tax is defined in the Rate and Method as follows:

Developed Property. The Maximum Special Tax is the greater of (i) the applicable Assigned Annual Special Tax or (ii) the applicable Backup Annual Special Tax, if any.

• Assigned Annual Special Tax. For any Fiscal Year, $883.55 per Unit.

• Backup Annual Special Tax. The Backup Annual Special Tax per Lot within a Final Map is determined by multiplying the Acreage of Taxable Property in the Final Map by $6,153.71, and dividing the result by the number of Lots in the Final Map. The Backup Annual Special Tax is subject to adjustment if all or any portion of a Final Map is changed or modified, as set forth in the Rate and Method.

Undeveloped Property. The Maximum Special Tax is the applicable Assigned Annual Special Tax, which is $6,153.71 per acre of Acreage.

Method of Apportionment. Under the Rate and Method, the Board of Education will levy Annual Special Taxes each Fiscal Year as follows:

Step One: The Board of Education will levy an Annual Special Tax on each Assessor's Parcel of Developed Property in an amount equal to the Assigned Annual Special Tax applicable to that Assessor's Parcel.

Step Two: If the sum of the amounts collected in step one is insufficient to satisfy the Minimum Annual Special Tax Requirement, then the Board of Education will additionally levy an Annual Special Tax Proportionately on each Assessor's Parcel of Undeveloped Property up

17

to tlw Assignt•d Annual Speci,1l Tax ,,pplic1bll' t\l that Assessrn's P,1rccl tti s,llhf\ tlw \!inirnurn .'\nnu,1l ~pecial T,n Rcquircnwnt.

Stq 1 rlzn't': If the sum of the amounts collected in steps one and I\\"() is insufficient t\l satish· the rvtinimum Annual SpPcial T,1x Requirement, then the Board \\'ill additiun,1ll\' k·,·y an Annual Special Tax pro~iortionatelv un each Assessor's Parcel nf DcYelo~icd Prnperl\· up to the 1\laximum Special Tax applicable k1 that Assessor's Parcel tu satisfv the \linimum Annu,1! Speci,1l T,1x Requirement.

Prrp11ymrnt of A.n11ual Sprcial Taxrs. The Annual Special Tax obligation fur ,rn Assessor's Parcel may bt' prepaid in full, provided that the terms set forth under the Rate and 1\lcthud arc satisfied, including the follovving conditions:

• the Assessor's Parcel consists of De\'eloped Property or UndeYelopcd Prupcrtv for which a Building Permit has been issued,

• there arc no delinquent Special Taxes, penalties, or interest charges outstrnding with respect to that Assessor's Parcel, and

• the amount of Special Taxes that may be levied on Taxable Property, net of Administrati,·L' Expenses, is at least 1.1 times the regularly scheduled annu,11 interest and principal pa,·mcnts on all currently outstanding Bonds in eJ.ch future Fiscal Year, as reasonably determined bv the Board of Education.

The Prep,1yment Amount is calculated based on the Bond Redemption Amount plus Redemption Prt'mium and other costs, less a credit for the resulting reduction in the Reserve Requirement fur the Bonds (if any), all as specified in "APPENDIX B - Rate and r-.tethod of Apportionment for Community Facilities District No. 2002-1 of MurrietJ. Valley Unified School District - Section C."

Partiiil Prepayment of Annual Special Taxes. The AnnuJ.l Special Tax ublig-ation for an Assessor's Parcel may' be partially prepaid, prm·ided that the terms set forth under the Rate and Method J.re sJ.tisfied, including the following conditions:

• there arc no delinquent Special Taxes, penalties, or interest chargt's outstanding with respect to thJ.t Assessor's Parcel at the time the AnnuJ.I SpeciJ.l Tax obligation \vmtld be partiall :' prepaid, and

• the amount of Special Taxes that mJ.y be levied on Taxable Property after the pJ.rtial prepayment, net of AdministratiYe Expenses, is at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds in e,1eh future Fiscal YcJ.r.

Prior to the issuance of the first Building Permit for the construction of a productilm Cnit on a Lot ,.vithin a Final Map, the owner of all the TJ.xable Property within thJ.t Final i\fap J.re,, mJ.:' elect to prepay a portion of the Annual Special Tax obligations for all the Assessor's Parcels within that Final Map J.rea. The pJ.rtial prepayment for all Lots within a Final Map area must be collt•cted prior to the issuance of the first Building Permit for J.n Assessor's Parcel in that Final ~.fap area.

The partial Prepayment Amount is calculated based on the Prepayment Amount (c,1lculated as set forth abm·e) multiplied by the shJ.re of Annual Special Tax obligation being prepaid, all as specified in ''APPENDIX B - Rate J.nd Method of Apportionment for Community Facilities District '.\Jo. 2002-1 of l'vlurrieta Vallev Unified School District - Section I-L"

18

Appeals. Any property owner claiming that the anwunt or application ()i the Special Ta\. is not correct may file a \vritten notice of appeal with the Board of Education not lakr th,1n 12. months after having paid the first installment of the Special Tax that is disputed. If a representative of the Community Facilities District determines that the Special Tax for an Assessnr's Parcel must be modified or changed in favor of the property owner, a cash rdund will not be made (except for the last year of levy), but an adjustment ·will be made to the Annual Special Tax on that Assessor's P.1rcel in the subsequent Fiscal Years.

Covenant to Foreclose

Sale of Property for No11payment of Taxes. The Fiscal Agent Agreement provides that the Special Tax is to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the special covenant for foreclosure described belov\· and in the Mello-Roos Law, is to be subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ad valorem property taxes. Under these procedures, if taxes are unpaid for a period of five years or more, the property is subject to sale by the County.

Foreclosure Under the Mello-Roos Law. Under Section 53356.1 of the Act, if an~" delinquency occurs in the payment of the Special Tax, the Community Facilities District may order the institution of a Superior Court action to foreclose the lien therefor within specified time limits. In such an action, the real property subject to the tmpaid amount may be sold at judicial foreclosure sale.

Such judicial foreclosure action is not mandatory. However, the Communitv Facilities District has agreed in the Fiscal Agent Agreement that, on or about February 15 and June 15 of each Fiscal Year, an Authorized Officer is obligated to compare the amount of Special Taxes to be collected on the December 10 and April 10 installments of the secured property tax bills to the amount of Special Tax Revenues actually received by the Community Facilities District in those installments, and if delinquencies have occurred, proceed as follows:

Individual Delinquencies. If the Authorized Officer determines that any single parcel subject to the Special Tax in the Community Facilities District is delinquent in the payment of Special Taxes in the aggregate amount of $5,000 or more, then the Authorized Officer will send or cause to be sent a notice of delinquency (and a demand for immediate payment) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings will be commenced by the Community Facilities District within 90 days of such determination.

Aggregate Delinquencies. If the Authorized Officer determines that the total amount of delinquent Special Tax for the prior Fiscal Year for the entire Community Facilities District (including total individual delinquencies) exceeds 5% of the total Special Tax due and payable for the prior Fiscal Year, the Community Facilities District has covenanted in the Fiscal Agent Agreement to notify or cause to be notified property owners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency) within 45 days of such determination, and to commence foreclosure proceedings within 90 days of such determination against each parcel of land in the Community Facilities District with a Special Tax delinquency.

Sufficiency of Foreclosure Sale Proceeds; Foreclosure Limitatio11s and Delays. No assurances can be given that the real property subject to a judicial foreclosure sale will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Mello-Roos Law does not require the Commtmity Facilities District to purchase or otherwise acquire any lot or parcel of property foreclosed upon if there is no other purchaser at such sale.

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SL'Ctiun :i:i:15t1.l1 of the \kilo-Roos Law requires that prnpertv sold pur-.u,rnt tu tlirccll1surc under the \ll'llo-Roos Lnv be sold for not less than the amount of judgment in the fl1reclnsure actiun, plus post-judgn1L'nt interest and authorized costs, unless the consent of the owners llf 7=i",, of tlw tiutstanding Bonds is obtained. I lowe\·er, under Section 53356.6 of the t\lcllu-Ruos L:iw, the Communit\· Facilities District, as judgement creditllf, is entitled to purchase any pwperh· sold at ft1rL'closure using a "credit bid," where the Cummunity Facilities District could submit ,1 bid crediting ,111 ur ~,art of the ,1mount required to satisfy thL' judgment for the delinquent amuunt pf the Speci<1l Tax. If the Cnmmunity Facilities District becomes the purchaser under a credit bid, the Cumrnunitv Licilities District must p,n· the amount uf its credit bid intt1 the redemption fund established for thl' Bonds, but this pa\'ITIL'nt m,1y be made up to 2-1 months after the date of the forc'closure sale.

Forcclusure bv court action is subject to normal litigation delays, the nature and l'XtL'nt of which arL' largelv dependent on the nature of the defense, if any, put forth by the debtor ,md the Superior Court calend,1r. In addition, the ability of the Communitv Facilities District to foreclose the lien of

. -

delinquent unpaid Special Taxtc'S may be limited in certain instances and may require prior consent of the prnpc'rty owner if the property is O\vned by or in receivership of the Federal Deposit insurance Curprnatiun (the "FDIC'). See "BOND OW'.\JERS' RISKS - Bankruptcy and Foreclosurl' DL'l.1ys"

No Teeter Plan. Because the Community Facilities District does not participate in the "Teeter Plan" (\vhich is the Countv's Alternative :t\.frthod of Distribution of Tax Levies and Collections ,rnd of T,n. Sale Proceeds, as pn;vided for in Sectiun 4701 et seq. of the California Revenue and Tax,1tion Cude), collections of Special Taxes will reflect actual ddinquencies.

Special Tax Fund

Deposits. lJnder the Fiscal Agent Agreement, all Special Tax Revenues recein,d by the Communit~· Facilities District will be deposited in the Special Tax Fund, which will bt' hl'ld by the Fiscal Agent on behalf of the Community Facilities District. The Fiscal Agent will htild monevs in the Sr•L'cial Tax Fund in trust for the benefit of the Community Facilities District and the owners of the Bonds. Pending disbursement, moneys in the Special Tax Fund will be subject to a lien in fovrn of the Bond owners and the Community FJcilities District established under the Fiscal Agent Agreement.

Disbursements. Moneys in the Special Tax Fund will be disbursed as needed to pay the obligations of the Community Facilities District in the following priority:

(i) the amount or portion thereof, not exceeding $25,000, that an Authorized Officer directs the Fiscal Agent to deposit in the Administrative Expense Fund for payment of Administrative Expenses,

(ii) amounts required to be deposited into the Bond Fund in order to pav debt service on the Bonds on the next Interest Payment Date,

(iii) amounts required to replenish the Reserve Fund to the Reserve Requirement (as defined below), and

(iv) any remaining amounts required to pay Administrative Expenses (in an c1muunt not exceeding the amount levied for such purpose).

At any time follmving the deposit of Special Taxes in an amount sufficient to make payment of all of the deposits listed above for the current Bernd Year (as that term in defined in the Fiscal Agent Agreement), an Authorized Officer may direct the Fiscal Agent to transfer anv excess amounts remaining in the Special Tax Fund to the Community Facilities District to be used for anv lav,:ful

20

purpose under the Act. In the absence of such written direction, all amounts rcm,1ining in the Specit1l Tax Fund on the first day of the succeeding Bond Year will be retained in the Spcci,11 T,1\. Fund and applied to the succeeding Bond Year's Annual Debt Service; pro,·ided, hm,·c, er, th,1t in no event mav such amount be invested at a yield in excess of the yield on the Bonds. -

Investment. Moneys in the Special Tax Fund will be invested and depnsited bv the Authorized Officer as described in "Investment of Moneys in Funds" belmv. Interest earnings and profits resulting from such investment and deposit will be retained in the Special Tax Fund to he used for the purposes of the Special Tax Fund_

Bond Fund

The Fiscal Agent will hold the Bond Fund in trust for the benefit of the Bond o,\·ners. Within the Bond Fund the Fiscal Agent will create and hold the Capitalized Interest Subaccount, into which the portion of Bond proceeds representing capitalized interest will be deposited, and the Special Tax Prepayments Subaccount, into which prepayments of the Special Taxes will be deposited.

On each Interest Payment Date, the Fiscal Agent will withdraw from the Bond Fund and pay to the owners of the Bonds the principal, interest and any premium then due and payable on the Bonds, including any amounts due on the Bonds by reason of the mandatory sinking pziyments or a redemption of the Bonds.

If amounts in the Bond Fund are insufficient for the purposes set forth in the preceding paragraph, and all or any portion of the deficiency is attributzible to any Propert~· Owner's delinquency in the payment of Special Taxes, the Fiscal Agent will withdraw the deficiency from the Reserve Fund.

If, after all transfers from the Reserve Fund, there are insufficient funds in the Bond Fund to pay the amounts required on the next Interest Payment Date, the Fiscal Agent will apply the available funds first to the payment of interest on the Bonds, then to the payment of principal due on the Bonds other than by reason of mandatory sinking payments, and then to payment of principal due on the Bonds by reason of mandatory sinking payments. Any mandatory sinking payment not made as scheduled will be added to the mandatory sinking payment to be made on the next sinking fund redemption date.

The Community Facilities District has covenanted in the Fiscal Agent Agreement to increase the levy of the Special Taxes in the next Fiscal Year (subject to the maximum amount authorized by the Rate and Method) in accordance with the procedures set forth in the Act for the purpose of curing Bond Fund deficiencies.

Reserve Fund

In order to further secure the payment of principal of and interest on the Bonds, certain proceeds of the Bonds will be deposited into the Reserve Fund in an amount equal to the Reserve Requirement (see "ESTIMATED SOURCES AND USES OF FUNDS"). Reserve Requirement is defined in the Fiscal Agent Agreement to mean, as of any date of calculation, an amount equal to the least of the following:

(i) the then maximum annual debt service on the Bonds,

(ii) 125°1~ of the then-average annual debt service on the Bonds, or

(iii) 10% of the initial principal amount of the Bonds.

21

If Spl'cial Taxl'S are prL'paid and Bonds ML' tu he redL'L'med v1·ith the prnn·L·d~ ()f such prcpa\'n1L'nL a prupurtion,1te ,1mount in tlw RL'St'f\'L' Fund (determirwd on the b,1sis of lhl' princip,11 of Bonds tu be rl'llL'L'nwd and the rniginal principiil c1f tlw Bonds) \'>·ill be ,1pplied to the fL'Lkmptinn of the Bonds.

t\lo11L'\'S in the Reserve Fund will be inu.'stcd and deposited as described in "ln\·estment of I\lonevs in r'unds" belmv. Interest earnings and profits resulting from investment in L'XCL'Ss of the Rescr~·e RL·quirement ma\· be USL'd for purposes of paying any rebate liability due to the federal gl1vernment, ,,t the written direction of an Authorized Officer, .:md ,1mounts mil sn USL'll will be transferred tL) the Bond Fund.

See ":-\PPEt\_:DL\ D - Summary of Fiscal Agent 1-\.;reement" for a description uf the timing, purpose and manner of disbursements from the Reserve Fund.

Investment of Moneys in Funds

!'vlonevs in anv fund or ,1Ccount created ur established bv the Fiscal Agent Agreement and held by the Fiscal -Agent .~·ill be invested by the Fiscal Agent in Authorized Investments, as directed by an Authorized Officer, that mature prior to the date on v1·hich such moneys are required to be paid out under the Fiscal Agent Agreement. See "APPE!\DIX D - Summary- of Fiscal Agent Agreement" for a definition of" Authorized lnYestments."

,,

THE SCHOOL DISTRICT

The follm.ui11g i11for111ntio11 re/11ti11g tn tlu.> School District i:; i11d11dl'd 0,1(11 to _-;11; 1p!_1r ge11r'ral i11_fon1111tio11 rc,'{11rdi11g the School Di3trid. Neither the fi1ith and credit nor the fi1xlng po,l'i'r o( the Sc/100/ District ha..; [1ec11 pledged to pi1_11nu'11f cf t'1l' Bowfs, 1111d t/11' Bonds will not be paya/1/e from 1111y c'.f tht' 5dwul District'..; rc1'1'11111'." or asseb.

General Information

The School District was formed in 1885 as the Murrieta School District and, on Julv 1, 1989, the School District completed proceedings to reorganize as a unified school district ·within the same boundaries. The School District provides public education ,vithin a 167 square mile area including all of the City and certain unincorporated areas of the County. The administration headquarters of the School District are located at 26396 Beckman Court, Murrieta, California. For further information on the School District see its Internet home page at www.murrieta.k12.ca.us.

The School District currently operates seven kindergarten through fifth grade elementary schools, two sixth through eighth grade middle schools, one ninth through twelfth grade high school and one ninth through twelfth grade alternative education school. As of February 25, 2002, fiscal year 2001-02 enrollment was 13,085. Enrollment has been increasing steadily since 1987. The School District has been one of the fastest growing school districts in the State and expects enrollment to continue to grow rapidly.

Administration and Enrollment

The School District is governed by the Board of Education. The five Board members are elected to four-vcar terms in alternate slates of three and h-vo in elections held everv two vears. If a vacancy arises during any term, the vacancy is filled by an appointment by a mafority ~ote of the remaining Board members and, if there is no majority, by a special election. The names and terms of the current Board members is set forth below:

Board of Education

Austin Linslev, President Kris Thomasi~n, Clerk of the Board Kenneth Dickson, Member Margi Wray, Member Judy Rosen, Member

23

Term Expires

November 2005 November 2005 November 2003 November 2003 November 2003

The t,1blL, bL'lm,· sl'ts forth enrollment figures fur fiscal H'M !LJLJ[ .. LJ2 thrnugh tlw currl'nt fr,c.1!

\'L',1r (,1s of FL'bru,1n 2"', 2llll2), ,b \\'di ,b projections for ne:,..t two fiscal VL'tHS.

Projected*

Murrieta Valley Unified School District Student Enrollment

Fisc1l Yl'ar Studl'nt Enrnllml'nt

I LJLJ l --92 \229 I 992--lJ~ b,216

l99Yl-l 7,0--D 199-l--95 7,87> l99S--% 8,399 19%--97 9,111 1997--98 9,688 1998--99 l0,376 1999-00 l0,931 2000-0 I l:?.,065 2001-02 13,085

2002-03 1-l,750 2003-0-l 16,825

l'L'rccn t.1~L' lnnl',l'-L'

r\; .'\ IS.SS" .. l~.>01\1 l l.78" 0

b.68'\, 8.-lS"., 6.3]"u

7. I 0"" c, ,...,~!)

• ~' °) '()

llU7":, S.-1-~t)u

12.72'\, I.J.07'\,

l'mjt·ctiun,- b,bl'd ,,n CBEDS (Cc1lihlrnic1 Ba"ic Educ,1tiunc1l D,1t,1 S\ -,km) c,1kuL1t1tl11-, ':-,tlurcL': C,1litorni,1 Dq0 ,1rtnwnt uf Educ,1tion and the Scho,il Di~trict. .

The r,1pid growth of the School District's student population in recent years has resulted in a shortage of classrLiom space and other School District facilities. Although the School District has applied for ,1dditional funding from the State, this funding is uncertain due to the current fiscal crisis e,perienced b:,; the State. It is anticipated that bond funding to be provided by the Cummunity Facilities District and other existing and future community facilities districts formed by the School District will be insufficient to meet the need for additional classroom and facilities construction.

2-l

THE COMMUNITY FACILITIES DISTRICT

General

Description and Location. The Community Facilities District is located in the western portion of the City adjacent to the boundary of the County, southwest of Interstate 15, and is bounded by Washington Avenue on the northeast, Nutmeg Street and Calle del Oso Oro on the southeast and south, and undeveloped land on the west and northwest. The property contains apprnximately 85 gross acres and is gently sloping.

All of the property in the Community Facilities District is being developed for residential use as 300 single-family detached homes in two neighborhoods, and approximately -15 acres of open space. One lot contained in the subdivision, known as "Lot 14," is currently subject to a right-of-\,.,'ay easement and not developable. This parcel is considered Exempt Property under the Rate and fvlethod.

The boundary map of the Community Facilities District is attached as APPENDIX I.

Gross and Anticipated Net Taxable Acres. The property in the Community Facilities District currently contains approximately 85 gross acres, of which approximately -13.07 net acres are proposed for development as Taxable Property. The difference between the gross acreage and the combined net acreage is attributable to property that is expected to be separately parcelized, den'loped and conveyed to the City, County, public agencies or homeowner associations as public roads and open space parcels. Before this property is conveyed, it will be taxable as Undeveloped Property pursuant to the Rate and Method. This property will become exempt from the Special Taxes as of the January 1 follmving the date it has been conveyed to the City, County, a public agency or a homeo.vner association, ·which is expected to occur after final tract maps are recorded for each development.

Estimated Maximum Special Tax Proceeds and Debt Service Coverage

The Rate and Method is structured to produce Special Tax revenues from the Assigned Annual Special Tax and the l'v1aximum Special Tax which, when applied to the projected debt service on the Bonds, is anticipated to result in a debt service coverage ratio of 110~1;,, for the life of the Bonds.

Appraised Property Value

The Appraisal. The Appraisal was prepared by Bruce W. Hull & Associates, Inc. of Irvine, California (the" Appraiser") to ascertain the market value of the fee simple estate of the 300 proposed single family detached lots in the Community Facilities District as of a February 15, 2002 date of value. The Appraisal was intended to comply with the reporting requirements set forth under Standard Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal Report, and with the appraisal standards proposed by the California Debt and Investment Advisory Commission.

Basis for Appraisal and Assumptions. The market value of the property was estimated in its "as is" condition, and the property rights appraised were of a fee simple interest subject to easements of record, the AD 98-1 lien, and the lien of the Special Taxes.

The Appraisal was based on certain assumptions and limiting conditions set forth in APPENDIX C, including the following assumptions: that all of the improvements and benefits to the property to be funded by the Bonds are completed and in place; that there are no environmental concerns that would slow or thwart development of the property; that the soils are adequate to support the highest use conclusion used in the Appraisal; that the Property Owners recei\·e a Letter of Map

25

RL'\·isiun for ,1 }1urtiun oi the prnpnt\· in tlw Cl1mmunih L1cilities District; that t11L' Prti}wrt\ ( )\,·m·rc. \\·ill replant ll.S.2 acre of riparian area in tht:.' \lurril't,1 Crl'ek hl'Ll in accordcHKc with thL· ,1;.-';fl'l'nwnt bL'tWL'L'n Rh,1,1dec. ,1nd thL' California Dq1artnwnt of Fic.h ,1nd C,1nw; <1nd that thl' prn}wrt\ i:·, nnt subjl'ct to the lien ,if the ~lunicipal Impro\·ement B,md ,Jt,-] ( Murrida Park).

ThL' Appraiser assumed that the prncL·cds of the Bonds ,votdd fund SJ,lJlJ~.()(ll) in Sclrnnl bcilitie:-.. (See "FAClLITIES TO BE FINA>JCED \VITII PROCEEDS OF TIIE BONDS" for the Communit\· Facilities District\ current estimate of the amount of Bond proceeds to bl' usL·d for School f acili tics.)

The . .\ }1pr aisl'r also took in to account <1 feL' credit granted to Rhoades as reimb ursemL'n t fur the constructinn of certain infrastructure improvements necessary for the project (consisting of c.e,ver, water and storm drain installation, and ,vidcning of Calle del Oso Oro) that were intended tu be funded with the proceeds of the AD LJS-1 Bonds. Sec "PROPERTY OWNERSHIP At\:D PROPOSED DEVELOP~lENT - Proposed Development."

As of the February lS, 2002 date of value, the status of the property ,vas as follows:

• Tract 23187-2 (Rhoades) was under construction with mass grading cumplete and partial completion of streets and utilities. Three model homes were completL'd and 21 production homes were under construction.

• Tract 23187-3 (vVilliam Lvun) was under construction \Vith m,1ss grading complete, including terraced lots and graded streets.

• Tract 23187--l (Rhoades) w,1s under construction with mass grading complete, including terraced lots and graded streets.

Value Estimate. The Appraiser estimated that, as of the February 15, 2002 datt• of \·alue, the fee simple interest in the property within the Community Facilities District (subject to casements of recurd, the AD 98-1 Lien, and to the lien of the Special Taxes) had the following values:

William Lyon property: Rhoades property:

Total:

$7,925,000 10,850,000

$18,775,000

Val1wtio11 Methods. The Appraisal estimated the value of the 3 completed model homes by determining the retail value and applying a discounted cash flow analysis. The Appraisal estimated the value of the remaining property (including the lots with partially completed production homes) based on its anticipated "finished lot" status, less the remaining cost to the Property Owners to .1ehieve finished lots, based on the status of development as of the February 15, 2002 date of value. "Finished lots" were generally defined as subdivided lots that are fine graded level pads with infrastructure contiguous to each individual lot (including asphalt pa\·ed roads and the necessarv utilities), and for which all applicable development fees (except building permit and plan check fees) have been paid.

The Appraiser then used the sales comparison approach, in which market value is estimated by comparing properties similar to the subject property that have recently been sold, are listed for sale, or are under contract. The estimate of value for the property was achieved using the sales prices of comparable finished lots in the l'vlurrieta area that were listed or in escrow, or had sold within the prior 20 months.

Thi' Sd1ool District and tire Co111111m1it_11 Facilities Distrit.t make 110 rt'prese11tation 11 . ..; to t/11· 11cc11r11c11 or co111pletene.ss oftlic Appraisal. See APPENDIX Cfc7r the S1111111wry Appraisal Report.

Appraised Value to Burden Ratio

The table below shows the projected value to burden ratio for the property in the Community Facilities District based on (a) the appraised values set forth in the Appraisal and (b) the combined principal amount of the Bonds and the overlapping bonded indebtedness affecting the propert'."' in the Community Facilities District. See"- Direct and Overlapping Governmental Obligations" belo\,.'.

No a,..;_..;urmzce om he gil.'L'll that the amounts slwwn i11 tlris table will co11_tcmn to t/1<1 . ..;c 11/ti11111tdy n·11/i:ed i11 the cz 1cnt of11Jc1rcc/os11rc actio11_followi11g deli11q111:11cy i11 the p11_11111c11t cf tlzc Sp1'ci11/ T11t1's.

Table 1 Appraised Values and Value to Burden Ratio

Appraised Value [ti $ I 8,775,000

Principal Amount of Bonds $2,795,000

Outstanding Amount of AD 98-1 Lien [21 $2,031,999

Value to Lien Ratio 3.89 to I

[ 1] fvforket \·alue estimoted by the Appraiser as of Febru,1ry 15, 2002. [2] See"- Direct and Overlapping Governmental Obligatiom·· be[o\\. Source: David Taussig & Associates, Inc.

27

Direct and Overlapping Governmental Obligations

Ou .. ·rl,1pping local agencies prn\·idL' public services within the Communitv FacilitiL•s l)i...,Lrict, and such ,1genciL'S han: issued general obligation bonds and other tvpes of indebtcdnec.s. Direct ,1nd O\'L'rlapping gm·L'mmental obligations as of FebruM\ 1, 2002 are shown in the following t,1ble:

Table 2 Direct and Overlapping Governmental Obligations

\I URRlL [ ... \ \' ·\LLI-::Y U\J IFII-::D SCHOOL DISTR!<.. I C 0~1\1 L\JITY FACILITIES DISTRIC T r\C ). 2llU2- I

DIIUTT ·\r\[) l WERL-\Pl'I:\lC TAX AND ASSESS1\IE!'\T DEBT: t\lurril't,1 \ ,illc, Lnificd School Di:;trict Murrieta Valley unified School District CFO No. 2002-1 Cit, ul t\lurril't,1 .-\sst•ssmcnt Diqrict No. 98-l TlH AL DIRECT .'\'.\[) OVERLAPPlNC TAX AND ASSbS\lE\JT DEBT

OVf-:l{L\l'Pl\JC; C :ENERAL FLJf\D OBLICATION DEBT Rin•r,;idt• Cuunt\' Ccncral hind Obli~ation_c; Ri,·crsidl' Count\' Btl,Hd of Education Certific.1tes of l'artio~,,1t10n r-.1 urril'la \ .i l lt'\ L rnfied School District Certificates of Partiu pa tion City of \lurrit'\,l Cl'neral hind Obligations rv!urriL't,1 FirL' l'rotectiDn District Certificates of Participation TOT:'1.L CRUSS OVERLAPPING GENERAL FUND OBLICATION DEBT

· .. ApplicabiL· u ()'i,S'\,

100.000 12.2.i;

O.llll-l''., (],( )(l-l U.lk,O

0.082 0.082

Les~ RiH'rside County Administrative Center Authcirit, ( ll)()";, self-supporting from t,1, increment re,cnues)

TOTAL NET O\'ERLAl'PINC CENERAL FUl\;LJ OBLICAT!l )N DEBT

CROSS crnv!BINED TOTAL DEBT NET COt\lBlNED TOTAL DEBT

(1 l E,cludes issue to be sold. (2! E,cludt.>s ta, ,rnd revenue anticip,1tion nottc·s .. rL'\ L'nUt', mortg,1ge rl·,enul' ,md t,1, ,1!1L1c,1tion bonds ,md nun-bonded L-,1pit,1! le.1se oblig.itions.

R,1tins tu 2l)01-l1:!. Assessed Valuation: Direct Debt. ...................................................................................... . ()/

- iO

Tot,d Direct ,md O,erlc1pping T.1, and Assessment Debt ....... 7;,05''.u Cross Combined Total Debt............... . .............................. 77.Sb':o Net Combined Total Debt......................................... . ..... 77.'i5'\,

STATE SCHOOL f\UILDINC AlD REPAYABLE AS Or h '"lCl/01 $0

Sllurce: C.1lifurni,1 ".lunicipal St.1tistics, lnc.

I )1,Jit 2 It .'tl2

s 17. L~:i

21n1 LJlJ:-,;

S2,( )11LJ' I 8 l

S2h, I ht~

=;9:-,; S,'ill:?_

lri.2()7

~ 'i,=i2,0h8

2nll 5;1,::ms

$2, \ 2 l ,2.lLJ

$2, 120,'JSLJ

(I)

(2)

A further discussion of certain direct and overlapping gm·ernmental assessments affecting \'arious portion:-, of the Community Facilities District is set forth belmv.

Alurrieta Community Sen,icc District. This assessment levied for Fiscal Year 2001-02 is S--15....1--1 per unit on all single family detached and multi-family attached units for an indefinite period of time. The ta, is used for street S\veeping, landscaping, streetscape lighting, drainage I flooding, and maintenance for property within the Community Facilities District.

Murrieta County Water District Water Standby Ch11rgc. Till' rate for thi.., as._,c..,snwnt for deH·lopcd and undeveloped property is determined annually by the ~lurriet1 Countv vVater District board, \vhich determines the assessment by calculating the amount needed to p,w off lo,1r1s obt<.1ined for property and equipment, operations, maintenance and capital facilities. The assessment levied for Fiscal Year 2001-02 is $22.00 per p<.1rcel, up to an acre, or S22.00 per acre, rounded to the nearest acre, for any parcel lcHger than an acre.

Murrieta County Water District Sewer Standby Charge. The rate for this assessment for developed and undeveloped property is determined annually by the :vlurrieta Countv Water District board, \vhich determines the assessment by calculating the amount needed to pay off loans obtained for property and equipment, operations, maintenance and capital facilities. The assessment levied for Fiscal Year 2001-02 is $22.00 per parcel, up to an acre, or $22.00 per a.crL\ rounded tu the nearest acre, for any parcel larger than an acre.

Murrieta Parks & Recreation. Murrieta Parks & Recreation imposes an annual tax at the rate of $45 per unit on all single family detached and multi-family attached units. The tax on undeveloped property is $22.50 per vacant lot. The tax is used for the maintenance of parks and recreation facilities and will continue to be charged for an indefinite period.

Murrieta Valley County Service Area No. 152. This sen-ice area pays for the administration and maintenance of the clean water system in Murrieta Valley. The majority of the levy covers the cost of storm drain cleaning and street sweeping. Land use classification for propert\' located \-vithin County Service Area No. 152 is based on land use codes applied by the Riverside County Assessor's office. (Developed property is determined by the completion of a structure on an Assessor's Parcel.) This is a pay-as-you-go assessment. The assessment levied for Fiscal Year 2001-02 is listed belmv.

Land Use Category

Single Family Residential/ Condominium

Apartments/Mobile Homes Commercial I Ind us trial

Golf Course Miscellaneous Structure

Agriculture /Dairy Vacant Land/Undeveloped

1

9 12 0.1

0.05 Exempt Exempt

*All rates listed are for Fiscal Year 2001-02.

Assessment*

$7.75/unit

$69.75/acre $93.00 I acre $0.775 I acre

$0.3875 I acre $0.00 $0.00

MPDS Flood Control Stormwater/Cleanwater District. Some property within the Community Facilities District is subject to this assessment, which is fixed unless there is a vote to increase the assessment. This pay-as-you-go assessment is used for educational purposes such as increasing awareness for the best management of storm drains. The assessment rate is calculated by multiplying the Benefit Assessment Unit ("BAU'') rate of $3.75 per BAU by the BAU for that land use category. The BAU is computed based upon the parcel's size (acreage) and its land use classification. A single family residential unit on a 7,200 square foot lot is defined as one BAU. The BAUs for other types of land use are calculated in proportion to the amount of runoff generated by a single-familv residence on a 7,200 square foot lot. The assessment levied for Fiscal Year 2001-2002 is listed belmv.

29

Land L'se Category BAL'/Acre Assessment ({i; ~3.75/BAU

Singll' Famil\· Residenti,11 (l" S22.5U/,1cre Apartments/t-.fobile Homes, lJ s:r), 75 / ,1crL'

Churches and Schnnls c()mmL'rcia 1 /Indus tri,11 12 S-tS.Oll / J.cre

Unde\·cloped Portions of 0.05 SO. 1 LJ / acre

P,ucels Unde\'eloped Exempt S0.00/acre

" 1 BAU per single-family residence, assuming six equ,1lly si/,ed residential p.uccls per aCrL'

A.sscss111c11t District 98-1 (Gri::::ly Ridge), AD YS-1 was formed. tu fund. street improvements, sanit.1n· sewer, dnmestic water facilities, and storm drain facilities. An annual assessment is levied and collected each year to pay the principal and interest obligations on the outstanding Bonds of AD 98-1. This assessment will be levied until the final maturity of the Bonds in Fisc,11 Year 2023-24. The assessment IL', ied for Fiscal Year 2001-02 ,vould ha\'e been 5550.41 per parcel, c1ssuming c1ll 3Ul lots were subdi\ ided in Fiscal Year 2001-02.

30

Estimated Tax Burden on Single Family Home

The following tilble sets forth the estimated total tilx burden on illl il\ cr<.1gl' single family home in the Community facilities District based on estimated tax rates for fiscal ye.1r 2()01-02

Table 3 Estimated Fiscal Year 2001-02 Tax Burden

Single Family Home

ASSESSED VALUATION AND PROPERTY TAXES Estimated Sales Price (1] Homeowncr's Exemption Assessed Value [2]

AD VALORE!v! PROPERTY TAXES General Purpose Ad Valorem Tax Overrides Murrieta Vallcv Unified School District B & I

Total Ad Yalorem Property Taxes and Overrides

ASSESStvtENTS, SPECIAL TAXES AND PARCEL CHARGES

Murrieta Vallev Unified School District CFO No. 2002-1 Murrieta Coun'ty Water District Water Standby Charge Murrieta County Water District Sewer Standby Charge Flood Control Stormwater /Cleamvater District [3) Murrieta Parks & Recreation Citv of Murrieta Communtitv Service District Mt1rrieta Vallev Countv Sen\ce Area No. 152 Murrieta Assessment District 98-1 Grizzly Ridge (4)

Total Assessments and Parcel Charges

PROJECTED TOT AL PROPERTY TAXES

$ 270,000 (7 000}

S 263,000

Projected Total Effective T,1x Rate (as% of Estimated Sales Price)

11] for a single-family detached unit containing 2,629 square feet.

Percent of Total A\'

1.00000°0

0.1020 I 1.1020 l "o

[2) Assessed value reflects estimated total assessed value net of homeuwner's exemptiun. I>] Based on a lot size of 7,200 squMe feet.

['rojL•cted t\L1,imum Amount Amount

S2N,O.OO $2,630.00

268.28 268.28 $2,898.28 $2,898.28

$883.S:'i $88355 22.00 22.00 22.00 22.00

.., ~-i>, I'.) 3.75

-l"i.00 -l:'i.00 -l c;. -l-l -l5.+l

7.7'1 7.75 .S50.-l l i:;i:;0.-11

SI,579.90 SL,t:;79.90

S-l,-l78. l 8 S·H78.l8

1.66'\, l.66'\,

[4] ln Fiscal Year 2001-02 this assessment would have been $550.-11 per parcel, assuming all ~01 lots were subdivided in Fiscal Year 2001-02.

Source: David Taussig & Associates, Inc.

31

PROPERTY OWNERSHIP AND PROPOSED DEVELOPME1'T

Tf1t, i11tiin11i1ti()ll ,1h!/1t tlw Propat_11 O,e1u.,-.; u111t11111(·d i11 thi_.; O(ti"Liill ~t11t!'11!('1It 11,L.; /11·1·11 ;)1-i1, '1Li1·d /1_11 1·,·11r('St'11t11ti1 11'., o( tli(' n·.,;1t·L'ti1 1t' Pro11af.11 0,1'11('/'.; 111111 !111s 1101 hi·c11 indl'p1'!ld1'11ti_11 co11flrn11'd 11r ,'1'nfi1·1I /111 c,thl'I' t/11' ll11dt·r,1·rtfl'r or tlzl' C11111111u11it11 Fi1Lilztrc.--: Dhtrid. ,\:crth('/' tlzc U11d(·rn•rift'r. tlu· Sdzuu! [)i.;tritf 11111 tl1t' C111111111111it_11 FtlLliitz(',.; Distnd llli1kt: ,111_11 nrr1'.;t'llfi1fio11 ii~ to fill' ilL'll//'lllJ/ ()/' tld('t/lldL01/ of t/11.--: inti1n1111f11111. !lr('rt' 11111_11 l 1t' 11111tai11! ,1dz•as1' clzangt's in thi.; infc1r11111fiu11 ,1ffrr tlzc d11fr of this OtTiLi,1! St,1fr1111'llf. Au11 lntt'rnt'f t1dd/'('SSt''.- _.;/rc!,l'll /1t'/1lil' 1/rt' i11cl11dt'd _f11r r1f'r1'lll1' Ollft/, II/Id tfl(' iuf1,r111t1fiu11 ()11 f/ic . .;t' f11ft'nzt'f _.;{fl'_.; i:-. 1111f ii J'1lrf ()( t111_.; OfriLit1! ~f11f1'/ll1'11f 11r i11L·o1pori1ted /1_11 r1:6T1'IZL1' illf11 tfl/..; O!hclill Stt1f1'1111·11t.

U11p,1id Spt•ci11! T,ni•:,; ,m· not 11 pa:-;mw[ olil('\atio11 o( the Property Owners. Thnl' 1.--: 110 11..;_.;umnL·t, thi1t tl11' Prupt·rt,11 0,1•11a.--: or .r11_11 :,11bcq111·11t o,1'111'r . .; cf J'l'0/ 11·rt_11 i11 the Cu1111111111ity F11L illfi1·s Di,trn t u,flf /1t1,'1' tii1' 11/1/[it_1r f(I ;'171/ tilt' 5r11'L/i1/ T11J.t'S or tlr11t. ('Z'('I{ {f tlzc111111, 1

1' f/1c 11l 1 ilit_11, they ,uill d100S1' to p,n; tilt' Sr1eLit1! Til.Yt'S. A11 01c11i'r 11111y c/1•(t to 1111t pt1y tlle 5pec!t1l Tt1.\l' . ..; ,d11·11 dw 1111d rn11110t be legally cu111p1·Ucd to d11 _.;o. ,\'1·ither th(' Sdwol Distm t. tlze Co1111111111it11 Fi1c11iti('S DistriL"t 11or illll/ Bond O"Cl'llt'r ii'ilf /111-uc the 11/ii!it11 11t 111111 t11111· to St'({

1111_1;111('/lf dir('Ltl_11 (ru111 t'11· proj,atJ/ mu1H·r:: o( tfr(, 5pcu11f T11x or the pri11L-ip11l or i11t1•n•.;f ·1111 tlw ·Bo11d..;, or the ,1/1i{it_11 f() Lontro[ zdw h'LOll!t' . .; 11 ::ul>.,1'1/ll1'11t o,l'll1'r 1,t'1111_1111ropert__11 ,l'ithi11 the Co111m1111lty Ft1Lil1ti1·:,; Di,;friL't.

Property Ownership

The current property cnvnership is shL1wn bdow.

Tr.icts

23187-3

23187-2, 23187--t

'.:-t lll [CL':

William Lyon

Table 4 Property Ownership

Number of Proi')erty O\\'ner Lots

\.Villiam Lvon 14-l

Rho.1Je~ .LS.2

Total 300

Percent,1ge Share ol Speci,11

Tax Li,1bilitv

-tH""

S2

IOU'',,

Owners/zip and Development Experience. \Villiam Lyon ovvns his property in the Community Facilities District as an individual investor and owner. t,...fr. Lyon serves as Chairmzm and Chief Executive Officer of \Nilliam Lyon Homes, Inc., a homebuilding corporation active in southern C.1lifomia, San Diego, nt)rthern California, Arizona and Nevada vvhich is listed on the Nev•,' York Stock Exchange. Willi,1111 L_11011 Homes, l11L'. 11,z::; 11citlzer illlJI mu11er:,;/zip iufrr1·st i11 the propnt_11 wit/1111 tht' Co111nzwuty FaLilitic.; District nor ,rn_11 o/1/igt1f1011 to pn1Pidc (1111ds for t/1c di>i.'t'lop111c11t of 11m1 of tlze pn1pat11 7l'it11i11 tile Co11111111nif]! F11L.'ilit1t'.~ District.

History of Property Tax Ptlyments; Loan Defirnlts; Bankruptcy. Mr. Lyon makes the following representations:

• \lr. Lyon has never previously defaulted on the payment of special taxes or assessments m connection with the Cummunitv Facilities District or anv other communitv facilities districts or assessment districts in which Mr. Ly ~m has been or is a property: mvncr. -

• ~fr. Lyon is not currently in default on any loans, lines of credit m uthcr obligation, the result of which could materially adversely affect the den~lopmcnt by !\1r. LYlln in the Community Facilities District.

• \fr. Lyon is solvent and no proceedings are pending or, to the actual knowledge of !\fr. Lyon, threatened in which Mr. Lyon may be adjudicated as bankrupt, or bL'comc the debtor in a bankruptcy proceeding, or discharged from any or all of his debts or obligations or granted an extension of time to pay his debts or a reorganization or readjustment of his debts.

• There is no litigation or administrative proceeding of any nature in which ~fr. Lyon has been served, or which, to Mr. Lyon's actual knowledge, is pending or threatened against Ivlr. Lvon, v,rhich if successful, would materially adversely affect the ability of Mr. Lyon to complete the development and sale of the property it currently owns \vithin the Community Facilities District or to pay the Special Taxes or ordinary ad valorem property tax obligations when duL' on its property within the Community Facilities District, or which challenges or questions the validity or enforceability of the Bonds, the Resolution of Issuance, the Fiscal Agent Agreement, the Property Ov,rner Continuing Disclosure Certificate or the Purchase Contract.

Rhoades

Ownership Stmcture. Rhoades was originally incorporated as a California corporation in 1982 under the name Rhoades Development, Inc. The company changed its name in 1983 to Rhoades Development, and again in 1987 to J. P. Rhoades Development. Rhoades's shareholders are Jeffrey P. Rhoades and K.V. Hansen. Mr. Rhoades and Mr. Hansen previously served in management positions with The McCarthy Company, a southern California home builder. When The !vkCarthy Company was acquired by The William Lyon Company in 1982, Mr. Rhoades and i\.fr. Hansen formed Rhoades and entered into a management contract to complete the development and sale of existing McCarthy Company projects. Starting in 1985 Rhoades began to acquire and develop single-family home communities. Since 1982, Rhoades has completed and sold over 1,000 single-family homes (either as manager of form McCarthy Company projects or on its mvn). The company's Internet home page is located at www.jprhoades.com.

Development Experience. Rhoades is headquartered in Santa Ana and has carried out homebuilding projects in various parts of southern California. In addition, Rhoades has served as project manager for the City of Chino Hills Community Facilities District No. 9, which is constructing infrastructure improvements in excess of $25 million that include a water reservoir, major streets, and storm drainage improvements. A history of single-family housing projects completed by Rhoades (either as manager for The William Lyon Company or on its own) is set forth below.

Construction !\:umber of Development Location Com12leted Homes

Meadowland Moreno Valley Dec. 1983 155 Walnut Highlands Walnut Nov. 1985 165 Familv Tree Homes Walnut Mav 1986 195 Hunters Hill Walnut Oct. 1987 135 Skvline Chino Hills Oct. 1988 1:17 Se; Coast Estates San Clemente Feb. 1989 56 Family Tree Rancho Cucamonga Oct. 1989 142 Andorra Laguna Niguel April J9()3 5-l Highland Vineyards Rancho Cucamonga Jan. 199-l 138 Hunters Hill Homes Chino Hills April 2000 209

33

History of Property Tax P11y111c11ts; Lo1111 Ot:faults; Bankruptcy. Rlw,,dl''-> m,1kL'" tfw tlill()\\ing rqm_'sen t,1 tiun-;:

• RhL1,1des has ne,·er previously defaulted un the payment uf special ta.,L's ur ,1ssessnwnts in cunnectiun with the Communitv Facilities District ur arw other communitv f,icilitics districh llr assessnwnt districts in which RhoadJs has been or is c1 property owner.

• RhL1ades is not currently in default on any loans. lines of credit or other obligation, the rL'Stdt of which could materially adversely affect the development by Rhoade-. in the Cummunit\· f;,icilities District.

• Rhoades is solvent and no proceedings are pending or, to the actual knuwlL•dge nf Rhoades, threatened in which Rhoades may be adjudicated as bankrupt, or become the dd,tor in a bankruptcy proceeding, or discharged from any or ,111 of its debts or obligations or granted an extension of time to pav its dd,ts or a reorganization or readjustment of its debts.

• There is no litigation or administrative proceeding of any nature in which Rhoad.L'S has been served. (1r which, to Rhoades's actual knowledge, is pending or threatened against Rhoades, which if successful, wuuld materially adversely affect the ability of Rhoades to complete the development ,1nd sale of the prupert\· it currently mvns within the Community Facilities District or to pay the Special Ta,L'S or ordinary ad \·alorem property tax obligations ,vhcn due on its property within the Community Facilities District, m which challenges or questions the validity or enforceability of the Bonds, the Resolution of Issuance, the Fiscal Agent Agreement, the Property Owner Continuing Disclosure Certificate or the Purchase Contract.

Environmental Conditions

CEQA Review. Environmental analvsis of the development within the Community Facilities District under the California Environmental Qualitv Act ("CEQA") ,vas contained in a Final Environmental Impact Report certified on October 20, 198'-J (the "EIR") in conjunction with the adoption of a Llming change and Vesting Tentative Tract Map No. 23187 for the property in the Community Facilities District. Tentative Tract t,..lap t\"o. 23187 was approved for the propl•rty under a ne~ative declaration adopted under CEQA. No additional discretionary appro\·ab are required for the propL)sed de\·elopment in the Community Facilities District that would require additional environmental review tmder CEQA.

Ha::i1rdo11s Substances. In connection their acquisition and development of their property in the Community Facilities District, the Property Owners reviewed and relied upon environmental studies performed in 1989; the Property Ov,;ners have represented that these studies found no problems associated with hazardous waste or materials. The Property Owners did not cummission nev,' Phase I em·ironmental reports in connection their acquisition and development of their property in the Communitv Facilities District.

Wetlands and Flood P!din. tv1urrieta Creek traverses the southern portion of the property, and although none of the proposed home sites arc located within the Murrieta Creek area, the Property Owners and their predecessors in interest performed certain channel improvements \Nithin the natural flood plain of \Iurrieta Creek to provide flood protection, minimize erosion and stabilize the stream banks. In September 2001 Rhoades submitted to the Federal Emergency l\.fanagement Agencv (''FE:v1A") an Application and Technical Analysis requesting a Letter of Map Re,,ision for these flood control imprmcments to tv1urrieta Creek, and this request was approved and the Letter of r-..Iap Re\·ision \-Vas issued effective ~farch 18, 2002. The issuance of the Letter of Map Revision is not a condition of any den'lopment entitlements for the project in the Community Facilities District, and is not required for the construction of the project.

In addition, Rhoades and the California Department of Fish ,md C,111,e enterL'd into ,111

Agreement Regarding Proposed Activities Subject to California Fish and Came Cude Section 16LlJ dated November 17, 2000, vvhich set forth conditions governing Rhoades's streambed alteratiLm plans for Murrieta Creek. On October 18, 2001, Glenn Lukos Associates, Inc. of Lake Forest, California, prepared a notice of completion addressed to the Department of Fish and Game nutifving it that Rhoades had completed the impacts to the Murrieta Creek streambed authoriZL'd by the agreement. Glenn Lukos Associates also prepared a Restoration Plan for the revegetation of the l\1urrieta Creek and a proposed monitoring plan.

Endangered Species. The EIR found that developnwnt of the project (specifically, the charn,el improvements performed in Murrieta Creek) would create significant biological impacts stemming from the removal of vegetation and habitat, and imposed mitigation measures, including creating replacement habitat in the proposed park site and revegetating graded areas in the !'vturrieta Creek area with native vegetation. These mitigation measures were complied \vith in connection with the development of the property.

In addition, Principe and Associates of Temecula, California prepared a study entitled "Biological Update" dated April 22, 1996, for all of Tract 23187. Principle and Associates surveyed prior biological and habitat studies of the site, and conducted field surveys, and concluded that certain portions of the site, including the Murrieta Creek bed and shoreline, are considered to be significant biological resources, but no "Sensitive Plant Species" or "Sensitive Animal Species" vvere observed on the site.

Seismic Conditions. Petra Geotechnical Inc. of Temecula, California prepared a Geotechnical and Fault Investigation of the property in the Community Facilities District dated April 20, 2000, which concluded that, from a soils engineering and engineering geologic point of view, the property is considered suitable for the proposed residential development, provided that the conclusions and recommendations contained in the report are incorporated into the project design. The property was not considered to have any active faults, and the property does not lie within the boundaries of an Alquist-Priolo Earthquake Fault Zone.

Proposed Development

No ass11mnces can bt' made tlzat any Property Owner ll'ill lurue tlzc rcso1tru's, 1uilling11ess 1111d ability to suu:essfully complett• deI'elo~mzen t ncti"vities on the property wi t/1 in tlzc Comm 1111 it.11 Facilities District. No representation is made as to the ability (financial or otherwise} of the Properf.11 Ow11cr:, to (.wnplete the property developmrnt as currrntly planned.

General. All of the taxable property in the Community Facilities District is currently in the process of being developed in two neighborhoods, one representing the William Lyon property (which is currently not named) and the other representing the Rhoades property (which is knovm as "Sycamore Ranch"). Together the two neighborhoods are intended to include 300 single-family detached homes and approximately 45 acres of open space, including open space on either side of Murrieta Creek, which traverses the Corrmumity Facilities District.

Entitlement Status. A tentative tract map for all of Tract No. 23187 was approved in June 1991. The final mapping status of the property in the Community Facilities District is set forth below.

35

['rlljJL'ft\· t\. u m L w r n I rr,1ct (_ )\\'IWr l'.ir~·l,J" hn.il t\Lip ApprP\ ,ii

2, IS7-2 Rhu,1des 117 [II Uctuber 2UU I

2>1S7---l Rhoades --10 Est. [une :mu:; 2'.i1S7-, Willi,im Lvon IH bt. [une20ll2

Tut,11: '.101 [11

[I] Une IL)t rnntained in Tr,ict 2>187-'.'. i-; n1rrenth· -;ubject to a righhil­\\ ,1\ l',bl'tnl'nt and nllt de,elop,1ble. Thi-; p,ircel ic; con-;idl'rl·d !::\.empt Prnperty under the R,1tl' and tv!ethod, ,rnd therefore ha-; been e,cluded from the bond c.i.1.ing and other calcuLitions rel<1ting to the Communit\· Facilities District.

All other de\t:lopment entitlements necessary for the project (other than building permits) ha\·e been obtained. The Community Facilities District is within the Copper Cinyon Specific Pbn Area, and all of the proposed den.'lopment in the Communitv Facilities District is in confprmance with the specific pLu1 and applicable zoning ordinances.

Utilities. It is expected that utility services for the property in the Communitv Facilities District ,viii be prnvided b\' the fullov.-·in~:

• • • • •

iV<1ft'r: Su 111 tun; St'ii'rT:

St(,r/11,l'atcr dra11111gc:

E it'c-t rt L'I t_i;: ,\;11t11rt1/ Gzs:

\lurrieta Count,· Wak'r District and Rancho Californi,1 \Vater District Rancho Californ.ia Water District City of Murrieta Southern California Edison Sm1thern California Gas

Infrnstruct11re Development mid Financing Pilln.

General. Rhoades has acted as master developer and carried out mass grading for the entire pwject, \•;hich began in October 2000 and was completed in October 2001. Rho21de.:; is also constructing minor storm drains and water lines sen·ing the entire development. As of March 1, 2U02, ,vater, se.ver and storm drain improvements and approximately half the street impnl\·ements on Tract 23187-2 were complete, and infrastructure improvements on the remaining property (for \vhich final maps have not been approved) had not begun (other than certain \\·ater and storm drain imprLH'ements completed in connection ,·vith the Tract 23187-2 impro\·ements). All off-site infrastructure improvements are anticipated to be complete by December 2003.

A portion of the outstanding infrastructure improvements necessary for the project (consisting of sewec ,.vater and storm drain installation, and widening of Calle del Oso Oro) were intended to be funded ,-vith the proceeds of improvement bonds (the "AD Y8-l Bonds") issued bv the Citv of Murrieta Assessment District No. 98-l ("AD 98-1"). AD 08-1 encompasses both the Community Facilities District and other property. The completion of these improvements has been delayed due to a shortfall of AD 98-1 project funds and disagreement among the property mvners and the City, In order to avoid delays to the development of the Community Facilities District, Rhoades intends to complete the construction of these impwn,'ments, and to incur the costs of this construction, pending reimbursement bv the City for a portion of those costs from AD 98-1 funds. At its meeting on r-.-Iarch S and 6, 2002, the City granted a fee credit to Rhoades as reimbursement for these costs. This reimbursement has been taken into account for purposes of the costs to complete site de\·elopment shcl\vn below and for purpnses of the value conclusions contained in the Appraisal.

Lyon Property Site Dcvclo111nent. Lyon entered into ,rn .igrL'ement with Rho,ldL'S whereby Rhoades has carried out all grading on r-.tr. Lyon's l..J:-1 lots within the Cummunity Facilities District. I\fr. L von intends to sell his 1-1-1 luts to one or more nll'rc h,111 t bui Ide rs, who will be required to com~1lete in-tract infrastructure improvements neccss,uy t\) complete the parcels to "finished lot" status, and will bear the costs of those additional infrastructure improvements.

As of March 1, 2002, the total cost of land development and infr,,structure impwvements needed to develop the Lyon property to "finished lot" condition (including h,1rd costs, soft costs, fees and permits, and the property's proportionate share of off-site backbone improvement costs) were estimated to be as follmvs:

Total costs: Le:-;:,; Estimated Costs to be funded with Bond proceeds: Costs to be paid by Property Owner: Costs Spent as of fl.larch 1, 2002: Remaining Costs to complete:

7,397,637

(2 37h 6 I I)

$:'i,021,0:?.t,

Mr. Lyon has financed the cost of grading and off-site infrastructure improvements through a construction loan from California National Bank in Newport Beach, California, in the original principal amount of $3,915,000.00, which ,vas outstanding in tlw amount of $-18,..12-1.90 as of March 1, 2002. This loan is secured by the property owned by Mr. Lyon in the Community Facilities District. Mr. Lyon intends to use this financing source, together with available cash, to finance all carrying costs for the property until the proposed sale of the property to one or more merchant builders. (This sale is anticipated to occur before the first installment of the Special Taxes is due in December 2002.)

Rhoades Property Site Development. Rhoades is constructing in-tract infrastructure improvements on its 156 taxable lots within the Community Facilities District.

As of March l, 2002, the total cost of land development and infrastructure improvements needed to develop the Rhoades property to "finished lot" condition (including hard costs, soft costs, fees and permits, and the property's proportionate share of off-site backbone improvement costs) were estimated to be as follows:

Total costs: Less Estimated Costs to be funded with Bond proceeds: Costs to be paid by Property Owner: Costs Spent as of March 1, 2002: Remaining Costs to complete:

$8,878,978

( I .037 AO()) 7,8-11,'.)78

{-l. I '10, 136)

$ 3 ,691,-1·!2

Rhoades has financed the cost of in-tract infrastructure improvements through a number of loans from California National Bank, in Newport Beach, California. The combined maximum principal amount of these loans is $12,780,000, which was outstanding in the amount of $5,718,944 as of March 1, 2002. These loans are secured by the property owned by Rhoades in the Community Facilities District. Rhoades intends to use this financing source, together with available cash and proceeds of home sales, to finance all carrying costs for the property (including property taxes and the Special Taxes) until full sell-out of its proposed single-family homes. No nss1trn11u• can lie :,;ivnz that Rlwadrs will lwt't' s11_[ficie11t resources tlzruugh tlzis loan or other .-;011rccs to complete devt'lo~1111e11t of its property in tlze Community Facilities District.

37

Home Dn 1elop111e11t 1111d Financing P/1111. ThL' table below sets forth L',1ch !'n,i~nt\ l)\\1wr\ anticipated o instruction sclwdule and unit nux fur hume construction.

Lyo11 Property. \lr. Lvon intends tl1 sell all of his l..J..J lots within thL' Lummunitv Facilitil's District to onl' ur more rnerchant builders, who will earn: out hlm1l' cunstruction on :1 sclwduk tl1 be determined. According!~·, the cunfigurations and unit mixL'S ()f tlw pmpt)sL'd homes ML' undecided at this time.

:\,·o i1~_.;ur1111L1' Lllll bt' gil'c/1 tl111t ,\Ir. L11l111 iui/1 he s111..Le~d11/ i11 tra11sfiTri11x !II~ rro1'('1-f1; 111 tlic Co11111111111t11 F11L"il1til':, [h-;trid to Ollt' or m11rt' 111erdrn11t buihfrrs, ur tlrnt 111111 mtT,II1111t /111ilda f'llrLl111..;111,\'tl1t• propcrh; -u 1i/l l1t' S/IC(t'ssfiil Ill (ilrnflll,'{ out II0111t' co11.-;tr11L·ti1m Oil the pr, 1pert1;.

H.l1011dcs Property. Rhuades is carn·ing uut home construction tin the pniptlSL'l1 schedule and in the proposed. configuratilms set forth bclo,v. As of r,...,larch I, 2002, Rhuadl's h,1d cumpleted 7, model homes and had begun rnnstruction on 21 production homes.

Proposed Construction and Sales Schedule

Hegin Home Construction

Oct. 2001

Open Model Honws

Februan 2002

First ~ lome ~ale

Closings June 2002

Proposed Unit Mix

1\:o of Units l '16

No. of fvtodel Types

Approx. Squ,1re Footage

2.h2q to 3,7--l8 b

Last I lume Sale

Closings April 200'1

Base Prices 5277,000 to S3.'i 1,000

Rhoades intends to finance the cost of home construction through cuITL'nt and pwposcd future loans from California National Bank, which are (and \Yill be) Sl'Clll'L'd b\' the Rhoadl's property As of March l, 2002, home construction financing had beL'n obt.1inl'd f~ir the '> modl'i homes and first 21 production homes. Rhoades intends to obtain ,1ddition,1l loan funding ,1s needed to earn· out home construction, but has not vet identified the source of this additional funding. No -a . ..;s11ra11ce ca11 be giz 1en tlzat Cal~fonr/11 N11tio1111l 81111/..: u1ill 11rm 11dl' {11t11r1' /1011u· co1btrud1011 /01111 f1111ding as rnrrrntly anticipated, or t/111t the C11lifomii1 N11tio1111l 81111/..: lo1111s or otha fi111111ci11,'{ ~ollrL·c . ..; 1rut1ilt1ble to Rhoades will be s11.[ficicnt to its complete home co11..;tr11dio11 i11 tlil' Co1111111111ity F11L·ilitie~ Distnd as rnrre11tly plm1llt'd.

39

BOND OW:\ERS' RISKS

Ti1t' 1111rd111..;t' o( t/w Bt>11d..; descnl1t't7 111 tlzi..; Ottitii1! St11ft'1111'11t i11,'uh 1,'s 11 11,'.(1"1',' l>f° n ... J.: tlr11t 1111711111Jf Iii' IIJ'J'ro11ridtc' (,r ..;lllllt' ~lli'c'.,tor..;. Tile follo,1•i11:,; 111Ll11d1•, 11 tiisuL,..;io11 u( ,011/t' of tlit' risk, ,d11Ll1 ,/11>11/d k Llllhidt'l"t'd l>t'fc1n· 11111/.:rng 1111 imicst111c11t ,iet'isiun.

Limited Obligation Of the Community Facilities District to Pay Debt Service

The Cnnmunity Facilities District has no obligation to pay ~1rincip,1l of and intl'rcst on the Bonds in the c,·cnt Special Tax collections arc delinquent, other than from anwunb, if any, on deposit in tlw Rescn-l' Fund or funds derived from the t,n sale or foreclosure and sale of p,uceb on \vhich lL•,'iL'S pf the Special Ta:,.. are delinquent, nor is the Community Facilities District obligated tu advance funds tu pa\· such debt sen'ice on the Bonds.

Levy and Collection of the Special Tax

Tlw principal source of pavment of princip.:il of and interest un the Bonds is the proceeds of the annual IL'\ v ,md collection of the Special Ta:,.. against ~1rnpertv \vi thin the Communitv Facilities District. The annual le,·y of the Special Tax is subject to the maximum Special Tax rates authuri.1:ed. The !(_,,·y cannot be made at a hig;her rate even if the failun• l\1 do so means that the estimated proceeds of the icn· and CClllection nf the Special Tax, together with other available funds, will not be sufficient to p,w debt scn·icc on the Bonds. Other funds that might be available include funds derived from the pa:-mcnt of penalties on delinquent Special Taxes and funds derived from the tax sale m foreclosure and s,11l' of parcels on which levies of the Special Tax are delinquent.

ThL' IL',,y of the Special Tax will rare!:', if e,,er, result in a uniform relationship between the value of particular parcels of Taxable Property and the amount of the levy of the Special Tax against those parcels. Thus, there \·vill rarely, if e\·er, be a uniform relationship bet,veen the value of thL' parcels of Tax,1ble Propert:' and their proportionate share of debt service on the Bonds, and certainly not a direct relationship.

The Special Tax levied in any particular Fiscal Year on Taxable Property is based upun the revenue needs and application of the Rate and \tethod. Application of the Rate and l\1ethod will, in tum, be dependent upon certain development factors with respect to each parcel of Taxable Property by comparison with similar development factors with respect to the other parcels of Taxable Property· within the Communitv Facilities District. Thus, in addition to annual \ ariations of the ren•nue needs from the Special Tax, -the following are some of the factors which might cause the levy of the Special Tax on any p,1rticular parcel of Taxable Propert\· to \·ary from the Special Tax that might othcrvvisc be expected:

• Reduction in the number of parcels of Taxable Property for such reasons as acquisition of Taxable Parcels by a governmental entity and failure of that go,,ernmental entity to pa:' the Special Tax based upon a claim of exemption or, in the case of the fedt.•ral government or an agency thereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining taxed parcels.

• Failure of the o",·ners of ta:,..ed parcels to pay the Special Tax and delays in the collection of or inability to collect the Special Tax by tax sale or foreclosure and sale of the delinquent parcels, thereby resulting in an increased tax burden on the remaining parcels.

• Development of a parcel of Taxable Property more rapidlv than de\'elopment of other parcels of Taxable Property, thereby resulting in the application of dc\'clopment factors in

-lO

the Special Tax formula to the parcel and resulting in ,n1 incrmsed t,n burden on the pzircel of L1xable Property.

• Development of other parcels of Taxable Propertv less rapidly than expected, thereby resulting in delay in application of development factors in the Special Tax formula to the other parcels of Taxable Property and resulting in an increased t.n burden on the parcel of Taxable Property.

Except as set forth above under "SECURITY FOR THE 801\:DS - Special Taxes" and " - Rate and Method," the Fiscal Agent Agreement provides that the Special Tax is to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the special covenant for foreclosure described in "SECURITY FOR THE BONDS - Covenant to Foreclose" and in the Act, is subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ordinary ad valorem property taxes. Under these procedures, if taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County.

If sales or foreclosures of property are necessary, there could be a delay in pavments to owners of the Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the Commtmity Facilities District of the proceeds of sale if the Reserve Fund is depleted. See "SECURITY FOR THE BONDS - Covenant to Foreclose."

Payment of Special Tax is not a Personal Obligation of the Property Owners

An owner of Taxable Property is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation only against the parcels of Taxable Property. If the value of the parcels of Taxable Property is not sufficient, taking into account other obligations also constituting a lien against the parcels of Taxable Property, the Community Facilities District has no recourse against the owner.

Appraised Values

The Appraisal summarized in APPENDIX C estimates the market value of the taxable property within the Community Facilities District. This market value is merely the present opinion of the Appraiser, and is subject to the assumptions and limiting conditions stated in the Appraisal. The Community Facilities District has not sought the present opinion of any other appraiser of the value of the taxed parcels. A different present opinion of value might be rendered by a different appraiser.

The opinion of value relates to sale by a willing seller to a willing buyer, each having similar information and neither being forced by other circumstances to sell or to buy. Consequently, the opinion is of limited use in predicting the selling price at a foreclosure sale, because the sale is forced and the buyer may not have the benefit of full information.

In addition, the opinion is a present opinion. It is based upon present facts and circumstances. Differing facts and circumstances may lead to differing opinions of value. The appraised market value is not evidence of future value because future facts and circumstances may differ significantly from the present.

No assurance can be given that any of the Taxable Property in the Community Facilities District could be sold for the estimated market value contained in the Appraisal if that property should become delinquent in the payment of Special Taxes and be foreclosed upon.

41

Property Values and Property Development

Tlw \ ,1lue uf T,1,,1b1L, Parcels within the Communitv L1eilitiec:, Di:--trict is ,1 criliL·,1! LKtllr in dekrmining the inYestnwnt qualitv of the B,111ds. If c1 property owner defaults in the p,1vnwnt ,1f the Special T,1,, the Communit:-· Facilities District's only remed:· is to foreclo:-ie on the delinquent prupert\ in an attempt to ubtc1in funds with ivhich to pay the delinquent Specii:11 Tax Lmd dc,·clupnwnt and l,md Yc1lw .. '"' n1tdd be ,1Ll\'L'f-;clv ,1ffected bv economic and other factors bevond the Cummunit\ Facilities District'c:, control, such as: a gen~ral ecunomic downturn; adverse judgments in lutur-L' litigc1tiun th,1t could ,1ffect the scope, timing or viability of development; rel(lc,1tion of empl<1\·crc:, uut nf the ML'<1; strickr land use reguL.1.tions; shortages of water, electricity, natural gas or otlwr utilities; destructi,,n of propert:· caused by earthquake, flood or other natural disasters; environmentc,I pLlllution or contamination; or unLworable economic conditions that might result from the September 11, 2ll01 airline hijc1ckings and c,,tastrophic destruction of the \Vorld Trade Center in New York ,md d,1m,1gc to the Pentagnn in \Vc1shingtun, D.C.

,\'1·ith1'r tilt' Ct11111111111it_1; Fmilitit•-; Oi_-;trict fltlr t/11· 5dwol Di.-;triLf hm.'t' t'l'lll1111fl',i d1'i'1'/11p1111·11t n;;kc.. S111tt' tflt' . ..;l' 11n· lar,\1'[_11 [,u,i11c .. ,.; n::;b cf the t!!Jlt' tl111t pr,,pcrt]/ oww·rc; Lll'>t11111n1'1!_11 1',10{11ah' 1111lr, 11d1111!1_1.1, 1111d i1111.;111lld1 11_-; ch1111g1'-; 111 /1111d o,1 1111•r:;lup 11111_11 n'l'll 111ca11 d11111gc-; i11 the ez•11/1111tiu11 1uit/J rl':e;/wd tt 1 11m1 part1c11/11r pinLl'l, tlzc Cmw1111111t_11 F11Lilitil':- 0/-;trid Jc, i::;::;11i11g tht' Bonde, ,citlw11t regard to 1111_11 ::;uch t',111/11at1011. T/111::;, t/1e tr1'11tfc1n u( tlzt' C111111111111it11 Facilitie-; 0htrid 1111d the i~~111111c1· tf the Bo11dc, i11 1w 11 111_1/ i111p/u•-; t/111t tlu· Ctm11111111it_11 F11(i!iti1·_..; 01~trlL"t ()I' tht' Sdzool Oi-;trii.:t /we; ('c'i1/1111ft'd t/zcc;t' ri~k...; or tile rt'ilc;o1111/1/c111',-; or tht'-;t' nc;k-;_ ()11 tire (tllltr11n;, tht' B1111rd ()r Ed11L·atio11 lz11-; 11111dc 1/[) -;11c/1 1'1111l1111tio11 111ld i:- 1111dt•rt11ki11x {/c1Jlli..;1tio11 {//Id

Lill/:-,frnd/,,11 11( tfi,, Faulitit'..; l','t'/1 tlwuglz th1·:e;1· ri-;k-; 111,1_11 h· -;criouc, a11d Illa!/ ulti11111tt'ly /1i1lt (II",;[(),(' tlz1· rrfl:,;n':-,..; o( /i111d d1','t'l11p1111·11t 1111d (1ir1':-,f11/I tl1t' rl'11li:11tio11 o( T,nal,lc Pizrcl'i rnl11c:-, i11 the 1'l 11·11t 1'.f 1lt'/1111111c11LI/ ,111d fiirt·1. /oc,11 n·.

The following is a discussion of specific risk factors that could affect the timing or scupe of property development in the Community Facilitie-; District or the value of property in the C()mmunity Facilities District.

Land l)cz,ef opment. Land \·alues are influenced by the level of development in the cHL'd in many respects.

First, undeveloped or pc1rtially developed land is generally less valuable than developed land and provides less security to the owners of the Bonds should it be necessary fur the Community Facilities District to foreclose on undeveloped or partially developed property due to the nonpavment of Special Tax.L'S.

Second, failure to complete development on a timely basis could adversely affect the land values of those parcels that have been completed. Lower land values would result in less security for the payment uf principal of and interest on the Bonds and lower proceeds from any foreclosure sale nL'cessitated by delinquencies in the payment of the Special Tax. See "THE COtvlivlUNITY FACILITIES DISTRICT - Appraised Value to Burden Ratios." No assurance can be given that the proposed development within the Community Facilities District will be completed, and in c1ssessing the im·estment quality of the Bunds, prospective purchasers should evaluate the risks of noncumpletion.

Risks of Real Estate Investment Generally. Continuing development of land within the Community Facilities District mc1y be a(h'ersely affected by changes in general or local economic conditions, fluctuations in the real est.1te market, increased construction costs, development, financing and marketing capabilities of individual property owners, \Vater or electricitv shortages, and other similar factors. Development in the Communitv Facilities District may abo be affected by dt•velopment in surrnunding areas, which may cumpete with the Community Facilities District. In addition, land dL'\·elopment operc1.tions J.re subject to comprchensi\·e federal, state and local regulations, including

en\·ironmental, land use, Loning and building requirements There can be rn1 ,1ssur,111ee that proposed land development operations within the Community Facilities District ,viii not bl' adn•rseh· affected Ln· future government policies, including, but not limited to, glwernmental policies tn restrict or control development, or future growth control initiatives. There can be no assurance th,1t Lrnd den:lopment operations within the Community Facilities District will not be adversely affected by these risks.

Naturnl Disasters. The value of the Taxable Parcels in the future crn be adn .. •rselv affected bv a variety of natural occurrences, particularly those that may affect infrastructure and other pu6lic improvements and private improvements on the Taxable Parcels and the continued habitability and enjoyment of such private improvements. For example, the areas in and surrounding the Community Facilities District, like those in much of California, may be subject to earthquakes or other unpredictable seismic activity.

Other natural disasters could include, without limitation, landslides, floods, droughts or tornadoes. One or more natural disasters could occur and could result in damage to improvements of varying seriousness. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances there could be significant delinquencies in the payment of Special Taxes, and the value of the Taxable Parcels may well depreciate or disappear.

Legal Requirements. Other events that may affect the value of a Taxable Parcel include changes in the law or application of the law. Such changes may include, without limitation, local growth control initiatives, local utility connection moratoriums and local application of statev.·ide tax and governmental spending limitation measures. Development in the Community Facilities District may also be adversely affected by the application of laws protecting endangered or threatened species.

Hazardous Substances. One of the most serious risks in terms of the potential reduction in the value of a parcel of Taxable Property is a claim with regard to a hazardous substance. In general, the owners and operators of Taxable Property may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Taxable Property be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.

The assessed values set forth in this Official Statement do not take into account the possible reduction in marketability and value of any of the parcels of Taxable Property by reason of the possible liability of the owner or operator for the remedy of a hazardous substance condition of the parcel. Although the Community Facilities District is not aware that the owner or operator of any of the Taxable Property has such a current liability with respect to any of the parcels of Taxable Property, it is possible that such liabilities do currently exist and that the Community Facilities District is not aware of them.

Further, it is possible that liabilities may arise in the future with respect to any of the Taxable Property resulting from the current existence of a substance presently classified as hazardous but that has not been released or the release of which is not presently threatened, or resulting from the current existence of a substance not presently classified as hazardous but that may be classified as hazardous in the future. Further, such liabilities may arise not simply from the existence of a hazardous substance

43

but from thL' ml'thmi uf handling it. All of thL'St' pllssibilitiL'S could significant!\ ,1ltl'ct tlw \ ,lllll' ut ,l

T,n.1bll' I\ucel th,1t is reali;:abk upPn ,1 delinquenn· See "PROPERTY O\Vr\LRSI If P Ar\[) PROPOSED DEVELOP\lE\iT ~ Em,ironnwntal Clmditions."

E11dm1gcrcd mztl Tl1rc,1tened Species. ft is illegal tLi harm or disturb anv pl,rnh Llf anim,1b in their habitat that h,1,c been listed as endangered species by the United Stall's h,h & \Vildlifl' SL'n·ice undL•r the Federal Endangered Species Act Llr bv thL' California Fish & Came Cummis..,inn under the C1liforni,1 End,mgcred Species Act \\'ithout a permit. Although the Propert,· Owners bdicn' that no federallv listed endangered or threatened species would be affected by the prop<lscd de, elL1pmcnt within the Community Facilities District, the disc()very of an endangered plant or animal could delay deveh1pmcnt of ,·acant property in the Community Facilities District or rL'd ucc the , al UL' uf unden:-loped property.

Concentration of Property Ownership

As of the date of issuance of the Bonds, the Property O, .. ·ners arc the soil' ownL'rs pf Taxable Property in the Cummunity Facilities District, whose property is currentlv responsible fur p,1yment uf all of the Special Taxes.

Failure of anv Property Owner to pay installments of the Special Tax when due could result in the Lkpll'tiun of thl' Reserve Fund prior to reimbursement from the resale of foreclosed propertv or pavment of the delinquent Special Tax and, consequently, an insufficiency of Special T.1x pnKeL•ds to meet obligations under the Fiscal Agent Agreement. In that event, there could be a dclav or failurl' in pavments of the principal of and interest on the Bonds.

Other Possible Claims Upon the Value of Taxable Property

While the Special Taxes are secured by the Taxable Property, the securitv onlv extends to the value of such Taxable Property that is not subject to priority and parity liens and similar claims.

The table in the section entitled "THE COl'vlMUNITY FACILITIES DISTRICT - Direct and Overlapping Governmental Obligations" shmvs the presently outstanding amount of governmental obligations (vvith stated exclusions), the tax or assessment for which is or may become an t1bligation of one or more of the parcels of Taxable Property. The table also states the additional amount of general obligation bonds the tax for which, if and when issued, may become an obligation of one or more of the parcels of Taxable Property. The table does not specifically identify which of the governmental obligations are secured by liens on one or more of the parcels of Taxable Property.

In addition, other governmental obligations may be authorized and undertaken or issued in the future, the tilx, assessment or charge for which may become an obligation of one or more of the parcels of Taxable Propertv and may be secured by a lien on a parity with the lien of the Special Tax securing the Bonds,

In general, as long as the Special Tax is collected on the County tax roll, the Special Tc1x and all other taxes, assessments and charges also collected on the tax roll arc on a parity, that is, arc of equal priority. Questions of prioritv become significant when collection of one or more of the taxes, assessments or charges is sought by some other procedure, such as foreclosure and sale In the c\·ent of prnceedings to foreclose for delinquency of Special Taxes securing the Bonds, the Special Tax will be subordinate only to existing prior go\·ernmental liens, if any. Othenvise, in the event of such foreclosure proceedings, the Special Taxes vvill ~enerally be on a paritv with the other taxes, assessments and charges, and will share the proceeds of such foreclosure proceedin~s on a pro-rata basis. Although the Special Taxes v:ill generall:,.· have priority over non-governmental liens on a parcel of Taxable Property, regardless of whether the non-governmental liens 1,vcrt:' in existence at the time of

the levy of the Special Tax or not, this result mav not apply 111 the case uf bankruptcy. Sec " Bankruptcy and Foreclosure Delays" below.

Exempt Properties

Certain properties arc exempt from the Special Tax in accordance with the Rate and ivlcthod and the Act, \Vhich provides that properties or entities of the state, federal or lucal government arc exempt from the Special Tax; provided, however, that property within the Community Facilities District acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. See "SECURITY FOR THE BONDS - Rate and Method." It is possible that property t1cquircd by a public entity following a tax sale or foreclosure based upon failure to pay taxes could become exempt from the Special Tax. In addition, although the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment, the constitutionality and operation of these provisions of the Act have not been tested, meaning that such property could become exempt from the Special Tax. In the event that Taxable Property is dedicated to the School District or other public entities, this property might become exempt from the Special Tax.

The Act further provides that no other properties or entities are exempt from the Special Tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a nev.r special tax or to alter the rate or method of apportionment of an existing special tax.

Depletion of Reserve Fund

The Reserve Fund is to be maintained at an amount equal to the Reserve Requirement. See "SECURITY FOR THE BONDS - Reserve Fund." Funds in the Reserve Fund may be used to pay principal of and interest on the Bonds if insufficient funds are available from the proceeds of the levy and collection of the Special Tax against property within the Community Facilities District. If funds in the Reserve Fund for the Bonds are depleted, the funds can be replenished from the proceeds of the levy and collection of the Special Tax that are in excess of the amount required to pay all amounts to be paid to the Bond holders pursuant to the Fiscal Agent Agreement. However, no replenishment from the proceeds of a Special Tax levy can occur as long as the proceeds that are collected from the levy of the Special Tax against property within the Community Facilities District at the maximum Special Tax rates, together with other available funds, remains insufficient to pay all such amounts. Thus it is possible that the Reserve Fund will be depleted and not be replenished by the levy of the Special Tax.

Bankruptcy and Foreclosure Delays

Bankruptcy. The payment of the Special Tax and the ability of the Community Facilities District to foreclose the lien of a delinquent unpaid tax, as discussed in "SECURITY FOR THE BONDS," may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the State of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar la,vs affecting creditors' rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.

Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings and could result in the possibility of delinquent Special Tax installments not being paid in full. Such a delay would increase the likelihood of a delay or default in pavment of the principal of and interest on the Bonds. To the extent that property in the Community Facilities District continues to be

45

mnwd b\· ,1 limik•d number of pwpL'rt\ owners. the ch,1ncL'" are incrl',bL'd th,1t the Resern· Fund L'St,1bli..,hL·d fpr thl' KL1nds Cllltld bl' fulh· dl'pll'll'd during any such dl'la\· in uhtainin).; p,wment ul delinquent SpL'l·i,11 T,1,L'"· As ,1 result, ,-,ufficil'nt m.Ul1l'\'S wr1uld nut be a\·,1ilahk in thL' RL'SL'n L' Fund f(1r trcrnsfL'r tu tlw Bund Fund tu makl' up shortfalls rL'Sti!ting from delinquent pavmenh of the ~f'l'Ci,11 Ta, .rnd thl'rd1\· tLi 11,1:,· 11rincipal of zmd interest on thL' Bonds on ,1 timely basis.

C/asply Marine lnd11strics. On July 30, 1,JLJ2 the United States Court of A11pl'als for the '.\rinth Circuit issul'd ,rn opinion in a bankruptc:' case entitled !11 re Gf,L-;pfJt J\1aruzc fl1d11str1t'-;, hr1lding th,1t ad \·,1lorem prnpL·rtv t,1xes levied by a countv in the State of \Vashington after the date that the prnpertv owner filed a petitiun for bankruptcv would not be entitled to priority over the claims of a secured creditur with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposL'd lwfore the bankruptcy petition, unpaid taxes imposed subsequent to the filing of the bankruptcy petition were declared to be "administr.1tive expenses" of the b.:mkruptcv estate, payable c.1fter the claim.., nf all secured creditors. As a result, the secured creditor was c.1ble to forL•close un the subject propL'rt\ ,md retain all the proceeds from the sale thereof except the amount of the pre-petition ta;,,.;es. Pursuant tl) this holding, post-petition taxes v,·ould be paid only as administrative l'xpenses and onlv if a bankruptcv estate has sufficient c.1ssets to do so. In certain circumstances., payment of such ,1dministr,1tin• L'"-PL'nses mc.1y be c.1llowed to be deferred. Once the property is transferred out of the bankruptc:· eslc1te (through foreclosure or otherwise) it would be subjl'ct only to current ,1d \·alorl'm ta:-.es (i.e., not those accruing during the bankruptcv proceeding).

The Cl,1~1 1 l_1r decision is controlling precedent in bankruptcv court in the State of California. l f Cl11s17!11 \vere held tu be applicable to Special Taxes., a bankruptcy petition filing would prevent the lien for Spcci,1l Taxe:-. le\·ied in subsequent fiscal years from attaching so long as the propert~' \VJS part of the estate in bankruptcy, which could reduce the amount of Special Taxes a,·ailable to p.1:· debt service on the Bonds l lowever, G/11:,p/y speaks as to ad \·alorem property taxes, and not Special Ta.xes, c.1nd no c1SL' law exists with respect to hov .. · a bankruptcy court \Vould treat the lien for Special T<1xes levied after the filinh of a petition in bankruptcy.

It should .1bo be noted that on October 22, lLJ94, Congress enacted 11 U.S.C. § 362(b)(l8), which added a nev,: exception to the automatic stay for ad valorem property taxes imposed by a political subdi \·is ion c.1fter the filing of a bankruptcy petition. Pursuant to this new provision of l,nv, in the event of a bankruptcv petition filed on or after October 22, 1994, the lien for ad valorem property taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bernd mvners should be a\.varc that the potential effect of 11 U.S.C. § 362(b)(l8) on the Specic.11 Tc.1xes also depends upon \.Vhether a court ,vere to determine that the Special Taxes should be treated like ad valorem property taxes for this purpose.

Property Ow11ed by FDIC. In addition, the ability of the Community Facilities District to foreclose upon the lien relating to propertv on which Special Taxes have not been paid may be limited in cL•rtain respects with regard to properties in which the Federal Deposit Insurance Corporation (the "FDIC') hc.1s .:m interest. On November 26, 1996, the FDIC adopted a Stc.1tement of Policy Regarding the Payment of State and Local Property Taxes (the "Policy Statement") (\vhich superseded a prior statement issued bv the FDIC and the Resolution Trust Corporation in 1991 ). The Polin: Statement applies to the FDIC. when it is liquidating assets in its corporate and receivership capacities: The Policy Statement provides, in part, that owned real property of the FDIC is subject to state and local real property taxes if those taxes are assessed according to the property's value, and that the FDIC is immune from ad valorcm real property taxes assessed on other bases. The PoliC\• Statement also pro\·ides that the FDIC will pay its proper tax obligations \.vhen they become due and ,vill pay claims for delinquencies as promptly as is consistent with sound business practice and the orderly administration of the institution's affairs, unless abandonment of the FDIC interest in the property is appropriate. It further provides that the FDIC ,viii pay claims for interest on delinquent propertv taxes mvncd at the rate provided under state la\v, but only to the extent the interest payment obligc.1tion is

secured h_v ,1 \'alid lien. The FDIC will nnt pay for any .1mounts in the n.1ture nf fines or 1x·n,1lties and will not p,1y nor recognize liens fur such amounts. The Policy Statement i1ls(1 pw\·ides that if anv property taxes (including interest) on FDIC-owned propert:· .1rc secured bv a \ alid lien (in effect before the property became owned by the FDIC), the FDIC will pay those cbims. No property of the FDIC is subject to levy, attachment, garnishment, foreclosure or s,de \Vithout the FDIC's consent. In addition, a lien for taxes and interest may attach, but the FDIC will not permit a lien or securitv interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent.

With respect to challenges to assessments, the Policy Statement prn\·idt.5 "The [FDICJ is only liable for state and local taxes which arc based on the value of the property during the period for ,vhich the tax is imposed, notwithstanding the failure of any person, including prior record mvners, to challenge an assessment under the procedures available under state law. In the exercise of its business judgment, the [FDIC] may challenge assessments which do not conform ,Nith the statutory provisions, and during the challenge may pay tax claims based on the assessment level deemed appropriate, provided such payment will not prejudice the challenge. The [FDIC] will generally limit challenges to the current and immediately preceding taxable year and to the pursuit of previously filed tax protests. However, the [FDIC] may, in the exercise of its business judgment, challenge any prior taxes and assessments provided that (1) the [FDIC's] records (including appraisals, offers or bids received for the purchase of the property, etc.) indicate that the assessed value is clearly excessive, (2) a successful challenge will result in a substantial savings to the [FDIC], (3) the challenge ·.vill not unduly delay the sale of the property, and (4) there is a reasonable likelihood of a successful challenge."

The Policy Statement states that the FDIC generally will not pay non-ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time the FDIC acquires its fee interest in the property, nor v.·ill the FDIC recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Because the Special Taxes are neither ad valorem taxes nor special assessments, and because they are levied under a special tax formula under which the amount of the Special Tax is determined each year, the Special Taxes appear to fall within the category of taxes the FDIC generally will not pay pursuant to the Policy Statement.

Following the County of Orange bankruptcy proceedings filed in December 1994, the FDIC filed claims against the County of Orange in the U.S. Bankruptcy Court and the Federal District Court which challenged special taxes that Orange County had levied on the FDIC (and which the FDIC had paid) under the Act. The FDIC, in filing its claims, took a position similar to that outlined in the Policy Statement, to the effect that the FDIC, as a governmental entity, is exempt from special taxes under the Act. The Bankruptcy Court agreed, finding that the FDIC was not liable for post-receivership Mello­Roos taxes, and the Bankruptcy Appellate Panel affirmed. On appeal, the U.S. Court of Appeals for the Ninth Circuit, while not specifically asked to decide on the issue, stated in its decision filed on August 28, 2001, that "the FDIC, as a federal agency, is exempt from the Mello-Roos tax," and quoted Section 53340(c) of the Act in stating that "'properties or entities' of the federal government are exempt from the tax."

The Community Facilities District is unable to predict what effect the application of the Policy Statement, or the ultimate outcome of the County of Orange case, would have in the event of a delinquency on a parcel included in the Community Facilities District in which the FDIC has an interest. However, prohibiting the lien of the FDIC to be foreclosed on at a judicial foreclosure sale would likely reduce the number of or eliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Bonds should assume that the Communitv Facilities District will be unable to foreclose on parcels of land in the Community Facilities District o'wned by the FDIC. Such an outcome would cause a draw on the Bond Reserve Fund and perhaps, ultimately, a default in payment of the Bonds.

47

Disclosure to Future Purchasers

Tlw Communit\· L1cilitiL'S District has recorded ,1 notice of the Speci,11 T,.x lil'n in the Office of the Rin'rside Cl)tlllt\ kL'CPri..kr. \\'hile title companiL'S normallv refer to such notices in title reports, there can be no gu,u.,rnke that such rell'rL'nce will be made or, i( made, that ,1 l'fllslwctive l'Urch,1ser l1r knder will cunsidL'r such SpL'Cial Ta, nbligatitin in the purchase of ,1 parcel of land or ,1 honw in tlw Cl1mn1tmitv Facilities District, or the lending of monev secured bv property in thL· Communitv F,.cilities District. The Act and the Cuals and Policies requires the subdivider llf ,1 subdi\ isinn (rn its ,,gent or representati,·L') to notify a prospecti\'L' purchasL'r or long-term lessor of anv lut, p,uccl, t1r unit subject tn a t\kllL1-Rol1s special tax of the existence and maximum amount of such special tax using a st.1tutrnilv prescribed form. California Civil Code Section l 102.6b requires that in the case of transfers othL'r than tlwse CO\'L'red bv the above requirement, the seller must at least make a good faith effort to notih the pwspL'ctin· purchaser of the special tax lien in a format prescribed by statute. f;ailure by c1n owner of the propert\· to compl\' with these requirements, or failure by a purchaser tir lessor to consider or understand the nature and existence of the Special Tax, could ach'L•rsL'lv ,1ffL,ct the willingness and abilitv of the purchaser or lessor to pay the Special Tax \\'hen due.

No Acceleration Provisions

The Bonds du nl1t contain a provision allowing for the acceleration of the Bonds in the event of a p,1vment default lH other default under the terms of the Bonds or the Fiscal Agent A~·;rL•ement. Under the Fiscal Agent Agreement, a Bond holder is given the right for the equal benefit and protection of all Bond hl1lders simitulv situated to pursue certain remedies. See "APPENDIX D - Summan· of the Fiscal Agent Agreement." So long as the Bonds are in book-entry form, OTC \-vii! be the sole Bund hold.er and will be entitled to exercise all rights and remedies of Bond holders.

Loss of Tax Exemption

As discussed under the caption "LEGAL t\1A TIERS - Tax Exemption," interest on the Bonds might become includ,1ble in gross income for purposes of federal income taxation retroactive to the dak' the Bonds ,,·erL' issued as a result of future acts or omissions of the Communitv Facilities District in violation of its covenants in the Fiscal Agent Agreement. The Fiscal Agent Agreement does not contain a special redemption feature triggered by the occurrence of an event of taxability. As a result, if interest on the Bonds ,vere to be includable in gross income for purposes of federal income taxation, the Bonds would continue to remain outstanding until maturity unless earlier redeemed pursuant to optional or mandatorv redemption or redemption upon prepayment of the Special Tax. SeL' "THE BONDS - Redemption."

Proposition 218

Under the California Constitution, the pmver of initiative is reserved to the voters for the purpose uf enacting statutes and constitutional amendments. Over the past 18 years, the voters have exercised this powL'r through the adoption of Proposition 13 and similar measures, the most recent of which was approved as Proposition 218 in the general election held on November 5, 19Y6.

Any such initiative may affect the collection of fees, taxes and other types of revenue b_v local agencies such as the Community Facilities District. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives, possibly to the extent of creating cash-flmv problems in the payment of outstanding obligations such as the Bonds.

Proposition 218-Voter Approval for Local Government Taxes-Limitation on Fees, Assessments, and Charges-Initiati\·e Constitutional Amendment, added Articles XllIC and XIIID to

-la

thL' California Constitutitn1, imposing certain vote requirements and other hmiL1ti1ms un the imposition of ne,\' or incre.:ised taxes, ,bsessmcnts and property-rebted fees and ch<uges. Prupusititin 218 states that all taxes imposed by Inca! governments are deemed to be either gencr,11 t.:ixcs or speci<1l taxes. Special purpose districts, including assessment districts, have no povver to IL'\,. gem'L1l taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a t\vo-thirds vote.

Proposition 218 also provides that no tax, assessment, fee or charge mav be assessed by any agency upon any parcel of property or upon any person as an incident of propert'.>· ownership except: (i) the ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to the California Constitution, and (iii) assessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sc,,·er, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjL'cted to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of these provisions is presumably to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges.

Proposition 218 also provides that the constitutional initiative power will not be prohibited or otherwise limited in matters of reducing or repealing any local taxes, assessnwnts, fees and charges. This provision with respect to the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218. However, on July 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code 5854, which states:

Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996 general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protection by Section 10 of Article I of the United States Constitution.

The Special Taxes and the Bonds were each authorized by not less than a two-thirds vote of the landowner within the Community Facilities District who constituted the qualified electors of the Community Facilities District at the time of such voted authorization. The Community Facilities District beheves, therefore, that issuance of the Bonds does not require the conduct" of further proceedings under the Act or Proposition 218.

Like its antecedents, Proposition 218 is likely to undergo both judicial and legislative scrutiny before its impact on the Community Facilities District and its obligations can be determined. Certain provisions of Proposition 218 may be examined by the courts for their constitutionality under both State and federal constitutional law. The Community Facilities District is not able to predict the outcome of any such examination.

The foregoing discussion of Proposition 218 should not be considl'red an exhaustive or authoritative treatment of the issues. The Community Facilities District doL'S not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Bonds as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218.

49

LEGAL MATTERS

Legal Opinions

The ll'g,1! opinion of Rutan & Tucker LLP, Costa :Vlesa, California, Bond Cuunsd, ,1pproving the \'alidity uf thl' Bonds will be made available to purchasers at the timl' of original dl'lin·n· ,rnd is ,1ttachl'd ,1s A[JPEr\iD[X H. A copy of thl' k'gal opinion will be attachl'd to thl' back uf l'ach B()nd

Rutan & Tucker LLP \\'ill also pass upon cl'rtain legal matters for the School District ,md thl' Communit\· Facilities District as special counsel to thl'sl' entities. Jones Hall, A Prufessional Law Corpor,1tion, S,1n Francisco, California is serving as Disclosure Counsel, and will pass upon Cl'rt.1in legal matters for the School District and the Community F<1cilities District.

Tax Exemption

In the opinion of Rut<1n & Tucker LLP, Cost<1 Mes<1, California, Bond Counsel, subjl'ct, however to the qualifications set forth beknv, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purpusl'S of the federal alternative minimum tax imposed on individuals and corporations, provided, h<nve\'er, that, for the purpose of computing the alternative minimum tax imposed on corporations (,1s dcfinl'd for federal income tax purposes), such interest is takl'n into account in ddermining certain income and earnings.

The opinions set forth in the preceding paragraph are subject to the condition that the Community Facilities District comply ,vith all requirements of the Internal Revl'nue Code of llJ86 (the ''Code") that must be satisfied subsequent to the issuance of the Bonds in order that such interest be, or cuntinue to be, e:,,_cludcd. from gross income for federal income tax purposes. The Communit\· Facilities District has covenanted in the Fiscal Agent Agreement to comply with each such requirement. Failure to rnmply with certain of such requirements may cause the inclusion of such interest in gross income for fednal income tax purposes to be retroactive to the date of issuance of the Bonds.

In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income t.1xes.

Ovvners of the Bonds should also be a\v are that the mvnership or disposition of, or the accru.11 or receipt of interest on, the Bonds m.1y have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above.

No Litigation

At the time of delivery of the Bonds, the School District and the Communitv Facilities District will certify that there is no action, suit, proceeding, inquiry or investigation, at law C)r in equity, before or by any court, public board or body, pending with respect to v,,,hich the Communitv Facilitil'S District has been ser\'ed ,,·ith process or threatened, v-,hich:

• in any way questions the powers of the Board of Education or the Communitv Facilities District, or

• in an~· way questions the validity of any proceeding taken by the Board of Education in connection \Vith the issuance of the Bonds, or

• wherein an unfavorable decision, ruling or finding 0111ld matcriallv ad\'ersclv affect the transactions contemplated by the Bond Purchase Contr,Kt, ur

• which, in any way, could adverselv affect the validitv or enforceabilitv nf the Resolutions, the Bonds, the Fiscal Agent Agreement, the Issuer Continuing Disclosure Certificate or the Bernd Purchase Contract, or

• to the knmvledge of the Community Facilities District, which in any \Nay questions the exclusion from gross income of the recipients thereof of the interest on the Bonds for federal income tax purposes, or

• in any other v•:ay questions the status of the Bonds under State tax la,vs or regulations,

NO RATINGS

The Bonds have not been rated by any securities rating agency.

UNDERWRITING

The Bonds are being purchased by the Stone & Youngberg LLC at a purchase price of $2,730,596.10 (which represents the aggregate principal amount of the Bonds ($2,795,000.00) less an underwriter's discmmt of $64,403.90).

The purchase agreement relating to the Bonds provides that the Underwriter will purchase all of the Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase agreement.

The Undenvriter may offer and sell Bonds to certain dealers and others at prices lower than the offering price stated on the cover page hereof. The offering prices may be changed from time to time by the Underwriter.

PROFESSIONAL FEES

In connection with the issuance of the Bonds, fees payable to certain professionals are contingent upon the issuance and delivery of the Bonds. Those professionals include:

• the Underwriter;

• Jones Hall, A Professional Law Corporation, as Disclosure Counsel;

• Rutan & Tucker LLP, as Bond Counsel;

• a portion of the fees of David Taussig & Associates, Inc., as special tax consultant; and

• State Street Bank and Trust Company of California, National Association, as Fiscal Agent for the Bonds.

51

EXECUTION

ThL' CV'U1til1n and deliver, ()f the Official St,1tement bv the Communit\' FacilitiL", District h,1:-; been dul\' ,1uthl1fl/L'l1 bv the ~lurrieta Vallev Lnified School District on bel~alf of the Cummun1tv F,1cilities District

COfvllvtUNITY FACIUTIES DISTRICT NO 2002-l OF Tl IE MURRIETA VALLEY UNIFIED SCI lOOL DISTRICT

Bv: /":,,/ Chet '.'v1. Francisco Chet t\t Francisco, blD, Superintendent,

\1 urrieta Valkv C nified School District, on behalf of Commu~itv Facilities District No, 2002-1

of the \1urrieta Vallev Unified School District

APPENDIX A

GENERAL INFORMATION ABOUT THE CITY OF MURRIETA

The follo,l'i11,'\ i11for11111tio11 umccmins the City 1~f l\1llrrict11 1111d .;urro1111di11s 111"1'11.; 1m' i11dudt'd m1[_11 for the purpo."t' of :;uppl~1i11g general informatio11 regardi11g th<' co11zn111111t.11. T/1e Bo11d.; 11re not 11

debt of the Cih/, tl1c State or 111111 of its political subdiuisio1i:;, and neither the Cit11. tl11' ~t11te nor 1111.11 of ih poiitic,11 sul;di, 1i.;io11s is liable' tl1;'refor. · ·

General Description and Background

Incorporated on July 1, 1991, the City of Murrieta (the "City") now functions under a Council/Manager form of Government. A five member City Council, including the !\layor, is elected at large. The City Manager is appointed by the City Council.

Population

The follmving sets forth the City, the County and the State population estimates as of January 1 for the years 19% to 2001:

CITY OF MURRI ET A, RIVERSIDE COUNTY AND STA TE OF CALIFORNIA Estimated Population

Year Citv of Riverside St,1 te of (J:muary l) Mu;rieta Count;' C1lifomia

19% 34,550 1,381,900 32,231,000 1997 36,600 1,400,400 32,670,000 1998 39,000 1,441,000 3?>,22b,OOO 1999 41,750 1,481,200 33,766,000 2000 44,350 1,557,800 ~4.207,000 2001 46,850 1,609,..JOO ~-l.818,000

Source: State of California Department of Finance, Demogr<1phic Research Unit.

A-1

Commerce

Tntal la:\able sales reported during calendar vear 2000 in the City \H're rep()rkd to be SYi--t,2Sl,Ullll, ,1 S.lJ"" increase on'r the total t.1,,1bll' sales of 5325, l'.ib,000 reported during c1lemLu ye<1r I LJLJl)_ The number of establishments selling merchandise subject to sales !tn ,rnd tlw \ aluation of t.nable transactim1s is pn .. 'sL·nted in the following table.

lql);

I LNh

I LJL/7 f l)l)t--, f l)LJLJ

2()(1( l

CITY OF MURRIETA Taxable Retail Sales

Number of Permits and Valuation of Taxable Transactions

Ret,1il Stores

Number nl Permits

Ta,ablc Transaction"

SI hb,::r''iLJ,000 20td07,000 218,tJJ3,00U 25 l,tJ22,0UU 289,287,0llO 3 I 3. 76:\000

ToL1l All Outlet:--

Numlwr of Permits

nq Til 801 832 880 96'1

T,nablc Tr.1n-;,ict1on-;

s 1 :-n, 9s0,ooo :?_2LJ,'i-l=i,()(l() 2-l '\:N7,0ll0 28 1,709 ,OOU 3:?."i, I 'ih,0()() 3 "i-l ,2 'i I ,000

Tlw number of establishments selling merchandise subject to s,1les tax and the \·,1Iuation of ta\able tra1b,ldi()t1S within the County is presented in the following table.

l L)lJ 'j

I LJLJt1

I L)l("

ILJtJS I lJ()l) 2000

COUNTY OF RIVERSIDE Taxable Retail Sales

Number of Permits and Valuation of Taxable Transactions

Retail Stores

\Ju mber ot Permits

12.'iLJ-l 12.7[2 l3.03(.l 13...J.ll8 l-l.n7(1 I 6.309

Tax,1blc Tr,msactions

7,--13\-l l-l ,lJ()()

8,003,0h l ,UOO 8,:108,0 I 0,000 LJ,276,-l--18 ,OOl l

I 0,l,8\72-l,OOO 12, 190,-1-7 -UHlll

A-2

Total All{_ )utll'ts

Number of Permits

3-l,776 3-l/i22 3-l,2 l 2 33,h23 3-l, 117

3h,l 17s

Ta"abll' Tr an-;action-;

LJ,81-l, 'iT=\,000 l 1,138,861,000 11, lJ72,V 1,000 13, l-l0,8'i-l,OOO I 'i, 0 7 6, 9-Vi, 000 I h,LJ79,-1--l9,0()()

Employment and Industry

The Citv is included in the Riverside-San Bernardino labor market area. The following table shows the ~\\'erage annual estimated numbers of wage and salary workers bv industrv. Does not include proprietors, the self-employed, unpaid volunteers or family workers, domestic ,n1rkers in households, and persons in labor management disputes.

RIVERSIDE-SAN BERNARDINO METROPOLITAN STATISTICAL AREA (RIVERSIDE COUNTY)

Civilian Labor Force, Employment and Unemployment (Annual Averages)

1996 1997 1998 j l)l)l)

Civilian Labor Force 111 1,302,100 1,352,300 1,388,700 1,450,600 Employment 1,201,900 1,259,000 1,303,800 1,376,500 Unemployment 100,200 93,100 84,900 74,JOO Unemplovment Rate 7.7% 6.9% 6.1°•,, 5. l"o Wage and Salary Emplovment: 121

Total All Industries 824,800 863,100 903,800 960,300 Agriculture 21,300 21,700 21,600 21,300 Nonagricultural Industries 803,500 841,400 882,200 938,900 Mining l,200 1,200 l,000 1,000 Construction 46,200 52, 100 60,800 70,800 Manufacturing 99,200 104,800 l l l,400 117,800 Transportation, Public Utilities 41,100 42,500 45,700 49, 100 Wholesale Trade 37,500 40,200 42,200 45,200 Retail Trade 172,600 177,800 181,000 188,SOO Finance, Insurance, Real Estate 29,600 29,800 30,600 31,900 Services 208,700 221,500 234,900 251,500 Government 167,300 171,600 174,700 183, JOO

(I) Labor force data i;; by pl,1ce of re;,idence; includes self-employL·d indi\·iduab, unp,1id fomih domestic workers, ,ind workers on strike.

2000

1,522,900 1,445,300

77,600 5.1 °o

1,012,400 20,LJOO

9LJ 1,500 1,000

78,300 124,..tOO 51,000 48,:',00

198,..tOO 31,700

266,800 191,bOO

\Vorkers, household

(2J Industry employment is by place of work; excludes self-employni individu,,b, unp,1id f,,mily worker~, household domestic workers, and ,vorkers on strike.

Source: State of California Employment Development Department.

A-3

Major Employers

Thl' brgt..•st manufacturing ,1nd non-manufacturing t..•mplovers as of Jmw :WO() in lhl' communitv arl'a are shuwn bdLlW.

CITY OF MURRIETA Manufacturing Employment

C ornp,m \' Product /Ser\·ice Emplovnwnl

1\.1urril'la V,1llev Unified Schoo! District R,rncho Spring~ 1\.ledic,1l Center Inland V,11lc\ Region,1l \kdical Center l bk Crm l' Institute I lonw I kpot Bl'S t Hu\ Cit\ of .r'\lurrieta Cr, oquip Strt'lch Forming Anwric,rn lndu.;tri,11 \l,rnuL1eturing Sen ices l lonwB,be b,Ptic l\1,1ll'ri,1ls

Public School Hospital I lospital Trc,1tment Center I lome Im pro, ements Retailer Home Electronics Retailer .\lunicipal Scn·ices I lc,1t Exchangl'r t\·Lmufacturer Sun Roofs/ Aeroc.;pace Auto Parts RPbuilder I lome Improvements RPtailcr l )ptic,111\.1,mufacturer

Thi:_• following table lists the laq;est emplu\·ers within the County:

COUNTY OF RIVERSIDE Major Employers

Ranked by Number of County-Based Employees As of 1999

( ·omp,rny

Count\' of Rin·rside 1\.larch. Air Resen c B,1se Unin•rsit\' of ( ·,1lifornic1, Riverside St.1ter Bn;s. ~tarkets RiH•rside U niiied School District Coron,1-Norco Lniiied School District Moreno Vc1lle\ Lnificd School District Ralphs Croce~v Co. \\/,11-1\.brt Stores Inc. Ri\'erside Countv Region,11 \tedic,1\ Center K,1iser Permanente RiYerside Medical Citv ot Riwrside Palm Springs Lniiied School District Fketwood Enterprises Inc. \',1lle\ I lL•alth S\stl'm Eisenhower 1\.te~-Jical Center lurup,1 Unified School District L1k.e Elsinore Unified School District 1\.lcirriott Desert Springs Resort RiH'rside Count\ Office oi Educition

Product /Sen'ice

Loc,11 ( ~O\ ernment \liliLirv b,1se Higher. Educ,1 tion ( ; met' f\ Ret,1 i It> r Public Educ1tion l'ublK Education l'ublic Education Crocen Ret,1iler Ret,1il I°kpt. I store ch,1in He,1lth Cclrl'

He,1lth CcHL' (;O\'ernment l'ublic Education llousmg/ RL'C. vehicles mig. He,1lth care He,1lth C,lrP Public Education Public Educ,1tion Resort I lotel r'ublic Educ1tinn

Riverside Count\ Employees

J:\340 n,800 \136 -l,f,()0

:;,o::;y ?,,(100 2,720

2./-1'.'0 2,400 2JOO 2,261 2 .2-t9 2,200 2,200 l,9YO l,7"i0 1,700 1,700 1,::;21

I, l O 'i'i(l

,l'i()

IH'i

I HO FiO I::'() I OU I OU

l):::;

SS nS

-r otal Fmplo\L'L'S

l 1,".\-!ll h,KOO - ,.,,.,

-, "'' )t,

l ll,70() '\t:;;i ".\ ,L)'ilJ

1,()0() 2S. I SU

7H() ,Ul lll 2Allll

LJ() ,l H 10 2,2r,I 2,24LJ

2u, ::;uu 2.20() I .L)l)(l

l,7'it) I. 7()()

I, 7llU 1,::;21

Construction Activity

The following is a five year summary of the valuation of building permits issued in the City.

CITY OF MURRIETA Building Permit Valuation

(Valuation in Thousands of Dollars)

1996 1997 1998 19YlJ 2000 Permit Valuation New Single-family $96,016.1 $124,302.6 $151,882.8 $128,953.-l $152, 1--12.2 New tv1ulti-iamilv 0.0 0.0 2,2--10.0 ()_() 0.0 Res. Alterations /Additions 1 .637.8 2.130.2 2.2--12.9 2.6009. I 2.822.3

Total Residential 97,653.9 126,432.8 156,365.7 131,5625 15-1,%-15

New Commercial 1,950.0 12,705.0 10,860.0 12,b33.I 21.391.2 New Industrial 0.0 551.0 991.8 3,973.0 2,000.0 New Other 3,257.7 -l,-l--l--l.2 -l,085.2 9,336.0 11,130.1 Com. Alterations/ Additions 748.5 2.755.1 l 839.-l 1 903. 5 -l 5-15.0

Total Nonresidential 5,956.2 20,455.3 17,776.--l 27,8-15.6 39,066.3

New D~velling Units

Single Family 616 715 8--l7 678 800 Multiple Family __Q _Q __M _Q _Q

TOTAL 616 715 911 678 800

Source: Construction Industry Research Board, Bu I/ding Pcm11t _c; 1111111111ry

Effective Buying Income

"Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of O\vner­occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income."

A-5

COUNTY OF RIVERSIDE Effective Buying Income

1996 through 2000

Tot,11 l::flectiH' \kdi,m I lousdwld

Utilities

I L)lJfi Rin'rside Countv California United States

I LJLJ7 Riverside Count\' C1lifornia United States

! 998 RiH'r-.;ide Countv C1lifnrni.1 -Lnitcd States

! CJl)l) Rin:>rside Count\' C1liforni.1 -L'nitl'd States

20UO RiH'rside Countv C1litornia Lnited States

Hu ving Income (UOO's Omitted)

s 18,120,%2 -l-77,6-l-0,503

3,lJt,-l-,28S, 118

s 19,-1-77,361 -l-lJ2,;] (l, 991

-l-, I 6 I ,'i l 2,38-l

s 20,'i-l3,(175 S2-lA3lJ,600

-l-,_'N9,998,..t IO

s 22,-l-'i3,-l26 SLJ0,376,663

-l,877,78b,b58

$ 2''i, 1-l-l, 120 b'i2, I LJU,282

'i,230 ,82-l, LJO-l

Etfectin' lhl\ inh lnconw

S31,:n7 3-l-,5T~ ~2,23H

532,69() 35,2lh 33,..182

SX\,lWJ 36,-1-~n 3-l,618

S35, 1-l'i 39,-l92 ,.., ..... ,.,,.., ,); ,..:-,),)

S3Y,293 -1--1-,-l(l-l-3lJ, ]2LJ

Southern California Edison provides the City vvith electric power. Natural gas is provided by Suuthern California Gas Company. The City is served lw four Water Districts: Ec1stern Municipal Water District, Elsinore Valley Municipal Water District, Murrieta County Water District and Rancho California \.Vater District. Se\.\·er services are prn\·ided by the folknving Districts: Eastern Municipal \N,1ter District, i\.lurrieta Countv Water District and Rancho California Water District and refuse collection is provided bv a private collector through a franchise arrangement with the Citv.

Transportation

The City is sen·ed by or is adjacent to a \·ariet\· of L'>..cellent land and air trzinsprnt.1tion facilities. Air service to all points is approximately one hour av.-ay at the San Diego, Ontario, John \Nayne and Palm Springs Airports. Countv-owned French Valle:' Airport is a general aviation facilitv and handles small crafts.

The City is sern'd bv Interstate 215 north to Riverside, Interstate 15 north to Los Angeles­Barstow-Las Vegas and south to San Diego Countv, State Route 7LJ nurth to I Iemet ,md to lnterstzite 10 east to Palm Springs. These principal arteries link the Citv to the \·ast interlocking freewav network of thl' Los Angeles and San Diego Areas.

Interstate bus sen·ice is available \·ia Crevhuund. Luca! bus sl'n·icL· is prn\·idcd bv the Rin·rside Transit Authorit\·.

:\-6

APPENDIX B

RATE AND METHOD OF APPORTIONMENT FOR COMMUNITY FACILITIES DISTRICT NO. 2002-1

OF MURRIETA VALLEY UNIFIED SCHOOL DISTRICT

[THIS PAGE I}.'TE~'TIONALLY LEFT BLANK]

RATE AND METHOD OF APPORTIONMENT FOR COMMUNITY FACILITIES DISTRICT NO. 2002-1

OF MURRIETA VALLEY UNIFIED SCHOOL DISTRICT

The following sets forth the Rate and Method of Apportionment for the levy and collection of Special Taxes of Murrieta Valley Unified School District ("School District") Community Facilities District No. 2002-1 ("CFD No. 2002-1 "). An Annual Special Tax shall be levied on and collected in CFO No. 2002-1 each Fiscal Year, in an amount determined through the application of the Rate and Method of Apportionment described below. All of the real property in CFD No. 2002-1, unless exempted by law or by the provisions hereof, shall be taxed for the purposes. to the extent, and in the manner herein provided.

SECTION A DEFINITIONS

The terms hereinafter set forth have the following meanings:

"Acreage" means the land area of an Assessor's Parcel as shown on an Assessor's Parcel Map or as calculated from the applicable Assessor's Parcel Map by the Board.

"Act" means the Mello-Roos Communities Facilities Act of 1982 as amended, being Chapter 2.5, Division 2 of Title 5 of the Government Code of the State of California.

"Administrative Expenses" means any ordinary and necessary expense incurred by the School District on behalf of CFD No. 2002-1 related to the determination of the amount of the levy of Special Taxes, the collection of Special Taxes including the expenses of collectingdelinquencies,the administration of Bonds, the payment of salaries and benefits of any School District employee whose duties are directly related to the administration of CFD No. 2002-1, and costs otherwise incurred in order to carry out the authorized purposes of CFD No. 2002-1.

"Annual Special Tax" means the Special Tax actually levied in any Fiscal Year on any Assessor's Parcel.

"Assessor's Parcel" means a lot or parcel of land designated on an Assessor's Parcel Map with an assigned Assessor's Parcel Number within the boundaries of CFD No. 2002-1.

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

"Assessor's Parcel Number" means that numberassigned to an Assessor's Parcel by the County for purposes of identification.

"Assigned Annual Special Tax" means the Special Tax of that name described in Section D below.

"Backup Annual Special Tax" means the Special Tax of that name described in Section E belmv.

"Board" means the Board of Education of Murrieta Valley Unified School District or its designee as the legislative body of CFD No. 2002-1.

Page 1 of9

"Bonds" means any obligation to repay a sum of money, includingobligationsin the form of bonds, notes, certific;:ites of participation, long-term leases, loans from government agencies, or l@ns from banks, other financial institutions. private businesses, or individuals, or long-term contracts, or any refunding thereof, which obligation may be incurred by CFD No. 2002-1 or the School District.

"Building Permit" means a permit for the construction of one or more Units. For purposes of this definition. "Building Permit" shall not include permits for construction or installation of commercial/industrial structures, parking structures, retaining walls, utility improvements, or other such improvements not intended for human habitation.

"Calendar Y car" means the period commencing January 1 of any year and ending the follmving December 31.

"CFD No. 2002-1" means Community Facilities District No. 2002-1 established by the School District under the Act.

"County" means the County of Riverside.

"Dc\'clopcd Property" means all Assessor's Parcels for which Building Permits were issued on or before May l of the prior Fiscal Year, provided that such Assessor's Parcels were created on or bdore January 1 of the prior Fiscal Year and that each such Assessor's Parcel is associated with a Lot. as determined reasonably by the Board.

"Exempt Property" means all Assessor's Parcels designated as being exempt from Special Taxes in Section J.

"Final ;\,lap" means a final tract map, parcel map, lot line adjustment, or functionally equivalent map or instrument that creates building sites, recorded in the County Office of the Recorder.

"Fiscal Y car" means the period commencing on July 1 of any year and ending the follo\ving June 30.

''Gross Prepayment Amount" means the Prepayment Amount for an Assessor's Parcel prior to Bonds being issued by CFD No. 2002-1, as determined in accordance with Section G.

"Lot" means an individual legal lot created by a Final Map for which a Building Permit could be issued.

"Maximum Special Tax" means the maximum Special Tax, determined in accordance with Section C. that can be levied by CFO No. 2002-1 in any Fiscal Year on any Assessor's Parcel.

"Minimum Annual Special Tax Requirement" means the amount required in any Fiscal Year to pay: (i) the debt service on all outstanding Bonds, other indebtedness, lease revenue financing, or other periodic costs on all outstanding Bonds or other indebtedness of CFO No. 2002-1, (ii) Administrative Expenses ofCFD No. 2002-1, (iii) the costs associated with thereleaseoffunds from an escrow account, and (iv) any amount required to establish or replenish any rese-rve funds established in association with the Bonds or other indebtedness of CFO No. 2002-1, less (v) resene fund earnings in excess of the reserve fund requirement \vhich are not allocable to rebatable arbitrage.

Page 2 of 9

"Partial Prepayment Amount 0 means the amount required to prepay a portion of the Annual Special Tax obligation for an Assessor's Parcel, as described in Section H.

"Prepayment Amount" means the amount required to prepay the Annual Special Tax obligation in full for an Assessor's Parcel, as described in Section G.

"Proportionately" means that the ratio of the actual Annual Special Tax levy to the applicable Special Tax is equal for all applicable Assessor's Parcels.

"Special Tax" means any of the special taxes authorized to be levied by CFD No. 2002-1 pursuant to the Act.

"Taxable Property" means all Assessor's Parcels which are not Exempt Property.

"Undeveloped Property" means all Assessor's Parcels of Taxable Property which are not Developed Property.

"Unit" means each separate residential dwelling unit which comprises an independent facility capable of conveyance separate from adjacent residential dwelling units.

SECTION B CLASSIFICATION OF ASSESSOR'S PARCELS

For each Fiscal Year, beginning with Fiscal Year 2002-03, each Assessor's Parcel within CFD No. 2002-1 shall be classified as Taxable Property or Exempt Property. In addition, each Fiscal Year, beginning with Fiscal Year 2002-03, each Assessor's Parcel of Taxable Property shall be further classified as Developed Property or Undeveloped Property.

1. Developed Propertv

SECTION C MAXIMUM SPECIAL TAXES

The Maximum Special Tax for each Assessor's Parcel classified as Developed Property in any Fiscal Year shall be the amount determined by the greater of (i) the application of the Assigned Annual Special Tax or (ii) the application of the Backup Annual Special Tax.

2. Undeveloped Property

The Maximum Special Tax for each Assessor's Parcel classified as Undeveloped Property in any Fiscal Year shall be the amount determined by the application of the Assigned Annual Special Tax.

Page 3 of9

SECTION D ASSIGNED ANNUAL SPECIAL TAXES

1. Developed Property

The Assigned Annual Special Tax applicable to each Assessor's Parcel of Developed Property for any Fiscal Year shall be $883.55 per Unit.

2. Undeveloped Property

The Assigned Annual Special Tax applicable to each Assessor's Parcel of t;nctevelopcd Property for any Fiscal Year shall be $6,153.71 per acre of Acreage.

SECTION E BACKUP ANNUAL SPECIAL TAXES

Each Fiscal Year, each Assessor's Parcel of Developed Property shall be subjectto a Backup Annual Special Tax. In each Fiscal Year, the Backup Annual Special Tax rate for Dewloped Property within a Final ~v1ap shall be the rate per Lot calculated according to the follov,:ing formula:

UxA B=

L

The terms above have the following meanings:

B u

A

L

Backup Annual Special Tax per Lot in each Fiscal Year Assigned Annual Special Tax per acre of Acreage for Undeveloped Property Acreage of Taxable Property in such Final Map, as determined by the Board pursuant to Section J Lots in the Final Map

Notwithstanding the foregoing, if all or any portion of the Final Map(s) described in the preceding paragraph is subsequently changed or modified, then the Backup Annual Special Tax for each Assessor's Parcel of Developed Property in such Final Map area that is changed or modified shall be a rate per square foot of Acreage calculated as follows:

I. Determine the total Backup Annual Special Taxes anticipated to apply to the changed or modified Final Map area prior to the change or modification.

The result of paragraph I above shall be divided by the Acreage of Taxable Property which is ultimately expected to exist in such changed or modified Final \fap area. as reasonably determined by the Board.

Page 4 of 9

3. The result of paragraph 2 above shall be divided by 43,560. The result is the Backup Annual Special Tax per square foot of Acreage which shall be applicable to Assessor's Parcels of Developed Property in such changed or modified Final Map area for all remaining Fiscal Years in \Vhich the Special Tax may be levied.

SECTION F METHOD OF APPORTIONMENT OF THE ANNUAL SPECIAL TAX

Commencing Fiscal Year 2002-03 and for each subsequent Fiscal Year, the Board shall levy Annual Special Taxes as follov,:s:

Step One: The Board shall levy an Annual Special Tax on each Assessor's Parcel of Developed Property in an amount equal to the Assigned Annual Special Tax applicable to each such Assessor's Parcel.

Step Two: If the sum of the amounts collected in step one is insufficient to satisfy the rvtinimum Annual Special Tax Requirement, then the Board shall additionally levy an Annual Special Tax Proportionately on each Assessor's Parcel of Undeveloped Property, up to the Assigned Annual Special Tax applicable to each such Assessor's Parcel to satisfy the Minimum Annual Special Tax Requirement.

Step Three: If the sum of the amounts collected in steps one and two is insufficient to satisfy the Minimum Annual Special Tax Requirement, then the Board shall additionally levy an Annual Special Tax Proportionately on each Assessor's Parcel of Developed Property, up to the Maximum Special Tax applicable to each such Assessor's Parcel to satisfy the Minimum Annual Special Tax Requirement.

SECTIONG PREPAYMENT OF ANNUAL SPECIAL TAXES

The Annual Special Tax obligation of CFD No. 2002-1 for an Assessor's Parcel of Developed Property or an Assessor's Parcel of Undeveloped Property for which a Building Permit has been issued may be prepaid in full, provided that there are no delinquent Special Taxes, penalties, or interest charges outstanding with respect to such Assessor's Parcel at the time the Annual Special Tax obligation would be prepaid. The Prepayment Amount for an Assessor's Parcel eligible for prepayment shall be determined as described below.

1. Prior to Issuance of Bonds

Prior to the issuance of Bonds, the Prepayment Amount for each Assessor's Parcel of Developed Property and each Assessor's Parcel of Undeveloped Property for which a Building Permit has been issued shall be the applicable Gross Prepayment Amount. The Gross Prepayment Amount for Fiscal Year 2002-03 shall be $6,650.00 per Unit.

Page 5 of9

2. Subsequent to Issuance of Bonds

Subsequent to the issuance of Bonds, the Prepayment Amount for each applicable Assessor's Parcel shall be calculated according to the following formula (capitalized terms defined below):

plus plus plus less equals

Bond Redemption Amount Redemption Premium Defeasance Administrative Fee Reserve Fund Credit Prepayment Amount

As of the date of prepayment, the Prepayment Amount shall be calculated as follows

1. For Assessor's Parcels of Developed Property, compute the sum of the Assigned Annual Special Taxes and the Backup Annual Special Taxes applicable to the Assessor·s Parcel. For Assessor's ParcelsofUndevelopedProperty,computethe sum of the Assigned Annual Special Taxes and the Backup Annual Special Taxes applicable to the Assessor's Parcel as though it was already designated as Developed Property, based upon the Building Permit issued for that Assessor's Parcel.

For each Assessor's Parcel of Developed Property or Undeveloped Property to be prepaid, (a) divide the sum of the Assigned Annual Special Taxes computed pursuant to paragraph 1 for such Assessor's Parcel by the sum of the estimated Assigned Annual Special Taxes applicable to all Assessor's Parcels of Developed Property at buildout. as reasonably determined by the Board, and (b) divide the sum of Backup Annual Special Tax computed pursuant to paragraph 1 for such Assessor's Parcel by the sum of the estimated Backup Annual Special Taxes applicable to all Assessor· s Parcels of Developed Property at buildout, as reasonably determined by the Board.

3. The amount determined pursuant to Section G.1. shall be (a) increased by the portion of the Bonds allocable to costs of issuance, reserve fund deposits, and capitalized interest ,vith respect to the applicable Assessor's Parcel and (b) reduced by the amount of regularly retired principal which is allocable to the applicable Assessor's Parcel, as determined by the Board. The result is the "Outstanding Gross Prepayment Amount." In no event shall any Annual Special Taxes determined to have been used to make a regularly scheduled principal payment on the Bonds be adjusted for any increase in any cost index or other basis subsequent to the date of the applicable principal payment.

4. Multiply the larger quotient computed pursuant to paragraph 2(a) or 2(b) by the face value of all outstanding Bonds. If the product is great.er than the Outstanding Gross Prepayment Amount, then the product shall be the "Bond Redemption Amount." If the product is less than the Outstanding Gross Prepayment Amount, then the Outstanding Gross Prepayment Amount shall be the "Bond Redemption Amount."

Page 6 of 9

5. Multiply the Bond Redemption Amount by the applicable redemption premium, if any, on the outstanding Bonds to be redeemed with the proceeds of the Bond Redemption Amount. This product is the "Redemption Premium."

6. Compute the amount needed to pay interest on the Bond Redemption Amount, the Redemption Premium, and the Reserve Fund Credit (see step 10) to be redeemed with the proceeds of the Prepayment Amount until the earliest call date for the outstanding Bonds.

7. Estimate the amount of interest earnings to be derived from the reinvestment of the Bond Redemption Amount plus the Redemption Premium until the earliest call date for the outstanding Bonds.

8. Subtract the amount computed pursuant to paragraph 7 from the amount computed pursuant to paragraph 6. This difference is the "Defeasance."

9. Estimate the administrative fees and expenses associated with the prepayment. including the costs of computation of the Prepayment Amount, the costs of redeeming Bonds, and the costs of recording any notices to evidence the prepayment and the redemption. This amount is the "Administrative Fee."

I 0. Calculate the "Reserve Fund Credit" as the lesser of: (a) the expectedreductionin the applicable reserve requirements, 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 requirements in effect after the redemption of outstanding Bonds as a result of the prepayment from the balance in the applicable reserve funds on the prepayment date. Notwithstandingthe foregoing, if the reserve fund requirement is satisfied by a surety bond or other instrument at the time of the prepayment, then no Reserve Fund Credit shall be given. Notwithstanding the foregoing, the Reserve Fund Credit shall in no event be less than 0.

11. The Prepayment Amount is equal to the sum of the Bond Redemption Amount, the Redemption Premium, the Defeasance, and the Administrative Fee, less the Reserve Fund Credit.

With respect to an Annual Special Tax obligation that is prepaid pursuant to this Section G, the Board shall indicate in the records of CFD No. 2002-1 that there has been a prepayment of the Special Tax obligation and shall cause a suitable notice to be recorded in compliance with the Act within thirty (30) days of receipt of such prepayment to indicate the prepayment of the Special Tax obligation and the release of the Special Tax lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay such Special Taxes shall cease.

Notwithstanding the foregoing, no prepayment will be allowed unless the amount of Special Taxes that may be levied on Taxable Property, net of Administrative Expenses, shall be at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds in each future Fiscal Year, as reasonably determined by the Board.

Page 7 of 9

SECTION H PARTIAL PREP A YME.l'.T OF ANNUAL SPECIAL TAXES

The Annual Special Tax obligation ofan Assessor's Parcel may be partially prepaid at the times and under the conditions set forth in this section, provided that there are no delinquent Special Taxes. penalties, or interest charges outstanding with respect to such Assessor's Parcel at the time the Annual Special Tax obligation would be prepaid.

I. Partial Prepayment Times and Conditions

Prior to the issuance of the first Building Permit for the construction of a production Unit on a Lot within a Final Map area, the ovmer of no less than all the Taxable Property \Vi thin such Final r-..fap area may elect in \\Ti ting to the Board to prepay a portion of the Annual Special Tax obligations for all the Assessor's Parcels within such Final Map area, as calculated in Section H.2. below. The partial prepayment for all Lots within a Final Map area shall be collected prior to the issuance of the first Building Permit for an Assessor's Parcel in such Final Map area.

2. Partial Prepayment Amount

The Partial Prepayment Amount shall be calculated according to the following formula:

pp= PG x F

The terms above have the following meanings:

PP the Partial Prepayment Amount PG the Prepayment Amount calculated according to Section G F the percent by which the owner of the Assessor's Parcel 1s partially

prepaying the Annual Special Tax obligation

3. Partial Prepayment Procedures and Limitations

\Vith respect to any Assessor's Parcel that is partially prepaid, the Board shall indicate in the records of CFD No. 2002-1 that there has been a partial prepayment of the Annual Special Tax obligation and shall cause a suitable notice to be recorded in compliance with the Act to indicate the partial prepayment of the Annual Special Tax obligation and the partial release of the Special Tax lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay such prepaid portion of the Annual Special Tax shall cease.

Notwithstanding the foregoing, no partial prepayment will be allowed unless the amount of Annual Special Taxes that may be levied on Taxable Property after such partial prepayment. net of Administrative Expenses, shall be at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds in each future Fiscal Year.

Page 8 of 9

SECTION I TERMINATION OF SPECIAL TAX

Annual Special Taxes shall be levied for a period of thirty-three (33) Fiscal Years after Bonds has been issued, as determined by the Board, provided that Annual Special Taxes shall not be levied after 2039-40.

SECTION J EXEMPTIONS

The Board shall classify as Exempt Property (i) Assessor's Parcels owned by the State of California, Federal or other local governments, (ii) Assessor's Parcels which are used as places of worship and are exempt from ad valorem property taxes because they are owned by a religious organization, (iii) Assessor's Parcels used exclusively by a homeowners' association, (iv) Assessor's Parcels with public or utility easements making impractical theirutilizationforotherthan the purposes set forth in the easement, or (v) other types of Assessor's Parcels, at the reasonable discussion of the Board, provided that no such classification would reduce the Acreage of all Taxable Property to less than 43.07 acres. Notwithstanding the above, the Board shall not classify an Assessor's Parcel as Exempt Property if such classification would reduce the Acreage of all Taxable Property to less than 43 .07 acres.

SECTION K APPEALS

Any property O\.Vner claiming that the amount or application of the Special Tax is not correct may file a written notice of appeal with the Board not later than twelve months after having paid the first installment of the Special Tax that is disputed. A representative(s) of CFO No. 2002-1 shall promptly review the appeal, and if necessary, meet with the property owner, consider \.Hitten and oral evidence regarding the amount of the Special Tax, and rule on the appeal. If the representative's decision requires that the Special Tax for an Assessor's Parcel be modified or changed in favorof the property owner, a cash refund shall not be made ( except for the last year of levy), but an adjustment shall be made to the Annual Special Tax on that Assessor's Parcel in the subsequent Fiscal Year(s).

SECTION L MANNER OF COLLECTION

The Annual Special Tax shall be collected in the same manner and at the same time as ordinary ad valorcm property taxes, provided, however, that CFD No. 2002-1 may collect Annual Special Taxes at a different time or in a different manner if necessary to meet its financial obligations.

K \CLJE.\'TS".:\MURR _ J 'AL USD\MELLO\LYON2\RMA2. DOC

Page 9 of9

[THIS PAGE INTE~1IONALL Y LEFT BLANK]

APPENDIX C

SUMMARY APPRAISAL REPORT

SUMMARY APPRAISAL REPORT - COJ\f PLETE APPRAISAL

CO'.\ll\H'.l\lTY FACILITIES DISTRICT '.\'O. 2002-1 OF THE

Ml'.RRIETA VALLEY U:\'IFIED SCHOOL DISTRICT

J.P. Rhoades De\'elopment/ William Lyon Southwest Comer of \Vashington Avenue

and Calle Del Oso Oro Murrieta, Riverside County, California

(File No. 2002-01)

Prepared For Murrieta Valley Unified School District

26396 Beckman Court i\1urrieta, California 92562

Prepared By Bruce W. Hull & Associates, Inc.

1056 E. Meta Street, Suite 202 Ventura, California 93001

(805) 641-3275

115 E. Second Street, Suite 100 Tustin, California 92780

(949) 581-2194 and (714)544-9978 (949) 581-2198 (Fax) (805) 641-3278 (Fax)

BRUCE W. HULL & ASSOCIATES, INC.

REAL ESTATE APPRAISERS & CONSULTANTS

February 20, 2002

Mr. Chuck DePreker Assistant Superintendent, Facilities/Operational Services Murrieta Valley Unified School District 26396 Beckman Court Murrieta, California 92562

Reference: Community Facilities District No. 2002-1 J.P. Rhoades Development/ William Lyon Southwest Corner of Washington Avenue and Calle Del Oso Oro Murrieta, Riverside County, California

Dear Mr. DePreker:

At your request and authorization, we have prepared an appraisal of the property within the above-referenced Community Facilities District No. 2002-1 ("CFD No. 2002-1 "). CFO No. 2002-1 consists of 300 residential lots being developed by two merchant builders. J.P. Rhoades Development is currently marketing its project as Sycamore Ranch. The first phases have been graded with some lots in a finished lot condition while utilities are being installed to others. A portion of the property has been graded with lots terraced and streets graded. The William Lyon property has been graded with lots terraced and streets graded.

We have valued the fee simple estate for the properties subject to the CFO No. 2002-1 special tax lien and City of Murrieta Assessment District No. 98-1 special tax lien. This report is written under the special assumption that the property is enhanced by the improvements and/or fee credits to be funded by the bonds issued by CFD No. 2002-1. We have estimated the total value for the subject property to be:

J.P. Rhoades Development William Lyon Aggregate Total

S 10,850,000 $ 7,925,000 $18,775,000

This estimate of value is stated subject to certain assumptions and limiting conditions and the appraisers' certification as of February 15, 2002.

This report is defined as a Summary Appraisal Report - Complete Appraisal, \vhich is intended to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice (USP AP), effective January 1, 2001, for a Summary Appraisal Report. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraisers' opinion of value.

1056 E. Meta Street, Suite 202, Ventura, California 93001 - (805) 641-3275 - Facsimile (805) 641-3278 115 E. Second Street, Suite 100, Tustin, California 92780 -(949) 581-2194- Facsimile (949) 581-2198

~vlr. Chuck DePreker ivlurricta Valley Unified School District February 20, 2002 Page Two

Supporting documentation concerning the data, reasoning, and analyses is retained in the appraisers' file. The depth of discussion contained in this report is specific to the needs of the client. The appraisers are not responsible for unauthorized uses of this report.

The following narrative Summary Appraisal Report sets forth the data and analyses upon which our opinion of value is, in part, predicated.

Respect[ ully submitted, 8~~4 ASSOCIATES, INC.

Bruce \V. Hull, MAI State Certified Genaal Real Estate Appraiser (AG004964)

B\\!H:KSS:dh Attachment

l~~/J~ K-rft';s.5iino, MAI State Certified General Real Estate Appraiser (AGU04793)

TABLE OF CONTENTS

Assumptions and Limiting Conditions ............................................................................................ i

Purpose of Appraisal ....................................................................................................................... 1

The Subject Property ....................................................................................................................... 1

Intended Use of Report ................................................................................................................... 1

Definitions ....................................................................................................................................... 2

Property Rights Appraised .............................................................................................................. 3

Effective Date of Value .................................................................................................................. 3

Date of Report ................................................................................................................................. 3

Legal Description ............................................................................................................................ 3

Appraisal Development and Reporting Process ............................................................................. 4

County of Riverside/Murrieta Area Description ............................................................................ 7

Riverside County Housing Market ................................................................................................ 12

Community Facilities District No. 2002-1 .................................................................................... 16

Subject Property Description ......................................................................................................... 17

Highest and Best Use Analysis ...................................................................................................... 25

Valuation Analyses and Conclusions ............................................................................................. 29

Marketing and Exposure Time ....................................................................................................... 38

Appraisal Report Summary ............................................................................................................ 39

Appraisers' Certification ............................................................................................................... 40

ADDENDA

Summary of Development Costs/Fees Improved Residential Sales Summary Chart Appraisers' Qualifications

[THIS PAGE INTE~'TIONALL Y LEFT BL~~]

ASSUMPTIONS AND LIMITING CONDITIONS

1. This Summary Appraisal Report is intended to comply with the reporting requirements set forth under Standard Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal Report. As such, it might not include full discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraisers' opinion of value. Supporting documentation concerning the data, reasoning, and analyses is retained in the appraisers' file. The inforniation contained in this report is specific to the needs of the client and for the intended use stated in this report. The appraisers are not responsible for unauthorized use of this report.

2. No responsibility is assumed for legal or title considerations. Title to the property is assumed to be good and marketable unless othen:vise stated in this report.

3. The property is appraised subject to the easements of record and the lien of existing City of Murrieta Assessment District No. 98-1 special tax and the CFD No. 2002-1 special tax lien, but is free and clear of any other liens or encumbrances.

4. Responsible ownership and competent property management are assumed unless otherwise stated in this report.

5. The information furnished by others is believed to be reliable. However, no warranty is given for its accuracy.

6. All engineering is assumed to be correct. Any plot plans and illustrative material in this report are included only to assist the reader in visualizing the property.

7. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them.

8. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless otherwise stated in this report.

9. It is assumed that there is full compliance with all applicable zoning and use regulations and restrictions, unless non-conformity has been stated, defined, and considered in this appraisal report.

I 0. It is assumed that all required licenses, certificates of occupancy, and other legislative or administrative authority from any local, state, or national governmental or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report are based.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates. Inc. Page i

11. Any sketch contained in this report may show approximate dimensions and is included only to assist the reader in visualizing the property. Maps and exhibits found in this report are provided for reader reference purposes only. No guarantee as to accuracy is expressed or implied unless otherwise stated in this report. No survey has been made for the purpose of this report.

12. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described, and that no encroachment or trespass exists unless otherwise stated in this report.

13. The appraisers are not qualified to detect hazardous waste and/or toxic materials. Any comment by the appraisers that might suggest the possibility of the presence of such substances should not be taken as confim1ation of the presence of hazardous waste and/or toxic materials. Such determination would require investigation by a qualified expert relating to asbestos, urea-fom1aldehyde foam insulation, or other potentially hazardous materials, \Vhich may affect the value of the property. The appraisers' value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value unless otherwise stated in this report. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover such conditions. The appraisers' descriptions and comments are the result of routine observations made during the appraisal process.

14. Any proposed improvements are assumed to be completed in a good \vorkmanlike manner in accordance with the submitted plans and specifications.

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

16. If this report is placed in the hands of anyone but the client, the client shall make such party a,vare of all the assumptions and limiting conditions of the assignment.

17. Albeit the Americans with Disabilities Act ("ADA") became effective on January 26, 1992, the appraisers have made no specific compliance survey and analysis of this property 10 determine whether it is in confom1ance with the various detailed requirements of the ADA. Nor are the appraisers qu::-.Iified experts regarding the requirements of the Act. 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 upon the value of the property. Since the appraisers have no direct evidence relating to this issue, possible noncompliance with the requirements of ADA in estimating the value of the property has not been considered.

Community Facilities District 1Vo. 2002-1 Murrieta I 'alley Unified School District

Bruce Ir. Hull & Associates. lnc. Page ii

18. All the improvements and benefits to the subject property, which are to be funded by CFD No. 2002 -1, are completed and in place.

19. There are no environmental concerns that would slow or thwart development of the subject property, and the soils are adequate to support the highest use conclusion.

20. This appraisal may not be conveyed to any person other than the client without the appraisers' written consent. Permission is given for this appraisal to be published as a part of the Official Statement or similar document for the CFD No. 2002-1 bonds.

21. It is an assumption that the developers receive a Letter of Map Revision for a portion of the subject property from the National Flood Insurance Program.

22. It is an assumption that the soils are adequate to support the highest and best use conclusion.

23. It is an assumption that the developers replant .82 acre of riparian area at the creek bed in accordance with an agreement with the California Department of Fish and Game.

24. It has been represented to the appraisers that Municipal Improvement Bond 98-1 (Murrieta Park) no longer affects either of the subject properties.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates. Inc. Page iii

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PURPOSE OF THE APPRAISAL

The purpose of this Summary Appraisal Report is to provide the appraisers' best estimate of

market value of the fee simple estate subject to the CFD No. 2002-1 special tax lien and the City

of Murrieta Assessment District No. 98-1 for the subject property. The subject property consists

of 300 single-family residential lots located in the City of Murrieta area, County of Riverside,

State of California. There are two owners within CFD No. 2002-1. J.P. Rhoades Development

owns 156 lots and William Lyon owns 144 lots. In the case at hand, the market value of the

subject properties will be estimated in their "as is" condition taking into consideration CFD No.

2002-1 of the Murrieta Valley Unified School District.

THE SUBJECT PROPERTY

The subject property consists of 300 single-family residential lots, of which three model homes

have been completed, production homes are under construction, and lots are under development

to a finished lot condition. The lots are a minimum size of 7,200 square feet. The ownership

designations are as follows:

Property Property Owner Identification No. Lots Mapping Status Construction Status

J.P. Rhoades 23187-2 116 Recorded Map Partially complete lots

Development 23187-4 40 Tentative Map Blue top lots

William Lyon 23187-3 144 Tentative Map Blue top lots

INTENDED USE OF THE REPORT

It is the appraisers' understanding that this Summary Appraisal Report is intended to assist the

client, the Murrieta Valley Unified School District, in issuing special tax bonds secured by CFO

No. 2002-1. This report is to be included in the official statement or similar document to be

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Pagel

distributed in connection with the offering of the bonds. It is the appraisers' understanding that

there arc no other intended users of this report.

DEFINITIONS

l\larkct Value

The tcnn "market value" as used in this report is defined as:

"Tlzc most probable price that a specified interest in real property is likely to hring under all the folloH·ing conditions:

!.

3. ./. 5. 6. 7 I,

8.

9.

Consummation of a sale occurs as of a specified date. An open and competitive market exists for rhe property interest appruisecl. Tiu.: buyer and seller are each acting prudently and knmdedgeably. The price is not affected by undue stimulus . The buyer and seller are t_ipical(r motivated. The buyer and seller are acting in what they consider their own best interesf. .Uarketing efforts H'ere adequate and a reasonable time was afloH'ed for exposure in the open market. Parment was made in cash in US dollars or in terms of financial arrangemellls comparable thereto.

The price represents the normal consideration for the property sold, zmajfected by special or creative financing or sales co11cessions granted by anyone associated ll'ith the sale. "1

Finished Lot

The tenn "'finished lot'' is defined as:

"A parcel iil1ich has legal entitleme11ts created by a recorded subdivision map, whose physical characteristics are a fine graded level pad lvith an infrastructure comiguolls to each individual lot, asphalt paved roads, and the necessa,y lltilities. This rerm assumes the payment of all applicable development fees 1vith the exception of bui!di11g per mil and plan check fees. "

/The Appraisal of Real Estate, 11th Edition (definition adopted by the Appraisal Institute in 1993 ).

Cumnwniry Facilities District .Vo. 200:!-1 Murrielu I 'alley Unified School District

Bruce W. Hull & Associates, Inc. Page 2

Blue Top Lot

The term "blue top lot" is defined as:

"A parcel which has legal entitlements created by a recorded subdivision map, ·whose physical characteristics are mass graded with lot terraced, streets graded and utilities stubbed to the site. "

PROPERTY RIGHTS APPRAISED

The property rights being appraised are the fee simple interest subject to easements of record and

the lien of the special tax of CFD No. 2002-1 and the City of Murrieta Assessment District No.

98-1 special tax lien. The term "fee simple estate" is defined as:

"Possession of a title in fee establishing the interest in property known as the fee simple estate - i.e., absolute ownership unencumbered by any other interest of estate, subject to the limitation imposed by the governmental powers of taxation, emi11e11t domain, police power, and escheat. "1

EFFECTIVE DATE OF VALUE

The subject property is valued as of February 15, 2002.

DATE OF REPORT

The date of this report is February 20, 2002.

LEGAL DESCRIPTION

A lengthy metes and bounds description has been retained in our files.

: Appraisal of Real Estate, l l 1h Edition

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page3

The subject property is more commonly known as Lots 1 thru 13 and 15 thru 117 of Tract '.'v1ap

23187-2; Lots 1 thru 40 of Tentative Tract I\.1ap 23187-4; and, Lots 1 thru 144 of Tentative Tract

Map 23187-3, located in the City of Murrieta, County of Riverside, State of California.

APPRAISAL DEVELOPMENT AND REPORTING PROCESS

The purpose of this Summary Appraisal Report is to provide the appraisers' best estimate of

market value for the subject property, which consists of 300 single-family residential lots to be

developed by two merchant builders. J.P. Rhoades Development has completed three model

homes, with production homes under construction. William Lyon is intending to sell its lots

within the next few months to another merchant builder. These lots have been graded to a bluc­

top condition. The valuation for the subject property will take into consideration the lien of

special taxes for CFD No. 2002-1 and the City of Murrieta Assessment District No. 98-1 (""AD

98-1 '') plus the improvements and/or fee credits and benefits to be funded by CFD I\o. 2002-1.

111 appraising the subject property, the value estimate \vill be based on the property's highest and

best use conclusion and ,vill utilize the Sales Comparison Approach to value. First, a unit of

value needs to be determined for the subject property. In the subject marketplace, sales prices of

single-family detached lots are determined based on a finished lot price. In the case at hand. the

remaining lot costs to develop the property to its "saleable" condition need to be considered. \Ve

have received cost information from the landO\vner. Therefore, in valuing the subject single­

family detached lots, a finished lot value \vill first be detem1ined using the Sales Comparison

Approach. The remaining costs of development will then be deducted to arrive at an "as is"

condition. As previously stated, in valuing the subject project, the value estimate will be based

on the highest and best use conclusion using the Sales Comparison Approach. This approach is

defined as:

... an appraisal procedure in which the market value estimate is predicaled upon prices paid in actual market transactions and current listing, the former fixing the lower limit of value in a static or advancing market (price wise), and fixing the higher limit in a declining market; and the latter fixing the higher limit in any market. fl is a process

Community Facilities Disrrict No. 2002-1 Murl"l.:ta Valley Unified School District

Bruce If. Hull & Associates. Inc. Page 4

of ana(vzing sales of similar, recently sold properties in order to derive an indication of the most probable sales price of the property being appraised. "3

In the Sales Comparison Approach, market value is estimated by comparing properties similar to

the subject property that have recently been sold, are listed for sale, or are under contract (i.e., for

which purchase offers and a deposit have been submitted).

This appraisal will be presented in the following format:

- County of Riverside/City of Murrieta Description - Riverside County Housing Market - Description of the Subject Community Facilities District No. 2002-1 - Highest and Best Use Analysis - Property Description - Valuation Analysis and Discussion followed by a Value Conclusion - Appraisal Report Summary

The due diligence of this appraisal assignment included the following:

1. Compiled demographic information and related that data to the subject property to determine a feasibility/demand analysis.

2. Gathered and analyzed information on the subject marketplace, including reviewing several real estate brokerage publications on historical and projected growth in the subject market.

3. Researched the micro and macro economics within Riverside County and the Murrieta area.

4. Inspected the subject property.

5. Interviewed representatives from J.P. Rhoades Development to obtain available information on the subject property. J.P. Rhoades Development has also supplied information for the William Lyon property in addition to supplying information for their property.

6. Reviewed cost estimates for the projects as provided by J.P. Rhoades Development. In addition, costs that have been expended to date were reviewed.

3 Real Estate Appraisal Terminology, Revised Edition, 1998

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page 5

7. Searched the area for relevant comparable land transactions, including sales and offerings, and interviewed the appropriate parties to ascertain pertinent infomrntion relating to each transaction.

8. Interviewed sales representatives from J.P. Rhoades Development to ascertain the marketing of this project. In addition, competing projects \Vere reviewed and analyzed.

Community Facilities District No. 2002-J Murrlt.'ta l'a/Jt.'y Unified School District

Bruce IV Hull & Associates. Inc. Pagt1 6

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COUNTY OF RIVERSIDE/MURRIETA AREA DESCRIPTION

Location

The subject property is located in the southwestern portion of Riverside County ("the County")

within the City of Murrieta ("Murrieta"). Murrieta is located approximately 36 miles southeast

of downtown Ri\'erside, the county seat of the County. The County encompasses approximately

7,300 square miles, \vhich includes large expanses of undeveloped deserts, valleys, canyons, and

mountains. The County is the major recipient of outv,:ard urban pressure from Orange and Los

Angeles Counties, as \vell as northerly growth from San Diego County. Murrieta encompasses

25.42 square miles. Affordable family housing has been one of the principal assets of this

comrnurnty.

Transportation

Murrieta is located along both sides of Interstate 15 ("l-15") in the County. 1-15 provides access

to both international borders, south to Mexico and north to Canada. Over the past 10 years, 1-15

has been greatly improved, with connections to the 91 Freeway providing better access to

Orange and Los Angeles Counties. Due to the heavy commute to both Orange and Los Angeles

Counties from cities within the County, the 91 Freeway experiences major traffic congestion.

This congestion was partially alleviated by the addition of the 91 Freeway toll lanes in the mid-

1980s, and the opening of the Highway 241 toll road, \vhich branches off the 91 Freeway just

west of Corona and provides direct access into Orange County.

Population

The Coumy has experienced an increasing growth pattern for several decades, with the

population more than doubling between 1960 and 1980. Between 1980 and 1990, there was an

increase in population of over 65 percent, with the largest numerical gains in the incorporated

areas of Moreno Valley, Corona, and Riverside. The largest population percentage gains have

been seen in the southwestern portion of the County, which consists primarily of either recently

incorporated or unincorporated communities. This area includes all of the greater Temecula

Valley, such as the communities of Anza, Aguanga, Wildomar, Murrieta, Murrieta Hot Springs,

and the Rancho California/Temecula area. Per The Meyers Group, a real estate consulting finn,

Community Facilities District No. 2002-1 Murrieta Valley Unified School District Bruce W. Hull & Associates, Inc. Page 7

the population of the County as of January 1, 2001 was 1,573, 768. This represents an average

annual increase of 3.0 percent over the past 11 years.

Murrieta has had several boom/bust periods. The first came in 1890, when the railroad came to

town and the population grew to 800. In 1935, the trains were diverted away from Murrieta, and

the population began a slow and steady decline. In 1970, the population was 542, \Vith a growth

to 2,250 by 1980. In 1987, a period of explosive growth began. By 1990, the population was

estimated at 20,053; as of January 1, 2000, the population had grown to 44,300. This figure

represents an increase of over 120 percent in 10 years or an average annual growth rate of over 8

percent. The median age in Murrieta is estimated at 32, while the average age is 33. The median

household size in Murrieta as of January I, 2000 was 4.03 people. This average is higher than

the County's average of 2.85 people per unit but is considered typical of many suburban markets.

The subject property is located within the southwestern portion of the City of Murrieta.

Economy

The Riverside, San Bernardino, and Ontario Metropolitan Statistical Area (MSA) has had a

strong employment record over the past 10 years. The most significant gains were seen in the

areas of construction, finance, insurance, real estate, services, and the retail trade. The least

amount of growth was seen in agriculture and the wholesale trade. More than 250 manufacturing

firn1s are located in the County. Leading classes of manufactured products include aerospace

and aircraft parts, electronic components and systems, mobile homes, and aluminum mill

machinery and products.

The recession of the 1990s had a drastic impact on construction starts in the County, along with

the majority of Southern California. The downturn was represented by lower housing starts and

higher unemployment rates. The resulting factors of lower growth, higher vacancies, and higher

unemployment had major impacts on real estate development. High vacancies in speculative

office buildings and a decline in both residential and industrial new projects caused a reduction

in the construction work force. However, the economy in the County returned to levels previous

to the 1990s recession during the latter part of 1998 with current levels at all time highs.

Community Facilities District No. 2002-! Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page8

During the year 2001, the nation's economy saw the beginnings of another downturn.

Unemployment rose, however, interest rates were at historic lows. The unemployment rate is

currently estimated at 4.7 percent (December 2001, Employment Development Department),

which reflects a decrease from November 2001 when the unemployment rate \Vas 5.2 percent

and a significant reduction from August 1995 when the unemployment rate was 10.0 percent, but

is an increase from the December 2000 rate of 4.1 percent. Put in perspective, the September

2001 unemployment rate for the entire Riverside area is 4. 7 percent compared to the current

California unemployment rate of 5. 7 percent and the U.S. unemployment rate of 5.4 percent.

Household income has increased significantly in the County. The increase reflects the addition

of many middle and upper-middle management employees living in the County. The following

table shows the average household income growth in the County compared with the South

County sub-market (the subject area):

Riverside County Murrieta

1990 $41,562 543,666

2001 553,925 557,001

As shown in the table, Murrieta families benefit from above-average income. The lower end of

the household income spectrum in the County reflects a higher proportion of retirees as well as

an abundance of affordable housing.

There are several factors pointing to a dowmvard trend in the national economy. Over the past

year, the stock market has been volatile. The Federal Reserve reduced the interest rate eleven

times during 2001 in an attempt to stimulate economic growth. The tragic events of September

11 and subsequent terrorist activities have added to the country's economic downturn. However,

the subject area's housing market appears to be weathering these uncertain times. New housing

in the County is experiencing good demand with little to no standing inventory available.

California is also facing an energy crisis, with significantly higher energy costs than previous

years. Recent national economic indicators have given economists cautious optimism for an

economic recovery; however, this has not been reflected in the stock market. On a more micro

Conunwii(\' Facilities District No. 2002-1 Murrieta I 'alley Unified School District Erna W. Hull & Associates. Inc. Page 9

level, the County's economic prospects are considered good while the County's housing market

is considered to be strong.

Government

Murrieta became a city on July 1, 1991, after voters approved incorporation by an ovenvhelming

margin in November 1990. Murrieta is organized as a general law California city and operates

under a council/member form of government. A five-member elected city council is Murrieta's

policy- and law-making body. An appointed city manager is the administrative head of

government who is responsible for daily operations. There are six citizen commissions

appointed by the city council to advise on policy matters. These are the Community Steering

Committee, Economic Development, Parks and Recreation, Planning, Public Safety, and Traffic

and Transportation Commissions. The city council meets twice a month.

Education

Murrieta is served by the Murrieta VaBey Unified School District, which operates two high

schools ( one is a continuation school), two middle schools, and eight elementary schools. Most

of the district's facilities were built after 1991. The district operates on a modified traditional

schedule. Higher education is available within an hour's drive, at University of California

campuses at Riverside and San Diego and California State University campuses in San

Bernardino, San Diego, San Marcos, Fullerton, and Pomona. The closest community college is

Mt. San Jacinto College.

Summary

Residential growth in the Temecula/Murrieta/Rancho California area during the late 1980s was

explosive. The influence for this growth pattern was primarily commuters from Los Angeles,

Orange, and San Diego Counties who were drawn to the area by its affordable housing and quiet

country setting. As job growth declined during the recession of the early 1990s, fewer

commuters came to the area, creating a significant downward pressure on real estate sales and

prices. However, the growing economy over the latter half of the 1990s achieved and surpassed

the previous high for real estate values in the Murrieta area. Although current national economic

conditions are uncertain, the subject area's economy is considered good, with the new housing

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates. inc. Page JO

market in the area still considered strong. The desirability of the Murrieta community suggests

continuous growth in residential construction and sales.

Comm11111ty Facilities District No. 2002~/ ,\/urrieta l'alley Unified School District Bruce W. Hull & Associates, Inc. Page 1 J

RIVERSIDE COUNTY HOUSING MARKET

In reviewing the County's housing market, a study of population and economic growth needs to

be conducted.

As of January 1, 2001, the County had a population estimate of 1,573,768, which is the result of

an average annual growth rate over the past 11 years of 3.0 percent. Murrieta more than doubled

its population between 1990 and 2000, after explosive growth during the late 1980s. As of

January 2000, the population estimate for Murrieta was 44,300 (per the State of California).

Originally, an influx of residents from Orange County looking for more affordable housing was

instrumental in population increases in the Murrieta area. Current growth is coming from both

Orange County and North San Diego County, where prices have increased and buyers are

looking to outlying areas for affordable housing. Between 1980 and 1990, the population in

Murrieta grew almost 800 percent, while between 1990 and 2000, the increase was 120 percent.

The largest gains were between 1987 and 1990, when the population grew from about 3,000 to

20,053. These gains were due to annexations occurring and the development of master-planned

communities.

The recession of the early 1990s impacted the I-15 corridor, with a housing recovery period

longer than in other areas of the Inland Empire (San Bernardino and Riverside Counties). The

growth in the Inland Empire housing market was slower than expected during the recovery years

of 1995 through 1997; however, the resurgence in land sales during those years has caused an

mcrease in population and subsequent homebuilding. The rate of housing appreciation has

slowed from 1998/1999 levels, although appreciation is far from stagnant. The

Murrieta/Temecula area is considered prime for businesses, with relatively inexpensive land

costs and a quality labor pool. While the nation is currently in an economic recession, residential

land sales in the Murrieta/Temecula area still appear to be strong.

Economic growth in the County is strong, with over 51,400 new jobs added in 1999 and over

35,000 new jobs added in the year 2000. In contrast to the balance of Southern California, the

Inland Empire has experienced 14 years of employment growth despite the early 1990s recession

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page 12

and the large job losses in the rest of the Southern California region. While job growth slowed to

a low of 0.6 percent in 1993, it still showed a positive gain. In the latter part of the 1990s, the

Inland Empire experienced several major economic events that facilitated job growth, including

the construction of the Ontario Mills Mall, the Ontario Airport expansion, the new Ontario

Convention Center, the California Speedway, the Eastside Reservoir (Domenigoni Dam Project),

the Temecula Mall, and a major expansion at the University of California, Riverside. Although

unemployment has been rising, the current rate of 4. 7 percent in the Riverside County is

significantly lower than the 1995 rate of 10.0 percent.

Home prices arc on the increase in the County. The median new home price for a detached

home in the County as of the end of the third quarter 2001 was $233J 50. This represents a 8.3

percent increase over the close of 1999, w·hen the median new home price was S215, 175 (a 17

percent increase over 1998 figures). Per The Meyers Group, the current majority of nev,·-home

buyers in the County are move-up buyers.

The County has historically been dominated by detached single-family product due to the lo\v

cost of land compared to surrounding counties. The South County sub-market, which includes

the areas of Murrieta, Temecula, Rancho California, Menifee, and Lake Elsinore, has

experienced strong detached residential product sales. The Murrieta real estate market is

included \Vithin the South County sub-market, as reported by The Meyers Group real estate

inforn1ation service. Currently, this sub-market accounts for 41 percent of the sales \vithin the

County. The attached residential market is slowly returning to the South County sub-market.

Year-to-date, there have been 113 attached sales within South County, which is 94 percent of the

total attached sales in the County. As of the end of the third quarter 2001, there was no standing

inventory of attached product available in the subject sub-market. Currently there are 619

attached units planned in the Murrieta area. The first project, which entered the market in the

second quarter of 2001, was extremely successful due to rising prices that limited the first-time

buyer market for detached homes.

Inventory levels for detached housing had been decreasing for eight years until 1999. Then the

County had 29 new projects for a total of 223 actively selling projects. As of year-end 2000,

Community Facilities District No. 2002-1 Murrieta Valley Unified School District Bruce W. Hull & Associates. Inc. Page J 3

there were 244 active projects. At the end of the third quarter 2001, there \Vere 280 active

projects within the County, with 88 located in the South sub-market. It is interesting to note that

the South sub-market accounts for 41 percent of the total County sales, but only 31 percent of the

total active projects in the County.

Per The Meyers Group, the affordability index in the Riverside area decreased from 57 to 38

percent for resale homes. This figure compares to a new home affordability index of 38 percent

in 1998, 30 percent in 1999, and approximately 25 percent in 2000, based on the studies of The

Meyers Group. Thus far in 2001, the affordability index has increased. In 1989 (prior to the

previous recession), the affordability index for new homebuyers was 19 percent. The recent

increase in the affordability index is due to higher incomes and lower interest rates.

Based on detached new home activity in the South County sub-market during the third quarter of

2001, 10 percent of the total new home sales reflected base prices of $150,000 to $199,999

(compared to 28 percent in the first quarter and 17 percent in the second quarter), while 64

percent were for homes sales within the price range of $200,000 to $249,999 (compared to 56

percent in the first quarter and 57 percent in the second quarter). The $250,000 to 5299,999

price range accounted for 20 percent of total detached sales (compared to 13 percent in the first

quarter and 23 percent in the second quarter), while the $300,000+ price range accounted for 5

percent (3 percent in the previous two quarters).

The Riverside County South sub-market's capture of 41 percent of total County sales relates to

1,151 units being sold during the third quarter 2001. This is an increase of 16 percent from the

same period in the year 2000. Overall County sales have increased from 2,689 in the third

quarter 2000 to 2,810 units sold in the third quarter of this year. This equates to a 4.5 percent

increase in overall County sales. The subject property is located in the Riverside County South

sub-market, which has a current median price of $231,900, an increase of 9.6 percent from the

same period in the year 2000 (per The Meyers Group). This figure is slightly lower than the

overall County median price of $233,150.

Community Facilities District No. 2002-1 Afurrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page 14

The inventory of new homes in the County marketplace decreased during the third quarter 2001,

with a standing and speculative inventory of 1,907 detached units countywide (standing

inventory and units under construction). This figure suggests an approximate eight-week supply.

The subject sub-market had a 571-unit inventory of detached homes as of the end of the third

quarter 2001 (standing inventory and units under construction). Based on third quarter sales of

1, 1 14, this suggests a six-week supply in the subject sub-market. All of this data relates to

detached product.

In summary, although there ,vas a slight decline in sales numbers, a strong increase in sales

pnces m the subject market indicates that the year 1999 continued the up trending of the

detached home market since the recession of the early 1990s. The year 2000 saw less

appreciation but a significant increase in sales numbers due to supply attempting to meet

demand. The year 2001 saw an increase in both price and sales. Price still appears to be a major

factor in attracting buyers to the South Riverside marketplace. The price increases over the past

few years have limited first-time homebuyers in the subject market; however, the recent IO\vering

of interest rates has helped the affordability index. The attached product has reappeared in the

subject marketplace primarily to accommodate first-time buyers. The economic and population

growth in the area suggest that demand for housing is good. The recent opening of a temporary

Sycamore Ranch sales office, which released 21 homes and sold 8 homes, is evidence of this

demand. In conclusion, the subject area's growth is anticipated to create the need for new

detached housing projects in the area.

Communiry Faciliries District No. 2002-1 Murrieta Valley Unified School District

Bruce iv. Hull & Associates. Inc. Page 15

COMMUNITY FACILITIES DISTRICT NO. 2002-1

Community Facilities District No. 2002-1 r·cFD No. 2002-1 ") was fom1ed pursuant to the First

Amended and Restated Impact Mitigation and Reimbursement Agreement dated December 13,

2001 ("the Agreement") between the Murrieta VaJley Unified School District ("the School

District") and William Lyon and J.P. Rhoades Development ("Owners"). The Agreement

establishes a mitigation payment of $6,650 per unit for the project. The purpose of CFD No.

2002-1 is to provide for the financing of the mitigation payment for the subject property.

The description of the authorized facilities to be financed by the bonds issued by CFD No. 2002-

1 includes school fees for school facilities. The school fees include elementary school facilities,

middle school facilities and/or high school facilities, as well as other authorized public school

facilities to serve the student population to be generated as a result of development of the

property within CFD No. 2002-1.

The bonds are to be issued pursuant to the Mello-Roos Community Facilities Act of 1982 as

amended and certain resolutions adopted by the School District. CFD No. 2002-1 is expected to

issue the bonds to finance the authorized mitigation payments. The total amount of school fees

to be generated from the bonds is projected to be $1,995,000. The maximum authorized bonded

indebtedness for CFD No. 2002-1 has been specified as an amount not to exceed $4,000,000. It

is our understanding that the CFD No. 2002-1 special tax lien would create an overall tax lien

(including ad valorem taxes and the existing AD 98-1 special assessments) for the subject

property in the 1.6 to 1.8 percent range of the total value. This is similar to other residential

developments in the Murrieta/Temecula area.

Community Facilities District No. 2001-1 Murrieta Valley Unified School District Bruce W. Hull & Associates. Inc. Page 16

C,\RI If DRI\ I

,·,~ .\lf',(J[

CRl//1, RIIH ,f IJRIV[

,\LEXAf'\DRA I Phase 1 I f Phase 3 j [ Phase 5 j "ll!T\H

r>RIH I Phase 2 11 Phase 4 11 Phase 6 I mm

Murrieta Creek

, .....

' WA'ililNCTON AVENUE

SUBJECT PROPERTY DESCRIPTION

First, an overall description for the entire CFO No. 2002-1 will be presented. Next a more

detailed description of each ownership within CFD No. 2002-1 will be discussed. The subject

property consists of approximately 118 gross acres of land, which has been divided per Tentative

Tract Map 23187 into 301 single-family lots (one of which is not included in this appraisal

report). A description of the entire subject property is as follows:

Location:

Assessor's Parcel Nos.:

Size and Shape:

Zoning:

Entitlements:

Topography:

Southwest comer of Washington Avenue at Calle Del Oso Oro, City of Murrieta, Riverside County.

906-130-001; 906-130-030; 906-130-026; 906-130-029; 906-450-003; and 906-450-004.

Per the Riverside County Assessor's Office, the subject property 1s irregular in shape and contains 118.24 gross acres of land.

Per the City of Murrieta Change of Official Zone Case No. 9 I -204, the subject property is zoned R-1, which is designated for single-family residential development and R-5, which is open space (in the Murrieta Creek area). Tentative Tract Map 23187 allows for 301 minimum 7,200 square foot lots, or 2.54 lots per acre density, which is within the allowed density and, therefore, conforms to the zoning. It should be noted that one lot is being retained for possible future right-of-way and is not included in this appraisal report.

Per Tentative Tract Map 23187, the subject property has been divided into three phases. Tract Map 23187-2 recorded on October 10, 2001. Tentative Tract Map 23187-3 is anticipated to record June 2002 while Tentative Tract Map 23187-4 is anticipated to record June 2003. Per the tract maps, the subject property is subdivided into 301 residential lots, with a minimum lot size of 7,200 square feet. Lot 14 of Tract 23187-2 may be needed for access purposes from an adjoining landowner and is not a part of this appraisal report. The recorded and tentative tract maps are detailed under the separate property descriptions.

The subject property is under construction. Mass grading has been completed on the entire property. Some lots are in a finished condition while others are in a blue-top condition. The site is generally at street grade of Washington Avenue and Calle Del Oso Oro. The drainage has been designed to flow into an engineered stom1 drainage system.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce J·V. Hull & Associates, Inc. Page 17

Soils Condition/ Seismic Hazard:

Flood Concerns:

En vironmcntal Concerns:

We have reviewed the Report of Geotechnical and Fault Investigation ("Geotechnical Report") prepared by Petra Geotechnical, Inc. of Temecula, California, dated April 20, 2000, which covers Tentative Tract Map 23187. The Geotechnical Report concludes that the property is suitable for the proposed residential development provided that the recommendations within the Geotechnical Report are incorporated into the design criteria and project specifications. It was noted that the boundaries of Murrieta Creek (which bisects the subject property) are defined by Jurisdictional Lines established by the U.S. Army Corps Fish and Game and that on-site grading operations cannot extend beyond these Jurisdictional Lines. Specific recommendations are provided within the Geotechnical Report. According to the Geotechnical Report, the Wildomar Branch of the Elsinore Fault (approximately 0.5 miles northeast of the site) would generate the most severe site ground motions with an anticipated maximum moment magnitude of 6.8 and an anticipated slip rate of 5 .0 mm/year. This does not appear to be unusual for property in the area. The entire site has been graded, thus it appears the U.S. Am1y Corps Fish and Game Jurisdictional Lines were adhered to \vhen developing the site.

It is an assumption of this report that the soils are adequate to support the highest and best use conclusion and that all recommendations set forth in the Geotechnical Report have been met.

The subject property is bisected by Murrieta Creek. We have reviewed documentation from the National Flood Insurance Program FEi'v1A I'v1ap Coordination Contractor in regards to a Letter of Map Revision. It appears the subject property owner has completed all items needed although the letter has not yet been received. This letter will allow development within proximity to the Murrieta Creek. It is an assumption of this report the developers receive this Letter of Map Revision.

We have not reviewed an Environmental Site Assessment for Tentative Tract Map 23187. The entire site has been graded which suggests that any environmental conditions have been mitigated. We have reviewed an agreement between the property owner and the California Department of Fish and Game regarding the intention to divert or obstruct the natural flow of, or change the bed, channel, or bank of, or use material from the stream bed of Murrieta Creek. The agreement states that the developer will replant 0.82 acres of riparian vegetated area at the creek bed. In addition, we have reviewed the proposal of the developer to replant the 0.82 acres. The proposal is to replant the area by April 2002. It is an assumption of this report that the developer replants the 0.82 acres as stated in the

Community Faciliries District No. 2002-1 J\.lrirrieta I 'alley Unified School District

Bruce Hl Hull & Associates, inc. Page 18

Utilities:

Streets/ Access:

agreement (Notification Number 6-110-00). A copy of the Agreement is located in the Addenda of this report.

This appraisal assumes that there are no other environmental issues that would slow or thwart development of the site.

All nonnal utilities will be made available to serve the subject site by the following entities:

Electrical: Natural Gas: Sewer/Water: Telephone: Cable:

So. California Edison Co. The Gas Company Eastern Municipal Water District General Telephone Company Media One Cable

The subject property has good access via 1-15 to Clinton Keith Road, then tum west, south on Palomar Street (turns into Washington Avenue) to the subject property.

I-15 is a major north/south freeway, which provides access to both international borders with Mexico and Canada. 1-15 bisects Murrieta.

Clinton Keith Road has on/off ramps at 1-15 providing access into the northwestern portion of Murrieta. To the southwest, Clinton Keith Road provides access to the master planned community of Bear Creek; to the northeast, it provides passage through Murrieta, connecting 1-15 and Interstate 215.

Washington Avenue is a main access road through southwest Murrieta. Washington Avenue is known as Palomar Street north of the Murrieta city limits.

Current Condition: The entire subject property has been graded, with a model home complex built on three lots.

J.P. Rhoades Development - Sycamore Ranch Propertv Description

Below is a description for the items that vary from the entire property description for the J.P.

Rhoades owned property.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W Hull & Associates, Inc. Page 19

Assessor's Parcel Nos.:

Owner of Record:

Property Taxes:

Legal Description:

Three-Year Sales History:

Size and Shape:

Entitlements:

Easements/ Encumbrances:

Sycamore Ranch generally consists of the follO\:ving Riverside County Assessor's Parcel Nos.: 906-130-001; 906-130-030; 906-130-026; and 906-130-029

J.P. Rhoades Development, a California Corporation

Per the Riverside County Assessor's Office, the 2001-2002 property taxes for the above Assessor's Parcel Nos. total 599,894.26, \Vhich includes $81,410.96 of special assessments for AD 98-1.

Lengthy metes and bounds legal descriptions have been retained in our files. The property is more commonly known as Tract 23 I 87-2 and Tentative Tract Map 23187-4, City of Murrieta, Riverside County, California.

J.P. Rhoades Development purchased the subject lands from William Lyon on July 3, 2001 for 54.543,525. The sales agreement included a promissory note for $4,043,525 at 8 percent with a maturity date of July 1, 2004.

Per the Riverside County Assessor's Office, the subject property 1s

irregular in shape and contains an estimated 61.51 gross acres.

Tract 23187-2 was recorded on October 10, 2001. Tract 23187-2 encompasses 117 lots. Lot 14 of Tract 23187-2 may be required for access purposes from an adjoining landowner and is not a part of this appraisal report. Tentative Tract Map 23187-4 totals 40 single-family lots. According to the landowner, they are anticipating recording Tentative Tract Map 23187-4 June 2003. The recorded and ten ta ti ve tract maps arc detailed as follows:

Tract !\lap 23187-2 23187-4 Total

No. Lots 116* 40

156

*Per the tract map there are 117 lots; however, Lot 14 is not included within this appraisal report.

We have reviewed Chicago Title Company Preliminary Title Report Order No. 220 l 5009-K07 dated January 30, 2002, which covers only Tentative Tract Map 23187-4. The exceptions are as follows.

Com111u11iry Faciliries District No. 2002-1 Murrieta i ·alley Unified School Disrrict Eruct: IV Hull & Associates. inc. Pagt: :!O

Item Nos. 1 and 2 refer to property taxes on the property. Item No. 3 refers to Municipal Improvement Bond 98-1 (Murrieta Park).4 Item No. 4 pertains to AD 98-1 (Grizzly Ridge). Item Nos. 5, 7, 8 and 9 refer to easements on the property. Item No. 6 relates to an access agreement with a cable television company. Item No. 10 pertains to an agreement between William Lyon (previous owner) and the Murrieta County Water District. Item Nos. 11 and 12 refer to deeds of trust on the property.

This appraisal assumes that the subject property is free and clear of any liens and/or encumbrances with the exception of CFD No. 2002-1 and existing Murrieta Assessment District No. 98-1.

Topography: The subject property has been graded. Tract 23187-2 has been fine graded to single-family detached lots. Tentative Tract Map 23187-4 has been graded with lots terraced and streets graded. The site is generally at street grade of Washington Avenue. The drainage is designed to flow into an engineered storm drainage system. Murrieta Creek bisects Tract 23187-2 and Tentative Tract Map 23187-4.

Current Condition: Tract 23187-2 is currently under construction. Mass grading is complete, with streets cut, some streets paved, and some utilities complete. There are 3 model homes complete, with 20 production homes under construction. Tentative Tract Map 23187-4 has grading complete with lots terraced and streets graded.

Costs of Development/ CFD Funds: We have received cost estimates from J.P. Rhoades Development. These

costs are to construct the subject property to a finished lot condition. The total costs of development as well as costs spent to date are as follows:

Tract 23187-2 Backbone Allocation In-tract Hard Costs Soft Costs Less RSA Fee Credit School Fees

Total Development Budget Tract 23187-2 Less: CFD Funded School Fees

Spent to Date

Remaining Costs to Complete to Finished Lots

4 Refer to Limiting Condition No. 24.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W Hull & Associates, Inc.

$ 2,000,628 2,435,800 1,675,271

( 281,300) 771 400

S 6,601,799 ( 771,400) ( 3,450,451)

$ 2,379,948

Page 21

Proposed Improvement Description:

Tract 23187-4 Backbone Allocation of Costs In-tract Hard Costs Soft Costs Less RSA Fee Credit School Fees Total Development Budget Tract 23187-3 Less CFD Funded School Fees Less Spent to date

Remaining Costs to Complete to Finished Lots

S 689,872 719.552 601, 755

97,000) 266,000

$ 2,277,179 ( 266,000) ( 640.237)

$ 1,370,942

The subject project is known as Sycamore Ranch. There arc 3 model homes complete, with 20 production homes under construction.

The homes are of a contemporary style, with stucco exteriors with brick and siding enhancements, and concrete tile roofs. Seven plans arc proposed; however, only three have model homes. Exterior features include three to four-car attached garages with roll up doors, front yard landscaping, and side and rear fencing. Interior features include ceramic tile entries, upgraded gourmet kitchens with large pantries and oak cabinets, energy conservation features, copper piping, raised panel doors throughout, master bedroom suites, HY AC, interior laundry rooms, and energy-efficient insulation ratings. The floor plan for each model is shown below.

Plan Bedroom/Bath Floors/Garage Sguare Feet 1 4/2.5 2/3 2,629

10 5/2.5 2/4 2.779 2 5/3 2/4 3,018

20 5/3 2/4 3,187 3 6/3 1 I 3 3,485

30 714 1 I 3 3,748 30G 7/4 1/ 4 3,738

Plans 10, 20 and 30 are modeled.

The grand opening for the model homes is anticipated late February 2002. There has been a temporary sales office at the site since January. According to the sales office they have released 20 homes and sold 8. This is without a model complex yet open.

Community Facilities District No. 2002-1 Murriew I 'alley Unified School District

Bruce IV. f/111/ & Associates. Inc. Page 22

William Lyon Property Description

Below is a description for the items that vary from the entire property description for the William

Lyon property.

Assessor's Parcel Nos.:

Owner of Record:

Property Taxes:

Legal Description:

Three-Year Sales History:

Size and Shape:

Entitlements:

Easements and Encumbrances:

The William Lyon property consists of the following Riverside County Assessor Parcel Nos.: 906-450-003 and 906-450-004

William Lyon, an individual

Per the Riverside County Assessor's Office, the 2001-2002 property taxes for the above Assessor's Parcel Nos. total $101,582.48, ,vhich includes $84,260.98 of special assessments for AD 98-1.

Lengthy metes and bounds legal descriptions have been retained in our files. The property is more commonly known as Tentative Tract Map 23187-3 City of Murrieta, Riverside County, California.

William Lyon has owned the property for the past three years. It is the appraisers' understanding that the property will be offered for sale to merchant builders in the near future. Per the owner's representatives, the asking price will be in the range of $95,000 to $100,000 per finished lot.

Per the Riverside County Assessor's Office, the subject property 1s irregular in shape and contains an estimated 56.73 gross acres.

Tentative Tract Map No. 23187-3 totals 144 single-family lots. According to the landowner's representative, they are anticipating recording Tentative Tract Map 23187-3 in June 2002.

We have reviewed Chicago Title Company Preliminary Title Report Order No. 22015010-K07 dated January 30, 2002, which covers Tentative Tract Map 23187-3. The exceptions are as follows.

Item Nos. 1 and 2 refer to property taxes on the property. Item No. 3 refers to Municipal Improvement Bond 98-1 (Murrieta Park).5 Item No. 4 pertains to AD 98-1 (Grizzly Ridge). Item Nos. 5, 6, 7, 8, 9, 11, and 12 refer to easements on the property. Item No. 10 relates to an access agreement with a cable television company. Item No. 13 pertains to an agreement between William Lyon and the Murrieta County Water District.

5 Refer to Limiting Condition No. 24.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District Bruce W. Hull & Associates, Inc. Page 23

Item No. 14 refers to a deed of trust on the property. Item No. 15 refers to an assignment of rights as secured by the deed of trust. Item No. 16 refers to the community property interest of the spouse of the vestee.

This appraisal assumes that the subject property is free and clear of any liens and/or encumbrances with the exception of CFO No. 2002-1 and existing AD 98-1.

Topography: Tentative Tract Map 23187-3 has been graded with lots terraced and streets graded. The site is generally at street grade of Washington A venue and Calle Del Oso Oro. The drainage is designed to flow into an engineered stom1 drainage system. Murrieta Creek extends along the southern boundary of Tentative Tract Map 23187-3.

Current Condition: Tentative Tract Map 23187-3 has grading complete with lots terraced and streets graded.

Costs of Development/ CFO Funds: We have received cost estimates from J.P. Rhoades Development, which

represents William Lyon. These costs are to construct the subject property to a finished lot condition. The total costs of development as well as costs spent to date are as follows:

Backbone Allocation In-tract Hard Costs Soft Costs Less RSA Fee Credit Additional Backbone Costs School Fees Total Development Budget Less: CFD Funded School Fees

Spent to Date

Remaining Costs to Complete to Finished Lots

S 2,483,539 2,892, 789 2, 110,526

( 349,217) 260,000 957,600

S 8,355,23 7 ( 957,600) ( 2,361.214)

$ 5,036,423

Community Facilities District No. 1002-1 Murrieta Valley Unified School District

Bruce JV Hull & Associates. Inc. Pug,: 2./

HIGHEST AND BEST USE ANALYSIS

The highest and best use is a basic concept in real estate valuation due to the fact that it

represents the underlying premise (i.e., land use) upon which the estimate of value is based. In

this report, the highest and best use is defined as:

"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. ,,4

Proper application of this analysis requires the subject property to first be considered As If

Vacant in order to identify the "ideal" improvements in terms of use, size, and timing of

development. The existing improvements (if any) are then compared to the "ideal"

improvements to determine if the use should be continued, altered, or demolished preparatory to

redevelopment of the site with a more productive or ideal use.

As If Vacant

In the following analysis, we have considered the site's probable use, or those uses which are

physically possible; the legality of use, or those uses which are allowed by zoning or deed

restrictions; the financially feasible use, or those uses which generate a positive return on

investment; and the maximally productive use, or those probable permissible uses which

combine to give the owner of the land the highest net return on value in the foreseeable future.

Physically Possible Uses

The subject parcels are irregular in shape and contain 118 acres of land. The developers have

begun development, with the property graded into residential detached lots with a minimum lot

size of 7,200 square feet. RBF Consulting of Irvine, California has certified all 300 of the

subject lots. We have also reviewed a Geotechnical Report, which covers the entire property.

This Geotechnical Report concluded that the site was suitable for the proposed residential

4The Appraisal of Real Estate, 11th Edition

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page 25

development provided the recommendations contained \Vithin the Geotechnical Report \Vere

follO\ved. It was noted that the boundaries of Murrieta Creek are defined by Jurisdictional Lines

established by the U.S. Anny Corps Fish and Game. It is the appraisers' understanding that all

approvals have been obtained. It is an assumption of this report that the soils are adequate to

support the highest and best use conclusion. It is also assumed that no environmental issues exist

which would slow or thwart development of the site.

The property has access via I-15 to Clinton Keith Road, west to Palomar/Washington, south to

the subject property. Some of the internal streets are paved. Uses surrounding the subject are1

include new development of single-family homes on 5,000 to 10,000 square foot lots, older

existing horse ranches, and churches. There is a significant amount of housing development in

the immediate area. Based on the physical analysis, the location, size, and topography of the

subject site make it physically suitable for numerous types of development. However, the

current development state (graded lots with streets graded with some lots in a finished condition)

suggests limiting its use to residential development. In addition, the surrounding uses of

residential development appear to make the subject property more suitable for residential use

rather than commercial or industrial use.

Legality of Use

The City of Murrieta is the entity responsible for regulating land use through the implementation

of general plans and zoning ordinances. Per the City, the subject property is zoned R-1 for

single-family detached residential use \Vith a minimum lot size of 7 ,200 square feet.

In addition, one recorded tract map and two tentative tract maps have been approved by the City,

allO\ving for residential development of 301 single-family detached lots with a minimum lot size

of 7 ,200 square feet. One of the lots may be used for right of way purposes in the future and is

not included within this appraisal report. Therefore, this appraisal is based on 300 single-family

detached lots. Based on the legality of use analysis, the types of development for which the

subject property can be utilized are narrowed to residential use per the zoning and general plan

designations. Residential use is consistent with the findings of the physically possible uses.

Community Facilities District No. 2002-1 Afurriera Valley Unified School Disrrict

Bruce W. Hull & Associates, Inc. Puge }(,

Feasibility of Development

The third and fourth considerations in the highest and best use analysis are economic in nature,

i.e., the use that can be expected to be most profitable. The late 1980s were characterized by

rapidly escalating prices, good pre-sale activity, and a strong resale market drawing move-up

buyers. The early 1990s brought a recession, with home sale prices falling from their previous

high levels and sales volume dropping dramatically. As described earlier within the "Riverside

County Housing Market" section, that recession ended in generally 1994-1995, when residential

subdivisions re-emerged in the subject marketplace and growth occurred over the next few years.

The years 1999 thru 2001 saw significant housing price appreciation in the subject marketplace.

Also in 2001, the nation's economy saw a downturn; however, the housing market in the subject

area has not been affected. The Federal Reserve reduced interest rates 11 times in 2001, helping

the affordability index for home ownership. The new home market in the subject area is strong;

however, prices appear to be reaching their peaks due to appreciation over the past two years.

Prices that rose in double digits during 1999 and 2000 grew at a lesser rate in 200 I than in the

previous few years.

Maximum Productivity

Current market conditions (based on historical sales) indicate that single-family detached homes

as still the highest in demand in the subject marketplace. The property owner is proposing a

product consistent with the subject area. In light of the recent sales activity in the subject

marketplace, it is our opinion that the subject property is feasible for the proposed development

of single-family homes, with an adequate profit level for experienced residential builders.

Highest and Best Use Conclusion

As If Vacant

The final determinant of highest and best use, as if vacant, is the interaction of the previously

discussed factors (i.e., physical, legal, financial feasibility, and maximum productivity

considerations). Based upon the foregoing analysis, it is our opinion that the highest and best use

for the subject property, as if vacant, is residential development, as proposed.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page 27

As Improved

J.P. Rhoades Development has three model homes (opening late February 2002) on the project

site, known as Sycamore Ranch. According to sales representatives, they have released 20

homes and have sold eight. These eight sales have taken place with no models to tour. The first

closings are anticipated in June 2002. The homes range in size from 2,629 to 3,748 square feet.

The homes appear to be of good quality ,vorkmanship and of good design. In conclusion, it is

our opinion that the highest and best use of the three model homes, as improved, is for the

existing use as single-family homes.

Com1111min· Facilities District No. ]002-1 Murrieta i 'alley Unified School District

Bruce IV Hull & Associates, inc. Page .:?8

VALUATION ANALYSES AND CONCLUSIONS

In valuing the subject property, we will value the ownerships separately utilizing the Sales

Comparison Approach. First, a discussion of the market data will be presented, followed by the

valuation of the ownerships. All of the subject lots are currently under construction, with the

exception of three model homes. In reviewing sales comparables, some properties may be infill

locations needing little grading, and thus finishing costs may be minimal. Other properties may

have a steep topography or may require substantial off-sites, which would result in higher site

development and finishing costs. In the subject area, merchant builders purchase lands on a

finished lot basis; therefore, the varying conditions of development are accounted for in the sales

pnce. In the case of the subject lots, a finished lot value will be determined and then the

remaining costs to develop the property to a finished condition will be considered. Based on the

most recent market data (refer to the Addenda for the Market Data Summary Chart), merchant

builder sales in the subject area range from a low of 19 lots to a high of 153 lots. The subject

property has two ownerships each comprised of 156 and 144 lots. Due to the varying ownerships

and the number of lots within each ownership, it is the appraisers' opinion that a discounted cash

flow ("DCF") analysis is not needed for the valuation for the lots.

Under the J.P. Rhoades Development ownership, before the valuation of the subject lots is

presented, a valuation for the three existing model homes will be conducted. In determining a

value for the three existing homes, a DCF will be utilized. A DCF analysis is considered due to

the single ownership of the three homes. The DCF will take into account the retail value of the

homes, the absorption time to sell off the homes, the administrative expenses and carrying costs,

and profit for the seller. The resulting cash flow will then be discounted at a rate that accounts

for the risk associated with selling off the homes and considering the time value of money. In

determining the retail value of the homes, the Sales Comparison Approach to value will be

considered. The Sales Comparison Approach was previously defined within this report. This

approach compares similar properties that have recently sold or are in escrow.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page 29

RESIDENTIAL DETACHED LOT SALES SUMMARY CHART ----

Data Buyer Sales # of Finishl·d

No. Location I Seller Date Lots Lot Sin· Sales Price Price/Lot Price/Lot Comments

I N/S of Magnolia Street; Located south of the subject

S/0 Jefferson Avenue, Curtis Current 153 15,000 SF N/A NIA S 120,000 property Generally level, fl:.it land

Murrieta I Seller: C & K Development Escrow in raw condition_ Proposed CfO

Ltd., ct al. for similar tax rates.

2 SIS Jefferson Avenue at The price assumes CFD is in place. Nutmeg Street, Murrieta I Granite Homes 06/01 82 10,000 SF $3 ,000,000 $3(,,585 S82,000± Avg. lot size 1s 12,000 SF. Subject

Seller: Overland property. Now marketing Tapestry

J S/S Jefferson Avenue at Buyer is re-mapping property with Nutmeg Street, Murrieta I Granite Homes 11/0 I 19 10,000 SF $500,000 $26,3 15 $80,000± same number and same size lots to

Seller: Reilly/Calderon conform to adJoming site. Subject property. Sales price reported assumes CFD in place_

4 N/0 Clinton Keith Road; Good to excel lent views. Property W/01-215, Murrieta I Compass Homes 7100 107 I 0,000 SF NIA NIA $87,000 stopped construction due to

Seller: Hollingsworth merchant builder's mtcmal difficulty. Construction to begin again in near future. Similar tax rates

5 SIS Washington Avenue; AdJaccnt to Sycamore Ranch. Lots N/0 Calle Del Oso Oro, NIA Available 144 7,200 SF NIA NIA 595,000 - arc in blue-top condition ready to Murrieta I SI 00,000 be put on market. Asking price

Seller: William Lyon will be m the $95 - IOOK range. Similar tax rates to the subject property.

(, Copper Canyon I Murrieta I Within Copper Canyon master Seller: Centex & Standard Richmond 05/01 85 6,000 SF NIA NIA S78,000 planned community. 1.75% tax Pacific American rates. Purchased m finished

Homes condition. Lots have 55' minimum width.

7 Copper Canyon/Mumcta I Within Copper Canyon. 1.75% tax Seller: Standard Pacific & Centex Homes 05/01 84 (1,000 Sf NIA Nii\ S75,000 rates. Purchased in finished Centex Homes condition. Lots have 50' minimum

width.

8 N/0 Clinton Keith Road at Asktng rrice Reportedly m Nutmeg Street, Murrieta I N1A Available 141 7,200 SF NA ~ :\ 590,000 negotiations with a buyer. Similar

Seller: Baile Development proposed tax rates.

') Portion of Sub_1ect Property Sale w:1s nl'got1atcd ()fl the basis of

Seller: Lyon J.I'. Rhoades 07/01 15() 10.0110 SF 54.54~.52" 52').125 595,000 S'>:i,000 per finished lot, but actual costs were less

-

Market Data Discussion - Detached Residential Lots

We have searched the area and found six residential lot sales and two listings, summarized on the

facing page, comparable to the subject single-family detached projects.

Data No. I refers to a current escrow on 153 single-family lots with a minimum size of 15,000

square feet. This property is currently in escrow to Curtis Development. The property is located

on the north side of Magnolia Street and south of Jefferson Avenue. The reported sales price

was based on a proposed CFD with a total tax rate in the 1.8 percent range, which is similar to

the subject property. In comparison to the subject property, this market data is considered to be

supenor m lot size, due to the transaction not yet being a closed sale, and due to partial

takedowns. It is the appraisers' understanding there will be separate phase acquisitions for this

property. The location is considered to be similar to the subject property.

Data Nos. 2 and 3 refer to the assemblage of two properties located near the subject. Data No. 2

was purchased by Granite Hornes in June 2001 from Overland Associates for $3,000,000 for the

82 lots. Based on current cost information and including the proposed CFD (benefits and tax

rate) the sales price equated to a finished lot cost of approximately $82,000. At the time of this

sale the property had tentative mapping and was in a raw land condition. Data No. 3 was

purchased by Granite Homes from Martin Calderon and Scott Reilly for S500,000 in November

2001. Again, based on current cost information and including the proposed CFD, the sales price

equated to a finished lot cost of approximately $80,000 for the 19 lots. Although the property

had a tentative map for 19 lots (minimum 10,000 square feet; average 12,000 square feet), the

buyers are processing a new map, which incorporates this site with the adjacent site (Data No. 2).

At the time of sale this property needed a new map and was in a raw land condition. In

comparison to the subject properties this market data is considered to be superior in lot size,

however, inferior in that additional mapping is required.

Data No. 4 refers to the July 2000 sale of 107 lots located north of Clinton Keith Road and west

of Interstate 215 in Murrieta. The property was a hillside allowing for terraced lots with good to

excellent views. At the time of sale there was a tentative map and the property was in a raw

condition. TNR Development (Compass Homes) purchased the site and began development in

Community Facilities District No. 2001-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page 30

late 2000. In mid-2001 the merchant builder began having trouble and work on this tract

stopped. The financial partner is planning on beginning construction again in the near f uturc to

continue the project. In comparison to the subject property this transaction is considered to be

superior in lot size and viev,· potential, however, inferior due to the date of sale being over 18

months ago.

Data No. 5 pertains to a portion of the subject lots, which are available for sale located at the

northwest comer of Washington Avenue and Calle Del Oso Oro in Murrieta. \Villiam Lyon

owns the lots, which consists of the 144 single-family lots with a minimum size of 7,200 square

feet with an 8,000 average square footage. They arc in blue-top condition. The asking price is in

the 595,000 to $100,000 price range based on a finished lot.

Data Nos. 6 and 7 refer to the May 2001 purchases of two tracts within Copper Canyon, near the

subject property. These lots are significantly smaller than the subject lots, with a minimum size

of 6,000 square feet. Data No. 6 has frontage widths of 55 feet while Data No. 7 has frontage

widths of 50 feet. These lots were purchased in finished condition. The properties have

estimated tax rates similar to the subject property. In comparison to the subject property, these

lots are similar in location, but inferior due to the smaller lot size.

Data No 8 refers to the current asking price for 141 single-family lots with a minimum size of

7,200 square feet located along the north size of Clinton Keith Road at Nutmeg Street, north of 1-

15 in Murrieta. The seller is processing the final mapping on the site. The asking price for the

lots is $90,000 based on a finished lot. There has been good activity with negotiations underway

with a buyer on these lots according to a broker familiar with the property. The property has not

yet received all environmental issues.

Community Facilities District No. 2002-1 Murrieta Valley Umjied School District

Bruce W. Hull & Associates, Inc. Page 31

The market data is summarized as follows:

Data No.

2

3

4

5 6 7 8

Lot Size

15,000

10,000

10,000

10,000

7,200 6,000 6,000 7,200

Finished Lot Price

$120,000

$ 82,000

$ 80,000

$ 87,000

$ 95,000 $ 78,000 $ 75,000 $ 90,000

Comparison to Subject

Superior - Lot Size, Not Closed Sale and Phasing Superior - Lot Size; Inferior - Condition of Land and Date of Sale Superior - Lot Size; Inferior - Mapping and Condition of Land Superior - Views and Lot Size; Inferior -Date of Sale Asking Price Only (Subject) Inferior - Lot Size, Date of Sale Inferior - Lot Size, Date of Sale Superior - Not Closed Sale; Inferior -Environmental

This market data has an overall price range of $75,000 to S 120,000 on a finished lot basis. The

highest market data, Data No. I, refers to a sale, which has not closed and with larger sized lots.

The two lowest market data, Data Nos. 6 and 7 refer to significantly smaller lots in comparison

to the subject; however, due to their similar location they have been included in our analysis.

The remainder of the market data prices ranges from $80,000 to $95,000 on a finished lot basis.

The subject property consists of two property owners - one with 156 lots and one with 144 lots.

All properties are under construction, with model homes complete on the J.P. Rhoades

Development project. As previously discussed, we will value the homes under construction on

the basis of a finished lot rather than attribute value to a partially completed improvement.

The subject lots have a minimum size of 7,200 square feet with an overall average size in the

8,000 to 9,000 square foot range. The entire property has been mass graded, with lots being

terraced, streets cut in, and utilities to the sites. Within the J.P. Rhoades Development, some

streets are paved, with curb, gutter and sidewalks in place and some lots in a finished condition.

We have concluded that the subject lots have an average, finished lot value of $90,000.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Page 32

J.P. Rhoades Development Valuation/Conclusion

First, a value for the model homes will be addressed, followed by a final value conclusion of the

remaining lots.

Existing Inventory (Model Homes)

Due to the single ownership of the three model homes, a DCF analysis is needed in order to

arrive at a bulk value for the three homes.

Retai I \' alue

This portion of the valuation analysis includes a survey of the subject project, along with

competing projects located within the subject market area. We concluded on several directly

comparable projects for Sycamore Grove, of which only Plans 10, 20 and 30 are modeled. The

most comparable plans taken from these active projects were then compared to the subject floor

plans. A summary of the market data is included in the Addenda of this report.

The most appropriate comparable data for the Plan 10 model is as follows:

Bdrm/Bath Floors/ Square Price per Data Plan Count Parking Feet Sguare Foot

Subject 10 5/2.5 2/4 2,779 2 3 5/3 2/3 2,872 $ 99.23 -,

Oak 4/2.5 ') '? 2,608 $ 97.80 .) _,_ 4 2 3/2.5 2/3 2,784 s 96.26

All comparables are located within the subject area and have similar overall tax rates. All arc of

similar quality, design, and appearance. Adjustments were considered (v,'hen applicable) for

sales concessions, special tax/special assessment liens, lot size, total square footage, room count,

garage space, floors, and other amenities. The subject Plan 10 has a current base price of

$102.91 per square foot ("psf'). We have concluded at a price of S99.00 psf, calculated as

follows:

2,779 sfx $99.00psf= $275,121

Commz111iry Faciliries District No. 2002-1 Murrieta !'alley Unified School District

Bruce Jt' Hull & Associates, Inc. PagL' 33

The most appropriate comparable data for the Plan 20 model is as follows:

Bdrm/Bath Floors/ Square Price per Data Plan Count Parking Feet Sguare Foot

Subject 20 5/3 2/4 3,187 1 10 5/2.5 2/4 2,779 $102.91 2 3 5/3 2/3 2,872 $ 99.23 4 3 3/3 2/3 2,960 S 92.90

All comparables are located within the subject area and have similar overall tax rates. All are of

similar quality, design, and appearance. Adjustments were considered (v,·hen applicable) for

sales concessions, special tax/special assessment liens, lot size, total square footage, room count,

garage space, and other amenities. The subject Plan 20 has a current base price of $98.53 psf.

We have concluded at a price of $95.00 psf, calculated as follows:

3,187 sfx $95.00 psf= $302,765

The most appropriate comparable data for the Plan 30 model is as follows:

Bdrm/Bath Floors/ Square Price per Data Plan Count Parking Feet Sguare Foot

Subject 30 7/4 2/3 3,748 1 20 5/3 2/4 3, 187 $98.53 2 4 6/3.5 2/4 3,228 $94.18 4 4 4/3 2/3 3,259 $88.98 4 5 5/4.5 2/3 3,828 $82.54

All comparables are located within the subject area and have similar overall tax rates. All are of

similar quality, design, and appearance. Adjustments were considered (when applicable) for

sales concessions, special tax/special assessment liens, lot size, total square footage, room count,

garage space, and other amenities. The subject Plan 30 has a current base price of S94. l 8 psf.

We have concluded at a price of $90.00 psf, calculated as follows:

3,748 sf x $90.00 psf = $337,320

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W Hull & Associates, Inc. Page 34

Each of the plans is a model home. Per interviews with the builders, upgrades and

landscape/hardscape of up to $60,000 are typically installed on model homes. Builders generally

consider this a marketing cost and do not anticipate recovering this investment on a dollar-for­

dollar basis; hO\vever, model homes usually sell for over the base price amount due to the

upgrades. Therefore, we are considering a $30,000 premium for each model home.

Total Gross Revenue

Absoq)tion Period

Plan l O Plan 20 Plan 30 Model Upgrades Total

$ 275,121 $ 302,765 $ 337,320 $ 90.000 $1.005,206

In order to arrive at an absorption period for the subject model homes, we have analyzed the

absorption rates of the active projects for similarly sized and priced homes in the area, coupled

with the current sales rate within the subject project. The active projects used for the market data

have sales rates over 4.0 sales per month. The subject project has sold 8 homes in the first month

with no models open for tour. For this analysis, we have concluded that the three model homes

would sell within a one-month period, if exposed on the market.

Expenses

In detem1ining an expense rate, \Ve have intervievr'ed several builders in the Murrieta area about

their expenses relating to selling existing inventory. Expenses include marketing, general, and

administrative costs. These costs typically range from 6 to 10 percent, depending on such factors

as absorption period, intensity of marketing, competing projects, etc. We have cstir.iated

expenses at 4 percent for marketing and 2 percent for general and administrative costs, for a total

of 6 percent.

Profit

Several interviews \Vith merchant builders in the Murrieta area were conducted to detem1ine an

appropriate rate of profit for the subject property. In the past, developers typically attempted to

achieve a IO to 12 percent profit based on the gross sales proceeds. During the recession of the

Community Facilities District No. 2002-1 J.turrieta Valley Unified School District

Bruce Jr. Hull & Associates, inc. Pugi.: 35

Sycamore Ranch - J.P. Rhoades

MONTH 1 TOTAL

INCOME: Retail Sales $1,005,206 $1,005.206

TOTAL INCOME $1,005,206 $1,005,206

EXPENSES: Marketing & Carrying Expenses ($60,312) ($60,312) Profit ($120,625) ($120.625)

TOTAL EXPENSES ($180,937) ($180,937)

NET CASH FLOW $824,269 $824,269 Discount Factor 1.0000 1.0000

DISCOUNTED CASH FLOW $824,269 $824,269

CUMULATIVE DISCOUNTED CASH FLOW l824,269 1824,269

Bruce W. Hull & Associates

early 1990s, this range was 10\vered to 6 to 10 percent. Based on current market conditions. we

are considering a 12 percent profit in our analysis for this project.

Discount Rate

We have considered the discount rate to be incorporated into the profit rate.

Discounted Cash Flow Summary

The discounted revenue for the existing inventory of three homes is S824,269.

J.P. Rhoades Development Lot Valuation

There are 156 total lots in the J.P. Rhoades Development (excluding the single lot for possible

right of way use in the future). Tract 23187-2 has 1165 lots with 3 being valued under the

existing model homes. Tentative Tract Map 23187-4 has 40 lots. As previously discussed, we

have concluded at a finished lot value for the subject lots of $90,000; hmvever, the subject lots

arc not all in a finished condition. Some are finished and others are still under construction, with

utilities being installed and streets being paved. As discussed under the property description for

the J.P. Rhoades Development property, there are remaining costs to complete of $2,379,948 for

Tract 23187-2 and S 1,273,942 for Tentative Tract Map 23187-4. The resulting "as is" lot

valuations arc as follmvs:

Tract 23187-2 Finished Lot Value ($90,000 x 112 Lots) Less Costs Remaining to Complete "As Is" Lot Value

Tentative Tract Map 23187-4 Finished Lot Value (S90,000 x 40 Lots) Less Costs Remaining to Complete "As ls" Lot Value

5 Lot 14 is excluded from this appraisal.

Community FaciliTies District No. 2002-1 Afurriew I 'alley Unified School District

Bruce W. Hull & Associates, Inc.

S 10,080,000 ($ 2,379.948) S 7,700,052

S 3,200,000 (S 1,273,942) S 2,326,058

Page 36

Summary of J.P. Rhoades Development Value Conclusion

Following is the summary of J.P. Rhoades Development values:

Merchant Builder Model Homes Tract Map 23187-2 Remaining Lots Tentative Tract Map 23187-4 Lots "As Is" Value Value ConcJusion

S 824,269 $ 7,700,052 $ 2,326,058 $10,850,379

(say) $10,850,000

\Villiam LYon Ownership Valuation/Conclusion

William Lyon owns 144 lots, which have been graded. Reportedly the lots are being offered for

sale to merchant builders.

Lot Valuation

As previously discussed, we have concluded at a finished lot value for the subject lots of

$90,000; however, the subject Jots are not yet in a finished condition. The lots have been graded,

streets have been cut in and the majority of the backbone improvements are complete. As

discussed under the property description for the William Lyon property, there are remaining

costs to complete of $5,036,423. Deducting this amount from the finished Jot value is as

follows:

Finished Lot Value ($90,000 x 144 Lots) Less Costs Remaining to Complete "As Is" Lot Value

Community Facilities District No. 2002-1 Murrieta Valley Unified School District Bruce W. Hull & Associates, inc.

S 12,960,000 ($ 5,036,423) $ 7,923.577

(say) $ 7,925.000

Page 37

MARKETING AND EXPOSURE TIME

It is our estimation that both the exposure time and the marketing time for the subject property, if

on the market today are at our concluded value, are less than 12 months.

Commw1ity Facilities District No. 2002-1 Murrieta I 'alley Unified School District Bruce W. Hull & Associates, Inc. Page 38

APPRAISAL REPORT SUMMARY

This appraisal assignment was to value the subject lands within Community Facilities District

No. 2002-1 ("CFD No.2002-1"), Murrieta Valley Unified School District. The property consists

of an approximate 118-acre residential neighborhood with t\VO ownerships. J.P. Rhoades

Development is developing 156 lots as Sycamore Ranch. Models are complete and opening late

February 2002. Sales have commenced and the production homes are under construction.

William Lyon owns 144 lots, which have been graded. William Lyon is planning to sell these

lots to merchant builders in the near future.

The Sales Comparison Approach was used to conclude on a finished lot value for the singlc­

family lots. Remaining development costs to complete the property to its current condition were

then deducted in order to arrive at an .. as is" value. The valuation takes into account the

easements and encumbrances of record and the subject CFD No. 2002-1 special tax lien as well

as the existing AD 98-1 special tax lien. The concluded value estimate for the subject property,

subject to the special tax liens, is:

J.P. Rhoades Development William Lyon

Total Aggregate Value

$10,850,000 $ 7,925,000

$18, 775,000

This value is stated subject to the Assumptions and Limiting Conditions and the Appraisers'

Certification as of said date of value.

Community Facilities District No. 2002-1 Murrieta Valley Unified School District

Bruce W. Hull & Associates, Inc. Pag<! 39

APPRAISERS'CERTIFICATION

\Ve ccrti fy that, to the best of our knowledge and belief:

1. The statements of fact contained in this report are true and correct.

2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased, professional analyses, opinions, and conclusions.

3. We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias ,vith respect to the parties involved.

4. Our compensation is not contingent upon the reporting of a predetcm1incd 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.

5. This appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan.

6. Our analyses, opinions, and conclusions were developed, and this report was prepared, in conformity with the Uniform Standards of Professional Appraisal Practice.

7. We have made a personal inspection of the property that is the subject of this report.

8. No one provided significant professional assistance to the persons signing this report.

9. The reported analyses, opinions, and conclusions were developed, and this report was prepared, in confom1ity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

10. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

11. As of the date of this report, Bruce W. Hull and Kitty S. Siino have completed the

requirr[; i:;;;ng education program of the Appra~ I~

Bruce W. Hull, MAI ~ino, MAI State Certified General Real Estate Appraiser (AG004964)

Community Facilities District /1/0. 2002-1 Mwnera Valley Unified School District

Bruce W Hull & Associates, Inc.

State Certified General Real Estate Appraiser (AG004 793)

Page 40

ADDENDA

SUMMARY OF DEVELOPMENT COSTS/FEES

Site Develoement Costs

Total Budget Per Lot

12/31/01 12/31/01 Tract Lots Budget Paid to Date Balance Budget Paid to Date Balance

23187-2 116 $ 6,111,699 $ 3,450,451 $ 2,661,248 $ 52,687 $ 29,745 $ 22,942

23187-4 40 $ 2,011, 179 $ 640,237 $1,370,942 $ 50,279 $ 16,006 $ 34,274

23187-3 144 $ 7,486,854 $ 2,361,214 $ 5, 125,640 $ 51,992 $ 16,397 $ 35,595

300 $ 15,609,732 $ 6,451,902 $ 9,157,830 $ 52,032 $ 21,506 $ 30,526

SYCAMORE RANCH SITE DEVELOPMENT COSTS

J.P. RHOADES DEVELOPMENT - DIRECT COSTS - TRACT 23187-2 31-0ec-01

116 LOTS AMOUNT PAID TO CONTRACT BUDGET BUDGET CONTRACTED DATE BALANCE BALANCE

120 CONS ULT ANTS 7,812.00 7,812.00 4,890.00 2,922.00 2,922 00 121 CIVIL ENGINEERING 201,580.00 176,780.00 94,841.50 81,938.50 106,738.50 122 SOILS ENGINEERING 30,000.00 DOD ODO 0 00 30,000 00 123 ASSESSMENT & FEES 1,497,096.33 1,497,096.33 524,924 19 972,172 14 972,172.14 124 BONDS 36.443.00 31,398.00 31,398.00 0.00 5,045 00 127 DEPOSITS REIMBURSED (102,660.00) 000 000 0 00 (102,66000) 128 BLUEPRINTS 5.000.00 0.00 ODO 0 00 5,000 00 129 CLEAN-UP 17,400.00 O OD ODO 0 00 17,400.00 130 EXCAVATIONS & GRADING 68,000.00 ODO 0.00 0 00 68,000.00 131 STRUCTURES 0.00 ODO ODO 0.00 0 00 132 EROSION CONTROL 11,600.00 0.00 0.00 0.00 11,600 00 133 STORM DRAIN SYSTEM 255,352.00 247.533.00 222,779.70 24,753.30 32.572 30 134 SEWER SYSTEM 173,069.00 165.569 DO 149,012.10 16,556 90 24.056 90 135 WATER SYSTEM 291,405.00 289,405.00 259,114.50 30,290.50 32,290.50 136 UTILITY SYSTEM 200,000.00 198,274.20 84,194.91 114.079 29 115,805 09 137 STREET IMPROVEMENTS 566,722.00 495,446.83 164,316.47 331.130.36 402,405 53 139 WALLS & FENCING 308.246 00 226,542.43 206,563.41 19.979 02 101,68259 140 LANDSCAPING 304,009.00 0.00 000 0.00 30~ 009 00 141 LANDSCAPE ARCHITECT 0.00 0.00 0.00 O OD 0 00 142 STREET SIGNS 0.00 000 000 0 00 0 00 167 OVERHEAD & SUPERVISION 26,611.71 26,611.71 21,799.74 4,811 97 4.811 97

168 CONTI NG ENCi ES 213,385.00 0 00 0 00 0 00 213,385 00

4,111,071.04 3,362,468.50 1 ,763,834.52 1 ,598,633.98 2,347,236.52

BACKBONE ALLOCATION 2.000,628.45 1,890,914.25 1,686,616.72 204,297.53 314,011 73

6, 111,699.49 5,253,382.75 3,450,451.24 1,802,931.51 2,661,248.25

116 LOT AVERAGE 52,687.06 45,287.78 29,745.27 15,542.51 22,941.80

SYCAMORE RANCH TOTAL SITE DEVELOPMENT COSTS

J.P. RHOADES DEVELOPMENT-TRACT 23187-4 31-Dec-01

40 LOTS AMOUNT PAID TO CONTRACT BUDGET BUDGET CONTRACTED DATE BALANCE BALANCE

120 CONSULTANTS 2,688.00·· 2,688.00 0.00 2,688.00 2,688.00 121 CIVIL ENGINEERING 87,945.00 78,645.00 14,165.60 64,479.40 73,779.40 122 SOILS ENGINEERING 10,500.00 0.00 000 0.00 10,500.00 123 ASSESSMENT & FEES 525,252.10 525,252.10 39,927.64 485,324.46 485,324.46 124 BONDS 8,770.00 0.00 0.00 0.00 8,770.00 127 DEPOSITS REIMBURSED (35,400.00) 0.00 000 000 (35,400.00) 128 BLUEPRINTS 2,000.00 0.00 000 0.00 2.000 00 129 CLEAN-UP 6,000.00 000 0.00 0.00 6,000 00 130 EXCAVATIONS & GRADING 45,000.00 000 000 000 45,000.00 131 STRUCTURES 0.00 0.00 0 00 ODO 0.00 132 EROSION CONTROL 4,000.00 000 000 0 00 4,000.00 133 STORM DRAIN SYSTEM 0.00 0.00 000 0 00 000 134 SEWER SYSTEM 65,580.00 4,552.00 4,552 00 0 00 61,028.00 135 WATER SYSTEM 79,307.00 000 0 00 0 00 79,307.00 136 UTILITY SYSTEM 55,000.00 0.00 000 0 00 55,000.00 137 STREET IMPROVEMENTS 180,982.00 0.00 0 00 000 180,982.00 139 WALLS & FENCING 79,300.00 0.00 0.00 0.00 79,300.00 140 LANDSCAPING 89,596.00 0.00 0.00 0.00 89,596.00 141 LANDSCAPE ARCHITECT 0.00 0.00 000 000 000 142 STREET SIGNS 0.00 0.00 0.00 0 00 0 00 167 OVERHEAD & SUPERVISION 0.00 0.00 0.00 0.00 0.00

168 CONTINGENCIES 114,787.00 000 000 000 114,787.00

1,321,307.10 611,137.10 58,645.24 552,491.86 1,262,661.86

BACKBONE ALLOCATION 689,871.88 652,039.40 581,591.97 70,447.42 108,279.91

2,011, 178.98 1,263, 176.50 640,237.21 622,939.28 1,370,941.77

40 LOT AVERAGE 50,279.47 31,579.41 16,005.93 15,573.48 34,273.54

SYCAMORE RANCH TOTAL SITE DEVELOPMENT COSTS

WILLIAM LYON -TRACT 23187-3 31-Dec-01

144 LOTS AMOUNT PAID TO CONTRACT BUDGET BUDGET CONTRACTED DATE BALANCE BALANCE

120 CONSULTANTS 10,000.00 0.00 0.00 0.00 10,000.00 121 CIVIL ENGINEERING 288,977.00 85,800.00 83,898.75 1,901.25 205,078.25 122 SOILS ENGINEERING 43,000.00 0.00 0.00 0.00 43,00000 123 ASSESSMENT & FEES 1,851,226.40 1,851,226.40 60,972.40 1,790,254.00 1,790,254.00 124 BONDS 36,763.00 0.00 0.00 0.00 36,763.00 127 DEPOSITS REIMBURSED (127 ,440.00) 0.00 0 00 0.00 (127,440.00) 128 BLUEPRINTS 8,000.00 0.00 0.00 0.00 6,000.00 129 CLEAN-UP 21,600.00 0.00 0.00 000 21,600.00 130 EXCAVATIONS & GRADING 72.000.00 0.00 0.00 0.00 72,00000 131 STRUCTURES 0.00 88, 125.50 88, 125.50 0.00 (88, 125.50) 132 EROSION CONTROL 14,400.00 0.00 0.00 0.00 14,40000 133 STORM DRAIN SYSTEM 133,104.00 0.00 0.00 0 00 133.104 00 134 SEWER SYSTEM 314,956.00 0.00 0.00 0.00 314,956 00 135 WATER SYSTEM 362,517.00 37.750.00 33,975.00 3,775.00 328.542 00 136 UTILITY SYSTEM 182,000.00 0.00 0.00 0.00 182.000 00 137 STREET IMPROVEMENTS 594,141.00 0.00 0.00 000 594.141 00 139 WALLS & FENCING 283,400.00 0.00 ODO 0 00 283.400 00 140 LANDSCAPING 480.291.00 0.00 0.00 0 00 480,291 00 141 LANDSCAPE ARCHITECT 0.00 0.00 0 00 0 00 0 00 142 STREET SIGNS 2.850.00 0.00 0.00 000 2,850.00 167 OVERHEAD & SUPERVISION 1,000 00 511.00 511 00 0 00 489.00

168 CONTINGENCIES 430,530.00 0.00 ODO 0.00 430,530.00

5,003,315.40 2,063,412.90 267,482.65 1,795,930.25 4,735,832.75

BACKBONE ALLOCATION 2,483,538.77 2,347,341.83 2,093,731.10 253,610 73 389,807 66

7,486,854.17 4,410,754.73 2,361,213.75 2,049,540.98 5, 125,640.41

144 LOT AVERAGE 51,992.04 30,630.24 16,397.32 14,232.92 35,594.73

SYCAMORE RANCH SITE DEVELOPMENT COSTS

BACKBONE COSTS COSTS ALLOCATED TO WILLIAM LYON AND J.P. RHOADES DEVELOPMENT

31-Dec-01

300 LOTS AMOUNT PAID TO CONTRACT BUDGET BUDGET CONTRACTED DATE BALANCE BALANCE

120 CONSULTANTS 93,000.00 33,863.12 33,863.12 0.00 59,136.88 121 CIVIL ENGINEERING 335,000.00 321,363.58 306,664 08 14,699.50 28,335.92 122 SOILS ENGINEERING 325,000.00 264,980.22 225,391 96 39,588.26 99.608.04 123 ASSESSMENT & FEES 274,619.06 274,619.06 217,994.06 56,625.00 56,625 00 124 BONDS 9,410.00 9,410.00 9,410.00 0.00 000 127 DEPOSITS REIMBURSED 0.00 0.00 0.00 0.00 000 128 BLUEPRINTS 75,000.00 75,000.00 27,381.23 47,618.77 47,618.77 129 CLEAN-UP 16,656.00 2,656 00 2,656.00 000 14,000 00 130 EXCAVATIONS & GRADING 3,690,748.70 3,679,957. 76 3,314,122.11 365,835.65 376,626 59 131 STRUCTURES 0.00 0.00 0.00 000 0.00 132 EROSION CONTROL 9,000.00 0.00 0 00 0.00 9,000.00 133 STORM DRAIN SYSTEM 27,385.00 22,385.00 20.146.50 2,238.50 7,238.50 134 SEWER SYSTEM 0.00 0.00 0.00 0.00 000 135 WATER SYSTEM 1,050.00 1,050.00 1,050.00 0.00 0.00 136 UTILITY SYSTEM 14,616.59 14,616.59 14,616.59 0.00 000 137 STREET IMPROVEMENTS 0.00 0.00 0.00 0.00 000 139 WALLS & FENCING 22,500.00 0.00 0.00 0.00 22,500.00 140 LANDSCAPING 43,547.00 0.00 0.00 0.00 43.547.00 141 LANDSCAPE ARCHITECT 28,000.00 20,558.40 18,808.40 1, 750.00 9,19160 142 STREET SIGNS 0.00 000 0.00 0 00 0 00 167 OVERHEAD & SUPERVISION 169,835.75 169,835.75 169,835.75 0 00 0 00

168 CONTINGENCIES 36,671.00 0.00 0.00 0 00 38.671 00

5, 174,039.10 4,890,295.48 4,361,939.80 528,355.68 812,099.30

AVERAGE 17,246.80 16,300.98 14,539.80 1,761.19 2,707.00

156 LOT ALLOCATION· J.P. RHOADES DEV. 2,690,500.33 2,542,953.65 2,268,208.70 274,744.95 422,291.64 144 LOT ALLOCATION • WILLIAM LYON 2,483,538.77 2,347,341.83 2,093,731.10 253,610.73 389,807.66

IMPROVED RESIDENTIAL SALES SUMMARY CHART

MARKET DATA SUMMARY CHART - IMPROVED RESIDENTIAL SALES

Data Project Name Room Square Price per No. Location/Develo~[ Model Count Feet Floors !l~rag~ Lot Size Sales Price Square Foot

Tapestry 1 4/2.5 2,232 1 3-car I 0,000 sf $247,000 $ 1 I 0.66 Jefferson Avenue 2 4/2.5 2,501 1 3-car $272,000 $108.75 and Nutmeg Street 3 5/3 2,872 2 3-car $285,000 $ 99.23 Murrieta 4 6/3.5 3,228 2 4-car $304,000 $ 94.18 Granite Homes

2 Sycamore Ranch 10 5/2.5 2,779 2 4-car 7,200 sf $286,000 $102.91 Washington Avenue 20 5/3 3,187 2 4-car (9,000avg) $314,000 $ 98.53 and Alexander Street 30 7/4 3,748 2 3-car $335,000 $ 89.38 Murrieta J.P. Rhoades

3 Fallsgrove Maple 4 3/2 2,506 I 2-car 7,200 sf $271,940 $108.51 Whitewood Road Cedar 2 4/2.5 2,539 2 2-car $243,849 $ 96.04 S/0 I-215, Murrieta Oak 3 4/2.5 2,608 2 2-car $255,085 $ 97.80 Pacific Century Aspen 4 4/2.5 2,671 2 3-car $247,205 $ 92.55

4 Westfield 2 3/2.5 2,784 2 3-car 7,200 sf $267,990 $96.26 Washington Avenue 3 3/3 2,960 2 3-car $274,990 $92.90 and Nutmeg Street 4 4/3 3,259 2 3-car $289,990 $88.98 Murrieta 5 5/4.5 3,828 2 3-car $315,990 $82.54 Continental Homes

5 Chatham 1 2/2.5 2,138 I 3-car 7,200 sf $233,990 $ 109.44 Washington Avenue 2 4/3 2,408 2 3-car $239,990 $ 99.66 and Nutmeg Street 3 4/3 2,587 2 3-car $246,990 $ 94.18 Murrieta

Continental Homes

APPRAISERS' QUALIFICATIONS

QUALIFICATIONS OF BRUCE W. HULL, MAI

Business Locations: 1056 E. Meta Street, Suite 202 Ventura, California 93001 (805) 641-3275 * Facsimile (805) 641-3278 E-Mail Address - Bhull86686@aol.com Direct Correspondence to Ventura Location

115 E. Second Street, Suite 100 Tustin, California 92780 (949) 581-2194 * Facsimile (949) 581-2198

Bruce W. Hull & Associates, Inc. is an appraisal firm that provides a wide variety of appraisal assignments for public agencies, developers and financial institutions.

The principal, Bruce W. Hull, MAI, has been in the appraisal field since graduation in 1969 from Westmont College, Santa Barbara. After being employed by the Ventura County Assessor's Office for five years, he established an appraisal company in Orange County in 1974. In August of 1995 he established an office in Ventura while maintaining an Orange County location. While most of the appraisal assignments are in Southern California, assignments have been completed in areas from San Francisco/Bay Area and Lake Tahoe to San Diego.

The appraisal assignments completed have been diverse in nature, including such property types as large masterplanned developments, shopping centers, large retail uses, and mitigation land. A brief summary of the more challenging assignments is given on the following pages.

MASTERPLANNED DEVELOPMENT

These are typically more than 1,000 acres in size and have a wide variety of residential product, often ranging from condominiums to large estate type of properties. In addition, there is often a commercial use within the development. I have been involved in the following projects.

Lake Sherwood, Hidden Valley Wood Ranch, Simi Valley Rancho San Clemente, San Clemente Towne Center, Rancho Santa Margarita Rancho Trabuco North and South, Rancho Santa Margarita Hunters Ridge, Fontana The Corona Ranch, Corona Mountain Cove, Temescal

Mountain Gate, South Corona The Foothill Ranch, Corona Orangecrest, City of Riverside Aliso Viejo, County of Orange Talega Valley, City of San Clemente/County of Orange Otay Ranch, City of Chula Vista

RETAIL USE

Consultant to City of Long Beach regarding a 30 acre site (Long Beach Naval Hospital) which the City was acquiring from the US Navy for inclusion in a 100 acre shopping center site.

Towne Center, Rancho Santa Margarita, is a masterplanned project which contains two shopping centers (Towne Center, 160,000 SF plus a Target Store. 122,000 SF; Plaza Antonio, 165,000 SF).

Mission Grove, City of Riverside, is a 395,362 SF center which included a K­Mart Department Store among the major tenants.

Victoria Gardens Masterplan was a proposed mixed use project consisting of 3,065 acres of land which included a mixture of residential (2, 150 acres); commercial (335 acres of which 91.9 acres was a regional center site); schools; parks; and open space for the remainder of the lands.

Menifee Village, Riverside County, is a 1977 acre masterplanned development which had approvals for 5,256 units. The assignment included the valuation of Planning Area 2-7 which was a commercial site that had been developed with a Target Store, Ralph's Market, and in-line stores (190,000 SF with eventually being a 257,000 SF center).

MITIGATION LANDS

These assignments involved valuing lands that are considered mitigation lands which are often acquired by public agencies or nonprofit organizations.

Balsa Chica, Huntington Beach, a 42-acre site which was part of a larger wetlands conservation program. This particular acreage was unique since it was subject to "tidal flushing" and had both fresh and saltwater impacting the lands. This assignment was completed for Metropolitan Water District.

San Joaquin Marsh, City of Irvine, consisted of approximately 289 acres of wetlands which were acquired for use as a "buffer" zone by the Irvine Ranch Water District.

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Eagle Valley, a 1072-acre parcel near Lake Matthews in Riverside County, was acquired by Metropolitan Water District for use as a water treatment plant and buffer zone.

Poormans Reservoir, Moreno Valley, a 38-acre site acquired by the City of Moreno Valley for preservation/open space use.

ASSESSMENT DISTRICTS/BOND ISSUES

Have been involved in the appraisals of the following Bond Issues regarding Community Facilities Districts and/or Assessment Districts. (This represents a partial list of assignments completed from 1990 thru Present.)

CFO No. 9 (Orangecrest - lmpr. Areas 1, 3 & 5); City of Riverside CFO No. 2000-1 (Crosby Estate @ Rancho Santa Fe); Solana Beach CFO No. 2001-01 (Murrieta Valley U.S.D.);Murrieta CFO No. 90-1 (Lusk-Highlander); City of Riverside Otay Ranch SPA I - CFO No. 99-2; City of Chula Vista CFO No. 7 (Victoria Grove); County of Riverside CFO No. 10 (Fairfield Ranch); City of Chino Hills CFO No. 2000-1; Tejon Industrial Complex; Lebec CFO No. 99-1 ; Santa Margarita Water District CFO No. 97-3; City of Chula Vista CFO No. 2 (Riverside Unified School District); City of Riverside CFO No. 89-1; City of Corona Lake Sherwood AD. Refunding; County of Ventura CFO No. 9; City of Chino Hills CFO NO. 88-12; City of Temecula CFO No. 90-1 (Refunding); City of Corona A.O. No. 97-1-R; City of Oxnard A.O. No. 96-1; Valley Center Municipal Water District; San Diego County A.O. No. 96-1; City of Oxnard CFO No. 88-1 (Saddleback Valley Unified School Dist.); Rancho Santa Margarita CFO No. 89-2 (Saddleback Valley Unified School Dist.); Rancho Santa Margarita CFO No. 89-3 (Saddleback Valley Unified School Dist); Rancho Santa Margarita Centex AD. No. 95-1; City of Corona Coyote Hills A. D. No. 95-1; City of Fullerton Sycamore Creek A.O. No. 95-1; City of Orange Prop. CFO No. 2 (Riverside Unified School District); City of Riverside CFO No. 91-1; City of Rancho Cucamonga Prop. CFO No. 2; City of Chino CFO No. 9; County of San Bernardino A.O. No. 89-1; City of Corona CFO No. 87-1 (Series B); City of Moreno Valley CFO No. 90-1; City of Corona

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CFO No. 89-1; (Saddleback Valley Unified School District); Orange County A.O. No. 96-1; City of Oxnard A.O. Nos. 86-3, 87-1 and 89-1 (Refunding); City of Oxnard CFO No. 90-1; City of Corona CFO No. 1 (Refunding); City of Jurupa CFO No. 88-12; City of Temecula

PARTIAL LIST OF CLIENTS

Have completed appraisal assignments for a wide variety of clients. A partial list of these includes the following.

Anaheim City Unified School District Bank of America NT & SA Bank of Montreal Bear, Stearns & Co., Inc. Best Best & Krieger LLP (Law Firm) Carpinteria Valley Unified School District Chino Unified School District Citicorp, N.A. City of Brea City of Chino City of Chino Hills City of Chula Vista City of Colton City of Corona City of Fullerton City of Huntington Beach City of Jurupa City of Mission Viejo City of Moreno Valley City of Orange City of Oxnard City of Rancho Cucamonga City of Riverside City of San Bernardino City of San Marcos City of Temecula Coast Federal Bank Colton Joint Unified School District County of Los Angeles County of Orange County of Riverside County of San Bernardino County of Ventura

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Downey Savings and Loan Federal National Mortgage Association (FNMA) Federal Deposit Insurance Corporation (FDIC) Fieldman, Rolapp & Associates (Financial Consultants) Irvine Ranch Water District Irvine Unified School District Jurupa Community Services District Metrobank Metropolitan Water District Meserve, Mumper & Hughes (Law Firm) Munger, Tolles & Olson LLP (Law Firm) Murrieta Valley Unified School District Rialto Unified School District Riverside Unified School District Saddleback Valley Unified School District Santa Margarita Water District Sidley & Austin (Law Firm) Solana Beach Unified School District Southern California Edison Company Stone & Youngberg LLC (Bond Underwriters) Talmantz Aviation The Irvine Company Wells Fargo Bank Wells Fargo Mortgage Company Weyerhaeuser Mortgage Company

COURT EXPERIENCE

Qualified Expert Witness in the following courts:

United States District Court/Central District of California, Los Angeles Los Angeles County Superior Court Orange County Superior Court Riverside County Superior Court Ventura County Superior Court

ORGANIZATIONS

Member - Appraisal Institute (No. 6894)

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LICENSES

Real Estate Broker - State of California Certified General Real Estate Appraiser - State of California (Certificate: AG004964)

GUEST SPEAKER (for)

UCLA Symposium on Mello Roos Districts - 1988

"Exploring the Rumors & Realities of Land Secured Debt in California" -Conference sponsored by Stone & Youngberg, LLC, bond underwriters. held in Los Angeles on January 15, 1992

"Appraisals for Land Secured Financing" presentation for Stone & Youngberg, LLC, bond underwriters, held at San Francisco Headquarters on March 5, 1998

UCLA Symposium on Mello-Roos Districts - 2001

MISCELLANEOUS

Member Advisory Panel to California Debt Advisory Commission regarding Appraisal Standards for Land Secured Financing (May, 1994)

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EDUCATION

Bachelor of Investments, California

QUALIFICATIONS OF KAREN S. SIINO, MAI

Arts in Business California State

(1980)

Administration, Financial University, Long Beach,

Post-graduate Study, Real Estate Development, University of California, Irvine, California

Appraisal Institute Classes: Uniform Standards of Profes­sional Appraisal Practice, A & B; Appraisal Principles; Appraisal Procedures; Basic Income Capitalization; Advanced Income Capitalization; Narrative Report Writing; Advanced Applications, Case Studies. Successfully completed all classes in addition to successfully completing the writing of a Demonstration Report and passing the Comprehensive Exam for the Appraisal Institute. Became a Member of the Appraisal Institute in December, 1996.

EMPLOYMENT

1985 - Present Associate Appraiser for various MAI's. Duties Include the appraisal of various types of properties such as commercial, retail, industrial and vacant land. Specialty properties include easements, right­of-ways and special assessment districts. From 1985 to 1988 worked part-time; from 2/88 full-time.

1986 - 1988 Project Manager of Development for Ferguson Partners, Irvine, California. Duties included finding land; review of fee appraisals and valuations; analysis of proposed development; planning and design; management of development, construction and lease-up. The types of properties developed were commercial and indus­trial. Duties ranged from raw, vacant site develop­ment through property management of recently devel­oped projects.

1981 - 1986 Manager of Finance, Construction for Community Development Division, The Irvine Company, Irvine, California. Duties included originating and managing a newly formed division of finance to bridge between the accounting functions and project management functions. Worked with analysis and budgets for Community Development Di vision. Coordinated with

cities in forming new Assessment Districts to finance major infrastructure improvements. Types of proper­ties were apartments and single family residential lots on a for sale basis to apartment and home builders.

1980 - 1981 Investment Counselor, Newport Equity Funds, Newport Beach, California. Duties included obtaining private financing for residential properties and working with appraisals of properties and analyzing the invest­ments.

LICENSES

Real Estate Sales Person, State of California, 1980 Certified General Appraiser, State of California (#AG004793)

ORGANIZATIONS

MAI #11145 - Appraisal Institute

APPENDIX D

SUM!\IARY OF FISCAL AGENT AGREE'.\IE:\'T

The following is a brief summary of the provisions of the fiscal Agent Agreement ("Agreement"). This Summary is not intended to be definitive. Reference is made to the actual document ( a copy of which is available from the District) for the complete terms thereof

DEFINED TERl\lS

The following terms have the following meanings, not\vithstanding that any such tcnns may be elsewhere defined in this Official Statement. Any terms not expressly defined in this Summary or previously defined in this Official Statement have the respective meanings previously given. The following are not all of the tenns defined in the Agreement.

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

"Administrative Expenses" means the following actual or reasonably estimated costs directly related to the administration of the District: the costs of computing the Special Taxes and of preparing the annual Special Tax collection schedules (whether by the Superintendent or designee thereof or both); the costs of collecting the Special Taxes (whether by the County or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent for the Bonds; the costs of the Fiscal Agent ( including its legal counsel) in the discharge of the duties required of it under the Agreement; the costs of the District or its designee in complying with the disclosure requirements of applicable federal and state securities laws and of the Act, the District's Continuing Disclosure Agreement and the Agreement including those related to public inquiries regarding the Special Tax and disclosures to Owners and the Original Purchaser; the costs of the District or its designee related to any appeal of the Special Tax; any amounts required to be rebated to the federal government in order for the School District to comply with federal law; and an allocable share of the salaries of the School District staff directly relating to the foregoing. Administrative Expenses shall also include amounts advanced by the School District for any other administrative purposes of the District including costs related to prepayments of Special Taxes; recordings related to the prepayment, discharge or satisfaction of Special Taxes; amounts advanced to ensure compliance with federal rebate requirements; and the costs of commencing and pursuing to completion any foreclosure action arising from delinquent Special Taxes.

''Agreement" means the Fiscal Agent Agreement, as it may be amended or supplemented from time to time by any Supplemental Agreement adopted pursuant to the provisions therein.

"Annual Debt Service" means, for each Bond Year, the sum of (i) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of the provisions of the Agreement providing for mandatory sinking payments), and (ii) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking payment due in such Bond Year pursuant to the Agreement).

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law: '"Authorized lnn~stmcnts·· or .. Permitted Investments" means. subjel't tll appl1cahlc

( 1) h.xkral Securities.

( 1i) direct obligations for any of the following federal agencies \vhich ohligations are not fully guaranteed by the full faith and credit of the linited States of America: senior debt obligations rated "Aaa" by '.'v1oody"s (as defined herein) and .. AAA" by S&P (as defined herein) issued by the- Federal I\ational f\1ortgagc 1\ssuciation (Ff\i\lA) or Federal Home Loan \lortgage Corporation (FHL:vlC): obligations of the Resolution Funding Corporation ( REFCORP): and senior ckbt obligations of the h .. :deral Home- Loan Bank System.

(iii) Registered state warrants or treasury notes or bonds of the State uf Califurnia (the "'State"'). including bonds payable solely out of the revenues from a re\ cnue-producing property owned, controlled, or operated by the State or by a department, board, agency. or authority of the State. \\'hich arc rated in one of the two highest short-term or long-term rating categories by either Moody's or S&P. and which have a maximum term to maturity not to exceed three years.

( iY) Time certificates of ckposit or negotiable certificates of deposit issued hy. or deposit accounts with a state or nationally chartered bank or trust company. including the Fiscal Agent_ or a state or federal savings and loan association: provided, that the cenificates of deposit shall be one or more of the following: ( l) continuously and fully insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. and/or continuously and fully secured by securities described in subdivision (a) or (b) of this definition of Permitted Investments which shall have a market value. as determined on a marked-to-market basis calculated at kast weekly. and exclusive of accrued interest. or not less than 102 percent of the principal amount of the certificates on deposit: or (2) with a financial institution that is rated in the highest rating category by Moody's or S&P.

(v) Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided by either Moody's or S&P. \vhich commercial paper is limited to issuing corporations that are organized and operating within the United States of America and that have total assets in excess of five hundred million dollars ($500.000,000) and that have an "A" or higher rating for the issuer's debentures, other than commercial paper, by either Moody's or S&P. provided that purchases of digible commercial paper may not exceed 180 days, maturity nor represent more than IO percent of the outstanding commercial paper of an issuing corporation. Purchases of commercial paper may not exceed 20 percent of the prnceeds of any bond invested pursuant to this definition of Pem1itted Investments.

(vi) A repurchase agreement with a state or nationally charted bank or trust company or a national banking association or government bond dealer reporting to. trading with. and recognized as a primary dealer by the Federal Reserve Bank of I\:e,v York. pro\'ided that all of the following conditions are satisfied: (I) the agreement is

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secured by any one or more of these secunt1cs described in subdi\·ision ( i) of this definition of Permitted Investments, (2) these underlying securities arc required by the repurchase agreement to be held by a bank, trust company. or primary dealer having a combined capital and surplus of at least one hundred million dollars (SI 00.000,000) and which is independent of the issuer of the repurchase agreement. (3) these underlying securities are maintained at a market value, as determined on a marked-to-market basis calculated at least weekly, of not less than I 03 percent of the amount so invested.

(vii) An investment agreement or guaranteed investment contract with, or guaranteed by. a financial institution the long-term obligations of ·which are rated ""Aa3" or "AA-". respectively, or better by Moody's and S&P at the time of initial investment. The investment agreement shall be subject to a downgrade provision with at least the following requirements: (I) the agreement shall provide that within five business days after the financial institution's long-term unsecured credit rating has been withdrawn, suspended. other than because of general withdrawal or suspension by Moody's or S&P from the practice of rating that debt, or reduced below "AA-" by S&P or below ''Aa3" by Moody's (these events are called "rating downgrades") the financial institution shall give notice to the School District and the Fiscal Agent and, within the five-day period, and for as long as the rating downgrade is in effect, shall deliver in the name of the School District or the Fiscal Agent to the School District or the Fiscal Agent federal securities allowed as investments under subdivision (i) or (ii) of this definition of Permitted Investments with aggregate current market value equal to at least I 05 percent of the principal amount of the investment agreement invested with the financial institution at that time and unpaid interest, and shall deliver additional allowed federal securities as needed to maintain an aggregate current market value equal to at least 105 percent of the principal amount of the investment agreement and unpaid interest within three days after each evaluation date, which shall be at least weekly, (2) the agreement shall provide that, if the financial institution's long-term unsecured credit rating is suspended, withdrawn or reduced below ''A3" by Moody's or below "A-" by S&P, and the Fiscal Agent or the School District may, upon not more than five business days' written notice to the financial institution, withdraw the investment agreement, with accrued but unpaid interest thereon to the date, and terminate the agreement Providers with ratings of at least "A3" or "A-" are allowed with collateral.

(viii) Money market funds rated in the highest category by either Moody's or S&P, including funds for which the Fiscal Agent or an affiliate acts as financial advisor or provides other services.

(ix) The State of California Local Agency Investment Fund; provided that the Fiscal Agent may restrict investments in such fund to the extent necessary to keep moneys available for the purposes of the Agreement.

''Authorized Officer" means the Superintendent, the Assistant Superintendent, Business Services, the Assistant Superintendent, Facilities/Operational Services, or any other officer or employee authorized by the Board of Education of the School District or by an Authorized Officer to undertake the action referred to in the Agreement as required to be undertaken by an Authorized Officer.

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--Bond Counsel" mi:ans Rutan & Tucker, LLP or any attnrni:y or hrrn nf attnrncy" sekctcd by the District \vith e\pi:rtise in rendering opinions as to the legality and ta\-C\:cmpt status 1Jf securities issui:d by public entities .

.. Bonds"' means Community Facilities District \lo. 2002-1 of the \lurrieta Valley l nitied School District, 2002 Special Tax Honds.

"Business Day" mi:ans any day other than (i) a Saturday or a Sunday. or (iii a day on which banking institutions in the state in which the Fiscal Agent has its principal corporate trust ofticc arc authorized or obligated by law or i:xccut1ve order to be closc-d.

"Capitalized Interest Suhaccount" me-ans thi: subaccount \vithin the Bond Fund by that nami: i:stabl ished by the Agreement.

"Closing Date" means the date upon which there is delivery of the Bomb in exchange for the amount representing the purchase price of the Bonds by the Original Purchaser.

··continuing Disclosure Certificate" means that certain Continuing DisclPsurc Certificate executed by the School District, on behalf of the District. and ackno\.\ !edged and cunsi:nted to by David Taussig & Associates, Inc., as dissemination agent. dated the Clos111g Oak. as originally executed and as it may be amended from time to time in accordance with the terms thereof

··costs of Issuance" means items of expense payable or reimbursable directly or indirectly hy the District or School District and related to the authorization, sak and issuance of the Bonds. \vhich items of expense include. but are not limited to. printing costs, costs of reproducing and binding documents, closing costs, filing and recording fees. initial fees and charges of the Fiscal Agent including its first annual administration fee and fees and e\penses of its counsel. expenses incurred by the District or School District in connection \,·ith the issuance of the Bonds and the establishment of the District including costs related to any mitigatiLm agreement or other agreement related to establishment of the District special tax consultant fees and expenses, preliminary engineering fees and expenses, bond undenvritcr's discount, legal fci:s and charges. including bond counsel, disclosure counsel, financial consultants' fees. charges !lff execution, transportation and safekeeping of the Bonds and other costs. charges and fees in connection with the foregoing.

•·costs of Issuance Fund'" means the fund by that name established by the Agreemi:nt.

··county" means the County of Riverside. California.

"Debt Service" means thi: scheduled amount of interest and amortization of principal payable on the Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period.

··Developed Property" shall have the meanmg given in the Ratt: and Method of Apportionment.

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··District" means the Community Facilities District No. 2002- l of the Murrieta Valky Unified School District formed by the School District under the Act and the Resolution of Fonnation.

"Federal Securities" means any of the following which arc non-callable and which at the time of investment are legal investments under the laws of the State of Cal ifomia for funds held by the Fiscal Agent:

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

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

"Fiscal Agent" means State Street Bank and Trust Company of California, National Association, appointed by the District and acting as an independent fiscal agent with the duties and powers herein provided, its successors and assigns, and any other corporation or association which may at any time be substituted in its place.

""Fiscal Year" means the twelve-month period extending from July l in a calendar year to June 30 of the succeeding year, both dates inclusive.

"Interest Payment Dates" means March I and September l of each year, commencing September l, 2002.

"Maximum Annual Debt Service" means the largest Annual Debt Service for any Bond Year after the calculation is made through the final maturity date of any Outstanding Bonds.

'·Net Special Tax Revenues" means, after the initial $25,000 is funded to the Administrative Expense Fund pursuant to the Agreement, the proceeds of the Special Taxes received by the District, including any scheduled payments, interest thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon. "Net Special Tax Revenues" does not include any penalties or costs of collecting delinquent Special Taxes collected in connection with delinquent Special Taxes.

"Ordinance" means any ordinance adopted by the legislative body of District providing for the levy of the Special Taxes.

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"Outstanding ... when usL"d as of any particular time with reference to Bonds. mean-. ( subject to the pri.J\ is ions of Section 1'1.0-+ uf thL" AgreL"rnent) all Bonds except: 1 i) Bonds then:toforc G1111..:ded by the Fiscal AgL"tH or surrendered to the Fiscal Agent for cancL"llatinn: (ii\ BlHH.b paid l)r deemed to have been paid\\ ithin tht: meaning of tht: Agrt:emt:nt: and (iii\ Bond.., in lieu of or in substitution for which other Bnnds have been authorized. executed. issued and ddivercd by the District pursuant to this Agreement or any Suppkmental Agn:ement.

··owner" IllL'ans any person who is tht: rt:gistcred owner of any Outstanding Bond.

··Principal Office'" means the principal corporate trust office of the Fiscal Agcnt set forth in the Agreement or such other or additional offices as may be designated by the Fiscal Agent.

"Project .. means the facilities more particularly described in the Resolution of Form at ion .

.. Record Date" means the fifteenth day of the month next preceding the month of the applicable Interest Payment Date. whether or not such day is a Business Day.

"Reserve Requirement" means. as of any date of calculation an amount equal to the k-sser of ( i) the then Maximum Annual Dt:bt Service on the Bonds, (ii) one hundred twenty-fivt: percent ( 1~5°o) of the then average Annual Debt Servii..:c on the Bonds, or (iii) ten percent ( 10°0)

of the initial prini..:ipal amount of the l:3onds issued under the Agreement.

"Resolution" means Resolution 't\o. 01 02-46, adopted by the Board of Education of the School District on !\,larch 14, 2002. authorizing issuance of the Bonds.

··Resolution of Formation" means Resolution No. 0 I 102-26 adopted by the Hoard of Edui..:ation on January 17, 2002.

"Special Taxes" means the special taxes levied \\ithin the District pursuant to the Act, the Ordinance and the Agreement.

··supplemental Agreement" means an agreement the execution of which is authorized by a resolution that has been duly adopted by the legislative body of the District under the Act and which agreement amends or supplements the Agreement. but only if and to the extent that such agreement is specifically authorized under this Agreement.

FU\DS A:'JD ACCOUNTS

The following funds and accounts are established pursuant to the Agreement:

Improvement Fund. An Improvement Fund is established, as a separate fund to be hdd by the Fiscal Agent. Monies in the Improvement Fund shall be held in trust by the Fiscal Agent for the benefit of the District and shall be disbursed for the payment or reimbursement of costs of the Project upon \vritten direction of an Authorized Officer. Monies in the Improvement Fund shall be im cstcd in Authorized Investments. Interest earnings and profits from such investment shall be deposited and credited by the Fiscal Agent to the Improvement Fund to be used for the payment of the costs of the Project.

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Costs of Issuance Fund. A Costs of Issuance Fund is established. as a separate fund to be held by the Fiscal Agent. Monies in the Costs of Issuance Fund shall be held in trust by the Fiscal Agent and shall be disbursed from time to time to pay Costs of Issuance, as set forth in a requisition containing respective amounts to be paid to the designated payees, signed by an Authorized Officer and delivered to the Fiscal Agent concurrently ,vith the delivery of the Bonds and from time to time thereafter. The Fiscal Agent shall maintain the Costs of Issuance Fund for a period of 90 days after the Closing Date and then shall transfer any monies remaining therein, including any investment earnings thereon, to the Improvement Fund. Upon such transfer, the Costs of Issuance Fund shall be closed. Monies in the Costs of Issuance Fund shall be invested in Authorized Investments. Interest earnings and profits resulting from said investment shall be retained by the Fiscal Agent in the Costs of Issuance Fund to be used for the purposes of such fund.

Reserve Fund. A Reserve Fund is established, as a separate fund to he held hy the Fiscal Agent, to the credit of which a deposit shall be made equal to the Reserve Requirement as of the Closing Date for the Bonds, and deposits shall thereinafter be made as provided in the Agreement. Monies in the Reserve Fund shall be held in trust by the Fiscal Agent for the benefit of the Owners as a reserve for the payment of principal of, and interest and any premium on, the Bonds and shall be subject to a lien in favor of the Owners. All amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of, and interest and any premium on, the Bonds or for the purpose of redeeming Bonds. Monies in the Reserve Fund shall be invested in Authorized Investments. Whenever transfer is made from the Reserve Fund to the Bond Fund due to a deficiency in the Bond Fund, the Fiscal Agent shall provide written notice thereof to an Authorized Officer, specifying the amount withdrawn. Whenever, on the Business Day prior to any Interest Payment Date, or on any other date at the request of an Authorized Officer, the amount in the Reserve Fund exceeds the Reserve Requirement (including interest earnings), the Fiscal Agent shall provide written notice to an Authorized Officer of the amount of the excess and shall transfer an amount equal to the excess from the Reserve Fund to the Bond Fund to be used for the payment of interest on and principal of the Bonds on the next Interest Payment Date in accordance with the Agreement. Whenever the balance in the Reserve Fund equals or exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall upon the written direction of an Authorized Officer transfer the amount in the Reserve Fund to the Bond Fund to be applied on the next succeeding Interest Payment Date to the payment and redemption, in accordance with the Agreement, as applicable, of all of the Outstanding Bonds. If the amount transferred from the Reserve Fund to the Bond Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the District to be used for any lawful purpose of the District. Notwithstanding the foregoing, no amounts shall be transferred from the Reserve Fund pursuant to the Agreement until after (i) the calculation of any amounts due to the federal government pursuant to the Agreement following payment of the Bonds and withdrawal of any such amount from the Reserve Fund for purposes of making such payment to the federal government, and (ii) payment of any fees and expenses due to the Fiscal Agent. Whenever Special Taxes are prepaid and Bonds arc to be redeemed with the proceeds of such prepayment pursuant to of the Agreement, a proportionate amount in the Reserve Fund ( determined on the basis of the principal of Bonds to be redeemed and the

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original aggregate principal amount of the lfonds) shall be transkrred on the Busir11.:s.s Day prior to the redemptilHl date by the Fiscal Agent to the BLllld Fund to he applied to the redemption of the Bunds pursuant to the Agreement. t\lo111cs in the Reserve Fund shall he il1\cstcd in accordance \\1th the Agreement. Interest earnings and profits rcsu It i ng from said i n\'estment shall he retained in the Reserve Fund and (to the extent the balance in the Re-;er\'e Fund is otherwise equal to or grt:ater than the Reserve Requirement) may at any time he used, at the written direction of an Authorized Officer, for purposes of paying any rebate liability under the Agreement. Amounh not so used shall be transferred to the Bond Fund.

Bond Fund. A Bond Fund is established. as a separate fund to be held by the Fiscal /\gent. \Vithin the Bond Fund, the Fiscal Agent shall establish a temporary subaccount to be known as the Capitalized Interest Subaccount. and a separate subaccount known as the Special Tax Prepaymenb Subaccount. \tonics in the Bond Fund and the suhaccounts therein shall be held in trust hy the Fiscal Agent for the benefit of the Owners, shall be disbursed for the payment of the principal of, and interest and any premium on. the Bonds as provided bclmv, and. pending such disbursement. shall be subject to a lien in favor of the Owners. If amounts in the Bond Fund are insufficient for the purposes set forth above. the Fiscal Agent shall withdraw from the Reserve Fund to the extent of any funds therein amounts to cover the amount of such Bond Fund insufficiency. Amounts so ,vithdrawn from the Reserve Fund shall be deposited in the Bond Fund. If after the foregoing transfers. there are insufficient funds in the Bond Fund to make all of the required payments, the Fiscal Agent shall apply the available funds first to the payment of interest on the Bonds, then to the payment of principal due on the Bonds other than by reason of sinking payments, and then to payment of principal due on the Bonds by rt:ason of sinking payments. Any sinking payment not made as scheduled shall be added tu the sinking payment to he made on the next sinking payment date. ivlonics in the Special Tax Prepayments Subaccount shall be transferred by the Fiscal Agent to the Bond Fund on the next date for \vhich notice of redemption can timely be given for redemption of Bonds. and shall be used to redeem Bonds on the redemption date selected. On each Interest Payment Date on and before September I. 2002. the Fiscal Agent shall withdraw from the Capitalized Interest Subaccount and transfer to the Bond Fund an amount sufficient to pay the interest then due and payable on the Bonds, including any amounts of interest due on the Bonds by reason of a redemption of the Bonds required by the Agreement, taking into account any amounts then on deposit in the Bond Fund. Follmving the transfer of all remaining amounts to the Bond Fund, the Fiscal Agent shall close the Capitalized Interest Subaccount. Monies in the Bond Fund and the Special Tax Prepayments Subaccount shall be invested in Authorized Investments. Interest earnings and profits resulting from the investment of amounts in the Bond Fund and the Special Tax Prepayments Subaccount shall be retained in tht: Bond Fund and the Special Tax Prepayments Subaccount. respectively. to be used for purposes of such fund and accounts. interest earnings and profits resulting from the investment of amounts in the Capitalized interest Fund shall be transferred not lt:ss than monthly to the Improvement Fund.

Special Tax Fund. A Special Tax Fund is established, as a separate fund to be held by the Fiscal Agent to the credit of which the District will authorize direct deposit of all Special Taxes received by the District. Monies in the Special Tax Fund shall be held in trust by the Fiscal Agent for the benefit of the District and the Q\;i,'ners, shall be disbursed as provided below and. pending disbursement. shall be subject tu a lien in favor of the Ov-.-ners and the District. Frnm time to time as needed to pay the obligations of the District, but no later than the Business

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Day before each Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund and transfer the following amounts in the following order of priority: ( i) the amount or portion thereof. not exceeding $25,000, which an Authorized Officer directs the Fiscal Agent in writing to deposit in the Administrative Expense Fund for payment of Administrative Expenses; (ii) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund and any expected transfers from the Improvement Fund and the Special Tax Prepayments Subaccount to the Bond Fund, such that the amount in the Bond Fund equals the principal (including any sinking payment), premium, if any, and interest due on the Bonds on the next Interest Payment Date; (iii) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund, such that the amount in the Reserve Fund is equal to the Reserve Requirement; and (iv) the amount of Administrative Expenses transferred to the Administrative Expense Fund in excess of the amount previously transferred thereto pursuant to ( i) above, as directed in writing by an Authorized Officer. The amounts the Authorized Officer directs the Fiscal Agent to transfer from time to time to the Administrative Expense Fund shall not exceed, in any Fiscal Year, the amount included in the Special Tax levy for such Fiscal Year for Administrative Expenses. At any time following the deposit of Special Taxes in an amount sufficient to make payment of all of the foregoing deposits for the current Bond Year, any amounts in excess of such amounts remaining in the Special Tax Fund shall, upon the written direction of an Authorized Officer, be transferred by the Fiscal Agent to the District to be used for any lawful purpose. In the absence of such written direction, all amounts remaining in the Special Tax Fund on the first day of the succeeding Bond Year shall be retained in the Special Tax Fund and applied to the succeeding Bond Year's Annual Debt Service; provided, however, that in no event shall such amount be invested at a yield in excess of the yield of the Bonds. Monies in the Special Tax Fund shall be invested in Authorized lnvestments. lntercst earnings and profits resulting from such investment and deposit shall be retained in the Special Tax Fund to be used for the purposes thereof.

Administrative Expense Fund. An Administrative Expense Fund is established, as a separate fund to be held by the Fiscal Agent. Monies in the Administrative Expense Fund shall be held in trust by the Fiscal Agent for the benefit of the School District. Amounts in the Administrative Expense Fund shall be withdrawn by the Fiscal Agent and paid to the District upon receipt by the Fiscal Agent of requisition of an Authorized Officer stating the amount to be withdrawn, that such amount is to be used to pay an Administrative Expense and the nature of such Administrative Expense. Monies in the Administrative Expense Fund shall be invested in Authorized Investments. Interest earnings and profits resulting from said investment shall be retained by the Fiscal Agent in the Administrative Expense Fund to be used for the purposes thereof.

COVENANTS OF THE DISTRICT

Punctual Payment. The District will punctually pay or cause to be paid the principal of, and interest and any premium on, the Bonds when and as due in strict conformity \'v"ith the tem1s of the Agreement.

Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the District shall not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and shall not,

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directly or indirectly. be a party to the appwval of any· such arr:mgement by purd1a..,111g or funding :-.aid claims for interest or in any other manner. In case any such claim for intere"t is extended or funded, whether or not with the consent of the District. such claim for intt.:rcst "u extended or funded shall not bt.: entitled. in case of default hereunder. to tht.: hcndits of the Agret.:mcnt. except subject to the pmH payment in full of the principal of all of the Bonds then Outstanding and of all claims fr)r interest that have not been so extended or funded.

Against Encumbrances. Tht.: District shall not encumber. pledge or place any charge or lien upon any of the '.\Jct Special Taxes or other amounts or funds pledged to the Bonds superior tu or on a 11arity with the pledge and lien herein created for the benefit of the Bonds, except as permitted by the Agreement.

Books and Records. The District shall keep, or cause to be kept. proper boob of record 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 expenditure of amounts disbursed from the Administrative Expense Fund and the Special Tax Fund, and to the Net Special Taxes. Such books of record and accounts shall at all times during business hours he subJect to the inspection of the Fiscal Agent and the Owners of not less than ten percent ( I o<:u) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in ~Titing.

Protection of Security and Rights of o,,ncrs. The District shall preserve and protect the security of the Bonds and the rights of the Owners, and shall warrant and defend their rights against all claims and demands of all persons. From and after the delivery of any of the Bonds by the District. the Bonds shall be incontestable by the District.

Collection of Special Taxes. The District shall comply with all requirements of the Act so as to assure the timely colkction of Special Taxes, including without limitation, the enforcement of delinquent Special Taxes.

CoYenant to Foreclose. The District covenants that it shall order, and cause to be commenced. and thereafter diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the superior court to foreclose the lien of any Special Tax or installment thereof not paid when due as provided in the Fiscal Agent Agreement.

Further Assurances. The District shall adopt. make. execute and deliver any and all such further resolutions, instmments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the better assuring and confinning unto the Owners of the rights and benefits provided in the Agreement.

Tax Connants. The District will not take. nor suffer to be taken by the fiscal Agent or other\vise. any action with respect to the proceeds of any of the Bonds which would cause any of the Bonds to be "arbitrage bonds" or "private activity bonds" within the meaning of the Tax Code. The District agrees to comply with all applicable provisions of the Tax Code relating to the rebate of excess investment earnings on the proceeds of the Bonds to the United States of America.

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INVESTMENTS

Monies in any fund or account created or established by the Agreement and held by the Fiscal Agent shall be invested by the Fiscal Agent in Authorized Investments, as directed pursuant to the written direction of an Authorized Ot1icer. In the absence of any such written direction, the Fiscal Agent shall invest, to the extent reasonably practicable, any such monies in the Authorized Investment described in paragraph 7 of the definition thereof, and other.vise hold such amounts uninvested. Obligations purchased as an investment of monies in any fund shall be deemed to be part of such fund or account, subject, however, to the requirements of the Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts.

LIABILITY OF THE DISTRICT

The District shall not incur any responsibility in respect of the Bonds or the Agreement other than in connection with the duties or obligations explicitly herein or in the Bonds assigned to or imposed upon it. The District shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful default. The District shall not be bound to ascertain or inquire as to the performance or observance of any of the tenns, conditions covenants or agreements of the Fiscal Agent herein or of any of the documents executed by the Fiscal Agent in connection with the Bonds, or as to the existence of a default or event of default thereunder. No provision of the Agreement shall require the District to expend or risk its own general funds or otherwise incur any financial liability in the performance of any of its obligations hereunder, or in the exercise of any of its rights or powers, if it has reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

MODIFICATION OR AMENDMENT OF THE AGREEMENT

The Agreement and the rights and obligations of the District and of the Owners may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting of the Owners, of at least sixty percent ( 60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Agreement. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the District to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) pennit the creation by the District of any pledge or lien upon the Special Taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or this Agreement), or (iii) reduce the percentage of Bonds required for the amendment hereof. Any such amendment may not modify any of the rights or obligations of the Fiscal Agent without its written consent.

The Agreement and the rights and obligations of the District and of the Owners may also be modified or amended at any time by a Supplemental Agreement without the consent of any Owners only to the extent permitted by law and only for any one or more of the following purposes:

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(:\) tu add tu the covenants and agreements (1f the Distnct in the "\grccrncnt contained. other covenants and agreerncnts thl.'rs:after tu he uhscn l'lL or to limit or ~u,Tl.'ndcr any right or pnwer herein resern:d to or conferred upnn the Districc

( H) to make modifications not ad\·er:-.ely affecting any outstanding series of Bonds of the District in any material respect:

{C) to make such pro\·isions for the purpose of curing any ambiguity. ur of curing. correcting or supplementing any defective pru\ is ion contained in the Agreement, or in regard tu questions arising under the Agreement. as the District and the Fiscal Agent may deem necessary or desirable. so long as the prL)\'isions arc not inconsistent with the Agreement and du not ad\'erscly affect the right:,; of the Owners:

( D) tu make such additions. deletions or modification:,; as may be necessary or desirable tu assure exemption from gross federal income taxation of interest on the Bonds: and

(t) to modify. alter or amend the rate and method of apportionment of the Special Taxes in an: manner so long as such changes du not reduce the maximum annual Special Taxes that may be le\ ied in each year on developed prnpel1y within the District to an amount which is less than I I 0° o of the principal and interest due in each corresponding future Bond Y car with n:speet to the Bonds Outstanding as of the date of such amendment.

DISCHARGE OF AGREEME!\T

The District has the option to pay and discharge the entire indebtedness on all or anv pln1ion of the Bonds Outstanding in any one or more of the following ways:

(A) by \vcll and truly paying or causing to be paid the principal of, and interest and any premium on. such Bonds Outstanding, as and when the same become due and payable:

(B) by depositing \Vith the Fiscal Agent. in trust, at or before maturity, money that, together with the amounts then on deposit in the funds and accounts provided for in the Bond Fund and the Reserve Fund, is fully sufficient to pay such Bonds Outstanding, including all principal. interest and redemption premiums: or

(C) by irrevocably depositing with the Fiscal Agent in trust. cash and Federal Securities in such amount as the District determines as confirmed by Bond Coun:,;cl or an independent certifit::d public accountant, will, together with the interest to accrue thereon and monies then on deposit in the fund and accounts provided for in the Bond Fund and the Reserve Fund. be fully sufficient to pay and discharge the indcbtednes:,; on such Bonds (including all principal. interest and redemption premiums) at or before their respective maturity dates.

If the District takes any of the actions specified in (A), ( B) or (C) above. and if such Bonds are to be redeemed prior to the maturity thereof and notice of such redemption has been given as provided in the Agreement or the District has made provision for the giving of :,;uch notice satisfactory to the Fiscal Agent. then, at the election of the District. and notwithstanding that any Bonds have not been sun-endered for payment the pledge of the Special Taxes and other funds proYided for in the Agreement and all other obligations of the District under this

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Agreement with respect to such Outstanding Bonds shall cease and terminate. The District shall file notice of such election ·with the Fiscal Agent. Notwithstanding the foregoing. the District \Viii still be obligated to pay or cause to be paid to the 0\.vners of the Bonds not so surrendered and paid all sums due thereon, all amounts owing to the Fiscal Agent and othcnvise to assure that no action is taken or failed to be taken if such action or failure adversely affects the exclusion of interest on the Bonds from gross income for federal income tax purposes.

Upon compliance by the District with the foregoing with respect to all Bonds Outstanding, any funds held by the Fiscal Agent after payment of all fees and expenses of the Fiscal Agent that are not required for the purposes of the preceding paragraph shall be paid over to the District and any Special Taxes thereafter received by the District shall not be remitted to the Fiscal Agent but shall be retained by the District to be used for any purpose pennitted under the Act.

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APPENDIX E

OTC AND THE BOOK-ENTRY ONLY SYSTEM

The follo,ui11g description of the Ot'pository Trust Co111p,111_11 ("OTC'!, thi· prou'd11res 1111d record keeping with respect to be11cffrinl ownership i11tcrests in tlzi· Bonds, pt1y111cJ1t tf pri11cip11J, interest and other paymrnts 011 the Bo11ds to OTC Particip1111ts or Bl'l11'.fici11! Chu11crs, c01~fir111,1tio11 a11d transfer of h'ncficial ou.111crship interest in the Bonds and other related tra11sactio11s by and /1etwecn OTC. the OTC Pt1rticipt111f:; 1111d the Bcnt'.ficial Ow11ers is based solely Oil i11formatio11 prol'ided by OTC. Accordi11gly, no representations can be made by the Com1111111ity Facilities Oistrid co11cen1i11g these matters 1111d 11eitlzcr the OTC Participants nor the Be11efiL·ial OU'lll'rS should rt'ly oil the foregoing i11formntio11 with rt'Sped to such matters, but should instead confirm the s1rn11' 1uit!I OTC or the OTC P11rticipa11ts, as tlze rnse may be.

DTC and its Participants. OTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered. securities in the name of Cede & Co. (DTC's partnership nominee). One fully-registered Bond certificate will be issued for each m.1turity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with OTC.

OTC is a limited-purpose trust company organized under the laws of the State of New York, a Banking organization within the meaning of the laws of the State of Ne,"' York, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934, as amended. DTC holds securities of its participants ("OTC Participants") and facilitates the clearance and settlement of securities transactions among OTC Participants in such securities through electronic book-entry changes in accounts of OTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. OTC is owned by a number of its DTC Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the Book-Entry Only System is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the "Indirect Participants"). The rules applicable to DTC and for OTC Participants are on file with the Securities and Exchange Commission.

Book-Entry Only System. Purchases of Bonds under the OTC System must be made by or through DTC Participants, which will receive a credit balance in the records of OTC. The ownership interest of each actual purchaser of each Bond (the "Beneficial Owner") will be recorded. through the records of a OTC Participant. Beneficial Owners are expected to receive a written confirmation of their purchase providing certain details of the Bonds acquired.. Transfers of ownership interests in the Bonds will be accomplished by book entries made by OTC and, in turn, by the DTC Participants who act on behalf of the Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in the Bonds, except as specifically provided in the Fiscal Agent Agreement in the event participation in the Book-Entry Only System is discontinued (sec "Discontinuance of OTC Services" belmv).

To facilitate subsequent transfers, all Bonds deposited by participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Bonds with OTC and the registration in the name of Cede & Co. effect no change in beneficial ownership. OTC has no knowledge of the actual Beneficial Owners of the Bonds. DTC's records reflect only the identify of the DTC Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial

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O\\'rwrs. Thl' DTC trnd Indirect PartiL·ipanh will rL'main rL'spL1!1siblL· fur kL'l'pmg ,iccnunt of thL·tr htildings on bd1ali ,if thl'ir custun1L'rs.

So lung as Cl'dl' & Co. is thL· rl'gistl'red owner of the Bond!:>, as nomirn .. 'L' of OTC, rdvrL'tKL':i in this Official Stc1tl'ment to t11L' lwldl'rs L1r registered U\\'ners of the Bonds will ml'an Cede & C() . .1nd will nut ml'an the RL•1wficial Ownl'rs of the BL1nds.

OTC m,n determine to discontinue pruviding its sl'r\'ice with respect to the Bonds ,1t a1w time by gi,·ing notice tu the Community L1eilities District ,md discharging its responsibilitil's with respect therctn under applicable Ia"· Under such circumstances, Bond certificatl's are required tu be delin:'red as dl'scribed in thl' Fisc.11 Agent Agreement ThL· Beneficial 0\Yner, upon registration of certificates held in the Benefici,11 Owner's name, will become the registered o,,·ner of the Bonds.

The CPmmunit\ Facilitil's District ma\· determine that continuation of the s\'stl'm uf bouk-entrv tr,rnsfers thwugh DTC. (ur a successor securities depository) is not in the best intL•rest of thl' Renl'fici,11 Owners. In such en:•nt, Bonds will be deliYered as described in the Fiscal Agent Agreeml'nt.

Con\·ey,rnces L1f nutices and other communications by OTC to OTC Participants, by DTC Particip,mts to Indirect Participants, and bv OTC Participants and Indirect Participanh to BL•rwficial Owners will be gon:'rned by arrangements among them, subject tu any st,,tutory and regulator:,· req uiremcn h as may be in effect from time tu time.

Re1.kmptiun notices and all other notices to Bond owners will be sent only to Cede & Co., as registered ownL·r L1f the Bonds. If less than all of the Bonds within an issue are bL•ing redl'emed, DTC's practice is to determine by lot the amount of the interest of each OTC Participant in such issue to be redeenwd.

Neither OTC nor Cede & Co. ,vill consent to \'Ote with respect to thL' Bonds. Under ih usual pwcl'dures, OTC m,1ils an Omnibus Prnxy to the issuer of the Bonds as soon as possibk after the record date. The Omnibus Prnx\· assigns Cede & Co.'s consenting or voting rights to those OTC Participants to whose accuunts the Securities are creditt'd on the record date (identified in a listing attached tll the Omnibus Pro\.\·).

Principal and interest payments on the Bonds will be made solely to OTC or its nomim•e, Cede & Co., as registered owner of the Bonds. Upon receipt of monies, DTC's current practice is to immediatelv credit the accuunts of the OTC Participants in accordance with their respective holdings shown un the rL'Cords of OTC. Pa:,'ments by OTC Participants and Indirect Participants tu Benefici,,I Owners will be goYerned by standing rules ,md regulations governing municipal !:>ecurities held for the accounts of customers in bearer form or registered in "street name," and will be the respom,ibility of such OTC Participant or Indirect Particip,mt and not of OTC, the Fiscal Agent or the Community Facilities District, subject to any statutory and regulatory requirements as may be in effect from time to timl'.

Tlw Community Facilities District, the Lnderwriter and the Fiscal Agent do not have any responsibility or obligation to OTC Participants, to the persons for whom they act as nominees, to Beneficial Owners, or to an~· other person who is not shown on the registration books as being an owner of the Bonds, with respect to (i) the accuracy of any records maintained by OTC or any OTC Participants; (ii) the payment by OTC or any OTC Participant of any amount in respect of the principal of, redemption price of or interest on the Bonds; (iii) the delivery of any notice which is permittl'd or required to be gi\'en to registered owners under the Fiscal Agent Agreement; (iY) the selection by OTC or any OTC Participant of any ptc'rson tn recei,·e payment in the event of c1 pc1rti,1I redemption of the Bonds;(\'} any CLmscnt giYen or other action taken by DTC as registered mvncr; or (,·i) any lither matter arising with rL'SJX'ct to the Bonds (1r the Fiscal Agent Agreement The Community L1eilities District,

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the School District, the Underwriter and the Fiscal Agent cannot and do not give any assurances that DTC Participants or others will distribute payments of principal of or interest on tht' Bonds paid to DTC or its nominee, as the registered owner, or any notices to the Beneficial Owners or that they will do so on a timely basis or will serve and act in a manner described in this Official Statement. The Community Facilities District and the Fiscal Agent are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner in respect to the Bonds or any error or delay relating thereto.

Discontinuance of DTC Services. In the event that (a) DTC determines not to continue to act as securities depository for the Bonds, or (b) the Community Facilities District determines that DTC will no longer so act and delivers a written certificate to the Fiscal Agent to that effect, then the Community Facilities District will discontinue the Book-Entry Only System with DTC for the Bonds. If the Community Facilities District determines to replace DTC with another qualified securities depository, the Community Facilities District will prepare or direct the preparation of a ne\N single separate, fully registered Bond for each maturity of the Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the Fiscal Agent Agreement. If the Community Facilities District fails to identify another qualified securities depository to replace the incumbent securities depository for the Bonds, then the Bonds will no longer be restricted to being registered in the Bond registration books in the name of the incumbent securities depository or its nominee, but will be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the Bonds designates.

In the event that the Book-Entry Only System is discontinued, the following provisions would also apply: (i) the Bonds will be made available in physical form, (ii) principal of, and redemption premiums, if any, on, the Bonds will be payable upon surrender thereof at the corporate trust office of the Fiscal Agent in Los Angeles, California, (iii) interest on the Bonds will be payable by check mailed by first-class mail or, upon the written request of any Owner of $1,000,000 or more in aggregate principal amount of Bonds received by the Fiscal Agent on or prior to the 15th day of the calendar month immediately preceding the interest payment date, by wire transfer in immediately available funds to an account with a financial institution within the continental United States of America designated by such Owner, and (iv) the Bonds will be transferable and exchangeable as provided in the Fiscal Agent Agreement.

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APPENDIX F

FORM OF ISSUER CONTINUING DISCLOSURE CERTIFICATE CONTINUING DISCLOSURE CERTIFICATE

(Community Facilities District)

$2,795,000 COMMUNITY FACILITIES DISTRICT NO. 2002-1

OF THE MURRIETA VALLEY UNIFIED SCHOOL DISTRICT 2002 SPECIAL TAX BONDS

This Continuing Disclosure Certificate (this "Disclosure Certificate") is executed and delivered by Community Facilities District No. 2002-1 of the Murrieta Vallev Unified School District (the "District"}' in connection with the issuance of the bonds capticmed above (the "Bonds"). The Bonds are being issued pursuant to a Fiscal Agent Agreement dated as of March 1, 2002 (the "Fiscal Agent Agreement"), by and between the District and State Street Bank and Trust Company of California, National Association, as fiscal agent (the "Fiscal Agent"). The District hereby covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b )(5).

Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"A1111ual Report" means any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

"Annual Report Date" means the date that is six months after the end of the District's fiscal year (currently December 31 based on the District's fiscal year end of June 30).

"Disscmi11atio11 Agent" means David Taussig & Associates, Inc., or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.

"District" means Conununity Facilities District No. 2002-1 of the Murrieta Valley Unified School District.

"Listed Events" means any of the events listed m Section 5(a) of this Disclosure Certificate.

11 N(lfio11(l/ Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular date is available on the Securities and Exchange Conunission's Internet site at wv.·w.sec.gov.

"Ojficial Statement" means the final official statement executed by the District in connection with the issuance of the Bonds.

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'· I1:1rtiti1111ti11g UntltT,TnftT" mc,rn.-:. St()nl' & \'oungbcrg LLC the origin,1] umkrwrill'r of tlw Bonds rl'quirl'd to cmnpk with the Ruic in connection\\ ith offl'ring of the Bond .....

"R.tpti:-.ltnn/' means each '.\lational Repository and each State Repository, if ,111\.

"R.11ft•" me<rn.s Rule l:ic2-12(b)(:i) adopted bv the Securities; ,md E:-.:change Commi..,c,ion undl'r the ~ecurities E:-.:change Act of 1 Ln4, as the same may· be amended from. time to tinw.

"Sti1ft' R.(·;io:-;Uory" means an:,; public or pri\·ate repository or entity design,1tc•d by the St,1te of C,1lifornia as a state repository for the purpose of the Rule and recognized as such by tlw Sc'curitiL'S and Exchange Commission. As of the date of this Disclosure Certific1te, there is no State Repository.

Section 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later th,111 the Annual Report Date, commencing December 31, 2002 with the report for the 2001-02 fi_c.;cal year, provide to the Pc1rticipating Underwriter and to each Repository an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. )Jot later than l "1

Business Day·s prior to the Annual Report Date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). The Annual Report may· be submitted ,1S ,1 single document or as separate documents comprising a package, and may include bv reference other informc1hon as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not ,wailable bv that date. The audited financial statements of the District mav be included within or constitute a portion of the audited financial statements of the ~1urrieta \/alley Lnified School District. If the District's fiscal year changes, it shall give notice of such change in the same manner as for c1 Listed E\·ent under Section :i(c).

(b) If the District does not provide, or cause the Dissemination Agent to provide, an Annual Report to the Repositories by the Annual Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the Municipal Securities Rulcmaking Board and the appropriate State Repository, if any, in substantially the form attached hL'rcto as Exhibit A, \\'ith a copy to the Fiscal Agent (if different than the Dissemination Agent) .ind the Participating Undenvriter.

(c) The Dissemination Agent shall:

(i) determine each year prior to the Annual Report Date the name ,md. address of each National Repository and each State Repository, if any; and

(ii) if the Dissemination Agent is other than the District, file c1 report ,xith the District and the Participating Cnderwriter certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it \\'as provided and listing all the Repositories to which it was pro\·ided.

Section 4. Content of Annual Reports. The District's Annual Report shall contain or incorporate by reference the following documents and information:

(a) The District's audited financic1l statements for the most recently completed fisc.:11 year, together with the following statement:

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THE DISTRICT'S ANNUAL FINANCIAL STA TEivlE'.\:T IS PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE COI\HvlISSION STAFF'S INTERPRETATION OF RULE 15C2-12. NO FUNDS OR ASSETS Of THE DISTRICT OR THE MURR!ET AV ALLEY UNIFIED SCHOOL DISTRICT ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS, AND NEITHER Tl IE DISTRICT NOR THE MURRIETA VALLEY UNIFIED SCHOOL DISTRICT lS OBLICA TED TO ADVANCE AVAILABLE FUNDS TO COVER ANY DELINQUENClES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE DISTRICT OR THE MURRIETA VALLEY UNIFIED SCHOOL DISTRICT IN EVALUATING WHETHER TO BUY, HOLD OR SELL THE BONDS.

(b) Total assessed value (per the Riverside County Assessor's records) of all parcels currently subject to the Special Tax within the District, showing the total assessed \·aluation for all land and the total assessed valuation for all improvements \Vithin the District and distinguishing between the assessed value of improved and Lmimprovcd parcels. Parcels are considered improved if there is an assessed value for the improvements in the Assessor's records.

(c) The total dollar amount of delinquencies in the District as of August 1 of any year and, in the event that the total delinquencies within the District as of August 1 in any year exceed 5% of the Special Tax for the previous year, delinquency information for each parcel responsible for more than $5,000 in the payment of Special Tax, amounts of delinquencies, length of delinquency and stah1s of any foreclosure of each such parcel.

(d) The amount of prepayments of the Special Tax with respect to the District for the prior Fiscal Year.

( e) A land ownership summary listing property owners responsible for more than 5% of the annual Special Tax levy, as shown on the Riverside County Assessor's last equalized tax roll prior to the September next preceding the Annual Report Date.

( f) The principal amoLITTt of the Bonds outstanding and the balance in the Reserve Fund (along with a statement of the Reserve Requirement) as of the September 30 next preceding the Annual Report Date.

(g) An updated table in substantially the form of the table in the Official Statement entitled "Appraised Values and Value to Burden Ratios" based upon the most recent information available, provided that assessed values shown on the Riverside County assessor's most recent equalized tax roll prior to the September next preceding the Annual Report Date may be substih1ted for appraised values.

(h) An updated table in substantially the form of the table in the Official Statement entitled "Direct and Overlapping Governmental Obligations" as of the District's most recently completed fiscal year, b11t only W1til all of the property in the District is classified as "Developed Property" under the Rate and Method of Apportionment for the District.

(i) Any changes to the Rate and Method of Apportionment for the District set forth in Appendix B to the Official Statement.

(j) A copy of the annual information required to be filed by the District with the California Debt and lnveshnent Advisory Commission pursuant to the Act and relating generally to outstanding District bond amounts, fund balances, assessed values, special tax delinquencies and foreclosure information.

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( k) In addition to any of the information expressly required to be prm idt•d undL'r p<u,1hraphs (,1) through (j) of this Section, thL' District shall prn\·ide such further infonrt,1tion, if any, ,1S ma\· be necess,u~· to m,1ke the spccific,1lly required statements, in the light uf the circumst,UKL'S under which they are made, not misle,1ding.

Any t1r all of the items listed abon' may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, ,Nhich han' been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included bv reference is a final official statement, it must be <l\,1il.1ble from the i\lunicipal Securities Ruiemaking Board. The District shall ck,uly identif\ e,1eh such other document so included bv reference.

Section 3. Reportin~ of Si~nificant E\'ents.

(a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be gi\'cn, notice of the occurrence of any of the following events \vith respect to the Bonds, if material:

( 1) Principal and interest payment delinquencies.

(2) Non-payment related defaults.

(?,) Unscheduled dr,1ws on debt service resern•s retkcting financial difficulties.

(-1) Unscheduled dr,nvs on credit enhancements reflecting financial difficulties.

(3) Substihttion of credit or liquidity providers, or their failure to perform.

( b) Adverse tax opinions or events affecting the tax-exempt status of the securitv.

(7) t\1odifications to right::; of security holders.

( 8) Contingent or unscheduled bond calls.

(9) Dcfeasances.

(10) Release, substitution, or sale of property securing rLv,1yment of the securities.

( 11) Rating changes.

(b) vVhenever the District obtains knowledge of the occurrence of a Listed Event, the District shall as soon as possible determine if such event ,vould be material under applicable Federal securities law.

(c) If the District determines that knowledge of the occurrence of a Listed Event would be material Lmder applicable Federal securities lavv, the District shall, or shall cause the DisseminJ.tion Agent to, promptly file a notice of such occurrence ,,vith the Municipal Securities Rulemaking Board and each State Repository, if any, ,vith a copy to the Fiscal Agent (if

F--1

different than the Dissemination Agent) and the Participilting Underwriter. l\:ot\vithstanding the foregoing, notice of Listed Events described in subsections (a)(S) ;rnd (9) need not be t-i>iven under this subsection any earlier than the notice (if .my) of the underlying event is given to holders of affected Bonds pursuant to the Fiscal Agent Agreement.

Section 6. Termination of Reporting Obligation. The District's obligiltions under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section S(c).

Section 7. Dissemination Agent. The District may, from time to time, i1ppoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent will be David Taussig & Associates, Inc..

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nahire, or status of an obligated person with respect to the Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or vvaived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of the Fiscal Agent or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison betvveen the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c).

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SL'ctlon 9. Additional InfonT1.1tion. f\!othin~ in this Disclo..;url' CL'rtific,tl' .;hall be dl'emed to prc,·ent the District from disseminating a~y other information, using the meMlS of dissemination set forth in this Disclosure Certificate or anv other me,1ns of communic,1tion, or including ,u,~· tlther information in anv Annual Report or no.tice of occurrence of a Listed E\'C•nL in addition tn that which is required b!· this Disclosure Certificate. If the District chooses to include ,111\' information in anv Annual Report or notice of occurrence of ,1 Listed Event in addition tt-1 th,1t which is spedfically required by this Disclosure Certificate, the District sl-ull h,1\ e no obligation under this Disclosure Certificate to update such informJtiun or include it in anv futurl' Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the District to complv with anv prm·ision of this Disclosure Certificate, the Participating Undenvriter or any holder l.1r bendici,11 owner of the Bonds mi.1y ti.1ke such actions as mav be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its oblig,1tions tmdcr this Disclosure Certificate. A default under this Disclosure Certificate shall not bl' deemed an E\·ent of Default 1mdcr the Fiscal Agent Agreement, and the sole rcmcdv under this Disclosure Certificate in the event of any failure of the District to comply with this DisclosurL' Certificate shall be Jn Jction to compel performance.

5L·ction 11. Duties, Inurnmities and Liabilities of Disseminc1tion Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify c1nd sc1ve the Dissemination Agent, its officers, directors, employees and agents, harmless against an_v loss, expense and liabilities \Vhich it mc1:,' incur Jrismg out of or in the exercise or performance of its pmvers and duties hereunder, including the costs ,md expenses (including attorneys fees) of defending against any claim of liabilit\', but excluding lic1bilities due to the Disseminc1tion Agent's negligence or \villful misconduct. The Dissemination Agent shc1ll have no duty or obligation to revie\·V any inform,1tion provided to it here1mder and shall not be deemed to be acting in anv fiduciary c.1pacity for the District, the Propert:v Ov,'ners, the Fiscal Agent, the Bernd mvncrs or any other partv. The obligations of the District under this Section shall survive resignation or removal of the Dissemin,1tion Agent and payment of the Bonds.

Section 12. Notices. Anv notice or communications to be c1rn(mg anv of the parties to this Disclosure Certificate may be given as follows: .

To the Issuer:

To the Fiscal Agent:

Commmutv fclcilities District No. 2002-1 of the t\.1urrieta Yallev Unified School District 26396 Beckman Court Murrieta, California 92562 Attention: Assistant Superintendent, Facilities/Operational Sen-ices Fax: (909) 696-1641

State Street Bank and Trust Company of California, NJtional Association 633 West Fifth Street, 12th floor Los Angeles, California 90071-2005 Attention: Corporate Trust Department Fax: (213) 362-7357

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To the Dissemination Agent: David Taussig & Associates, Inc. 1301 Dove Street, Suite 600 Newport Beach, California LJ2hb0 Attention: Benjamin Dolinka, Vice President Fax: (949) 955-1590

To the Participating Underwriter: Stone & Youngberg LLC 50 California Street, 35th Floor San Francisco, California 9-1111 Attention: Municipal Research Department Fax: (415) 445-2395

Any person may, by vvritten notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or commtmications should be sent.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Fiscal Agent, the Dissemination Agent, the Participating- Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instnunent.

Date: April 24, 2002

AGREED AND ACCEPTED: David Taussig & Associates, Inc., as Dissemination Agent

By: Name: Title:

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COMMUNITY FACILITIES DISTRICT NO. 2002-1 OF THE MURRI ET A VALLEY UNIFIED SCHOOL DISTRICT

By=~~~~~~~~~~~~~~ C.F. DePreker, Assistant Superintendent,

Facilities/Operational Sen'ices Murrieta Valley Unified School District

on behalf of Community Facilities District No. 2002-1 of the Murrieta Vallev Unified

School District '

EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

\Jame of bslll'r: Cmrnmmit\· Facilities District l\o. 2002-1 of the \lurril'ta Valk•\' LnifiL•d School Dis.trict (the "District")

I\,1me of Bond Issue: Communitv Facilities District No. 2002-1 of the \lurrieta Vallev LnifiL•d School Dis.trict 2002 Speci,11 T.1x Bonds

Date of Issuance: April 2-1, 2002

NOTICE IS HEREBY GIVEN th,1t the District has not provided an Annual Report \vith respect to the ,1bove-named. Bonds as required b:,· Section 5.16 of the Fiscal Agent Agn•enwnt dated. as of i\farch 1, 2002 between the District ,md. State Street Bank and Trust Companv of California, National Association. The District anticipates th.1t the Annual Report \vill be filed bv ______ _

DISSEivlINA TION ACENT:

David Taussig & Associates, Inc.

Bv: _______________ _ Its: ----------------

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APPENDIXG

FORM OF PROPERTY OWNER CONTINUING DISCLOSURE CERTIFICATE CONTINUING DISCLOSURE CERTIFICATE

(Property Owner)

$2,795,000 COMMUNITY FACILITIES DISTRICT NO. 2002-1

OF THE MURRIETA VALLEY UNIFIED SCHOOL DISTRICT 2002 SPECIAL TAX BONDS

This Continuing Disclosure Certificate (this "Disclosure Certificate") is executed and delivered by __________________ (the "Property Owner"), in connection ,vith the issuance by Conununity Facilities District No. 2002-1 of the Murrieta Valley Unified School District (the "District") of the bonds captioned above (the 1 'Bonds"). The Bonds arc being issued pursuant to a Fiscal Agent Agreement dated as of March 1, 2002 (the "Fiscal Agent Agreement"), by and behveen the District and State Street Bank and Trust Company of California, National Association, as fiscal agent (the "Fiscal Agent"). The Property 0\\-Tier covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Property Owner for the benefit of the holders and beneficial owners of the Bonds.

Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"Ajfiliatf" of another Person means (a) a Person directly or indirectly m,vning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of such other Person, (b) any Person, 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or 1mder common control with, such other Person. For purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person.

"Assimzptio11 Agreement" means an nndertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Major 0\\-'ner's development and financing plans with respect to the District), whereby such Major Owner or Affiliate agrees to provide semi-annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in the District owned by such Major Owner and its Affiliates and, at the option of the Property Ovvner or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof.

"Oi:-;se111i11atio11 Agent" means State Street Bank and Trust Company of California, National Association, or any successor Dissemination Agent designated in writing by the Property O.vner, and which has filed with the Property Owner, the District and the Fiscal Agent a written acceptance of such designation, and which is experienced in providing dissemination agent services such as those required under this Disclosure Certificate.

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"l1hlrict"· means Conununitv FacililiL's District '.'\o. 2()()2-1 ot the t\lurnd,1 \',1lk·\· Lnitil'd School District.

"lhlt'tl F,'t'nt~" means am· of the l'\ L'nh listed m Section ;(,1) of this Di-.closurL' Cl'rl if ic ,1 tc.

"\L1i()r Cl,l'llt'r" means, as of an,· Report DatL', an owner of land in the District responsible in the aggregate for 10'\ or more ()f the Special Taxes in the District c1ctu.1lly il'Yied at ,my time during the then-current fiscal year.

".'\'11tio11t1! Rcpo;;itory" means any Nation,111:, Recognized \Iunicipal Securities lnform,1tion Repusitorv for purposes of the Rule. Information on the National Repositories as of a particular date is available on the Securities and Exchange Commission's Internet site at W\\'\\·.sec.gm·.

"Offici,1! Sti1tt'lllt'llt" means the final official statement executed bv the District m connectio~1 with the issuance of the Bonds.

"?,1rtit'1pati11:,:: Underwriter" means Stone & Youngberg LlC, the original urnfon\Titer of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Pt'r~(l11" means an individual, a corporation, a partnership, a limited liability· company, an association, a joint stock company·, ,1 trust, anv unincorporated organization or a government or political subdivision thereof.

"?ropt'rty" means the property owned by the Property Owner in the District.

"Rt'J'Ol't Daft>" means (a) the date that is three months after the end of the District's fiscal year (currently September 30 based on the District's Jtme 30 fiscal year end), and (b) the date that is nine months after the end of the District's fiscal vear (currentlv l\1arch 31 based on the District's June 30 fiscal year end). , -

"Rt'po:-itory" means each National Repository and each State Repository, if any.

"Ruft," shall mean Rule 15c2-12(b)(S) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"St'111i-A.11111111l Report" means any Semi-Annual Report provided by the Property Owner pursuant to, and as described in, Sections 3 and -I- of this Disclosure Certificate.

"Special Taxc:;" means the special taxes levied on taxable property vvithin the District.

"St11ft> Rcpo:;itory" means any public or private repository or entity designated by the Stilte of California as a state repository for the purpose of the Rule and reco6111ized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

Section 3. Provision of Semi-Annual Reports.

(a) The Property Owner shall, or upon ,-vritten direction shall cause the Dissemination Agent to, not later th.m the Report Date, commencing September 30, 2002, provide to each Repositor~' a Semi-Annual Report which is consistent vvith the requirements of Section -1 of this Disclosure Certificate with a copy to the Fiscal Agent

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(if different from the Dissemination Agent), the Particip,1ting underwriter and the District. Not later than 15 Business Days prior to the Report Date, the Property Owner shall provide the Semi-Annual Report to the Dissemination Agent. The Property Owner shall provide a written certification with (or included as a part of) each Semi-Annual Report furnished to the Dissemination Agent, the Fiscal Agent (if different from the Dissemination Agent), the Participating Undern'riter and the District to the effect that such Semi-Annual Report constitutes the Semi-Annual Report required to be fomished by it tmder this Disclosure Certificate. The Dissemination Agent, the Fiscal Agent, the Participating Underwriter and the District may conclusively rel:: upon such certification of the Property Owner and shall have no duty or obligation to rc\·iew the Semi-Annual Report. The Semi-Annual Report may be submitted as a single document or as separate documents comprising a package, and may incorporate by reference other information as provided in Section 4 of this Disclosure Certificate.

(b) If the Dissemination Agent does not receive a Semi-Annual Report by 15 days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Property Owner that the Semi-Annual Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Property Owner to determine whether its obligations tmder this Disclosure Certificate have terminated (pursuant to Section 6 below) and, if so, to provide the Dissemination Agent with a notice of such termination in the same manner as for a Listed Event (pursuant to Section 5 belmv). If the Property Owner does not provide, or cause the Dissemination Agent to provide, a Semi-Annual Report to the Repositories by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board and appropriate State Repository, if any, in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the District and the Participating Undenvriter.

( c) The Dissemination Agent shall:

(i) determine prior to each Report Date the name and address of each National Repository and each State Repository, if any;

(ii) to the extent the Semi-Annual Report has been furnished to it, file a report with the Property Owner (if the Dissemination Agent is other than the Property Owner), the District and the Participating Undcnvriter certifying that the Semi-Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

Section 4. Content of Semi-Annual Reports. The Property Owner's Semi-Annual Report shall contain or incorporate by reference the information set forth in Exhibit B, any or all of which may be included by specific reference to other documents, including official statements of debt issues of the Property Owner or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the docmnent included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Property Owner shall clearly identify each such other document so included by reference.

In addition to any of the information expressly required to be provided in Exhibit B, the Property Owner's Semi-Annual Report shall include such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

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SL'ction ;_ Rl'portin)! of Significant EH'nb.

(,1) The Property Owner -,h,111 gi\'(.', or c,rnse to be given, noticl' of tlw occurrence of an:· of the following Listl'd Events with respect to the Bonds, if m,1tl'nc1l:

(i) bankruptcv or insoh'ency proceedings comnwnced bv or .1g,1i11c.;t the Property Owner ,rnd, if known, any bankruptcy or insol\'ency prncel'dings commenced b_v or ag,1inst any Affiliate of the Propertv Owner;

(ii) failure to p,1y an:· taxes, special taxes (including the Speci,11 Taxes) or assessments due with respect to the Property;

(iii) filing of a l,nvsuit against the Property Owner or, if known, ,m Affiliate of the Propt'rty Owner, seeking damages th,1t could have a significant impact on the Property O\n1er's ,1bilit_v to pay Special Taxes or to sell or den'lop the Property;

( i\·) material damage to or destruction of ,my of the improvements on the Property that could h,we a significant impact on the Property Owner's ,1bilitv tu p,ff Special Taxes or to sell or develop the Property; and

(\·) any payment default or other material default bv tlw Prnpertv ()\\'ner on any loan with respect to the construction of impron'ml'nh on the Property.

(b) \Nhenever the Property O\vner obtains knowledge of the occurrence of a Listed En·nt, the Property Owner shall as soon as possible determine if such e\·ent \n1uld be material under applicable Federal securities l.1w.

(c) If the Property (}.vner determines that knmvled.ge of the occurrence of a ListL>d Event \Votild be material tmdcr applicable Federal securities law, the Prnpertv Owner shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each Stilte Repository, if any, with c1 copy to the Fiscal Agent, the District and the Participating Undenvrikr.

Section 6. Duration of Reporting Obligation.

(a) All of the Property Owner's obligations herem1d.er shall commence on the d,1te hereof and shall terminate (except as pro\'ided in Section 11) on the earliest to occur of the following:

(i) upon the legal defeas,mce, prior redemption or payment in full of all the Bonds, or

(ii) at such time as property owned by the Property O,vner 1s no longer responsible for payment of lOc\, or more of the Special TaxL•s, or

(iii) the date on ·which the Property 0.vner prepays in full all of the Special Taxes attributable to the Property.

The Property Ovmer shall give notice of the termination of its obligations under this Disclosure Certificate in the same manner as for a Listed Event under Section 5.

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(b) If a portion of the property in the District O\vned by the Propertv Owner, or any Affiliate of the Property Owner, is conveyed to a Person th,1t, upon such conveyance, will be a Major Owner, the obligations of the Property 0\vner hereunder with respect to the property in the District owned by such Major Owner and its Affiliates may be assumed by such Major Ovmer or by an Affiliate thereof and the Property Owner's obligations hereunder will be terminated. ln order to effect such assumption, such Major Owner or Affiliate shall enter into an Assumption Agreement in form and substance satisfactory to the District and the Participating Underwriter.

Section 7. Dissemination Agent. The Property O\~mer may, from time to time, appoint or engage a Dissemination Agent to assist the Property °"'-'ner in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be State Street Bank and Trust Company of California, National Association. The Dissemination Agent may resign by providing thirty days' written notice to the District, the Property Owner and the Fiscal Agent.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Property Owner may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied (provided, however, that the Dissemination Agent shall not be obligated under any such amendment that modifies or increases its duties or obligations hereunder without its written consent thereto):

(a) if the amendment or waiver relates to the provisions 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 type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.

Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or anv other means of communication, or including any other information in any Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Property Owner chooses to include any information in any Semi-Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Property Owner shall have no obligation under this Agreement to update such information or include it in any future Semi-Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the Property Owner to comply with any provision of this Disclosure Certificate, the Fiscal Agent shall (upon ivritten direction and only to the extent indemnified to its satisfaction from any liability, cost or expense, including fees and expenses of its attorneys), and the Participating Underwriter and any holder or beneficial

G-5

u\\'ner of the H()nds m,1>·, take such ,1ctions ,b mc1v be necL'ssarv and c1ppro1)ri,1tc, includmg seeking man~-Iatc or specific performance b\· court order, to cause the Propcrtv Owner to comp!\' with its oblig,1tions undL'r this DisclosurL' Certific1te. A default under this Disclosure Cntific1te shall not be deemed an [\'cnt of Default under the Fiscc1l Agent Agreement, and the sole renwd\· under this Disclosure Certificate in the e\'L'nt of any failure of the Property Owner to com11l~; with this Disclosure Ccrtific.1.te shall be an action to compel performance.

Section 11. Duties. Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such dutiL'S ,1S arc specifically set forth in this Disclusurc Certificate, and the Property Owner agrees to indemnify and save the Dissemin.ition Agent its officers, directors, emplo~·ees and agents, harmless against any loss, expense and li,1bilities which it nKI\' incur arising out of or in the exercise or performance of its p()wers ,md duties heretmder, including the reasonable costs and expenses (including attorneys' fees) of defending ag<1inst any claim of liability, but excluding liabilities, costs and expenses due to the Disscmin.:ition Agent's negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services prnYided hereunder in accordance with its schedule of fees as amended from time to time, which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses, reason,ible legal ft.,cs and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemin.:ition Agent shall have no duty or obligation to review any information provided to it heretmder and sh.111 not be deemed to be acting in any fiduci.uy cap.:icity for the District, the Property Owner, the Fiscal Agent, the Bond owners, or any other part~'. The obligations of the Prnpert:v O,.vner under this Section shall sun-ive resignation or rcmm·al of the Dissemination Agent and payment of the Bonds.

Section 12. Notices. Any notice or conununicatiorL-; to be among any of the p.1rtics to this Disclosure Certificate may be given as folluws:

To the Issuer:

To the Dissemination Agent:

To the Participating Underwriter:

Conununity Facilities District No. 2002-1 of the fl.lurrieta Vallev Unified School District 263% Beckman Court Murrieta, California 92562 Attention: Assistant Superintendent, F.1eilities/Operational Services Fax: (909) 696-16-!1

St.:ite Street Bank and Trust Company of California, National Association 633 West Fifth Street, 12th Floor Los Angeles, California 90071-2005 Fax: (213) 362-7357

Stone & Youngberg LLC 50 California Street, 35th Floor San Francisco, California 94111 Attention: Municipal Research Department Fax: (-!15) -!-!5-2395

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To the Property 0\vncr:

_____ , CA 9 Attention: __ _ Fax:

Any person may, by written notice to the other persons listed abon-', designate a different address or telephone number(s) to which subsequent notices or communications should be sent.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solelv to the benefit of the District, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial ovmers from time to time of the Bonds, and shall create no rights in any other person or entity. All obligations of the Property Owner hereunder shall be assumed by any legal successor to the obligations of the Property Owner as a result of a sale, merger, consolidation or other reorganization.

Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instnunent.

Date: April 2.J, 2002

AGREED AND ACCEPTED: State Street Bank and Tmst Company of California, National Association as Dissemination Agent

Bv: T1tle:

a

Title: _______________ _

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EXHIBIT A

NOTICE OF FAILURE TO FILE SEMI-ANNUAL REPORT

Commtmitv Facilities District !\u. 2LHl2-l of the !\lurril't,1 Valle\· Unified School Dis.trict

I'\,lll1L' uf Bond bsue: Community E1cilities District '.\o. 2002-1 of the \lurrida Vallcv Lnified School District 200'.2 Special T,n Bonds

D,1te of Issuance: April 24, 2002

'.\JOTlCE IS HEREBY GIVE:\f that (the "~fajor Owner") has not provided a Semi-Annual Report with respect to the above-named bonds as required b:v that certain Continuing Disclosure Certificate (Property Ownn), dated April 2-1, 2002. The lvtajor Owner ,rnticipatcs that the Semi-Annual Report will be filed by ______ _

DISSE\lINATION ACENT: State Stred Bank and Trust Company of California, National Association

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EXHIBIT B

SEMI-ANNUAL REPORT

COMMUNITY FACILITIES DISTRICT NO. 2002-1 OF THE MURRIETA VALLEY UNIFIED SCHOOL DISTRICT

2002 SPECIAL TAX BONDS

This Semi-Annual Report is hereby submitted Lmder Section -l of the Continuing Disclosure Certificate (the "Disclosure Certificate") dated as of April 2-l, 2002 executed by the undersigned (the "Property Owner") in connection with the issuance of the above-captioned bonds by Com1mmity Facilities District No. 2002-1 of the Murrieta \'alley Unified School District (the "District").

Capitalized terms used in this Semi-Annual Report but not otherwise defined have the meanings given to them in the Disclosure Certificate.

I. Property Ownership and Development

The information in this section is provided as of _________________ (this date must be not more than 60 days before the date of this Semi-Annual Report).

A. Property currently owned by the Property Owner in the District (the "Property"):

Development Name Number of Lots Number of Homes completed or under constn1Ction

B. Stah1s of land development or home construction activities:

C. Status of building permits and any significant amendments to land use or development entitlements:

D. Property sold, optioned or leased by the Property Owner to end users or merchant builders:

*

Since the Date of Issuance of the Bonds

Acres* Lots

Since the Last Semi-Annual Report

Acres* Lots

Hornes Hornes For bulk land sales only (excluding sales of finished. lots or completed homes).

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L St,1tus of anv land purchase contracts with regt1rd to the Prnpert\. \\ lwtlwr acquisitinn of l,rnd in the District b:, the Propcrlv O,u1er or s,1lcs of Lind to other ~1rnpcrl\ O\\'Ilers (utlwr th,1n indi\·idual homeowners).

II. legal and Financial Status of Property Owner

Unless such information has pre\'iously been included or incorporated bv reference in a Semi-Annual Report, describe any change in the legal structure of the Propert:: Owner or the financial condition ond financing plan of the Property Owner that would material!:· and ,1d\·t.1 rselv intt.>rtl're with its abilitv to complete its development ptm described in the Offici,11 Statement.

III. Change in Development or Financing Plans

Unless :-such information has pre\·iously been included or incorporated b:' reference in a Semi-Annual Report, describe an:· de\·elopment plans or financing plans relating to the Property tlz,1t ,m' 11111tt·ri,1!1_11 difft'rt'11t f1·0111 the proposed de\·elopment ilnd fo1oncing plan described in the Officio! Statement.

IV. Official Statement Updates

Unless such information has previously been included or incorporated by reference in il Semi-Annual Report, describe anv other significont changes in the information relating to the Property Owner or the Property contained in the Official Statement under the heading "PROPERTY OW'.\;ERSHIP Al\'D PROPOSED DEVELOPtvIE\JT" that ,vmild materiollv and adversely interfere vvith the Property Owner's ability to develop ond sell the Pruperty as described in the Official Statement.

V. Other Material Information

In addition to any of the inforrnotion expressly required obove, provide such further information, if any, as may be necessary to moke the specifically required statements, in the light of the circumstances under which they are made, not misleading.

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VI. Property Owner Contact

Set forth below are the name and title of and contact information for the officer or representative of the Property Ovvncr who may be contacted regarding the stcitus of the payment of property taxes, including the Special Tax, for the Property and the Property Owner's compliance with the Continuing Disclosure Certificate:

Name: Title: Telephone: Facsimile: E-mail:

Certification

The tmdersigned Property Owner hereby certifies that this Semi-Annual Report constitutes the Semi-Annual Report required to be furnished by the Property Ov\'ner tmder the Continuing Disclosure Certificate dated as of April 24, 2002 executed by the Property Owner in connection with the issuance of the above-captioned bonds.

ANY OTHER ST A TEMENTS REGARDING THE PROPERTY OWNER, THE DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER'S FINANCING PLAN OR FINANCIAL CONDITION, OR THE BONDS, OTHER THAN STATEMENTS MADE BY THE PROPERTY OWNER IN AN OFFICIAL RELEASE OR NEWSPAPER OF GENERAL CIRCULATION, OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD OR A NATIONALLY RECOGNIZED MUNICIPAL SECURITIES INFORiv1ATION REPOSITORY, ARE NOT AUTHORIZED BY THE PROPERTY OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS.

THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS SEMI­ANNUAL REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE.

Dated: _____________ _

a

Title: _____________ _

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(THIS PAGE INTENTIONALLY LEFT BLANK)

APPENDIX H

FORM OF BOND COUNSEL OPINION

Board of Education Murrieta Valley Unified School District 26396 Beckman Court Murrieta, California 92562

April 24, 2002

Re: Community Facilities District No. 2002-1 of the Murrieta Valley Unified School District, 2002 Special Tax Bonds (Final Opinion)

Dear Board Members:

We have acted as bond counsel for the Murrieta Valley Unified School District (the "District") in connection with proceedings for the issuance and sale of $2, 795,000 aggregate principal amount of 2002 Special Tax Bonds (the "Bonds") of Community Facilities District No. 2002-1 of the District (the "CFO"). The Bonds are designated 2002 Special Tax Bonds; are in the denomination of $5,000, or any integral multiple thereof; are dated April 24, 2002; bear interest payable semiannually at the rates and mature on September 1 in the years and in the amounts, as follows:

Principal Interest Maturit)'. Amount Rate

2004 $40,000 3.80% 2005 40,000 4.30 2006 40,000 4.75 2007 45,000 5.00 2008 45,000 5.10 2009 45,000 5.25 2010 50,000 5.40 2011 50,000 5.50 2012 55,000 5.60 2013 60,000 5.70 2014 60,000 5.80 2015 65,000 5.90 2016 70,000 6.00 2017 75,000 6.10

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Board ,1f bJucati,m :\pril 2--L 2U02 Page 2

201S 2019 2020

2026

2033

SOJlOO 6.20 SOJHlO 6.25 ~5,000 (dO

655.()()() 6.375

I, I 5 :\000 6.-45

Both the principal of and interest on the Bonds are payable in lawful money of the Lnitcd States uf A.merica. Interest on the Bonds is payable to the registered O\Vncr on \,larch I and September I of each year commencing September l, 2002, by check of the Fiscal Agent. State Street Bank and Trust Company of California_ t\ational Association, at the address shO\vn on the registration hooks as of the fifteenth day· of the month preceding such payment date. Principal and interest at maturity arc payable upon surrender at the principal corporate trust office of tht.: Fiscal Agent in Los Angeles. California.

The Bonds arc issued pursuant to the provisions of Title 5, Division 2, Part I, Chapter 2.5 of the Government Code, authorized by an ckction held on February 14, 2002, a resolution adopted on \•larch 14, 2002 (the "Resolution") of the Board of Education of the District acting as the legislative body of the CFD. and a Fiscal Agent Agreement, dated as of March I, 2002, by and betvv'Cen the CFO and the Fiscal Agent (collectively, the "Fiscal Agent Agreement").

\V c have examined the Resolution, tht.: Fiscal Agent Agreement_ and other legal proceedings required for the issuance of the Bonds. Based on such review. in our opinion such proceedings shmv lawful authority for the issuance of the Bonds by the CFO under the Constitution and laws of the State of California now in force, and the Bonds are valid and legally binding obligations of the CFO. enforceable in accordance with their terms, except as moratorium. reorganization or other similar laws affecting creditors' rights generally or by the exercise of judicial discretion in accordance \Vith general principles of equity or othcr\visc in appropriate cases. The Bonds are payable from the proceeds of a special tax to be levied by the C FD and other amounts as provided in the Fiscal Agent Agreement.

We are of the opinion that interest on the Bonds is exempt from personal income taxes imposed by the State of California. and. assuming compliance by the CFO with the covenants in the Fiscal Agent Agreement designed to meet the requirements of the Internal Revenue Code of I 9H6, as amended (the "Code"), \Ve are further of the opinion that, under existing !av.·. regulations, rulings and court decisions, interest on the Bonds is excluded from gross income for purposes of federal income taxation and is not an item of tax preference for purposes of the federal alternative minimum tax imposed by Section 55 of the Code on individuals and corporations.

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Board of Education April 24, 2002 Page 3

The opinions expressed herein may be affected by actions taken ( or not taken) or events occurring ( or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether such actions or events are taken or do occur.

The opinions expressed herein are based upon our analysis and interpretation of existing laws. regulations, rulings and judicial decisions and cover catain matters not directly addressed by such authorities.

Very truly yours,

RUTAN & TUCKER, LLP

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APPENDIX I

COMMUNITY FACILITIES DISTRICT BOUNDARY MAP

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SHEET 1 OF 1

Reference is hereby mode to the Assessor mops of the County of Riverside for an exact description of the lines

and dimensions of each lot and parcel.

PROPOSED BOUNDARIES OF MURRIETA VALLEY UNIFIED SCHOOL DISTRICT

COMMUNITY FACILITIES DISTRICT NO. 2002-1

RIVERSIDE COUNTY STATE OF CALIFORNIA

906-130-00 I

906-130-029

906-130-030 906-130-026

906-450-004

906-450-003

PREPARED BY

DAVID TAUSSIG & ASSOCIATES, INC.

( 1) filed in the office of the Cle~ of lhe Boord of Education this _ doy of ------< 20_.

Clerk of lhe Boord of Education

(2) I heretr, certify thct the within map showing the proposed boundaries of Community Facilities District No. 2002-1, Riverside County, Slate of Cafifomio, ,as opprOYed by the Boord of [ducafon a\ a regular meemg thereof, held on this __ doy of 20_, by its ResollMn No. ---·

Clm of the Boord of Education

(3) Filed this _ day of 20~ at the hour of __ o'clock _m, in Book __ of Mops of ~ssment end Comm unify F acililies Districts at poge __ and as Instrument No. __ , in the office of lhe County Recorder of R'iverside County, Stale of Cofifomio.

Counfy Recorder of Rrierside County

LEGEND Boundorln of Community

Focllltlea 01,trlcl No. 2002-1

A3au,or Poree! Boundorlea

nnn-nrrn-nnn Assessor Parcel Number

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