$5,870,000 COMMUNITY FACILITIES DISTRICT NO OF THE LAKE ELSINORE UNIFIED SCHOOL DISTRICT SERIES 2013 SPECIAL TAX BONDS

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1 NEW ISSUE NOT RATED In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject, however, to certain qualifications described herein, under existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2013 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). In the further opinion of Bond Counsel, interest on the Series 2013 Bonds is not an item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations, although Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liabilities. In the further opinion of Bond Counsel, interest on the Series 2013 Bonds is exempt from State of California personal income taxation. Bond Counsel expresses no other opinion regarding or concerning any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2013 Bonds. See LEGAL MATTERS Tax Exemption herein. Dated: Date of Delivery $5,870,000 COMMUNITY FACILITIES DISTRICT NO OF THE LAKE ELSINORE UNIFIED SCHOOL DISTRICT SERIES 2013 SPECIAL TAX BONDS Due: September 1, as shown below The Community Facilities District No of the Lake Elsinore Unified School District Series 2013 Special Tax Bonds (the Series 2013 Bonds ) are being issued under the Mello-Roos Community Facilities Act of 1982 (the Act ), as amended, and a Fiscal Agent Agreement, dated as of December 1, 2013, by and between Community Facilities District No of the Lake Elsinore Unified School District (the Community Facilities District ) and Zions First National Bank, as fiscal agent (the Fiscal Agent ). The Series 2013 Bonds are payable from proceeds of Special Taxes (as defined herein) levied on property within the Community Facilities District according to the rate and method of apportionment of special tax approved by the qualified electors within the Community Facilities District and by the Governing Board (the Board ) of the Lake Elsinore Unified School District (the School District ), acting as the Legislative Body of the Community Facilities District, and subsequent proceedings of the Legislative Body, as more fully described herein. The Series 2013 Bonds are being issued to (i) finance the acquisition and construction, either directly or indirectly, of certain school, water and sewer improvements (the Facilities ), (ii) fund a Reserve Fund for the Series 2013 Bonds and (iii) pay certain costs of issuing the Series 2013 Bonds. See ESTIMATED SOURCES AND USES OF FUNDS and FACILITIES TO BE FINANCED WITH PROCEEDS OF THE SERIES 2013 BONDS herein. Interest on the Series 2013 Bonds is payable on each March 1 and September 1, commencing March 1, The Series 2013 Bonds will be issued in denominations of $5,000 or integral multiples thereof. The Series 2013 Bonds, when delivered, will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Series 2013 Bonds as described herein under THE SERIES 2013 BONDS Book-Entry and DTC. The Series 2013 Bonds are subject to optional redemption, mandatory redemption from prepayment of Special Taxes and mandatory sinking fund redemption as described herein. THE S ERIES 2013 BONDS, THE INTERES T THEREON, AND ANY PREMIUMS PAYABLE ON THE REDEMPTION OF ANY OF THE S ERIES 2013 BONDS, ARE NOT AN INDEBTEDNESS OF THE SCHOOL DISTRICT, THE STATE OF CALIFORNIA (THE STATE ) OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN), THE STATE NOR ANY OF ITS POLITICAL S UBDIVIS IONS IS LIABLE FOR THE S ERIES 2013 BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DES CRIBED HEREIN) OR THE S TATE OR ANY POLITICAL S UBDIVIS ION THEREOF IS PLEDGED TO THE PAYMENT OF THE S ERIES 2013 BONDS. OTHER THAN THE SPECIAL TAXES WITHIN THE COMMUNITY FACILITIES DIS TRICT, NO TAXES ARE PLEDGED TO THE PAYMENT OF THE S ERIES 2013 BONDS. THE S ERIES 2013 BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DIS TRICT PAYABLE S OLELY FROM THE S PECIAL TAXES LEVIED WITHIN THE COMMUNITY FACILITIES DIS TRICT AS MORE FULLY DES CRIBED HEREIN. This cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the Series 2013 Bonds involves risks which may not be appropriate for some investors. See BONDOWNERS RISKS herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Series 2013 Bonds. The Series 2013 Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the School District and the Community Facilities District by Bowie, Arneson, Wiles & Giannone and McFarlin & Anderson LLP, Laguna Hills, California, Disclosure Counsel. Nossaman LLP, Irvine, California, has reviewed certain matters for the Underwriter, and Goodwin Procter LLP, Los Angeles, California, has reviewed certain matters for Lennar Homes of California, Inc. It is anticipated that the Series 2013 Bonds, in book-entry form, will be available for delivery through the services of DTC on or about December 19, Dated: December 5, 2013

2 MATURITY SCHEDULE COMMUNITY FACILITIES DISTRICT NO OF THE LAKE ELSINORE UNIFIED SCHOOL DISTRICT SERIES 2013 SPECIAL TAX BONDS $1,775,000 SERIAL BONDS BASE CUSIP NO Maturity (September 1) Principal Amount Interest Rate Yield CUSIP No. Maturity (September 1) Principal Amount Interest Rate Yield CUSIP No $10, % 1.250% SP $95, % 4.600% SZ , SQ , TA , SR , TB , SS , TC , ST , TD , SU , TE , SV , TF , SW , TG , SX , TH , SY5 $1,420, % Term Series 2013 Bonds due September 1, 2038, Yield 5.650% CUSIP No TJ7 $2,675, % Term Series 2013 Bonds due September 1, 2044, Yield 5.750% CUSIP No TK4 CUSIP A registered trademark of the American Bankers Association. Copyright Standard & Poor s, a Division of The McGraw-Hill Companies, Inc. CUSIP data herein is provided by Standard & Poor s CUSIP Service Bureau. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP numbers are provided for convenience of reference only. Neither the School District nor the Underwriter takes any responsibility for the accuracy of such numbers.

3 LAKE ELSINORE UNIFIED SCHOOL DISTRICT GOVERNING BOARD 1 Tom Thomas, President Heidi Matthies Dodd, Clerk of the Board Stan Crippen, Member Juan Saucedo, Member Susan E. Scott, Member SCHOOL DISTRICT ADMINISTRATORS Dr. Douglas Kimberly, Superintendent Dr. George Landon, Deputy Superintendent, Administrative & Fiscal Support Services Gregory J. Bowers, Assistant Superintendent, Facilities & Operations Support Services Dr. Alain Guevara, Assistant Superintendent, Instructional Support Services Kip Meyer, Assistant Superintendent, Personnel Support Services Sam Wensel, Executive Director, Personnel Support Services PROFESSIONAL SERVICES BOND COUNSEL/ SCHOOL DISTRICT COUNSEL Bowie, Arneson, Wiles & Giannone Newport Beach, California APPRAISER Stephen G. White, MAI Fullerton, California DISCLOSURE COUNSEL McFarlin & Anderson LLP Laguna Hills, California FISCAL AGENT Zions First National Bank Los Angeles, California FINANCIAL ADVISOR/SPECIAL TAX CONSULTANT/CFD ADMINISTRATOR Dolinka Group, LLC Irvine, California 1 Board officer positions for the upcoming year are traditionally established at the December meeting of the Board.

4 GENERAL INFORMATION ABOUT THE OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Series 2013 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Series 2013 Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the School District, the Community Facilities District or Lennar Homes (defined herein), in any press release and in any oral statement made with the approval of an authorized officer of the School District or the Community Facilities District or any other entity described or referenced herein, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend, and similar expressions identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the School District or the Community Facilities District or any other entity described or referenced herein since the date hereof. The School District and the Community Facilities District do not plan to issue any updates or revisions to the forward-looking statements set forth in this Official Statement. Limited Offering. No dealer, broker, salesperson or other person has been authorized by the School District or the Community Facilities District to give any information or to make any representations in connection with the offer or sale of the Series 2013 Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the School District, the Community Facilities District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2013 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the School District, the Community Facilities District or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Series 2013 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Series 2013 Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE SERIES 2013 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE SERIES 2013 BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

5 TABLE OF CONTENTS Page INTRODUCTION...1 General...1 The School District...1 The Community Facilities District...1 Minimum Annual Special Tax Requirement...2 Purpose of the Series 2013 Bonds...3 Sources of Payment for the Series 2013 Bonds...3 Appraisal...4 Tax Exemption...5 Risk Factors Associated with Purchasing the Series 2013 Bonds...5 Forward Looking Statements...6 Professionals Involved in the Offering...6 Other Information...7 CONTINUING DISCLOSURE...7 ESTIMATED SOURCES AND USES OF FUNDS...8 FACILITIES TO BE FINANCED WITH PROCEEDS OF THE SERIES 2013 BONDS...9 THE SERIES 2013 BONDS...9 Authority for Issuance...9 General Provisions...9 Debt Service Schedule...11 Redemption...12 Registration, Transfer and Exchange...14 Book-Entry and DTC...15 SECURITY FOR THE SERIES 2013 BONDS...15 General...15 Special Taxes...16 Rate and Method...16 Proceeds of Foreclosure Sales...19 Special Tax Fund...21 Bond Fund...23 Reserve Fund...24 Administrative Expense Fund...25 Investment of Moneys in Funds...25 Payment of Rebate Obligation...26 Additional Bonds for Refunding Purposes Only...26 Special Taxes Are Not Within Teeter Plan...26 COMMUNITY FACILITIES DISTRICT NO General Information...26 Summary of Proceedings...27 Special Tax Revenues and Project Debt Service Coverage...28 Appraised Property Values...30 Special Tax Levy...32 Appraised Value to Burden Ratio...35 Value-to-Lien Ratio; Estimated Tax Rate...37 Special Tax Delinquencies; School District/Community Facilities District Special Tax Delinquencies...37 Concentration of Special Tax Obligation...38 Direct and Overlapping Debt...38 Overlapping Assessment and Community Facilities Districts i-

6 Other Overlapping Direct Assessments...42 PROPERTY OWNERSHIP AND DEVELOPMENT...43 Property Ownership...43 Lennar Homes of California, Inc...44 Property Development Status...47 Development Plan...48 Financing Plan...50 Environmental Conditions...50 BONDOWNERS RISKS...50 Risks of Real Estate Secured Investments Generally...50 Risks Related to Current Real Estate Market Conditions...51 Economic Uncertainty; State Budget...51 Special Taxes Are Not Personal Obligations...51 The Series 2013 Bonds Are Limited Obligations of the Community Facilities District...51 Appraised Values...52 Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property...52 Disclosure to Future Purchasers...53 Billing of Special Taxes...53 Inability to Collect Special Taxes...53 Hazardous Substances...54 Insufficiency of the Special Tax...55 Exempt Properties...56 Depletion of Reserve Fund...56 Potential Delay and Limitations in Foreclosure Proceedings...56 Bankruptcy and Foreclosure Delay...57 Payments by FDIC and Other Federal Agencies...59 Factors Affecting Parcel Values and Aggregate Value...60 No Acceleration Provisions...61 Community Facilities District Formation...61 Right to Vote on Taxes Act...61 Ballot Initiatives and Legislative Measures...62 Limited Secondary Market...63 Loss of Tax Exemption...63 IRS Audit of Tax-Exempt Bond Issues...63 Limitations on Remedies...63 LEGAL MATTERS...64 Legal Opinion...64 Tax Exemption...64 Original Issue Discount; Premium Bonds...65 Impact of Legislative Proposals, Clarifications of the Code and Court Decisions on Tax Exemption..65 Backup Withholding...66 Absence of Litigation...66 No General Obligation of School District or Community Facilities District...66 NO RATINGS...66 UNDERWRITING...67 PROFESSIONAL FEES...67 MISCELLANEOUS ii-

7 APPENDIX A - GENERAL INFORMATION ABOUT THE LAKE ELSINORE UNIFIED SCHOOL DISTRICT AND REGIONAL EMPLOYMENT...A-1 APPENDIX B - RATE AND METHOD OF APPORTIONMENT FOR COMMUNITY FACILITIES DISTRICT NO OF LAKE ELSINORE UNIFIED SCHOOL DISTRICT... B-1 APPENDIX C - SUMMARY APPRAISAL REPORT... C-1 APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT...D-1 APPENDIX E - FORM OF COMMUNITY FACILITIES DISTRICT CONTINUING DISCLOSURE AGREEMENT... E-1 APPENDIX F - FORM OF OPINION OF BOND COUNSEL...F-1 APPENDIX G - BOOK-ENTRY SYSTEM...G-1 -iii-

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11 OFFICIAL STATEMENT $5,870,000 COMMUNITY FACILITIES DISTRICT NO OF THE LAKE ELSINORE UNIFIED SCHOOL DISTRICT SERIES 2013 SPECIAL TAX BONDS INTRODUCTION This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Series 2013 Bonds to potential investors is made only by means of the entire Official Statement. General This Official Statement, including the cover page and appendices hereto, is provided to furnish information regarding the Community Facilities District No of the Lake Elsinore Unified School District Series 2013 Special Tax Bonds (the Series 2013 Bonds or the Bonds ). The Series 2013 Bonds are issued pursuant to the Act (as defined below) and a Fiscal Agent Agreement, dated as of December 1, 2013 (the Fiscal Agent Agreement ), by and between Community Facilities District No of the Lake Elsinore Unified School District (the Community Facilities District ) and Zions First National Bank, as fiscal agent (the Fiscal Agent ). See THE SERIES 2013 BONDS Authority for Issuance herein. The Community Facilities District may issue additional bonds payable on a parity with the Series 2013 Bonds for refunding purposes only. The School District The Lake Elsinore Unified School District (the School District ) provides public education within an approximately 140-square mile incorporated and unincorporated area in Riverside County (the County ). The School District was established in November 1988, through a merger of the Lake Elsinore Elementary School District and the Lake Elsinore Union High School District, each of which had been in existence for approximately 100 years. On July 1, 1989, the School District completed proceedings to reorganize as a unified school district utilizing the same boundaries as the predecessor districts under the name Lake Elsinore Unified School District. The School District currently operates 12 elementary schools, 4 middle schools, 3 comprehensive high schools, 1 continuation high school, 2 alternative programs, 2 K-8 schools, an adult education program and a K-12 online academy school, with a total enrollment of approximately 21,609 students as of October 18, The Community Facilities District The Community Facilities District was formed and established by the School District on October 19, 2004, pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section et seq. of the California Government Code, the Act ), following a public hearing and a subsequent landowner election at which the qualified electors of the Community Facilities District, by more than a two-thirds vote, authorized the Community Facilities District to incur bonded indebtedness for school, water and sewer improvements in the aggregate not-to-exceed amount of $10,000,000 and approved the levy of special taxes (the Special Taxes ). On April 18, 2013, the Board, acting as the 1

12 Legislative Body of the Community Facilities District, and pursuant to a previously adopted resolution and notices, conducted Annexation Proceedings (as defined below), pursuant to which Annexation Territory (as defined below) was annexed to the Community Facilities District and the imposition of Special Taxes of the Community Facilities District on such Annexation Territory was approved by the qualified electors within the Annexation Territory. Once duly established, a community facilities district is a legally constituted governmental entity established for the purpose of financing specific facilities and services. Subject to approval by a twothirds vote of the qualified voters within a community facilities district and compliance with the provisions of the Act, a community facilities district may issue bonds and may levy and collect special taxes to repay such bonded indebtedness, including interest thereon. Pursuant to the Act, a community facilities district may be divided into geographic improvement areas for specified purposes. The Community Facilities District is located in the City of Wildomar (the City ), and includes a non-contiguous portion of an area known as Andalusia I and Andalusia II. A portion of the Community Facilities District is located southwesterly of Palomar Street, northwesterly of Clinton Keith Road and northeasterly of Grand Avenue (consisting of Riverside County Tract Maps and 30939). A second portion of the Community Facilities District is located adjacent to Catt Road, easterly of Palomar Street (consisting of Riverside County Tract Map 31837). The second portion was annexed to the Community Facilities District in April See COMMUNITY FACILITIES DISTRICT NO Summary of Proceedings Subsequent Proceedings herein. The Community Facilities District is being developed into 130 single-family detached residential units on approximately net taxable acres. As of October 1, 2013, the property within the Community Facilities District was owned by individual homeowners (94 completed homes), and Lennar Homes of California, Inc., a California corporation ( Lennar Homes or the Developer ) (3 model homes, 16 homes under construction and 17 vacant lots). As of November 21, 2013, Lennar Homes has obtained additional building permits for all but 9 of the remaining vacant lots and has completed and closed escrow to individual homeowners additional homes. See Footnote 1 to Table 3. Detailed information about the location of and property ownership and land uses in the Community Facilities District is set forth in COMMUNITY FACILITIES DISTRICT NO herein. Minimum Annual Special Tax Requirement The Governing Board of the School District (the Board ), acting as the Legislative Body of the Community Facilities District, will levy the 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. If the sum of the amounts collected from Developed Property is insufficient to satisfy the Minimum Annual Special Tax Requirement, then the Board will 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. If the sum of the amounts collected from Developed Property and Undeveloped Property is insufficient to satisfy the Minimum Annual Special Tax Requirement, then the Board will levy Proportionately an Annual Special Tax 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. The Minimum Annual Special Tax Requirement is defined in the Rate and Method of Apportionment of Special Tax for the Community Facilities District (the Rate and Method ) as the amount required in any Fiscal Year to pay (i) the annual debt service or the periodic costs on all outstanding Series 2013 Bonds, (ii) Administrative Expenses of Community Facilities District, (iii) the costs associated with the release of 2

13 funds from an escrow account(s) established in association with any bonds with respect to the Community Facilities District (there is no escrow account for the Series 2013 Bonds), (iv) any amount required to establish or replenish any reserve funds (or account thereof) established in association with the Series 2013 Bonds, (v) an amount equal to the reasonably anticipated delinquent Special Taxes, based on the delinquency rate for Special Taxes in the prior fiscal year less (vi) any amount(s) available to pay annual debt service or other periodic costs on the Series 2013 Bonds pursuant to any applicable bond indenture, fiscal agent agreement or trust agreement. See SECURITY FOR THE SERIES 2013 BONDS Rate and Method. Purpose of the Series 2013 Bonds A portion of the proceeds of the Series 2013 Bonds will be used to finance the acquisition and construction, either directly or indirectly, of certain schools and school facilities of the School District and to finance the costs of water and sewer facilities (collectively, the Facilities ) of the Elsinore Valley Municipal Water District ( EVMWD ). The cost of the school facilities funded with the proceeds of the Series 2013 Bonds is expected to exceed the financed cost of the water and sewer facilities. The Community Facilities District was formed in connection with the School Facilities Impact Mitigation Agreement (the Original Mitigation Agreement ), dated April 17, 2004, by and between the School District and the Prior Owners (as defined below). In 2011, Lennar Homes acquired all of the property from the Prior Owners which remained to be developed and sold within the Community Facilities District. The Original Mitigation Agreement was amended by the First Amendment to School Facilities Impact Mitigation Agreement, by and between the School District and Lennar Homes, dated April 18, 2013 (as amended, the Mitigation Agreement ). See FACILITIES TO BE FINANCED WITH PROCEEDS OF THE SERIES 2013 BONDS and COMMUNITY FACILITIES DISTRICT NO Property Ownership and Development herein. Sources of Payment for the Series 2013 Bonds The Series 2013 Bonds are secured by and payable from a first pledge of Net Taxes, which is defined within the Fiscal Agent Agreement as Gross Taxes less Administrative Expenses of $20,400 per Fiscal Year, which amount escalates at two percent (2.00%) per fiscal year from and after Fiscal Year (the Administrative Expense Requirement ). Gross Taxes are defined in the Fiscal Agent Agreement as the amount of all Special Taxes collected within the Community Facilities District and proceeds from the sale of property collected pursuant to the foreclosure provisions of the Fiscal Agent Agreement for the delinquency of such Special Taxes. Special Taxes are defined as the special taxes levied within the Community Facilities District pursuant to the Act, the Resolution of Formation (as defined below), Ordinance No adopted by the Legislative Body of the Community Facilities District on November 16, 2004, Ordinance No adopted by the Legislative Body of the Community Facilities District on May 9, 2013 (collectively, the Ordinances ), providing for the levy of the Special Taxes, and the voter approval obtained at the October 19, 2004, special election and the April 18, 2013, special annexation election held within the annexation territory. Administrative Expenses are defined as the administrative costs with respect to the calculation and collection of the Special Taxes and any other costs related to the Series 2013 Bonds and the Fiscal Agent Agreement, including the fees and expenses of the Fiscal Agent and any persons, parties, consultants or attorneys employed pursuant to the covenants of the Fiscal Agent Agreement, costs and legal expenses of foreclosure actions or costs otherwise incurred by the Community Facilities District in order to carry out the authorized purposes of the Series 2013 Bonds. Pursuant to the Act, the Rate and Method, the Resolution of Formation, the Ordinances, the Annexation Proceedings and the Fiscal Agent Agreement, so long as the Series 2013 Bonds are outstanding, the Community Facilities District will annually fix and levy the amount of Special Taxes 3

14 within the Community Facilities District required for the payment of principal of and interest on outstanding Series 2013 Bonds becoming due and payable during the ensuing year including any necessary replenishment or expenditure of the Reserve Fund for the Series 2013 Bonds, an amount equal to the Administrative Expense Requirement and any additional amounts necessary for expenses incurred in connection with administration or enforcement of delinquent Special Taxes. See SECURITY FOR THE SERIES 2013 BONDS Special Taxes herein. Pursuant to the Act, all lands owned by a public entity within the Community Facilities District are exempt from the levy of the Special Tax, unless the public entity acquires the property after recordation of the Notice of Special Tax Lien, in which case the public entity will be obligated to pay the Special Tax, subject to certain limitations. The Rate and Method exempts from the Special Tax all property owned by the State of California (the State ), the federal government and local governments, as well as certain other properties, subject to certain limitations. See SECURITY FOR THE SERIES 2013 BONDS Rate and Method and BONDOWNERS RISKS Exempt Properties. The Series 2013 Bonds are further secured by a first pledge of all moneys deposited in the Reserve Fund. See SECURITY FOR THE SERIES 2013 BONDS. A Reserve Fund will be established out of the proceeds of the sale of the Series 2013 Bonds, in an amount equal to the Reserve Requirement. The Fiscal Agent Agreement defines the Reserve Requirement with respect to the Series 2013 Bonds as an amount, as of any date of calculation, equal to the least of (i) 10% of the original principal amount of the Series 2013 Bonds, less original issue discount, if any, plus original issue premium, if any, (ii) Maximum Annual Debt Service on the Series 2013 Bonds (as defined in the Fiscal Agent Agreement) or (iii) 125% of average annual debt service on the Series 2013 Bonds. The ability of the Board, in its capacity as Legislative Body of the Community Facilities District, to increase the Annual Special Taxes levied to replenish the Reserve Fund is subject to the maximum annual amount of Annual Special Taxes authorized by the qualified voters of the Community Facilities District. The moneys in the Reserve Fund will only be used for payment of principal of, interest and any redemption premium on, the Series 2013 Bonds, and at the direction of the Community Facilities District, for payment of rebate obligations related to the Series 2013 Bonds. See SECURITY FOR THE SERIES 2013 BONDS Reserve Fund. The Community Facilities District has also covenanted in the Fiscal Agent Agreement to cause foreclosure proceedings to be commenced and prosecuted against certain parcels with delinquent installments of the Special Taxes. For a more detailed description of the foreclosure covenant, see SECURITY FOR THE SERIES 2013 BONDS Proceeds of Foreclosure Sales. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN) OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE SERIES 2013 BONDS. OTHER THAN THE SPECIAL TAXES WITHIN THE COMMUNITY FACILITIES DISTRICT, NO TAXES ARE PLEDGED TO THE PAYMENT OF SERIES 2013 BONDS. THE SERIES 2013 BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLE SOLELY FROM THE SPECIAL TAXES LEVIED WITHIN THE COMMUNITY FACILITIES DISTRICT AS MORE FULLY DESCRIBED HEREIN. Appraisal An appraisal of the land and existing improvements for the development within the Community Facilities District, dated October 9, 2013 (the Appraisal ), has been prepared by Stephen G. White, MAI, 4

15 Fullerton, California (the Appraiser ) in connection with issuance of the Series 2013 Bonds. The purpose of the Appraisal is to estimate the aggregate market value of the as is condition of the property as of the October 1, 2013 date of value, and allocated to the individual owners (94 completed singlefamily homes) and to Lennar Homes (3 model homes, 16 homes under construction and 17 vacant lots). The Appraisal also reflects the proposed Community Facilities District bond financing, together with the effective tax rate of ±1.7% based on recent base sale prices of the homes and including special taxes for the Community Facilities District and other overlapping debt. The Appraisal is based on certain assumptions expressed therein. Subject to these assumptions, the Appraiser estimated that the fee simple market value of the Taxable Property within the Community Facilities District (subject to the lien of the Special Taxes), as of October 1, 2013, was $42,065,000. The market values reported in the Appraisal result in an approximate value-to-lien ratio of 7.17:1, calculated with respect to the Series 2013 Bonds. There was no other direct and overlapping bonded debt as of the Assessor s equalized assessment roll for Fiscal Year , other than general obligation bonds of the Metropolitan Water District of Southern California. The value-to-lien ratios of individual parcels will differ from the foregoing aggregate values. See COMMUNITY FACILITIES DISTRICT No Direct and Overlapping Debt. See also BONDOWNERS RISKS Appraised Values and Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property herein and APPENDIX C SUMMARY APPRAISAL REPORT appended hereto for further information on the Appraisal and for limiting conditions relating to the Appraisal. Tax Exemption In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject, however, to certain qualifications described herein, under existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2013 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). In the further opinion of Bond Counsel, interest on the Series 2013 Bonds is not an item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations, although Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liabilities. In the further opinion of Bond Counsel, interest on the Series 2013 Bonds is exempt from State of California personal income taxation. Bond Counsel expresses no other opinion regarding or concerning any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2013 Bonds. See LEGAL MATTERS Tax Exemption herein. Set forth in Appendix B is the form of opinion Bond Counsel is expected to deliver in connection with the issuance of the Series 2013 Bonds. For a more complete discussion of such opinion and certain other tax consequences incident to the ownership of the Series 2013 Bonds, including certain exceptions to the tax treatment of interest, see TAX MATTERS. Risk Factors Associated with Purchasing the Series 2013 Bonds Investment in the Series 2013 Bonds involves risks that may not be appropriate for some investors. See the section of this Official Statement entitled BONDOWNERS RISKS for a discussion of certain risk factors which should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Series 2013 Bonds. 5

16 Forward Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as a plan, expect, estimate, project, budget or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the caption COMMUNITY FACILITIES DISTRICT NO General Information and Property Ownership and Development herein. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE COMMUNITY FACILITIES DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. Professionals Involved in the Offering Zions First National Bank, Los Angeles, California, will serve as the fiscal agent, registrar, authentication agent and transfer agent for the Series 2013 Bonds and will perform the functions required of it under the Fiscal Agent Agreement for the payment of the principal of and interest and any premium on the Series 2013 Bonds and all activities related to the redemption of the Series 2013 Bonds. Bowie, Arneson, Wiles & Giannone, Newport Beach, California is serving as Bond Counsel to the Community Facilities District and as general counsel to the School District. McFarlin & Anderson LLP, Laguna Hills, California, is acting as Disclosure Counsel. Stifel, Nicolaus & Company, Incorporated is acting as Underwriter in connection with the issuance and delivery of the Series 2013 Bonds. Nossaman LLP, Irvine, California, is acting as Underwriter s Counsel, and Goodwin Procter LLP, Los Angeles, California, has reviewed certain matters for Lennar Homes. The appraisal work was done and the appraisal report provided by Stephen G. White, MAI, Fullerton, California. Dolinka Group, LLC, Irvine, California, is acting as Financial Advisor/Special Tax Consultant and CFD Administrator and is also acting as initial dissemination agent to the Community Facilities District. Except for some Bond Counsel fees and Special Tax Consultant fees paid from advances made to the School District by Lennar Homes, payment of the fees and expenses of Bond Counsel, District Counsel, Disclosure Counsel, the Underwriter, the Fiscal Agent and Financial Advisor is contingent upon the sale and delivery of the Series 2013 Bonds. Fees of the Appraiser are not contingent upon the sale and delivery of the Series 2013 Bonds but are expected to be paid from proceeds of the Series 2013 Bonds. 6

17 Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Brief descriptions of the Series 2013 Bonds, certain sections of the Fiscal Agent Agreement, security for the Series 2013 Bonds, special risk factors, the Community Facilities District, the School District, the Developer, the Development and other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the Series 2013 Bonds, the Fiscal Agent Agreement, and other resolutions and documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Series 2013 Bonds, the Fiscal Agent Agreement, such resolutions and other documents. All such descriptions are further qualified in their entirety by reference to laws and to principles of equity relating to or affecting generally the enforcement of creditors rights. Copies of such documents may be obtained from the Office of the Clerk of the Governing Board of the Lake Elsinore Unified School District, 545 Chaney Street, Lake Elsinore, California CONTINUING DISCLOSURE The Community Facilities District has covenanted in the Community Facilities District Continuing Disclosure Agreement, the form of which is set forth in APPENDIX E FORM OF COMMUNITY FACILITIES DISTRICT CONTINUING DISCLOSURE AGREEMENT (the Community Facilities District Continuing Disclosure Agreement ), for the benefit of owners and beneficial owners of the Series 2013 Bonds, to provide certain financial information and operating data relating to the Community Facilities District and the Series 2013 Bonds by not later than January 31 in each year commencing on January 31, 2014 (the Community Facilities District Annual Report ), and to provide notices of the occurrence of certain listed events. The initial Annual Report will consist of the audited financial statements of the School District and the Official Statement. The Community Facilities District Annual Report will be filed by the Community Facilities District, or Dolinka Group, LLC, as initial Dissemination Agent (as defined below), on behalf of the Community Facilities District, with the Municipal Securities Rulemaking Board ( MSRB ) through the Electronic Municipal Market Access System (the EMMA System ) in an electronic format and accompanied by identifying information as prescribed by the MSRB, with a copy to the Fiscal Agent. Any notice of a material event will be filed by the Community Facilities District, or the Dissemination Agent on behalf of the Community Facilities District, with the MSRB through the EMMA System, with a copy to the Fiscal Agent. The specific nature of the information to be contained in the Community Facilities District Annual Report or any notice of a material event is set forth in the Community Facilities District Continuing Disclosure Agreement. The covenants of the Community Facilities District in the Community Facilities District Continuing Disclosure Agreement have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the Rule ); provided, however, a default under the Community Facilities District Continuing Disclosure Agreement will not, in itself, constitute an Event of Default under the Fiscal Agent Agreement, and the sole remedy under the Community Facilities District Continuing Disclosure Agreement in the event of any failure of the Community Facilities District or the Dissemination Agent to comply with the Community Facilities District Continuing Disclosure Agreement will be an action to compel performance. Though not an obligation of the Community Facilities District, the Community Facilities District notes that for one of the past five years, the School District had failed to file annual reports in a timely manner as required by its undertaking with the Lake Elsinore Schools Financing Corporation, entered into on February 15, 1999, in connection with its 1999 Certificates of Participation, and had failed to provide notices of material events relating to the downgrading of the rating of the municipal insurer of the

18 Certificates in a timely manner as required by such undertaking. The School District has since filed all such annual reports and notices and is current with respect to all filings and a notice of such downgrading. Though not an obligation of the Community Facilities District, the Community Facilities District also notes that filings due by the Lake Elsinore School Financing Authority (the Authority ), a joint exercise of powers authority organized and existing under the laws of the State and a Joint Exercise of Powers Agreement, between the School District and Community Facilities District No of the Lake Elsinore Unified School District, with respect to the Authority s 1997 and 1998 financings were not filed in a timely manner during the past five years with respect to the filing due every December. The Authority has since filed all such annual reports and is current with respect to all filings and notices. ESTIMATED SOURCES AND USES OF FUNDS The proceeds from the sale of the Series 2013 Bonds will be deposited into the following respective accounts and funds established by the Community Facilities District under the Fiscal Agent Agreement, as follows: Sources: Principal Amount of Series 2013 Bonds $5,870, Less: Original Issue Discount (151,522.70) Less: Underwriter s Discount (98,322.50) Funds on Hand 8, Total Sources $5,628, Uses: Deposit into the Reserve Fund (1) $531, Deposit into Interest Account of the Bond Fund (2) 8, Deposit into the School Construction Account of the Construction Fund 2,453, Deposit into the Water Construction Account of the Construction Fund 2,448, Deposit into the Costs of Issuance Account of the Construction Fund (3) 185, Total Uses $5,628, (1) (2) (3) Equal to the Reserve Requirement with respect to the Series 2013 Bonds as of the date of delivery of the Series 2013 Bonds. Will be applied to pay interest on the Series 2013 Bonds on March 1, Includes, among other things, the fees and expenses of Bond Counsel, District Counsel, Disclosure Counsel, the cost of printing the final Official Statement, fees and expenses of the Fiscal Agent, the cost of the Appraisal, the fees of the Financial Advisor/Special Tax Consultant and reimbursement to Lennar Homes for funds advanced to the School District for Community Facilities District expenses. 8

19 FACILITIES TO BE FINANCED WITH PROCEEDS OF THE SERIES 2013 BONDS The Community Facilities District will finance school facilities of the School District and a portion of the facilities costs for EVMWD water and sewer improvements. With respect to school facilities, proceeds of the Series 2013 Bonds may be used for the planning, design, acquisition, construction, leasing, expansion, improvement, rehabilitation and financing of authorized facilities. Such facilities include elementary school facilities, middle school facilities and high school facilities, including in each case site and site improvements, including landscaping, access roadways, drainage, sidewalks and gutters, utility lines, playground areas and equipment, classrooms, recreational facilities, on-site office space at a school, central support and administrative facilities, interim housing, and transportation facilities needed by the School District to serve the student population to be generated as a result of development of the property within the Community Facilities District. In addition, non-school facilities include EVMWD facilities provided through water facility fees, water frontage facility fees, water backup fees, water connection fees, sewer backup facility fees, sewer treatment capacity fees, and sewer connection fees. The Mitigation Agreement sets forth terms for the issuance of bonds by the Community Facilities District to finance the impact of the development of property within the Community Facilities District upon the School District s school facilities and to finance all or a portion of the facilities costs for EVMWD water and sewer improvements. The water and sewer facilities to be financed by the Community Facilities District are further described in an Amended and Restated Joint Community Facilities Agreement (as amended and restated, the Joint Community Facilities Agreement ), dated as of April 25, 2013, among the School District, EVMWD and Lennar Homes. Based on estimated proceeds of the Series 2013 Bonds, the mitigation obligation will be satisfied through the proceeds of the Series 2013 Bonds and Lennar Homes will thereafter have no remaining financial obligation under the Mitigation Agreement. Authority for Issuance THE SERIES 2013 BONDS The Series 2013 Bonds will be issued pursuant to the Act, the authorizations obtained, the Fiscal Agent Agreement and the Resolutions authorizing the issuance of the Series 2013 Bonds. See COMMUNITY FACILITIES DISTRICT NO Summary of Proceedings herein. General Provisions The Series 2013 Bonds will be dated their date of delivery and will bear interest at the rates per annum set forth on the inside cover page hereof, payable semi-annually on each March 1 and September 1, commencing on March 1, 2014 (each, an Interest Payment Date ), and will mature in the amounts and on the dates set forth on the inside cover page hereof. The Series 2013 Bonds will be issued in fully-registered form in denominations of $5,000 each or any integral multiple thereof and when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Series 2013 Bonds. Ownership interests in the Series 2013 Bonds may be purchased in book-entry form only, in denominations of $5,000 or any integral multiple thereof within a single maturity. So long as the Series 2013 Bonds are held in book-entry form, principal of, premium, if any, and interest on the Series 2013 Bonds will be paid directly to DTC for distribution to the beneficial owners of the Series 2013 Bonds in accordance with the procedures adopted by DTC. See THE SERIES 2013 BONDS Book-Entry and DTC. 9

20 The Series 2013 Bonds will bear interest at the rates set forth on the inside cover hereof payable on the Interest Payment Dates in each year. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Each Series 2013 Bond will bear interest from the Interest Payment Date next preceding the date of authentication unless (i) such date of authentication is an Interest Payment Date, in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date (as defined below) but prior to the immediately succeeding Interest Payment Date, in which event interest will be payable from such Interest Payment Date or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest will be payable from the dated date of such Series 2013 Bonds; provided, however, that if at the time of authentication of a Series 2013 Bond, interest is in default, interest on that Series 2013 Bond shall be payable from the last date on which interest has been paid or made available for payment, or if no interest has been paid or made available for payment, interest shall be payable from the dated date of such Series 2013 Bond. Record Date means the 15 th day of the calendar month preceding an Interest Payment Date whether or not such day is a business day. Interest on the Series 2013 Bonds shall be paid by check of the Fiscal Agent mailed to the registered owners of the Series 2013 Bonds (the Bondowners or Owners ), by first-class mail at his or her address as it appears on the Bond Register as of the Record Date; provided that, in the case of an Owner of $1,000,000 or more in aggregate principal amount of the Series 2013 Bonds, upon the Fiscal Agent s receipt of written request of such Owner prior to the Record Date accompanied by wire transfer instructions, such interest shall be paid on the Interest Payment Date in immediately available funds by wire transfer to an account in the United States of America. The principal of the Series 2013 Bonds and any premium due upon redemption on the Series 2013 Bonds are payable by check in lawful money of the United States of America upon presentation of the Series 2013 Bonds at the Principal Corporate Trust Office of the Fiscal Agent (currently in Los Angeles, California). 10

21 Debt Service Schedule The following table presents the annual debt service on the Series 2013 Bonds (including sinking fund redemptions), assuming that there are no optional redemptions or special mandatory redemptions from Special Taxes. Year Ending September 1 Principal Interest Total Debt Service 2014 $215, $215, $10, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 81, , ,000 56, , ,000 29, , $5,870,000 $7,195, $13,065,

22 Redemption Optional Redemption. The Series 2013 Bonds may be redeemed prior to maturity, in whole or in part, at the option of the Community Facilities District on September 1, 2014, or on any Interest Payment Date thereafter prior to maturity pro rata among maturities and by lot within a maturity, from any source of available funds, at the following redemption prices (expressed as a percentage of the principal amount of the Series 2013 Bonds to be redeemed), together with accrued interest to the date of redemption: Redemption Date Redemption Price September 1, 2014 through March 1, % September 1, 2021 and March 1, September 1, 2022 and March 1, September 1, 2023 and any Interest Payment 100 Date thereafter Special Mandatory Redemption from Prepaid Special Taxes. The Series 2013 Bonds are subject to special mandatory redemption prior to their stated maturities, in whole, or in part, on any Interest Payment Date for which timely notice can be given, in integral multiples of $5,000 from moneys on deposit in the Prepayment Account of the Special Tax Fund upon payment of the following redemption prices, expressed as a percentage of the principal amount of the Series 2013 Bonds to be redeemed, plus accrued interest to the date of redemption: Redemption Date Redemption Price September 1, 2014 through March 1, % September 1, 2021 and March 1, September 1, 2022 and March 1, September 1, 2023 and any Interest Payment 100 Date thereafter Mandatory Sinking Payment Redemption. The Series 2013 Bonds maturing on September 1, 2038, are subject to mandatory sinking fund redemption before maturity on September 1, 2034, and on each September 1 thereafter to and including September 1, 2038, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the redemption date, without premium, as follows: Sinking Fund Redemption Date (September 1) Sinking Payments 2034 $235, , , , (maturity) 335,000 The Series 2013 Bonds maturing on September 1, 2044, are subject to mandatory sinking fund redemption before maturity on September 1, 2039, and on each September 1 thereafter to and including September 1, 2044, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the redemption date, without premium, as follows: 12

23 Sinking Fund Redemption Date (September 1) Sinking Payments 2039 $365, , , , , (maturity) 535,000 The amounts in the foregoing tables shall be reduced as a result of any prior partial redemption of the Series 2013 Bonds pursuant to an optional redemption or mandatory redemption from prepaid Special Taxes as specified in writing by an Authorized Officer to the Fiscal Agent. Purchase In Lieu of Redemption. In lieu of, or partially in lieu of, any optional redemption, mandatory redemption from prepaid Special Taxes or mandatory sinking fund redemption, moneys in the applicable account in the Redemption Fund may be used to purchase the outstanding Series 2013 Bonds that were to be redeemed with such funds. Purchases of outstanding Series 2013 Bonds may be made by the Community Facilities District prior to the selection of Series 2013 Bonds for redemption by the Fiscal Agent, at public or private sale as and when and at such prices as the Community Facilities District may in its discretion determine but only at prices (including brokerage and other expenses) not more than par plus accrued interest, and in the case of funds in the Optional Redemption Account or Mandatory Redemption Account, the applicable premium to be paid in connection with the proposed redemption. Notice of Redemption. The Fiscal Agent shall give notice of any redemption by first-class mail, postage prepaid, at least thirty days but no more than sixty days prior to the redemption date, to the respective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books of the Fiscal Agent. The actual receipt by the owner of any Series 2013 Bond of notice of such redemption shall not be a condition precedent to such redemption, and neither failure to receive any such notice nor any defect therein shall affect the validity of the proceedings for the redemption of such Series 2013 Bonds, or the cessation of interest on the redemption date. Such notice shall (i) specify the CUSIP numbers and serial numbers of the Series 2013 Bonds selected for redemption, except that where all the Series 2013 Bonds or all Series 2013 Bonds of a single maturity are subject to redemption, the serial numbers thereof need not be specified; (ii) state the original issue date, the interest rate and the maturity date of the Series 2013 Bond selected for redemption; (iii) state the date fixed for redemption; (iv) state the redemption price; (v) state the place or places where the Series 2013 Bonds are to be redeemed; and (vi) in the case of Series 2013 Bonds to be redeemed only in part, state the portion of such Series 2013 Bond which is to be redeemed. Contingent Redemption; Rescission of Redemption. Any redemption notice may specify that redemption of the Series 2013 Bonds designated for redemption on the specific date will be subject to the receipt by the Community Facilities District of moneys sufficient to cause such redemption (and will specify the proposed source of such moneys), and neither the Community Facilities District or the Fiscal Agent will have any liability to the Owners of any Series 2013 Bonds, or any other party, as a result of the Community Facilities District s failure to redeem the Series 2013 Bonds designated for redemption as a result of insufficient moneys therefor. Additionally, the Community Facilities District may rescind any optional redemption of the Series 2013 Bonds, and notice thereof, for any reason on any date prior to the date fixed for such 13

24 redemption by causing written notice of the rescission to be given to the Owners of the Series 2013 Bonds so called for redemption. Selection of Series 2013 Bonds for Redemption. If less than all of the Outstanding Series 2013 Bonds are to be redeemed, the Fiscal Agent shall select the Series 2013 Bonds to be redeemed pro rata among maturities and by lot within a single maturity, and in the case of mandatory redemption from Prepaid Special Taxes or pursuant to sinking fund redemption, by lot within the maturity being called for redemption, all so as to maintain as close as practicable level annual debt service after such redemption. Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in the Fiscal Agent Agreement, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption: (i) the Series 2013 Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in the Fiscal Agent Agreement, anything in the Fiscal Agent Agreement, or in the Series 2013 Bonds, to the contrary notwithstanding; (ii) upon presentation and surrender thereof at the Principal Corporate Trust Office of the Fiscal Agent, or such other location as may be designated by the Fiscal Agent, such Series 2013 Bond shall be redeemed at such redemption price; (iii) from and after the redemption date, the Series 2013 Bonds or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Series 2013 Bonds or portions thereof shall cease to bear further interest; and (iv) from and after the date fixed for redemption, no Owner of any of the Series 2013 Bonds or portions thereof so designated for redemption shall be entitled to any of the benefits of the Fiscal Agent Agreement, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. Registration, Transfer and Exchange Registration. Subject to the provisions relating to book-entry bonds, the Fiscal Agent will keep or cause to be kept, at its Principal Corporate Trust Office, sufficient records for the registration and transfer of ownership of the Series 2013 Bonds, which shall be open to inspection during regular business hours and upon reasonable notice by the Community Facilities District; and, upon presentation for such purpose, the Fiscal Agent shall, under reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Series 2013 Bonds. The Community Facilities District and the Fiscal Agent may treat and consider the person in whose name each Series 2013 Bond is registered in the Bond Register as the holder and absolute Owner of such Series 2013 Bond for the purpose of payment of principal of and interest on such Series 2013 Bond, for the purpose of giving notices of prepayment, if applicable, and other matters with respect to such Series 2013 Bond, for the purpose of registering transfers with respect to such Series 2013 Bond, and for all other purposes whatsoever. Registration of Exchange or Transfer. Subject to the provisions relating to book-entry bonds, the registration of any Series 2013 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 at the Principal Corporate Trust Office of the Fiscal Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Fiscal Agent and duly executed by the Bondowner or his or her duly authorized attorney. Series 2013 Bonds may be exchanged at the Principal Corporate Trust Office of the Fiscal Agent for a like aggregate principal amount and maturity of Series 2013 Bonds of other authorized denominations. The Fiscal Agent may charge the Bondowner any tax or other governmental charge required with respect to such transfer or exchange and may charge a reasonable fee for the costs of any such transfer or exchange. Whenever any Series 2013 Bonds shall be surrendered for registration of transfer or exchange, the Community Facilities 14

25 District shall execute, and the Fiscal Agent shall authenticate and deliver, a new Series 2013 Bond, for like aggregate principal amount and maturity; provided, that the Fiscal Agent shall not be required to register transfers or make exchanges of (i) Series 2013 Bonds for a period of 15 days next preceding the date established by the Fiscal Agent for selection of the Series 2013 Bonds to be redeemed or (ii) any Series 2013 Bonds chosen for redemption. Book-Entry and DTC DTC will act as securities depository for the Series 2013 Bonds. The Series 2013 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Series 2013 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See APPENDIX G BOOK-ENTRY SYSTEM. General SECURITY FOR THE SERIES 2013 BONDS The Series 2013 Bonds are secured by a first pledge of all of the Net Taxes of the Community Facilities District and all moneys deposited in the accounts in the Bond Fund, the Redemption Fund and the Reserve Fund and, until disbursed as provided in the Fiscal Agent Agreement, in the Special Tax Fund. Pursuant to the Act and the Fiscal Agent Agreement, the Community Facilities District will annually levy the Special Taxes on taxable property in an amount required for the payment of principal of and interest on any outstanding Series 2013 Bonds of the Community Facilities District becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund for the Series 2013 Bonds and an amount estimated to be sufficient to pay the Administrative Expenses during such year. The Net Taxes and all moneys deposited into the accounts in said funds (until disbursed as provided in the Fiscal Agent Agreement) are pledged to the payment of the principal of, and interest and any premium on, the Series 2013 Bonds as provided in the Fiscal Agent Agreement and in the Act until all of the Series 2013 Bonds have been paid and retired or until moneys or Federal Securities (as defined in the Fiscal Agent Agreement) have been set aside irrevocably for that purpose. See APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT Defeasance. The Rate and Method establishes levying Special Taxes first on Developed Property, second on Undeveloped Property Proportionately up to the Assigned Annual Special Tax to satisfy the Minimum Annual Special Tax Requirement, and third 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. See Special Taxes and Rate and Method. Notwithstanding any provision contained in the Fiscal Agent Agreement to the contrary, Net Taxes deposited in the Administrative Expense Fund, the Rebate Fund and the Surplus Special Tax Fund shall no longer be considered to be pledged to the Series 2013 Bonds and the Administrative Expense Fund, the Construction Fund and the Rebate Fund shall not be construed as trust funds held for the benefit of the Bondowners. The Facilities constructed and acquired with the proceeds of the Series 2013 Bonds are not in any way pledged to pay, or security for, the debt service on the Series 2013 Bonds. Any proceeds of condemnation or destruction of any facilities financed with the proceeds of the Series 2013 Bonds are not pledged to pay the debt service on any Series 2013 Bonds and are free and clear of any lien or obligation imposed under the Fiscal Agent Agreement. 15

26 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. 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 proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property; provided the Community Facilities District may provide for direct collection of the Special Taxes in certain circumstances. The Special Tax levy is limited to the Maximum Special Tax rates set forth in the Rate and Method and while the Annual Special Tax is levied on Undeveloped Property, the levy of the Annual Special Tax is limited to the Minimum Annual Special Tax Requirement. No assurance can be given that, in the event of Special Tax delinquencies, the receipt of Special Taxes will, in fact, be collected in sufficient amounts in any given year to pay debt service on the Series 2013 Bonds. Although the Special Taxes, when levied, will constitute a lien on parcels subject to taxation within the Community Facilities District, it does not constitute a personal indebtedness of the owners of property within the Community Facilities District. There is no assurance that the owners of real property within the Community Facilities District will be financially able to pay the annual Special Tax or that they will pay such tax even if financially able to do so. See BONDOWNERS RISKS herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN) OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE SERIES 2013 BONDS. OTHER THAN THE SPECIAL TAXES WITH RESPECT TO THE COMMUNITY FACILITIES DISTRICT, NO TAXES ARE PLEDGED TO THE PAYMENT OF THE SERIES 2013 BONDS. THE SERIES 2013 BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLE SOLELY FROM THE SPECIAL TAXES OF THE COMMUNITY FACILITIES DISTRICT AS MORE FULLY DESCRIBED HEREIN. Rate and Method General. On October 19, 2004, pursuant to the terms of the Original Mitigation Agreement and the provisions of the Act, the School District established Community Facilities District. The Community Facilities District is authorized to issue bonded indebtedness and to levy special taxes to pay debt service on the Series 2013 Bonds and to fund school facilities and certain water and sewer improvements. Pursuant to such proceedings, the Special Tax may be levied and collected against all Taxable Property (as defined below) for Facilities costs according to the Rate and Method, a copy of which is set forth in APPENDIX B RATE AND METHOD OF APPORTIONMENT FOR COMMUNITY FACILITIES DISTRICT NO OF LAKE ELSINORE UNIFIED SCHOOL DISTRICT. Capitalized terms used in the following paragraphs but not defined herein have the meanings given them in the Rate and Method. Rate and Method. The Rate and Method provides the means by which the Board may annually levy the Special Taxes up to the applicable Maximum Special Tax. The Series 2013 Bonds are to be issued to fund Facilities, and the Series 2013 Bonds are secured by any Special Taxes levied pursuant to the Rate and Method. The Rate and Method provides that the Annual Special Tax shall be levied for a 16

27 period of 33 Fiscal Years after the last series of Bonds has been issued, provided that Annual Special Taxes shall not be levied after Fiscal Year Minimum Annual Special Tax Requirement. Annually, at the time of levying the Special Tax, the Board will levy the 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. In addition, the Board will determine the amount of money to be collected from Taxable Property (the Minimum Annual Special Tax Requirement ), which will be the amount required in any Fiscal Year to pay the following: (a) (b) (c) (d) (e) (f) the debt service on all outstanding Bonds; the periodic costs of the Bonds, including, but not limited to, credit enhancement costs and rebate payments on the Bonds, Administrative Expenses; the costs associated with the release of funds from an escrow account (no escrow account has been established with respect to the Series 2013 Bonds); any amount required to establish or replenish any reserve funds (or accounts thereof) established in association with the Bonds; an amount equal to the reasonably anticipated delinquent Special Taxes, based on the delinquency rate for Special Taxes in the prior Fiscal Year, less (g) any amount(s) available to pay debt service or other periodic costs on the Series 2013 Bonds pursuant to any applicable bond indenture, fiscal agent agreement or trust agreement. Developed and Undeveloped Property; Exempt Property. The Rate and Method declares that for each Fiscal Year, all Assessor s Parcels within the Community Facilities District shall be classified as Taxable Property or Exempt Property and shall be subject to Special Taxes in accordance with the Rate and Method and all Assessor s Parcels of Taxable Property shall be classified as Developed Property or Undeveloped Property. (i) Developed Property means all Assessor s Parcels of Taxable Property 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. (ii) Undeveloped Property means all Assessor s Parcels of Taxable Property that are not Developed Property. (iii) Taxable Property means all Assessor s Parcels that are not Exempt Property (as defined below) pursuant to the Rate and Method. (iv) Exempt Property is defined to include the following: (a) Assessor s Parcels owned by the State, federal or other local governments; 17

28 (b) (c) (d) (e) (f) 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; Assessor s Parcels used exclusively by a homeowners association; Assessor s Parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement; Assessor s Parcels developed or expected to be developed exclusively for nonresidential use, including any use directly servicing any non-residential property, such as parking, as reasonably determined by the Board; and any other Assessor s Parcels at the reasonable discretion of the Board, provided that no such classification would reduce the Net Taxable Acreage to less than acres (as defined in the Rate and Method). Maximum Special Tax. The Maximum Special Tax is defined in the Rate and Method as follows: (i) Undeveloped Property: The amount determined by the application of the Assigned Annual Special Tax. The Assigned Annual Special Tax for Undeveloped Property in Fiscal Year shall be $16, per acre of Acreage. Each July 1, the Assigned Annual Special Tax for each Assessor's Parcel of Undeveloped Property shall be increased by two percent (2.00%) of the amount in effect in the prior Fiscal Year. (ii) Developed Property: The greater of (i) the Assigned Annual Special Tax or (ii) the Backup Annual Special Tax. The Assigned Annual Special Tax for Developed Property in Fiscal Year (whether detached or attached) ranges from $2, to $2, per Unit. Each July 1, the Assigned Annual Special Tax for each Assessor s Parcel of Developed Property shall be increased by two percent (2.00%) of the amount in effect in the prior Fiscal Year. See APPENDIX B RATE AND METHOD OF APPORTIONMENT FOR COMMUNITY FACILITIES DISTRICT NO OF LAKE ELSINORE UNIFIED SCHOOL DISTRICT Table 1 herein for a listing of the Assigned Annual Special Tax rates for various sizes of Units. The Backup Annual Special Tax is calculated based on the number of Lots created by each Final Map recorded in the Community Facilities District (see COMMUNITY FACILITIES DISTRICT NO Property Ownership and Development ). All Lots have been created by a Final Map, and the Backup Annual Special Tax for an Assessor s Parcel of Developed Property for any Fiscal Year for the 130 parcels is as follows: $3, for parcels within Tract No , $3, for parcels within Tract No and $3, for parcels within Tract No , each per Lot (based on the Acreage of Taxable Property). Method of Apportionment. Special Taxes as follows: The Rate and Method provides that the Board shall levy Annual 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. 18

29 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 shall Proportionately levy an Annual Special Tax 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 Proportionately levy an Annual Special Tax 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. Notwithstanding the foregoing, under no circumstances will the Special Taxes levied against any Assessor s Parcel for which an occupancy permit for private residential use has been issued be increased by more than 10% per Fiscal Year as a consequence of delinquency or default by the owner of any other Assessor s Parcel. Prepayment of Annual Special Taxes. The Annual Special Tax obligation of 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 and in certain cases in part, 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, based on the net present value of future Special Tax payments, all as specified in APPENDIX B RATE AND METHOD OF APPORTIONMENT FOR COMMUNITY FACILITIES DISTRICT NO OF LAKE ELSINORE UNIFIED SCHOOL DISTRICT Section G therein. Proceeds of Foreclosure Sales Pursuant to Section of the Act, in the event of any delinquency 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 unpaid amount may be sold at judicial foreclosure sale. Under the provisions of the Act, such judicial foreclosure action is not mandatory. Under the Fiscal Agent Agreement, on or about March 1 and July 1 of each Fiscal Year, the Community Facilities District will compare the amount of Special Taxes theretofore levied in the Community Facilities District to the amount of Special Taxes theretofore received by the Community Facilities District and proceed as follows: (A) Individual Delinquencies. If the Community Facilities District determines that (i) any single parcel is subject to a Special Tax delinquency in the aggregate amount of $7,500 or more or (ii) any owner owns one or more parcels subject to a Special Tax delinquency in an aggregate amount of $7,500 or more, then the Community Facilities District shall send or cause to be sent, a notice of delinquency (and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) the Community Facilities District will take action to authorize the commencement of foreclosure proceedings within 90 days of such determination, to the extent permissible under applicable law, and shall thereafter diligently prosecute such proceedings in superior court to the extent permitted by law. 19

30 (B) Aggregate Delinquencies. If the Community Facilities District determines that the total amount of delinquent Special Taxes for the prior Fiscal Year for the Community Facilities District (including the total individual delinquencies described above) exceeds 5% of the total Special Taxes due and payable for the prior Fiscal Year, the Community Facilities District shall notify, or cause to be notified, all 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 the extent such delinquencies remain uncured) the Community Facilities District shall take action to authorize the commencement of foreclosure proceedings within 90 days of such determination against each parcel of land within the Community Facilities District with a Special Tax delinquency to the extent permissible under applicable law, and shall thereafter diligently prosecute such proceedings in superior court to the extent permitted by law. (C) Limiting Provision. Notwithstanding the foregoing, however, the Community Facilities District shall not be required to order, or take action upon, the commencement of foreclosure proceedings described in (B) above, if such delinquencies, if not remedied, will not result in a draw on the Reserve Fund such that the Reserve Fund will fall below the Reserve Requirement and no draw has been made on the Reserve Fund, which has not been restored, such that the Reserve Fund shall be funded to at least Reserve Requirement. The foregoing sentence shall not affect the requirement(s) for notices of delinquencies as provided for in subsection (C) above. The net proceeds received following a judicial foreclosure sale of land within the Community Facilities District resulting from a property owner s failure to pay the Special Taxes when due are included within the Net Tax Revenues pledged to the payment of principal of and interest on the Series 2013 Bonds under the Fiscal Agent Agreement. The Community Facilities District reserves the right to elect to accept payment from a property owner of at least the enrolled amount of the Special Taxes for a parcel(s) but less than the full amount of the penalties, interest, costs and attorneys fees related to the Special Tax delinquency for such parcel(s). The Bondowners are deemed to have consented to the foregoing reserved right of the Community Facilities District, notwithstanding any provision of the Act or other law of the State, or any other term set forth in the Fiscal Agent Agreement to the contrary. The Bondowners, by their acceptance of the Series 2013 Bonds, consent to such payment for such lesser amounts. Further, notwithstanding any provision of the Act or other law of the State, or any other term set forth in the Fiscal Agent Agreement to the contrary, in connection with any judicial foreclosure proceeding related to delinquent Special Taxes, the Community Facilities District or the Fiscal Agent is expressly authorized to credit bid at any foreclosure sale, without any requirement that funds be set aside in the amount so credit bid, in the amount specified in Section of the Act or such lesser amount as determined in the Fiscal Agent Agreement or otherwise under Section of the Act. The Community Facilities District may permit, in its sole and absolute discretion, property with delinquent Special Tax payments to be sold for less than the amount specified in Section of the Act, if it determines that such sale is in the interest of the Bondowners. The Bondowners, by their acceptance of the Series 2013 Special Tax Bonds, consent to such sale for such lesser amounts (as such consent is described in Section of the Act), and release the Community Facilities District and the School District, and their respective officers and agents, from any liability in connection therewith. If such sale for lesser amounts would result in less than full payment of principal of and interest on the Series 2013 Special Tax Bonds, the Community Facilities District will use its best efforts to seek approval of the Bondowners. 20

31 The Community Facilities District is expressly authorized to include costs and attorneys fees related to foreclosure of delinquent Special Taxes as Administrative Expenses pursuant to the Fiscal Agent Agreement. It should be noted that any foreclosure proceedings commenced as described above could be stayed by the commencement of bankruptcy proceedings by or against the owner of the delinquent property. See BONDOWNERS RISKS Bankruptcy and Foreclosure Delay. No assurances can be given that a judicial foreclosure action, once commenced, will be completed or that it will be completed in a timely manner. See BONDOWNERS RISKS Potential Delay and Limitations in Foreclosure Proceedings. If a judgment of foreclosure and order of sale is obtained, the judgment creditor (the Community Facilities District) must cause a Notice of Levy to be issued. Under current law, a judgment debtor (property owner) has 120 days (or in some cases a shorter period) from the date of service of the Notice of Levy and 20 days from the subsequent notice of sale in which to redeem the property to be sold. If a judgment debtor fails to so redeem and the property is sold, his only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such action, a foreclosure sale is set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made. The constitutionality of the aforementioned legislation, which repeals the former one-year redemption period, has not been tested; and there can be no assurance that, if tested, such legislation will be upheld. Any parcel subject to foreclosure sale must be sold at the minimum bid price unless a lesser minimum bid price is authorized by the Owners of 75% of the principal amount of the Series 2013 Bonds Outstanding. No assurances can be given that the real property subject to sale or foreclosure will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Act does not require the School District or the Community Facilities District to purchase or otherwise acquire any lot or parcel of property offered for sale or subject to foreclosure if there is no other purchaser at such sale. The Act does specify that the Special Tax will have the same lien priority in the case of delinquency as for ad valorem property taxes. If the Reserve Fund is depleted and delinquencies in the payment of Special Taxes exist, there could be a default or delay in payments to the Bondowners pending prosecution of foreclosure proceedings and receipt by the Community Facilities District of foreclosure sale proceeds, if any. However, within the limits of the Rate and Method and the Act, the Community Facilities District may adjust the Special Taxes levied on all property in future Fiscal Years to provide an amount, taking into account such delinquencies, required to pay debt service on the Series 2013 Bonds and to replenish the Reserve Fund. There is, however, no assurance that the Maximum Special Tax rates will be at all times sufficient to pay the amounts required to be paid on the Series 2013 Bonds by the Fiscal Agent Agreement. Special Tax Fund Pursuant to the Fiscal Agent Agreement, the Special Taxes and other amounts constituting Gross Taxes collected by the Community Facilities District shall be transferred (exclusive of Prepaid Special Taxes received which shall be deposited into the Prepayment Account of the Special Tax Fund) no later than 10 days after receipt thereof, to the Fiscal Agent and shall be held in trust in the Special Tax Fund for the benefit of the Bondowners and shall be transferred from the Special Tax Fund in the following order of priority: (i) Requirement. To the Administrative Expense Fund in an amount equal to the Administrative Expense 21

32 (ii) To the Interest Account of the Bond Fund an amount such that the balance in the Interest Account one business day prior to each Interest Payment Date shall be equal to the installment of interest due on the Series 2013 Bonds on said Interest Payment Date. Moneys in the Interest Account shall be used for the payment of interest on the Series 2013 Bonds as the same become due. (iii) To the Principal Account of the Bond Fund, an amount up to the amount needed to make the principal payment due on the Series 2013 Bonds during the current Bond Year. (iv) To the Sinking Fund Redemption Account of the Redemption Fund an amount up to the amount needed to make the Mandatory Sinking Payments due on the Series 2013 Bonds during the current Bond Year. (v) To the Reserve Fund, the amount, if any, necessary to replenish the Reserve Fund to the Reserve Requirement. (vi) To the extent that Administrative Expenses are not fully satisfied as described in (i) above, to the Administrative Expense Fund in the amount(s) required to bring the balance therein to the amount identified by the Community Facilities District to the Fiscal Agent to meet such additional Administrative Expenses (over and above the Administrative Expense Requirement) in the coming Fiscal Year, or Administrative Expenses from a prior Fiscal Year which remain unpaid. (vii) To the Redemption Fund, the amount, if any, that the Community Facilities District directs the Fiscal Agent to transfer pursuant to an optional redemption of the Series 2013 Bonds, as set forth in the Fiscal Agent Agreement. (viii) Any remaining Special Taxes and other amounts constituting Net Taxes shall remain in the Special Tax Fund subject to the provisions of (ix) below. (ix) Any remaining Special Taxes and other amounts constituting Net Taxes, if any, shall remain in the Special Tax Fund until the end of the Bond Year. At the end of the Bond Year any remaining funds in the Special Tax Fund, which are not required to cure a delinquency in the payment of principal of and interest on the Series 2013 Bonds (including payment of Mandatory Sinking Fund Payments due during the current Bond Year), to restore the Reserve Fund as provided for in (v), above, or to pay current or pending Administrative Expenses as provided for in (i) or (vi) above, shall be retained in the Special Tax Fund and applied to the purposes set forth in (i)-(vi) above in the next following Bond Year until such time as the Community Facilities District provides to the Fiscal Agent a certification, which shall be confirmed by the special tax consultant to the Community Facilities District, that the Special Taxes levied on Developed Property is equal to or greater than the amount needed to satisfy debt service and cost requirements as set out in the Fiscal Agent Agreement, in such Bond Year and every subsequent Bond Year. Upon making such certification and at the end of the corresponding Bond Year, and each Bond Year thereafter, any remaining funds in the Special Tax Fund, which are not required to cure a delinquency in the payment of principal of and interest on the Series 2013 Bonds (including payment of Mandatory Sinking Fund Payments due during the current Bond Year), to restore the Reserve Fund as provided for in (v), above, or to pay current or pending Administrative Expenses as provided for in (i) and (vi) above, shall, without any further action by any party, be transferred by the Fiscal Agent on September 2 of each such year into the Surplus School Facilities Fund, which funds shall thereafter be used in accordance with the Fiscal Agent Agreement and shall be free and clear of any lien thereon. Any funds which are required to cure any such delinquency shall be retained in the Special Tax Fund and expended or transferred, at the earliest possible date, for such purpose. 22

33 At the date of the redemption, defeasance or maturity of the last Series 2013 Bond and after all principal and interest then due on any Series 2013 Bond has been paid or provided for, all other covenants are complied with and all fees and expenses of the Fiscal Agent have been paid, moneys in the Special Tax Fund will be transferred to the Community Facilities District by the Fiscal Agent and may be used by the Community Facilities District for any lawful purpose. Prepayment Account of the Special Tax Fund. Prepaid Special Taxes collected by the Community Facilities District (net of any costs of collection) shall be transferred, no later than 10 days after receipt thereof, to the Fiscal Agent and the Community Facilities District shall direct the Fiscal Agent to deposit the Prepaid Special Taxes in the Prepayment Account of the Special Tax Fund. The Prepaid Special Taxes shall be held in trust in the Prepayment Account for the benefit of the Series 2013 Bonds and shall be transferred by the Fiscal Agent to the Mandatory Redemption Account of the Redemption Fund to call Series 2013 Bonds on the next Interest Payment Date for which notice can be given in accordance with the special mandatory redemption provisions of the Fiscal Agent Agreement. The Prepaid Special Taxes shall be transferred to the Mandatory Redemption Account and applied to call Series 2013 Bonds on a pro rata basis pursuant to the Fiscal Agent Agreement. Moneys representing the Prepaid Special Taxes shall be invested in accordance with the provisions of the Fiscal Agent Agreement. Investment earnings on amounts in the Prepayment Account not needed to redeem the Series 2013 Bonds pursuant to special mandatory redemption provisions of the Fiscal Agent Agreement shall be transferred to the Special Tax Fund by the Fiscal Agent at the time of transfer of the Prepaid Special Taxes to the Redemption Fund. Investment. Moneys in each account in the Special Tax Fund will be invested and deposited by the Community Facilities District as described in Investment of Moneys in Funds below. Interest earnings and profits resulting from such investment and deposit will be retained in the applicable account in the Special Tax Fund to be used for the purposes thereof. Bond Fund The Fiscal Agent will hold the Bond Fund in trust for the benefit of the Bondowners. Within the Bond Fund, the Fiscal Agent will create and hold an Interest Account and a Principal Account. The Fiscal Agent will also create and hold a Prepayment Account of the Special Tax Fund and Sinking Fund Redemption Account of the Redemption Fund into which prepayments of the Special Taxes will be deposited. On each Interest Payment Date, the Fiscal Agent will apply moneys in the appropriate account or subaccount of the Bond Fund and pay to the owners of the Series 2013 Bonds the principal, interest and any premium then due and payable on the Series 2013 Bonds, including any amounts due on the Series 2013 Bonds by reason of the sinking payments or a redemption of the Series 2013 Bonds. If amounts in the Bond Fund or moneys in the Sinking Fund Redemption Account of the Redemption Fund are insufficient for the purposes set forth in the preceding paragraph, the Fiscal Agent will withdraw the deficiency from the Special Tax Fund or the Reserve Fund, as applicable, to the extent of any funds therein. 23

34 Reserve Fund In order to further secure the payment of principal of and interest on the Series 2013 Bonds, certain proceeds of the Series 2013 Bonds will be deposited into the Reserve Fund in an amount equal to the Reserve Requirement (see ESTIMATED SOURCES AND USES OF FUNDS herein). The Reserve Requirement is defined in the Fiscal Agent Agreement to mean with respect to the Series 2013 Bonds an amount, as of any date of calculation, equal to the least of (i) 10% of the original principal amount of the Series 2013 Bonds, less original issue discount, if any, plus original issue premium, if any, (ii) Maximum Annual Debt Service of the Series 2013 Bonds, or (iii) 125% of average annual debt service on the Series 2013 Bonds. The moneys in the Reserve Fund will only be used for payment of principal of, interest and any redemption premium on the Series 2013 Bonds and at the direction of the Community Facilities District, for payment of rebate obligations related to the Series 2013 Bonds. A draw on the Reserve Fund could occur as a result of Special Tax delinquencies. However, the Special Tax levy on Undeveloped Property and Developed Property whose Maximum Special Tax is the Backup Annual Special Tax, can be increased in order to replenish the Reserve Fund. See SECURITY FOR THE SERIES 2013 BONDS Rate and Method. If Special Taxes are prepaid and Series 2013 Bonds are to be redeemed with the proceeds of such prepayment, an amount in the Reserve Fund (determined on the basis of the principal of Bonds to be redeemed, the original principal of the Series 2013 Bonds and the Reserve Requirement after the redemption) will be applied to the redemption of the Series 2013 Bonds. Moneys in the Reserve Fund will be invested and deposited as described in Investment of Moneys in Funds below. Moneys in the Reserve Fund shall be used solely for the purpose of (i) making transfers to the Bond Fund or Redemption Fund to pay the principal of, including Mandatory Sinking Payments, and interest and principal on the Series 2013 Bonds when due to the extent that moneys in the Interest Account and the Principal Account of the Bond Fund or moneys in the Sinking Fund Redemption Account, are insufficient therefor; (ii) making any required transfer to the Rebate Fund pursuant to the Fiscal Agent Agreement upon written direction from the Community Facilities District; (iii) making any transfers to the Bond Fund or Redemption Fund in connection with prepayments of the Special Taxes; (iv) paying the principal and interest due on the Series 2013 Bonds in the final Bond Year; and (v) application to the defeasance of such Series 2013 Bonds in accordance with the Fiscal Agent Agreement. If the amounts in the Interest Account or the Principal Account of the Bond Fund and the Sinking Fund Redemption Account of the Redemption Fund are insufficient to pay the principal of, including Mandatory Sinking Payments, or interest on the Series 2013 Bonds when due, the Fiscal Agent shall, one Business Day prior to an Interest Payment Date, withdraw from the Reserve Fund for deposit in the Interest Account and the Principal Account of the Bond Fund, or the Sinking Fund Redemption Account of the Redemption Fund, moneys necessary for such purpose. Following any transfer to the Interest Account or the Principal Account of the Bond Fund, or the Sinking Fund Payment Account of the Redemption Fund, the Fiscal Agent shall notify the Community Facilities District of the amount needed to replenish the Reserve Fund to the Reserve Requirement and the Community Facilities District shall include such amount as is required at that time to correct such deficiency in the next Special Tax levy in the extent of the permitted maximum Special Tax rates. Moneys in the Reserve Fund shall be invested in accordance with the terms of the Fiscal Agent Agreement. Any moneys in the Reserve Fund in excess of the Reserve Requirement (exclusive of Excess Investment Earnings directed to be transferred to the Rebate Fund) shall be withdrawn by the Fiscal Agent two (2) Business Days prior to each Interest Payment Date and deposited into the Interest Account of the Bond Fund and thereafter applied for the purposes specified for such account. The Fiscal Agent 24

35 shall transfer to the Rebate Fund Excess Investment Earnings from Reserve Fund earnings upon written direction of the Community Facilities District pursuant to the Fiscal Agent Agreement. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, the Fiscal Agent shall transfer to the Reserve Fund, from available moneys in the Special Tax Fund, the amount needed to restore the Reserve Fund to the Reserve Requirement as specified in the Fiscal Agent Agreement. Moneys in the Special Tax Fund shall be deemed available for transfer to the Reserve Fund only if such amounts will not be needed to make the deposit required to be made to the Interest Account and the Principal Account of the Bond Fund or the Sinking Fund Redemption Account of the Redemption Fund for the next Interest Payment Date. See APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT for a description of the timing, purpose and manner of disbursements from the Reserve Fund. Administrative Expense Fund The Fiscal Agent will receive the transfer of Special Taxes from the Community Facilities District from the Special Tax Fund and deposit in the Administrative Expense Fund amounts to pay Administrative Expenses as described above in Special Tax Fund. Pursuant to the Fiscal Agent Agreement, moneys in the Administrative Expense Fund will not be construed as a trust fund held for the benefit of the Owners of the Series 2013 Bonds and will not be available for the payment of debt service on the Series 2013 Bonds. Investment of Moneys in Funds Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent will be invested by the Fiscal Agent in Authorized Investments (as defined in the Fiscal Agent Agreement), as directed by an Authorized Representative (as defined in the Fiscal Agent Agreement), that mature prior to the date on which such moneys are required to be paid out under the Fiscal Agent Agreement. Moneys in the Reserve Fund may be invested in Authorized Investments which provide liquidity needed to satisfy any calls on funds in the Reserve Fund. Such liquidity shall provide that at least one half of the moneys in the Reserve Fund shall be available for draw in advance of any Interest Payment Date, except in the case of guaranteed investment contracts which may have a longer term. Such Authorized Investments shall not have a final maturity of greater than three years (except for guaranteed investment contracts through which moneys in the Reserve Fund may be invested for a longer period). In the absence of any direction from an Authorized Representative, the Fiscal Agent will invest, to the extent reasonably practicable, any such moneys in a taxable or tax exempt government money market portfolio mutual fund as described in clause (j) of the definition of Authorized Investments (including funds for which the Fiscal Agent or its affiliates or subsidiaries provide investment advisory or other management services). See APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT for a definition of Authorized Investments. 25

36 Payment of Rebate Obligation The Community Facilities District is required to calculate excess investment earnings in accordance with the requirements set forth in the Fiscal Agent Agreement. If necessary, the Community Facilities District may use amounts in the Reserve Fund, amounts on deposit in the Administrative Expense Fund and other funds available to the Community Facilities District to satisfy rebate obligations, as applicable to the Series 2013 Bonds. Additional Bonds for Refunding Purposes Only Bonds issued on a parity with the Series 2013 Bonds (a series of Additional Bonds ) may be issued for refunding purposes only. See APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT. The Community Facilities District may issue additional bonds or other obligations payable from Net Taxes which are subordinate to the Series 2013 Bonds. Special Taxes Are Not Within Teeter Plan The County has adopted a Teeter Plan as provided for in Section 4701 et seq. of the California Revenue and Taxation Code, under which a tax distribution procedure is implemented and secured roll taxes are distributed to taxing agencies within the County on the basis of the tax levy, rather than on the basis of actual tax collections. However, by policy, the County does not include assessments, reassessments and special taxes in its Teeter program. The Special Taxes are not included in the County s Teeter Program. General Information COMMUNITY FACILITIES DISTRICT NO The Community Facilities District is located in the City, and includes a non-contiguous portion of an area known as Andalusia I and Andalusia II. The Andalusia I neighborhood is located on the southwest side of Palomar Street at Meadow Ridge Lane and Shadow Canyon Trail (consisting of Riverside County Tract Maps and 30939). The Andalusia II neighborhood is located on the south side of Catt Road between Agape Lane and Arnett Road Street (consisting of Riverside County Tract Map 31837). Both neighborhoods are in the south central part of the City, within one-half mile southwest of Interstate 15, with a full interchange at Clinton Keith Road. The Community Facilities District is being developed into 130 single-family detached residential units on approximately net taxable acres. As of October 1, 2013, the Appraisal date of value, the property within the Community Facilities District was owned by individual homeowners (94 completed homes), and Lennar Homes (3 model homes, 16 homes under construction and 17 vacant lots). As of November 21, 2013, Lennar Homes has obtained additional building permits for all but 9 of the remaining vacant lots and has completed and closed escrow to individual homeowners additional homes. See Footnote 1 to Table 3. In 2007, the Prior Owners built 31 homes in Riverside County Tract Map 30939, of which 25 homes were sold to individual homeowners and 6 were left as standing inventory. In December 2011, Lennar Homes acquired (i) the remaining 6 completed homes and 13 vacant lots comprising the remainder of Riverside County Tract Map and (ii) 42 vacant lots in Riverside County Tract Map In December 2012, Lennar Homes acquired from IOTA Wildomar, LLC, the 44 lots comprising 26

37 Riverside County Tract Map Since December 2011, Lennar Homes has sold the 6 homes comprising the standing inventory and has built and sold 63 additional homes. Utility services for parcels in the Community Facilities District are provided by Southern California Edison (electricity), The Gas Company (natural gas), CR&R Disposal (refuse collection), Elsinore Valley Municipal Water District (EVMWD) (water and sewage), Riverside County Flood Control District (stormwater), Time Warner/Verizon (cable) and Verizon (telephone). Summary of Proceedings The Series 2013 Bonds are issued pursuant to the Act and the Fiscal Agent Agreement. In addition, as required by the Act, the Board of the School District, in certain cases acting as the legislative body of the Community Facilities District, has taken the following actions with respect to establishing the Community Facilities District and authorizing issuance of the Series 2013 Bonds: Resolution of Intention: On August 17, 2004, the Board adopted Resolution No (the Resolution of Intention ) stating its intention to establish the Community Facilities District and to authorize the levy of a special tax therein pursuant to a Rate and Method for the Community Facilities District. On the same day the Board adopted Resolution No stating its intention to incur bonded indebtedness in an amount not to exceed $10,000,000 with respect to the Community Facilities District. The Community Facilities District will finance school, water and sewer facilities. In connection with the Resolution of Intention, the Board also approved the original joint community facilities agreement dated as of September 28, 2004, between the School District and EVMWD and approved the Original Mitigation Agreement. See FACILITIES TO BE FINANCED WITH PROCEEDS OF THE SERIES 2013 BONDS herein. Resolution of Formation: Immediately following a noticed public hearing conducted and completed on October 19, 2004, the Board adopted Resolution No (the Resolution of Formation ), which established the Community Facilities District and authorized the levy of a special tax within the Community Facilities District pursuant to the Rate and Method and subject to voter approval. Resolution of Necessity: On October 19, 2004, the Board adopted Resolution No declaring the necessity to incur bonded indebtedness in an amount not to exceed $10,000,000 within the Community Facilities District and submitting the proposition to the qualified electors of the Community Facilities District. Landowner Election and Declaration of Results: On October 19, 2004, an election was held within the Community Facilities District in which BEG, LLC and Rancho Fortunado (the Prior Owners ), as the landowners eligible to vote, being the qualified electors, approved the applicable ballot propositions authorizing the issuance of up to $10,000,000 of bonds to finance the acquisition and construction of school facilities. The qualified electors within the Community Facilities District also approved the levy of a special tax in accordance with the Rate and Method and the establishment of an appropriations limit for the Community Facilities District. On October 19, 2004, the Board adopted Resolution No pursuant to which the Board approved the canvass of the votes in the landowner voter election and declared the authority to levy the Special Taxes in accordance with the Rate and Method, to incur the bonded indebtedness and to have established an appropriations limit. 27

38 Special Tax Lien and Levy: The Notice of Special Tax Lien for the Community Facilities District was recorded in the Official Records of the County on December 13, 2004, as Document No Ordinance Levying Special Taxes: On November 16, 2004, the Board, acting as the Legislative Body of the Community Facilities District, adopted Ordinance No authorizing the levy of the Special Tax within the Community Facilities District. Subsequent Proceedings. The School District, EVMWD and Lennar Homes have amended the original joint community facilities agreement. The water and sewer facilities to be financed by the Community Facilities District are further described in an Amended and Restated Joint Community Facilities Agreement, dated as of April 25, 2013, among the School District, EVMWD and Lennar Homes. On April 18, 2013, the Board, acting as the Legislative Body of the Community Facilities District, and pursuant to a previously adopted resolution and notices, (i) conducted a noticed hearing on the proposed annexation of certain Annexation Territory (consisting of Riverside County Tract Map 31837) as described and defined in documents and resolutions on file with the Community Facilities District into the Community Facilities District, (ii) adopted Resolution No , (iii) called and conducted a special election (the Annexation Election and collectively with the prior proceedings relating to the annexation, the Annexation Proceedings ), at which the proposed annexation and proposed imposition of Special Taxes of the Community Facilities District on such Annexation Territory was submitted to the qualified electors within the Annexation Territory and (iv) adopted Resolution No canvassing the results of the Annexation Election, annexing the Annexation Territory into the Community Facilities District. On May 9, 2013, the Board, acting as the Legislative Body of the Community Facilities District, and pursuant to previous actions and notices, adopted Ordinance No authorizing the levy and collection of the authorized Special Taxes of the Community Facilities District on property within the Annexation Territory. In connection with the Annexation Proceedings, the School District and Lennar Homes entered into the Mitigation Agreement. The Annexed Territory had been included within another community facilities district formed by the School District. On August 9, 2013, an agreement to terminate the provisions of a mitigation agreement relating to the other community facilities district and to cancel the special taxes of the other community facilities district was approved. A Notice of Cancellation of the special taxes of such other community facilities district was recorded with the County Recorder on July 11, On November 14, 2013, an agreement to terminate the provisions of the Mitigation Agreement with respect to Riverside County Tract Map 25122, which had been included within the Community Facilities District, and to cancel the special taxes of the Community Facilities District as against such tract was approved by the Board, acting as the Legislative Body of the Community Facilities District. A notice of cancellation of the Special Taxes with respect to property within Riverside County Tract Map is anticipated to be recorded with the County Recorder in the near future. Resolution Authorizing Issuance of the Series 2013 Bonds: On November 14, 2013, the Board, acting as the Legislative Body of the Community Facilities District, adopted Resolution No approving the issuance and sale of the Series 2013 Bonds. Special Tax Revenues and Projected Debt Service Coverage The debt service on the Series 2013 Bonds is structured such that upon the build out of the Community Facilities District, the Net Special Taxes from the Assigned Annual Special Tax on 28

39 Developed Property, when applied to the projected debt service on the Series 2013 Bonds, is anticipated to result in a debt service coverage ratio of at least 110% for the life of the Series 2013 Bonds. The Community Facilities District has covenanted not to consent to or conduct proceedings with respect to a reduction in the maximum Special Taxes that may be levied in the Community Facilities District below an amount, for any Fiscal Year, equal to 110% of the aggregate of the debt service due on the Series 2013 Bonds in such Fiscal Year, plus a reasonable estimate of Administrative Expenses for such Fiscal Year (except Fiscal Year ). The ability of the Community Facilities District to increase the special tax levy on residential property is subject to limitations under the Act. See THE COMMUNITY FACILITIES DISTRICT Potential Consequences of Special Tax Delinquencies. As further described under SECURITY FOR THE BONDS Rate and Method, Developed Property for a Fiscal Year generally consists of taxable parcels for which a building permit has been issued as of May 1 of the preceding Fiscal Year. For Fiscal Year , 89 parcels are classified as Developed Property against which Assigned Annual Special Taxes of approximately $248,686 will be levied and 41 parcels are classified as Undeveloped Property against which no Special Taxes will be levied. Since May 1, 2013 through October 1, 2013, building permits have been issued for 24 of the 41 parcels of Undeveloped Property, therefore these parcels will be classified as Developed Property beginning in Fiscal Year Beginning in Fiscal Year , the Community Facilities District is projected to levy additional Assigned Annual Special Taxes in the amount of $69, against those 24 parcels. Since October 1, 2013, building permits were issued for an additional 8 parcels. Special Taxes will be levied on the remaining parcels currently classified as Undeveloped Property in Fiscal Year , all of which are expected to be classified as Developed Property by May 1, In future years, Special Taxes will be levied on all of the Taxable Parcels within the Community Facilities District in accordance with the Rate and Method to the extent necessary to pay debt service due on the Series 2013 Bonds, not to exceed the Maximum Special Tax. The following table presents the projected Net Special Tax Revenues and debt service coverage for the Community Facilities District over the life of the Series 2013 Bonds assuming projected build out of the Community Facilities District. 29

40 Table 1 Community Facilities District No of the Lake Elsinore Unified School District Special Tax Revenue Projections and Debt Service Coverage Projections Gross Special Tax Revenue (1) Fiscal Year Ending June 30 Developed Property as of October 1, 2013 Projected Total Less: Administrative Expenses (2) Net Special Taxes Debt Service Debt Service Coverage 2014 (3) $248,685 $ 0 $248,685 ($20,400) $228,286 $207, % 2015 (4) 323,417 48, ,546 (20,808) 350, , ,885 49, ,977 (21,224) 357, , ,483 50, ,556 (21,649) 364, , ,212 51, ,287 (22,082) 372, , ,076 52, ,173 (22,523) 379, , ,078 53, ,217 (22,974) 387, , ,220 54, ,421 (23,433) 394, , ,504 55, ,789 (23,902) 402, , ,934 56, ,325 (24,380) 410, , ,513 57, ,032 (24,867) 419, , ,243 58, ,912 (25,365) 427, , ,128 59, ,971 (25,872) 436, , ,170 61, ,210 (26,390) 444, , ,374 62, ,634 (26,917) 453, , ,741 63, ,247 (27,456) 462, , ,276 64, ,052 (28,005) 472, , ,982 66, ,053 (28,565) 481, , ,861 67, ,254 (29,136) 491, , ,918 68, ,659 (29,719) 500, , ,157 70, ,272 (30,313) 510, , ,580 71, ,098 (30,920) 521, , ,192 72, ,140 (31,538) 531, , ,995 74, ,402 (32,169) 542, , ,995 75, ,890 (32,812) 553, , ,195 77, ,608 (33,468) 564, , ,599 78, ,560 (34,138) 575, , ,211 80, ,752 (34,820) 586, , ,035 82, ,187 (35,517) 598, , ,076 83, ,870 (36,227) 610, , ,338 85, ,808 (36,952) 622, , Total $13,369,074 $1,952,514 $15,321,588 ($864,541) $14,457,048 $13,057,845 (1) Represents the lesser of (i) Backup Annual Special Tax and (ii) Assigned Annual Special Tax revenue stream. (2) Administration Fee of $20,400 in Fiscal Year ; assumes an annual escalation rate of 2%. (3) Development cut-off for the calculation of Fiscal Year Special Tax Revenues was May 1, Debt service has been adjusted to reflect Prior Special Tax Receipts as additional Revenue for Fiscal Year (4) Since May 1, 2013, additional parcels have been classified as Developed Property for Fiscal Year Additional parcels are expected to be classified as Developed Property prior to the cut-off of May 1, Source: Dolinka Group, LLC. Appraised Property Values An appraisal of the land and existing improvements for the development within the Community Facilities District, dated October 9, 2013 (the Appraisal ), has been prepared by Stephen G. White, MAI, Fullerton, California (the Appraiser ) in connection with issuance of the Series 2013 Bonds. The purpose of the Appraisal is to estimate the aggregate market value of the as is condition of the property as of the October 1, 2013 date of value, and allocated to the individual owners (94 completed single- 30

41 family homes) and to Lennar Homes (3 model homes, 16 homes under construction and 17 vacant lots). The Appraisal also reflects the proposed Community Facilities District bond financing, together with the effective tax rate of ±1.7% based on recent base sale prices of the homes and including special taxes for the Community Facilities District and other overlapping debt. The Appraisal is based on certain assumptions expressed therein. Subject to these assumptions, the Appraiser estimated that the fee simple market value of the Taxable Property within the Community Facilities District (subject to the lien of the Special Taxes), as of October 1, 2013, was $42,065,000. The market values reported in the Appraisal result in an approximate value-to-lien ratio of 7.17:1 with respect to the Community Facilities District, calculated with respect to the Series 2013 Bonds. There was no other direct and overlapping bonded debt as the Assessor s equalized assessment roll for Fiscal Year , other than general obligation bonds issued by the Metropolitan Water District of Southern California. The value-to-lien ratios of individual parcels will differ from the foregoing aggregate values. See COMMUNITY FACILITIES DISTRICT No Direct and Overlapping Debt. See also BONDOWNERS RISKS Appraised Values and Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property herein and APPENDIX C SUMMARY APPRAISAL REPORT appended hereto for further information on the Appraisal and for limiting conditions relating to the Appraisal. The analysis of the completed-sold homes is of the aggregate value and on a mass-appraisal basis by means of the Sales Comparison Approach which considers recent closed and pending sales in the Community Facilities District as well as recent re-sales of homes within the Community Facilities District. The School District, the Underwriter and the Community Facilities District make no representation as to the accuracy or completeness of the Appraisal. See Appendix C hereto for more information relating to the Appraisal. 31

42 Special Tax Levy The table below shows the ownership of the taxable property classified as Developed and Undeveloped Property under the Rate and Method as of October 8, 2013, which represents the units subject to the Special Tax levy for Fiscal Year The principal amount of the Series 2013 Bonds has been sized to be secured by and payable from the Net Special Tax Revenues to be derived from Developed Property, as defined under the Rate and Method, upon the construction of homes upon all 130 lots within the Community Facilities District. See THE COMMUNITY FACILITIES DISTRICT. Table 2 Community Facilities District No of the Lake Elsinore Unified School District Property Ownership of Developed and Undeveloped Property and Projected Share of Fiscal Year Special Tax Levy Fiscal Year Percent Share of Property Owner Name Number of Parcels (1) Special Taxes Special Taxes Individual Homeowners Developed Property 86 $240, % Undeveloped Property 8 (2) Subtotal, Individual Homeowners 94 $240, % Lennar Homes Developed Property 3 $8, Undeveloped Property Subtotal, Lennar Homes 36 $ 8, Total 130 $248, % (1) Ownership information is as of October 8, 2013, with respect to the parcels subject to the levy of Special Taxes in Fiscal Year Since May 1, 2013, the date at which parcels were considered Developed Property under the Rate and Method for Fiscal Year , Lennar Homes has obtained additional building permits for all but 9 of the remaining vacant lots. See Footnote 1 to Table 3. (2) As of May 1, 2013, these 8 parcels were owned by Lennar Homes and categorized as Undeveloped Property for Fiscal Year because a building permit had not been issued for these parcels. Between May 1, 2013, and October 8, 2013, Lennar Homes obtained building permits for these parcels and completed 8 homes which have been sold to individual homeowners. Source: Dolinka Group, LLC. 32

43 The table below shows the ownership, based on current projections, of the taxable property expected to be classified as Developed and Undeveloped Property under the Rate and Method as of October 8, 2013, which represents the units expected to be subject to the Special Tax levy for Fiscal Year Table 3 Community Facilities District No of the Lake Elsinore Unified School District Property Ownership of Developed and Undeveloped Property and Projected Share of Fiscal Year Special Tax Levy Projected Fiscal Year Assigned Annual Special Taxes Percent of Assigned Annual Special Taxes Property Owner Name Number of Parcels (1) Individual Homeowners Developed Property 94 $268, % Lennar Homes Developed Property 19 $54, % Undeveloped Property 17 48, (2) Subtotal, Lennar Homes 36 $102, % Total 130 $371, % (1) Ownership information is as of October 8, As of November 21, 2013, (i) Lennar Homes has obtained additional building permits for all but 9 of the remaining vacant lots, and (ii) 16 additional homes were under contract. However, homes under contract are subject to cancellation by the homebuyer. (2) Applying the Maximum Special Tax Rate for Undeveloped Property would result in a levy of $61, Shown here is the anticipated Assigned Special Tax Amount based on plans provided by Lennar Homes. Source: Dolinka Group, LLC. 33

44 The table below shows the Assigned Special Tax Rates and the Fiscal Year Special Tax Levy for the Developed Property in the Community Facilities District. Table 4 Community Facilities District No of the Lake Elsinore Unified School District Projected Revenue by Tax Class (Fiscal Year Special Tax Levy) Rate and Method Classification Building Square Footage Tax Rates Individual Homeowners Developed Property as of October 1, 2013 Special Taxes Lennar Homes Developed Property as of October 1, 2013 Projected (1) Total Units Special Taxes (2) 1 < 2,650 BSF $2, $57, $26, $84, ,650-2,900 BSF 2, , , , ,901-3,200 BSF 2, , , ,201-3,400 BSF 2, , , > 3,400 BSF 3, , , , Totals NA NA 94 $268, $102, $371, (1) Anticipated Assigned Special Tax based on plans provided by Lennar Homes. (2) Applying the Maximum Special Tax Rate for Undeveloped Property would result in a levy of $61, Shown here is the anticipated Assigned Special Tax based on development plans provided by Lennar Homes. Source: Dolinka Group, LLC. Total Special Taxes 34

45 Appraised Value to Burden Ratio The table below shows the approximate projected value to burden ratio by tax class for the property in the Community Facilities District based on the appraised values set forth in the Appraisal, the proposed principal amount of the Series 2013 Bonds and the projected development status as of Fiscal Year , based on development plans provided by Lennar Homes. No assurance can be given that amounts shown in this table will conform to those ultimately realized in the event of a foreclosure action following delinquency in the payment of the Special Taxes. Table 5 Community Facilities District No of the Lake Elsinore Unified School District Appraised Values and Value to Burden Ratios (Projected Fiscal Year Special Tax Levy) Number of Parcels/ Lots (1) Fiscal Year Assigned Rate and Method Classification Building Square Footage Appraised Value (2) Principal Amount of Bonds Value to Burden Ratio (3) Special Tax Percentage Share of Special Tax Developed Property NA 113 $40,295,000 $5,109, $323, % Undeveloped Property NA 17 1,770, , , (2) Totals 130 $42,065,000 $5,870, $371, % (1) Developed Property includes parcels for which a building permit had been issued prior to October 2, Property for which a permit is issued prior to May 1, 2014 will be classified as Developed Property in Fiscal Year All remaining permits are expected to be issued prior to May 1, (2) Source: Appraisal. (3) Excludes general obligation indebtedness. Actual Value to Lien Ratio per Lot may vary. (4) The Maximum Special Tax Rate for Undeveloped Property would result in a levy of $61, Shown here is the anticipated Assigned Special Tax Amount based on plans provided by Lennar Homes. Source: Dolinka Group, LLC. 35

46 The table below shows the approximate projected value to burden ratio by property ownership for the property in the Community Facilities District based on the appraised values set forth in the Appraisal, the proposed principal amount of the Series 2013 Bonds and the projected development status as of Fiscal Year , based on development plans provided by Lennar Homes. No assurance can be given that the amounts shown in this table will conform to those ultimately realized in the event of a foreclosure action following delinquency in the payment of the Special Taxes. Table 6 Community Facilities District No of the Lake Elsinore Unified School District Appraised Values and Value to Burden Ratios by Property Ownership Allocated by Fiscal Year Special Tax Levy Property Owner Name (1) Number of Parcels (2) Appraised Value (3) Principal Amount of Bonds Value to Burden Ratio (4) Fiscal Year Special Tax Percentage Share of Special Tax Individual Homeowners Developed Property 94 $35,955,000 $4,243, $268, % Lennar Homes Developed Property 19 $4,340,000 $865, $54, % Undeveloped Property (5) 17 1,770, , , Subtotal, Lennar Homes 36 $6,110,000 $1,626, $102, % Total 130 $42,065,000 $5,870, $371, % (1) Property Ownership as of October 1, (2) Special Taxes shown here reflect Developed Property for which building permits have been issued as of October 1, Property for which a permit is issued prior to May 1, 2014, will be classified as Developed Property in Fiscal Year All remaining permits are expected to be issued prior to May 1, (3) Source: Appraisal. (4) Excludes general obligation indebtedness. Actual Value to Lien Ratio per Lot may vary. (5) Applying the Maximum Special Tax Rate for Undeveloped Property would result in a levy of $61, Shown here is the anticipated Assigned Special Tax Amount based on plans provided by Lennar Homes. Source: Dolinka Group, LLC. 36

47 Value-to-Lien Ratio; Estimated Tax Rate The table below sets forth the value-to-lien analysis for the Community Facilities District, as of October 1, 2013 (the date of value set forth in the Appraisal). The market value reported in the Appraisal results in an approximate aggregate value-to-lien ratio of 7.17:1. There was no other direct and overlapping tax and assessment debt relating to the Community Facilities District set forth in the report by National Tax Data, dated as of October 15, If and when other tax or assessment debt is issued, the value-to-lien ratio will change. (1) Table 7 Community Facilities District No of the Lake Elsinore Unified School District Value-to-Lien Analysis Development (1) Number of Lots (1) Total Appraised Value (1) Series 2013 Bonds (2) Value-to- Lien Homeowners 94 $35,955,000 $4,243, :1 Lennar 36 6,110,000 1,626, :1 Total 130 $42,065,000 $5,870, :1 Source: Summary Appraisal Report, dated October 9, (2) Debt has been allocated based on the percentage of share of the Fiscal Year Special Tax levy. Source: Dolinka Group, LLC. Special Tax Delinquency History; School District/Community Facilities District Special Tax Delinquencies Special Tax Delinquencies Fiscal Year is the seventh year in which Special Taxes were levied. $93, of Special Taxes was levied in Fiscal Year which will be used for authorized school facilities and administrative expenses. As of October 8, 2013, there were 3 delinquent parcels with respect to the Special Taxes for Fiscal Year and 3 parcels delinquent for prior years. See BONDOWNERS RISKS generally for discussions of certain potential causes of property tax delinquencies. 37

48 The table below sets forth information regarding historical Special Tax levies and collections. Special Taxes Levied Table 8 Community Facilities District No of the Lake Elsinore Unified School District Historical Delinquency and Collection Rates Special Taxes Collected Parcels Delinquent/ Parcels Levied Year End Delinquency Remaining Delinquency (1) Fiscal Year Amount Delinquent Fiscal Year Delinquency Rate Remaining Parcels Delinquent Remaining Amount Delinquent Remaining Delinquency Rate Fiscal Year $62, $53,722 4/25 $8, % 0 $0 0.00% , ,911 4/31 8, , ,628 2/31 3, , ,658 2/31 5, , , ,725 0/ , ,642 1/34 2, , (1) This information is as of October 8, Source: Dolinka Group, LLC. Concentration of Special Tax Obligation As of October 8, 2013, the Taxable Property in the Community Facilities District is owned by 94 individual homeowners, as well as Lennar Homes for the balance of the 130 lots. See PROPERTY OWNERSHIP AND DEVELOPMENT. Numerous future delinquencies by the owners of Taxable Property in the Community Facilities District in the payment of property taxes (and, consequently, the Special Taxes, which are collected on the ordinary property tax bills) when due could result in a deficiency in Special Tax revenues necessary to pay debt service on the Series 2013 Bonds, which could in turn result in the depletion of the Reserve Fund, prior to reimbursement from the resale of foreclosed property or payment of the delinquent Special Tax. In that event, there could be a delay or failure in payments of the principal of and interest on the Series 2013 Bonds. See SECURITY FOR THE SERIES 2013 BONDS Reserve Fund, and COMMUNITY FACILITIES DISTRICT NO Special Tax Delinquencies; School District/Community Facilities District Special Tax Delinquencies. Direct and Overlapping Debt The following table sets forth the existing authorized indebtedness payable from taxes and assessments that may be levied within the Community Facilities District prepared by National Tax Data, Inc. and dated as of October 15, 2013 (the Debt Report ). The Debt Report is included for general information purposes only. In certain cases, the percentages of debt calculations are based on assessed values, which will change significantly as County assessed value records increase to reflect housing values. 89 parcels were subject to the levy of Special Taxes in Fiscal Year The table references a total of 135 parcels within the Community Facilities District. This total includes the 130 Taxable Parcels within the Community Facilities District, as well as 5 parcels which are not subject to the levy of Special Taxes because they are exempt under the Rate and Method. Some of such parcels are subject to levy by other jurisdictions. The Community Facilities District believes the information is current as of its date, but makes no representation as to its completeness or accuracy. Other public agencies, such as the County, may issue additional indebtedness at any time, without the consent or approval of the School 38

49 District or the Community Facilities District. See Overlapping Assessment and Community Facilities Districts below. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the Community Facilities District in whole or in part. Such long-term obligations generally are not payable from property taxes, assessment or special taxes on land in the Community Facilities District. In many cases long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Additional indebtedness could be authorized by the School District, the County or other public agencies at any time. The Community Facilities District has not undertaken to commission annual appraisals of the market value of property in the Community Facilities District for purposes of its Annual Reports pursuant to the Continuing Disclosure Agreement, and information regarding property values for purposes of a direct and overlapping debt analysis which may be contained in such reports will be based on assessed values as determined by the County Assessor. See Appendix E hereto for the form of the Community Facilities District Continuing Disclosure Agreement. 39

50 I. Assessed Value Table 9 Community Facilities District No of the Lake Elsinore Unified School District Detailed Direct and Overlapping Debt Secured Roll Assessed Value $21,355,826 II. Secured Property Taxes Description on Tax Bill Type Total Parcels Total Levy % Applicable Parcels Levy Basic 1% Levy PROP13 900,172 $1,965,976, % 135 $212, City of Wildomar CSA No. 103 (Lighting) CSA 3,333 $135, % 131 $7, City of Wildomar LLMD No. 89-1C, Zone 30 LLMD 164 $27, % 86 $14, City of Wildomar LLMD No. 89-1C, Zone 67 LLMD 44 $6, % 44 $6, City of Wildomar Special Park Parcel Tax SPCLTAX 12,186 $341, % 135 $3, City of Wildomar Waste and Recycling Services TRASH 123 $34, % 1 $ County of Riverside CSA No. 152 (Street Sweeping) CSA 59,648 $1,570, % 130 $5, Elsinore Valley Municipal Water District Regional Sewer Charge STANDBY 13,480 $327, % 71 $ Elsinore Valley Municipal Water District Standby Charge STANDBY 13,872 $324, % 71 $ Lake Elsinore Unified School District CFD No CFD 135 $248, % 89 $248, Metropolitan Water District of Southern California Debt Service Metropolitan Water District of Southern California Standby Charge (West) GOB STANDBY 253,147 $2,553, % 131 $ ,626 $3,493, % 135 $1, Riverside County Flood Control NPDES (Santa Margarita) FLOOD 83,038 $533, % 37 $ TOTAL PROPERTY TAX LIABILITY $503, TOTAL PROPERTY TAX LIABILITY AS A PERCENTAGE OF ASSESSED VALUATION 2.36% III. Land Secured Bond Indebtedness Outstanding Direct and Overlapping Bonded Debt Type Issued Outstanding % Applicable Parcels Amount Lake Elsinore Unified School District CFD No CFD $0 $ % 89 $0 TOTAL LAND SECURED BOND INDEBTEDNESS (1) $0 TOTAL OUTSTANDING LAND SECURED BOND INDEBTEDNESS (1) $0 IV. General Obligation Bond Indebtedness Outstanding Direct and Overlapping Bonded Debt Type Issued Outstanding % Applicable Parcels Amount Metropolitan Water District of Southern California GOB 1966 GOB $850,000,000 $165,085, % 131 $1,615 TOTAL GENERAL OBLIGATION BOND INDEBTEDNESS (1) $1,615 TOTAL OUTSTANDING GENERAL OBLIGATION BOND INDEBTEDNESS (1) $1,615 TOTAL OF ALL OUTSTANDING AND OVERLAPPING BONDED DEBT $1, VALUE TO ALL OUTSTANDING DIRECT AND OVERLAPPING BONDED DEBT :1 (1) Additional bonded indebtedness or available bond authorization may exist but are not shown because a tax was not levied for the referenced fiscal year. Source: National Tax Data, Inc. 40

51 The table below sets forth estimated Fiscal Year overall tax rates projected to be applicable to a single-family residential unit with 3,292 building square feet and a sales price of $274,000. The Special Tax rates and sales prices, and therefore the overall tax rates, vary among the homes. The table below also sets forth those entities with fees, charges, ad valorem taxes and special taxes regardless of whether those entities have issued debt. While Table 10 indicates a total effective tax rate of 2.17% based on assessed value, the total effective tax rate is lower when based on recent median representative base sales prices for homes sold by Lennar Homes. Based on a median representative base price of the Lennar Homes properties of $343,290, the effective tax rate would be 1.69%. Table 10 Community Facilities District No of the Lake Elsinore Unified School District Fiscal Year Property Tax Rates (Single-Family Residential Units Containing 3,292 Building Square Feet) Assessed Valuations and Property Taxes Assessed Value (1) $274,000 Homeowner's Exemption ($7,000) Net Assessed Value (2) $ 267,000 Ad Valorem Property Taxes Percent of Total AV Projected Amount General Purposes % $2, Ad Valorem Tax Overrides Metropolitan Water District of Southern California GOB % $9.35 Total Ad Valorem Property Taxes % $2, Assessments, Special Taxes, and Parcel Changes (3) Flood Control Stormwater/Cleanwater $4.00 County of Riverside CSA No. 152 (Street Sweeping) $45.02 City of Wildomar CSA No. 103 (Lighting) $54.28 Metropolitan Water District Standby Charge (West) $9.22 Lake Elsinore Unified School District CFD No $2, City of Wildomar Special Park Parcel Tax $28.00 City of Wildomar LLMD No. 89-1C, Zone 30 $ Total Assessments, Special Taxes and Parcel Charges $3, Total Property Taxes $5, Total Effective Tax Rate 2.17% (1) FY assessed valuation for a Developed Property containing 3,292 building square feet, selected to represent the median effective tax rate for a Developed Property within CFD No (2) Net Assessed Value reflects estimated total assessed value for the parcel net of homeowner s exemption. (3) All charges and special assessments are based on a Lot size of less than one (1) acre. Source: Dolinka Group, LLC. Overlapping Assessment and Community Facilities Districts Except as set forth herein, the Community Facilities District is not aware of any other overlapping special tax or assessment districts for which bonded indebtedness has been issued or authorized. 41

52 Additional Debt Payable from Taxes or Assessments. The Community Facilities District has no control over the amount of additional debt payable from taxes or assessments levied on all or a portion of the property within a special district which may be incurred in the future by other governmental agencies, including, but not limited to, the County, or any other governmental agency having jurisdiction over all. Furthermore, nothing prevents the owners of property from consenting to the issuance of additional debt by other governmental agencies which would be secured by taxes or assessments on a parity with the Special Taxes. To the extent such indebtedness is payable from assessments, other special taxes levied pursuant to the Act or taxes, such assessments, special taxes and taxes will be secured by liens on the property within a district on a parity with a lien of the Special Taxes. Accordingly, the debt on the property could increase, without any corresponding increase in the value of the property therein, and thereby severely reduce the ratio that exists at the time the Series 2013 Bonds are issued between the value of the property and the debt secured by the Special Taxes and other taxes and assessments which may be levied on such property. The incurring of such additional indebtedness could also affect the ability and willingness of the property owners to pay the Special Taxes when due. Moreover, in the event of a delinquency in the payment of Special Taxes, no assurance can be given that the proceeds of any foreclosure sale of the property with delinquent Special Taxes would be sufficient to pay the delinquent Special Taxes. See BONDOWNERS RISKS Appraised Values. Other Overlapping Direct Assessments Riverside County Flood Control and Water Conservation District. The Riverside County Flood Control and Water Conservation District service area encompasses portions of three major watersheds. The Santa Margarita Watershed Benefit Assessment Area was formed to offset the program and administrative costs associated with the development, implementation and management of identified stormwater management activities required by the federally mandated NPDES Permit Program. The assessment amount for Fiscal Year is $4.00 per benefit assessment unit. A detached residential unit or less than 1 acre is assessed for 1 benefit assessment unit. Although the assessment amount has not changed since Fiscal Year , new laws and regulations could result in changes to the assessment rate in future years. County of Riverside County Service Area #152, Street Sweeping. County Service Area #152 was formed by the County and is authorized to levy an annual assessment to fund ongoing street sweeping service. The maximum assessment amount is expected to be $45.02 per residential unit. The assessment may be increased annually, by an amount not to exceed two percent (2.00%) of the assessment in the prior Fiscal Year. County Service Area #103, Street Lights. County Service Area #103 was formed by the County and is authorized to levy an annual assessment for the energizing of in-tract and backbone street lighting. The maximum assessment amount is expected to be $54.28 per residential unit. The assessment may be increased annually, by an amount not to exceed two percent (2.00%) of the assessment in the prior Fiscal Year. Metropolitan Water District Standby West. The Metropolitan Water District of Southern California imposes an annual charge of $9.22 per acre or $9.22 per parcel for parcels under one (1) acre. This charge is used for capital improvements to the water distribution system and the construction and maintenance of reservoirs and is not expected to escalate. 42

53 City of Wildomar Special Park Parcel Tax. The City of Wildomar annually assesses a parcel tax on every parcel within its boundaries to pay for the availability of and the funding, repair, operating and maintenance of community parks and community park related facilities, programs and services within the City of Wildomar. The maximum tax rate imposed is $28.00 parcel and may not be increased without compliance with applicable law. City of Wildomar Landscaping and Lighting Maintenance District No. 89-1C, Zone 30. The Landscaping and Lighting Maintenance District imposes an annual charge of $ per parcel. This charge is used for the landscaping and lighting within the area and is expected to increase in the future. PROPERTY OWNERSHIP AND DEVELOPMENT The information about Lennar Homes contained in this Official Statement has been provided by representatives of Lennar Homes and has not been independently confirmed or verified by the Underwriter, the School District or the Community Facilities District. The Underwriter, the School District and the Community Facilities District make no representation as to the accuracy or adequacy of the information contained in this section. There may be material adverse changes in this information after the date of this Official Statement. Property Ownership Property Ownership. The table below shows the ownership of the taxable property within the Community Facilities District as of October 1, Table 11 Community Facilities District No of the Lake Elsinore Unified School District Property Ownership Riverside County Tract Map Individual Homeowners (1) Lennar Homes (2) Total Riverside County Tract Map Riverside County Tract Map Riverside County Tract Map Total (1) As of October 1, (2) As of October 1, 2013, consisted of 3 model homes, 17 finished lots, and 16 homes which were under construction. As of November 21, 2013, Lennar Homes has obtained additional building permits for all but 9 of the remaining vacant lots and has completed and closed escrow to individual homeowners additional homes. See Footnote 1 to Table 3. Source: Lennar Homes. 43

54 Lennar Homes of California, Inc. Ownership Structure. As used in this Official Statement, Lennar Homes is Lennar Homes of California, Inc., a California corporation, which is based in Aliso Viejo, California, and has been in the business of developing residential real estate communities in California since Lennar Homes is owned by U.S. Home Corporation, a Delaware corporation ( U.S. Home ), and two other entities, Lennar Land Partners Sub, Inc. (7.331% interest) and Lennar Land Partners Sub II, Inc. (11.933% interest). U.S. Home, Lennar Land Partners Sub, Inc. and Lennar Land Partners Sub II, Inc. are each wholly-owned by Lennar Corporation. Lennar Corporation, founded in 1954 and publicly traded under the symbol LEN since 1971, is one of the nation s largest home builders, operating under a number of brand names, including Lennar Homes and U.S. Home. Lennar Homes develops residential communities both within the Lennar family of builders and through consolidated and unconsolidated partnerships in which Lennar Homes maintains an interest. Financial and Operating Information. Lennar Corporation is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files, reports, proxy statements and other information with the SEC. Such filings, particularly the Annual Report on Form 10-K and its most recent Quarterly Report on Form 10-Q, may be inspected and copied at the public reference facilities maintained by the SEC in Washington, D.C., and over the internet at the SEC s website at Copies of such material can be obtained from the public reference section of the SEC at prescribed rates. This internet address is included for reference only and the information on the internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on the internet site. Copies of Lennar Corporation s Annual Report and related financial statements, prepared in accordance with generally accepted accounting standards, are available from Lennar Corporation s website at lennar.com. This internet address is included for reference only and the information on the internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on the internet site. History of Property Tax Payments; Loan Defaults; Litigation; and Bankruptcy. In connection with the issuance of the Series 2013 Bonds, an authorized representative of Lennar Homes will execute a certificate containing the following representations (among others). For purposes of these representations, the following definitions apply: (a) The term Property means the property currently owned by Lennar Homes within the Community Facilities District. (b) The term Relevant Entity means, with respect to a Person (i) any other Person directly, or indirectly through one or more intermediaries, currently controlling, controlled by or under common control with such Person, and (ii) for whom information, including financial information or operating data, concerning such Person referenced in clause (i) is material to an evaluation of the Community Facilities District and the Series 2013 Bonds (i.e., information relevant to Lennar Homes development of its Property within the Community Facilities District, the payment of its Special Taxes, or such Person s assets or funds that would materially affect Lennar Homes ability to develop its property in the Community Facilities District as proposed in this Official Statement or to pay its Special Taxes. 44

55 Person means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. For purposes hereof, the term control (including the terms controlling, controlled by or under common control with ) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Breaches of Law. To the actual knowledge of the officer signing the certificate, (a) Lennar Homes and its Relevant Entities have not violated any applicable law or administrative regulation of the State of California or the United States of America, or any agency or instrumentality of either, which violation could reasonably be expected to materially and adversely affect Lennar Homes ability to pay the Special Taxes prior to delinquency with respect to the Property, and (b) no event has occurred and is continuing which with the passage of time or giving of notice, or both, would constitute such a violation. Breaches of Agreements. To the actual knowledge of the officer signing the certificate, (a) Lennar Homes and its Relevant Entities are not in breach of or in default under any applicable judgment or decree or any loan agreement, option agreement, development agreement, indenture, fiscal agent agreement, bond or note (collectively, the Material Agreements ) to which Lennar Homes or its Relevant Entities are, or will upon issuance of the Series 2013 Bonds be, a party or otherwise subject, which breach or default could reasonably be expected to materially and adversely affect the ability of Lennar Homes to develop the Property as stated in this Official Statement or to pay the Special Taxes prior to delinquency with respect to the Property, and (b) no event has occurred and is continuing that with the passage of time or giving of notice, or both, would constitute such a breach or default which could reasonably be expected to materially and adversely affect the ability of Lennar Homes to develop the Property as stated in this Official Statement or to pay the Special Taxes prior to delinquency with respect to the Property. Loan Defaults. There are no material loans outstanding and unpaid and no material lines of credit of Lennar Homes or its Relevant Entities that are secured by an interest in the Property, and neither Lennar Homes nor any of its Relevant Entities is currently in material default on any loans, lines of credit or other obligation related to the development of the Property or any other project which default is reasonably likely to materially and adversely affect Lennar Homes ability to develop the Property as stated in this Official Statement or to pay the Special Taxes prior to delinquency with respect to the Property. Litigation. No action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, regulatory agency, public board or body is pending against Lennar Homes (with proper service of process to Lennar Homes having been accomplished) or, to the actual knowledge of the officer signing the certificate, is pending against any current Relevant Entity (with proper service of process to such Relevant Entity having been accomplished) or to the actual knowledge of the officer signing the certificate is threatened in writing against Lennar Homes or any such Relevant Entity relating to the following: (a) to restrain or enjoin the collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Series 2013 Bonds (e.g., the Reserve Fund established under the Fiscal Agent Agreement), 45

56 (b) to restrain or enjoin the development of the Property as stated in this Official Statement, (c) in any way contesting or affecting the validity of the Special Taxes, or (d) which is reasonably likely to materially and adversely affect Lennar Homes ability to complete the development and sale of the Property it currently owns within the Community Facilities District or to pay Special Taxes prior to delinquency with respect to the Property. Special Tax and Assessment Delinquencies. Lennar Homes has been developing or has been involved in the development of numerous projects over an extended period of time. It is likely that Lennar Homes and some of its Relevant Entities have been delinquent at one time or another in the payment of ad valorem property taxes, special assessments or special taxes. To the actual knowledge of the officer signing the certificate, neither Lennar Homes nor any current Relevant Entity is currently delinquent in any material amount in the payment of ad valorem property taxes, special assessments or special taxes on property owned by Lennar Homes or on property in California owned by any such Relevant Entity. To the actual knowledge of the officer signing the certificate, neither Lennar Homes nor any Relevant Entity has been delinquent in the payment of special assessments or special taxes on property in California owned by Lennar Homes or by any such Relevant Entity during the period of its ownership included within the boundaries of a community facilities district or assessment district within California in the last five years that would have caused a draw on a reserve fund relating to such assessment district or community facilities district financing. No Bankruptcy. To the actual knowledge of the officer signing the certificate, Lennar Homes is able to pay its bills as they become due and no legal proceedings are pending against Lennar Homes (with proper service of process having been accomplished) or, to the actual knowledge of the officer signing the certificate, threatened in writing in which Lennar Homes may be adjudicated as bankrupt or discharged from any and all of its debts or obligations, or granted an extension of time to pay its debts or obligations, or be allowed to reorganize or readjust its debts, or be subject to control or supervision of the Federal Deposit Insurance Corporation. To the actual knowledge of the officer signing the certificate, Relevant Entities of Lennar Homes are able to pay their bills as they become due and no legal proceedings are pending against any Relevant Entity of Lennar Homes (with proper service of process having been accomplished) or to the actual knowledge of the officer signing the certificate, threatened in writing in which the Relevant Entities of Lennar Homes may be adjudicated as bankrupt or discharged from any or all of their debts or obligations, or granted an extension of time to pay their debt or obligations, or be allowed to reorganize or readjust their debts or obligations, or be subject to control or supervision of the Federal Deposit Insurance Corporation. Impact of Real Estate Market on Lennar Development Projects. The downturn in the real estate market commencing in 2007 resulted in reduced home prices and longer absorption periods and, accordingly, depressed residual land values in many communities. In addition, tighter restrictions on the availability of credit decreased the homebuyer pool. As a result, with respect to certain projects they were developing, Lennar Homes, and their respective affiliates and joint ventures: (i) re-evaluated the financial feasibility of certain wholly-owned projects and the economics of exercising options on certain landbanked properties and, in some cases, determined to not exercise such options; (ii) effectuated land sales at reduced prices; and (iii) renegotiated loan structures that were originally based upon prior land valuations and absorption rates. In connection with the actions taken due to the market downturn, there were instances when joint ventures that Lennar Homes had an interest in failed to pay ad valorem 46

57 property taxes, lost property to a lender s foreclosure or terminated options on the acquisition of property (some of which were in community facilities districts). Although Lennar Homes and its affiliates have been impacted by the housing market, Lennar Homes does not believe that the current housing market will have an adverse impact on the ability of Lennar Homes to continue to develop and sell homes within the Community Facilities District as contemplated by this Official Statement and to pay, prior to delinquency, any special taxes for which it is responsible. Property Development Status No assurances can be made that Lennar Homes will have the resources, willingness and ability to successfully complete development activities on the property within the Community Facilities District. No representation is made as to the ability (financial or otherwise) of Lennar Homes to complete development as currently planned. Entitlement Status. All discretionary entitlements required to complete the development and sales of homes in the Community Facilities District have been received. Development Status as of October 1, The table below sets forth the development status of the property in the Community Facilities District as of October 1, Table 12 Community Facilities District No of the Lake Elsinore Unified School District Current Development Status Riverside County Tract Map Completed Homes Owned by Individual Homeowners (1) Completed Homes / Standing Inventory (2)(4) Homes Under Construction (2) Finished Lots (2) (3) Unfinished Lots (2) Total Riverside County Tract Map Riverside County Tract Map Riverside County Tract Map Total: (1) As of November 21, 2013, Lennar Homes has obtained additional building permits for all but 9 of the remaining vacant lots and has completed and closed escrow to individual homeowners additional homes. See Footnote 1 to Table 3. (2) Currently owned by Lennar Homes. (3) Represents homesites with street improvements but no sidewalks. (4) Includes 3 models homes in Riverside County Tract Map Source: Lennar Homes. 47

58 Development Plan Infrastructure Development. All off-site infrastructure required for the development of all 130 planned single-family homes within the Community Facilities District has been substantially completed. Lennar Homes currently estimates that the remaining costs to complete improvements within Riverside County Tract Maps and is approximately $271,043, which includes final cap paving of streets, HOA common area landscaping, dry utility services, impact fees on the five finished lots and sewer/water/meters for the five finished lots. Lennar Homes currently estimates that the remaining costs to complete improvements within Riverside County Tract Map is approximately $779,716, which includes final cap paving of streets, LMD and HOA common area landscaping, park landscaping, dry utility services, impact fees on the 12 finished lots and sewer/water/meters for the 12 finished lots. In all tracts, all of the remaining work is already under contract. See Financing Plan below. Home Development and Sales. All 44 homes in Riverside County Tract Map have been constructed and closed to homeowners. Lennar Homes currently anticipates that it will carry out home development activities on Riverside County Tract Maps and within the Community Facilities District and to sell completed homes to individual homeowners. The construction and sales schedule is set forth below. No assurance can be given that future home construction will be carried out, or that Lennar Homes construction and sale plans set forth below will not change after the date of this Official Statement. 48

59 Construction and Sales Schedule Riverside County Tract Map Phases No. of Units Begin Home Construction First Home Sale Closings Last Home Sale Closings All 44 ************Completed and Sold Out************ Riverside County Tract Map Phase No. of Units Begin Home Construction First Home Sale Closings Last Home Sale Closings ************Completed and Sold Out************ Buildout 5 December 2013 April 2014 April 2014 Models 3 Complete April 2014 April 2014 Total 42 Riverside County Tract Map Phase No. of Units Begin Home Construction First Home Sale Closings Last Home Sale Closings ************Completed and Sold Out************ 3 8 July 2013 November 2013 November September 2013 January 2014 January November 2013 March 2014 March 2014 Buildout 4 December 2013 May 2014 May 2014 Total 44 Source: Lennar Homes. below. The current product mix for the homes within the Community Facilities District is set forth Planning Area No. of Units Proposed Unit Mix Range of Square Footage Anticipated Current Base Prices Tract Map ,033 3,672 Sold Out Tract Map ,033 3,672 $291,990 - $409,399 Tract Map ,284 3,672 $313,990 - $409,399 Total 130 Source: Lennar Homes. 49

60 Financing Plan Lennar Homes is financing a portion of its development activities in the Community Facilities District through internal sources and intends to use this source of funds, together with proceeds of future home sales, to finance residential home construction costs and carrying costs of its property, including property taxes and the Special Taxes while it owns the property. There is no loan secured by its property within the Community Facilities District. Notwithstanding the belief of Lennar Homes that it will have sufficient funds to complete its planned development, no assurance can be given that sources of financing available to Lennar Homes will be sufficient to complete the property development and home construction as currently anticipated. Further, no assurance can be given that Lennar Homes will carry out development activities, as currently anticipated. While Lennar Homes has made such internal financing available in the past, there can be no assurance whatsoever of its willingness or ability to do so in the future. Neither Lennar Homes nor any of its affiliates has any legal obligation of any kind to make any such funds available or to obtain loans for this purpose. Environmental Conditions Lennar Homes is not aware of any permits already not obtained that are required to proceed with development of the Community Facilities District other than the usual permits issued in connection with construction of homes required from the City and applicable local agencies. A portion of Riverside County Tract Maps and is located in an area of 100-year flooding (pursuant to FEMA designations), and the remaining portion is located in an area of moderate to minimal flood risk. Riverside County Tract Map is located in an area of moderate to minimal flood risk. The grading of the areas located in an area of 100-year flooding is expected to result in all lots being out of the 100-year floodplain, with 2:1 slopes down to the floodplain/murrieta Creek area from the residential lots. Seismic Activity. Generally, the property within the Community Facilities District will be subject to hazards associated with seismic activity. The property in Riverside County Tract Maps and is located in an Alquist-Priolo Earthquake Fault Zone, but the property in Riverside County Tract Map is not located in an Alquist-Priolo Earthquake Fault Zone. BONDOWNERS RISKS Investment in the Bonds involves risks that may not be appropriate for certain investors. The following is a discussion of certain risk factors that should be considered, in addition to other matters set forth herein, in evaluating the Bonds for investment. The information set forth below does not purport to be an exhaustive listing of the risks and other considerations that may be relevant to an investment in the Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. Risks of Real Estate Secured Investments Generally The Bondowners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the Community Facilities District, the supply of or demand for competitive properties in such area, and the market value of residential property in the event of sale or 50

61 foreclosure; (ii) changes in real estate tax rate and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes, wildfires and floods), which may result in uninsured losses. Risks Related to Current Real Estate Market Conditions The housing market in southern California experienced significant price appreciation and accelerating demand from approximately 2002 to 2006 but subsequently the housing market weakened substantially, with changes from the prior pattern of price appreciation and a slowdown in demand for new housing. Economic Uncertainty; State Budget Economic Uncertainty. The Series 2013 Bonds are being issued at a time of local economic uncertainty and volatility. Unemployment rates have decreased to approximately 9.5% for the Wildomar area as of August 2013 (not seasonally adjusted) as compared to 10.8% for calendar year 2012 and approximately 10.8% (not seasonally adjusted) for Riverside County as compared to 12.2% for calendar year The Community Facilities District cannot predict how long these conditions will last or whether to what extent they may affect the ability of homeowners to pay Special Taxes or the marketability of the Series 2013 Bonds. State Budget. As a result of the slow State and United States of America economies, the State in recent years experienced serious budgetary shortfalls. The effect of the State revenue shortfalls on the local or State economy or on the demand for, or value of, the property within the Community Facilities District cannot be predicted. Special Taxes Are Not Personal Obligations The current and future owners of land within the Community Facilities District are not personally liable for the payment of the Special Taxes. Rather, the Special Tax is an obligation only of the land within the Community Facilities District. If the value of the land within the Community Facilities District is not sufficient to fully secure the Special Tax, then the Community Facilities District has no recourse against the landowner under the laws by which the Special Tax has been levied and the Series 2013 Bonds have been issued. The Series 2013 Bonds Are Limited Obligations of the Community Facilities District The Community Facilities District has no obligation to pay principal of and interest on the Series 2013 Bonds in the event Special Tax collections are delinquent, other than from amounts, if any, on deposit in the Reserve Fund or funds derived from the tax sale or foreclosure and sale of parcels on which levies of the Special Tax are delinquent, nor is the Community Facilities District obligated to advance funds to pay such debt service on the Series 2013 Bonds. 51

62 Appraised Values The Appraisal summarized in Appendix C hereto estimates the fee simple interest market value of the Taxable Property. This value is merely the present opinion of the Appraiser, and is qualified by the Appraiser as stated in the Appraisal. The Community Facilities District has not sought the present opinion of any other appraiser of the value of the Taxable Property. A different present opinion of such 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 nor 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 if any of the Taxable Property should become delinquent in the payment of Special Taxes, and be foreclosed upon, that such property could be sold for the amount of estimated market value thereof contained in the Appraisal. Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property While the Special Taxes are secured by the Taxable Property, the security only 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 COMMUNITY FACILITIES DISTRICT NO Direct and Overlapping Debt sets forth the presently outstanding amount of governmental obligations (with stated exclusions), the tax or assessment for which is or may become an obligation of one or more of the parcels of Taxable Property and furthermore 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 tax, assessment or charge for which may become an obligation of one or more of the parcels of Taxable Property and may be secured by a lien on a parity with the lien of the Special Tax securing the Series 2013 Bonds. In general, as long as the Special Tax is collected on the county tax roll, the Special Tax and all other taxes, assessments and charges also collected on the tax roll are on a parity, that is, are of equal priority. Questions of priority 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 event of proceedings to foreclose for delinquency of Special Taxes securing the Series 2013 Bonds, the Special Tax will be subordinate only to existing prior governmental liens, if any. Otherwise, in the event of such foreclosure proceedings, the Special Taxes will generally be on a parity with the other taxes, assessments and charges, and will share the proceeds of such foreclosure proceedings on a pro rata basis. Although the Special Taxes will generally have priority over non-governmental liens on a parcel of Taxable Property, regardless of whether the non-governmental liens were in existence at the time of the levy of the Special Tax or not, this result may not apply in the case of bankruptcy. 52

63 While governmental taxes, assessments and charges are a common claim against the value of a parcel of Taxable Property, other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized to pay the Special Tax is a claim with regard to a hazardous substance. See Hazardous Substances below. Disclosure to Future Purchasers The Community Facilities District has recorded a Notice of Special Tax Lien in the Office of the Riverside County Recorder on December 13, 2004, as Document No While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a parcel of land or a home or the lending of money thereon. The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello-Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section b requires that in the case of transfers, other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due. Billing of Special Taxes A special tax formula can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in turn can lead to problems in the collection of the special tax. In some community facilities districts the taxpayers have refused to pay the special tax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by the community facilities district. Under provisions of the Act, the Special Taxes are billed to the properties which were entered on the Assessment Roll of the County Assessor by January 1 of the previous fiscal year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. These Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and installment payments of Special Taxes in the future. See SECURITY FOR THE SERIES 2013 BONDS Proceeds of Foreclosure Sales, for a discussion of the provisions which apply, and procedures which the Community Facilities District is obligated to follow, in the event of delinquency in the payment of installments of Special Taxes. Inability to Collect Special Taxes In order to pay debt service on the Series 2013 Bonds, it is necessary that the Special Tax levied against land within the Community Facilities District be paid in a timely manner. The Community Facilities District has covenanted in the Fiscal Agent Agreement under certain conditions to institute foreclosure proceedings against property with delinquent Special Tax in order to obtain funds to pay debt service on the Series 2013 Bonds. If foreclosure proceedings were instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Tax to 53

64 protect its security interest. In the event such superior court foreclosure is necessary, there could be a delay in principal and interest payments to the owners of the Series 2013 Bonds pending prosecution of the foreclosure proceedings and receipt of the proceeds of the foreclosure sale, if any. No assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Tax installment. Although the Act authorizes the Board, as the Legislative Body of the Community Facilities District, to cause such an action to be commenced and diligently pursued to completion, the Act does not specify the obligations of the Board with regard to purchasing or otherwise acquiring any lot or parcel of property sold at the foreclosure sale if there is no other purchaser at such sale. See SECURITY FOR THE SERIES 2013 BONDS Proceeds of Foreclosure Sales. Hazardous Substances While governmental taxes, assessments, and charges are a common claim against the value of Taxable Property, other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized to pay the Special Tax is a claim with regard to hazardous substances. In general, the owners and operators of parcels within the Community Facilities District may be required by law to remedy conditions of the parcels related to the 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 wellknown and widely applicable of these laws, but State 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 substances condition of a property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any parcel be affected by a hazardous substance, would be to reduce the marketability and value of the parcel by the costs of remedying the condition, because the owner (or operator) is obligated to remedy the condition. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling or disposing of it. All of these possibilities could significantly affect the financial and legal ability of a property owner to develop the affected parcel or other parcels, as well as the value of the property that is realizable upon a delinquency and foreclosure. The value of the property, as set forth in the appraised values set forth in the Appraisal hereto, does 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. The Community Facilities District has not independently verified and is not aware that the owner (or operator) has such a current liability with respect to any of the parcels of Taxable Property, except as expressly noted. However, 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 parcels of Taxable Property resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling or disposing of it. All of these possibilities could significantly affect the value of a Taxable Property that is realizable upon a delinquency. 54

65 Insufficiency of the Special Tax The principal source of payment of principal of and interest on the Series 2013 Bonds is the proceeds of the annual levy and collection of the Special Tax against property within the Community Facilities District. The annual levy of the Special Tax is subject to the maximum tax rates authorized. The levy cannot be made at a higher rate even if the failure to do so means that the estimated proceeds of the levy and collection of the Special Tax, together with other available funds, will not be sufficient to pay debt service on the Series 2013 Bonds. Other funds which might be available include funds derived from the payment of penalties on delinquent Special Taxes and funds derived from the tax sale or foreclosure and sale of parcels on which levies of the Special Tax are delinquent. The levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of particular Taxable Property and the amount of the levy of the Special Tax against such parcels. Thus, there will rarely, if ever, be a uniform relationship between the value of such parcels and the proportionate share of debt service on the Series 2013 Bonds, and certainly not a direct relationship. The Special Tax levied in any particular tax year on a Taxable Property is based upon the revenue needs and the application of the Rate and Method, including the effects of the Minimum Annual Special Tax Requirement. Application of the Rate and Method will, in turn, be dependent upon certain development factors with respect to each Taxable Property by comparison with similar development factors with respect to the other Taxable Property within the Community Facilities District. Thus, in addition to annual variations of the revenue needs from the Special Tax, the following are some of the factors which might cause the levy of the Special Tax on any particular Taxable Property to vary from the Special Tax that might otherwise be expected: (1) Reduction in the amount of Taxable Property, for such reasons as acquisition of Taxable Property by a government and failure of the government to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency thereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining parcels of Taxable Property; or (2) Failure of the owners of Taxable Property 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 of Taxable Property. Except as set forth above under SECURITY FOR THE SERIES 2013 BONDS Special Taxes and Rate and Method herein, 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 SERIES 2013 BONDS Proceeds of Foreclosure Sales 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 ad valorem property taxes. Pursuant to these procedures, if taxes are unpaid for a period of five years or more, the property is subject to sale by the County. In the event that sales or foreclosures of property are necessary, there could be a delay in payments to owners of the Series 2013 Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the Community Facilities District of the proceeds of sale if the Reserve Fund is depleted. See SECURITY FOR THE SERIES 2013 BONDS Proceeds of Foreclosure Sales. 55

66 In addition, the Rate and Method limits the increase of Special Taxes levied on parcels of Developed Property to cure delinquencies of other property owners. See SECURITY FOR THE SERIES 2013 BONDS Rate and Method herein. Exempt Properties Certain properties are exempt from the Special Tax in accordance with the Rate and Method (see SECURITY FOR THE SERIES 2013 BONDS Rate and Method herein). In addition, the Act provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property 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. It is possible that property acquired 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 additional property is dedicated to the School District or other public entities, this additional 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 new 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 SERIES 2013 BONDS Reserve Fund herein). Funds in the Reserve Fund may be used to pay principal of and interest on the Series 2013 Bonds in the event the proceeds of the levy and collection of the Special Tax against property within the Community Facilities District is insufficient. If funds in the Reserve Fund for the Series 2013 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 Bondowners 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 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. Potential Delay and Limitations in Foreclosure Proceedings The payment of property owners taxes and the ability of the Community Facilities District to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings, may be limited by bankruptcy, insolvency or other laws generally affecting creditors rights or by the laws of the State relating to judicial foreclosure. See SECURITY FOR THE SERIES 2013 BONDS Proceeds of Foreclosure Sales and BONDOWNERS RISKS Bankruptcy and Foreclosure Delay herein. In addition, the prosecution of a foreclosure could be delayed due to many reasons, including lengthy local court calendars or lengthy procedural delays. For a description of historical special tax collections in community facilities districts formed by the School District, see COMMUNITY FACILITIES DISTRICT NO Special Tax Delinquencies; School District/ Community Facilities District Special Tax Delinquencies. See also SECURITY FOR THE SERIES 56

67 2013 BONDS Proceeds of Foreclosure Sales, and BONDOWNERS RISKS Bankruptcy and Foreclosure Delay herein. The ability of the Community Facilities District to collect interest and penalties specified by State law and to foreclose against properties having delinquent Special Tax installments may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the FDIC ), the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Drug Enforcement Agency, the Internal Revenue Service or other similar federal governmental agencies has or obtains an interest. See BONDOWNERS RISKS Payments by FDIC and Other Federal Agencies herein. Other laws generally affecting creditors rights or relating to judicial foreclosure may affect the ability to enforce payment of Special Taxes or the timing of enforcement of Special Taxes. For example, the Soldiers and Sailors Civil Relief Act of 1940 affords protections such as a stay in enforcement of the foreclosure covenant, a six-month period after termination of such military service to redeem property sold to enforce the collection of a tax or assessment, and a limitation on the interest rate on the delinquent tax or assessment to persons in the military service if the court concludes the ability to pay such taxes or assessments is materially affected by reason of such service. The Community Facilities District and the School District are unable to predict what effect the application of a policy statement by the FDIC regarding payment of state and local real property taxes would have in the event of a delinquency on a parcel in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale would likely reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. In addition, potential investors should be aware that judicial foreclosure proceedings are not summary remedies and can be subject to significant procedural and other delays caused by crowded court calendars and other factors beyond the control of the Community Facilities District or the School District. Potential investors should assume that, under current conditions, it is estimated that a judicial foreclosure of the lien of Special Taxes will take up to two or three years from initiation to the lien foreclosure sale. At a Special Tax lien foreclosure sale, each parcel will be sold for not less than the minimum bid amount which is equal to the sum of all delinquent Special Tax installments, penalties and interest thereon, costs of collection (including reasonable attorneys fees), post-judgment interest and costs of sale. Each parcel is sold at foreclosure for the amounts secured by the Special Tax lien on such parcel and multiple parcels may not be aggregated in a single bulk foreclosure sale. If any parcel fails to obtain a minimum bid, the Community Facilities District may, but is not obligated to, seek superior court approval to sell such parcel at an amount less than the minimum bid. Such superior court approval requires the consent of the owners of 75% of the aggregate principal amount of the outstanding Bonds. Delays and uncertainties in the Special Tax lien foreclosure process create significant risks for Bondowners. High rates of special tax payment delinquencies which continue during the pendency of protracted Special Tax lien foreclosure proceedings, could result in the rapid, total depletion of the Reserve Fund prior to replenishment from the resale of property upon foreclosure. In that event, there could be a default in payment of the principal of, and interest on, the Series 2013 Bonds. Bankruptcy and Foreclosure Delay The payment of Special Taxes and the ability of the Community Facilities District to foreclose the lien of delinquent Special Taxes as discussed in the section herein entitled SECURITY FOR THE SERIES 2013 BONDS may be limited by bankruptcy, insolvency, or other laws generally affecting 57

68 creditors rights or by the laws of the State relating to judicial foreclosure. In addition, the prosecution of a judicial foreclosure may be delayed due to lengthy local court calendars or procedural delays. The various legal opinions to be delivered concurrently with the delivery of the Series 2013 Bonds (including Bond Counsel s approving legal opinion) will be qualified, as to the enforceability of the various legal instruments, by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Although bankruptcy proceedings would not cause the obligation to pay the Special Tax to become extinguished, bankruptcy of a property owner or of a partner or other equity owner of a property owner, could result in a stay of enforcement of the lien for the Special Taxes, a delay in prosecuting superior court foreclosure proceedings or adversely affect the ability or willingness of a property owner to pay the Special Taxes and could result in the possibility of delinquent Special Taxes not being paid in full. In addition, the amount of any lien on property securing the payment of delinquent Special Taxes could be reduced if the value of the property were determined by the bankruptcy court to have become less than the amount of the lien, and the amount of the delinquent Special Taxes in excess of the reduced lien could then be treated as an unsecured claim by the court. Any such stay of the enforcement of the lien for the Special Tax, or any such delay or non-payment, would increase the likelihood of a delay or default in payment of the principal of and interest on the Series 2013 Bonds and the possibility of delinquent Special Taxes not being paid in full. Moreover, amounts received upon foreclosure sales may not be sufficient to fully discharge delinquent installments. To the extent that a significant percentage of the property is owned by any property owner, and such owner is the subject of bankruptcy proceedings, the payment of the Special Tax and the ability of the Community Facilities District to foreclose the lien of a delinquent unpaid Special Tax could be extremely curtailed by bankruptcy, insolvency, or other laws generally affecting creditors rights or by the laws of the State relating to judicial foreclosure. On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. The court upheld the priority of unpaid taxes imposed after the filing of the bankruptcy petition as administrative expenses of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was to foreclose on the property and retain all of the proceeds of the sale except the amount of the pre-petition taxes. According to the court s ruling, as administrative expenses, post-petition taxes would have to be paid, assuming that the debtor has sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would at that time become subject to current ad valorem taxes. The Act provides that the Special Taxes are secured by a continuing lien, which is subject to the same lien priority in the case of delinquency as ad valorem taxes. No case law exists with respect to how a bankruptcy court would treat the lien for the Special Taxes levied after the filing of a petition in bankruptcy. Glasply is controlling precedent for bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Tax, the amount of Special Tax received from parcels whose owners declare bankruptcy could be reduced. It should also be noted that on October 22, 1994, Congress enacted 11 U.S. C. Section 362(b)(18), which added a new exception to the automatic stay for ad valorem property taxes imposed by a political subdivision after the filing of a bankruptcy petition. Pursuant to this new provision of law, in 58

69 the event of a bankruptcy petition filed on or after October 22, 1994, the lien for ad valorem taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bondowners should be aware that the potential effect of 11 U.S. C. Section 362(b)(18) on the Special Taxes depends upon whether a court were to determine that the Special Taxes should be treated like ad valorem taxes for this purpose. Payments by FDIC and Other Federal Agencies The ability of the Community Facilities District to collect interest and penalties specified by State law and to foreclose the lien of delinquent Special Taxes may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the FDIC ), the Federal National Mortgage Association ( Fannie Mae ), the Federal Home Loan Mortgage Corporation ( Freddie Mac ),the Drug Enforcement Agency, the Internal Revenue Service or other similar federal governmental agencies has or obtains an interest. Specifically, with respect to the FDIC, in the event that any financial institution making any loan which is secured by real property within the Community Facilities District is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, then the ability of the Community Facilities District to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited. The FDIC s policy statement regarding the payment of state and local real property taxes (the Policy Statement ) provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution s affairs, unless abandonment of the FDIC s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC s consent. The Policy Statement states that the FDIC generally will not pay non ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Act and a special tax formula which determines the special tax due each year, are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC s federal immunity. According to the County Assessor s tax roll, as of January 1, 2013, the FDIC did not own any property in the Community Facilities District. The Community Facilities District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel within the Community Facilities District tin which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such 59

70 an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment on the Series 2013 Bonds. Similarly, in the event a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or a private deed of trust secured by a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Special Taxes may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution ( This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding. ), in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a parcel of taxable property but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments. Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the Community Facilities District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government s mortgage interest. For a discussion of risks associated with taxable parcels within the Community Facilities District becoming owned by the federal government, federal government entities or federal government sponsored entities, see Exempt Properties below. Factors Affecting Parcel Values and Aggregate Value Geologic, Topographic and Climatic Conditions. The value of the Taxable Property in the future can be adversely affected by a variety of additional factors, particularly those which may affect infrastructure and other public improvements and private improvements on the parcels of Taxable Property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes and volcanic eruptions, topographic conditions such as earth movements, landslides, liquefaction, floods or fires, and climatic conditions such as tornadoes, droughts, and the possible reduction in water allocation or availability. It can be expected that one or more of such conditions may occur and may result in damage to improvements of varying seriousness, that 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, the value of the Taxable Property may well depreciate or disappear. Seismic Conditions. The Community Facilities District, like all California communities, may be subject to unpredictable seismic activity. The occurrence of seismic activity within the Community Facilities District could result in substantial damage to properties in the Community Facilities District which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Special Taxes. Any major damage to structures as a result of seismic activity could result in greater reliance on undeveloped property in the payment of Special Taxes. Legal Requirements. Other events which may affect the value of a parcel of Taxable Property include changes in the law or application of the law. Such changes may include, without limitation, local 60

71 growth control initiatives, local utility connection moratoriums and local application of statewide tax and governmental spending limitation measures. No Acceleration Provisions The Series 2013 Bonds do not contain a provision allowing for the acceleration of the Series 2013 Bonds in the event of a payment default or other default under the terms of the Series 2013 Bonds or the Fiscal Agent Agreement. Pursuant to the Fiscal Agent Agreement, a Bondowner is given the right for the equal benefit and protection of all Bondowners similarly situated to pursue certain remedies (see APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT herein). So long as the Series 2013 Bonds are in book-entry form, DTC will be the sole Bondowner and will be entitled to exercise all rights and remedies of Bondowner. Community Facilities District Formation California voters, on June 6, 1978, approved an amendment ( Article XIIIA ) to the California Constitution. Section 4 of Article XIIIA, requires a vote of two-thirds of the qualified electorate to impose special taxes, or any additional ad valorem, sales or transaction taxes on real property. At an election held within the Community Facilities District pursuant to the Act, more than two-thirds of the qualified electors within the Community Facilities District, consisting of the landowners within the boundaries of the Community Facilities District, authorized the Community Facilities District to incur bonded indebtedness to finance the Facilities and approved the Rate and Method. The Supreme Court of the State of California has not yet decided whether landowner elections (as opposed to resident elections) satisfy requirements of Section 4 of Article XIIIA, nor has the Supreme Court decided whether the special taxes of a community facilities district constitute a special tax for purposes of Article XIIIA. Section of the Act requires that any action or proceeding to attack, review, set aside, void or annul the levy of a special tax or an increase in a special tax pursuant to the Act shall be commenced within 30 days after the special tax is approved by the voters. No such action has been filed with respect to the Special Tax. Right to Vote on Taxes Act An initiative measure, Proposition 218, commonly referred to as the Right to Vote on Taxes Act (the Initiative ) was approved by the voters of the State of California at the November 5, 1996, general election. The Initiative added Article XIIIC ( Article XIIIC ) and Article XIIID to the California Constitution. According to the Title and Summary of the Initiative prepared by the California Attorney General, the Initiative limits the authority of local governments to impose taxes and property-related assessments, fees and charges. The provisions of the Initiative as they may relate to community facilities districts are subject to interpretation by the courts. Among other things, Section 3 of Article XIIIC states that... the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge. The Act provides for a procedure, which includes notice hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On July 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code Section 5854, which states that: 61

72 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 protected by Section 10 of Article I of the United States Constitution. Accordingly, although the matter is not free from doubt, it is likely that the Initiative has not conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the Series 2013 Bonds. It may be possible, however, for voters to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Series 2013 Bonds but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the Series 2013 Bonds. Like its antecedents, the Initiative 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 the Initiative 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 the Initiative should not be considered an exhaustive or authoritative treatment of the issues. The Community Facilities District does 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 the Initiative on the Series 2013 Bonds as well as the market for the Series 2013 Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of the Initiative. Ballot Initiatives and Legislative Measures The Initiative was adopted pursuant to a measure qualified for the ballot pursuant to California s constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the State Legislature. The adoption of any such initiative or enactment of legislation might place limitations on the ability of the State, the County, the School District or local districts to increase revenues or to increase appropriations or on the ability of a property owner to complete the development of the property. 62

73 Limited Secondary Market There can be no guarantee that there will be a secondary market for the Series 2013 Bonds or, if a secondary market exists, that such Series 2013 Bonds can be sold for any particular price. Although the Community Facilities District has committed to provide certain statutorily-required financial and operating information, there can be no assurance that such information will be available to Bondowners on a timely basis. The failure to provide the required annual financial information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of credit rating for the Series 2013 Bonds or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Loss of Tax Exemption As discussed under the caption LEGAL MATTERS Tax Exemption, the interest on the Series 2013 Bonds could become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2013 Bonds as a result of future acts or omissions of the Community Facilities District and the Community Facilities District in violation of certain provisions of the Code and the covenants of the Fiscal Agent Agreement. In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Series 2013 Bonds, the Community Facilities District has covenanted in the Fiscal Agent Agreement not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Series 2013 Bonds under Section 103 of the Internal Revenue Code of 1986, as amended. Should such an event of taxability occur, the Series 2013 Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the optional redemption or mandatory sinking fund redemption provisions of the Fiscal Agent Agreement. See THE SERIES 2013 BONDS Redemption. IRS Audit of Tax-Exempt Bond Issues The Internal Revenue Service has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Series 2013 Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of the Series 2013 Bonds might be affected as a result of such an audit of the Series 2013 Bonds (or by an audit of similar bonds or securities). Limitations on Remedies Remedies available to the Bondowners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Series 2013 Bonds or to preserve the tax-exempt status of the Series 2013 Bonds. See Payments by FDIC and other Federal Agencies, No Acceleration Provisions and Billing of Special Taxes herein. 63

74 LEGAL MATTERS Legal Opinion The legal opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, approving the validity of each of the Series 2013 Bonds will be made available to purchasers at the time of original delivery and is attached hereto as Appendix F. A copy of the legal opinion will be printed on each Series 2013 Bond. McFarlin & Anderson LLP, Laguna Hills, California, is serving as Disclosure Counsel. Bowie, Arneson, Wiles & Giannone will also pass upon certain legal matters for the School District and the Community Facilities District as special counsel to these entities. Tax Exemption In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject, however, to certain qualifications described herein, based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, compliance with certain covenants, interest the Series 2013 Bonds is excluded from gross income for federal income tax purposes. In the opinion of Bond Counsel, such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. In addition, interest on the Series 2013 Bonds is included as an adjustment in calculating federal corporate alternative minimum taxable income for purposes of determining a corporation s alternative minimum tax liability. The opinions of Bond Counsel set forth in the preceding paragraph are subject to the condition that the Community Facilities District complies with all requirements of the Code that must be satisfied subsequent to the issuance of the Series 2013 Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The Community Facilities District has covenanted in the Fiscal Agent Agreement to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Series 2013 Bonds. The Fiscal Agent Agreement and other related documents refer to certain requirements, covenants and procedures which may be changed and certain actions that may be taken, upon the advice or with an opinion of nationally recognized bond counsel. No opinion is expressed by Bond Counsel as to the effect on any Series 2013 Bond or the interest thereon if any such change is made or action is taken upon the advice or approval of counsel other than Bond Counsel. Bond Counsel expresses no opinion regarding other tax consequences arising with respect to the Series 2013 Bonds. In the further opinion of Bond Counsel, interest on the Series 2013 Bonds is exempt from State of California personal income taxation. Owners of the Series 2013 Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Series 2013 Bonds may 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 Series 2013 Bonds other than as expressly described above. See APPENDIX F FORM OF OPINION OF BOND COUNSEL for the proposed form of the opinion of Bond Counsel. Bond Counsel s engagement with respect to the Series 2013 Bonds ends with the issuance of the Series 2013 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Community Facilities District or the School District, as applicable, or the Beneficial Owners regarding the tax-exempt status of the Series 2013 Bonds in the event of an audit examination by the Internal Revenue 64

75 Service. Under current procedures, parties other than the Community Facilities District and their respective appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of Internal Revenue Service positions with which the Community Facilities District legitimately disagrees may not be practicable. Any action of the Internal Revenue Service, including but not limited to selection of the Series 2013 Bonds for audit, or the course or result of such audit, or an audit of Series 2013 Bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2013 Bonds, and may cause the Community Facilities District, the School District or the Beneficial Owners to incur significant expense. Original Issue Discount; Premium Bonds To the extent the issue price of any maturity of the Series 2013 Bonds is less than the amount to be paid at maturity of such Series 2013 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2013 Bonds), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each Owner thereof, is treated as interest on the Series 2013 Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2013 Bonds is the first price at which a substantial amount of such maturity of the Series 2013 Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2013 Bonds accrues daily over the term to maturity of such Series 2013 Bonds on the basis of a constant interest rate compounded semi-annually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2013 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2013 Bonds. Owners of the Series 2013 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of the Series 2013 Bonds with original issue discount, including the treatment of purchasers who do not purchase such Series 2013 Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2013 Bonds is sold to the public. The Series 2013 Bonds purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, a purchaser s basis in a Premium Bond, and under Treasury Regulations the amount of tax exempt interest received, will be reduced by the amount of amortizable bond premium properly allocable to such purchaser. Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. Impact of Legislative Proposals, Clarifications of the Code and Court Decisions on Tax Exemption Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Owners of the Bonds from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislative proposals, clarification of the Code or court decisions may also affect the market price for, liquidity of or marketability of, the Bonds. In 2011 and 2012, legislative changes were proposed in Congress, which, if enacted, would result in additional federal income tax being imposed on certain 65

76 owners of tax-exempt state or local obligations, such as the Series 2013 Bonds. Prospective purchasers of the Series 2013 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation as to which Bond Counsel expresses no opinion. As discussed in this Official Statement, under the caption LEGAL MATTERS, interest on the Series 2013 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Series 2013 Bonds were issued as a result of future acts or omissions of the Community Facilities District in violation of its covenants in the Fiscal Agent Agreement. Should such an event of taxability occur, the Series 2013 Bonds are not subject to special redemption or acceleration and will remain outstanding until maturity or until redeemed under one of the other redemption provisions contained in the Fiscal Agent Agreement. Backup Withholding Interest paid with respect to tax-exempt obligations such as the Series 2013 Bonds is subject to information reporting to the Internal Revenue Service (the IRS ) in a manner similar to interest paid on taxable obligations. In addition, interest with respect to the Series 2013 Bonds may be subject to backup withholding if such interest is paid to a registered owner that (a) fails to provide certain identifying information (such as the registered owner s taxpayer identification number) in the manner required by the IRS, or (b) has been identified by the IRS as being subject to backup withholding. Absence of Litigation No litigation is pending or threatened concerning the validity of the Series 2013 Bonds. There is no action, suit or proceeding known by the Community Facilities District or the School District to be pending at the present time restraining or enjoining the delivery of the Series 2013 Bonds or in any way contesting or affecting the validity of the Series 2013 Bonds or any proceedings of the Community Facilities District or the School District taken with respect to the execution thereof. A no litigation certificate executed by the School District on behalf of the Community Facilities District will be delivered to the Underwriter simultaneously with the delivery of the Series 2013 Bonds. No General Obligation of School District or Community Facilities District The Series 2013 Bonds are not general obligations of the School District or the Community Facilities District, but are limited obligations of the Community Facilities District payable solely from proceeds of the Special Tax and proceeds of the Series 2013 Bonds, including amounts in the Reserve Fund, the Special Tax Fund and the Bond Fund and investment income on funds held pursuant to the Fiscal Agent Agreement (other than as necessary to be rebated to the United States of America pursuant to Section 148(f) of the Code and any applicable regulations promulgated pursuant thereto). Any tax levied for the payment of the Series 2013 Bonds shall be limited to the Special Taxes to be collected within the Community Facilities District. NO RATINGS The Series 2013 Bonds have not been rated by any securities rating agency and there are no current plans to do so in the future. 66

77 UNDERWRITING The Series 2013 Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated at a purchase price of $5,620, (which represents the aggregate principal amount of the Series 2013 Bonds of $5,870,000.00, less an underwriter s discount of $98,322.50, less the net original issue discount of $151,522.70). The purchase agreement relating to the Series 2013 Bonds provides that the Underwriter will purchase all of the Series 2013 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 Underwriter may offer and sell Series 2013 Bonds to certain dealers and others at prices lower than the offering price stated on the inside cover page hereof. The offering prices may be changed from time to time by the Underwriter. PROFESSIONAL FEES Except for some Bond Counsel fees paid from advances made to the School District by Lennar Homes, fees payable to certain professionals, including the Underwriter, Nossaman LLP, as Underwriter s Counsel, Bowie, Arneson, Wiles & Giannone, as Bond Counsel and District Counsel, McFarlin & Anderson LLP, as Disclosure Counsel, and Zions First National Bank, as the Fiscal Agent, are contingent upon the issuance of the Series 2013 Bonds. The fees of Dolinka Group, LLC, as Financial Advisor/Special Tax Consultant, Administrator and Dissemination Agent, are, in part, contingent upon the issuance of the Series 2013 Bonds. The fees of Stephen G. White, MAI, as Appraiser, are not contingent upon the issuance of the Series 2013 Bonds. MISCELLANEOUS References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statement of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representatives of fact. This Official Statement is not to be construed as a contract or agreement between the Community Facilities District and the purchasers or owners of any of the Series 2013 Bonds. 67

78 The execution and delivery of the Official Statement by the Community Facilities District has been duly authorized by the Lake Elsinore Unified School District on behalf of the Community Facilities District. COMMUNITY FACILITIES DISTRICT NO OF THE LAKE ELSINORE UNIFIED SCHOOL DISTRICT By: /s/ Gregory J. Bowers Gregory J. Bowers, Assistant Superintendent, Facilities & Operations Support Services, Lake Elsinore Unified School District on behalf of Community Facilities District No of the Lake Elsinore Unified School District 68

79 APPENDIX A GENERAL INFORMATION ABOUT THE LAKE ELSINORE UNIFIED SCHOOL DISTRICT AND REGIONAL EMPLOYMENT GENERAL INFORMATION ABOUT THE LAKE ELISNORE UNIFIED SCHOOL DISTRICT The information in this section concerning the operations of the School District is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Bonds is payable from the general fund, or any other funds, of the School District. See SECURITY FOR THE BONDS herein. General Information The Lake Elsinore Unified School District (the School District ) provides public education within an approximately 140-square mile incorporated and unincorporated area in Riverside County. The School District was established in November 1988 through a merger of the Lake Elsinore Elementary School District and the Lake Elsinore Union High School District, each of which had been in existence for approximately 100 years. On July 1, 1989, the School District completed proceedings to reorganize as a unified school district comprised of the same boundaries as the predecessor districts under the name Lake Elsinore Unified School District. The School District currently operates 12 elementary schools, 4 middle schools, 3 comprehensive high schools, 1 continuation high school, 2 alternative programs, 2 K-8 schools, an adult education program and a K-12 online academy school, with a total enrollment of approximately 21,609 students as of October 18, Unless otherwise indicated, the following financial, statistical and demographic data has been provided by the School District. Additional information concerning the School District and copies of the most recent and subsequent audited financial reports of the School District may be obtained by contacting: Lake Elsinore Unified School District, 545 Chaney Street, Lake Elsinore, California 92530, telephone (951) , Attention: Deputy Superintendent, Administrative & Fiscal Support Services. Governing Board The School District is governed by a five-member Governing Board (the Board ), whose members are elected based on trustee areas to overlapping four-year terms. Elections for positions to the Board are held every two years, alternating between two and three available positions. If a vacancy arises during any term, the vacancy is filled by an appointment by a majority vote of the remaining Board members and, if there is no majority, by a special election. Each November, the Board elects a President and a Clerk to serve one-year terms. Current members of the Board, together with their office and the date their current term expires, are listed below: A-1

80 LAKE ELSINORE UNIFIED SCHOOL DISTRICT GOVERNING BOARD Name Position (1) Current Term Expires Tom Thomas President December 2014 Heidi Matthies Dodd Clerk of the Board December 2014 Stan Crippen Member December 2014 Juan Saucedo Member December 2016 Susan E. Scott Member December 2016 (1) Board officer positions for the upcoming year are traditionally established at the December meeting of the Board. Source: Lake Elsinore Unified School District. Key Personnel The Superintendent of Schools of the School District is appointed by the Board and reports to the Board. The Superintendent is responsible for management of the School District s day-to-day operations of and supervises the work of other District administrators and supervisors. A brief background of the Superintendent and key administrative personnel are set forth herein. Dr. Douglas G Kimberly, Superintendent. Dr. Kimberly commenced serving as Superintendent of the School District on July 1, Dr. Kimberly received his Doctorate in Education Administration from USC in 2008, and is also a graduate of California State University, Long Beach B.A., Psychology, and California State University, Fullerton M.A., Education Administration. Dr. Kimberly served as the Superintendent of the Santa Maria Joint Union High School District for the prior three years. Dr. George Landon, Deputy Superintendent, Fiscal Support Services. Dr. Landon has 19 years in the public education field. He previously served in the position of auditor for a private accounting firm and in the position of Director of Fiscal Services for Hesperia Unified School District. He served as an Assistant Superintendent of Business, Fiscal Support Services four years with Auburn Union Elementary School District, four years at Hesperia Unified School District and currently is the Deputy Superintendent. Dr. Landon began working in the School District in his current position in April Dr. Landon received his Bachelor s degree from University of Redlands, his Master s degree from Pepperdine University and holds a Doctorate of Educational Leadership from Argosy University. Gregory J. Bowers, Assistant Superintendent, Facilities & Operations Support Services. Mr. Bowers has 39 years experience designing, managing and constructing public facilities in California, including but not limited to five years with the City of Riverside, 11 years as a project manager constructing K-12 public schools and 13 years as a public school district employee having worked directly for four public school districts in the County. He has been responsible for managing school construction project, facilities, maintenance and operations, transportation, purchasing and information technology and negotiating mitigation and land acquisition agreements. Mr. Bowers has completed a Doctorate of Educational Leadership program from Argosy University and is considered a doctoral candidate as of July He also has a Masters degree in Public Administration from California State University, San Bernardino; a Bachelor of Science degree in Engineering Technology with a Construction emphasis from California State Polytechnic University, Pomona; and an Associate of Applied Science degree in Construction Technology from Riverside City College. Mr. Bowers is a licensed General Contractor. He has also completed the Association of A-2

81 California School Administrator s (ACSA) School Business Managers Academy, holds Certificates in Educational Facilities Planning and Chief Business Official (CBO) from the University of California, Riverside. Dr. Alain Guevara, Assistant Superintendent, Instructional Support Services. Dr. Guevara has served as an educator for 23 years in K-12 public schools. Dr. Guevara received his Doctorate in Educational Leadership from the University of La Verne in 2002, and is a graduate from California State University, Long Beach M.A., English Literature, B.A. English Composition, and M.S. Education Administration from National University. Dr. Guevara has served in a variety of roles in his educational career including, High School and Middle School English teacher, Middle School and Elementary School Assistant Principal, Middle School Principal, Director of Secondary Curriculum and Instruction, Director of Assessment and Accountability/EL Accountability, and Assistant Superintendent of Instructional Support Services. Kip Meyer, Assistant Superintendent, Personnel Support Services. Before moving to the District Administration in 2006, Mr. Meyer had been the principal and assistant principal of Terra Cotta Middle School since Prior to these experiences, Mr. Meyer had been a principal, Dean of Students, and mathematics teacher at the middle school level. Currently, Mr. Meyer holds a M.A. Degree in Educational Administration from Azusa Pacific University and a Bachelor of Science Degree in Education from Illinois State University. This year marks Mr. Meyer s 24th year in public education as he finalizes his own doctoral studies from Argosy University. Sam Wensel, Executive Director, Personnel Support Services. Mrs. Wensel has 36 years in the public education field of Human Resources. She previously served in the Alvord Unified School District for 25 years, Chino Valley Unified School District for 5 years, and has currently served with the School District since January Mrs. Wensel received her Associate s degree from Riverside Community College, Bachelor s degree in Organizational Leadership from Chapman University and a Master s degree in Human Resources from Chapman University. She has also completed the Association of California School Administrator s (ACSA) School Business Managers Academy and Personnel Academy, and holds a Career Technical Education Credential. Mrs. Wensel oversees the following departments and programs: Classified Employee Relations, Collective Bargaining, Personnel Support Services and Staff Recruitment. A-3

82 Population Separate population statistics are not maintained for the School District. The School District believes that the statistics for the City of Lake Elsinore area are indicative of population trends within the School District. POPULATION CALENDAR YEARS 2004 THROUGH 2013 Calendar Year City of Lake Elsinore County of Riverside State of California ,993 1,814,485 35,570, ,271 1,895,695 35,869, ,239 1,975,913 36,116, ,705 2,049,902 36,399, ,747 2,102,741 36,704, ,616 2,140,626 36,966, ,448 2,179,692 37,223, ,294 2,205,731 37,427, ,183 2,234,193 37,668, ,430 2,255,059 37,996,471 Source: State of California, Department of Finance. Average Daily Attendance and Growth The School District has experienced growth in enrollment and new residential construction over the past 10 years. From Fiscal Year to Fiscal Year , average attendance grew by approximately 6.4%. The following table sets forth the average daily attendance in the School District for the Fiscal Years as described in the table heading. (1) LAKE ELSINORE UNIFIED SCHOOL DISTRICT AVERAGE DAILY ATTENDANCE FISCAL YEARS THROUGH Fiscal Year Average Daily Attendance % Increase/ Decrease , , % , % , % , % , % , % , % , % ,646 (1) 0.00% Estimated Average Daily Attendance, based on Revised Budget and projections. Source: Lake Elsinore Unified School District and State of California Department of Education. A-4

83 Employees As of October, 2013, the School District employed approximately 1,125 certificated employees, and 1,193 classified employees, including management and some part-time employees. The total certificated and classified payrolls, including management and including costs of statutory benefits and health benefits, were, or are budgeted to be, as applicable, as follows: (i) for the year ended June 30, 2012, an aggregate of $106,441,422 for certificated, classified and management salaries and an aggregate of $35,362,566 for benefits; (ii) for the year ended June 30, 2013, $99,851,645 and $33,365,059, respectively, and (iii) for the year ending June 30, 2014, $109,466,507 (Restricted/Unrestricted) and $34,758,266, respectively. The certificated professionals and classified employees, except management and some part-time employees, are represented by two employee bargaining units as follows: Name of Bargaining Unit Number of Employees Current Contract Expiration Date Lake Elsinore Teachers Association (LETA) 1,045 June 30, 2014 (1) California School Employees Association (CSEA) 1,160 June 30, 2014 (1) (1) Over the last several years of fiscal constraints relating to reduced State funding of schools, the School District and the School District s collective bargaining units negotiated reductions in the School District s fixed obligations in the areas of employee salaries, wages and benefits to mitigate layoffs. Source: The School District. Retirement Plans The School District participates in retirement plans with the State Teachers Retirement System ( CalSTRS ), which covers all full-time certificated District employees, and the State Public Employees Retirement System ( CalPERS ), which covers certain classified employees. Classified school personnel who are employed four or more hours per day may participate in CalPERS. The School District also contributes to the Accumulation Program for Part-time and Limited Service Employees ( APPLE ), which is a defined contribution pension plan. CalSTRS. The School District s contribution to CalSTRS for the Fiscal Year ending June 30, 2013, was $6,954,211. The School District budgeted approximately $7,163,432 for Fiscal Year CalPERS. The School District s participation in CALPERS is funded each fiscal year through School District appropriations. Annual excess earnings of the CALPERS portfolio attributable to school districts and offices of education result in a reduction in the School District s contribution to CALPERS. A corresponding adjustment is made in the revenue limit calculation such that the School District experiences an offset reduction in the revenue limit allocated to it by the State. The School District s contribution to CalPERS for the Fiscal Year ending June 30, 2013, was $4,630,585. In addition, the School District made a CALPERS reduction contribution to the revenue limit by approximately $306,112. In Fiscal Year , the School District estimates the employer contribution to CALPERS to be approximately $4,432,730 and the CALPERS reduction contribution to be $0. Both retirement systems are operated on a statewide basis. The School District s employer contributions to CalPERS for Fiscal Years , and were $4,128,987, $4,378,410 and $4,030,283, respectively, and were equal to 100% of the required contributions for each year. The School District projects that its employer contributions to CalPERS for Fiscal Year will be approximately $4,432,730. A-5

84 APPLE. The School District also contributes to the Accumulation Program for Part-time and Limited Service Employees, which is a defined contribution pension plan. A defined contribution pension plan provides pension benefits in return for services rendered, provides an individual account of each participant and specifies how contributions to the individual s account are to be determined instead of specifying the amount of benefits the individual is to receive. Under a defined contribution plan, the benefits a participant will receive depend solely on the amount contributed to the participant s account, the returns earned on investments of those contributions, and forfeitures of other participants benefits that may be allocated to such participant s account. As established by federal law, all public sector employees who are not members of their employer s existing retirement system (CalSTRS or CalPERS) must be covered by social security or an alternative plan. The School District has elected to use APPLE as its alternative plan. Contributions made by the School District and an employee vest immediately. The School District contributes 1.3% of an employee s gross earnings. An employee is required to contribute 6.2% of his or her gross earnings to the pension plan. During the fiscal year ended June 30, 2013, the School District s required and actual contributions amounted to $36,106, which was 1.3% of its current year covered payroll. Post-Retirement Health Care Benefits The School District provides post-retirement medical benefits to the age of 65 to certain retired certificated employees hired on or prior to July 1, Eligibility for coverage requires retirement on or after age 55 and who have at least 10 years of continuous service. For certificated employees hired after July 1, 2007, eligibility for coverage requires retirement on or after age 60 and 15 years of service. The cap contribution decreases each year by 20% of the retirement cap. Spouse and dependent coverage ceases upon the death of the retiree. The School District also provides post-retirement medical benefits to the age of 65 to certain retired classified employees hired prior to July 1, Eligibility for coverage requires retirement on or after age 55 and who have at least 15 years of service. For classified employees hired on or after July 1, 2007, eligibility for coverage requires retirement on or after age 60 and 15 years of service. The School District provides post-retirement medical benefits to the age of 65 to certain retired management employees on or after age 55 and who have at least 10 years of service. Spouse and dependent coverage ceases upon the death of the retiree. The School District has accounted for these benefits on a pay-as-you-go basis and as such, records the expenses when paid. The pay-as-you-go estimate for providing retiree health benefits in the year beginning July 1, 2013, is $1,146,312. As of June 30, 2013, approximately 113 retires met the eligibility requirements and were receiving benefits and approximately 1,727 active employees were receiving these benefits. The Governmental Accounting Standards Board recently published Statement No. 45, requiring governmental agencies that are on a pay-as-you-go basis, such as the School District (beginning for the School District with the Fiscal Year ending June 30, 2008), to account for and report the outstanding obligations and commitments related to such post-employment benefits in essentially the same manner as for pensions. The School District commissioned a study by The Epler Company, dated September 2012, with respect to its liability in connection with such benefits (the Actuarial Report ). The Actuarial Report concluded the total Unfunded Actuarial Accrued Liability (UAAL) as of July 1, 2012, to be $16,955,400. The Actuarial Report projects the School District s Annual Required Contribution (ARC) necessary to fund such benefits for Fiscal Year will be $1,887,689. A-6

85 Outstanding Debt; Financial Obligations The School District has outstanding debt and financial obligations which are payable from the general fund of the School District. These include leases of equipment and portables under agreements which provide for title to pass upon expiration of the lease period, as well as other lease obligations relating to certificates of participation and revenue bond financings. The School District is current on these obligations. The School District has formed a number of other community facilities districts, including the community facilities districts issuing the special tax bonds that levy special taxes on property within the community facilities districts and which have issued bonds which are payable solely from those special taxes. Debt service on all of these bonds (including the Series 2013 Bonds) is not payable from the general fund of the School District. Insurance The School District maintains insurance or self-insurance in such amounts and with such retentions and other terms providing coverage for property damage, fire and theft, general public liability and workers compensation, as are adequate, customary and comparable with such insurance maintained by similarly situated school districts. In addition, based upon prior claims experience, the School District believes that the recorded liabilities for self-insured claims are adequate. REGIONAL EMPLOYMENT Unemployment rates have decreased in recent years throughout the State and the Country. The unemployment rate was approximately 10.5% in the City of Lake Elsinore, 9.5% in the City of Wildomar and 10.8% in the County in August These rates are not seasonally adjusted. CIVILIAN LABOR FORCE EMPLOYMENT AND UNEMPLOYMENT City of Lake Elsinore Year Labor Force Employment Unemployment Unemployment Rate ,100 15, % ,700 15, % ,000 16,100 1, % ,200 15,800 1, % ,300 15,000 2, % ,700 15,200 2, % ,700 15,300 2, % ,800 15,700 2, % 2013 * 17,700 15,800 1, % * Through August 2013; data not seasonally adjusted, March 2012 Benchmark. A-7

86 City of Wildomar Year Labor Force Employment Unemployment Unemployment Rate ,700 7, % ,900 7, % ,100 7, % ,100 7, % ,100 7,200 1, % ,300 7,200 1, % ,300 7,300 1, % ,400 7, % 2013 * 8,300 7, % * Through August 2013; data not seasonally adjusted, March 2012 Benchmark. County of Riverside Year Labor Force Employment Unemployment Unemployment Rate , ,100 46, % , ,000 44, % , ,900 54, % , ,200 77, % , , , % , , , % , , , % , , , % 2013 * 937, , , % * Through August 2013; data not seasonally adjusted, March 2012 Benchmark. A-8

87 APPENDIX B RATE AND METHOD OF APPORTIONMENT FOR COMMUNITY FACILITIES DISTRICT NO OF LAKE ELSINORE UNIFIED SCHOOL DISTRICT

88 [THIS PAGE INTENTIONALLY LEFT BLANK]

89 RATE AND METHOD OF APPORTIONMENT FOR COMMUNITY FACIUTIES DISTRICT NO OF LAKE ELSINORE UNIFIED SCHOOL DISTRJCT The following sets forth the Rate and Method of Apportionment (''RMA ")for the levy and collection of Special Taxes by Communi~ Facilities District No ("CFD No ") of the t:ake Elsinore UnHied School District ( School District"). A Special Tax shall be levied on and collected in CFD No each Fiscal Year, as descn"bed below in an amount detennined through the application of the RMA described below. All of the real property in CFD No , unless exempted by law or by the provisions hereof, shajj be taxed for the purposes, to the e,xtent, and in the manner herein provided. SECTION A DEFINITIONS Th_e tenns 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.&om the applica~le Assessor's Parcel Map by the Board. "Act" means the Mello-Roos Communities Facilities Act of 1982, as amended, being Chapter 2.5, ofdivision 2 of TitleS oftbe Government Code of the State ofcalifomil "Administrative Expeases" means any ordinary and necessary expense incurred by the School District on behalf of CFD No related to the detennination of the amount of the levy of Special Taxes, the collection of Special Taxes including the expenses of collecting delinquencies, the administration ofbonds, the payment of salaries and benefits of any School District employee whose duties are directly related to the administration of CFD No , and costs otherwise incurred in order to carry out the authorized purposes of CFD No "Auuual 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 ofcfd No "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 nwnber assigned to an Assessor's Parcel by the CoWlty for purposes of identification. "A~slgned Aauual Special Tax" means the Special Tax ofthat name described in Section D. "Backup Aunual Special Tax" means the Special Tax of that name described in Section E. "Board" means the Board of Trustees of Lake Elsinore Unified School District, or its designee, acting as the Legislative Body of CFD No Final.August 3, 2004

90 "Boads" means any obligation to repay a sum of money, including obligations in the fonn ofbonds, notes, certificates of participation, long-tenn leases, loans from government agencies, or loans &om banks, other financial institutions, private businesses, or individuals, or long-term contracts, or any refunding thereof. to which the Special Taxes have been pledsed. "Boad Index" ~eans th~ national Bond Buyer Revenue Index, commonly refer~ced as the %5- Bond Revenue Index. In the event the Bond Index ceases to be published, the index used shall be based oa a comparabl-e index for revenue bonds maturins in 30 years with an average rating equivalent to Mooay's.A1 and S&P's A-plus, as reasonable detennin~d by the Board. "Boad Yield" means the yield on the last series ofbonds issued, as calculated at the time the Bonds are issued, pursuant to Section 148 of the Internal Revenue Code of 1986, as aynendecl for the ~urpose of the Non-Arbi~ge Certificate or other similar bond issuance document. "BulldiDI Permit" means a permit for the construction of one or more Units issued by the County, or. another public asency in the event the County no longer issues sai~ permits for the construction of Units within CFD No For purposes of this definition, "Building Pennit" shall not include pennits for construction or installation of commerciavindustrial structures, parking structures, retairiing walls, utility improvements, or other such improvements not intended for human habitation. 0 0 "Bulldlaa Square Footage" or "BSF" means the square footage of assessable internal living space of a Unit, exclusive of any carports, walkways, garages, overhangs, patios, enclosed patios, detacbc::tf accessory structure, or other structures not used as Jiving space, as determined by reference to the Building Permit for such Unit. "Calendar Year" means the peri9d commencing January 1 of any year and ending the following December 31. "CFD No " means Community Facilities District No of the Lake Elsinore Unified School District established under the Act. "County" means the County of Riverside. "Developed Property" means all Assessor's Parcels of Taxable Property 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. "Ex~mpt Property" means all Assessor's Parcels designated as being exempt from Special taxes pursuant to Section K. "Final Map" 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 Year" means the period commencing on July 1 of any year and ending the following June 30. Final August 3, 2004

91 "Lot" means an individual legal Jot created by a Final Map for which a Building Pennit could be issued. "Maximum Aaoual Special Tax" means the Special Tax of that name as described in Section C. "Minimum Annual Special Tax Requirement" means the amount required in any Fiscal Year to pay: (i) the debt service on ajj outstanding Bonds, (ii) the periodic costs ofthe Bonds, including but not limited to, credit enhancement costs and rebate payments on the Bonds, (iii) Administrative Expenses of CFD No , (iv) the costs associated with the release of funds from an escrow account, and (v) any amount required to estabush or replenish any reserve funds (or account thereof) established in association with the Bonds, (vo an amount equal to the reasonably anticipated delinquent Special Taxes, based on the delinquency rate for Special Taxes in the prior Fiscal Year, less (vii) any amount available to pay debt service or other periodic costs on the :eonds pursuant to any applicable bond indenture, fiscal agent agreement, or trost agreement. ' "Miolnium Taxable Aereaae" mean.s the applicable Acreage classified as Taxable Property as detennined,pursuant to Section K. "Partial Prepayment Amount" means the amount required to prepay a portion of the Annual Special Tax obligation for an Assessor's Parcel described in Section I. "Prepayment Amount" means the amount required to prepay the Annual Special Tax obligation in full f.or an Assessor's P!'fcel as described in ~ection H. "Prepaymeat Administrative Fees" means any fees or expenses of the School DistriCt or CFD No associated with the prepayment of the Special Tax obligation of an Assessor's Parcel. Prepayment Administrative Fees shall include among ot~er things the cost of computing the Prepayment Amount, redeeming Bonds, and recording any notices to evidenc~ the prepayment and redemption of Bonds. "Present Value or Taxes" means for any Assessor's Parcel the present value of (i) the unpaid portion, if any, of the Special Tax applicable to such Assessor's Parcel in current Fiscal Year and (ii) the Annual Special Taxes expected to be levied on such Assessor's Parcel in each r~aining Fiscal Year, as detennibed by the Board, until the termination date specified in Section J. The disco\dlt rate used for this calculation shall be equ~ to the (i) Bond Yield after Bond issuance or (ii) most recently published Bond Index prior to Bond issuance. "Proportionately" means that the ratio of the actual Annual Special Tax levy to the applicable Assigned Annual Special Tax is equal for all applicable Assessor's Parcels. "Reserve Fund Credit" means. for each owner of an Assessor's Parcel wishing to prepay the.annual Special Tax obligation of such Assessor's Parcel, an amount equal to the reduction in the reserve requirement for the outstanding Bonds resu1ting from the redemption of Bonds with the applicable prepaid Special Taxes. In the event that a surety bond of other credit instrument satisfies l the reserve requirement or the reserve requirement is under funded at the tim~ ofthe prepa~ent, no. Reserve Credit shall be given. "School District" means the Lake Elsinore Unified School District, or subsequent school district. Final August 3, 2004

92 "Special Tax" means any of the special taxes authorized to be levied by CFD No pursuant to the Act. "Taxable Property" means all Assessor's Parcels that are not Exempt Property. "Undeveloped Property" means all Assessor's Parcels oftaxable Property that are not Developed Property. "Uoit" means each separate residential dwe1ling unit that comprises an independent facility capable of conveyance separate from adjacent residential dwelling units.. SECTIONB CLASSIFICATION OF ASSESSOR'S PARCELS Each Fiscal Year, beginning with Fiscal Year , (i) each Assessor's Parcel shall be classified as Exempt Property or Taxable Property; and (ii) each Assessor's Parce.l oftaxable Property shall be classified as Developed Property or Undeveloped Property. Developed Property shall be further classified based on the Building Square footage of the Unit. The classification of Exempt Property shall take into consideration the Minimum Taxable Acreage as determined pursuant to Section K Developed Property SECTIONC MAXIMUM ANNUAL SPECIAL TAXES The Maximum Annual 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 Annual 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. 1. Developed Property SECTIOND ASSIGNED ANNUAL SPECIAL TAXES The Assigned Annual Special Tax applicable to an Assessor's Parcel classified as Developed Property in Fiscal Year shall be determined by reference to Table 1 according to the Building Square Footage of the Unit. Final August 3, 2004

93 TABLEt ASSJGNED ANNUAL SPECIAL TAX FOR DEVELOPED PROPERTY FISCAL YEAR f ~7:"J-r::-~~~~~ t-:l.""".,.....,.. ~... '' i I ~g;,'.._'!;:...;., "' Hr.-~.\, tf it j ~:~"' \.:,,.~~ 1.~-~j ~! ~~!'~~? < $2, per Unit 2, $2, per Unit 2,901-3,200 $2, per Unit $ per Unit > 3,400 $2,491.1 S per Unit Each July 1, commencing July 1, 2005, the Assigned Annual Special Tax for each Assessor's Parcel ofdeveloped Property shall be increased by two percent (2.00%) of the amount in effect in the prior Fiscal Year. 2. Undeveloped PropertY The Assigned Annual Special Tax rate for an A$sessor's Parcel of Undeveloped Property in Fiscal Year shall be $13, per acre of Acreage. Each July 1, commencing July 1, 2005, the Assigned Annual Special Tax for each Assessor's Parcel of Undeveloped Property shall be increased by two percent (2.00%) of the amount in effect the prior Fiscal Year. SECTJONE BACKUP ANNUAL SPECIAL TAXES Each Fiscal Year. each Assessor's Parcel ofdeveloped Property shall be subject to a Backup Annual Sp~ial Tax. In each Fiscal Year, the Backup Annual Special Tax rate for Developed Property shall be the rate per Lot calculated according to the following fonnula: B= (ZxA)/L The tenns above have th.e following meanings: B z A L = = Ill = Backup Annual Special Tax per Lot for ihe applicable Fiscal Year Assigned Annual Special Tax per acre of Acreage of Undeveloped Property for the app1icable Fiscal Year Acreage of Developed Property expected to exist in the applicable Final Map at build-out, as determined by the Board pursuant to Section K Lots in the Final Map Final August 3,. 2004

94 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 ofdeveloped Property in such Final Map area that is changed or modified shall be a rate per square foot of Acreage calculated as follows: 1. Determine the total Backup Annual Special Taxes anticipated to apply to the ~hanged or modified Final Map area prior to the change or modification. 2. The: result of paragraph 1 above shall be divided by the Acreage oftaxable Property which is ultimately expected to exist in such changed or modified Final Map area, as reasonably detennined by the Board. 3. The result of paragraph 2 above shau 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 which the Special Tax may be levied. SECTIONF METHOD OF APPORTIONMENT OF THE ANNUAL SPECIAL TAX Commencing Fiscal Year , and for each subsequent Fiscal Year, the Board shall levy Annual Special Taxes ai follows: Step One: Step Two: Step Th.ree: 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 appticable to each such Assessor's Parcel. If the sum of the amounts collected in step one is insufficient to satisfy the Minimum Amlual Special Tax Requirement, then the Board shall levy Proportionately an Annual Special Tax 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. 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 Annual Special Tax applicable to each such Assessor's Parcel, to satisfy the Minimum Annual Special Tax Requirement. Final August 3, 2004

95 SECTJONG EXCESS ASSIGNED ANNUAL SPECIAL TAXES In any Fiscal Year which the Annual Special Taxes co11ected from Developed Property, pursuant to Step 1 of Section F, exceeds the Minimum Annual Special Tax Requirement, the School District shall use such amount for acquisition, construction or financing of school facilities in accordance with the Act, CFD No proceedings and other applicable law as determined by the Board SECTJONB PREPAYMENT OF ANNUAL SPECIAL TAXES The Annual Special Tax obligation of an Assessor's Parcel of Developed Property or an Assessor's Parcel ofundeveloped Property for which a Building Permit has been issued maybo 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. 1be Prepayment Amount for an Assessor's Parcel eligible for prepayment shall be determined as described below. An owner of an Assessor's Parcel intending to prepay the Annual Special Tax obligation shall provide CFD No with written notice of intent to prepay. Within thirty (30) days of receipt of such written notice, the Board shall reasonably determine the prepayment amount of such Assessor's Parcel and shall notify such owner of such Prepayment Amount. The Prepayment Amount shall be 1 calculated accolding to the foljowing formula: P=PVT-RFC+PAF The terms above have the following meanings: p = PVT == RFC == PAP = Prepayment Amount Present Value of Taxes Reserve Fund Credit Prepayment Administrative Fees Notwithstanding the forego in& no prepayment will be ajlowed unless the amount of Annual Special Taxes that may be levied on Taxable Property, net of Administrative Expenses, shall be at least 1.1 times the regularly scheduled BIUlUal interest and principal payments on all currently outstanding Bon~s in each future Fiscal Year and such prepayment wiji not impair the security' of all currently outstand_ing Bonds, as reasonably determined by the Board. Such detennination shall include identifying all Assessor's Parcels that are expected to become Exempt Property. SECTJONI PARTIAL PREPAYMENT OF ANNUAL SPECIAL TAXES The Annual Special Tax.obligation of an 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. Final August 3, :.-r L

96 1. Partial Prepavmeot Times and Conditions Prior to the issuance of the first Building Pennit for the construction of a production Unit on a Lot within a Final Map, the owner of no less than all the Taxable Property within such. Final Map may elect in writing to the Board to prepay a portion of the Annual Special Tax obligations for all the Assessor's Parcels within such Final Map, as calculated in Section 1.2. below. The partial prepayment of each Annual Special Tax obligation shall be collecte~. for all Assessor's Parcels prior to the issuance of the first Building Permit with respect to such Final Map. 2. Partial Prepayment Amouot The Partial Prepayment Amount shall be calculated according to the follo':"ing fonnula: PP=PoxF The tenns above have _the following meanings: pp = Po.= F = the Partial Prepayment Amount the Prepayment Amount calculated according to Section H the percent by which the owner of the Assessor's Parcel is partially prepaying the Annual Special Tax obligation 3. Partial Prepa, ment Procedures and Limitations With respect to any Assessor's Parcel that is partially prepaid, the Board shall indicate in the records ofcfd No 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 Annual 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. Additionally, the notice shall indicate that the Assigned Annual Special Tax and the BackUp Annual Special Tax for the Assessor's Parcel has been reduced by an amount equal to the percenta~e which was partially prepaid. 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 Fisca.J Year and such parti~ prepayment will not impair the security of all currently outstanding Bonds, as reasonably detennined by the Board. Such determination shall include identifying all Assessor's Parcels that are expected to become Exempt Property. SECTJONJ TERMINATION OF SPECIAL TAX Annual Special Taxes shajj be levied for a period of thirty-three (33) Fiscal Years after the last series ofbonds has been issued, as detennined by the Board, provided that Annual Special Taxes shall not be levied after Fiscal Year Final August 3, 2004

97 SECTION K EXEMPTIONS The Board sha11 classify as Exempt Property (i) Assessor's Parcels owned by the State of California, Federal or other local goverrunents, (ii) Assessor's Parcels w);lich 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 their utilization for other than the pwposes set forth in the easement, (v) A.ssessor s Parcels developed or expected to be developed exclusively for nonresidential use, including any use directly servicing any non-residential property, such as parking, as reasonably determined by the Board, and (vi) any other Assessor's Parcels at the reasonable discretion of the Boards provided that no such classification would reduce the sum of all Taxable Property to less than acres. Notwithstanding the above, the Board shall pot classify an Assessor's Parcel as Exempt Property if such classification would reduce the surti of all Taxable Property to Jess than acres. Assessor's Parcels which cannot be classified as Exempt Property because such classification would reduce the Acreage of all Taxable Property to less than acres 'will continue to be classified as Developed Property or Undeveloped Property, as applicable, and will continue to be subject to Special Taxes accordingly. SECTIONL APPEALS Any property owner 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. In order to be considered sufficient, any notice of appeal must: (i) specifically identify the property by address and Assessor's Parcel Number; (ii) state the amount in dispute and whether it is the whole amount or only a portion of the Special Tax; (iii) state all grounds on which the property owner is disputing the amount or application of the Special Tax, including a re~sonably detailed explanation as to why the amount or application of such Special Tax is incorrect; (iv) include all documentation, if any, in support of the claim; and (v) be verified under penalty of perjury by the person who paid the Special Tax or his or her guardian, executor or administrator. A representative(s) of CFD No sha11 promptly review the appeal, and if necessary, meet with the property owner, consider written 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 favor of the property owner, a cash refund shall not be made (except for the last ye.ar oflevy), but an adjustment shall be made to the Annual Special Tax on that Assessor's Parcel in the subsequent Fiscal Year(s) as the representative's decision shajj indicate. SECTIONM MANNER OF COLLECTION The Annual Special Tax shan be collected in the same manner and at the same time as ordinary ad valorem property taxes, provided, however, that CFD No may cohect Annual Special Taxes at a different time or in a different manner if necessary to meet its financial obligations. J:\CUENTS\LK_ELSIN.USD\MEUO'\Cameo Homes\RMA_Finai_ doc Final August 3, ~ -=.--;..,.')..11".

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99 APPENDIX C SUMMARY APPRAISAL REPORT

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101 SUMMARY APPRAISAL REPORT COVERING Community Facilities District No of the Lake Elsinore Unified School District (Lennar Homes: Andalusia) DATE OF VALUE: October 1, 2013 SUBMITTED TO: Lake Elsinore Unified School District 545 Chaney St. Lake Elsinore, CA Attn: Gregory Bowers Assistant Superintendent, Facilities & Operations DATE OF REPORT: October 9, 2013 SUBMITTED BY: Stephen G. White, MAI 1370 N. Brea Blvd., Suite 255 Fullerton, CA 92835

102 October 9, 2013 Lake Elsinore Unified School District Re: CFD No Chaney St. (Lennar Homes: Andalusia) Lake Elsinore, CA Attn: Gregory Bowers Assistant Superintendent, Facilities & Operations Dear Mr. Bowers: In accordance with your request, I have completed an appraisal of the taxable property within the above-referenced Community Facilities District (CFD). This property comprises a total of 130 single-family lots that are being developed by Lennar Homes of California, Inc. with neighborhoods of homes called Andalusia I and II. Andalusia I comprises 81 completed homes (including the 3 models) and 5 vacant lots, and Andalusia II comprises 16 completed homes, 16 homes under construction and 12 vacant lots. The purpose of this appraisal is to estimate the aggregate market value of the as is condition of this property as of the October 1, 2013 date of value, and allocated to the Individual Owners and the Builder Ownership. This appraisal also reflects the proposed CFD bond financing, together with the effective tax rate of ±1.7% based on recent base sale prices of the homes and including special taxes for this CFD and other currently overlapping debt. Based on the general inspections of the subject property and analysis of matters pertinent to value, the following conclusions of aggregate market value have been arrived at, subject to the Assumptions and Limiting Conditions, and as of October 1, 2013: No. Ownership Lots Developed Undeveloped Total Individual Owners (completed-sold homes): 94 $35,955,000 $0 $35,955,000 Builder Ownership (completed-unsold homes): 3 $1,140,000 $0 $1,140,000 Builder Ownership (homes under construction): 16 $3,200,000 $0 $3,200,000 Builder Ownership (vacant lots): 17 $0 $1,770,000 $1,770, $40,295,000 $1,770,000 $42,065,000 $42,065,000 (FORTY-TWO MILLION SIXTY-FIVE THOUSAND DOLLARS)

103 MR. GREGORY BOWERS OCTOBER 9, 2013 PAGE 2 The following is the balance of this 33-page Summary Appraisal Report which includes the Certification, Assumptions and Limiting Conditions, definitions, property data, exhibits, valuation and market data from which the value conclusion was derived. Sincerely, SGW:sw Ref: Stephen G. White, MAI (State Certified General Real Estate Appraiser No. AG013311)

104 TABLE OF CONTENTS PAGES Certification... 5 Assumptions and Limiting Conditions Purpose and Intended Use/User of the Appraisal, Scope of the Appraisal, Date of Value, Property Rights Appraised, Definitions, Ownership/Sales History PROPERTY DATA Location Map, Location, Description of Surroundings, Assessor Maps, Legal Description, Assessor Data-2012/13, No. of Lots/Lot Sizes, Streets and Access, Utilities, Zoning/General Plan/Approvals, Topography/Views, Drainage/Flood Hazard, Soil/Geologic/Seismic Conditions, Environmental Conditions, Title Report, Existing & Planned Development, Highest and Best Use VALUATION ADDENDA Method of Analysis, Analysis of 94 Completed-Sold Homes, Analysis of 3 Completed-Unsold Homes, Analysis of 16 Homes Under Construction, Analysis of 17 Vacant Lots, Conclusion of Value Qualifications of Appraiser

105 CERTIFICATION I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. I have no present or prospective interest in the properties that are the subject of this report, and no personal interest with respect to the parties involved. I have no bias with respect to the properties that are the subject of this report or to the parties involved with this assignment. My engagement in this assignment was not contingent upon developing or reporting predetermined results. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of the appraisal. I have made a general inspection of the properties that are the subject of this report. No one provided significant real property appraisal assistance to the person signing this Certification, except for data research by my associate, Kirsten Patterson. I have not performed a previous appraisal of the subject property within the three years prior to this assignment. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. As of the date of this report, I have completed the requirements of the continuing education program of the Appraisal Institute. Stephen G. White, MAI (State Certified General Real Estate Appraiser No. AG013311) 5

106 ASSUMPTIONS AND LIMITING CONDITIONS This appraisal has been based upon the following assumptions and limiting conditions: 1. No responsibility is assumed for the legal descriptions provided or for matters pertaining to legal or title considerations. Title to the properties is assumed to be good and marketable unless otherwise stated. 2. The properties are appraised free and clear of any or all liens or encumbrances unless otherwise stated. 3. Responsible ownership and competent property management are assumed. 4. The information furnished by others is believed to be reliable, but no warranty is given for its accuracy. 5. All engineering studies, if applicable, are assumed to be correct. Any plot plans or other illustrative material in this report are included only to help the reader visualize the property. 6. It is assumed that there are no hidden or unapparent conditions of the properties, subsoil, or structures that render them more or less valuable. No responsibility is assumed for such conditions or for obtaining the engineering studies that may be required to discover them. 7. It is assumed that the properties are in full compliance with all applicable federal, state and local environmental regulations and laws unless the lack of compliance is stated, described and considered in the appraisal report. 8. It is assumed that the properties conform to all applicable zoning and use regulations and restrictions unless a nonconformity has been identified, described and considered in the appraisal report. 9. It is assumed that all required licenses, certificates of occupancy, consents and other legislative or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in the report are based. 10. It is assumed that the use of the land and improvements is confined within the boundaries or property lines of the properties described and that there are no encroachments or trespasses unless noted in the report. 11. Unless otherwise stated in this report, the existence of hazardous materials, which may or may not be present on the properties, was not observed by the appraiser. However, the appraiser is not qualified to detect such substances. The presence of such substances may affect the value of the property, but the values estimated in this 6

107 ASSUMPTIONS AND LIMITING CONDITIONS, Continuing appraisal are based on the assumption that there is no such material on or in the properties that would cause a loss in value. No responsibility is assumed for such conditions or for any expertise or engineering knowledge required to discover them. The client should retain an expert in this field, if desired. 12. Possession of this report, or a copy thereof, does not carry with it the right of publication, unless otherwise authorized. It is understood and agreed that this report will be utilized in the Preliminary Official Statement and the Official Statement relating to the special tax bonds of the CFD, as part of the CFD bond issuance. 13. The appraiser, by reason of this appraisal, is not required to give further consultation or testimony or to be in attendance in court with reference to the properties in question unless arrangements have previously been made. 14. An estimate of the remaining costs and fees to get the vacant subject lots from their as is condition to finished lots has been provided by the builder, and these estimates have been relied upon in this appraisal as being reasonably accurate and reliable. 15. The valuation has reflected the proposed CFD bond financing, and it is noted that $445,111 of the remaining costs to complete to get the vacant lots to finished condition will be funded by the CFD bond proceeds and thus are not reflected as a deduction in the valuation analysis. 7

108 PURPOSE AND INTENDED USE/USER OF THE APPRAISAL The purpose of this appraisal is to estimate the aggregate market value of the as is condition of the taxable property located within Community Facilities District No of the Lake Elsinore Unified School District (Lennar Homes: Andalusia), reflecting the proposed CFD bond financing. It is intended that this Summary Appraisal Report is to be used by the client, the financing team and others as required as part of the CFD bond issuance. SCOPE OF THE APPRAISAL It is the intent of this appraisal that all appropriate data considered pertinent in the valuation of the subject properties be collected, confirmed and reported in a Summary Appraisal Report, in conformance with the Uniform Standards of Professional Appraisal Practice and the guidelines of the California Debt and Investment Advisory Commission. This has included a general inspection of the subject properties and their surroundings; obtaining of pertinent property data on the subject properties, including review of various maps and documents relating to the properties and the existing and planned development; obtaining of comparable home and land sales from a variety of sources; and analysis of all of the data to the value conclusions. DATE OF VALUE The date of value for this appraisal is October 1, PROPERTY RIGHTS APPRAISED This appraisal is of the fee simple interest in the subject properties, subject to the CFD special tax lien and other current assessment liens. DEFINITION OF MARKET VALUE The most probable price that the specified property interest should sell for in a competitive market after a reasonable exposure time, as of a specified date, in cash, or in terms equivalent to cash, under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, for self-interest, and assuming that neither is under duress. (The Dictionary of Real Estate Appraisal, Fifth Edition) DEFINITION OF FINISHED LOT VALUE This term describes the condition of residential lots in a single-family subdivision for detached homes in which the lots are fully improved and ready for homes to be built. This reflects that the lots have all development entitlements, infrastructure improvements completed, finish grading completed, all in-tract utilities extended to the property line of each lot, street improvements completed, common area improvements/landscaping (associated with the tract) completed, resource agency permits (if necessary), and all 8

109 DEFINITION OF FINISHED LOT, Continuing development fees paid, exclusive of building permit fees, in accordance with the conditions of approval of the specific tract map. OWNERSHIP/SALES HISTORY In 2007, BEG Homes, LLC (commonly known as Silver Oaks Communities/Cameo Homes) built 31 homes on Tract No , of which 25 homes were sold to individual homeowners and 6 were left as standing inventory. In December 2011 Lennar Homes of California, Inc. (commonly known as Lennar Homes) acquired from BEG Homes, LLC the remaining 6 completed homes plus 55 vacant lots comprising the remainder of Tract No and all of Tract No In December 2012 Lennar Homes acquired from IOTA Wildomar, LLC the 44 lots comprising Tract No Subsequently, Lennar Homes has sold the 6 homes comprising the standing inventory and has also built and sold 63 additional homes. Thus, as of the October 1, 2013 date of value, individual homeowners owned 94 of the lots, resulting from builder sales that have closed from May 2007 through September 30, 2013 as well as from various subsequent resales. Lennar Homes of California, Inc. owns the remaining 36 lots which include the model homes, completed-unsold homes, homes under construction and vacant lots. 9

110 LOCATION MAP 10