Due: September 2 as Shown on the Inside Front Cover.

Transcription

1 NEW ISSUE BOOK-ENTRY ONLY NOT RATED (See CONCLUDING INFORMATION - No Rating on the Bonds; Secondary Market herein) In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the tax covenant described herein, interest on the Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes and is not an item of preference for purposes of the federal alternative minimum tax. See LEGAL MATTERS Tax Matters. RIVERSIDE COUNTY STATE OF CALIFORNIA $3,604,000 CITY OF INDIO ASSESSMENT DISTRICT NO (SHADOW HILLS - MASTER PLAN - PHASE 3 AND LAS BRISAS NORTH) LIMITED OBLIGATION IMPROVEMENT BONDS, SERIES 2004 Dated: Date of Delivery Due: September 2 as Shown on the Inside Front Cover. The 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 Bonds involves risks. See BONDHOLDERS RISKS herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. The City of Indio Assessment District No (Shadow Hills - Master Plan - Phase 3 and Las Brisas North) Limited Obligation Improvement Bonds, Series 2004 (the Bonds ) are being issued by the City of Indio (the City ) pursuant to a Fiscal Agent Agreement, dated as of November 1, 2004 (the Fiscal Agent Agreement ), by and between the City and Union Bank of California, N.A., as fiscal agent (the Fiscal Agent ) to: (i) finance the costs of acquisition of certain public improvements serving property within Assessment District No (Shadow Hills - Master Plan - Phase 3 and Las Brisas North) (the District ) of the City, (ii) fund capitalized interest on the Bonds through September 2, 2005, (iii) pay costs related to the issuance of the Bonds, and (iv) make a deposit to a Reserve Fund. The Bonds are being issued pursuant to provisions of the Improvement Bond Act of 1915, being Division 10 of the California Streets and Highways Code (the Bond Law ). The Bonds are payable from assessments levied pursuant to the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (the 1913 Act ). See SOURCES OF PAYMENT FOR THE BONDS and BONDHOLDERS RISKS herein. Interest on the Bonds is payable semiannually on March 2 and September 2 each year, commencing March 2, 2005 (each, an Interest Payment Date ), until maturity or earlier redemption. The Bonds are subject to optional, special mandatory and mandatory sinking payment redemption as described herein. See THE BONDS - Redemption herein. The Bonds are offered when, as and if issued subject to the approval as to their legality by Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel and certain other conditions. Certain legal matters will be passed on for the City by the City Attorney and Fulbright & Jaworski L.L.P., Los Angeles, California, Disclosure Counsel. It is anticipated that the Bonds in book-entry form will be available for delivery through the facilities of DTC on or about November 4, The date of this Official Statement is October 20, 2004.

2 $3,604,000 CITY OF INDIO ASSESSMENT DISTRICT NO (SHADOW HILLS - MASTER PLAN - PHASE 3 AND LAS BRISAS NORTH) LIMITED OBLIGATION IMPROVEMENT BONDS, SERIES 2004 MATURITY SCHEDULE (Base CUSIP ) $1,614,000 Serial Bonds Maturity Date Principal Interest Reoffering September 2 Amount Rate Yield CUSIP 2006 $ 79, % 2.55% FH , FJ , FK , FL , FM , FN , FP , FQ , FR , FS , FT , FU , FV , FW , FX 0 $1,990, % Term Bond maturing September 2, 2030, Price 100% CUSIP FY 8 Copyright 2004, American Bankers Association. CUSIP data herein are provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., for convenience of reference only. Neither the County, the Underwriter or the Financial Advisor assumes any responsibility for the accuracy of this CUSIP data.

3 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the City in any press release and in any oral statement made with the approval of an authorized officer of the City 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 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. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City to give any information or to make any representations in connection with the offer or sale of the 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 City, the Financial Advisor or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by 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. Information Subject to Change. 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 City 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 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

4 CITY OF INDIO, CALIFORNIA MAYOR AND CITY COUNCIL Jacqueline Bethel, Mayor Melanie Fesmire, Mayor Pro Tem Gene Gilbert, Councilmember Ben Godfrey, Councilmember Michael H. Wilson, Councilmember CITY STAFF Kenneth R. Weller, Interim City Manager Jerry F. Carter, Finance Director Susan E. Williams, Community Development Services/Building and Safety Director Rudy Acosta, Redevelopment/Economic Development Director Juanita Ramos, City Clerk PROFESSIONAL SERVICES Bond Counsel and Disclosure Counsel Fulbright & Jaworski L.L.P. Los Angeles, California Financial Advisor Harrell & Company Advisors, LLC Orange, California Underwriter Southwest Securities, Inc. Newport Beach, California Underwriter s Counsel Jones Hall A Professional Law Corporation San Francisco, California Assessment Engineer Albert A. Webb Associates Riverside, California Appraiser First American Tax Valuation Santa Ana, California Market Absorption Consultant Market Profiles Inc. Santa Ana, California Fiscal Agent Union Bank of California, N.A. Los Angeles, California

5 TABLE OF CONTENTS INTRODUCTION...1 The Issuer...1 The District...1 Security and Sources of Repayment for the Bonds...1 Purpose...2 Property Values...2 Legal Matters...2 Professionals Involved in the Offering...3 Offering of the Bonds...3 Information Concerning this Official Statement...3 THE BONDS...4 General Provisions...4 Book-Entry Only System...5 Redemption...5 Scheduled Debt Service on the Bonds...8 SOURCES OF PAYMENT FOR THE BONDS...10 Repayment of the Bonds...10 Reserve Fund...12 THE CITY OF INDIO...13 THE DISTRICT...13 General...13 Status of Development; Financing Plan...14 Description of the Bond-Funded Improvements...16 Estimated Improvement Costs...17 Acquisition Agreement...18 The Developer...18 Appraised Values...20 Absorption Study...20 No Delinquencies in Property Tax Payments...20 Existing Liens...20 Total Effective Tax Rate...22 Direct and Overlapping Debt...22 Annual Levy...24 BONDHOLDERS RISKS...25 General...25 Foreclosure and Sale Proceedings...25 Depletion of Reserve Fund...26 Concentration of Ownership...26 Valuation of Property in the District...27 Factors Affecting Parcel Value and Aggregate Values...27 Prepayment of Assessments...28 Other Possible Claims Upon the Value of an Assessment Parcel...29 Vacant Land...30 Direct and Overlapping Indebtedness...30 Bankruptcy Proceedings...30 Payment of the Assessment Not a Personal Obligation...31 No City Obligation to Pay Debt Service...31 Loss of Tax Exemption...31 No Acceleration Provision...31 Proposition 218; Possible Future Ballot Initiatives.31 Payments by FDIC...32 LEGAL MATTERS...34 Enforceability of Remedies...34 Approval of Legal Proceedings...34 Tax Matters...34 Absence of Litigation...36 CONCLUDING INFORMATION...37 No Rating on the Bonds; Secondary Market...37 Underwriting...37 The Financial Advisor...37 Continuing Disclosure...37 Additional Information...38 References...38 Execution...38 SUMMARY OF THE FISCAL AGENT AGREEMENT...A-1 CITY OF INDIO INFORMATION STATEMENT...B-1 FORMS OF CONTINUING DISCLOSURE AGREEMENTS...C-1 ASSESSMENT PARCEL LISTING...D-1 FORM OF BOND COUNSEL OPINION...E-1 APPRAISAL REPORT... F-1 ABSORPTION STUDY...G-1 DTC AND THE BOOK-ENTRY ONLY SYSTEM...H-1

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7 OFFICIAL STATEMENT $3,604,000 CITY OF INDIO ASSESSMENT DISTRICT NO (SHADOW HILLS - MASTER PLAN - PHASE 3 AND LAS BRISAS NORTH) LIMITED OBLIGATION IMPROVEMENT BONDS, SERIES 2004 This Official Statement which includes the cover page and appendices (the Official Statement ) is provided to furnish certain information concerning the sale of the City of Indio Assessment District No (Shadow Hills - Master Plan - Phase 3 and Las Brisas North) Limited Obligation Improvement Bonds, Series 2004 (the Bonds ), in the aggregate principal amount of $3,604,000. INTRODUCTION The description and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meaning as in the Fiscal Agent Agreement (defined below). The Issuer The City of Indio (the City ) was incorporated as a general law city in The City encompasses 24.8 square miles in central Riverside County and is located 120 miles east of downtown Los Angeles and 30 miles southeast of the City of Palm Springs. Neighboring communities include Palm Desert, Indian Wells, La Quinta and Coachella (see APPENDIX B - CITY OF INDIO INFORMATION STATEMENT herein). The District The land within Assessment District No (Shadow Hills - Master Plan - Phase 3 and Las Brisas North) (the District ) is comprised of approximately 47 net acres of land in the Shadow Hills master planned community located north of Avenue 42 and east of Jackson Street and a 35 lot single family subdivision known as Las Brisas North located north of Avenue 48 and east of the All American Canal. The City has approved Tract Nos and , a 177 single family residential lot subdivision of land within the Shadow Hills development and Tract No for the Las Brisas North development. For additional description of the District, see THE DISTRICT herein. Security and Sources of Repayment for the Bonds The Bonds are to be secured under the Fiscal Agent Agreement, dated as of November 1, 2004 (the Fiscal Agent Agreement ), between the City and Union Bank of California, N.A., Los Angeles, California, as fiscal agent (the Fiscal Agent ) (see APPENDIX A - SUMMARY OF THE FISCAL AGENT AGREEMENT herein) and pursuant to the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (the 1913 Act ) and the Improvement Bond Act of 1915 (Division 10 of the California Streets and Highways Code) (the Bond Law ) (collectively, the Assessment Bond Law ). The Bonds are limited obligations of the City, payable from the unpaid assessments levied within the District by the City pursuant to the Assessment Bond Law and additional funds pledged therefore under the Fiscal Agent Agreement (see SOURCES OF PAYMENT FOR THE BONDS Repayment of the Bonds herein). 1

8 The Bonds are secured by a first lien on the unpaid assessments (the Assessments ) levied within the District by the City pursuant to the Assessment Bond Law and the funds pledged therefor under the Fiscal Agent Agreement. Assessments levied on the property in the District are sufficient, if paid timely, to pay the aggregate amount of the principal and interest on the Bonds. See SOURCES OF PAYMENT FOR THE BONDS and BONDHOLDERS RISKS herein. The City has covenanted to cause foreclosure proceedings to be commenced and prosecuted against certain parcels with delinquent installments of Assessments. For a more detailed description of the foreclosure covenant see SOURCES OF PAYMENT FOR THE BONDS - Repayment of the Bonds Covenant to Commence Foreclosure Proceedings. The Bonds are limited obligations of the City payable solely from the proceeds of unpaid Assessments levied on the Assessment Parcels (see SOURCES OF PAYMENT FOR THE BONDS Repayment of the Bonds herein) within the District and other funds pledged under the Fiscal Agent Agreement. The Bonds do not constitute a debt or liability of the State of California or of any political subdivision thereof, other than the City. The City shall only be obligated to pay the principal of the Bonds, or the interest thereon, from the funds described herein, and neither the faith and credit nor the taxing power of the City, the State of California or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds, except to the limited extent described herein. See SOURCES OF PAYMENT FOR THE BONDS and BONDHOLDERS RISKS herein. Purpose Proceeds from the Bonds will be used to (i) finance the costs of acquisition of certain public improvements serving property within the District, (ii) fund capitalized interest on the Bonds through September 2, 2005, (iii) pay costs related to the issuance of the Bonds, and (iv) make a deposit to a Reserve Fund (see THE BONDS Estimated Uses of Funds herein). Property Values An appraisal report (the Appraisal Report ) dated August 27, 2004 was prepared by First American Tax Valuation, Santa Ana, California (the Appraiser ) in connection with the Bonds. The purpose of the Appraisal was to ascertain the market value of the fee simple estate for the taxable property within each zone of the District with August 1, 2004 as the date of value. Subject to the assumptions contained in the Appraisal Report, the Appraiser estimated that the fee simple interest in the property in the District, subject to the lien of the Assessments, had an estimated aggregate value of $14,450,000. See BONDHOLDERS RISKS, APPENDIX F APPRAISAL REPORT, and THE DISTRICT Appraised Values. Legal Matters The legal proceedings in connection with the issuance of the Bonds are subject to the approving opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, as Bond Counsel. Such opinion, and certain tax consequences incident to the ownership of the Bonds, including certain exceptions to the tax treatment of interest, are described more fully under the heading LEGAL MATTERS herein. Certain legal matters will be passed on for the City by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel and by the City Attorney. 2

9 Professionals Involved in the Offering Union Bank of California, N.A., Los Angeles, California, will serve as the fiscal agent, paying agent, registrar, authentication and transfer agent for the Bonds and 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 Bonds and all activities related to the redemption of the Bonds. Fulbright & Jaworski L.L.P., Los Angeles, California, has served as Bond Counsel and Disclosure Counsel. Harrell & Company Advisors, LLC, Orange, California, (the Financial Advisor ), advised the City as to the financial structure and certain other financial matters relating to the Bonds. Jones Hall, A Professional Law Corporation, San Francisco, California, has served as Underwriter s Counsel. First American Tax Valuation, Santa Ana, California, prepared the Appraisal attached hereto as APPENDIX F. Market Profiles, Inc., Santa Ana, California, prepared the Absorption Study attached hereto as APPENDIX G. Payment of the fees of Bond Counsel, Disclosure Counsel, Underwriter s Counsel and Financial Advisor are contingent on the sale and delivery of the Bonds. Offering of the Bonds Authority for Issuance. The Bonds are issued by the City pursuant to the Assessment Bond Law and Resolution No adopted by the City Council on September 15, 2004 (the Resolution ). The Bonds are being sold to Southwest Securities, Inc. (the Underwriter ), pursuant to a Bond Purchase Agreement authorized by the Resolution. Offering and Delivery of the Bonds. The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Fulbright & Jaworski L.L.P., Los Angeles, California, as Bond Counsel. It is anticipated that the Bonds, in book-entry form, will be available for delivery in New York, New York on or about November 4, 2004 through the facilities of The Depository Trust Company. Information Concerning this Official Statement This Official Statement speaks only as of its date. The information set forth herein has been obtained by the City with the assistance of the Financial Advisor from sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Financial Advisor or Disclosure Counsel. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended as such and are not to be construed as representations of fact. The information and expressions of opinion herein are subject to change without notice and the delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the information or opinions set forth herein or in the affairs of the City since the date hereof. Availability of Legal Documents. The summaries and references contained herein with respect to the Fiscal Agent Agreement and other statutes or documents do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Fiscal Agent Agreement. Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Underwriter: Southwest Securities, Inc., 620 Newport Center Drive, Suite 300, Newport Beach, California 92660, telephone (949) Copies of these documents may be obtained after delivery of the Bonds at the corporate trust office of the Fiscal Agent, Union Bank of California, N.A., 120 S. San Pedro, Suite 400, Los Angeles, California or from the City at 100 Civic Center Mall, Indio, California 92201, telephone (760)

10 THE BONDS General Provisions Repayment of the Bonds. The Bonds will be issued in Authorized Denominations and will be dated the date of delivery thereof and will mature as set forth on the inside front cover page. Authorized Denominations means $5,000 or any integral multiples thereof, except for one odd bond, if any. Interest is payable on the Bonds at the rates per annum set forth on the inside front cover page hereof, payable on March 2, 2005 and on each September 2 and March 2 thereafter (the Interest Payment Dates ). Interest with respect to the Bonds will be computed on the basis of a year consisting of 360 days and twelve 30- day months. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of execution thereof unless (i) a Bond is executed as of an Interest Payment Date, in which event interest with respect thereto will be payable from such Interest Payment Date; (ii) it is executed after a Record Date and before the following Interest Payment Date, in which event interest with respect thereto will be payable from such Interest Payment Date; or (iii) it is executed on or before February 15,2005, in which event interest with respect thereto will be payable from the date of delivery; provided, however, that if, as of the date of execution of any Bond, interest with respect to any Outstanding Bond is in default, interest represented by such Bond will be payable from the Interest Payment Date to which interest has previously been paid or made available for payment with respect to the Outstanding Bonds. Interest shall be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date shall be payable to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special Record Date to be established by the Fiscal Agent for the payment of such defaulted interest to be fixed by the Fiscal Agent, notice of which shall be given to such Owner by first class mail not less than ten days prior to such special Record Date. Interest shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, on each Interest Payment Date to the Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Bonds filed with the Fiscal Agent prior to any Record Date, interest on such Bonds shall be paid to such Owner on each succeeding Interest Payment Date (unless such request has been revoked in writing) by wire transfer of immediately available funds to an account in the United States designated in such written request. The principal of the Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Fiscal Agent. Payment of principal of any Bond shall be made only upon presentation and surrender of such Bond at the Office of the Fiscal Agent. Transfer or Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Fiscal Agent. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Fiscal Agent shall authenticate and shall deliver a new Bond or Bonds for a like aggregate principal amount, in any authorized denomination. The Fiscal Agent shall require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The cost of printing Bonds and any services rendered or expenses incurred by the Fiscal Agent in connection with any transfer shall be paid by the City. 4

11 The Bonds may be exchanged at the Office of the Fiscal Agent for a like aggregate principal amount of Bonds of other authorized denominations. The Fiscal Agent shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The cost of printing Bonds and any services rendered or expenses incurred by the Fiscal Agent in connection with any exchange shall be paid by the City. The Fiscal Agent shall not be obligated to make any transfer or exchange of Bonds during the period established by the Fiscal Agent for the selection of Bonds for redemption, or with respect to any Bonds selected for redemption. Book-Entry Only System The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. Purchasers of beneficial interests in the Bonds will not receive physical certificates. For information on DTC and its book-entry system see APPENDIX H. Redemption Optional Redemption. The Bonds maturing on or after September 2, 2016 are subject to optional redemption prior to maturity at the option of the City on any Interest Payment Date on or after September 2, 2015, as a whole or in part from any source of available funds at a redemption price equal to the principal amount thereof to be redeemed, plus a premium (expressed as a percentage of the principal amount of Bonds to be redeemed) together with accrued interest thereon to the date fixed for redemption as follows: Redemption Dates Redemption Prices September 2, 2015 and March 2, % September 2, 2016 and March 2, % September 2, 2017 and each Interest Payment Date thereafter 100.0% The Finance Director shall notify the Fiscal Agent of Bonds to be called for redemption 45 days prior to redemption whenever sufficient funds are available therefor in the Assessment Revenue Fund to be established and held by the Finance Director of the City pursuant to the Fiscal Agent Agreement. Special Mandatory Redemption from Prepayments. The Bonds are subject to redemption prior to maturity on any Interest Payment Date on or after March 2, 2005 in whole or in part, and by lot, from amounts constituting prepayments of unpaid Assessments at a redemption price equal to the principal amount thereof to be redeemed, plus a premium (expressed as a percentage of the principal amount of Bonds to be redeemed) together with accrued interest thereon to the date fixed for redemption as follows: Redemption Dates Redemption Prices March 2, 2005 through March 2, % September 2, 2010 through March 2, % September 2, 2015 and thereafter As Provided for Optional Redemption 5

12 Mandatory Sinking Payment Redemption of Bonds. The Bonds maturing September 2, 2030 ( the Term Bonds ) are subject to mandatory redemption, without premium, prior to their maturity date, in part by lot on September 2, in each year commencing September 2, 2021, from mandatory sinking payments made by the City at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption in the aggregate principal amounts and on September 2 in the respective years as set forth in the following schedule; provided, however, that (i) in lieu of redemption thereof, the Term Bonds may be purchased by the City and tendered to the Fiscal Agent, and (ii) if some but not all of the Term Bonds have been redeemed pursuant to optional redemption or special mandatory redemption provisions described above, the total amount of all future sinking payments shall be reduced by the aggregate principal amount of the Term Bonds so redeemed, to be allocated among such sinking payments on a pro rata basis integral multiples of $5,000 as determined by the City. SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, 2030 Redemption Date September 2 Principal Amount 2021 $150, , , , , , , , , (maturity) 255,000 Notice of Redemption. While the Bonds are subject to DTC s book-entry system, the Fiscal Agent will be required to give notice of redemption only to DTC as provided in the letter of representations executed by the City and received and accepted by DTC. DTC and the Participants will have sole responsibility for providing any such notice of redemption to the beneficial owners of the Bonds to be redeemed. Any failure of DTC to notify any Participant, or any failure of Participants to notify the Beneficial Owner of any Bonds to be redeemed, of a notice of redemption or its content or effect will not affect the validity of the notice of redemption, or alter the effect of redemption. During any period in which the Bonds are not subject to the book-entry system, the Fiscal Agent on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least 30 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Office of the Fiscal Agent for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption and with regard to optional redemption in the event that funds required to pay the redemption price are not on deposit under the Fiscal Agent Agreement at the time the notice of redemption is sent, a statement to the effect that the redemption is conditioned upon the receipt of the appropriate funds required to pay the redemption price by the Fiscal Agent on or prior to the redemption 6

13 date. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Selection of Bonds for Redemption. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the Bonds, the Fiscal Agent shall select the Bonds to be redeemed from all Bonds not previously called for redemption, by lot in any manner which the Fiscal Agent in its sole discretion shall deem appropriate and fair, subject to compliance with Section 8768 of the Streets and Highways Code as specified in a written Certificate of the City. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations, except for one odd bond, if any, and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Rescission of Notice. The City has the right to rescind any optional redemption or mandatory redemption from prepayments of unpaid assessments by written notice to the Fiscal Agent on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default under the Fiscal Agent Agreement. The Fiscal Agent shall mail notice of rescission of redemption in the same manner notice of redemption was originally provided. 7

14 Scheduled Debt Service on the Bonds The following is the scheduled annual Debt Service on the Bonds. Bond Year Ending Principal Interest Annual Debt Service September 2, 2005 $ - $ 155, $ 155, September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , September 2, , , , Total $3,604, $3,299, $6,903,

15 Estimated Uses of Funds Under the provisions of the Fiscal Agent Agreement, the Fiscal Agent will receive the proceeds from the sale of the Bonds and will apply them as follows: Construction and Acquisition Fund $2,911, Reserve Fund (1) 272, Bond Fund (2) 155, Underwriter s Discount 72, Original Issue Discount 9, Costs of Issuance Fund (3) 182, Total Uses $3,604, (1) Bond proceeds will be deposited into the Reserve Fund, which equals the Reserve Requirement. See SOURCES OF PAYMENT FOR THE BONDS Reserve Fund. (2) (3) Represents capitalized interest on the Bonds through September 2, Costs of Issuance includes Bond Counsel fee, Disclosure Counsel fee, Fiscal Agent fees, Financial Advisor fee, Appraiser fee, printing costs and other miscellaneous costs of issuance. 9

16 Repayment of the Bonds SOURCES OF PAYMENT FOR THE BONDS General. The Bonds are issued upon and are secured by the unpaid Assessments against properties within the District (the Assessment Parcels ), together with interest thereon (collectively, the Assessment District Revenues ). The Assessment District Revenues constitute a source for the redemption and payment of the principal of the Bonds and the interest thereon. The Bonds are secured by a first lien on the moneys in the Assessment Revenue Fund (the Assessment Revenue Fund ) created pursuant to the Fiscal Agent Agreement. Principal of and interest on the Bonds are payable exclusively out of the Assessment Revenue Fund which is held by the City. The unpaid Assessments levied on the Assessment Parcels are collected in annual installments, together with interest on the declining balances, on the tax roll of the County of Riverside on which general taxes on real property are collected. The annual assessment installments, together with interest thereon, are payable and become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do general taxes. The Assessment Parcels are subject to the same provisions for sale and redemption as are properties for nonpayment of general taxes, subject to the foreclosure covenants discussed below. These annual assessment installments together with interest are to be paid into the Assessment Revenue Fund, and are used to pay the principal of and interest on the Bonds as they become due and payable. The Bonds are limited obligations of the City payable solely from the proceeds of unpaid Assessments levied on the Assessment Parcels within the District. The Bonds shall not be deemed to constitute a debt or liability of the State of California or of any political subdivision thereof, other than the City. Neither the faith and credit nor the taxing power of the City, except to the limited extent described herein, the State of California or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds. Covenant to Commence Foreclosure Proceedings. The Assessment Bond Law provides that in the event any assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the lien of the unpaid assessment. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory under the Assessment Bond Law. However, in the Fiscal Agent Agreement, the City has covenanted that, in the event any assessment or installment thereof, including any interest thereon, is not paid when due it will order and cause to be commenced, and thereafter diligently prosecute an action in the superior court to foreclose the lien of any Assessment or installment thereof that is delinquent. The Finance Director shall commence, or cause to be commenced, such foreclosure proceedings and the following conditions shall apply to the foreclosure proceedings, which shall be commenced not later than the October 1 following the Fiscal Year: (a) if the Finance Director determines that there is a delinquency of an Assessment of $2,000 or more for a prior Fiscal Year(s), for any single parcel of land in the District, foreclosure shall be commenced against such parcel of land in the District; (b) if the Finance Director determines that the total amount of delinquent Assessments for the prior Fiscal Year for the entire District, less the total delinquencies under subsection (a) above, exceeds five percent (5%) of the total Assessments due and payable in the prior Fiscal Year, foreclosure shall be commenced against such parcel of land in the District with a cumulative delinquency of $1,000 or more; and (c) if the Finance Director determines that the total amount of delinquent Assessments for the prior Fiscal Year for the entire District, less the total delinquencies under subsections (a) and (b) above, exceeds three percent (3%) of the total Assessments due and payable for the prior Fiscal Year, foreclosure shall be commenced against each parcel of land within the District with any amount of delinquency for the prior Fiscal Year(s). The City shall issue notices of delinquency against all parcels with delinquent Assessments, regardless of amount, within 60 days after the Finance Director has received the Auditor s Report for July of that Bond Year showing such delinquent Assessments. 10

17 In the event court foreclosure proceedings are necessary, there may be a delay in payments to Bondholders pending prosecution of the foreclosure proceedings and receipt by the City of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable property would be received at the foreclosure sale. See BONDHOLDERS RISKS herein. As described above, it is the City s policy not to institute any action for foreclosure with respect to any delinquency in the payment of Assessments (including interest thereon) totaling less than $1,000 for any one property. See Repayment of the Bonds General herein. Priority of Lien. Each assessment (and any reassessment thereof) and each installment thereof, and any interest and penalties thereon, constitutes a lien against the parcel of land on which it was imposed until the same is paid. The lien is subordinate to all fixed special assessment liens imposed upon the same property prior to the date that the assessments became a lien on the property assessed, but has priority over all private liens and over all fixed special assessment liens which may thereafter be created against the property. The lien is co-equal to and independent of the lien for general taxes and any community facilities district (Mello-Roos district) special taxes, including general taxes and community facilities district special taxes levied or imposed subsequent to the date the assessment lien securing the Bonds was imposed on land in the District. Property in the District is currently encumbered by certain fixed liens other than the fixed liens securing the Assessments. The City of Indio Assessment District No and the Coachella Valley Recreation and Park District each have outstanding bonds secured by a lien that has priority over the lien of the Assessments securing the Bonds. See THE DISTRICT Existing Liens. The direct and overlapping debt of property within the District as of August 1, 2004 is shown under the heading THE DISTRICT - Direct and Overlapping Debt. Sales of Tax-Defaulted Property Generally. Property securing delinquent assessment installments which is not sold pursuant to the judicial foreclosure proceedings described above may be sold, subject to redemption by the property owner, in the same manner and to the same extent as real property sold for nonpayment of general County property taxes. On or before June 30 of the year in which such delinquency occurs, the property becomes tax-defaulted. This initiates a five-year period during which the property owner may redeem the property. At the end of the five-year period the property becomes subject to sale by the County Treasurer and Tax Collector. Except in certain circumstances, as provided in the Assessment Bond Law, the purchaser at any such sale takes such property subject to all unpaid Assessments, interest and penalties, costs, fees and other charges which are not satisfied by application of the sales proceeds and subject to all public improvement Assessments which may have priority. Delinquency Resulting in Ultimate or Temporary Loss on Bonds. If a temporary deficiency occurs in the Assessment Revenue Fund with which to pay Bonds which have matured, or to pay past due interest or the principal and interest on Bonds coming due during the current tax year, but it does not appear to the Finance Director that there will be an ultimate loss to the Bondholders, the Finance Director shall, pursuant to the Assessment Bond Law, pay the principal of Bonds which have matured as presented and make interest payments on the Bonds when due as long as there are available funds in the Assessment Revenue Fund. If it appears to the Finance Director that there is a danger of an ultimate loss accruing to the Bondholders for any reason, he or she is required pursuant to the Assessment Bond Law to withhold payment on all matured Bonds and interest on all Bonds and report the facts to the City Council so that the City Council may take proper action to equitably protect all Bondholders, as further provided in the Assessment Bond Law. 11

18 Reserve Fund The Fiscal Agent shall establish, maintain and hold in trust a special fund designated the Reserve Fund. The City shall cause the Reserve Fund to be administered in accordance with Part 16 of the Bond Law; provided that proceeds from redemption or sale of properties, with respect to which payment of delinquent Assessments and interest thereon was made from the Reserve Fund, shall be credited to the Reserve Fund. Except as otherwise provided in the Fiscal Agent Agreement, all amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of and interest and premium (if any) on the Bonds or, in accordance with the provisions of the Fiscal Agent Agreement, for the purpose of redeeming Bonds from the Bond Fund. Whenever, after the issuance of the Bonds, an Assessment is prepaid, in whole or in part, as provided in the Assessment Bond Law, the Fiscal Agent, pursuant to a Written Request of the City, shall transfer from the Reserve Fund to the Prepayment Account an amount, specified in such Written Request, equal to the product of the ratio of the original amount of the Assessment so paid to the original amount of all unpaid Assessments, times the initial Reserve Requirement; provided, however, no such transfer shall be made if after the transfer the amounts in the Reserve Fund then remaining will not equal the Reserve Requirement. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on February 15 and August 15 of each year shall be withdrawn from the Reserve Fund by the Fiscal Agent and deposited in the Bond Fund. Whenever the balance in the Reserve Fund is sufficient to retire all the Outstanding Bonds, whether by advance retirement or otherwise, collection of the principal and interest on the Assessments shall be discontinued and the Reserve Fund liquidated by the Fiscal Agent in retirement of the Outstanding Bonds, as directed by a Written Request of the City. In the event that the balance in the Reserve Fund at the time of liquidation exceeds the amount required to retire all of the Outstanding Bonds, the excess shall, after payment of amounts due to the Fiscal Agent, be transferred to the City to be used in accordance with the Act and the Assessment Bond Law. There will be deposited into the Reserve Fund from the proceeds of the Bonds an amount equal to $272, which equals the initial Reserve Requirement. The Reserve Requirement is defined in the Fiscal Agent Agreement as the amount, as of any date of calculation, equal to the least of (i) Maximum Annual Debt Service, (ii) one hundred twenty-five percent (125%) of Average Annual Debt Service, or (iii) ten percent (10%) of the initial principal amount of the Bonds. 12

19 THE CITY OF INDIO The City is located approximately 120 miles east of Los Angeles in the Coachella Valley, surrounded by the San Jacinto Mountains to the east and the Santa Rosa Mountains to the south. Its neighboring communities are La Quinta to the west, unincorporated areas of Riverside County to the south, the City of Coachella to the east and unincorporated Riverside County land to the north. In 1893, Indio became one of 12 townships in the County of Riverside and was incorporated as a general law city in 1930 with a council-manager form of municipal government. The City Council is composed of a Mayor and four members elected bi-annually at large to four-year alternating terms with the mayor rotating on an annual basis. Positions of City Manager and City Attorney are filled by appointments of the City Council. See APPENDIX B - CITY OF INDIO INFORMATION STATEMENT herein. THE DISTRICT The information set forth herein regarding ownership of real property in the District, the property owners within the District and any proposed development of property in the District was provided by the Developer and others and has not been independently verified. Neither the City, the Financial Advisor nor the Underwriter make any representation as to the accuracy or completeness of any such information. This information has been included because it is considered relevant to an informed evaluation of the District. No assurance can be given that additional development within the District will occur, or that it will occur in a timely manner. The information should not be construed to suggest that the Bonds or the Assessments that will be used to pay the Bonds are personal obligations of the property owners within the District. The owners of property within the District will not be personally liable for payments of the Assessments to be applied to pay the principal of and interest on the Bonds. Accordingly, no property owner s financial statements have been included in this Official Statement. Furthermore, no representation is made that the property owners will have funds available to complete any further development within the District. General Shadow Hills. The District encompasses approximately 47 net acres constituting Phase III of the master planned community of Shadow Hills ( Shadow Hills ). The master planned community has three planning areas: residential; mobile home/recreational vehicle; and commercial. The District is part of the third and final phase of development in the residential planning area, which is comprised of approximately 145 total gross acres with surrounding land uses including an office building, RV sales yard, and vacant land to the south; the Shadow Hills Master Plan (Landmark Golf Club) under construction to the east; agricultural land to the west; and the Shadow Lakes residential development to the north. Avenue 42 and Jackson Street are the main entries to the master planned community. At build out, the residential planning area of Shadow Hills is estimated to contain 483 lots for single-family homes. The second planning area of Shadow Hills is expected to be developed with a 37 acre mobile home/recreational vehicle rental resort designed for short term stays, and may include a 3 acre recreation area consisting of a clubhouse, laundry facilities, and two pools. The third planning area of Shadow Hills is a 17 acre commercial site which is envisioned for a hotel/small conference facility and related commercial uses. The property in Shadow Hills is owned by Shadow Hills, LLC, a California limited liability company (the Shadow Hills Property Owner ), is being developed by Century Crowell Communities, LP (the Developer ) and is being marketed as the second phase of their Ventana and El Dorado products. The City approved a tentative tract map on February 13, 2003 for the entire Shadow Hills Master Plan subdivision of which 177 homes are located within the District. Homes in Shadow Hills are expected to be constructed by the Developer. The Developer expects to offer a product type with 8 plans with home sizes ranging from 1,211 to 2,778 square feet on lots averaging 8,000 square feet, with a minimum of 13

20 6,748 square feet. The Developer s current estimated base selling prices range from $279,990 to $379,990. As of August 31, 2004, 66 homes have been reserved. The topography of the Shadow Hills development and its surrounding land area is generally level. The major access route to Shadow Hills is via Jackson Street which is a major north-south arterial that connects Shadow Hills with Interstate Highway 10. According to the Absorption Study, the land uses surrounding Shadow Hills consist of two neighborhoods of single family homes under construction by the Developer immediately to the west, and the All American Canal to the north and east. Additional single family development is planned for the area west of Jackson Street. Approximately 2.5 miles south of Shadow Hills, there is a large concentration of retail shops including a supermarket, drug store, restaurants and a variety of other retail shops and service businesses located on Highway 111. An elementary school and a junior high school are located within 3.5 miles of Shadow Hills. Las Brisas North. The District also encompasses a 35 single family residential lot development known as Las Brisas North ( Las Brisas ). It is being developed adjacent to an existing 189 unit development north of Avenue 48 and east of the All American Canal. The property in Las Brisas is owned by Las Brisas North, LLC, a California limited liability company (the Las Brisas Property Owner and together with the Shadow Hills Property Owner, the Property Owners ). Las Brisas is also being developed by the Developer. Homes in Las Brisas will be constructed by the Developer, who expects to offer a product type with 4 plans and home sizes ranging from 1,712 to 2,500 square feet on lots averaging 8,000 square feet. The Developer s current estimated base selling price ranges from $314,990 to $369,990. Status of Development; Financing Plan The Developer has provided the following information with respect to development within the District. No assurance can be given that all information is complete. No assurance can be given that development of the property will be completed, or that it will be completed in a timely manner. Since the ownership of the parcels is subject to change, the development plans outlined below may not be continued by the subsequent owner if the parcels are sold, although development by any subsequent owner will be subject to the approvals, policies and requirements of the City. No assurance can be given that the plans or projections detailed below will actually occur. Shadow Hills. The tentative tract map for Shadow Hills Master Plan was approved by the City Council on February 13, 2003 and the final tract maps were recorded as follows: Tract recorded July 27, 2004 and Tract recorded July 29, Grading on the site commenced March The Developer is using model homes from its first phase of Ventana and El Dorado (in a prior phase of the Shadow Hills planned community) for marketing and does not need to construct additional models. As of August 31, 2004, the City had issued forty-eight (48) building permits with respect to the first and second phases of development. The Developer completed sewer, water curb and gutter construction for the fortyeight (48) homes in the first and second phases and anticipates paving the streets by the fourth quarter of The Developer anticipates completing the infrastructure necessary to bring the remaining 129 homes to finished lot condition by the first quarter of The Developer anticipates completing the development and selling of all homes by fourth quarter of It should be noted that the Absorption Study estimates home sales to take place between January 2005 and April See APPENDIX G ABSORPTION STUDY herein. The Developer s development expectations could be altered due to changes in economic and market conditions, and other factors. Las Brisas. The tentative tract map for Las Brisas was approved by the City Council on August 4, 2004 and the final tract map was approved on October 20, The Developer anticipates grading on the site to commence on October 25, 2004 and to obtain building permits for all thirty-five (35) homes in November The Developer is using model homes from the adjacent Las Brisas development for marketing and does not need to construct additional models. The Developer expects that the 35 lots will be in finished lot condition by December

21 The Developer anticipates completing the development and selling of all homes by second quarter of It should be noted that the Absorption Study estimates home sales to take place between March 2005 and July See APPENDIX G ABSORPTION STUDY herein. The Developer s development expectations could be altered due to changes in economic and market conditions, and other factors. The following table summarizes the product types proposed by the Developer to be constructed within the District. The base sale prices reflect current pricing as of August SHADOW HILLS Product Type* Number of Lots Square Footage Base Sale Price Plan ,208 $279,990 Plan , ,990 Plan , ,990 Plan , ,990 Plan 200X 9 1, ,990 Plan , ,990 Plan , ,990 Plan , ,990 LAS BRISAS Product Type* Number of Lots Square Footage Base Sale Price Plan 103X 6 1,712 $314,990 Plan 105G 9 2, ,990 Plan , ,990 Plan 203G 15 2, ,990 * Note: Product Type includes only base plan and doesn t include possible plan options. Source: Century Crowell Communities, LP. No assurance can be given that property development and home construction will be completed in the District as currently anticipated. The development of the land within the District will require significant expenditures of funds by the Developer. Shadow Hills. According to the Developer, infrastructure improvements for development of the lots, including the improvements to be financed with proceeds of the Bonds are expected to be complete in the first quarter of As of September 30, 2004, the Developer estimated that the total construction cost (including land acquisition, land development, home construction financing, and carrying costs) would equal approximately $43.8 million, of which the Developer had incurred approximately $7.5 million, which included but is not limited to offsite and onsite costs. 15

22 Of the total $43.8 million in anticipated development and construction costs, approximately $2.4 million will be reimbursed with the proceeds of the Bonds, approximately $2.4 million will be funded through equity contributions by the Developer and approximately $2.0 million will come from reinvestment of home sale proceeds. The remaining development costs of approximately $36.7 million are anticipated to come from a series of commercial loans. Of this amount, the Developer has currently secured loan commitments in the amount of approximately $27.3 million from Valley Independent Bank, of which as of September 30, 2004, approximately $22.5 million in loan proceeds have not been disbursed. The Developer has not secured loan commitments for the remaining development costs, and no assurance can be given that the Developer will be able to secure the necessary financing to permit the remaining property and home development as currently planned, or that any development financing ultimately obtained will be sufficient for the development of the project as currently planned. Las Brisas. According to the Developer, infrastructure improvements for development of the lots, including the improvements to be financed with proceeds of the Bonds are expected to be complete in the first quarter of As of September 30, 2004, the Developer estimated that the total construction cost (including land acquisition, land development, home construction financing, and carrying costs) would equal approximately $10.4 million, of which the Developer had incurred approximately $395,000, which included but is not limited to offsite and onsite costs. Of the total approximately $10.4 million in anticipated development and construction costs, approximately $481,000 will be reimbursed with the proceeds of the Bonds, and approximately $234,500 will be funded through equity contributions by the Developer and approximately $1.8 million will come from reinvestment of home sale proceeds. The remaining development costs of approximately $7.9 million will come from a commercial loan from 1 st Centennial Bank. The Developer has not secured loan commitments for the remaining development costs, and no assurance can be given that the Developer will be able to secure the necessary financing to permit the remaining property and home development as currently planned, or that any development financing ultimately obtained will be sufficient for the development of the project as currently planned. Description of the Bond-Funded Improvements The City retained the firm of Albert A. Webb Associates (the District Engineer ) to prepare a report (the Engineer s Report ) which contains, among other things, a description of the public improvements proposed to be financed by the District (the Improvements ), and the amount and method of assessment levied on each parcel in the District. A full copy of the Report of the District Engineer may be obtained from the City. The Improvements generally consist of street improvements, sewer and water improvements, landscaping and electric utilities improvements, water and sewer facility fees, and cabling and conduit fees. The Assessment Engineer s Report describes the Improvements as follows: Plans and Specifications The cost of approved plans for the improvements to be acquired. Sewer Sewer improvements including 8-inch diameter sewer main and 4-inch diameter sewer laterals, together with appurtenances and appurtenant work, all in the interior public rights-of-way to serve each residential lot and a 8-inch diameter sewer main in a public right-of-way along the west property line of lot 32 in Tract No (Zone 2). 16

23 Water Water improvements including water main, 1-inch diameter water service lines, and water meters, together with appurtenances and appurtenant work, all in the interior public rights-of-way to serve each residential lot. Trenching, Conduit, and Cabling Includes but is not limited to trenching and conduit for electric facilities within the public right-of-way and easements in Tract No , and 31539, appurtenances and appurtenant work and within a public right of-way along the east property line of Tract No (Zone 2). Water, Sewer and Cabling and Connection Fees Includes water facility fees for the City of Indio, sewer facility fees for Valley Sanitary District, and cabling and conduit fees for Imperial Irrigation District. All of the improvements will be constructed by the Developer under the Acquisition Agreement (defined below). The sewer facilities will be constructed and conveyed to the Valley Sanitary District under a Joint Financing Agreement for Installation, Acquisition and Conveyance of Improvements dated as of November 1, 2004, among the City, Valley Sanitary District and the Property Owners. The water improvements will be constructed and conveyed to the Imperial Irrigation District under a Joint Financing Agreement dated as of November 1, 2004, among the City, Imperial Irrigation District and the Property Owners. Estimated Improvement Costs The data shown below is the estimated costs of the Improvements contained in the Engineer s Report prepared by Albert A. Webb Associates. Shadow Hills Las Brisas Construction Costs (1) $1,256,980 $299,533 Development Fees (2) 1,250, ,205 Prepay Assessment (3) - 90,000 Engineering Costs 188,933 44,649 Total Improvement Costs 2,696, ,387 Less: Contribution by Property Owner (264,945) (200,657) Deposit to Construction and Acquisition Fund $2,431,119 $480,730 (1) Streets, water and sewer main construction, storm drain construction and parkway landscaping, as described above under Description of Improvements. (2) (3) Water facility fees, water meter fees, sewer facility fees and cabling and conduit fees. The Las Brisas property is located in the City s Assessment District No The assessments will be prepaid with a portion of the proceeds of the Bonds. 17

24 Acquisition Agreement The City and the Property Owners will have entered into a Funding, Construction and Acquisition Agreement dated as of November 1, 2004 (the Acquisition Agreement ) relating to the acquisition of the Improvements providing in general that (a) the City will issue the Bonds to finance the cost of acquiring the Improvements; (b) the Property Owners will proceed with due diligence to complete the construction of the Improvements; and (c) the Property Owners will agree to sell certain Improvements to the City (other than the sewer improvements and the water improvements) and the City agrees to accept and acquire those Improvements at a cost not to exceed the actual cost. Pursuant to the Acquisition Agreement, the Property Owners will pay any costs of the Improvements in excess of amounts available from Bond proceeds. The Developer The information contained in this section has been obtained from the Developer. No assurance can be given that the planned development will occur or that the planned development will occur in a timely manner. No representation is made as to the accuracy or adequacy of such information provided by the Developer. Homes in the District will be developed by Century Crowell Communities, LP ( Century, or the Developer ). Century was formed in 1994 as the result of the merger of two home building companies, Century Homes Communities and Crowell Industries, Inc., and is one of the Inland Empire s largest builders of affordable single-family homes for the first-time, first move-up, retirement and resort community home buyer. Century s operations include location, acquisition and development of land and the design, construction, marketing and sales of homes. The sales price of Century s homes available for sale currently ranges from $150,000 to $400,000 with the average price being approximately $175,000. Century has constructed and sold over 18,000 homes, typically in new home communities, since its inception in Century operates primarily in San Bernardino and Riverside Counties but has projects in other areas. Its administrative offices are located at Fairway Commerce Center, 1535 South D Street, San Bernardino, California Century s website address is Information on the website is not deemed accurate or complete and is not incorporated into this Official Statement by reference. 18

25 Provided below is a partial listing of regional projects and developments undertaken by the Developer and their principal participants in the past three years and the date of completion of those projects. Project Number of Units Jurisdiction Completion Date Mountain Gate 308 Palm Springs Under construction Encanto II at Villa Montego 81 Indio Under construction Las Brisas at Villa Montego 29 Indio Under construction Las Brisas North 189 Indio Under construction Monticello III by Heritage Palms County Club 71 Indio Under construction Monticello by Heritage Palms Country Club 66 Indio Under construction Shadow Hills Master Plan Phase I 169 Indio Under construction Shadow Hills Villa Estates 100 Indio Under construction The Encantos at Villa Montego 341 Indio Under construction The Fairways at Indian Palms 209 Indio Completed in 2003 Las Brisas at Rancho Indio 130 Indio Completed in 2003 The Tournament Collection at PGA West 70 La Quinta Completed in 2003 Duna Fairways at La Quinta Resort 81 La Quinta Completed in 2003 The Classics at Monticello 86 La Quinta Completed in 2003 The Heritage at Monticello 120 La Quinta Completed in 2003 Colony Cove Estates at Indian Wells 11 Indio Completed in 2002 Aliso II 30 Indio Completed in 2002 Del Rey Palms at Rancho Indio 90 Indio Completed in 2001 Indian Palms Lot 28 Custom 1 Indio Completed in 2001 Tierra Del Rey 95 Indio Completed in 2001 Aliso at La Quinta Norte 70 La Quinta Completed in 2001 Mandarina at the Citrus 43 La Quinta Completed in 2001 Marbella at La Quinta Norte 68 La Quinta Completed in 2001 Siena Del Rey at La Quinta Norte 82 La Quinta Completed in 2001 Starlight Dunes 86 La Quinta Completed in 2001 Avondale/Del Safari 36 Palm Desert Completed in 2001 Source: Century Crowell Communities, LP. 19

26 Appraised Values The City caused the preparation of an appraisal of the property within the District, dated August 27, 2004 (the Appraisal Report ) by First American Tax Valuation (the Appraiser ), Santa Ana, California. The findings in the Appraisal Report are subject to a number of assumptions and qualifications which are described therein including assumptions of good title, absence of hazardous substances and possession of all required governmental approvals. The Appraiser assumes no responsibility for building permits, zoning changes, engineering or other services or duty connected with the legal use of the property. In addition to the general assumptions, the Appraisal Report also assumes that the financing of the Improvements is in place on the date of valuation. For a description of certain of the assumptions made in the Appraisal Report, see APPENDIX F - APPRAISAL REPORT. For a description of certain risks that might affect the assumptions made in the Appraisal Report, see BONDHOLDERS RISKS - Valuation of Property in the District. The Appraisal Report provide an estimated as is value of the subject properties, discounted for the time and cost of absorption, assuming the proposed District financing is in place, of $14,450,000. The date of value, for which the opinions of value are expressed in the Appraisal Report, is August 1, Based upon an as is value of $14,450,000 and outstanding aggregate principal amount of the Bonds equal to $3,604,000, the appraised value-to-lien ratio is 4.0 to 1. This does not take into account overlapping assessment and other liens on the property in the District. See Total Effective Tax Rate and Direct and Overlapping Debt below. In considering the Appraisal Report and the estimates of value contained therein, it should be noted that the Appraisal Report is based upon a number of standard and special assumptions which affect the estimates as to value. Because the Appraisal Report sets forth the Appraiser s opinion as to value only as of August 1, 2004, it does not reflect any changes to value that might have occurred since that date or which may occur in the future. See THE DISTRICT - Status of Development; Financing Plan herein. Absorption Study A Market Feasibility and Absorption Analysis dated August 2004 (the Absorption Study ) was prepared by Market Profiles, Inc., Santa Ana, California. According to the Absorption Study, housing units in the District are projected for an overall rate of absorption of 1.5 units per week, on the average, with estimated sales between January 2005 and April 2006 for the total 212 units. See APPENDIX G ABSORPTION STUDY. No Delinquencies in Property Tax Payments As of September 1, 2004, the Property Owners were current on all ad valorem property tax on its property within the District. The Property Owners have represented that they have paid all previous assessments on other projects when due and their properties have not been the subject of any foreclosure actions. Existing Liens City of Indio, Assessment District No Shadow Hills Limited Obligation Improvement Bonds ( AD 90-1 ) were originally issued on March 15, 1993 and subsequently refunded on July 1, The special assessments were levied to finance the original General Plan Studies and for the Sewer and Water lines. According to the Assessment Engineer, assessments for Assessment District No levied on lots within the District are expected to be approximately $113 per lot annually. This assessment is secured by a lien that is senior to the lien of the Assessments securing the Bonds. 20

27 Coachella Valley Recreation and Park District, Reassessment District No Limited Obligation Refunding Improvement Bonds ( AD 01-1 )were issued in September 2001 and are secured in part by special assessments levied on parcels within the District. According to the Assessment Engineer, assessments for Reassessment District No levied on lots within the District are expected to be approximately $8 per lot annually. This assessment is secured by a lien that is senior to the lien of the Assessments securing the Bonds. City of Indio, Assessment District No Limited Obligation Bonds ( Bonds) were issued on November 27, The special assessments were levied to finance streets, sewer and water improvements, landscaping and development fees associated with the property in the assessment district. The assessment levied on the property in Las Brisas to secure the Bonds will be prepaid prior to the delivery date of the Bonds. See THE DISTRICT - Estimated Improvement Costs. If delinquency and foreclosure in the payment of property taxes and assessments were to occur, the lien of the special assessments securing the AD 90-1 and AD 01-1 bonds would be senior to the lien of the Assessments securing the Bonds. Other than as described above, property in the District is not subject to any additional outstanding indebtedness which is secured by assessments or special tax liens. However, on October 20,2004, the District was annexed into the City of Indio Community Facilities District No (Police, Fire and Paramedic Services), and an annual special tax will be levied in the District to pay for certain City services. 21

28 Total Effective Tax Rate Plan - #101-1,211 sq. ft CITY OF INDIO ASSESSMENT DISTRICT NO (SHADOW HILLS MASTER PLAN PHASE 3 AND LAS BRISAS NORTH) ESTIMATED FISCAL YEAR 2005/06 TAX OBLIGATION FOR A SAMPLE DEVELOPED PROPERTY Projected Sales Price $279, Less Homeowner s Exemption (7,000.00) Estimated Taxable Assessed Value $272, Ad Valorem Property Taxes: Basic Levy (1.00%) $ 2, Desert Sands Unified School District G.O. Bond ( %) Coachella Valley Water District Debt Service ( %) Desert Community College District Debt Service (0.03%) - Proposed Total General Property Taxes (1.1483%) $ 3, Assessment, Special Taxes & Parcel Charges: Coachella Valley Recreation and Park District Reassessment District No $ 8.10 City of Indio AD No City of Indio Landscaping & Lighting District No. 40 (1) City of Indio AD No (2) 1, City of Indio CFD (3) Total Assessments & Parcel Charges $ 1, Projected Total Property Tax $ 5, Projected Effective Tax Rate 1.87% (1) (2) (3) Developer anticipates future annexation into Shadow Hills Phase I LLD No. 40. Includes an estimated $75 for administration in addition to the assessment for debt service. The District was annexed into the City s CFD No (Police, Fire and Paramedic Services) on October 20, Source: Albert A. Webb Associates, based on information provided by the City of Indio. Direct and Overlapping Debt Set forth below is the direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc., as of August 1, The Debt Report is included for general information purposes only. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-term obligations are not payable from unpaid Assessments nor are they necessarily obligations secured by property within the 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. 22

29 Presently, the Assessment Parcels will be subject to $3,646,941 of direct and overlapping tax and assessment debt and overlapping lease obligation debt, including the Bonds. To repay the direct and overlapping tax and assessment debt and overlapping lease obligation debt, the property owners of the land within the District must pay the annual Assessments and the general property tax levy. In addition, other public agencies whose boundaries overlap those of the District could, without the consent of the City, and in certain cases without the consent of the owners of the land within the District, impose additional taxes or assessment liens on the real property within the District in order to finance public improvements or services to be located or furnished inside of or outside of the District. The lien created on the real property within the District through the levy of such additional taxes or Assessments may be on a parity with the lien of the Assessments. The imposition of additional liens on a parity with the Assessments may reduce the ability or willingness of the property owners to pay the Assessments and increases the possibility that foreclosure proceeds, if any, will not be adequate to pay delinquent Assessments. 2004/05 Local Secured Assessed Valuation: $2,325,119 CITY OF INDIO ASSESSMENT DISTRICT NO DIRECT AND OVERLAPPING DEBT DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable (1) Debt 8/1/04 Desert Sands Unified School District 0.005% $ 7,300 City of Indio Assessment District No ,937 City of Indio Assessment District No ,604,000 (2) Coachella Valley Recreation and Park Reassessment District No ,303 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $3,633,540 OVERLAPPING GENERAL FUND OBLIGATION DEBT: % Applicable (3) Debt 8/1/04 Riverside County General Fund Obligations 0.001% $ 6,432 Riverside County Board of Education Certificates of Participation Desert Sands Unified School District Certificates of Participation ,059 City of Indio Certificates of Participation ,800 Coachella Valley County Water District, I.D. No. 71 Certificates of Participation Coachella Valley Recreation and Park District Certificates of Participation TOTAL GROSS OVERLAPPING GENERAL FUND OBLIGATION DEBT $ 13,401 Less: Riverside County self-supporting obligations 214 TOTAL NET OVERLAPPING GENERAL FUND OBLIGATION DEBT $ 13,187 GROSS COMBINED TOTAL DEBT $3,646,941 (4) NET COMBINED TOTAL DEBT $3,646,727 (1) Based on estimated ratios. (2) 1915 Act bonds to be sold. (3) Based on estimated redevelopment adjusted all property assessed valuation of $892,342. (4) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2004/05 Assessed Valuation: Direct Debt ($3,604,000) % Total Direct and Overlapping Tax and Assessment Debt % Gross Combined Total Debt % Net Combined Total Debt % STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/04: $0 Source: California Municipal Statistics, Inc. 23

30 Annual Levy The Finance Director is required each Fiscal Year to determine the amount of Annual Installments needed to pay debt service on the Bonds and administrative expenses of the District. The Finance Director is expected to incur administrative expenses for the levy and collection of the Annual Installments, foreclosure proceedings, Fiscal Agent fees and arbitrage rebate calculations. A certified list of all parcels subject to the unpaid Assessments, including the amount of the Annual Installments to be levied on each such parcel, is filed by the City with the County Auditor on or before the tenth day of August of that tax year. The Annual Installments are payable and are collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable and 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. Annual Installments are due in two equal installments. Annual Installments levied become delinquent on the following December 10th and April 10th. Currently a 10% penalty is added to delinquent taxes. When received, the Annual Installments are required to be deposited in the Assessment Revenue Fund to be held by the Finance Director and transferred by the Finance Director to the Fiscal Agent as provided in the Fiscal Agent Agreement. 24

31 BONDHOLDERS RISKS General BEFORE PURCHASING ANY OF THE BONDS, ALL PROSPECTIVE INVESTORS AND THEIR PROFESSIONAL ADVISORS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE FOLLOWING RISK FACTORS, WHICH ARE NOT MEANT TO BE AN EXHAUSTIVE LISTING OF ALL RISKS ASSOCIATED WITH THE PURCHASE OF THE BONDS. MOREOVER, THE ORDER OF PRESENTATION OF THE RISK FACTORS DOES NOT NECESSARILY REFLECT THE ORDER OF THEIR IMPORTANCE. The purchase of the Bonds involves investment risk. If a risk factor materializes to a sufficient degree, it could delay or prevent payment of principal of and/or interest on the Bonds. Such risk factors include, but are not limited to, the following matters. Debt service on the Bonds is payable from installment payments of principal and interest on unpaid Assessments on the Assessment Parcels. The principal of the Assessments is the aggregate of the amounts of the individual Assessments levied against the Assessment Parcels. The individual Assessment on a parcel will be paid in annual installments, together with interest on the unpaid balance, unless the unpaid balance is subsequently prepaid. The annual installments of principal and interest with respect to an Assessment Parcel will be collected on the County tax roll at the same time and in the same manner as general real property taxes are collected. The annual installments of principal and interest with the respect to all Assessment Parcels were, at the time of initial levy of the Assessments, equal in the aggregate to the annual debt service on the Bonds. Foreclosure and Sale Proceedings Under the Fiscal Agent Agreement the City is obligated under certain conditions to institute foreclosure and sale proceedings against Assessment Parcels which have delinquent assessment installments, and may do so in other circumstances even if not so obligated. However, the City has determined, because of the administrative costs involved, not to implement foreclosure proceedings unless and until the applicable delinquent amount (including interest thereon) exceeds $1,000 for any one property unless certain conditions are present (see SOURCES OF PAYMENT FOR THE BONDS Repayment of the Bonds - Covenant to Commence Foreclosure Proceedings herein). Foreclosure proceedings are instituted by the bringing of an action in the superior court of the county in which the Assessment Parcel lies, naming the owner and other interested persons as defendants. The action is prosecuted in the same manner as other civil actions. Upon judgment of foreclosure the Assessment Parcel may be offered for sale at a minimum price. The initially established minimum price will be sufficient to cover the amount of the delinquent installments and unpaid interest together with penalties, costs, fees and charges and the costs of execution and sale. The buyer in a foreclosure sale takes the parcel subject to the remaining assessment installments and regular taxes. However, in the event an Assessment Parcel does not sell for the minimum price the court may modify its judgment and reduce or eliminate the minimum price. In order to do so, however, written notice of a hearing on the matter of reducing or eliminating the minimum price is required to be given to the owners of the Bonds. If at the hearing the court determines that such a sale will not result in an ultimate loss to the owners of the Bonds, or if the owners of 75% of the outstanding Bonds by principal amount consent and the sale will not result in an ultimate loss to the non-consenting owners of Bonds, the court may reduce or eliminate the minimum price at which an Assessment Parcel may be sold. Further, if the owners of 75% of the outstanding Bonds by principal amount consent, the court may reduce or eliminate the minimum 25

32 price at which an Assessment Parcel may be sold even if sale below the minimum price will result in an ultimate loss to non-consenting owners of Bonds, provided that the court makes certain additional determinations specified by statute including the reasonable unavailability of any other remedy acceptable to the owners of 75% or more of the outstanding Bonds by principal amount. Upon sale of the Assessment Parcel for less than the minimum price the remaining unpaid balance of the assessment on the Assessment Parcel will be reduced by the difference between the minimum price and the sale price. By such a reduction the aggregate principal amount of the outstanding Bonds may further exceed the aggregate principal amount of the unpaid Assessments. Depletion of Reserve Fund Upon the issuance of the Bonds, the Reserve Fund will contain an amount equal to $272, This amount represents the initial reserve requirement of the Bonds. Whenever there are insufficient funds in the Bond Fund to pay the next maturing installment of principal and interest on the Bonds, the amounts necessary to make up the deficiency, to the extent available, will be transferred from the Reserve Fund to the Bond Fund. Amounts so transferred will be reimbursed to the Reserve Fund if, and when, available from the payments of delinquent installments and from the proceeds of redemption or sale of delinquent parcels which caused the withdrawal. The Reserve Requirement is subject to reduction if, and when, the unpaid balance of the Assessment on an Assessment Parcel is prepaid. Upon prepayment of an Assessment, there will be a mandatory redemption of the Bonds (see THE BONDS - Redemption herein). The Reserve Requirement will be reduced to an amount equal to maximum annual debt service on the Bonds to remain outstanding following such mandatory redemption. A reduction in the Reserve Requirement caused by prepayment of an assessment and the mandatory redemption of Bonds is a permanent reduction. The Reserve Fund may be invested, and the investment earnings may be retained in the Reserve Fund, to the extent necessary to maintain the amount therein at the Reserve Requirement. No sources of funds other than such investment earnings and any recoveries of delinquent Assessments are available to replenish deficiencies in the Reserve Fund. Accordingly, there is no assurance that the amount in the Reserve Fund will, at any particular time, be sufficient to pay, when due, debt service on the Bonds nor that the Reserve Fund will be fully reimbursed for any amounts expended for debt service. Concentration of Ownership The fact that all of the land within the District to which responsibility for the Assessment has been assigned is currently owned by the Property Owners causes the responsibility for the payment of the annual Assessment to be apportioned only to the Property Owners until homes have been constructed and sold to residents. Because of the existing concentration of ownership of land in the District, the timely payment of the Bonds depends upon the willingness and ability of the Property Owners to pay the Assessment when due. The only assets of the Property Owners which constitutes security for the Bonds are the real property holdings of the Property Owners located within the District and subject to the Assessment. See BONDHOLDERS RISKS - Foreclosure and Sale Proceedings and SOURCES OF PAYMENT FOR THE BONDS - Covenant to Commence Foreclosure Proceedings. 26

33 Valuation of Property in the District The value of the land within the District is a critical factor in determining the investment quality of the Bonds. If there is a default in the payment of the Assessments, the City s only remedy is to commence foreclosure proceedings on the delinquent taxable property in an attempt to obtain funds to pay the delinquent Assessment. The City commissioned the Appraisal Report to determine the value of the property in the District. The Appraisal Report states that as of August 1, 2004, the value of the land plus improvements in the District was $14,450,000. The City makes no representation as to the accuracy of the Appraisal Report and the Appraisal Report is subject to certain assumptions, limiting conditions and stipulations contained in the Appraisal Report. See APPENDIX F APPRAISAL REPORT. Value-to-lien ratios have traditionally been used in land-secured bond issues as a measure of the collateral supporting the willingness of property owners to pay their special taxes and assessments (and, in effect, their general property taxes as well). The value-to-lien ratio is mathematically a fraction, the numerator of which is the value of the property (usually a market value as determined by an appraiser) and the denominator of which is the lien of the assessments or special taxes. A value-to-lien ratio should not, however, be viewed as a guarantee of credit-worthiness. Land values are more volatile in the early stages of a development, and are especially sensitive to economic cycles. A downturn of the economy may depress land values and hence the value-to-lien ratios, by increasing risk to investors and lenders. Further, the value-to-lien ratio cited for a bond issue is based on the aggregate value of all parcels in the District. Individual parcels in an assessment district may fall above or below the average, sometimes even below a 1:1 ratio. (With a ratio below 1:1, the land is worth less than the debt on it.) Although judicial foreclosure proceedings can be initiated rapidly, the process can take several years to complete, and the bankruptcy courts may impede the foreclosure action. Finally, local agencies may form overlapping community facilities districts or assessment districts. Debt issuance by another entity can dilute value-to-lien ratios. See THE DISTRICT Direct and Overlapping Debt. Factors Affecting Parcel Value and Aggregate Values Prospective purchasers of the Bonds should not assume that the land could be sold for its original sales price or its fair market value at a foreclosure sale for delinquent Assessments. The future value of the land can be expected to fluctuate due to many different, not fully predictable, real estate related investment risk factors, including, but not limited to: general tax law changes related to real estate, changes in competition, general area employment base changes, population changes, changes in real estate related interest rates affecting general purchasing power, changes in allowed zoning uses and density, natural disasters such as floods, earthquakes and landslides, and similar factors. The facts and circumstances concerning the values of the Assessment Parcels that are of importance are not confined to those relating to individual Assessment Parcel values because the Bonds are not individually secured by particular Assessment Parcels. The Bonds are secured by all of the unpaid Assessments on all of the Assessment Parcels within the District. Therefore factors which affect all of the Assessment Parcels should be considered. The following are some of the factors which may affect the market for and value of particular Assessment Parcels individually, as well as the market for and value of all Assessment Parcels. 27

34 Geologic, Topographic and Climatic Conditions Values of Assessment Parcels can be adversely affected by a variety of natural events and conditions, including, without limitation geologic conditions such as earthquakes; topographic conditions such as earth movements and floods; and climatic conditions. The possibility of the occurrence of some of these conditions and events has been taken into account to a limited extent in the design of the District s improvements and has been or will be taken into account to a limited extent in the designs of other public improvements which may be approved by the City or other public agencies. Building codes require that some of these conditions be taken into account to a limited extent in the design of private improvements. Design criteria in any of these circumstances are established upon the basis of a variety of considerations and may change from time to time leaving previously designed improvements unaffected by more stringent subsequently established criteria. In general, design criteria, at the time of their establishment, reflect a balance between the present costs of protection and the future costs of lack of protection, based in part upon a present perception of the probability that the condition will occur and the seriousness of the condition should it occur. Also reflecting that balance are decisions not to impose design criteria at all. The City expects that one or more of these conditions may occur from time to time, and, even if design criteria do exist, such conditions may result in damage to property improvements. That damage may entail significant repair or replacement costs, and repair or replacement may never occur. Under any of these circumstances, the value of the Assessment Parcels could depreciate substantially notwithstanding the establishment of design criteria. According to the Seismic Safety Element of the City s General Plan, the City is located in a seismically active region and buildings in the District could be impacted by a major earthquake originating from the numerous faults in the area. Seismic hazards encompass both potential surface rupture and ground shaking. Earthquake, Flood and other Nuisances and Hazards. The District is not located in an environmentally hazardous area. The site is considered a seismically active area, as is all of Southern California. There are, however, no known active faults on or immediately adjacent to the site, and the hazard of surface fault ruptures is considered very low. The District is located in an area designated with Zone C of Community Panel D revised May 1, These are defined as areas between limits of the 100-year flood and 500-year flood; or certain areas subject to 100-year flooding with average depths less than one foot or where the contributing drainage area is less than one square mile; or areas protected by levees from the base flood and are not any significant hazard. The parcels have access to public water, sewer, electricity, natural gas and telephone lines. Therefore, they appear to have no potential deficiency from a utility or flood zone development standpoint. See APPENDIX F - APPRAISAL REPORT. Legal Requirements Other events which may affect the value of an Assessment Parcel include changes in the law or application of the law. Such changes may include, without limitation, local growth control initiatives, local utility connection moratoriums, and local application of statewide tax and governmental spending limitation measures. See Proposition 218; Possible Future Ballot Initiatives herein. Prepayment of Assessments There is rarely a uniform relationship between the relative value of Assessment Parcels and the proportionate share of debt service on the Bonds to be borne by such Assessment Parcels. 28

35 One of the factors that may effect a significant change in the relationship between the aggregate Assessment Parcel values and the assessment is the prepayment before final bond maturity of the remaining balance of the Assessments on particular Assessment Parcels. Should the Assessments on Assessment Parcels having a relatively high ratio of assessed value to assessment be prepaid, the security for the assessed Bonds, as evidenced by the ratio of the aggregate remaining Assessment Parcel values to the remaining outstanding Bonds, will be reduced. Other Possible Claims Upon the Value of an Assessment Parcel While an assessment is secured by an Assessment Parcel, the security only extends to the value of such Assessment Parcel that is not subject to prior or parity liens and similar claims with respect to the unpaid Assessment. 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 Assessment Parcels and may be secured by liens on a parity with the liens of the Assessments securing the Bonds. As of the date hereof certain additional liens exist with respect to parcels in the District including the lien of two assessments that are prior to the lien of the Assessments. See THE DISTRICT - Direct and Overlapping Debt herein. In general, as long as installments of the assessment are collected on the county tax roll, the installments and all other taxes, Assessments and charges also collected on the tax roll are on a parity with each other. 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 sale. In the event of proceedings for foreclosure of delinquent installments of an assessment securing the Bonds, the assessment will have priority over special Assessments levied subsequent to the levy of the Assessments securing the Bonds. Otherwise, in the event of such foreclosure proceedings the installments of the assessment will generally be on a parity with other taxes, Assessments and charges secured by the applicable Assessment Parcel. The assessment will, however, have priority over non-governmental liens on the Assessment Parcel regardless of whether or not the non-governmental liens were in existence at the time of the levy of the assessment. While governmental taxes, Assessments and charges are a common claim against the value of an Assessment Parcel other less common claims may be relevant. One of the most significant in terms of the potential reduction in the value that may be realized to pay the assessment installments is a claim with regard to a hazardous substance. In general, the owners and operators of an Assessment Parcel may be required by law to remedy conditions of the Assessment Parcel relating to released or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as CERCLA or Superfund Act, is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws the owner or operator of a property is obligated to remedy a hazardous substance condition whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect therefore, should any of the Assessment Parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition. The appraised values shown herein do not take into account the possible reduction in marketability and value of any of the Assessment Parcels by reason of the possible liability of the owner or operator for the remedy of a hazardous substance condition of the Assessment Parcel. Further, the City has not undertaken to independently determine if any such conditions exist. 29

36 Further, it is possible that liabilities may arise in the future with respect to any of the Assessment Parcels resulting from the current existence on the Assessment 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 on the Assessment 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 it. All of these possibilities could significantly affect the value of an Assessment Parcel that is realizable upon delinquency. Vacant Land The ability of a property owner to build on a vacant parcel bearing an Assessment will be subject to various ministerial and, in some cases, discretionary approvals which may adversely affect the property owner s willingness to pay such Assessment. See THE DISTRICT Status of Development; Financing Plan herein. Direct and Overlapping Indebtedness The ability of an owner of land within the District to pay assessment installments could be affected by the existence of other taxes and assessments imposed upon taxable parcels. Presently, the sum of the direct and overlapping debt applicable to the property in the District, is as detailed under the caption THE DISTRICT - Direct and Overlapping Debt including the lien of the City of Indio Assessment District No and the Coachella Valley Recreation and Park District Reassessment District No. 01-1, which each have outstanding bonds secured by a prior lien to the lien of the Assessments. In addition, the City and other public agencies whose boundaries overlap those of the District, (without the consent of the City), could, impose additional taxes or assessment liens on the property within the District in certain cases without the consent of the owners of the land within the District in order to finance public improvements or services to be located or provided inside of or outside of such area. The lien created on the property within the District through the levy of such additional taxes or assessments may be on a parity with the lien of the assessments. The imposition of additional liens on a parity with the Assessments may reduce the ability or willingness of the landowners to pay the assessment installments and increases the possibility that foreclosure proceeds will not be adequate to pay delinquent assessment installments or the principal of and interest on the Bonds when due. Bankruptcy Proceedings Regardless of the priority of an assessment securing the Bonds over non-governmental liens, the exercise by the City of the foreclosure and sale remedy or by the County of the tax sale remedy may be forestalled or delayed by bankruptcy, reorganization, insolvency or other similar proceedings affecting the owner of an Assessment Parcel or any other party claiming an interest in an Assessment Parcel. The federal bankruptcy laws provide for an automatic stay of foreclosure and sale or tax sale proceedings thereby delaying such proceedings perhaps for an extended period. Delay in exercise of remedies, especially if the owner owns Assessment Parcels the Assessments of which are significant or if bankruptcy proceedings are instituted with respect to a number of owners owning Assessment Parcels the Assessments of which are significant, may result in periodic assessment installment collections which may be insufficient to pay the debt service on the Bonds as it comes due. Further, should remedies be exercised under the bankruptcy law against the Assessment Parcels, payment of installments of the assessment may be subordinated to bankruptcy law priorities. Therefore, certain claims may have priority over the assessment lien, even though they would not were the bankruptcy law not applicable. 30

37 Payment of the Assessment Not a Personal Obligation Under the Assessment Bond Law, the owners of Assessment Parcels are not personally liable for the payment of the assessment or the assessment installments. Rather, an assessment is a lien only on an Assessment Parcel. Accordingly, if the value of an Assessment Parcel is not sufficient to fully secure the assessment on it, the City has no recourse against the owner under the Assessment Bond Law by which the assessment has been levied and the Bonds have been issued. No City Obligation to Pay Debt Service The City has no obligation to advance funds to pay debt service on the Bonds in the event Assessment District Revenues are insufficient for such purpose. Loss of Tax Exemption As discussed in the section herein entitled LEGAL MATTERS - Tax Matters, interest on the Bonds could become includable in gross income for purposes of federal income taxation, retroactive to the date of issuance, as a result of acts or omissions of the City subsequent to issuance in violation of the City s covenants applicable to the Bonds. Should interest become includable in gross income, the Bonds are not subject to redemption by reason thereof and may remain outstanding. The Bonds are subject to redemption for other reasons as discussed in the section herein entitled THE BONDS Redemption. No Acceleration Provision The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement. Proposition 218; Possible Future Ballot Initiatives Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Over the past 18 years, the voters have exercised this power through the adoption of Proposition 13 and similar measures, the most recent of which was approved as Proposition 218 in the general election held on November 5, Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives. On November 5, 1996, California voters approved Proposition Voter Approval for Local Government Taxes - Limitation on Fees, Assessments, and Charges - Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Proposition 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote. Proposition 218 also provides that no tax, assessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to the California Constitution, and (iii) assessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to 31

38 add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such new provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges. Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairment of contracts. The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The City 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 Proposition 218 on the Bonds as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218. Further, from time to time, other initiative measures may qualify for the State ballot pursuant to the State s constitutional initiative process and those measures could be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State, the City, the County or other local districts to increase revenues or to increase appropriations or on the ability of the landowners to complete the development of the vacant land within the District. Payments by FDIC The City s ability to collect interest and penalties specified by State law and to foreclose the lien of a delinquent Assessment installment, may be limited in certain respects with regard to properties in which the Internal Revenue Service, the Drug Enforcement Agency, the Federal Deposit Insurance Corporation (the FDIC ) or other similar federal agencies has or obtains an interest. On June 4, 1991 the FDIC issued a Statement of Policy Regarding the Payment of State and Local Real Property Taxes. The 1991 Policy Statement was revised and superseded by a new Policy Statement effective January 9, 1997 (the Policy Statement ). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its proper tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent 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. 32

39 Under the Policy Statement, it is unclear whether the FDIC considers special assessments, such as those levied by the City, to be real property taxes which they intend to pay. The Policy Statement provides: The FDIC is only liable for state and local taxes which are based on the value of the property during the period for which the tax is imposed, notwithstanding the failure of any person, including prior record owners, to challenge an assessment under the procedures available under state law. In the exercise of its business judgment, the FDIC may challenge assessments which do not conform with the statutory provisions, and during the challenge may pay tax claims based on the assessment level deemed appropriate, provided such payment will not prejudice the challenge. The FDIC will generally limit challenges to the current and immediately preceding taxable year and to the pursuit of previously filed tax protests. However, the FDIC may, in the exercise of its business judgment, challenge any prior taxes and assessments provided that (1) the FDIC s records (including appraisals, offers or bids received for the purchase of the property, etc.) indicate that the assessed value is clearly excessive, (2) a successful challenge will result in a substantial savings to the FDIC, (3) the challenge will not unduly delay the sale of the property, and (4) there is a reasonable likelihood of a successful challenge. However, the Resolution Trust Corporation, which adopted a similar policy (but which dissolved at the end of 1995 and transferred all of its assets to the FDIC) stated in a letter dated July 2, 1993 to the Honorable Lucille Roybel-Allard, member of the United States House of Representatives from the State of California, that it... will pay Mello-Roos special taxes and other special assessments and related interest where those taxes and assessments were imposed prior to receivership. However, Mello-Roos special taxes and other special assessments that are imposed on property when the institution owning the property is in receivership will not be paid. The City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to a parcel in the District in which the FDIC has an interest, although prohibiting the lien of the FDIC to be foreclosed on at a judicial foreclosure sale would likely reduce the number of or eliminate the persons willing to purchase such a parcel at a foreclosure sale. Owners of the Bonds should assume that the City will be unable to foreclose on any Assessment Parcel owned by the FDIC. Such an outcome would cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment of the Bonds. The City has not undertaken to determine whether the FDIC currently has, or is likely to acquire, any interest in any of the Assessment Parcels, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. However, the City is not aware of any existing, pending or potential ownership by the FDIC of any Assessment Parcel. 33

40 LEGAL MATTERS Enforceability of Remedies The remedies available to the Fiscal Agent and the Owners of the Bonds upon an event of default under the Fiscal Agent Agreement, or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of certain legal rights related to the Fiscal Agent Agreement is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. Approval of Legal Proceedings Fulbright & Jaworski L.L.P., Los Angeles, California, as Bond Counsel, will render an opinion which states that the Fiscal Agent Agreement and the Bonds are valid and binding obligations of the City and are enforceable in accordance with their terms. The legal opinions of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors rights and to the exercise of judicial discretion in accordance with general principles of equity. The City has no knowledge of any fact or other information which would indicate that the Fiscal Agent Agreement is not so enforceable against the City, except to the extent such enforcement is limited by principles of equity and by state and federal laws relating to bankruptcy, reorganization, moratorium or creditors rights generally. Certain legal matters will be passed on for the City by the City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Bond Counsel and Disclosure Counsel. Fees payable to Bond Counsel and Disclosure Counsel are contingent upon the sale and delivery of the Bonds. Tax Matters The Internal Revenue Code of 1986, as amended (the Code ), imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the Bonds. The City has covenanted to maintain the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In the opinion of Fulbright & Jaworski L.L.P., Bond Counsel, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Bond Counsel is also of the opinion that, assuming compliance with the aforementioned covenant, the Bonds are not specified private activity bonds within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on the Bonds owned by a corporation may affect the computation of its alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current 34

41 earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)). The excess of the stated redemption price at maturity of the Bonds and the initial offering price to the public of the Bonds set forth on the cover of this Official Statement is original issue discount. Such original issue discount accruing on a Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and exempt from California personal income tax. Original issue discount on any Bond purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Bond accruing during each period is added to the adjusted basis of such Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Bond. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds other than at the initial offering price and pursuant to the initial offering. Any person considering purchasing a Bond of a maturity having original issue discount should consult his or her own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering and at the original offering price, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the ownership of the Bonds. No assurance can be given that future legislation, or amendments to the Code, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of interest on the Bonds from personal income taxation by the State of California or of the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Furthermore, Bond Counsel expresses no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of bond counsel if such advice or approval is given by counsel other than Bond Counsel. Although Bond Counsel is of the opinion that interest on the Bonds is exempt from state personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner s federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Bonds. The nature and extent of these other tax consequences will depend upon the owner s other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds or, in the case of a financial institution, that portion of an owner s interest expense allocated to interest on the Bonds, (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the Bonds, (iii) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Bonds and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the Bonds, 35

42 may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel has expressed no opinion regarding any such other tax consequences. Bond Counsel s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Internal Revenue Service (the Service ) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel s opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the City as the taxpayer, and the Owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the City may have different or conflicting interest from the Owners. Further, the disclosure of the initiation of an audit may adversely affect the market price of the Bonds, regardless of the final disposition of the audit. Absence of Litigation The City will furnish a certificate dated as of the date of delivery of the Bonds that there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Fiscal Agent Agreement, or the sale or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Fiscal Agent Agreement is to be executed or delivered or the Bonds are to be delivered or affecting the validity thereof. 36

43 CONCLUDING INFORMATION No Rating on the Bonds; Secondary Market The City has not made, and does not contemplate making, any application for a rating on the Bonds. No such rating should be assumed based upon any other City rating that may be obtained. Prospective purchasers of the Bonds are required to make independent determinations as to the credit quality of the Bonds and their appropriateness as an investment. Should a Bondholder elect to sell a Bond prior to maturity, no representations or assurances can be made that a market will have been established or maintained for the purchase and sale of the Bonds. The Underwriter assumes no obligation to establish or maintain a market for the purchase and sale of the Bonds and is not obligated to repurchase any of the Bonds at the request of the holder thereof. Underwriting Southwest Securities, Inc. (the Underwriter ) is offering the Bonds at the prices set forth on the inside front cover page hereof. The initial offering prices may be changed from time to time and concessions from the offering prices may be allowed to dealers, banks and others. The Underwriter has agreed to purchase the Bonds at a price equal to $3,522,009.35, which amount represents the principal amount of the Bonds, less an original issue discount of $9,910.65, less the Underwriter s discount of $72, The Underwriter will pay certain of its expenses relating to the offering. The Financial Advisor The material contained in this Official Statement was prepared by the City with the assistance of the Financial Advisor, who advised the City as to the financial structure and certain other financial matters relating to the Bonds. The information set forth herein has been obtained by the City from sources which are believed to be reliable, but such information is not guaranteed by the Financial Advisor as to accuracy or completeness, nor has it been independently verified. Fees paid to the Financial Advisor are contingent upon the sale and delivery of the Bonds. Continuing Disclosure The City. The City will provide annually certain financial information and data relating to the Bonds and the District by not later than March 31 in each year commencing March 31, 2005 (the Annual Report ), and to provide notices of the occurrence of certain other enumerated events if deemed by the City to be material. The City has currently retained Union Bank of California, N.A. to act as its Dissemination Agent. The Annual Report will be filed by the Dissemination Agent with each Nationally Recognized Municipal Securities Information Repository certified by the Securities and Exchange Commission (the Repositories ) and a State repository, if any. The notices of material events will be timely filed by the City with the Municipal Securities Rulemaking Board, the Repositories and a State repository, if any. The specific nature of the information to be contained in the Annual Report or the notices of material events and certain other terms of the continuing disclosure obligation are found in the form of the City s Disclosure Agreement attached in APPENDIX C FORMS OF CONTINUING DISCLOSURE AGREEMENTS. The City has never failed to comply timely with any obligation to make a filing under Rule 15c2-12 under the Securities Exchange Act of

44 The Property Owners. The Property Owners will enter into a Developer Continuing Disclosure Agreement, the form of which is also attached in APPENDIX C hereto (the Developer s Disclosure Undertaking ). The Developer s Disclosure Undertaking will inure solely to the benefit of the District, the Dissemination Agent, the Underwriter and owners or beneficial owners from time to time of the Bonds. The Property Owners have advised the City that they have never failed to comply in all material respects with any previous undertakings with regard to the Rule to provide annual reports or notices of material events. Additional Information The summaries and references contained herein with respect to the Fiscal Agent Agreement, the Bonds, statutes and other documents, do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute and references to the Bonds are qualified in their entirety by reference to the form hereof included in the Fiscal Agent Agreement. Copies of the Fiscal Agent Agreement are available for inspection during the period of initial offering on the Bonds at the offices of the Underwriter, Southwest Securities, Inc., 620 Newport Center Drive, Suite 300, Newport Beach, California 92660, telephone (949) Copies of these documents may be obtained after delivery of the Bonds from the City through the Director of Finance, City of Indio, 100 Civic Center Mall, Indio, California References Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or Owners of any of the Bonds. Execution The execution of this Official Statement by the Finance Director has been duly authorized by the City of Indio. CITY OF INDIO By: /s/ Jerry F. Carter Finance Director 38

45 APPENDIX A SUMMARY OF THE FISCAL AGENT AGREEMENT The following is a summary of certain provisions of the Fiscal Agent Agreement, and is supplemental to the summary of other provisions of such document described elsewhere in this Official Statement. This summary does not purport to be comprehensive or definitive, and reference should be made to such document for full and complete statement of its provisions. All capitalized terms used but not otherwise defined in this Appendix shall have the meanings assigned to such terms in the Fiscal Agent Agreement. Definitions Act means the Municipal Improvement Act of 1913, being Division 12 of the California Streets and Highways Code. Administrative Expense Account means the account by that name established and held by the Fiscal Agent pursuant to the Agreement. Agreement means the Fiscal Agent Agreement, as originally executed or as it may from time to time be amended or supplemented by any Supplemental Agreement. Annual Debt Service means the total amount of principal and interest coming due and payable on the Bonds during any Bond Year, as adjusted from time to time following any redemption of Bonds in advance of maturity. Assessment means the individual assessments levied within the Assessment District by the City in proceedings taken pursuant to the Resolution of Intention and the Act. Assessment Consultant means Albert A. Webb Associates or any other consultant or firm of consultants appointed by the City and who or each of whom: (a) is judged by the City to have experience with respect to the administration of assessment districts; (b) is in fact independent and not under the domination of the City; (c) does not have any substantial interest, direct or indirect, with the City; and (d) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. Assessment District means the area within the area designated Assessment District No (Shadow Hills Master Plan Phase 3 and Las Brisas North) formed by the City under the Act. Assessment Revenue Fund means the fund by that name established and held by the Finance Director pursuant to the Resolution of Issuance and the Agreement. Auditor means the auditor/controller of Riverside County, or such other official at the County who is responsible for preparing property tax bills. Authorized Representative means: (a) with respect to the City, its City Manager, Assistant City Manager, Finance Director, Public Works Director or any other Person designated as an Authorized Representative of the City in a Written Certificate of City filed with the Fiscal Agent, and (b) with respect to the Fiscal Agent, any Senior Vice President, any Vice President, any Assistant Vice President or any Trust Officer of the Fiscal Agent, and any other Person authorized to perform such act or sign any document by or pursuant to a resolution of the governing body of the Fiscal Agent or the by-laws of the Fiscal Agent. A-1

46 Beneficial Owner means, whenever used with respect to a Bond, the person whose name is recorded as the beneficial owner of such Bond or a portion of such Bond by a Participant on the records of such Participant or such person s subrogee. Book-Entry Bonds means the Bonds registered in the name of the nominee of DTC, or any successor securities depository for the Bonds, as the registered owner thereof pursuant to the terms and provisions of the Agreement. Bonds means the City of Indio Assessment District No (Shadow Hills Master Plan Phase 3 and Las Brisas North) Limited Obligation Improvement Bonds, Series Bond Counsel means a firm of nationally recognized bond counsel selected by the City. Bond Fund means the fund by that name established and held by the Fiscal Agent pursuant to the Agreement. Bond Owner or Owner means any person shown on the registration books of the Fiscal Agent as an owner of a Bond or Bonds. Bond Law means the Improvement Bond Act of 1915, as amended, Division 10 of the California Streets and Highways Code. Bond Year means each twelve-month period beginning on September 3 in each year and extending to the next succeeding September 2, both dates inclusive; except that the first Bond Year shall begin on the Closing Date and end on September 2, Business Day means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State of California are closed. Cede & Co. means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to the Bonds. City means the City of Indio, Riverside County, California. City. City Clerk means person who is the duly appointed or elected and acting City Clerk of the City Council means the legislative body of the City and the respective members thereof and their successors from time to time. Closing Date means the date upon which the Bonds are delivered to the Original Purchaser. Code means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or (except as otherwise referenced in the Agreement) as it may be amended to apply to obligations issued on the, date of issuance of the Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Code. Construction and Acquisition Fund means the fund by that name established and held by the Fiscal Agent pursuant to the Agreement. Continuing Disclosure Agreement means the City Continuing Disclosure Agreement, dated as of November 1, 2004, among the City, the Fiscal Agency and Union Bank of California, N.A., as Dissemination Agent, together with Exhibit A thereto, providing the means by which the City will A-2

47 provide for continuing disclosure in compliance with Rule l5c2-12(b)(5) of the United States Securities and Exchange Commission. Costs of Issuance means all items of expense directly or indirectly payable by or reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Fiscal Agent and its counsel, including the Fiscal Agent s first annual administrative fee, fees and charges for establishing a continuing disclosure program respecting the Bonds, fees, charges and disbursements of attorneys, financial advisors, accounting firms, dissemination agents, engineering consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds and any other cost, charge or fee in connection with the original issuance of the Bonds. Costs of Issuance Fund means the fund by that name established and held by the Fiscal Agent pursuant to the Agreement. County means the County of Riverside, State of California. Dated Date means the dated date of the Bonds. Disbursement Request of the City means such term as defined in the Agreement. Discrete Components means the Discrete Components of the Facilities as identified in the Funding Agreement, as amended from time to time. DTC means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York, and its successors as securities depository for the Bonds, including any such successor appointed pursuant to the Agreement. Facilities means the improvements more particularly described in the Resolution of Intention, or any portion of the Facilities, including Discrete Components. Fair Market Value means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term fair market value means the acquisitions price in a bona fide arm s length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security -- State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State of California but only if at all times during which the investment is held in such fund its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States. The Fiscal Agent shall have no duty in connection with the determination of Fair Market Value other than to follow the written investment directions of an Authorized Representative of the City. Federal Securities means any of the following which at the time of investment are legal investments under the laws of the State of California for the funds proposed to be invested therein: (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), and (b) A-3

48 obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are fully guaranteed by the United States of America including pre-refunded municipal obligations. Finance Director means the person who is the duly appointed and acting Finance Director of the City and any successor thereto. Fiscal Agent means Union Bank of California, N.A., a national banking association organized and existing under the laws of the United States of America, or any successor thereto as Fiscal Agent hereunder, appointed as provided in the Agreement. Fiscal Year means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the City designated in a Written Certificate of the City delivered to the Fiscal Agent. Funding Agreement means that certain Funding, Construction and Acquisition Agreement dated as of November 1, 2004, by and among the City, the District and certain developer, as it may be amended or supplemented from time to time. Information Services means Financial Information, Inc. s Daily Called Bond Service, 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Service s Called Bond Service, 55 Broad Street, 28th Floor, New York, New York 10004; Moody s Investors Service s Municipal and Government, Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; Standard & Poor s Called Bond Record, 55 Water Street, New York, New York 10041; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such services providing information with respect to called bonds as the City may designate in a Written Certificate of the City delivered to the Fiscal Agent. Interest Payment Dates means March 2 and September 2 of each year, commencing March 2, 2005, so long as any Bonds remain Outstanding. List of Unpaid Assessments means the list on file with the Finance Director showing the amounts of the unpaid individual Assessments secured by liens upon the respective parcels in the Assessment District. Maximum Annual Debt Service means the highest amount of Annual Debt Service for any remaining Bond Year. Moody s means Moody s Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term Moody s shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. Office of the Fiscal Agent means the principal corporate trust office of the Fiscal Agent in Los Angeles, California, or such other office as may be specified to the City by the Fiscal Agent in writing, except that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or agency of the Fiscal Agent at which, at any particular time, its corporate agency business shall be conducted. Original Purchaser means Southwest Securities, Inc. as the original purchaser of the Bonds. A-4

49 Outstanding, when used as of any particular time with reference to Bonds, means (subject to the provisions of the Agreement) all Bonds theretofore, or thereupon being, authenticated and delivered by the Fiscal Agent under the Agreement except: (a) cancellation; Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for (b) Bonds with respect to which all liability of the City shall have been discharged in accordance with the Agreement, including Bonds (or portions of Bonds) disqualified under the Agreement; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Fiscal Agent pursuant to the Agreement. Participant means any entity which is recognized as a participant by DTC in the book-entry system of maintaining records with respect to Book-Entry Bonds. Participating Underwriter has the meaning ascribed thereto in the Continuing Disclosure Agreement. Permitted Investments means the following, but only to the extent that the same are acquired at Fair Market Value: (a) Federal Securities; (b) Any money market fund which purchases and holds exclusively Federal Securities including funds for which the Fiscal Agent, its parent holding company, if any, or any affiliates or subsidiaries of the Fiscal Agent or such holding company provide investment advisory or other management services; (c) The following obligations, provided that such obligations are secured by a pledge of the full faith and credit of the United States Government or are unconditionally guaranteed by the United States Government: (i) obligations issues by federal land banks, federal home loan banks or the Federal Home Loan Bank Board. (ii) obligations, participations, or other instruments of or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; and (iii) obligations, participations, or other instruments of or issued by a federal agency. (d) Nonnegotiable certificates of deposit issued by a nationally chartered bank, including affiliates of the Fiscal Agent, a bank chartered by the State of California or a foreign banking corporation authorized pursuant to Section 1756 of the California Financial Code to transact business in the State of California by accepting deposits, or a State of California or federal savings and loan association, provided that such certificates of deposit are fully collateralized in the manner required for collateralization of trust funds, and provided that such certificates of deposit shall be limited to those issued by financial institutions whose long-term unsecured general obligations are rated Aa or better by Moody s Investors Service and AA or better by Standard and Poor s. (e) Deposits of any bank or savings and loan association (including the Fiscal Agent and its affiliates), provided that deposits are fully insured by the Federal Deposit Insurance Corporation. A-5

50 (f) The Local Agency Investment Fund (LAIF). Person means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Prepayment Account means the account by that name established and held by the Fiscal Agent pursuant to the Agreement. Project means the improvements to be acquired, constructed and installed, as described in the Resolution of Intention, as said description may be modified from time to time by action of the City Council of the City in the manner provided by the Act. Record Date means: (a) the 15th calendar day of the month preceding each Interest Payment Date, whether or not such day is a Business Day, and (b) any date established by the Fiscal Agent pursuant to the Agreement as a Record Date for the payment of defaulted interest on the Bonds, if any. Redemption Price means the aggregate amount of principal of and premium (if any) on the Bonds upon the redemption thereof pursuant to the Agreement. Registered Owner means any Person entered on the Registration Books as a Bond Owner. Registration Books means the records maintained by the Fiscal Agent for the registration of ownership and registration of transfer of the Bonds pursuant to the Agreement. Representation Letter means the Letter of Representations from the City to DTC, or any successor securities depository for the Bonds, in which the City makes certain representations with respect to issues of its securities for deposit by DTC or such successor depository. Reserve Fund means the fund by that name established and held by the Fiscal Agent pursuant to the Agreement. Reserve Requirement means, as of the date of any calculation, which calculation shall be made by the City, an amount equal to the least of (i) 100% of the Maximum Annual Debt Service on the Bonds for that or any subsequent Bond Year, (ii) 10% of the issue price (within the meaning of section 148 of the Code) of the Bonds or (iii) 125% of average Annual Debt Service on the Bonds for that and any subsequent Bond Year. Resolution of Intention means Resolution No. 6921, adopted by the City Council of the City on July 21, Resolution of Issuance means Resolution No. 6955, adopted by the City Council of the City on September 15, 2004, authorizing the issuance of the Bonds and approving the Agreement S&P means Standard & Poor s, a division of McGraw-Hill, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term S&P shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. Securities Depositories means The Depository Trust Company, 55 Water Street, 50 th Floor, New York, New York , Attention: Call Notification Department, Fax (212) ; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other A-6

51 addresses and/or such other securities depositories as the City may designate in a Written Certificate of the City delivered to the Fiscal Agent. Supplemental Agreement means any agreement amendatory of or supplemental to the Agreement, but only if and to the extent that such Supplemental Agreement is specifically authorized hereunder. Treasurer means the Finance Director of the City. Written Certificate and Written Request of the City mean, respectively, a written certificate or written request signed in the name of the City by its Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Costs of Issuance Fund There is established a separate fund to be known as the Costs of Issuance Fund, which shall be held by the Fiscal Agent. On the Closing Date there shall be deposited in the Costs of Issuance Fund the amount specified in the Agreement. The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Fiscal Agent from time to time to pay the Costs of Issuance upon submission of a Disbursement Request of the City stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Costs of Issuance Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund; in each case together with a statement or invoice for each amount requested thereunder. On December 31, 2004, all amounts (if any) remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Fiscal Agent and transferred to the Bond Fund. Construction and Acquisition Fund There is established a separate fund to be known as the Construction and Acquisition Fund, which shall be established, held and administered by the Fiscal Agent. The Fiscal Agent shall disburse or transfer all amounts in the Construction and Acquisition Fund, except as otherwise provided in the Agreement, for the payment or reimbursement of costs of the Facilities. Disbursement from the Construction and Acquisition Fund shall be made by the Fiscal Agent upon receipt of a Written Certificate, which shall: (a) set forth the amount required to be disbursed, the purpose for which the disbursement is to be paid and state that such disbursement is for a Facility or Discrete Component costs; and (b) certify that no portion of the amount then being requested to be disbursed was set forth in any Written Certificate previously filed requesting disbursement. Moneys in the Construction and Acquisition Fund shall be invested and deposited by the Fiscal Agent in accordance with the Agreement. Interest earnings and profits from such investment and deposit shall be transferred to the Administrative Expense Account to the extent of any shortfall or anticipated shortfall therein as directed by the City and then to the Bond Fund. A-7

52 Upon the filing of a Written Certificate that all costs of the Facilities have been paid or are not required to be paid from the Construction and Acquisition Fund, the Fiscal Agent shall transfer the amount, if any, remaining in the Construction and Acquisition Fund as instructed by a Written Certificate, which instruction shall be consistent with the provisions of Section of the Act, and the Construction and Acquisition Fund shall be closed. The Fiscal Agent may conclusively rely on such certificate. Pledge and Assignment Subject only to the provisions of the Agreement permitting the application thereof for the purposes and on the terms and conditions set forth in the Agreement, all of the Assessments and any other amounts (including proceeds of the sale of the Bonds) held in any fund or account established pursuant to the Agreement are pledged by the City to secure the payment of the principal of and interest on the Bonds in accordance with their terms, the provisions of the Agreement and the Bond Law. Said pledge shall constitute a first lien on and security interest in such moneys. Assessment Revenue Fund The City shall establish a separate fund to be known as the Assessment Revenue Fund, which shall be established, held and administered by the Finance Director. All moneys received by the City on account of installment payments respecting unpaid assessments, including late charges and penalties, if any, paid in connection with reinstatement of delinquent assessment installments, proceeds of foreclosure sale payable to the City resulting from foreclosure of the lien of delinquent assessments, and proceeds of payments made to discharge unpaid assessments, whether in whole or in part, shall be deposited in the Assessment Revenue Fund. The Finance Director shall make transfers from the Assessment Revenue Fund, from time to time, as required hereunder, to pay the principal of and the interest and redemption premiums, if any, on the Bonds. To the extent that moneys in the Assessment Revenue Fund, following the payment in full of the Bonds, exceed the amount required by the Act, the Bond Law or the Agreement to meet all obligations of the City with respect to the Bonds and the administrative costs associates therewith, said moneys may be withdrawn by the Finance Director and applied to any lawful purpose of the City. Bond Fund (a) The Fiscal Agent shall establish, maintain and hold a special fund designated the Bond Fund. On the Closing Date or as soon thereafter as practicable, the Fiscal Agent shall deposit in the Bond Fund the amount specified in the Agreement. Additionally, except as otherwise provided in the Agreement respecting prepayments of Assessments, the Fiscal Agent shall deposit in the Bond Fund all Assessments received from the City, and any other amounts received from the City which are required to be deposited therein by the Agreement or the Bond Law. The Fiscal Agent shall be deemed to have complied with the Bond Law if it follows the directions of the City. (b) On or before each Interest Payment Date, the Fiscal Agent shall withdraw from the Bond Fund for payment to the Bond Owners the principal, if any, of and interest then due and payable on the Bonds. Five (5) Business Days prior to each Interest Payment Date, the Fiscal Agent shall determine if the amounts then on deposit in the Bond Fund are sufficient to pay the principal, if any, of and interest due on the Bonds on such Interest Payment Date. In the event that amounts in the Bond Fund are insufficient for such purpose, the Fiscal Agent, on or before such Interest Payment Date, shall withdraw from the Reserve Fund to the extent of any funds therein the amount of such insufficiency, and shall transfer any amounts so withdrawn to the Bond Fund. Amounts so withdrawn from the Reserve Fund and deposited in the Bond Fund shall be applied to the payment of the interest and principal due on the Bonds. If, after the foregoing transfer, there are insufficient funds in the Bond Fund to pay the principal, if any, of A-8

53 and interest on the Bonds, the Fiscal Agent shall apply the available funds first to the payment of interest on the Bonds, then to the payment of principal of the Bonds as prescribed by the Bond Law. Prepayment Account The Fiscal Agent shall establish and maintain a special account within the Bond Fund designated the Prepayment Account. The Fiscal Agent shall deposit in the Prepayment Account the proceeds of the prepayment of any Assessment, with respect to which the Prepayment Account shall be administered by the Fiscal Agent as provided in the Agreement. Additionally, the Fiscal Agent shall deposit in the Prepayment Account amounts received from the City in connection with the City s exercise of its rights to optionally redeem Bonds pursuant to the Agreement. Amounts in the Prepayment Account shall be disbursed therefrom for the payment of the Redemption Price of Bonds redeemed pursuant to the Agreement. Any surplus amounts remaining in the Prepayment Account shall be disbursed according to written instructions of the City. Administrative Expense Account The Fiscal Agent shall establish and maintain a special account within the Bond Fund designated the Administrative Expense Account. The Fiscal Agent shall deposit in the Administrative Expense Account amounts attributable to the administrative costs of the prepayment of Assessments and any amounts collected by the City pursuant to Section 10204(f) of the Act and Sections and 8682 of the Bond Law and transferred to the Fiscal Agent as specified in writing by the City. Amounts in the Administrative Expense Account shall be disbursed by the Fiscal Agent to persons specified by the City upon receipt by the Fiscal Agent of an appropriate Disbursement Request therefor signed by an Authorized Representative of the City. Nothing in the Agreement shall be construed to require the City to deposit amounts attributable to administrative costs with the Fiscal Agent, and the City may pay directly the amount of any such administrative costs, including disbursements directly to any appropriate fund or account of the City for reimbursement to the City for its costs and expenses, including the costs attributable to staff time spent in the administration of the Assessments and the Bonds. Reserve Fund The Fiscal Agent shall establish, maintain and hold a special fund designated the Reserve Fund. The Fiscal Agent shall deposit in the Reserve Fund the amount specified in the Agreement. Additional deposits shall be made as provided in the Bond Law. The City shall cause the Reserve Fund to be administered in accordance with Part 16 of the Bond Law; provided that proceeds from redemption or sale of properties, with respect to which payment of delinquent Assessments and interest thereon was made from the Reserve Fund, shall be credited to the Reserve Fund. Except as otherwise provided in the Agreement, all amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of and interest on the Bonds or, in accordance with the provisions of the Agreement, for the purpose of redeeming Bonds from the Bond Fund. A-9

54 Transfers shall be made from the Reserve Fund to the Bond Fund in the event of a deficiency in the Bond Fund, in accordance with the Agreement. Whenever, after the issuance of the Bonds, an Assessment is prepaid, in whole or in part, as provided in the Bond Law, the Fiscal Agent, pursuant to a Written Request of the City, shall transfer from the Reserve Fund to the Prepayment Account an amount, specified in such Written Request, equal to the product of the ratio of the original amount of the Assessment so paid to the original amount of all unpaid Assessments, times the initial Reserve Requirement; provided, however, no such transfer shall be made if after the transfer the amounts in the Reserve Fund then remaining will not equal the Reserve Requirement. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on February 15 and August 15 of each year shall be withdrawn from the Reserve Fund by the Fiscal Agent and shall be deposited in the Bond Fund. Whenever the balance in the Reserve Fund is sufficient to retire all the Outstanding Bonds, whether by advance retirement or otherwise, collection of the principal and interest on the Assessments shall be discontinued and the Reserve Fund liquidated by the Fiscal Agent in retirement of the Outstanding Bonds, as directed by a Written Request of the City. In the event that the balance in the Reserve Fund at the time of liquidation exceeds the amount required to retire all of the Outstanding Bonds, the excess shall, after payment of amounts due to the Fiscal Agent, be transferred to the City to be used in accordance with the Act and the Bond Law. Investment of Moneys Except as otherwise provided in the Agreement, all moneys in any of the funds or accounts established pursuant to the Agreement shall be invested by the Fiscal Agent solely in Permitted Investments as directed in writing by the City at least two (2) Business Days in advance of the making of such investments. In the absence of any such written direction, the Fiscal Agent shall invest such moneys in money market fund which qualify under item (b) of the definition of Permitted Investments. Subject to the provisions of the Agreement, all interest, profits and other income received from the investment of moneys in any fund or account established pursuant to this Agreement shall be deposited by the Fiscal Agent in the Construction and Acquisition Fund until such time the Construction and Acquisition Fund is closed, and after the Construction and Acquisition Fund is closed, such amounts shall be deposited in the Bond Fund; provided, however, that all interest or gain from the investment of amounts in the Reserve Fund shall be retained therein to the extent necessary to restore the balance on deposit in said Reserve Fund to the Reserve Requirement and thereafter as provided in the Agreement. Permitted Investments acquired as an investment of moneys in any fund established under the Agreement shall be credited to such fund. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at the Fair Market Value thereof, such valuation to be performed not less frequently than semiannually on or before each Interest Payment Date. The Fiscal Agent may utilize computerized securities pricing services that may be available to it, including those available through its regular accounting system. The Fiscal Agent may conclusively rely on such systems as to the Fair Market Value of such funds. The Fiscal Agent or any of its affiliates may act as principal or agent in the making or disposing of any investment. The Fiscal Agent shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Fiscal Agent shall not be liable or responsible for any loss resulting from any investment made or sold pursuant A-10

55 to the Agreement. For purposes of investment, the Fiscal Agent may commingle moneys in any of the funds and accounts established hereunder. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The Fiscal Agent will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Fiscal Agent hereunder. The Fiscal Agent or any of its affiliates may act as agent, sponsor or advisor in connection with any investment made by the Fiscal Agent hereunder. Collection and Application of Assessments The City shall comply with all requirements of the Act, the Bond Law, the Resolution of Issuance and the Agreement to assure the timely collection of the Assessments, including, without limitation, the enforcement of delinquent assessments. Any funds received by the City in and for the Assessment District, including, but not limited to, collections of Assessments upon the secured tax rolls, collections of delinquent Assessments and penalties thereon, through foreclosure proceedings or otherwise, and the prepayment of Assessments or portions thereof, shall be deposited in the Assessment Revenue Fund, to be established and maintained by the Finance Director for such purpose. The Finance Director shall make disbursements from the Assessment Revenue Fund to the Fiscal Agent of amounts required to be deposited in the Bond Fund and the Prepayment Account within the Bond Fund, as the case may be, as provided in the Agreement, not later than one (1) Business Day before such amounts are required by the Fiscal Agent to make the deposits and transfers prescribed by the Agreement. The Assessments as set forth on the List of Unpaid Assessments on file with the Finance Director, together with the interest thereon, shall be payable in annual series corresponding in number to the number of years of maturity of the Bonds issued. An annual proportion of each Assessment shall be payable in each year preceding the date of maturity of each of the several series of Bonds issued sufficient to pay the Bonds when due and such proportion of each Assessment coming due in any year, together with the annual interest thereon, shall be payable in the same manner and at the same time and in the same installments as the general taxes on real property are payable, and 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. All sums received from the collection of the Assessments and of the interest and penalties thereon shall be placed in the Assessment Revenue Fund. Any prepayments of Assessments shall be placed in the Prepayment Account, except that amounts attributable to the administrative costs of the prepayment of Assessments shall be placed in the Administrative Expense Account by the Fiscal Agent in each case as directed in writing by the City. The Finance Director shall, before the final date on which the Auditor will accept the transmission of the Assessments for the parcels within the Assessment District for inclusion on the next tax roll, prepare or cause the Assessment Consultant to prepare, and shall transmit to the Auditor, such data as the Auditor requires to include the installments of the Assessments on the next secured tax roll of the County. Covenant to Foreclose The City covenants with and for the benefit of the Bond Owner that it will order, and cause to be commenced, and thereafter diligently prosecute an action in the superior court to foreclose the lien of any Assessment or installment thereof that is delinquent, as provided in Section 8680 of the Act, pursuant to and as provided in Section 8830 through 8835 of the Act. The Finance Director shall commence, or cause A-11

56 to be commenced, such foreclosure proceedings and is authorized to employ counsel to conduct any such foreclosure proceedings. The following conditions shall apply to the foreclosure proceedings, which shall be commenced not later than the October 1 following the Fiscal Year: (a) If the Finance Director determines that there is a delinquency of an Assessment of $2,000 or more for a prior Fiscal Year(s), for any single parcel of land in the Assessment District. (b) If the Finance Director determines that the total amount of delinquent Assessments for the prior Fiscal Year for the entire Assessment District, less the total delinquencies under subsection (a) above, exceeds five percent (5%) of the total Assessments due and payable in the prior Fiscal Year, foreclosure shall be commenced against such parcel of land in the Assessment District with a cumulative delinquency of $1,000 or more. (c) If the Finance Director determines that the total amount of delinquent Assessments for the prior Fiscal Year for the entire Assessment District, less the total delinquencies under subsections (a) and (b) above, exceeds three percent (3%) of the total Assessments due and payable for the prior Fiscal Year, foreclosure shall be commenced against each parcel of land within the District with any amount of delinquency for the prior Fiscal Year(s). The City shall issue notices of delinquency against all parcels within delinquent Assessments, regardless of amount, within 60 days after the Finance Director has received the Auditor s Report for July of that Bond Year showing such delinquent Assessments. Punctual Payment The City shall punctually pay or cause to be paid the principal, premium (if any) and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Agreement, according to the true intent and meaning thereof, but only out of Assessments and other moneys pledged for such payment as provided in the Agreement and received by the City or the Fiscal Agent hereunder. Extension of Payment of Bonds The City shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of the Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in the Agreement shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Against Encumbrances The City shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Assessments and other assets pledged or assigned under the Agreement while any of the Bonds are Outstanding. A-12

57 Power to Issue Bonds and Make Pledge and Assignment The City is duly authorized pursuant to the Act and the Bond Law to issue the Bonds and to enter into the Agreement and to pledge and assign the Assessments and other assets purported to be pledged and assigned, respectively, under the Agreement in the manner and to the extent provided in the Agreement. The Bonds and the provisions of the Agreement are and will be the legal, valid and binding obligations of the City in accordance with their terms, and the City shall at all times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Assessments and other moneys and all the rights of the Bond Owners under the Agreement against all claims and demands of all Persons whomsoever. Accounting Records and Financial Statements The Fiscal Agent shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with industry standards, in which complete and accurate entries shall be made of all transactions relating to the proceeds of the Bonds, the Assessments and all funds and accounts established by it pursuant to the Agreement. Such books of record and account shall be available for inspection by the City, during regular business hours and upon reasonable prior notice and under reasonable circumstances as agreed to by the Fiscal Agent. Not later than the 15th day of each month, the Fiscal Agent shall render to the City detailed monthly statements of the transactions and ending balances as of the end of the preceding month for each of the funds and accounts established and held by the Fiscal Agent pursuant to the Agreement. Waiver of Laws The City shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in the Agreement or in the Bonds, and all benefit or advantage of any such law or laws is expressly waived by the City to the extent permitted by law. Tax Covenants The City covenants that it shall not use, and shall not permit the use of, and shall not omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes. Events of Default The following events shall be Events of Default: (a) Failure to pay any installment of principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise. (b) Failure to pay any installment of interest on any Bonds when and as the same shall become due and payable. (c) Failure by the City to observe and perform any of the other covenants, agreements or conditions on its part in the Agreement or in the Bonds contained, if such failure shall have continued for a period of 60 days after written notice thereof, specifying such failure and requiring the same to be A-13

58 remedied, shall have been given to the City by the Fiscal Agent or the Owners of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, if in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such 60 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 60 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time. (d) Commencement by the City of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Other Remedies of Bond Owners Subject to the provisions of the Agreement, any Bond Owner shall have the right, for the equal benefit and protection of all Bond Owners similarly situated: (a) by mandamus, suit, action or proceeding, to compel the City and its officers, agents or employees to perform each and every term, provision and covenant contained in the Agreement and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it by the Bond Law; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Bond Owners rights; or (c) upon the happening of any Event of Default, by suit, action or proceeding in any court of competent jurisdiction, to require the City and its officers and employees to account as if it and they were the trustees of an express trust. Application of Assessments and Other Funds After Default If an Event of Default shall occur and be continuing, all Assessments, including any penalties, costs, fees and other charges accruing under the Bond Law, and any other funds then held or thereafter received by the Fiscal Agent under any of the provisions of the Agreement shall be applied by the Fiscal Agent as follows and in the following order: (a) To the payment of any payment of reasonable fees, charges and expenses of the Fiscal Agent (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Agreement; (b) To the payment of any expense (including legal fees) incurred by the Bond Owners in enforcing the Agreement; (c) To the payment of the principal of and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Agreement, as follows: First: To the payment to the Persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and Second: To the payment to the Persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue A-14

59 principal at the rate borne by the respective Bonds on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference. (d) Any remaining funds shall be transferred by the Fiscal Agent to the Bond Fund. Absolute Obligation of City Nothing in the Agreement or in any other provision of the Agreement or in the Bonds contained shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Bond Owners at their respective dates of maturity, or upon call for redemption, as provided in the Agreement, but only out of the Assessments and other moneys pledged therefor and received by the City or the Fiscal Agent, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. Termination of Proceedings In case any proceedings taken by any one or more Bond Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Bond Owners, then in every such case the City, and the Bond Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the City, and the Bond Owners shall continue as though no such proceedings had been taken. Remedies Not Exclusive No remedy in the Agreement conferred upon or reserved to the Fiscal Agent or to the Bond Owners is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. No Waiver of Default No delay or omission of any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by the Agreement to the Bond Owners may be exercised from time to time and as often as may be deemed expedient. Amendments Permitted. The Agreement and the rights and obligations of the City, the Bond Owners and the Fiscal Agent may be modified or amended from time to time and at any time by a Supplemental Agreement, which the City and the Fiscal Agent may enter into with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, which shall have been filed with the Fiscal Agent. No such modification or amendment shall (ii) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof, or extend the time of payment, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Assessments and other assets pledged under the Agreement prior to or on a parity with the lien created by the Agreement or deprive the Bond Owners of the lien created by the Agreement on such Assessments A-15

60 and other assets (except as expressly provided in the Agreement), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Agreement, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the City and the Fiscal Agent of any Supplemental Agreement, the Fiscal Agent shall mail a notice (the form of which shall be furnished to the Fiscal Agent by the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Agreement, to the Bond Owners at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Agreement. The Agreement and the rights and obligations of the City, of the Fiscal Agent and the Bond Owners may also be modified or amended from time to time and at any time by a Supplemental Agreement, which the City and the Fiscal Agent may enter into without the consent of any Bond Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the City in the Agreement other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power reserved to or conferred upon the City; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in the Agreement; (iii) to modify, amend or supplement the Agreement in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; (iv) to modify, amend or supplement the Agreement in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and (v) in any other respect whatsoever as the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners hereunder, in the opinion of Bond Counsel filed with the City and the Fiscal Agent. Effect of Supplemental Agreement Upon the execution of any Supplemental Agreement, the Agreement shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Agreement of the City, the Fiscal Agent and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Agreement shall be deemed to be part of the terms and conditions of the Agreement for any and all purposes. The rights and obligations of the Fiscal Agent shall not be modified without the prior written approval of the Fiscal Agent. Discharge of Agreement The Bonds may be paid by the City in any of the following ways, provided that the City also pays or causes to be paid any other sums payable hereunder by the City: A-16

61 (a) by paying or causing to be paid the principal of and interest and premium (if any) on the Bonds, as and when the same become due and payable; (b) by depositing with the Fiscal Agent, in trust (pursuant to an escrow agreement), at or before maturity, money or securities in the necessary amount (as provided in the Agreement) to pay or redeem all Bonds then Outstanding; or (c) Outstanding. by delivering to the Fiscal Agent, for cancellation by it, all of the Bonds then If the City shall also pay or cause to be paid all other sums payable hereunder by the City including without limitation any compensation due and owing the Fiscal Agent hereunder, then and in that case, at the election of the City (evidenced by a Written Certificate of the City, filed with the Fiscal Agent, signifying the intention of the City to discharge all such indebtedness and the Agreement), and notwithstanding that any Bonds shall not have been surrendered for payment, the Agreement and the pledge of Assessments and other assets made under the Agreement and all covenants, agreements and other obligations of the City under the Agreement shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the City, and upon receipt of a Written Certificate of an Authorized Representative of the City and an opinion of Bond Counsel, each to the effect that all conditions precedent provided for relating to the discharge and satisfaction of the obligations of the City have been satisfied, the Fiscal Agent shall cause an accounting for such period or periods as may be requested by the City to be prepared and filed with the City and shall execute and deliver to the City all such instruments provided to it as may be necessary or desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall after payment of all fees and expenses of the Fiscal Agent pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Agreement, which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption, to the City. Deposit of Money or Securities with Fiscal Agent Whenever in the Agreement it is provided or permitted that there be deposited with or held in trust by the Fiscal Agent money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Fiscal Agent in the funds and accounts established pursuant to the Agreement and shall be: (a) Lawful money of the United States of America, in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds, premium (if any) and all unpaid interest thereon to the redemption date; or (b) Non-callable Federal Securities, the principal of and interest on which when due, in the opinion or report of an independent accountant selected by the City, will provide money sufficient to pay the principal of, premium (if any) and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal and interest become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice; provided, in each case, that the Fiscal Agent shall have been irrevocably instructed (by the terms of the Agreement or by Written Request of the City) to apply such funds to the payment of such principal and interest with respect to such Bonds. A-17

62 Payment of Bonds After Discharge of Agreement Notwithstanding any provisions of the Agreement, any moneys held by the Fiscal Agent for the payment of the principal of, premium, if any or interest on, any Bonds and remaining unclaimed for two (2) years after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption), if such moneys were so held at such date, or two (2) years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the City free from the trusts created by the Agreement upon receipt of an indemnification agreement acceptable to the City and the Fiscal Agent indemnifying the Fiscal Agent with respect to claims of Bond Owners that have not yet been paid, and all liability of the Fiscal Agent with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the City as aforesaid, the Fiscal Agent may (at the cost of the City) first mail, by first class mail postage prepaid, to the Bond Owners that have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Fiscal Agent with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof. A-18

63 APPENDIX B CITY OF INDIO INFORMATION STATEMENT The following information concerning the City of Indio is presented as general background data. The Bonds are payable solely from unpaid Assessments as described in the Official Statement. The Bonds are not an obligation of the City, and the taxing power of the City is not pledged to the payment of the Bonds (except to the limited extent described herein). General Information In 1893, Indio became one of 12 townships in the County of Riverside and was incorporated in 1930 and encompasses 24.8 square miles. It is a general law city with a council-manager form of municipal government. The City Council is composed of a Mayor and four members elected bi-annually at large to four-year alternating terms with the mayor rotating on an annual basis. Positions of City Manager and City Attorney are filled by appointments of the City Council. Indio is the geographic mid point of both Riverside County and the Coachella Valley. It is known as both a desert resort and a major agricultural area. Indio is about 75 miles north of the California-Baja California Mexican border and 120 miles east of the center of the Los Angeles metropolitan complex and 30 miles southeast of Palm Springs. It is the halfway point for all the weekly Southern Californians who make the weekend and holiday trips to the Colorado River and the Glamis Off Road recreational facilities. Indio s neighboring communities are La Quinta to the west, unincorporated areas of Riverside County to the south, the City of Coachella to the east and unincorporated Riverside County land to the north. Home of the National Date Festival, Shalimar Sports Center s satellite off-track wagering facility and international polo matches, Indio welcomes tens of thousands of visitors each year. Governmental Services The City provides a broad range of services to its citizens which include police protection, water service, trash collection, street construction and maintenance, parks and recreation, planning and zoning, housing and community development, building inspection and general and administrative support services. It cooperates with Riverside County in the provision of fire protection and with Coachella Valley Water District for flood control. The Indio Police Department operates from one station and has 49 sworn officers serving the community. The City maintains five parks and the Coachella Valley Recreation District operates a 39,000 square foot comprehensive recreational facility in the City. Transportation Interstate 10 connects Indio with Los Angeles, San Diego and Phoenix, Arizona. State Highways 86 and 111 provide access to neighboring communities and Palm Springs. Commercial rail service to Indio is provided by Southern Pacific Railroad. Air cargo and passenger flight services are provided at the Palm Springs International Airport and at nearby Bermuda Dunes and Thermal Airports. B-1

64 Population Table No. B-1 summarizes population growth between 2000 and 2004 for the City of Indio, surrounding cities and Riverside County. TABLE NO. B-1 CHANGE IN POPULATION CITY OF INDIO, SURROUNDING CITIES* AND RIVERSIDE COUNTY INDIO SURROUNDING CITIES RIVERSIDE COUNTY Percentage Percentage Percentage Year Population Change Population Change Population Change , ,090 1,557, , % 112, % 1,583, % , % 115, % 1,645, % , % 120, % 1,719, % , % 121, % 1,776, % % Change Between % 9.0% 14.1% * Surrounding cities include Palm Springs, Palm Desert, Indian Wells and Coachella. Source: State of California Department of Finance, Population Research Unit, Population Estimates for California Cities and Counties. B-2

65 Employment and Industry The City of Indio is located in the Riverside/San Bernardino labor market area. Six major job categories constitute 76.3% of the work force. They are government (18.8%), service producing (16.7%), professional and business services (10.6%), educational and health services (10.2%), manufacturing (10.1%) and leisure and hospitality (9.9%). The May 2004 unemployment rate in the Riverside/San Bernardino area was 5.2%. The State of California May 2004 unemployment rate (unadjusted) was 5.8%. TABLE NO. B-2 RIVERSIDE/SAN BERNARDINO MSA WAGE AND SALARY WORKERS BY INDUSTRY (1) (in thousands) Industry Government Other Services Leisure and Hospitality Educational and Health Services Professional and Business Services Financial Activities Information Transportation, Warehousing and Utilities Service Producing Retail Trade Wholesale Trade Manufacturing Nondurable Goods Durable Goods Goods Producing Construction Natural Resources and Mining Total Nonfarm , , , ,111.7 Farm Total (all industries) 1, , , , ,138.2 (1) Annually, as of May. Source: State of California Employment Development Department, Annual Planning Information and California Labor Market Bulletin. B-3

66 The major employers operating within the City and their respective number of employees as of June 30, 2003 are as follows: Name of Employer Number of Employees Product/Service County of Riverside 900 Government Fantasy Springs Casino 525 Casino John F. Kennedy Memorial Hospital 445 Medical Hospital City of Indio 226 Government Sears Roebuck & Company 142 Department Store Desert Orthopedic Center 115 Physical Therapy Super Saver Food 100 Grocery Store Dimare Company 100 Farm Produce Granite Construction 100 Concrete GTE 100 Telephone Service Source: City of Indio. Personal Income Personal income information for Riverside County, the State of California and the United States are summarized in Table No. B-3. TABLE NO. B-3 EFFECTIVE BUYING INCOME RIVERSIDE COUNTY, CALIFORNIA AND UNITED STATES Year Riverside County State of California United States 1998 $33,089 $37,091 $35, ,145 39,942 37, ,293 44,464 39, ,480 43,532 38, ,691 42,484 38,085 Note: Personal income data not available for smaller geographical areas such as the City of Indio. Source: Sales and Marketing Management, Survey of Buying Power. B-4

67 Commercial Activity The following table summarizes the volume of retail sales and taxable transactions for the City of Indio for 1998 through TABLE NO. B-4 CITY OF INDIO TOTAL TAXABLE TRANSACTIONS (in Thousands) Total Taxable Retail Sales Retail Sales Transactions Issued Sales Year ($000 s) % Change Permits ($000 s) % Change Permits , ,934 1, , % , % 1, , % , % 1, , % , % 1, , % , % 1,481 The following table compares taxable transactions for the City of Indio and surrounding cities. TABLE NO. B-5 CHANGE IN TOTAL TAXABLE TRANSACTIONS INDIO AND SURROUNDING CITIES (in thousands) % Change from City INDIO $ 345,934 $ 401,104 $ 473,781 $ 531,686 $ 536, % Palm Springs 498, , , , , % Palm Desert 923,979 1,098,211 1,217,986 1,211,069 1,209, % Indian Wells 60,581 63,611 68,599 62,958 57,178 (5.6)% Coachella 98, , , , , % Source: State Board of Equalization, Taxable Sales in California. B-5

68 Taxable transactions by type of business for the City of Indio for 1998 through 2002 are summarized in Table No. B-6. TABLE NO. B-6 CITY OF INDIO TAXABLE TRANSACTIONS BY TYPE OF BUSINESS (in thousands) Retail Stores Apparel Stores $ 4,866 $ 6,304 $ 8,090 $ 7,651 $ 7,380 General Merchandise Stores 49,506 48,362 51,256 51,293 48,720 Food Stores 28,659 30,749 34,011 36,761 39,208 Eating/Drinking Places 36,084 37,763 42,343 42,707 39,710 Home Furnishings and Appliances 8,066 9,276 22,404 27,503 30,794 Building Materials and Farm Implements 31,165 46,350 46,344 43,136 40,158 Auto Dealers/Suppliers 74,288 95, , , ,899 Service Stations 21,312 24,138 29,073 27,255 27,889 Other retail stores 19,336 20,549 21,350 22,320 24,383 Total Retail Stores 273, , , , ,141 All Other Outlets 72,652 82,149 88,664 87,167 85,985 Total All Outlets $345,934 $401,104 $473,781 $531,686 $536,126 Source: State Board of Equalization, Taxable Sales in California. B-6

69 Building Activity The following table summarizes building activity valuations for the City of Indio for the five fiscal years from 1999 through TABLE NO. B-7 CITY OF INDIO BUILDING ACTIVITY AND VALUATION (in thousands) Total Residential $33,161,127 $60,915,897 $74,439,017 $142,813,529 $230,927,525 Total Commercial 8,368,023 26,509,455 16,374,150 9,085,542 9,401,352 Total Valuation $41,529,150 $87,423,352 $90,813,167 $151,899,071 $240,328,877 Source: City of Indio. B-7

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71 APPENDIX C FORMS OF CONTINUING DISCLOSURE AGREEMENTS CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the Disclosure Agreement ), dated as of November 1, 2004, is executed and delivered by the City of Indio (the City ) and Union Bank of California, N.A., as Fiscal Agent (the Fiscal Agent ) under the Fiscal Agent Agreement (as defined below) and acting in its capacity as Dissemination Agent hereunder, in connection with the issuance by the City of $3,604,000 in aggregate principal amount of City of Indio Assessment District No (Shadow Hills Master Plan Phase 3 and Las Brisas North), Limited Obligation Improvement Bonds, Series 2004 (the Bonds ). The Bonds are being issued pursuant to a Fiscal Agent Agreement, dated as of November 1, 2004, between the City and the Fiscal Agent (the Fiscal Agent Agreement ). The City, the Dissemination Agent and the Fiscal Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the City, the Fiscal Agent and the Dissemination Agent for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. Beneficial Owner shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. Disclosure Representative shall mean the City Manager of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Dissemination Agent and the Fiscal Agent from time to time. Dissemination Agent shall mean Union Bank of California, N.A., acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City and which has filed with the Fiscal Agent a written acceptance of such designation. Listed Events shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. National Repository shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Participating Underwriter shall mean Southwest Securities, Inc., the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. Repository shall mean each National Repository and each State Repository. C-1

72 Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State shall mean the State of California. State Repository shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than March 31 of each year, commencing March 31, 2005, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the City s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f). (b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the City shall provide the Annual Report to the Dissemination Agent and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent), with a copy to the Participating Underwriter. If by such date, the Dissemination Agent has not received/prepared a copy of the Annual Report, the Dissemination Agent shall notify the City and the Fiscal Agent of such failure to receive/prepare the report. The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and Fiscal Agent may conclusively rely upon such certification of the City and shall have no duty or obligation to review such Annual Report. (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a) or has not completed the preparation of the Annual Report, if responsible for such preparation pursuant to subsection (a) above, the Dissemination Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) provide the Annual Report to each Repository not later than the prescribed deadline conditioned upon its timely receipt as required by Section 3(b) above; and (iii) upon compliance by the City and to the extent known to the Dissemination Agent file a report with the City and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. C-2

73 SECTION 4. Content of Annual Reports. The Annual Report shall contain or include by reference the following: 1. The audited financial statements of the City for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. 2. The principal amount of Bonds Outstanding as of October 1 of the prior calendar year. 3. The current balance in the Construction and Acquisition Fund and the Reserve Fund. 4. The Assessment delinquency rate for the previous fiscal year, the number of parcels within the District delinquent in payment of Assessments, the amount of delinquencies and, if foreclosure has been commenced, the date on which foreclosure was commenced, or similar information pertaining to delinquencies deemed appropriate by the City. 5. The status of foreclosure proceedings and a summary of the results of any foreclosure sales during the past calendar year. 6. The identity of any property owner whose aggregate delinquencies represent more than 5% of the Assessment levy delinquent in payment as of October 1 of the prior calendar year. 7. A land ownership summary listing property owners responsible for more than 10% of the Assessment levy as of October 1 of the prior calendar year. 8. Value-to-lien ratios based on the assessed value of assessment parcels and the outstanding lien of the Assessments, provided that parcels may be grouped into categories (such as above 20:1, below 3:1, etc.) The items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. principal and interest payment delinquencies; 2. non-payment related defaults; 3. modifications to rights of Bondholders; 4. optional, contingent or unscheduled bond calls; C-3

74 5. defeasances; 6. rating changes; Bonds; 7. adverse tax opinions or events adversely affecting the tax-exempt status of the 8. unscheduled draws on the debt service reserves reflecting financial difficulties; 9. unscheduled draws on credit enhancements reflecting financial difficulties; 10. substitution of credit or liquidity providers, or their failure to perform; 11. release, substitution or sale of property securing repayment of the Bonds. (b) The Fiscal Agent shall, within five (5) Business Days of obtaining actual knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter contact the Disclosure Representative, inform such person of the event, and request that the City promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly direct the Dissemination Agent whether or not to report such event to the Bondholders. In the absence of such direction the Dissemination Agent shall not report such event unless otherwise required to be reported by the Fiscal Agent to the Bondholders under the Fiscal Agent Agreement. The Dissemination Agent may conclusively rely upon such direction (or lack thereof). For purposes of this Disclosure Agreement, actual knowledge of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Fiscal Agent with regular responsibility for the administration of matters related to the Fiscal Agent Agreement. The Fiscal Agent shall have no responsibility to determine the materiality of any of the Listed Events. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or otherwise, the City shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the City has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the City shall promptly notify the Dissemination Agent in writing, with a copy to the Participating Underwriter. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the City determines that the Listed Event would not be material under applicable federal securities laws, the City shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) If the Dissemination Agent has been instructed by the City to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Fiscal Agent Agreement. SECTION 6. Termination of Reporting Obligation. The City s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the C-4

75 Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(f). SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Agreement. If at any time there is not any other designated Dissemination Agent, the Fiscal Agent shall be the Dissemination Agent; provided, however, the Fiscal Agent shall, under no circumstances, have the responsibility to prepare Annual Reports. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by providing thirty days written notice to the City and the Fiscal Agent. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the City. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the City in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City, the Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent and the Dissemination Agent shall agree to any amendment so requested by the City provided, neither the Fiscal Agent or the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Owners of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Owners, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(f), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. C-5

76 SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the City or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent, at the written request of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys, or any Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City or Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the City or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agent. Article VIII of the Fiscal Agent Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees to indemnify and save the Dissemination Agent and the Fiscal Agent, their officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s or the Fiscal Agent s respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Bondholders, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the City: City of Indio 100 Civic Center Mall Indio, California Attention: City Manager C-6

77 To the Dissemination Agent: To the Fiscal Agent: To the Underwriter: Union Bank of California, N.A. 120 South San Pedro Street, Suite 400 Los Angeles, California Attention: Corporate Trust Department Union Bank of California, N.A. 120 South San Pedro Street, Suite 400 Los Angeles, California Attention: Corporate Trust Department Southwest Securities, Inc. 620 Newport Center Drive, Suite 300 Newport Beach, California Attention: President Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Continuing Disclosure Agreement to be duly executed and delivered by their respective officers as of the date first above written. CITY OF INDIO By City Manager UNION BANK OF CALIFORNIA, N.A. as Fiscal Agent and Dissemination Agent By Authorized Officer C-7

78 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Obligor: Name of Bond Issue: City of Indio (the City ) City of Indio Assessment District No (Shadow Hills Master Plan Phase 3 and Las Brisas North), Limited Obligation Improvement Bonds, Series 2004 Date of Issuance: November 4, NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above-named Bonds as required by this Continuing Disclosure Agreement dated as of November 1, 2004, between the City, the Fiscal Agent and the Dissemination Agent. [The City anticipates that the Annual Report will be filed by.] Dated: UNION BANK OF CALIFORNIA, N.A., on behalf of the City C-8

79 DEVELOPER CONTINUING DISCLOSURE AGREEMENT (Assessment District No ) This Developer Continuing Disclosure Agreement (the Disclosure Agreement ), dated as of November 1, 2004, is executed and delivered by Shadow Hills, LLC, a California limited liability company ( Shadow Hills ), Las Brisas North, LLC, a California limited liability company ( Las Brisas North, and together with Shadow Hills, the Property Owner ) and Union Bank of California, N.A., as fiscal agent (the Fiscal Agent ) and acting in its capacity as dissemination agent hereunder (the Dissemination Agent ), in connection with the issuance of the $3,604,000 City of Indio Assessment District No (Shadow Hills Master Plan Phase 3 and Las Brisas North) Limited Obligation Improvement Bonds, Series 2004 (the Bonds ). The Bonds are being issued pursuant to provisions of a Fiscal Agent Agreement, dated as of November 1, 2004, by and between the City of Indio (the Issuer ) and the Fiscal Agent (the Fiscal Agent Agreement ). The Property Owner, the Dissemination Agent and the Fiscal Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Property Owner, the Fiscal Agent and the Dissemination Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Affiliate of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, five percent (5%) or more of the outstanding voting securities of such other Person, (b) any Person whose outstanding voting securities of five percent (5%) or more are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person; for purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. Annual Report shall mean any Annual Report provided by the Major Owner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. Assumption Agreement means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and Beneficial Owners of the Bonds containing terms substantially similar to this Disclosure Agreement (as modified for such Major Owners development and financing plans with respect to the District), whereby such Major Owner or Affiliate agrees to provide annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in the District owned by such Major Owner and its Affiliates and, at the option of the Property Owner or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof. Beneficial Owner shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. C-9

80 Disclosure Representative shall mean Carlos Cueva or his or her designee or successor, or such other officer or employee as the Property Owner shall designate in writing to the Fiscal Agent and Dissemination Agent from time to time. Dissemination Agent shall mean the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Property Owner and which has filed with the Fiscal Agent a written acceptance of such designation. District shall mean City of Indio Assessment District No (Shadow Hills Master Plan Phase 3 and Las Brisas North). Listed Events shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. Major Owner shall mean an owner (including all Affiliates of such owner) of land in the District responsible in the aggregate for 20% or more of the annual assessments levied in the District. National Repository shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in the SEC website located at Participating Underwriter shall mean Southwest Securities, Inc., the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. Person means an individual, a corporation, a limited liability company, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. Repository shall mean each National Repository and each State Repository. Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State shall mean the State of California. State Repository shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) Property Owner shall, or, upon written direction, shall cause the Dissemination Agent to, not later than March 31 in each year, commencing March 31, 2005, provide to each Repository and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement with a copy to the Fiscal Agent, the Participating Underwriter and the Issuer. Not later than fifteen (15) Business Days prior to said date, Property Owner shall provide the Annual Report to the Dissemination Agent. Property Owner shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Fiscal Agent and the Issuer to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent, the Issuer and the Fiscal Agent may conclusively rely upon such certification of Property Owner and shall have no duty or obligation to review such Annual Report. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may C-10

81 include by reference other information as provided in Section 4 of this Disclosure Agreement. If Property Owner s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f). (b) If the Dissemination Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the State Repository, if any in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) to the extent information is known to it, file a report with the Property Owner and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. The Property Owner s Annual Report shall contain or include by reference the following (unless otherwise stated, such information shall be as of the end of the most recent fiscal year): (a) Relating to all property owned by Property Owner within the District (the Property ), a summary of the Property Owner s development activity on the Property during the period ending no later than 60 days before the date of the Annual Report consisting of the following: (A) number of acres/lots owned by the Property Owner or its Affiliates, (B) progress of construction activities on the Property, and (C) number of acres/lots sold by Property Owner or its Affiliates to end users or builders as of such date. (b) Any material changes in the information relating to the Property Owner and/or the Property contained in the Official Statement under the caption THE DISTRICT. (c) A description of the status of any land purchase contracts with regard to the Property (other than with individual homebuyers). (d) A description of any change in the legal structure of the Property Owner and/or the financial condition of the Property Owner that would materially interfere with its ability to complete the development plan described in the Official Statement under the caption THE DISTRICT Status of Development; Financing Plan (the Development Plan ) or to pay its portion of the annual assessments levied within the District (the Assessments ). (e) A description of any material changes in the Development Plan. (f) A description of any previously undisclosed material amendment to the land use entitlement for the Property. (g) Section 5 hereof. An update of the status of any previously reported Listed Event described in C-11

82 (h) A statement as to whether or not the Property Owner and all of its Affiliates paid, prior to their becoming delinquent, all Assessments levied on the Property and if such Property Owner or any of such Affiliates is delinquent in the payment of such Assessments, a statement identifying each entity that is so delinquent, specifying the amount of each such delinquency and describing any plans to resolve such delinquency. (i) A description of any material changes in the financing plan of the Property Owner for the Development Plan described in the Official Statement under the caption THE DISTRICT and the causes or rationale for such changes. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Property Owner or related entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Property Owner shall clearly identify each such other document so included by reference. (j) Any additional information as may be necessary to make the information specifically required herein, in the light of the circumstances under which they were made, not misleading. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, and only for so long as the Property Owner s reporting obligations are required pursuant to Section 6 hereof, the Property Owner shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) bankruptcy or insolvency proceedings commenced by or against the Property Owner or Affiliate thereof that would materially interfere with the Property Owner s ability to complete the Development Plan or to pay its Assessments; (ii) failure to pay any taxes, special taxes or assessments due with respect to the Property owned by the Property Owner; (iii) filing of a lawsuit against Property Owner or Affiliate thereof seeking damages, or a judgment in a lawsuit against Property Owner or Affiliate thereof, which could have a significant impact on the Property Owner s ability to pay Assessments or to sell or develop the Property; (iv) any conveyance by the Property Owner of property to an entity that is not an Affiliate of such Property Owner, the result of which conveyance is to cause the transferee to become a Major Owner; (v) any denial or termination of credit, any denial or termination of, or default under, any line of credit or loan or any other loss of a source of funds that could have a material adverse affect on the Property Owner s most recently disclosed financing plan or the ability of the Property Owner or any Affiliate to pay Assessments when due; (vi) any significant amendments to land use entitlements for the Property; C-12

83 (vii) any previously undisclosed governmentally-imposed preconditions to commencement or continuation of development on the Property; (viii) any previously undisclosed legislative, administrative or judicial challenges to development on the Property; 6. (ix) The assumption of any obligation by a Major Owner pursuant to Section (b) Whenever the Property Owner obtains actual knowledge of the occurrence of a Listed Event, the Property Owner shall as soon as possible determine if such event would be material under applicable federal securities laws. (c) If the Property Owner has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Property Owner shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (e). (d) If the Property Owner determines that the Listed Event would not be material under applicable federal securities laws, the Property Owner shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (e). (e) If the Dissemination Agent has been instructed by the Property Owner to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository or the Repositories. SECTION 6. Duration of Reporting Obligation. (a) All of the Property Owner s obligations hereunder shall commence on such date the Property is responsible for payment of 20% or more of the Assessments and shall terminate (except as provided in Section 11) upon (i) the legal defeasance, prior redemption or payment in full of all the Bonds, (ii) so long as the Bonds are outstanding, at such time as the Property is no longer responsible for payment of 20% or more of the Assessments or (iii) the date on which all Assessments levied on the Property are paid or prepaid in full. Upon the occurrence of any such termination or suspension prior to the final maturity of the Bonds, the Property Owner shall give notice of such termination or suspension in the same manner as for a Listed event under Section 5. (b) If a portion of the Property is conveyed to a Person that, upon such conveyance, will be a Major Owner, the obligations of Property Owner hereunder with respect to such property owned by such Major Owner and its Affiliates shall be assumed by such Major Owner or by an Affiliate thereof and the Property Owner obligations hereunder will be terminated. In order to effect such an assumption, such Major Owner or Affiliate shall enter into an Assumption Agreement. The entering into an Assumption Agreement by such Major Owner or Affiliate shall be a condition precedent to the conveyance of such property and the Property Owner shall provide a copy of the executed Assumption Agreement to the Fiscal Agent and the Issuer prior to such conveyance. SECTION 7. Dissemination Agent. The Property Owner may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Property Owner pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Union Bank of California, N.A. The Dissemination Agent may resign by C-13

84 providing thirty days prior written notice to the Property Owner, the Issuer and the Fiscal Agent. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Property Owner in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Property Owner and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the Property Owner; provided, the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the holders of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Property Owner shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Property Owner. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Property Owner from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Property Owner chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Property Owner shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Property Owner or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent (at the written request of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Fiscal Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Fiscal Agent whatsoever, including, without limitation, fees and expenses of its attorneys), or any holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to C-14

85 cause the Property Owner or Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Property Owner or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agent. Article VIII of the Fiscal Agent Agreement pertaining to the Fiscal Agent is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement and the Fiscal Agent and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Property Owner agrees to indemnify and save the Dissemination Agent and Fiscal Agent, their officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the reasonable exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding losses, expenses or liabilities due to the Dissemination Agent s or Fiscal Agent s respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Property Owner for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Fiscal Agent shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the Property Owner, the Bondholders, or any other party. Neither the Property Owner, the Fiscal Agent or the Dissemination Agent shall have any liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Agreement. Any company succeeding to all or substantially all of the Dissemination Agent s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act. The obligations of the Property Owner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the Issuer: To the Fiscal Agent: To the Property Owner: City of Indio 100 Civic Center Mall Indio, California Attn: City Manager Union Bank of California, N.A. 120 South San Pedro Street, 4 th Floor Los Angeles, California Attn: Corporation Trust Department Shadow Hills, LLC or Las Brisas North, LLC c/o Century Homes Communities 1535 South D Street, Suite 200 San Bernardino, California Attn: Carlos Cueva C-15

86 To the Underwriter: Southwest Securities, Inc. 620 Newport Center Drive, Suite 300 Newport Beach, California Attention: President Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Property Owner, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. C-16

87 SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SHADOW HILLS, LLC, a California limited liability company By: Century Crowell Communities, LP, a California Limited Partnership Its: Managing Member By: Its: Century Homes Communities, a California corporation General Partner Authorized Signatory LAS BRISAS NORTH, LLC, a California limited liability company By: Century Crowell Communities, LP, a California Limited Partnership Its: Managing Member By: Its: Century Homes Communities, a California corporation General Partner Authorized Signatory UNION BANK OF CALIFORNIA, N.A., as Dissemination Agent and Fiscal Agent By Authorized Officer C-17

88 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Obligated Party: Name of Bond Issue: Shadow Hills, LLC and Las Brisas North, LLC City of Indio Assessment District No (Shadow Hills Master Plan Phase 3 and Las Brisas North) Limited Obligation Improvement Bonds, Series 2004 Date of Issuance: November 4, 2004 NOTICE IS HEREBY GIVEN that the Property Owner has not provided an Annual Report with respect to the above-named Bonds as required by the Developer Continuing Disclosure Agreement, dated as of November 1, 2004, with respect to the Bonds. [The Property Owner anticipates that the Annual Report will be filed by.] Dated: cc: Issuer UNION BANK OF CALIFORNIA, N.A., on behalf of Property Owner C-18

89 APPENDIX D ASSESSMENT PARCEL LISTING The following table contains the Assessment Parcels as of September The information concerning the ownership was obtained from Albert A. Webb Associates and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Financial Advisor, the Underwriter, or the City. Assessment No./ Assessor Parcel No. Property Owner Assessment / Shadow Hills LLC $3,009, / Las Brisas North LLC 665, $3,604, D-1

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91 APPENDIX E FORM OF BOND COUNSEL OPINION [Closing Date] City of Indio 100 Civic Center Mall Indio, California $3,604,000 City of Indio Assessment District No (Shadow Hills Master Plan Phase 3 and Las Brisas North) Limited Obligation Improvement Bonds, Series 2004 Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the City of Indio (the City ) of $3,604,000 City of Indio Assessment District No (Shadow Hills Master Plan Phase 3 and Las Brisas North) Limited Obligation Improvement Bonds, Series 2004 (the Bonds ), issued pursuant to The Improvement Bond Act of 1915, Division 10 of the California Streets and Highways Code (the Act ), and pursuant to a Fiscal Agent Agreement, dated as of November 1, 2004 (the Fiscal Agent Agreement ), by and between the City and Union Bank of California, N.A., as fiscal agent (the Fiscal Agent ). As bond counsel, we have examined copies certified to us as being true and complete copies of the proceedings of the City in connection with the issuance of the Bonds. We have also examined such certificates of officers of the City and others as we have considered necessary for the purposes of this opinion. Based upon the foregoing, we are of the opinion that: 1. The Fiscal Agent Agreement has been duly and validly authorized, executed and delivered by the City and, assuming such Fiscal Agent Agreement constitutes the legally valid and binding obligation of the Fiscal Agent, constitutes the legally valid and binding obligation of the City, enforceable against the City in accordance with its terms. 2. The Bonds constitute valid and binding limited obligations of the City as provided in the Fiscal Agent Agreement, and are entitled to the benefits of the Fiscal Agent Agreement. 3. The Bonds are secured by a valid pledge of the Assessments and all moneys in the funds and accounts under the Fiscal Agent Agreement, including all amounts derived from the investment of such moneys, subject to the application thereof on the terms and conditions as set forth in the Fiscal Agent Agreement. 4. The Internal Revenue Code of 1986 (the Code ), imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be E-1

92 and remain excluded from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issue of the Bonds. The City has covenanted in the Fiscal Agent Agreement to maintain the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In our opinion, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. We are further of the opinion that under existing statutes, regulations, rulings and court decisions, the Bonds are not specified private activity bonds within the meaning of section 57(a)(5) of the Code and, therefore, interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)). Except as stated in the preceding three paragraphs, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of bond counsel if such advice or approval is given by counsel other than us. The opinions expressed in paragraphs 1 and 2 above are qualified to the extent the enforceability of the Fiscal Agent Agreement and the Bonds may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors rights generally or as to the availability of any particular remedy. The enforceability of the Fiscal Agent Agreement and the Bonds is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California. No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds. We call attention to the fact that the opinions expressed herein and the exclusion from gross income of the interest on the Bonds as described above may be affected by actions taken or omitted or events occurring or not occurring after the date hereof. We have not undertaken to determine, or to inform any person or entity, whether any such actions or events are taken, omitted, occur or fail to occur. E-2

93 Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. Respectfully submitted, E-3

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95 APPENDIX F APPRAISAL REPORT F-1

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133 APPENDIX G ABSORPTION STUDY G-1

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135 MARKET FEASIBILITY AND ABSORPTION ANALYSIS SINGLE FAMILY HOME TRACTS #31026 AND # ASSESSMENT DISTRICT NO INDIO, CALIFORNIA AUGUST 2004 Prepared for: CITY OF INDIO 100 Civic Center Mall Indio, California Prepared by: MARKET PROFILES 200 North Tustin Avenue, Suite 102 Santa Ana, California Telephone Number: 714/ Facsimile Number: 714/

136 Market Profiles Real Estate Research and Consultants for over 30 years August 24, 2004 Mr. Jerry Carter CITY OF INDIO 100 Civic Center Mall Indio, California RE: MARKET FEASIBILITY AND ABSORPTION ANALYSIS SINGLE FAMILY HOME TRACTS #31026 AND # , ASSESSMENT DISTRICT NO , INDIO, CALIFORNIA Dear Mr. Carter: This report presents Market Profile s evaluation of the market opportunities relating to residential tracts #31026 and # that comprises Assessment District The tracts consists of 177 lots that are located in the Shadow Hills community in the northern portion of the City of Indio. The study evaluated both the depth of demand for new homes in the Coachella Valley and the competitive conditions within the local Indio marketplace. Briefly, the research findings indicate that market demand is ample to support the development and sale of the proposed new homes. A competitive evaluation of the price structure that is proposed for the homes is presented in Section I of the report, and the sales absorption rate that is projected for the homes is presented at the end of that section. The report is organized as follows: Section I Summary of Findings and Conclusions Section II -- Market Demand Analysis Section III Summary of Competition Section IV Supporting Documentation We appreciate the opportunity to work with you in evaluating the opportunities for development of new homes in the City of Indio. Please call if you have any questions. Sincerely, MARKET PROFILES Boyd D. Martin Chairman David W. Dickey Senior Economist 200 North Tustin Avenue, Suite 102, Santa Ana, Ca (714) Fax (714)

137 TABLE OF CONTENTS SECTION DESCRIPTION PAGE NO. I SUMMARY OF FINDINGS AND CONCLUSIONS Introduction... I-1 Property Location and Description... I-1 Description of Subject Homes... I-2 The Market Opportunity... I-2 New Home Competition... I-4 Price Positioning Analysis... I-5 Lot Premiums... I-6 Projected Sales Absorption... I-6 II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST Introduction... II-1 Employment Growth... II-1 Demographic Profile... II-3 Housing Profile... II-4 New Home Sales Trends... II-4 Price Trends... II-5 Projected New Home Demand... II-5 III SUMMARY OF COMPETITION Introduction... III-1 New Home Competition... III-1 Inventory Trends... III-2 Sales Rates... III-2 Most Competitive New Home Projects... III-3 Proposed New Home Development... III-4 IV SUPPORTING DOCUMENTATION (Available with Hard Copy) i

138 LIST OF EXHIBITS EXHIBIT DESCRIPTION SECTION I SUMMARY OF FINDINGS AND CONCLUSIONS I-1 Regional Site Location Map I-2 Neighborhood Site Location Map I-3 Projected Annual New Home Demand, Coachella Valley, I-4 Summary of Shadow Hills Competition, Second Quarter 2004 I-5 Price-Product Positioning Graph, Shadow Hills I-6 New Home Prices and Sizes, Shadow Hills Competition I-7 Projected Absorption Schedule, Assessment District SECTION II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST II-1 II-2 Coachella Valley Submarket Areas Employment Growth, Riverside / San Bernardino Bi-County Region and Southern California, II-3 Hotel Room Sales, Coachella Valley, II-4 Demographic Profile, City of Indio, Coachella Valley and Riverside County II-5 Housing Profile, Coachella Valley and Riverside County, 2004 II-6 Housing Stock Profiles, Coachella Valley Cities, 2000 II-7 II-8 New Home Sales by Submarket Area, Coachella Valley, 1991-First Half 2004 Average New Home Price, Detached Product, Coachella Valley by Submarket Area, 1998-Second Quarter 2004 i

139 LIST OF EXHIBITS EXHIBIT II-9 II-10 II-11 DESCRIPTION New Home Sales by Price Range, Coachella Valley, 2002-Second Quarter 2004 New Home Sales Distributed by Price Range, Indio-Coachella Submarket Area and Coachella Valley, Second Quarter 2004 Housing Growth Summary, Riverside County and the Coachella Valley Market Area, II-12 Projected Annual New Home Demand, Coachella Valley, SECTION III SUMMARY OF COMPETITION III-1 III-2 III-3 III-4 III-5 III-6 Summary of New Home Developments, Detached Product, Coachella Valley, Second Quarter 2004 New Home Market Summary by Submarket Area, Detached Product, Second Quarter 2004 Summary of New Home Developments, Indio-Coachella Submarket Area, Second Quarter 2004 Unsold New Detached Homes by Submarket Area, Coachella Valley, April 2004 Summary of Non-Country Club New Home Developments, City of Indio, Second Quarter 2004 New Home Projects Location Map III-7 City of Indio, Proposed Residential Development, August 2004 ii

140 SECTION I SUMMARY OF FINDINGS AND CONCLUSIONS

141 Market Profiles, Inc. SECTION I SUMMARY OF FINDINGS AND CONCLUSIONS INTRODUCTION This section presents a summary of the market opportunities identified with respect to the new homes that are proposed to be constructed within assessment district located in the City of Indio in the Coachella Valley region of Riverside County. The homes are to be constructed and marketed by Century Vintage Homes. Based on the current price structure of the homes, a forecast of sales absorption has been formulated and is presented at the end of this Section I of the report (see Exhibit I-7). PROPERTY LOCATION AND DESCRIPTION The subject property consists of two tracts totaling 177 residential lots. Tract #31026 includes 81 lots and Tract # has 96 lots. The tracts are situated adjacent to one another and are located in the Shadow Hills community that is located in northern portion of the City of Indio. The site location is shown from a regional viewpoint in Exhibit I-1, and the location is shown in a local context in Exhibit I-2. The sizes of the subject lots range from 6,748 square feet to 15,418 square feet. Most of the lots are 8,000 square feet or larger. The lots will be utilized for the final development phases of the new home subdivisions called The Ventana Collection at Shadow Hills and The El Dorado Collection at Shadow Hills. These new home neighborhoods are enclosed within a gated residential enclave that also includes a third new home subdivision called Villa Estates II at Shadow Hills that is also being developed and marketed by Century Vintage Homes. The topography of the site and the surrounding land area is flat. The subject property is bordered by the All American Canal on the north and east. Beyond the canal the land is generally undeveloped, however, there is a low-density development of good quality custom homes located on the north side of the All American Canal. The land on the west side of Jackson Street is currently vacant but is planned for development of several hundred single family homes. Currently, two subdivisions of homes are under construction on the west side of Jackson Street. These subdivisions Generations at Shadow Hills and Bella Vida at Shadow Hills are described later in this Section I. About one block to the south of the subject property is the Indio Golf Course. There are retail stores and commercial services located on Jackson Avenue 1.5 miles south of the site. However, these businesses are of below average quality for the community. Many of the future residents of the subject neighborhood will choose to travel further to shop at higher quality stores that are found in the downtown area about I-1

142 Market Profiles, Inc. 2.5 miles from the site. There are a wide variety of good quality retail shops and services in the downtown area. A major expansion of the Indio Fashion Mall is planned that would increase the size from its current 220,000 square feet to more than 600,000 square feet. About one mile south of the subject site, a neighborhood retail center has been approved for a 10-acre parcel at the northwest corner of Jackson Street and Avenue 42. There are no plans for immediate development of this center. Currently, there are an elementary school and a junior high school located about 2.0 and 3.5 miles from the subject site, respectively. However, the Desert Sands School District has announced plans to build a new high school north of Interstate 10 at Jefferson Street and Avenue 39. The property on which the high school is being built ultimately will also include new elementary and middle schools, forming a K through 12 campus. The new high school will be ready to open in 2008, but timetables for construction of the elementary and middle schools have not been established. DESCRIPTION OF SUBJECT HOMES The homes that are planned for construction on the subject lots consist of continuations of the existing new home subdivisions of The El Dorado Collection and The Ventana Collection. The El Dorado Collection homes consist of 2- and 3-bedroom plans that range in size from 1,720 to 2,778 square feet. The four plan types are summarized in Text Table I-1 on the following page. The base prices of the homes range from $319,990 to $379,990. The homes will offer 2-car attached garages. The Ventana Collection homes consist of 2- and 3-bedroom plans that range in size from 1,211 to 1,820 square feet. The four plan types are summarized in Text Table I-1 on the following page. The base prices of the homes range from $279,990 to $319,990. The homes will offer 2-car attached garages. THE MARKET OPPORTUNITY For analysis purposes, the Coachella Valley has been divided into five submarket areas. The boundaries of the submarkets are shown in Exhibit II-1 in Section II of this report. Each of the submarket areas has unique characteristics. The Indio-Coachella submarket consists of the cities of Indio and Coachella and the immediately surrounding unincorporated areas. New home sales in the Indio-Coachella submarket area have accelerated over the past three years. Sales increased from 241 homes in 1999 to 591 in 2001, then sales jumped to 1,217 homes in 2002 and to 2,890 homes in Sales continued to accelerate in the first half of 2004 with 1,702 homes sold. I-2

143 Market Profiles, Inc. TEXT TABLE I-1 PRODUCT SUMMARY THE EL DORADO COLLECTION AND THE VENTANA COLLECTION AT SHADOW HILLS Product Name # of Floor Plans Lots Plan Bd/Ba Sq. Ft. Base Sale Price* Price / Sq. Ft. The Ventana /2 1,211 $279,990 $ Collection 102 3/2 1,400 $294,990 $ /2 1,626 $304,990 $ /2 1,820 $319,990 $ The El Dorado X 2/2 1,720 $319,990 $ Collection 201 3/2 2,100 $339,990 $ * Exclusive of lot premiums or upgrades. Source: Century Vintage Homes, Market Profiles 202 3/2 2,222 $349,990 $ /2 2,778 $379,990 $ The Indio-Coachella submarket accounted for 46 percent of all new homes sold in the Coachella Valley during the second quarter of The high proportional share captured by the submarket is due to three major factors as follows: 1. Moderate home prices. 2. Shortages of moderately priced new homes in other areas of the Valley. 3. Increasing homebuyer perceptions of Indio as a desirable residential location. The demand for new homes in the Coachella Valley is projected to average 4,500 homes per year over the next two years (see NEW HOME DEMAND PROJECTION below). The projected distribution of demand by price range is shown in Exhibit I-3. Market demand is spread across a wide range of prices from under $250,000 to over $1,000,000. The majority of the new homes sold in Indio have been purchased by households that were seeking a moderately priced primary home. During the first half of 2004, the Indio- I-3

144 Market Profiles, Inc. Coachella submarket area accounted for 60 percent of all homes sold in the Coachella Valley that were priced below $500,000. New supplies of homes priced under $500,000 have emerged in the communities of Desert Hot Springs and Coachella. However, the community of Indio will continue to dominate the market for moderately priced homes. Thus, it is projected that, on a sustained basis, the Indio-Coachella submarket area will capture roughly 45 percent of the total annual sales volume in the Coachella Valley. This equates to a sales volume of about 2,000 homes per year. Given the continued availability of very low mortgage interest rates (i.e., near 6%), it is projected that the volume of new home sales in the Indio submarket area will surpass the projection of sustained annual sales of 2,000 homes. The sustained forecast assumes that interest rates will eventually rise by at least one half percentage point, resulting in a moderation in new home demand within the submarket. In addition, it is assumed that other communities in the Coachella Valley will offer more moderately priced new homes than they have in recent months. NEW HOME COMPETITION The amount of new home competition in Indio is substantial and it is growing. The number of active new home subdivisions in the city increased from ten in the second quarter of 2001 to 20 in the second quarter of Nevertheless, the sales rates among the new home subdivisions also increased from about 1.0 homes per week per project in 2001 to over 2.0 homes per week in the second quarter of This resulted primarily from growing demand for homes within the submarket. There were 20 new home subdivisions that were active in the City of Indio during the second quarter of Descriptions of these projects are included in Sections III and IV of this report. Nine of the projects are located within resort communities. Of the 11 projects that are not located in a resort community, six are located within the Shadow Hills community. These six subdivisions are most relevant to the subject development. The six projects are summarized in Exhibit I-4 and are described below. There are three new home subdivisions within one private, gated neighborhood in Shadow Hills developed by Century Vintage Homes. The three subdivisions include the two that are the subject of this analysis, i.e., The Ventana Collection and The El Dorado Collection, along with Villa Estates II. The Villa Estates II homes have base prices ranging from $274,990 to $379,990. These 3- and 4-bedroom homes range in size from 1,302 to 2,735 square feet ($ to $ per sq. ft.). As of mid-july, 90 of the 137 homes in this subdivision had been sold at a rate of 2.25 homes per week. There are two subdivisions in Shadow Hills that are being marketed by Family Development one of which is Generations. The first 97 of the 147 homes in this gated I-4

145 Market Profiles, Inc. neighborhood have been sold. The base prices of the 2-, 3-, and 4-bedrooms homes ranged from $254,990 to $324,990, and the homes size range from 1,710 to 2,694 square feet ($ to $ per sq. ft.). However, the project is temporarily sold out and the prices for the next phase release are expected to be significantly higher. The residents pay homeowners dues of $77 per month. The other subdivision in Shadow Hills by Family Development is Bella Vida. The base prices of the homes range from $299,990 to $359,990, and the sizes range from 1,895 to 2,629 ($ to $ per sq. ft.). The last of the 79 homes in this private, gated neighborhood were recently sold. The homeowners will pay an association fee of $70 per month. The minimum lot size is 8,000 square feet. Also in Shadow Hills is Sandhurst Cove. This project offers six plans consisting of 2-, 3-, and 4-bedroom configurations ranging in size from 1,680 to 2,720 square feet. The base prices of the homes range from $255,990 to $324,900 ($ to $ per sq. ft.). However, the project is temporarily sold out and the prices in the next phase release are expected to be significantly higher. To date, 80 of the homes in this private, gated neighborhood of 132 lots have been sold. The minimum lot size is 8,100 square feet. The residents will pay a homeowners fee of $79 per month. PRICE POSITIONING ANALYSIS The new homes that are proposed for development on the subject property will offer traditional designs targeted to family households. The proposed price positioning of the subject homes compared to the most important competitive new home projects is shown in Exhibit I-5. The specific data points that are shown in Exhibit I-5 are delineated in Exhibit I-6. The home prices shown in Exhibit I-5 are base prices, exclusive of location premiums or other upgrades. The base prices have been adjusted to account for any homeowners dues or assessment fees that may apply to each subdivision (see Exhibit I-6). Specifically, $50 has been added to the base sale price for every $1 of monthly fee. Exhibit I-6 shows that the price structure of the subject homes positions the product at the top of the market. However, as previous noted, the prices for the Generations and Bella Vida homes are out of date and will be significantly increased with the next phase releases. The average sale price of new homes in Indio has been rising at a rapid rate over the past year. Text Table I-2 below shows that the average price of a new home sold in the Indio-Coachella submarket has increased by $193,500 over the past year ($218,396 to $411,898). I-5

146 Market Profiles, Inc. TEXT TABLE 1-2 AVERAGE NEW HOME SALE PRICE INDIO-COACHELLA SUBMARKET AREA 2003 AND 2004 Year/ Quarter 2004/ 2 nd Qtr 1 st Qtr 2003 / 4 th Qtr 3 rd Qtr 2 nd Qtr 1 st Qtr Average Base Sale Price $411,898 $272,163 $243,005 $204,431 $218,396 $214,492 LOT PREMIUMS In addition to the base prices, the sale prices of some of the new homes will, appropriately, include premiums for larger lot size and/or desirable location, such as a cul-de-sac. Premiums of $1,000 to $10,000 have been successfully commanded by the subject new home subdivisions in their previous phases of marketing. Such premiums are common among virtually all of the competitive new home subdivisions in this marketplace. Premiums for lot size and location have been derived based on the attitudes and values that have been demonstrated by new home buyers in the local marketplace. PROJECTED SALES ABSORPTION The median sales rate for all new home subdivisions in the Coachella Valley is 2.34 homes per week (see report Section III). The sales rates of the six comparable projects that are shown in Exhibit I-4 range from 0.97 to 2.25 homes per week. The median sales rate is 1.97 homes per week. However, two of the projects have been temporarily sold out causing their weekly sales rates to fall. During the first quarter period, the average sales rate among the six projects was 2.49 homes per week and the median rate was 2.7 homes per week. A healthy volume of new home sales is projected to be maintained in the Indio submarket area over the next two years. Century Vintage Homes has consistently generated sales rates that are above the average for the local market. Based on the current price structures of the subject homes, and given the favorable track record of Century Vintage Homes in this market, it is projected that The Ventana Collection homes will experience a sales rate of at least 1.0 homes per week over the final I-6

147 Market Profiles, Inc. marketing phases, and that The El Dorado Collection homes will experience a sales rate of between 1.5 and 2.0 homes per week. These are realistic sales rates that will be achievable within the market environment that is anticipated to prevail in The projected sales rates are conservative in that they are based on moderately less favorable market conditions than current are found in the marketplace. The sales rate projections are below the sales rates that Century Vintage has been generating at their four other new home subdivisions located elsewhere in the Coachella Valley that are also marketing The Ventana and El Dorado product lines. These other projects are experiencing sales rates ranging from 2.28 to 3.73 homes per week (see Exhibit III-1, report Section III). A tabular summary of the projected absorption schedule is presented in Exhibit I-7. The sales forecasts describe the rate of closed transactions calculated from the date of the first closing. Presale activity is projected to result in the sale of ten percent of the homes and is reflected in the first month of closings. The absorption schedule assumes that the sales program will not be interrupted by long periods when the homes are temporarily sold out due to the construction schedule. Also shown in Exhibit I-7 is the timing of the land purchase transaction that was closed in January of I-7

148 EXHIBIT I-1 REGIONAL SITE LOCATION MAP MARKET PROFILES, INC x1-1,2,3,4,5,6,7.xls

149 EXHIBIT I-2 NEIGHBORHOOD SITE LOCATION MAP MARKET PROFILES, INC x1-1,2,3,4,5,6,7.xls

150 EXHIBIT I-3 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY PRICE RANGE* AVERAGE ANNUAL SALES % OF TOTAL Under $250, % $250,000-$300, % $300,000-$350, % $350,000-$400, % $400,000-$450, % $450,000-$500, % $500,000-$750, % $750,000-$1,000, % $1,000,000 and Over % TOTAL 4, % 900 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY AVERAGE ANNUAL SALES 0 Under $250,000-$300,000-$350,000-$400,000-$450,000-$500,000-$750,000-$1,000,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 $750,000$1,000,000and Over * Prices stated in today's dollars excluding future inflation or appreciation. Source: Market Profiles MARKET PROFILES, INC x1-1,2,3,4,5,6,7.xls

151 EXHIBIT I-4 SUMMARY OF SHADOW HILLS COMPETITION SECOND QUARTER 2004 Sales/Week Ranges Sales LotSize/ Total Total CurQtr Remain Community/ Development/Developer CurQtr Cum Price* Sqft $/Sqft Start Density Units Sold Sold Unsold ForDev MasterPlan BELLA SHADOW HILLS $299,990 1,895 $ Oct-03 8, INDIO FAMILY DEVELOPMENT $359,990 2,629 $ SHADOW HILLS SHADOW HILLS $254,990 1,710 $ Aug-03 8, INDIO FAMILY DEVELOPMENT $324,990 2,694 $ SHADOW HILLS SANDHURST SHADOW HILLS $255,900 1,680 $ Oct-03 8, INDIO JEFF HAYDEN $324,900 2,720 $ SHADOW HILLS THE EL DORADO SHADOW HILLS* $319,990 1,720 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $379,990 2,778 $ SHADOW HILLS THE VENTANA SHADOW HILLS* $279,990 1,208 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $319,990 1,843 $ SHADOW HILLS VILLA ESTATES SHADOW HILLS* $274,990 1,302 $ Oct-03 6, INDIO CENTURY VINTAGE HOMES $379,990 2,735 $ SHADOW HILLS 6 Total Projects Average Per Development * The base prices for The El Dorado Collection, The Ventana Collection, and for Villa Estates II are updated as of August 23, 2004, all other prices are as of mid-july Source: Residential Trends, Market Profiles MARKET PROFILES, INC. PAGE 1 OF x1-1,2,3,4,5,6,7.xls

152 EXHIBIT I-5 PRICE-PRODUCT POSITIONING GRAPH SHADOW HILLS $400,000 $380,000 $360,000 $340,000 SALES PRICE $320,000 $300,000 $280,000 $260,000 $240,000 $220,000 $200,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800 SQUARE FEET Villa Estates II* Sandhurst Cove Bella Vida Generations El Dorado Ventana MARKET PROFILES, INC x1-1,2,3,4,5,6,7.xls

153 ADJUSTED PRICES AFTER ADDING $50 FOR EACH $1/MONTH OF MELLO/CFD/HOA. \\Server\share\2004 STUDIES\RIVERSIDE CO\COACHELLA VALLEY\249711; City of Indio; \ Working Papers & Draft\Excel-Word docs\[249711x1-1,2,3,4,5,6,7.xls]6 MO./ASSMTS: $83 $0 $0 $0 $83 $83 MO./HOA:. $50 $79 $70 $77 $54 $54 LOT AREA: 6,000 8,100 8,000 8,000 6,000 6,000 SALES PER WEEK: LOCATION: Shadow Hills Shadow Hills Shadow Hills Shadow Hills Shadow Hills Shadow Hills PROJECT NAME: Villa Estates II* Sandhurst Cove Bella Vida Generations El Dorado Ventana DEVELOPER: Century Vintage Jeff Hayden Family Dev. Family Dev. Century Vintage Century Vintage Sq. Ft. PLAN 1 1,302 $281,640 $ PLAN 2 1,510 $306,640 $ PLAN 3 1,712 $321,640 $ PLAN 4 2,040 $346,640 $ PLAN 5 2,221 $356,640 $ PLAN 6 2,735 $386,640 $ PLAN 1 1,680 $259,850 $ PLAN 2 1,714 $271,850 $ PLAN 3 1,752 $271,850 $ PLAN 4 2,080 $289,850 $ PLAN 5 2,363 $306,850 $ PLAN 6 2,720 $328,850 $ PLAN 1 1,895 $303,490 $ PLAN 2 2,259 $313,490 $ PLAN 3 2,629 $363,490 $ PLAN 1 1,710 $258,840 $ PLAN 2 1,929 $278,840 $ PLAN 3 2,185 $288,840 $ PLAN 4 2,518 $313,840 $ PLAN 5 2,694 $328,840 $ PLAN 1 1,720 $326,840 $ PLAN 2 2,100 $346,840 $ PLAN 3 2,222 $356,840 $ PLAN 4 2,778 $386,840 $ PLAN 1 1,211 $286,840 $ PLAN 2 1,400 $301,840 $ PLAN 3 1,626 $311,840 $ PLAN 4 1,820 $326,840 $ PLAN 1 PLAN 1 EXHIBIT I-6 NEW HOME PRICES AND SIZES SHADOW HILLS COMPETITION BASE PRICES* $274,990 $255,900 $299,990 $254,990 $319,990 $279, , , , , , , , , , , , , , , , , ,990 * The Villa Estates II 349, , ,990 prices have been 379, ,900 updated as of August 23, V R A A L T U I E O MARKET PROFILES, INC x1-1,2,3,4,5,6,7.xls

154 MONTHLY ABSORPTION* Product Number Sales Name of Lots Rate** Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Ventana Cum. Sales Land Takedown*** El Dorado Cum. Sales Land Takedown*** 123 Total Lots 177 Monthly Lots Cumulative * Closed sale transactions. ** Average weekly sales rate over the life of the project. *** Land purchase was closed in January of EXHIBIT I-7 PROJECTED ABSORPTION SCHEDULE ASSESSMENT DISTRICT MARKET PROFILES, INC x1-1,2,3,4,5,6,7.xls

155 Market Profiles Real Estate Research and Consultants for over 30 years August 30, 2004 Mr. Jerry Carter CITY OF INDIO 100 Civic Center Mall Indio, California RE: MARKET FEASIBILITY AND ABSORPTION ANALYSIS SINGLE FAMILY HOME TRACT #31539 (LAS BRISAS NORTH), INDIO, CALIFORNIA Dear Mr. Carter: This Section IA (Section I Addendum) of the market report presents Market Profile s evaluation of the market opportunities relating to the Las Brisas North residential tract #31539 that is part of Assessment District The tract consists of 35 lots that are located in the southern portion of the City of Indio. Unfortunately, the analysis of this tract was inadvertently omitted from the original report that was dated August 24, Briefly, the research findings indicate that market demand is ample to support the development and sale of the proposed new homes. A competitive evaluation of the price structure that is proposed for the Las Brisas North homes is presented in this Section IA, and the sales absorption rate that is projected for the homes is presented at the end of the section (Exhibit IA-7). The full market report has been reorganized as follows: Section I Summary of Findings and Conclusions Shadow Hills Section IA Summary of Findings and Conclusions Las Brisas North Section II -- Market Demand Analysis Section III Summary of Competition Section IV Supporting Documentation We appreciate the opportunity to work with you in evaluating the opportunities for development of new homes in the City of Indio. Please call if you have any questions. Sincerely, MARKET PROFILES Boyd D. Martin Chairman David W. Dickey Senior Economist 200 North Tustin Avenue, Suite 102, Santa Ana, Ca (714) Fax (714)

156 Market Profiles, Inc. SECTION IA SUMMARY OF FINDINGS AND CONCLUSIONS LAS BRISAS NORTH INTRODUCTION This section presents a summary of the market opportunities identified with respect to the Las Brisas North new homes that are proposed to be constructed within assessment district located in the City of Indio in the Coachella Valley region of Riverside County. The homes are to be constructed and marketed by Century Vintage Homes. Based on the current price structure of the homes, a forecast of sales absorption has been formulated and is presented at the end of this Section IA of the market report (see Exhibit IA-7). PROPERTY LOCATION AND DESCRIPTION The subject property consists of 35 residential lots that are within Tract # The tract is situated adjacent to existing Las Brisas North neighborhood on its northern boundary. The site location is shown from a regional viewpoint in Exhibit IA-1, and the location is shown in a local context in Exhibit IA-2. The minimum lot size is 8,000 square feet and the size of most lots is over 9,400 square feet. The lots will be utilized for the final development phase of the private, gated new home subdivision called Las Brisas North. The existing Las Brisas North neighborhood consists of 189 homes that were constructed in The topography of the site and the surrounding land area is flat. This property is surrounded by neighborhoods of good quality single family homes on the west and east, and the previous phase of the Las Brisas North new home community is to the south. Immediately north of the property are a variety of small commercial businesses that are found along the south side of Highway 111. The subject lots are effectively oriented away from these building and, thus, the buildings will have little or no negative impact on the marketability of the subject lots. The All American Canal forms the western boundary of the property. The subject property is well located with respect to proximity to services. There is an abundance of retail stores and services businesses located along Highway 111 about one half mile north of the site. There are a wide variety of good quality retail shops and services in this downtown area. A major expansion of the Indio Fashion Mall is planned that would increase the size from its current 220,000 square feet to more than 600,000 square feet. I-1

157 Market Profiles, Inc. The subject site is convenient to a full range of schools. A new elementary school is planned to be built on Madison Street just one block west of the site. DESCRIPTION OF SUBJECT HOMES The homes that are planned for construction on the subject lots consist of the continuation of the existing Las Brisas North new home subdivision. The homes consist of 2- and 3-bedroom plans that range in size from 1,712 to 2,500 square feet. The four plan types are summarized in Text Table IA-1 below. The base prices of the homes range from $314,990 to $369,990. The three larger plans will offer a 3-car attached garage and the smaller plan will have a 2-car garage. Name/Tract TEXT TABLE IA-1 SUMMARY OF PLAN TYPES LAS BRISAS NORTH # of Lots/ Product Parameters Size* Plan Bd/Ba Sq. Ft. Base Price** $/Sq. Ft. Las Brisas North /2 1,712 $314,990 $ Tract # , /2 2,040 $339,990 $ * Minimum lot size. ** Exclusive of lot premiums or upgrades. Sq. Ft. 3 3/2 2,206 $349,990 $ /2 2,500 $369,990 $ NEW HOME COMPETITION The amount of new home competition in Indio is substantial and it is growing. The number of active new home subdivisions in the city increased from ten in the second quarter of 2001 to 20 in the second quarter of Nevertheless, the sales rates among the new home subdivisions also increased from about 1.0 homes per week per project in 2001 to over 2.0 homes per week in the second quarter of This resulted primarily from growing demand for homes within the submarket. There were 20 new home subdivisions that were active in the City of Indio during the second quarter of Descriptions of these projects are included in Sections III and IV of this report. Nine of the projects are located within resort communities. Of the 11 projects that are not located in a resort community, six are most relevant to the subject property. These six projects are summarized in Exhibit IA-4 and are described below. I-2

158 Market Profiles, Inc. There are three new home projects that are located approximately one mile to the southwest of the subject property. These projects are Estacio, Montage, and The Orchard. The last of the 138 homes in the Estacio subdivision have recently been sold. The base prices of the 2-, 3-, and 4-bedroom homes ranged from 309,900 to $379,900, and the home sizes range from 2,001 to 2,779 square feet ($ to $ per sq. ft.). The homes in this gated neighborhood sold at a rate of just over 2.0 homes per week. Montage is a gated subdivision of 150 homes with base prices that range from $424,900 to $509,900. The 2-, 3-, and 4-bedroom plans range in size from 2,601 to 3,382 square feet ($ to $ per sq. ft.). As of mid-july, 69 homes had been sold at a rate of 7.66 homes per week. The typical lot size is 15,000 square feet. The base prices of the 93 homes in The Orchard neighborhood range from $449,900 to 4585,900. The 4- and 5-bedroom plans range in size from 2,518 to 3,600 square feet ($ to $ per sq. ft.). As of mid-july, 34 homes had been sold at a rate of 3.09 homes per week. The homes are sited on 13,000 square foot lots. As discussed in Section I of this report, there are three new home subdivisions within one private, gated neighborhood in Shadow Hills developed by Century Vintage Homes. The three subdivisions consist of The Ventana Collection and The El Dorado Collection, along with Villa Estates II. The El Dorado Collection homes consist of 2- and 3- bedroom plans that range in size from 1,720 to 2,778 square feet. The base prices of the homes range from $319,990 to $379,990. The homes will offer 2-car attached garages. The Ventana Collection homes consist of 2- and 3-bedroom plans that range in size from 1,211 to 1,820 square feet. The base prices of the homes range from $279,990 to $319,990. The homes will offer 2-car attached garages. The Villa Estates II homes have base prices ranging from $274,990 to $379,990. These 3- and 4-bedroom homes range in size from 1,302 to 2,735 square feet ($ to $ per sq. ft.). As of mid-july, 90 of the 137 homes in this subdivision had been sold at a rate of 2.25 homes per week. PRICE POSITIONING ANALYSIS The new homes that are proposed for development on the subject property will offer traditional designs targeted to family households. The proposed price positioning of the subject homes compared to the most important competitive new home projects is I-3

159 Market Profiles, Inc. shown in Exhibit IA-5. The specific data points that are shown in Exhibit IA-5 are delineated in Exhibit IA-6. The home prices shown in Exhibit IA-5 are base prices, exclusive of location premiums or other upgrades. The base prices have been adjusted to account for any homeowners dues or assessment fees that may apply to each subdivision (see Exhibit IA-6). Specifically, $50 has been added to the base sale price for every $1 of monthly fee. Exhibit IA-6 shows that the price structure of the subject homes positions the product very closely with the most comparable competitors. This is a favorable competitive position given the desirable location and proven design of the proposed Las Brisas North homes. The average sale price of new homes in Indio has been rising at a rapid rate over the past year. Text Table IA-2 below shows that the average price of a new home sold in the Indio-Coachella submarket has increased by $193,500 over the past year ($218,396 to $411,898). TEXT TABLE 1A-2 AVERAGE NEW HOME SALE PRICE INDIO-COACHELLA SUBMARKET AREA 2003 AND 2004 Year/ Quarter 2004/ 2 nd Qtr 1 st Qtr 2003 / 4 th Qtr 3 rd Qtr 2 nd Qtr 1 st Qtr Average Base Sale Price $411,898 $272,163 $243,005 $204,431 $218,396 $214,492 LOT PREMIUMS In addition to the base prices, the sale prices of some of the new homes will, appropriately, include premiums for larger lot size and/or desirable location, such as a cul-de-sac. Premiums of $1,000 to $10,000 have been successfully commanded by the subject new home subdivisions in their previous phases of marketing. Such premiums are common among virtually all of the competitive new home subdivisions in this marketplace. Premiums for lot size and location have been derived based on the attitudes and values that have been demonstrated by new home buyers in the local marketplace. I-4

160 Market Profiles, Inc. PROJECTED SALES ABSORPTION The median sales rate for all new home subdivisions in the Coachella Valley is 2.34 homes per week (see report Section III). The sales rates of the six comparable projects that are shown in Exhibit IA-4 range from 0.97 to 7.66 homes per week. The median sales rate is about 2.0 homes per week. A healthy volume of new home sales is projected to be maintained in the Indio submarket area over the next two years. Century Vintage Homes has consistently generated sales rates that are above the average for the local market. Based on the proposed price structure of the subject homes, and given the favorable track record of Century Vintage Homes in this market, it is projected that Las Brisas North homes will experience a sales rate of at least 1.5 homes per week over the final marketing phase. This forecast is conservative in that it incorporates the assumption that the strength of demand for new homes in the Coachella Valley will slow moderately over the next 12 to 18 months. The first 189 homes in the Las Brisas North neighborhood were sold at a rate of 2.82 homes per week. A tabular summary of the projected absorption schedule for the subject Las Brisas North homes (Tract #31539) is presented in Exhibit IA-7. Also shown are the projected absorption schedules for The Ventana Collection and the El Dorado Collection homes that are evaluated in Section I of this report. The sales forecasts describe the rate of closed transactions calculated from the date of the first closing. Presale activity is projected to result in the sale of ten percent of the homes and is reflected in the first month of closings. The absorption schedules assume that the sales program will not be interrupted by long periods when the homes are temporarily sold out due to the construction schedule. I-5

161 EXHIBIT IA-1 REGIONAL SITE LOCATION MAP MARKET PROFILES, INC x1A-1,2,3,4,5,6,7.xls

162 EXHIBIT IA-2 NEIGHBORHOOD SITE LOCATION MAP MARKET PROFILES, INC x1A-1,2,3,4,5,6,7.xls

163 EXHIBIT IA-3 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY PRICE RANGE* AVERAGE ANNUAL SALES % OF TOTAL Under $250, % $250,000-$300, % $300,000-$350, % $350,000-$400, % $400,000-$450, % $450,000-$500, % $500,000-$750, % $750,000-$1,000, % $1,000,000 and Over % TOTAL 4, % 900 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY AVERAGE ANNUAL SALES 0 Under $250,000-$300,000-$350,000-$400,000-$450,000-$500,000-$750,000-$1,000,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 $750,000$1,000,000and Over * Prices stated in today's dollars excluding future inflation or appreciation. Source: Market Profiles MARKET PROFILES, INC x1A-1,2,3,4,5,6,7.xls

164 EXHIBIT IA-4 SUMMARY OF COMPETITIVE NEW HOME SUBDIVISIONS CITY OF INDIO SECOND QUARTER 2004 Sales/Week Ranges Sales LotSize/ Total Total CurQtr Remain Community/ Development/Developer CurQtr Cum Price* Sqft $/Sqft Start Density Units Sold* Sold Unsold ForDev MasterPlan ESTACIO $349,990 2,001 $ Feb-03 8, INDIO DESERT ELITE, INC. $399,900 2,779 $ SANTA ROSA $424,900 2,601 $ May-04 13, INDIO WESSMAN/GONZALES $509,900 3,382 $ THE EL DORADO SHADOW HILLS $319,990 1,720 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $379,990 2,778 $ SHADOW HILLS THE ORCHARD $449,900 2,518 $ Apr-04 13, INDIO FAMILY DEVELOPMENT $585,900 3,600 $ THE VENTANA SHADOW HILLS $279,990 1,208 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $319,990 1,843 $ SHADOW HILLS VILLA ESTATES SHADOW HILLS $274,990 1,302 $ Oct-03 6, INDIO CENTURY VINTAGE HOMES $379,990 2,735 $ SHADOW HILLS 6 Total Projects Average Per Development * The base prices are updated as of August 23, 2004, sales data are as of mid-july Source: Residential Trends, Market Profiles MARKET PROFILES, INC. PAGE 1 OF x1A-1,2,3,4,5,6,7.xls

165 EXHIBIT IA-5 PRICE-PRODUCT POSITIONING GRAPH INDIO COMPETITION $500,000 $450,000 $400,000 SALES PRICE $350,000 $300,000 $250,000 $200,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800 3,000 SQUARE FEET Villa Estates II* Estacio The Orchard Montage El Dorado Ventana Las Brisas North MARKET PROFILES, INC x1A-1,2,3,4,5,6,7.xls

166 ADJUSTED PRICES AFTER ADDING $50 FOR EACH $1/MONTH OF MELLO/CFD/HOA. \\Server\share\2004 STUDIES\RIVERSIDE CO\COACHELLA VALLEY\249711; City of Indio; \ Working Papers & Draft\Excel-Word docs\[249711x1a-1,2,3,4,5,6,7.xls]6 MO./ASSMTS: $83 $0 $0 $0 $83 $83 $15 MO./HOA:. $50 $115 $90 $120 $54 $54 $37 LOT AREA (MIN): 6,000 8,000 13,000 13,000 6,000 6,000 8,000 SALES PER WEEK: LOCATION: Shadow Hills Indio Indio Santa Rosa Shadow Hills Shadow Hills Indio PROJECT NAME: Villa Estates II* Estacio The Orchard Montage El Dorado Ventana Las Brisas North DEVELOPER: Century Vintage Desert Elite Family Dev. Wessman/Gonzales Century Vintage Century Vintage Century Vintage Sq. Ft. PLAN 1 1,302 $281,640 $ PLAN 2 1,510 $306,640 $ PLAN 3 1,712 $321,640 $ PLAN 4 2,040 $346,640 $ PLAN 5 2,221 $356,640 $ PLAN 6 2,735 $386,640 $ PLAN 1 2,001 $355,650 $ PLAN 2 2,350 $377,650 $ PLAN 3 2,528 $390,650 $ PLAN 4 2,779 $405,650 $ PLAN 1 2,518 $454,400 $ PLAN 2 2,766 $474,400 $ PLAN 3 3,060 $524,400 $ PLAN 4 3,600 $590,400 $ PLAN 1 2,601 $430,900 $ PLAN 2 2,856 $460,900 $ PLAN 3 3,155 $500,900 $ PLAN 4 3,382 $515,900 $ PLAN 1 1,720 $326,840 $ PLAN 2 2,100 $346,840 $ PLAN 3 2,222 $356,840 $ PLAN 4 2,778 $386,840 $ PLAN 1 1,211 $286,840 $ PLAN 2 1,400 $301,840 $ PLAN 3 1,626 $311,840 $ PLAN 4 1,820 $326,840 $ PLAN 1 EXHIBIT IA-6 NEW HOME PRICES AND SIZES INDIO COMPETITION PLAN 1 1,712 $317,590 $ PLAN 2 2,040 $342,590 $ PLAN 3 2,206 $352,590 $ PLAN 4 2,500 $372,590 $ BASE PRICES* $274,990 $349,900 $449,900 $424,900 $319,990 $279,990 $314, , , , , , , , , , , , , , , , , , , , , ,990 * The Villa Estates II 349,990 prices have been 379,990 updated as of August 23, V R A A L T U I E O MARKET PROFILES, INC x1A-1,2,3,4,5,6,7.xls

167 EXHIBIT IA-7 PROJECTED ABSORPTION SCHEDULE ASSESSMENT DISTRICT MONTHLY ABSORPTION* Product Number Sales Name of Lots Rate** Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Shadow Hills Ventana Cum. Closings El Dorado Cum. Closings Las Brisas North Las Brisas North Cum. Closings Total Lots 212 Monthly Lots Cumulative Lots * Closed sale transactions. ** Average weekly sales rate over the life of the project. MARKET PROFILES, INC x1A-1,2,3,4,5,6,7.xls

168 SECTION II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST

169 Market Profiles, Inc. SECTION II ECONOMIC BACKGROUND AND HOUSING DEMAND FORECAST INTRODUCTION This section presents a review of the major factors that influence the demand for new homes in the City of Indio in the Coachella Valley area of Riverside County. Factors evaluated in the demand analysis include demographic profiles of the Coachella Valley and of the City of Indio, employment growth, new home sales and inventory trends, and home price trends. Based on the data analysis, a forecast of housing demand distributed by price range has been formulated for the Coachella Valley. The Coachella Valley includes all of the cities and communities located between Palm Springs and Desert Hot Springs on the northwest to the cities of La Quinta and Coachella on the southeast. The Coachella Valley is divided into five submarket areas as shown in Exhibit II-1. The Indio submarket consists of the cities of Indio and Coachella and the immediately surrounding unincorporated areas. EMPLOYMENT GROWTH The demand for new homes in the Coachella Valley is influenced by the economic vitality of Riverside County and of all of Southern California. Tourist expenditures and second home purchases are important elements of the Valley's economy. The strength of locally based, primary home purchases is dependent upon the vitality of the tourism industry, which, in turn, is dependent upon the strength of the national and Southern California economies. Exhibit II-2 presents a historical summary of employment growth throughout Southern California and in the Riverside/San Bernardino bi-county region. From 1997 through 2000, employment in Southern California increased at a healthy average annual rate of 3.0 percent. During the same period, employment in Riverside and San Bernardino counties increased at a very strong rate of 5.2 percent per year. The rate of employment growth in Southern California began to decline in the first three quarters of 2001 due to rising interest rates and a slowing national economy. Following the attack on the World Trade Center in September, job growth came to a virtual halt in the fourth quarter of Total employment in Southern California increased by 1.2 percent for the year II-1

170 Market Profiles, Inc. The economic weakness experienced in the fourth quarter of 2001 carried over into 2002 and 2003 and employment in Southern California declined slightly each of those years. Positive job growth has been reestablished in 2004 and employment is projected to grow by 1.5 percent in 2004, improving to 2.2 percent in Employment growth in Riverside County is monitored by the State along with San Bernardino County on a combined, bi-county basis. Employment in the bi-county region is projected to grow by about 2.8 percent in 2004, and the rate of job growth is projected to increase to 3.6 percent in Southern California s continuously expanding employment base will result in substantial demand for new homes in the Coachella Valley. Locally, the Valley s economy has begun to benefit from new employment opportunities relating to the recent voter approval of Proposition 1A which authorized the establishment of Las Vegas-style casinos with slot machines on Indian lands in California. As a result, several major casino projects have been completed or are in various states of the development process in the Coachella Valley. These projects are projected to add several hundred jobs to the Valley s employment base and to attract several thousand more visitors to the region. This growth will have a stimulating influence on the demand for new homes in the Coachella Valley. The first major impacts of the casino expansions were felt in Casino projects recently completed and planned include the following: The first phase of a $60 million expansion of the existing Trump 29 casino in Coachella was completed. The Augustine Casino recently opened south of the City of Coachella. The casino is expected to employ up to 300 persons. The Morongo Band of Mission Indians recently began construction of a $250 million casino resort hotel on a site located a few miles west of Palm Springs on the north side of Interstate 10. The project is expected to create 4,000 new jobs over the next five years. When completed it will be one of the largest gaming destinations on the West Coast. A $90 million, 125,000 square foot casino recently opened just north of Rancho Mirage. In Palm Springs, the Spa Resort Casino recently opened. The $95 million gaming facility has 30 tables, 1,000 slot machines, an entertainment lounge, and four restaurants. II-2

171 Market Profiles, Inc. A 300-room Sheraton Inn and Conference Center is planned for a site near downtown Cathedral City. The complex will include a new 18-hole golf course to be called Desert Cove Golf Resort. The complex is also planned to include a 4-story office building and retail space. Construction has begun on a 300-acre resort and corporate development located in Palm Springs. The Indian Oasis Resort and Corporate Center will ultimately include a 10-story hotel, 290 condominium units, an 18-hole golf course, a 100,000 square foot shopping center, and 500,000 square feet of office space. In Palm Desert, Phase II of the 80-acre Desert Business Park has begun. In 2003, the growth of the Coachella Valley s economy was affected by the slowdown in tourism that began in Exhibit II-3 shows that hotel revenues in the Valley declined by 4.8 percent in 2001 and that revenues declined by 3.2 percent in This drop in visitor activity had a dampening effect on the demand for new homes in the Valley. Nevertheless, the sales of new homes increased in 2002 compared to 2001 (see NEW HOME SALES TRENDS) below. Hotel room increased by 2.4 percent in Further improvement in hotel revenues occurred in the first quarter of 2004 with total revenue up 4.6 percent compared to first quarter DEMOGRAPHIC PROFILE Exhibit II-4 presents population and income profiles of the City of Indio and of the Coachella Valley. There are 355,542 persons residing in the Valley. The population has grown at a strong pace of 4.3 percent per year since The Valley s population is projected to grow at a rate of 3.6 percent per year over the next five years. Although the percentage rate of growth is declining, the growth rate in absolute terms is projected to remain near recent levels. The average household size in the Coachella Valley is 2.67 persons. This is a low figure resulting from a large proportion of one and two person households. Nearly two thirds (64.3%) of the market area's households consist of one or two persons, compared to 54 percent countywide. The large proportion of small households is partly due to a large retired population. Nineteen percent of the population is over 65 years of age. Countywide this age group accounts for 14 percent of the population. The population of the City of Indio is 56,994 persons. At 3.27 persons, the average household size in the city is much larger than that of the Coachella Valley as a whole. The city has a much larger proportion of family households with children than do the other communities in the Valley. II-3

172 Market Profiles, Inc. The income profile of the Valley s households is very diverse. Households are distributed across a broad range of annual incomes from under $15,000 (15%) to over $100,000 (16%). The median income of the Coachella Valley's household's is $42,997. This is a modest figure that is 10 percent below the countywide median figure of $47,282. The median income of households in Indio is $37,942. HOUSING PROFILE Exhibit II-5 shows a profile of the existing housing stock of the Coachella Valley. Single family detached homes account for 46 percent of the Valley s housing stock compared to a countywide proportion of 61 percent. The median housing value in the Coachella Valley is $177,854 (existing homes). This figure is 6.7 percent below the figure for Riverside County of $189,776. However, the Valley's housing stock is very diverse. The Valley has a greater than typical proportion of the least expensive homes, as well as, of the most expensive homes. Eighteen percent of the Valley s housing stock is valued below $100,000 compared to 15 percent countywide. However, the Valley also has a higher proportion of homes valued over $300,000 (13% versus 8% countywide). Exhibit II-6 shows the vacancy characteristics of the Coachella Valley housing stock by city. Housing vacancy rates are very high in the City of Palm Desert, as well as, in the cities of Indian Wells, La Quinta, Palm Springs, and Rancho Mirage. These high vacancy rates of over 30, 40, and even 50 percent are to due the high incidence of second home ownership in these cities. Assuming an underlying vacancy rate of five to ten percent, second home ownership in these cities ranges from 20 to 45 percent of the total housing stock. The proportion of second homes in the City of Indio is relatively low. The proportion of second home ownership in the city is estimated to be about ten percent. NEW HOME SALES TRENDS Exhibit II-7 presents a summary of new home sales in the Coachella Valley distributed by submarket area. The volume of sales in the Valley declined from a peak of 3,356 in 1989 to 953 in 1993 due to the effects of the regional recession that began in mid Sales activity remained moderate from 1993 through 1997, then accelerated to 2,226 homes sold in 1998 and to 3,330 homes in Sales for 2001 fell to 2,510 homes due to a general slowdown in economic growth in Southern California. Sales increased to 4,236 homes in The jump in sales in 2002 was due to several factors as discussed below (see PROJECTED NEW HOME DEMAND). Sales activity continued to increase in 2003 and in 2004 with 5,768 homes sold in 2003 and 3,851 homes sold in the first half of The geographic pattern of new home sales in the Coachella Valley has shifted over the past few years. Excluding the Indio-Coachella submarket, sales activity among the other submarket areas has varied significantly from year to year. The sales fluctuations have been due largely to supply considerations. Sales in the Palm Desert submarket dropped II-4

173 Market Profiles, Inc. from 1,313 homes in 2002 to 383 homes in 2003 due to a decline in home supply. Alternatively, home sales in the Palm Springs-Cathedral City submarket (including Desert Hot Springs) increased from 393 homes in 2002 to 833 homes in 2003 due an increase in supply. The shifting geographic pattern of sales activity is likely to continue in the future. More sales activity is expected to emerge in Palm Desert since the city has recently ended its moratorium on development in its northern sector. In contrast to fluctuating sales activity in the other submarket areas of the Valley, new home sales in the Indio-Coachella Submarket have consistently increased over the past three years. Sales jumped from 591 homes in 1999 to 1,217 homes in 2002 and 2,890 homes in New home sales in the Indio-Coachella Submarket continued to accelerate in 2004 with sales totaling 1,702 homes in the first half of the year. Moderate home prices have been a major attractor of homebuyers to the submarket (see PRICE TRENDS below). PRICE TRENDS Exhibit II-8 shows the average price of new homes sold each quarter in the five submarket areas of the Coachella Valley. The average price of a detached home sold in the Coachella Valley in the second quarter of 2004 was $510,106. The average sale price has fluctuated from quarter to quarter due the changing mix of product offerings. Although the prices of individual homes have risen significantly, the average sale price of all homes has risen only moderately over the past four years due to the increase in the sales volume of modestly priced homes located in the Indio-Coachella submarket area. The average price of a new home sold in the Indio-Coachella submarket during the second quarter of 2004 was $411,898. This figure is 50 percent higher than the average sale price for the first quarter period of $272,163. Exhibit II-9 shows the quarterly pattern of new home sales in the Coachella Valley market area distributed by price range. Sales are spread across a broad price spectrum ranging from under $200,000 to over $400,000. Due to the constantly changing mix of homes offered for sale throughout the Valley, there is no uniformity to the historical sales pattern. Exhibit II-10 shows that the Indio-Coachella submarket area dominated the sales of homes in the Coachella Valley that were priced under $550,000. PROJECTED NEW HOME DEMAND New home sales activity in the Coachella Valley has been influenced by a diverse set of factors. As a rule, there is a close relationship between new home sales and the vitality of the regional economy. However, over the past two years, other factors have worked to sustain sales in the Valley during a period of weak economic conditions. These factors consist of the following: 1. The local job-creating projects outlined above. II-5

174 Market Profiles, Inc. 2. Very low mortgage interest rates. 3. A temporary shift of household capital out of the stock market and into real estate. Factors #2 and #3 listed above are temporary in nature and it is projected that their positive influence on new home sales will diminish over the next one to two years. However, their diminished influence will be offset by healthy job growth, thereby, sustaining the demand for new homes in the Valley. Based on the data analysis, it is projected that the demand for new homes in the Coachella Valley will average 4,500 homes per year over the next five years. With 5,768 homes sold, new home sales in 2003 surpassed the projected annual demand of 4,500 homes. However, after another strong year in 2004 (5,000+ home sales), it is projected that the pace of sales will moderate in 2005 and New home sales are projected to total 4,500 homes in The demographic factors that underlie the housing demand forecast are summarized in Exhibit II-11. The majority of the demand will be fueled by the primary buyer segment (i.e., owner occupants as opposed to second home owners), including retired households. Second home buyers, including pre-retirement buyers, are projected to account for just over one quarter of the demand. The Coachella Valley new home market is diverse. Exhibit II-12 shows the projected average annual demand for new homes distributed by price range. Market demand is spread across a wide range of prices from under $250,000 to over $1,000,000. The majority of the demand for new homes in the Indio-Coachella submarket emanates from primary resident households. Primary homebuyers are responsible for the high volume of demand below the $350,000 price level as shown in Exhibit II-12. II-6

175 EXHIBIT II-1 COACHELLA VALLEY SUBMARKET AREAS Palm Springs -- Cathedral City Palm Springs - Cathedral City Rancho Mirage Palm Desert Indio -- Coachella Indian Wells -- La Quinta MARKET PROFILES, INC x2-1,2,3,4,5,6,7.xls

176 EXHIBIT II-2 EMPLOYMENT GROWTH RIVERSIDE-SAN BERNARDINO BI-COUNTY REGION AND SOUTHERN CALIFORNIA Riverside & San Bernardino Counties Southern California Total Increase/ Percent Total Increase/ Percent Year Employment Decrease Change Employment Decrease Change ,153,700 40, % 8,343, , % ,113,700 30, % 8,161, , % PROJECTED ,083,700 11, % 8,039,300 (11,200) -0.1% ,072,100 23, % 8,050,500 (12,700) -0.2% ,049,100 39, % 8,063,200 96, % ,010,100 49, % 7,966, , % ,300 56, % 7,750, , % ,800 40, % 7,529, , % ,100 38, % 7,283, , % ,800 23, % 7,066, , % ,700 28, % 6,940, , % ,800 16, % 6,816,100 35, % ,900 4, % 6,780,400 (102,900) -1.5% ,500 10, % 6,883,300 (205,000) -2.9% ,500 6, % 7,088,300 (180,600) -2.5% ,200 46, % 7,268, , % ,200 41, % 7,165, , % ,700 36, % 6,975, , % ,900 36, % 6,734, , % ,400 37, % 6,493, , % ,700 41, % 6,267, , % ,700 30, % 6,029, , % ,700 13, % 5,762,500 53, % ,600 (6,300) -1.4% 5,708,600 (135,800) -2.3% ,900 6, % 5,844,400 89, % ,000 N.A. N.A. 5,755,100 N.A. N.A. Source: California Employment Department, Market Profiles MARKET PROFILES, INC x2-1,2,3,4,5,6,7.xls

177 EXHIBIT II-3 HOTEL ROOM SALES COACHELLA VALLEY Room Revenue Percent Revenue Percent Year ($ Millions) Change Per Room Change st Qtr $ % N.A. N.A $ % $22, % 2002 $ % $22, % 2001 $ % $23, % 2000 $ % $25, % 1999 $ % $23, % 1998 $ % $21, % 1997 $ % $20, % 1996 $ % $17, % 1995 $ % $16, % 1994 $ % $15, % 1993 $ % $14, % 1992 $ % $14, % 1991 $ % $14, % 1990 $ % $15, % 1989 $ % $14,384 N.A $185 N.A. N.A. N.A. Source: Wheeler's Desert Letter, Market Profiles MARKET PROFILES, INC x2-1,2,3,4,5,6,7.xls

178 EXHIBIT II-4 DEMOGRAPHIC PROFILE CITY OF INDIO COACHELLA VALLEY AND RIVERSIDE COUNTY CITY OF COACHELLA RIVERSIDE DESCRIPTION INDIO VALLEY COUNTY POPULATION 2009 Projection N.A. 423,323 2,063, Estimate 56, ,542 1,776, Census 49, ,582 1,545, Census 37, ,948 1,170,413 Growth N.A % 16.12% Growth % 17.12% 14.97% Growth % 36.17% 32.04% HOUSEHOLDS 2009 Projection N.A. 156, , Estimate 16, , , Census 13, , , Census 11,003 85, ,067 Growth N.A % 14.91% Growth % 16.29% 14.03% Growth % 33.26% 25.90% 2004 ESTIMATED POPULATION BY RACE 56, ,542 1,776,798 WHITE 47.73% 68.19% 63.47% BLACK 2.32% 2.02% 6.22% ASIAN & PACIFIC ISLANDER 1.71% 2.31% 4.09% OTHER RACES 44.32% 24.05% 21.65% TWO OR MORE 3.92% 3.42% 4.59% 2004 ESTIMATED POPULATION HISPANIC ORIGIN 78.25% 47.80% 39.73% 2004 OCCUPIED UNITS 16, , ,224 OWNER OCCUPIED 57.67% 67.36% 69.10% RENTER OCCUPIED 42.33% 32.64% 30.90% AVERAGE PERSON PER HH EST. HOUSEHOLDS BY INCOME 16, , ,224 UNDER $15, % 14.75% 13.69% $15,000 TO $24, % 13.30% 11.73% $25,000 TO $34, % 13.50% 12.11% $35,000 TO $49, % 15.86% 15.22% $50,000 TO $74, % 17.50% 19.26% $75,000 TO $99, % 9.51% 12.37% $100,000 TO $149, % 8.14% 10.19% $150,000 TO $249, % 4.73% 3.95% $250,000 TO $499, % 1.79% 1.08% $500,000 AND OVER 0.28% 0.93% 0.40% 2004 EST. AVERAGE HOUSEHOLD INCOME $49,814 $64,259 $62, EST. MEDIAN HOUSEHOLD INCOME $37,942 $42,997 $47, EST. PER CAPITA INCOME $14,409 $24,086 $20,538 Source: Claritas, Market Profiles MARKET PROFILES, INC x2-1,2,3,4,5,6,7.xls

179 COACHELLA RIVERSIDE DESCRIPTION VALLEY COUNTY YEAR ROUND UNITS IN STRUCTURE 184, ,567 SINGLE UNITS DETACHED 45.64% 61.09% SINGLE UNITS ATTACHED 16.22% 7.19% DOUBLE UNITS 2.19% 1.38% 3 T0 19 UNITS 12.33% 9.46% 20 TO 49 UNITS 2.08% 1.98% 50+ UNITS 5.43% 4.68% MOBILE HOME OR TRAILER 14.02% 13.07% ALL OTHER 2.11% 1.15% OWNER OCCUPIED PROPERTY VALUES 88, ,886 UNDER $80, % 10.50% $80,000 TO $99, % 4.27% $100,000 TO $149, % 19.99% $150,000 TO $199, % 19.16% $200,000 TO $299, % 27.73% $300,000 TO $399, % 10.12% $400,000 TO $499, % 3.88% $500,000 TO $749, % 2.73% $750,000 TO $999, % 0.71% $1,000, % 0.92% MEDIAN PROPERTY VALUE $177,854 $189,776 HOUSING UNITS BY YEAR BUILT 184, ,567 BUILT 1999 TO PRESENT 16.61% 15.34% BUILT 1995 TO % 7.23% BUILT 1990 TO % 11.61% BUILT 1980 TO % 26.15% BUILT 1970 TO % 17.73% BUILT 1960 TO % 10.21% BUILT 1950 TO % 7.05% BUILT 1940 TO % 2.35% BUILT 1939 OR EARLIER 0.94% 2.34% Source: Claritas, Market Profiles EXHIBIT II-5 HOUSING PROFILE COACHELLA VALLEY AND RIVERSIDE COUNTY 2004 MARKET PROFILES, INC x2-1,2,3,4,5,6,7.xls

180 EXHIBIT II-6 HOUSING STOCK PROFILES COACHELLA VALLEY CITIES 2000 Multi- Mobile Other Total City Detached Attached Family Homes Misc. Units Cathedral City Housing Units 8,785 2,575 3,829 2, ,813 Vacant Units 763 1, ,741 Percent Vacant 8.7% 54.8% 15.9% 35.6% 59.2% 21.0% Coachella Housing Units 3, , ,982 Vacant Units Percent Vacant 3.4% 0.0% 4.3% 11.5% 0.0% 4.1% Desert Hot Springs Housing Units 3, , ,026 Vacant Units ,206 Percent Vacant 13.9% 19.4% 13.2% 56.1% 0.0% 17.2% Indian Wells Housing Units 2, ,950 Vacant Units 1, ,983 Percent Vacant 49.1% 47.0% 60.5% 0.0% 0.0% 50.2% Indio Housing Units 7, ,196 2, ,899 Vacant Units , ,011 Percent Vacant 7.9% 24.2% 12.7% 44.9% 69.7% 17.8% La Quinta Housing Units 9,471 1, ,763 Vacant Units 2, ,308 Percent Vacant 26.4% 38.0% 41.2% 5.8% 0.0% 28.1% Palm Desert Housing Units 11,120 9,551 6,201 1, ,071 Vacant Units 2,530 5, ,772 Percent Vacant 22.8% 53.2% 15.3% 17.2% 100.0% 31.2% Palm Springs Housing Units 10,163 6,191 12,379 2, ,979 Vacant Units 2,040 3,046 4, ,439 Percent Vacant 20.1% 49.2% 37.3% 31.7% 63.5% 33.7% Rancho Mirage Housing Units 4,312 3,626 1,735 1, ,643 Vacant Units 1,554 1, ,026 Percent Vacant 36.0% 42.1% 48.5% 38.0% 87.7% 43.2% Totals for Cities Housing Units 60,794 25,497 34,344 11,136 1, ,126 Vacant Units 11,807 12,221 8,730 3,872 1,061 37,691 Percent Vacant 19.4% 47.9% 25.4% 34.8% 78.3% 28.3% Riverside County Housing Units 356,447 42, ,066 76,411 6, ,674 Vacant Units 29,374 13,495 14,881 16,247 4,459 78,456 Percent Vacant 8.2% 31.9% 14.4% 21.3% 69.1% 13.4% Source: 2000 U.S. Census, Market Profiles MARKET PROFILES, INC x2-1,2,3,4,5,6,7.xls

181 EXHIBIT II-7 NEW HOME SALES BY SUBMARKET AREA COACHELLA VALLEY 1991 THROUGH FIRST HALF Submarket SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total Palm Springs-Cathedral City Rancho Mirage Palm Desert La Quinta Indio-Coachella Totals 551 1,171 1, ,123 1, ,085 1, ,043 1, ,065 1, ,345 1, Q+2Q Submarket SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total SFA* SFD* Total Palm Springs-Cathedral City Rancho Mirage Palm Desert 10 1,159 1, ,313 1, La Quinta ,004 1, ,224 1, , ,005 1,051 Indio-Coachella ,184 1, ,858 2, ,702 1,702 Totals 91 2,135 2, ,707 2, ,249 3, ,490 2, ,163 4, ,671 5, ,792 3,851 * SFA = Attached Product; SFD = Detached Product Source: Residential Trends, Market Profiles MARKET PROFILES, INC x2-1,2,3,4,5,6,7.xls

182 EXHIBIT II-8 AVERAGE NEW HOME PRICE DETACHED PRODUCT COACHELLA VALLEY BY SUBMARKET AREA 1998 THROUGH SECOND QUARTER 2004 Coachella Palm Springs/ Rancho Indian Wells/ Indio/ Quarter Valley Cathedral City Mirage Palm Desert La Quinta Coachella $510,106 $304,485 $590,519 $535,581 $749,098 $411,898-1 $361,324 $279,160 $496,667 $611,757 $567,776 $272, $346,358 $305,670 $468,964 $375,655 $676,643 $243,005-3 $313,006 $217,490 $448,814 $332,545 $505,884 $204,431-2 $296,622 $256,104 $425,579 $337,418 $429,891 $218,396-1 $340,765 $336,465 $447,426 $287,891 $567,382 $214, $300,454 $238,373 $441,490 $276,209 $489,195 $229,710-3 $281,557 $223,604 $454,508 $248,836 $477,517 $184,271-2 $340,713 $225,636 $440,543 $292,771 $456,337 $204,472-1 $312,116 $214,903 $441,411 $277,911 $420,302 $196, $329,280 $201,729 $445,032 $268,632 $503,068 $189,480-3 $255,805 $186,125 $452,987 $247,040 $363,954 $185,520-2 $296,827 $189,472 $442,205 $256,930 $396,384 $202,200-1 $324,701 $217,298 $437,138 $249,576 $426,394 $188, $324,022 $194,660 $414,786 $286,109 $399,754 $181,196-3 $287,569 $214,066 $412,485 $339,922 $317,687 $174,732-2 $284,240 $231,023 $394,995 $270,721 $320,949 $159,021-1 $333,048 $204,602 $405,141 $318,494 $430,968 $169, $306,379 $168,613 $412,549 $330,832 $372,182 $162,632-3 $277,309 $169,002 $358,096 $294,271 $310,590 $159,317-2 $356,066 $163,783 $350,545 $290,086 $473,375 $164,763-1 $311,993 $156,986 $382,024 $338,503 $322,317 $159, $261,202 $142,881 $359,811 $270,587 $271,954 $153,273-3 $244,795 $131,435 $398,290 $247,275 $254,547 $144,043-2 $241,970 $132,544 $329,771 $238,423 $253,779 $142,302-1 $254,635 $122,826 $307,834 $242,658 $298,036 $144,500 Source: Residential Trends, Market Profiles MARKET PROFILES, INC x2-8,9,10,11,12.xls

183 EXHIBIT II-9 NEW HOME SALES BY PRICE RANGE COACHELLA VALLEY 2002 THROUGH SECOND QUARTER Price Range 1st Q* 2nd Q* 3rd Q* 4th Q* 1st Q* 2nd Q* 3rd Q* 4th Q* 1st Q* 2nd Q* Under $150, $ , $ , $ , $ , $ , $400,000 & Up Totals , , ,239 2,052 1,799 * Q = Quarter Source: Residential Trends, Market Profiles MARKET PROFILES, INC x2-8,9,10,11,12.xls

184 EXHIBIT II-10 NEW HOME SALES DISTRIBUTED BY PRICE RANGE INDIO-COACHELLA SUBMARKET AREA AND THE COACHELLA VALLEY SECOND QUARTER 2004 Number of Homes* Sold Indio- Coachella Price Range Coachella Valley Under $400, $400-$450, $450-$500, $500-$550, $550-$600, $600,000 & Up Totals 830 1,761 * Detached homes. Source: Residential Trends, Market Profiles MARKET PROFILES, INC x2-8,9,10,11,12.xls

185 Riverside-San Riverside Coachella Valley Bernardino Co.s County New Annual Housing Demand Employment* Households Total Households Primary Housing Second Year Total Jobs Incr./Yr Total Incr./Yr Households Per Year Owner Renter Homes ,200 N.A. 402,067 N.A. 85,187 N.A. N.A. N.A. N.A. to ,010,100 27, ,218 10, ,518 2,833 1, to ,115,200 26, ,224 17, ,010 4,623 3,005 1, to ,293,000 35, ,272 17, ,876 4,973 3,300 1,673 1,200 * Riverside/San Bernardino bi-county region. EXHIBIT II-11 HOUSING GROWTH SUMMARY RIVERSIDE COUNTY AND THE COACHELLA VALLEY MARKET AREA Source: Calif. Employment Development Dept., Clairtas, Market Profiles MARKET PROFILES, INC x2-8,9,10,11,12.xls

186 EXHIBIT II-12 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY PRICE RANGE* AVERAGE ANNUAL SALES % OF TOTAL Under $250, % $250,000-$300, % $300,000-$350, % $350,000-$400, % $400,000-$450, % $450,000-$500, % $500,000-$750, % $750,000-$1,000, % $1,000,000 and Over % TOTAL 4, % 900 PROJECTED ANNUAL NEW HOME DEMAND COACHELLA VALLEY AVERAGE ANNUAL SALES 0 Under $250,000 $250,000- $300,000 $300,000- $350,000 $350,000- $400,000 $400,000- $450,000 $450,000- $500,000 $500,000- $750,000 $750,000- $1,000,000 $1,000,000 and Over * Prices stated in today's dollars excluding future inflation or appreciation. Source: Market Profiles MARKET PROFILES, INC x2-8,9,10,11,12.xls

187 SECTION III SUMMARY OF COMPETITION

188 Market Profiles, Inc. SECTION III SUMMARY OF COMPETITION INTRODUCTION This section presents a review of the existing new home competition throughout the Coachella Valley and within the community of Indio. For analysis purposes, the Coachella Valley is divided into five submaket areas. The boundaries of the submarkets are shown in Exhibit II-1 (report Section II). The Indio-Coachella submarket area is composed of the cities of Indio and Coachella and the immediately surrounding unincorporated areas. The data that is presented in this section is based on a quarterly audit of all new home projects that are active in the Coachella Valley. The most recent audit was conducted in mid-july and the data thus describes the circumstances at that time. NEW HOME COMPETITION During the second quarter of 2004, there were 82 subdivisions marketing new detached homes in the Coachella Valley. Exhibit III-1 presents a tabular summary of the 82 projects. There are an additional four projects in the Valley that were marketing attached homes (not shown in Exhibit III-1). The 82 projects account for a total of 15,281 homes, of which 8,051 homes have been offered for sale and all but 282 of the homes offered have been sold. This is a low unsold inventory level as discussed below (see INVENTORY TRENDS). The Coachella Valley new home market is very diverse. Exhibit III-2 shows a summary of new home activity within each of the Valley s five submarket areas (detached product). The Indio-Coachella and the Indian Wells-La Quinta submarkets had the largest number of active new home subdivisions during the second quarter period with 24 and 26 projects, respectively. The Indio-Coachella submarket generated the highest sales volume during the quarter (830 homes). The sales of new homes in the submarket were aided by the moderate prices of the homes. The average sales price was $411,898 compared to $749,098 in the nearby La Quinta-Indian Wells submarket. There were 24 new home subdivisions that were active in the Indio-Coachella submarket during the second quarter of Exhibit III-3 presents a summary of the 24 projects. Detailed profiles of each of the projects are included in Section IV of his report. The 24 projects account for 7,121 homes, of which 4,470 have been offered for sale and only 15 of those remain unsold. Twenty of the new home projects are located in Indio and four are located in Coachella. Nine of the projects, accounting for 4,600 homes, are located within resort communities (all in Indio). The new retirement III-1

189 Market Profiles, Inc. community of Sun City accounts for 70 percent of the homes in the nine resort communities. Descriptions of the most competitive new home projects are presented below (see MOST COMPETITIVE NEW HOME PROJECTS). INVENTORY TRENDS The Coachella Valley is experiencing a shortage of new homes available for sale. At the end of the second quarter of 2004, only 282 detached homes remained unsold throughout the Coachella Valley (including homes under construction, completed, and pre-selling). As shown in Exhibit III-4, only three of the unsold homes had been completed. As a rule, a balance between the unsold inventory at the end of a quarter and the number of homes sold during the quarter is indicative of a healthy market condition (i.e., 1:1 unsold to sold ratio). The unsold inventory of 282 homes at the end of the second quarter of 2004 compares to a sales volume of 1,761 homes sold during the second quarter period (0.16:1 unsold to sold ratio). This is indicative of a very undersupplied market condition. Inventory conditions in the Indio/Coachella submarket area are even more restricted than elsewhere in the Coachella Valley. At the end of the second quarter of 2004, the unsold inventory in the Indio/Coachella submarket totaled just 15 homes compared to second quarter sales of 830 homes (0.02:1 unsold to sold ratio). SALES RATES Exhibit III-1 shows the weekly sales rate for each of the new home projects in the Coachella Valley. The sales rates are shown as Cumulative and Current Quarter rates. The Cumulative sales rate describes the rate of sales generated since the date of opening of each project, and the Current Quarter sales rate describes the rate of sale during the second quarter period. Cumulative sales rates range widely from 0.07 to 26.0 homes per week. The average cumulative sales rate is 2.34 homes per week per project. However, the median sales rate of 2.0 homes per week is more representative of the typical sales rate. The new home projects that are most similar to the subject development are those that are located in the City of Indio and that are not situated within a resort community. These 11 projects are summarized in Exhibit III-5. Cumulative sales rates among these 11 new home projects from 0.97 to 26.0 homes per week. The average cumulative sales rate is 4.77 homes per week per project and the median sales rate is 2.0 homes per week. III-2

190 Market Profiles, Inc. MOST COMPETITIVE NEW HOME PROJECTS The new home subdivisions that are most relevant to the subject development are those that are located within the Shadow Hills community. During the second quarter of 2004, there were six projects marketing new homes in Shadows Hills. These projects are described below and their locations are shown in Exhibit III-6. There are three new home subdivisions within one private, gated neighborhood in Shadow Hills developed by Century Vintage Homes. The subject property will provide the lots for the future phases of homes in this private enclave. The three subdivisions are The Ventana Collection (map #1), The El Dorado Collection (map #2), and Villa Estates II (map #3). The homeowners will pay dues of $50 per month for maintenance of the private streets, plus an assessment district fee. The majority of the homes are sited on lots of 8,000 square feet or larger. The Ventana Collection consists of 2- and 3-bedroom homes that range in size from 1,211 to 1,820 square feet with base prices ranging from $279,990 to $319,990 ($ to $ per sq. ft.). As of mid-july, 66 of the 175 homes in this tract had been sold at a rate of 0.97 homes per week. The base prices of the homes in The El Dorado Collection range from $319,990 to $379,990 for 2- and 3-bedroom plans that range in size from 1,720 to 2,778 square feet ($ to $ per sq. ft.). Of the 175 homes in this tract, 126 have been sold at a rate of 1.85 homes per week (as of mid-july). The Villa Estates II homes have base prices ranging from $274,990 to $379,990. These 3- and 4-bedroom homes range in size from 1,302 to 2,735 square feet ($138.94to $ per sq. ft.). Ninety of the 137 homes in this subdivision have been sold at a rate of 2.25 homes per week. There are two subdivisions in Shadow Hills that are being marketed by Family Development. One of these subdivisions is Generations (map #4). The first 97 of the 147 homes in this gated neighborhood have been sold. The base prices of the 2-, 3-, and 4-bedrooms homes range from $254,990 to $324,990, and the homes size range from 1,710 to 2,694 square feet ($ to $ per sq. ft.). The project is temporarily sold out and the prices for the next phase release are expected to be significantly higher. The residents pay homeowners dues of $77 per month. The other subdivision in Shadow Hills by Family Development is Bella Vida (map #5). The base prices of the homes range from $299,990 to $359,990, and the sizes range from 1,895 to 2,629 ($ to $ per sq. ft.). All of the 79 homes in this private, gated neighborhood have been released for sale and all have been sold at a rate of 2.65 homes per week. The homeowners will pay an association fee of $70 per month. The minimum lot size is 8,000 square feet. III-3

191 Market Profiles, Inc. Also in Shadow Hills is Sandhurst Cove (map #6). This project offers six plans consisting of 2-, 3-, and 4-bedroom configurations ranging in size from 1,680 to 2,720 square feet. The base prices of the homes ranged from $255,990 to $324,900 ($ to $ per sq. ft.). However, the property is temporarily sold out and the prices of the next phase of homes will be well above those of the most recent phase. All 80 homes that were released for sale in this private, gated neighborhood of 132 lots were sold at a rate of 3.0 homes per week. The minimum lot size is 8,100 square feet. The residents will pay a homeowners fee of $79 per month. PROPOSED NEW HOME DEVELOPMENT Presently, there are over 9,000 new homes within more than 40 subdivisions that are proposed for future development in the City of Indio. These projects are summarized in Exhibit III-7. With this scale of proposed activity, it is projected that the Indio market area will experience a competitive environment for the next few years. However, the market is currently undersupplied and the homes that are currently planned for development will be constructed in a phased manner over the next several years. Thus, it is projected that a healthy demand-supply condition is projected to be maintained for at least the next two years. A large proportion of the new homes that will be constructed in Indio over the next few years will be located in and around the Shadow Hills community located north of Interstate 10 Freeway at Jackson Street. There are three major developments that are proposed for development on sites located in the immediate vicinity of the subject site. The three projects are described below. Immediately west of the subject property is a 133-acre property that is planned for a new home development to be called Vista Laguna. This project is being developed by Rilington Communities and will consist of approximately 450 homes. The base prices of the homes are anticipated to range roughly from $300,000 to $500,000. The mix of lots in the community by size is shown in Text Table III-1 on the following page. Immediately southwest of the subject property is the site of the Desert Trace project. With 490 homes proposed, Desert Trace is the largest of the three planned projects. The homes will be developed jointly by Ashbrook Communities and KB Home. The developers are applying to the city for assessment district approval. The project is expected be under construction by early Immediately west of the Vista Laguna property is the site of a proposed neighborhood of 384 homes to be called Paradiso. The homes are proposed to be constructed by Lennar Homes. These homes are anticipated to be under construction by early III-4

192 Market Profiles, Inc. TEXT TABLE III-1 PROPOSED LOT MIX VISTA LAGUNA Neighborhood Category Dimensions Density Total Units 1 6, x , x , x , x , x TOTALS Source: Dahlin Group, Market Profiles III-5

193 EXHIBIT III-1 SUMMARY OF NEW HOME DEVELOPMENTS DETACHED PRODUCT COACHELLA VALLEY SECOND QUARTER 2004 Sales/Week Ranges Sales LotSize/ Total Total CurQtr Remain Community/ Development/Developer CurQtr Cum Price Sqft $/Sqft Start Density Units Sold Sold Unsold ForDev MasterPlan ADOBE SANTO TOMAS $460,000 2,380 $ Dec-03 9, RANCHO MIRAGE ASHBROOK COMMUNITIES $480,000 2,385 $ SANTO TOMAS AMALFI TUSCANA $870,000 2,790 $ Sep-03 10, INDIAN WELLS SUNRISE COMPANY $1,020,000 3,545 $ TUSCANA COUNTRY CLUB CAPRI $375,000 1,914 $ May-03 10, PALM DESERT STONEBRIDGE DEVELOPMENT $410,000 2,511 $ CAPRI MISSION SHORES $490,900 1,928 $ Nov-03 7, RANCHO MIRAGE DISTINGUISHED HOMES $579,000 2,235 $ MISSION SHORES BELLA CANTO $179,990 1,369 $ Jul-03 6, COACHELLA RILINGTON COMMUNITIES $224,990 2,019 $ STAND-ALONE BELLA SHADOW HILLS $299,990 1,895 $ Oct-03 8, INDIO FAMILY DEVELOPMENT $359,990 2,629 $ SHADOW HILLS BELLAGIO TUSCANA $1,105,000 3,669 $ Sep-03 12, INDIAN WELLS SUNRISE COMPANY $1,215,000 4,114 $ TOSCANA COUNTRY CLUB INDIAN PALMS C.C $329,900 1,648 $ Dec-02 5, INDIO FIRST PACIFICA DEVELOPMENT CORP. $344,900 1,981 $ INDIAN PALMS COUNTRY CLUB CAPRI $540,000 2,302 $ May-03 10, PALM DESERT STONEBRIDGE DEVELOPMENT $625,000 3,120 $ CAPRI CASA INDIAN PALMS C. C $470,990 1,704 $ Jun-04 4, INDIO FIRST PACIFICA DEVELOPMENT CORP. $499,990 2,101 $ INDIAN PALMS COUNTRY CLUB CIELO VISTA $735,000 3,020 $ Aug-03 10, RANCHO MIRAGE EHLINE COMPANY $850,000 3,550 $ STAND-ALONE CORAL TRILOGY $392,990 1,355 $ Aug-02 4, LA QUINTA SHEA HOMES $481,990 1,712 $ TRILOGY CORTONA TUSCANA $1,580,000 4,323 $ Sep-03 13, INDIAN WELLS SUNRISE COMPANY $1,730,000 4,809 $ TUSCANA COUNTRY CLUB DESERT VIEW ESTATES MOUNTAIN VIEW $260,900 1,685 $ Dec-03 7, DESERT HOT SPRINGS SIX KIDS DEVELOPMENT $290,900 1,890 $ STAND-ALONE DESERT WILLOWS $155,400 1,200 $ Oct-03 3, DESERT HOT SPRINGS LTV BUILDER DEVELOPERS, INC. $176,400 1,400 $ STAND-ALONE EL DORADO MOUNTAIN GATE $329,990 1,518 $ Jul-03 8, PALM SPRINGS CENTURY VINTAGE HOMES $412,990 2,778 $ MOUNTAIN GATE INDIAN PALMS COUNTRY CLU $300,505 1,509 $ Feb-02 5, INDIO DISTINGUISHED HOMES $325,735 1,801 $ INDIAN PALMS COUNTRY CLUB DESERT RIVER ESTATES $585,990 3,168 $ May-04 21, INDIO LENNAR/GREYSTONE $629,990 4,002 $ DESERT RIVER ESTATES ESTACIO $299,900 2,001 $ Feb-03 8, INDIO DESERT ELITE, INC. $379,900 2,779 $ STAND-ALONE RENAISSANCE $555,000 2,462 $ Apr-04 8, LA QUINTA TRANS WEST HOUSING $585,000 2,873 $ STAND-ALONE MARKET PROFILES, INC. PAGE 1 OF x3-1,2,3,4,5,6,7.xls

194 EXHIBIT III-1 SUMMARY OF NEW HOME DEVELOPMENTS DETACHED PRODUCT COACHELLA VALLEY SECOND QUARTER 2004 Sales/Week Ranges Sales LotSize/ Total Total CurQtr Remain Community/ Development/Developer CurQtr Cum Price Sqft $/Sqft Start Density Units Sold Sold Unsold ForDev MasterPlan FOUR SEASONS - CANYON COLLECTION $439,990 2,288 $ Dec-03 6, PALM SPRINGS K. HOVNANIAN COMPANIES $513,990 2,832 $ FOUR SEASONS FOUR SEASONS - PALM COLLECTION $360,990 1,900 $ Dec-03 5, PALM SPRINGS K. HOVNANIAN COMPANIES $380,990 2,102 $ FOUR SEASONS FREEDOM HOMES $149,900 1,372 $ Mar-03 7, DESERT HOT SPRINGS LA PALOMA HOMES INC. $274,900 1,800 $ STAND-ALONE SHADOW HILLS $254,990 1,710 $ Aug-03 8, INDIO FAMILY DEVELOPMENT $324,990 2,694 $ SHADOW HILLS HACIENDA HEIGHTS $231,500 1,400 $ Oct-03 9, DESERT HOT SPRINGS HACIENDA HEIGHTS, LLC. $275,500 2,218 $ STAND-ALONE INDIAN SPRINGS CC 400 SERIES $269,990 1,529 $ Feb-01 5, INDIO ROGER SNELLENBERGER & ASSOC. $483,990 2,410 $ INDIAN SPRINGS C.C. INDIAN SPRINGS CC 500 SERIES $447,990 2,122 $ Feb-01 7, INDIO ROGER SNELLENBERGER & ASSOC. $580,590 3,188 $ INDIAN SPRINGS C.C. LA PASADA $115,900 1,415 $ Oct-94 8, CATHEDRAL CITY PLAYA DE SOL DEVELOPMENT $249,000 2,030 $ STAND-ALONE LA QUINTA DEL ORO $396,990 2,385 $ Jun-03 8, LA QUINTA LENNAR/GREYSTONE $431,990 2,760 $ STAND-ALONE LANDAU HOMES $371,000 1,997 $ May-04 9, CATHEDRAL CITY LANDAU DEVELOPMENT $421,000 2,578 $ STAND-ALONE LAS PGA WEST $979,000 3,710 $ May-04 11, LA QUINTA CALIFORNIA COVE COMMUNITIES INC. $1,090,900 4,336 $ PGA WEST LEGACY MISSION HILLS C. C $830,000 2,528 $ Jun-04 13, RANCHO MIRAGE SHEFFIELD HOMES $938,000 3,615 $ MISSION HILLS C. C. LOS RIO VISTA VILLAGE $215,990 1,590 $ Jun-03 6, CATHEDRAL CITY ASHBROOK COMMUNITIES $264,990 2,334 $ RIO VISTA VILLAGE TRILOGY $500,990 1,821 $ Aug-02 5, LA QUINTA SHEA HOMES $573,990 2,163 $ TRILOGY MASTER SERIES DESERT PRINCESS $235,990 1,425 $ Mar-01 4, CATHEDRAL CITY LENNAR/GREYSTONE $255,990 1,825 $ DESERT PRINCESS SANTA ROSA $424,900 2,601 $ May-04 13, INDIO WESSMAN/GONZALES $509,900 3,382 $ STAND-ALONE MONTELENA $660,000 2,348 $ Mar-04 9, INDIAN WELLS TRANS WEST HOUSING $810,000 3,418 $ STAND-ALONE ESPLANADE $455,900 2,728 $ May-03 10, LA QUINTA PONDEROSA HOMES $490,900 3,053 $ ESPLANADE PGA WEST $876,975 3,741 $ Sep-03 12, LA QUINTA TOLL BROTHERS, INC. $936,975 4,167 $ PGA WEST NORMAN PGA WEST $870,000 3,070 $ Dec-00 14, LA QUINTA NORMAN ESTATES II, LLC $945,800 3,917 $ NORMAN COURSE PGA WEST PARADISE SPRINGS $244,990 1,258 $ May-04 7, DESERT HOT SPRINGS DORAMA LLC $294,990 2,168 $ STAND-ALONE MARKET PROFILES, INC. PAGE 2 OF x3-1,2,3,4,5,6,7.xls

195 EXHIBIT III-1 SUMMARY OF NEW HOME DEVELOPMENTS DETACHED PRODUCT COACHELLA VALLEY SECOND QUARTER 2004 Sales/Week Ranges Sales LotSize/ Total Total CurQtr Remain Community/ Development/Developer CurQtr Cum Price Sqft $/Sqft Start Density Units Sold Sold Unsold ForDev MasterPlan PLACITAS DE LA PAZ $151,990 1,068 $ Jun-02 5, COACHELLA CANADAY & COMPANY $179,990 1,550 $ STAND-ALONE POINT HAPPY RANCH $639,900 2,800 $ May-04 8, LA QUINTA EHLINE COMPANY $799,900 3,277 $ STAND-ALONE POSADA DEL VALLE $181,990 1,225 $ Aug-03 6, COACHELLA FORTE RESIDENTIAL $201,990 1,640 $ STAND-ALONE PS COLONY $549,000 2,499 $ Sep-03 10, PALM SPRINGS FAR WEST INDUSTRIES $584,000 3,042 $ STAND-ALONE PUERTA AZUL $349,990 1,380 $ Nov-03 3, LA QUINTA PACIFIC SANTA FE $389,990 1,740 $ STAND-ALONE RANCHO LAS FLORES $180,990 1,204 $ May-03 6, COACHELLA DESERT COMMUNITY DEVELOPERS $245,990 2,015 $ STAND-ALONE INDIAN PALMS C.C $339,990 1,704 $ Feb-01 6, INDIO DISTINGUISHED HOMES $471,990 2,495 $ INDIAN PALMS COUNTRY CLUB INDIAN PALMS C. C $408,990 1,825 $ Mar-04 6, INDIO FIRST PACIFICA DEVELOPMENT CORP. $459,990 2,073 $ INDIAN PALMS COUNTRY CLUB RIDGE HIDDEN CANYON $660,000 3,180 $ Mar-04 10, LA QUINTA TRANS WEST HOUSING $709,000 3,478 $ HIDDEN CANYON RIDGE VIEW $197,990 1,272 $ Jun-03 7, THOUSAND PALMS DESERT COMMUNITY DEVELOPERS $290,990 2,112 $ STAND-ALONE RIDGE HIDDEN CANYON $532,500 2,383 $ Mar-04 10, LA QUINTA TRANS WEST HOUSING $615,000 3,033 $ HIDDEN CANYON ROYAL INDIAN PALMS COUNTRY CLUB $450,000 1,624 $ Sep-01 4, INDIO FIRST PACIFICA DEVELOPMENT CORP. $480,000 1,997 $ INDIAN PALMS COUNTRY CLUB SANDHURST SHADOW HILLS $255,900 1,680 $ Oct-03 8, INDIO JEFF HAYDEN $324,900 2,720 $ SHADOW HILLS SANTA FE SANTO TOMAS $750,000 3,109 $ Dec-03 17, RANCHO MIRAGE ASHBROOK COMMUNITIES $775,000 3,376 $ SANTO TOMAS SANTA ROSA TRILOGY $611,990 2,398 $ Aug-02 6, LA QUINTA SHEA HOMES $664,990 2,769 $ TRILOGY SANTA ROSA TRAILS $589,500 2,583 $ May-04 10, LA QUINTA G5 INCORPORATED $689,000 2,949 $ STAND-ALONE SONORAN PALMILLA $979,000 4,024 $ Oct-01 13, LA QUINTA RJT HOMES $1,135,000 4,358 $ PALMILLA ST. AUGUSTINE $469,990 2,525 $ Sep-99 10, RANCHO MIRAGE ASHBROOK COMMUNITIES $579,500 3,650 $ STAND-ALONE SUN CITY SHADOW HILLS $387,900 1,454 $ Oct-03 5,000 3, ,489 INDIO PULTE HOMES CORPORATION $549,900 2,596 $ SUN CITY SUNBURST $244,990 1,586 $ Mar-04 7, INDIO LENNAR/GREYSTONE $284,990 2,008 $ STAND-ALONE SUNSPRING HOMES $168,990 1,211 $ Jul-00 7, DESERT HOT SPRINGS YEOMAN ASSOCIATES $193,990 1,603 $ STAND-ALONE MARKET PROFILES, INC. PAGE 3 OF x3-1,2,3,4,5,6,7.xls

196 EXHIBIT III-1 SUMMARY OF NEW HOME DEVELOPMENTS DETACHED PRODUCT COACHELLA VALLEY SECOND QUARTER 2004 Sales/Week Ranges Sales LotSize/ Total Total CurQtr Remain Community/ Development/Developer CurQtr Cum Price Sqft $/Sqft Start Density Units Sold Sold Unsold ForDev MasterPlan ESPLANADE $329,990 1,806 $ Jun-03 8, LA QUINTA LENNAR/GREYSTONE $369,990 2,225 $ ESPLANADE THE CANYONS OF PALM SPRINGS $795,000 2,262 $ Aug-03 7, PALM SPRINGS J. F. TEMPLE DEVELOPMENT, LLC. $956,900 2,673 $ STAND-ALONE THE EL DORADO MOUNTAIN VIE $304,990 1,518 $ Oct-03 5, DESERT HOT SPRINGS CENTURY VINTAGE HOMES $359,990 2,778 $ MISSION LAKES C. C. THE EL DORADO SHADOW HILLS $294,990 1,720 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $359,990 2,778 $ SHADOW HILLS THE ORCHARD $449,900 2,518 $ Apr-04 13, INDIO FAMILY DEVELOPMENT $585,900 3,600 $ STAND-ALONE THE PALMS OF LA QUINTA $799,000 2,550 $ Mar-03 11, LA QUINTA FIRST PACIFICA DEVELOPMENT CORP. $1,350,000 4,047 $ THE PALMS THE MOUNTAIN VIEW $831,975 3,047 $ Jan-03 11, LA QUINTA TOLL BROTHERS, INC. $858,975 3,412 $ MOUNTAIN VIEW THE VENTANA MOUNTAIN VIEW $259,990 1,211 $ Oct-03 5, DESERT HOT SPRINGS CENTURY VINTAGE HOMES $299,990 1,820 $ MISSION LAKES C. C. THE VENTANA SHADOW HILLS $259,990 1,208 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $299,990 1,843 $ SHADOW HILLS THE MOUNTAIN VIEW $717,975 2,631 $ Jan-03 9, LA QUINTA TOLL BROTHERS, INC. $769,975 3,047 $ MOUNTAIN VIEW THE VILLAS IN OLD PALM SPRINGS $495,000 1,753 $ Nov-03 4, PALM SPRINGS PALM SPRINGS MODERN HOMES, LLC. $660,000 2,442 $ STAND-ALONE THE MOUNTAIN VIEW $1,191,975 3,263 $ Jan-03 12, LA QUINTA TOLL BROTHERS, INC. $1,281,975 4,057 $ MOUNTAIN VIEW TURNBERRY PGA WEST $695,000 3,457 $ Feb-01 12, LA QUINTA TURNBERRY $695,000 3,829 $ NORMAN COURSE PGA WEST VENEZIA $759,900 2,469 $ May-03 9, PALM DESERT GHA COMPANIES $799,900 3,015 $ STAND-ALONE VENTANA MOUNTAIN GATE $279,990 1,211 $ Jul-03 5, PALM SPRINGS CENTURY VINTAGE HOMES $314,990 1,820 $ MOUNTAIN GATE VERSAILLES $499,900 2,049 $ Nov-02 8, RANCHO MIRAGE REGENCY HOMES $939,900 5,107 $ STAND-ALONE VILLA DEL RIO VISTA $241,950 1,597 $ Feb-04 5, CATHEDRAL CITY SOL PACIFIC, LLC. $262,950 1,810 $ RIO VISTA VILLAGE VILLA ESTATES SHADOW HILLS $264,990 1,302 $ Oct-03 6, INDIO CENTURY VINTAGE HOMES $359,990 2,735 $ SHADOW HILLS VISTA SANTA ROSA $320,900 1,714 $ Jul-03 8, LA QUINTA THE DEVON GROUP, INC. $424,900 2,603 $ STAND-ALONE MISSION SHORES $505,010 1,801 $ Jan-04 6, RANCHO MIRAGE DISTINGUISHED HOMES $569,340 2,302 $ MISSION SHORES 82 Total Projects ##### ,281 7,769 1, ,230 Average Per Development Source: Residential Trends, Market Profiles MARKET PROFILES, INC. PAGE 4 OF x3-1,2,3,4,5,6,7.xls

197 EXHIBIT III-2 NEW HOME MARKET SUMMARY BY SUBMARKET AREA DETACHED PRODUCT SECOND QUARTER 2004 # of Sales Averages Total Total CurQtr Remain Community Projects Per Week Price Sqft $/Sqft Units Sold Sold Unsold ForDev INDIAN WELLS/LA QUINTA $749,098 2,921 $ ,575 1, ,813 INDIO/COACHELLA $411,898 2,101 $ ,121 3, ,466 PALM DESERT $535,581 2,407 $ PALM SPRINGS/CATHEDRAL CITY $304,485 1,850 $ ,308 1, ,443 RANCHO MIRAGE $590,519 2,403 $ SINGLE FAMILY DETACHED TOTAL $361,324 2,336 $ ,281 7,769 1, ,230 Source: Residential Trends, Market Profiles MARKET PROFILES, INC x3-1,2,3,4,5,6,7.xls

198 EXHIBIT III-3 SUMMARY OF NEW HOME DEVELOPMENTS INDIO-COACHELLA SUBMARKET AREA SECOND QUARTER 2004 Sales/Week Ranges Sales LotSize/ Total Total CurQtr Remain Community/ Development/Developer CurQtr Cum Price* Sqft $/Sqft Start Density Units Sold Sold Unsold ForDev MasterPlan BELLA CANTO $179,990 1,369 $ Jul-03 6, COACHELLA RILINGTON COMMUNITIES $224,990 2,019 $ BELLA SHADOW HILLS $299,990 1,895 $ Oct-03 8, INDIO FAMILY DEVELOPMENT $359,990 2,629 $ SHADOW HILLS INDIAN PALMS C.C $329,900 1,648 $ Dec-02 5, INDIO FIRST PACIFICA DEVELOPMENT CORP. $344,900 1,981 $ INDIAN PALMS CC CASA INDIAN PALMS C. C $470,990 1,704 $ Jun-04 4, INDIO FIRST PACIFICA DEVELOPMENT CORP. $499,990 2,101 $ INDIAN PALMS CC INDIAN PALMS COUNTRY CLUB $300,505 1,509 $ Feb-02 5, INDIO DISTINGUISHED HOMES $325,735 1,801 $ INDIAN PALMS CC DESERT RIVER ESTATES $585,990 3,168 $ May-04 21, INDIO LENNAR/GREYSTONE $629,990 4,002 $ DESERT RIVER ESTATES ESTACIO $299,900 2,001 $ Feb-03 8, INDIO DESERT ELITE, INC. $379,900 2,779 $ SHADOW HILLS $254,990 1,710 $ Aug-03 8, INDIO FAMILY DEVELOPMENT $324,990 2,694 $ SHADOW HILLS INDIAN SPRINGS CC 400 SERIES $269,990 1,529 $ Feb-01 5, INDIO ROGER SNELLENBERGER & ASSOC. $483,990 2,410 $ INDIAN SPRINGS C.C. INDIAN SPRINGS CC 500 SERIES $447,990 2,122 $ Feb-01 7, INDIO ROGER SNELLENBERGER & ASSOC. $580,590 3,188 $ INDIAN SPRINGS C.C. SANTA ROSA $424,900 2,601 $ May-04 13, INDIO WESSMAN/GONZALES $509,900 3,382 $ PLACITAS DE LA PAZ $151,990 1,068 $ Jun-02 5, COACHELLA CANADAY & COMPANY $179,990 1,550 $ POSADA DEL VALLE $181,990 1,225 $ Aug-03 6, COACHELLA FORTE RESIDENTIAL $201,990 1,640 $ RANCHO LAS FLORES $180,990 1,204 $ May-03 6, COACHELLA DESERT COMMUNITY DEVELOPERS $245,990 2,015 $ INDIAN PALMS C.C $339,990 1,704 $ Feb-01 6, INDIO DISTINGUISHED HOMES $471,990 2,495 $ INDIAN PALMS CC INDIAN PALMS C. C $408,990 1,825 $ Mar-04 6, INDIO FIRST PACIFICA DEVELOPMENT CORP. $459,990 2,073 $ INDIAN PALMS CC ROYAL INDIAN PALMS COUNTRY CLUB $450,000 1,624 $ Sep-01 4, INDIO FIRST PACIFICA DEVELOPMENT CORP. $480,000 1,997 $ INDIAN PALMS CC SANDHURST SHADOW HILLS $255,900 1,680 $ Oct-03 8, INDIO JEFF HAYDEN $324,900 2,720 $ SHADOW HILLS SUN CITY SHADOW HILLS $387,900 1,454 $ Oct-03 5,000 3, ,489 INDIO PULTE HOMES CORPORATION $549,900 2,596 $ SUN CITY SUNBURST $244,990 1,586 $ Mar-04 7, INDIO LENNAR/GREYSTONE $284,990 2,008 $ THE EL DORADO SHADOW HILLS* $319,990 1,720 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $379,990 2,778 $ SHADOW HILLS THE ORCHARD $449,900 2,518 $ Apr-04 13, INDIO FAMILY DEVELOPMENT $585,900 3,600 $ THE VENTANA SHADOW HILLS* $279,990 1,208 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $319,990 1,843 $ SHADOW HILLS VILLA ESTATES SHADOW HILLS* $274,990 1,302 $ Oct-03 6, INDIO CENTURY VINTAGE HOMES $379,990 2,735 $ SHADOW HILLS 24 Total Projects ,121 3, ,466 Average Per Development * The base prices for The El Dorado Collection, The Ventana Collection, and for Villa Estates II are updated as of August 23, 2004, all other prices are as of mid-july Source: Residential Trends, Market Profiles MARKET PROFILES, INC. PAGE 1 OF x3-1,2,3,4,5,6,7.xls

199 EXHIBIT III-4 UNSOLD NEW DETACHED HOMES BY SUBMARKET AREA COACHELLA VALLEY APRIL 2004 NUMBER OF UNSOLD HOMES Submarket Under Area Completed Construction Pre-Selling Total Indio-Coachella La Quinta-Indian Wells-Bermuda Dunes Palm Desert Rancho Mirage Cathedral City-Palm Springs Totals Source: Residential Trends, Market Profiles MARKET PROFILES, INC x3-1,2,3,4,5,6,7.xls

200 EXHIBIT III-5 SUMMARY OF NON-COUNTRY CLUB NEW HOME DEVELOPMENTS CITY OF INDIO SECOND QUARTER 2004 Map Sales/Week Ranges Sales LotSize/ Total Total CurQtr Remain Community/ Key Development/Developer CurQtr Cum Price* Sqft $/Sqft Start Density Units Sold Sold Unsold ForDev MasterPlan 5 BELLA SHADOW HILLS $299,990 1,895 $ Oct-03 8, INDIO FAMILY DEVELOPMENT $359,990 2,629 $ SHADOW HILLS DESERT RIVER ESTATES $585,990 3,168 $ May-04 21, INDIO LENNAR/GREYSTONE $629,990 4,002 $ DESERT RIVER ESTATES ESTACIO $299,900 2,001 $ Feb-03 8, INDIO DESERT ELITE, INC. $379,900 2,779 $ SHADOW HILLS $254,990 1,710 $ Aug-03 8, INDIO FAMILY DEVELOPMENT $324,990 2,694 $ SHADOW HILLS SANTA ROSA $424,900 2,601 $ May-04 13, INDIO WESSMAN/GONZALES $509,900 3,382 $ SANDHURST SHADOW HILLS $255,900 1,680 $ Oct-03 8, INDIO JEFF HAYDEN $324,900 2,720 $ SHADOW HILLS SUNBURST $244,990 1,586 $ Mar-04 7, INDIO LENNAR/GREYSTONE $284,990 2,008 $ THE EL DORADO SHADOW HILLS* $319,990 1,720 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $379,990 2,778 $ SHADOW HILLS THE ORCHARD $449,900 2,518 $ Apr-04 13, INDIO FAMILY DEVELOPMENT $585,900 3,600 $ THE VENTANA SHADOW HILLS* $279,990 1,208 $ Mar-03 6, INDIO CENTURY VINTAGE HOMES $319,990 1,843 $ SHADOW HILLS 3 VILLA ESTATES SHADOW HILLS* $274,990 1,302 $ Oct-03 6, INDIO CENTURY VINTAGE HOMES $379,990 2,735 $ SHADOW HILLS 11 Total Projects , Average Per Development * The base prices for The El Dorado Collection, The Ventana Collection, and for Villa Estates II are updated as of August 23, 2004, all other prices are as of mid-july Source: Residential Trends, Market Profiles MARKET PROFILES, INC. PAGE 1 OF x3-1,2,3,4,5,6,7.xls

201 EXHIBIT III-6 NEW HOME PROJECTS LOCATION MAP MARKET PROFILES, INC x3-1,2,3,4,5,6,7.xls