$2,450,000 community facilities district no. · pdf fileor the state or any political...

NEW ISSUE NOT RATEDIn the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and

court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, intereston the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and isexempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specificpreference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that suchinterest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses noopinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds.See “LEGAL MATTERS - Tax Exemption.”

$2,450,000COMMUNITY FACILITIES DISTRICT NO. 2003-2

OF THE SAN JACINTO UNIFIED SCHOOL DISTRICTSPECIAL TAX BONDS (INFRASTRUCTURE PROJECTS), SERIES 2005

Dated: Date of Delivery Due: September 1, as shown on inside coverAuthority for Issuance. The bonds captioned above (the “Bonds”) are being issued under the Mello-Roos Community Facilities

Act of 1982 (the “Act”) and an Indenture, dated as of October 1, 2005, by and between the Community Facilities District No. 2003-2 of the SanJacinto Unified School District (the “Community Facilities District”) and Zions First National Bank, as trustee (the “Trustee”). The Board ofTrustees (the “Board”) of the San Jacinto Unified School District (the “School District”), acting as legislative body of the Community FacilitiesDistrict, and the eligible landowner voters in the Community Facilities District, have authorized the issuance of bonds in an aggregate principalamount not to exceed $7,000,000. See “THE BONDS – Authority for Issuance.”

Security and Sources of Payment. The Bonds are payable from proceeds of Net Special Tax Revenues (as defined herein) leviedon property within the Community Facilities District according to the rate and method of apportionment of special tax (the “Rate and Method”)approved by the Board and the eligible landowner voters in the Community Facilities District. The Bonds are secured by a first pledge of allNet Special Tax Revenues and the moneys deposited in certain funds held by the Trustee under the Indenture. See “SECURITY FOR THEBONDS.”

Issuance of Future Bonds. The Bonds are the first series of bonds to be issued under the $7,000,000 bond authorization for theCommunity Facilities District. Although the Bonds are the only series of Bonds that will be secured by Net Special Tax Revenues under theIndenture, the Community Facilities District anticipates that it will issue a subsequent series of bonds secured by a separate special tax underthe Rate and Method, which will constitute a separate lien on the property within the Community Facilities District with the same priority as thelien of the Special Taxes securing the Bonds. See “FINANCING PLAN.”

Use of Proceeds. The Bonds are being issued to (i) finance public sewer and water facilities to be owned and operated by theEastern Municipal Water District, which may include such facilities that are included in Eastern Municipal Water District’s sewer and watercapacity and connection fee programs with respect to the property in the Community Facilities District, (ii) finance certain street improvementsand related public facilities to be owned and maintained by the City of San Jacinto (the “City”), which may include such facilities that areincluded in the City’s development impact fee program with respect to the property in the Community Facilities District, (iii) fund a reserve fundfor the Bonds, (iv) fund capitalized interest on the Bonds for 12 months after the Bonds are issued, (v) pay certain administrative expenses ofthe Community Facilities District, and (vi) pay the costs of issuing the Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” and“FINANCING PLAN.”

Bond Terms. Interest on the Bonds is payable on March 1, 2006, and semiannually thereafter on each March 1 and September 1.The Bonds will be issued in denominations of $5,000 or integral multiples of $5,000. The Bonds, when delivered, will be initially registered inthe name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), New York, New York. DTC will act as securities depositoryfor the Bonds. See “THE BONDS – General Bond Terms” and “APPENDIX E – DTC and the Book-Entry Only System.”

Redemption. The Bonds are subject to optional redemption and mandatory sinking fund redemption before maturity. See “THEBONDS - Redemption.”

THE BONDS, THE INTEREST THEREON, AND ANY PREMIUMS PAYABLE ON THE REDEMPTION OF ANY OF THE BONDS,ARE NOT AN INDEBTEDNESS OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT, THE STATE OF CALIFORNIA(THE “STATE”) OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE SCHOOL DISTRICT, THE COMMUNITY FACILITIESDISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED IN THIS OFFICIAL STATEMENT), THE STATE NOR ANY OF ITS POLITICALSUBDIVISIONS IS LIABLE ON THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOLDISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED IN THIS OFFICIAL STATEMENT)OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. OTHER THAN THESPECIAL TAXES, NO TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT A GENERAL OBLIGATIONOF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLESOLELY FROM THE NET SPECIAL TAX REVENUES AND CERTAIN OTHER FUNDS PLEDGED UNDER THE INDENTURE, AS MOREFULLY DESCRIBED IN THIS OFFICIAL STATEMENT.

MATURITY SCHEDULE(see inside cover)

This cover page contains certain information for quick reference only. It is not a summary of the issue. Potentialinvestors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.Investment in the Bonds involves risks which may not be appropriate for some investors. See “BONDOWNERS' RISKS” for adiscussion of special risk factors that should be considered in evaluating the investment quality of the Bonds.

The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to the approval as to their validity by Orrick,Herrington & Sutcliffe LLP, Bond Counsel, and subject to certain other conditions. Jones Hall, A Professional Law Corporation, SanFrancisco, California is acting as Disclosure Counsel. Certain legal matters will be passed on for the School District and the CommunityFacilities District by Joel T. Boehm, Attorney at Law, Carlsbad, California, special counsel to the Community Facilities District. It is anticipatedthat the Bonds, in book-entry form, will be available for delivery through the facilities of DTC on or about October 6, 2005.

The date of this Official Statement is: September 22, 2005

MATURITY SCHEDULE

$785,000 Serial Bonds(Base CUSIP†: 797867)

Maturity Principal Interest(September 1) Amount Rate Yield Price CUSIP†

2007 $45,000 3.000% 3.000% 100.000% BV92008 45,000 3.250 3.250 100.000 BW72009 45,000 3.550 3.550 100.000 BX52010 45,000 3.850 3.850 100.000 BY32011 50,000 3.950 3.950 100.000 BZ02012 50,000 4.100 4.100 100.000 CA42013 55,000 4.200 4.200 100.000 CB22014 55,000 4.300 4.300 100.000 CC02015 60,000 4.400 4.400 100.000 CD82016 60,000 4.550 4.550 100.000 CE62017 65,000 4.650 4.650 100.000 CF32018 65,000 4.750 4.750 100.000 CG12019 70,000 4.850 4.850 100.000 CH92020 75,000 4.900 4.900 100.000 CJ5

$425,000 5.000% Term Bond due September 1, 2025, Price: 100.000%CUSIP† No. 797867 CK2

$545,000 5.050% Term Bond due September 1, 2030, Price: 100.000%CUSIP† No. 797867 CL0

$695,000 5.100% Term Bond due September 1, 2035, Price: 100.000%CUSIP† No. 797867 CM8

† Copyright 2005, American Bankers Association. CUSIP data herein are provided by Standard & Poor's CUSIP ServiceBureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. Neither theCommunity Facilities District, the School District nor the Underwriter assumes any responsibility for the accuracy of theseCUSIP data.

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other personhas been authorized to give any information or to make any representations with respect to the Bonds other than ascontained in this Official Statement, and if given or made, such other information or representation must not berelied upon as having been authorized.

No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitationof an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making suchoffer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.

Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinioncontained in this Official Statement are subject to change without notice. Neither the delivery of this OfficialStatement nor any sale of the Bonds will, under any circumstances, create any implication that there has been nochange in the affairs of the School District, the Community Facilities District, any other parties described in thisOfficial Statement, or in the condition of property within the Community Facilities District since the date of thisOfficial Statement.

Use of this Official Statement. This Official Statement is submitted in connection with the sale of the Bondsreferred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This OfficialStatement is not a contract with the purchasers of the Bonds.

Preparation of this Official Statement. The information contained in this Official Statement has been obtainedfrom sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness.

The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter hasreviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investorsunder the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriterdoes not guarantee the accuracy or completeness of such information.

Document References and Summaries. All references to and summaries of the Indenture or other documentscontained in this Official Statement are subject to the provisions of those documents and do not purport to becomplete statements of those documents.

Stabilization of and Changes to Offering Prices. The Underwriter may overallot or take other steps that stabilizeor maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Ifcommenced, the Underwriter may discontinue such market stabilization at any time. The Underwriter may offer andsell the Bonds to certain dealers, dealer banks and banks acting as agent at prices lower than the public offeringprices stated on the cover page of this Official Statement, and those public offering prices may be changed fromtime to time by the Underwriter.

Bonds are Exempt from Securities Laws Registration. The issuance and sale of the Bonds have not beenregistered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, inreliance upon exemptions for the issuance and sale of municipal securities provided under Section 3(a)(2) of theSecurities Act of 1933 and Section 3(a)(12) of the Securities Exchange Act of 1934.

Estimates and Projections. Certain statements included or incorporated by reference in this Official Statementconstitute “forward-looking statements” within the meaning of the United States Private Securities Litigation ReformAct of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A ofthe United States Securities Act of 1933, as amended. Such statements are generally identifiable by theterminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words.

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHERFACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TOBE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTSEXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE COMMUNITY FACILITIESDISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKINGSTATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ONWHICH SUCH STATEMENTS ARE BASED OCCUR.

SAN JACINTO UNIFIED SCHOOL DISTRICT

BOARD OF TRUSTEES

John Norman, PresidentWillie Hamilton, Clerk

Deborah Rex, MemberJohn Schouten, MemberKenneth Cope, Member

SCHOOL DISTRICT STAFF

Myrna Rohr, Interim SuperintendentJoseph R. Busek, Assistant Superintendent, Business and Facilities

Julie Arthur, Director, Planning and Development

BOND COUNSEL

Orrick, Herrington & Sutcliffe LLPLos Angeles, California

DISTRICT SPECIAL COUNSEL

Joel T. Boehm, Attorney at LawCarlsbad, California

DISCLOSURE COUNSEL

Jones Hall, A Professional Law CorporationSan Francisco, California

APPRAISER

Stephen G. White, MAIFullerton, California

SPECIAL TAX CONSULTANTand CFD ADMINISTRATOR

David Taussig & Associates, Inc.Newport Beach, California

TRUSTEE

Zions First National BankLos Angeles, California

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TABLE OF CONTENTS

Page PageINTRODUCTION 1ESTIMATED SOURCES AND USES OFFUNDS 5FINANCING PLAN 6Community Facilities District Financing Plan 6Facilities to be Financed with the Bonds 6SB 50 Agreement 7Eastern Municipal Water District JCFA 7City JCFA 8THE BONDS 8General Bond Terms 8Authority for Issuance 9Debt Service Schedule 11Redemption 11No Additional Bonds Except for Refunding 14Registration, Transfer and Exchange 14SECURITY FOR THE BONDS 15General 15Special Taxes 16Rate and Method 17Covenant to Foreclose 21Letter of Credit or Cash Deposit 22Letter of Credit Requirements 23Cash Deposit Requirements 27Special Tax Fund 29Bond Fund 30Redemption Fund 30Reserve Fund 30Investment of Moneys 31THE SCHOOL DISTRICT 32General Information 32Administration and Enrollment 32THE COMMUNITY FACILITIES DISTRICT 34General 34Estimated Maximum Special Tax Proceeds andDebt Service Coverage 34Appraised Property Value 34

Appraised Value to Burden Ratio 36Direct and Overlapping GovernmentalObligations 37Estimated Tax Burden on Single Family Home 40PROPERTY OWNERSHIP AND PROPOSEDDEVELOPMENT 41Empire 41Gateway 43Environmental Conditions 44Proposed Development 46BOND OWNERS' RISKS 50Limited Obligation Of the Community FacilitiesDistrict to Pay Debt Service 50Levy and Collection of the Special Tax 50Payment of Special Tax is not a PersonalObligation of the Property Owner 51Appraised Values 51Property Values and Property Development 52Concentration of Property Ownership 54Other Possible Claims Upon the Value ofTaxable Property 55Exempt Properties 55Depletion of Reserve Fund 56Bankruptcy and Foreclosure Delays 56Disclosure to Future Purchasers 59No Acceleration Provisions 59Loss of Tax Exemption 59Voter Initiatives 59LEGAL MATTERS 60Legal Opinions 60Tax Exemption 60No Litigation 62CONTINUING DISCLOSURE 63NO RATINGS 64UNDERWRITING 64PROFESSIONAL FEES 65

APPENDIX A – General Information About the City of San Jacinto and Riverside CountyAPPENDIX B – First Amended Rate and Method of Apportionment for Community Facilities

District No. 2003-2 of San Jacinto Unified School DistrictAPPENDIX C – Summary Appraisal ReportAPPENDIX D – Summary of IndentureAPPENDIX E – DTC and the Book-Entry Only SystemAPPENDIX F – Form of Issuer Continuing Disclosure CertificateAPPENDIX G – Form of Property Owner Disclosure CertificateAPPENDIX H – Form of Opinion of Bond CounselAPPENDIX I – Community Facilities District Boundary Map

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OFFICIAL STATEMENT



INTRODUCTION

This Official Statement, including the cover page and attached appendices, is providedto furnish information regarding the bonds captioned above (the “Bonds”) to be issued byCommunity Facilities District No. 2003-2 of the San Jacinto Unified School District (the“Community Facilities District”).

This introduction is not a summary of this Official Statement. It is only a brief descriptionof and guide to, and is qualified by, more complete and detailed information contained in theentire Official Statement, including the cover page and attached appendices, and thedocuments summarized or described in this Official Statement. A full review should be made ofthe entire Official Statement. The offering of the Bonds to potential investors is made only bymeans of the entire Official Statement.

Capitalized terms used but not defined in this Official Statement have the definitionsgiven in the Indenture (as defined below).

The School District. The San Jacinto Unified School District (the "School District") islocated in the western portion of Riverside County (the "County") and encompassesapproximately 100 square miles within the Cities of San Jacinto, Hemet, Moreno Valley andBeaumont, and certain unincorporated areas in the County. The School District had 7,528students enrolled for Fiscal Year 2004-05, and as of September 6, 2005, the current estimatedstudent enrollment was 7,823. See "THE SCHOOL DISTRICT.”

Property Ownership. The current owners of the taxable property within the CommunityFacilities District (collectively, the “Property Owners”) are:

• Empire Homes SJ 137 LP, a California limited partnership (“Empire Homes”)whose general partner is Empire Homes, Inc., a California corporation, and

• Gateway Inland, LLC, a California limited liability company (“Gateway”) and amember of an affiliated group of homebuilding firms known as “The GatewayCompanies.”

The Property Owners are in the process of developing the property in the CommunityFacilities District as a total of 229 detached single-family homes. For detailed information aboutthe Property Owners, current land uses and proposed development plans for the property in theCommunity Facilities District, see “PROPERTY OWNERSHIP AND PROPOSEDDEVELOPMENT.”

The Community Facilities District. The Community Facilities District was formed andestablished by the School District on December 19, 2003, under the Mello-Roos CommunityFacilities Act of 1982, as amended (the “Act”), following a public hearing conducted by theBoard of Trustees of the School District (the “Board”), as legislative body of the Community

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Facilities District, and a landowner election at which the qualified electors of the CommunityFacilities District authorized the Community Facilities District to incur bonded indebtedness andapproved the levy of special taxes.

The Community Facilities District was also formed pursuant to the following agreements:

• an SB 50 Finance Agreement dated as of December 1, 2003, by andamong the School District and the Property Owners (the “SB 50 Agreement”), and

• a Joint Community Facilities Agreement dated as of December 1, 2003(the “Eastern Municipal Water District JCFA”), by and among the School District, EasternMunicipal Water District (“EMWD”), and the Property Owners, and

• a Joint Community Facilities Agreement dated as of December 1, 2003(the “City JCFA”), by and between the School District and the City of San Jacinto (the“City”).

See “FINANCING PLAN.”

Authority for Issuance of the Bonds. The Bonds are issued under the Act, certainresolutions adopted by the Board and an Indenture, dated as of October 1, 2005 (the“Indenture”), by and between the Community Facilities District and Zions First National Bank, asTrustee (the “Trustee”). See “THE BONDS – Authority for Issuance.”

Purpose of the Bonds. Proceeds of the Bonds will be used primarily to finance waterand sewer facilities to be owned and operated by EMWD, which may include such facilities thatare included in EMWD’s sewer and water capacity and connection fee programs with respect tothe property in the Community Facilities District, and street, sewer, storm drain, park andrecreation and fire station facilities to be owned and maintained by the City, which may includesuch facilities that are included in the City’s development impact fee program with respect to theproperty in the Community Facilities District.

Bond proceeds will also fund a reserve fund for the Bonds, fund capitalized interest onthe Bonds for 12 months after the Bonds are issued, pay certain administrative expenses of theCommunity Facilities District, and pay the costs of issuing the Bonds. See “ESTIMATEDSOURCES AND USES OF FUNDS” and “FINANCING PLAN.”

Security and Sources of Payment for the Bonds. The Bonds are secured by andpayable from a first pledge of the net proceeds of “Special Tax A” (as defined herein) levied onthe property in the Community Facilities District (the “Net Special Tax Revenues”) in accordancewith the First Amended Rate and Method of Apportionment for Community Facilities District No.2003-2 of San Jacinto Unified School District (the “Rate and Method”). The Bonds will beadditionally secured by all moneys deposited in the Special Tax Fund, the Bond Fund and theReserve Fund. The pledge of Net Special Tax Revenues and the moneys deposited in thesefunds is subject to the provisions of the Indenture permitting the application thereof for thepurposes and on the terms and conditions set forth therein. See “FINANCING PLAN” and“SECURITY FOR THE BONDS” for a more detailed description of Special Tax A and the NetSpecial Tax Revenues, and for a further description of the security for the Bonds.

In addition, each Property Owner is required to provide an irrevocable standby letter ofcredit (each, a “Letter of Credit”) in favor of the Trustee, or a cash deposit (“Cash Deposit”) to be

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deposited with the Trustee, to secure payment of Special Taxes levied against its property in theCommunity Facilities District for a limited period. See “SECURITY FOR THE BONDS – Letterof Credit Requirements” and “SECURITY FOR THE BONDS – Cash Deposit Requirements.”

The Community Facilities District has covenanted in the Indenture to cause foreclosureproceedings to be commenced and prosecuted against parcels with delinquent installments ofthe Special Taxes under certain circumstances. For a more detailed description of theforeclosure covenant see “SECURITY FOR THE BONDS - Covenant to Foreclose.”

Issuance of Future Bonds. The Bonds are the first series of bonds to be issued underthe $7,000,000 bond authorization for the Community Facilities District. Although the Bonds arethe only series of Bonds that will be secured by the special tax designated as “Special Tax A”under the Rate and Method and Net Special Tax Revenues under the Indenture, the CommunityFacilities District anticipates that it will issue a subsequent series of bonds secured by aseparate special tax under the Rate and Method (the “Special Tax B”) for the purpose offinancing school facilities. The Special Tax B will constitute a separate lien on the propertywithin the Community Facilities District with the same priority as the lien of the Special Taxessecuring the Bonds. See “FINANCING PLAN” and “BOND OWNERS’ RISKS – Other PossibleClaims Upon the Value of Taxable Property.”

Appraisal. An appraisal of the property within the Community Facilities District datedAugust 9, 2005 (the “Appraisal”), was prepared by Stephen G. White, MAI of Fullerton,California (the “Appraiser”) in connection with issuance of the Bonds. The purpose of theappraisal was to ascertain the market value of the fee simple estate for the taxable property inthe Community Facilities District as of an August 1, 2005 date of value. Subject to theassumptions contained in the Appraisal, the Appraiser estimated that the fee simple interest inthe property within the Community Facilities District, subject to the lien of the Special Taxes,had a combined estimated aggregate value of $21,360,000. See “THE COMMUNITYFACILITIES DISTRICT – Appraised Property Value” and “APPENDIX C – Summary AppraisalReport” for further information on the Appraisal.

Risk Factors Associated with Purchasing the Bonds. Investment in the Bondsinvolves risks that may not be appropriate for some investors. See “BOND OWNERS' RISKS”for a discussion of certain risk factors which should be considered, in addition to the othermatters set forth in this Official Statement, in considering the investment quality of the Bonds.

Professionals Involved in the Offering. The following professionals are participatingin this financing:

• Zions First National Bank, Los Angeles, California, will serve as thetrustee, paying agent, registrar, authentication and transfer agent for the Bonds and willperform the functions required of it under the Indenture.

• Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, is serving asBond Counsel to the Community Facilities District.

• Joel T. Boehm, Attorney at Law, Carlsbad, California, is serving asspecial counsel to the Community Facilities District and the School District.

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• Jones Hall, A Professional Law Corporation, San Francisco, California, isacting as Disclosure Counsel to the Community Facilities District.

• The appraisal work was done by Stephen G. White, MAI of Fullerton,California.

• David Taussig & Associates, Inc., of Newport Beach, California, acted asspecial tax consultant to the Community Facilities District and will act as administrator tothe Community Facilities District and dissemination agent for the Community FacilitiesDistrict under the Issuer Continuing Disclosure Certificate described below.

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ESTIMATED SOURCES AND USES OF FUNDS

The proceeds from the sale of the Bonds will be deposited into the following fundsestablished by the Community Facilities District under the Indenture:

SOURCESPrincipal Amount of Bonds $2,450,000.00Less: Underwriter's Discount (73,500.00)

Total Sources $2,376,500.00

USESDeposit into Capitalized Interest Account of Bond Fund [1] $ 117,610.00Deposit into Reserve Fund [2] 162,967.50Deposit into Costs of Issuance Fund [3] 205,000.00Deposit into Improvement Fund

City Facilities Account [4] 261,056.75EMWD Facilities Account [5] 1,617,365.75

Deposit into Administrative Expense Fund 12,500.00Total Uses $2,376,500.00

[1] Represents interest on the Bonds for 12 months after the Bonds are issued.[2] Equal to the Reserve Requirement with respect to the Bonds as of their date of delivery.[3] Includes, among other things, the fees and expenses of Bond Counsel and Disclosure Counsel, the

cost of printing the final Official Statement, fees and expenses of the Trustee, reimbursement ofdeveloper advances, and the fees of the Special Tax Consultant.

[4] Will be used to pay the costs of City Facilities, as defined below. See “FINANCING PLAN” below.[5] Will be used to pay the costs of Water and Sewer Facilities, as defined below. See “FINANCING

PLAN” below.

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FINANCING PLAN

Community Facilities District Financing Plan

Under the Resolution of Intention adopted by the Community Facilities District onNovember 18, 2003, the Community Facilities District is authorized to finance public facilities(collectively, the “Facilities”) consisting of school facilities to be owned and operated by theSchool District (“School Facilities”), water and sewer facilities to be owned and operated byEMWD (“Water and Sewer Facilities”), and street improvements and other public facilities to beowned and maintained by the City (“City Facilities”).

The Rate and Method creates two separate special taxes within the CommunityFacilities District: “Special Tax A,” which is designated for financing Water and Sewer Facilitiesand City Facilities (and which will serve as security for the Bonds), and “Special Tax B,” which isdesignated for financing School Facilities. See “SECURITY FOR THE BONDS – Rate andMethod.”

The Bonds are the first series of bonds to be issued under the $7,000,000 bondauthorization for the Community Facilities District. The Bonds are the only series of Bonds thatwill be secured by Special Tax A levied under the Rate and Method, and the Net Special TaxRevenues received by the Community Facilities District under the Indenture. However, theCommunity Facilities District anticipates that it will issue a subsequent series of bonds securedby Special Tax B under the Rate and Method, which will constitute a separate lien on theproperty within the Community Facilities District with the same priority as the lien of the SpecialTaxes securing the Bonds. See “BOND OWNERS’ RISKS – Other Possible Claims Upon theValue of Taxable Property.”

Facilities to be Financed with the Bonds

The proceeds of the Bonds will be used solely for the acquisition and construction ofWater and Sewer Facilities and City Facilities, as further described below.

Water and Sewer Facilities. Under the Eastern Municipal Water District JCFA,“Water and Sewer Facilities” may include sewer and water transmission lines, sewer andwater pump stations and water reservoirs, and water and sewer facilities included inEMWD’s water and sewer capacity and connection fee programs used to financeexpansion projects, such as water and sewer transmission pipelines, sewer treatmentplants, disposal ponds, pumping plants, lift stations, and water reservoirs. The cost ofWater and Sewer Facilities include all costs of site acquisition, planning, design,engineering, legal services, materials testing, coordination, surveying, constructionstaking, construction inspection, and any and all appurtenant facilities and work. Thecosts of the Water and Sewer Facilities are attributable to the proposed development ofthe property in the Community Facilities District and will be used to construct facilitiesneeded to provide water and sewer services to the property in the Community FacilitiesDistrict. The Water and Sewer Facilities will be owned and operated by EMWD.

The proceeds of the Bonds are anticipated to provide approximately $1,617,366for Water and Sewer Facilities, which is anticipated to represent all of Empire’sobligations to pay Water and Sewer Facilities costs and a portion of Gateway’sobligations to pay Water and Sewer Facilities costs. The Property Owners will remain

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responsible to pay any Water and Sewer Facilities costs not funded with the proceeds ofthe Bonds.

Gateway previously paid a portion of the costs of Water and Sewer Facilitiesowed with respect to its property in the Community Facilities District. These completedWater and Sewer Facilities costs will be funded using a portion of the proceeds of theBonds, and upon such funding, those costs previously advanced by Gateway will bereimbursed to Gateway by EMWD.

City Facilities. Under the City JCFA, “City Facilities” may include streetimprovements, such as grading, paving, curbs and gutters, sidewalks, streetsignalization and signage, street lights and parkway and landscaping related thereto,sewers, storm drains, public parks and recreation facilities and land, fire stationimprovements, rights-of-way and easements necessary for any of these facilities. Thecosts of the City Facilities are attributable to the proposed development of the property inthe Community Facilities District. The City Facilities will be owned and maintained bythe City.

The proceeds of the Bonds are anticipated to provide approximately $261,057 forCity Facilities, which is anticipated to represent a portion of the obligations of EmpireHomes to pay City Facilities costs. The Property Owners will remain responsible to payany City Facilities costs not funded with the proceeds of the Bonds.

SB 50 Agreement

General. The SB 50 Agreement establishes a means for financing the Property Owners’school impact fee obligations under SB 50, as well as the Property Owners’ obligations to paythe costs of Water and Sewer Facilities and City Facilities.

The SB 50 Agreement further requires each Property Owner to provide an irrevocablestandby letter of credit or cash deposit to secure the payment of Special Taxes levied on itsproperty in the Community Facilities District for a limited period. This requirement will besatisfied in accordance with the Indenture. See “SECURITY FOR THE BONDS – Letter ofCredit Requirements” and “SECURITY FOR THE BONDS – Cash Deposit Requirements.”

Eastern Municipal Water District JCFA

The Eastern Municipal Water District JCFA sets forth conditions and procedures for thepayment of the Water and Sewer Facilities costs with a portion of the proceeds of the Bonds,and for the disbursement of a portion of the proceeds of the Bonds for this purpose. TheEastern Municipal Water District JCFA provides that the Property Owner will remain obligated topay any Water and Sewer Facilities costs not paid with the proceeds of the Bonds.

The Eastern Municipal Water District JCFA provides that EMWD may require PropertyOwners to design, construct and dedicate to EMWD certain water and sewer facilities as acondition to providing water and sewer service to the property in the Community FacilitiesDistrict, and sets forth procedures and requirements for the construction of such facilities.

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City JCFA

The City JCFA sets forth conditions and procedures for the payment of the City Facilitiescosts with a portion of the proceeds of the Bonds, and for the disbursement of a portion of theproceeds of the Bonds for this purpose.

THE BONDS

General Bond Terms

Dated Date, Maturity and Authorized Denominations. The Bonds will be dated theirdate of delivery and will mature in the amounts and on the dates set forth on the inside coverpage of this Official Statement. The Bonds will be issued in fully registered form indenominations of $5,000 each or any integral multiple of $5,000, so long as no Bond has morethan one maturity date.

Interest. The Bonds will bear interest at the annual rates set forth on the inside coverpage of this Official Statement, payable semiannually on each March 1 and September 1,commencing March 1, 2006 (each, an “Interest Payment Date”). Interest will be calculated onthe basis of a 360-day year composed of twelve 30-day months.

Payments of Interest and Principal. Interest on the Bonds is payable from the InterestPayment Date next preceding their date of authentication unless (i) a Bond is authenticated onor before an Interest Payment Date and after the close of business on the preceding RecordDate, in which event it will bear interest from such Interest Payment Date, (ii) a Bond isauthenticated on or before the first Record Date, in which event interest thereon will be payablefrom the Closing Date, or (iii) interest on any Bond is in default as of its date of authentication, inwhich event interest will be payable from the date to which interest has previously been paid orduly provided for.

Interest will be paid in lawful money of the United States on each Interest Payment Date.Interest will be paid by check of the Trustee mailed by first class mail, postage prepaid (or bywire transfer made on such Interest Payment Date upon the written instructions of any Owner of$1,000,000 or more Bonds to an account within the United States of America), on each InterestPayment Date to the Bond Owners at their respective addresses shown on the RegistrationBooks as of the close of business on the preceding Record Date. Notwithstanding theforegoing, interest on any Bond which is not punctually paid or duly provided for on any InterestPayment Date will, if and to the extent that amounts subsequently become available therefor, bepaid on a payment date established by the Trustee to the Person in whose name the ownershipof such Bond is registered on the Registration Books at the close of business on a specialrecord date to be established by the Trustee for the payment of such defaulted interest, noticeof which will be given to such Owner not less than ten days prior to such special record date.

The principal of the Bonds is payable in lawful money of the United States of Americaupon presentation and surrender thereof upon maturity or earlier redemption at the Office of theTrustee. Payment of principal of any Bond will be made only upon presentation and surrenderof such Bond at the Office of the Trustee.

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DTC and Book-Entry Only System. The Depository Trust Company (“DTC”) will act assecurities depository for the Bonds. The Bonds will be issued as fully-registered securitiesregistered initially in the name of Cede & Co. (DTC’s partnership nominee).

Except as provided in the Indenture, the registered Owner of all of the Bonds will beDTC and the Bonds will be registered in the name of Cede & Co., as nominee of DTC.Notwithstanding anything to the contrary contained in the Indenture or described above,payment of interest with respect to any Bond registered as of each Record Date in the name ofCede & Co. will be made by wire transfer of same-day funds to the account of Cede & Co. onthe payment date for the Bonds at the address indicated on the Record Date for Cede & Co. inthe Registration Books.

See “APPENDIX E – DTC and the Book-Entry Only System.”

Authority for Issuance

Community Facilities District Proceedings. The Bonds will be issued under the Actand the Indenture. In addition, as required by the Act, the Board has taken the following actionswith respect to establishing the Community Facilities District and authorizing issuance of theBonds:

Resolutions of Intention: On November 18, 2003, the Board adopted ResolutionNo. 03-04-20 stating its intention to establish the Community Facilities District and toauthorize the levy of a special tax therein. On the same day the Board adoptedResolution No. 03-04-21 stating its intention to incur bonded indebtedness in an amountnot to exceed $7,000,000 in the aggregate within the Community Facilities District for thepurpose of financing the Facilities. (See "FINANCING PLAN.”)

Resolution Approving Two Joint Community Facilities Agreements: OnNovember 18, 2003, the Board adopted Resolution No. 03-04-22, which approved theEastern Municipal Water District JCFA and the City JCFA.

Resolution Modifying Resolution of Intention and Approving Amended Rate andMethod: On December 19, 2003, the Board adopted Resolution No. 03-04-35 modifyingthe Resolution of Intention so as to amend the Rate and Method.

Resolution of Formation: Immediately following a noticed public hearing onDecember 19, 2003, the Board adopted Resolution No. 03-04-36 (the "Resolution ofFormation"), which established the Community Facilities District and authorized the levyof a special tax within the Community Facilities District.

Resolution of Necessity: On December 19, 2003, the Board adopted ResolutionNo. 03-04-37 declaring the necessity to incur bonded indebtedness in an aggregateamount not to exceed $7,000,000 within the Community Facilities District and submittingthat proposition to the qualified electors of the Community Facilities District.

Resolution Calling Election: On December 19, 2003, the Board adoptedResolution No. 03-04-38 calling an election by the landowners within the CommunityFacilities District for the same date on the issues of the levy of the Special Tax, theincurring of bonded indebtedness and the establishment of an appropriations limit.

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Landowner Election and Declaration of Results: On December 19, 2003, anelection was held within the Community Facilities District in which the qualified electorsapproved a ballot proposition authorizing the issuance of up to $7,000,000 in bonds tofinance the acquisition and construction of the Facilities, the levy of a special tax and theestablishment of an appropriations limit for the Community Facilities District. OnDecember 19, 2003, the Board adopted Resolution No. 03-04-39, under which the Boardapproved the canvass of the votes and declared the Community Facilities District to befully formed with the authority to levy the Special Taxes, to incur the bondedindebtedness and to have the established appropriations limit.

Notice of Special Tax Lien: A Notice of Special Tax Lien was recorded in the realproperty records of Riverside County on January 8, 2004, as Document No. 2004-0011597.

Ordinance Levying Special Taxes: On January 13, 2004, the Board adoptedOrdinance No. 03-04-02 levying the Special Tax within the Community Facilities District.

Resolution Authorizing Issuance of the Bonds: On September 13, 2005, theBoard adopted a resolution approving issuance of the Bonds for the CommunityFacilities District in an amount not to exceed $3,500,000.

School District’s Goals and Policies. The School District adopted “Local AgencyGoals and Policies for Community Facilities Districts” on September 9, 2003 (the “Goals andPolicies”).

The Goals and Policies establish an order of priority for financing by community facilitiesdistricts and certain credit quality requirements for bonds issued by community facilities districts,namely a 3:1 property value to public debt ratio (public debt is defined as community facilitiesdistrict bonds and other bonds secured by special taxes or special assessments). Propertyvalue may be based on an appraisal or on assessed values.

The Goals and Policies also require that the overlapping debt burden on property in acommunity facilities district (that is, the maximum annual special tax, together with ad valoremproperty taxes, special assessments, special taxes for any overlapping community facilitiesdistrict, and any other taxes, fees and charges payable from and secured by the property) onany residential owner-occupied parcel in a community facilities district may not exceed 2% (thebasic property tax levy of 1%, plus 1%) of the expected sales price of such parcel uponcompletion of the public and private improvements relating thereto.

The School District and the Community Facilities District have determined that issuanceof the Bonds conforms with the School District’s Goals and Policies.

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Debt Service Schedule

The following table presents the annual Debt Service on the Bonds (including sinkingfund redemptions), assuming there are no optional redemptions.

Year EndingSeptember 1 Principal Interest [1]

TotalDebt Service

2006 - $ 106,175.69 $ 106,175.692007 $ 45,000 117,610.00 162,610.002008 45,000 116,260.00 161,260.002009 45,000 114,797.50 159,797.502010 45,000 113,200.00 158,200.002011 50,000 111,467.50 161,467.502012 50,000 109,492.50 159,492.502013 55,000 107,442.50 162,442.502014 55,000 105,132.50 160,132.502015 60,000 102,767.50 162,767.502016 60,000 100,127.50 160,127.502017 65,000 97,397.50 162,397.502018 65,000 94,375.00 159,375.002019 70,000 91,287.50 161,287.502020 75,000 87,892.50 162,892.502021 75,000 84,217.50 159,217.502022 80,000 80,467.50 160,467.502023 85,000 76,467.50 161,467.502024 90,000 72,217.50 162,217.502025 95,000 67,717.50 162,717.502026 100,000 62,967.50 162,967.502027 100,000 57,917.50 157,917.502028 110,000 52,867.50 162,867.502029 115,000 47,312.50 162,312.502030 120,000 41,505.00 161,505.002031 125,000 35,445.00 160,445.002032 130,000 29,070.00 159,070.002033 140,000 22,440.00 162,440.002034 145,000 15,300.00 160,300.002035 155,000 7,905.00 162,905.00

Total: $2,450,000 $2,329,243.19 $4,779,243.19 [1] The interest that will accrue for 12 months after the Bonds are issued will be

capitalized with the proceeds of the Bonds.

Redemption

Optional Redemption. The Bonds are subject to optional redemption, in whole or inpart, on any Interest Payment Date on or after March 1, 2006, from any source of availablefunds, at the following respective Redemption Prices (expressed as percentages of the principalamount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:

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Redemption DatesRedemption

PriceMarch 1, 2006 through March 1, 2015 102%September 1, 2015 and any Interest Payment Date thereafter 100

Mandatory Redemption from Special Tax Prepayments. The Bonds are subject tomandatory redemption, in whole or in part, on any Interest Payment Date on or after March 1,2006, from and to the extent of any prepayment of Special Taxes, at the following respectiveRedemption Prices (expressed as percentages of the principal amount of the Bonds to beredeemed), plus accrued interest thereon to the date of redemption:

Redemption DatesRedemption

PriceMarch 1, 2006 through March 1, 2015 102%September 1, 2015 and any Interest Payment Date thereafter 100

Mandatory Sinking Fund Redemption. The Bonds maturing on September 1, 2025,are subject to mandatory sinking payment redemption in part on September 1 of each yearcommencing September 1, 2021, at a Redemption Price equal to the principal amount of theBonds to be redeemed, without premium, plus accrued interest thereon to the date ofredemption, in the aggregate respective principal amounts in the respective years as follows:

Sinking FundRedemption Date

(September 1) Sinking Payments2021 $75,0002022 80,0002023 85,0002024 90,0002025 (maturity) 95,000

The Bonds maturing on September 1, 2030, are subject to mandatory sinking paymentredemption in part on September 1 of each year commencing September 1, 2026, at aRedemption Price equal to the principal amount of the Bonds to be redeemed, without premium,plus accrued interest thereon to the date of redemption, in the aggregate respective principalamounts in the respective years as follows:



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The Bonds maturing on September 1, 2035, are subject to mandatory sinking paymentredemption in part on September 1 of each year commencing September 1, 2031, at aRedemption Price equal to the principal amount of the Bonds to be redeemed, without premium,plus accrued interest thereon to the date of redemption, in the aggregate respective principalamounts in the respective years as follows:



The sinking payment amounts set forth above will be reduced as a result of any priorpartial redemption of the Bonds through an optional redemption or mandatory redemption fromSpecial Tax prepayments.

Notice of Redemption. The Trustee on behalf and at the expense of the CommunityFacilities District will mail (by first class mail) notice of any redemption to the respective Ownersof any Bonds designated for redemption at their respective addresses appearing on theRegistration Books and to the Original Purchaser at least 30 but not more than 60 days prior tothe date fixed for redemption.

Neither the failure to receive any notice so mailed, nor any defect in such notice, willaffect the validity of the proceedings for the redemption of the Bonds or the cessation of accrualof interest on the Bonds from and after the date fixed for redemption.

Conditional Redemption Notice. Any notice of any optional redemption of Bonds willstate that such redemption is conditional upon receipt by the Trustee, on or prior to the datefixed for such redemption, of moneys that, together with other available amounts held by theTrustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to beredeemed, and that if such moneys are not so received, the redemption notice will be of noforce and effect and the Community Facilities District will not be required to redeem suchBonds.

If a notice of redemption of Bonds contains such a condition and such moneys are notso received, the redemption of Bonds as described in the conditional notice of redemption willnot be made and the Trustee will, within a reasonable time after the date on which suchredemption was to occur, give notice to the Persons and in the manner in which the notice ofredemption was given, that such moneys were not so received and that no redemption of Bondswill occur pursuant to such notice of redemption.

Effect of Notice of Redemption. If notice has been mailed as described above, andmoneys for the Redemption Price, and the interest to the applicable date fixed for redemption,have been set aside in the Redemption Fund, the Bonds will become due and payable on theredemption date, and, upon presentation and surrender thereof at the Office of the Trustee, theBonds called for redemption will be paid at the Redemption Price thereof, together with interestaccrued and unpaid to the redemption date.

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If, on the date fixed for redemption, moneys for the Redemption Price of all the Bonds tobe redeemed, together with interest to the redemption date, will be held by the Trustee so as tobe available therefor on such date, and, if notice of redemption thereof has been mailed asaforesaid and not canceled, then, from and after said date, interest on said Bonds will cease toaccrue and become payable.

No Additional Bonds Except for Refunding

The Community Facilities District will covenant under the Indenture that, so long as anyof the Bonds remain Outstanding, the Community Facilities District will not issue or incur anyadditional obligations payable from Net Special Tax Revenues, except refunding bonds.

However, the Community Facilities District anticipates that it will issue a subsequentseries of bonds secured by Special Tax B under the Rate and Method, which will constitute aseparate lien on the property within the Community Facilities District with the same priority asthe lien of the Special Taxes securing the Bonds. See “FINANCING PLAN – The CommunityFacilities District Financing Plan.”

Registration, Transfer and Exchange

The following provisions regarding the exchange and transfer of the Bonds apply onlyduring any period in which the Bonds are not subject to DTC’s book-entry system. While theBonds are subject to DTC’s book-entry system, their exchange and transfer will be effectedthrough DTC and the Participants and will be subject to the procedures, rules and requirementsestablished by DTC. See “APPENDIX E – DTC and the Book-Entry Only System.”

Registration. The Trustee will keep or cause to be kept, at the Office of the Trustee,sufficient books for the registration and transfer of ownership of the Bonds, which will be open toinspection during regular business hours and upon reasonable notice by the CommunityFacilities District; and upon presentation for this purpose, the Trustee will, under suchreasonable regulations as it may prescribe, register or transfer or cause to be registered ortransferred, on such records, the ownership of the Bonds.

Transfer and Exchange of Bonds. Any Bond may, in accordance with its terms, betransferred, upon the Registration Books by the Person in whose name it is registered, inperson or by his duly authorized attorney, upon surrender of such Bond for cancellation,accompanied by delivery of a duly written instrument of transfer in a form acceptable to theTrustee. Whenever any Bond or Bonds are surrendered for transfer, the Community FacilitiesDistrict will execute (and the Trustee will authenticate and deliver) a new Bond or Bonds of thesame maturity in a like aggregate principal amount, in any authorized denominations. TheTrustee will require the bond Owner requesting such transfer to pay any tax or othergovernmental charge required to be paid with respect to such transfer.

The Bonds may be exchanged at the Office of the Trustee for a like aggregate principalamount of Bonds of the same maturity of other authorized denominations. The Trustee willrequire the payment by the Bond Owner requesting such exchange of any tax or othergovernmental charge required to be paid with respect to such exchange.

The Trustee will not be obligated to make any transfer or exchange of Bonds during theperiod established by the Trustee for the selection of Bonds for redemption or with respect toany Bonds selected for redemption.

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SECURITY FOR THE BONDS

General

Pledge of Net Special Tax Revenues and Funds. Subject to the provisions of theIndenture permitting the application thereof for the purposes and on the terms and conditionsset forth therein, all of the Net Special Tax Revenues and any other amounts (includingproceeds of the sale of the Bonds) held in the Special Tax Fund, the Bond Fund and theReserve Fund are pledged to secure the payment of the principal of, premium, if any, andinterest on the Bonds. This pledge constitutes a first lien on such assets.

The payment of the principal of and interest on the Bonds and any redemption premiumswill be exclusively paid from the Net Special Tax Revenues and other amounts in the BondFund and the Reserve Fund.

The amount of Special Taxes that the Community Facilities District may levy in any yearis strictly limited by the maximum rates approved by the qualified electors within the CommunityFacilities District, as set forth in the Rate and Method. See “– Rate and Method” below.

Amounts in the Administrative Expense Fund, the Rebate Fund, the Costs of IssuanceFund and the Improvement Fund are not pledged to the repayment of the Bonds. The Facilitiesto be financed with the proceeds of the Bonds are not in any way pledged to pay the DebtService on the Bonds. Any proceeds of condemnation or destruction of any facilities financedwith the proceeds of the Bonds are not pledged to pay the Debt Service on the Bonds and arefree and clear of any lien or obligation imposed under the Indenture.

Net Special Tax Revenues. “Net Special Tax Revenues” is defined in the Indenture asSpecial Tax Revenues, less amounts required to pay Administrative Expenses.

“Special Tax Revenues” is defined in the Indenture as the proceeds of the Special Taxesreceived by or on behalf of the Community Facilities District, including any payments thereof,interest and penalties thereon and proceeds of the redemption or sale of property sold as aresult of foreclosure of the lien of the Special Taxes (which are limited to the amount of the lienforeclosed upon, plus interest and penalties).

“Special Taxes” is defined in the Indenture as the special taxes described in the Rateand Method as “Special Tax A” levied within the Community Facilities District under the Act, theOrdinance and the Indenture. See “– Rate and Method” below.

“Administrative Expenses” is defined in the Indenture as any ordinary expenses of theSchool District or the Community Facilities District directly related to the administration of theCommunity Facilities District, consisting of: the costs of computing the Special Taxes andpreparing the annual Special Tax schedules and the costs of collecting the Special Taxes; thecosts of remitting the Special Taxes to the Trustee; the fees and costs of the Trustee (includingits legal counsel) in the discharge of the duties required of it under the Indenture; the costsincurred by the Community Facilities District in complying with the disclosure provisions of anycontinuing disclosure undertaking and the Indenture, including those related to public inquiriesregarding the Special Tax and disclosures to Owners; the costs of the Community FacilitiesDistrict related to an appeal of the Special Tax; any amounts required to be rebated to thefederal government in order for the Community Facilities District to comply with the Indenture;

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an allocable share of the salaries of the staff of the School District providing services on behalfof the Community Facilities District directly related to the foregoing and a proportionate amountof general administrative overhead of the School District related thereto; and the costs offoreclosure of delinquent Special Taxes.

Special Taxes

In the Indenture, the Community Facilities District will covenant that, so long as anyBonds are outstanding, it will levy the Special Taxes in an amount sufficient, together with otheramounts on deposit in the Special Tax Fund and available for this purpose, to pay the principalof and interest on the Bonds becoming due and payable during the Bond Year commencing insuch fiscal year, the Administrative Expenses estimated for such year, and any amountsrequired to replenish the Reserve Fund to the Reserve Requirement (collectively, the “SpecialTax Requirement”).

No assurance can be given that the amounts collected in any given year will, in fact,equal the Special Tax Requirement due to a variety of factors, including the maximum SpecialTax rates and the maximum term of the Special Tax levy on each parcel of Taxable Property inthe Community Facilities District imposed by the Rate and Method. See “– Rate and Method”below.

Procedure for Special Tax Levy. Under the Act and the Indenture, before August 1 ofeach year, the Community Facilities District will ascertain from the County Assessor the relevantparcels on which the Special Taxes are to be levied, taking into account any parcel splits duringthe preceding and then current year.

The Community Facilities District will effect the levy of the Special Taxes each FiscalYear in accordance with the Ordinance by each August 10 that the Bonds are Outstanding, orotherwise such that the computation of the levy is complete before the final date on which theCounty Auditor will accept the transmission of the Special Tax amounts for the parcels withinthe Community Facilities District for inclusion on the next real property tax roll.

Upon the completion of the computation of the amounts of the levy, the CommunityFacilities District will prepare or cause to be prepared, and transmit to the County Auditor, suchdata as the County Auditor requires to include the levy of the Special Taxes on the next realproperty tax roll.

Special Tax Levy Amount. Under the Indenture, the Community Facilities District willfix and levy the amount of Special Taxes within the Community Facilities District in accordancewith the Rate and Method and, subject to the limitations in the Rate and Method as to theannual maximum Special Tax that may be levied, in an amount sufficient to yield the following:

• the amount required for the payment of principal of and interest on anyOutstanding Bonds becoming due and payable during the Bond Year commencing insuch Fiscal Year,

• the amount required for any necessary replenishment of the Reserve Fund, and

• the amount estimated to be sufficient to pay the Administrative Expenses duringsuch year,

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in each case taking into account the balances in the funds and accounts established under theIndenture.

Manner of Collection. The Indenture provides that the Special Taxes will be payableand be collected in the same manner and at the same time and in the same installment as thegeneral ad valorem taxes on real property are payable, and have the same priority, becomedelinquent at the same time and in the same proportionate amounts and bear the sameproportionate penalties and interest after delinquency as do the ad valorem taxes on realproperty.

Because the Special Tax levy is limited to the Annual Maximum Special Tax rates setforth in the Rate and Method, no assurance can be given that, in the event of Special Taxdelinquencies, the receipts of Special Taxes will, in fact, be collected in sufficient amounts inany given year to pay Debt Service on the Bonds.

Rate and Method

General. The Special Tax is levied and collected according to the Rate and Method,which provides the means by which the Board may annually levy the Special Taxes within theCommunity Facilities District, up to the Maximum Annual Special Tax, and to determine theamount of the Special Tax that will need to be collected each Fiscal Year from the “TaxableProperty” within the Community Facilities District.

The following is a synopsis of the provisions of the Rate and Method, which should beread in conjunction with the complete text of the Rate and Method, including its attachments,which is attached as “APPENDIX B – First Amended Rate and Method of Apportionment forCommunity Facilities District No. 2003-2 of San Jacinto Unified School District.” The meaningof the defined terms used in this section are as set forth in APPENDIX B. This section providesonly a summary of the Rate and Method, and is qualified by more complete and detailedinformation contained in the entire Rate and Method attached as APPENDIX B.

Special Tax A and Special Tax B. The Rate and Method creates two separate specialtaxes within the Community Facilities District: “Special Tax A,” which is designated for financingWater and Sewer Facilities and City Facilities (and which will serve as security for the Bonds),and “Special Tax B,” which is designated for financing School Facilities (and which will serve assecurity for a future series of bonds that the Community Facilities District expects to issue).This section describes only those provisions of the Rate and Method relating to the calculationand levy of Special Tax A.

Tax A Minimum Annual Special Tax Requirement. Annually, at the time of levyingthe Special Tax for the Community Facilities District, the Board will determine the minimumamount of money to be levied on Taxable Property in the Community Facilities District (the “TaxA Minimum Annual Special Tax Requirement”), which will be the amount required in any FiscalYear to pay the following:

(i) the debt service on the Bonds in the Calendar Year beginning in such FiscalYear,

(ii) other periodic costs of the Bonds, including but not limited to, creditenhancement fees and charges and rebate payments on the Bonds due in theCalendar Year beginning in such Fiscal Year,

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(iii) the portion of the Administrative Expenses of the Community Facilities Districtapplicable to Annual Special Tax A,

(iv) any costs associated with the release of funds from an escrow account for theBonds, if any

(v) any amount required to establish or replenish any reserve funds established inassociation with the Bonds,

less any amounts on deposit in any fund or account which are available to pay for items (i)through (v) above under any applicable Indenture in such Calendar Year.

Developed and Undeveloped Property; Exempt Property. All Assessor’s Parcelswithin the Community Facilities District will be classified for each Fiscal Year as TaxableProperty or Exempt Property, and each Assessor’s Parcel of Taxable Property will be furtherclassified as Developed Property or Undeveloped Property, all as defined below. In addition,Developed Property will be further classified based on the Building Square Footage of the Unit.

“Developed Property” means, for each Fiscal Year, all Assessor’s Parcels forwhich Building Permits for the construction of Units were issued on or before May 1 ofthe prior Fiscal Year, provided that such Assessor's Parcels were created on or beforeJanuary 1 of the prior Fiscal Year and that each such Assessor's Parcel is associatedwith a Lot, as determined reasonably by the Board.

“Undeveloped Property” means all Assessors Parcels of Taxable Property thatare not classified as Developed Property.

"Taxable Property" means all Assessor's Parcels that are not Exempt Property(as defined below).

“Exempt Property”: the Board will classify property as Exempt Property in thefollowing order of priority:

(i) Assessor's Parcels owned by the State of California, Federal or otherlocal governments,

(ii) Assessor's Parcels with public utility easements or other restrictionsmaking impractical their utilization for other than the purposes set forth inthe easement or restriction,

(iii) Assessor's Parcels owned exclusively by a homeowners' association orwhich the homeowners' association has an easement,

(iv) Assessor's Parcels which are used as places of worship and are exemptfrom ad valorem property taxes because they are owned by a religiousorganization,

(vi) Assessor's Parcels for which a building permit(s) was issued on or beforeMay 1 of the prior Fiscal Year for the construction of a commercial orindustrial building as reasonably determined by the Board.

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However, no such classification may reduce the Acreage of all Taxable Propertyto less than 39.56 Acres. Assessor's Parcels which cannot be classified as ExemptProperty because such classification would reduce the Acreage of all Taxable Propertyto less than 39.56 Acres will continue to be classified as Developed Property orUndeveloped Property, as applicable, and will continue to be subject to Special Taxesaccordingly.

Maximum Annual Special Tax A, Assigned Annual Special Tax A and BackupAnnual Special Tax A. The Maximum Annual Special Tax A is defined in the Rate and Methodas follows:

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

• Assigned Annual Special Tax A. The Assigned Annual Special Tax A foreach Assessor’s Parcel of Developed Property is determined byreference to Table 1 in the Rate and Method, and varies from $557.19per Unit to $999.90 per Unit, based on the number of Building SquareFeet per Unit.

• Backup Annual Special Tax A. The Backup Annual Special Tax A for aLot of Developed Property is determined by multiplying the Acreage ofTaxable Property within the Final Map that includes such Lot by$4,853.00, and dividing the result by the total number of Lots in the FinalSubdivision Map.

The Backup Annual Special Tax A is subject to adjustment if all or anyportion of a Final Map is changed or modified, as set forth in the Rate andMethod.

Undeveloped Property. The Maximum Annual Special Tax A is the AssignedAnnual Special Tax A, which is $4,853.00 per Acre.

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

Step One: The Board will levy an Annual Special Tax A on each Assessor’sParcel of Developed Property in an amount equal to the Assigned Annual Special Tax Aapplicable to that Assessor’s Parcel.

Step Two: If the sum of the amounts levied in step one is insufficient tosatisfy the Tax A Minimum Annual Special Tax Requirement, then the Board willProportionately levy an Annual Special Tax A on each Assessor’s Parcel ofUndeveloped Property up to the Assigned Annual Special Tax A applicable to eachAssessor’s Parcel of Undeveloped Property to satisfy the Tax A Minimum AnnualSpecial Tax Requirement.

Step Three: If the sum of the amounts levied in steps one and two isinsufficient to satisfy the Tax A Minimum Annual Special Tax Requirement, then the

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Board will Proportionately levy an Annual Special Tax A on each Assessor’s Parcel ofDeveloped Property up to the Maximum Annual Special Tax A applicable to eachAssessor’s Parcel, to satisfy the Tax A Minimum Annual Special Tax Requirement.

Full Prepayment of Annual Special Taxes. The Annual Special Tax A obligation of anAssessor’s Parcel of Developed Property or an Assessor’s Parcel of Undeveloped Property forwhich a Building Permit has been issued may be prepaid, provided that the terms set forthunder the Rate and Method are satisfied, including (among others) the following conditions:

• An owner of an Assessor's Parcel intending to prepay the Annual SpecialTax A obligation must provide the Community Facilities District with written notice ofintent to prepay. Within 30 days of receipt of such written notice, the Board willreasonably determine the prepayment amount of such Assessor's Parcel and notify suchowner of the Tax A Prepayment Amount.

• No prepayment will be allowed unless the amount of Annual Special TaxA that may be levied on Taxable Property both prior to and after the proposedprepayment net of an allocable portion of administrative expenses is at least 1.1 timesannual debt service in each Fiscal Year on all outstanding Bonds.

The Prepayment Amount is calculated as set forth in APPENDIX B.

Partial Prepayment of Annual Special Taxes. Prior to the issuance of the first BuildingPermit for the construction of a production Unit on a Lot within a Final Subdivision Map, theowner of no less than all the property within such Final Subdivision Map may elect to prepayany portion of the applicable Annual Special Tax A obligation for all of the Assessor's Parcelswithin such Final Subdivision Map, provided that the terms set forth under the Rate and Methodare satisfied, including (among others) the following conditions:

• The owner of any Assessor's Parcel who desires such partial prepaymentmust notify the Board of (i) such owner's intent to partially prepay the Annual Special TaxA obligation and (ii) the percentage by which the Annual Special Tax A obligation will beprepaid. The partial prepayment of each Annual Special Tax A obligation will becollected at the issuance of each applicable Building Permit, provided that the AnnualSpecial Tax A obligation with respect to model Units for which Building Permits havealready been issued must be partially prepaid at the time of the election.

• No partial prepayment will be allowed unless the amount of AnnualSpecial Tax A that may be levied in the Community Facilities District, net of an allocableportion of Administrative Expenses, is at least 1.1 times the regularly scheduled annualinterest and principal payments on all currently outstanding Bonds.

The Partial Prepayment Amount is calculated as the Prepayment Amount determined forfull prepayment of Special Taxes, multiplied by the percent by which the owner of theAssessor’s Parcel is partially prepaying the Annual Special Tax obligation, all as set forth infurther detail in APPENDIX B.

Appeals. Any property owner claiming that the amount or application of any Special Taxis not correct may file a written notice of appeal with the Board not later than 12 months afterhaving paid the Special Tax that is disputed. The Board will promptly review the appeal, and ifnecessary, meet with the property owner, consider written and oral evidence regarding the

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amount of the Special Tax, and rule on the appeal. If the Board's decision requires that theSpecial Tax for an Assessor's Parcel be modified or changed in favor of the property owner, acash refund will not be made (except for the last year of levy or in other special cases, asdetermined by the Board), but an adjustment will be made to the Special Tax on that Assessor'sParcel in the subsequent Fiscal Year(s).

Duration of Special Tax Levy. The Annual Special Tax A will be levied for a term of 35Fiscal Years after the issuance of the last series of Tax A Bonds or Tax B Bonds, whichever islater, by the Community Facilities District, but in no event may the Annual Special Tax A belevied later than Fiscal Year 2041-42.

Covenant to Foreclose

Sale of Property for Nonpayment of Taxes. The Indenture provides that the SpecialTax is to be collected in the same manner as ordinary ad valorem property taxes are collectedand, except as provided in the special covenant for foreclosure described below and in the Act,is to be subject to the same penalties and the same procedure, sale and lien priority in case ofdelinquency as is provided for ad valorem property taxes. Under these procedures, if taxes areunpaid for a period of five years or more, the property is subject to sale by the County.

Foreclosure Under the Mello-Roos Law. Under Section 53356.1 of the Act, if anydelinquency occurs in the payment of the Special Tax, the Community Facilities District mayorder the institution of a Superior Court action to foreclose the lien therefor within specified timelimits. In such an action, the real property subject to the unpaid amount may be sold at judicialforeclosure sale. Such judicial foreclosure action is not mandatory.

However, the Community Facilities District will make the following covenants in theIndenture with respect to foreclosure:

(a) Under Section 53356.1 of the Act, the Community Facilities District willdetermine or cause to be determined, so long as Empire Homes is required to maintainthe Empire Letter of Credit and Gateway is required to maintain the Gateway SecurityFund, on or about February 15 and June 15 of each year, whether or not any owners ofproperty within the Community Facilities District are delinquent in the payment of SpecialTaxes collected on December 10 and April 10 and, if such delinquencies exist, theCommunity Facilities District will send or cause to be sent a notice of delinquency anddemand for payment thereof to the property owner within 45 days of such determination.If such delinquency remains uncured, the Community Facilities District will order andcause to be commenced within 90 days of such determination of delinquency, andthereafter diligently prosecute, an action in the superior court to foreclose the lien of anySpecial Taxes or installment thereof not paid when due.

(b) Upon termination of the requirement for Empire Homes to maintain theEmpire Letter of Credit and Gateway to maintain the Gateway Security Fund, theCommunity Facilities District will determine or cause to be determined, on or about June15 of each year, whether or not any owners of property within the Community FacilitiesDistrict are delinquent in the payment of Special Taxes and, if such delinquencies exist,the Community Facilities District will send or caused to be sent a notice of delinquencyand demand for payment thereof to the property owner within 45 days of suchdetermination and if such delinquency remains uncured, order and cause to becommenced within 90 days of such determination of delinquency, and thereafter

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diligently prosecute, an action in the superior court to foreclose the lien of any SpecialTaxes or installment thereof not paid when due.

(c) Notwithstanding the foregoing, however, the Community Facilities District willnot be required to order the commencement of foreclosure proceedings as describedunder subsections (a) or (b) above, if (i) the total Special Tax delinquency in theCommunity Facilities District for such Fiscal Year is less than 5% of the total Special Taxlevied in such Fiscal Year, and (ii) no draw has been made on the Reserve Fund thathas not been replenished. However, if the Community Facilities District determines thatany single property owner in the Community Facilities District is delinquent in excess of$2,500 in the payment of the Special Tax, then the Community Facilities District willdiligently institute, prosecute and pursue foreclosure proceedings against such propertyowner.

Sufficiency of Foreclosure Sale Proceeds; Foreclosure Limitations and Delays.No assurances can be given that the real property subject to a judicial foreclosure sale will besold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Taxinstallment. The Act does not require the Community Facilities District to purchase or otherwiseacquire any lot or parcel of property foreclosed upon if there is no other purchaser at such sale.

Section 53356.6 of the Act requires that property sold pursuant to foreclosure under theAct be sold for not less than the amount of judgment in the foreclosure action, plus post-judgment interest and authorized costs, unless the consent of the owners of 75% of theoutstanding Bonds is obtained. However, under Section 53356.6 of the Act, the CommunityFacilities District, as judgment creditor, is entitled to purchase any property sold at foreclosureusing a “credit bid,” where the Community Facilities District could submit a bid crediting all orpart of the amount required to satisfy the judgment for the delinquent amount of the Special Tax.If the Community Facilities District becomes the purchaser under a credit bid, the CommunityFacilities District must pay the amount of its credit bid into the redemption fund established forthe Bonds, but this payment may be made up to 24 months after the date of the foreclosuresale.

Foreclosure by court action is subject to normal litigation delays, the nature and extent ofwhich are largely dependent on the nature of the defense, if any, put forth by the debtor and theSuperior Court calendar. In addition, the ability of the Community Facilities District to foreclosethe lien of delinquent unpaid Special Taxes may be limited in certain instances and may requireprior consent of the property owner if the property is owned by or in receivership of the FederalDeposit Insurance Corporation (the “FDIC”). See “BOND OWNERS' RISKS - Bankruptcy andForeclosure Delays.”

No Teeter Plan. Because the Community Facilities District does not participate in the“Teeter Plan” (which is the County's Alternative Method of Distribution of Tax Levies andCollections and of Tax Sale Proceeds, as provided for in Section 4701 et seq. of the CaliforniaRevenue and Taxation Code), collections of Special Taxes will reflect actual delinquencies.

Letter of Credit or Cash Deposit

Under the SB 50 Agreement (see “FINANCING PLAN – SB 50 Agreement”) and theIndenture, each Property Owner is required, as a condition precedent to the issuance of theBonds, to provide a Letter of Credit or a Cash Deposit to secure payment of Special Taxeslevied on its Taxable Property in the Community Facilities District for a limited period. The

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Letter of Credit, will identify the Trustee as beneficiary. The Cash Deposit, will be depositedwith the Trustee.

Letter of Credit Requirements

Duration of Letter of Credit Requirement. The obligation of Empire Homes to providethe Empire Letter of Credit in an amount equal to the Required Letter of Credit Amount willterminate when Empire owns fewer than 40% of the total number of lots anticipated to bedeveloped by Empire Homes (as set forth in the SB 50 Agreement) within each recorded finaltract map for the Community Facilities District. Until such time as Empire owns fewer than 40%of the total number of lots anticipated to be developed by Empire Homes (as set forth in the SB50 Agreement) within each recorded final tract map for the Community Facilities District, theCommunity Facilities District and the Trustee will follow the procedures set forth below.

Required Letter of Credit Amount. The Indenture defines the “Required Letter ofCredit Amount” as (i) an amount equal to one year’s debt service on the Bonds to supportpayment of the semi-annual installments of the Special Tax A levied on the Empire RemainingParcels for any Fiscal Year or (ii) an amount equal to one year’s debt service on the Bonds tosupport payment of the semi-annual installments of the Special Tax A levied on the SecuredTransferred Parcels for which such Transferred Parcel Letter of Credit relates for any FiscalYear, as applicable.

For purposes of this definition, the following terms are defined in the Indenture:

“Empire Remaining Parcels” means, as of any date, all parcels that are owned byEmpire or an Affiliate thereof.

“Secured Transferred Parcel” means an Empire Secured Transferred Parcel or aGateway Secured Transferred Parcel, as the context requires.

“Empire Secured Transferred Parcel” means an Empire Transferred Parcel forwhich a Transferred Parcel Letter of Credit has been delivered to and accepted by theTrustee under the Indenture.

“Empire Transferred Parcel” means, as of any date, an Empire Remaining Parcelthat was owned by Empire or an Affiliate thereof but has been transferred to a Personother than Empire or an Affiliate thereof.

Annual Calculation of Letter of Credit Amount. The Community Facilities District will,no later than June 25 of each year (commencing on the June 25 immediately following theClosing Date), deliver to the Trustee a Written Certificate of the Community Facilities Districtspecifying the Required Letter of Credit Amount for the Fiscal Year commencing on theimmediately succeeding July 1.

However, the Community Facilities District’s obligation to deliver such Written Certificateis subject to the Community Facilities District’s receiving from Empire, no later than June 1 ofsuch year, a certification as to which parcels within the Community Facilities District constitute“Empire Secured Parcels” as of such June 1, together with written evidence of the matters socertified (including, but not limited to, copies or adequate descriptions of grant deeds showing atransfer of parcels from the applicable Property Owner to an owner other than that PropertyOwner during the twelve months immediately preceding such June 1, or similar evidence

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acceptable to the Community Facilities District, which the Community Facilities District may relyupon, of closing of escrow on sales to individual homeowners), which certification and writtenevidence will be in form and substance reasonably satisfactory to the Community FacilitiesDistrict.

For purposes of determining the amount required to be available under the Empire Letterof Credit for the Fiscal Year commencing on the immediately succeeding July 1, the RequiredLetter of Credit Amount will be calculated based on the parcels that constitute “Empire SecuredParcels” owned by Empire as of such July 1.

Upon receipt of such Written Certificate of the Community Facilities District, if theamount available under the Empire Letter of Credit is greater than the Required Letter of CreditAmount as specified in such Written Certificate, the Trustee will, in accordance with the terms ofthe Empire Letter of Credit, cause the available amount under the Empire Letter of Credit to bereduced, on or after July 1 of the following Fiscal Year, to an amount equal to the RequiredLetter of Credit Amount as specified in such Written Certificate. If the Trustee does not receivethe Written Certificate from the Community Facilities District by June 25 of any year, the EmpireLetter of Credit will not be reduced on such July 1, but will be reduced within seven days ofreceipt by the Trustee of such written certificate.

If the Required Letter of Credit Amount has been reduced under this subsection, but theTrustee has previously drawn on the Empire Letter of Credit in full following a rating downgradeof the Letter of Credit Bank (as described below), then the Trustee will transfer an amount equalto the amount of the reduction in the Required Letter of Credit Amount from the special accountwithin the Special Tax Fund described below to the Letter of Credit Provider.

Draws on Letter of Credit. So long as amounts are available under the Letter of Credit,if Special Taxes levied on “Empire Secured Parcels” are delinquent, the Community FacilitiesDistrict will, no sooner than 45 days and no later than 30 days prior to each Interest PaymentDate, instruct the Trustee to draw on the Empire Letter of Credit in an amount equal to thelesser of (i) the amount of such delinquency (exclusive of penalties and interest and exclusive ofany delinquent amounts for which a drawing on the Empire Letter of Credit has previously beenmade and honored), and (ii) the amount then available under the Empire Letter of Credit.

The Trustee will draw upon the Empire Letter of Credit promptly following receipt by theTrustee of a Written Request of the Community Facilities District (A) instructing the Trustee todraw on the Empire Letter of Credit, (B) specifying the amount to be so drawn, and (C) statingthat Special Taxes (exclusive of penalties and interest and exclusive of any delinquent amountsfor which a drawing on the Empire Letter of Credit have previously been made and honored)levied on “Empire Secured Parcels” are then delinquent in an amount at least equal to theamount to be so drawn on the Empire Letter of Credit. The Trustee will deposit the proceeds ofany such draw in the Special Tax Fund.

Receipt and Disposition of Delinquent Special Taxes; Reinstatement of Letter ofCredit. No later than ten Business Days after the receipt by the Community Facilities District ofany delinquent Special Taxes for which a drawing on the Empire Letter of Credit has previouslybeen made and honored, the Community Facilities District will transfer such delinquent SpecialTaxes to the Trustee and will deliver to the Trustee (with a copy to Empire) a Written Certificateof the Community Facilities District directing the Trustee to apply such delinquent Special Taxesto reimburse the Letter of Credit Provider for such draw on the Empire Letter of Credit, provided

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that on or prior to such date the Empire Letter of Credit has been, or will be concurrently withsuch reimbursement, reinstated in an amount at least equal to such delinquent Special Taxes.

On each date on which the Trustee receives a Written Certificate of the CommunityFacilities District and such delinquent Special Taxes, the Trustee will so apply such delinquentSpecial Taxes and will take such actions as are required pursuant to the Empire Letter of Creditin order to cause such reinstatement.

Draws on Letter of Credit Following Rating Downgrade of Letter of Credit Bank.Additionally, on the Business Day following the date on which the Trustee receives a WrittenCertificate of the Community Facilities District stating that a Rating Downgrade with respect tothe Letter of Credit Provider that issued the Empire Letter of Credit has occurred, unless aSubstitute Letter of Credit has been provided, the Trustee will draw on the Empire Letter ofCredit in the full amount available thereunder.

The Trustee will deposit the proceeds of any such draw in a special account within theSpecial Tax Fund, which the Trustee will establish and maintain. Any earnings from theinvestment of amounts on deposit in such special account will be transferred by the Trustee tothe Letter of Credit Provider that issued the Empire Letter of Credit within five Business Daysfollowing the end of each Fiscal Year.

After any such a draw on the Empire Letter of Credit, on each date on which the Trusteereceives a Written Certificate of the Community Facilities District stating that Special Taxes(exclusive of penalties and interest and exclusive of any delinquent amounts for which adrawing on the Empire Letter of Credit has previously been made and honored or for whichamounts have previously been transferred from such special account to the Special Tax Fund)levied on “Empire Secured Parcels” are then delinquent and directing the Trustee to transfer aspecified amount from such special account to the Special Tax Fund, the Trustee will so transfersuch specified amount.

After any such a draw on the Empire Letter of Credit, no later than ten Business Daysafter the receipt by the Community Facilities District of any delinquent Special Taxes for whichamounts have previously been transferred from such special account to the Special Tax Fund,the Community Facilities District will transfer such delinquent Special Taxes to the Trustee andwill deliver to the Trustee (with a copy to Empire) a Written Certificate of the CommunityFacilities District directing the Trustee to deposit such delinquent Special Taxes in such specialaccount. On each date on which the Trustee receives such a Written Certificate of theCommunity Facilities District and such delinquent Special Taxes, the Trustee will so depositsuch delinquent Special Taxes.

After such a draw on the Empire Letter of Credit, upon receipt of a Substitute Letter ofCredit in substitution of the Empire Letter of Credit, the Trustee will transfer any funds ondeposit in such special account to the Letter of Credit Provider from which such funds weredrawn pursuant to the Empire Letter of Credit.

Substitution of Cash Deposit Following Rating Downgrade of Letter of CreditBank. In the event of a Rating Downgrade, Empire may elect to deposit cash in lieu of aSubstitute Letter of Credit. If this occurs, the Trustee will establish and maintain a separate funddesignated the “Substitute Security Fund,” which will be administered as set forth in theIndenture.

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Substitute Letter of Credit. At the Written Request of the Community Facilities District,the Trustee will accept a Substitute Letter of Credit in substitution for the Empire Letter of Creditthen held by the Trustee so long as

(i) the Substitute Letter of Credit satisfies the requirements specified in thedefinition thereof under the Indenture,

(ii) the amount available to be drawn under such Substitute Letter of Credit is atleast equal to the Required Letter of Credit Amount for “Empire Secured Parcels” for theFiscal Year in which such Substitute Letter of Credit is delivered, and

(iii) such Substitute Letter of Credit is accompanied by one or more opinions ofcounsel reasonably satisfactory to the Trustee and the Community Facilities Districtaddressed to the Trustee and the Community Facilities District to the effect, singly ortogether, that the Substitute Letter of Credit is a legal, valid and binding obligation of theprovider thereof, enforceable against the provider thereof in accordance with its terms,except as limited by applicable reorganization, insolvency, liquidation, readjustment ofdebt, moratorium or other similar laws affecting the enforcement of rights of creditorsgenerally as such laws may be applied in the event of a reorganization, insolvency,liquidation, readjustment of debt or other similar proceeding of or moratorium applicableto the provider thereof and by general principles of equity (regardless of whether suchenforceability is considered in a proceeding in equity or at law).

Upon receipt of such Substitute Letter of Credit, the Trustee will surrender the EmpireLetter of Credit being replaced to the Letter of Credit Provider that issued the Empire Letter ofCredit.

Release of Letter of Credit. When Empire owns fewer than 40% of the total number oflots anticipated to be developed by Empire (as set forth in the SB 50 Agreement) within eachrecorded final tract map for the Community Facilities District, Empire may submit a writtencertificate to the Community Facilities District, together with written evidence (including, but notlimited to, copies or adequate descriptions of grant deeds showing a transfer of parcels fromEmpire to an owner other than Empire) of the matter so certified. Upon such receipt, theCommunity Facilities District will submit a Written Certificate to the Trustee stating that theobligation to maintain the Empire Letter of Credit has terminated and directing the Trustee toreturn the Empire Letter of Credit to the Letter of Credit Provider.

If Empire’s obligation to maintain the Empire Letter of Credit has terminated under thissubsection, but the Trustee has previously drawn on the Empire Letter of Credit in full followinga rating downgrade of the Letter of Credit Bank (as described above), then the Trustee willtransfer any amounts in the special account within the Special Tax Fund described above to theLetter of Credit Provider.

Assignment of Letter of Credit. The Trustee may not sell, assign or otherwise transferthe Empire Letter of Credit except to a successor Trustee under the Indenture and inaccordance with the terms of the Letter of Credit.

No Reduction of Tax Levy. The amount received pursuant to any draw on the EmpireLetter of Credit will in no way reduce, constitute a credit, or cure any delinquency, in respect ofthe amount of any Special Taxes levied on any “Empire Secured Parcel” or “on any other parcelin the Community Facilities District.

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Letter of Credit Provider. The Indenture defines the Letter of Credit Provider as (a)with respect to the Empire Letter of Credit, the issuer of such Empire Letter of Credit, and itssuccessors and assigns, or the issuer of a Substitute Letter of Credit substituted for suchEmpire Letter of Credit, and (b) with respect to a Transferred Parcel Letter of Credit, the issuerof such Transferred Parcel Letter of Credit, and its successors and assigns, or the issuer of aSubstitute Letter of Credit substituted for such Transferred Parcel Letter of Credit.

The long-term unsecured obligations of the Letter of Credit Bank must be rated at least“A3” by Moody’s.

Compliance with Letter of Credit Requirement. Empire intends to initially satisfy theLetter of Credit requirement with a Letter of Credit in the full Stated Amount to be issued byUnion Bank of California (“Union Bank”) prior to the closing date.

However, no assurance can be given that Empire will not substitute a Substitute Letter ofCredit issued by a different bank after the closing date.

The parent company of Union Bank, UnionBanCal Corporation, is listed on the New YorkStock Exchange under the trading symbol "UB." Information about Union Bank is contained inreports filed with the Securities and Exchange Commission and the Federal Deposit InsuranceCorporation. Additional information regarding Union Bank is available on the Internet atwww.uboc.com. This Internet address is included for reference only, and the information on thisInternet site is not a part of this Official Statement or incorporated by reference into this OfficialStatement. No representation is made in this Official Statement as to the accuracy or adequacyof the information contained on this Internet site.

Cash Deposit Requirements

Developer Security Fund. The Trustee will establish and maintain a separate funddesignated the “Gateway Security Fund.” On the Closing Date, the Trustee will deposit in theGateway Security Fund the Cash Deposit in the Required Gateway Security Fund Amount of$65,503.06.

Required Developer Security Fund Amount. The Cash Deposit must be made in anamount equal to the “Required Gateway Security Fund Amount,” which is defined in theIndenture as an amount equal to one year’s debt service on the Bonds to support payment ofthe semi-annual installments of the Special Tax A levied on the Gateway Remaining Parcels forany Fiscal Year.

The Indenture defines “Gateway Remaining Parcels,” as of any date, as all parcels thatare owned by Gateway or an Affiliate thereof.

Duration of Cash Deposit Requirement. The obligation of Gateway to fund theGateway Security Fund in an amount equal to the Required Gateway Security Fund Amount willterminate when Gateway owns fewer than 40% of the total number of lots anticipated to bedeveloped by Gateway (as set forth in the SB 50 Agreement) within each recorded final tractmap within the Community Facilities District. Until such time as Gateway owns fewer than 40%of the total number of lots anticipated to be developed by Gateway (as set forth in the SB 50Agreement) within each recorded final tract map within the Community Facilities District, theCommunity Facilities District and the Trustee will follow the procedures described below.

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Annual Calculation of Required Gateway Security Fund Amount. The CommunityFacilities District will, no later than June 25 of each year (commencing on the June 25immediately following the Closing Date), deliver to the Trustee a Written Certificate of theCommunity Facilities District specifying the Required Gateway Security Fund Amount for theFiscal Year commencing on the immediately succeeding July 1.

However, the Community Facilities District’s obligation to deliver such Written Certificateis subject to the Community Facilities District’s receiving from Gateway, no later than June 1 ofsuch year, a certification as to which parcels within the Community Facilities District constituteGateway Remaining Parcels as of such June 1, together with written evidence of the matters socertified (including, but not limited to, copies or adequate descriptions of grant deeds showing atransfer of parcels from Gateway to an owner other than Gateway during the twelve monthsimmediately preceding such June 1), which certification and written evidence will be in form andsubstance reasonably satisfactory to the Community Facilities District.

For purposes of determining the amount required to be available in the GatewaySecurity Fund for the Fiscal Year commencing on the immediately succeeding July 1, theRequired Gateway Security Fund Amount will be calculated based on the parcels that constituteGateway Remaining Parcels owned by Gateway as of such July 1.

Upon receipt of such Written Certificate of the Community Facilities District, if theamount available in the Gateway Security Fund is greater than the Required Gateway SecurityFund Amount as specified in such Written Certificate, the Trustee will transfer, on or after July 1of the following Fiscal Year, the amount in excess of the Required Gateway Security FundAmount, as specified in such Written Certificate, to Gateway. If the Trustee does not receivethe Written Certificate from the Community Facilities District by June 25 of any year, the amounton deposit in the Gateway Security Fund will not be reduced on such July 1, but will be reducedwithin seven days of receipt by the Trustee of such written certificate.

Draws on Gateway Security Fund. So long as amounts are available in the GatewaySecurity Fund, if Special Taxes levied on Gateway Remaining Parcels are delinquent, theCommunity Facilities District will instruct the Trustee to, no sooner than 45 days and no laterthan 30 days prior to each Interest Payment Date, transfer the lesser of (i) the amount of suchdelinquency (exclusive of penalties and interest), and (ii) the amount then available in theGateway Security Fund, to the Special Tax Fund.

Receipt and Disposition of Delinquent Special Taxes; Replenishment of GatewaySecurity Fund. No later than ten Business Days after the receipt by the Community FacilitiesDistrict of any delinquent Special Taxes for which a transfer from the Gateway Security Fund tothe Special Tax Fund has previously been made, the Community Facilities District will transfersuch delinquent Special Taxes to the Trustee and will deliver to the Trustee (with a copy to theGateway) a Written Certificate of the Community Facilities District directing the Trustee todeposit such delinquent Special Taxes in the Gateway Security Fund, provided that on or priorto such date the amount on deposit in the Gateway Security Fund is less than the RequiredGateway Security Fund Amount.

Release and Closure of Gateway Security Fund. When Gateway owns fewer than40% of the total number of lots anticipated to be developed by Gateway (as set forth in the SB50 Agreement) within each recorded final tract map for the Community Facilities District,Gateway may submit a written certificate to the Community Facilities District, together with

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written evidence (including, but not limited to, copies or adequate descriptions of grant deedsshowing a transfer of parcels from Gateway to an owner other than Gateway) of the matter socertified. Upon such receipt, the Community Facilities District will deliver a Written Certificate ofthe Community Facilities District to the Trustee stating that the obligation to maintain theGateway Security Fund has terminated and directing the Trustee to transfer any moneys in theGateway Security Fund to Gateway. Upon such release, the Trustee will close the GatewaySecurity Fund.

Reinvestment of Earnings. Any earnings from the investment of amounts on deposit inthe Gateway Security Fund will be retained therein and only released to Gateway upon thesatisfaction of the conditions described above.

Compliance with Cash Deposit Requirement. Gateway will satisfy this requirementwith a Cash Deposit to be deposited with the Trustee prior to the closing date.

It should be noted that, if Gateway were to become subject to bankruptcy or insolvencyproceedings, the availability of the Cash Deposit could be limited under certain circumstancesby bankruptcy laws, insolvency laws or other laws generally affecting creditors' rights.

Special Tax Fund

Deposits. As soon as practicable after the receipt by the Community Facilities Districtof any Special Tax Revenues, but in any event no later than the date 10 Business Days prior tothe Interest Payment Date after such receipt, the Community Facilities District will transfer suchSpecial Tax Revenues to the Trustee for deposit in the Special Tax Fund.

However, any portion of any such Special Tax Revenues that represents prepaid SpecialTaxes that are to be applied to the payment of the Redemption Price of Bonds in accordancewith the provisions of the Indenture will be identified to the Trustee as such by the CommunityFacilities District and deposited in the Redemption Fund.

Disbursements. Upon receipt of a Written Request of the Community Facilities District,the Trustee will withdraw from the Special Tax Fund and transfer to the Administrative ExpenseFund the amount specified in such Written Request of the Community Facilities District as theamount necessary to be transferred thereto in order to have sufficient amounts available thereinto pay Administrative Expenses.

On the Business Day immediately preceding each Interest Payment Date, after havingmade any requested transfer to the Administrative Expense Fund, the Trustee will withdrawfrom the Special Tax Fund and make the following transfers in the following order of priority:

• first, to the Bond Fund, Net Special Tax Revenues in the amount, if any,necessary to cause the amount on deposit in the Bond Fund to be equal to the principaland interest due on the Bonds on such Interest Payment Date, and,

• second, to the Reserve Fund, Net Special Tax Revenues in the amount, if any,necessary to cause the amount on deposit in the Reserve Fund to be equal to theReserve Requirement.

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Bond Fund

Establishment and Deposits. The Trustee will establish and maintain a separate funddesignated the “Bond Fund.” Within the Bond Fund, the Trustee will establish and maintain aseparate account designated the “Capitalized Interest Account.”

On the Closing Date, the Trustee will deposit in the Capitalized Interest Account theamount required to be deposited therein under the Indenture. The Trustee will deposit in theBond Fund from time to time the amounts required to be deposited therein from the Special TaxFund under the Indenture.

Bond Fund Deficiencies. If, on the Business Day before an Interest Payment Date,amounts in the Bond Fund are insufficient to pay the principal, if any, of and interest on theBonds due and payable on such Interest Payment Date, including principal due and payable byreason of mandatory sinking fund redemption of such Bonds, the Trustee will withdraw from theReserve Fund, to the extent of any funds therein, the amount of such insufficiency, and transferany amounts so withdrawn to the Bond Fund.

Disbursements. On each Interest Payment Date, the Trustee will withdraw from theBond Fund for payment to the Owners of the Bonds the principal, if any, of and interest on theBonds then due and payable, including principal due and payable by reason of mandatorysinking fund redemption of such Bonds.

On each Interest Payment Date through and including March 1, 2007, the amounts setforth in the Indenture will be transferred from the Capitalized Interest Account to the Bond Fund.Any amount remaining in the Capitalized Interest Account on March 2, 2007, will, unlessotherwise provided in a Supplemental Indenture, be transferred to the Bond Fund.

Redemption Fund

Establishment; Deposits. Under the Indenture the Trustee will establish and maintain aspecial fund designated the “Redemption Fund.” As soon as practicable after the receipt by theCommunity Facilities District of prepaid Special Taxes, but in any event not later than tenBusiness Days after such receipt, the Community Facilities District will transfer such prepaidSpecial Taxes to the Trustee for deposit in the Redemption Fund.

Additionally, the Trustee will deposit in the Redemption Fund amounts received from theCommunity Facilities District in connection with the Community Facilities District’s exercise of itsrights to optionally redeem Bonds under the Indenture and any other amounts required to bedeposited therein under the Indenture or any Supplemental Indenture.

Disbursements. Amounts in the Redemption Fund will be disbursed for the payment ofthe Redemption Price of Bonds redeemed through optional redemption under the Indenture.

Reserve Fund

Establishment; Reserve Requirement. In order to further secure the payment ofprincipal of and interest on the Bonds, certain proceeds of the Bonds will be deposited into theReserve Fund in an amount equal to the Reserve Requirement (see “ESTIMATED SOURCESAND USES OF FUNDS”). Reserve Requirement is defined in the Indenture to mean, as of thedate of any calculation, the least of:

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(i) 10% of the initial principal amount of the Bonds,

(ii) Maximum Annual Debt Service, and

(iii) 125% of Average Annual Debt Service.

Disbursements. Except as otherwise provided in the Indenture, all amounts depositedin the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of makingtransfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of theamount then required for payment of the principal of and interest on the Bonds or, inaccordance with the provisions of the Indenture, for the purpose of redeeming Bonds.

Transfers will be made from the Reserve Fund to the Bond Fund in the event of adeficiency in the Bond Fund, in accordance with the Indenture. See “APPENDIX D – Summaryof Indenture” for a description of the timing, purpose and manner of disbursements from theReserve Fund.

Investment of Moneys

Moneys in any fund or account created or established by the Indenture and held by theTrustee will be invested by the Trustee in Permitted Investments, as directed in writing by theCommunity Facilities District, maturing not later than the date on which it is estimated that suchmoneys will be required for the purposes specified in the Indenture.

However, Permitted Investments in which moneys in the Reserve Fund are so investedmust mature no later than the earlier of five years from the date of investment or the finalmaturity date of the Bonds.

Further, if such Permitted Investments may be redeemed at par so as to be available oneach Interest Payment Date, any amount in the Reserve Fund may be invested in suchredeemable Permitted Investments maturing on any date on or prior to the final maturity date ofthe Bonds. See “APPENDIX D – Summary of Indenture” for a definition of “PermittedInvestments.”

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THE SCHOOL DISTRICT

The following information relating to the School District is included only for the purposeof supplying general information regarding the School District. Neither the faith and credit northe taxing power of the School District has been pledged to payment of the Bonds, and theBonds will not be payable from any of the School District’s revenues or assets.

General Information

The School District is located in the western portion of the County. The School Districtwas originally formed in 1868 as the San Jacinto School District, and unified in 1943. TheSchool District encompasses approximately 100 square miles within the Cities of San Jacinto,Hemet, Moreno Valley and Beaumont, and certain unincorporated areas in the County. Theadministration headquarters of the School District are located at 2045 South San JacintoAvenue, San Jacinto, California. See “APPENDIX A - General Information About the City ofSan Jacinto and Riverside County.”

The School District serves grades Kindergarten through grade twelve, and currentlyoperates six elementary schools, two middle schools and two high schools. The School Districthad 7,528 students enrolled for Fiscal Year 2004-05, and as of September 6, 2005, the currentestimated student enrollment was 7,823.

Administration and Enrollment

The School District is governed by the Board. The five Board members are elected tofour-year terms in elections held every two years.

The names and terms of the current Board members are set forth below. One Boardseat is currently vacant.

Name Office Term Expires John Norman President 2008Willie Hamilton Clerk 2008Kenneth Cope Member 2008Deborah Rex Member 2006John Schouten Member 2006

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The table below sets forth official enrollment figures for Fiscal Year 1994-95 through2004-05, as well as projections for Fiscal Years 2005-06 through 2007-08, all as reported tothe State of California Department of Education.

San Jacinto Unified School DistrictStudent Enrollment

Fiscal Year Student Enrollment Percentage IncreaseHistorical [1] 1994-95 4,543 N/A

1995-96 4,623 1.75%1996-97 4,814 4.101997-98 5,063 5.151998-99 5,149 1.701999-00 5,498 6.752000-01 5,784 5.202001-02 6,158 6.452002-03 6,682 8.502003-04 7,093 6.152004-05 7,528 6.13

Projected [2] 2005-06 8,069 7.192006-07 8,610 6.702007-08 9,151 6.28

[1] Represent CBEDS (California Basic Educational Data System) calculations.[2] Projections based on CBEDS (California Basic Educational Data System) calculations.Source: California Department of Education and the School District.

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THE COMMUNITY FACILITIES DISTRICT

General

Description and Location. The Community Facilities District is located in the westernportion of the County, in the City of San Jacinto.

The Community Facilities District is located along the north side of Cottonwood Avenue,to the west of Lyon Avenue and to the east of Kirby Street. Surrounding land uses include theproposed San Jacinto Ranch Park and a tract of new homes under construction to the west ofthe southerly portion of the Empire Homes property, a mostly vacant 10-acre site with oneexisting house and several outbuildings to the west of the northerly portion of the Empire Homesproperty, the San Jacinto Reservoir area and ranch lands to the north, vacant and undevelopedlands and some older houses to the east, and vacant land and land currently under residentialdevelopment to the south. A flood control channel divides the Empire Homes property from theGateway property.

All of the taxable property in the Community Facilities District is being developed forresidential use as single-family detached homes.

See “APPENDIX A - General Information About the City of San Jacinto and RiversideCounty” for certain demographic information on the City of San Jacinto and the County. Theboundary map of the Community Facilities District is attached as APPENDIX I.

Gross and Anticipated Net Taxable Acres. The property in the Community FacilitiesDistrict currently contains approximately 71.26 gross acres, of which approximately 44.82 netacres are proposed for development as Taxable Property. Gross acreage includes property thatis expected to be separately parcelized, developed and conveyed to the County, publicagencies or homeowner associations as public roads, open space parcels, drainage andstormwater detention areas, and other exempt uses. Before this property is conveyed, it will betaxable as Undeveloped Property pursuant to the Rate and Method (to the extent not classifiedas Exempt Property under the Rate and Method). This property will become exempt from theSpecial Taxes as of the January 1 following the date that such property has been conveyed tothe County, a public agency or a homeowner association, which is expected to occur after finaltract maps are recorded for each development.

Estimated Maximum Special Tax Proceeds and Debt Service Coverage

The Rate and Method is structured to produce Special Tax revenues from the AssignedAnnual Special Tax and the Maximum Special Tax which, when applied to the projected debtservice on the Bonds, is anticipated to result in a debt service coverage ratio of 110% for the lifeof the Bonds.

Appraised Property Value

The Appraisal. The Appraisal was prepared by Stephen G. White, MAI of Fullerton,California (the “Appraiser”) to ascertain the market value of the fee simple estate of the 229proposed single family detached homes and lots in the Community Facilities District as of anAugust 1, 2005, date of value. The Appraisal was intended to comply with the reportingrequirements set forth under Standard Rule 2-2(b) of the Uniform Standards of Professional

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Appraisal Practice for a Summary Appraisal Report, and with the appraisal standard proposedby the California Debt and Investment Advisory Commission.

Basis for Appraisal and Assumptions. The property rights appraised were of a feesimple interest subject to easements of record, and the lien of the Special Taxes.

The Appraisal was based on certain assumptions and limiting conditions set forth inAPPENDIX C, including the assumption that all of the improvements and benefits to theproperty to be funded by the Bonds are completed and have accrued to the property. In thiscase, the Appraiser assumed that the proceeds of the Bonds would fund a combined amount ofapproximately $1,700,000 for Water and Sewer Facilities and City Facilities, which wasallocated as 62.71% or $1,066,070 for the Empire Homes tract ($770,490 toward Water andSewer Facilities and $295,580 toward City Facilities) and 37.29% or $633,930 toward theGateway tract (all toward Water and Sewer Facilities). (See “FINANCING PLAN” for theCommunity Facilities District’s current estimate of the amount of Bond proceeds to be used forthese purposes.)

The Appraiser also assumed that (a) the estimate of the remaining costs to get thesubject lots from “as-is” condition to finished lots obtained from the Property Owners arereasonably accurate and reliable, and (b) that the School District will levy the Special Tax B onthe property in the Community Facilities District prior to the issuance of special tax bondssupported by the Special Tax B (see “FINANCING PLAN – Community Facilities DistrictFinancing Plan”), and that when these special tax bonds are issued within the next severalyears the overall tax rate to homeowners will not increase.

As of the August 1, 2005 date of value, the 126 lots comprising the Empire Homesproperty were under development and in graded “blue-top” condition, with re-grading completedand with the construction of in-tract sewer and water facilities underway. The 103 lotscomprising the Gateway property were under development, with 43 homes under constructionand the remaining 60 lots vacant and in near finished-lot condition.

Value Estimate. The Appraiser estimated that, as of the August 1, 2005 date of value,the fee simple interest in the property within the Community Facilities District (subjecteasements of record, and to the lien of the Special Taxes) had the following market values:

Empire Homes property $10,000,000Gateway property 11,360,000

Total: $21,360,000

Valuation Methods. The Appraiser estimated the value of the property in theCommunity Facilities District based on the Sales Comparison Approach, which considers recentsales of residential land or bulk lots from the general area in comparison to the subject property.A deduction is then made for the estimated remaining costs to get the lots from the as is blue-top condition to finished lot condition, resulting in a value indication for the as is condition of thelots. The estimate of value for the property was achieved using the sales prices of comparablefinished lots in the area that were listed or had sold within the prior 16 months.

With respect to the Gateway property, the Appraiser allocated additional value to the 43homes currently under construction, as follows: (a) $113,000 per home was allocated to the 4model homes, which were estimated to be approximately 95% complete, (b) $53,000 per homewas allocated to 23 homes that were estimated to be approximately 40-50% complete, and (c)

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$10,000 per home was allocated to the 16 homes that were in the early stages of constructionor undergoing trenching for foundations.

A discounted cash flow analysis was not used.

The School District and the Community Facilities District make no representation as tothe accuracy or completeness of the Appraisal. See APPENDIX C for the Summary AppraisalReport.

Appraised Value to Burden Ratio

The table below shows the projected value to burden ratio for the property in theCommunity Facilities District based on the appraised values set forth in the Appraisal, and thelien represented by the principal amount of the Bonds.

No assurance can be given that the amounts shown in this table will conform to thoseultimately realized in the event of a foreclosure action following delinquency in the payment ofthe Special Taxes.

Table 1Appraised Values and Value to Burden Ratio

Projected Total PrincipalProperty Number Appraised Projected Amount of Value toOwner of Homes Value [1] Special Taxes [2] Bonds Lien [3]

Empire Homes 126 $10,000,000 $121,536 $1,536,444 6.51:1Gateway 103 11,360,000 72,264 913,556 12.43:1

Total: 229 $21,360,000 $193,800 $2,450,000 8.72:1 [1] Market value estimated by the Appraiser as of August 1, 2005.[2] Projected Special Taxes are based on product mix information provided by the

Property Owner.[3] Average value to lien per lot; actual value to lien per lot may vary.Source: David Taussig & Associates, Inc., and the Appraiser.

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Direct and Overlapping Governmental Obligations

Contained within the boundaries of the Community Facilities District are certainoverlapping local agencies providing public services and assessing property taxes,assessments, special taxes and other charges on the property in the Community FacilitiesDistrict. Many of these local agencies have outstanding debt.

The direct and overlapping obligations affecting the property in the Community FacilitiesDistrict as of August 25, 2005, are shown in the following table. The table was prepared byNational Tax Data, Inc., and is included for general information purposes only. The SchoolDistrict has not reviewed this report for completeness or accuracy and makes no representationin connection therewith.

Table 2Direct and Overlapping Governmental Obligations

SAN JACINTO UNIFIED SCHOOL DISTRICTCOMMUNITY FACILITIES DISTRICT NO. 2003-2

Assessed Value2004-05 Secured Roll Assessed Value $3,225,800

Secured Property Taxes

Description on Tax Bill Type Total Parcels Total Levy % Applicable ParcelsLevy

Amount Basic Levy PROP13 752,870 $1,260,163,576.10 0.00256% 4 $32,258.00

Eastern Municipal Water District Standby Charge STANDBY 199,425 4,341,931.56 0.01586% 4 688.70

Metropolitan Water District of Southern California Debt Service GO 413,378 4,816,962.42 0.00388% 4 187.09Metropolitan Water District of Southern California StandbyCharge STANDBY 198,247 2,753,481.64 0.01736% 4 477.92

San Jacinto Unified School District Debt Service 1996 Election GO 572,551 52,568,649.98 0.00173% 4 907.08

2004-05 TOTAL PROPERTY TAX LIABILITY $34,518.79TOTAL PROPERTY TAX LIABILITY AS A PERCENTAGE OF 2004-05 ASSESSED VALUATION 1.07%

Land Secured Bond IndebtednessOutstanding Direct and Overlapping Bonded Debt Type Issued Outstanding % Applicable Parcels Amount San Jacinto Unified School District CFD No. 2003-2 CFD TBD(1) TBD(1) 100.00% 5 TBD(1)TOTAL OUTSTANDING LAND SECURED BOND INDEBTEDNESS (1)(2) $0

General Obligation Bond IndebtednessOutstanding Direct and Overlapping Bonded Debt Type Issued Outstanding % Applicable Parcels AmountMetropolitan Water District of Southern California Debt Service GO $850,000,000 $447,475,000 0.00022% 5 $977

San Jacinto Unified School District Debt Service 1996 Election GO $6,500,000 $3,980,326 0.22627% 5 $9,006

TOTAL OUTSTANDING GENERAL OBLIGATION BOND INDEBTEDNESS (2) $9,983

TOTAL OF ALL OUTSTANDING AND OVERLAPPING BONDED DEBT $9,983(1) Excludes Mello-Roos bonds to be sold.(2) Additional bonded indebtedness or available bond authorization may exist but are not shown because a tax was notlevied for the referenced fiscal year.Source: National Tax Data, Inc.

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A further discussion of certain direct and overlapping governmental assessmentsaffecting various portions of the Community Facilities District is set forth below.

Metropolitan Water District Standby East. The Metropolitan Water District imposesan annual charge of $6.94 per acre or $6.94 per parcel for parcels under 1 acre. This charge isused for capital improvements to the water distribution system and the construction andmaintenance of reservoirs.

Eastern Municipal Water District Standby. The Eastern Municipal Water Districtimposes an annual charge of $10 per acre; all property is rounded to the nearest acre. Thischarge is used to fund capital improvements to the water distribution system and to acquire,operate and maintain sewer facilities.

Valley-Wide Recreation and Park District LMD 88-1. Valley-Wide Recreation & ParkDistrict formed LMD 88-1 to fund the maintenance and operation of regional parks andrecreation facilities. The annual rates are outlined in the table below. The assessment cannotbe increased without a vote of the registered voters within LMD 88-1.

Land Use Category AssessmentSingle Family Residential $22.14 per unitMulti-Family Residential 13.62 per unitMobile Home Residential 6.22 per unit

City of San Jacinto CFD No. 2003-1. The City of San Jacinto CFD No. 2003-1provides funding for police and fire protection services within CFD No. 2003-1. CFD No. 2003-1may impose a maximum assessment of $372.65 per single family residential unit for Fiscal Year2005-06. The assessment may be increased annually by the greater of 2.00% or the annualchange in the Consumer Price Index. However, the assessment may not be increased in anyyear by an amount greater than 6.00% of the amount in effect during the prior year.

San Jacinto Landscaping Lighting Park District #2: The City of San Jacinto formedthe Landscaping Lighting Park District #2 to provide funding for the following: the installation,operation, maintenance, and servicing of streetlights and traffic signals; the installation,maintenance and servicing of landscape areas (parkways, medians, open space,detention/retention basins, channels, etc.); the installation, operation, maintenance andservicing of other drainage facilities; graffiti removal from horizontal and vertical surfaces whichare appurtenant to the above items; all of which are located in public right of way or easementsin the district. The base amount of the assessment is determined at the time such property isannexed to the district. Tracts 30944 and 30944-1 have been annexed to this district asAnnexation No. 25. The Fiscal Year 2004-05 assessment for Annexation No. 25 is $446.35 perlot. Tract No. 30484 has not be annexed to the district as of yet, but the assessment isexpected to be similar to that of Annexation No. 25. The assessment may increase annually bythe change in the Consumer Price Index. However, the assessment may not be increased inany year by an amount greater than 7.5%.

Riverside County Flood Control and Water Conservation District(Stormwater/Cleanwater). The Riverside County Flood Control and Water ConservationDistrict (“Flood Control District”) imposes a pay-as-you-go assessment used to offset the FloodControl District’s program and administration costs associated with the development,implementation and management of identified stormwater management activities required by

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the federally mandated National Pollutant Discharge Elimination System Permit Program. Theassessment is fixed unless there is a vote to increase the assessment. The assessment rate iscalculated by multiplying the Benefit Assessment Unit ("BAU") rate of $3.75 per BAU by theBAU for that land use category. The BAU is computed based upon the parcel's size (acreage)and its land use classification. One BAU is 1/6 of an acre. A single-family residence on a 7,200square foot lot is defined as 1 BAU as well. The BAUs for other types of land use are calculatedin proportion to the amount of runoff generated by a single family residence on a 7,200 squarefoot lot. The rates for Fiscal Year 2004-05 are listed below.

Land Use Category@ $3.75/BAU BAU/Acre Assessment

Single Family Residential 6* $22.50/acreApartments/Mobile Homes, Churches and Schools 9 33.75/acreCommercial/Industrial 12 45.00/acreGolf Courses 0.10 0.38/acreUndeveloped Portions of Parcels 0.05 0.19/acreAgricultural/Vacant Undeveloped Exempt 0.00/acre * 1 BAU per single-family residence, assuming six equally sized residential parcels per acre.

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Estimated Tax Burden on Single Family Home

The following table sets forth the estimated total tax burden on a single family home of1,578 building square feet (a home size selected as a conservative representative of theproposed homes to be constructed in the Community Facilities District), based on estimated taxrates for Fiscal Year 2004-05.

Table 3Estimated Fiscal Year 2004-05 Tax Rates

(Single Family Residences of 1,578 square feet)

Percent of ProjectedASSESSED VALUATION AND PROPERTY TAXES Total AV AmountEstimated Sales Price [1] $279,990Homeowner’s Exemption (7,000)Assessed Value [2] $272,990

AD VALOREM PROPERTY TAXESGeneral Purpose 1.00000% $2,729.90Ad Valorem Tax Overrides

San Jacinto Unified School District G.O. Bond 0.02812% 76.76Metropolitan Water District 0.00580% 15.83

Total Ad Valorem Property Taxes and Overrides 1.03392% 2,822.49

ASSESSMENTS, SPECIAL TAXES AND PARCEL CHARGES [3]San Jacinto Unified School District CFD 2003-2 (Special Tax A) 557.19San Jacinto Unified School District CFD 2003-2 (Special Tax B) 615.61Eastern Municipal Water District Standby Charge 10.00Metropolitan Water District Standby 6.94San Jacinto Landscaping Lighting Park #2, Annexation No. 25 [4] 446.35City of San Jacinto CFD No. 2003-1 (Police & Fire) 350.00Valley-Wide Recreation and Park District No. LMD 88-1 22.14Riverside County Flood Control and Water Conservation District (Stormwater/Cleanwater) 3.75

Total Assessments and Parcel Charges $2,011.98

PROJECTED TOTAL PROPERTY TAXES $4,834.47

Projected Total Effective Tax Rate (as % of Sales Price) 1.73%[1] Estimated sales price for an average single-family detached unit containing 1,578 building square feet.[2] Assessed value reflects estimated total assessed value net of homeowner’s exemption.[3] All charges and special assessments are based on a Lot size of less than 1 acre.[4] Assessment reflects charge for Tracts 30944 and 30944-1 only.Source: David Taussig & Associates, Inc.

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PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT

The information about the Property Owners contained in this Official Statement has beenprovided by representatives of the Property Owners and has not been independently confirmedor verified by the Underwriter, the School District or the Community Facilities District. Neitherthe Underwriter, the School District nor the Community Facilities District make anyrepresentation as to the accuracy or adequacy of this information. There may be materialadverse changes in this information after the date of this Official Statement.

No assurance can be given that development of the property in the Community FacilitiesDistrict will proceed when or as currently planned, or that Property Owners will not sell all or anyportion of their current property holdings within the Community Facilities District before theplanned development is completed. Neither the Bonds nor the Special Taxes are personalobligations of any owners of Taxable Property within the Community Facilities District.

Empire

Ownership Structure. Empire Homes is Empire Homes SJ 137 LP, a California limitedpartnership formed in October 2003 for the purpose of developing and constructing homes onthe property in the Community Facilities District.

The Property Owner's general partner is Empire Homes, Inc., a California corporation(“EHI”).

EHI has been operating as a master developer and homebuilder since 1987 and isheadquartered in Irvine, California. The senior management team of EHI has over 80 years ofcombined experience in residential development in Southern California, and has been involvedin the construction and sale of more than 2,000 single family homes.

The Internet site for EHI is www.empirehomes.com. This Internet address is included forreference only, and the information on this Internet site is not a part of this Official Statement orincorporated by reference into this Official Statement.

Development Experience. EHI and its affiliates concentrate on acquisition,development and sales of residential real estate in Southern California. During the prior fiscalyear, EHI and its affiliates completed and sold approximately 175 homes, and EHI anticipatesthat it and its affiliates will complete approximately 280 homes during the current fiscal year.

Some of the other development projects recently completed or currently underdevelopment by EHI and its affiliates in the Inland Empire region of southern California includethe following:

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Development LocationNumber of

Dwelling UnitsSundance Victorville 117

Sage Victorville 158Presidio City of Riverside 72

Shadow Mountain Moreno Valley 280Shadow Ridge Moreno Valley 68Seneca Springs Beaumont 955

History of Property Tax Payments; Loan Defaults; Bankruptcy. Empire Homes willcertify to the following representations at the Closing:

• Neither Empire Homes, EHI nor any of their affiliates has ever defaulted to anymaterial extent in the payment of special taxes or assessments in connection with theCommunity Facilities District or any other community facilities districts or assessment districts inCalifornia within the past five years.

• Neither Empire Homes, EHI nor any of their affiliates is currently in default on anyloans, lines of credit or other obligation, the result of which could materially adversely affect thedevelopment of the property in the Community Facilities District.

• Empire Homes and EHI are solvent and no proceedings are pending or, to theactual knowledge of Empire Homes, threatened in which Empire Homes or EHI may beadjudicated as bankrupt or become the debtor in a bankruptcy proceeding, or discharged fromall of their respective debts or obligations, or granted an extension of time to pay their respectivedebts or a reorganization or readjustment of their respective debts.

• There is no litigation or administrative proceeding of any nature in which EmpireHomes or EHI has been served, or to the actual knowledge of Empire Homes, is pending orthreatened against Empire Homes or EHI which, if successful, would materially adversely affectthe ability of Empire Homes to complete the development and sale of its property within theCommunity Facilities District, or to pay the Special Taxes or ordinary ad valorem property taxobligations when due on its property within the Community Facilities District, or whichchallenges or questions the validity or enforceability of the Bonds, the Resolution of Issuance,the Indenture, the Property Owner Continuing Disclosure Certificate or the Bond PurchaseContract.

• Empire Homes is not aware of any material failures by it or EHI to comply withprevious continuing disclosure undertakings by them or their affiliates to provide periodiccontinuing disclosure reports or notices of material events in California within the past fiveyears.

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Gateway

Ownership Structure. Gateway is Gateway Inland, LLC, a California limited liabilitycompany (“Gateway”), formed in November 2003, for the purpose of developing andconstructing homes on the property in the Community Facilities District.

Gateway’s managing member is Gateway Vista Associates, Inc., a California corporation(“GVA”). The other member of Gateway is George Szabo, Jr. Gateway is a member of anaffiliated group of homebuilding firms known as “The Gateway Companies.”

GVA is a privately held real estate development company incorporated in 2000 andheadquartered in Carlsbad, California, whose sole owner and president is George Szabo, Jr.Mr. Szabo has over 30 years of experience in the areas of residential development andconstruction in Southern California and Nevada, and has been involved in the construction andsale of more than 3,600 single family homes, condominiums and apartment complexes.

Additional information regarding Gateway and The Gateway Companies can be foundon the Internet at www.gatewaycompanies.com. This Internet address is included for referenceonly, and the information on this Internet site is not a part of this Official Statement orincorporated by reference into this Official Statement.

Development Experience. GVA and its affiliates concentrate on acquisition,development and sales of residential real estate in Southern California and Nevada. TheGateway Companies act as general contractor for all its real estate projects. During the priorfiscal year, GVA and its affiliates completed and sold approximately 200 homes, and GVAanticipates that it and its affiliates will complete approximately 300 homes during the currentfiscal year.

Some of the other development projects recently completed or currently underdevelopment by GVA and its affiliates in southern California include the following:

Development LocationNumber of

Dwelling UnitsThe Coastal Townlofts Oceanside 28

Indian Palms City of Riverside 18Las Brisas San Marcos 14

Eastside Village II Calexico 98Bravo Park Calexico 163Bravo Villas Calexico 134

Park Collection Calexico 154

History of Property Tax Payments; Loan Defaults; Bankruptcy. Gateway will certifyto the following representations at the Closing:

• Neither Gateway, GVA nor any of their affiliates has ever defaulted to anymaterial extent in the payment of special taxes or assessments in connection with theCommunity Facilities District or any other community facilities districts or assessment districts inCalifornia within the past five years.

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• Neither Gateway, GVA nor any of their affiliates is currently in default on anyloans, lines of credit or other obligation, the result of which could materially adversely affect thedevelopment of the property in the Community Facilities District.

• Gateway and GVA are solvent and no proceedings are pending or, to the actualknowledge of Gateway, threatened in which Gateway or GVA may be adjudicated as bankruptor become the debtor in a bankruptcy proceeding, or discharged from all of their respectivedebts or obligations, or granted an extension of time to pay their respective debts or areorganization or readjustment of their respective debts.

• There is no litigation or administrative proceeding of any nature in which theGateway or GVA has been served, or the actual knowledge of Gateway, is pending orthreatened against Gateway or GVA which, if successful, would materially adversely affect theability of Gateway to complete the development and sale of its property within the CommunityFacilities District, or to pay the Special Taxes or ordinary ad valorem property tax obligationswhen due on its property within the Community Facilities District, or which challenges orquestions the validity or enforceability of the Bonds, the Resolution of Issuance, the Indenture,the Property Owner Continuing Disclosure Certificate or the Bond Purchase Contract.

• Gateway is not aware of any material failures by it or GVA to comply withprevious continuing disclosure undertakings by them or their affiliates to provide periodiccontinuing disclosure reports or notices of material events in California within the past fiveyears.

Environmental Conditions

CEQA Review. In June 2002 the County approved a Mitigated Negative Declarationunder the California Environmental Quality Act (“CEQA”) in connection with the approval of theTentative Tract Map for Tract 30481 (the Empire Homes Property). No additional discretionaryapprovals are required for the proposed development in the Community Facilities District thatwould require additional environmental review under CEQA.

In February 2003 the City approved a Mitigated Negative Declaration under CEQA inconnection with the approval of the Tentative Tract Map for Tract 30944 (the GatewayProperty). No additional discretionary approvals are required for the proposed development inthe Community Facilities District that would require additional environmental review underCEQA.

Hazardous Substances. Gradient Engineers Inc. of San Diego, California, prepared aPhase I Environmental Site Assessment Report dated March 15, 2002, for Tract 30481 (theEmpire Homes property) in the Community Facilities District. The report identified norecognized environmental conditions that Gradient believed merited further investigation for thepurposes of the transaction for which the report was prepared.

Ceres Technologies of La Mirada, California, prepared a Phase I Environmental SiteAssessment dated October 9, 2003, for the Gateway property in the Community FacilitiesDistrict. The assessment revealed no evidence of recognized environmental conditions inconnection with the property except for the following: (a) possible pesticide use was revealed byevidence that the property was previously used for agricultural purposes, although specificinformation regarding the previous use of such chemicals was not found, and the reportconcluded that since significant grading would occur on the property, the potential use of

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pesticides in the past was not considered to represent a significant threat to the environmentalintegrity of the property; and (b) an irrigation pump associated with an irrigation well wasobserved on the eastern portion of the property; the assessment recommended that this well beproperly abandoned. Based on these findings, the report did not recommend furtherassessment with regard to the recognized environmental conditions.

Seismic Conditions. Leighton and Associates, Inc. of Temecula, California, prepared aGeotechnical Investigation and Review dated March 25, 2002, for the property constituting theEmpire Parcels in the Community Facilities District (Tract 30481). The report noted that the siteis located within an Alquist-Priolo Earthquake Fault Zone, and that an active fault, the SanJacinto-Casa Loma fault, crosses the northern portion of the property. (The report also notedthat other nearby active faults include the San Jacinto-San Jacinto Valley Fault, locatedapproximately 1.0 mile to the northeast, the San Jacinto-Anza Fault, located approximately 5.7miles to the southeast, and the San Andreas Fault, located approximately 16.9 miles to theeast.) The San Jacinto-Casa Loma fault is an active right-lateral strike-slip fault with amaximum credible earthquake estimated to be of 6.9 moment magnitude (Mw). The reportnoted that possible hazards on the site due to local earthquake fault activity could include strongground shaking, possible ground rupture, or settlement. The report recommended a 50-footsetback zone to each side of the surveyed fault zone for structures intended for humanoccupancy. Empire Homes has represented that the seismic setback zone has beenincorporated into its design of the proposed residential neighborhood to be constructed on thesite.

Leighton and Associates, Inc. of Temecula, California, prepared a PreliminaryGeotechnical Investigation dated November 7, 2002 for the property constituting the GatewayParcels in the Community Facilities District (Tract 30944 and 30944-1). The report noted thatthe site is located within an Alquist-Priolo Earthquake Fault Zone, and that an active fault, theSan Jacinto-Casa Loma fault, crosses the northern portion of the property. (The report alsonoted that other nearby active faults include the San Jacinto-San Jacinto Valley Fault, locatedapproximately 2 miles to the northeast, the San Jacinto-Anza Fault, located approximately 5miles to the southeast, and the San Andreas Fault, located approximately 17 miles to the east.)The San Jacinto-Casa Loma fault is an active right-lateral strike-slip fault with a maximumcredible earthquake estimated to be of 6.9 moment magnitude (Mw). The report noted thatpossible hazards on the site due to local earthquake fault activity could include strong groundshaking, possible ground rupture, or settlement. The report recommended a 50-foot setbackzone to each side of the surveyed fault zone for structures intended for human occupancy.Gateway has represented that the seismic setback zone has been incorporated into its designof the proposed residential neighborhood to be constructed on the site.

Flood Plain. The Appraisal reports that, per FEMA Flood Insurance Rate Maps,portions of the Empire Homes property and the Gateway property are within flood zone A4,which is within a 100-year flood plain, but that this status has been mitigated by the elevationsof the graded lots together with the retention basins to be developed within Tract 30481. TheProperty Owners have represented that FEMA has issued a Conditional Letter of Map Revision(“CLOMR”) removing these portions of the property from the 100-year flood plain. RiversideCounty Flood Control and Water Conservation District, by a letter dated August 10, 2005,requested that FEMA convert its existing CLOMR to a final Letter of Map Revision, which isanticipated to take approximately 4 months.

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Proposed Development

No assurances can be made that the either or both Property Owners will have theresources, willingness and ability to successfully complete development activities on its propertywithin the Community Facilities District as currently planned. No representation is made as tothe ability (financial or otherwise) of either Property Owner to complete its property developmentas currently planned.

General. All of the taxable property in the Community Facilities District is currently inthe process of being developed as a total of 229 detached single-family homes: Empire Homesis developing its property as a residential neighborhood of 126 homes to be known as“Sandalwood,” and Gateway is developing its property as a residential neighborhood of 103homes to be known as “Stallions Crossing.”

Empire Homes acquired its property in the Community Facilities District in August 2003,and Gateway acquired its property in the Community Facilities District in November 2003.

Entitlement Status.

Empire Homes. Empire Homes is developing the Sandalwood project in accordancewith Tract Map 30481, as set forth below:

PropertyOwner Tract No.

No. ofLots

Tentative MapApproval

Final MapApproval

Empire Homes 30481 126 June 2002 Sept. 2005

Tract Map 30481 contains a total of 132 lots, but 6 lots are intended to be used forretention basins and parks purposes, and are not subject to the Special Tax.

Gateway. Gateway is developing the Stallions Crossing project in accordance with TractMaps 30944 and 30944-1, as set forth below:

PropertyOwner Tract No.

No. ofLots

Tentative MapApproval

Final MapApproval

Gateway 30944 59 Feb. 2003 Oct. 200430944-1 44 Feb. 2003 Oct. 2004

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Utilities. It is expected that utility services for the property in the Community FacilitiesDistrict will be provided by the following:

• Water: Eastern Municipal Water District• Sanitary sewer: City of San Jacinto• Stormwater drainage: Riverside County Flood Control• Electricity: Southern California Edison

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Infrastructure Development.

Empire Homes. Site work on the Empire Homes property in the Community FacilitiesDistrict was completed in July 2004 and all off-site infrastructure improvements are expected tobe completed in the 4th quarter of 2005.

As of August 1, 2005, the Appraiser estimated that the total cost to complete the EmpireHomes property to “finished lot” condition was as follows:

Total Finished Lot Costs: $6,181,938Less Estimated Costs to be Funded with Bond Proceeds: (1,066,070)Remaining Costs to Complete: $5,115,868

Gateway. Site work on the Gateway property in the Community Facilities District wascompleted in July 2005 and all off-site infrastructure improvements (including the Lyon Avenuesewer line) are expected to be completed by December 2005.

As of August 1, 2005, the Appraiser estimated that the total cost to complete theGateway property to “finished lot” condition was as follows:

Total Finished Lot Costs: $2,595,306Less Estimated Costs to be Funded with Bond Proceeds: (633,930)Remaining Costs to Complete: $1,961,376

Development of Off-Site Sewer Improvements. The development of the property inthe Community Facilities District requires the construction of a new 27-inch sewer line beneathRamona Boulevard, which is to the north of the Community Facilities District and into which theproperty in the Community Facilities District will tie through a connector line under constructionwithin Lyon Avenue (a north-south road extension under construction along the easternboundary of the Community Facilities District). The Ramona Boulevard sewer line is beingconstructed by Eastern Municipal Water District in cooperation with a number of developers,including the Property Owners, and involves “micro-tunneling” beneath ground level (rather thanopen trenching) due to high water table conditions. The property in the Community FacilitiesDistrict will tie into the first phase of the Ramona Boulevard sewer line project, consisting ofapproximately 7,000 linear feet of sewer line (and a lift station) reaching approximately to theintersection of Ramona Boulevard and Lyon Avenue. This first phase of the Ramona Boulevardsewer line project is currently anticipated to be complete in late December 2005. The PropertyOwners have represented that they anticipate that this first phase of the project will becompleted in sufficient time to complete the development of the property in the CommunityFacilities District on the schedules currently anticipated.

However, any substantial delay in the completion of the first phase of the RamonaBoulevard sewer line project could result in corresponding delays in the development of theproperty in the Community Facilities District. No assurance can be given that the first phase ofthe Ramona Boulevard sewer line project will be completed as currently anticipated.

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Home Development Plan.

Empire Homes. The anticipated construction schedule and unit mix for the EmpireHomes property in the Community Facilities District are set forth below. No assurance can begiven that home construction and sales will be carried out on the schedule and according to theplans outlined below, or that the Property Owner’s home construction and sale plans or baseprices will not change after the date of this Official Statement.

Empire HomesProposed Construction and Sales Schedule

TractNumberof Units

Begin ProductionHome

ConstructionOpen Model

HomesFirst Home

Sale ClosingsLast Home

Sale Closings30481 126 Nov. 2005 Mar. 2006 2nd Qtr 2006 4th Qtr 2007

Proposed Unit Mix

TractNumberof Units

No. of ModelTypes

Approx.Square Footage

AnticipatedBase Prices

30481 126 4 2,425 to 3,423 $332,000 to $380,000

Gateway. The anticipated construction schedule and unit mix for the Gateway propertyin the Community Facilities District are set forth below. Construction on model homes andproduction homes is currently underway. No assurance can be given that home constructionand sales will be carried out on the schedule and according to the plans outlined below, or thatthe Property Owner’s home construction and sale plans or base prices will not change after thedate of this Official Statement.

GatewayProposed Construction and Sales Schedule

TractsNumberof Units

BeginProduction

HomeConstruction

Open ModelHomes

First HomeSale

ClosingsLast Home

Sale Closings30944, 30944-1 103 Mar. 2005 Aug. 2005 Oct. 2005 June 2006

Proposed Unit Mix

TractsNumberof Units

No. of ModelTypes

Approx.Square Footage

AnticipatedBase Prices

30944, 30944-1 103 5 1,578 to 2,526 $299,990 to $355,990

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Site Development and Home Construction Financing Plan.

Empire Homes. Empire Homes has financed the cost of infrastructure improvements andhome construction costs through the following revolving commercial line of credit, which issecured by the Empire Homes property in the Community Facilities District.

Lender Financing Purpose

OriginalLoan

Commitment

Approx.OutstandingLoan Amount(Aug. 1, 2005)

MaturityDate

Guaranty Bank Infrastructure and Construction $20,200,000 $2,000,000 2007

Empire Homes intends to use the foregoing line of credit, together with home saleproceeds, to finance all construction and carrying costs for the property (including propertytaxes and the Special Taxes) until full sell-out of the single-family homes within the CommunityFacilities District. However, if these sources of financing are insufficient, the property in theCommunity Facilities District may not be developed as planned, if at all. While lenders havemade loan advances in the past, there can be no assurance that Empire Homes will qualify forfuture loans or future draws under existing loan arrangements. There is no legal obligation toBond holders to draw on such existing loans or to obtain additional loans.

Gateway. Gateway has financed the cost of land acquisition, infrastructureimprovements and home construction costs through the following commercial loans, all of whichare secured by the property in Community Facilities District.

Lender Financing PurposeOriginal

Loan Amount

OutstandingLoan Amount(July 2005)

MaturityDate

WFHAI HousingFund, L.P.

Acquisition, Development andConstruction

$25,022,895 $8,774,410 Jan. 19, 2007

Gateway intends to use the commercial loans shown above, and additional commercialloans to be obtained in the future, to finance all carrying costs for the property (includingproperty taxes and the Special Taxes) until full sell-out of the single-family homes within theCommunity Facilities District. However, if these sources of financing are insufficient, theproperty in the Community Facilities District may not be developed as planned, if at all. Whilelenders have made loan advances in the past, there can be no assurance that Gateway willqualify for future loans or future draws under existing loan arrangements. There is no legalobligation to Bond holders to draw on such existing loans or to obtain additional loans.

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BOND OWNERS' RISKS

The purchase of the Bonds described in this Official Statement involves a degree of riskthat may not be appropriate for some investors. The following includes a discussion of some ofthe risks which should be considered before making an investment decision.

Limited Obligation Of the Community Facilities District to Pay Debt Service

The Community Facilities District has no obligation to pay principal of and interest on theBonds if Special Tax collections are delinquent or insufficient, other than from amounts, if any,on deposit in the Reserve Fund or funds derived from the tax sale or foreclosure and sale ofparcels for Special Tax delinquencies. Neither the School District nor the Community FacilitiesDistrict is obligated to advance funds to pay debt service on the Bonds.

Levy and Collection of the Special Tax

The principal source of payment of principal of and interest on the Bonds is the proceedsof the annual levy and collection of the Special Tax against property within the CommunityFacilities District. The annual levy of the Special Tax is subject to the Maximum Annual SpecialTax rate authorized in the Rate and Method. The levy cannot be made at a higher rate even ifthe failure to do so means that the estimated proceeds of the levy and collection of the SpecialTax, together with other available funds, will not be sufficient to pay debt service on the Bonds.

Because the Special Tax formula set forth in the Rate and Method is not based onproperty value, the levy of the Special Tax will rarely, if ever, result in a uniform relationshipbetween the value of particular parcels of Taxable Property and the amount of the levy of theSpecial Tax against those parcels. Thus, there will rarely, if ever, be a uniform relationshipbetween the value of the parcels of Taxable Property and their proportionate share of debtservice on the Bonds, and certainly not a direct relationship.

The following are some of the factors that might cause the levy of the Special Tax onany particular parcel of Taxable Property to vary from the Special Tax that might otherwise beexpected:

• Reduction in the number of parcels of Taxable Property for such reasonsas acquisition of Taxable Property by a governmental entity and failure of thegovernment to pay the Special Tax based upon a claim of exemption or, in the case ofthe federal government or an agency thereof, immunity from taxation, thereby resultingin an increased tax burden on the remaining taxed parcels.

• Failure of the owners of Taxable Property to pay the Special Tax anddelays in the collection of or inability to collect the Special Tax by tax sale or foreclosureand sale of the delinquent parcels, thereby resulting in an increased tax burden on theremaining parcels.

• Development of a parcel of Taxable Property more rapidly thandevelopment of other parcels of Taxable Property, thereby resulting in the application ofdevelopment factors in the Special Tax formula to the parcel and resulting in anincreased tax burden on the parcel of Taxable Property.

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• Development of other parcels of Taxable Property less rapidly thanexpected, thereby resulting in delay in application of development factors in the SpecialTax formula to the other parcels of Taxable Property and resulting in an increased taxburden on the parcel of Taxable Property.

Except as set forth above under “SECURITY FOR THE BONDS – Special Taxes” and “– Rate and Method,” the Indenture provides that the Special Tax is to be collected in the samemanner as ordinary ad valorem property taxes are collected and, except as provided in thespecial covenant for foreclosure described in “SECURITY FOR THE BONDS – Covenant toForeclose” and in the Act, is subject to the same penalties and the same procedure, sale andlien priority in case of delinquency as is provided for ordinary ad valorem property taxes. Underthese procedures, if taxes are unpaid for a period of five years or more, the property is deededto the State and then is subject to sale by the County.

If sales or foreclosures of property are necessary, there could be a delay in payments toowners of the Bonds pending such sales or the prosecution of foreclosure proceedings andreceipt by the Community Facilities District of the proceeds of sale if the Reserve Fund isdepleted. See “SECURITY FOR THE BONDS – Covenant to Foreclose.”

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

An owner of Taxable Property is not personally obligated to pay the Special Tax.Rather, the Special Tax is an obligation only against the parcels of Taxable Property. If, after adefault in the payment of the Special Tax and a foreclosure sale by the Community FacilitiesDistrict, the resulting proceeds are insufficient, taking into account other obligations alsoconstituting a lien against the parcels of Taxable Property, the Community Facilities District hasno recourse against the owner.

Appraised Values

The Appraisal summarized in APPENDIX C estimates the market value of the TaxableProperty within the Community Facilities District. This market value is merely the presentopinion of the Appraiser, and is subject to the assumptions and limiting conditions stated in theAppraisal. The Community Facilities District has not sought the present opinion of any otherappraiser of the value of the Taxable Property. A different present opinion of value might berendered by a different appraiser.

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

In addition, the opinion is a present opinion, based upon present facts andcircumstances. Differing facts and circumstances may lead to differing opinions of value. Theappraised value is not evidence of future value because future facts and circumstances maydiffer significantly from the present.

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

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Property Values and Property Development

The value of Taxable Property within the Community Facilities District is a critical factorin determining the investment quality of the Bonds. If a property owner defaults in the paymentof the Special Tax, the Community Facilities District’s only remedy is to foreclose on thedelinquent property in an attempt to obtain funds with which to pay the delinquent Special Tax.Land development and land values could be adversely affected by economic and other factorsbeyond the Community Facilities District’s control, such as a general economic downturn,adverse judgments in future litigation that could affect the scope, timing or viability ofdevelopment, relocation of employers out of the area, stricter land use regulations, shortages ofwater, electricity, natural gas or other utilities, destruction of property caused by earthquake,flood or other natural disasters, environmental pollution or contamination, or unfavorableeconomic conditions.

Neither the Community Facilities District nor the School District has evaluateddevelopment risks. Since these are largely business risks of the type that the property ownercustomarily evaluates individually, and inasmuch as changes in land ownership may well meanchanges in the evaluation with respect to any particular parcel, the Community Facilities Districtis issuing the Bonds without regard to any such evaluation. Thus, the creation of theCommunity Facilities District and the issuance of the Bonds in no way implies that theCommunity Facilities District or the School District has evaluated these risks or thereasonableness of these risks. On the contrary, the Board has made no such evaluation and isundertaking acquisition and construction of the Facilities even though these risks may beserious and may ultimately halt or slow the progress of land development and forestall therealization of Taxable Property values in the event of delinquency and foreclosure.

The following is a discussion of specific risk factors that could affect the timing or scopeof property development in the Community Facilities District or the value of property in theCommunity Facilities District.

Land Development. Land values are influenced by the level of development in the areain many respects.

First, undeveloped or partially developed land is generally less valuable than developedland and provides less security to the owners of the Bonds should it be necessary for theCommunity Facilities District to foreclose on undeveloped or partially developed property due tothe nonpayment of Special Taxes.

Second, failure to complete development on a timely basis could adversely affect theland values of those parcels that have been completed. Lower land values would result in lesssecurity for the payment of principal of and interest on the Bonds and lower proceeds from anyforeclosure sale necessitated by delinquencies in the payment of the Special Tax. See “THECOMMUNITY FACILITIES DISTRICT – Appraised Value to Burden Ratios.” No assurance canbe given that the proposed development within the Community Facilities District will becompleted, and in assessing the investment quality of the Bonds, prospective purchasersshould evaluate the risks of noncompletion.

In addition, the development of the property in the Community Facilities District requiresthe construction of a new sewer line to the north. The property in the Community FacilitiesDistrict will tie into the first phase of this sewer line through a connector line under construction.Although the Property Owners anticipate that the first phase of the new sewer line project will be

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completed in sufficient time to complete the development of the property in the CommunityFacilities District on the schedules currently anticipated, any substantial delay in the sewer lineproject could result in corresponding delays in the development of the property in theCommunity Facilities District. See “PROPERTY OWNERSHIP AND PROPOSEDDEVELOPMENT – Proposed Development.”

Risks of Real Estate Investment Generally. Continuing development of land withinthe Community Facilities District may be adversely affected by changes in general or localeconomic conditions, fluctuations in or a deterioration of the real estate market, increasedconstruction costs, development, financing and marketing capabilities of the individual propertyowner, water or electricity shortages, and other similar factors. Development in the CommunityFacilities District may also be affected by development in surrounding areas, which maycompete with the Community Facilities District. In addition, land development operations aresubject to comprehensive federal, state and local regulations, including environmental, land use,zoning and building requirements. There can be no assurance that proposed land developmentoperations within the Community Facilities District will not be adversely affected by futuregovernment policies, including, but not limited to, governmental policies to restrict or controldevelopment, or future growth control initiatives. There can be no assurance that landdevelopment operations within the Community Facilities District will not be adversely affected bythese risks.

Natural Disasters. The value of the Taxable Property in the future can be adverselyaffected by a variety of natural occurrences, particularly those that may affect infrastructure andother public improvements and private improvements on the Taxable Property and thecontinued habitability and enjoyment of such private improvements. The areas in andsurrounding the Community Facilities District, like those in much of California, may be subject tounpredictable seismic activity. See “PROPERTY OWNERSHIP AND PROPOSEDDEVELOPMENT – Environmental Conditions.”

Other natural disasters could include, without limitation, landslides, floods, droughts ortornadoes. One or more natural disasters could occur and could result in damage toimprovements of varying seriousness. The damage may entail significant repair or replacementcosts and that repair or replacement may never occur either because of the cost, or becauserepair or replacement will not facilitate habitability or other use, or because other considerationspreclude such repair or replacement. Under any of these circumstances there could besignificant delinquencies in the payment of Special Taxes, and the value of the TaxableProperty may well depreciate or disappear.

Legal Requirements. Other events that may affect the value of Taxable Propertyinclude changes in the law or application of the law. Such changes may include, withoutlimitation, local growth control initiatives, local utility connection moratoriums and localapplication of statewide tax and governmental spending limitation measures.

Hazardous Substances. One of the most serious risks in terms of the potentialreduction in the value of Taxable Property is a claim with regard to a hazardous substance. Ingeneral, the owners and operators of Taxable Property may be required by law to remedyconditions of the parcel relating to releases or threatened releases of hazardous substances.The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980,sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widelyapplicable of these laws, but California laws with regard to hazardous substances are alsostringent and similar. Under many of these laws, the owner or operator is obligated to remedy a

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hazardous substance condition of property whether or not the owner or operator has anything todo with creating or handling the hazardous substance. The effect, therefore, should any of theTaxable Property be affected by a hazardous substance, is to reduce the marketability andvalue of the parcel by the costs of remedying the condition, because the purchaser, uponbecoming owner, will become obligated to remedy the condition just as is the seller.

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

Further, it is possible that liabilities may arise in the future with respect to any of theTaxable Property resulting from the existence, currently, on the parcel of a substance presentlyclassified as hazardous but that has not been released or the release of which is not presentlythreatened, or may arise in the future resulting from the existence, currently on the parcel of asubstance not presently classified as hazardous but that may in the future be so classified.Further, such liabilities may arise not simply from the existence of a hazardous substance butfrom the method of handling it. All of these possibilities could significantly affect the value ofTaxable Property that is realizable upon a delinquency. See “PROPERTY OWNERSHIP ANDPROPOSED DEVELOPMENT – Environmental Conditions.”

Endangered and Threatened Species. It is illegal to harm or disturb any plants oranimals in their habitat that have been listed as endangered species by the United States Fish &Wildlife Service under the Federal Endangered Species Act or by the California Fish & GameCommission under the California Endangered Species Act without a permit. Although theproperty owners believe that no federally listed endangered or threatened species would beaffected by the proposed development within the Community Facilities District, the discovery ofan endangered plant or animal could delay development of vacant property in the CommunityFacilities District or reduce the value of undeveloped property. See “PROPERTY OWNERSHIPAND PROPOSED DEVELOPMENT – Environmental Conditions.”

Concentration of Property Ownership

As of the date of issuance of the Bonds, a limited number of property owners are thesole owners of Taxable Property in the Community Facilities District, whose property is currentlyresponsible for payment of all of the Special Taxes. See “PROPERTY OWNERSHIP ANDPROPOSED DEVELOPMENT.”

Failure of any owner of property in the Community Facilities District to pay installmentsof the Special Tax when due could result in the depletion of the Reserve Fund prior toreimbursement from the resale of foreclosed property or payment of the delinquent Special Taxand, consequently, an insufficiency of Special Tax proceeds to meet obligations under theIndenture. In that event, there could be a delay or failure in payments of the principal of andinterest on the Bonds.

Certain developers owning property in the Community Facilities District are required toprovide and maintain the Letter of Credit or Cash Deposit as partial security for the payment ofthe Special Taxes on their respective property for a limited period. However, the stated amount

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of each Letter of Credit or Cash Deposit will only equal the Special Taxes levied in any fiscalyear on the property within the Community Facilities District not owned by individualhomeowners. Also, each Letter of Credit will terminate, or each Cash Deposit will be released,when individual homeowners own 60% or more of the single family lots in the portion of theCommunity Facilities District owned by each respective Property Owner. See “SECURITY FORTHE BONDS – Letter of Credit Requirements” and “SECURITY FOR THE BONDS – CashDeposit Requirements.”

Other Possible Claims Upon the Value of Taxable Property

While the Special Taxes are secured by the Taxable Property, the security only extendsto the value of such Taxable Property that is not subject to priority and parity liens and similarclaims.

The table in the section entitled “THE COMMUNITY FACILITIES DISTRICT – Direct andOverlapping Governmental Obligations” shows the presently outstanding amount ofgovernmental obligations (with stated exclusions), the tax or assessment for which is or maybecome an obligation of one or more of the parcels of Taxable Property. The table also statesthe additional amount of general obligation bonds the tax for which, if and when issued, maybecome an obligation of one or more of the parcels of Taxable Property. The table does notspecifically identify which of the governmental obligations are secured by liens on one or moreof the parcels of Taxable Property.

In addition, other governmental obligations may be authorized and undertaken or issuedin the future, the tax, assessment or charge for which may become an obligation of one or moreof the parcels of Taxable Property and may be secured by a lien on a parity with the lien of theSpecial Tax securing the Bonds. Specifically, the Community Facilities District is authorized toand expects to issue additional bonds secured by a separate special tax under the Rate andMethod, which will constitute an additional parity lien on the property in the Community FacilitiesDistrict. See “FINANCING PLAN.”

In general, the Special Tax and all other taxes, assessments and charges also collectedon the tax roll are on a parity, that is, are of equal priority. Questions of priority becomesignificant when collection of one or more of the taxes, assessments or charges is sought bysome other procedure, such as foreclosure and sale. In the event of proceedings to foreclosefor delinquency of Special Taxes securing the Bonds, the Special Tax will be subordinate only toexisting prior governmental liens, if any. Otherwise, in the event of such foreclosureproceedings, the Special Taxes will generally be on a parity with the other taxes, assessmentsand charges, and will share the proceeds of such foreclosure proceedings on a pro-rata basis.Although the Special Taxes will generally have priority over non-governmental liens on a parcelof Taxable Property, regardless of whether the non-governmental liens were in existence at thetime of the levy of the Special Tax or not, this result may not apply in the case of bankruptcy.See “– Bankruptcy and Foreclosure Delays” below.

Exempt Properties

Certain properties are exempt from the Special Tax in accordance with the Rate andMethod and the Act, which provides that properties or entities of the state, federal or localgovernment are exempt from the Special Tax; provided, however, that property within theCommunity Facilities District acquired by a public entity through a negotiated transaction or bygift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to

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the Special Tax. See “SECURITY FOR THE BONDS – Rate and Method.” In addition,although the Act provides that if property subject to the Special Tax is acquired by a public entitythrough eminent domain proceedings, the obligation to pay the Special Tax with respect to thatproperty is to be treated as if it were a special assessment, the constitutionality and operation ofthese provisions of the Act have not been tested, meaning that such property could becomeexempt from the Special Tax.

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

Depletion of Reserve Fund

The Reserve Fund is to be maintained at an amount equal to the Reserve Requirement.See “SECURITY FOR THE BONDS – Reserve Fund.” Funds in the Reserve Fund may beused to pay principal of and interest on the Bonds if insufficient funds are available from theproceeds of the levy and collection of the Special Tax against property within the CommunityFacilities District, and proceeds of draws on the Letter of Credit or Cash Deposit, if available. Iffunds in the Reserve Fund for the Bonds are depleted, the funds can be replenished from theproceeds of the levy and collection of the Special Tax that are in excess of the amount requiredto pay all amounts to be paid to the Bond holders pursuant to the Indenture. However, noreplenishment from the proceeds of a Special Tax levy can occur as long as the proceeds thatare collected from the levy of the Special Tax against property within the Community FacilitiesDistrict at the maximum Special Tax rates, together with other available funds, remainsinsufficient to pay all such amounts. Thus it is possible that the Reserve Fund will be depletedand not be replenished by the levy of the Special Tax.

Bankruptcy and Foreclosure Delays

Bankruptcy. The payment of the Special Tax and the ability of the Community FacilitiesDistrict to foreclose the lien of a delinquent unpaid Special Tax, as discussed in “SECURITYFOR THE BONDS,” may be limited by bankruptcy, insolvency or other laws generally affectingcreditors' rights or by the laws of the State of California relating to judicial foreclosure. Thevarious legal opinions to be delivered concurrently with the delivery of the Bonds (includingBond Counsel's approving legal opinion) will be qualified as to the enforceability of the variouslegal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar lawsaffecting creditors' rights, by the application of equitable principles and by the exercise of judicialdiscretion in appropriate cases.

Although bankruptcy proceedings would not cause the Special Taxes to becomeextinguished, bankruptcy of a property owner or any other person claiming an interest in theproperty could result in a delay in superior court foreclosure proceedings and could result in thepossibility of Special Tax installments not being paid in part or in full. Such a delay wouldincrease the likelihood of a delay or default in payment of the principal of and interest on theBonds. To the extent that property in the Community Facilities District continues to be ownedby a limited number of property owners, the chances are increased that the Reserve Fundestablished for the Bonds could be fully depleted during any such delay in obtaining payment ofdelinquent Special Taxes. As a result, sufficient moneys would not be available in the ReserveFund for transfer to the Bond Fund to make up shortfalls resulting from delinquent payments ofthe Special Tax and thereby to pay principal of and interest on the Bonds on a timely basis.

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Glasply Marine Industries. On July 30, 1992 the United States Court of Appeals forthe Ninth Circuit issued an opinion in a bankruptcy case entitled In re Glasply Marine Industries,holding that ad valorem property taxes levied by a county in the State of Washington after thedate that the property owner filed a petition for bankruptcy would not be entitled to priority overthe claims of a secured creditor with a prior lien on the property. Although the court upheld thepriority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposedsubsequent to the filing of the bankruptcy petition were declared to be “administrative expenses”of the bankruptcy estate, payable after the claims of all secured creditors. As a result, thesecured creditor was able to foreclose on the subject property and retain all the proceeds fromthe sale thereof except the amount of the pre-petition taxes. Pursuant to this holding, post-petition taxes would be paid only as administrative expenses and only if a bankruptcy estate hassufficient assets to do so. In certain circumstances, payment of such administrative expensesmay be allowed to be deferred. Once the property is transferred out of the bankruptcy estate(through foreclosure or otherwise) it would be subject only to current ad valorem taxes (i.e., notthose accruing during the bankruptcy proceeding).

The Glasply decision is controlling precedent in bankruptcy court in the State ofCalifornia. If Glasply were held to be applicable to Special Taxes, a bankruptcy petition filingwould prevent the lien for Special Taxes levied in subsequent fiscal years from attaching so longas the property was part of the estate in bankruptcy, which could reduce the amount of SpecialTaxes available to pay debt service on the Bonds. However, Glasply speaks as to ad valoremproperty taxes, and not special taxes, and no case law exists with respect to how a bankruptcycourt would treat the lien for special taxes levied after the filing of a petition in bankruptcy.

It should also be noted that on October 22, 1994, Congress enacted 11 U.S.C. §362(b)(18), which added a new exception to the automatic stay for ad valorem property taxesimposed by a political subdivision after the filing of a bankruptcy petition. Under this law, if abankruptcy petition is filed on or after October 22, 1994, the lien for ad valorem property taxes insubsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bondowners should be aware that the potential effect of 11 U.S.C. § 362(b)(18) on the Special Taxesalso depends upon whether a court were to determine that the Special Taxes should be treatedlike ad valorem property taxes for this purpose.

Property Owned by FDIC. In addition, the ability of the Community Facilities District toforeclose upon the lien on property for delinquent Special Taxes may be limited for properties inwhich the Federal Deposit Insurance Corporation (the “FDIC”) has an interest. On November26, 1996, the FDIC adopted a Statement of Policy Regarding the Payment of State and LocalProperty Taxes (the “Policy Statement”) (which superseded a prior statement issued by theFDIC and the Resolution Trust Corporation in 1991). The Policy Statement applies to the FDICwhen it is liquidating assets in its corporate and receivership capacities. The Policy Statementprovides, in part, that real property of the FDIC is subject to state and local real property taxes ifthose taxes are assessed according to the property's value, and that the FDIC is immune fromad valorem real property taxes assessed on other bases. The Policy Statement also providesthat the FDIC will pay its proper tax obligations when they become due and will pay claims fordelinquencies as promptly as is consistent with sound business practice and the orderlyadministration of the institution's affairs, unless abandonment of the FDIC interest in theproperty is appropriate. It further provides that the FDIC will pay claims for interest ondelinquent property taxes owned at the rate provided under state law, but only to the extent theinterest payment obligation is secured by a valid lien. The FDIC will not pay for any fines orpenalties and will not pay nor recognize liens for such amounts. The Policy Statement alsoprovides that if any property taxes (including interest) on FDIC-owned property are secured by a

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valid lien (in effect before the property became owned by the FDIC), the FDIC will pay thoseclaims. No property of the FDIC is subject to levy, attachment, garnishment, foreclosure or salewithout the FDIC's consent. In addition, a lien for taxes and interest may attach, but the FDICwill not permit a lien or security interest held by the FDIC to be eliminated by foreclosure withoutthe FDIC's consent.

With respect to challenges to assessments, the Policy Statement provides: “The [FDIC]is only liable for state and local taxes which are based on the value of the property during theperiod for which the tax is imposed, notwithstanding the failure of any person, including priorrecord owners, to challenge an assessment under the procedures available under state law. Inthe exercise of its business judgment, the [FDIC] may challenge assessments which do notconform with the statutory provisions, and during the challenge may pay tax claims based onthe assessment level deemed appropriate, provided such payment will not prejudice thechallenge. The [FDIC] will generally limit challenges to the current and immediately precedingtaxable year and to the pursuit of previously filed tax protests. However, the [FDIC] may, in theexercise 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 theproperty, etc.) indicate that the assessed value is clearly excessive, (2) a successful challengewill result in a substantial savings to the [FDIC], (3) the challenge will not unduly delay the saleof the property, and (4) there is a reasonable likelihood of a successful challenge.”

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

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

The Community Facilities District is unable to predict what effect the application of thePolicy Statement, or the ultimate outcome of the County of Orange case, would have in case ofa Special Tax delinquency on a parcel in which the FDIC has an interest. However, prohibitingthe judicial foreclosure sale of a FDIC-owned parcel would likely reduce the number of oreliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Bondsshould assume that the Community Facilities District will be unable to foreclose on parcels ofland in the Community Facilities District owned by the FDIC. Such an outcome would cause adraw on the Reserve Fund and perhaps, ultimately, a default in payment of the Bonds.

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Disclosure to Future Purchasers

The Community Facilities District has recorded a notice of the Special Tax lien in theOffice of the Riverside County Recorder. While title companies normally refer to such notices intitle reports, there can be no guarantee that such reference will be made or, if made, that aprospective purchaser or lender will consider such special tax obligation in the purchase of aparcel of land or a home in the Community Facilities District or the lending of money secured byproperty in the Community Facilities District. The Act and the Goals and Policies require thesubdivider of a subdivision (or its agent or representative) to notify a prospective purchaser orlong-term lessor of any lot, parcel, or unit subject to a Mello-Roos special tax of the existenceand maximum amount of such special tax using a statutorily prescribed form. California CivilCode Section 1102.6b requires that in the case of transfers other than those covered by theabove requirement, the seller must at least make a good faith effort to notify the prospectivepurchaser of the special tax lien in a format prescribed by statute. Failure by an owner of theproperty to comply with these requirements, or failure by a purchaser or lessor to consider orunderstand the nature and existence of the Special Tax, could adversely affect the willingnessand ability of the purchaser or lessor to pay the Special Tax when due.

No Acceleration Provisions

The Bonds do not contain a provision allowing for the acceleration of the Bonds in theevent of a payment default or other default under the terms of the Bonds or the Indenture.Under the Indenture, a Bond holder is given the right for the equal benefit and protection of allBond holders similarly situated to pursue certain remedies. See “APPENDIX D – Summary ofthe Indenture.” So long as the Bonds are in book-entry form, DTC will be the sole Bond holderand will be entitled to exercise all rights and remedies of Bond holders.

Loss of Tax Exemption

As discussed under the caption “LEGAL MATTERS – Tax Exemption,” interest on theBonds might become includable in gross income for purposes of federal income taxationretroactive to the date the Bonds were issued as a result of future acts or omissions of theCommunity Facilities District in violation of its covenants in the Indenture. The Indenture doesnot contain a special redemption feature triggered by the occurrence of an event of taxability.As a result, if interest on the Bonds were to be includable in gross income for purposes offederal income taxation, the Bonds would continue to remain outstanding until maturity unlessearlier redeemed pursuant to optional or mandatory redemption or redemption uponprepayment of the Special Tax. See “THE BONDS – Redemption.”

Voter Initiatives

Under the California Constitution, the power of initiative is reserved to the voters for thepurpose of enacting statutes and constitutional amendments. Since 1978, the voters haveexercised this power through the adoption of Proposition 13 and similar measures, includingProposition 218, which was approved in the general election held on November 5, 1996.

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

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Proposition 218—Voter Approval for Local Government Taxes—Limitation on Fees,Assessments, and Charges—Initiative Constitutional Amendment, added Articles XIIIC andXIIID to the California Constitution, imposing certain vote requirements and other limitations onthe imposition of new or increased taxes, assessments and property-related fees and charges.

The Special Taxes and each series of the Bonds were each authorized by not less thana two-thirds vote of the landowners within the Community Facilities District who constituted thequalified electors at the time of such voted authorization. The Community Facilities Districtbelieves, therefore, that issuance of the Bonds does not require the conduct of furtherproceedings under the Act or Proposition 218.

Like its antecedents, Proposition 218 is likely to undergo both judicial and legislativescrutiny before its impact on the Community Facilities District and its obligations can bedetermined. Certain provisions of Proposition 218 may be examined by the courts for theirconstitutionality under both State and federal constitutional law, the outcome of which cannot bypredicted.

LEGAL MATTERS

Legal Opinions

The validity of the Bonds and certain other legal matters are subject to the approvingopinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel. Bond Counsel undertakes noresponsibility for the accuracy, completeness or fairness of this Official Statement andexpresses no opinion as to the matters set forth herein. A complete copy of the proposed formof Bond Counsel opinion is attached as APPENDIX H and will accompany the Bonds.

Jones Hall, A Professional Law Corporation, San Francisco, California is serving asDisclosure Counsel to the School District and the Community Facilities District. Joel T. Boehm,Attorney at Law, Carlsbad, California, will pass upon certain legal matters for the School Districtand the Community Facilities District as special counsel to these entities.

Tax Exemption

In the opinion of Orrick, Herrington & Sutcliffe LLP ("Bond Counsel"), based upon ananalysis of existing laws, regulations, rulings and court decisions, and assuming, among othermatters, the accuracy of certain representations and compliance with certain covenants, intereston the Bonds is excluded from gross income for federal income tax purposes under the InternalRevenue Code of 1986 (the "Code"), and is exempt from State of California personal incometaxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specificpreference item for purposes of the federal individual or corporate alternative minimum taxes,although Bond Counsel observes that such interest is included in adjusted current earningswhen calculating corporate alternative minimum taxable income. A complete copy of theproposed form of opinion of Bond Counsel is set forth in APPENDIX H hereto.

To the extent the issue price of any maturity of the Bonds is less than the amount to bepaid at maturity of such Bonds (excluding amounts stated to be interest and payable at leastannually over the term of such Bonds), the difference constitutes "original issue discount," theaccrual of which, to the extent properly allocable to each owner thereof, is treated as interest on

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the Bonds which is excluded from gross income for federal income tax purposes and State ofCalifornia personal income taxes. For this purpose, the issue price of a particular maturity of theBonds is the first price at which a substantial amount of such maturity of the Bonds is sold to thepublic (excluding bond houses, brokers, or similar persons or organizations acting in thecapacity of underwriters, placements agents or wholesalers). The original issue discount withrespect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds onthe basis of a constant interest rate compounding semiannually (with straight-line interpolationsbetween compounding dates). The accruing original issue discount is added to the adjustedbasis of such Bonds to determine taxable gain or loss upon disposition (including sale,redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds shouldconsult their own tax advisors with respect to the tax consequences of ownership of Bonds withoriginal issue discount, including the treatment of Beneficial Owners who do not purchase suchBonds in the original offering to the public at the first price at which a substantial amount of suchBonds is sold to the public.

Bonds purchased, whether at original issuance or otherwise, for an amount higher thantheir principal amount payable at maturity (or, in some cases, at their earlier call date)(“Premium Bonds”) will be treated as having amortizable bond premium. No deduction isallowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, theinterest on which is excluded form gross income for federal income tax purposes. The amountof tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will bereduced by the amount of amortizable bond premium properly allocable to such BeneficialOwner. Owners of Premium Bonds should consult their own tax advisors with respect to theproper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to theexclusion from gross income for federal income tax purposes of interest on obligations such asthe Bonds. The Community Facilities District has made representations and covenanted tocomply with certain restrictions, conditions and requirements designed to ensure that interest onthe Bonds will not be included in federal gross income. Inaccuracy of these representations orfailure to comply with these covenants may result in interest on the Bonds being included ingross income for federal income tax purposes, possibly from the date of issuance of the Bonds.The opinion of Bond Counsel assumes the accuracy of these representations and compliancewith these covenants. Bond Counsel has not undertaken to determine (or to inform any person)whether any actions taken (or not taken) or events occurring (or not occurring), or any othermatters coming to Bond Counsel’s attention, after the date of issuance of the Bonds mayadversely affect the value of, or the tax status of interest on, the Bonds.

Certain requirements and procedures contained or referred to in the Indenture, the taxcertificate and other relevant documents may be changed and certain actions (including, withoutlimitation, defeasance of Bonds) may be taken or omitted under the circumstances and subjectto the terms and conditions set forth in such documents. Bond Counsel expresses no opinionas to any Bond or the interest thereon if any such change occurs or action is taken or omittedupon the advice or approval of bond counsel other than Orrick, Herrington & Sutcliffe LLP.

Although Bond Counsel is of the opinion that interest on the Bonds is excluded fromgross income for federal income tax purposes and is exempt from State of Californiapersonal income taxes, the ownership or disposition of the Bonds, or the accrual or receiptof interest on the Bonds, may otherwise affect a Beneficial Owner’s federal, state or localtax liability. The nature and extent of these other tax consequences will depend upon the

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particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of incomeor deduction. Bond Counsel expresses no opinion regarding any such other taxconsequences.

Future legislation, if enacted into law, or clarification of the Code may cause interest onthe Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise preventBeneficial Owners from realizing the full current benefit of the tax status of such interest. Theintroduction or enactment of any such future legislation or clarification of the Code may alsoaffect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bondsshould consult their own tax advisers regarding any enactment of any such future legislation, asto which Bond Counsel expresses no opinion.

The opinion of Bond Counsel is based on current legal authority, covers certain mattersnot directly addressed by such authorities, and represents Bond Counsel’s judgment as to theproper treatment of the Bonds for federal income tax purposes. It is not binding on the InternalRevenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has notgiven any opinion or assurance about the future activities of the Community Facilities District, orabout the effect of future changes in the Code, the applicable regulations, the interpretationthereof or the enforcement thereof by the IRS. The Community Facilities District hascovenanted, however, to comply with the requirements of the Code.

Bond Counsel’s engagement with respect to the Bonds ends with the issuance of theBonds, and, unless separately engaged, Bond Counsel is not obligated to defend theCommunity Facilities District or the Beneficial Owners regarding the tax-exempt status of theBonds in the event of an audit examination by the IRS. Under current procedures, parties otherthan the Community Facilities District and its appointed counsel, including the BeneficialOwners, would have little, if any, right to participate in the audit examination process. Moreover,because achieving judicial review in connection with an audit examination of tax-exempt bondsis difficult, obtaining an independent review of IRS positions with which the Community FacilitiesDistrict legitimately disagrees, may not be practicable. Any action of the IRS, including but notlimited to selection of the Bonds for audit, or the course or result of such audit, or an audit ofbonds presenting similar tax issues may affect the market price for, or the marketability of, theBonds, and may cause the Community Facilities District or the Beneficial Owners to incursignificant expense.

No Litigation

At the time of delivery of the Bonds, the School District and the Community FacilitiesDistrict will certify that there is no action, suit, proceeding, inquiry or investigation, at law or inequity, before or by any court, public board or body, pending with respect to which theCommunity Facilities District has been served with process or threatened:

• which in any way questions the powers of the Board or the CommunityFacilities District, or

• which in any way questions the validity of any proceeding taken by theBoard in connection with the issuance of the Bonds, or

• wherein an unfavorable decision, ruling or finding could materiallyadversely affect the transactions contemplated by the Bond Purchase Contract, or

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• which in any way could adversely affect the validity or enforceability of theResolutions, the Bonds, the Indenture, the Issuer Continuing Disclosure Certificate orthe Bond Purchase Contract, or

• to the knowledge of the Community Facilities District, which in any wayquestions the exclusion from gross income of the recipients thereof of the interest on theBonds for federal income tax purposes, or

• in any other way questions the status of the Bonds under State tax lawsor regulations.

CONTINUING DISCLOSURE

The Community Facilities District. The Community Facilities District has covenantedin a continuing disclosure certificate, the form of which is set forth in “APPENDIX F – Form ofIssuer Continuing Disclosure Certificate” (the “Issuer Continuing Disclosure Certificate”), for thebenefit of holders and beneficial owners of the Bonds, to provide certain financial informationand operating data relating to the Community Facilities District and the Bonds by not later thanseven months after the end of the Community Facilities District’s fiscal year, or January 31, ofeach year, beginning on January 31, 2006. The Issuer Continuing Disclosure Certificate alsorequires the Community Facilities District to provide notices of the occurrence of certainenumerated events, if material. The initial Dissemination Agent under the Issuer ContinuingDisclosure Certificate will be David Taussig & Associates, Inc.

The covenants of the Community Facilities District in the Issuer Continuing DisclosureCertificate will be made in order to assist the Underwriter in complying with Securities andExchange Commission Rule 15c2-12(b)(5) (the “Rule”). A default under the Issuer ContinuingDisclosure Certificate will not, in itself, constitute an Event of Default under the Indenture, andthe sole remedy under the Issuer Continuing Disclosure Certificate in the event of any failure ofthe Community Facilities District or the Dissemination Agent to comply will be an action tocompel specific performance.

Neither the School District nor the Community Facilities District has ever failed tocomply, in any material respect, with an undertaking under the Rule.

The Property Owner. Each Property Owner will covenant in a continuing disclosurecertificate, the form of which is set forth in “APPENDIX G – Form of Property Owner DisclosureCertificate” (the “Property Owner Continuing Disclosure Certificate”), for the benefit of holdersand beneficial owners of the Bonds, to provide certain information relating to the PropertyOwner and the parcels it owns within the Community Facilities District on a semi-annual basis,and to provide notices of the occurrence of certain enumerated events. The initialDissemination Agent under the Property Owner Continuing Disclosure Certificate will be ZionsFirst National Bank.

Each Property Owner’s obligations under its Property Owner Continuing DisclosureCertificate will terminate on the earlier of (i) legal defeasance, prior redemption or payment infull of all the Bonds, (ii) the date on which the Property Owner’s property in the CommunityFacilities District is no longer responsible for 10% or more of the Special Taxes, or (iii) the dateon which the Property Owner prepays in full all of the Special Taxes attributable to its propertyin the Community Facilities District.

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A default under the Property Owner Continuing Disclosure Certificate will not, in itself,constitute an Event of Default under the Indenture, and the sole remedy under the PropertyOwner Continuing Disclosure Certificate in the event of any failure of the Property Owner or theDissemination Agent to comply will be an action to compel specific performance.

NO RATINGS

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

UNDERWRITING

The Bonds are being purchased by the Stone & Youngberg LLC at a purchase price of$2,376,500 (which represents the aggregate principal amount of the Bonds ($2,450,000) less anunderwriter's discount of $73,500).

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

The Underwriter may offer and sell Bonds to certain dealers and others at prices lowerthan the offering price stated on the cover page hereof. The offering prices may be changedfrom time to time by the Underwriter.

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PROFESSIONAL FEES

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

• the Underwriter;

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

• Orrick, Herrington & Sutcliffe LLP, as Bond Counsel;

• Joel T. Boehm, Attorney at Law, as special counsel to the Community FacilitiesDistrict and the School District;

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

• Zions First National Bank, as Trustee for the Bonds.

EXECUTION

The execution and delivery of the Official Statement by the Community Facilities Districthas been duly authorized by the San Jacinto Unified School District on behalf of the CommunityFacilities District.

COMMUNITY FACILITIES DISTRICT NO.2003-2 OF THE SAN JACINTO UNIFIEDSCHOOL DISTRICT

By: /s/ Joseph R. Busek Joseph R. Busek, Assistant Superintendent,

Business and FacilitiesSan Jacinto Unified School District,

on behalf of Community Facilities DistrictNo. 2003-2 of the San Jacinto Unified

School District

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APPENDIX A

GENERAL INFORMATION ABOUT THE CITY OF SAN JACINTO AND RIVERSIDECOUNTY

The following information is included only for the purpose of supplying generalinformation regarding the City of San Jacinto and Riverside County. This information isprovided only for general informational purposes, and provides prospective investors limitedinformation about Riverside County and its economic base. The Bonds are not a debt of theCounty, the State or any of its political subdivisions, and neither the County, the State nor any ofits political subdivisions is liable therefor.

General

San Jacinto Unified School District is located in Riverside County, California. Set forthbelow is certain demographic information in Riverside County that could affect the economicenvironment within which the District operates.

City of San Jacinto

The City of San Jacinto is located in western Riverside County north of Hemet, west ofPerris and south of Beaumont. The City of San Jacinto regulates and implements all planning,zoning and land use regulations governing the City of San Jacinto.

History and Location of Riverside County

Riverside County, which encompasses 7,177 square miles, was organized in 1893 fromterritory in San Bernardino and San Diego Counties. Located in the southeastern portion ofCalifornia, Riverside County is bordered on the north by San Bernardino County, on the east bythe State of Arizona, on the South by San Diego and Imperial Counties and on the west byOrange and Los Angeles Counties. There are 24 incorporated cities in Riverside County.

Riverside County's varying topology includes desert, valley and mountain areas as wellas gently rolling terrain. Three distinct geographical areas characterize Riverside County: thewestern valley area, the higher elevations of the mountains, and the deserts. The westernvalley, the San Jacinto mountains and the Cleveland National Forest experience the mildclimate typical of Southern California. The eastern desert areas experience warmer and dryerweather conditions. Riverside County is the site for famous resorts, such as Palm Springs, aswell as a leading area for inland water recreation. Nearly 20 lakes in Riverside County are opento the public. The dry summers and moderate to cool winters make it possible to enjoy theseand other recreational and cultural facilities on a year-round basis.

Riverside County Population

According to the State Department of Finance, Demographic Research Unit, RiversideCounty’s population was estimated at 1,776,700 as of January 1, 2004. The largest cities inRiverside County are the cities of Riverside, Moreno Valley, Corona, Hemet, Indio, PalmSprings, Murrieta, Temecula and Cathedral City. The areas of most rapid population growthcontinue to be those more populated and industrialized cities in the western and central regions

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of Riverside County and the southwestern unincorporated region of Riverside County betweenSun City and Temecula.

The following table sets forth annual population figures, as of January 1, for citieslocated within Riverside County for each of the years listed:

COUNTY OF RIVERSIDEPopulation Estimates

1980 (1) 1990 (1) 2000 2001 2002 2003 2004Banning 14,020 20,570 23,500 23,850 24,650 25,600 27,200Beaumont 6,818 9,685 11,350 11,500 12,200 13,900 16,350Blythe 6,805 8,428 20,050 20,800 21,250 21,300 21,950Calimesa -- -- 7,075 7,175 7,275 7,400 7,350Canyon Lake -- -- 9,925 10,100 10,350 10,600 10,650Cathedral City -- 30,085 42,300 43,900 45,450 47,700 48,600Coachella 9,129 16,896 22,150 23,250 24,300 27,000 27,650Corona 37,791 76,095 123,700 129,200 134,000 138,200 141,800Desert Hot Springs 5,941 11,668 16,550 16,700 16,900 17,300 17,700Hemet 22,454 36,094 58,500 59,800 61,500 62,700 63,800Indian Wells 1,394 2,647 3,670 4,130 4,350 4,430 4,430Indio 21,611 36,793 48,650 50,200 52,200 54,900 59,100Lake Elsinore 5,982 18,285 28,700 29,900 31,100 33,300 35,350La Quinta -- 11,215 23,050 26,000 28,750 30,700 32,500Moreno Valley -- 118,779 142,000 143,800 146,500 151,200 155,100Murrieta -- -- 43,850 46,250 51,700 68,200 77,700Norco 19,732 23,302 24,100 24,400 24,900 25,400 25,500Palm Desert 11,081 23,252 41,000 41,900 42,900 44,300 44,800Palm Springs 32,359 40,181 42,700 43,250 43,750 44,350 44,250Perris 6,827 21,460 35,900 36,750 37,550 38,500 41,300Rancho Mirage 6,281 9,778 13,150 13800 14,350 15,100 15,500Riverside 170,591 226,505 253,800 261,200 269,600 276,300 277,000San Jacinto 7,098 16,210 23,400 24,500 25,300 26,250 26,700Temecula -- 27,099 56,600 61,500 72,800 75,700 77,500Unincorporated 248,009 385,386 418,000 429,600 441,800 465,600 477,000County Total 633,923 1,170,413 1,115,700 1,583,600 1,645,500 1,719,000 1,776,700

(1) From U.S. Census.Source: State Department of Finance estimates (as of January 1).

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Employment

Riverside County and San Bernardino County comprise the Riverside-San BernardinoMetropolitan Statistical Area. The following table summarizes the civilian labor force,employment and unemployment in the Riverside-San Bernardino Metropolitan Statistical Areafor the calendar years 2000 through 2004.

RIVERSIDE-SAN BERNARDINOMetropolitan Statistical Area

Civilian Labor Force, Employment and Unemployment, Employment by Industry(Annual Averages)

2000 2001 2002 2003 2004Civilian Labor Force (1) 1,510,200 1,575,100 1,638,800 1,687,400 1,671,000Employment 1,433,000 1,496,100 1,542,500 1,587,800 1,588,300Unemployment 77,200 79,000 96,300 99,600 82,800Unemployment Rate 5.1% 5.0% 5.9% 5.9% 5.0%

Wage and Salary Employment (2)

Agriculture 21,700 20,900 20,300 20,400 18,400Natural Resources and Mining 1,300 1,200 1,200 1,300 1,200Construction 80,100 88,400 90,900 97,500 115,000Manufacturing 120,100 118,600 115,400 113,500 119,600Wholesale Trade 38,300 41,600 41,900 43,800 45,200Retail Trade 127,400 132,200 137,500 141,700 160,800Trans., Warehousing and Utilities 46,400 45,600 46,000 47,500 51,400Information 12,900 14,600 14,100 13,800 13,600Finance and Insurance 20,600 22,900 23,500 25,300 28,200Real Estate and Rental and Leasing 14,200 15,300 15,900 16,800 17,600Professional and Business Services 97,000 101,700 106,800 113,100 126,800Educational and Health Services 102,200 106,000 112,400 115,300 117,800Leisure and Hospitality 100,800 104,400 107,200 108,300 116,600Other Services 35,000 37,100 38,100 38,400 38,400Federal Government 18,200 16,900 16,900 17,000 17,000State Government 24,600 25,800 26,600 26,600 27,000Local Government 149,300 157,600 169,300 167,800 170,800Total, All Industries 1,010,100 1,050,700 1,084,000 1,108,100 1,185,400 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers,

household domestic workers, and workers on strike.(2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers,

household domestic workers, and workers on strike.Source: State of California Employment Development Department.

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Largest Employers in Riverside County

The following table lists the largest employers within the County:

COUNTY OF RIVERSIDEMajor Employers

(As of January 1, 2005)

Employer Name Location IndustryCA State Transportation Lake Elsinore Government Offices-StateCasino Morongo Cabazon CasinosChase Manhattan Mortgage Corp Moreno Valley Real Estate LoansDesert Regional Medical Center Palm Springs HospitalsEisenhower Medical Center Rancho Mirage ClinicsGuidant Corp Temecula Physicians & Surgeons Equip & Supls-MfrsHandsome Rewards Perris Mail Order & Catalog ShippingJW Marriott Desert Springs Rst Palm Desert Hotels & MotelsLa Quinta Resort & Club La Quinta Hotels & MotelsLabtechniques Rancho Mirage Laboratories-MedicalNational RV Holdings Inc Perris Motor Homes-ManufacturersOasis Distributing Thermal Fruits & Vegetables-Growers & ShippersParkview Community Hospital Riverside HospitalsParts Depot Beaumont Motorcycles & Motor Scooters-SuppliesPechanga Resort & Casino Temecula CasinosRiverside Community College Riverside Schools-Universities & Colleges AcademicRiverside Community Hospital Riverside HospitalsRiverside County Regional Med Moreno Valley HospitalsSignatures Perris Mail Order & Catalog ShoppingSpa Resort Casino Palm Springs CasinosStarcrest Perris Mail Order & Catalog ShoppingStarcrest Products of CA Perris Mail Order & Catalog ShoppingUniversity of California Riverside Schools-Universities & Colleges AcademicValley Health System Hemet HospitalsWatson Pharmaceuticals Inc. Corona Drug Millers

Source: State of California Employment Development Department.

The following table lists the largest employers within the Hemet/San Jacinto CommunityArea, which includes Hemet, San Jacinto and the surrounding unincorporated area:

HEMET/SAN JACINTOMajor Employers

(As of 2005)

Employer Name No. of Employees IndustryHemet Unified School District 2,000 Public School DistrictHemet Valley Health Systems 1,756 HealthSaboba Casino 1,100 CasinoSan Jacinto Unified School District 660 Public School DistrictSkyline Corporation 614 Mobile Homes, Travel TrailersEMWD 535 Public Water AgencyDeutch 500 Electronic ConnectorsGosh Automotive Group 500 Auto DealershipGolden Era Productions 500 Motion Picture and Production StudioHilton Reservation Worldwide 425 Reservation Center Source: Hemet/San Jacinto Valley Chamber of Commerce.

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Riverside County Effective Buying Income

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

This information is not available for the City of San Jacinto. Annual figures are not yetavailable for 2004.

COUNTY OF RIVERSIDEEffective Buying Income

For Calendar Years 1998 through 2003

Year Area

Total EffectiveBuying Income(000's Omitted)

MedianHousehold

Effective BuyingIncome

1999 Riverside County $ 22,453,426 $35,145California 590,376,663 39,492United States 4,877,786,658 37,233

2000 Riverside County $ 25,144,120 $39,293California 652,190,282 44,464United States 5,230824,904 39,129




Source: Sales & Marketing Management Survey of Buying Power.

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Construction Trends

Provided below are the building permits and valuations for the County and the City forcalendar years 1999 through 2003. Annual figures are not yet available for 2004.

COUNTY OF RIVERSIDETotal Building Permit Valuations

(valuations in thousands)

1999 2000 2001 2002 2003Permit ValuationNew Single-family $2,275,765.9 $2,519,841.4 $3,051,190.4 $3,670,371.4 $4,665,675.0New Multi-family 130,795.9 125,296.2 174,628.0 165,413.0 406,483.0Res. Alterations/Additions 65,796.0 67,303.7 70,849.7 87,842.9 106,855.8Total Residential 2,472,357.8 2,712,441.3 3,296,668.1 3,923,627.4 5,179,014.5

New Commercial 255,646.1 393,509.9 287,068.6 297,963.6 360,707.4New Industrial 112,238.5 98,621.8 74,766.3 80,881.6 112,706.6New Other 117,198.1 119,978.4 152,854.0 187,510.6 261,793.6Com. Alterations/Additions 126,079.4 157,802.1 143,351.7 174,785.7 173,165.5Total Nonresidential 611,162.1 769,912.2 658,040.6 741,141.5 908,373.1

New Dwelling UnitsSingle Family 12,659 13,630 16,556 20,591 25,137Multiple Family 1,920 1,780 2,458 2,073 5,224 TOTAL 14,579 15,410 19,014 22,664 30,361

Source: Construction Industry Research Board, Building Permit Summary.

CITY OF SAN JACINTOTotal Building Permit Valuations

(valuations in thousands)

1999 2000 2001 2002 2003Permit ValuationNew Single-family 39,195.2 17,268.4 24,361.9 46,325.5 70,942.9New Multi-family 0.0 0.0 0.0 0.0 0.0Res. Alterations/Additions 255.9 409.7 203.5 463.5 342.2Total Residential 39,451.1 17,678.1 24,565.5 46,789.0 71,285.1

New Commercial 664.3 404.5 0.0 244.0 815.7New Industrial 109.5 1,415.1 0.0 0.0 0.0New Other 1,262.8 1,283.6 2,876.1 3,196.9 2,368.6Com. Alterations/Additions 911.8 528.5 639.7 621.0 220.1Total Nonresidential 2,948.4 3,631.7 3,515.8 4,061.9 3,404.4

New Dwelling UnitsSingle Family 376 153 205 343 453Multiple Family 0 0 0 0 0 TOTAL 376 153 205 343 453

Source: Construction Industry Research Board, Building Permit Summary.

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Riverside County Commercial Activity

Commercial activity is an important factor in Riverside County’s economy. Much ofRiverside County’s commercial activity is concentrated in central business districts or smallneighborhood commercial centers in cities. There are eight regional shopping malls inRiverside County: Riverside Plaza, Galleria at Tyler (Riverside), Palm Springs Mall, DesertFashion Mall, Indio Fashion Mall, Hemet Valley Mall, Palm Desert Town Center and MorenoValley Mall at Towngate. There are also two factory outlet malls (Desert Hills Factory Storesand Lake Elsinore Outlet Center) and over 200 area centers in Riverside County.

During 2003, total taxable transactions in Riverside County were reported to be$21,709,135, or 11.33% greater than total taxable transactions of $19,498,994 that werereported in Riverside County during 2002. Annual figures are not yet available for 2004.

COUNTY OF RIVERSIDETaxable Transactions(figures in thousands)

1999 2000 2001 2002 2003Retail Stores:Apparel Stores $495,945 $538,578 $565,295 $610,388 $746,015General Merchandise Stores 1,845,651 2,062,738 2,275,736 2,459,046 2,671,971Specialty Stores 1,186,231 1,277,359 1,379,979 1,501,106 1,649,224Food Stores Group 828,641 889,894 930,232 967,171 1,028,392Eating and Drinking Group 1,233,274 1,364,808 1,465,467 1,559,215 1,713,632Household Group 447,594 517,578 526,083 594,049 691,051Building Materials Group 1,017,564 1,210,838 1,339,020 1,427,831 1,678,347Automotive Group 3,145,417 3,812,690 4,148,261 4,563,779 5,198,391Other Retail Stores 485,407 515,991 543,208 568,148 653,929Retail Store Totals 10,685,724 12,190,474 13,173,281 14,250,733 16,030,952Business and Personnel Services 794,847 851,744 832,562 881,524 944,658All Other Outlets 3,596,374 3,937,231 4,225,712 4,366,737 4,733,525TOTAL ALL OUTLETS $15,076,945 $16,979,449 $18,231,555 $19,498,994 $21,709,135 (1) This category was included in Auto Dealers and Auto Supplies and Building Materials and Farm Implementsin these years.Source: State Department of Equalization

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CITY OF SAN JACINTOTaxable Transactions(figures in thousands)

Retail Retail Stores Total Total OutletsPermits on Taxable Permits on Taxable

Year July 1 Transactions July 1 Transactions1999 228 55,656 532 70,0952000 249 59,131 565 75,1952001 241 60,964 530 76,5322002 218 63,454 513 79,2662003 221 75,036 507 91,502

Source: State Board of Equalization

Riverside County Agriculture

Agriculture remains a leading source of income in Riverside County. Principalagricultural products are milk, eggs, table grapes, grapefruit, nursery, alfalfa, dates, lemons andavocados. Four areas in Riverside County account for the major portion of agricultural activity:the Riverside/Corona and San Jacinto/Temecula Valley Districts in the western portion ofRiverside County, the Coachella Valley in the central portion and the Palo Verde Valley nearRiverside County’s eastern border.

Riverside County Transportation

Easy access to job opportunities in Riverside County and nearby Los Angeles, Orangeand San Diego Counties is important to Riverside County’s employment picture. Several majorfreeways and highways provide access between Riverside County and all parts of SouthernCalifornia. The Riverside Freeway (State Route 91) extends southwest through Corona andconnects with the Orange County freeway network in Fullerton. Interstate 10 traverses the widthof Riverside County, the western-most portion of which links up with major cities and freewaysin the eastern part of Los Angeles County and the southern part of San Bernardino County.Interstate 15 and 215 extend north and then east to Las Vegas, and south to San Diego. TheMoreno Valley Freeway (U.S. 60) provides an alternate (to Interstate 10) east-west link to LosAngeles County.

Currently, Metrolink provides commuter rail service to Los Angeles and Orange Countiesfrom several stations in Riverside County. Transcontinental passenger rail service is providedby Amtrak with a stop in Indio. Freight service to major west coast and national markets isprovided by two transcontinental railroads – Burlington Northern/Santa Fe and Union Pacific.Truck service is provided by several common carriers, making available overnight deliveryservice to major California cities.

Transcontinental bus service is provided by Greyhound Lines. Intercounty, intercity andlocal bus service is provided by the Riverside Transit Agency to western County cities andcommunities. The SunLine Transit Agency provides local bus service throughout the CoachellaValley, including the cities of Palm Springs and Indio. The City of Banning also operates a localbus system.

Riverside County seat, located in the City of Riverside, is within 20 miles of the OntarioInternational Airport in neighboring San Bernardino County. This airport is operated by the Los

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Angeles Department of Airports. Four major airlines schedule commercial flight service at PalmSprings Regional Airport. County-operated general aviation airports include those in Thermal,Hemet, Blythe and French Valley. The cities of Riverside, Corona and Banning also operategeneral aviation airports. There is a military base at March Air Force Base, which convertedfrom an active duty base to a reserve-only base on April 1, 1996. Plans for joint military andcivilian use of the base thereafter are presently being formulated by the March AFB JointPowers Authority, comprised of Riverside County and the Cities of Riverside, Moreno Valleyand Perris.

Riverside County Environmental Control Services

Water Supply. Riverside County obtains a large part of its water supply fromgroundwater sources, with certain areas of Riverside County, such as the City of Riverside,relying almost entirely on groundwater. As in most areas of Southern California, thisgroundwater source is not sufficient to meet countywide demand and Riverside County’s watersupply is supplemented by imported water. At the present time imported water is provided bythe Colorado River Aqueduct and the State Water Project.

At the regional and local level, there are several water districts that were formed for theprimary purpose of supplying supplemental water to the cities and agencies within their areas.The Rancho California Water District, the Coachella Valley Water District, the WesternMunicipal Water District and the Eastern Municipal Water District are the largest of these waterdistricts in terms of area served. Riverside County is also served by the San Gorgonio PassWater Agency, Desert Water Agency and Palo Verde Irrigation District.

Flood Control. Primary responsibility for planning and construction of flood control anddrainage systems within Riverside County is provided by the Riverside County Flood Controland Water Conservation District and the Coachella Valley Storm Water Unit.

Sewage. There are 18 wastewater treatment agencies in Riverside County’s Santa AnaRiver region and nine in Riverside County’s Colorado River Basin region. Most residents in therural unsewered areas of Riverside County rely upon septic tanks and leach fields as anenvironmentally acceptable method of sewage disposal.

Riverside County Education

There are four elementary school districts, one high school district, eighteen unified (K-12) school districts and four community college districts in Riverside County. Ninety-fivepercent of all K-12 students attend schools in the unified school districts. The three largestunified districts are Riverside Unified School District, Moreno Valley Unified School District andCorona-Norco Unified School District.

There are seven two-year community college campuses located in the communities ofRiverside, Moreno Valley, Norco, San Jacinto, Menifee, Coachella Valley and Palo VerdeValley. There are also two universities and a four-year college located in the City of Riverside –the University of California, Riverside, La Sierra University and California Baptist College.

APPENDIX B

FIRST AMENDED RATE AND METHOD OF APPORTIONMENT FOR COMMUNITYFACILITIES DISTRICT NO. 2003-2 OF SAN JACINTO UNIFIED SCHOOL DISTRICT

Draft No. 5 Page 1 of 16 December 11, 2003

FIRST AMENDED RATE AND METHOD OF APPORTIONMENT FOR COMMUNITY FACILITIES DISTRICT NO. 2003-2

OF THE SAN JACINTO UNIFIED SCHOOL DISTRICT

Annual Special Taxes shall be levied on and collected in Community Facilities District No. 2003-2 of the San Jacinto Unified School District ("CFD No. 2003-2") in each Fiscal Year, in an amount determined through the application of the rate and method of apportionment described below. All of the real property in CFD No. 2003-2, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent, and in the manner herein provided.

SECTION A DEFINITIONS

The terms hereinafter set forth have the following meanings: "Acre" or "Acreage" means the land area of an Assessor's Parcel as shown on an Assessor's Parcel Map, or if the land area is not shown on an Assessor's Parcel Map, the land area shown on the applicable final map, parcel map, condominium plan, or other recorded County parcel map, that creates the boundaries of each Assessor's Parcel Number. "Act" means the Mello-Roos Community Facilities Act of 1982, being Chapter 2.5, Division 2 of Title 5 of the California Government Code. "Administrative Expenses" means any ordinary expenses of the School District or CFD No. 2003-2 related to the administration of CFD No. 2003-2. "Annual Special Tax" means the Annual Special Tax A or Annual Special Tax B. "Annual Special Tax A" means the Special Tax levied in each Fiscal Year on an Assessor's Parcel as set forth in Section F. "Annual Special Tax B" means the Special Tax levied in each Fiscal Year on an Assessor's Parcel as set forth in Section G. "Assessor's Parcel" means a lot or parcel of land in CFD No. 2003-2 which is designated on an Assessor's Parcel Map with an assigned Assessor's Parcel Number. "Assessor's Parcel Map" means an official map of the Assessor of the County designating parcels by Assessor's Parcel Number. "Assessor's Parcel Number" means that number assigned to an Assessor's Parcel by the County Assessor for purposes of identification. "Assigned Annual Special Tax" means the Assigned Special Tax A or Assigned Annual Special Tax B. "Assigned Annual Special Tax A" means the Special Tax of that name as set forth in Section D. "Assigned Annual Special Tax B" means the Special Tax of that name as set forth in Section D.


"Backup Annual Special Tax" means the Backup Annual Special Tax A or Backup Annual Special Tax B. "Backup Annual Special Tax A" means the Special Tax of that name described in Section E. "Backup Annual Special Tax B" means the Special Tax of that name described in Section E. "Board" means the Board of Trustees of the School District or its designee. "Building Permit" means a permit for the construction of one or more Units issued by the County, or another public agency in the event the City no longer issues permits for the construction of Units within CFD No. 2003-2. For purposes of this definition, "Building Permit" shall not include permits for construction or installation of commercial/industrial structures, parking structures, retaining walls, utility improvements, or other such improvements not intended for human habitation. "Building Square Footage" or "BSF" means the square footage of internal living space of a Unit, exclusive of garages or other structures not used as living space, as set forth in the Building Permit application for such Unit or other applicable records of the City. "Calendar Year" means any period commencing on January 1 and ending on the following December 31. "City" means the City of San Jacinto. "County" means the County of Riverside. "Developed Property" means, for each Fiscal Year, all Assessor’s Parcels for which Building Permits for the construction of Units were issued on or before May 1 of the prior Fiscal Year, provided that such Assessor's Parcels were created on or before January 1 of the prior Fiscal Year and that each such Assessor's Parcel is associated with a Lot, as determined reasonably by the Board. "Exempt Property" means the property designated as Exempt Property in Section L. "Final Subdivision Map" means a final tract map, parcel map, lot line adjustment, or functionally equivalent map or instrument that creates individual Lots, recorded in the Office of the Recorder of the County. "Fiscal Year" means the period commencing on July 1 of any year and ending the following June 30. "Indenture" means the bond indenture, master trust agreement, fiscal agent agreement, or similar document, regardless of title, pursuant to which Tax A Bonds or Tax B Bonds are issued and which establishes the terms and conditions for the payment of such Tax A Bonds or Tax B Bonds, as modified, amended and/or supplemented from time to time in accordance with its terms. "Lot" means an individual legal lot created by a Final Subdivision Map for which a Building Permit for a Unit has been or could be issued, provided that land for which one or more Building Permit(s) have been or could be issued for the construction of one or more model Units shall not be construed as a Lot until such land has been subdivided by a Final Subdivision Map. "Maximum Annual Special Tax" means the Maximum Annual Special Tax A or the Maximum Annual Special Tax B.


"Maximum Annual Special Tax A" means for each Fiscal Year the maximum Annual Special Tax A determined in accordance with Section C that can be levied by CFD No. 2003-2 in such Fiscal Year on any Assessor's Parcel. "Maximum Annual Special Tax B" means for each Fiscal Year the maximum Annual Special Tax B determined in accordance with Section C that can be levied by CFD No. 2003-2 in such Fiscal Year on any Assessor's Parcel. "Minimum Taxable Acreage" means the applicable Acreage listed in Table 6 set forth in Section L. "Proportionately" means that the ratios of the actual Annual Special Tax levy to the applicable Assigned Annual Special Tax or Maximum Special Tax is equal for all applicable Assessor's Parcels. "Regularly Retired Principal" means the principal amount of Special Tax bonds that have been paid as scheduled pursuant to the indenture under which they were reserved, whether by virtue of maturating principal or regularly scheduled mandatory sinking fund redemptions. "School District" means the San Jacinto Unified School District or any successor school district. "Special Tax" means any of the special taxes authorized to be levied in CFD No. 2003-2 under the Act and this RMA. "Tax A Gross Prepayment Amount" means any amount determined pursuant to Table 4 set forth in Section H. "Tax A Partial Prepayment Amount " means the amount required to prepay a portion of the Annual Special Tax A obligation on any Assessor's Parcel determined pursuant to Section J. "Tax B Gross Prepayment Amount" means any amount determined pursuant to Table 5 set forth in Section I. "Tax A Prepayment Amount" means the amount required to prepay all of Annual Special Tax A obligation on any Assessor's Parcel determined pursuant to Section H. "Tax B Prepayment Amount" means the amount required to prepay all of Annual Special Tax B obligation on any Assessor's Parcel determined pursuant to Section I. "Tax A Bonds" means any obligation to pay or repay a sum of money, including obligations in the form of bonds, notes, certificates of participation, long-term leases, loans from government agencies, or loans from banks, other financial institutions, private businesses, or individuals, or long-term contracts, or any refunding thereof, payable from Annual Special Tax A revenues. "Tax A Minimum Annual Special Tax Requirement" means the amount required in any Fiscal Year to pay: (i) the debt service on the Tax A Bonds in the Calendar Year beginning in such Fiscal Year, (ii) other periodic costs of the Tax A Bonds, including but not limited to, credit enhancement fees and charges and rebate payments on the Tax A Bonds due in the Calendar Year beginning in such Fiscal Year, (iii) the portion of the Administrative Expenses of CFD No. 2003-2 applicable to Annual Special Tax A, (iv) any costs associated with the release of funds from an escrow account for the Tax A Bonds, (v) any amount required to establish or replenish any reserve funds established


in association with the Tax A Bonds, less (vi) any amounts on deposit in any fund or account which are available to pay for items (i) through (v) above pursuant to any applicable Indenture in such Calendar Year. "Tax A Prepayment Ratio" means, with respect to an Assessor's Parcel, for each series of Tax A Bonds, the ratio of (i) the Assigned Annual Special Tax A or portion thereof applicable to the Assessor's Parcel at the time each such series of Tax A Bonds was issued and which was used in providing the minimum debt service coverage required to issue such series of Tax A Bonds, as reasonably determined by the Board, to (ii) the sum of all the Assigned Annual Special Tax A revenue used in providing the minimum debt service coverage required to issue such series of Tax A Bonds, as reasonably determined by the Board. "Tax B Bonds" means any obligation to pay or repay a sum of money, including obligations in the form of bonds, notes, certificates of participation, long-term leases, loans from government agencies, or loans from banks, other financial institutions, private businesses, or individuals, or long-term contracts, or any refunding thereof, payable from Annual Special Tax B revenues. "Tax B Minimum Annual Special Tax Requirement" means the amount required in any Fiscal Year to pay: (i) the debt service on the Tax B Bonds in the Calendar Year beginning in such Fiscal Year, (ii) other periodic costs on the Tax B Bonds, including but not limited to, credit enhancement fees and charges and rebate payments on the Tax B Bonds due in the Calendar Year beginning in such Fiscal Year, (iii) a portion of the Administrative Expenses of CFD No. 2003-2 attributable to Annual Special Tax B, (iv) any costs associated with the release of funds from an escrow account for the Tax B Bonds, (v) any amount required to establish or replenish any reserve funds established in association with the Tax B Bonds, less (vi) any amounts on deposit in any fund or account which are available to pay for items (i) through (v) above pursuant to any applicable Indenture in such Calendar Year. "Tax B Prepayment Ratio" means, with respect to an Assessor's Parcel, for each series of Tax B Bonds, the ratio of (i) the Assigned Annual Special Tax B or portion thereof applicable to the Assessor's Parcel at the time each such series of Tax B Bonds was issued and which was used in providing the minimum debt service coverage required to issue such series of Tax B Bonds, as reasonably determined by the Board, to (ii) the sum of all the Assigned Annual Special Tax B revenue used in providing the minimum debt service coverage required to issue such series of Tax B Bonds, as reasonably determined by the Board. "Taxable Property" means all Assessor’s Parcels which are not Exempt Property. "Undeveloped Property" means all Assessor's Parcels of Taxable Property which are not Developed Property. "Unit" means each separate residential dwelling unit that comprises an independent facility capable of conveyance separate from adjacent residential dwelling units.


SECTION B ASSIGNMENT OF ASSESSOR’S PARCELS

For each Fiscal Year, beginning with Fiscal Year 2004-05, each Assessor’s Parcel shall be classified as Taxable Property or Exempt Property. Furthermore, each Assessor’s Parcel of Taxable Property shall be classified as Developed Property or Undeveloped Property. Developed Property shall be further classified based on the Building Square Footage of the Unit. The classification of Taxable Property shall not fall below the Minimum Taxable Acreage depicted in Table 6.

SECTION C MAXIMUM ANNUAL SPECIAL TAX

1. Developed Property

The Maximum Annual Special Tax A for each Assessor's Parcel classified as Developed Property in each Fiscal Year shall be the greater of (i) the Assigned Annual Special Tax A for such Fiscal Year or (ii) the Backup Annual Special Tax A for such Fiscal Year. The Maximum Annual Special Tax B for each Assessor's Parcel classified as Developed Property in each Fiscal Year shall be the greater of (i) the Assigned Annual Special Tax B for such Fiscal Year or (ii) the Backup Annual Special Tax B for such Fiscal Year.

2. Undeveloped Property

The Maximum Annual Special Tax A for each Assessor's Parcel classified as Undeveloped Property in each Fiscal Year shall be the Assigned Annual Special Tax A for such Fiscal Year. The Maximum Annual Special Tax B for each Assessor's Parcel classified as Undeveloped Property in each Fiscal Year shall be the Assigned Annual Special Tax B for such Fiscal Year.

SECTION D ASSIGNED ANNUAL SPECIAL TAXES

Each Fiscal Year all Taxable Property shall be subject to Assigned Annual Special Tax A and Assigned Annual Special Tax B. 1. Developed Property

The Assigned Annual Special Tax A and Assigned Annual Special Tax B for each Assessor's Parcel of Developed Property shall be the amount specified in Table 1 according to the Building Square Footage of a Unit.


TABLE 1

ASSIGNED ANNUAL SPECIAL TAX A FOR DEVELOPED PROPERTY

Building Square Footage Assigned Annual

Special Tax A Assigned Annual

Special Tax B < 1,600 BSF $557.19 per Unit $615.61 per Unit

1,600 – 1,800 BSF $610.12 per Unit $639.29 per Unit




> 3,000 BSF $999.90 per Unit $813.65 per Unit

2. Undeveloped Property The Assigned Annual Special Tax A and the Assigned Annual Special Tax B for an Assessor's Parcel of Undeveloped Property shall be the amount determined by reference to Table 2.

TABLE 2

ASSIGNED ANNUAL SPECIAL TAX FOR UNDEVELOPED PROPERTY

Assigned Annual Special Tax A $4,853.00 per Acre

Assigned Annual Special Tax B $4,407.67 per Acre

SECTION E BACKUP ANNUAL SPECIAL TAX

Each Fiscal Year, each Assessor’s Parcel of Developed Property shall be subject to a Backup Annual Special Tax A and Backup Annual Special Tax B. In each Fiscal Year, the Backup Annual Special Tax A and Backup Annual Special Tax B for Developed Property shall be the rate per Lot calculated according to the following formula:

BA or BB = (ZA or ZB x A) / L

The terms above have the following meanings:

BA = Backup Annual Special Tax A per Lot for the applicable Fiscal Year

BB = Backup Annual Special Tax B per Lot for the applicable Fiscal Year

ZA = Assigned Annual Special Tax A per Acre of Undeveloped Property for the applicable Fiscal Year


ZB = Assigned Annual Special Tax B per Acre of Undeveloped Property for the applicable Fiscal Year

A = Acreage for Taxable Property expected to exist in the applicable Final Subdivision Map as determined by the Board pursuant to Section L

L = Number Lots in the Final Subdivision Map

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

1. Determine the total Backup Annual Special Tax A and the total Backup Annual Special Tax B revenue anticipated to apply to the changed or modified area of the Final Subdivision Map prior to the change or modification.

2. The result of paragraph 1 above shall be divided by the Acreage of Taxable

Property of the Final Subdivision Map that is anticipated to be changed or modified, as reasonably determined by the Board.

3. The result of paragraph 2 above shall be divided by 43,560. The result is the

Backup Annual Special Tax A per square foot of Acreage and Backup Annual Special Tax B per square foot of Acreage that shall be applicable to Assessor's Parcels of Developed Property in such changed or modified area of the Final Subdivision Map for all remaining Fiscal Years in which the Special Tax may be levied.

SECTION F

METHOD OF APPORTIONMENT OF THE ANNUAL SPECIAL TAX A Commencing Fiscal Year 2004-05, and for each subsequent Fiscal Year, the Board shall levy an Annual Special Tax A as follows: Step One: The Board shall levy an Annual Special Tax A on each Assessor’s Parcel of

Developed Property in an amount equal to the Assigned Annual Special Tax A applicable to each such Assessor’s Parcel.

Step Two: If the sum of the amounts to be levied in step one is insufficient to satisfy the Tax A

Minimum Annual Special Tax Requirement, then the Board shall Proportionately levy an Annual Special Tax A on each Assessor’s Parcel of Undeveloped Property up to the Assigned Annual Special Tax A applicable to each such Assessor’s Parcel to satisfy the Tax A Minimum Annual Special Tax Requirement.


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

SECTION G

METHOD OF APPORTIONMENT OF THE ANNUAL SPECIAL TAX B

Commencing Fiscal Year 2004-05, and for each subsequent Fiscal Year, the Board shall an levy Annual Special Tax B as follows: Step One: The Board shall levy an Annual Special Tax B on each Assessor’s Parcel of

Developed Property in an amount equal to the Assigned Annual Special Tax B applicable to each such Assessor’s Parcel.

Step Two: If the sum of the amounts to be levied in step one is insufficient to satisfy the Tax B

Minimum Annual Special Tax Requirement, then the Board shall Proportionately levy an Annual Special Tax B on each Assessor’s Parcel of Undeveloped Property up to the Assigned Annual Special Tax B applicable to each such Assessor’s Parcel to satisfy the Tax B Minimum Annual Special Tax Requirement.

Step Three: If the sum of the amounts to be levied in steps one and two is insufficient to satisfy

the Tax B Minimum Annual Special Tax Requirement, then the Board shall Proportionately levy an Annual Special Tax B on each Assessor’s Parcel of Developed Property from the Assigned Annual Special Tax B up to the Maximum Annual Special Tax B applicable to each such Assessor’s Parcel to satisfy the Tax B Minimum Annual Special Tax Requirement.

SECTION H

PREPAYMENT OF ANNUAL SPECIAL TAX A The Annual Special Tax A obligation of an Assessor’s Parcel of Developed Property or an Assessor’s Parcel of Undeveloped Property for which a Building Permit has been issued may be prepaid. An owner of an Assessor's Parcel intending to prepay the Annual Special Tax A obligation shall provide CFD No. 2003-2 with written notice of intent to prepay. Within thirty (30) days of receipt of such written notice, the Board shall reasonably determine the prepayment amount of such Assessor's Parcel and shall notify such owner of such Tax A Prepayment Amount. 1. Tax A Bond Proceeds Allocation

Prior to the calculation of any Tax A Prepayment Amount, a calculation shall be performed to determine the amount of Tax A Bond proceeds that are allocable to the Assessor’s Parcel for which the Annual Special Tax A obligation is to be prepaid, if any. For purposes of this analysis, Tax A Bond proceeds shall equal the par amount of Tax A Bonds. For each series of Tax A Bonds, Tax A Bond proceeds of such series shall be allocated to each Assessor’s Parcel in an amount equal to the Tax A Bond proceeds times the Tax A Prepayment Ratio applicable to such Assessor's Parcel for such series of Tax A Bonds. For each series of Tax A Bonds, an amount of Regularly Retired Principal shall also be allocated to each Assessor’s


Parcel, to be calculated pursuant to Section H.3.E. below. If, after such allocations, the amount of (i) Tax A Bond proceeds allocated to the Assessor’s Parcel for which the Annual Special Tax A obligation is to be prepaid less the amount of Regularly Retired Principal allocated to such Assessor’s Parcel is less than (ii) the sum of all the Tax A Gross Prepayment Amounts applicable to such Assessor's Parcel pursuant to Section H.2., then the Tax A Prepayment Amount for such Assessor's Parcel shall be calculated pursuant to Section H.2. Otherwise, the Tax A Prepayment Amount shall be calculated pursuant to Section H.3.

2. Tax A Prepayment Amount for Assessor’s Parcel with Allocation of Tax A Bonds Less than Applicable Tax A Gross Prepayment Amounts

The Tax A Prepayment Amount for each Assessor’s Parcel for which the Tax A Prepayment Amount is to be calculated pursuant to this Section H.2. shall be calculated by (i) counting all the Units of each Land Use Class applicable to such Assessor's Parcel, (ii) multiplying the sum of the Units for each Land Use Class for such Assessor's Parcel by the applicable Tax A Gross Prepayment Amount per Unit set forth in Table 4. The Tax A Gross Prepayment Amounts shall be (a) increased by the portion of Bonds allocable to cost of issuance, reserve fund deposits, and capitalized interest multiplied by the applicable Tax A Prepayment Ratio and (b) reduced by the Regularly Retired Principal multiplied by applicable Tax A Prepayment Ratio This sum is the Tax A Prepayment Amount for the Assessor's Parcel.

TABLE 4

TAX A GROSS PREPAYMENT AMOUNT

Building Square Footage Tax A Gross Prepayment

Amount < 1,600 BSF $6,655.21 per Unit

1,600 – 1,800 BSF $6,911.19 per Unit

1,801 – 2,200 BSF $7,455.15 per Unit

2,201 – 2,600 BSF $7,935.12 per Unit

2,601 – 3,000 BSF $8,316.21 per Unit

> 3000 BSF $8,796.18 per Unit

3. Tax A Prepayment Amount for Assessor’s Parcel with Allocation of Tax A Bonds Equal to or More than Applicable Tax A Gross Prepayment Amounts

The Tax A Prepayment Amount for each Assessor’s Parcel for which the Tax A Prepayment Amount is to be calculated pursuant to this Section H.3 shall be the amount calculated as shown below.


Tax A Bond proceeds allocated to Assessor's Parcel pursuant to Section H.1

plus A. Redemption Premium plus B. Defeasance plus C. Prepayment Fees and Expenses less D. Reserve Fund Credit less E. Regularly Retired Principal less F. Partial Prepayment Credit equals Tax A Prepayment Amount

Detailed explanations of items A through F follow:

A. Redemption Premium

The Redemption Premium is calculated by multiplying (i) the principal amount of the Tax A Bonds to be redeemed with the proceeds of the Tax A Prepayment Amount by (ii) the applicable redemption premium, if any, on the Tax A Bonds to be redeemed.

B. Defeasance

The Defeasance is the amount needed to pay interest on the portion of the Tax A Bonds to be redeemed with the proceeds of the Tax A Prepayment Amount until the earliest call date of the Tax A Bonds to be redeemed, net of interest earnings to be derived from the reinvestment of the Tax A Prepayment Amount until the redemption date of the portion of the Tax A Bonds to be redeemed with the Tax A Prepayment Amount. Such amount of interest earnings will be calculated reasonably by the Board.

C. Prepayment Fees and Expenses

The Prepayment Fees and Expenses are the costs of the computation of the Tax A Prepayment Amount and an allocable portion of the costs of redeeming Tax A Bonds and recording any notices to evidence the prepayment and the redemption, as calculated reasonably by the Board.

D. Reserve Fund Credit

The Reserve Fund credit, if any, shall be calculated as the sum of (i) the reduction in the applicable reserve fund requirements resulting from the redemption of Tax A Bonds with the Tax A Prepayment Amount, plus (ii) the reduction in the applicable reserve fund requirements attributable to the allocable portion of regularly scheduled retirement of principal that has occurred, as well as any other allocable portion of principal retired not related to Tax A Prepayment Amounts or Partial Prepayment Amounts. The allocable portion of regularly scheduled retirement of principal that has occurred means the total regularly scheduled retirement of principal that has occurred with respect to each series of Tax A Bonds times the applicable Tax A Prepayment Ratio for each such series of Tax A Bonds. The allocable portion of principal retired not related to Tax A Prepayment Amounts or


Partial Prepayment Amounts means the total principal retired not related to Tax A Prepayment Amounts or Partial Prepayment Amounts with respect to each series of Tax A Bonds times the applicable Tax A Prepayment Ratio for each such series of Tax A Bonds.

E. Regularly Retired Principal

The Regularly Retired Principal times the applicable Tax A Prepayment Ratio for each such series of Tax A Bonds.

F. Partial Prepayment Credit

Partial prepayments of the Annual Special Tax A obligation occurring prior to the issuance of Tax A Bonds will be credited in full. Partial prepayments of the Annual Special Tax A obligation occurring subsequent to the issuance of Tax A Bonds will be credited in an amount equal to the greatest amount of principal of the Tax A Bonds that could have been redeemed with the Tax A Partial Prepayment Amount(s), taking into account Redemption Premium, Defeasance, Prepayment Fees and Expenses, and Reserve Fund Credit, if any, but exclusive of restrictions limiting early redemption on the basis of dollar increments, i.e., the full amount of the Tax A Partial Prepayment Amount(s) will be taken into account in the calculation. The sum of all applicable partial prepayment credits is the Partial Prepayment Credit.

With respect to an Annual Special Tax A obligation that has been prepaid, the Board shall reasonably indicate in the records of CFD No. 2003-2 that there has been a prepayment of the Annual Special Tax A and shall reasonably cause a suitable notice to be recorded in compliance with the Act within thirty (30) days of receipt of such prepayment of Annual Special Tax A, to indicate reasonably the prepayment of Annual Special Tax A and the release of the Annual Special Tax lien on such Assessor’s Parcel, and the obligation of such Assessor’s Parcel to pay such Annual Special Tax A shall cease. Notwithstanding the foregoing, no prepayment shall be allowed unless the amount of Annual Special Tax A that may be levied on Taxable Property both prior to and after the proposed prepayment net of an allocable portion of administrative expenses is at least 1.1 times annual debt service in each Fiscal Year on all outstanding Tax A Bonds.

SECTION I PREPAYMENT OF ANNUAL SPECIAL TAX B

The Annual Special Tax B obligation of an Assessor’s Parcel of Developed Property or an Assessor’s Parcel of Undeveloped Property for which a Building Permit has been issued may be prepaid. However, the Annual Special Tax B obligation of an Assessor's Parcel may be prepaid only after or concurrently with the prepayment of the Annual Special Tax B obligation for such Assessor's Parcel. An owner of an Assessor's Parcel intending to prepay the Annual Special Tax B obligation shall provide CFD No. 2003-2 with written notice of intent to prepay. Within 30 days of receipt of such written notice, the Board shall reasonably determine the prepayment amount of such Assessor's Parcel and shall notify such owner of such Tax B Prepayment Amount.


1. Tax B Bond Proceeds Allocation

Prior to the calculation of any Tax B Prepayment Amount, a calculation shall be performed to determine the amount of Tax B Bond proceeds that are allocable to the Assessor’s Parcel for which the Annual Special Tax B obligation is to be prepaid, if any. For purposes of this analysis, Tax B Bond proceeds shall equal the par amount of Tax B Bonds. For each series of Tax B Bonds, Tax B Bond proceeds of such series shall be allocated to each Assessor’s Parcel in an amount equal to the Tax B Bond proceeds times the Tax B Prepayment Ratio applicable to such Assessor's Parcel for such series of Tax B Bonds. For each series of Tax B Bonds, an amount of Regularly Retired Principal shall also be allocated to each Assessor’s Parcel, to be calculated pursuant to Section I.3.E. below. If, after such allocations, the amount of (i) Tax B Bond proceeds allocated to the Assessor’s Parcel for which the Annual Special Tax B obligation is to be prepaid less the amount of Regularly Retired Principal allocated to such Assessor’s Parcel is less than (ii) the sum of all the Tax B Gross Prepayment Amounts applicable to such Assessor's Parcel pursuant to Section I.2., then the Tax B Prepayment Amount for such Assessor's Parcel shall be calculated pursuant to Section I.2. Otherwise, the Tax B Prepayment Amount shall be calculated pursuant to Section I.3.

2. Tax B Prepayment Amount for Assessor’s Parcel with Allocation of Tax B Bonds Less than Applicable Tax B Gross Prepayment Amounts

The Tax B Prepayment Amount for each Assessor’s Parcel for which the Tax B Prepayment Amount is to be calculated pursuant to Table 5 of Section I.2. shall be calculated by (i) counting all the Units of each Land Use Class applicable to such Assessor's Parcel, (ii) multiplying the sum of the Units for each Land Use Class for such Assessor's Parcel by the applicable Tax B Gross Prepayment Amount per Unit in Table 5The Tax B Gross Prepayment Amounts shall be (a) increased by the portion of Bonds allocable to cost of issuance, reserve fund deposits, and capitalized interest multiplied by the applicable Tax B Prepayment Ratio and (b) reduced by the Regularly Retired Principal multiplied by the applicable Tax B Prepayment Ratio. This sum is the Tax B Prepayment Amount for the Assessor's Parcel.

TABLE 5

TAX B GROSS PREPAYMENT AMOUNT

Building Square Footage Tax B Gross Prepayment

Amount < 1,600 Sq. Feet $4,952.88 per Unit

1,600 - 1,800 Sq. Feet $5,143.39 per Unit

1,801 – 2,200 Sq. Feet $5,548.21 per Unit

2,201 – 2,600 Sq. Feet $5,905.41 per Unit

2,601 – 3,000 Sq. Feet $6,189.02 per Unit

> 3,000 Sq. Feet $6,546.18 per Unit


3. Tax B Prepayment Amount for Assessor’s Parcel with Allocation of Tax B Bonds Equal to or More than Applicable Tax B Gross Prepayment Amounts

The Tax B Prepayment Amount for each Assessor’s Parcel for which the Tax B Prepayment Amount is to be calculated pursuant to this Section I.3. shall be the amount calculated as shown below.

Tax B Bond proceeds allocated to Assessor's Parcel pursuant to Section I.1

plus A. Redemption Premium plus B. Defeasance plus C. Prepayment Fees and Expenses less D. Reserve Fund Credit

less E. Regularly Retired Principal equals Tax B Prepayment Amount

Detailed explanations of items A through E follow:

A. Redemption Premium

The Redemption Premium is calculated by multiplying (i) the principal amount of the Tax B Bonds to be redeemed with the proceeds of the Tax B Prepayment Amount by (ii) the applicable redemption premium, if any, on the Tax B Bonds to be redeemed.

B. Defeasance

The Defeasance is the amount needed to pay interest on the portion of the Tax B Bonds to be redeemed with the proceeds of the Tax B Prepayment Amount until the earliest call date of the Tax B Bonds to be redeemed, net of interest earnings to be derived from the reinvestment of the Tax B Prepayment Amount until the redemption date of the portion of the Tax B Bonds to be redeemed with the Tax B Prepayment Amount. Such amount of interest earnings will be calculated reasonably by the Board.

C. Prepayment Fees and Expenses

The Prepayment Fees and Expenses are the costs of the computation of the Tax B Prepayment Amount and an allocable portion of the costs of redeeming Tax B Bonds and recording any notices to evidence the prepayment and the redemption, as calculated reasonably by the Board.

D. Reserve Fund Credit

The Reserve Fund credit, if any, shall be calculated as the sum of (i) the reduction in the applicable reserve fund requirements resulting from the redemption of Tax B Bonds with the Tax B Prepayment Amount, plus (ii) the reduction in the applicable reserve fund requirements attributable to the allocable portion of regularly scheduled retirement of principal that has occurred, as well as any other allocable portion of principal retired not


related to Tax B Prepayment Amounts or Partial Prepayment Amounts. The allocable portion of regularly scheduled retirement of principal that has occurred means the total regularly scheduled retirement of principal that has occurred with respect to each series of Tax B Bonds times the applicable Tax B Prepayment Ratio for each such series of Tax B Bonds. The allocable portion of principal retired not related to Tax B Prepayment Amounts or Partial Prepayment Amounts means the total principal retired not related to Tax B Prepayment Amounts or Partial Prepayment Amounts with respect to each series of Tax B Bonds times the applicable Tax B Prepayment Ratio for each such series of Tax B Bonds.

E. Regularly Retired Principal

The Regularly Retired Principal times the applicable Tax B Prepayment Ratio for each such series of Tax B Bonds.

With respect to an Tax B Annual Special Tax obligation that has been prepaid, the Board shall reasonably indicate in the records of CFD No. 2003-2 that there has been a prepayment of the Tax B Annual Special Tax and shall reasonably cause a suitable notice to be recorded in compliance with the Act within thirty (30) days of receipt of such prepayment of Tax B Annual Special Taxes, to indicate reasonably the prepayment of Tax B Annual Special Taxes and the release of the Tax B Annual Special Tax lien on such Assessor’s Parcel, and the obligation of such Assessor’s Parcel to pay such Tax B Annual Special Tax shall cease. Notwithstanding the foregoing, no prepayment shall be allowed unless the amount of Annual Special Tax B that may be levied on Taxable Property both prior to and after the proposed prepayment net of on allocable portion of Administrative Expenses is at least 1.1 times annual debt service in each Fiscal Year on all outstanding Tax B Bonds.

SECTION J

PARTIAL PREPAYMENT OF ANNUAL SPECIAL TAX A Prior to the issuance of the first Building Permit for the construction of a production Unit on a Lot within a Final Subdivision Map, the owner of no less than all the property within such Final Subdivision Map may elect to prepay any portion of the applicable Annual Special Tax A obligation for all of the Assessor's Parcels within such Final Subdivision Map. The owner of any Assessor's Parcel who desires such partial prepayment shall notify the Board of (i) such owner's intent to partially prepay the Annual Special Tax A obligation and (ii) the percentage by which the Annual Special Tax A obligation shall be prepaid. The partial prepayment of each Annual Special Tax A obligation shall be collected at the issuance of each applicable Building Permit, provided that the Annual Special Tax A obligation with respect to model Units for which Building Permits have already been issued must be partially prepaid at the time of the election. The Tax A Partial Prepayment Amount shall be calculated according to the following formula:


PP = PG x F These terms have the following meanings:

PP = the Tax A Partial Prepayment Amount PG = the Tax A Prepayment Amount calculated according to Section I

F = the percentage of the Annual Special Tax A obligation which the owner of the Assessor's Parcel is partially prepaying.

With respect to any Assessor's Parcel’s Annual Special Tax A obligation that is partially prepaid, the Board shall indicate in the records of CFD No. 2003-2 that there has been a partial prepayment of the Annual Special Tax A obligation and shall cause a suitable notice to be recorded in compliance with the Act within 30 days of receipt of such partial prepayment, to indicate the partial prepayment of the Annual Special Tax A obligation and the partial release of the Annual Special Tax A lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay such prepaid portion of the Annual Special Tax A shall cease. Additionally, the notice shall indicate that the Assigned Annual Special Tax A and the Backup Annual Special Tax A for the Assessor's Parcels has been reduced by an amount equal to the percentage, which was partially prepaid. Notwithstanding the foregoing, no partial prepayment will be allowed unless the amount of Annual Special Tax A that may be levied in of CFD No. 2003-2, net of an allocable portion of Administrative Expenses, shall be at least 1.1 times the regularly scheduled annual interest and principal payments on all currently outstanding Bonds.

SECTION K

TERMINATION OF SPECIAL TAX The Annual Special Tax A and the Annual Special Tax B shall be levied for a term of 35Fiscal Years after the issuance of the last series of Tax A Bonds or Tax B Bonds, whichever is later, by CFD No. 2003-2, but in no event shall the Annual Special Tax A and Annual Special Tax B be levied later than Fiscal Year 2041-42.

SECTION L

EXEMPTIONS

The Board shall classify property as Exempt Property in the following priority (i) Assessor's Parcels owned by the State of California, Federal or other local governments, (ii) Assessor's Parcels with public utility easements or other restrictions making impractical their utilization for other than the purposes set forth in the easement or restriction, (iii) Assessor's Parcels owned exclusively by a homeowners' association or which the homeowners' association has an easement, (iv) Assessor's Parcels which are used as places of worship and are exempt from ad valorem property taxes because they are owned by a religious organization, (vi) Assessor's Parcels for which a building permit(s) was issued on of before May 1 of the prior Fiscal Year for the construction of a commercial or industrial building as reasonably determined by the Board, and provided that no such classification would reduce the Acreage of all Taxable Property to less than the Minimum Taxable Acreage. Assessor's Parcels which cannot be classified as Exempt Property because such classification would reduce the Acreage of all Taxable Property to less than the Minimum Taxable Acreage will continue to be classified as Developed Property or Undeveloped Property, as applicable, and will continue to be subject to Special Taxes accordingly.


TABLE 6

MINIMUM TAXABLE ACREAGE Minimum

Taxable Acreage

39.56 Acres

SECTION M

APPEALS Any property owner claiming that the amount or application of any Special Tax is not correct may file a written notice of appeal with the Board not later than 12 months after having paid the Special Tax that is disputed. The Board shall promptly review the appeal, and if necessary, meet with the property owner, consider written and oral evidence regarding the amount of the Special Tax, and rule on the appeal. If the Board's decision requires that the Special Tax for an Assessor's Parcel be modified or changed in favor of the property owner, a cash refund shall not be made (except for the last year of levy or in other special cases, as determined by the Board), but an adjustment shall be made to the Special Tax on that Assessor's Parcel in the subsequent Fiscal Year(s).

SECTION N

MANNER OF COLLECTION The Annual Special Tax A and the Annual Special Tax B shall be collected in the same manner and at the same time as ordinary ad valorem property taxes, provided, however, that CFD No. 2003-2 may collect Annual Special Tax A and/or Annual Special Tax B at a different time or in a different manner if necessary to meet its financial obligations. J:\CLIENTS\SANJACTO.USD\MELLO\CFD 2003-2\RMA 5.doc

APPENDIX C

SUMMARY APPRAISAL REPORT

SUMMARY APPRAISAL REPORT

COVERING

San Jacinto Unified School District Community Facilities District No. 2003-2

(Empire Homes & Gateway Inland)

DATE OF VALUE: SUBMITTED TO: August 1, 2005 San Jacinto Unified School District 2045 S. San Jacinto Ave. San Jacinto, CA 92583 Attn: Joseph Busek Assistant Superintendent Business and Facilities DATE OF REPORT: SUBMITTED BY: August 9, 2005 Stephen G. White, MAI 1370 N. Brea Blvd., Suite 205 Fullerton, CA 92835

August 9, 2005 San Jacinto Unified School District Re: Communities Facilities District No. 2003-2 2045 S. San Jacinto Ave. (Empire Homes & Gateway Inland) San Jacinto, CA 92583 Attn: Joseph Busek Assistant Superintendent Business and Facilities Dear Mr. Busek: In accordance with your request and the District’s authorization, I have completed a Complete Appraisal of the properties comprising the above-referenced Community Facilities District (CFD). This CFD consists of two separate but nearly contiguous tracts by two different builders. The tract called Sandalwood by Empire Homes consists of 126 vacant lots and the tract called Stallions Crossing by Gateway Inland, LLC consists of a total of 103 lots with 43 homes under construction and 60 vacant lots. The purpose of this appraisal is to estimate the market value of the as is condition of these ownerships, and reflecting the proposed CFD bond financing together with the overall tax rate of ±1.7-1.9% to the future homeowners, including the special taxes. Based on the inspections of the properties and analysis of matters pertinent to value, the following conclusions of market value have been arrived at, subject to the Assumptions and Limiting Conditions, and as of August 1, 2005:

Sandalwood (Empire Homes): $10,000,000 Stallions Crossing (Gateway Inland, LLC): $11,360,000

$21,360,000

(TWENTY-ONE MILLION THREE HUNDRED SIXTY THOUSAND DOLLARS)

The following is the balance of this 33-page Summary Appraisal Report which includes the Certification, Assumptions and Limiting Conditions, definitions, exhibits, and a summary of the property data, valuation and market data from which the value conclusions were derived. Sincerely, Stephen G. White, MAI (State Certified General Real Estate SGW:sw Appraiser No. AG013311) Ref: 05009

TABLE OF CONTENTS

PAGES Certification………………………………………………………………. 4 Assumptions and Limiting Conditions……………..…………………….. 5-6 Purpose and Use of the Appraisal, Scope of the Appraisal, Date of Value, Property Rights Appraised, Definitions……..……………. 7-8 INTRODUCTION Location Map, General Location, Description of Surroundings………… 9-10 SANDALWOOD (EMPIRE HOMES)

Property Data…………….………………………………………….…… 11-16 Valuation…………………………………………………………………. 17-21

STALLIONS CROSSING (GATEWAY INLAND, LLC)

Property Data…………………………………………………………..… 22-25 Valuation……………………………………………………………..….. 26-27

ADDENDA Tabulation of Residential Land Sales…………………………….……… 28 Maps for Tract Nos. 30944-1 and 30944………………………………… 29-30 Qualifications of Appraiser………………………………………………. 31-33

4

CERTIFICATION

I certify that, to the best of my knowledge and belief:

1. The statements of fact contained in this report are true and correct.

2. The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions and conclusions.

3. I have no present or prospective interest in the property that is the subject of this

report, and no personal interest with respect to the parties involved.

4. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.

5. My engagement in this assignment was not contingent upon developing or reporting

predetermined results.

6. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of the appraisal.

7. My analyses, opinions and conclusions were developed, and this report has been

prepared, in conformity with the Code of Professional Ethics & Standards of Professional Appraisal Practice of the Appraisal Institute, which include the Uniform Standards of Professional Appraisal Practice.

8. I have made a personal inspection of the property that is the subject of this report.

9. No one provided significant professional assistance to the person signing this report,

other than data research and partial report writing by my associate, Kirsten Patterson.

10. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

As of the date of this report, I have completed the requirements of the continuing program of the appraisal Institute. Stephen G. White, MAI (State Certified General Real Estate Appraiser No. AG013311)

5

ASSUMPTIONS AND LIMITING CONDITIONS This appraisal has been based upon the following assumptions and limiting conditions:

1. No responsibility is assumed for the legal description provided or for matters pertaining to legal or title considerations. Title to the property is assumed to be good and marketable unless otherwise stated.

2. The property is appraised free and clear of any or all liens or encumbrances unless

otherwise stated.

3. Responsible ownership and competent property management are assumed.

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

5. All engineering studies, if applicable, are assumed to be correct. Any plot plans or

other illustrative material in this report are included only to help the reader visualize the property.

6. It is assumed that there are no hidden or unapparent conditions of the property,

subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for obtaining the engineering studies that may be required to discover them.

7. It is assumed that the property is in full compliance with all applicable federal, state

and local environmental regulations and laws unless the lack of compliance is stated, described and considered in the appraisal report.

8. It is assumed that the property conforms to all applicable zoning and use regulations

and restrictions unless a nonconformity has been identified, described and considered in the appraisal report.

9. It is assumed that all required licenses, certificates of occupancy, consents and other

legislative or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in the report is based.

10. It is assumed that the use of the land and improvements is confined within the

boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report.

11. Unless otherwise stated in this report, the existence of hazardous materials, which

may or may not be present on the property, was not observed by the appraiser. However, the appraiser is not qualified to detect such substances. The presence of

6

ASSUMPTIONS AND LIMITING CONDITIONS, Continuing such substances may affect the value of the property, but the value estimated in this appraisal is based on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for such conditions or for any expertise or engineering knowledge required to discover them. The client should retain an expert in this field, if desired.

12. Possession of this report, or a copy thereof, does not carry with it the right of publication, unless otherwise authorized. It is understood and agreed that this report will be utilized in the Official Statement, as required for the issuance of bonds by the CFD.

13. The appraiser, by reason of this appraisal, is not required to give further consultation

or testimony or to be in attendance in court with reference to the property in question unless arrangements have previously been made.

SPECIAL ASSUMPTIONS AND LIMITING CONDITIONS

1. An estimate of the remaining costs to get the subject lots from as is condition to

finished lots have been obtained from the builders, and these estimates are integral in the valuation analyses and have been relied upon in this appraisal as being reasonably accurate and reliable.

2. The valuation has assumed that the CFD bond-financed facilities will include

±$1,700,000 for Eastern Municipal Water District (EMWD) Facilities and City of San Jacinto facilities, by the Special Tax A bonds. This is allocated as 62.71% or $1,066,070 for the Empire Homes tract ($770,490 toward EMWD facilities and $295,580 toward City facilities) and 37.29% or $633,930 toward the Gateway Inland, LLC tract (all toward EMWD facilities).

3. The valuation also reflects that the School District has authorized the levy and

collection of Special Tax B, for which the bonds are anticipated to be sold within several years. While these bonds will be an additional lien on the properties, the special taxes will already have been levied and the overall tax rate to the homeowners will not increase as a result of the bond sale.

7

PURPOSE AND USE OF THE APPRAISAL

The purpose of this appraisal is to estimate the market value of the property comprising Community Facilities District No. 2003-2 of the San Jacinto Unified School District. This Summary Appraisal Report is to be used as required in the bond issuance.

SCOPE OF THE APPRAISAL

It is the intent of this Complete Appraisal that all appropriate data considered pertinent in the valuation of the subject properties be collected, confirmed and reported in a Summary Appraisal Report, in conformance with the Uniform Standards of Professional Appraisal Practice and the guidelines of the California Debt and Investment Advisory Commission. This has included an inspection of the subject properties and their surroundings; review of various maps and documents relating to the properties and the planned development; obtaining of pertinent property data on the subject properties from various sources; obtaining of comparable land sales from various sources; and analysis of all of the data to the value conclusions.

DATE OF VALUE

The date of value for this appraisal is August 1, 2005.

PROPERTY RIGHTS APPRAISED

This appraisal is of the fee simple interest in the subject properties, subject to the special tax and assessment liens.

DEFINITION OF MARKET VALUE

The most probable price, as of a specified date, in cash or in terms equivalent to cash, or in other precisely revealed terms for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably and for self-interest, and assuming that neither is under undue duress.

DEFINITION OF FINISHED LOT

This term describes the condition of residential lots in a single-family subdivision for detached homes in which the lots are fully improved and ready for homes to be built. This reflects that the lots have all development entitlements, infrastructure improvements completed, finish grading completed, all in-tract utilities extended to the property line of each lot, street improvements completed, common area improvements/landscaping (associated with the tract) completed, resource agency permits (if necessary), and all development fees paid, exclusive of building permit fees, in accordance with the conditions of approval of the specific tract map.

8

DEFINITION OF BLUE-TOP LOT

This term describes residential lots in a single-family subdivision for detached homes in which the lots and streets have been rough graded, and the offsite infrastructure of streets and utilities are completed to the tract, but not within the tract.

DEFINITION OF RAW LAND

In this case, the land is entitled for development, but it has not been graded from its raw condition, and still lacks the necessary infrastructure of streets, utilities, etc.

LOCATION MAP

9

10

INTRODUCTION

GENERAL LOCATION

The map on the opposite page indicates the approximate locations of the two subject tracts. These tracts lie along the north side of Cottonwood Ave., to the east of Kirby St. and to the west of Lyon Ave., in the City of San Jacinto. This location is in the south central part of the City of San Jacinto, with the City of Hemet within 1 mile to the south and unincorporated Riverside County within several miles to the west.

DESCRIPTION OF SURROUNDINGS

The subject tracts are located in a formerly rural/agricultural area which is currently undergoing significant residential development. To the west of the south portion of the Sandalwood (Empire Homes) tract is the planned San Jacinto Ranch Park which will include 5 acres of open space and walking trails. Grading on the park site is currently underway. Beyond the park is the tract of new homes called Country View Estates by Century Vintage Homes. Construction is near to being complete on this tract and the homes range in size from 1,910 s.f. to 3,240 s.f. Farther west, beyond Kirby St., is the tract of new homes under construction called Tesoro by JD Pierce Company. These homes range in size from 1,358 s.f. to 3,459 s.f. and are priced from the high $200,000’s to the low $400,000’s. Adjacent to the west of the northerly part of the Sandalwood tract is a mostly vacant 10-acre site with an old house and several outbuildings. To the north of the Sandalwood tract is the San Jacinto Reservoir area that comprises nearly 200 acres of land. The flood control channel that runs between the two subject tracts drains into this area. To the north of the Stallions Crossing (Gateway Inland, LLC) tract is a 10-acre horse ranch and a 34-acre horse ranch. The Stallions Crossing tract wraps around a 1.5-acre site with an old house and barn along the west side of Lyon Ave. East of Lyon Ave. is a large area of vacant or agricultural land, plus some older homes on 1.5 to 3-acre lots along Cottonwood Ave. There are tentative tract maps on some of this undeveloped land for future residential development. Across Cottonwood Ave. to the south and southwest of the subject Sandalwood tract is the Cottonwood Ranch development by Meritage Homes, with homes now under construction. These homes range in size from 1,768 s.f. to 2,348 s.f., with current base pricing from $304,990 to $344,990. To the south of the subject Stallions Crossing tract is mostly undeveloped land, and farther south is the tract of homes called Park Meadows that is being built by Griffin Communities. These homes range in size from 1,628 s.f. to 2,649 s.f., with current pricing from about $290,000 to $370,000.

11

SANDALWOOD (EMPIRE HOMES)

12

SANDALWOOD (EMPIRE HOMES)

PROPERTY DATA

Location This property is located at the northeast corner of Cottonwood Ave. and Sandalwood St. (future), ±1,260’ west of Lyon Ave., and extends northerly for ±½ mile. Ownership/Sales History The current owner of the property is Empire Homes SJ 137 LP. They purchased this property in August 2003 at a reported price of $2,100,000. At that time the land was in raw condition with an approved tentative tract map. Legal Description The 126 single-family lots are described as Lots 1 through 126 of Tract No. 30481, and this tract map is due to record in September 2005. It is noted that Lots 127 through 132 will be retention basins and greenbelt/park areas. Assessor Data-2004/05 The subject property consists of Assessor Parcel Nos. 431-090-046 & 048. The current assessed values total $2,409,531 for land and $0 for improvements. The tax rate area is 10-113, with a base tax rate of 1.03392%. However, the total tax rate to future homeowners, including special taxes, is projected to be in the range of ±1.7% to 1.9%. No. of Lots/Lot Sizes This tract consists of 126 single-family lots. The lots are a minimum and typical size of ±7,200 s.f. (mostly 65-70’ wide by 100-110’ deep), with many larger lots that range up to 17,973 s.f. Streets/Access Cottonwood Ave. will be a primary east-west road through this area and provides the primary access to the subject tract at Sandalwood St. It is currently a 60’ dedicated right-of-way and a two-lane paved street with dirt shoulder along the subject. However, as part of the development of the subject tract it will be dedicated 50’ to centerline and will be significantly widened. Additional access will come from Caseros Dr. off of Kirby St., through the tract adjacent to the west and to the subject tract.

13

PROPERTY DATA, Continuing The in-tract streets will include Sandalwood St., Bay Cir., Sand Key Ct., Beacon Ct., Caseros Dr., Montego St., Tristian Ct., and Georgetown St. These will all be relatively short, two-lane residential streets with a 60’ dedicated right-of-way, and three of them will be cul-de-sac streets. These streets are currently rough graded but with no improvements. Utilities All utilities are or will be available to the tract and will then be installed in the in-tract streets and extended to the subject lots. Water is provided by the City of San Jacinto, sewer is provided by Eastern Municipal Water District, electricity is provided by Southern California Edison, gas is provided by Southern California Gas Co., telephone is provided by Verizon, and cable service is provided by Adelphia. Zoning/General Plan/Approvals The City zoning designates R-1 PUD which indicates single family residential in a planned unit development, and the general plan designates Low Density Residential (2.1 to 5.0 dwelling units per acre) on the subject site. These designations permit the single family residential development as planned. The subject property has the development approvals by the approved Tentative Tract Map No. 30481. The final tract map is approved and anticipated to record in September 2005. Topography/Drainage The overall site is fairly flat with a slight slope down to the north, and the site is approximately at grade with the bounding streets and surrounding properties. Onsite or in-tract drainage will be in gutters and public storm drain facilities to be constructed as part of the development of the tract. Per FEMA Flood Insurance Rate Map No. 060245 1490C dated 9/30/88, the subject land is located in Zones A4, B and C. Essentially, the easterly portion of the subject is within the 100-year floodplain, but this will be mitigated by the elevations of the graded lots together with the retention basins to be within the subject tract. Soil/Geologic/Environmental Conditions In terms of the soil conditions, it has been assumed that the grading and compaction have been properly completed, and that there are no toxic or hazardous waste materials on the site.

14

PROPERTY DATA, Continuing In terms of the geologic conditions, the subject property is not located in an Alquist-Priolo Earthquake Fault Zone. However, it is noted that there are many fault zones that run through the San Jacinto area, one of which extends just into the east side of the subject tract at Lot 131, which will be one of the retention basins. The mitigation for the fault zone, typical for the San Jacinto area, is having no structures within 25’ of the fault zone, and using stronger foundations, slabs and framing for the homes. In terms of the environmental conditions, the property owner indicates that no environmental permits were required for the tract map approvals. Title Report A preliminary title report dated December 13, 2004 by Fidelity National Title Company has been reviewed. Pertinent exceptions to title include the following:

• The property lies within the boundaries of CFD No. 2003-2 for the San Jacinto Unified School District, as recorded on December 3, 2003.

• The rights of the public in and to that portion of the land lying within public roads. • The effect of Development Agreement No. 03-06 between the City of San Jacinto and GKH

Diversified, L.P., recorded January 9, 2004. • The land lies within the boundaries of CFD No. 2003-1 which is for police and fire

protection, and was recorded on April 8, 2004. The first exception is the subject of this appraisal; the second exception is typical; the third exception is also typical and was an agreement between the former property owner/developer and the City; and the last exception is also fairly typical for tracts in this area. Planned Development/Current Status The 126 lots are planned to be developed with a tract of homes called Sandalwood. As of the August 1, 2005 date of value, the lots were vacant and in a graded blue-top condition, recently re-graded and with construction of the in-tract sewer and water underway. There will be four floor plans of homes that are described as follows:

Plan 1: 2,407 s.f., one-story, with 3 bedrooms, den/optional bedroom 4/guest suite, family room, 3 baths, 2-car garage with optional third car garage or guest suite. Plan 2: 3,034 s.f., two-story, with 3 bedrooms, teen space or optional bedroom 4, den or optional bedroom 5, family room, 4 baths, 3-car garage and 2 decks. Plan 3: 3,167 s.f., two-story, with 4 bedrooms, den or optional bedroom 5, tech center, family room, 3 baths, 3-car tandem garage and front porch.

15

PROPERTY DATA, Continuing

Plan 4: 3,423 to 3,623 s.f., two-story, with 3 bedrooms, teen room or optional bedroom 4, den/optional bedroom 5/guest suite, family room, 3 baths, 2-car garage with optional third car garage or guest suite.

The current projected base pricing is $330,000 for Plan 1, $370,000 for Plan 2, $375,000 for Plan 3 and $390,000 for Plan 4. Amenities of the tract will include a 2.2-acre landscaped park/greenbelt area toward the south end of the tract, a 1.3-acre landscaped park with basketball courts and play equipment along the west side of the tract, and a 1.5-acre landscaped greenbelt in the north center part of the tract. The projected timeline for development is that construction of the model homes will start in September, and construction of the production homes will start in November with the first closings of sales in May 2006. Highest and Best Use The term highest and best use is defined as that use which is reasonable and probable, and supports the highest present value of the land or improvements. It is also described as the most profitable use which is legal, physically possible and financially feasible. Based on the zoning, general plan, entitlements by way of the approved tentative tract map, and completed land development to blue-top lots with construction of in-tract utilities underway, the planned development of 126 homes is indicated to be a legal use as well as physically possible. In terms of being financially feasible, this is supported by the substantial amount of new home construction in San Jacinto, and the strong sales activity in these tracts. This is evidence of the strong demand for new homes in the general San Jacinto area, which also then results in strong demand for buildable residential land. In terms of the supportability of the projected pricing of the subject homes, pricing for new homes in other nearby tracts has been considered. This is shown in the following table:

Min/Typ. Tax Project Lot Size Floor Plan Base price Price/S.F. Rate Stallions Crossing 7,200 s.f. 1,578 s.f. $299,990 $190.11 ±1.7- (Gateway Homes) 1,704 s.f. $314,990 $184.85 1.9% 2,110 s.f. $329,990 $156.39 2,526 s.f. $354,990 $140.53 Cottonwood Ranch 7,200 s.f. 1,768 s.f. $304,990 $172.51 1.85% (Meritage Homes) 2,029 s.f. $328,990 $162.14 2,438 s.f. $344,990 $141.51

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PROPERTY DATA, Continuing

Min/Typ. Tax Project Lot Size Floor Plan Base price Price/S.F. Rate Tesoro 7,200 s.f. 1,358 s.f. $292,990 $215.75 1.6% (JD Pierce Company) 1,661 s.f. $313,990 $189.04 2,059 s.f. $333,990 $162.21 2,176 s.f. $342,490 $157.39 2,555 s.f. $370,490 $145.01 2,996 s.f. $388,990 $129.84 3,459 s.f. $421,990 $122.00 Park Meadows 7,200 s.f. 1,628 s.f. $289,490* $177.82 2.0% (Griffin Communities) 1,854 s.f. $310,990* $167.74 2,291 s.f. $331,928* $144.88 2,649 s.f. $338,990* $127.97 2,997 s.f. $363,740* $121.37 Almaden 7,200 s.f. 1,958 s.f. $335,990 $171.60 1.3- (YCH Communities) 2,538 s.f. $364,990 $143.81 1.4% 2,993 s.f. $387,490 $129.47 Daybreak at Sierra Vista 7,200 s.f. 2,259 s.f. $349,990 $154.93 2.0% (Lennar Homes) 2,904 s.f. $360,990 $124.31 2,983 s.f. $360,990 $121.02 3,273 s.f. $375,990 $114.88 Belicia Ranch 7,200 s.f. 2,103 s.f. $319,990 $152.16 1.9% (Young Homes) 2,207 s.f. $327,990 $148.61 2,505 s.f. $339,990 $135.72 2,635 s.f. $347,990 $132.06 3,036 s.f. $361,990 $119.23 Meadowbrook 7,200 s.f. 1,992 s.f. $333,990 $167.67 2.0% (Lennar Homes) 2,358 s.f. $368,990 $156.48 2,692 s.f. $366,990 $136.33 3,102 s.f. $381,990 $123.14 Subject 7,200 s.f. 2,407 s.f. $330,000 $137.10 ±1.7- 3,034 s.f. $370,000 $121.95 1.9% 3,167 s.f. $375,000 $118.41 3,423 s.f. $390,000 $113.94 * Price includes premiums

It is evident from this table that the projected pricing and overall tax rate for the subject homes is in line with and supportable by this other data. In summary, I have concluded that the highest and best use for the subject tract is for development of the 126 homes as planned.

17

VALUATION Method of Analysis The Sales Comparison Approach is used to estimate the value of the subject lots, as if in a finished lot condition. This approach considers recent sales of residential land or bulk lots from the general area in comparison to the subject property. Then, a deduction is made for the estimated remaining costs to get the lots from the as is blue-top condition to finished lot condition, resulting in a value indication for the as is condition of the lots.

Analysis of Finished Lot Value A search was made in the San Jacinto area for recent sales of similar residential land or bulk single-family residential lots. A detailed tabulation of the sales data is in the Addenda section at the end of this report. The following discussion and analysis references the 11 sales in that tabulation. Sale No. 1 is located just over 2 miles westerly of the subject, in a cove area against the hills at the west end of San Jacinto, with some view potential. This was a purchase by KB Home of raw land on which they processed an approved tentative tract map. This purchase of 258 lots represents Phase 1 of the overall project, and there will be two other future takedowns of the land. Of the 258 lots, 172 are 6,000 s.f. minimum and 111 are 7,200 s.f. minimum. The sale was negotiated in July 2003 and this first phase closed in April 2004 at a price reflecting $97,000 per finished lot. The proforma pricing for the product on the larger lots ranged from $261,990 to $295,990 for 1,975 s.f. to 2,762 s.f. homes, and it is evident that current pricing would be over 20% higher at current date. Considering an upward time adjustment of at least 30-35% since the price was negotiated in July 2003, a current indication is at ±$129,000 per finished lot. The location against the hills and with some view potential is superior to the subject. The lot size is inferior to the subject due to the mix including 6,000 s.f. minimum lots, and the tax rate is fairly similar. Overall, the superior location is considered to be more than offsetting to the lot size, resulting in a firm upper limit for the subject at $129,000 per finished lot. Sale No. 2 is located just over a mile westerly of the subject, and was a recent purchase by Western Pacific Housing of raw land on which they processed an approved tentative tract map for 253 lots, 7,200 s.f. minimum. This project is to be called Tamarisk, and the homes are planned to be similar to the Cantera at The Ranch product currently being built adjacent to the east. The sale was negotiated around June 2004 and closed in November 2004 at a price reflecting ±$102,000 per finished lot. Considering an upward time adjustment of at least 15-20% since the price was negotiated, a current indication is at ±$120,000 per finished lot. This

18

VALUATION, Continuing supports a close indication for the subject due to the fairly similar location, minimum lot size, tax rate and proposed home product. Sale No. 3 is located across the flood control channel to the east of the north part of the subject property. Young Homes is currently in escrow to purchase this site and is due to close in about a year. They have processed a tentative tract map for 149 lots, 7,200 s.f. minimum size, and plan to build homes that will be fairly similar in size to the planned subject homes. The sale was negotiated about 5 to 6 months ago, and the price reflects ±$115,000 per finished lot. It is also noted that the buyer has received offers to sell at closer to $128,000 per finished lot. In comparison to the subject, this sale is similar in terms of the location, minimum lot size, size of the planned homes, and the probable overall tax rate reflecting the CFD. Considering the date of the negotiation of the sale, the indication at $115,000 per finished lot supports a close lower limit for the subject, and an upward time adjustment of at least 5% results in a closer indication at ±$121,000 per finished lot. The reported current offers indicating $128,000 per finished lot are of general interest, but are concluded to support an upper limit for the subject at current date. Sale No. 4 consists of the other subject tract in this appraisal (Stallions Crossing), which is located across the flood control channel to the east of the subject Sandalwood tract and adjacent to the south of Sale No. 3. This was a sale of raw land with an approved tentative tract map for 103 lots, 7,200 s.f. minimum that was purchased by Gateway Inland, LLC. The sale was negotiated in June 2003 and closed in November 2003 at the price reflecting $76,800 per finished lot. The proforma home pricing at that time was an average of ±$226,000, and current pricing is an average of ±$325,000 which indicates a 44% increase. Considering an upward time adjustment of at least 30-35%, a current indication is at ±$102,000 per finished lot. The location, minimum lot size and tax rate are similar to the subject, but the lots were planned for and are being developed with relatively smaller and lower-priced homes which would tend to result in a lower price paid for the land. Thus, I have concluded that the indication at $102,000 per finished lot supports a firm lower limit for the subject. Sale No. 5 is located across Lyon Ave. to the east of the subject Stallions Crossing tract. This was a sale of raw land with an approved tentative tract map that was negotiated in April 2004 and closed in May 2004 at the price reflecting $98,150 per finished lot. This site was mapped for 100 lots, 7,200 s.f. minimum, and the buyer planned homes ranging in size from 1,706 s.f. to 2,463 s.f. with proforma pricing at an average of $281,000. The more recent projected pricing, though still slightly dated, indicates an average of ±$341,000 which indicates an increase of 21%. This sale is similar to the subject in terms of the location, minimum lot size and likely

19

VALUATION, Continuing overall tax rate, though the planned homes will be smaller and lower-priced. Considering an upward time adjustment of at least 20-25% since the sale was negotiated in April 2004, a current indication at $120,000 per finished lot supports a close indication for the subject. Sale Nos. 6A and 6B are located less than a mile easterly of the subject, and were purchases of raw land that were assembled by CNH Homes for a 143-lot tract of homes called Creekside. Sale No. 6A was negotiated in August 2003 and closed in July 2004 at a price reflecting $82,100 per finished lot and Sale No. 6B was negotiated in October/November 2004 and closed in March 2005 at a price reflecting ±$92,000 per lot. The planned homes will range from 1,350 s.f. to about 3,000 s.f., but the proforma pricing as of the land purchase negotiations is not known. In comparison to the subject, the location, minimum lot size and overall property tax rate are fairly similar. However, the lots are planned for homes that will be much smaller on average than the subject homes, resulting in much lower average pricing. Considering an upward time adjustment of at least 30-35% to Sale No. 6A, a current indication is at ±$109,000 per finished lot, and considering a lesser upward time adjustment of 10-15% to Sale No. 6B, a current indication is at $104,000 per finished lot. However, due to the narrow and deep shape, it would have limited development potential as an independent parcel if it was not assembled with the larger site. Overall, the indication at $109,000 per finished lot supports a lower limit for the subject. Sale No. 7 is located about a mile to the north of the subject property and is a current escrow on 143 lots, 7,200 s.f. minimum. The seller is to deliver the lots in a blue-top condition with an approved final tract map, and due to certain delays, the seller will also have installed the in-tract wet utilities. The sale price was negotiated about 1½ years ago and reflects $89,000 per finished lot and the sale is due to close in early 2006. In comparison to the subject, the location, lot size and overall tax rate are similar, and the planned homes are also fairly similar in size to the homes planned for the subject. Considering an upward time adjustment of at least 25-30% since the price was negotiated, the adjusted indication of ±$114,000 per finished lot would tend to support a close indication for the subject. Sale No. 8 is located across Ramona Blvd. to the north of Sale No. 7, and was a sale of land in raw condition with an approved tentative tract map for 321 lots, 7,200 s.f. minimum. The sale was negotiated in September 2004 and closed in January 2005 at an indication of $113,515 per finished lot. The buyer, Shea Homes, plans to build two different product types, with the homes ranging in size from about 2,000 s.f. to 3,000 s.f., and the proforma pricing ranged from about $307,000 to $358,000. This sale is concluded to be fairly similar to the subject in terms of the location, lot size and probable overall tax rate. Considering an upward time adjustment of 10-15%,

20

VALUATION, Continuing the indication at ±$128,000 per finished lot would tend to support a close indication for the subject. Sale No. 9 is located about 2½ miles easterly of the subject in the east part of San Jacinto. This is a current escrow that was negotiated about 6 months ago on land in raw condition but with an approved final tract map for 177 lots, 7,200 s.f. minimum. The sale price is based on $116,000 per finished lot, but it was expected to not close for up to 12 months until sewer has been provided to the tract. The lots are planned for homes that will be fairly similar in size to the subject homes, and the overall tax rate will likely be similar. Considering the date of negotiation, the indication at $116,000 per finished lot supports a close lower limit for the subject, and an upward time adjustment of ±5% to an indication at $122,000 per finished lot results in a closer indication for the subject. Sale No. 10 is located about 4 miles southeasterly of the subject, in the southeast part of San Jacinto. This was a sale of land in raw condition with an approved tentative tract map for 62 lots, 7,200 s.f. minimum. The sale was negotiated in April 2004 and closed in August 2004 at a price reflecting $96,500 per finished lot, and the buyer had indicated that there were more recent offers from other builders to purchase the lots at prices reflecting $120,000 to $130,000 per finished lot. These lots are also fairly similar to the subject in terms of the location, size and overall tax rate. Considering an upward time adjustment of 20-25%, a current indication is at ±$118,000 per finished lot, and this supports a close indication for the subject. The indications at $120,000 to $130,000 per finished lot are of general interest, but were only reported offers as of 4 to 5 months ago. In summary, on a finished lot basis, the data supports a firm lower limit at $102,000, closer lower limits from $109,000 to $116,000, close indications from $114,000 to $128,000, an upper limit at $128,000 and a firm upper limit at $129,000. On the basis of the finished lot ratio (ratio of finished lot price to average base home price), the sales indicate the overall range of 28% to 38%. The low end of the range is from Data No. 7, and is an indication from which the projected home pricing appears to be more recent than when the land price was negotiated, thus resulting in higher home pricing and a lower finished lot ratio. The upper end of the range is indicated by Sale No. 2 for which the reported proforma pricing appears to be on the conservative side. The next highest indication at 36% is indicated by Sale No. 1 which has a superior location with the potential for view premiums over the base pricing, and that factor would tend to result in a higher finished lot ratio. I have concluded on a supportable finished lot ratio for the subject in the range of 32-33%. Applied to the average potential base pricing of ±$366,000, the following indication results:

21

VALUATION, Continuing $366,000 x .32-.33 = $117,120 to $120,780/fin. lot In summary, I have concluded on a finished lot value for the subject property of $120,000. Deduction for Costs to get to Finished Lots

Information provided by the property owner is that the estimated costs to get the land from raw condition to finished lots were ±$32,000 per lot in site work and ±$25,000 per lot in fees, or a total of approximately $57,000 per lot. From this amount, a deduction of ±$1,000,000 ($7,937 per lot) is made for grading work that has already been completed, resulting in remaining costs of $49,063 per lot. However, this amount includes the costs that are to be CFD bond-financed. As previously indicated, the bond proceeds allocable to this tract are a total of $1,066,070 which will go toward EMWD and City facilities. Thus, this amount would be deducted from the remaining cost figure of $49,063 per lot. The resulting net deduction for the remaining costs to get the subject lots from the as is blue-top condition to finished lots is calculated as follows: Total Costs: 126 lots @ $49,063/lot = $6,181,938 Less Amount to be CFD bond-financed: - 1,066,070 Net Remaining Costs: $5,115,868 Conclusion of Value, As Is Condition Based on the foregoing, the total value indication for the subject property in its as is condition, is calculated as follows:

Value as if Finished Lots: 126 lots @ $120,000/lot = $15,120,000 Less Net Remaining Costs to get to Finished Lots: - 5,115,868

Value Indication, As Is Condition: $10,004,132 Thus, as the result of this analysis, I have arrived at the following conclusion of market value for the as is condition of the subject Sandalwood (Empire Homes) tract, subject to the Assumptions and Limiting Conditions, and as of August 1, 2005:

$10,000,000

(TEN MILLION DOLLARS)

22


23


PROPERTY DATA Location

This tract is located at the northwest corner of Cottonwood Ave. and Lyon Ave., extending west to the flood control channel.

Ownership/Sales History The current owner of the property is Gateway Inland, LLC. They purchased this property in November 2003 at a price of $1,916,714, which reflected the land in raw condition and with an approved tentative tract map and final engineering in process. Legal Description The 103 single-family lots are described as Lots 1 through 59 of Tract No. 30944 and Lots 1 through 44 of Tract No. 30944-1, and both of these maps recorded in November 2004. (Note: The map on the opposite page is the tentative tract map; copies of the final recorded tract maps with the re-numbering of the lots are in the Addenda section.) Assessor Data-2004/05 The 103 lots comprise Assessor Parcel Nos. 431-590-001 through 006, 431-591-001 through 014, 431-592-001 through 018, 431-593-001 through 006, 431-600-001 through 003, 431-601-001 through 016, 431-602-001 through 008, 431-603-001 through 020, and 431-604-001 through 012. The current assessed values total $995,278 for land and $0 for improvements. The tax rate area is 10-113, with a base tax rate of 1.03392%. However, the total tax rate to future homeowners, including special taxes, is projected to be ±1.7-1.9%. No. of Lots/Lot Sizes This tract consists of 103 single-family lots. The lots are a minimum and typical size of ±7,200 s.f. (mostly 61-70’ wide by ±105-120’ deep), with various larger lots that range up to 20,359 s.f., though much of that lot is unbuildable due to the fault zone. Streets/Access Cottonwood Ave. was previously discussed for the subject Sandalwood tract, and this provides the primary access to the subject tract.

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PROPERTY DATA, Continuing Lyon Ave. provides secondary access to the tract, and it is currently a two-lane paved road with dirt shoulders. However, it is dedicated 50’ to centerline along the subject and will be significantly widened as part of the development of the subject tract. In-tract streets include Lipizzan Dr., Andalusian St., Mustang Way, Pinto Way, Morgan Ct., Palomino Dr., Galiceno Dr., Appaloosa Dr., and Camargue Ct. (as shown on the final tract maps in the Addenda section). These are relatively short, two-lane residential streets with a 60’ dedicated right-of-way, and three of them are cul-de-sac streets. These streets are now paved other than the easterly end of Appaloosa Dr. near to Lyon Ave. Utilities This is the same as for the Sandalwood tract. Zoning/General Plan/Approvals The City zoning designates R-1 which indicates single family residential, and the general plan designates Low Density Residential (2.1 to 5.0 dwelling units per acre) on the subject site. These designations permit the single family residential development as planned. The subject property has the development approvals by the two final tract maps which recorded in November 2004. Topography/Drainage This is the same as for the Sandalwood tract. Soil/Geologic/Environmental Conditions This is the same as for the Sandalwood tract. Title Report Separate preliminary title reports have been reviewed for Tract No. 30944 and 30944-1. These were dated January 29, 2004 by First American Title Company. The only pertinent exceptions to title include an easement for street, public utilities and incidental purposes, and Development Agreement No. 03-04 recorded January 9, 2004. Both of these exceptions are typical for a tract such as the subject.

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PROPERTY DATA, Continuing Planned Development/Current Status The 103 lots are being developed with a tract of homes called Stallions Crossing. As of the August 1, 2005 date of value, 43 homes were under construction and the remaining 60 lots were vacant and in a near finished condition. Of the 43 homes under construction, 4 were nearly completed (models), 23 were an average of 40-50% completed (Phase 1) and 16 were being trenched for foundations (Phase 2). There are four floor plans of homes that are described as follows:

Plan 1: 1,578 s.f., one-story, with 2 bedrooms, den or optional bedroom 3, 2 baths, and 2-car garage. Plan 2: 1,704 s.f., one-story, with 3 bedrooms, den or optional bedroom 4, 2 baths and 2-car garage. Plan 3: 2,110 s.f., two-story, with 3 bedrooms, den or optional bedroom 4, family room, 3 baths and 2-car or optional 3-car garage. Plan 4: 2,526 s.f., two story, with 4 bedrooms, extended family room or optional bedroom 5, family room, 3 baths and 3-car garage

The base pricing for Phase 1 was $299,990, $314,990, $329,990 and $354,990. Lot premiums range up to $6,000, but a probable average of less than $1,000 over all 103 lots. Sales of the Phase 1 homes started in early July, and as of August 1 there had been 21 sold or reserved with only 2 still available. The Phase 2 homes are scheduled to be released for sale in early September and there likely will be a minor price increase. Highest and Best Use This is the same as discussed for the Sandalwood tract. In that discussion, it was indicated that the pricing for the subject homes ranges from $140.53 per s.f. for the largest plan to $190.11 per s.f. for the smallest plan. Considering similar sizes by floor plan, the other data indicates that this pricing is supportable. In addition, the strong sales activity on the Phase 1 homes in the subject tract since early July indicates that this pricing is supportable, if not on the conservative side. Thus, the highest and best use for the subject tract is concluded to be for continued development of the 103 homes as planned.

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VALUATION Method of Analysis This is similar to the analysis of the previous subject Sandalwood tract, except that additional cost allocations are made to the homes under construction, over and above the estimate of finished lot value. Analysis of Finished Lot Value This is similar to the analysis of the Sandalwood tract. As discussed in that analysis, an upward time adjustment to the November 2003 purchase of this subject property (Sale No. 4) results in a current indication at $102,000 per finished lot. While that is below the indications from the other sales data, it is also noted that the subject lots are being developed with relatively smaller and lower-priced homes than the other data. This would tend to result in a lower value for the subject lots. In general, I would conclude that the other sales data would support a closer indication for the subject in the range of $110,000 to $115,000 per finished lot, but firm upper limits at $120,000 per finished lot and above. Considering the relatively lower pricing of the subject homes which provides at least a slight marketing advantage, I have concluded on a slightly higher finished lot ratio of 33-34%. Then, based on the average base pricing for the subject homes of ±$325,000, the following indication results: $325,000 x .33-.34 = $107,250 to $110,500/fin. lot In summary, I have concluded on a finished lot value for the subject property of $110,000. Deduction for Costs to get to Finished Lots

Information provided by the property owner is that the estimated costs to get the lots from the as is near finished condition to finished lots is a total of $2,595,306. However, this amount includes the costs that are to be CFD bond-financed. Similar to the discussion for the Sandalwood tract, the allocation to this subject tract was previously indicated to be a total of $633,930, all of which goes toward EMWD facilities. Deducting this amount from the total cost estimate of $2,595,306 results in a net deduction for remaining costs of $1,961,376. Allocation to Homes Under Construction

A conservative estimate is made to reflect a cost allocation to the 43 homes that are currently under construction. For the 4 model homes which are estimated to be ±95% completed, I have considered an average cost amount of 95% of ±$60.00 per s.f. total costs or $57.00 per s.f. on the average home size of ±1,980 s.f., or an

27

VALUATION, Continuing amount of ±$113,000. For the 23 homes which are estimated to be an average of 40-50% completed, the cost allocation is 45% of $60.00 per s.f. or $27.00 per s.f. on the average size of 1,980 s.f., or an amount of $53,000. For the 16 homes which are in the early stages of construction, or trenching for foundations, I have considered a lump sum amount of $10,000 per home reflecting the minor amount of work completed plus additional fees paid. Lastly, it is noted that the builder has paid for the building permits on the remaining 60 vacant lots, in order to avoid a pending fee increase that was to take place on August 2. The amount that was paid reflects a total of $170,000 in fees that are not part of the fees included in a “finished lot”, and thus are included here. Thus, the total cost allocation to the homes under construction, plus additional building permit fees paid on the 60 vacant lots is indicated as follows: 4 homes @ $113,000 = $ 452,000 23 homes @ $53,000 = $1,219,000 16 homes @ $10,000 = $ 160,000 Fees on 60 vacant lots = $ 170,000 $2,001,000 Conclusion of Value, As Is Condition Based on the foregoing, the total value indication for the subject property in its as is condition, is calculated as follows:

Value as if Finished Lots: 103 lots @ $110,000/lot = $11,330,000 Less Net Remaining Costs to get to Finished Lots: - 1,961,376

$ 9,368,624 Cost Allocation to Homes Under Construction

Plus additional fees paid: + 2,001,000 Value Indication, As Is Condition: $11,369,624 Thus, as the result of this analysis, I have arrived at the following conclusion of market value for the as is condition of the subject Stallions Crossing (Gateway Inland, LLC) tract, subject to the Assumptions and Limiting Conditions, and as of August 1, 2005:

$11,360,000

(ELEVEN MILLION THREE HUNDRED SIXTY THOUSAND DOLLARS)

ADDENDA

TABULATION OF RESIDENTIAL LAND SALES Rec. No. Min. Price/Lot Fin. Lot

No. Location/Project Name Seller/Buyer Date Lots Lot Size Product Finished Lot Ratio Remarks

1 NWC Cottonwood Ave. & Warren Rd., Cove One Partners, LLC 4/30/04 258 6,000 & 1,740-2,762 s.f. $19,380 36% Land purchased in raw condition; price set San Jacinto KB Home Coastal, Inc.

7,200

$245,990-$295,990

$97,000

7/03; Phase 1 of The Cove; ±1.9% tax rate

(The Cove)

2 Cottonwood Ave. to 7th St., ±1,300’ Kuiphof/Vanderham 11/12/04 253 7,200 2,379-3,676 s.f. $21,075 38% Land purchased in raw condition; planned W/O Cawston Ave., San Jacinto

Western Pacific Housing

$244,000-$266,000

$97,500

to be developed with Cantera product; to (Tamarisk)

include CFD

3 W/S Lyon Ave., ±1,600’ N/O Cotton- Gary & Marlene Howard Escrow 149 7,200 ±2,800-3,490 s.f. $37,887 n/a Land being purchased in raw condition wood Ave., San Jacinto Young Homes n/a ±$115,000 with approved tentative tract map; to close (n/a)

in ±1 yr.; to have CFD

4 NWC Cottonwood Ave. & Lyon Ave. Gilbert P. Chacon Trust 11/20/03 103 7,200 1,578-2,526 s.f. $18,536 34%

Land purchased in raw condition with

San Jacinto Gateway Inland, LLC

$207,990-$247,990

$76,800

approved tentative tract map and final (Stallions Crossing)

engineering underway; ±1.8% tax rate

5 E/S Lyon Ave., ±510’ N/O Cottonwood Robert & Cecile Hundley 5/24/04 100 7,200 1,706-2,463 s.f. $38,500 35% Land purchased in raw condition with Ave, San Jacinto 100 San Jacinto, LLC $281,000 avg. $98,150 approved tentative tract map; price set (Summerfield Ranch II)

4/04; to have CFD

6A NEC Cottonwood Ave. & Palm Ave. Irving Family Trust 7/9/04 127 7,200 1,350-3,000 s.f. $17,126 n/a Land purchased in raw condition; No. 5B

San Jacinto CNH Homes

n/a

$82,100

assembled with this site; will have CFD (Creekside)

6B N/S Cottonwood Ave., surrounded by Byron & Jennifer Burbridge 3/16/05 16 7,200 1,350-3,000 s.f. $27,188 n/a Land purchased in raw condition; this site

No. 6A, San Jacinto

CNH Homes

n/a

±$92,000

was assembled with No. 6A to be part of (Creekside)

Creekside tract

7 W’ly corner Ramona Blvd. & Potter Alexander Escrow 143 7,200 2,240-3,335 s.f. $57,000 28% To be delivered as blue-top lots with Rd., San Jacinto Granite Homes $290,000-$352,000 $89,000 approved final map and some in-tract (n/a)

utilities; 1.85% tax rate

8 Between Ramona Expy. & Ramona Bl., A.K. Coral Cay Trust 1/7/05 321 7,200 2,000-2,950 s.f. $28,000 34% Land purchased in raw condition with ¼ mile NW/O Potter Rd., San Jacinto Shea Homes $307,000-$358,000 $113,515 approved tentative tract map; to be 2 (n/a)

products; probable CFD

9 W/S Camino Los Banos, 660’ N/O San Jacinto Investors Land Escrow 177 7,200 2,400-3,300 s.f. ±$64,000 34% To be delivered as raw land with final tract Artesian St., San Jacinto Beazer Homes $315,000-$358,000 $116,000 map; to close in 6 to 12 mos. upon sewer (n/a)

extension; to have CFD

10 SE/S River St., E from Mountain Av. & HP Gardena Investors, LLC 8/4/04 62 7,200 2,550 s.f. avg. $40,000 33% Land purchased in raw condition with

N from Washington Av., San Jacinto

Young Homes

$290,000 avg.

$96,500

approved tentative tract map; 1.9% tax rate; (Belicia Ranch)

offers to buy at $120-130,000/fin. lot

Note: Home pricing is original proforma or earliest available.

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29

31

QUALIFICATIONS OF

STEPHEN G. WHITE, MAI PROFESSIONAL EXPERIENCE

Real Estate Appraiser since 1976.

1983 through current date: Self-employed; office located at 1370 N. Brea Blvd., Suite 205, Fullerton, CA 92835 (Phone: 714-738-1595)

1976-1982: Employed by Cedric A. White, Jr., MAI, independent appraiser located in Anaheim.

Real estate appraisals have been completed on most types of properties for purposes of fair market value, leased fee value, leasehold value, easement value, partial acquisitions and severance damages.

PROFESSIONAL ORGANIZATIONS

Member, Appraisal Institute; MAI designation obtained 1985 Affiliate Member, Pacific West Association of Realtors

LICENSES

Licensed by the State of California as a Certified General Real Estate Appraiser; OREA ID No. AG013311; valid through September 22, 2006.

EDUCATION

B.A. Economics & Business, Westmont College, Santa Barbara (1976)

Appraisal Institute Courses: Basic Appraisal Principles, Methods and Techniques Capitalization Theory and Techniques Urban Properties Litigation Valuation

Standards of Professional Appraisal Practice

Numerous seminars and continuing education on various appraisal subjects, including valuation of easements and leased fee interests, litigation, the money market and its impact on real estate, and standards of professional appraisal practice.

COURT/TESTIMONY EXPERIENCE

Qualified as an expert witness in the Superior Courts of Orange, Los Angeles, Riverside and San Bernardino Counties; also before the Assessment Appeals Board of Orange and Los Angeles Counties.

TYPES OF PROPERTY APPRAISED

Residential: vacant lots, acreage and subdivisions; single family residences, condominiums, townhomes and apartment complexes. Commercial: vacant lots/acreage; office buildings, retail stores, shopping centers, restaurants, hotels and motels.

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QUALIFICATIONS, Page 2

Industrial: vacant lots and acreage; warehouses, manufacturing buildings, R&D buildings, industrial parks, mini-warehouses. Special Purpose: mobilehome parks, churches, automobile agencies, medical buildings, convalescent hospitals, easements, leased fee and leasehold interests.

CLIENT LIST

Corporations:

Aera Energy MCP Foods British Pacific Properties Merrill Lynch Relocation BSI Consultants Orangeland RV Park Crown Central Petroleum Pacific Scientific Eastman Kodak Company Penhall International Firestone Building Materials Pic 'N Save Stores Foodmaker Realty Corp. Sargent-Fletcher Co. Greyhound Lines Shell-Western E&P Holiday Rambler Corp. Southern Distributors Corp. International Baking Co. Southern California Edison Johnson Controls The Home Depot Kampgrounds of America Tooley and Company La Habra Products, Inc. Wastewater Disposal Co.

Developers: Brighton Homes Mark Taylor, Inc. Citation Builders Mission Viejo Co. Davison-Ferguson Investment Devel. Premier Homes D.T. Smith Homes Presley Homes Irvine Company Rockefeller & Associates

Kathryn Thompson Developers Taylor Woodrow Homes Lennar Homes Unocal Land & Development

Law Firms:

Baldikoski, Klotz & Dragonette Nossaman, Guthner, Knox & Elliott Best, Best & Krieger Oliver, Barr & Vose Bowie, Arneson, Wiles & Giannone Ollestad, Freedman & Taylor Bradshaw, John Palmieri, Tyler, Wiener, Wilhelm & Bye, Hatcher & Piggott Waldron Callahan, McCune & Willis Paul, Hastings, Jonofsky & Walker Cooksey, Coleman & Howard Piggott, George B.

Hamilton & Samuels Pothier, Rose Horgan, Rosen, Beckham & Coren Rosenthal & Zimmerman Kent, John Rutan & Tucker Kirkland & Ellis Sikora & Price, Inc. Lathan & Watkins Smith & Politiski McKee, Charles C. Williams, Gerold G. Mosich, Nicholas J. Woodruff, Spradlin & Smart Long, David M. Yates, Sealy M.

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QUALIFICATIONS, Page 3

Financial Institutions:

Ahmanson Trust Company Barclays Bank San Clemente Savings & Loan Chino Valley Bank Security Pacific Bank

Continental Bank Sunwest Bank First Interstate Mortgage United Calif. Savings Bank First Bank & Trust Washington Square Capital National Credit Union Admin.

Cities:

Anaheim La Habra Placentia Stanton Baldwin Park Laguna Beach Riverside Temecula Buena Park Mission Viejo Santa Ana Tustin

Cypress Orange Santa Fe Springs Yorba Duarte Perris Seal Beach Linda

Counties:

Orange Riverside

Other Governmental:

Agua Mansa Industrial Growth Association Metropolitan Water District El Toro Water District Orange County Water District Federal Deposit Insurance Corporation (FDIC) Santa Margarita Water District Irvine Ranch Water District Trabuco Canyon Water District Kern County Employees Retirement Association U.S. Postal Service Lee Lake Water District

School Districts:

Alvord Unified Fullerton College Placentia-Yorba Linda Unif. Anaheim City Garden Grove Unified Poway Unified

Anaheim Union High Irvine Unified Rialto Unified Banning Unified Lake Elsinore Unified Romoland Capistrano Unified Moreno Valley Unified Saddleback Unified Castaic Union Newhall Santa Ana Unified Cypress Newport-Mesa Unified Saugus Union Del Mar Union North Orange County South O.C. Comm. College Etiwanda Community College Temple City Fullerton O.C. Dept. of Education William S. Hart Union High

Churches/Church Organizations:

Calvary Church, Santa Ana First Church of the Nazarene Central Baptist Church, Pomona Lutheran Church, Missouri Synod Christian & Missionary Alliance Church, Santa Ana Presbytery of Los Rancho Christian Church Foundation St. Mark’s Lutheran Church, Hac. Hts. Congregational Church, Fullerton Vineyard Christian Fellowship

Other: Biola University Garden Grove Boys' Club Cedars-Sinai Medical Center The Sheepfold

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APPENDIX D

SUMMARY OF THE INDENTURE

The Indenture sets forth certain of the terms of the Series 2005 Bonds, the nature and extent of thesecurity for the Series 2005 Bonds, various rights of the Bondholders, rights, duties and immunities of theTrustee and the rights and obligations of the Community Facilities District. Certain provisions of theIndenture not discussed elsewhere in this Official Statement are summarized below. This summary does notpurport to be complete or definitive and reference should be made to the Indenture for a full and completestatement of its provisions.

Definitions

“Act” means the Mello-Roos Community Facilities Act of 1982, constituting Sections 53311 et seq.of the California Government Code.

“Administrative Expense Fund” means the fund by that name established and held by the Trusteepursuant to the Indenture.

“Administrative Expenses” means any ordinary expenses of the School District or the CommunityFacilities District directly related to the administration of the Community Facilities District, consisting of thecosts of computing the Special Taxes and preparing the annual Special Tax schedules and the costs ofcollecting the Special Taxes, the costs of remitting the Special Taxes to the Trustee, the fees and costs of theTrustee (including its legal counsel) in the discharge of the duties required of it under the Indenture, the costsincurred by the Community Facilities District in complying with the disclosure provisions of any continuingdisclosure undertaking and the Indenture, including those related to public inquiries regarding the Special Taxand disclosures to Owners, the costs of the Community Facilities District related to an appeal of the SpecialTax, any amounts required to be rebated to the federal government, an allocable share of the salaries of thestaff of the School District providing services on behalf of the Community Facilities District directly relatedto the foregoing and a proportionate amount of general administrative overhead of the School District relatedthereto, and the costs of foreclosure of delinquent Special Taxes.

“Affiliate” of another Person means (a) each Person that, directly or indirectly, owns or controls,whether beneficially or as trustee, guardian, or other fiduciary, 50% or more of any class of equity securitiesof such other Person, and (b) each Person that controls, is controlled by or is under common control with orby such Person or any Affiliate of such Person. For the purpose of this definition, “control” of a Person shallmean the possession, directly or indirectly, of the power to direct or cause the direction of its management orpolicies, whether through the ownership of voting securities, by contract or otherwise.

“Annual Debt Service” means, for each Bond Year, the sum of (a) the interest due on theOutstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled(including by reason of mandatory sinking fund redemptions), and (b) the principal amount of theOutstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in suchBond Year).

“Auditor” means the Auditor/Controller of the County of Riverside.

“Authorized Representative” means, with respect to the Community Facilities District, theAssistant Superintendent Business and Facilities of the School District, and any other Person designated as an

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Authorized Representative of the Community Facilities District in a Written Certificate of the CommunityFacilities District filed with the Trustee.

“Average Annual Debt Service” means the average of the Annual Debt Service for all Bond Years,including the Bond Year in which the calculation is made.

“Bond Counsel” means a firm of nationally recognized bond counsel selected by the CommunityFacilities District.

“Bond Fund” means the fund by that name established and held by the Trustee pursuant to theIndenture.

“Bond Year” means each twelve-month period beginning on September 2 in each year andextending to the next succeeding September 1, both dates inclusive, except that the first Bond Year shallbegin on the Closing Date and end on September 1, 2006.

“Bonds” means the Community Facilities District No. 2003-2 of the San Jacinto Unified SchoolDistrict Special Tax Bonds (Infrastructure Projects) issued under the Indenture, and includes the Series 2005Bonds and any Additional Bonds.

“Business Day” means a day which is not (a) a Saturday, Sunday or legal holiday in the State ofCalifornia, (b) a day on which banking institutions in the State of California, or in any state in which theOffice of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) aday on which the New York Stock Exchange is closed.

“Capitalized Interest Account” means the account by that name within the Bond Fund establishedand held by the Trustee pursuant to the Indenture.

“City” means the City of San Jacinto, California.

“City Facilities” means those facilities described in the Resolution of Formation including,but not limited to street improvements including grading, paving, curbs and gutters, sidewalks,street signalizations and signage, street lights and parkway and landscaping related thereto, publicparks and recreation facilities and land, fire station improvements, rights of way and easementsnecessary for any of such facilities.

“City Facilities Account” means the account by that name within the Improvement Fundestablished and held by the Trustee pursuant to the Indenture.

“Closing Date” means the date upon which the Series 2005 Bonds are delivered to the OriginalPurchaser, being October 6, 2005.

“Code” means the Internal Revenue Code of 1986.

“Community Facilities District” means Community Facilities District No. 2003-2 of the SanJacinto Unified School District, a community facilities district organized and existing under and by virtue ofthe laws of the State of California, and any successor thereto.

“Costs of Issuance” means all items of expense directly or indirectly payable by orreimbursable to the Community Facilities District relating to the authorization, issuance, sale and

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delivery of the Bonds, including but not limited to printing expenses, rating agency fees, filing andrecording fees, initial fees, expenses and charges of the Trustee and its counsel, including theTrustee’s first annual administrative fee, fees, charges and disbursements of attorneys, financialadvisors, accounting firms, appraisers, consultants and other professionals, fees and charges forpreparation, execution and safekeeping of the Bonds and any other cost, charge or fee in connectionwith the original issuance of the Bonds.

“Costs of Issuance Fund” means the fund by that name established and held by the Trusteepursuant to the Indenture.

“Developer” means Empire or Gateway.

“District Continuing Disclosure Certificate” means the Continuing Disclosure Certificate,dated as of the Closing Date, executed by the Community Facilities District and agreed andaccepted to by David Taussig and Associates, Inc., as originally executed and as it may be amendedfrom time to time in accordance with the terms thereof.

“DTC” means The Depository Trust Company, a limited-purpose trust company organizedunder the laws of the State of New York, and its successors as securities depository for any Series ofBook-Entry Bonds, including any such successor appointed pursuant to the Indenture.

“Empire” means Empire Homes S.J. 137, LP, and its successors.

“Empire Continuing Disclosure Certificate” means the Continuing Disclosure Certificate,dated as of the Closing Date, executed by Empire and agreed and accepted to by the Trustee in itscapacity as dissemination agent, as originally executed and as it may be amended from time to timein accordance with the terms thereof.

“Empire Letter of Credit” means an irrevocable letter of credit issued by Union Bank ofCalifornia, N.A. contemporaneously with the delivery of the Series 2005 Bonds acceptable to theSchool District; provided, however, that upon the acceptance by the Trustee of a Substitute Letter ofCredit in substitution of the Empire Letter of Credit then in effect, such term shall mean suchSubstitute Letter of Credit.

“Empire Remaining Parcels” means, as of any date, all parcels that are owned by Empireor an Affiliate thereof.

“Empire Secured Parcels” means, as of any date, all Empire Remaining Parcels and allEmpire Transferred Parcels, excluding Empire Secured Transferred Parcels.

“Empire Secured Transferred Parcel” means an Empire Transferred Parcel for which aTransferred Parcel Letter of Credit has been delivered to and accepted by the Trustee.

“Empire Transferred Parcel” means, as of any date, an Empire Remaining Parcel that wasowned by Empire or an Affiliate thereof but has been transferred to a Person other than Empire oran Affiliate thereof.

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“EMWD Facilities” means those facilities described in the Resolution of Formation including butnot limited to sewers, storm drains, water reservoir and distribution facilities and public facilities and rights-of-way and easements necessary for any of such facilities.

“EMWD Facilities Account” means the account by that name within the Improvement Fundestablished and held by the Trustee pursuant to the Indenture.

“Federal Securities” means (a) direct general obligations of the United States of America (includingobligations issued or held in book entry form on the books of the Department of the Treasury of the UnitedStates of America), and (b) obligations of any agency, department or instrumentality of the United States ofAmerica the timely payment of principal of and interest on which are fully guaranteed by the United States ofAmerica.

“Fiscal Year” means the period beginning on July 1 of each year and ending on the next succeedingJune 30, or any other twelve-month period hereafter selected and designated as the official fiscal year periodof the Community Facilities District designated in a Written Certificate of the Community Facilities Districtdelivered to the Trustee.

“Gateway” means Gateway Inland, LLC, and its successors.

“Gateway Continuing Disclosure Certificate” means the Continuing DisclosureCertificate, dated as of the Closing Date, executed by Gateway and agreed and accepted by theTrustee in its capacity as dissemination agent, as originally executed and as it may be amended fromtime to time in accordance with the terms thereof.

“Gateway Remaining Parcels” means, as of any date, all parcels that are owned byGateway or an Affiliate thereof.

“Gateway Secured Transferred Parcel” means a Gateway Transferred Parcel for which aTransferred Parcel Letter of Credit has been delivered to and accepted by the Trustee.

“Gateway Security Fund” means the fund by that name established and held by theTrustee.

“Gateway Transferred Parcel” means, as of any date, a Gateway Remaining Parcel thatwas owned by Gateway or an Affiliate thereof but has been transferred to a Person other thanGateway or an Affiliate thereof.

“Improvement Fund” means the fund by that name established and held by the Trustee pursuant tothe Indenture.

“Indenture” means the Indenture, as originally executed and as it may be amended or supplementedfrom time to time by any Supplemental Indenture.

“Independent Consultant” means any consultant or firm of such consultants selected by theCommunity Facilities District and who, or each of whom (a) is generally recognized to be qualified in thefinancial consulting field, (b) is in fact independent and not under the domination of the Community FacilitiesDistrict or the School District, (c) does not have any substantial interest, direct or indirect, with or in theCommunity Facilities District or the School District, or any owner of real property in the CommunityFacilities District, or any real property in the Community Facilities District, and (d) is not connected with the

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Community Facilities District or the School District as an officer or employee thereof, but who may beregularly retained to make reports to the Community Facilities District or the School District.

“Interest Payment Dates” means March 1 and September 1 of each year, commencing March 1,2006, so long as any Bonds remain Outstanding.

“Letter of Credit Provider” means (a) with respect to the Empire Letter of Credit, theissuer of such Empire Letter of Credit, and its successors and assigns, or the issuer of a SubstituteLetter of Credit substituted for such Empire Letter of Credit in accordance with the applicableprovisions of the Indenture, and (b) with respect to a Transferred Parcel Letter of Credit, the issuerof such Transferred Parcel Letter of Credit, and its successors and assigns, or the issuer of aSubstitute Letter of Credit substituted for such Transferred Parcel Letter of Credit; provided,however, that at the time of delivery of such letter of credit, the long-term rating of the CreditProvider is not less than “A” by Moody’s and the short-term rating is not less than “P-1”, or isotherwise acceptable to the School District.

“Maximum Annual Debt Service” means the largest Annual Debt Service for any Bond Year,including the Bond Year the calculation is made.

“Moody’s” means Moody’s Investors Service, Inc., a corporation duly organized and existing underand by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such entityshall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then theterm “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency selectedby the Community Facilities District.

“Net Special Tax Revenues” means Special Tax Revenues, less amounts required to payAdministrative Expenses.

“Office of the Trustee” means the principal corporate trust office of the Trustee in Los Angeles,California, or such other office as may be specified to the Community Facilities District by the Trustee inwriting.

“Ordinance” means any ordinance adopted by the School District levying the Special Taxes.

“Original Purchaser” means the original purchaser of the Series 2005 Bonds from the CommunityFacilities District.

“Outstanding” means, when used as of any particular time with reference to Bonds, subject to theprovisions of certain provisions of the Indenture, all Bonds theretofore, or thereupon being, authenticated anddelivered by the Trustee under the Indenture except (a) Bonds theretofore canceled by the Trustee orsurrendered to the Trustee for cancellation, (b) Bonds with respect to which all liability of the CommunityFacilities District shall have been discharged, including Bonds (or portions of Bonds) disqualified under theIndenture, and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bondsshall have been authenticated and delivered by the Trustee pursuant to the Indenture.

“Owner” means, with respect to a Bond, the Person in whose name such Bond is registered on theRegistration Books.

“Permitted Investments” means the following, to the extent that such securities are otherwiseeligible legal investments of the Community Facilities District:

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(a) Federal Securities;

(b) any of the following direct or indirect obligations of the following agencies of theUnited States of America: (i) direct obligations of the Export-Import Bank; (ii) certificates ofbeneficial ownership issued by the Farmers Home Administration; (iii) participation certificatesissued by the General Services Administration; (iv) mortgage-backed bonds or pass-throughobligations issued and guaranteed by the Government National Mortgage Association, the FederalNational Mortgage Association, the Federal Home Loan Mortgage Corporation or the FederalHousing Administration; (v) project notes issued by the United States Department of Housing andUrban Development; and (vi) public housing notes and bonds guaranteed by the United States ofAmerica;

(c) interest-bearing demand deposit accounts or time deposits (including certificatesof deposit) in a federal or state chartered bank (including the Trustee and its affiliates) or a statelicensed branch of a foreign bank or a state or federal association (as defined in Section 5102 ofthe California Financial Code), provided that (i) the unsecured short-term obligations of suchcommercial bank or savings and loan association shall be rated A1 or better by S&P, or (ii) suchdemand deposit accounts or time deposits shall be fully insured by the Federal Deposit InsuranceCorporation;

(d) commercial paper rated in the highest short-term rating category by S&P, issuedby corporations which are organized and operating within the United States of America, andwhich matures not more than 180 days following the date of investment therein;

(e) bankers acceptances, consisting of bills of exchange or time drafts drawn on andaccepted by a commercial bank whose short-term obligations are rated in the highest short-termrating category by S&P, which mature not more than 270 days following the date of investmenttherein;

(f) obligations the interest on which is excludable from gross income pursuant toSection 103 of the Code and which are rated A or better by S&P;

(g) obligations issued by any corporation organized and operating within the UnitedStates of America having assets in excess of $500,000,000, which obligations are rated A orbetter by S&P;

(h) money market funds which are rated Am or better by S&P, including funds forwhich the Trustee and its affiliates provide investment advisory or other management services;

(i) an investment agreement or guaranteed investment contract with, or guaranteedby, a financial institution or corporation, the long-term unsecured obligations of which are or, inthe case of an insurance company, the long term financial strength of which is, rated “AA-” orbetter by S&P at the time of initial investment; provided, that the investment agreement shall besubject to a downgrade provision with at least the following requirements:

(1) the agreement shall provide that within ten Business Days after thefinancial institution’s long-term unsecured credit rating has been withdrawn, suspended, orreduced below “AA-” by S&P (such events referred to as “rating downgrades”) the financialinstitution shall give notice to the Community Facilities District and the Trustee and, withinsuch ten-day period, and for as long as the rating downgrade is in effect, shall deliver in the

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name of the Trustee Federal Securities with an aggregate current market value equal to atleast 105% of the principal amount of the investment agreement invested with the financialinstitution at that time, and shall deliver additional Federal Securities as needed to maintainan aggregate current market value equal to at least 105% of the principal amount of theinvestment agreement within three days after each evaluation date, which shall be at leastweekly, and

(2) the agreement shall provide that, if the financial institution’s long-termunsecured credit rating is reduced below “A-” by S&P, the financial institution shall givenotice of the downgrade to the Community Facilities District and the Trustee within fiveBusiness Days, and the Trustee may, upon five Business Days’ written notice to thefinancial institution, withdraw all amounts invested pursuant to the investment agreement,with accrued but unpaid interest thereon to the withdrawal date, and terminate theagreement.

(j) repurchase agreements with (i) any domestic bank, or domestic branch of aforeign bank, the long-term debt of which is rated at least “A” by S&P and Moody’s; (ii) anybroker-dealer with “retail customers” or a related affiliate thereof, which broker-dealer has, or theparent company (which guarantees the provider) of which has, long-term debt rated at least “A”by S&P and Moody’s, which broker-dealer falls under the jurisdiction of the Securities InvestorsProtection Corporation; or (iii) any other entity (or entity whose obligations are guaranteed by anaffiliate or parent company) rated at least “A” by S&P and Moody’s, provided that:

(1) the market value of the collateral is maintained at levels and upon suchconditions as would be acceptable to S&P and Moody’s to maintain an “A” rating in an “A”rated structured financing (with a market value approach);

(2) the Trustee or a third party acting solely as agent therefor (the “Holder ofthe Collateral”) has possession of the collateral or the collateral has been transferred to theHolder of the Collateral in accordance with applicable state and federal laws (other than bymeans of entries on the transferor’s books);

(3) the repurchase agreement shall state and an opinion of counsel shall berendered at the time such collateral is delivered that the Holder of the Collateral has aperfected first priority security interest in the collateral, any substituted collateral and allproceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is inpossession);

(4) all other requirements of S&P and Moody’s in respect of repurchaseagreements shall be met; and

(5) the repurchase agreement shall provide that if during its term the provider’srating by either S&P or Moody’s is withdrawn or suspended or falls below “A-” or “A3”respectively, the provider must immediately notify the Community Facilities District andTrustee and the provider must, at the direction of the Community Facilities District or theTrustee, within 10 days of receipt of such direction, repurchase all collateral and terminatethe agreement, with no penalty or premium to the Community Facilities District or Trustee.

“Person” means an individual, corporation, limited liability company, firm, association, partnership,trust, or other legal entity or group of entities, including a governmental entity or any agency or politicalsubdivision thereof.

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“Project” means the City Facilities and the EMWD Facilities authorized to be financed by theCommunity Facilities District, as more particularly described in the Resolution of Formation.

“Rate and Method” means the rate and method of apportionment of the Special Taxes approved bythe qualified electors of the Community Facilities District.

“Rating Downgrade” means, with respect to the Empire Letter of Credit or a TransferredParcel Letter of Credit, that the rating of the long-term unsecured obligations of the issuer thereofhas been reduced to less than “A3” by Moody’s.

“Rebate Fund” means the fund by that name established and held by the Trustee pursuant to theIndenture.

“Rebate Requirement” has the meaning ascribed thereto in the Tax Certificate.

“Record Date” means the 15th calendar day of the month preceding each Interest Payment Date,whether or not such day is a Business Day.

“Redemption Fund” means the fund by that name established and held by the Trustee pursuant tothe Indenture.

“Redemption Price” means the aggregate amount of principal of and premium, if any, on the Bondsupon the redemption thereof pursuant to the Indenture.

“Required Gateway Security Fund Amount” means an amount equal to one year’s debtservice on the Series 2005 Bonds to support payment of the semiannual installments of the SpecialTax levied on the Gateway Remaining Parcels for any Fiscal Year.

“Required Letter of Credit Amount” means (i) an amount equal to one year’s debtservice on the Series 2005 Bonds to support payment of the semiannual installments of the SpecialTax levied on the Empire Remaining Parcels for any Fiscal Year or (ii) an amount equal to oneyear’s debt service on the Series 2005 Bonds to support payment of the semiannual installments ofthe Special Tax levied on the Secured Transferred Parcels for which such Transferred Parcel Letterof Credit relates for any Fiscal Year, as applicable.

“Required Security Fund Amount” means an amount equal to one year’s debt service on theSeries 2005 Bonds to support payment of the semiannual installments of the Special Tax levied on theEmpire Remaining Parcels for any Fiscal Year.

“Reserve Fund” means the fund by that name established and held by the Trustee pursuant to theIndenture.

“Reserve Requirement” means, as of the date of any calculation, the least of (a) 10% of the originalaggregate principal amount of the Bonds (excluding Bonds refunded with the proceeds of subsequentlyissued Bonds), (b) Maximum Annual Debt Service, and (c) 125% of Average Annual Debt Service.

“Resolution of Formation” means Resolution No. 03-04-36, adopted by the School District onDecember 19, 2003, as originally adopted and as it may be amended or supplemented from time to time.

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“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.,a corporation duly organized and existing under and by virtue of the laws of the State of New York, and itssuccessors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer performthe functions of a securities rating agency, then the term “S&P” shall be deemed to refer to any othernationally recognized securities rating agency selected by the Community Facilities District.

“SB 50 Agreement” means that certain SB 50 Agreement, dated as of December 1, 2003,by and between the School District, Empire and Gateway, as originally executed and as it may beamended or supplemented from time to time pursuant to the provisions thereof.

“School District” means the San Jacinto Unified School District, a school district organized andexisting under and by virtue of the laws of the State of California.

“Secured Transferred Parcel” means an Empire Secured Transferred Parcel or a Gateway SecuredTransferred Parcel, as the context requires.

“Series” means the initial series of Bonds executed, authenticated and delivered on the date of initialissuance of the Bonds and identified pursuant to the Indenture as the Series 2005 Bonds, and any AdditionalBonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds.

“Series 2005 Bonds” means the Community Facilities District No. 2003-2 of the San JacintoUnified School District Special Tax Bonds (Infrastructure Projects), Series 2005, issued under the Indenture.

“Special Tax Fund” means the fund by that name established and held by the Trustee pursuant tothe Indenture.

“Special Tax Revenues” means the proceeds of the Special Taxes received by or on behalf of theCommunity Facilities District, including any prepayments thereof, interest and penalties thereon andproceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes,which shall be limited to the amount of said lien and interest and penalties thereon.

“Special Taxes” means the special taxes described in the Rate and Method as “Special Tax A”levied within the Community Facilities District pursuant to the Act, the Ordinance and the Indenture.

“Substitute Letter of Credit” means one or more irrevocable letters of credit, each ofwhich (a) with respect to a Substitute Letter of Credit replacing the Empire Letter of Credit or withrespect to a Substitute Letter of Credit replacing a Transferred Parcel Letter of Credit, as the casemay be, is delivered to and accepted by the Trustee and (b) is issued by a financial institutionauthorized to do business in the State of California, the long-term rating of which, at the time ofdelivery of such letter of credit, is not less than “A” by Moody’s and the short-term rating of whichis not less than “P-1”, or is otherwise acceptable to the School District.

“Substitute Security Fund” means the fund by that name established and held by theTrustee.

“Supplemental Indenture” means any supplemental indenture amendatory of or supplemental tothe Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized underthe Indenture.

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“Surplus Fund” means the fund by that name established and held by the Trustee pursuant to theIndenture.

“Tax Certificate” means the Tax Certificate executed by the Community Facilities District at thetime of issuance of the Series 2005 Bonds relating to the requirements of Section 148 of the Code, asoriginally executed and as it may be amended from time to time in accordance with the terms thereof.

“Transferred Parcel” means an Empire Transferred Parcel or a Gateway TransferredParcel.

“Transferred Parcel Letter of Credit” means one or more irrevocable letters of credit,each of which is issued by a financial institution authorized to do business in the State of California,the long-term rating of which, at the time of delivery of such letter of credit, is not less than “A” byMoody’s and the short-term rating of which is not less than “P-1”, or is otherwise acceptable to theSchool District; provided, however, that upon the acceptance by the Trustee of a Substitute Letter ofCredit in substitution of such Transferred Parcel Letter of Credit, such term shall mean suchSubstitute Letter of Credit.

“Trustee” means Zions First National Bank, a national banking association organized and existingunder the laws of the United States of America, or any successor thereto as Trustee under the Indenture,appointed as provided in the Indenture.

“Written Certificate” and “Written Request” of the Community Facilities District mean,respectively, a written certificate or written request signed in the name of the Community Facilities Districtby an Authorized Representative. Any such certificate or request may, but need not, be combined in a singleinstrument with any other instrument, opinion or representation, and the two or more so combined shall beread and construed as a single instrument.

Certain Provisions of The Indenture

Pledge. Subject only to the provisions of the Indenture permitting the application thereof for thepurposes and on the terms and conditions set forth therein, all of the Net Special Tax Revenues and anyother amounts (including proceeds of the sale of the Bonds) held in the Special Tax Fund, the Bond Fundand the Reserve Fund are pledged to secure the payment of the principal of, premium, if any, and intereston the Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledgeshall constitute a first lien on such assets.

Reserve Fund. The Trustee shall establish and maintain a special fund designated the “ReserveFund.” On the Closing Date, the Trustee shall deposit in the Reserve Fund the amount required to bedeposited therein pursuant to the Indenture. There shall additionally be deposited in the Reserve Fund, inconnection with the issuance of Additional Bonds, the amount required to be deposited therein under theSupplemental Indenture pursuant to which such Additional Bonds are issued.

Except as otherwise provided under this caption, all amounts deposited in the Reserve Fund shall beused and withdrawn by the Trustee solely for the purpose of making transfers to the Bond Fund in the eventof any deficiency at any time in the Bond Fund of the amount then required for payment of the principal ofand interest on the Bonds or for the purpose of redeeming Bonds. Transfers shall be made from the ReserveFund to the Bond Fund in the event of a deficiency in the Bond Fund.

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So long as no Event of Default shall have occurred and be continuing, any amount in the ReserveFund in excess of the Reserve Requirement on September 2 of each year shall be withdrawn from theReserve Fund by the Trustee and shall be deposited in the Bond Fund. Notwithstanding the foregoing, beforeany such deposit shall be made, such amount shall be available for the payment of any rebate that may beowed under the Code, as specified in a Written Request of the Community Facilities District delivered to theTrustee on or before September 2 of each year.

Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay theOutstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, dueupon redemption, the Trustee shall, upon receipt of a Written Request of the Community Facilities District,transfer the amount in the Reserve Fund to the Bond Fund or Redemption Fund, as applicable, to be applied,on the next succeeding Interest Payment Date to the payment and redemption of all of the OutstandingBonds.

Whenever Bonds are to be redeemed or the corresponding provisions of a Supplemental Indenture, aproportionate share, determined as provided below, of the amount on deposit in the Reserve Fund shall, onthe Business Day prior to the date on which such Bonds are to be redeemed, be transferred by the Trusteefrom the Reserve Fund to the Redemption Fund and shall be applied to the redemption of said Bonds;provided, however, that such amount shall be so transferred only if and to the extent that the amountremaining on deposit in the Reserve Fund will be at least equal to the Reserve Requirement (excluding fromthe calculation thereof said Bonds to be redeemed). Such proportionate share shall be equal to the largestintegral multiple of $5,000 that is not larger than the amount equal to the product of (a) the amount on depositin the Reserve Fund on the date five Business Days prior to the date notice of redemption of such Bonds isrequired to be given pursuant to the provisions of the Indenture, times (b) a fraction, the numerator of whichis the principal amount of Bonds to be so redeemed and the denominator of which is the principal amount ofBonds to be Outstanding on the day prior to the date on which such Bonds are to be so redeemed.

Surplus Fund. The Trustee shall establish and maintain a special fund designated the “SurplusFund.” The moneys in the Surplus Fund shall be used and withdrawn by the Trustee from time to time,upon receipt of a Written Request of the Community Facilities District, directing the Trustee to transferthe amount so specified in such Written Request to (i) the Redemption Fund to redeem Bonds, or (ii) theCommunity Facilities District, for any authorized purpose of the Community Facilities District.

Investment of Moneys. Except as otherwise provided in the Indenture, all moneys in any of thefunds or accounts established pursuant to the Indenture and held by the Trustee shall be invested by theTrustee solely in Permitted Investments, as directed in writing by the Community Facilities District twoBusiness Days prior to the making of such investment. Moneys in all funds and accounts held by theTrustee shall be invested in Permitted Investments maturing not later than the date on which it isestimated that such moneys will be required for the purposes specified in the Indenture; provided,however, that Permitted Investments in which moneys in the Reserve Fund are so invested shall matureno later than the earlier of five years from the date of investment or the final maturity date of the Bonds;provided, further, that if such Permitted Investments may be redeemed at par so as to be available on eachInterest Payment Date, any amount in the Reserve Fund may be invested in such redeemable PermittedInvestments maturing on any date on or prior to the final maturity date of the Bonds. Absent timelywritten direction from the Community Facilities District, the Trustee shall invest any funds held by it inPermitted Investments described in clause (h) of the definition thereof.

Subject to the provisions of the Indenture relating to rebate, all interest, profits and other incomereceived from the investment of moneys in any fund or account established pursuant to the Indenture (otherthan the Capitalized Interest Account and the Reserve Fund) shall be retained therein. Subject to theprovisions of the Indenture relating to rebate, all interest, profits or other income received from the

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investment of moneys in the Reserve Fund shall be transferred to the Bond Fund; provided, however, that,notwithstanding the foregoing, any such transfer shall be made only if and to the extent that, after suchtransfer, the amount on deposit in the Reserve Fund is at least equal to the Reserve Requirement.

Permitted Investments acquired as an investment of moneys in any fund or account established underthe Indenture shall be credited to such fund or account. For the purpose of determining the amount in anyfund or account, all Permitted Investments credited to such fund shall be valued by the Trustee at the marketvalue thereof, such valuation to be performed not less frequently than semiannually on or before eachFebruary 15 and August 15. The Trustee may utilize and rely upon securities pricing services available to itfor such valuations, including those available through the Trustee’s accounting system.

The Trustee may act as principal or agent in the making or disposing of any investment. Upon theWritten Request of the Community Facilities District, the Trustee shall sell or present for redemption anyPermitted Investments so purchased whenever it shall be necessary to provide moneys to meet any requiredpayment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments iscredited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made orsold. For purposes of investment, the Trustee may commingle moneys in any of the funds and accountsestablished under the Indenture. The Community Facilities District acknowledges that the extent regulationsof the Comptroller of the Currency or other applicable regulatory entity grant the Community FacilitiesDistrict the right to receive brokerage confirmations of security transactions as they occur, the CommunityFacilities District specifically waives receipt of such confirmations to the extent permitted by law. TheTrustee will furnish the Community Facilities District periodic cash transaction statements which includedetail for all investment transactions made by the Trustee under the Indenture.

Punctual Payment. The Community Facilities District shall punctually pay or cause to be paidthe principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformitywith the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, butonly out of Net Special Tax Revenues and other assets pledged for such payment as provided in theIndenture and received by the Community Facilities District or the Trustee.

Extension of Payment of Bonds. The Community Facilities District shall not directly orindirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment ofany claims for interest by the purchase of such Bonds or by any other arrangement, and in case thematurity 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 under the Indenture, to thebenefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bondsthen Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing inshall be deemed to limit the right of the Community Facilities District to issue Bonds for the purpose ofrefunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension ofmaturity of the Bonds.

Against Encumbrances. The Community Facilities District shall not create, or permit thecreation of, any pledge, lien, charge or other encumbrance upon the Special Tax Revenues and otherassets pledged under the Indenture while any of the Bonds are Outstanding, except as permitted by theIndenture.

Power to Issue Bonds and Make Pledge. The Community Facilities District is duly authorizedpursuant to the Act to issue the Bonds and to enter into the Indenture and to pledge the Net Special TaxRevenues and other assets pledged under the Indenture in the manner and to the extent provided in theIndenture. The Bonds and the provisions of the Indenture are and will be the legal, valid and bindingspecial obligations of the Community Facilities District in accordance with their terms, and the

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Community Facilities District and the Trustee shall at all times, to the extent permitted by law, defend,preserve and protect said pledge of Net Special Tax Revenues and other assets and all the rights of theBond Owners under the Indenture against all claims and demands of all Persons whomsoever.

Tax Covenants. (a) The Community Facilities District shall not take any action, or fail to takeany action, if such action or failure to take such action would adversely affect the exclusion from grossincome of interest on the Series 2005 Bonds under Section 103 of the Code. Without limiting thegenerality of the foregoing, the Community Facilities District shall comply with the requirements of theTax Certificate, which is incorporated in the Indenture as if fully set forth therein. This covenant shallsurvive payment in full or defeasance of the Bonds.

(b) In the event that at any time the Community Facilities District is of the opinion that it isnecessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in anyof the funds or accounts established under the Indenture, the Community Facilities District shall so instructthe Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with suchinstructions.

(c) Notwithstanding any of the foregoing, if the Community Facilities District shall provide tothe Trustee an opinion of Bond Counsel to the effect that any specified action required is no longer requiredor that some further or different action is required to maintain the exclusion from federal income tax ofinterest on the Series 2005 Bonds, the Trustee may conclusively rely on such opinion in complying with therequirements of the Indenture and of the Tax Certificate, and the covenants under the Indenture shall bedeemed to be modified to that extent.

Non-Cash Payments of Special Taxes. The Community Facilities District shall not authorizeowners of taxable parcels within the Community Facilities District to satisfy Special Tax obligations bythe tender of Bonds unless the Community Facilities District shall have first obtained a report of anIndependent Consultant certifying that doing so would not result in the Community Facilities Districthaving insufficient Special Tax Revenues to pay the principal of and interest on all Outstanding Bondswhen due.

Reduction in Special Taxes. The Community Facilities District shall not initiate proceedingsunder the Act to modify the Rate and Method if such modification would adversely affect the security forthe Bonds. If an initiative or referendum measure is proposed that purports to modify the Rate andMethod in a manner that would adversely affect the security for the Bonds, the Community FacilitiesDistrict shall, to the extent permitted by law, commence and pursue reasonable legal actions to preventthe modification of the Rate and Method in a manner that would adversely affect the security for theBonds.

Events of Default; Remedies

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 sameshall become due and payable, whether at maturity as therein expressed, by proceedings forredemption or otherwise.

(b) Failure to pay any installment of interest on any Bonds when and as the sameshall become due and payable.

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(c) Failure by the Community Facilities District to observe and perform any of theother covenants, agreements or conditions on its part in the Indenture or in the Bonds contained,if such failure shall have continued for a period of 60 days after written notice thereof, specifyingsuch failure and requiring the same to be remedied, shall have been given to the CommunityFacilities District by the Trustee or the Owners of not less than 5% in aggregate principal amountof the Bonds at the time Outstanding; provided, however, if in the reasonable opinion of theCommunity Facilities District the failure stated in the notice can be corrected, but not within such60 day period, such failure shall not constitute an Event of Default if corrective action isinstituted by the Community Facilities District within such 60 day period and the CommunityFacilities District shall thereafter diligently and in good faith cure such failure in a reasonableperiod of time.

(d) The Community Facilities District or the School District shall commence avoluntary case under Title 11 of the United States Code or any substitute or successor statute.

Foreclosure. If any Event of Default shall occur with respect to the payment of principal orinterest on the Bonds then, and in each and every such case during the continuance of such Event ofDefault, the Trustee may, or at the written direction of the Owners of not less than a majority in aggregateprincipal amount of the Bonds at the time Outstanding, and upon being indemnified to its satisfactiontherefor, shall, commence foreclosure against any parcels of land in the Community Facilities Districtwith delinquent Special Taxes, as provided in Section 53356.1 of the Act; provided, however, that theTrustee need not commence any such foreclosure if such foreclosure has been commenced by theCommunity Facilities District.

Other Remedies. If an Event of Default shall have occurred, the Trustee shall have the right:

(a) by mandamus, suit, action or proceeding, to compel the Community FacilitiesDistrict and its officers, agents or employees to perform each and every term, provision andcovenant contained in the Indenture and in the Bonds, and to require the carrying out of any or allsuch covenants and agreements of the Community Facilities District and the fulfillment of allduties imposed upon it by the Indenture and the Act;

(b) by suit, action or proceeding in equity, to enjoin any acts or things which areunlawful, or the violation of any of the Trustee’s or Bond Owner’s rights; or

(c) by suit, action or proceeding in any court of competent jurisdiction, to require theCommunity Facilities District and its officers and employees to account as if it and they were thetrustees of an express trust.

Application of Net Special Tax Revenues After Default. If an Event of Default shall occur andbe continuing, all Net Special Tax Revenues and any other funds thereafter received by the Trustee underany of the provisions of the Indenture shall be applied by the Trustee as follows and in the followingorder:

(a) To the payment of any expenses necessary in the opinion of the Trustee to protectthe interests of the Owners of the Bonds and payment of reasonable fees, charges and expenses ofthe Trustee (including reasonable fees and disbursements of its counsel) incurred in and about theperformance of its powers and duties under the Indenture;

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(b) 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 partiallypaid, or surrender thereof if fully paid) subject to the provisions of the Indenture, as follows:

First: To the payment to the Persons entitled thereto of all installments of interestthen due in the order of the maturity of such installments and, if the amount available shallnot 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 Personsentitled thereto, without any discrimination or preference; and

Second: To the payment to the Persons entitled thereto of the unpaid principal ofany Bonds which shall have become due, whether at maturity or by call for redemption, withinterest on the overdue principal at the rate borne by the respective Bonds on the date ofmaturity or redemption, and, if the amount available shall not be sufficient to pay in full allthe Bonds, together with such interest, then to the payment thereof ratably, according to theamounts of principal due on such date to the Persons entitled thereto, without anydiscrimination or preference.

(c) Any remaining funds shall be transferred by the Trustee to the Special Tax Fund.

Power of Trustee to Enforce. All rights of action under the Indenture or the Bonds or otherwisemay be prosecuted and enforced by the Trustee without the possession of any of the Bonds or theproduction thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted bythe Trustee shall be brought in the name of the Trustee for the benefit and protection of the Owners ofsuch Bonds, subject to the provisions of the Indenture.

Bond Owners Direction of Proceedings. Anything in the Indenture to the contrarynotwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstandingshall have the right, by an instrument or concurrent instruments in writing executed and delivered to theTrustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method ofconducting all remedial proceedings taken by the Trustee under the Indenture, provided that suchdirection shall not be otherwise than in accordance with law and the provisions of the Indenture, and thatthe Trustee shall have the right to decline to follow any such direction which in the opinion of the Trusteewould be unjustly prejudicial to Bond Owners not parties to such direction.

Limitation on Bond Owners’ Right to Sue. No Owner of any Bonds shall have the right toinstitute any suit, action or proceeding at law or in equity, for the protection or enforcement of any rightor remedy under the Indenture, the Act or any other applicable law with respect to such Bonds, unless (a)such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default, (b)the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have madewritten request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit,action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trusteeindemnity against the costs, expenses and liabilities to be incurred in compliance with such request, and(d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days aftersuch written request shall have been received by, and said tender of indemnity shall have been made to,the Trustee.

Such notification, request, tender of indemnity and refusal or omission are declared, in every case, tobe conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture or underlaw; it being understood and intended that no one or more Owners of Bonds shall have any right in anymanner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights

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of any other Owners of Bonds, or to enforce any right under the Bonds, the Indenture, the Act or otherapplicable law with respect to the Bonds, except in the manner provided in the Indenture, and that allproceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the mannertherein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to theprovisions of the Indenture.

Absolute Obligation. Nothing in any other provision of the Indenture or in the Bonds containedshall affect or impair the obligation of the Community Facilities District, which is absolute andunconditional, to pay the principal of and interest on the Bonds to the respective Owners of the Bonds attheir respective dates of maturity, or upon call for redemption, as provided in the Indenture, but only outof the Net Special Tax Revenues and other assets therein pledged therefor and received by theCommunity Facilities District or the Trustee, or affect or impair the right of such Owners, which is alsoabsolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds.

Termination of Proceedings. In case any proceedings taken by the Trustee or any one or moreBond Owners on account of any Event of Default shall have been discontinued or abandoned for anyreason or shall have been determined adversely to the Trustee or the Bond Owners, then in every suchcase the Community Facilities District, the Trustee and the Bond Owners, subject to any determination insuch proceedings, shall be restored to their former positions and rights under the Indenture, severally andrespectively, and all rights, remedies, powers and duties of the Community Facilities District, the Trusteeand the Bond Owners shall continue as though no such proceedings had been taken.

Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee or to the Ownersof the Bonds is intended to be exclusive of any other remedy or remedies, and each and every suchremedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy givenunder the Indenture or now or hereafter existing at law or in equity or otherwise.

No Waiver of Default. No delay or omission of the Trustee or of any Owner of the Bonds toexercise any right or power arising upon the occurrence of any default shall impair any such right orpower or shall be construed to be a waiver of any such default or an acquiescence therein, and everypower and remedy given by the Indenture to the Trustee or to the Owners of the Bonds may be exercisedfrom time to time and as often as may be deemed expedient.

The Trustee

Duties and Liabilities of Trustee. (a) Duties of Trustee Generally. The Trustee shall, prior toan Event of Default, and after the curing or waiver of all Events of Default which may have occurred,perform such duties and only such duties as are expressly and specifically set forth in the Indenture. TheTrustee shall, during the existence of any Event of Default which has not been cured or waived, exercisesuch of the rights and powers vested in it by the Indenture, and use the same degree of care and skill intheir exercise, as a prudent person would exercise or use under the circumstances in the conduct of suchpersons own affairs.

(b) Removal of Trustee. The Community Facilities District may upon 30 days prior writtennotice remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing,and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments inwriting signed by the Owners of not less than a majority in aggregate principal amount of the Bonds thenOutstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to beeligible in accordance with subsection (e), or shall become incapable of acting, or shall be adjudged abankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officershall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation,

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conservation or liquidation, in each case by giving written notice of such removal to the Trustee andthereupon shall appoint a successor Trustee by an instrument in writing.

(c) Resignation of Trustee. The Trustee may at any time resign by giving written notice of suchresignation by first class mail, postage prepaid, to the Community Facilities District, and to the Bond Ownersat the respective addresses shown on the Registration Books. Upon receiving such notice of resignation, theCommunity Facilities District shall promptly appoint a successor Trustee by an instrument in writing. TheTrustee shall not be relieved of its duties until such successor Trustee has accepted appointment.

(d) Appointment of Successor Trustee. Any removal or resignation of the Trustee andappointment of a successor Trustee shall become effective upon acceptance of appointment by the successorTrustee; provided, however, that under any circumstances the successor Trustee shall be qualified as providedin subsection (e). If no qualified successor Trustee shall have been appointed and have accepted appointmentwithin 45 days following giving notice of removal or notice of resignation as aforesaid, the resigning Trusteeor any Bond Owner (on behalf of himself and all other Bond Owners) may petition any court of competentjurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (ifany) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under theIndenture shall signify its acceptance of such appointment by executing and delivering to the CommunityFacilities District and to its predecessor Trustee a written acceptance thereof, and after payment by theCommunity Facilities District of all unpaid fees and expenses of the predecessor Trustee, then such successorTrustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates,properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as iforiginally named Trustee therein; but, nevertheless at the Written Request of the Community FacilitiesDistrict or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and allinstruments of conveyance or further assurance and do such other things as may reasonably be required formore fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest ofsuch predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer,assign and deliver to the successor Trustee any money or other property subject to the trusts and conditionstherein set forth. Upon request of the successor Trustee, the Community Facilities District shall execute anddeliver any and all instruments as may be reasonably required for more fully and certainly vesting in andconfirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties andobligations. Upon acceptance of appointment by a successor Trustee, the Community Facilities District shallmail or cause the successor Trustee to mail, by first class mail postage prepaid, a notice of the succession ofsuch Trustee to the trusts under the Indenture to each rating agency which then maintains a rating on theBonds and to the Bond Owners at the addresses shown on the Registration Books. If the CommunityFacilities District fails to mail such notice within 15 days after acceptance of appointment by the successorTrustee, the successor Trustee shall cause such notice to be mailed at the expense of the Community FacilitiesDistrict.

(e) Qualifications of Trustee. The Trustee shall be a trust company or bank having trust powersin good standing in or incorporated under the laws of the United States or any state thereof, having (or if suchbank or trust company is a member of a bank holding company system, its parent bank holding companyshall have) a combined capital and surplus of at least $75,000,000, and subject to supervision or examinationby federal or state agency. If such bank or trust company publishes a report of condition at least annually,pursuant to law or to the requirements of any supervising or examining agency above referred to, then for thepurpose of this subsection the combined capital and surplus of such bank or trust company shall be deemed tobe its combined capital and surplus as set forth in its most recent report of condition so published.

In case at any time the Trustee shall cease to be eligible, the Trustee shall resign immediately.

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Merger or Consolidation. Any bank or trust company into which the Trustee may be merged orconverted or with which it may be consolidated or any bank or trust company resulting from any merger,conversion or consolidation to which it shall be a party or any bank or trust company to which the Trusteemay sell or transfer all or substantially all of its corporate trust business, provided such bank or trustcompany shall be eligible under the Indenture shall be the successor to such Trustee, without theexecution or filing of any paper or any further act, anything to the contrary in the Indenturenotwithstanding.

Liability of Trustee. (a) The recitals of facts in the Indenture and in the Bonds contained shallbe taken as statements of the Community Facilities District, and the Trustee shall not assumeresponsibility for the correctness of the same, or make any representations as to the validity or sufficiencyof the Indenture or of the Bonds or shall incur any responsibility in respect thereof, other than asexpressly stated therein in connection with the respective duties or obligations therein or in the Bondsassigned to or imposed upon it. The Trustee shall, however, be responsible for its representationscontained in its certificate of authentication on the Bonds. The Trustee makes no representations as to thevalidity or sufficiency of the Indenture or of any Bonds, or in respect of the security afforded by theIndenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under noresponsibility or duty with respect to the issuance of the Bonds for value, the application of the proceedsthereof except to the extent that such proceeds are received by it in its capacity as Trustee, or theapplication of any moneys paid to the Community Facilities District or others in accordance with theIndenture. The Trustee shall not be liable in connection with the performance of its duties under theIndenture, except for its own negligence or willful misconduct. The Trustee shall not be liable for anyaction taken or omitted by it in good faith and believed by it to be authorized or within the discretion orrights or powers conferred upon it by the Indenture. The Trustee may become the Owner of Bonds withthe same rights it would have if it were not Trustee, and, to the extent permitted by law, may act asdepository for and permit any of its officers or directors to act as a member of, or in any other capacitywith respect to, any committee formed to protect the rights of Bond Owners, whether or not suchcommittee shall represent the Owners of a majority in aggregate principal amount of the Bonds thenOutstanding.

(b) The Trustee shall not be liable for any error of judgment made in good faith by a responsibleofficer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.

(c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it ingood faith in accordance with the direction of the Owners of not less than a majority in aggregate principalamount of the Bonds at the time Outstanding relating to the time, method and place of conducting anyproceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon theTrustee under the Indenture.

(d) No provision of the Indenture shall require the Trustee to risk or advance its own funds. TheTrustee may execute any of its powers or duties under the Indenture through attorneys, agents or receiversand shall not be answerable for the actions of such attorneys, agents or receivers if selected by it withreasonable care.

(e) The Trustee shall not be deemed to have knowledge of an Event of Default under theIndenture unless it has actual knowledge thereof.

(f) The Trustee shall have no responsibility with respect to any information, statement or recitalin any official statement or any other disclosure material prepared or distributed with respect to the Bonds.

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Right to Rely on Documents. The Trustee shall be protected in acting upon any notice,resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believedby it to be genuine and to have been signed or presented by the proper party or parties. The Trustee mayconsult with counsel, who may be counsel of or to the Community Facilities District, with regard to legalquestions, and the opinion of such counsel shall be full and complete authorization and protection inrespect of any action taken or suffered by it under the Indenture in good faith and in accordancetherewith.

Whenever in the administration of the duties imposed upon it by the Indenture the Trustee shall deemit necessary or desirable that a matter be proved or established prior to taking or suffering any action underthe Indenture, such matter (unless other evidence in respect thereof be therein specifically prescribed) may bedeemed to be conclusively proved and established by a Written Certificate of the Community FacilitiesDistrict, and such Written Certificate shall be full warrant to the Trustee for any action taken or suffered ingood faith under the provisions of the Indenture in reliance upon such Written Certificate, but in its discretionthe Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidenceas it may deem reasonable.

Amendment of the Indenture

Amendments Permitted. (a) The Indenture and the rights and obligations of the CommunityFacilities District, the Owners of the Bonds and the Trustee may be modified or amended from time totime and at any time by a Supplemental Indenture, which the Community Facilities District and theTrustee may enter into with the written consent of the Owners of a majority in aggregate principal amountof all Bonds then Outstanding, which shall have been filed with the Trustee. No such modification oramendment shall (i) extend the fixed maturity of any Bonds, reduce the amount of principal thereof or therate of interest thereon, alter the redemption provisions thereof or extend the time of payment thereof,without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage ofBonds the consent of the Owners of which is required to effect any such modification or amendment,without the consent of the Owners of all of the Bonds then Outstanding, or (iii) permit the creation of anylien on the Net Special Tax Revenues and other assets pledged under the Indenture prior to or on a paritywith the lien created by the Indenture or deprive the Owners of the Bonds of the lien created by theIndenture on such Net Special Tax Revenues and other assets (except as expressly provided in theIndenture), without the consent of the Owners of all of the Bonds then Outstanding. It shall not benecessary for the consent of the Bond Owners to approve the particular form of any SupplementalIndenture, but it shall be sufficient if such consent shall approve the substance thereof.

(b) The Indenture and the rights and obligations of the Community Facilities District, theTrustee and the Owners of the Bonds may also be modified or amended from time to time and at any time bya Supplemental Indenture, which the Community Facilities District and the Trustee may enter into withoutthe consent of any Bond Owners for any one or more of the following purposes:

(i) to add to the covenants and agreements of the Community FacilitiesDistrict in the Indenture contained other covenants and agreements thereafter to beobserved, to pledge or assign additional security for the Bonds (or any portion thereof), orto surrender any right or power reserved to or conferred upon the Community FacilitiesDistrict in the Indenture;

(ii) to make such provisions for the purpose of curing any ambiguity,inconsistency or omission, or of curing or correcting any defective provision contained inthe Indenture;

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(iii) to provide for the issuance of one or more Series of Additional Bonds,and to provide the terms and conditions under which such Series of Additional Bondsmay be issued;

(iv) to modify, amend or supplement the Indenture in such manner as topermit the qualification thereof under the Trust Indenture Act of 1939, as amended, orany similar federal statute hereafter in effect, and to add such other terms, conditions andprovisions as may be permitted by said act or similar federal statute;

(v) to modify, amend or supplement the Indenture in such manner as tocause interest on the Bonds to be excludable from gross income for purposes of federalincome taxation by the United States of America; and

(vi) in any other respect whatsoever as the Community Facilities District maydeem necessary or desirable, provided that such modification or amendment does notmaterially adversely affect the interests of the Bond Owners under the Indenture.

(c) Promptly after the execution by the Community Facilities District and the Trustee of anySupplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to theTrustee by the Community Facilities District), by first class mail postage prepaid, setting forth in generalterms the substance of such Supplemental Indenture, to the Owners of the Bonds at the respectiveaddresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shallnot, however, in any way impair or affect the validity of any such Supplemental Indenture.

Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture, theIndenture shall be deemed to be modified and amended in accordance therewith, and the respective rights,duties and obligations under the Indenture of the Community Facilities District, the Trustee and allOwners of Bonds Outstanding shall thereafter be determined, exercised and enforced under the Indenturesubject in all respects to such modification and amendment, and all the terms and conditions of any suchSupplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for anyand all purposes.

Amendment of Particular Bonds. Nothing shall prevent any Bond Owner from accepting anyamendment as to the particular Bonds held by such Owner.

Defeasance of Bonds

Discharge of Indenture. If the Community Facilities District shall pay or cause to be paid orthere shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interestand premium, if any, thereon at the times and in the manner stipulated therein, then the Owners of suchBonds shall cease to be entitled to the pledge of the Net Special Tax Revenues and the other assets asprovided in the Indenture, and all agreements, covenants and other obligations of the CommunityFacilities District to the Owners of such Bonds under the Indenture shall thereupon cease, terminate andbecome void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to theCommunity Facilities District all such instruments as may be necessary or desirable to evidence suchdischarge and satisfaction, and the Trustee shall pay over or deliver to the Community Facilities Districtall money or securities held by it pursuant thereto which are not required for the payment of the principalof and interest and premium, if any, on such Bonds.

Subject to the provisions of the above paragraph, when any of the Bonds shall have been paid and if,at the time of such payment, the Community Facilities District shall have kept, performed and observed all of

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the covenants and promises in such Bonds and in the Indenture required or contemplated to be kept,performed and observed by the Community Facilities District or on its part on or prior to that time, then theIndenture shall be considered to have been discharged in respect of such Bonds and such Bonds shall cease tobe entitled to the lien of the Indenture and such lien and all covenants, agreements and other obligations ofthe Community Facilities District under the Indenture shall cease, terminate become void and be completelydischarged as to such Bonds.

Notwithstanding the satisfaction and discharge of the Indenture or the discharge of the Indenture inrespect of any Bonds, those provisions of the Indenture relating to the maturity of the Bonds, interestpayments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost orstolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, and the duties of theTrustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trusteeand the Owners of the Bonds and the Trustee shall continue to be obligated to hold in trust any moneys orinvestments then held by the Trustee for the payment of the principal of and interest and premium, if any, onthe Bonds, to pay to the Owners of Bonds the funds so held by the Trustee as and when such paymentbecomes due. Notwithstanding the satisfaction and discharge of the Indenture or the discharge of theIndenture in respect of any Bonds, those provisions of the Indenture relating to the compensation of theTrustee shall remain in effect and shall be binding upon the Trustee and the Community Facilities District.

Bonds Deemed To Have Been Paid. If moneys shall have been set aside and held by theTrustee for the payment or redemption of any Bonds and the interest thereon at the maturity orredemption date thereof, such Bonds shall be deemed to have been paid. Any Outstanding Bonds shallprior to the maturity date or redemption date thereof be deemed to have been paid within the meaning ofand with the effect expressed in the Indenture if (a) in case any of such Bonds are to be redeemed on anydate prior to their maturity date, the Community Facilities District shall have given to the Trustee in formsatisfactory to it irrevocable instructions to mail notice of redemption of such Bonds on said redemptiondate, said notice to be given in accordance with the provisions of the Indenture, (b) there shall have beendeposited with the Trustee either (i) money in an amount which shall be sufficient, or (ii) FederalSecurities that are not subject to redemption other than at the option of the holder thereof, the interest onand principal of which when paid will provide money which, together with the money, if any depositedwith the Trustee at the same time, shall, as verified by an independent certified public accountant, besufficient to pay when due the interest to become due on such Bonds on and prior to the maturity date orredemption date thereof, as the case may be, and the principal of and premium, if any, on such Bonds,which sufficiency shall be verified in a report of an independent firm of nationally recognized certifiedpublic accountants, and (c) in the event such Bonds are not by their terms subject to redemption withinthe next succeeding 60 days, the Community Facilities District shall have given the Trustee in formsatisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the owners of suchBonds that the deposit required by clause (b) above has been made with the Trustee and that such Bonds,are deemed to have been paid and stating the maturity date or redemption date upon which money is to beavailable for the payment of the principal of and premium, if any, on such Bonds.

Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of theIndenture, to the extent permitted by law, any moneys held by the Trustee in trust for the payment of theprincipal of, or premium or interest on, any Bonds and remaining unclaimed for two years after the dateof deposit of such moneys, shall be repaid to the Community Facilities District free from the trusts createdby the Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease;provided, however, that before the repayment of such moneys to the Community Facilities District asaforesaid, the Trustee may (at the cost of the Community Facilities District) first mail, by first class mailpostage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shownon the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with

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respect to the Bonds so payable and not presented and with respect to the provisions relating to therepayment to the Community Facilities District of the moneys held for the payment thereof.

Miscellaneous

Special Obligations. All obligations of the Community Facilities District under the Indentureshall be special obligations of the Community Facilities District, payable solely from Special TaxRevenues and the other assets pledged therefor under the Indenture; provided, however, that allobligations of the Community Facilities District under the Bonds shall be special obligations of theCommunity Facilities District, payable solely from Net Special Tax Revenues and the other assetspledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the CommunityFacilities District (except to the limited extent set forth in the Indenture), the School District, or the Stateof California, or any political subdivision thereof, is pledged to the payment of the Bonds.

Limitation of Rights. Nothing in the Indenture or in the Bonds expressed or implied is intendedor shall be construed to give to any Person other than the Trustee, the Community Facilities District andthe Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of theIndenture or any covenant, condition or provision therein contained, and all such covenants, conditionsand provisions are and shall be held to be for the sole and exclusive benefit of the Trustee, theCommunity Facilities District and the Owners of the Bonds.

Evidence of Rights of Bond Owners. Any request, consent or other instrument required orpermitted by the Indenture to be signed and executed by Bond Owners may be in any number ofconcurrent instruments of substantially similar tenor and shall be signed or executed by such BondOwners in Person or by an agent or agents duly appointed in writing. Proof of the execution of any suchrequest, consent or other instrument or of a writing appointing any such agent, or of the holding by anyPerson of Bonds transferable by delivery, shall be sufficient for any purpose of the Indenture and shall beconclusive in favor of the Trustee and the Community Facilities District if made in the manner providedabove.

The fact and date of the execution by any Person of any such request, consent or other instrument orwriting may be proved by the certificate of any notary public or other officer of any jurisdiction, authorizedby the laws thereof to take acknowledgments of deeds, certifying that the Person signing such request,consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness ofsuch execution duly sworn to before such notary public or other officer. The ownership of Bonds shall beproved by the Registration Books.

Any request, consent, or other instrument or writing of the Owner of any Bond shall bind everyfuture Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof,in respect of anything done or suffered to be done by the Trustee or the Community Facilities District inaccordance therewith or reliance thereon.

Disqualified Bonds. In determining whether the Owners of the requisite aggregate principalamount of Bonds have concurred in any demand, request, direction, consent or waiver under theIndenture, Bonds which are known by the Trustee to be owned or held by or for the account of theCommunity Facilities District, or by any other obligor on the Bonds, or by any Person directly orindirectly controlling or controlled by, or under direct or indirect common control with, the CommunityFacilities District or any other obligor on the Bonds, shall be disregarded and deemed not to beOutstanding for the purpose of any such determination. Bonds so owned which have been pledged ingood faith may be regarded as Outstanding if the pledgee shall establish to the satisfaction of the Trusteethe pledgee’s right to vote such Bonds and that the pledgee is not a Person directly or indirectly

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controlling or controlled by, or under direct or indirect common control with, the Community FacilitiesDistrict or any other obligor on the Bonds. In case of a dispute as to such right, any decision by theTrustee taken upon the advice of counsel shall be full protection to the Trustee.

Money Held for Particular Bonds. The money held by the Trustee for the payment of theinterest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds inthe case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be setaside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, tothe provisions of the Indenture relating to defeasance but without any liability for interest thereon.

Payment on Non-Business Days. In the event any payment is required to be made under theIndenture on a day which is not a Business Day, such payment shall be made on the next succeedingBusiness Day with the same effect as if made on such non-Business Day.

Waiver of Personal Liability. No member, officer, agent or employee of the CommunityFacilities District or the School District shall be individually or personally liable for the payment of theprincipal of or premium or interest on the Bonds or be subject to any personal liability or accountabilityby reason of the issuance thereof; but nothing contained in the Indenture shall relieve any such officer,agent or employee from the performance of any official duty provided by law or by the Indenture.

Conflict with Act. In the event of any conflict between any provision of the Indenture and anyprovision of the Act, the provision of the Act shall prevail over the provision of the Indenture.

Conclusive Evidence of Regularity. Bonds issued pursuant to the Indenture shall constituteevidence of the regularity of all proceedings under the Act relative to their issuance and the levy of theSpecial Taxes.

Governing Laws. The Indenture shall be governed by and construed in accordance with the lawsof the State of California.

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APPENDIX E

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The following description of the Depository Trust Company (“DTC”), the procedures andrecord keeping with respect to beneficial ownership interests in the Bonds, payment of principal,interest and other payments on the Bonds to DTC Participants or Beneficial Owners,confirmation and transfer of beneficial ownership interest in the Bonds and other relatedtransactions by and between DTC, the DTC Participants and the Beneficial Owners is basedsolely on information provided by DTC. Accordingly, no representations can be madeconcerning these matters and neither the DTC Participants nor the Beneficial Owners shouldrely on the foregoing information with respect to such matters, but should instead confirm thesame with DTC or the DTC Participants, as the case may be.

No assurances can be given that DTC, DTC Participants or Indirect Participants willdistribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, withrespect to the Bonds, (b) certificates representing ownership interest in or other confirmation orownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co.,its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, orthat DTC, DTC Participants or DTC Indirect Participants will act in the manner described in thisAppendix. The current "Rules" applicable to DTC are on file with the Securities and ExchangeCommission and the current "Procedures" of DTC to be followed in dealing with DTCParticipants are on file with DTC.

DTC and its Participants. The Depository Trust Company ("DTC"), New York, NY, willact as securities depository for the Bonds. The Bonds will be issued as fully-registeredsecurities registered in the name of Cede & Co. (DTC’s partnership nominee) or such othername as may be requested by an authorized representative of DTC. One fully-registeredsecurity certificate will be issued for each maturity of the Bonds, each in the aggregate principalamount of such maturity, and will be deposited with DTC.

DTC, the world's largest depository, is a limited-purpose trust company organized underthe New York Banking Law, a "banking organization" within the meaning of the New YorkBanking Law, a member of the Federal Reserve System, a "clearing corporation" within themeaning of the New York Uniform Commercial Code, and a "clearing agency" registeredpursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holdsand provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues,corporate and municipal debt issues, and money market instruments from over 85 countries thatDTC’s participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-tradesettlement among Direct Participants of sales and other securities transactions in depositedsecurities, through electronic computerized book-entry transfers and pledges between DirectParticipants’ accounts. This eliminates the need for physical movement of securitiescertificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers,banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, isowned by a number of Direct Participants of DTC and Members of the National SecuritiesClearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation,and Emerging Markets Clearing Corporation, (respectively, "NSCC", "GSCC", "MBSCC", and"EMCC", also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., theAmerican Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Accessto the DTC system is also available to others such as both U.S. and non-U.S. securities brokers

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and dealers, banks, trust companies, and clearing corporations that clear through or maintain acustodial relationship with a Direct Participant, either directly or indirectly ("IndirectParticipants"). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable toits Participants are on file with the Securities and Exchange Commission. More informationabout DTC can be found at www.dtcc.com.

Book-Entry Only System. Purchases of the Bonds under the DTC system must bemade by or through Direct Participants, which will receive a credit for the Bonds on DTC’srecords. The ownership interest of each actual purchaser of each Security ("Beneficial Owner")is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners willnot receive written confirmation from DTC of their purchase. Beneficial Owners are, however,expected to receive written confirmations providing details of the transaction, as well as periodicstatements of their holdings, from the Direct or Indirect Participant through which the BeneficialOwner entered into the transaction. Transfers of ownership interests in the Bonds are to beaccomplished by entries made on the books of Direct and Indirect Participants acting on behalfof Beneficial Owners. Beneficial Owners will not receive certificates representing theirownership interests in the Bonds, except in the event that use of the book-entry system for theBonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTCare registered in the name of DTC’s partnership nominee, Cede & Co., or such other name asmay be requested by an authorized representative of DTC. The deposit of the Bonds with DTCand their registration in the name of Cede & Co. or such other DTC nominee do not effect anychange in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of theBonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts suchBonds are credited, which may or may not be the Beneficial Owners. The Direct and IndirectParticipants will remain responsible for keeping account of their holdings on behalf of theircustomers.

Conveyance of notices and other communications by DTC to Direct Participants, byDirect Participants to Indirect Participants, and by Direct Participants and Indirect Participants toBeneficial Owners will be governed by arrangements among them, subject to any statutory orregulatory requirements as may be in effect from time to time. Beneficial Owners of the Bondsmay wish to take certain steps to augment the transmission to them of notices of significantevents with respect to the Bonds, such as redemptions, tenders, defaults, and proposedamendments to the Security documents. For example, Beneficial Owners of the Bonds maywish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain andtransmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to providetheir names and addresses to the registrar and request that copies of notices be provideddirectly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within an issueare being redeemed, DTC's practice is to determine by lot the amount of the interest of eachDirect Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote withrespect to the Bonds unless authorized by a Direct Participant in accordance with DTC’sProcedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon aspossible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or votingrights to those Direct Participants to whose accounts the Bonds are credited on the record date(identified in a listing attached to the Omnibus Proxy).

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Payments of principal of, premium, if any, and interest evidenced by the Bonds will bemade to Cede & Co., or such other nominee as may be requested by an authorizedrepresentative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’sreceipt of funds and corresponding detail information from the School District or the Trustee, onpayable date in accordance with their respective holdings shown on DTC’s records. Paymentsby Participants to Beneficial Owners will be governed by standing instructions and customarypractices, as is the case with securities held for the accounts of customers in bearer form orregistered in "street name," and will be the responsibility of such Participant and not of DTC (norits nominee), the Trustee, or the School District, subject to any statutory or regulatoryrequirements as may be in effect from time to time. Payment of principal of, premium, if any,and interest evidenced by the Bonds to Cede & Co. (or such other nominee as may berequested by an authorized representative of DTC) is the responsibility of the School District orthe Trustee, disbursement of such payments to Direct Participants will be the responsibility ofDTC, and disbursement of such payments to the Beneficial Owners will be the responsibility ofDirect and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds atany time by giving reasonable notice to the School District or the Trustee. Under suchcircumstances, in the event that a successor depository is not obtained, Security certificates arerequired to be printed and delivered.

The School District may decide to discontinue use of the system of book-entry transfersthrough DTC (or a successor securities depository). In that event, Bond certificates will beprinted and delivered.

Discontinuance of DTC Services. If (a) DTC determines not to continue to act assecurities depository for the Bonds, or (b) the Community Facilities District determines that DTCwill no longer so act and delivers a written certificate to the Trustee to that effect, then theCommunity Facilities District will discontinue the Book-Entry Only System with DTC for theBonds. If the Community Facilities District determines to replace DTC with another qualifiedsecurities depository, the Community Facilities District will prepare or direct the preparation of anew single separate, fully registered Bond for each maturity of the Bonds registered in the nameof such successor or substitute securities depository as are not inconsistent with the terms ofthe Indenture. If the Community Facilities District fails to identify another qualified securitiesdepository to replace the incumbent securities depository for the Bonds, then the Bonds will nolonger be restricted to being registered in the Bond registration books in the name of theincumbent securities depository or its nominee, but will be registered in whatever name ornames the incumbent securities depository or its nominee transferring or exchanging the Bondsdesignates.

If the Book-Entry Only System is discontinued, the following provisions would also apply:(i) the Bonds will be made available in physical form, (ii) principal of, and redemption premiums,if any, on, the Bonds will be payable upon surrender thereof at the corporate trust office of theTrustee in Los Angeles, California, (iii) interest on the Bonds will be payable by check mailed byfirst-class mail or, upon the written request of any Owner of $1,000,000 or more in aggregateprincipal amount of Bonds received by the Trustee on or prior to the 15th day of the calendarmonth immediately preceding the interest payment date, by wire transfer in immediatelyavailable funds to an account with a financial institution within the continental United States ofAmerica designated by such Owner, and (iv) the Bonds will be transferable and exchangeableas provided in the Indenture.

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APPENDIX F

FORM OF ISSUER CONTINUING DISCLOSURE CERTIFICATE

CONTINUING DISCLOSURE CERTIFICATE(Community Facilities District)



This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed anddelivered by Community Facilities District No. 2003-2 of the San Jacinto Unified School District(the “District”) in connection with the issuance of the bonds captioned above (the “Bonds”). TheBonds are being issued pursuant to a Indenture dated as of October 1, 2005 (the “Indenture”),by and between the District and Zions First National Bank, as trustee (the “Trustee”). TheDistrict hereby covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is beingexecuted and delivered by the District for the benefit of the holders and beneficial owners of theBonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

Section 2. Definitions. In addition to the definitions set forth above and in the Indenture,which apply to any capitalized term used in this Disclosure Certificate unless otherwise definedin this Section, the following capitalized terms shall have the following meanings:

“Annual Report” means any Annual Report provided by the District pursuant to, and asdescribed in, Sections 3 and 4 of this Disclosure Certificate.

“Annual Report Date” means the date that is seven months after the end of the District'sfiscal year (currently January 31 based on the District’s fiscal year end of June 30).

“Central Post Office” means DisclosureUSA (information regarding which is currentlylocated at www.DisclosureUSA.org), the Internet-based filing system approved by the Securitiesand Exchange Commission to receive and submit filings to the National Repositories, or anysimilar filing system approved by the Securities and Exchange Commission.

“Dissemination Agent” means David Taussig & Associates, Inc., or any successorDissemination Agent designated in writing by the District and which has filed with the District awritten acceptance of such designation.

“District” means Community Facilities District No. 2003-2 of the San Jacinto UnifiedSchool District.

“Listed Events” means any of the events listed in Section 5(a) of this DisclosureCertificate.

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“National Repository” means any Nationally Recognized Municipal Securities InformationRepository for purposes of the Rule. Information on the National Repositories as of a particulardate is available on the Securities and Exchange Commission’s Internet site at www.sec.gov.

“Official Statement” means the final official statement executed by the District inconnection with the issuance of the Bonds.

“Participating Underwriter” means Stone & Youngberg LLC, the original underwriter ofthe Bonds required to comply with the Rule in connection with offering of the Bonds.

“Repository” means each National Repository and each State Repository, if any.

“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commissionunder the Securities Exchange Act of 1934, as the same may be amended from time to time.

“State Repository” means any public or private repository or entity designated by theState of California as a state repository for the purpose of the Rule and recognized as such bythe Securities and Exchange Commission. As of the date of this Disclosure Certificate, there isno State Repository.

Section 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than theAnnual Report Date, commencing January 31, 2006, with the report for the 2004-05 fiscal year,provide to the Participating Underwriter and to each Repository an Annual Report that isconsistent with the requirements of Section 4 of this Disclosure Certificate. In lieu of filing theAnnual Report with each Repository, the District or the Dissemination Agent may file the AnnualReport with the Central Post Office, with a copy to the Participating Underwriter. Not later than15 Business Days prior to the Annual Report Date, the District shall provide the Annual Reportto the Dissemination Agent (if other than the District). The Annual Report may be submitted asa single document or as separate documents comprising a package, and may include byreference other information as provided in Section 4 of this Disclosure Certificate; provided thatthe audited financial statements of the District may be submitted separately from the balance ofthe Annual Report, and later than the date required above for the filing of the Annual Report ifnot available by that date. The audited financial statements of the District may be includedwithin or constitute a portion of the audited financial statements of the San Jacinto UnifiedSchool District. If the District's fiscal year changes, it shall give notice of such change in thesame manner as for a Listed Event under Section 5(c).

(b) If the District does not provide, or cause the Dissemination Agent to provide, anAnnual Report to the Repositories by the Annual Report Date as required in subsection (a)above, the Dissemination Agent shall send a notice to (i) each National Repository or theMunicipal Securities Rulemaking Board, and (ii) the appropriate State Repository, if any, insubstantially the form attached hereto as Exhibit A, with a copy to the Trustee (if different thanthe Dissemination Agent) and the Participating Underwriter. In lieu of filing the notice with eachRepository, the District or the Dissemination Agent may file the notice with the Central PostOffice, with a copy to the Trustee (if different than the Dissemination Agent) and theParticipating Underwriter.

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(c) With respect to each Annual Report, the Dissemination Agent shall:

(i) determine each year prior to the Annual Report Date the name andaddress of each National Repository and each State Repository, if any; and

(ii) if the Dissemination Agent is other than the District, file a report with theDistrict and the Participating Underwriter certifying that the Annual Report has beenprovided pursuant to this Disclosure Certificate, stating the date it was provided andlisting all the Repositories to which it was provided.

Section 4. Content of Annual Reports. The District's Annual Report shall contain orincorporate by reference the following documents and information:

(a) The District's audited financial statements for the most recently completed fiscalyear, prepared in accordance with Generally Accepted Accounting Principles as promulgated toapply to governmental entities from time to time by the Governmental Accounting StandardsBoard, together with the following statement:

THE DISTRICT'S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELYTO COMPLY WITH THE SECURITIES EXCHANGE COMMISSION STAFF’SINTERPRETATION OF RULE 15C2-12. NO FUNDS OR ASSETS OF THE DISTRICTOR THE SAN JACINTO UNIFIED SCHOOL DISTRICT ARE REQUIRED TO BE USEDTO PAY DEBT SERVICE ON THE BONDS, AND NEITHER THE DISTRICT NOR THESAN JACINTO UNIFIED SCHOOL DISTRICT IS OBLIGATED TO ADVANCEAVAILABLE FUNDS TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOTRELY ON THE FINANCIAL CONDITION OF THE DISTRICT OR THE SAN JACINTOUNIFIED SCHOOL DISTRICT IN EVALUATING WHETHER TO BUY, HOLD OR SELLTHE BONDS.

(b) Total assessed value (per the Riverside County Assessor’s records) of all parcelscurrently subject to the Special Tax within the District, showing the total assessed valuation forall land and the total assessed valuation for all improvements within the District anddistinguishing between the assessed value of improved and unimproved parcels. Parcels areconsidered improved if there is an assessed value for the improvements in the Assessor'srecords.

(c) The total dollar amount of delinquencies in the District as of August 1 of any yearand, in the event that the total delinquencies within the District as of August 1 in any yearexceed 5% of the Special Tax for the previous year, delinquency information for each parcelresponsible for more than $5,000 in the payment of Special Tax, amounts of delinquencies,length of delinquency and status of any foreclosure of each such parcel.

(d) The amount of prepayments of the Special Tax with respect to the District for theprior Fiscal Year.

(e) A land ownership summary listing the property owner responsible for more than5% of the annual Special Tax levy, as shown on the Riverside County Assessor's last equalizedtax roll prior to the September next preceding the Annual Report Date.

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(f) The principal amount of the Bonds outstanding and the balance in the ReserveFund (along with a statement of the Reserve Requirement) as of the September 30 nextpreceding the Annual Report Date.

(g) An updated table in substantially the form of the table in the Official Statemententitled “Appraised Values and Value to Burden Ratios” based upon the most recent informationavailable, provided that assessed values shown on the Riverside County assessor’s mostrecent equalized tax roll prior to the September next preceding the Annual Report Date may besubstituted for appraised values.

(h) An updated table in substantially the form of the table in the Official Statemententitled “Direct and Overlapping Governmental Obligations” as of the District’s most recentlycompleted fiscal year, but only until all of the property in the District is classified as “DevelopedProperty” under the Rate and Method of Apportionment for the District.

(i) Any changes to the Rate and Method of Apportionment for the District set forth inAppendix B to the Official Statement.

(j) A copy of the annual information required to be filed by the District with theCalifornia Debt and Investment Advisory Commission pursuant to the Act and relating generallyto outstanding District bond amounts, fund balances, assessed values, special taxdelinquencies and foreclosure information.

(k) In addition to any of the information expressly required to be provided underparagraphs (a) through (j) of this Section, the District shall provide such further information, ifany, as may be necessary to make the specifically required statements, in the light of thecircumstances under which they are made, not misleading.

Any or all of the items listed above may be included by specific reference to otherdocuments, including official statements of debt issues of the District or related public entities,which have been submitted to each of the Repositories or the Securities and ExchangeCommission. If the document included by reference is a final official statement, it must beavailable from the Municipal Securities Rulemaking Board. The District shall clearly identifyeach such other document so included by reference.

Each Annual Report shall include the form of cover sheet attached as Exhibit B,completed with the appropriate information relating to the Bonds.

Section 5. Reporting of Significant Events.

(a) The District shall give, or cause to be given, notice of the occurrence of any ofthe following events with respect to the Bonds, if material:

(1) Principal and interest payment delinquencies.

(2) Non-payment related defaults.

(3) Unscheduled draws on debt service reserves reflecting financial difficulties.

(4) Unscheduled draws on credit enhancements reflecting financial difficulties.

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(5) Substitution of credit or liquidity providers, or their failure to perform.

(6) Adverse tax opinions or events affecting the tax-exempt status of the security.

(7) Modifications to rights of security holders.

(8) Contingent or unscheduled bond calls.

(9) Defeasances.

(10) Release, substitution, or sale of property securing repayment of the securities.

(11) Rating changes.

(b) Whenever the District obtains knowledge of the occurrence of a Listed Event, theDistrict shall as soon as possible determine if such event would be material under applicableFederal securities law.

(c) If the District determines that knowledge of the occurrence of a Listed Eventwould be material under applicable Federal securities law, the District shall, or shall cause theDissemination Agent to, promptly file a notice of such occurrence with (i) each NationalRepository or the Municipal Securities Rulemaking Board, and (ii) each appropriate StateRepository, if any, with a copy to the Trustee (if different than the Dissemination Agent) and theParticipating Underwriter. Each notice of the occurrence of a Listed Event shall include the formof cover sheet attached as Exhibit B, completed with the appropriate information relating to theBonds. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8)and (9) need not be given under this subsection any earlier than the notice (if any) of theunderlying event is given to holders of affected Bonds pursuant to the Indenture.

(d) In lieu of filing the notice of the occurrence of a Listed Event with each Repository,the District or the Dissemination Agent may file the notice of the occurrence of a Listed Eventwith the Central Post Office, with a copy to the Trustee (if different than the DisseminationAgent) and the Participating Underwriter.

Section 6. Termination of Reporting Obligation. The District's obligations under thisDisclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment infull of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, theDistrict shall give notice of such termination in the same manner as for a Listed Event underSection 5(c).

Section 7. Dissemination Agent. The District may, from time to time, appoint or engagea Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate,and may discharge any such Agent, with or without appointing a successor DisseminationAgent. The initial Dissemination Agent will be David Taussig & Associates, Inc.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this DisclosureCertificate, the District may amend this Disclosure Certificate, and any provision of thisDisclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), itmay only be made in connection with a change in circumstances that arises from a change in

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legal requirements, change in law, or change in the identity, nature, or status of an obligatedperson with respect to the Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in theopinion of nationally recognized bond counsel, have complied with the requirements of the Ruleat the time of the primary offering of the Bonds, after taking into account any amendments orinterpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Bondsin the manner provided in the Indenture for amendments to the Indenture with the consent ofholders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel,materially impair the interests of the holders or beneficial owners of the Bonds.

If the annual financial information or operating data to be provided in the Annual Reportis amended pursuant to the provisions hereof, the first annual financial information filedpursuant hereto containing the amended operating data or financial information shall explain, innarrative form, the reasons for the amendment and the impact of the change in the type ofoperating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to befollowed in preparing financial statements, the annual financial information for the year in whichthe change is made shall present a comparison between the financial statements or informationprepared on the basis of the new accounting principles and those prepared on the basis of theformer accounting principles. The comparison shall include a qualitative discussion of thedifferences in the accounting principles and the impact of the change in the accountingprinciples on the presentation of the financial information, in order to provide information toinvestors to enable them to evaluate the ability of the District to meet its obligations. To theextent reasonably feasible, the comparison shall be quantitative. A notice of the change in theaccounting principles shall be sent to the Repositories in the same manner as for a Listed Eventunder Section 5(c).

Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemedto prevent the District from disseminating any other information, using the means ofdissemination set forth in this Disclosure Certificate or any other means of communication, orincluding 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 Certificate. If the District chooses toinclude any information in any Annual Report or notice of occurrence of a Listed Event inaddition to that which is specifically required by this Disclosure Certificate, the District shall haveno obligation under this Disclosure Certificate to update such information or include it in anyfuture Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the District to comply with any provisionof this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner ofthe Bonds may take such actions as may be necessary and appropriate, including seekingmandate or specific performance by court order, to cause the District to comply with itsobligations under this Disclosure Certificate. A default under this Disclosure Certificate shall notbe deemed an Event of Default under the Indenture, and the sole remedy under this DisclosureCertificate in the event of any failure of the District to comply with this Disclosure Certificateshall be an action to compel performance.

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Section 11. Duties, Immunities and Liabilities of Dissemination Agent. TheDissemination Agent shall have only such duties as are specifically set forth in this DisclosureCertificate, and the District agrees to indemnify and save the Dissemination Agent, its officers,directors, employees and agents, harmless against any loss, expense and liabilities which itmay 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 ofliability, but excluding liabilities due to the Dissemination Agent's negligence or willfulmisconduct. The Dissemination Agent shall have no duty or obligation to review any informationprovided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for theDistrict, the Property Owner, the Trustee, the Bond owners or any other party. The obligationsof the District under this Section shall survive resignation or removal of the Dissemination Agentand payment of the Bonds.

Section 12. Notices. Any notice or communications to be among any of the parties tothis Disclosure Certificate may be given as follows:

To the Issuer: Community Facilities District No. 2003-2 of theSan Jacinto Unified School District2045 South San Jacinto AvenueSan Jacinto, CA 92583Fax: (951) 652-7350

To the Trustee: Zions First National Bank550 South Hope Street, Suite 2650Los Angeles, California 90071Attention: Corporate Trust ServicesFax: (213) 593-3160

To the Dissemination Agent: David Taussig & Associates, Inc.1301 Dove Street, Suite 600Newport Beach, California 92660Attention: Benjamin DolinkaFax: (949) 955-1590

To the Participating Underwriter: Stone & Youngberg LLCOne Ferry BuildingSan Francisco, California 94111Attention: Municipal Research DepartmentFax: (415) 445-2395

Any person may, by written notice to the other persons listed above, designate a differentaddress or telephone number(s) to which subsequent notices or communications should besent.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit ofthe District, the Trustee, the Dissemination Agent, the Participating Underwriter and holders andbeneficial owners from time to time of the Bonds, and shall create no rights in any other personor entity.

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Section 14. Counterparts. This Disclosure Certificate may be executed in severalcounterparts, each of which shall be regarded as an original, and all of which shall constituteone and the same instrument.

Date: October 6, 2005

COMMUNITY FACILITIES DISTRICTNO. 2003-2 OF THE SAN JACINTO UNIFIEDSCHOOL DISTRICT

By: Joseph R. Busek,

Assistant Superintendent, Business FacilitiesSan Jacinto Unified School District

on behalf of Community Facilities DistrictNo. 2003-2 of the San Jacinto Unified School

District

AGREED AND ACCEPTED:David Taussig & Associates, Inc., asDissemination Agent

By:

Name:

Title:

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EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Community Facilities District No. 2003-2 of the San JacintoUnified School District (the “District”)

Name of Bond Issue: Community Facilities District No. 2003-2 of the San JacintoUnified School District Special Tax Bonds (Infrastructure Projects),Series 2005

Date of Issuance: October 6, 2005

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report withrespect to the above-named Bonds as required by Section 5.16 of the Indenture dated as ofOctober 1, 2005, between the District and Zions First National Bank. The District anticipatesthat the Annual Report will be filed by _____________.

Dated:

DISSEMINATION AGENT:

David Taussig & Associates, Inc.

By: Its:

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EXHIBIT B

Municipal Secondary Market DisclosureInformation Cover SheetThis cover sheet should be sent with all submissions made to the Municipal Securities Rulemaking Board,Nationally Recognized Municipal Securities Information Repositories, and any applicable State InformationDepository, whether the filing is voluntary or made pursuant to Securities and Exchange Commission rule 15c2-12or any analogous state statute.

See www.sec.gov/info/municipal/nrmsir.htm for list of current NRMSIRs and SIDs

IF THIS FILING RELATES TO A SINGLE BOND ISSUE:

Provide name of bond issue exactly as it appears on the cover of the Official Statement(please include name of state where issuer is located):

Provide nine-digit CUSIP* numbers if available, to which the information relates:

IF THIS FILING RELATES TO ALL SECURITIES ISSUED BY THE ISSUER OR ALL SECURITIES OF ASPECIFIC CREDIT OR ISSUED UNDER A SINGLE INDENTURE:

Issuer’s Name (please include name of state where Issuer is located): ________________________________________________

Other Obligated Person’s Name (if any): _______________________________________________________________________(Exactly as it appears on the Official Statement Cover)

Provide six-digit CUSIP* number(s), if available, of Issuer: ________________________________________________________

*(Contact CUSIP’s Municipal Disclosure Assistance Line at 212.438.6518 for assistance with obtaining the proper CUSIP numbers.)

TYPE OF FILING:

Electronic (number of pages attached) ____________________ Paper (number of pages attached) __________________

If information is also available on the Internet, give URL: _________________________________________________________

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WHAT TYPE OF INFORMATION ARE YOU PROVIDING? (Check all that apply)

A. Financial Information and Operating Data pursuant to Rule 15c2-12 (Financial information and operating data should not be filed with the MSRB.) Annual

Semi-annual

Quarterly

Fiscal Period Covered:_________________________________________________________________________________

B. Audited Financial Statements or CAFR pursuant to Rule 15c2-12


C. Notice of a Material Event pursuant to Rule 15c2-12 (Check as appropriate)

D. Notice of Failure to Provide Annual Financial Information as Required

E. Other Secondary Market Information (Specify):___________________________________________________________

I hereby represent that I am authorized by the issuer or obligor or its agent to distribute this information

publicly:

Issuer/Filer Contact:Name ________________________________________________ Title _____________________________________________

Employer _______________________________________________________________________________________________

Address ______________________________________________ City______________ State ______Zip Code _____________

Telephone ____________________________________________ Fax ______________________________________________

Email Address _________________________________________ Issuer Web Site Address ______________________________

1. Principal and interest payment delinquencies

2. Non-payment related defaults

3. Unscheduled draws on debt service reserves reflectingfinancial difficulties

4. Unscheduled draws on credit enhancements reflectingfinancial difficulties

5. Substitution of credit or liquidity providers, or theirfailure to perform

6. Adverse tax opinions or events affecting the tax-exempt status of the security

7. Modifications to the rights of security holders

8. Bond calls

9. Defeasances

10. Release, substitution, or sale of property securingrepayment of the securities

11. Rating changes

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Dissemination Agent Contact, if any:Name ________________________________________________ Title _____________________________________________

Employer _______________________________________________________________________________________________


Telephone ____________________________________________ Fax ______________________________________________

Email Address _________________________________________ Relationship to Issuer ________________________________

Obligor Contact, if any:Name ________________________________________________ Title _____________________________________________

Employer _______________________________________________________________________________________________


Telephone ____________________________________________ Fax ______________________________________________

Email Address _________________________________________ Obligor Web site Address_____________________________

Investor Relations Contact, if any:

Name ________________________________________________ Title _____________________________________________

Telephone ____________________________________________ Email Address _____________________________________

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APPENDIX G

FORM OF PROPERTY OWNER DISCLOSURE CERTIFICATE

CONTINUING DISCLOSURE CERTIFICATE(Property Owner)



This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed anddelivered by ______________, a ______________ (the “Property Owner”), in connection withthe issuance by Community Facilities District No. 2003-2 of the San Jacinto Unified SchoolDistrict (the “District”) of the bonds captioned above (the “Bonds”). The Bonds are being issuedpursuant to a Indenture dated as of October 1, 2005 (the “Indenture”), by and between theDistrict and Zions First National Bank, as trustee (the “Trustee”). The Property Ownercovenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is beingexecuted and delivered by the Property Owner for the benefit of the holders and beneficialowners of the Bonds.

Section 2. Definitions. In addition to the definitions set forth above and in the Indenture,which apply to any capitalized term used in this Disclosure Certificate unless otherwise definedin 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, 5% or more of the outstanding voting securities of such otherPerson, (b) any Person, 5% or more of whose outstanding voting securities are directly orindirectly owned, controlled, or held with power to vote, by such other Person, and (c) anyPerson directly or indirectly controlling, controlled by, or under common control with, such otherPerson. For purposes hereof, control means the power to exercise a controlling influence overthe management or policies of a Person, unless such power is solely the result of an officialposition with such Person.

“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 substantiallysimilar to this Disclosure Certificate (as modified for such Major Owner’s development andfinancing plans with respect to the District), whereby such Major Owner or Affiliate agrees toprovide Semi-Annual Reports and notices of significant events, setting forth the informationdescribed in sections 4 and 5 hereof, respectively, with respect to the portion of the property inthe District owned by such Major Owner and its Affiliates and, at the option of the PropertyOwner or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to aprovision substantially in the form of Section 11 hereof.

“Central Post Office” means DisclosureUSA (information regarding which is currentlylocated at www.DisclosureUSA.org), the Internet-based filing system approved by the Securities

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and Exchange Commission to receive and submit filings to the National Repositories, or anysimilar filing system approved by the Securities and Exchange Commission.

“Dissemination Agent” means Zions First National Bank, or any successor DisseminationAgent designated in writing by the Property Owner, with the written consent of the District, andwhich has filed with the Property Owner, the District and the Trustee a written acceptance ofsuch designation, and which is experienced in providing dissemination agent services such asthose required under this Disclosure Certificate.

“District” means Community Facilities District No. 2003-2 of the San Jacinto UnifiedSchool District.

“Listed Events” means any of the events listed in Section 5(a) of this DisclosureCertificate.

“Major Owner” means, as of any Report Date, an owner of land in the Districtresponsible in the aggregate for 10% or more of the Special Taxes in the District actually leviedat any time during the then-current fiscal year.

“National Repository” means any Nationally Recognized Municipal Securities InformationRepository for purposes of the Rule. Information on the National Repositories as of a particulardate is available on the Securities and Exchange Commission’s Internet site at www.sec.gov.

“Official Statement” means the final official statement executed by the District inconnection with the issuance of the Bonds.

“Participating Underwriter” means Stone & Youngberg LLC, the original underwriter ofthe Bonds required to comply with the Rule in connection with offering of the Bonds.

“Person” means an individual, a corporation, a partnership, a limited liability company,an association, a joint stock company, a trust, any unincorporated organization or a governmentor political subdivision thereof.

“Property” means the property owned by the Property Owner in the District.

“Report Date” means (a) September 30 each year, and (b) March 31 each year.

“Repository” means each National Repository and each State Repository, if any.

“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commissionunder the Securities Exchange Act of 1934, as the same may be amended from time to time.

“Semi-Annual Report” means any Semi-Annual Report provided by the Property Ownerpursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Special Taxes” means the special taxes levied on taxable property within the District.

“State Repository” means any public or private repository or entity designated by theState of California as a state repository for the purpose of the Rule and recognized as such bythe Securities and Exchange Commission. As of the date of this Disclosure Certificate, there isno State Repository.

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Section 3. Provision of Semi-Annual Reports.

(a) The Property Owner shall, or upon written direction shall cause theDissemination Agent to, not later than the Report Date, commencing March 31, 2006,provide to each Repository a Semi-Annual Report which is consistent with therequirements of Section 4 of this Disclosure Certificate with a copy to the Trustee (ifdifferent from the Dissemination Agent), the Participating Underwriter and the District. Inlieu of filing the Semi-Annual Report with each Repository, the Property Owner or theDissemination Agent may file the Semi-Annual Report with the Central Post Office, witha copy to the Trustee (if different from the Dissemination Agent), the ParticipatingUnderwriter and the District. Not later than 15 calendar days prior to the Report Date,the Property Owner shall provide the Semi-Annual Report to the Dissemination Agent.The Property Owner shall provide a written certification with (or included as a part of)each Semi-Annual Report furnished to the Dissemination Agent, the Trustee (if differentfrom the Dissemination Agent), the Participating Underwriter and the District to the effectthat such Semi-Annual Report constitutes the Semi-Annual Report required to befurnished by it under this Disclosure Certificate. The Dissemination Agent, the Trustee,the Participating Underwriter and the District may conclusively rely upon suchcertification of the Property Owner and shall have no duty or obligation to review theSemi-Annual Report. The Semi-Annual Report may be submitted as a single documentor as separate documents comprising a package, and may incorporate by referenceother information as provided in Section 4 or Section 9 of this Disclosure Certificate.

(b) If the Dissemination Agent does not receive a Semi-Annual Report 15calendar days prior to the Report Date, the Dissemination Agent shall send a remindernotice to the Property Owner that the Semi-Annual Report has not been provided asrequired under Section 3(a) above. The reminder notice shall instruct the PropertyOwner to determine whether its obligations under this Disclosure Certificate haveterminated (pursuant to Section 6 below) and, if so, to provide the Dissemination Agentwith a notice of such termination in the same manner as for a Listed Event (pursuant toSection 5 below). If the Property Owner does not provide, or cause the DisseminationAgent to provide, a Semi-Annual Report to the Repositories by the Report Date asrequired in subsection (a) above, the Dissemination Agent shall send a notice to (i) eachNational Repository or the Municipal Securities Rulemaking Board, and (ii) eachappropriate State Repository, if any, in substantially the form attached hereto as ExhibitA, with a copy to the Trustee (if other than the Dissemination Agent), the District and theParticipating Underwriter. In lieu of filing the notice with each Repository, the PropertyOwner or the Dissemination Agent may file the notice with the Central Post Office, with acopy to the Trustee (if other than the Dissemination Agent), the District and theParticipating Underwriter.

(c) With respect to each Semi-Annual Report, the Dissemination Agent shall:

(i) determine prior to each Report Date the name and address ofeach National Repository and each State Repository, if any;

(ii) to the extent the Semi-Annual Report has been furnished to it, filethe Semi-Annual Report with the Repositories and file a report with the PropertyOwner (if the Dissemination Agent is other than the Property Owner), the Districtand the Participating Underwriter certifying that the Semi-Annual Report has

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been provided pursuant to this Disclosure Certificate, stating the date it wasprovided and listing all the Repositories to which it was provided (or stating that itwas provided to the Central Post Office).

Section 4. Content of Semi-Annual Reports. The Property Owner’s Semi-Annual Reportshall contain or incorporate by reference the information set forth in Exhibit B, any or all of whichmay be included by specific reference to other documents, including official statements of debtissues of the Property Owner or related public entities, which have been submitted to each ofthe Repositories or the Securities and Exchange Commission. If the document included byreference is a final official statement, it must be available from the Municipal SecuritiesRulemaking Board. The Property Owner shall clearly identify each such other document soincluded by reference.

In addition to any of the information expressly required to be provided in Exhibit B, theProperty Owner’s Semi-Annual Report shall include such further information, if any, as may benecessary to make the specifically required statements, in the light of the circumstances underwhich they are made, not misleading.

The Property Owner or the Dissemination Agent shall include the form of cover sheetattached as Exhibit C, completed with the appropriate information relating to the Bonds, to eachSemi-Annual Report.

Section 5. Reporting of Significant Events.

(a) The Property Owner shall give, or cause to be given, notice of theoccurrence of any of the following Listed Events with respect to the Bonds, if material:

(i) bankruptcy or insolvency proceedings commenced by or againstthe Property Owner and, if known, any bankruptcy or insolvency proceedingscommenced by or against any Affiliate of the Property Owner which could have asignificant impact on the Property Owner’s ability to pay Special Taxes or to sellor develop the Property;

(ii) failure to pay any taxes, special taxes (including the SpecialTaxes) or assessments due with respect to the Property prior to the delinquencydate;

(iii) filing of a lawsuit against the Property Owner or, if known, anAffiliate of the Property Owner, seeking damages which could have a significantimpact on the Property Owner’s ability to pay Special Taxes or to sell or developthe Property;

(iv) material damage to or destruction of any of the improvements onthe Property;

(v) any payment default or other material default by the PropertyOwner on any loan with respect to the construction of improvements on theProperty; and

(vi) any cancellation of, failure to renew, or amendment ormodification of any letter of credit to be provided by the Property Owner and

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described in the Indenture, but excluding any permitted termination of the letter ofcredit or permitted reductions in the amount thereof.

(b) Whenever the Property Owner obtains knowledge of the occurrence of aListed Event, the Property Owner shall as soon as possible determine if such eventwould be material under applicable Federal securities law.

(c) If the Property Owner determines that knowledge of the occurrence of aListed Event would be material under applicable Federal securities law, the PropertyOwner shall, or shall cause the Dissemination Agent to, promptly file a notice of suchoccurrence with (i) each National Repository or the Municipal Securities RulemakingBoard, and (ii) each appropriate State Repository, if any, with a copy to the Trustee, theDistrict and the Participating Underwriter. Each notice of the occurrence of a ListedEvent shall include the form of cover sheet attached as Exhibit C, completed with theappropriate information relating to the Bonds.

(d) In lieu of filing the notice of the occurrence of a Listed Event with eachRepository, the Property Owner or the Dissemination Agent may file the notice of theoccurrence of a Listed Event with the Central Post Office.

Section 6. Duration of Reporting Obligation.

(a) All of the Property Owner’s obligations hereunder shall commence on thedate hereof and shall terminate (except as provided in Section 11) on the earliest tooccur of the following:

(i) upon the legal defeasance, prior redemption or payment in full ofall the Bonds, or

(ii) at such time as Property owned by the Property Owner is nolonger responsible for payment of 10% or more of the Special Taxes, or

(iii) the date on which the Property Owner prepays in full all of theSpecial Taxes attributable to the Property.

If the Property Owner’s obligations under this Disclosure Certificate terminate,the Property Owner shall, or shall cause the Dissemination Agent to, promptly file anotice of such termination with the Municipal Securities Rulemaking Board and eachState Repository, if any, with a copy to the Trustee, the District and the ParticipatingUnderwriter. The notice of termination shall include the form of cover sheet attached asExhibit C, completed with the appropriate information relating to the Bonds.

(b) If all or a portion of the Property in the District owned by the PropertyOwner, or any other Affiliate of the Property Owner, is conveyed to a Person that, uponsuch conveyance, will be a Major Owner, the obligations of the Property Ownerhereunder with respect to the property in the District owned by such Major Owner and itsAffiliates may be assumed by such Major Owner or by an Affiliate thereof and theProperty Owner’s obligations hereunder will be terminated. In order to effect suchassumption, such Major Owner or Affiliate shall enter into an Assumption Agreement inform and substance satisfactory to the District and the Participating Underwriter, andwith notice to the Dissemination Agent.

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Section 7. Dissemination Agent. The Property Owner may, from time to time, with thewritten consent of the District, appoint or engage a Dissemination Agent to assist the PropertyOwner in carrying out its obligations under this Disclosure Certificate, and may discharge anysuch Dissemination Agent with the written consent of the District, with or without appointing asuccessor Dissemination Agent. The initial Dissemination Agent shall be Zions First NationalBank. The Dissemination Agent may resign by providing thirty days’ written notice to theDistrict, the Property Owner and the Trustee.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this DisclosureCertificate, the Property Owner may amend this Disclosure Certificate, and any provision of thisDisclosure Certificate may be waived, provided that the following conditions are satisfied(provided, however, that the Dissemination Agent shall not be obligated under any suchamendment that modifies or increases its duties or obligations hereunder without its writtenconsent thereto):

(a) if the amendment or waiver relates to the provisions of sections 3(a), 4 or5(a), it may only be made in connection with a change in circumstances that arises froma change in legal requirements, change in law, or change in the identity, nature, orstatus of an obligated person with respect to the Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, inthe opinion of nationally recognized bond counsel, have complied with the requirementsof the Rule at the time of the primary offering of the Bonds, after taking into account anyamendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders ofthe Bonds in the manner provided in the Indenture with the consent of holders, or (ii)does not, in the opinion of nationally recognized bond counsel, materially impair theinterests of the holders or beneficial owners of the Bonds.

Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemedto prevent the Property Owner from disseminating any other information, using the means ofdissemination set forth in this Disclosure Certificate or any other means of communication, orincluding any other information in any Semi-Annual Report or notice of occurrence of a ListedEvent, in addition to that which is required by this Disclosure Certificate. If the Property Ownerchooses to include any information in any Semi-Annual Report or notice of occurrence of aListed Event in addition to that which is specifically required by this Disclosure Certificate, theProperty Owner shall have no obligation under this Agreement to update such information orinclude it in any future Semi-Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the Property Owner to comply with anyprovision of this Disclosure Certificate, the Trustee shall (upon written direction and only to theextent indemnified to its satisfaction from any liability, cost or expense, including fees andexpenses of its attorneys), and the Participating Underwriter and any holder or beneficial ownerof the Bonds may, take such actions as may be necessary and appropriate, including seekingmandate or specific performance by court order, to cause the Property Owner to comply with itsobligations under this Disclosure Certificate. A default under this Disclosure Certificate shall notbe deemed an event of default under the Indenture, and the sole remedy under this DisclosureCertificate in the event of any failure of the Property Owner to comply with this DisclosureCertificate shall be an action to compel performance.

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Section 11. Duties, Immunities and Liabilities of Dissemination Agent. TheDissemination Agent shall have only such duties as are specifically set forth in this DisclosureCertificate, and the Property Owner agrees to indemnify and save the Dissemination Agent, itsofficers, directors, employees and agents, harmless against any loss, expense and liabilitieswhich it may incur arising out of or in the exercise or performance of its powers and dutieshereunder during the time that the Property Owner is a Major Owner obligated to comply withthe Disclosure Certificate, including the reasonable costs and expenses (including attorneys’fees) of defending against any such claim of liability, but excluding liabilities, costs andexpenses due to the Dissemination Agent’s negligence or willful misconduct or failure to performits duties hereunder. The Dissemination Agent shall be paid compensation for its servicesprovided hereunder from the Administrative Expense Fund established under the Indenture inaccordance with the Dissemination Agent’s schedule of fees as amended from time to time,which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses,reasonable legal fees and advances made or incurred by the Dissemination Agent in theperformance of its duties hereunder. The Dissemination Agent shall have no duty or obligationto review any information provided to it hereunder and shall not be deemed to be acting in anyfiduciary capacity for the District, the Property Owner, the Trustee, the Bond owners, or anyother party. The obligations of the Property Owner under this Section shall survive resignationor removal of the Dissemination Agent and payment of the Bonds.

Section 12. Notices. Any notice or communications to be among any of the parties tothis Disclosure Certificate may be given as follows:

To the Issuer: Community Facilities District No. 2003-2 of theSan Jacinto Unified School District2045 South San Jacinto AvenueSan Jacinto, CA 92583Fax: (951) 652-7350

To the Trustee: Zions First National Bank And Dissemination Agent 550 South Hope Street, Suite 2650

Los Angeles, California 90071Attention: Corporate Trust ServicesFax: (213) 593-3160

To the Participating Underwriter: Stone & Youngberg LLCOne Ferry BuildingSan Francisco, California 94111Attention: Municipal Research DepartmentFax: (415) 445-2395

To the Property Owner: _________________c/o ________________________________________, CA 9Fax: (_____) ___________

Any person may, by written notice to the other persons listed above, designate a differentaddress or telephone number(s) to which subsequent notices or communications should besent.

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Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit ofthe District, the Property Owner (its successors and assigns), the Trustee, the DisseminationAgent, the Participating Underwriter and holders and beneficial owners from time to time of theBonds, and shall create no rights in any other person or entity. All obligations of the PropertyOwner hereunder shall be assumed by any legal successor to the obligations of the PropertyOwner as a result of a sale, merger, consolidation or other reorganization.

Section 14. Counterparts. This Disclosure Certificate may be executed in severalcounterparts, each of which shall be regarded as an original, and all of which shall constituteone and the same instrument.

Date: October 6, 2005______________________,a ________________,

By: _________________,a __________________,Its _________________

By;

Its:

AGREED AND ACCEPTED:Zions First National Bankas Dissemination Agent

By: Title:

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EXHIBIT A

NOTICE OF FAILURE TO FILE SEMI-ANNUAL REPORT

Name of Issuer: Community Facilities District No. 2003-2 of the San JacintoUnified School District

Name of Bond Issue: Community Facilities District No. 2003-2 of the San JacintoUnified School District Special Tax Bonds (Infrastructure Projects),Series 2005

Date of Issuance: October 6, 2005

NOTICE IS HEREBY GIVEN that ____________ (the “Major Owner”) has not provided aSemi-Annual Report with respect to the above-named bonds as required by that certainContinuing Disclosure Certificate (Property Owner), dated October 6, 2005. The Major Owneranticipates that the Semi-Annual Report will be filed by _____________.

Dated:

DISSEMINATION AGENT:Zions First National Bank

By: _______________________Its: _______________________

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EXHIBIT B

SEMI-ANNUAL REPORT

COMMUNITY FACILITIES DISTRICT NO. 2003-2OF THE SAN JACINTO UNIFIED SCHOOL DISTRICT

SPECIAL TAX BONDS (INFRASTRUCTURE PROJECTS), SERIES 2005

This Semi-Annual Report is hereby submitted under Section 4 of the ContinuingDisclosure Certificate (the “Disclosure Certificate”) dated as of October 6, 2005 executed by theundersigned (the “Property Owner”) in connection with the issuance of the above-captionedbonds by Community Facilities District No. 2003-2 of the San Jacinto Unified School District (the“District”).

Capitalized terms used in this Semi-Annual Report but not otherwise defined have themeanings given to them in the Disclosure Certificate.

I. Property Ownership and Development

The information in this section is provided as of ____________________ (this date mustbe not more than 60 days before the date of this Semi-Annual Report).

A. Property currently owned by the Property Owner in the District (the “Property”):

Development Name(s) ________________________

Total Lots andHomes

in the Development

Homes Completed Sincethe Date of Issuance of theBonds (October 6, 2005)

Property Sold Since theDate of Issuance of the

Bonds (October 6, 2005)

Property Sold Sincethe Last Semi-Annual

Report

Lots ____Homes ____ Homes ____

Acres* ____Lots ____Homes ____

Acres* ____Lots ____Homes ____

* For bulk land sales only (excluding sales of finished lots or completed

homes).

B. Status of land development or home construction activities on the Property:

______________________________________________________________________

______________________________________________________________________

C. Status of building permits and any significant amendments to land use ordevelopment entitlements with respect to the Property:

______________________________________________________________________

______________________________________________________________________

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D. Status of any land purchase contracts with regard to the Property, whetheracquisition of land in the District by the Property Owner or sales of land to other property owners(other than individual homeowners).

______________________________________________________________________

______________________________________________________________________

II. Legal and Financial Status of Property Owner

Unless such information has previously been included or incorporated by reference in aSemi-Annual Report, describe any change in the legal structure of the Property Owner or thefinancial condition and financing plan of the Property Owner that would materially and adverselyinterfere with its ability to complete its development plan described in the Official Statement.

______________________________________________________________________

______________________________________________________________________

III. Change in Development or Financing Plans

Unless such information has previously been included or incorporated by reference in aSemi-Annual Report, describe any development plans or financing plans relating to the Propertythat are materially different from the proposed development and financing plan described in theOfficial Statement.

______________________________________________________________________

______________________________________________________________________

IV. Official Statement Updates

Unless such information has previously been included or incorporated by reference in aSemi-Annual Report, describe any other significant changes in the information relating to theProperty Owner or the Property contained in the Official Statement under the heading“PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT” that would materially andadversely interfere with the Property Owner’s ability to develop and sell the Property asdescribed in the Official Statement.

______________________________________________________________________

______________________________________________________________________

V. Other Material Information

In addition to any of the information expressly required above, provide such furtherinformation, if any, as may be necessary to make the specifically required statements, in thelight of the circumstances under which they are made, not misleading.

______________________________________________________________________

______________________________________________________________________

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Certification

The undersigned Property Owner hereby certifies that this Semi-Annual Reportconstitutes the Semi-Annual Report required to be furnished by the Property Owner under theDisclosure Certificate.

Dated:

______________________,a ________________,

By: _________________,a __________________,Its _________________

By;

Its:

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EXHIBIT C

Municipal Secondary Market DisclosureInformation Cover SheetThis cover sheet should be sent with all submissions made to the Municipal Securities Rulemaking Board,Nationally Recognized Municipal Securities Information Repositories, and any applicable State InformationDepository, whether the filing is voluntary or made pursuant to Securities and Exchange Commission rule 15c2-12or any analogous state statute.

See www.sec.gov/info/municipal/nrmsir.htm for list of current NRMSIRs and SIDs

IF THIS FILING RELATES TO ALL SECURITIES ISSUED BY THE ISSUER OR ALL SECURITIES OF ASPECIFIC CREDIT OR ISSUED UNDER A SINGLE INDENTURE:

Issuer’s Name (please include name of state where Issuer is located): ________________________________________________

Other Obligated Person’s Name (if any): _______________________________________________________________________(Exactly as it appears on the Official Statement Cover)

Provide six-digit CUSIP* number(s), if available, of Issuer: ________________________________________________________

*(Contact CUSIP’s Municipal Disclosure Assistance Line at 212.438.6518 for assistance with obtaining the proper CUSIP numbers.)

TYPE OF FILING:

Electronic (number of pages attached) ____________________ Paper (number of pages attached) __________________

If information is also available on the Internet, give URL: _________________________________________________________

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WHAT TYPE OF INFORMATION ARE YOU PROVIDING? (Check all that apply)

A. Financial Information and Operating Data pursuant to Rule 15c2-12 (Financial information and operating data should not be filed with the MSRB.) Annual

Semi-annual

Quarterly


B. Audited Financial Statements or CAFR pursuant to Rule 15c2-12


C. Notice of a Material Event pursuant to Rule 15c2-12 (Check as appropriate)

D. Notice of Failure to Provide Annual Financial Information as Required

E. Other Secondary Market Information (Specify):___________________________________________________________

I hereby represent that I am authorized by the issuer or obligor or its agent to distribute this information

publicly:

Issuer/Filer Contact:Name ________________________________________________ Title _____________________________________________

Employer _______________________________________________________________________________________________


Telephone ____________________________________________ Fax ______________________________________________

Email Address _________________________________________ Issuer Web Site Address ______________________________

1. Principal and interest payment delinquencies

2. Non-payment related defaults

3. Unscheduled draws on debt service reserves reflectingfinancial difficulties

4. Unscheduled draws on credit enhancements reflectingfinancial difficulties

5. Substitution of credit or liquidity providers, or theirfailure to perform

6. Adverse tax opinions or events affecting the tax-exempt status of the security

7. Modifications to the rights of security holders

8. Bond calls

9. Defeasances

10. Release, substitution, or sale of property securingrepayment of the securities

11. Rating changes

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Dissemination Agent Contact, if any:Name ________________________________________________ Title _____________________________________________

Employer _______________________________________________________________________________________________


Telephone ____________________________________________ Fax ______________________________________________

Email Address _________________________________________ Relationship to Issuer ________________________________

Obligor Contact, if any:Name ________________________________________________ Title _____________________________________________

Employer _______________________________________________________________________________________________


Telephone ____________________________________________ Fax ______________________________________________

Email Address _________________________________________ Obligor Web site Address_____________________________

Investor Relations Contact, if any:

Name ________________________________________________ Title _____________________________________________

Telephone ____________________________________________ Email Address _____________________________________

DOCSLA1:505814.1

APPENDIX H

FORM OF OPINION OF BOND COUNSEL

Upon issuance of the Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel, proposesto render its final approving opinion in substantially the following form:

[Date of Delivery]

Community Facilities District No. 2003-2 of the San Jacinto Unified School DistrictSan Jacinto, California

Community Facilities District No. 2003-2of the San Jacinto Unified School District

Special Tax Bonds (Infrastructure Projects), Series 2005(Final Opinion)

Ladies and Gentlemen:

We have acted as bond counsel in connection with the issuance by Community FacilitiesDistrict No. 2003-2 of the San Jacinto Unified School District (the “Community FacilitiesDistrict”) of its Community Facilities District No. 2003-2 of the San Jacinto Unified SchoolDistrict Special Tax Bonds (Infrastructure Projects), Series 2005 (the “Series 2005 Bonds”), inthe aggregate principal amount of $2,450,000, pursuant to the provisions of the Mello-RoosCommunity Facilities Act of 1982 (being Sections 53311 et seq. of the California GovernmentCode) and an Indenture, dated as of October 1, 2005 (the “Indenture”), by and between theCommunity Facilities District and Zions First National Bank, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in theIndenture.

In such connection, we have reviewed the Indenture, the Tax Certificate of theCommunity Facilities District, dated the date hereof (the “Tax Certificate”), opinions of counselto the Community Facilities District and the Trustee, certificates of the Community FacilitiesDistrict, the Trustee and others and such other documents, opinions and matters to the extent wedeemed necessary to render the opinions set forth herein.

Certain agreements, requirements and procedures contained or referred to in the Indenture,the Tax Certificate and other relevant documents may be changed and certain actions (including,without limitation, defeasance of the Series 2005 Bonds) may be taken or omitted under thecircumstances and subject to the terms and conditions set forth in such documents. No opinion

DOCSLA1:505814.1

is expressed herein as to any Series 2005 Bond or the interest thereon if any such change occursor action is taken or omitted upon the advice or approval of counsel other than ourselves.

The opinions expressed herein are based on an analysis of existing laws, regulations,rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the datehereof. We have not undertaken to determine, or to inform any person, whether any such actionsare taken or omitted or events do occur or any other matters come to our attention after the datehereof. Our engagement with respect to the Series 2005 Bonds has concluded with their issuance,and we disclaim any obligation to update this opinion. We have assumed the genuineness of alldocuments and signatures presented to us (whether as originals or as copies) and the due and legalexecution and delivery thereof by, and validity against, any parties other than the CommunityFacilities District. We have assumed, without undertaking to verify, the accuracy of the factualmatters represented, warranted or certified in the documents referred to in the second paragraphhereof. Furthermore, we have assumed compliance with all covenants and agreements containedin the Indenture and the Tax Certificate, including, without limitation, covenants and agreementscompliance with which is necessary to assure that future actions, omissions or events will notcause the interest on the Series 2005 Bonds to be included in gross income for federal income taxpurposes. In addition, we call attention to the fact that the rights and obligations under the Series2005 Bonds, the Indenture and the Tax Certificate and their enforceability may be subject tobankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium andother laws relating to or affecting creditors’ rights, to the application of equitable principles, tothe exercise of judicial discretion in appropriate cases, and to the limitations on legal remediesagainst governmental entities such as the Community Facilities District in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law,choice of forum, waiver or severability provisions contained in the foregoing documents, nor dowe express any opinion with respect to the plans, specifications, maps, reports or otherengineering or financial details of the proceedings, or upon the Rate and Method or the validity ofthe Special Tax levied upon any individual parcel. Finally, we undertake no responsibility for theaccuracy, completeness or fairness of the Official Statement or other offering material relating tothe Series 2005 Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we areof the following opinions:

1. The Series 2005 Bonds constitute valid and binding special obligations of theCommunity Facilities District, payable solely from Net Special Tax Revenues and other assetspledged therefor under the Indenture.

2. The Indenture has been duly executed and delivered by, and constitutes a valid andbinding obligation of, the Community Facilities District.

3. Interest on the Series 2005 Bonds is excluded from gross income for federalincome tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt fromState of California personal income taxes. Such interest is not a specific preference item for

DOCSLA1:505814.1

purposes of the federal individual or corporate alternative minimum taxes, although we observethat it is included in adjusted current earnings when calculating corporate alternative minimumtaxable income. We express no opinion regarding other tax consequences related to the ownershipor disposition of, or the accrual or receipt of interest on, the Series 2005 Bonds.

Faithfully yours,

APPENDIX I

COMMUNITY FACILITIES DISTRICT BOUNDARY MAP