Dated: August 5, 2014

NEW ISSUE — BOOK-ENTRY ONLY BANK QUALIFIED

NOT RATED

In the opinion of Fulbright & Jaworski LLP, Los Angeles, California, Bond Counsel, a member of Norton Rose Fulbright, under existing statutes, regulations, rulings and court decisions, and assuming compliance with the tax covenants described herein, interest on the Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax. It is also the opinion of Bond Counsel that under existing law interest on the Bonds is exempt from personal income taxes of the State of California. See “TAX MATTERS” herein.

$2,855,000 CITY OF CALIMESA

(RIVERSIDE COUNTY, CALIFORNIA) COMMUNITY FACILITIES DISTRICT NO. 2012-1 (SINGLETON HEIGHTS)

SPECIAL TAX BONDS 2014 SERIES

(IMPROVEMENT AREA NO. 1)

Dated: Date of Delivery Due: September 1, as set forth on the inside front cover

This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of the Bonds. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Attention is hereby directed to certain risk factors more fully described herein. See “RISK FACTORS” herein.

The City of Calimesa Communities Facilities District No. 2012-1 (Singleton Heights) Special Tax Bonds, 2014 Series (Improvement Area No. 1) (the “Bonds”) are being issued by the City of Calimesa Communities Facilities District No. 2012-1 (Singleton Heights) (the “District”) pursuant to a Fiscal Agent Agreement, dated as of August 1, 2014 (the “Fiscal Agent Agreement”), by and between the District and MUFG Union Bank, N.A., as Fiscal Agent (the “Fiscal Agent”). Proceeds of the Bonds will be used to (i) finance certain capital facilities fees of the City of Calimesa and the Yucaipa Valley Water District relating to public facility improvements serving property within the District, (ii) fund a reserve fund, (iii) fund capitalized interest, and (iv) pay costs of issuance of the Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS.” The Bonds will be payable solely from the proceeds of an annual Special Tax (as defined herein) to be levied according to the rate and method of apportionment approved by the District and pursuant to an election within the boundaries of the District. See “SECURITY FOR THE BONDS” herein.

Interest on the Bonds is payable on March 1 and September 1 of each year, commencing March 1, 2015. The Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository of the Bonds. Individual purchases of the Bonds may be made in book-entry form only, in denominations of $5,000 each or any integral multiple thereof. Purchasers will not receive certificates representing their interest in the Bonds purchased. Principal of, and interest on, the Bonds will be paid directly to DTC by the Fiscal Agent. Upon its receipt of payments of principal and interest, DTC is in turn obligated to remit such principal and interest to DTC participants for subsequent disbursement to the beneficial owners of the Bonds. See “THE BONDS – Book-Entry Only System” and “APPENDIX F – BOOK-ENTRY ONLY SYSTEM” herein.

The Bonds are subject to mandatory prepayment redemption, optional redemption from any source other than special tax prepayments and mandatory sinking fund redemption prior to their maturity, as described herein. See “THE BONDS – Redemption” herein.

THE BONDS ARE LIMITED OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM SPECIAL TAXES. NEITHER THE FULL FAITH AND CREDIT NOR THE GENERAL TAXING POWER OF THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS.

MATURITY SCHEDULE

(see inside front cover page)

The Bonds are offered when, as and if issued, subject to the approval as to their legality by Fulbright & Jaworski LLP, Los Angeles, California, Bond Counsel, a member of Norton Rose Fulbright. Certain legal matters will also be passed on for the District by Richards, Watson & Gershon, Los Angeles, California, as Disclosure Counsel, and for the Underwriter by Stradling Yocca Carlson & Rauth, Reno, Nevada, as Underwriter’s Counsel. It is anticipated that the Bonds will be available for delivery in book-entry form through the facilities of DTC on or about August 20, 2014.

Southwest Securities, Inc.

$2,855,000 CITY OF CALIMESA

(RIVERSIDE COUNTY, CALIFORNIA) COMMUNITY FACILITIES DISTRICT NO. 2012-1 (SINGLETON HEIGHTS)

SPECIAL TAX BONDS 2014 SERIES

(IMPROVEMENT AREA NO. 1)

MATURITY SCHEDULE

$495,000 Serial Bonds

Maturity Date (September 1)

Principal

Interest Rate

Yield

CUSIP†

(Base 13083U)

2016 $15,000 2.000% 1.110% AA4 2017 15,000 2.000 1.450 AB2 2018 20,000 2.000 1.830 AC0 2019 25,000 2.500 2.220 AD8 2020 30,000 2.500 2.580 AE6 2021 30,000 2.750 2.940 AF3 2022 35,000 3.000 3.210 AG1 2023 40,000 3.250 3.440 AH9 2024 45,000 3.500 3.610 AJ5 2025 50,000 3.500 3.770 AK2 2026 55,000 3.750 3.880 AL0 2027 65,000 3.750 3.970 AM8 2028 70,000 4.000 4.060 AN6

$2,360,000 Term Bonds

$570,000 4.250% Term Bond due September 1, 2034, Yield 4.450%; CUSIP† 13083U AP1

$1,790,000 4.500% Term Bond due September 1, 2044, Yield 4.700%; CUSIP† 13083U AQ9

_______________ † CUSIP® is a registered trademark of the American Bankers Association. Copyright© 2014 American Bankers Association. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP® numbers are provided for convenience of reference only. Neither the District, the City nor the Underwriter takes any responsibility for the accuracy of such numbers.

CITY OF CALIMESA Riverside County, California

City Council Members

William “Bill” Davis, Mayor Jeffrey Hewitt, Mayor Pro Tem

Jim Hyatt, Council Member Joyce McIntire, Council Member Ella Zanowic, Council Member

City Staff

Randy Anstine, City Manager Bonnie Johnson, Assistant City Manager/Finance Director

Darlene Gerdes, City Clerk Kevin G. Ennis, Esq., City Attorney

__________________________________

SPECIAL SERVICES

Financial Advisor

Urban Futures, Inc. Orange, California

Special Tax Consultant/Continuing Disclosure Dissemination Agent

Koppel & Gruber Public Finance San Marcos, California

Appraiser

Harris Realty Appraisal Newport Beach, California

Fiscal Agent

MUFG Union Bank, N.A. Los Angeles, California

Developer’s Consultant

Development Planning & Financing Group, Inc. San Juan Capistrano, California

No dealer, broker, salesperson or other person has been authorized by the City, the District or the Underwriter to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts.

The information set forth herein has been obtained from the City, the District and other sources believed to be reliable, but the accuracy or completeness of such information is not guaranteed by, and should not be construed as a representation by, the Underwriter. The information and expressions of opinions herein are subject to change without notice and neither delivery of the Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or the City since the date hereof. All summaries contained herein of the Fiscal Agent Agreement or other documents are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. All statements made herein are made as of the date of this document by the City except statistical information or other statements where some other date is indicated in the text.

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

The Bonds are exempt from registration with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended. The Bonds have not been registered or qualified under the securities laws of any state. The Bonds will not be listed on any stock or securities exchange. Neither the Securities and Exchange Commission nor any other federal, state or other governmental entity or agency will have passed upon the accuracy or adequacy of the Official Statement or approved the Bonds for sale.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL ON THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE FRONT COVER PAGE HEREOF AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology 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 involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if or when the expectations or events, conditions or circumstances on which such statements are based change.

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TABLE OF CONTENTS Page INTRODUCTION ....................................................................................................................................... 1

Purpose of Official Statement ......................................................................................................... 1 Changes Since the Preliminary Official Statement ........................................................................ 1 Authority for Issuance and Use of Proceeds ................................................................................... 1 The City .......................................................................................................................................... 2 The District ..................................................................................................................................... 2 Property Ownership ........................................................................................................................ 2 Security and Sources of Payment ................................................................................................... 2 Appraisal ......................................................................................................................................... 3 Risk Factors .................................................................................................................................... 3 Miscellaneous ................................................................................................................................. 3

ESTIMATED SOURCES AND USES OF FUNDS ................................................................................... 4 PLAN OF FINANCE .................................................................................................................................. 5 THE BONDS ............................................................................................................................................... 5

General ........................................................................................................................................... 5 Authority for Issuance .................................................................................................................... 6 Debt Service Schedule .................................................................................................................... 7 Redemption ..................................................................................................................................... 8 Book-Entry Only System .............................................................................................................. 10

SECURITY FOR THE BONDS ................................................................................................................ 10 Pledge of Special Taxes ................................................................................................................ 10 Special Tax Fund .......................................................................................................................... 11 Covenant to Commence Foreclosure Proceedings ....................................................................... 13 No Issuance of Parity Bonds ........................................................................................................ 13 Rate and Method of Apportionment of Special Taxes ................................................................. 14

THE DISTRICT ........................................................................................................................................ 15 General ......................................................................................................................................... 15 Special Tax Levies and Delinquencies ......................................................................................... 17 Estimated Maximum Special Tax Proceeds and Debt Service Coverage .................................... 17 Appraised Property Value ............................................................................................................ 19 Appraised Value to Lien Ratio ..................................................................................................... 20 Direct and Overlapping Governmental Obligations ..................................................................... 20 Estimated Tax Burden on Single Family Home ........................................................................... 22

PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT ......................................................... 23 Plan of Development .................................................................................................................... 24 Status of Regulatory Permits, Agreements and Procedures ......................................................... 25 Tax Delinquencies of Developer and Its Affiliates and Other Matters ........................................ 25 Financing Plan .............................................................................................................................. 26

RISK FACTORS ....................................................................................................................................... 26 Limited Obligations of the District ............................................................................................... 26 Levy and Collection of the Special Taxes .................................................................................... 26 Payment of Special Tax is not a Personal Obligation of the Landowner ..................................... 27 Appraised Values .......................................................................................................................... 27 Property Values and Property Development ................................................................................ 28 Concentration of Landownership ................................................................................................. 30 Other Possible Claims Upon the Value of Taxable Property ....................................................... 31 Exempt Properties ........................................................................................................................ 31 Depletion of Reserve Account ...................................................................................................... 32

TABLE OF CONTENTS (continued)

Page

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Bankruptcy and Foreclosure Delays ......................................................................................... 32 Disclosure to Future Purchasers ............................................................................................... 34 No Acceleration Provisions ..................................................................................................... 34 Loss of Tax Exemption ............................................................................................................ 35 Proposition 218 and the Initiative Power .................................................................................. 35 Validity of Landowner Elections.............................................................................................. 36 Limited Secondary Market....................................................................................................... 37

TAX MATTERS.................................................................................................................................. 37 Tax Exemption ........................................................................................................................ 37 Tax Accounting Treatment of Bond Premium and Original Issue Discount on Bonds ............... 38 Other Federal Income Tax Consequences................................................................................. 39

QUALIFIED TAX-EXEMPT OBLIGATIONS .................................................................................... 39 ABSENCE OF LITIGATION .............................................................................................................. 40 CONTINUING DISCLOSURE ............................................................................................................ 40

The District ............................................................................................................................. 40 The Landowners ...................................................................................................................... 41

NO RATING ....................................................................................................................................... 41 UNDERWRITING............................................................................................................................... 41 PROFESSIONAL FEES ...................................................................................................................... 42 EXECUTION ...................................................................................................................................... 42 APPENDIX A – GENERAL INFORMATION ABOUT THE CITY OF CALIMESA AND RIVERSIDE COUNTY ................................................................................... A-1 APPENDIX B – RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES .................. B-1 APPENDIX C – APPRAISAL REPORT .............................................................................................. C-1 APPENDIX D – FORM OF OPINION OF BOND COUNSEL .......................................................... D-1 APPENDIX E – SUMMARY OF FISCAL AGENT AGREEMENT .................................................... E-1 APPENDIX F – BOOK-ENTRY ONLY SYSTEM .............................................................................. F-1 APPENDIX G – FORM OF CONTINUING DISCLOSURE AGREEMENT(ISSUER)....................... G-1 APPENDIX H – FORM OF CONTINUING DISCLOSURE AGREEMENT (MAJOR PROPERTY

OWNER) ................................................................................................................. H-1 APPENDIX I – DISTRICT BOUNDARY MAP ................................................................................... I-1

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OFFICIAL STATEMENT

$2,855,000 CITY OF CALIMESA

(RIVERSIDE COUNTY, CALIFORNIA) COMMUNITY FACILITIES DISTRICT NO. 2012-1 (SINGLETON HEIGHTS)

SPECIAL TAX BONDS 2014 SERIES

(IMPROVEMENT AREA NO. 1)

INTRODUCTION

This Introduction is qualified by reference to the more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement.

Purpose of Official Statement

The purpose of this Official Statement, which includes the cover page, table of contents and appendices hereto (the “Official Statement”), is to provide information concerning the sale of $2,855,000

aggregate principal amount of the City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights) Special Tax Bonds, 2014 Series (Improvement Area No. 1) (the “Bonds”). Capitalized terms used but not defined herein shall have the meanings set forth in the Fiscal Agent Agreement, dated as of August 1, 2014 (the “Fiscal Agent Agreement”), by and between the City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights) (the “District”) and MUFG Union Bank, N.A., as fiscal agent (the “Fiscal Agent”). See “APPENDIX E – SUMMARY OF FISCAL AGENT AGREEMENT” herein.

Changes Since the Preliminary Official Statement

This Official Statement includes certain information which was not available for inclusion in the Preliminary Official Statement dated July 28, 2014, including the maturity dates, interest rates, yields, and other terms of the Bonds. Additionally, the Bonds have been designated as qualified tax-exempt obligations and such “Bank Qualified” designation was added to the cover of this Official Statement. A paragraph entitled “QUALIFIED TAX-EXEMPT OBLIGATIONS” has been added to this Official Statement to discuss the Bank Qualified designation. In addition, a section entitled “Validity of Landowner Elections” was added to the “RISK FACTORS” section in this Official Statement to describe a recent decision by the California Court of Appeal concerning landowner elections.

Authority for Issuance and Use of Proceeds

The Bonds are authorized by and are being issued by the District pursuant to certain resolutions adopted by the City Council of the City of Calimesa, California, acting as the legislative body of the District (the “City Council’), the Fiscal Agent Agreement, and in accordance with the Mello-Roos Community Facilities Act of 1982, as amended, constituting Chapter 2.5 (commencing with Section 53311) of Division 2 of Title 5 of the California Government Code (the “Act”). See “THE BONDS – Authority for Issuance” herein.

Proceeds of the Bonds will be used to (i) finance certain capital impact fees of the City of Calimesa (the “City”) and the Yucaipa Valley Water District, (ii) fund a reserve fund, (iii) fund

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capitalized interest, and (iv) pay costs of issuance of the Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” and “PLAN OF FINANCE”.

The City

The City is located in northwestern Riverside County (the “County”), along Interstate 10 and bordering the County of San Bernardino, within the Yucaipa Valley of the San Gorgonio Pass Area. The City was incorporated in 1990. It maintains a council-manager form of government, with the Councilmembers elected at-large for staggered four-year terms. The Mayor is elected annually by a vote of the City Council. For certain information regarding the City and the County, see “APPENDIX A – GENERAL INFORMATION ABOUT THE CITY OF CALIMESA AND RIVERSIDE COUNTY.”

The District

The District and the Improvement Area No. 1 contained therein was formed and established by the City on April 16, 2012 pursuant to the Act, following a public hearing by the City Council, as legislative body of the District, and a landowner election which authorized the incurrence of bonded indebtedness and approved the levy of special taxes. See “THE BONDS – Authority for Issuance.”

Property Ownership

The largest owner of the taxable property within Improvement Area No. 1 of the District is Singleton Road, LLC, an Oregon limited liability company (“Singleton Road” or “Landowner”). The rest of the property in Improvement Area No. 1 is owned by individual homeowners.

The Landowner has entered into an agreement with MasterCraft Homes Group, LLC to develop the property in Improvement Area No. 1 of the District that is subject to the Special Tax with a total of 121 detached single-family homes in 14 phases of development known as Singleton Heights. As of the date of this Official Statement, 85 homes were completed and sold to individual homeowners, 3 are completed and being used by the Landowner as model homes, 20 homes are under construction and 13 are physically finished lots. For more detailed information about the Landowner and proposed development plans for the property in Improvement Area No. 1 of the District, see “PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT.”

Security and Sources of Payment

The Bonds are secured by a first pledge of all of the Special Taxes and other amounts deposited in the Special Tax Fund (except for moneys to be deposited in the Administrative Expense Account). See “SECURITY FOR THE BONDS” and APPENDIX E – “SUMMARY OF FISCAL AGENT AGREEMENT.” “Special Taxes” is defined in the Fiscal Agent Agreement to mean the special tax requirement for facilities authorized to be levied by the District on parcels within Improvement Area No. 1 of the District in accordance with the Resolution of Formation, the Act and the voter approval obtained at the April 16, 2012 election in Improvement Area No. 1 of the District and any additional special taxes authorized to be levied by the District from time to time that are pledged by the District to the repayment of the Bonds, together with the proceeds collected from the sale of property pursuant to the foreclosure provisions of the Fiscal Agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions, including, but not limited to, all legal fees and expenses, court costs, consultant and title insurance fees and expenses.

The Special Taxes will be levied by the District and collected by the Riverside County Treasurer-Tax Collector in the same manner and at the same time as ad valorem property taxes. The District has covenanted in the Fiscal Agent Agreement to cause foreclosure proceedings to be commenced and

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prosecuted against parcels with delinquent Special Taxes under certain circumstances. For a more detailed description of the foreclosure covenant see “SECURITY FOR THE BONDS - Covenant to Commence Foreclosure Proceedings.” There is no assurance that the property within Improvement Area No. 1 of the District can be sold for the appraised value described herein, or for a price sufficient to pay the principal of and interest on the Bonds in the event of a default in payment of Special Taxes by the current landowners or future landowners within Improvement Area No. 1 of the District. See “RISK FACTORS — Appraised Values” and APPENDIX C — “APPRAISAL REPORT” herein.

The District has established a Reserve Account pursuant to the Fiscal Agent Agreement. The Reserve Account will be funded from the proceeds of the Bonds in the initial amount of $231,310.58. The Reserve Requirement is defined in the Fiscal Agent Agreement to mean, as of any date of calculation, an amount equal to the lowest of (1) 10% of the issue price of the Bonds (as defined pursuant to section 148 of the Code), or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds; provided, however, the Reserve Requirement on any date of calculation shall not exceed the Reserve Requirement as of the date of delivery of the Bonds. See “SECURITY FOR THE BONDS – Special Tax Fund – Reserve Account.”

Appraisal

An appraisal of the property within the District, dated May 1, 2014 (the “Appraisal”), was prepared by Harris Realty Appraisal, Newport Beach, California (the “Appraiser”) in connection with issuance of the Bonds. The purpose of the Appraisal was to ascertain the “as is” market value of the fee simple estate for the taxable property in Improvement Area No. 1 of the District, consisting of 121 existing and proposed single-family lots, as of the May 1, 2014 date of value. Subject to the assumptions and limitations contained in the Appraisal, the Appraiser estimated that the fee simple interest in the subject property, subject to the lien of the Special Taxes, had an estimated aggregate value of $33,123,000. There is no assurance that the property within Improvement Area No. 1 of the District can be sold for the appraised value described herein, or for a price sufficient to pay the principal of and interest on the Bonds in the event of a default in payment of Special Taxes by the current landowner or future landowners within the District. See “RISK FACTORS — Appraised Values” and APPENDIX C — “APPRAISAL REPORT” herein.

Risk Factors

Investment in the Bonds involves risks that may not be appropriate for some investors. See “RISK FACTORS” for a discussion of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in considering the investment quality of the Bonds.

Miscellaneous

The summaries of and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to each such document, statute, report or other instrument. Included in this Official Statement are summaries of certain provisions of the Fiscal Agent Agreement and Appraisal. Copies of Fiscal Agent Agreement and Appraisal are available for inspection at the offices of the City, and copies of such documents will be provided by the City upon request and payment of duplication costs.

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ESTIMATED SOURCES AND USES OF FUNDS

The proceeds from the sale of the Bonds will be deposited into the following funds and accounts established under the Fiscal Agent Agreement:

SOURCES Principal Amount of Bonds $2,855,000.00 Less: Net Original Issue Discount (77,175.60) Less: Underwriter’s Discount (52,817.50)

Total Sources $2,725,006.90 USES

Acquisition and Construction Fund $2,352,653.65 Costs of Issuance Fund (1) 125,000.00 Interest Account (2) 16,042.67 Reserve Account (3) 231,310.58

Total Uses $2,725,006.90 ___________________________ (1) Includes printing costs, appraisal costs, filing and recording fees, fees and charges of the Fiscal Agent and its legal counsel,

expenses incurred by the City in connection with the issuance of the Bonds, legal fees and charges, including bond counsel and disclosure counsel, and financial advisor’s fees, and other costs, charges and fees in connection with the foregoing.

(2) To be used to pay capitalized interest through March 1, 2015. Capitalized interest amount is equal to approximately 48 days of interest, which will be used to pay approximately 25% of the interest coming due on March 1, 2015.

(3) Equal to the Reserve Requirement with respect to the Bonds as of their date of delivery.

[Remainder of page intentionally left blank]

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PLAN OF FINANCE

A portion of the proceeds of the Bonds will used to finance certain capital facilities fees relating to public facility improvements serving properties within the District. In addition, existing special tax revenues will be deposited into the Acquisition and Construction Fund to be used to pay a portion of the fees below. Such eligible fees and estimated costs are set forth in the following table. Any shortfall in financing these costs is the responsibility of the Developer. The inability of the Developer to finance any shortfall may have an adverse effect on the Developer’s ability to complete the development as contemplated.

Description of Eligible Public Facilities Fees City of Calimesa City Administration Fee $147,741 Streets and Traffic Improvement Facility Fee 124,630 Drainage Facilities Fee 183,757 Library Facility Fee 121,484 Fire Service Facility Fee 166,012 Law Enforcement Facility Fee 90,024 Park Facilities Fee 584,188

Total Estimated Cost of City Fees $1,417,836 Yucaipa Valley Water District Meter Fee 45,375 SGPWA Water Sustainability 261,723 Account Establishment Fee 3,025 Potable Water and Wastewater Facilities Capacity Charges 1,662,540

Total Estimated Cost of YVWD Fees $1,972,663

Total City and YVWD Fees $3,390,499 ____________ Source: Mastercraft Homes Group, LLC and Development Planning & Financing Group, Inc.

THE BONDS

General

The Bonds will be dated the date of their delivery and will mature in the amounts and on the dates set forth on the cover page of this Official Statement. The Bonds will be issued in fully registered form in denominations of $5,000 each or any integral multiple of $5,000. The Bonds will bear interest at the annual rates set forth on the cover page of this Official Statement, payable semiannually on each March 1 and September 1, commencing March 1, 2015 (each, an “Interest Payment Date”). Interest will be calculated on the basis of a 360-day year composed of twelve 30-day months.

Principal of and interest on the Bonds (including the final interest payment upon maturity or earlier redemption), is payable by check of the Fiscal Agent mailed by first class mail to the registered Owner thereof at such registered Owner’s address as it appears on the registration books maintained by the Fiscal Agent at the close of business on the Record Date preceding the Interest Payment Date, or by wire transfer made on such Interest Payment Date upon written instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds delivered to the Fiscal Agent prior to the applicable Record Date, which instructions will continue in effect until revoked in writing, or until such Bonds are transferred to a new Owner. Each Bond shall bear interest from the Interest Payment Date next preceding

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the date of authentication thereof unless (i) it is authenticated on an Interest Payment Date, in which event it shall bear interest from such date of authentication, or (ii) it is authenticated prior to an Interest Payment Date and after the close of business on the Record Date preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is authenticated prior to the Record Date preceding the first Interest Payment Date, in which event it shall bear interest from the Closing Date. The principal of the Bonds and any premium on the Bonds are payable in lawful money of the United States of America upon surrender of the Bonds at the Principal Office of the Fiscal Agent.

Authority for Issuance

District Proceedings. The Bonds are issued pursuant to the Act and the Fiscal Agent Agreement. In addition, as required by the Act, the City Council has taken the following actions with respect to establishing the District and authorizing issuance of the Bonds:

Resolutions of Intention: On March 5, 2012, the City Council adopted a resolution stating its intention to establish the District and to authorize the levy of a special tax therein. On the same day the City Council adopted a resolution stating its intention to incur bonded indebtedness for the purpose of financing the Facilities.

Resolution of Formation: Following a noticed public hearing, the City Council adopted, on April 16, 2012, a resolution (the “Resolution of Formation”) which established the District and authorized the levy of a special tax within the District.

Resolution of Necessity. On April 16, 2012, the City Council adopted a resolution declaring the necessity to incur bonded indebtedness in an amount not to exceed $6,000,000 for Improvement Area No. 1 and $10,000,000 for Improvement Area No. 2 within the District and submitting that proposition to the qualified electors of the District.

Resolution Calling Election: On April 16, 2012, the City Council adopted a resolution calling an election by the landowners within the District for the same date on the issues of the levy of the Special Tax, the incurring of bonded indebtedness and the establishment of an appropriations limit.

Landowner Election and Declaration of Results: On April 16, 2012, an election was held within the District in which the qualified landowner electors approved a ballot proposition authorizing the issuance of bonds in the not to exceed amount of $6,000,000 for Improvement Area No. 1 and $10,000,000 for Improvement Area No. 2 to finance the construction of the Facilities, the levy of a special tax and the establishment of an appropriations limit for the District. On April 16, 2012, the City Council adopted a resolution under which the City Council approved the canvass of the votes and declared the District to be fully formed with the authority to levy the Special Taxes, to incur the bonded indebtedness and to have the established appropriations limit.

Special Tax Lien and Levy: A Notice of Special Tax Lien was recorded in the real property records of Riverside County on April 24, 2012.

Ordinance Levying Special Taxes: On May 21, 2012, the City Council adopted an ordinance authorizing the levy of the Special Tax within Improvement Area No. 1 of the District.

Resolution Authorizing Issuance of the Bonds: On July 21, 2014, the City Council adopted a resolution approving issuance of the Bonds in an amount not to exceed $6,000,000 for Improvement Area No. 1.

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City’s Goals and Policies. As required by the Act, the City adopted “Goals and Policies for Community Facilities Districts” by Resolution No. 2013-21 adopted on June 3, 2013 (the “Goals and Policies”). The Goals and Policies establish an order of priority for projects to be financed by community facilities districts and certain credit quality requirements for bonds issued by community facilities districts and improvement areas therein, namely a 3:1 ratio of property value to the lien of the Bonds and other public indebtedness secured by a lien on real property currently existing against the properties to be taxed. Property value may be based on an appraisal or on assessed values as indicated on the county assessor’s tax roll. The Goals and Policies also require that, for residential property, the maximum annual special tax, together with ad valorem property taxes, and all other special assessments or special taxes collected or to be collected on the annual tax bill for each developed parcel at the time of bond issuance, may not exceed 2% of such parcel’s projected assessed value.

Debt Service Schedule

The following table presents the annualized debt service on the Bonds (including sinking fund redemptions), assuming there are no optional redemptions.

Year Ending September 1 Principal Interest (1) Total Debt Service

2015(1) -- $124,645.69 $124,645.69 2016 $15,000.00 120,950.00 135,950.00 2017 15,000.00 120,650.00 135,650.00 2018 20,000.00 120,350.00 140,350.00 2019 25,000.00 119,950.00 144,950.00 2020 30,000.00 119,325.00 149,325.00 2021 30,000.00 118,575.00 148,575.00 2022 35,000.00 117,750.00 152,750.00 2023 40,000.00 116,700.00 156,700.00 2024 45,000.00 115,400.00 160,400.00 2025 50,000.00 113,825.00 163,825.00 2026 55,000.00 112,075.00 167,075.00 2027 65,000.00 110,012.50 175,012.50 2028 70,000.00 107,575.00 177,575.00 2029 75,000.00 104,775.00 179,775.00 2030 85,000.00 101,587.50 186,587.50 2031 90,000.00 97,975.00 187,975.00 2032 100,000.00 94,150.00 194,150.00 2033 105,000.00 89,900.00 194,900.00 2034 115,000.00 85,437.50 200,437.50 2035 125,000.00 80,550.00 205,550.00 2036 135,000.00 74,925.00 209,925.00 2037 145,000.00 68,850.00 213,850.00 2038 160,000.00 62,325.00 222,325.00 2039 170,000.00 55,125.00 225,125.00 2040 185,000.00 47,475.00 232,475.00 2041 195,000.00 39,150.00 234,150.00 2042 210,000.00 30,375.00 240,375.00 2043 225,000.00 20,925.00 245,925.00 2044 240,000.00 10,800.00 250,800.00

Total: $2,855,000.00 $2,702,108.19 $5,557,108.19

Source: Underwriter (1) Debt service through March 1, 2015 is expected to be partially paid from capitalized interest funded through

proceeds of the Bonds.

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Redemption

Optional Redemption. The Bonds are subject to redemption prior to maturity at the option of the District on any date on or after September 1, 2022, as a whole or in part, by lot, from any available source of funds at the following redemption prices (expressed as a percentage of the principal amount of Bonds to be), together with accrued interest thereon to the date fixed for redemption:

Redemption Dates Redemption Prices September 1, 2022 through August 31, 2023 102% September 1, 2023 through August 31, 2024 101 September 1, 2024 and thereafter 100

Special Mandatory Redemption from Special Tax Prepayments. The Bonds are subject to mandatory redemption prior to maturity on any date, as a whole or in part, in a manner determined by the District from prepayments of Special Taxes at the following redemption prices (expressed as a percentage of the principal amount of Bonds to be redeemed), together with accrued interest thereon to the date fixed for redemption:

Redemption Dates Redemption Prices Any day through August 31, 2022 103% September 1, 2022 through August 31, 2023 102 September 1, 2023 through August 31, 2024 101 September 1, 2024 and thereafter 100

In connection with such redemption, the District may also apply amounts in the Reserve Account which will be in excess of the Reserve Requirement as a result of such Special Tax prepayment to redeem Bonds as set forth above.

Mandatory Sinking Fund Redemption. The Bonds maturing on September 1, 2034 and on September 1, 2044 are subject to mandatory redemption, in part by lot, on September 1 in each year commencing September 1, 2029 with respect to the Bonds maturing on September 1, 2034 and commencing September 1, 2035 with respect to the Bonds maturing on September 1, 2044, from the Sinking Fund Payments that have been deposited into the Redemption Account at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption as set forth in the following schedule; provided, however, that (i) in lieu of redemption thereof, the Bonds may be purchased by the District and tendered to the Fiscal Agent, and (ii) if some but not all of the Bonds have been redeemed pursuant to optional redemption and special mandatory redemption from Special Tax prepayment as described above, the total amount of all future sinking payments will be reduced by the aggregate principal amount of the Bonds so redeemed, to be allocated among such sinking payments on a pro rata basis (as nearly as practicable) in integral multiples of $5,000 as determined by the District.

Term Bonds Maturing on September 1, 2034

Redemption Date (September 1) Principal Amount

2029 $75,000 2030 85,000 2031 90,000 2032 100,000 2033 105,000 2034(maturity) 115,000

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Term Bonds Maturing on September 1, 2044

Redemption Date (September 1) Principal Amount

2035 $125,000 2036 135,000 2037 145,000 2038 160,000 2039 170,000 2040 185,000 2041 195,000 2042 210,000 2043 225,000 2044(maturity) 240,000

Selection of Bonds for Redemption. If less than all of the Bonds Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof. In selecting portions of such Bonds for redemption, the Fiscal Agent shall treat such Bonds as representing that number of Bonds of $5,000 denominations which is obtained by dividing the principal amount of such Bonds to be redeemed in part by $5,000. The Fiscal Agent shall promptly notify the District in writing of the Bonds, or portions thereof, selected for redemption.

Notice of Redemption. When Bonds are due for redemption, the Fiscal Agent shall give notice, in the name of the District, of the redemption of such Bonds; provided, however, that a notice of a redemption to be made from other than from Sinking Fund Payments shall be conditioned on there being on deposit on the redemption date sufficient money to pay the redemption price of the Bonds to be redeemed. At least 30 days but no more than 60 days prior to the redemption date, the Fiscal Agent shall mail a copy of the notice of redemption, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register. The actual receipt by the Owner of any Bond or the original purchaser of any Bond of notice of such redemption shall not be a condition precedent to redemption, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A certificate by the Fiscal Agent that notice of such redemption has been given as herein provided shall be conclusive as against all parties and the Owner shall not be entitled to show that he or she failed to receive notice of such redemption.

Partial Redemption of Bonds. Upon surrender of any Bond to be redeemed in part only, the District shall execute and the Fiscal Agent shall authenticate and deliver to the Bondowner, at the expense of the District, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered, with the same interest rate and the same maturity.

Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in the Fiscal Agent Agreement, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption:

(1) The Bonds, or portions thereof, designated for redemption shall, on the date fixed for redemption, become due and payable at the redemption price thereof as provided in the Fiscal Agent Agreement, anything in the Fiscal Agent Agreement or in the Bonds to the contrary notwithstanding;

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(2) Upon presentation and surrender thereof at the office of the Fiscal Agent, the redemption price of such Bonds shall be paid to the Owners thereof;

(3) As of the redemption date the Bonds, or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds, or portions thereof, shall cease to bear further interest; and

(4) As of the date fixed for redemption no Owner of any of the Bonds, or portions thereof so designated for redemption, shall be entitled to any of the benefits of the Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available.

Book-Entry Only System

The Depository Trust Company (“DTC”) will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered initially in the name of Cede & Co. (DTC’s partnership nominee). One fully-registered bond will be issued for the Bonds of each maturity and each interest rate, in the initial aggregate principal amount of such maturity of such series. See APPENDIX F – “Book-Entry Only System.”

SECURITY FOR THE BONDS

Pledge of Special Taxes

General. The Special Taxes are the primary security for repayment of the Bonds. The Bonds are secured by a first pledge of the Special Taxes and all moneys deposited in the Special Tax Fund (except for moneys to be deposited in the Administrative Expense Account). The Special Taxes and all moneys deposited into these funds (except as otherwise provided in the Fiscal Agent Agreement) are dedicated to the payment of the principal of, and interest and any premium on, the Bonds as provided in the Fiscal Agent Agreement and in the Act until all of the Bonds have been paid and retired or until moneys or Federal Securities have been set aside irrevocably for that purpose under the Fiscal Agent Agreement.

So long as any Bonds issued under the Fiscal Agent Agreement are Outstanding, the District has covenanted in the Fiscal Agent Agreement to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and the Surplus Fund and available for such purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement.

The Special Taxes will be levied by the District and collected by the Riverside County Treasurer-Tax Collector in the same manner and at the same time as ad valorem property taxes In the event that the Special Tax are not received when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the Special Tax Fund (other than the Administrative Expenses), including amounts held in the Reserve Account therein, for the exclusive benefit of the owners of the Bonds, and foreclosure proceeds resulting from the sale of delinquent parcels if and when available.

Special Taxes. The Fiscal Agent Agreement defines “Special Taxes” as the special tax requirement for facilities authorized to be levied by the District on parcels within Improvement Area No. 1 of the District in accordance with the Resolution of Formation, the Act and the voter approval obtained at the April 16, 2012 election in the District and any additional special taxes authorized to be levied by the District within Improvement Area No. 1 from time to time that are pledged by the District to the repayment of the Bonds, together with the proceeds collected from the sale of property pursuant to the foreclosure provisions of the Fiscal Agent Agreement for the delinquency of such Special Taxes

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remaining after the payment of all the costs related to such foreclosure actions, including, but not limited to, all legal fees and expenses, court costs, consultant and title insurance fees and expenses.

Limited Obligation. ALL OBLIGATIONS OF THE DISTRICT UNDER THE FISCAL AGENT AGREEMENT AND THE BONDS ARE NOT GENERAL OBLIGATIONS OF THE CITY OR THE DISTRICT, BUT ARE LIMITED OBLIGATIONS, PAYABLE SOLELY FROM THE SPECIAL TAX REVENUES AND THE FUNDS PLEDGED THEREFORE UNDER THE FISCAL AGENT AGREEMENT. THE FAITH AND CREDIT OF THE CITY, THE DISTRICT OR THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS NOT PLEDGED TO THE PAYMENT OF THE BONDS.

Special Tax Fund

Pursuant to the Fiscal Agent Agreement, there is established a “Special Tax Fund” to be held and maintained by the Fiscal Agent. In the Special Tax Fund, there is further established and created an Interest Account, a Principal Account, a Redemption Account, a Reserve Account and an Administrative Expense Account.

The amounts on deposit in the foregoing funds and will be held by the Fiscal Agent, and the Fiscal Agent shall invest and disburse the amounts in such funds and accounts in accordance with the provisions of the Fiscal Agent Agreement and shall disburse investment earnings thereon in accordance with the provisions of the Fiscal Agent Agreement.

The District will, on each date on which it receives Special Taxes, transfer the Special Taxes to the Fiscal Agent for deposit in the Special Tax Fund to be held in accordance with the terms of the Fiscal Agent Agreement. The Fiscal Agent will transfer the amounts on deposit in the Special Tax Fund on the dates and in the amounts set forth in the Fiscal Agent Agreement in the following order of priority:

(a) The Administrative Expense Account of the Special Tax Fund;

(b) The Interest Account of the Special Tax Fund;

(c) The Principal Account of the Special Tax Fund;

(d) The Redemption Account of the Special Tax Fund;

(e) The Reserve Account of the Special Tax Fund; and

(f) The Surplus Fund.

Administrative Expense Account. The Fiscal Agent will transfer from the Special Tax Fund and deposit in the Administrative Expense Account of the Special Tax Fund an amount equal to the Administrative Expense Requirement for the Fiscal Year, to be disbursed by the Fiscal Agent to pay Administrative Expenses. Moneys in the Administrative Expense Account are not pledged to the repayment of the Bonds.

Interest Account and Principal Account. The principal of and interest due on the Bonds until maturity, other than principal due upon redemption, shall be paid by the Fiscal Agent from the Principal Account and the Interest Account of the Special Tax Fund, respectively. At least five Business Days prior to each March 1 and September 1, the Fiscal Agent shall make the following transfers from the Special Tax Fund first to the Interest Account and then to the Principal Account; provided, however, that to the extent that deposits have been made in the Interest Account or the Principal Account from the proceeds of the sale of an issue of the Bonds, or otherwise, the transfer from the Special Tax Fund need

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not be made; and provided, further, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made up by an immediate transfer from the Reserve Account:

(1) To the Interest Account, an amount such that the balance in the Interest Account five Business Days prior to each Interest Payment Date shall be equal to the installment of interest due on the Bonds on said Interest Payment Date and any installment of interest due on a previous Interest Payment Date which remains unpaid. Moneys in the Interest Account shall be used for the payment of interest on the Bonds as the same become due.

(2) To the Principal Account, an amount such that the balance in the Principal Account five Business Days prior to September 1 of each year, commencing September 1, 2016 shall at least equal the principal payment due on the Bonds maturing on such September 1 and any principal payment due on a previous September 1 which remains unpaid. Moneys in the Principal Account shall be used for the payment of the principal of such Bonds as the same become due at maturity.

Redemption Account. On each September 1 on which a Sinking Fund Payment is due, after the deposits have been made to the Interest Account and the Principal Account of the Special Tax Fund, the Fiscal Agent shall next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account five Business Days prior to each September 1 equal to the Sinking Fund Payment due on any Outstanding Bonds on such September 1; provided, however, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made up by an immediate transfer from the Reserve Account. Moneys so deposited in the Redemption Account shall be used and applied by the Fiscal Agent to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedule set forth in the Fiscal Agent Agreement.

All prepayments of Special Taxes shall be deposited in the Redemption Account to be used to redeem Bonds on the next date for which notice of redemption can timely be given.

Reserve Account. Moneys in the Reserve Account shall be used solely for the purpose of paying the principal of, including Sinking Fund Payments, and interest on any Bonds when due in the event that the moneys in the Interest Account and the Principal Account of the Special Tax Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are insufficient to make a Sinking Fund Payment when due. If the amounts in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund are insufficient to pay the principal of, including Sinking Fund Payments, or interest on any Bonds when due, the Fiscal Agent shall withdraw from the Reserve Account for deposit in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund, as applicable, moneys necessary for such purposes.

Whenever moneys are withdrawn from the Reserve Account, after making the required transfers under the Fiscal Agent Agreement, the Fiscal Agent shall transfer to the Reserve Account from available moneys in the Special Tax Fund, or from any other legally available funds which the District elects to apply to such purpose, the amount needed to restore the amount of such Reserve Account to the Reserve Requirement. Moneys in the Special Tax Fund shall be deemed available for transfer to the Reserve Account only if the Fiscal Agent determines that such amounts will not be needed to make the deposits required to be made to the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund. If amounts in the Special Tax Fund or otherwise transferred to replenish the Reserve Account are inadequate to restore the Reserve Account to the Reserve Requirement, then the District shall include the amount necessary fully to restore the Reserve Account to the Reserve Requirement in the next annual Special Tax levy to the extent of the maximum permitted Special Tax rates.

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Covenant to Commence Foreclosure Proceedings

The District covenants in the Fiscal Agent Agreement that it will determine or cause to be determined, no later than March 1 and August 1 of each year, whether or not any owner of the property within the District are delinquent in the payment of Special Taxes and, if such delinquencies exist, the District will order and cause to be commenced no later than April 15 (with respect to the March 1 determination date) or September 1 (with respect to the August 1 determination date), and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installment thereof not paid when due, provided, however, that the District shall not be required to order the commencement of foreclosure proceedings if (i) the total Special Tax delinquency in the District for such Fiscal Year is less than five percent (5%) of the total Special Tax levied in such Fiscal Year, (ii) the amount in the Reserve Account is equal to the Reserve Requirement, and (iii) the District shall have established from any source of lawfully available funds (other than Special Taxes) an escrow fund to provide for the payment of principal of and interest on the Bonds. Notwithstanding the foregoing, if the District determines that any single property owner in the District is delinquent in excess of five thousand dollars ($5,000) in the payment of the Special Tax, then it will diligently institute, prosecute and pursue foreclosure proceedings against such property owner.

Notwithstanding any provision of the Act or other law of the State to the contrary, in connection with any foreclosure related to delinquent Special Taxes, the Fiscal Agent Agreement authorizes the District to do the following:

(a) The District or the Fiscal Agent may credit bid at any foreclosure sale, without any requirement that funds be set aside in the amount so credit bid, in the amount specified in the Act, or such less amount as provided in the Fiscal Agent Agreement or otherwise under the Act.

(b) The District may use amounts in the Special Tax Fund to pay costs of foreclosure of delinquent Special Taxes in accordance with the Fiscal Agent Agreement.

(c) The District may forgive all or any portion of the Special Taxes levied or to be levied on any parcel in the District so long as the District determines that such forgiveness is not expected to adversely affect its obligation to pay principal of and interest on the Bonds as such payments become due and payable.

IN THE EVENT FORECLOSURE OR FORECLOSURES ARE NECESSARY, THERE MAY BE A DELAY IN PAYMENTS TO BOND OWNERS PENDING PROSECUTION OF THE FORECLOSURE PROCEEDINGS AND RECEIPT BY THE DISTRICT OF THE PROCEEDS OF THE FORECLOSURE SALE; IT IS ALSO POSSIBLE THAT NO BID FOR THE PURCHASE PRICE OR APPLICABLE PROPERTY WOULD BE RECEIVED AT THE FORECLOSURE SALE. SEE “RISK FACTORS.” NOTWITHSTANDING ANY OTHER PROVISION OF THE FISCAL AGENT AGREEMENT TO THE CONTRARY, THE CITY IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS FROM THE CITY TREASURY TO CURE ANY DEFICIENCY IN THE SPECIAL TAX FUND ESTABLISHED UNDER THE FISCAL AGENT AGREEMENT.

No Issuance of Parity Bonds

The District has covenanted in the Fiscal Agent Agreement that, except for refunding purposes, it will not issue bonds, notes or other forms of indebtedness payable from Special Taxes and other amounts deposited in the Special Tax Fund and secured by a lien and charge upon such amounts equal to the lien and charge securing the Outstanding Bonds.

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Rate and Method of Apportionment of Special Taxes

The following is a synopsis of the provisions of the Rate and Method. This synopsis does not purport to be comprehensive and should be read in conjunction with the complete text of the Rate and Method, including its attachments, which is attached hereto as “APPENDIX B – Rate and Method of Apportionment of Special Tax.” All capitalized terms not defined in this section have the meanings set forth in APPENDIX B.

Each Fiscal Year, beginning with Fiscal Year 2012-13, each Assessor’s Parcel within the boundaries of Improvement Area No. 1 shall be classified as Taxable Property or Exempt Property. In addition, all Taxable Property within Improvement Area No. 1 shall be classified as Developed Property, Undeveloped Property or Provisional Undeveloped Property, and all such Taxable Property shall be subject to the levy of Special Taxes in accordance with the Rate and Method of Apportionment. Furthermore, each Assessor’s Parcels of Developed Property which is a Residential Unit shall be classified to its applicable Land Use Class based on its Building Square Footage.

For each Fiscal Year, commencing Fiscal Year 2012-13, the CFD Administrator shall calculate the Special Tax Requirement for Facilities and levy Special Tax A on all Taxable Property in accordance with the following steps:

Step 1: The Special Tax A shall be levied Proportionately on each Assessor’s Parcel of Developed Property up to 100% of the applicable Assigned Special Tax A as necessary to satisfy the Special Tax Requirement for Facilities;

Step 2: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after Step 1 has been completed, the Special Tax A shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property up to 100% of the Maximum Special Tax A;

Step 3: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first two steps have been completed, then the levy of the Special Tax A on each Assessor’s Parcel of Developed Property whose Maximum Special Tax A is determined through the application of the Backup Special Tax A shall be increased Proportionately from the Assigned Special Tax A up to 100% of the Maximum Special Tax for each such Assessor’s Parcel; and

Step 4: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first three steps have been completed, then the Special Tax A shall be levied Proportionately on each Assessor’s Parcel of Provisional Undeveloped Property at up to 100% of the Maximum Special Tax A for Provisional Undeveloped Property.

Notwithstanding the above, under no circumstances will the Special Tax levied against any Assessor’s Parcel of Developed Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent as a consequence of delinquency or default by the owner of any other Assessor’s Parcel within Improvement Area No. 1, except for those Assessor’s Parcels of Developed Property whose owners are also delinquent or in default on their Special Tax payments for one or more other properties within Improvement Area No. 1.

Special Tax A shall be levied for a period of thirty-five (35) years after the last series of bonds has been issued, but shall not be levied for a period to exceed forty (40) Fiscal Years commencing with Fiscal Year 2012-13.

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THE DISTRICT

General

Description and Location. The District is located within the eastern portion of the City, east of Interstate 10, north of Singleton Road and south of the Calimesa Country Club 12. The District contains two improvement areas which will contain the housing community referred to as Singleton Heights, with Improvement Area No. 1 occupying the eastern portion of the District and Improvement Area No. 2 occupying the western portion of the District. The Bonds are only secured by the Special Taxes from taxable property within Improvement Area No. 1.

Singleton Heights is projected to consist of 268 single family detached homes within both improvement areas of the District. The portion of Singleton Heights situated within the boundaries of Improvement Area No. 1 of the District includes a total of 121 single-family residential lots on 63.42 acres of land, with a minimum of 27.95 taxable acres.

Immediate Surroundings. The District is located near the southerly border of the City. This is a mostly rural area north of Beaumont and south of Yucaipa. The Calimesa Golf and Country Club is just north of the District. Another housing development known as J.P. Ranch is adjacent to the northeast of the subject property. A 46-dwelling development known as Painted Hills is currently under construction and is located near the District.

The City has a small downtown area with retail and office uses. Yucaipa, to the north, has a larger downtown area and a newer retail shopping center in the Chapman Ranch Development. The closest major retail development is in Beaumont at the I-10 and Highlands Springs Road, about 10 miles southeast of the subject. The Desert Hills Outlet Mall is about 20 miles east in Cabazon. Limited development of single-family dwellings in the area has been taking place for about two years. See APPENDIX A – “GENERAL INFORMATION ABOUT CALIMESA AND RIVERSIDE COUNTY” for certain demographic information on the City and the County. The boundary map of the District and the two improvement areas within the District is attached hereto as APPENDIX I.

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The table below shows comparable residential projects in the area:

Calimesa Market Area Comparable Residential Project Summary

Detached Single Family Homes (As of May 6, 2014)

No.

Project Location

Units

Lot Size

Base Price

Unit Size

Price/

Square Foot

Number Sold or In Escrow/

Start Date

Overall Monthly

Absorption 1 Singleton Heights 121 7,200 $296,500 1,877 $157.96 90 2.9

MasterCraft Homes

$337,500 2,285 $147.70 October 2011 Calimesa $354,000 2,547 $138.99

$364,500 2,840 $128.35

$375,000 3,198 $117.26

2 Painted Hills 44 6,000 $269,990 2,000 $135.00 43 3.9

HighPointe Communities $282,000 2,127 $132.58 June 2013 Calimesa $303,990 2,307 $131.77 $315,000 2,621 $120.18 $353,990 2,839 $124.69 $372,490 2,984 $124.83

3 Living Smart @ Tournament Hills 226 6,300 $258,015 1,597 $161.56 209 4.1

Pardee Homes

$276,790 1,900 $145.68 February 2010 $291,165 2,030 $143.43 $296,815 2,315 $128.21 $313,915 2,664 $117.84 N/A 3,099 N/A

4 Kensington @Tournament Hills 111 4,725 $267,990 1,720 $155.81 93 2.3

Richmond American Homes

$282,990 1,846 $153.30 January 2011 Beaumont $292,990 2,140 $136.91 $312,990 2,705 $115.71

5 Acacia @ Sundance 71 7,000 $295,990 2,320 $127.58 66 2.4

Richmond American Homes $307,990 2,491 $123.64 Jan-12 Beaumont $315,990 3,059 $103.30 $331,990 3,464 $95.84

6 Magnolia @ Sundance 63 7,000 $285,990 2,051 $139.44 14 6.5

Richmond American Homes $288,990 2,111 $136.90 March 2014 Beaumont $307,990 2,491 $123.64 $311,990 2,553 $122.21

_________________________ Source: Appraiser

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Special Tax Levies and Delinquencies

Beginning in fiscal year 2012-13, a Special Tax was levied on properties within Improvement Area No. 1 of the District. The following table shows the amount of the Special Tax levy from fiscal year 2012-13 to fiscal year 2013-14 and the associated delinquencies:

City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights)

(Improvement Area No. 1) Special Tax Levies and Delinquencies

(Fiscal Year 2012-13 through Fiscal Year 2013-14)

Fiscal Year

Amount Levied

Total Number of Parcels Subject to Levy

Amount Collected

Amount Delinquent

Number of Parcels Delinquent

Percent Delinquent

Remaining Amount Delinquent(3)

Remaining Parcels Delinquent(3)

Remaining Percent Delinquent(3)

2012-13(1) $13,110 12(2) $13,110 $0 0 0.00% $0 0 0.00% 2013-14 $128,936 56 $126,684 $2,252 2 1.75% $2,252 2 1.75% ______________ Source: County Auditor-Controller; Compiled by Koppel & Gruber Public Finance (1) First year Improvement Area No. 1 of the District was levied. (2) Only Developed property was levied. (3) As of July 25, 2014

Estimated Maximum Special Tax Proceeds and Debt Service Coverage

The Rate and Method is structured to produce Special Tax revenues from the Assigned Special Tax A and the Maximum Special Tax A which, when applied to the projected debt service on the Bonds, is anticipated to result in a debt service coverage ratio of at least 110% for the anticipated life of the Bonds. The following table shows the revenue projections for Improvement Area No. 1 of the District.

Revenue Projections(1)

Land Use

Class Building Square

Footage Number of Units

Fiscal Year 2014-15

Maximum Assigned

Special Tax A

Fiscal Year 2014-15

Maximum Assigned Special Tax A Revenues

Fiscal Year 2014-15 Special Tax A Rates

Assuming Appraised Value and 2% Effective

Tax Rate

Fiscal Year 2014-15 Projected Buildout Revenues Special Tax A Revenues

Assuming 2% Effective Tax Rate

1 Less than 900 0 $ 717.88 $ 0.00 $ 382.67 $ 0.00 2 901-1200 0 1,005.03 0.00 535.74 0.00 3 1201-1500 0 1,292.18 0.00 688.80 0.00 4(2) 1501-1800 4 1,359.77 5,439.08 724.83 2,899.34 5 1801-2100 13 1,866.48 24,264.21 994.94 12,934.20 6 2101-2400 30 2,153.63 64,608.84 1,148.01 34,440.18 7 2401-2700 35 2,440.78 85,427.24 1,301.07 45,537.57 8 2701-3000 29 2,727.93 79,109.94 1,454.14 42,170.09 9 Greater than 3,000 10 3,015.08 30,150.79 1,607.21 16,072.09

Total 121 $289,000.10 $154,053.47 ___________________ Source: Koppel & Gruber Public Finance and Underwriter. (1) Assumptions: Full build out using 2014-15 rates. (2) The 4 units of land use class 4 are partially prepaid.

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The following table shows the estimated debt service coverage for the Bonds.

Estimated Debt Service Coverage

Bond Year Ending

(September 1) Max Tax(1) Annual Costs

Net Maximum Special Tax

Capitalized Interest(2)

Debt Service(2)(3)

Coverage 2014 -- -- -- -- -- -- 2015(2) $289,000 $20,000 $269,000 $16,042.67 $124,645.69 229% 2016 294,780 20,000 274,780 135,950.00 202 2017 300,676 20,000 280,676 135,650.00 207 2018 306,689 20,000 286,689 140,350.00 204 2019 312,823 20,000 292,823 144,950.00 202 2020 319,079 20,000 299,079 149,325.00 200 2021 325,461 20,000 305,461 148,575.00 206 2022 331,970 20,000 311,970 152,750.00 204 2023 338,610 20,000 318,610 156,700.00 203 2024 345,382 20,000 325,382 160,400.00 203 2025 352,290 20,000 332,290 163,825.00 203 2026 359,335 20,000 339,335 167,075.00 203 2027 366,522 20,000 346,522 175,012.50 198 2028 373,852 20,000 353,852 177,575.00 199 2029 381,329 20,000 361,329 179,775.00 201 2030 388,956 20,000 368,956 186,587.50 198 2031 396,735 20,000 376,735 187,975.00 200 2032 404,670 20,000 384,670 194,150.00 198 2033 412,763 20,000 392,763 194,900.00 202 2034 421,019 20,000 401,019 200,437.50 200 2035 429,439 20,000 409,439 205,550.00 199 2036 438,028 20,000 418,028 209,925.00 199 2037 446,788 20,000 426,788 213,850.00 200 2038 455,724 20,000 435,724 222,325.00 196 2039 464,839 20,000 444,839 225,125.00 198 2040 474,135 20,000 454,135 232,475.00 195 2041 483,618 20,000 463,618 234,150.00 198 2042 493,290 20,000 473,290 240,375.00 197 2043 503,156 20,000 483,156 245,925.00 196 2044 513,219 20,000 493,219 250,800.00 197

Total $5,557,108.19 ______________ Source: Underwriter (1) Increases at 1.020% per year. (2) Debt service through March 1, 2015 is expected to be partially paid from capitalized interest funded through

Bond proceeds. (3) Debt service for each Bond Year ending September 1 will be paid from Special Taxes collected during the

immediately preceding fiscal year. For example, debt service for the Bond Year ending September 1, 2015 will be paid from Special Taxes levied and collected during Fiscal Year ending June 30, 2015.

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Pursuant to Section 53321(d) of the Act, the special tax levied against any assessor’s parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other assessor’s parcel within the district by more than 10% above the amounts that would have been levied in that fiscal year had there never been any such delinquencies or defaults. As a result, it is possible that the District may not be able to increase the tax levy to the assigned special tax in all years. However, subject to the limitations on the District’s ability to levy the necessary amount of Special Taxes as imposed by Section 53321(d) of the Act, the District can levy Special Taxes on Undeveloped Property to make up all or a portion of such shortfall.

Appraised Property Value

The information below is only a summary of certain information contained in the Appraisal. The Appraisal is reprinted herein as Appendix C. The information below is qualified in its entirety by the complete Appraisal. The District makes no representation as to the accuracy or completeness of the Appraisal.

The Appraisal. The Bonds are secured by Special Taxes which may include amounts realized upon foreclosure sale of delinquent parcels. Therefore, the ability of the District to meet debt service on the Bonds may depend on the ability of delinquent parcels to generate sufficient proceeds upon foreclosure sale to pay delinquent Special Taxes. The City commissioned Harris Realty Appraisal, Newport Beach, California (the “Appraiser”) to ascertain the “as is” market value of the fee simple estate for the taxable property in Improvement Area No. 1 of the District consisting of 121 proposed single family homes. As of the date of the Appraisal, 72 homes were completed and sold to individual homeowners, 3 were model homes owned by the Landowner, 33 homes were under construction and 13 were physically finished lots.

The Appraiser estimated that, as of the May 1, 2014 date of value of the Appraisal, the “as is” market value of the fee simple estate (subject to the lien of the Special Taxes) of all the taxable land and improvements within Improvement Area No. 1 of the District was $33,123,000, which is approximately 11.60 times the aggregate principal amount of the Bonds. An updated Appraisal has not been requested by the City or the District or completed by the Appraiser since the original date of value. However, on the date of issuance of the Bonds, the Appraiser will certify that he is not aware of any event or act that occurred since the date of value of the Appraisal which, in the opinion of the Appraiser, would materially and adversely affect the conclusions in the Appraisal as to the market value of the appraised property.

The Appraisal’s value estimates reflect certain assumptions set forth in the Appraisal including that all costs reported by the Developer (as defined herein) are accurate, including but not limited to the remaining impact fees and lot costs for the physically finished lots and that no additional site costs are required for the build out of Improvement Area No. 1. Any variance in costs could impact the value conclusions reported in this appraisal report. For a full description of the assumptions relied upon by the Appraiser, as well as a description of the valuation methodology, see APPENDIX C – “APPRAISAL REPORT”.

The Appraisal was prepared in accordance with and subject to the requirements of The Appraisal Standards for Land Secured Financing as published by the California Debt and Investment Advisory Commission, the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation, and the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. See APPENDIX C – “APPRAISAL REPORT”.

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Appraised Value to Lien Ratio

The table below shows the projected value to burden ratio for the 121 lots that were the subject of the Appraisal based on the appraised values set forth in the Appraisal and the principal amount of the Bonds. The following value-to-lien ratios only represent estimated averages for the property within Improvement Area No. 1. No assurance can be given that the amounts shown in this table will conform to those ultimately realized in the event of a foreclosure action following delinquency in the payment of the Special Taxes.

Appraised Values and Value to Lien Ratio

Projected Number of Homes/Lots Appraised

Total AppraisedValue (1)

2014-15 Net Maximum

Special Taxes

Principal Amount of

Bonds Value to Lien(2)

121 $33,123,000 $269,000 $2,855,000 11.60 to 1 ___________________________

Source: Underwriter (1) Market value estimated by the Appraiser as of May 1, 2014. (2) Average value to lien per lot; actual value to lien per lot may vary. Based on percentage of maximum special taxes.

Direct and Overlapping Governmental Obligations

Properties in Improvement Area No. 1 of the District are within the jurisdiction of a number of overlapping local agencies providing public services and assessing property taxes, assessments, special taxes and other charges on the property in Improvement Area No. 1 of the District. Many of these local agencies have outstanding debt.

The direct and overlapping obligations affecting the property in Improvement Area No. 1 of the District as of May 15, 2014, are shown in the following table. The table was prepared by California Municipal Statistics, Inc., and is included for general information purposes only. Neither the City nor the District has reviewed this report for completeness or accuracy and makes no representation in connection therewith.

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Direct and Overlapping Governmental Obligations

CITY OF CALIMESA COMMUNITY FACILITIES DISTRICT NO. 2012-1 IMPROVEMENT AREA NO. 1 (SINGLETON HEIGHTS)

2013-14 Assessed Valuation: $9,465,610 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/15/14 Beaumont Unified School District General Obligation Bonds 0.258% $155,845 City of Calimesa Community Facilities District No. 2012-1, I.A. 1 100. - - (1)

(1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $155,845 OVERLAPPING GENERAL FUND DEBT: Riverside County General Fund Obligations 0.005% $31,875 Riverside County Pension Obligations 0.005 15,107 Riverside County Office of Education Certificates of Participation 0.005 122 Mount San Jacinto Community College District Certificates of Participation 0.014 1,669 Beaumont Unified School District Certificates of Participation 0.258 13,672 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $62,445 Less: Riverside County supported obligations 456 TOTAL NET OVERLAPPING GENERAL FUND DEBT $61,989 GROSS COMBINED TOTAL DEBT $218,290 (2) NET COMBINED TOTAL DEBT $217,834 Ratios to 2013-14 Assessed Valuation: Direct Debt ............................................................................... - % Total Direct and Overlapping Tax and Assessment Debt ........... 1.65% Gross Combined Total Debt ....................................................... 2.31% Net Combined Total Debt .......................................................... 2.30% _______________ (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease

obligations. Source: California Municipal Statistics, Inc.

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Estimated Tax Burden on Single Family Home

The following table sets forth the estimated total tax burdens on the homes in Singleton Heights, based on estimated tax rates for Fiscal Year 2013-14.

CITY OF CALIMESA COMMUNITY FACILITIES DISTRICT NO. 2012-1 IMPROVEMENT AREA NO. 1 (SINGLETON HEIGHTS)

Estimated Total Effective Tax Rate Single Family Units

Class 4 1,501 -

1,800 Sq. Ft.

Class 5 1,801 -

2,100 Sq. Ft.

Class 6 2,101 –

2,400 Sq. Ft.

Class 7 2,401 -

2,700 Sq. Ft.

Class 8 2,701 -

3,000 Sq. Ft.

Class 9 Greater

than 3,000 Sq. Ft.

VALUES

Median Appraised Value (1) $260,040 $296,566 $315,230 $356,580 $369,200 $383,760

Home Owners Exemption ($7,000) ($7,000) ($7,000) ($7,000) ($7,000) ($7,000)

Estimated Property Value $253,040 $289,566 $308,230 $349,580 $362,200 $376,760

AD VALOREM PROPERTY TAXES(2)

Basic Levy 1.0000% $2,530.40 $2,895.66 $3,082.30 $3,495.80 $3,622.00 $3,767.60

Beaumont Unified School District 0.0900% $227.74 $260.61 $277.41 $314.62 $325.98 $339.08

San Gorgonio Pass Water Agency 0.1850% $468.12 $535.70 $570.23 $646.72 $670.07 $697.01

1.2750% $3,226.26 $3,691.97 $3,929.94 $4,457.14 $4,618.05 $4,803.69

ASSESSMENTS, SPECIAL TAXES AND PARCEL CHARGES

City of Calimesa LLMD No. 90-1 (City Wide) $21.50 $21.50 $21.50 $21.50 $21.50 $21.50

Santa Ana National Pollutant Discharge Elimination $2.92 $2.92 $2.92 $2.92 $2.92 $2.92

City of Calimesa Public Safety CFD No. 1 $530.62 $530.62 $530.62 $530.62 $530.62 $530.62

City of Calimesa CFD 2012-1 Services Tax(3) $708.88 $708.88 $708.88 $708.88 $708.88 $708.88

City of Calimesa CFD 2012-1 Facilities Tax(4) $710.62 $975.43 $1,125.50 $1,275.56 $1,425.63 $1,575.69

Total Assessments, Charges and Special Taxes $1,974.54 $2,239.35 $2,389.42 $2,539.48 $2,689.55 $2,839.61

PROJECTED TOTAL PROPERTY TAXES $5,200.80 $5,931.32 $6,319.36 $6,996.62 $7,307.60 $7,643.30

Estimated Effective Tax Rate 2.00% 2.00% 2.00% 1.96% 1.98% 1.99%

2013-14 Assigned Special Tax Rate $1,548.36 $1,829.88 $2,111.40 $2,392.92 $2,674.44 $2,955.96

_____________________ Source: Koppel & Gruber Public Finance. (1) Based on the Appraisal dated May 2014. (2) Based on fiscal year 2013-2014 rates for Tax Rate Area 022-006. (3) This special tax for services does not secure the Bonds. (4) CFD 2012-1 Facilities Special Tax have been proportionately reduced to produce a 2% effective tax rate or less for all Land

Use Classes. Assumes the 4 units of Class 4 are partially prepaid to the 2% effective tax rate level.

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PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT

The following information regarding the ownership, developer and planned development of Improvement Area No. 1 in the District has been provided by Singleton Road, LLC and Mastercraft Homes Group, LLC for use in this Official Statement, and has not been independently confirmed or verified by the District or the Underwriter. Neither the District nor the Underwriter makes any representation as to the accuracy or adequacy of this information or the absence of any material change after the date of this Official Statement. No assurance can be given that the proposed development will occur as described herein or that it will be completed in a timely manner.

No assurance can be given that the proposed development within Improvement Area No. 1 will occur as described below. As the proposed land development progresses and parcels are sold, it is expected that the ownership of the land within Improvement Area No. 1 will become more diversified. No assurance can be given that development of the land within Improvement Area No. 1 will occur in a timely manner or in the configuration or intensity described herein, or that any landowner described herein will obtain or retain ownership of any of the land within Improvement Area No. 1. The Bonds and the Special Taxes are not personal obligations of any landowners, including Singleton Road, LLC and MasterCraft Homes Group, LLC and, in the event that a landowner defaults in the payment of the Special Taxes, the District may proceed with judicial foreclosure but has no direct recourse to the assets of any landowner. As a result, other than as provided herein, no financial statements or information is, or will be, provided about the Developers or any other landowners. The Bonds are secured solely by the Special Tax Revenues and other amounts pledged under the Fiscal Agent Agreement. See “SECURITY FOR THE BONDS” and “RISK FACTORS.”

Singleton Road, LLC and Mastercraft Homes Group, LLC

Singleton Road, LLC is an Oregon limited liability company (the “Landowner” or “Singleton Road”) which owns approximately 30% of the taxable property within Improvement Area No. 1. The remaining landowners are individual homeowners who purchased their homes from Singleton Road. Singleton Road consists of five individual members. Singleton Road has contracted with MasterCraft Homes Group, LLC (“Mastercraft” or the “Developer”) for the construction of the homes within Improvement Area No. 1.

Daniel Thompson founded Mastercraft in 1995 and is Mastercraft’s Chief Executive Officer and sole owner. Mr. Thompson has over 35 years of commercial and residential real estate experience including project management, land acquisition, joint venture and project financing, and sales and marketing management. Prior to forming Mastercraft, Mr. Thompson held numerous corporate and partner positions. He is also a licensed real estate broker. Mr. Thompson graduated from the University of California, Irvine and completed graduate school of business studies.

Other Projects. Mastercraft has completed numerous other home developments throughout Southern California including the following:

(i) “The Gatsby Hollywood” consisted of 34 three-story detached homes located in Hollywood, California ranging in size from 1,610 to 1,824 square feet, with attached two-car garages and an optional private rooftop deck.

(ii) “Rimrock Summit” consisted of estate home ranging from 3,000 to 5,287 square feet on oversided lots averging two acres in Hidden Meadows, California. Five floor plans consisting of single and two-story residences were offered.

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(iii) “Walnut Village” consisted of 30 two-story single family detached homes located in Fontana, California. The homes ranged in size from 2,150 to 2,450 square feet.

Plan of Development

Singleton Road has taken all actions necessary to entitle such land and, to construct and sell to individual homebuyers single-family detached residential homes on such lots. As of December 10, 2010, all necessary land entitlements to construct, or contract for the construction of, all necessary improvements and infrastructure in Improvement Area No. 1 had been obtained by Singleton Road.

Singleton Road has contracted with Mastercraft to develop a total of 121 single-family homes in 14 phases in Improvement Area No. 1. These homes will be located in a planned residential community known as “Singleton Heights”. The proposed 121 single-family homes in Singleton Heights will be built on approximately 7,200 square foot minimum lots and will have 6 different home plans ranging in size from 1,576 to 3,198 square feet with base sales prices ranging from $238,500 to $384,449. As of July 25, 2014, the first 12 phases (of the 14 phases) of the development were complete and of the 121 single family homes, 85 homes have been sold to individual homeowners, three models homes are built and under ownership of Singleton Road, 20 home are under construction, and there are 13 finished lots.

The Developer anticipates completing the development within Improvement Area No. 1 of the District in accordance with the following proposed schedule:

Phase Number of

Units Actual/Projected

Start Date Actual/Projected Completion Date

Model Homes 3 May 2011 2011 1 9 2011 August 2011 2 6 April 2012 January 2013 3 6 June 2012 November 2012 4 6 August 2012 May 2013 5 7 October 2012 June 2013 6 7 January 2013 June 2013 7 6 March 2013 November 2013 8 6 March 2013 March 2014 9 5 June 2013 December 2013

10 8 June 2013 February 2014 11 6 September 2013 March 2014 12 18 December 2013 June 2014 13 15 March 2014 August 2014 14 10 August 2014 February 2015

Build-Out 3 November 2014 May 2015 121

Source: MasterCraft Homes Group, LLC.

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A summary of the units in the Singleton Heights development by plan type and the estimated sizes and prices of each plan type are set forth below.

SUMMARY OF PROPOSED ACTIVE DEVELOPMENT (As of July 2014)

Plan

Proposed Number of Units at Buildout(1)

Approximate Square Footage

Estimated Base Home Price

1 4 1,576 $238,500 2 13 1,877-1,878 296,500 3 30 2,174-2,285 337,500 4 35 2,547-2,567 354,000 5 29 2,839-2,840 364,500 6 10 3,198 375,000

121 (1) As of July 1, 2014. Source: Mastercraft Homes Group, LLC.

Status of Regulatory Permits, Agreements and Procedures

The Developer represents that subject only to the payment of applicable fees, all material permits other than building permits needed to commence construction of the Singleton Heights development project can be obtained and when such fees are paid will be in full force and effect and not subject to appeal or challenge. Various impact fees are due each time a building permit is obtained. The Developer represents that there are no other conditions to the issuance of the permits.

Tax Delinquencies of Developer and Its Affiliates and Other Matters

Singleton Road represents that neither it nor any of its affiliates, members or partners have ever defaulted to any material extent in the payment of special taxes or assessments levied on its property within Improvement Area No. 1 or any other community facilities district or assessment district within the past five years. Singleton Road also represents that neither it nor any of its affiliates, members or partners is in default on any loans, lines of credit or other obligation the result of which could have a material adverse effect on the development of the property owned by it in Improvement Area No. 1. Except as expressly provided herein, Singleton Road represents that neither it nor any of its affiliates, members or partners has ever filed bankruptcy or been declared bankrupt. Singleton Road also represents that there is no litigation of any nature in which it has been served or is pending or threatened against it, which if successful, would materially adversely affect the ability of Singleton Road to complete the sale and development of the property it currently owns within Improvement Area No. 1 or to pay the ad valorem tax obligations when due on the property it currently owns within Improvement Area No. 1. Except as described in this Official Statement and except for those consents, permits, authorizations, certifications and approvals of governmental entities required in the ordinary course of development, Singleton Road represents that it has no actual knowledge of any impediment which could have a material adverse effect on its ability to complete the planned development of its property within Improvement Area No. 1 within the timeframe and budget described herein.

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Financing Plan

Singleton Road has obtained all the necessary financing to build out the Singleton Heights project in Improvement Area No. of the District. Singleton Road has financed its land acquisition and various site development costs related to its property in Improvement Area No. 1 with internal sources and a loan with Cathay Bank with a not-to-exceed amount of $9,640,000. The rate of interest is the prime rate as published in the Wall Street Journal plus 0.75 percentage points, and the loan matures on July 1, 2015. The interest rate as of the date of the promissory note was 5%. As of May 1, 2014, the outstanding balance on the loan was $6,528,126. Neither Singleton Road nor any other related entity is under any legal obligation to expend funds for the development of its property in Improvement Area No. 1.

RISK FACTORS

INVESTMENT IN THE BONDS INVOLVES ELEMENTS OF RISK AND ARE NOT APPROPRIATE INVESTMENTS FOR CERTAIN INVESTORS. THE FOLLOWING SECTION DESCRIBES CERTAIN SPECIFIC RISK FACTORS AFFECTING THE PAYMENT AND SECURITY OF THE BONDS. THE FOLLOWING DISCUSSION OF RISKS IS NOT MEANT TO BE AN EXHAUSTIVE LIST OF THE RISKS ASSOCIATED WITH THE PURCHASE OF THE BONDS AND THE ORDER OF DISCUSSION OF SUCH RISKS DOES NOT NECESSARILY REFLECT THE RELATIVE IMPORTANCE OF THE VARIOUS RISKS. POTENTIAL INVESTORS ARE ADVISED TO CONSIDER THE FOLLOWING FACTORS ALONG WITH ALL OTHER INFORMATION IN THIS OFFICIAL STATEMENT IN EVALUATING THE BONDS. THERE CAN BE NO ASSURANCE THAT OTHER RISK FACTORS NOT DISCUSSED UNDER THIS CAPTION WILL NOT BECOME MATERIAL IN THE FUTURE.

Limited Obligations of the District

Funds for the payment of the principal of, and the interest on, the Bonds are derived from the Special Tax levied against the taxable property in Improvement Area No. 1 of the District. While a projected coverage factor has been considered in structuring the annual debt service on the Bonds, the amount of Special Taxes that will be collected by the District could become insufficient to pay principal of, or interest on, the Bonds in certain circumstances. If there is a non-payment by property owners or insufficient proceeds are received from the foreclosure sale of property within the District due to delinquencies, a default on the Bonds may follow upon the depletion of the Reserve Account. The Bonds do not represent the general obligations of the District. The District’s obligation with respect to payment on the Bonds is limited to Special Taxes and moneys on deposit in the Special Tax Fund (and designated accounts therein, but excluding the Administrative Expenses Account) held by the Fiscal Agent under the Fiscal Agent Agreement. Neither the faith and credit nor the taxing power of the City, the County or the State or any of its political subdivisions is pledged to the payment of the Bonds.

Levy and Collection of the Special Taxes

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

Because the Special Tax formula set forth in the Rate and Method is not based on property value, the levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of

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particular parcels of Taxable Property and the amount of the levy of the Special Tax against those parcels. Thus, there will rarely, if ever, be a uniform relationship between the value of the parcels of Taxable Property and their proportionate share of debt service 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 on any particular parcel of Taxable Property to vary from the Special Tax that might otherwise be expected:

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

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

• Development of a parcel of Taxable Property more rapidly than development of other parcels of Taxable Property, thereby resulting in the application of development factors in the Special Tax formula to the parcel and resulting in an increased tax burden on the parcel of Taxable Property.

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

The Fiscal Agent Agreement provides that the Special Tax is to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the special covenant for foreclosure described in “SECURITY FOR THE BONDS – Covenant to Commence Foreclosure Proceedings” and in the Act, is subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ordinary ad valorem property taxes. Under these procedures, if taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County.

If sales or foreclosures of property are necessary, there could be a delay in payments to owners of the Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the City of the proceeds of sale if the Reserve Account is depleted. See “SECURITY FOR THE BONDS – Covenant to Commence Foreclosure Proceedings.”

Payment of Special Tax is not a Personal Obligation of the Landowner

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 a default in the payment of the Special Tax and a foreclosure sale by the City, the resulting proceeds are insufficient, taking into account other obligations also constituting a lien against the parcels of Taxable Property, the City has no recourse against the owner.

Appraised Values

The Appraisal summarized in APPENDIX C estimates the market value of the taxable property within Improvement Area No. 1 of the District. This market value is merely the present opinion of the Appraiser, and is subject to the assumptions and limiting conditions stated in the Appraisal. The City has

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not sought the present opinion of any other appraiser of the value of the taxed parcels. A different present opinion of value might be rendered by a different appraiser.

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

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

No assurance can be given that any of the Taxable Property within Improvement Area No. 1 of the District could be sold for the estimated market value contained in the Appraisal if that property should become delinquent in the payment of Special Taxes and be foreclosed upon.

Property Values and Property Development

The value of Taxable Property within Improvement Area No. 1 of the District is a critical factor in determining the investment quality of the Bonds. If a landowner defaults in the payment of the Special Tax, the City’s only remedy is to foreclose on the delinquent 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 factors beyond the City’s control, such as a general economic downturn, adverse judgments in future litigation that could affect the scope, timing or viability of development, relocation of employers out of the area, stricter land use regulations, shortages of water, electricity, natural gas or other utilities, destruction of property caused by earthquake, flood or other natural disasters, environmental pollution or contamination, or unfavorable economic conditions.

The City has not evaluated development risks. Since these are largely business risks of the type that the landowner customarily evaluates individually, and inasmuch as changes in land ownership may well mean changes in the evaluation with respect to any particular parcel, the District is issuing the Bonds without regard to any such evaluation. Thus, the creation of the District and the issuance of the Bonds in no way implies that either the City or the District has evaluated these risks or the reasonableness of these risks. On the contrary, the City and the District have made no such evaluation and are undertaking acquisition and construction of the facilities being financed by the Bonds even though these risks may be serious and may ultimately halt or slow the progress of land development and forestall the realization 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 scope of property development in the District or the value of property in the District.

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

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

Second, failure to complete development on a timely basis could adversely affect the land values of those parcels that have been completed. Lower land values would result in less security for the payment of principal of and interest on the Bonds and lower proceeds from any foreclosure sale

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necessitated by delinquencies in the payment of the Special Tax. See “THE DISTRICT – Appraised Value to Lien Ratio.” No assurance can be given that the proposed development within Improvement Area No. 1 of the District will be completed, and in assessing the investment quality of the Bonds, prospective purchasers should evaluate the risks of noncompletion.

Risks of Real Estate Investment Generally. Continuing development of land within the District may be adversely affected by changes in general or local economic conditions, fluctuations in or a deterioration of the real estate market, increased construction costs, development, financing and marketing capabilities of the individual landowner, water or electricity shortages, and other similar factors. Development in Improvement Area No. 1 may also be affected by development in surrounding areas, which may compete with the District. In addition, land development operations are subject to comprehensive federal, state and local regulations, including environmental, land use, zoning and building requirements. There can be no assurance that proposed land development operations within the District will not be adversely affected by future government policies, including, but not limited to, governmental policies to restrict or control development, or future growth control initiatives. There can be no assurance that land development operations within the District will not be adversely affected by these risks.

Risk Related to Availability of Construction Financing. The ability of the Developer and other property owners in the District to develop property within the District is partially dependent on the availability of construction financing. At this time, the Developer believes that sufficient construction financing is available to allow it to develop properties in the District as planned. However, no guarantees can be made that such construction financing will remain available or that it will be available to all owners within the District that have future development plans. In the event the Developer is unable to complete development of the property within the District, this may adversely impact the value of the Taxable Property and as a result, adversely impact Special Tax Revenues available to pay debt service on the Bonds.

Risks Related to Availability of Home Loans. The availability of loans for potential purchasers of units and lots in the District may impact the ability of the Developer and other owners of property to sell units and the lots within the District. No guarantees can be made that such home loans will be available or what impact, if any, such availability will have on the Developer and other property owners’ ability to develop the District as envisioned.

Natural Disasters. The value of the Taxable Property in the future can be adversely affected by a variety of natural occurrences, particularly those that may affect infrastructure and other public improvements and private improvements on the Taxable Property and the continued habitability and enjoyment of such private improvements. The areas in and surrounding the District, like those in much of California, may be subject to unpredictable seismic activity.

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

Legal Requirements. Other events that may affect the value of Taxable Property include changes in the law or application of the law. Such changes may include, without limitation, local growth control

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initiatives, local utility connection moratoriums and local application of statewide tax and governmental spending limitation measures.

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

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

Further, it is possible that liabilities may arise in the future with respect to any of the Taxable Property resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but that has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently on the parcel of a substance not presently classified as hazardous but that may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of Taxable Property that is realizable upon a delinquency.

Endangered and Threatened Species. It is illegal to harm or disturb any plants or animals 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 & Game Commission under the California Endangered Species Act without a permit. Although the Landowners believe that no federally listed endangered or threatened species would be affected by the proposed development within the District, the discovery of an endangered plant or animal could delay development of vacant property in the District or reduce the value of undeveloped property.

Concentration of Landownership

As of the date of issuance of the Bonds, Singleton Road owns approximately 30% of the taxable property in Improvement Area No. 1 of the District. The willingness and ability of the Landowner, as well as other property owners, to pay property taxes and the Special Taxes could be adversely affected by changes in general or local economic conditions, fluctuations in the real estate market and other factors. A description of the Landowner is set forth under the caption “PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT.” Failure of any owner of property in Improvement Area No. 1 to pay installments of the Special Tax when due could result in the depletion of the Reserve Account prior to reimbursement from the resale of foreclosed property or payment of the delinquent Special Tax and, consequently, an insufficiency of Special Tax proceeds to meet obligations under the Fiscal Agent

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Agreement. In that event, there could be a delay or failure in payments of the principal of and interest on the Bonds.

Other Possible Claims Upon the Value of Taxable Property

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

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

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

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

Exempt Properties

Certain properties are exempt from the Special Tax in accordance with the Rate and Method and the Act, which provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property within the District acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. See “SECURITY FOR THE BONDS – Rate and Method of Apportionment of Special Taxes.” In addition, although the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment, the constitutionality and operation of these provisions of the Act have not been tested, meaning that such property could become exempt from the Special Tax.

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

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Depletion of Reserve Account

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

Bankruptcy and Foreclosure Delays

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

Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a landowner or any other person claiming an interest in the property could result in a delay in superior court foreclosure proceedings and could result in the possibility of Special Tax installments not being paid in part or in full. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds. To the extent that property in the District continues to be owned by a limited number of landowners, the chances are increased that the Reserve Account established for the Bonds could be fully depleted during any such delay in obtaining payment of delinquent Special Taxes. As a result, sufficient moneys would not be available in the Reserve Account for transfer to the Bond Fund to make up shortfalls resulting from delinquent payments of the Special Tax and thereby to pay principal of and interest on the Bonds on a timely basis.

Glasply Marine Industries. On July 30, 1992 the United States Court of Appeals for the 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 the date that the landowner filed a petition for bankruptcy would not be entitled to priority over the claims of a secured creditor with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed subsequent 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, the secured creditor was able to foreclose on the subject property and retain all the proceeds from the 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 has sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would be subject only to current ad valorem taxes (i.e., not those accruing during the bankruptcy proceeding).

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The Glasply decision is controlling precedent in bankruptcy court in the State of California. If Glasply were held to be applicable to Special Taxes, a bankruptcy petition filing would prevent the lien for Special Taxes levied in subsequent fiscal years from attaching so long as the property was part of the estate in bankruptcy, which could reduce the amount of Special Taxes available to pay debt service on the Bonds. However, Glasply speaks as to ad valorem property taxes, and not special taxes, and no case law exists with respect to how a bankruptcy court 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 taxes imposed by a political subdivision after the filing of a bankruptcy petition. Under this law, if a bankruptcy petition is filed on or after October 22, 1994, the lien for ad valorem property taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bond owners should be aware that the potential effect of 11 U.S.C. § 362(b)(18) on the Special Taxes also depends upon whether a court were to determine that the Special Taxes should be treated like ad valorem property taxes for this purpose.

Property Owned by FDIC. In addition, the ability of the City to foreclose upon the lien on property for delinquent Special Taxes may be limited for properties in which the Federal Deposit Insurance Corporation (the “FDIC”) has an interest. On November 26, 1996, the FDIC adopted a Statement of Policy Regarding the Payment of State and Local Property Taxes (the “Policy Statement”) (which superseded a prior statement issued by the FDIC and the Resolution Trust Corporation in 1991). The Policy Statement applies to the FDIC when it is liquidating assets in its corporate and receivership capacities. The Policy Statement provides, in part, that real property of the FDIC is subject to state and local real property taxes if those taxes are assessed according to the property’s value, and that the FDIC is immune from ad valorem real property taxes assessed on other bases. The Policy Statement also provides that the FDIC will pay its proper tax obligations when they become due and will pay claims for delinquencies as promptly as is consistent with sound business practice and the orderly administration of the institution’s affairs, unless abandonment of the FDIC interest in the property is appropriate. It further provides that the FDIC will pay claims for interest on delinquent property taxes owned at the rate provided under state law, but only to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay for any fines or penalties and will not pay nor recognize liens for such amounts. The Policy Statement also provides that if any property taxes (including interest) on FDIC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. No property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC’s consent. In addition, a lien for taxes and interest may attach, but the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the 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 the period for which the tax is imposed, notwithstanding the failure of any person, including prior record owners, to challenge an assessment under the procedures available under state law. In the exercise of its business judgment, the [FDIC] may challenge assessments which do not conform with the statutory provisions, and during the challenge may pay tax claims based on the assessment level deemed appropriate, provided such payment will not prejudice the challenge. The [FDIC] will generally limit challenges to the current and immediately preceding taxable year and to the pursuit of previously filed tax protests. However, the [FDIC] may, in the exercise of its business judgment, challenge any prior taxes and assessments provided that (1) the [FDIC’s] records (including appraisals, offers or bids received for the purchase of the property, etc.) indicate that the assessed value is clearly excessive, (2) a successful challenge will result in a substantial savings to the [FDIC], (3) the challenge will not unduly delay the sale of the property, and (4) there is a reasonable likelihood of a successful challenge.”

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

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

The City is unable to predict what effect the application of the Policy Statement, or the ultimate outcome of the County of Orange case, would have in case of a Special Tax delinquency on a parcel in which the FDIC has an interest. However, prohibiting the judicial foreclosure sale of a FDIC-owned parcel would likely reduce the number of or eliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Bonds should assume that the City will be unable to foreclose on parcels of land in the District owned by the FDIC. Such an outcome would cause a draw on the Reserve Account and perhaps, ultimately, a default in payment of the Bonds.

Disclosure to Future Purchasers

The City has recorded a Notice of the Special Tax Lien in the Office of the Riverside County Recorder. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such special tax obligation in the purchase of a parcel of land or a home in the District or the lending of money secured by property in the District. The Act and the Goals and Policies require the subdivider of a subdivision (or its agent or representative) to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello-Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1 102.6b requires that in the case of transfers other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with these requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.

No Acceleration Provisions

The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement. Under the Fiscal Agent Agreement, a Bondowner is given the right for the equal benefit and protection of all Bondowners similarly situated to pursue certain remedies. See APPENDIX E – “SUMMARY OF THE FISCAL AGENT AGREEMENT.” So long as the Bonds are in book-entry form, DTC will be the sole Bondowner and will be entitled to exercise all rights and remedies of Bondowners.

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Loss of Tax Exemption

As discussed under the caption “TAX MATTERS – Tax Exemption,” interest on the Bonds might become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued as a result of future acts or omissions of the City in violation of its covenants in the Fiscal Agent Agreement. The Fiscal Agent Agreement does not contain a special redemption feature triggered by the occurrence of an event of taxability. As a result, if interest on the Bonds were to be includable in gross income for purposes of federal income taxation, the Bonds would continue to remain outstanding until maturity unless earlier redeemed pursuant to optional or mandatory redemption or redemption upon prepayment of the Special Tax. See “THE BONDS – Redemption.”

Proposition 218 and the Initiative Power

On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative entitled the “Right to Vote on Taxes Act” (“Proposition 218”). Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of local governments to levy and collect both existing and future taxes, assessments, fees and charges. Proposition 218 became effective for most purposes on November 6, 1996.

Article XIIIC of Proposition 218 removes all State limitations on the initiative power to reduce or

repeal “any local tax, assessment, fee or charge.” The Act provides for a procedure which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On July 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code Section 5854, which states,

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

The initiative power also is limited by the United States Constitution’s prohibition against State

or local laws “impairing the obligation of contracts.” The Bonds represent a contract between the City and the Bondholders secured by the Special Taxes. While not free from doubt, it is likely that, once the Bonds are issued, the Special Taxes would not be subject to repeal or reduction by initiative, at least to the extent the Special Taxes are necessary to enable the City to make timely payment on principal and interest on the Bonds, but not necessarily to the full extent of the authorized tax amount. It may be possible, however, for voters or the District to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. The interpretation and application of these provisions of Proposition 218, the State Government Code, and the federal Constitution’s Contracts Clause will ultimately be determined by the courts, and it is not possible at this time to predict with certainty the outcome of such determination or the timeliness of any remedy afforded by the courts.

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Validity of Landowner Elections

On August 1, 2014, the California Court of Appeal, Fourth Appellate District, Division One (the “Court”), issued its opinion in City of San Diego v. Melvin Shapiro, et al. (D063997). The Court of Appeal considered whether Propositions 13 and 218, which amended the California Constitution to require voter approval of taxes, require registered voters to approve a tax or whether a city could limit the qualified voters to just the landowners and lessees paying the tax. The case involved a Convention Center Facilities District (the “CCFD”) established by the City of San Diego. The CCFD is a financing district established under San Diego’s charter and was intended to function much like a community facilities district established under the provisions of the Mello-Roos Community Facilities Act of 1982 (Section 53311 et seq. of the Government Code of the State of California), as amended (the “Mello-Roos Act”). The CCFD is comprised of the entire city of San Diego. However, the special tax to be levied within the CCFD was to be levied only on properties improved with a hotel located within the CCFD.

At the election to authorize such special tax, the San Diego Charter proceeding limited the electorate to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel is located. Thus, the election was an election limited to landowners and lessees of properties on which the special tax would be levied, and not a registered voter election. Such approach to determining who would constitute the qualified electors of the CCFD was based on Section 53326(c) of the Mello-Roos Act, which generally provides that, if a special tax will not be apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed district whose property would be subject to the special tax. In addition, Section 53326(b) of the Mello-Roos Act provides that if there are less than 12 registered voters in the district, the landowners shall vote.

The Court held that the CCFD special tax election did not comply with applicable requirements of Proposition 13, which added Article XIII A to the California Constitution (which states “Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district”) and Proposition 218, which added Article XIII C and XIIID to the California Constitution (which provides “No local government may impose, extend or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote”), or with applicable provisions of San Diego’s Charter, because the electors in such an election were not the registered voters residing within such district.

San Diego argued that the State Constitution does not expressly define the qualified voters for a tax; however, the Legislature defined qualified voters to include landowners in the Mello-Roos Community Facilities District Act. The Court of Appeal rejected San Diego’s argument, reasoning that the text and history of Propositions 13 and 218 clearly show California voters intended to limit the taxing powers of local government. The Court was unwilling to defer to the Mello-Roos Act as legal authority to provide local governments more flexibility in complying with the State’s constitutional requirement to obtain voter approval for taxes. The Court held that the tax was invalid because the registered voters of San Diego did not approve it. However, the Court expressly stated that it was not addressing the validity of landowners voting to impose special taxes pursuant to the Mello-Roos Act in situations where there are fewer than 12 registered voters. In the case of the CCFD, at the time of the election there were several hundred thousand registered voters within the CCFD (i.e., all of the registered voters in the city of San Diego). In the case of the City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights) (the “District”), there were fewer than 12 registered voters within the District at the time of the election to authorize the District special tax.

Moreover, Section 53341 of Mello-Roos Act provides that any “action or proceeding to attack, review, set aside, void or annul the levy of a special tax … shall be commenced within 30 days after the

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special tax is approved by the voters.” Similarly, Section 53359 of the Mello-Roos Act provides that any action to determine the validity of bonds issued pursuant to the Mello-Roos Act or the levy of special taxes authorized pursuant to the Mello-Roos Act be brought within 30 days of the voters approving the issuance of such bonds or the special tax. Voters approved the special tax and the issuance of bonds for the District pursuant to the requirements of the Mello-Roos Act on April 16, 2012. In the opinion of Bond Counsel, under the provisions of Section 53341 and Section 53359 of the Mello-Roos Act, the statute of limitations period to challenge the validity of the special tax has expired.

Limited Secondary Market

There can be no assurance that there will be a secondary market for the Bonds, or if a secondary market exists, that such Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, pricing of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could substantially differ from the original purchase price.

TAX MATTERS

Tax Exemption

The Internal Revenue Code of 1986 (the “Code”) imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the Bonds. The City, on behalf of itself and of the District, has covenanted to maintain the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes.

In the opinion of Fulbright & Jaworski LLP, Los Angeles, California, Bond Counsel, a member of Norton Rose Fulbright, under existing statutes, regulations, rulings and court decisions, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the covenants mentioned herein, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. In the further opinion of Bond Counsel, under existing statutes, regulations, rulings and court decisions, the Bonds are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. Receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income. A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed.

Pursuant to the Fiscal Agent Agreement, and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141-150 of the Internal Revenue Code of 1986, to be delivered by the City, on behalf of itself and of the District in connection with the issuance of the Bonds, the each of the City and the District will make representations relevant to the determination of, and will make certain covenants regarding or affecting, the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In reaching its opinions described in the immediately preceding paragraph, Bond Counsel will assume the accuracy of such representations and the present and future compliance by each of the City and the District with its covenants.

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Except as stated in this section above, Bond Counsel will express no opinion as to any federal or state tax consequence of the receipt of interest on, or the ownership or disposition of, the Bonds. Furthermore, Bond Counsel will express no opinion as to any federal, state or local tax law consequence with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other counsel. Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the ownership of the Bonds.

Bond Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City and the District described above. No ruling has been sought from the Internal Revenue Service (the “Service”) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the District as the “taxpayer”, and the owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the District may have different or conflicting interest from the owners. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome.

Existing law may change to reduce or eliminate the benefit to bondholders of the exemption of interest on the Bonds from personal income taxation by the State of California or of the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors with respect to any proposed or future changes in tax law.

A copy of the form of opinion of Bond Counsel relating to the Bonds is included in APPENDIX D.

Tax Accounting Treatment of Bond Premium and Original Issue Discount on Bonds

To the extent that a purchaser of a Bond acquires that Bond at a price in excess of its “stated redemption price at maturity” (within the meaning of section 1273(a)(2) of the Code), such excess will constitute “bond premium” under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt obligation must be amortized over the remaining term of the obligation (or a shorter period in the case of certain callable obligations); the amount of premium so amortized will reduce the owner’s basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of the obligation. The amount of premium that is amortizable each year by a purchaser is determined by using such purchaser’s yield to maturity. The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when its Bond is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Bond to the owner.

The excess, if any, of the stated redemption price at maturity of Bonds of a maturity over the initial offering price to the public of the Bonds of that maturity is “original issue discount.” Original issue discount accruing on a Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and is exempt from California personal income tax to the same extent as would be stated interest on that Bond. Original issue discount on any Bond purchased at such initial

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offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Bond accruing during each period is added to the adjusted basis of such Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Bond. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of Bonds who purchase such Bonds other than at the initial offering price and pursuant to the initial offering

Persons considering the purchase of Bonds with original issue discount or initial bond premium should consult with their own tax advisors with respect to the determination of original issue discount or amortizable bond premium on such Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of such Bonds.

Other Federal Income Tax Consequences

Although interest on the Bonds may be exempt from California personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner’s federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Bonds. The nature and extent of these other tax consequences will depend upon the owner’s other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds and the Code contains additional limitations on interest deductions applicable to financial institutions that own tax-exempt obligations (such as the Bonds), (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the Bonds, (iii) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Bonds and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel will express no opinion regarding any such other tax consequences.

QUALIFIED TAX-EXEMPT OBLIGATIONS

Section 265 of the Code provides, in general, that interest expense to acquire or carry tax-exempt obligations is not deductible from the gross income of the owner of such obligations. In addition, section 265 of the Code generally disallows 100% of any deduction for interest expense that is incurred by a “financial institution” of the type described in such section and is allocable, as computed in such section, to tax-exempt interest on obligations acquired after August 7, 1986. Section 265(b) of the Code provides an exception to this interest disallowance rule for interest expense allocable to tax-exempt obligations (other than private activity bonds that are not qualified 501(c)(3) bonds) that are designated by an issuer as “qualified tax-exempt obligations.” An issuer may designate obligations as “qualified tax-exempt obligations” only if the amount of the issue of which they are a part, when added to the amount of all other tax-exempt obligations (other than private activity bonds that are not qualified 501(c)(3) obligations and other than certain refunding bonds) issued or reasonably anticipated to be issued by the issuer during the same calendar year, does not exceed $10,000,000.

40

The District has designated the Bonds as “qualified tax-exempt obligations” and has certified its expectation that the above-described $10,000,000 ceiling will not be exceeded. Accordingly, the District anticipates that financial institutions that purchase the Bonds will not be subject to the 100% disallowance of interest expense allocable to interest on the Bonds under section 265(b) of the Code. However, if Bonds treated as “qualified tax-exempt obligations” are acquired by a financial institution that is subject to section 265(b) of the Code, the deduction for interest expense incurred by that financial institution that is allocable to the interest on the Bonds will be reduced by 20% pursuant to section 291 of the Code. Bond Counsel has rendered no opinion as to the status of the Bonds as “qualified tax-exempt obligations” or to the consequences of such status (see “TAX MATTERS”).

ABSENCE OF LITIGATION

To the best of the District’s knowledge, there is no lawsuit or claim pending or threatened against the District seeking to restrain or enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds of the Bonds in accordance with the Fiscal Agent Agreement, the levy and collection of Special Taxes by the District, the application of Special Taxes and other moneys pledged under the Fiscal Agent Agreement to pay debt service on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, or the Fiscal Agent Agreement, or contesting the powers of the District or its authority with respect to the Bonds or its ability to perform its obligations under the Fiscal Agent Agreement.

CONTINUING DISCLOSURE

The District

The District has covenanted in a continuing disclosure agreement, the form of which is set forth in APPENDIX G – “FORM OF CONTINUING DISCLOSURE AGREEMENT (ISSUER)” (the “Issuer Continuing Disclosure Agreement”), for the benefit of holders and beneficial owners of the Bonds, to provide certain financial information and operating data relating to the District and the Bonds by not later than March 31 of each year, beginning on March 31, 2015. The Issuer Continuing Disclosure Agreement also requires the City to provide notices of the occurrence of certain enumerated events. The initial Dissemination Agent under the Issuer Continuing Disclosure Agreement will be Koppel & Gruber Public Finance. The covenants of the City in the Issuer Continuing Disclosure Agreement will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”).

A default under the Issuer Continuing Disclosure Agreement will not, in itself, constitute an Event of Default under the Fiscal Agent Agreement, and the sole remedy under the Issuer Continuing Disclosure Agreement in the event of any failure of the City or the Dissemination Agent to comply will be an action to compel specific performance. However, a failure to comply with a continuing disclosure undertaking must be reported in accordance with the SEC Rule 15c2-12(b)(5) and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds. Therefore, a failure by the City to comply with the provisions of a continuing disclosure agreement may adversely affect the marketability of the Bonds on the secondary market.

Continuing Disclosure History. Prior to the printing of this Official Statement, an examination was conducted of the continuing disclosure filings by the City during the past five years. The result of such examination indicated a few instances of filing delays. The continuing disclosure filings for the first year after the issuance of the Calimesa Financing Authority Tax Allocation Revenue Bonds (Calimesa Redevelopment Project No. 1 and Project No. 5), Series 2008 (the “2008 Bonds”) were filed approximately five months after the March 31 due date. After the first year, however, the portion of the

41

filings comprised of annually updated information of certain tables and portions of the Official Statement for the 2008 Bonds, have timely been filed by the applicable March 31, with the exception of the most recent filing, which was filed on April 4, 2014, due to problems experienced by the applicable dissemination agent for such bonds with respect to the Electronic Municipal Market Access System (the “EMMA System”) of the MSRB. As to the portion of the filings comprised of the annual financial statements, the financial statements were filed in three instances in April, when the audit reports for the respective audited financial statements were complete. In another instance, the annual financial statements were not filed until July, even though audited financial statements were completed by January, due to changes in key personnel of City’s finance department, which also handles financial matters of the City. Beginning with fiscal year 2012-13, the City engaged a new auditor, which required additional time for the auditors to become familiar with the City accounting practices. Now that this initial process has taken place, the City expects that future audited financial statements will proceed with the new auditors more expediently. The City believes that its procedures with its Dissemination Agent are sufficient in the normal due course to assure substantial compliance with its continuing disclosure undertakings and that the above-mentioned filing delays are anomalies due to unusual circumstances.

The Landowners

Singleton Road will covenant in a continuing disclosure agreement, the form of which is set forth in APPENDIX H – “FORM OF DISCLOSURE AGREEMENT (MAJOR PROPERTY OWNER)” (the “Landowner Continuing Disclosure Agreement”), for the benefit of holders and beneficial owners of the Bonds, to provide certain information relating to Singleton Road, LLC, and the parcels it owns within Improvement Area No. 1 of the District on a semi-annual basis, and to provide notices of the occurrence of certain enumerated events.

The obligations of the Landowner under its Landowner Continuing Disclosure Agreement will terminate on the earlier of (i) legal defeasance, prior redemption or payment in full of all the Bonds, (ii) the date on which the property in the District owned by Singleton Road, LLC, is no longer responsible for 20% or more of the Special Taxes, or (iii) the date on which Singleton Road, LLC, prepays in full all of the Special Taxes attributable to its property within Improvement Area No. 1 of the District.

The initial Dissemination Agent under the Landowner Continuing Disclosure Agreement will be Koppel & Gruber Public Finance. A default under a Landowner Continuing Disclosure Agreement will not, in itself, constitute an Event of Default under the Fiscal Agent Agreement, and the sole remedy under the Landowner Continuing Disclosure Agreement in the event of any failure of Singleton Road, LLC or the Dissemination Agent to comply will be an action to compel specific performance. This will be the first continuing disclosure undertaking for Singleton Road, LLC.

NO RATING

The District has not applied and does not contemplate applying to any rating agency for an assignment of rating on the Bonds.

UNDERWRITING

The Bonds are being purchased by the Underwriter at a purchase price of $2,725,006.90 (which represents the aggregate principal amount of the Bonds, less net original issue discount of $77,175.60, less an underwriter’s discount of $52,817.50). The purchase agreement relating to the Bonds provides that the Underwriter will purchase all of the Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase agreement. The Underwriter may

42

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

PROFESSIONAL FEES

The following professionals are participating in this financing:

• MUFG Union Bank, N.A., Los Angles, California, will serve as the Fiscal Agent and will perform the functions required of it under the Fiscal Agent Agreement.

• Fulbright & Jaworski LLP, Los Angeles California, a member of Norton Rose Fulbright, is acting as Bond Counsel to the City.

• Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, is acting as Disclosure Counsel to the City.

• Harris Realty Appraisal, Newport Beach, California, prepared the Appraisal.

• Koppel & Gruber Public Finance, of San Marcos, California, acted as special tax consultant to the City and will act as administrator to the City with respect to the District and dissemination agent for the District under the Issuer Continuing Disclosure Agreement.

In connection with the issuance of the Bonds, fees payable to the Underwriter, Bond Counsel, Disclosure Counsel, and to the Fiscal Agent for the Bonds, are contingent upon the issuance and delivery of the Bonds.

EXECUTION

The execution and delivery of the Official Statement has been duly authorized by the City of Calimesa on behalf of the District.

CITY OF CALIMESA

By: /s/ Randy Anstine City Manager

A-1

APPENDIX A GENERAL IN FORMATION ABOUT THE CITY OF

CALIMESA AND RIVERSIDE COUNTY

The following information is included only for the purpose of supplying general information regarding the City of Calimesa (the “City”) and Riverside County (the “County”). This information is provided only for general informational purposes, and provides prospective investors limited information about the City, the County and their economic base. The Bonds are not a debt of the City, the County, the State of California (the “State”) or any of its political subdivisions, and neither the City, the County, the State nor any of its political subdivisions is liable therefor.

General

The City is located in the County of Riverside in the San Gorgonio Pass area, in the highlands between Redlands and Beaumont. Situated in northwest Riverside County, the City flanks either side of Interstate 10 and borders the County of San Bernardino. The City was incorporated in December 1990 and has a general law form of government. The City Council is elected at large, and the City Council annually elects the Mayor from the councilmembers.

The City is at an elevation of 2,500 feet and encompasses approximately 15.6 square miles. The average high temperature is 79.5 degrees, and the average low temperature is 50.2 degrees. Annual precipitation ranges between 17 inches and 39 inches, with higher altitude areas generally receiving between 30 and 39 inches, and the lower elevation areas receiving between 17 and 30 inches.

Population

The City’s estimated population on January 1, 2014 was 8,231. The following table shows the

estimated past population data for the City.

CITY OF CALIMESA

Year (as of January 1)

Population

2004 7,579 2005 7,601 2006 7,608 2007 7,605 2008 7,626 2009 7,747 2010 7,847 2011 7,910 2012 8,022 2013 8,096 2014 8,231

_________________ Source: Demographic Research Unit, California State Department of Finance.

A-2

Assessed Valuation

A five year history of the City’s taxable assessed valuation is as follows:

Total Assessed Value

% change from Previous Year

2009-10 592,247,177 -4.89% 2010-11 563,275,808 -2.75 2011-12 547,763,266 3.38 2012-13 566,297,899 2.81 2013-14 582,206,225 10.27 2014-15(1) 641,984,946 _____________________ Source: Urban Futures, Inc. (1) Preliminary.

Employment and Industry

The City is located in Riverside County. The available labor force employment and unemployment figures over the last five years for Riverside-San Bernardino-Ontario Metropolitan Statistical Area (MSA), which encompasses Riverside and San Bernardino Counties, is as follows.

Riverside-San Bernardino-Ontario MSA Annual Average Labor Force and Industry Employment

Industry 2009 2010 2011 2012 2013

Total Farm 15,200 15,000 14,900 15,000 14,600 Mining and Logging 1,200 1,000 1,000 1,200 1,200 Construction 67,400 59,700 58,700 62,600 69,300 Manufacturing 88,500 85,100 85,800 86,700 86,800 Trade, Transportation and Utilities 269,700 270,800 275,100 288,200 299,300 Information 14,800 15,800 15,000 11,500 11,300 Financial Activities 43,600 41,000 39,200 40,800 42,000 Professional and Business Services 127,300 123,400 126,100 127,100 132,600 Educational and Health Services 132,600 133,800 137,900 167,200 182,000 Leisure and Hospitality 123,000 122,800 124,300 129,300 136,200 Other Services 36,700 38,200 39,300 40,100 40,800 Government 227,300 234,300 227,300 224,600 225,000

Total All Industries (1) 1,147,100 1,140,900 1,144,600 1,194,200 1,241,000 Total Civilian Labor Force (2) 1,778,200 1,798,200 1,799,000 1,812,800 1,818,300Total Unemployment 236,600 257,700 241,200 217,900 184,900Unemployment Rate 13.3% 14.3% 13.4% 12.0% 10.2%

___________________ (1) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers,

household domestic workers and workers on strike. (2) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household

domestic workers and workers on strike. Source: State Employment Development Department, Labor Market Information Division.

A-3

Commercial Activity

A summary of historic taxable sales within the City is shown in the following table.

CITY OF CALIMESA Taxable Sales (Dollars in Thousands)

RETAIL STORES TOTAL ALL OUTLETS

Number of Permits Taxable

Transactions

Number of Permits Taxable

Transactions 2004 77 $37,668 176 $40,742 2005 82 42,135 172 44,642 2006 79 47,290 150 50,575 2007 87 48,683 155 51,047 2008 83 47,830 153 54,285 RETAIL AND FOOD SERVICES(1) TOTAL ALL OUTLETS 2009 105 $43,593 155 $53,092 2010 116 45,792 159 51,057 2011 111 53,362 151 57,965 2012(2) 118 56,365 165 60,894

(1) Reflects change in reporting by California State Board of Equalization to reflect the board’s conversion of business codes of sales and use tax permit holders from a prior system to the North American Industry Classification System (NAICS) codes. As a result of the coding change, industry-level data for 2009 and later are not comparable to industry-level data for 2008 and prior years.

(2) Latest year-end data available.

Source: California State Board of Equalization. Construction Activity

The following is a summary of the valuation of building permits issued by the City in calendar years 2011 through 2013.

CITY OF CALIMESA Building Permit Valuation

2011 2012 2013 Residential: New single-family units $3,230,272 $6,548,727 $15,381,332 New multi-family -- -- -- Additions, alterations 163,143 2,055,495 227,749

Total Residential $3,393,415 $8,604,222 $15,609,081 Non-Residential:

New commercial -- $35,000 $747,057 New industrial -- -- -- Other $506,000 96,000 487,769 Additions, alterations 171,000 486,988 100,000

Total Non-Residential $677,000 $617,988 $1,334,826 Total Valuation $4,070,415 $9,222,210 $16,943,907

Number of New Dwelling Units:

Single-family 13 24 56 Multi-family 0 0 0

Total Units 13 24 56 ______________________________________

Source: Construction Industry Research Board, Building Permit Summary.

A-4

Utilities

Water and sewer services are provided to residents by the Yucaipa Valley Water District and the South Mesa Water Company. The City contracts with CR&R Waste and Recycling Services for trash collection services. Electricity is provided by Southern California Edison, natural gas is provided by The Gas Company, and the telephone service is supplied by Verizon. Services and Community Facilities

The City’s climate, fresh air and canyon views give rise to four golf resorts and extensive hillside trail systems. Within a few minutes of the City’s center are the Calimesa Country Club, Oak Valley Golf Club, Yucaipa Valley Golf Club, and the PGA Golf Club of Southern California at Oak Valley. Calimesa’s hills and valleys host miles of hiking, biking, and equestrian trails and are part of a larger regional trail system, including a wide range of surfaces and elevations.

Calimesa contracts with the Riverside County Sheriff’s Department for police protection and contracts with the Riverside County Fire Department for fire protection services. The City has a full time paid staff of 11, with the Development Services Department (consisting of Community Development, Engineering, and Building & Safety) contracted out.

Two school districts serve the City: the Yucaipa-Calimesa Joint Unified School District and the Beaumont Unified School District. Nearby are Mt. San Jacinto Community College, and San Bernardino Community College, and within a half hour commuting distance of Calimesa is the Riverside campus of University of California.

The Norton Younglove Multipurpose Senior Center, in cooperation with the Riverside County Office on Aging, provides hot lunches five days a week on site and delivered to homebound seniors, as well as offering a number of services for all ages, including bingo, trips, and classes.

B-1

APPENDIX B

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES

EXHIBIT A

April 16, 2012 1 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

COMMUNITY FACILITIES DISTRICT NO. 2012-1

(SINGLETON HEIGHTS)

IMPROVEMENT AREA NO. 1

OF THE CITY OF CALIMESA

RATE AND METHOD OF APPORTIONMENT

A Special Tax shall be levied on all Taxable Property (as defined below) within the

boundaries of Improvement Area No. 1 (“IA No. 1”) of Community Facilities District No.

2012-1 (Singleton Heights), (“CFD No. 2012-1”) of the City of Calimesa (“City”) and

collected each Fiscal Year commencing in Fiscal Year 2012/2013 in an amount determined

by the City Council (as defined below), through the application of this Rate and Method of

Apportionment of the Special Tax to the extent and in the manner herein provided.

1. DEFINITIONS

“Acreage” or “Acre” 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 Subdivision Map, parcel map,

condominium plan, or other recorded County parcel map. An Acre means 43,560

square feet of land.

“Act” means the Mello-Roos Community Facilities Act of 1982, as amended, being

Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of

California.

“Administrative Expenses” means the expenses incurred by the City on behalf of IA

No. 1 related to the determination of the amount of the levy of Annual Special Taxes;

the collection of Annual Special Taxes including the expenses of collecting

delinquencies; the administration of the Bonds; the payment of salaries and benefits of

any employee of the City whose employment duties are directly related to the

administration of IA No. 1; and the costs otherwise incurred in order to carry out

authorized purposes of IA No. 1.

“Annual Special Tax” means any Special Tax actually levied in any Fiscal Year on

any Assessor’s Parcel.

“Assessor” means the Assessor of the County.

“Assessor's Parcel” means a lot or parcel shown on an Assessor's Parcel Map with an

assigned Assessor's Parcel number.

B-2

EXHIBIT A

April 16, 2012 2 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

“Assessor’s Parcel Map” means an official map of the County designating parcels by

Assessor’s Parcel number.

“Assigned Special Tax A” means the Special Tax A for each Land Use Class, as

determined in accordance with Section 3 below.

“Backup Special Tax A” means the Special Tax amount applicable to each Assessor’s

Parcel of Developed Property, as determined in accordance with Section 3.A (ii)

below.

“Bonds” means any obligation of IA No. 1 to pay or repay a sum of money, including

obligations in the form of bonds, 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, secured in

whole or in part by the levy of Special Taxes.

“Building Permit” means a building permit for the construction of one or more

Residential Units within CFD No. 2012-1, IA No. 1 issued by the City.

“Building Square Footage” means all of the square footage of usable area within the

perimeter of a residential structure, not including any carport, walkway, garage,

overhang, or similar area. The determination of Building Square Footage shall be made

by reference to the building permit(s) issued for such Assessor’s Parcel.

“Calendar Year” means the period commencing January 1 of any year and ending the

following December 31.

“CFD Administrator” means an authorized representative of the City, or designee

thereof, responsible for determining the Special Tax Requirement for Facilities and the

Special Tax Requirement for Services, for preparing the Annual Special Tax roll and

calculating the Backup Special Tax.

“CFD No. 2012-1” means Community Facilities District No. 2012-1 (Singleton

Heights) of the City.

“City” means the City of Calimesa, California.

“City Council” means the City Council of the City of Calimesa, acting as the

legislative body of CFD No. 2012-1, or its designee.

B-3

EXHIBIT A

April 16, 2012 3 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

“Consumer Price Index” means, for each Fiscal Year, the Consumer Price Index

published by the U.S. Bureau of Labor Statistics for “All Urban Consumers” in the Los

Angeles-Anaheim-Riverside Area, measured as of the month of April in the previous

Fiscal Year. In the event this index ceases to be published, the Consumer Price Index

shall be another index that is reasonably comparable to the Consumer Price Index for

the Los Angeles-Anaheim-Riverside Area, as determined by the CFD Administrator.

“County” means the County of Riverside, California.

“Debt Service” means for each Fiscal Year, the total amount of principal and interest

payable on any Outstanding Bonds during the Calendar Year commencing on January

1 of such Fiscal Year.

“Developed Property” means for each Fiscal Year, all Assessor’s Parcels of Taxable

Property, exclusive of Assessor’s Parcels of Provisional Undeveloped Property, for

which a Building Permit was issued prior to April 1 of the previous Fiscal Year.

“Exempt Property” means Assessor’s Parcels designated as being exempt from

Special Taxes pursuant to Section 9.

“Final Subdivision Map” means a subdivision of property created by recordation of a

final map or parcel map, pursuant to the Subdivision Map Act (California Government

Code Section 66410 et seq.) or recordation of a condominium plan pursuant to

California Civil Code 1352 or lot line adjustment that creates individual lots for which

building permits may be issued without further subdivision.

“Fiscal Year” means the period starting on July 1 and ending the following June 30.

“Improvement Area 1” or “IA No. 1” means Improvement Area 1 of CFD No. 2012-

1, as identified on the boundary map for CFD No. 2012-1, as in effect on the date of

formation of IA No. 1, and as may thereafter be amended in accordance with the Act.

“Indenture” means the indenture, fiscal agent agreement, resolution or other

instrument pursuant to which Bonds are issued, as modified, amended and/or

supplemented from time to time, and any instrument replacing or supplementing the

same.

“Land Use Class” means any of the classes listed in Table 1 under Section 3 below.

“Lot” means an individual legal lot created by a Final Subdivision Map.

“Mandatory Maximum Special Tax Reduction” means a mandatory reduction of the

Maximum Special Tax A prior to the issuance of Bonds as set forth in Section 7 below.

B-4

EXHIBIT A

April 16, 2012 4 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

“Maximum Special Tax A” means the Maximum Special Tax A (Facilities),

determined in accordance with Section 3 below, which may be levied in any Fiscal

Year on any Assessor’s Parcel of Taxable Property.

“Maximum Special Tax B” means the Maximum Special Tax B (Services),

determined in accordance with Section 3 below, which may be levied in any Fiscal

Year on any Assessor’s Parcel of Taxable Property.

“Outstanding Bonds” mean all Bonds, which are deemed to be outstanding under the

Indenture.

“Partial Prepayment Amount” means a prepayment of a portion of the Special Tax A

Obligation applicable to an Assessor’s Parcel of Taxable Property as set forth in

Section 6.B below.

“Property Tax Burden” means the total estimated amount of taxes a residential

owner would expect to pay including ad valorem property taxes, special assessments,

fees and charges placed on the County property tax bill and is expressed as a

percentage of value as determined in Section 7.

“Proportionately” or “Proportionate” means for Developed Property, that the ratio

of the actual Special Tax levy to the Maximum Special Tax is equal for all Assessor’s

Parcels of Developed Property. For Undeveloped Property, “Proportionately” means

that the ratio of the actual Special Tax levy per Acre to the Maximum Special Tax A or

Maximum Special Tax B, as applicable, per Acre is equal for all Assessor's Parcels of

Undeveloped Property. The term “Proportionately” may similarly be applied to other

categories of Taxable Property as described in Section 3 below.

“Provisional Undeveloped Property” means all Assessor’s Parcels of property that

would otherwise be classified as Exempt Property pursuant to the provisions of Section

9, but cannot be classified as Exempt Property because to do so would reduce the

Acreage of all Taxable Property below the required minimum Acreage as set forth in

Section 9.

“Residential Unit” means each separate residential dwelling unit that comprises an independent facility capable of conveyance or rental separate from adjacent residential dwelling units. “Services” means the services eligible to be funded by IA No. 1.

“Special Tax” means any special tax authorized to be levied within CFD No. 2012-1

pursuant to the Act and this Rate and Method of Apportionment.

B-5

EXHIBIT A

April 16, 2012 5 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

“Special Tax A” means the Special Tax to be levied in each Fiscal Year on each

Assessor’s Parcel of Taxable Property within IA No. 1 to fund the Special Tax

Requirement for Facilities.

“Special Tax B” means the Special Tax to be levied in each Fiscal Year on each

Assessor’s Parcel of Taxable Property within IA No. 1 to fund the Special Tax

Requirement for Services.

“Special Tax A Obligation” means the total obligation of an Assessor’s Parcel of

Taxable Property to pay the Special Tax A for the remaining life of CFD No. 2012-1.

“Special Tax Requirement for Facilities” means that amount required in any Fiscal

Year to: (i) pay Debt Service on all Outstanding Bonds; (ii) pay periodic costs on the

Outstanding Bonds, including but not limited to, credit enhancement and rebate

payments on the Outstanding Bonds; (iii) pay Administrative Expenses; (iv) pay any

amounts required to establish or replenish any reserve funds for all Outstanding Bonds;

(v) the costs associated with the release of funds from an escrow account established in

association with the Bonds; (vi) accumulate funds to pay directly for acquisition or

construction of facilities provided that the inclusion of such amount does not cause an

increase in the Special Tax to be levied on Undeveloped Property, and (vii) pay for

reasonably anticipated delinquent Special Taxes based on the delinquency rate for

Special Taxes levied in the previous Fiscal Year; less (viii) a credit for funds available

to reduce the annual Special Tax levy, as determined by the CFD Administrator

pursuant to the Indenture.

“Special Tax Requirement for Services” means that amount required in any Fiscal

Year to: (i) pay the costs of Services incurred or otherwise payable in the Calendar

Year commencing in such Fiscal Year; (ii) fund an operating reserve for the costs of

Services as determined by the CFD Administrator; less a credit for funds available to

reduce the annual Special Tax B levy as determined by the CFD Administrator.

“State” means the State of California.

“Taxable Property” means all of the Assessor's Parcels within the boundaries of CFD

No. 2012-1, which are not exempt from the levy of the Special Tax pursuant to law or

Section 9 below.

“Trustee” means the trustee or fiscal agent under the Indenture.

“Undeveloped Property” means, for each Fiscal Year, all Taxable Property within the

boundaries of IA No. 1 not classified as Developed Property or Provisional

Undeveloped Property.

B-6

EXHIBIT A

April 16, 2012 6 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

2. LAND USE CLASSIFICATION

Each Fiscal Year, beginning with Fiscal Year 2012/2013, each Assessor’s Parcel

within the boundaries of IA No. 1 shall be classified as Taxable Property or Exempt

Property. In addition, all Taxable Property within IA No. 1 shall be classified as

Developed Property, Undeveloped Property or Provisional Undeveloped Property, and

all such Taxable Property shall be subject to the levy of Special Taxes in accordance

with this Rate and Method of Apportionment determined pursuant to Sections 3 and 4

below. Furthermore, each Assessor’s Parcels of Developed Property which is a

Residential Unit shall be classified to its applicable Land Use Class based on its

Building Square Footage.

3. MAXIMUM SPECIAL TAX RATES

A. Special Tax A (Facilities)

i. Developed Property

The Maximum Special Tax A applicable to an Assessor’s Parcel

classified as Developed Property for Fiscal Year 2012/2013 shall be

the greater of (i) the Assigned Special Tax A as determined pursuant

to Table 1 below or (ii) the amount derived by application of the

Backup Special Tax A.

Table 1

Assigned Special Tax A Rates

Fiscal Year 2012/2013

Land Use

Class Building Square Footage

Assigned

Special Tax A

1 900 or less Sq. Ft. $690 per Residential Unit

2 901 to 1,200 Sq. Ft. $966 per Residential Unit

3 1,201 to 1,500 Sq. Ft. $1,242 per Residential Unit

4 1,501 to 1,800 Sq. Ft. $1,518 per Residential Unit

5 1,801 to 2,100 Sq. Ft. $1,794 per Residential Unit

6 2,101 to 2,400 Sq. Ft. $2,070 per Residential Unit

7 2,401 to 2,700 Sq. Ft. $2,346 per Residential Unit

8 2,701 to 3,000 Sq. Ft. $2,622 per Residential Unit

9 Greater than 3,000 Sq. Ft. $2,898 per Residential Unit

B-7

EXHIBIT A

April 16, 2012 7 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

Each July 1, commencing July 1, 2013, the Assigned Special Tax A

shall be increased by two percent (2.0%) of the amount in effect in the

prior Fiscal Year.

ii. Backup Special Tax A

The Backup Special Tax A applicable to an Assessor’s Parcel

classified as Developed Property for Fiscal Year 2012/2013 shall be

$2,143 per Lot.

Each July 1, commencing July 1, 2013, the Back-up Special Tax A for

Developed Property shall be increased by two percent (2.0%) of the

amount in effect in the prior Fiscal Year.

iii. Provisional Undeveloped Property and Undeveloped Property

The Maximum Special Tax A for Provisional Undeveloped Property

and Undeveloped Property for Fiscal Year 2012/2013 shall be $9,276

per Acre.

Each July 1, commencing July 1, 2013, the Maximum Special Tax A

for Provisional Undeveloped Property and Undeveloped Property

shall be increased by two percent (2.0%) of the amount in effect in the

prior Fiscal Year.

B. Special Tax B (Services)

i. Developed Property

The Maximum Special Tax B for Developed Property for Fiscal Year

2012/2013 shall be $694 per Residential Unit.

ii. Undeveloped Property

The Maximum Special Tax B for Undeveloped Property for Fiscal Year

2012/2013 shall be $694 per Lot.

iii. Provisional Undeveloped Property

The Maximum Special Tax B for Provisional Undeveloped Property for

Fiscal Year 2012/2013 shall be $3,004 per Acre.

Each July 1 commencing July 1, 2013, the Maximum Special Tax B

shall be increased by the greater of (i) the most recent annual percentage

change in the Consumer Price Index or (ii) two-percent (2%) of the

amount in effect in the prior Fiscal Year.

B-8

EXHIBIT A

April 16, 2012 8 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

4. METHOD OF APPORTIONMENT

A. Special Tax A (Facilities)

For each Fiscal Year, commencing Fiscal Year 2012/2013, the CFD

Administrator shall calculate the Special Tax Requirement for Facilities and levy

Special Tax A on all Taxable Property in accordance with the following steps:

Step 1: The Special Tax A shall be levied Proportionately on each

Assessor’s Parcel of Developed Property up to 100% of the applicable

Assigned Special Tax A as necessary to satisfy the Special Tax

Requirement for Facilities;

Step 2: If additional monies are needed to satisfy the Special Tax

Requirement for Facilities after Step 1 has been completed, the Special Tax

A shall be levied Proportionately on each Assessor's Parcel of Undeveloped

Property up to 100% of the Maximum Special Tax A;

Step 3: If additional monies are needed to satisfy the Special Tax

Requirement for Facilities after the first two steps have been completed,

then the levy of the Special Tax A on each Assessor's Parcel of Developed

Property whose Maximum Special Tax A is determined through the

application of the Backup Special Tax A shall be increased Proportionately

from the Assigned Special Tax A up to 100% of the Maximum Special Tax

for each such Assessor's Parcel; and

Step 4: If additional monies are needed to satisfy the Special Tax

Requirement for Facilities after the first three steps have been completed,

then the Special Tax A shall be levied Proportionately on each Assessor’s

Parcel of Provisional Undeveloped Property at up to 100% of the Maximum

Special Tax A for Provisional Undeveloped Property.

B. Special Tax B (Services)

For each Fiscal Year, commencing Fiscal Year 2012/2013, the CFD

Administrator shall calculate the Special Tax Requirement for Services and levy

Special Tax B on all Taxable Property in accordance with the following steps:

Step 1: The Special Tax B shall be levied Proportionately on each

Assessor’s Parcel of Developed Property up to 100% of the applicable

Maximum Special Tax B for Developed Property and on each Assessor’s

Parcel of Undeveloped Property up to 50% of the applicable Maximum

B-9

EXHIBIT A

April 16, 2012 9 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

Special Tax B for Undeveloped Property as necessary to satisfy the Special

Tax Requirement for Services;

Step 2: If additional monies are needed to satisfy the Special Tax

Requirement for Services after Step 1 has been completed, the Special Tax

B shall be levied Proportionately on each Assessor's Parcel of Undeveloped

Property up to 100% of the Maximum Special Tax B;

Step 3: If additional monies are needed to satisfy the Special Tax

Requirement for Services after the first two steps have been completed, then

the Special Tax B shall be levied in equal percentages on each Assessor’s

Parcel of Provisional Undeveloped Property at up to 100% of the Maximum

Special Tax B for Provisional Undeveloped Property.

Notwithstanding the above, under no circumstances will the Special Tax levied

against any Assessor’s Parcel of Developed Property for which an occupancy

permit for private residential use has been issued be increased by more than ten

percent as a consequence of delinquency or default by the owner of any other

Assessor’s Parcel within IA No. 1, except for those Assessor’s Parcels of

Developed Property whose owners are also delinquent or in default on their

Special Tax payments for one or more other properties within IA No. 1.

5. COLLECTON OF ANNUAL SPECIAL TAXES

Collection of the Annual Special Tax shall be by the County in the same manner as

ordinary ad valorem property taxes are collected and the Annual Special Tax shall be

subject to the same penalties and the same lien priority in the case of delinquency as ad

valorem taxes; provided, however, that the City Council may provide for (i) other

means of collecting the Annual Special Tax, including direct billings thereof to the

property owners; and (ii) judicial foreclosure of delinquent Special Taxes to meet the

financial obligations of IA No. 1.

6. PREPAYMENT OF SPECIAL TAX A OBLIGATION

Property owners may prepay and permanently satisfy the Special Tax A Obligation by

a cash settlement with the City as permitted under Government Code Section 53344.

Prepayment is permitted only under the following conditions:

The following definitions apply to this Section 6:

“IA No. 1 Public Facilities Costs” means $4,250,000 in 2012 dollars, which shall

increase by the Construction Inflation Index on July 1, 2013, and on each July 1

thereafter, or such lower number as (i) shall be determined by the CFD Administrator

as sufficient to acquire or construct the facilities to be financed under the authorized

B-10

EXHIBIT A

April 16, 2012 10 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

Mello-Roos financing program for IA No. 1, or (ii) shall be determined by the City

Council concurrently with a covenant that it will not issue any more IA No. 1 Bonds

(except refunding bonds) to be supported by Special Taxes.

“Construction Fund” means the fund (regardless of its name) established pursuant to

the Indenture to hold funds, which are currently available for expenditure to acquire or

construct the facilities or pay fees.

“Construction Inflation Index” means the annual percentage change in the

Engineering News-Record Building Cost Index for the City of Los Angeles, measured

as of the Calendar Year, which ends in the previous Fiscal Year. In the event this index

ceases to be published, the Construction Inflation Index shall be another index as

determined by the CFD Administrator that is reasonably comparable to the Engineering

News-Record Building Cost Index for the City of Los Angeles.

“Future Facilities Costs” means the IA No. 1 Public Facilities Costs minus (i) costs

previously paid from the Construction Fund to acquire or construct the facilities, (ii)

monies currently on deposit in the Construction Fund, and (iii) monies currently on

deposit in an escrow or other earmarked fund that are expected to be available to

finance IA No. 1 Public Facilities Costs.

“Outstanding Bonds” means all Previously Issued Bonds, which remain outstanding

as of the first interest and/or principal payment date following the current Fiscal Year

excluding Bonds to be redeemed at a later date with proceeds of prior prepayments of

Maximum Special Taxes.

“Previously Issued Bonds” means all IA No. 1 Bonds that have been issued prior to

the date of prepayment.

A. Prepayment in Full

The Special Tax A Obligation applicable to an Assessor’s Parcel may be prepaid

and the obligation of the Assessor’s Parcel to pay any Special Tax permanently

satisfied as described herein, provided that a prepayment may be made with respect

to a particular Assessor’s Parcel only if there are no delinquent Special Taxes with

respect to such Assessor’s Parcel at the time of prepayment. An owner of an

Assessor’s Parcel intending to prepay the Special Tax A Obligation shall provide

the CFD Administrator with written notice of intent to prepay and the company or

agency that will be acting as the escrow agent, if any. The CFD Administrator shall

provide the owner with a statement of the Prepayment Amount (as defined below)

for such Assessor’s Parcel within thirty (30) days of the request and may charge a

reasonable fee for providing this service. Prepayment must be made more than

sixty (60) days prior to any redemption date for the CFD No. 2012-1 Bonds to be

B-11

EXHIBIT A

April 16, 2012 11 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

redeemed with the proceeds of such prepaid Special Taxes, unless a shorter period

is acceptable to the Trustee and the City.

The Prepayment Amount (defined below) shall be calculated as summarized below

(capitalized terms as defined below):

Bond Redemption Amount

plus Redemption Premium

plus Future Facilities Prepayment Amount

plus Defeasance Amount

plus Prepayment Administrative Fees and Expenses

less Reserve Fund Credit

less Capitalized Interest Credit

Total: equals Prepayment Amount

As of the proposed date of prepayment, the Prepayment Amount (defined below) shall be

calculated as follows:

Paragraph No.:

1. Confirm that no Special Tax delinquencies apply to such Assessor’s Parcel.

2. For an Assessor’s Parcel of Developed Property, determine the Maximum

Special Tax A. For an Assessor’s Parcel of Undeveloped Property for which

a Building Permit has been issued, compute the Maximum Special Tax A

for that Assessor’s Parcel as though it was already designated as Developed

Property, based upon the Building Permit which has already been issued for

that Assessor’s Parcel.

3. (a) Divide the Maximum Special Tax A computed pursuant to paragraph 2

by the total estimated Maximum Special Tax A for IA No. 1 based on the

Developed Property Special Tax A which could be levied in the current

Fiscal Year on all expected development through build-out of IA No. 1 as

determined by the CFD Administrator, excluding any Assessor’s Parcels for

which the Special Tax A Obligation has been prepaid.

4. Multiply the quotient computed pursuant to paragraph 3 by the Outstanding

Bonds to compute the amount of Outstanding Bonds to be retired and

prepaid (the “Bond Redemption Amount”).

5. Multiply the Bond Redemption Amount computed pursuant to paragraph 4

by the applicable redemption premium (expressed as a percentage), if any,

on the Outstanding Bonds to be redeemed at the first available call date (the

“Redemption Premium”).

6. Compute the current Future Facilities Costs.

B-12

EXHIBIT A

April 16, 2012 12 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

7. Multiply the quotient computed pursuant to paragraph 3 by the amount

determined pursuant to paragraph 6 to compute the amount of Future

Facilities Costs to be prepaid (the “Future Facilities Prepayment Amount”).

8. Compute the amount needed to pay interest on the Bond Redemption

Amount from the first bond interest and/or principal payment date

following the current Fiscal Year until the earliest redemption date for the

Outstanding Bonds.

9. Compute the amount the CFD Administrator reasonably expects to derive

from the reinvestment of the Prepayment Amount less the Future Facilities

Amount and the Prepayment Administrative Fees and Expenses from the

date of prepayment until the redemption date for the Outstanding Bonds to

be redeemed with the prepayment.

10. Take the amount computed pursuant to paragraph 8 and subtract the amount

computed pursuant to paragraph 9 (the “Defeasance Amount”).

11. Verify the administrative fees and expenses of IA No. 1, including the costs

of computation of the prepayment, the costs to invest the prepayment

proceeds, the costs of redeeming Bonds, and the costs of recording any

notices to evidence the prepayment and the redemption (the “Prepayment

Administrative Fees and Expenses”).

12. If reserve funds for the Outstanding Bonds, if any, are at or above 100% of

the reserve requirement (as defined in the Indenture) on the prepayment

date, a reserve fund credit shall be calculated as a reduction in the

applicable reserve fund for the Outstanding Bonds to be redeemed pursuant

to the prepayment (the “Reserve Fund Credit”). No Reserve Fund Credit

shall be granted if reserve funds are below 100% of the reserve requirement.

13. If any capitalized interest for the Outstanding Bonds will not have been

expended at the time of the first interest and/or principal payment following

the current Fiscal Year, a capitalized interest credit shall be calculated by

multiplying the larger quotient computed pursuant to paragraph 3 by the

expected balance in the capitalized interest fund after such first interest

and/or principal payment (the “Capitalized Interest Credit”).

14. The Special Tax A Obligation is equal to the sum of the amounts computed

pursuant to paragraphs 4, 5, 7, 10, and 11, less the amounts computed

pursuant to paragraphs 12 and 13 (the “Prepayment Amount”).

15. From the Prepayment Amount, the sum of the amounts computed pursuant

to paragraphs 4, 5, and 10, less the amounts computed pursuant to

paragraphs 12, and 13 shall be deposited into the appropriate fund as

established under the Indenture and be used to retire Outstanding Bonds or

B-13

EXHIBIT A

April 16, 2012 13 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

make Debt Service payments. The amount computed pursuant to paragraph

7 shall be deposited into the Construction Fund. The amount computed

pursuant to paragraph 11 shall be retained by IA No. 1.

The Prepayment Amount may be sufficient to redeem an amount other than

a $5,000 increment of Bonds. In such cases, the increment above $5,000 or

integral multiple thereof will be retained in the appropriate fund established

under the Indenture to redeem Bonds to be used with the next prepayment

of Bonds.

The CFD Administrator will confirm that all previously levied Special

Taxes have been paid in full. With respect to any Assessor's Parcel that is

prepaid in full, once the CFD Administrator has confirmed that all

previously levied Special Taxes have been paid, the City Council shall

cause a suitable notice to be recorded in compliance with the Act, to

indicate the prepayment of Special Taxes and the release of the Special Tax

lien on such Assessor’s Parcel, and the Special Tax A Obligation of such

Assessor's Parcel to pay the Special Tax shall cease.

Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless

the amount of Maximum Special Taxes A less Administrative Expenses for each

Fiscal Year that may be levied on Taxable Property, respectively, after the

proposed prepayment is at least 1.1 times the annual Debt Service on all

Outstanding Bonds.

B. Partial Prepayment

The Special Tax A on an Assessor’s Parcel of Developed Property or Undeveloped

Property for which a Building Permit has been issued may be partially prepaid. The

amount of the prepayment shall be calculated as in Section 6.A.; except that a

partial prepayment shall be calculated according to the following formula:

PP = PE x F.

These terms have the following meaning:

PP = the Partial Prepayment

PE = the Prepayment Amount calculated according to Section 6.A.

F = the percentage by which the owner of the Assessor’s Parcel(s) is

partially prepaying the Special Tax.

The owner of any Assessor’s Parcel who desires such prepayment shall notify the

CFD Administrator of (i) such owner’s intent to partially prepay the Special Tax,

B-14

EXHIBIT A

April 16, 2012 14 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

(ii) the percentage by which the Special Tax shall be prepaid, and (iii) the company

or agency that will be acting as the escrow agent, if any. The CFD Administrator

shall provide the owner with a statement of the amount required for the partial

prepayment of the Special Tax for an Assessor’s Parcel within sixty (60) days of

the request and may charge a reasonable fee for providing this service

With respect to any Assessor’s Parcel that is partially prepaid, the City shall (i)

distribute the funds remitted to it according to Section 6.A., and (ii) indicate in the

records of IA No. 1 that there has been a partial prepayment of the Special Tax and

that a portion of the Special Tax with respect to such Assessor’s Parcel, equal to the

outstanding percentage (1.00 - F) of the remaining Maximum Special Tax A, shall

continue to be levied on such Assessor’s Parcel pursuant to Section 3.

Notwithstanding the foregoing, no partial prepayment shall be allowed unless the

amount of Maximum Special Taxes A less Administrative Expenses for each Fiscal

Year that may be levied on Taxable Property, respectively, after the proposed

partial prepayment is at least 1.1 times the annual Debt Service on all Outstanding

Bonds.

7. MANDATORY MAXIMUM SPECIAL TAX REDUCTION

Prior to the issuance of Bonds, the Property Tax Burden shall be calculated by the CFD

Administrator pursuant to the Land Secured Financing Policy adopted pursuant to City

Council Resolution in effect at the time of formation of the District (the “2012 Goals

and Policies”) on Developed Property based on an average value for each Land Use

Class for which Residential Units have been constructed. The values may be calculated

by the CFD Administrator, an appraiser or other means as determined by the City. The

Maximum Special Tax A on Developed Property set forth in Section 3.A of this Rate

and Method of Apportionment shall be reduced Proportionately for each Land Use

Class if it is reasonably determined by the CFD Administrator that the Property Tax

Burden exceeds the maximum level allowed in the Goals and Policies.

If the Mandatory Maximum Special Tax Reduction is implemented, then the City

Council shall cause a suitable notice to be recorded in compliance with the Act, to

indicate the lower Maximum Special Tax A rates.

8. TERM OF SPECIAL TAX

Special Tax A shall be levied for a period of thirty-five (35) years after the last series

of bonds has been issued, but shall not be levied for a period to exceed forty (40) Fiscal

Years commencing with Fiscal Year 2012/2013.

Special Tax B shall be levied as long as necessary to meet the Special Tax

Requirement for Services.

B-15

EXHIBIT A

April 16, 2012 15 Community Facilities District No. 2012-1, IA 1

(Singleton Heights)

City of Calimesa

9. EXEMPTIONS

The CFD Administrator shall classify as Exempt Property (i) Assessor’s Parcels owned

by the State of California, Federal or other local governments, (ii) Assessor’s Parcels

which are used as places of worship and are exempt from ad valorem property taxes

because they are owned by a religious organization (iii) Assessor’s Parcels developed

or planned to be developed exclusively for any type of non-residential use, (iv)

Assessor’s Parcels with public utility easement by the restriction, as determined

reasonably by the CFD Administrator, provided that no such classification would

reduce the sum of all Taxable Property in IA No. 1 to less than 27.95 acres. Assessor’s

Parcels which cannot be classified as Exempt Property because such classification

would reduce the sum of all Taxable Property in IA No. 1 to less than 27.95 acres shall

be classified as Provisional Undeveloped Property, and will continue to be subject to

the Special Tax A accordingly. Tax exempt status for this purpose of this paragraph

will be assigned by the CFD Administrator in the chronological order in which

property becomes eligible for classification as Exempt Property.

If the use of an Assessor’s Parcel of Exempt Property changes so that such Assessor’s

Parcel is no longer classified as one of the uses set forth in the first paragraph of this

Section 9 above that would make such Assessor’s Parcel eligible to be classified as

Exempt Property, such Assessor’s Parcel shall cease to be classified as Exempt

Property and shall be deemed to be Taxable Property.

10. APPEALS

Any landowner who pays the Annual Special Tax and claims the amount of the Annual

Special Tax levied on his or her Assessor’s Parcel is in error shall first consult with the

CFD Administrator regarding such error not later than twelve (12) months after first

having paid the first installment of the Annual Special Tax that is disputed. If following

such consultation, the CFD Administrator determines that an error has occurred; the

CFD Administrator may recommend changing the amount of the Annual Special Tax

levied on such Assessor’s Parcel. If following such consultation and action, if any by

the CFD Administrator, the landowner believes such error still exists, such person may

file a written notice with the City Manager, or designee of the City, appealing the

amount of the Annual Special Tax levied on such Assessor’s Parcel. Upon the receipt

of such notice, the City Manager or designee may establish such procedures as deemed

necessary to undertake the review of any such appeal. The City Manager or designee

thereof shall interpret this Rate and Method of Apportionment and make

determinations relative to the administration of the Annual Special Tax and any

landowner appeals. The decision of the City Manager or designee shall be final and

binding as to all persons.

B-16

C-1

APPENDIX C

APPRAISAL REPORT

APPRAISAL REPORT

CITY OF CALIMESA COMMUNITY FACILITIES DISTRICT NO. 2012-1

IMPROVEMENT AREA NO. 1 (SINGLETON HEIGHTS) 2014 SPECIAL TAX BONDS

Prepared for:

CITY OF CALIMESA 908 Park Avenue

Calimesa, CA 92320

James B. Harris, MAI Berri Cannon Harris

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

May 2014

Harris Realty Appraisal

Mr. Randy Anstine City Manager City of Calimesa 908 Park Avenue Calimesa, CA 92320

Re: Community Facilities District No. 2012-1 Improvement Area No. 1 (Singleton Heights) 2014 Special Tax Bonds

Dear Mr. Anstine:

5 100 Birch Street, Suite 200 Newport Beach, California 92660 949-851-1227 FAX 949-851-2055

www.harris-appraisal.com

May 5, 2014

In response to your authorization, we have prepared a self-contained appraisal report which addresses all of the property within the boundaries of Community Facilities District (CFO) No. 2012-1, Improvement Area No. 1 (Singleton Heights) in the City of Calimesa. The property within Improvement Area No. 1 is proposed for 121 dwelling units, according to Tract Map No. 26811. Of the 121 proposed dwelling units, 72 dwellings have sold to individual homeowners. Three model homes are built and under the ownership of Singleton Road, LLC (the landowner). In addition, there are 33 dwelling units under construction and 13 physically finished lots.

The subject property is under the ownerships of Singleton Road, LLC and 72 homeowners. The subject of this appraisal includes all property subject to Special Tax as of the date of value within Improvement Area No. 1. The existing and proposed dwellings are built by MasterCraft Homes. The community of Singleton Heights, of which Improvement Area No. 1 is a part, is proposed for 268 dwelling units. The appraisal report will value the "as is" condition of the land and improvements, subject to Special Tax within Improvement Area No. 1 as of May 1, 2014.

According to the specific guidelines of the California Debt and Investment Advisory Commission (CDIAC), each ownership is valued in bulk, representing a discounted value to that ownership as of the date of value.

Mr. Randy Anstine May 5, 2014 Page Two

Based on the investigation and analyses undertaken, our experience as real estate appraisers, and subject to all the premises, assumptions and limiting conditions set forth in this report, the following opinion of Market Value is formed as of May 1, 2014.

COMMUNITY FACILITIES DISTRICT NO. 2012-1 IMPROVEMENT AREA NO. 1 (SINGLETON HEIGHTS)

THIRTY-THREE MILLION ONE HUNDRED TWENTY-THREE THOUSAND DOLLARS $33, 123,000

The self-contained report that follows sets forth the results of the data and analyses upon which our opinions of value are, in part, predicated. This report has been prepared for the City of Calimesa for use in the sale of Community Facilities District bonds. The intended users of this report are the City of Calimesa, its underwriter, financial advisor, legal counsel, consultants, and potential bond investors. This appraisal has been prepared in accordance with and is subject to the requirements of The Appraisal Standards for Land Secured Financing as published by the California Debt and Investment Advisory Commission; the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; and the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

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

Respectfully submitted,

~ t~Y:YOJWVJ Berri Cannon Harris Principal AG009147

mes B. Harris, MAI rincipal

AG001 846

SUMMARY OF FACTS AND CONCLUSIONS

EFFECTIVE DATE OF APPRAISAL

DATE OF REPORT

INTEREST APPRAISED

OWNERSHIP& LEGAL DESCRIPTION

IMPROVEMENTS

SITE CONDITION

May 1, 2014

May 5, 2014

Fee Simple Estate, subject to Special Tax liens

CFD 2012-1, Improvement Area No. 1 -121 Units/ Lots

Individual Homeowners (72 Units):

Tr26811 Lots 7-26, 176-219 & 261-268

Please refer to the Addenda for a list of the 72 individual ownerships.

Singleton Road, LLC (49 Lots/Units):

Tr 26811 Lots 3, 4 & 5 - Models

Tr 26811 Lots 220-243 & 252-260 - Under Construction Dwelling Units

Tr 26811 Lots 1, 2, 6, 27, 28 & 244-251 -Physically Finished Lots

Improvement Area No. 1 is being improved with one product known as Singleton Heights ranging from 1,576 square feet to 3, 198 square feet. The subject tract opened for sales in October 2011. As of the date of value, 72 production dwelling units are built and have closed escrow to individual homeowners. An additional 18 dwellings are under construction with completion scheduled in May 2014. An additional 15 dwelling units have recently started construction and are being framed. Build-out of Singleton Heights is anticipated by the end of 2014.

The entire Improvement Area has land improved from physically finished lot condition to finished lot condition with completed and occupied dwelling units. No additional site work is required.

iii

SUMMARY OF FACTS AND CONCLUSIONS

HIGHEST AND BEST USE

VALUE CONCLUSIONS

Continued development of the Singleton Heights community.

$33,123,000 MARKET VALUE

72 Individual Homeowners - $24,500,000

Singleton Road, LLC 3 model homes and 33 dwelling units under construction - $7,713,000

Singleton Road, LLC 13 physically finished lots - $910,000

iv

TABLE OF CONTENTS

Section

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

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

Aerial.............................................................................................................................. v

Table of Contents........................................................................................................... vi

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

Area Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Site Analysis .. . . . . . . . . .. . .. . . . . .. .. . . . . . .. .. .. . . . . . . . . . . . . .. .. .. .. . .. .. .. . .. .. .. .. .. .. .. .. . . . . . . .. .. . . . . . . . . . . . . . . . . . . . . . . .. . .. 33

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

Highest and Best Use..................................................................................................... 42

Valuation Methodology .. . . . .. .. . . . . . . . . . . .. .. .. . . . . . . . .. . .. .. .. .. . . . . .. . . . . . . .. .. .. .. . . . . . . .. .. . . . . . . . . . . . . . . . . . . . . . .. .. . 51

Valuation of Dwelling Units............................................................................................. 54

Valuation of Dwelling Units Under Construction............................................................. 57

Valuation of Finished Lots .............................................................................................. 60

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

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

Addenda

Qualifications Ownerships/Summary of Sold Dwelling Units Summary of Dwelling Units in Escrow Summary of Unsold Dwelling Units

vi

HRA INTRODUCTION

Purpose of the Report

The purpose of this appraisal is to estimate the "as is" Market Value of the fee

simple estate, subject to special tax liens for all the taxable land and improvements within

Community Facilities District No. 2012-1, Improvement Area No. 1 (CFO No. 2012-1,

I.A. 1) for the City of Calimesa.

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

forth in this appraisal, and the appraisal guidelines as set forth by the City of Calimesa for

Community Facilities District financing.

Function of the Report and Intended Use

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

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

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

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

indebtedness for CFO No. 2012-1, I.A. 1 is $6,000,000.

Client and Intended Users of the Report

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

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

consultants, and potential bond purchasers.

Scope of the Assignment

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

estimate of Market Value according to each ownership within the District. This is a fully

documented self-contained appraisal report. Any lands designated for park, open space or

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

assignment.

CONSULTING REAL ESTAfE APPRAISERS

2

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

opinion of its highest and best use. The following paragraphs summarize the process of

collecting, confirming and reporting of data used in the analysis.

1. Gathered and analyzed demographic data from sources including the California Department of Finance (population data), Employment Development Department of the State of California (employment data), City of Calimesa (zoning information, building permit trends), Metrostudy (housing sales, inventory levels, and absorption), and sales personnel of comparable projects (market trends of individual home sales). Subject information was gathered from the merchant builder and their consultant.

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

3. Gathered and analyzed comparable merchant builder land sales within the Calimesa market area, and residential detached unit sales, within the subject's primary market area. Data was gathered from sources including, Comps.com, brokers, appraisers, builders active in the area and developers within the Southern California area. Where feasible, data was confirmed with both the buyer and seller. The data gathered are presented on summary data sheets within this report.

Date of Value and Report

The opinions of Market Value expressed in this report are stated as of May 1, 2014.

The date of the appraisal report is May 5, 2014.

Date of Inspection

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

on April 30, 2014.

Property Rights Appraised

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

tax liens of the real estate described herein.

Property Identification

Community Facilities District No. 2012-1 (Singleton Heights) is located east of

Interstate 10, north of Singleton Road and south of the Calimesa Country Club, in the

CONSULTING REAL ESTATE APPRAISERS

3

HRA City of Calimesa. The subject of this appraisal, I. A. 1 of CFO No. 2012-1, consists of

the first 121 dwelling units proposed for the community of Singleton Heights, which will

ultimately consist of 268 single family detached dwelling units. According to the CFO

report prepared by Koppel! & Gruber Public Finance dated April 16, 2012, I.A. 1

consists of 63.42 acres. According to the CFO report, I.A. 1 is to contain a minimum of

27.95 taxable acres. Improvement Area No. 1 is a part of Final Tract Map No. 26811,

which in its entirety consists of 135.087 gross acres. Please refer to the next page for a

copy of the boundary map for CFO No. 2012-1. Please note the District includes two

Improvement Areas.

Legal Description and Ownership

The appraisers have requested a current title report for the subject property that

has not sold to individual homeowners as of the date of value. A preliminary title report

prepared by Chicago Title Company, dated September 26, 2013 has been provided for

review. The report covers lots 220 through 243 and 252 through 260 of Tract 26811.

This is only a portion of the lots that have not sold to individual homeowners, as of the

date of value. No other reports have been provided for our review. The ownership of the

unsold lots/dwellings is reported to be vested in Singleton Road, LLC.

Sales of completed homes which have sold to individual homeowners have

occurred from August, 2012 to the present time. The table on page 6 summarizes the

lots under the Singleton Road, LLC ownership as of the date of value and the

lots/dwellings that have sold to individual homeowners. Please refer to the Addenda of

this report for the name of each homeowner, date of sale and sales price as provided by

a search of the public records.

CONSULTING REAL ESTATE APPRAISERS

4

u,

LEGEND

PROPOSED BOUNDARY

---- IMPROVEMENT AREA

MAP OF PROPOSED BOUNDARIES COMMUNl1Y FACILITIES DISTRICT NO. 2012-1 (SINGLETON HEIGHTS)

CITY OF CALIMESA COUNTY OF RIVERSIDE STATE OF CALIFORNIA

N.T.S

FILED IN THE OFFICE OF THE CITY CLERK TH!S Sth. DAY OF Ma..di 2012.

L~OJd9oM,~ DARLENE GERDES CITY CLERK CITY OF CALIMESA

I HEREBY CERTIFY THAT THE WITHIN MAP SHOWING PROPOSED BOUNDARIES OF COMMUNITY FACILITIES DISTRICT NO. 2012-1(S!NGLETON HEIGHTS), CITY OF CALIMESA, COUNTY OF RIVERSIDE, STATE OF CALIFORNIA, W/lS APPROVED BY THE CITY COUNCIL OF THE CITY OF CALIMESA AT A REGULAR MEET!NG THEREOF. HELD ON THE~ DAY OF f,1a..-di 2012, BY ITS RESOLUTION NO. :101 .:2.- 0,5

~~tl0Ror»1,~&-' D LENE GERO S CITY CLERK CITY OF CALIMESA

FILED TH!S 1-~0AY OF Ha.n::.h , 2012, AT THE HOUR OF 3:1.!.J O'CLOCK_p.,..M.!NTHEBOOK ]5 OF

MAPS OF ASSESSMENT AND COMMUNITY FACILITIES DISTRICTS, PAGE 57:-S?,AND INSTRUMENT NO.

'2.DI? ::::Ql?,t,,Yl..Jq !N THE OFFICE OF THE COUNTY RECORDER IN THE COUNTY OF RIVERSIDE, STAlE OF CALIFORNIA. E.a:..:st1..oo

~~·~.~Oll1C~ ll•P"tJ-couNTY RECORDER COUNTY OF Rl\'.ERSIDE STATE OF CALIFORNIA

THE LINES AND DIMENSIONS OF EACH LDT OR PARCEL SHOWN ON THIS DIAGRAM SHALL BE THOSE LINES AND DIMENSIONS AS SHOWN ON THE RIVERSIDE COUNTY ASSESSORS MAPS FOR THOSE PARCELS LISTED.

THE RIVERSIDE COUNTY ASSESSORS MAPS SHALL GOVERN FOR ALL DETAILS CONCERNING THE LINES AND OIMENSIONS OF SUCH LOTS OR PARCELS.

::c JJ

HRA Improvement Area No. 1 -121 Units/ Lots

Individual Homeowners:

Tr 26811, Lots 7-26, 176-219 & 261-268

Singleton Road, LLC

Tr 26811, Lots 3, 4 & 5 - model homes Tr 26811, Lots 220-234 & 258-260 - dwellings under construction, nearing completion Tr 26811 Lots 235-243 & 252-257 - dwelling units under construction, started framing Tr 26811, Lots 1, 2, 6, 27, 28 & 244-251 - physically finished lots

Property History

The land in I.A. 1, not transferred to individual homeowners, has been under the

ownership of Singleton Road, LLC for over three years. Sales to individual homeowners

have occurred from August 2012 to the present time. Please refer to the Addenda of

this report for a lot by lot summary of each transaction.

Definitions

Market Value1

The most probable price in terms of money which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(a) Buyer and seller are typically motivated.

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

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

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

(e) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

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

CONSULTING REAL ESTATE APPRAISERS

6

HRA Mass Appraisal

When a tract or project is built-out and absorbed, the appraiser may use an aggregate value estimate based upon conservative per dwelling unit estimates. It is implicit in mass appraisal that some individual value conclusions will not meet standards of reasonableness, consistency and accuracy. However, appraisers engaged in mass appraisal have a professional responsibility to ensure that, on an overall basis, the value conclusions meet attainable standards of accuracy. The appraisers have used an average conservative value, for each floor plan of the subject property. By utilizing average value estimates, individual home values could be higher or lower, depending on upgrades and options. However, on an overall basis, the value conclusions are reasonable and meet attainable standards of accuracy.

Fee Simple Estate2

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

Fee Simple Estate Subject to Special Tax and Special Assessment Liens

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

The Market Value included herein, reflects the value potential buyers would consider given the special tax and encumbrances of Community Facilities District No. 2012-1, Improvement Area No. 1 for the City of Calimesa.

Retail Value

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

Blue-Top Graded Parcel

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

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

CONSULTING REAL ESTATE APPRAISERS

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HRA Finished Site3

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

Physically Finished Lot

Physically finished lot requiring development impact fees and possibly minor site work before development can proceed.

Mass-Graded Parcels

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

Extraordinary Assumptions, Assumptions and Limiting Conditions

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

assumptions and limiting conditions:

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

of the Appraisal Institute requires the appraisers to "clearly and accurately disclose any

extraordinary assumption or limiting condition that directly affects an appraisal analysis,

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

interpreting the report, the following contingencies, assumptions and limiting conditions are

set forth as follows:

Extraordinary Assumptions of the Appraisal The remaining impact fees and lot costs for the physically finished lots have been provided by the builder, MasterCraft Homes. Reportedly no additional site costs are required for the build out of Improvement Area No. 1. It is a specific contingency and assumption of this appraisal report that the costs reported are accurate. Any variance in costs could impact the value conclusions reported in this appraisal report.

The opinions of values expressed in this report do not apply to any specific dwelling unit.

Assumptions and Limiting Conditions No responsibility is assumed by your appraisers for matters which are legal in nature. No opinion of title is rendered, and the property is appraised as

3 Ibid, Page 334

CONSULTING REAL ESTATE APPRAISERS

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HRA though free of all encumbrances ( other than the lien of the special tax) and the title marketable. No survey of the boundaries of the property was undertaken by the appraisers. All areas and dimensions furnished to the appraisers are presumed to be correct.

The date of value for which the opinions of Market Value are expressed in this report is May 1, 2014. The dollar amount of this value opinion is based on the purchasing power of the United States dollar on that date.

The appraisers have not been provided with plans or specifications for the proposed dwellings within the District. For purposes of this appraisal, we have assumed that the quality of construction, functional utility, amenities and features will meet market demand for new product in the market area in which the subject is located. This is a specific assumption of the value estimate included in the report.

Maps, plats, and exhibits included herein are for illustration only, as an aid for the reader in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from this report.

Oil, gas, mineral rights and subsurface rights were not considered in making this appraisal unless otherwise stated and are not a part of the appraisal, if any exist.

The appraisers have been provided with one preliminary title policy prepared by Chicago Title Company, dated September 26, 2013. The title policy covers a portion of the land under the ownership of the landowner, Singleton Road, LCC as of the date of the policy. The title policy includes easements for public utilities, roads and incidental purposes. The title policy includes a Notice of Special Tax Lien for Community Facilities District No. 2012-1 of the City of Calimesa and Yucaipa Valley Water District (YVWDl. However, recent conversation with the General Manager at Yucaipa Valley Water District confirms that there is not a separate YVWD CFO. The title policy also states that the property lies within the boundaries of Community Facilities District No. 1. Two Deeds of Trust are included that show Singleton Road, LLC as the Trustor. One deed is for the amount of $15,000,000 with Chicago Title Insurance Company, as the Trustee and For the Benefit of Eagle's View Management Company, Inc., as the Beneficiary. The second deed is for the amount of $3,000,000 with First American Title Company, as the Trustee and Umpqua Bank, as the Beneficiary. Title policies for the 72 sold dwelling units have not been requested or provided. For purposes of this appraisal, it is assumed that there are no easements, encroachments or restrictions that would adversely affect the value of the subject property.

CONSULTING REAL ESTATE APPRAISERS

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HRA Information contained in this report has been gathered from sources which are believed to be reliable, and, where feasible, has been verified. No responsibility is assumed for the accuracy of information supplied by others.

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

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

The appraisers assume no responsibility for economic or physical factors which may occur after the date of this appraisal. The appraisers, in rendering these opinions, assume no responsibility for subsequent changes in management, tax laws, environmental regulations, economic, or physical factors which may or may not affect said conclusions or opinions.

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

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

The presence of such substances such as asbestos, urea formaldehyde, foam insulation, or other hazardous substances or environmental conditions may affect the value of the property. The value estimated herein is predicated on the assumption that there is no such condition on or in the property or in such proximity thereto that it would cause a loss in value. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in the field of environmental impacts upon real estate if so desired.

The cost and availability of financing help determine the demand for and supply of real estate and therefore affect real estate values and prices. The

CONSULTING REAL ESTATE APPRAISERS

10

HRA transaction price of one property may differ from that of an identical property because financing arrangements vary.

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

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

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

The Americans with Disabilities Act ("ADA') became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of the ADA in estimating the value of the property.

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

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

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

The appraisers have personally inspected the subject property; however, no opinion as to structural soundness of existing improvements or conformity to City, County, or any other agency building code is made. No responsibility

CONSULTING REAL ESTATE APPRAISERS

11

HRA for undisclosed structural deficiencies/conditions is assumed by the appraisers. No consideration has been given in this appraisal to personal property located on the premises; only the real estate has been considered unless otherwise specified.

James B. Harris is a Member of the Appraisal Institute. The Bylaws and Regulations of the Institute require each Member to control the uses and distribution of each appraisal report signed by such Member. Except as hereinafter provided, possession of this report, or a copy of it, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser and in any event only with properly written qualification and only in its entirety. The City of Calimesa, its undeiwriter, financial advisor and legal counsel may publish this report in the Official Statement for Community Facilities District No. 2012-1 (Singleton Heights) 2014 Special Tax Bonds, Improvement Area No. 1 for the City of Calimesa.

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

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

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

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

CONSULTING REAL ESTATE APPRAISERS

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HRA AREA DESCRIPTION

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

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

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

the subject market area.

Southern California Regional Overview

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

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

and Ventura Counties. The Southern California region extends from the California-Mexico

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

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

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

and level of urban development. Please refer to the following page for a location map.

Population

The Southern California region has added about 8.0 million new residents since

1980 as indicated in the table shown on page 15. According to the California Department

of Finance, the most recent data available indicate that as of January 2014, the regional

population stood at almost 21.6 million. If the region were an individual state, it would rank

as one of the most populous in the nation.

Since 2000, annual population gains from natural increase and immigration have

ranged from a negative 738,081 persons in 2010 up to 397,400 persons in 2002. These

figures represent annual gains/losses of -3.4% to 2.0%. During the past five years, the

population of the six-county Southern California region grew by a negative 3.4% to a

positive 0.9% per annum.

As of January 2014 the population of the six-county area stood at 21,558,800

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

CONSULTING REAL ESTATE APPRAISERS

13

Copyright © and (P) 1988–2012 Microsoft Corporation and/or its suppliers. All rights reserved. http://www.microsoft.com/streets/Certain mapping and direction data © 2012 NAVTEQ. All rights reserved. The Data for areas of Canada includes information taken with permission from Canadian authorities, including: ©Her Majesty the Queen in Right of Canada, © Queen's Printer for Ontario. NAVTEQ and NAVTEQ ON BOARD are trademarks of NAVTEQ. © 2012 Tele Atlas North America, Inc. All rights reserved. Tele Atlas and Tele Atlas North America are trademarks of Tele Atlas, Inc. © 2012 by Applied Geographic Solutions. All rights reserved. Portions © Copyright 2012 by Woodall Publications Corp. All rights reserved.

Regional Map

0 mi 2 4 6 8 10

HRA to climb as new residents seek out the Southern California area. Starting with the

economic downturn from 1992 through 1996, and continuing through 2012, the population

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

and county populations experienced a negative 3.4% adjustment in the year 2010. This

was due to the U.S. Census. The U.S. Census actual counts were significantly less than

the prior State of California projections.

Population Trends 1980-2014

Average Annual Change Year

19801

1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Population Number Percent

13,359,673 17,029,545 19, 187,487 19,522,500 19,919,900 20,299,100 20,629,300 20,902,600 21,147,200 21,430,300 21,491,700 21,710,400 20,972,319 21, 106,400 21,207,500 21,356,900 21,558,800

366,987 215,795 335,000 397,400 379,200 330,200 273,300 244,600 266,100

61,400 218,700

(738,081) 134,081 101,100 149,400 201,900

1 April 1, 1980, 1990, 2000, and 201 O all other years January 1 Source: California Department of Finance 5/14

2.7% 1.3% 1.7% 2.0% 1.9% 1.6% 1.3% 1.2% 1.3% 0.3% 1.0%

(3.4%) 0.6% 0.5% 0.7% 0.9%

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

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

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

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

population within the region, even during periods of economic slowdown, provides a

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

CONSULTING REAL ESTATE APPRAISERS

15

HRA Employment

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

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

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

agricultural wage employment trends in Southern California.

Southern California Region Employment Trends

1983-20131

Average Annual Change Year Emglo~ment Number Percent 1983 5,691,000

1990 7,288,100 159,710 2.8%

2000 7,918,200 63,000 0.9%

2001 8,015,300 97,100 1.2%

2002 8,007,500 (7,800) (0.1 %)

2003 8,035,400 27,900 0.3%

2004 8, 159,700 124,300 1.5%

2005 8,310,500 150,800 1.8%

2006 8,481,600 171,100 2.1%

2007 8,514,100 32,500 0.4%

2008 8,365, 100 (149,000) (1.8%)

2009 7,837,300 (527,800) (6.3%) 2010 7,748,700 (88,600) (1.1 %) 2011 7,959,800 211,100 2.7% 2012 8, 164,700 204,900 2.6% 2013 8,391,800 227,100 2.8%

2013 Benchmark

Source: Employment Development Department 4/14

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

grown from 5,691,000 jobs in 1983, to a then peak employment of 8,015,300 in 2001.

Employment declined to 8,007,500 in 2002. This decline was mostly caused by a 46,800

job decrease in Los Angeles County. Each year between 2003 and 2007, Southern

California employment climbed to a new record level, 8,514, 100 in 2007. This was in spite

of Los Angeles County only adding an additional 139,000.:!: net jobs in four years. In 2008,

the number of jobs declined by 149,000 to 8,365,100. The job losses accelerated in 2009

CONSULTING REAL ESTATE APPRAISERS

16

HRA to a loss of 527,800 jobs for a total of 7,837,300 jobs. The job losses moderated in 2010 to

a loss of 88,600 jobs, for a total of 7,748,700 jobs. This three year decline wiped out over

ten years of employment increases. This represented a decrease of over 165,500 new

jobs since 2000 in Southern California. During 2011, there was an increase of 2.7% to a

total of 7,959,800 jobs. In 2012, employment increased by 2.6% to 8, 164,700 jobs. In

2013, the jobs total was 8,391,800 or an increase of 2.8%. The last three years were the

largest increases since 2000. Currently, the jobs total is back to the 2005-2006 level.

Employment among the individual industry categories reflects some fundamental

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

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

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

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

years. During the period from 1991 through 1994, construction employment declined in

response to decreased residential and commercial construction activity. From 1994

through 2006, as the economy rebounded, residential construction increased bringing

back more than the construction jobs lost during the recession. Construction jobs have

declined since the first quarter of 2007 as the residential market and commercial markets

have weakened. There have been small increases over the last three years. As of 2013,

there were 167,700 fewer construction jobs than in 2006. This reflects a 33% decline in

construction jobs.

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

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

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

manufacturing operations outside of the area.

The Southern California economy, which historically depended heavily on

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

reduction of the space program and reduced defense spending which affected

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

CONSULTING REAL ESTATE APPRAISERS

17

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

spending will be impacted as the units are deployed abroad.

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

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

entered a recessionary cycle, the FIRE employment sector exhibited little growth from

1991 through 1995. Over the next ten years, job growth in this sector was significant.

However, jobs began to decline in 2006 and are about 16% fewer in 2013 compared to

2006. There have been small increases over the last three years. Some of the

manufacturing and aerospace jobs permanently displaced from the economy were slowly

being replaced with administrative, marketing and research employment. It is reasonable

to assume that similar stagnant growth in this area will be experienced during the current

economy.

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

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

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

ten years.

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

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

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

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

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

prices, and population trends. However, the California state budget deficit negatively

impacted both state and local government employment, with a job loss of about 6% over

the last four years.

Riverside County

Riverside County consists of 28 individual cities and numerous unincorporated

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

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

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18

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

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

County to the south.

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

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

These areas were the most active areas for new growth during the late 1990's until the

recession took hold during 2008. The area which encompasses Lake Elsinore, Beaumont,

Murrieta, Menifee Valley and Temecula has also experienced rapid growth since the mid

1990's. The areas that experienced the most active growth during the last decade also

suffered the most during the recent lengthy recession.

Population

Riverside County has more than tripled its population, adding approximately

1,591,860 new residents since 1980 as illustrated in the following table. As of the 2010

Census, the countywide population stood at 2, 189,641 residents. The 2012 estimate by

the State of California indicates that the County had 2,234, 193 residents on January 1,

2012. This increased to 2,255,059 residents on January 1, 2013. By January 1, 2014, the

population totaled 2,280,000 persons. Annual population gains, from natural increase and

immigration, have ranged from 16,400 persons in 2012 up to 82,041 persons in 2010.

Recent gains represent annual changes of 0.7% to 4.7% since 2004.

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

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

national and regional economic climate and public policy toward growth.

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

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

Elsinore, Menifee and Temecula.

CONSULTING REAL ESTATE APPRAISERS

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HRA

Year

1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

. 2013 2014

Riverside County Population Trends

1980-2014

Population Average Annual Change Number Percent

663, 199 1,170,413 1,545,387 1,590,200 1,653,800 1,726,300 1,807,600 1,888,300 1,953,300 2,031,600 2,078,600 2, 107,600 2, 189,641 2,217,800 2,234,200 2,255,700 2,280,000

50,721 37,497 44,813 63,600 72,500 81,300 80,700 65,000 78,300 47,000 29,000 82,041 28, 159 16,400 21,500 24,300

7.6% 3.2% 2.9% 4.0% 4.4% 4.7% 4.5% 3.4% 4.0% 2.3% 1.4% 3.9% 1.3% 0.7% 1.0% 1.1%

April 1, 1980, 1990, 2000, 2010, all other years January 1. Source: California Department of Finance, U.S. Census 5/14

Employment

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

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

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

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

employment base continued to grow and diversify until 2007. The Inland Empire's

unemployment rate is significantly above the Southern California average and higher than

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

employment in the area and the sharp decline in construction, manufacturing and logistics

jobs. The following exhibit illustrates the area's unemployment compared to California as

of March 2014. Unemployment rates have increased 88% from the record low of 5%:t in

2006. The unemployment rate peaked in July 201 O at 15.1 %.

California Inland Empire

Labor Force

18,685,400 1,833,000

Unemployment

8.4% 9.4%

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HRA The most common measure of employment growth is the increase in

nonagricultural employment. Nonagricultural employment is outlined in the following

exhibit. Beginning in the 1980's, the Inland Empire's employment base expanded rapidly

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

more fully diversified economy.

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

1983 to 1,226,400 jobs in 2013. This represents an increase of over 783,000 new jobs

created in San Bernardino and Riverside Counties during the past 30 years. Job gains

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

negative 91,900 new jobs in 2009, to a near record increase of 62,000 new jobs in 2005.

However, during 2008, 2009 and 2010, the Inland Empire had losses of over 140,000 jobs.

That reduced employment back to 2003-2004 levels. During 2011, 2012 and 2013 there

was an increase of 115,200 jobs. Over the last five years, job growth has ranged from

-7.5% to 4.4. The following table illustrates the annual employment trends from 1983

through 2013. In March 2014, the non-agricultural employment was 1,247,000 a 2.7%

increase from March 2013.

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HRA

San Bernardino-Riverside MSA Employment Trends

1983-2013

Average Annual Change Year Employment Number Percent

1983 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

2013 Benchmark

443,100 735,200 988,400

1,029,700 1,064,500 1,099,200 1,160,000 1,222,000 1,267,700 1,270,900 1,223,800 1,131,900 1, 111,200 1, 129,700 1, 179,200 1,226,400

41,700 25,300 41,300 34,800 34,700 60,800 62,000 45,700

3,200 (47,100) (91,900) (20,700) 18,500 49,500 47,200

Source: Employment Development Department 4/14

9.4% 3.4% 4.2% 3.4% 3.3% 5.5% 5.3% 3.7% 0.3%

(3.7%) (7.5%) (1.8%) 1.7% 4.4% 4.0%

Employment among the individual industry categories reflects changes in the

Inland Empire economy during the past decade. Construction employment gains generally

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

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

reached nearly three times the level recorded in 1982. From 1992 through 1995,

construction employment declined in response to decreased building activity. The 2006

levels were more than double the 1993 low. However, since 2006, construction jobs are

down 45.6% to 69,300 jobs in 2013. There was a 10,200 job increase during 2012 and

2013.

The number of manufacturing jobs in the Inland Empire has increased over 45%

from the levels recorded in 1991. However, manufacturing jobs declined 5.5% from the

2000 high of 120,000 jobs to 113,400 jobs by 2003, then increased back to 123,400 in

2006, but declined to 85,800 in 2011. A small increase occurred in 2012 and 2013, up to

86,800 jobs. Due to the high labor and capital costs in Los Angeles and Orange Counties,

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HRA manufacturing firms have expanded or relocated some of their manufacturing operations

to Riverside and San Bernardino Counties to take advantage of the labor force and lower

land costs. The following table lists the largest employers in San Bernardino and Riverside

Counties.

Name of Company County of San Bernardino

County of Riverside

Stater Bros. Markets

National Training Center

Loma Linda University Adventist Health Science Center

U.S. Marine Corp Air

United Parcel Service

S.B. City Unified School District

March Air Reserve Base

Ontario International Airport

University of California, Riverside

Loma Linda University Medical Center

Kaiser Permanente Medical Center

Riverside Unified School District

Corona-Norco Unified School District

Pechanga Resort and Casino

Fontana Unified School District

Verizon

Abbott Vascular

Moreno Valley Unified School District

Inland Empire Major Employers

Local Employees 19,000

18,400

18,221

13,805

13,000

12,486 8,600+

8,574

8,525

7,695

7,618

6,147

6,000

5,500

5,147

4,800

4,700

4,519

4,500

3,784

Type of Business or Entity Local Government

Local Government

Supermarket

Military Training Base

Higher Education in Health Related Profession

Military

Transportation

Education

Military Reserve Base DOD

Aviation

Higher Education

Medical /Health Care

Health Care

Public Education

Public Education

Casino/Resort

Public Education

Telecommunication

Medical Device Manufacturer

Public Education

Based on ranking of total local employees for businesses that qualify for Book of List Rankings Source: The Inland Empire Business Journal, 2013 Book of Lists

Transportation and public utilities employment tends to mirror population growth. In

the Inland Empire, the finance, insurance and real estate ("FIRE") category is still a small

segment of the employment picture.

A significant number of the new jobs created in the last 15 years have been created

in the service sector. The service sector will continue to play a major role in employment

growth during the next few years. Government employment is a major employment sector

CONSULTING REAL ESTAfE APPRAISERS

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HRA in the Inland Empire due to the rapid growth. State and local government employment

declined 3.2% from 2008 to 204,700 jobs in 2013.

The Inland Empire has finally started to show signs of improvement in

employment over the last two years or so. The Inland Empire has seen larger

employment growth compared to most other Metropolitan Statistical Areas in California

and its unemployment rate has· finally shown significant declines. The Inland Empire

unemployment rate stood at 12.5% in January 2012, which is 3.1 % above the current

rate. However, this data should be evaluated with some caution, with concern that the

decline in the unemployment rate is the result of workers giving up their search for

employment after the very lengthy and deep recession. Further analysis does indicate,

however, that while the labor force shows an increase of 2.5% relative to the trough,

employment growth was close to 5%. The effect is that the Inland Empire's decrease in

the unemployment rate is caused primarily by growth in employment. The general

thinking is that the worst is finally behind us and the Inland Empire and California should

continue with positive numbers.

Income

The average household income in Riverside County is estimated to be $69.254.

The median household income stands at $52,648. These figures are moderately below the

Southern California region average. The lower income level is due to the lower wages in

agriculture, manufacturing, service and government employment. The household income

distribution for Riverside County is illustrated in the following table.

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HRA County of Riverside

Household Income Distribution 2014

Income Range Less than $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999

$100,000 - $149,999 $150,000 - $199,999

$200,000 or more Total

Median Household Income Average Household Income

1/ Percent of total distribution Source: Claritas 4/14

Retail Sales

Households 84,513 81,581 76,828

100,941 131,127 89,941 92,538 34,051 23,981

715,501

Percent 1/ 11.81% 11.40% 10.74% 14.11% 18.33% 12.57% 12.93% 4.76% 3.35%

100.00% $52,648 $69,254

Retail demand continues to be fueled by the growth in population as outlined

previously. For Riverside County, taxable retail sales have increased from $3.9 billion in

1985 to over $7.4 billion by 1995 and to over $21.8 billion by 2006. However, in 2007,

2008, and 2009 retail sales declined. The 2010 total of $16,919,500,000 was back to the

2003/2004 retail sales level. In 2011, the retail sales were $18,576,284,000, which was at

the 2004 level. In 2012, the retail sales were $20,016,668,000 which is about the 2005

level. During the past five years, retail sales growth has ranged from a low of a negative

$2.631 billion in 2009 to a positive $1.656 billion in 2011.

The increases in retail sales are due to the exceptionally high County population

growth rates experienced during the period from 1983 through 1990. During the period

from 1991 through 1993, retail sales were stagnant due to the economic recession. From

1994, and continuing through 2006, there was a significant rebound in retail sales. Due to

the prior recession, sales declined in 2007, 2008, and 2009 and were cumulatively 28.8%

below the 2006 sales levels. However, during 2010, retail sales increased 5.4% over the

2009 retail sales and 2011 sales increased 9.8% over the 2010 retail sales. In 2012, retail

sales were 7.8% above the 2011 level. In the future, retail sales growth should reflect the

population growth in the County.

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HRA

Year

1985 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Riverside County Retail Sales Trends 1/

1985-2012

Taxable Retail Sales

(OOO's)

$3,974,400 $6,596,974

$12,190,474 $13, 173,281 $14,250,753 $16,030,952 $18,715,949 $20,839,212 $21,842,345 $21,242,516 $18,689,249 $16,057,488 $16,919,500 $18,576,284 $20,016,668

Average Annual Change Number (OOO's) Percent

$319,632 $524,515 $559,350 $982,807

$1,077,472 $1,780,199 $2,684,997 $2,123,263 $1,003, 133

($599,829) ($2,553,267) ($2,631,761)

$862,012 $1,656,784 $1,440,384

8.7% 13.2%

8.5% 8.1% 8.2%

12.5% 16.7% 11.3% 4.8%

(2.7%) (12.0%) (14.1%)

5.4% 9.8% 7.8%

1/ Taxable Retail Sales Total (not adjusted for inflation) Source: State Board of Equalization 4/14

Transportation

Riverside County is served by a major airport, Ontario International, located in

adjoining San Bernardino County. Several major airlines have flights into Ontario, while

international flights can be booked out of Los Angeles International Airport.

A network of freeways links most urbanized areas of the County. The major north­

south arterials are the Corona (1-15) and Escondido (1-215) Freeways. The Pomona

Freeway (SH-60) provides east-west access to Los Angeles and the desert areas of

Riverside County. The Riverside Freeway (SH-91) provides access to Orange and Los

Angeles Counties.

Real Estate

The following table shows Riverside County in relation to the remaining Southern

California counties for median price and number of dwellings sold.

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HRA Southern California Home Sales

No. Sold - All Homes Median Price - All Homes Mar. Mar. Pct. Mar. Mar. Pct.

County 2013 2014 Chg. 2013 2014 Chg.

Los Angeles 6,962 5,951 -15.0% $380,000 $435,000 14.5% Orange County 3,063 2,884 -5.8% $505,000 $580,000 14.9% Riverside 3,532 3,066 -13.2% $245,000 $288,500 17.8% San Bernardino 2,406 2,048 -14.9% $190,000 $230,000 21.1% San Diego 3,762 3,057 -18.7% $380,000 $427,000 12.4% Ventura 856 668 -22.0% $403,250 $430,000 6.6% Southern California 20,581 17,638 -14.3% $345,500 $400,000 15.8%

Source: DQNews.com 4/14

During the period from 1988 through 1989, housing values appreciated at rates

approaching an average of 15% per annum throughout much of Riverside County and

Southern California. In Southern California, during the period from 1990 through 1993

as the economic recession influenced all segments of potential homebuyers, the rate of

home price appreciation fell dramatically with declines of approximately 4% to 6% per

annum. During 1996 home prices stabilized, and most new subdivisions experienced

significant price increases from 1997 to mid-2005, with annual double digit appreciation.

Over the subsequent 6± years sales prices significantly decreased. Between October

2011 to October 2013, sales prices increased on a year-over-year basis. However, over

the last six months home sales have declined on a year-over-year basis. The March

sales were 25.5% higher than the February 2014 sales, but 13.2% lower than March

2013. The March 2014 sales were 25% lower than the average sales rate for March

over the last 26 years. Sales have not been above average for any particular month in

over seven years.

In Riverside County, 3,066 homes were reported to trade hands in March 2014,

which is a decrease of 13.2% from March 2013. This is primarily due to a lack of

inventory in the current market, credit restrictions from lenders and reduced affordability

caused by the recent price gains. The high level of investor demand appears to have

significantly reduced the excess inventory of existing homes. Prices are reportedly back

to their 2003-2004 level. At this time, builders appear to be testing the market again with

increases in sales and pricing. Over the past 12 months, the median sales price has

increased 17.8% to $288,500, according to DataQuick.

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HRA DataQuick also reported that in March 2014 Southern California sales were at

the lowest level in six years, while the Southern California median sales price was up

15.8% over March 2013. This is a vast improvement from the 20% to 25% annual

declines on a monthly basis in 2007 and 2008.

Conclusion

In summary, the region exhibited very strong population and employment growth

during the 1980 to 1989 period. The recession of the early 1990s significantly slowed

population growth and resulted in overall job losses from 1990 to 1995. During the

following decade, as the economy recovered, population and employment growth were

stronger than during the prior growth years of the 1980s. As the past recession took hold

in 2008, Riverside County was impacted particularly hard, with plummeting home prices

and related job losses. However, the recent 24 months of double digit year-over-year price

increases indicated that the market is in a rebounding phase of the cycle. The long-term

outlook for the region remains positive as the elements of abundant affordable land and

labor still exist. Future growth will continue to be affected by the trends in the overall

economy. Riverside County's economic environment should follow a path similar to that of

the other Southern California counties.

Calimesa

The City of Calimesa is located in the Yucaipa Valley about 20 miles east of the

City of Riverside and about 10 miles east of San Bernardino. This area was a mostly

agricultural area for more than 100 years up to the mid-1900's. At this time, a number of

mobile home retirement communities began development. Development was slow up to

the 1990's when residential subdivisions began development. The completion of the 1-

15 between San Diego and San Bernardino speeded this area's growth. Including the

cities of Yucaipa, Beaumont and Calimesa, Yucaipa Valley has a population of over

100,000 persons.

CONSULTING REAL ESTATE APPRAISERS

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Copyright © and (P) 1988–2012 Microsoft Corporation and/or its suppliers. All rights reserved. http://www.microsoft.com/streets/Certain mapping and direction data © 2012 NAVTEQ. All rights reserved. The Data for areas of Canada includes information taken with permission from Canadian authorities, including: ©Her Majesty the Queen in Right of Canada, © Queen's Printer for Ontario. NAVTEQ and NAVTEQ ON BOARD are trademarks of NAVTEQ. © 2012 Tele Atlas North America, Inc. All rights reserved. Tele Atlas and Tele Atlas North America are trademarks of Tele Atlas, Inc. © 2012 by Applied Geographic Solutions. All rights reserved. Portions © Copyright 2012 by Woodall Publications Corp. All rights reserved.

Neighborhood Map

0 mi 0.2 0.4 0.6 0.8 1 1.2 1.4

HRA Calimesa is located along both sides of the 1-10 Freeway. The City of Yucaipa is

north of Calimesa and the City of Beaumont is located to the south.

Population

As of the 201 O Census, Calimesa had a population of 7,879 persons or a 10.4%

increase over its 2000 population. The State of California estimated the 2014 population

at 8,231 persons for the City of Calimesa.

Income Levels

The City of Calimesa has an income distribution lower than the countywide

distribution. The median household income for Calimesa is $48, 166, which is lower than

the countywide figure. The average household income in the City is $64,075 which is

lower than the countywide figure.

City of Calimesa Household Income Distribution

2014

Income Range

Less than $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $149,999 $150,000- $199,999

200,000 or more

Total

Median Household Income Average Household Income

Source: Claritas 4/14

Retail Sales

Households

400 557 324 548 577 544 342 127 105

3,524

Percent 1/

11.35% 15.81% 9.19%

15.55% 16.37% 15.44% 9.71% 3.60% 2.93%

100.0%

$48,166 $64,075

In 2012, the City generated retail sales of $56,365,000 or 0.3% of the County's

total retail sales. The retail sales increased 107.9% from the area's 2000 level, while the

County's retail sales increased 64.2% during the same period. This shows the growth of

income and population for the subject area.

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HRA Employment

The City has a labor force of 4,400 workers. The unemployment rate for this area

is 7.2%, 23% lower than the countywide rate. The City's businesses employ about

1,800 persons.

Transportation

Calimesa is served by Interstate 10. The 1-10 provides access to most other parts

of Southern California.

Immediate Surroundings

The subject property is located near the southerly border of the City of Calimesa.

This is a mostly rural area north of Beaumont and south of Yucaipa. The Calimesa Golf

and Country Club is just north of the subject development of Singleton Heights. J.P.

Ranch is adjacent to the northeast of the subject property. A 46-dwelling development is

under construction and known as Painted Hills.

Calimesa has a small downtown area with retail and office uses. Yucaipa, to the

north, has a larger downtown area and a newer retail shopping center in the Chapman

Ranch Development. The closest major retail development is in Beaumont at the 1-10

and Highlands Springs Road, about 10 miles southeast of the subject. The Desert Hills

Outlet Mall is about 20 miles east in Cabazon.

Limited development of single-family dwellings in the subject's market area has

been taking place for about two years. To date, only the subject development, Singleton

Estates and Painted Hills have begun construction.

Conclusion

The local economy previously experienced economic decline from 2008 into

2012, due largely to the national and state recessions. However, beginning in mid-2012

the markets have stabilized and home price increases have returned. Inflation is

reported to remain low, which should keep mortgage rates from rising too steeply while

the economy gains strength.

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HRA Nationally, the economy has rebounded from the recent recession lows. As of

May 1, 2014, the Dow Jones Industrial Average (DJIA) and S&P 500 is near historical

highs of over 16,400 and 1,860 respectively. Home buyer demand in Calimesa and all

of Southern California currently exceeds the supply of homes on the market.

Riverside County experienced an increase of 18%± in the median home price

from a year ago. The median home price in Riverside County was $288,500 in March

2014. San Bernardino's median home price was $230,000. Home prices continue to

increase, and the percentage change is near 20% on a monthly basis. The subject's

market area has experienced improving demand for detached single family homes. As

long as the economy continues to grow, employment opportunities improve closer to the

subject area, and the cities close to the more urbanized areas become even more

expensive areas in which to live and operate a business, Calimesa and the subject

property are anticipated to continue to experience moderate growth.

CONSULTING REAL ESTATE APPRAISERS

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HRA SITE ANALYSIS

General

The subject property, within the boundary of Community Facilities District No.

2012-1, Improvement Area No. 1, is currently proposed for 121 dwelling units that will

be subject to special tax within the community of Singleton Heights in the City of

Calimesa. The land ranges in condition from physically finished lots to completed and

occupied dwellings. The condition of the land is as of the inspection date of April 30,

2014.

The District has one recorded tract map proposed for 268 dwelling units. The

subject of this appraisal, Improvement Area No. 1, is a part of Tract 26811. The 121

proposed homes within Improvement Area No. 1 include 72 dwellings that have sold to

individual homeowners, 3 completed model homes under the ownership of the

landowner, 33 dwelling units under construction and 13 physically finished lots.

Location

The subject property is located in the City of Calimesa east of Interstate 10, north

of Singleton Road and south of the Calimesa Country Club. The unincorporated area of

Cherry Valley is located to the east of Calimesa and the City of Beaumont is located to

the south. The City of Yucaipa is located north of Calimesa. Unincorporated Riverside

County is located to the west and the City of Moreno Valley is located to the southwest

of Calimesa, along the 8-60 Highway.

Improvement Area No. 1 is within the community of Singleton Heights which is

planned for a total build-out of 268 homes.

Current Site Condition

The subject property is in various stages of site and unit construction. Please refer

to the following table for a summary of the site condition, legal descriptions, and ownership

for the 121 lots within Improvements Area No. 1. The site descriptions are as of the date of

CONSULTING REAL ESTATE APPRAISERS

33

HRA inspection, April 30, 2014. Please refer to the beginning of this report for an aerial

photograph of the subject property. The aerial photograph was flown on May 2, 2014.

Lot & Tract Numbers Condition of Dwellina/Land Ownership

TR. 26811

Lots 7-26, 176-219 & 261-268 72 Sold dwellings 72 individual homeowners

Lots 3, 4 & 5 3 Completed model homes Singleton Road, LLC

Lots 220-234, 258-260 18 Color coat, with roof Singleton Road, LLC

Lots 235- 243, & 252-257 15 Framing u/c Singleton Road, LLC

Lots 1, 2, 6, 27, 28 & 244-251 13 Physically finished lots Singleton Road, LLC .

Improvement Area No. 1 has site construction essentially complete. According to

the information provided by the merchant builder, there are 13 lots (Phase 14 and build­

out) that require all fees to be paid which include, City of Calimesa fees, MSHCP fees

and Yucaipa Valley Water District fees that total $30,021 per lot. In addition, 15 lots

within Phase 13 and the 3 model homes require just the City fees at $11, 780 per lot.

The 13 physically finished lots (Phase 14 and build-out) and the 33 lots within Phases

12 and 13 require lot improvements of $15,000 per lot. Total estimated costs to

complete all lot improvements and all required fees up to building permit are

$1,292,313. The costs to complete are considered the responsibility of the landowner.

The bond proceeds from the sale of bonds for CFO No. 2012-1, Improvement

Area No. 1, are to reimburse the developer for payment of impact fees.

Size and Shape

Improvement Area No. 1 consists of a portion of one recorded final tract map.

Tract Map No. 26811 consists of 135.087 gross acres and includes Improvement Area

Nos. 1 and 2 of CFO No. 2012-1. According to the Community Facilities District report

prepared by Koppel & Gruber Public Finance dated April 16, 2012, Improvement Area

No. 1 consists of 63.42 acres. According to the CFO report, I.A. 1 is to contain a

minimum of 27.95 taxable acres.

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HRA Soils and Geology

The appraisers have been provided with a geotechnical report for grading

purposes for Tract 26811 prepared by Petra Geotechnical, Inc., dated September 6,

2005. The report concludes that that the site is considered geotechnically feasible

based on the proposed grading plans as of that date. As of the date of value, the entire

Improvement Area has been graded to at least physically finished lot condition. It is a

specific assumption and contingency of this appraisal that all required studies

have been completed on the property and the land can be developed as currently

proposed.

Topography and Drainage

Improvement Area No. 1 consists of level to gently rolling topography, which has

been graded to level lots. Upon construction of the lots, most on-site run-off were

channeled into the streets where it is collected by curbs and gutters and carried into the

storm drains located at various locations along the streets.

of this appraisal that the subdivider/builder has fulfilled

It is a specific assumption

all grading and drainage

requirements of the City of Calimesa prior to construction of dwelling units.

Zoning

The subject property is within the City of Calimesa. The overlying zone

designation is RL, Residential Low (2-4 DU/AC). The Residential Low zone is intended

to provide for and protect the atmosphere and lifestyle associated with detached, single­

family residential neighborhoods. Not more than four dwellings per gross acre are

permitted. The minimum lot size for this zone is 7,200 square feet. The entire District

has a recorded final tract map. Final Tract Map No. 26811 was recorded on May 17,

2005. The current improvements are consistent with the residential zone and final tract

map. The existing and proposed improvements are legal and conforming uses.

Access and Circulation

The City of Calimesa's regional access is provided via Interstate 1 O in generally

an east/west direction. 1-1 O connects the City to eastern and western Riverside County

as well as the abutting counties of Orange, Los Angeles, San Diego and San

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HRA Bernardino. Ontario International Airport is located 35± miles northwest of the City of

Calimesa providing both passenger and freight airline service.

The 121 lots within Tract 26811 have internal residential streets that are

improved with concrete curbs, gutters and sidewalks and provide one traffic lane in

each direction.

Easements

The appraisers have requested a current title report for the land under the

Singleton Road, LLC ownership as of the date of value. A preliminary title report dated

September 26, 2013 prepared by Chicago Title Company has been provided for review.

The report covers lots 220 through 243 and 252 through 260 of Tract 26811. This is

only a portion of the lots under the ownership of the landowner, as of the date of value.

The title policy states that the property lies within the boundaries of Community

Facilities District No. 1, Community Facilities District No. 2012-1 (City of Calimesa) and

Community Facilities District No. 2012-1 (Yucaipa Valley Water District) (YVWDl.

However, recent conversation with the General Manager at Yucaipa Valley Water

District confirms that there is not a separate YVWO CFO. Two Deeds of Trust are

included that show Singleton Road, LLC as the Trustor. One deed is for the amount of

$15,000,000 with Chicago Title Insurance Company, as the Trustee and For the Benefit

of Eagle's View Management Company, Inc., as the Beneficiary. The second deed is for

the amount of $3,000,000 with First American Title Company, as the Trustee and

Umpqua Bank, as the Beneficiary. The title policy includes easements for public utilities,

roads and incidental purposes. Title policies for the 72 sold dwelling units have not been

requested or provided. For purposes of this appraisal, it is assumed that there are no

easements, encroachments or restrictions that would adversely affect the value of the

subject property.

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HRA Utilities

The subject properties are served by the following companies/agencies:

Electricity Southern California Edison Company Water & Sewer Yucaipa Valley Water District Gas Southern California Gas Company Telephone Verizon Police Riverside County Sheriff Department Fire Riverside County Fire Department Cable Time Warner Cable

Earthquake, Flood Hazards, and Nuisances

The subject property, as of the date of valuation, is not located in a designated

Earthquake Study Zone as determined by the State Geologist. However, all of Southern

California is subject to seismic activity. According to the geotechnical report, the nearest

active fault is the San Jacinto-San Jacinto Valley fault, located approximately 7 miles

southwest of the subject property.

According to Federal Emergency Management Agency Community Panel No.

06065C0785G, effective date August 28, 2008, the subject properties are in a Zone X

designated area that references an area of minimum flooding. Flood insurance is not

required. No other nuisances or hazards were observed on physical inspection of the

subject property as of the date of value.

Environmental Issues

The appraisers have been provided with a Phase I Environmental Site Assessment

Report prepared by the Orange County Environmental Division of Petra Geotechnical,

Inc., dated May 14, 2009. The conclusions of the report state that at the time of inspection

the site was vacant, rough graded lots and dirt streets. There were no recognized

environmental conditions identified with regard to the site. As of the date of this appraisal

report, Improvement Area 1 has been graded to at least physically finished lot condition.

Significant site improvements and dwelling units have been constructed within I.A. 1.

According to the builder, MasterCraft Homes, there are no known environmental issues

that would preclude the issuance of the remaining building permits. For purposes of this

appraisal and values included herein, it is a specific assumption and contingency that the

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HRA land is suitable for the proposed developments, and all required state and federal permits

have been issued to allow development of the property as proposed.

Taxes and Special Assessments

The subject property is located within Tax Rate Area 022-006 and generally has

a base tax rate of around 1.275% of Assessed Value. In addition, there are special

taxes for CFO No. 2012-1, Improvement Area No. 1 that range from a maximum

Assigned Special Tax for fiscal year 2013/2014 of $1,548±. to $2,956±. per unit

depending on the size of the dwelling. In addition to Special Tax A, the subject dwellings

are subject to Special Tax B with a Maximum Assigned Special Tax of $707.88 per unit

for Fiscal Year 2013/2014. The subject dwelling units are also subject to special tax

from CFO No. 1 which are estimated at $530.00 per dwelling unit for Fiscal Year

2013/2014. Please refer to the City's special tax consultant's report prepared by Koppel

& Gruber Public Finance which provides specific information on individual taxes. For

purposes of this appraisal it is assumed that all property taxes due are paid in

full.

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HRA IMPROVEMENT DESCRIPTION

General

There is one product being offered within I.A. 1. Singleton Heights, by

MasterCraft Homes, ranges in size from 1,576 square feet to 3, 198 square feet. There

are six floor plans being built on 7,200:!:, square foot lots. This project opened for sales in

October 2011. The 121 dwelling units planned for I.A. 1 is being built in 14 phases plus

the build-out of the final 5 lots. As of the date of value, Phases 1 through 11 were built

and have closed escrow to individual homeowners. Phases 12 and 13 are under

construction. Only 13 lots did not have a building permit issued as of the date of value,

May 1, 2014.

The following table summarizes the existing and proposed floor plans, home

sizes and current base prices as indicated by the builder, MasterCraft Homes. In

general, incentives range between $5,000 and $10,000.

Base Product Plan Unit Size Sales Price $/SF

Singleton Heights

1 1,576 N/A N/A

2 1,877 $296,500 $157.96

3 2,285 $337,500 $147.70

4 2,547 $354,000 $138.99

5 2,840 $364,500 $128.35

6 3,198 $375,000 $117.26

Construction specifications are not available for the subject's improvements. The

following list is of some of the assumed construction specifications for the detached single­

family homes.

Construction Units are of Class "D" construction; wood frame and stucco siding with several elevation choices.

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HRA Foundations Foundations are poured concrete. Particle board over wood floor joists for the second floor.

Structural Frame Consists of 2" x 4" and 2" x 6" wood framing.

Roofs Roofs are of concrete tile.

Windows Vinyl dual-glazed, Low E windows.

Floor Covering Floor coverings are wall-to-wall carpet in all living areas. Entries are of ceramic tile and kitchen, bathrooms and laundry room are of vinyl.

Interior Finish Custom !rowelled ceiling and painted drywall.

Heating/HVAC Energy efficient central air conditioning and gas forced air heating.

Kitchens Kitchens will be equipped with maple cabinets and granite countertops. Each kitchen will include a General Electric stainless steel appliance package including, dishwasher, gas range, self-cleaning oven and microwave.

Bathrooms Bathrooms will have double sinks with 6" x 6" tile countertops, natural wood cabinets, and fiberglass combination shower and tub.

Garage Garage doors are two car sectional steel roll-up with concrete driveways.

Laundry Facilities Interior laundry areas.

Exterior Side and rear yard fencing.

Options Numerous options and upgrades are available including flooring, cabinet, appliance package and countertop upgrades. Most options and upgrades provided at competing, similar quality developments are offered.

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HRA Conclusion of the Improvements

We have not been provided with detailed information regarding quality of

construction or specifications for the existing floor plans. Therefore, it is a specific

assumption of this appraisal that the quality and utility of the floor plans are similar to the

products currently being constructed and that it will generally meet buyer expectations.

Functional Utility

It is an assumption of this appraisal that all of the floor plans are functional, and

competitive with current design standards.

Remaining Economic Life

The total/remaining economic life, according to the Marshall Valuation Service, is

considered to be 50 years from date of completion.

Homeowners' Association Dues

The subject property is not within a Homeowner's Association.

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HRA HIGHEST AND BEST USE

The term highest and best use is an appraisal concept that has been defined as

follows:

The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. 4

The determination of highest and best use, therefore, requires a separate analysis

for the land as legally permitted, as if vacant. Next, the highest and best use of the

property with its improvements must be analyzed to consider any deviation of the existing

improvements from the ideal. "The highest and best use of both land as though vacant

and property as improved must meet four criteria. The highest and best use must be:

legally permissible, physically possible, financially feasible, and maximally productive.

These criteria are often considered sequentially."5 The four criteria interact and, therefore,

may also be considered in concert. A use may be financially feasible, but it is irrelevant if it

is physically impossible or legally prohibited.

Legally Permissible Use

The legal factors affecting the site and its potential uses are often the most

restrictive. These would typically be government regulations such as zoning and building

codes.

The subject property is located in the City of Calimesa in Riverside County. The

overlying zone designation is RL, Residential Low, with an allowable density of 2 to 4

dwelling units per acre. The minimum lot size is 7,200 square feet. The Improvement

Area is entitled with one final tract map, recorded on May 17, 2005. A total of 268

dwellings are entitled in the tract map which includes Improvement Area Nos. 1 and 2 of

4 The Dictionary of Real Estate Appraisal, 4th Edition, Pub. by the Appraisal Institute, Chicago, IL., P. 135.

5 The Appraisal of Real Estate, 101h Edition, Pub. By the Appraisal Institute, Chicago, IL., P. 280.

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HRA CFO No. 2012-1. The existing and proposed improvements are a legal and conforming

use.

Physically Possible Use

The subject property is located in the City of Calimesa within an area known as

Yucaipa Valley, about 20 miles east of the City of Riverside and 10 miles east of San

Bernardino. The City of Beaumont is located to the south and the City of Yucaipa is

located to the north. The City of Calimesa is accessed by Interstate 10, which connects

the City to eastern and western Riverside County as well as to the abutting counties of

Orange, Los Angles, San Diego and San Bernardino. The specific site location of

Improvement Area No. 1 is considered average.

All normal utilities are available to serve the subject lots. Site utilities are installed

and operational, as of the date of value. The property is generally bounded by residential

development and undeveloped land. All of the subject property is in physically finished lot

to finished lot condition. Within I.A. 1, seventy-two production homes have sold to

individual homeowners as of the date of value.

The size, access and topography of the subject property make it physically suited ·

for several types of development; however, the existing development of residential

dwelling units within the community of Singleton Heights make the subject property

more suitable for residential use.

Based on the physical analysis, the subject property appears to be best suited for

residential development.

Financial Feasibility and Market Conditions

The financial feasibility of the development of the subject property is based on its

ability to generate sufficient income and value in excess of the costs to develop the

property to its highest and best use. Please refer to the Valuation section of this report,

which gives support to the financial feasibility of CFO No. 2012-1, I.A. 1.

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HRA General Market Conditions - Riverside County

The attractiveness of residential development anywhere in Riverside County is

evidenced by market activity which has taken place over the last 15::': years. Beginning in

1996/1997 and continuing through 2005, significant price increases occurred and

incentives and concessions disappeared. The general consensus was that demand for

residential land exceeded supply over the 10± year period. Both land sales and home

sales showed annual double-digit appreciation from 1996/1997 through 2006. The past

recession had a significant negative impact on the residential market.

The current condition of the housing market is that there has been a significant

increase in demand over the past 24::': months, which has impacted price. The decline in

sales and prices between the end of 2005 through 2011 has ended. There was a

stabilization in the median Riverside County home price between February 2011 and

February 2012, with a slight decline of 1 %. However, the following 12 month period to

February 2013 shows the median price increased over 18%. The February 2014

median price of $285,000 is reportedly 25% higher than the February 2013 price. The

March 2014 median sales price is report to be $288,500, relatively similar to the

preceding month. It appears that the upward pressure on price due to demand

outpacing supply could be over. Over the past 12 months sales decreased by 13.2%,

from 3,532 sales in March 2013 to 3,066 sales in March 2014.

Prior to the most recent recession, the general economy experienced economic

growth beginning in the 3rd quarter of 2003, due largely to increased consumer and

business spending. The general economy continued to remain strong during 2006, but

began weakening in 2007. Over the following six years the general economy was

negatively impacted by the recent recession. Inflation continues to remain low, which

has kept mortgage rates from rising too steeply over the past several years. However,

the Inland Empire's long running housing boom came to a halt in 2007. Prior to the

recession, builders in Riverside County increased demand for new housing permits and

pulled 34,226 residential permits during 2004 and 34, 134 residential permits in 2005.

However, demand declined to 25,211 permits in 2006 and 12,453 permits in 2007. The

number of permits continued to decline to 5,919 in 2008, to 4, 190 permits in 2009, to

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HRA 4,557 permits in 2010, to the low in 2011 at 3,751 permits, to 4,258 permits in 2012 and

to 5,707 permits in 2013. Demand and sales started to decline the end of 2005 and

continued through 2012. According to DataQuick, new home sales were reported to be

28,732 in 2005, 28,232 in 2006, 13,693 in 2007, 7,425 in 2008, 5,094 in 2009, 4,350 in

2010, 3, 168 in 2011, 3,652 in 2012, and 4, 116 in 2013. This protracted reduced

demand resulted in significant decreasing new home prices, a significant reduction in

the number of new home sales and an increase in the number of loan defaults and

foreclosures.

The current projection for the housing market is that we are seeing a return to a

more balanced and normal market. Inland Empire homes are more affordable than on

the coast. The Inland Empire is expected to continue to draw homebuyers from Orange,

Los Angeles and San Diego counties where home prices are significantly higher,

especially as those three markets continue to improve.

According to Metrostudy, the median price of a new single family home in

Riverside County increased 11.8% between Q4 2012 and Q4 2013. The Q4 2013

median price of a new detached home in Riverside County is reported to be $345,000.

This price is still 25%± lower than the County record high median price of $462,656 in

March 2007. It is about 21 % higher than the low median price of $284,491 reached in

September 2009.

The rate of sales in Riverside County increased 2.0% between 04 2012 and Q4

2013 to 1,097 sales, according to Metrostudy. This was the seventh quarter of

increasing sales since the fourth quarter of 2009. These were the only quarters of

increasing sales since the second quarter of 2005. However, the annual sales for 2013

were 25.7% greater than for 2012 with 3,973 detached dwellings sold in 2013. The

general thinking was that this long term slowdown in sales was due to lack of demand,

largely caused by fear of further price declines or lack of financing. The current general

opinion is that sales prices, particularly for new homes, have reached an affordable

level that is supported by economic growth.

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HRA The sharply lower lot values in the region, combined with a trend toward building

smaller and/or less amenitized homes, has resulted in some new houses priced under

$250,000. Even with the price increases over the last 24±. months, 13%±. of detached

sales were below $250,000 in 04 2013. The builders are able to offer better values in

homes that buyers can afford and qualify to buy. It is anticipated that the smaller and

lower priced homes should continue to stimulate sales. According to interviews with

brokers in the subject's immediate area, investors are back in the market, particularly for

the under $300,000 dwellings.

Builders within Riverside County sold 3,973 new single-family detached homes

and 143 attached homes during 2013. This was up 25.7% for detached homes and

10.9% for attached homes compared to 2012. Builders within Riverside County sold

2,575 new single-family detached homes and 142 condominiums during 2011. That

equates to a 54.3% increase between 2011 and 2013.

Fourth quarter 2013 sales represent an increase of 2.0% for new detached

product over 04 2012. Most of the detached homes sold in Riverside County during 04

2013 are priced under $350,000, and comprise 51 %±. of the total sales. Sales of homes

priced between $250,000 and $499,999 have the most activity, comprising 70.6%±. of

the detached market. The number of active detached projects in Riverside County was

down 25 projects from 04 2012.

According to Metrostudy, there are 1,373 detached dwellings under construction

in Riverside County as of 04 2013. In addition, there are a reported 13,180 lots that are

improved to finished lot condition in Riverside County. At the end of 04 2012 there were

611 dwellings under construction and 24,699 lots were in at least a blue-top lot

condition. According to Metrostudy, there are 4.5 months of inventory for units under

construction as of the fourth quarter 2013. Total inventory, which includes units under

construction, units built but not occupied and model homes; indicates 8.0 months of

absorption. The current total inventory absorption of 8.0 months is down from the

reported 9.9 months one year ago.

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HRA According to an interest rate survey published weekly in the Los Angeles Times,

the typical 30-year, fixed rate conforming loan is between 4.40% and 4.50% as of the

date of this report. Mortgage rates have been in the 4.00% and 4.60%± range over the

past year. While a slight increase in rates may impact demand, we do not anticipate a

significant drop in demand, due to the interest rate increases, as long as rates remain

near or below the 8.00% level.

Riverside - North Central Submarket

The Competitive Market Area ("CMA") is defined by Metrostudy as the North

Central portion (Banning, Beaumont, Calimesa, Cherry Valley, and Moreno Valley) of

Riverside County.

The subject's submarket region accounted for 226 detached sales during the

fourth quarter of 2013, or a 20.6% market share of the Riverside County market. This

sales rate is up 14.5% from the fourth quarter 2012 sales rate. An indication of the

improving market is that during 2012, the subject's submarket had average sales per

project of 3.3 units per month. However, in 2013, the average sales rate per project was

8.8 units per month. The median sales price in the subject's submarket has increased

over the past year to $292,400, a 21 % increase. It is the most affordable submarket in

Riverside County with a median price per square foot of $147.00. The price per square

foot in the subject's submarket increased by 2.7%, and the average size of a detached

home increased by 9.9% since the fourth quarter of 2012.

During the fourth quarter of 2013, the subject's submarket sold 41 detached

homes priced under $250,000; 83 detached homes priced between $250,000 and

$299,999 were sold; 59 homes priced between $300,000 and $349,999 were sold; 22

homes priced between $350,000 and $399,999 were sold; and 21 homes priced

between $400,000 and $500,000 were sold. There were no attached units that sold in

the subject's submarket during the 4th quarter 2013.

Within the North Central submarket there are 23 active projects, which is one

less than last year at this time. The subject's market area reports 71 unsold standing

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HRA (built, but unsold) inventory units and 133 unsold units under construction. This is a 5.4

month absorption time for the completed dwellings and units under construction. Total

inventory which includes units built, under construction and model homes totals 246

units which equates to a 6.5 month supply at the current sales rate. One year ago total

inventory was at 220 units, and the absorption time based on last year's sales rate was

9.6 months. While total inventory increased 11.8%, absorption time decreased 32.3% or

3.1 months.

Feasibility

The financial feasibility of the development of the subject property is based on its

ability to generate sufficient income and value in excess of the costs to develop the

property to its highest and best use. Please refer to the Valuation sections of this report,

which give support to the financial feasibility of the District.

Most projects throughout the Yucaipa Valley and similar markets started to

plateau during the first quarter of 2006. Incentives and price reductions were apparent

in most tracts in an attempt to find the "new" equilibrium in absorption and sales price,

given market conditions at that time. A decline in sales activity and price occurred over

the next 6:': years. It appears that current prices have achieved an affordability level

more consistent with current economic growth. Over the past 18 to 24 months sales

have increased and builders began to increase sales prices between phase releases.

Most economists are predicting a continued return to a more balanced and normal

market during 2014.

Currently, the market appears to have stabilized, with some modest market

improvement at some projects for specific floor plans. Please refer to the table on the

following page that summarizes the actively selling projects most comparable to the

subject. As indicated, projects similar to that of the subject and the subject tract are

experiencing sales rates around 2.5 to 4 units per month. Projects that have been

released for sales during 2013 and 2014 are generally experiencing the better sales

rates.

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HRA Calimesa Market Area

Comparable Residential Project Summary Detached Single Family Homes

May 6, 2014

Lot Base Unit Price/ No. Sold Overall No. Project Location Units Size Price Size Sq. Ft. Start Dt. Mo. Abs.

1 Singleton Heights 121 7,200 $296,500 1,877 $157.96 90 2.9 MasterCraft Homes $337,500 2,285 $147.70 Oct-11 Calimesa $354,000 2,547 $138.99 Subject Property $364,500 2,840 $128.35

$375,000 3, 198 $117.26

2 Painted Hills 44 6,000 $269,990 2,000 $135.00 43 3.9

HighPointe Communities $282,000 2,127 $132.58 Jun-13

Calimesa $303,990 2,307 $131.77 $315,000 2,621 $120.18 $353,990 2,839 $124.69 $372,490 2,984 $124.83

3 Living Smart@ Tournament Hills 226 6,300 $258,015 1,597 $161.56 209 4.1

Pardee Homes $276,790 1,900 $145.68 Feb-10 $291,165 2,030 $143.43 $296,815 2,315 $128.21 $313,915 2,664 $117.84

N/A 3,099 N/A

4 Kensington @Tournament Hills 111 4,725 $267,990 1,720 $155.81 93 2.3

Richmond American Homes $282,990 1,846 $153.30 Jan-11

Beaumont $292,990 2,140 $136.91 $312,990 2,705 $115.71

5 Acacia @ Sundance 71 7,000 $295,990 2,320 $127.58 66 2.4

Richmond American Homes $307,990 2,491 $123.64 Jan-12

Beaumont $315,990 3,059 $103.30 $331,990 3,464 $95.84

6 Magnolia @ Sundance 63 7,000 $285,990 2,051 $139.44 14 6.5

Richmond American Homes $288,990 2, 111 $136.90 Mar-14

Beaumont $307,990 2,491 $123.64 $311,990 2,553 $122.21

October 2013 S/P October 2013 reeorted sales

7 Living Smart@ Sundance 139 6,500 $274,840 1,900 $144.65 69 5.2

Pardee Homes $281,040 2,030 $138.44 Apr-13

Beaumont $290, 165 2,315 $125.34 $298,990 2,664 $112.23 $325,565 3,099 $105.05

8 Keystone Collection 860 5,500 $261,755 1,884 $138.94 N/A N/A

K. Hovnanian Homes $263,990 2,018 $130.82 J ul-11

Beaumont $257,990 2,036 $126.71 $275,990 2,166 $127.42 $276,990 2,239 $123.71 $289,990 2,324 $124.78

9 Medallion Collection 32 6000 $343,665 2,283 $150.53 N/A N/A

K. Hovnanian Homes $348,870 2,411 $144.70 Jul-13

Beaumont $320,090 2,482 $128.96 $376,990 2,700 $139.63

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HRA Maximally Productive

In considering what uses would be maximally productive for the subject property, '

we must consider the previously stated legal considerations. We are assuming the land

uses allowed under the zoning of the City of Calimesa are the most productive uses that

will be allowed at the present time. Current zoning and approved uses indicate that other

alternative uses are not feasible at this time.

Given the improving demand for residential product in Riverside County and the

Yucaipa Valley market area, it is our opinion that development as built and as proposed

provides the highest land value and is, therefore, maximally productive.

Conclusion

Legal, physical, and market considerations have been analyzed to evaluate the

highest and best use of the property. This analysis is presented to evaluate the type of

uses that will generate the greatest level of future benefits possible from the land.

After reviewing the alternatives available and considering this and other

information, it is the opinion of the appraisers that the highest and best use for the

subject property, as vacant and as improved, is for residential development similar to

the existing subject floor plans.

As Vacant

After reviewing the alternatives available, it is these appraisers' opinion that ultimate

development of single-family detached for-sale products, similar to the existing product, is

considered the highest and best use of the property.

As Improved

The existing use is a legal use of the land and the value of the land as improved

far exceeds the value of the site if vacant. This means that the existing improvements

contribute substantial value to the site. Based on these considerations, it is our opinion

that the existing improvements constitute the highest and best use of the subject

property.

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HRA VALUATION METHODOLOGY

Basis of Valuation

Valuation is based upon general and specific background experience, opinions of

qualified informed persons, consideration of all data gathered during the investigative

phase of the appraisal, and analysis of all market data available to the appraiser.

Valuation Approaches

Three basic approaches to value are available to the appraiser:

Cost Approach

This approach entails the preparation of a replacement or reproduction cost estimate of the subject property improvements new (maintaining comparable quality and utility) and then deducting for tosses in value sustained through age, wear and tear, functionally obsolescent features, and economic factors affecting the property. This is then added to the estimated land value to provide a value estimate.

Income Approach

This approach is based upon the theory that the value of the property tends to be set by the expected net income therefrom to the owner. It is, in effect, the capitalization of expected future income into present worth. This approach requires an estimate of net income, an analysis of all expense items, the selection of a capitalization rate, and the processing of the net income stream into a value estimate.

Direct Comparison Approach

This approach is based upon the principle that the value of a property tends to be set by the price at which comparable properties have recently been sold or for which they can be acquired. This approach requires a detailed comparison of sales of comparable properties with the subject property. One of the main requisites, therefore, is that sufficient transactions of comparable properties be available to provide an accurate indicator of value and that accurate information regarding price, terms, property description, and proposed use be obtained through interview and observation.

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HRA Static Residual Analysis is used to estimate the merchant builder finished lot value. From the estimated base retail home price, all costs associated with the home construction including direct construction costs, indirect construction costs, financing and profit are deducted. Following the deduction of costs, the residual figure is an estimate of the merchant builder finished lot value.

The Direct Comparison Approach is used for the valuation of land when sufficient

comparable sales are available. Their sales prices would be considered the best indicators

of value, assuming the sales are current and in a similar land condition. The Income

Approach is typically used when appraising income producing properties. This approach is

not applicable in the valuation of land as land is not typically held to generate monthly

income, but rather purchased to construct an end product that may or may not generate

income. The Cost Approach is not an appropriate tool in the valuation of land.

As previously discussed, there are 72 completed dwelling units which sold to

individual homeowners. Due to the built-out status of this portion of the District, the

appraisers have utilized a mass appraisal technique in the valuation of the completed

dwelling units. When implementing a mass appraisal, conservative estimates are to be

used in the valuation. It is implicit in mass appraisal that some individual value

conclusions will not meet standards of reasonableness, consistency and accuracy.

However, appraisers engaged in mass appraisal have a professional responsibility to

ensure that, on an overall basis, the value conclusions meet attainable standards of

accuracy. The appraisers have used an average conservative value, for each size unit

for the sold dwellings within the District. By utilizing average value estimates, individual

home values could be higher or lower, depending on upgrades and exterior

improvements. However, on an overall basis, the value conclusions are reasonable and

meet attainable standards of accuracy.

In addition to the 72 completed and sold dwelling units, there are 3 completed

model homes, and 33 dwellings under construction. Traffic and acceptance of the

product have been good, with improving market conditions. These dwellings have been

valued based on recent sales within the District of similar sized dwelling units, with

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52

HRA

consideration given to current base asking prices. The 33 dwellings under construction

are valued based on the completion of construction with consideration given to current

market conditions. The model homes are based on 100% completion with consideration

to the options and upgrades.

The balance of the District consists of 13 physically finished lots, under the

ownership of Singleton Road, LLC. Both the Direct Comparison Approach and Static

Residual Analysis · are used to value the finished lots. Valuation by the Direct

Comparison Approach is with recent similar merchant builder land sales in the adjacent

City of Beaumont. The Static Residual Analysis is also used for valuation purposes as it

more closely reflects current market conditions. A finished lot value is estimated with

consideration from each analysis. From the estimated finished lot value, a deduction for

the remaining impact fees and lot costs are made to arrive at an estimated value for the

physically finished lots.

In addition to the site costs and fees required for the physically finished lots,

there are unpaid City fees for Phase 13 which is under construction and the model

homes. These fees will be deducted for the estimated "as is" value for the 33 dwelling

units under construction and the 3 model homes under the ownership of the landowner.

There are site costs of $15,000 per lot that are also required for the 33 dwelling units

under construction in Phases 12 and 13.

CONSULTING REAL ESTATE APPRAISERS

53

HRA VALUATION OF DWELLING UNITS

Valuation of Completed and Sold Dwelling Units

As previously discussed, there are 72 completed dwelling units within I.A. 1

which sold to individual homeowners between July 2012 and date of value. Please refer

to the Addenda of this report for a unit by unit summary of each ownership, date of sale,

and sales price. Due to the built-out status of this portion of the District, the appraisers

have utilized a mass appraisal technique in the valuation of the completed dwelling units

within the Improvement Area. When implementing a mass appraisal, conservative

estimates are to be used in the valuation. It is implicit in mass appraisal that some

individual value conclusions will not meet standards of reasonableness, consistency

and accuracy. However, appraisers engaged in mass appraisal have a professional

responsibility to ensure that, on an overall basis, the value conclusions meet attainable

standards of accuracy. The appraisers have used an average conservative value, for

each size unit for the sold dwellings within Improvement Area No. 1. By utilizing average

value estimates, individual home values could be higher or lower, depending on options

and upgrades. However, on an overall basis, the value conclusions are reasonable and

meet attainable standards of accuracy.

The 72 dwellings include sales within Singleton Heights which opened in October

2011. Six floor plans were originally offered which ranged from 1,576 square feet to

3, 198 square feet. The smallest floor plan includes 4 built units which have all been sold

to homeowners. This floor plan is not included in the units currently under construction

or proposed for the build-out of I.A. 1. When Singleton Heights first opened for sales, a

2,174 square foot floor plan was offered. Five homes were built and sold in 2012. This

plan was discontinued and a 2,285 square foot floor plan was offered which began

sales in 2013 and has continued to be offered to the present time. Currently there are

121 dwelling units planned for this product. This section of the report will first value the

72 sold dwelling units, followed by valuation of the model homes and dwelling units

under construction.

CONSULTING REAL ESTATE APPRAISERS

54

HRA As discussed in this report, the residential market has rebounded from the past

lengthy recession. Sales prices began to stabilize in 2011 with increased sales and

sales prices in 2012. Prices and sales continued to increase during 2013 and have

started to plateau over the past 6± months.

To analyze the recent sales trends within the subject product the appraisers have

reviewed the 72 closed sales and current escrows scheduled to close by the end of

2014. The sales have been grouped by floor plan size and then by year of sale, on a

price per square foot basis. The 18 dwellings currently in escrow are also analyzed for

recent trends in the market. Finally, we have considered the current base sales price

per floor plan in the analysis.

Given the state of the residential market during the sales of the subject property,

assuming a relatively similar average size dwelling unit, it would be reasonable to

expect the 2012 average price per square foot to be below that of the 2013 average

price per square foot. It is also important to note, that as a dwelling unit size increases,

all else being similar, the price per square foot usually decreases. Please refer to the

table on the next page which summarizes the 72 sales, 18 escrows and 28 unsold

dwelling units (the 3 model homes are not included in the analysis). The table also

includes the estimated value per square foot for each of the floor plans within the

Singleton Heights development. The estimated value per floor plan is also included.

The actual sales within the subject tract reflect the state of the residential market

over the timeframe of the sales. As indicated, similar floor plan sales prices increased

between 2012 and 2013. The limited sales in 2014 reflect an increase in price as well.

The current escrows, depending on plan, reflect both an increase and decrease in price.

The current base pricing, appears to be generally similar to that of the current escrows

for the particular floor plan. The majority of sales occurred during 2013. Only limited

sales were during 2014. Given the intended use of this appraisal assignment, the use of

mass appraisal to estimate Market Value for the sold dwelling units, and current market

conditions, we have concluded on the estimated values per square foot for each floor

CONSULTING REAL ESTATE APPRAISERS

55

0 0 z (fJ c ~ z G)

JJ m )> r

~ ill s;! c.., m )> cl cl JJ )>

ci5 ~ (fJ

Unit Size/

Total Sold

1,576

4

1,877

10

2,174

5

2,285

12

2,547

20

2,840

17

3,198

4

72

SUMMARY OF DWELLING UNIT PRICES AND ESTIMATED VALUES

Price Per Square Foot Per Floor Plan Estimated Values

2012 2013 2014 Escrow Base Price Per Sq. Foot Per Plan

$153.34 N/A $184.33 N/A N/A $165.00 $260,040

(3 sales) (1 sale)

$148.48 $157.33 N/A $162.64 $158.00 $158.00 $296,566

(5 sales) (5 sales) (1 escrow)

$136.38 N/A N/A N/A N/A $145.00 $315,230

(5 sales)

N/A $140.88 $151.75 $147.24 $147.00 $145.00 $331,325

(10 sales) (2 sales) (5 escrows)

$130.94 $134.24 $138.99 $142.55 $139.00 $140.00 $356,580

(3 sales) (15 sales) (2 sales) (7 escrows)

$118.79 $127.80 $148.24 $130.98 $128.00 $130.00 $369,200

(4 sales) (12 sales) (1 sales) (4 escrows)

N/A $122.89 $125.23 $124.39 $117.50 $120.00 $383,760

(3 sales) (1 sale) (1 escrow)

Sold Dwelling Units CFD No. 2012-1 Improvement Area No. 1:

Total Sold/Plan

$1,040,160

$2,965,660

$1,576,150

$3,975,900

$7,131,600

$6,276,400

$1,535,040

$24,500,910

:c :JJ )>

HRA plan size included on the preceding page. The total estimated values for the 72 sold

dwelling units based on floor plan size are also included.

The indicated Market Value for the 72 sold dwelling units within CFD No. 2012-1,

Improvement Area No. 1 is: $24,500,910 rounded to $24,500,000.

Valuation of Dwelling Units Under Construction

In addition to the 72 completed and sold dwelling units within I.A. 1, there are 3

completed and unsold model homes. There are 33 dwelling units under construction

ranging from just beginning framing to nearly complete with escrows scheduled to close

in May 2014. Of the 33 dwelling units, there are 18 dwelling units in phase 12 that are

nearing completion and of those 13 are reported to be in escrow. The 15 dwelling units

in phase 13 that have just started framing, have 5 units reported to be in escrow. The 15

dwelling units that have just started vertical construction are scheduled to begin closing

escrows in September 2014.

The appraisers have given consideration to the stabilizing market conditions in

valuing the dwelling units under construction. For the 18 units that are scheduled to

begin closing escrows in May 2014, we have estimated a completion of 80% of their

completed value per floor plan. The dwelling units that have just begun framing as of the

date of value are estimated to have a 40% completion.

The model homes have upgrades and options as well as landscape and

hardscape. However, there are costs associated with converting the model home to a

ready to sell condition. We have estimated a 110% of value for the model homes based

on their floor plan value. The table on the following page summarizes the units under

construction and three model homes within I.A 1, as of the date of value.

The estimated Market Value for the 33 dwellings under unit construction and 3

model homes within Improvement Area No. 1 under the ownership of the landowner,

Singleton Road, LLC, is: $8,419,636. However, there are additional unpaid fees and lot

costs, above those for the 13 physically finished lots, that the landowner would be

CONSULTING REAL ESTATE APPRAISERS

57

SUMMARY OF VALUES FOR DWELLING UNITS UNDER CONSTRUCTION & MODEL HOMES

APN Lot No. Address DU Sz B. P. Date Plan Buyer's Name Value/Plan Estimated

Estimated Value Est. Closing :c Completion

413-632-024-3 220 139 Sage Court 2,547 12/12/2013 4 Ross Wittman $356,580 80% $285,264 5/19/2014 :::0 413-632-017-7 221 145 Sage Court 2,840 12/12/2013 5 $369,200 80% $295,360 5/19/2014 )> 413-632-018-8 222 151 Sage Court 2,285 12/12/2013 3 Ralph Garcia $331,325 80% $265,060 5/19/2014

413-632-019-9 223 157 Sage Court 3,198 12/12/2013 6 $383,760 80% $307,008 5/19/2014

413-632-020-9 224 163 Sage Court 2,840 12/12/2013 5 David Anderson $369,200 80% $295,360 5/19/2014

413-632-021-0 225 169 Sage Court 2,547 12/12/2013 4 Joaquin Contreras $356,580 80% $285,264 5/19/2014

413-632-022-1 226 175 Sage Court 1,877 12/12/2013 2 Martin Aguirre $296,566 80% $237,253 5/19/2014

413-632-023-2 227 181 Sage Court 2,840 12/12/2013 5 Matthew Martin $369,200 80% $295,360 5/19/2014

413-640-001-7 228 172 Sage Court 3,198 12/12/2013 6 Craig Stokes $383,760 80% $307,008 5/19/2014

413-640-002-8 229 166 Sage Court 2,840 12/12/2013 5 Eric Ruida $369,200 80% $295,360 5/19/2014

0 413-640-003-9 230 160 Sage Court 2,285 12/12/2013 3 Dennis Martin $331,325 80% $265,060 5/19/2014

0 413-640-004-0 231 154 Sage Court 2,840 12/12/2013 5 $369,200 80% $295,360 5/19/2014 z (j"J 413-640-006-2 232 148 Sage Court 2,547 12/12/2013 4 Gabriel Morales $356,580 80% $285,264 5/19/2014 c ~ 413-640-007-3 233 142 Sage Court 2,840 12/12/2013 5 $369,200 80% $295,360 5/19/2014 z

413-640-008-4 234 136 12/12/2013 $383,760 80% $307,008 5/19/2014 G) Sage Court 3,198 6 JJ 413-633-008-2 258 1469 Sandy Hill Drive 2,547 12/12/2013 4 Kevin Ford $356,580 80% $285,264 5/19/2014 m )>

413-633-009-3 259 1475 Sandy Hill Drive 2,285 12/12/2013 3 Win Achariya $331,325 80% $265,060 5/19/2014 r 01 m 0:, (j"J 413-633-010-3 260 1481 Sandy Hill Drive 2,547 12/12/2013 4 Brian Sutton $356,580 80% $285,264 5/19/2014

',;! '--, 413-640-009-5 235 127 Mesquite Court 2,285 3/24/2014 3 $331,325 40% $132,530 9/22/2014 m )> 413-640-010-5 236 133 Mesquite Court 2,547 3/24/2014 4 $356,580 40% $142,632 9/22/2014 -u -u 413-640-011-6 237 139 Mesquite Court 2,839 3/24/2014 5 $369,200 40% $147,680 9/22/2014 JJ )> 413-640-012-7 238 145 Mesquite Court 3,198 3/24/2014 6 $383,760 40% $153,504 9/22/2014 w m 413-640-005-1 239 151 Mesquite Court 2,285 3/24/2014 3 Alex Lacy $331,325 40% $132,530 9/22/2014 JJ (j"J

413-641-001-0 240 148 Mesquite Court 2,839 3/24/2014 5 Curtis Hill $369,200 40% $147,680 9/22/2014

413-641-002-1 241 142 Mesquite Court 2,547 3/24/2014 4 Cedric Mullins $356,580 40% $142,632 9/22/2014

413-641-003-2 242 136 Mesquite Court 2,285 3/24/2014 3 Peter Paulian $331,325 40% $132,530 9/22/2014

413-641-004-3 243 130 Mesquite Court 2,547 3/24/2014 4 Jacob Ellsworth $356,580 40% $142,632 9/22/2014

413-642-003-5 252 1433 Sandy Hill Drive 2,285 3/24/2014 3 $331,325 40% $132,530 9/22/2014

413-642-004-6 253 1439 Sandy Hill Drive 2,547 3/24/2014 4 $356,580 40% $142,632 9/22/2014

413-642-005 -7 254 1445 Sandy Hill Drive 2,839 3/24/2014 5 $369,200 40% $147,680 9/22/2014

413-642-006-8 255 1451 Sandy Hill Drive 2,285 3/24/2014 3 $331,325 40% $132,530 9/22/2014

413-642-007-9 256 1459 Sandy Hill Drive 2,547 3/24/2014 4 $356,580 40% $142,632 9/22/2014

413-642-008-0 257 1463 Sandy Hill Drive 2,285 3/24/2014 3 $331,325 40% $132,530 9/22/2014

413-590-003-5 3 157 Singleton Canyon R 2,840 5/9/2011 5 Model Home $369,200 110% $406,120

413-590-004-6 4 163 Singleton Canyon R 2,547 5/9/2011 4 Model Home $356,580 110% $392,238

413-590-005-7 5 169 Singleton Canyon R 2,285 5/9/2011 3 Model Home $331,325 110% $364,458

Estimated Value for 33 DUs under construction & 3 Model Homes within CFD No. 2012-11.A. 1: $8,419,636

HRA responsible for. Within the following section of this report, the 13 physically finished lots

are valued.

The remaining fees and lot improvement costs attributed to the Singleton Road,

LLC ownership are $1,292,313. The next section of this report that values the 13

physically finished lots includes a deduction of $11,780± per lot for City of Calimesa

fees, $16,303 per lot for the Yucaipa Valley Water District fees, $1,938 for MSHCP fees

and $15,000 per lot for the costs to finish the lots. The total deduction for the 13

physically finished lots is $585,273. The remaining costs to the landowner are

$707,040. These costs are deducted from the estimated value of $8,419,636 for the

units under construction and model homes under the ownership of the landowner.

Therefore, the "as is" estimated value for the units under construction and model homes

under the ownership of Singleton Road, LLC is $8,419,636 - $707,040 = $7,712,596,

rounded to $7,713,000.

The cost to complete attributed to the to the estimated "as is" value of the 36

dwelling units is $707 ,040. The cost to complete is for 15 lots within Phase 13 and the 3

model homes that require the City of Calimesa fees of $11,780 per lot In addition, the

lot improvement costs of $15,000 per lot for the 33 lots under unit construction within

Phases 12 and 13 is required. The costs to complete are considered the responsibility

of the landowner.

CONSULTING REAL ESTATE APPRAISERS

59

HRA VALUATION OF FINISHED LOTS

General Information

The land without unit construction is improved to physically finished lots. This

section of the report values finished lots. According to the builder, there are unpaid City

of Calimesa fees on 31 lots, which include the 3 model homes, the 15 units under

construction in Phase 13 and the 13 physically finished lots (phase 14 and build-out).

There are also unpaid Yucaipa Valley Water District fees for phase 14 and the build-out,

13 lots. In addition, there are 33 lots within phases 12 and 13, plus the 13 lots in phase

14 and the build-out, that require finished lot improvements that include landscaping,

finish grading, lot drainage, driveways and walks and lot fencing.

The preceding section of this report valued the units under construction and

model homes under the ownership of the landowner. As described above, the remaining

costs to the landowner is more than the 13 physically finished lots valued in this section

of the report. A deduction for unpaid City fees, Yucaipa Valley Water District fees and

lot cost that are included in this valuation for the 13 lots and the balance was deducted

from the units under construction and model home valuation.

The City of Calimesa fees are $11,780 per lot or $153,140. The Yucaipa Valley

Water District fees are $16,303 per lot or $211,939. The MSHCP fees are $1,938 per lot

or $25, 194. And the finished lot costs are $15,000 per lot or $195,000. The remaining

lot costs attributed to the 13 lots, $585,273, will be deducted from the estimated finished

lot value for the 13 physically finished lots within I.A. 1.

The actual sales price of a particular parcel is always considered the best

indication of value, assuming the transaction is arm's length, current and meets the

definition of Market Value. Due to the downturn in the residential market between 2007

and 2012 and lack of demand for merchant builder land, there have been limited recent

comparable land sales within the subject's market place. However, we have included

three closed land sales within the Beaumont area which closed during 2010 and 2011.

The sales are located within the master planned community of Tournament Hills, the

CONSULTING REAL ESTATE APPRAISERS

60

HRA planned community of Sundance and a parcel adjacent to Seneca Springs. Due to the

current significant improvement in the residential market over the past 24:!:: months,

upward adjustments to the sales are indicated. A discussion of the market data will

precede the valuation of the finished lots.

Due to the limited comparable sales and the improving market conditions, the

Static Residual Analysis is also used to estimate finished lot value. The currently selling

products of Singleton Heights are analyzed. The results of both the Direct Comparison

Approach and the Static Residual Analysis are considered in estimating finished lot

value for the undeveloped land in Improvement Area No. 1.

Direct Comparison Approach

The Direct Comparison Approach is based upon the premise that, when a property

is replaceable in the market, its value tends to be set by the purchase price necessary to

acquire an equally desirable substitute property, assuming no costly delay is encountered

in making the decision and the market is reasonably informed. In appraisal practice, this is

known as the Principle of Substitution.

This approach is a method of analyzing the subject property by comparison of

actual sales of similar properties, when available. These sales are evaluated by weighing

both overall comparability and the relative importance of such variables as time, terms of

sale, location of sale property, and lot characteristics. For the purpose of this report, the

unit of comparison utilized is the price per lot for the residential land. Please refer to the

following page that summarizes the sales considered similar to the subject lots.

CONSULTING REAL ESTATE APPRAISERS

61

Land Sales Summary

0 Data No./ Buyer/ Sale Lot No. Sales Sale Price Finished At time of Sale 0 Project Seller Date Size of Lots Price Per Lot Price/Lot Land Condition z ([) c r:::;

No. 1 Richmond American Homes 3/11 7,000 71 $4,500,000 $63,380 $76,838 35 Near finished lots z G) SWC Starlight Ave. and Pardee Homes 36 Blue-top lots :n m Tiger Flower Dr. (Por Tr. 31488-5) )> r Beaumont

m m ([)

N :;;! '-, m

No.2 Richmond American Homes 6/10 5,200 111 $7, 174,500 $64,635 $86,650 Near finished lots )> u SWC Birdie Dr. and Pardee Homes u :n

Desert Lawn Dr. (Por Tr.31288-1) )> fjj

Beaumont m :n ([)

No. 3 RSI Development, LP 6/.11 6,500 77 $3,865,000 $50, 195 $75,000 Near finished lots SWC Portera Blvd. and Loma Vista, Inc.

Manzanita Park Rd. (PorTr. 31426) Beaumont

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

"As Is" Price/Lot:

Finished Lot Cost:

Site Condition:

Special Tax:

Financing:

Verification:

Comments:

Land Sale Data No. 1

Southwest corner of Starlight Avenue and Tiger Flower Drive, Beaumont

Portion of Tract No. 31468-5

Richmond American Homes

Pardee Homes

16.85 net acres

71 lots

7,000 square feet minimum

SP

To construct 71 detached dwellings, Sundance

March 3, 2011

$4,500,000

$63,380

$76,838

35 nearly finished lots and 36 blue-top lots at sale date

Yes, P.A. 18 of I.A. SC

All cash to seller

Seller, Public Records

This is the sale of the 71 lots in the 110 lot Planning Area 18 of Sundance. Originally P.A. 18 was to be developed with dwellings ranging from 2,400 square feet to 2,800 square feet. Richmond American Homes opened for sale, with the Acacia product on January 27, 2012. There are 4 floor plans offered ranging from 2,320 square feet to 3,464 square feet. Base sales prices currently range from $295,990 to $331,990. The development of Acacia is nearing sell­out with an overall absorption rate of 2.4 units per month.

CONSULTING REAL ESTATE APPRAISERS

63

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

"As Is" Price/Lot:

Finished Lot Cost:

Site Condition:

Special Tax:

Financing:

Verification:

Comments:

Land Sale Data No. 2

Southwest corner of Bridie Drive and Desert Lawn Drive, Beaumont

Portion of Tract No. 31288-1

Richmond American Homes

Pardee Homes

24.56 net acres

111 lots

5,200 square feet

SP

To construct 111 detached dwellings, Tournament Hills

June 30, 2010

$7,174,500

$64,635

$86,650

Near Finished lot at sale date

Yes, P.A. 7 of I.A. 178

All cash to seller

Seller, public records

This is the purchase of 111 near finished lots within the Tournaments Master Planned community. This sale is being developed with the Kensington project. The Kensington project is offering 4 floor plans ranging from 1,720 square feet to 2,705 square feet. Base sales prices currently range from $267,990 to $312,990. This project has been in a sales program since January 2011 and has met with average market acceptance with an overall sales rate of 2.3 units per month.

CONSULTING REAL ESTATE APPRAISERS

64

HRA

Location:

Legal Description:

Buyer:

Seller:

Parcel Size:

No. of Units:

Lot Size:

Zoning:

Intended Use:

Date Recorded:

Sale Price:

"As Is" Price/Lot:

Finished Lot Cost:

Site Condition:

Special Tax:

Financing:

Verification:

Comments:

Land Sale Data No. 3

Southwest Corner of Portrero Boulevard and Manzanita Park Road, Beaumont

Portion of Tract No. 31426

RSI Development, LP

Loma Vista, Inc.

21.309 gross acres

77 lots

6,500 square feet minimum

R-SF

To construct 77 detached dwellings

June 17, 2011

$3,865,000

$50,195

$75,000

Nearly physically finished at sale date

Yes, I.A. 20

All cash to seller

Buyer, Public Records

This is the purchase of 77 lots. The original tract had 106 lots, but only 29 dwellings were built prior to discontinuing development. This parcel is not within a master planned community. The project is known as The New House, which was sold-out as of the date of value.

CONSULTING REAL ESTATE APPRAISERS

65

HRA We have surveyed residential lot sales in the Beaumont market area. The three

sales are the comparables considered most helpful in valuing the subject property. We

have reviewed and inspected all of the data items. The data includes the finished lot

prices for merchant builder parcels. The comparable land sales have sold in a near

physically finished lot condition. Costs to bring the land from the condition at the time of

sale to finished lot condition were made available by the builders to analyze the data.

Therefore, the analysis will conclude at an indication of the finished lot value for the

subject lots.

Between the date of the land sales and the date of value, market conditions have

significantly improved. The residential land market continued to improve prior to October

2005, however, until 2010 the market deteriorated. Sales slowed significantly and sales

prices declined for most products. The Inland Empire was more negatively impacted,

due in part, to the rapid increases in dwelling prices between 2002 and 2006. The

residential lot market appeared to bottom out during 2011 and has experienced

significant improvement over the past 24±. months, although the magnitude of

improvement has slowed over the past 12±. months.

Analysis

Financing

All of the comparable sales were all cash transactions or financing considered to be

cash, therefore, no adjustments for financing were warranted.

Property Rights Conveyed

All of the comparables involved the transfer of the fee simple interest. The subject

fee simple interest is appraised in this report, and therefore, no adjustment is warranted.

Time of Sale

During the 10±. years from 1996 to 2006, Southern California sharply rebounded

from its lengthy 1990's recession. Demand for land sales dramatically exceeded supply.

Prices paid for residential land increased annually by 15% to 20% and more from 1997 to

2003. However, the second half of 2004 saw a leveling of land prices, only to increase

CONSULTING REAL ESTATE APPRAISERS

66

HRA again in February 2005. However, from November 2005 to the 2011 timeframe, sales

activity continued to decrease. Incentives and concessions for homes reappeared and

price reductions occurred until 2012. Builders were building smaller phases to meet

market demand in an attempt to eliminate or at least greatly reduce standing inventory.

The price reductions and incentives for the homes equated to a 60% to 70% decrease

in land price between 2005 and 2011. Once the residential market started to improve in

2012, there was a shortage of inventory due to the limited supply of new homes that

were being built. This shortage along with historic low interest rates and the feeling that

the deep recession had ended, fueled demand for new homes, especially in the

affordable price levels. According to DQNews.com, between September 2012 and

September 2013 the median home price in Riverside County increased 26.6%. Home

prices have continued to increase but at lower rates. The increase in home price and

demand for homes, directly impacts the price for land, particularly for finished lots.

Upward adjustments to all sales are required.

Conditions of Sale

Typically, adjustments for conditions of sale reflect the motivations of the buyer and

the seller in the transfer of real property. The conditions of sale adjustment reflects the

difference between the actual sales price of the comparable and its probable sales price if

it were sold in an arms-length transaction with typical motivations. Some circumstances of

comparable sales that will need adjustment include sales made under duress, eminent

domain transactions and sales that were not arm's length. All of the transactions were

reported to be arm's length in nature. Accordingly, no adjustment is indicated.

Location

The location adjustment is based on proximity to existing infrastructure and

employment. The three sales are located in the City of Beaumont. Data No. 2 is located

in the master planned community of Tournament Hills. Data No. 1 is located in the

master planned community of Sundance. HOA dues are very low in the community,

however, there is no golf-course orientation. Data No. 3 is not located in a master

planned community. The specific location of Data No. 3 is considered to be similar to

CONSULTING REAL ESTATE APPRAISERS

67

HRA that of the subject property. A downward adjustment was indicated for Data No. 2,

located in the golf-course oriented community of Tournament Hills.

Entitlement/Map Status

All of the sales are entitled. No adjustment is required.

Tax Rate

The subject property has an estimated overall tax rate of between 2.0% and 2.2%.

Because the comparable sales all have similar CFDs, no adjustment is required.

Lot Size

The comparables have minimum lot sizes that range from 5,200 square feet to

7,000 square feet. The minimum lot sizes for the subject lots is 7,200 square feet.

Adjustments have not been made to the comparables.

Condition of Lots

All of the data included information to estimate a finished lot price for each

comparable. According to the builder, there will be fees associated with the physically

finished lots within I.A. 1. There are impact fees required when a building permit is

issued for the City of Calimesa and Yucaipa Valley Water District. The balance of the

District without vertical construction as of the date of value includes 13 lots. According

to the builder, there are unpaid City of Calimesa fees, Yucaipa Valley Water District fees

and MSHCP fees which total $30,021 per lot. In addition, there the lots require finished

lot improvements that include landscaping, finish grading, lot drainage, driveways and

walks and lot fencing of $15,000 per lot.

At the conclusion of finished lot value, the remaining fees and lot costs are

deducted from the estimated value of the 13 finished lots; $153, 140 for the City of

Calimesa fees, $211,939 for Yucaipa Valley Water District fees, $25,194 for MSHCP

fees and $195,000 for finished lot costs.

CONSULTING REAL ESTATE APPRAISERS

68

HRA Finished Lot Values by Direct Comparison

Please refer to the following page for the adjustment grid of the three comparable

land sales. The adjusted finished lot values range from $105,000 to $109, 179 per lot.

Giving most consideration to Data No. 1, the 7,000 square foot lots, we have concluded

at $107,500 for a finished lot, ready for a building permit to be issued.

As previously discussed, the residential market changed significantly between

2010/2011 and the present time. In a rapidly changing market the better indication of

land value can be estimated by the Static Residual Analysis which reflects current

dwelling sales prices and market conditions. The following paragraphs discuss the

Static Residual Analysis for the Singleton Heights subdivision.

CONSULTING REAL ESTATE APPRAISERS

69

0 0 z (fJ c ~ z Gl JJ

~ r

~ rn ;;;! '--a m )> cl cl JJ )> (/) m JJ (fJ

Data No./

I Location No. 1 SWC Starlight Ave. and Tiger Flower Dr. Beaumont

No. 2 SWC Birdie Dr. and Desert Lawn Dr. Beaumont

No. 3 SWC Portreo Blvd. and Manzanita Park Rd. Beaumont

RESIDENTIAL LAND SALES ADJUSTMENT GRID

Date of II U~~is II Lot Size I

Finished I Time I

Adjusted Sale Lot Price Price

3/3/2011 71 7,000 $76,838 40% $107,573

6/30/2010 111 5,200 $86,650 40% $121,310

6/17/2011 77 6,500 $75,000 40% $105,000

I Location I View

Potential

0% 0%

-10% 0%

0% 0%

Adjusted Price/Unit

$107,573

$109,179

$105,000

:::c ll )>

HRA Static Residual Analysis to Finished Lot Value

The merchant builder land is valued by the Direct Comparison Approach and by the

Static Residual Analysis. The purpose of this analysis is to estimate a value for the land

assuming no direct construction has taken place. This method is particularly helpful when

development for a subdivision represents the highest and best use and when competitive

house sales are available. Reportedly, this analysis is by far the most commonly used by

merchant builders when determining price for land.

This analysis is useful for projects that will have a typical holding period of one to

two years which represents the typical holding period sought by merchant builders. The

Static Residual Analysis best replicates the investor's analysis when determining what can

be paid for the land based on proposed product. Purchase of the land is simply treated as

one of the components necessary to build the houses to sell to the homeowner. When all

the components of the end-product can be identified and reasonable estimates of costs

and profit can be allocated, the Static Residual Analysis becomes the best indicator of

value to a merchant builder for a specific product. Specific product information is available,

which makes this analysis particularly meaningful.

The analysis uses an estimated average base sales price, less incentives, for a

specific product, then deducts the various costs including direct and indirect costs of

construction, marketing, taxes and overhead, as well as the required profit margin to

attract an investor in light of the risks and uncertainties of the project and residential

market. This analysis is most helpful when significant lot and or view premiums are not

present. When negotiating land price, builders typically will consider the value of lot

premiums when they are significant, but typically do not give the premiums full

consideration. When a downturn in the market occurs or a slight stall in a sales program,

premiums are typically the first to be negotiated away.

End-product Sales Prices

The analysis uses the average base sales price without lot premiums. The recent

sales for Singleton Heights has met with good market response, given current market

conditions. Therefore, for use in the analysis, we have used product information and costs

CONSULTING REAL ESTATE APPRAISERS

71

HRA associated with the Singleton Heights product as a feasible product to be developed for

the build out of I.A. 1. Our estimate of base sales price includes a review of the subject's

current sales prices included within the Improvement Description section of this report,

review of actively selling projects in the market area, and a review of closed sales prices. A

summary of the closed sales and average sales price is included in the Addenda. For the

valuation, we have used the current base pricing as previously summarized and deducted

typical incentives for each project.

Direct Development Costs

The builder has provided direct construction costs to build Singleton Heights. We

have also interviewed local builders in the Riverside County market area for estimates of

direct construction costs for the similar products. Based on our understanding of the

proposed quality of construction, home size and functional utility, we have estimated direct

construction costs of $50.00 per square foot for the subject product. Based on the

proposed quality of construction, home size and functional utility, the builders cost appear

reasonable.

Indirect construction costs have been estimated at 4% of sales price, which is found

to be an industry standard for use in this analysis.

General and Administrative

General and administrative costs are estimated at 4% of retail value. This category

covers such expenses as administrative, professional fees, real estate taxes, and

miscellaneous costs. This estimate is typical and consistent with the market.

Marketing and Warranty

Marketing and sales expenses plus warranty costs are estimated at 6% of retail

value. This category covers such expenses as advertising and sales commissions and

home warranties. This estimate is typical and consistent with the market.

CONSULTING REAL ESTATE APPRAISERS

72

HRA Developer Profit

The line item for profit reflects the required margin to attract an investor in light of

the risk and uncertainties of the specific project. This analysis assumes a finished lot

and no on-site construction. Therefore, additional risk of development is unknown.

Based on surveys of builders, current profit requirements are typically between

8% and 12% of revenues, with occasional responses as high as 15%. These profit

estimates are for projects that can be constructed and sold out in a two-year period.

Higher profits can be required for longer construction/sellout periods and riskier

projects. Lower profits can be accepted in inexpensive land cost areas where homes

sell quickly. Based on a review of the absorption for the subject product and competing

subdivisions, a sales rate of 3± units per month for Singleton Heights appears

reasonable.

The line item for profit is based on a typical holding period sought by merchant

builders; that is 1 to 2 years. Based on current market conditions and the outlook for the

next 12 to 24 months, an 8% line item for profit, would seem appropriate for a 1 to 2-

year hold. As of the date of value, there are 13 lots without vertical construction.

Interest During Holding Period

A typical allowance for f)nancing during the holding period has been between 5%

and 7%. However, over recent times with historic low interest rates, lower rates can be

found. Based on recent interviews with builders in the subject market area, we have

chosen a 5% deduction for financing during the holding period.

Site Costs

Because this analysis residuals to a finished lot condition, deductions for costs to

bring to a finished lot condition are not required. The following page illustrates the Static

Residual Analysis for the subject product. This analysis indicates a finished lot value of

$118,500 per lot.

CONSULTING REAL ESTATE APPRAISERS

73

HRA

13 lots 7, 200 SF Minimum Lot Size

MasterCraft Homes Singleton Heights Finished Lot Value

Floor Plan 2 3 4 5 6

Average

Incentives:

Size 1,877 2,285 2,547 2,840 3,198

2,549

Average Retail Value of Improvements $337,000

Average Dwelling Size (Sq. Feet) 2,549 Direct Building Cost Per Sq. Ft. $50.00 $127,470 Indirect Construction Costs 4.00% $13,480 General & Administrative Costs 4.00% $13,480 Marketing and Warranty Costs 6.00% $20,220 Builder's Profit 8.00% $26,960 Interest During Holding Period 5.00% $16,850 Costs to bring to Finished Lot None

Finished Lot Estimate of Value $118,540 S118,fill0

CONSULTING REAL ESTATE APPRAISERS

74

Base Sales Price

$296,500 $335,000 $354,000 $364,500 $375,000

$345,000

$8,000

Land Ratio

$132.19 (Per sq. ft.)

Finished Lot 0.35

HRA Conclusion of Finished Lot Values

The following table summarizes the conclusions of finished lot values by the Direct

Comparison Approach, the Static Residual Analysis and the concluded finished lot value.

Due to the continued changes in the residential market and limited land sales, we have

given most consideration to the results of the Static Residual Analyses.

Product

Singleton Heights

Finished Lot Value Conclusion

Direct Comparison Lot Static Residual Approach Size Analysis

$107,500 7,000 SF $118,500

Finished Lot Ratio

35%

Concluded Finished Lot Value

$115,000

Based on the data presented, we have concluded on a finished lot value of

$115,000 per lot for the finished lots within I.A 1.

"As Is" Lot Values

As previously discussed, there are 13 lots without vertical construction as of the

date of value, May 1, 2014. None of the lots had building permits issued. There are

unpaid City of Calimesa fees, Yucaipa Valley Water District fees, MSHCP fees and lot

improvements required for the 13 physically finished lots. The total costs to bring the

physically finished lots to a finished lot ready to issue a building permit condition, is

$585,273. The following table illustrates the "as is" value for the physically finished lots

within Improvement Area No. 1.

13 Finished Lots X $115,000/Lot:

Less: City Fees@ $11,780/Lot

Less: YVWD Fees@ $16,303/Lot

Less: MSHCP Fees@ $1,938/Lot

Less: Lot Costs@ $15,000/Lot

13 Physically Finished Lots

Rd.

CONSULTING REAL ESTATE APPRAISERS

75

$1,495,000 ($ 153,140)

($ 211,939)

($ 25,194)

($ 195,000)

$ 909,727

$ 910,000

HRA VALUATION CONCLUSIONS

Based on the investigation and analyses undertaken, our experience as real estate

appraisers, and subject to all the premises, assumptions and limiting conditions set forth in

this report, the following opinions of Market Value are formed as of May 1, 2014.

COMMUNITY FACILITIES DISTRICT NO. 2012-1 IMPROVEMENT AREA NO. 1 (SINGLETON HEIGHTS)

THIRTY-THREE MILLION ONE HUNDRED TWENTY-THREE THOUSAND DOLLARS

$33,123,000

72 Individual Homeowners

TWENTY-FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS $24,500,000

SINGLETON ROAD, LLC 36 Units/Lots

SEVEN MILLION SEVEN HUNDRED THIRTEEN THOUSAND DOLLARS $7,713,000

SINGLETON ROAD, LLC 13 Lots

NINE HUNDRED TEN THOUSAND DOLLARS $910,000

CONSULTING REAL ESTATE APPRAISERS

76

HRA CERTIFICATION

We hereby certify that during the completion of this assignment, we personally

inspected the property that is the subject of this appraisal and that, except as specifically

noted:

We have no present or contemplated future interest in the real estate or personal interest or bias with respect to the subject matter or the parties involved in this appraisal.

We have not provided appraisal services regarding the subject property within the last three years to our client, the City of Calimesa.

To the best of our knowledge and belief, the statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are based, are true and correct.

Our engagement in this assignment was not contingent upon developing or reporting predetermined results. The compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event.

The appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan.

The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics & Standards of Professional Appraisal Practice of the Appraisal Institute, which include the Uniform Standards of Professional Appraisal Practice.

As of the date of this report, James B. Harris has completed the requirements of the continuing education program of the Appraisal Institute.

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

No one provided significant real property appraisal assistance to the persons signing this certificate.

CONSULTING REAL ESTATE APPRAISERS

77

The use of this report is subject to the requirements of the Appraisal Institute

relating to review by its duly authorized representatives. In furtherance of the aims of the

Appraisal Institute to develop higher standards of professional performance by its

Members, we may be required to submit to authorized committees of the Appraisal

Institute copies of this appraisal and any subsequent changes or modifications thereof.

78

Respectfully submitted,

Berri Cannon Harris Principal AG009147

ames B. Harris, MAI Principal AG001846

HRA

ADDENDA

CONSULTING REAL ESTATE APPRAISERS

@ IJJ) &i fL O fP O ~ &i 71 0 ©J fM ~

HARRIS REAL TY APPRAISAL 5100 Birch Street, Suite 200 Newport Beach, CA 92660

(949) 851-1227

QUALIFICATIONS OF

JAMES B. HARRIS, MAI

PROFESSIONAL BACKGROUND

Actively engaged as a real estate analyst and consulting appraiser since 1971. Principal of Harris Realty Appraisal, with offices at:

5100 Birch Street, Suite 200 Newport Beach, California 92660

Before forming Harris Realty Appraisal, in 1982, was employed with Real Estate Analysts of Newport, Inc. (REAN) as a Principal and Vice President. Prior to employment with REAN was employed with the Bank of America as the Assistant Urban Appraisal Supervisor. Previously, was employed by the Verne Cox Company as a real estate appraiser.

PROFESSIONAL ORGANIZATIONS

Member of the Appraisal Institute, with MAI designation No. 6508 Director, Southern California Chapter - 1998, 1999 Chair, Orange County Branch, Southern California Chapter -1997 Vice-Chair, Orange County Branch, Southern California Chapter - 1996 Member, Region VII Regional Governing Committee-1991 to 1995, 1997, 1998 Member, Southern California Chapter Executive Committee -1990, 1997 to 1999 Chairman, Southern California Chapter Seminar Committee - 1991 Chairman, Southern California Chapter Workshop Committee - 1990 Member, Southern California Chapter Admissions Committee - 1983 to 1989 Member, Regional Standards of Professional Practice Committee -1985 - 1997

Member of the International Right-of-Way Association, Orange County Chapter 67.

California State Certified Appraiser, Number AG001846

EDUCA T/ONAL ACTIVITIES

B.S., California State Polytechnic University, Pomona

Successfully completed the following courses sponsored by the Appraisal Institute and the Right-of­Way Association:

Course I-A Course 1-B Course II Course IV Course VI Course VIII Course SPP Course 401

Principles of Real Estate Appraisal Capitalization Theory Urban Properties Litigation Valuation Investment Analysis Single-Family Residential Appraisal Standards of Professional Practice Appraisal of Partial Acquisitions

Has attended numerous seminars sponsored by the Appraisal Institute and the International Right­of-Way Association.

TEACHING AND LECTURING ACTIVITIES

Seminars and lectures presented to the Appraisal Institute, the University of California-Irvine, UCLA, California Debt and Investment Advisory Commission, Stone & Youngberg and the National Federation of Municipal Analysts.

MISCELLANEOUS

Member of the Advisory Panel to the California Debt and Investment Advisory Commission, regarding Appraisal Standards for Land Secured Financing (March 2003 through June 2004)

LEGAL EXPERIENCE

Testified as an expert witness in the Superior Court of the County of Los Angeles and the County of San Bernardino and in the Federal Bankruptcy Courts five times concerning the issues of Eminent Domain, Bankruptcy, and Specific Performance. He has been deposed numerous times concerning these and other issues. This legal experience has been for both Plaintiff and Respondent clients. He has prepared numerous appraisals for submission to the IRS, without having values overturned. He has worked closely with numerous Bond Counsel in the completion of 175 Land Secured Municipal Bond Financing appraisals over the last five years.

SCOPE OF EXPERIENCE

Feasibility and Consultive Studies

Feasibility and market analyses, including the use of computer-based economic models for both land developments and investment properties such as shopping centers, industrial parks, mobile home parks, condominium projects, hotels, and residential projects.

Appraisal Projects

Has completed all types of appraisal assignments from San Diego to San Francisco, California. Also has completed out-of-state appraisal assignments in Arizona, Florida, Georgia, Hawaii, Nevada, New Jersey, Oklahoma, Oregon, and Washington.

Residential

Residential subdivisions, condominiums, planned unit developments, mobile home parks, apartment houses, and single-family residences.

Commercial

Office buildings, hotels, motels, retail store buildings, restaurants, power shopping centers, neighborhood shopping centers, and convenience shopping centers.

Industrial

Multi-tenant industrial parks, warehouses, manufacturing plants, and research and development facilities.

Vacant Land

Community Facilities Districts, Assessment Districts, master planned communities, residential, commercial and industrial sites; full and partial takings for public acquisitions.

QUALIFICATIONS OF

BERRI CANNON HARRIS

PROFESSIONAL BACKGROUND

Actively engaged as a real estate appraiser since 1982. Principal of Harris Realty Appraisal, with offices at:

5100 Birch Street, Suite 200 Newport Beach, California 92660

Before joining Harris Realty Appraisal was employed with Interstate Appraisal Corporation as Assistant Vice President. Prior to employment with Interstate Appraisal was employed with Real Estate Analysts of Newport Beach as a Research Assistant.

PROFESSIONAL ORGANIZA T/ONS

Appraisal Institute Co-Chair, Southern California Chapter Hospitality Committee - 1994 - 1998 Chair, Southern California Chapter Research Committee - 1992, 1993

Commercial Real Estate Women Chair, Special Events - 1998 - 2003 Second Vice-President - 1996, 1997 Treasurer - 1993, 1994, 1995 Chair, Network Luncheon Committee-1991, 1992

California State Certified Appraiser, Number AG00914 7

EDUCATIONAL ACTIVITIES

B.S., University of Redlands, Redlands, California

Successfully completed the following courses sponsored by the Appraisal Institute:

Principles of Real Estate Appraisal Basic Valuation Procedures Capitalization Theory and Techniques - A Capitalization Theory and Techniques - B Report Writing and Valuation Analyses Standards of Professional Practice Case Studies in Real Estate Valuation

Has attended numerous seminars sponsored by the Appraisal Institute. Has also attended real estate related courses through University of California-Irvine.

LECTURING ACTIVITIES

Seminars and lectures presented to UCLA, California Debt and Investment Advisory Commission, and Stone & Youngberg.

MISCELLANEOUS

Member of the Advisory Panel to the California Debt and Investment Advisory Commission, regarding Appraisal Standards for Land Secured Financing (March 2003 through June 2004)

SCOPE OF EXPERIENCE

Appraisal Projects

Has completed all types of appraisal assignments from San Diego to San Francisco, California. Also has completed out-of-state appraisal assignments in Arizona and Hawaii.

Residential

Residential subdivisions, condominiums, planned unit developments, mobile home parks, apartment houses, and single-family residences.

Commercial

Office buildings, retail store buildings, restaurants, neighborhood-shopping centers, strip retail centers.

Industrial

Multi-tenant industrial parks, warehouses, manufacturing plants, and research and development facilities.

Vacant Land

Residential sites, commercial sites, industrial sites, large multi-unit housing, master planned unit developments, and agricultural acreage. Specializing in Community Facilities District and Assessment District appraisal assignments.

PARTIAL LIST OF CLIENTS

Bank of America Bank One Commerce Bank Downey S&L Assoc. Fremont Investment and Loan First Los Angeles Bank Institutional Housing Partners

Army Corps of Engineers California State University Caltrans City of Aliso Viejo City of Beaumont City of Corona City of Costa Mesa City of Encinitas City of Fontana City of Fullerton City of Hemet City of Hesperia City of Honolulu City of Huntington Beach City of Indian Wells City of Irvine City of Lake Elsinore City of Loma Linda City of Los Angeles City of Moreno Valley City of Newport Beach City of Oceanside

Arter & Hadden Bronson, Bronson & McKinnon Bryan, Cave, McPheeters & McRoberts Richard Clements Cox, Castle, Nicholson Gibson, Dunn & Crutcher Hill, Farrer & Burrill

Lending Institutions

NationsBank Preferred Bank Santa Monica Bank Tokai Bank Union Bank Universal S&L Assoc. Wells Fargo Bank

Public Agencies

City of Palm Springs City of Perris City of Riverside City of San Marcos City of Tustin City of Victorville County of Orange County of Riverside County of San Bernardino Eastern Municipal Water District Orange County Sheriff's Department Ramona Municipal Water District Rancho Santa Fe Comm. Services District Capistrano Unified School District Hemet Unified School District Hesperia Unified School District Romoland School District Saddleback Valley Unified School District Santa Ana Unified School District Val Verde Unified School District Yucaipa-Calimesa Unified School District

Law Firms

McClintock, Weston, Benshoof, Rochefort & MacCuish

Palmiri, Tyler, Wiener, Wilhelm, & Waldron Sonnenschein Nath & Rosenthal Strauss & Troy Wyman, Bautzer, Rothman, Kuchel &

Silbert

OWNERSHIPS/SUMMARY OF SOLD DWELLING UNITS

SOLD DWELLING UNITS AS OF MAY 1, 2014

APN Ownership Unit Sz Lot Tract Prop Tax Rec. Date Sale Date Sales Price $/SF Doc No.

413-630-004 Julie Blackmon 1,576 180 26811 $5,240.30 9/4/2012 7 /26/2012 $238,500 $151.14 419842

413-590-008 Kameron Mata 1,576 8 26811 $5,258.32 10/9/2012 9/21/2012 $240,000 $152.09 481345

413-590-012 Steve Husted 1,576 12 26811 $5,430.44 11/16/2012 10/30/2012 $246,500 $156.21 557011

$241,667 $153.34

413-632-006 Michael J Brazfield 1,576 209 26811 $277.60 3/31/2014 3/14/2014 $290,500 $184.33 117372

413-630-007 Pamela K & Rodney A Henderso 1,877 183 26811 $5,950.38 7/24/2012 6/12/2012 $265,000 $141.64 345253

413-590-025 Jerry D & Roberta E Adey 1,877 25 26811 $5,913.38 7/30/2012 6/12/2012 $269,000 $143.77 355340

413-590-007 Horton M Living Trust 1,877 7 26811 $6,190.10 10/11/2012 9/21/2012 $291,000 $155.53 484589

413-590-009 Mark & Vicki Montgomery 1,877 9 26811 $5,707.44 11/14/2012 10/30/2012 $269,500 $144.04 550756

413-590-011 David F & Nancy Petersen 1,877 11 26811 $6,381.34 11/20/2012 10/30/2012 $299,000 $159.81 562224

$278,700 $148.48

413-630-008 Robert E & Crystal L Heidi 1,877 184 26811 $2,742.40 5/17/2013 4/23/2013 $288,500 $153.70 236485

413-630-014 Ron H & Jin H Choe 1,877 190 26811 $2,742.40 6/6/2013 5/17 /2013 $291,000 $155.03 271388

413-632-015 Neal J & Stephanie A Mcphersor 1,877 218 26811 $2,742.40 11/1/2013 10/10/2013 $283,500 $151.04 520070

413-631-014 David A & Jeanette R Smitson 1,877 208 26811 $277.60 12/6/2013 11/7/2013 $307,500 $163.83 570226

413-633-004 Russell E & Joyce Newcomer 1,877 266 26811 $277.60 1/7/2014 6/19/2013 $306,000 $163.03 5846

$295,300 $157.33

413-630-002 Kelsey Wikum 2,174 178 26811 $6,062.86 8/17/2012 7 /26/2012 $275,000 $127.67 392969

413-630-005 Jack R & Melissa M Markle 2,174 181 26811 $6,241.34 8/31/2012 8/28/2012 $289,000 $134.17 418701

413-590-020 Gordon & Suzanne Grant 2,174 20 26811 $6,925.52 11/9/2012 10/9/2012 $310,000 $143.92 543541

413-590-022 Thomas & Julie Ruffin 2,174 22 26811 $5,675.92 1/3/2013 12/19/2012 $315,000 $146.24 5042

413-590-024 Jonathan & Trisha Peel 2,174 24 26811 $5,675.92 1/3/2013 12/5/2012 $293,500 $136.26 5035

$296,500 $136.38

413-631-004 John & Linda Preston 2,285 198 26811 $3,023.92 5/16/2013 4/23/2013 $294,500 $128.88 233113

413-631-002 Donald S Glackina 2,285 196 26811 $3,023.92 6/6/2013 5/17/2013 $311,000 $136.11 271378

413-630-012 Wayne H & Jodell Bohot 2,285 188 26811 $3,023.92 6/11/2013 5/17 /2013 $320,500 $140.26 277624

413-630-010 Hortencia A Kiter 2,285 186 26811 $3,586.96 6/27/2013 4/23/2013 $310,500 $135.89 310353

413-632-012 Tommy L & Jaimi Anne Sersaw 2,285 215 26811 $3,023.92 10/16/2013 10/2/2013 $306,500 $134.14 494419

413-631-008 Antonio Cisneros 2,285 202 26811 $3,023.92 10/21/2013 10/10/2013 $340,000 $148.80 501938

413-631-011 Matthew D & Victoria Ann S Kra 2,285 205 26811 $3,023.92 10/28/2013 10/2/2013 $336,000 $147.05 511426

SOLD DWELLING UNITS AS OF MAY 1, 2014

APN Ownership Unit Sz Lot Tract Prop Tax Rec. Date Sale Date Sales Price $/SF Doc No.

413-633-011 Laura & Joseph Jacobson 2,285 261 26811 $277.60 12/2/2013 11/7 /2013 $350,500 $153.39 561390

413-632-010 Jack & Natalie Moser 2,285 213 26811 $277.60 12/16/2013 11/7 /2013 $317,500 $138.95 581235

413-633-005 John & Jennifer Vargas 2,285 267 26811 $277.60 2/14/2014 6/19/2013 $332,000 $145.30 61042

$321,900 $140.88

413-632-002 Matthew T Baker 2,285 191 26811 $277.60 3/5/2014 2/11/2014 $345,000 $150.98 82846

413-632-004 Jeremy & Dawn White 2,285 193 26811 $277.60 3/5/2014 2/11/2014 $348,500 $152.52 82850

$346,750 $151.75

413-630-006 Robert J Kelsh 2,547 182 26811 $6,807.92 9/17/2012 8/28/2012 $295,000 $115.87 442761

413-590-026 John Moore 2,547 26 26811 $7,653.94 10/15/2012 9/21/2012 $354,500 $139.24 490340

413-590-013 Kevin & Brittney L Goodwin 2,547 13 26811 $7,607.38 11/21/2012 10/30/2012 $351,000 $137.86 564008

$333,500 $130.94

413-590-021 Pedro & Jenny L Barreto 2,547 21 26811 $6,327.20 1/24/2013 1/14/2013 $313,000 $122.94 37918

413-590-016 Toby J & Kristin L Bray 2,547 16 26811 $6,021.20 2/19/2013 1/21/2013 $369,500 $145.13 83311

413-590-017 Richard A & Brenda S Collins 2,547 17 26811 $6,021.20 2/19/2013 1/21/2013 $329,500 $129.42 83360

413-590-019 Egland Eileen Trust 2,547 19 26811 $6,021.20 2/19/2013 1/21/2013 $324,500 $127.45 84038

413-590-014 Barry J & Paula G Karr 2,547 14 26811 $6,327.20 2/22/2013 1/21/2013 $359,000 $141.01 91105

413-631-005 Steven W Lampman 2,547 199 26811 $3,305.44 5/17 /2013 4/23/2013 $346,000 $135.85 237255

413-631-006 Michael A & Mary Sue Wasilko 2,547 200 26811 $3,305.44 6/3/2013 4/23/2013 $343,500 $134.86 261236

413-631-003 Erik F Sahl 2,547 197 26811 $3,305.44 6/18/2013 5/17 /2013 $317,000 $124.46 289645

413-630-011 Jason J & Kristina L Smith 2,547 187 26811 $3,305.44 6/21/2013 5/17 /2013 $334,500 $131.33 296775

413-631-009 Steven & Amy Ochs 2,547 203 26811 $3,305.44 10/18/2013 10/12/2013 $348,500 $136.83 498606

413-632-016 Angela & Brian Macias 2,547 219 26811 $3,305.44 10/18/2013 10/10/2013 $332,000 $130.35 498599

413-633-003 Erik M & Kristy M Kendrick 2,547 265 26811 $277.60 12/2/2013 6/19/2013 $355,000 $139.38 560935

413-632-009 Randall K & Staci Layne 2,547 212 26811 $277.60 12/6/2013 11/7/2013 $338,500 $132.90 570242

413-632-007 Jose Jimenez 2,547 210 26811 $277.60 12/17/2013 11/7 /2013 $352,000 $138.20 582226

413-633-006 Duane A Miller 2,547 268 26811 $277.60 12/27/2013 11/7/2013 $366,000 $143.70 597568

$341,900 $134.24

413-632-003 Jesse & Trisha Woolley 2,547 192 26811 $277.60 3/5/2014 2/11/2014 $364,000 $142.91 82865

413-632-011 Aaron & Tanya Patty 2,547 214 26811 $3,305.44 3/31/2014 3/24/2014 $344,000 $135.06 117045

$354,000 $138.99

SOLD DWELLING UNITS AS OF MAY 1, 2014 APN Ownership Unit Sz Lot Tract Prop Tax Rec. Date Sale Date Sales Price $/SF Doc No.

413-630-001 Juan Jose Garcia & Joel Garcia Sc 2,840 177 26811 $7,491.06 8/3/2012 7 /26/2012 $319,500 $112.03 369714

413-630-003 Marc D Delong 2,840 179 26811 $7,663.16 8/3/2012 7/26/2012 $340,000 $119.21 369552

413-590-023 Anthony R & Kristina K Santillan 2,840 23 26811 $7,857.02 9/28/2012 9/21/2012 $348,500 $122.19 465449

413-590-010 Laplante Family 2005 Trust 2,840 10 26811 $7,559.24 11/13/2012 10/30/2012 $341,500 $119.74 544696

$337,375 $118.79

413-590-015 Galen D Spears 2,840 15 26811 $6,581.94 2/19/2013 1/21/2013 $359,500 $126.05 83365

413-590-018 Mukesh & Priti Patel 2,840 18 26811 $6,581.94 5/1/2013 1/21/2013 $356,500 $125.00 207433

413-630-009 Alfredo P Martinez 2,840 185 26811 $3,586.96 6/5/2013 4/23/2013 $335,000 $117.96 268661

413-631-001 Michael & Amber Utley 2,840 195 26811 $3,586.96 6/6/2013 5/17 /2013 $352,000 $123.94 270989

413-630-013 Richard N & Nicole Goulding 2,840 189 26811 $3,586.96 6/18/2013 5/17 /2013 $361,500 $127.29 289479

413-631-007 Montes RA & A P Living Trust 2,840 201 26811 $3,586.96 6/18/2013 4/23/2013 $341,000 $120.07 288146

413-631-010 Derek & Stacey Ginter 2,840 204 26811 $3,586.96 10/18/2013 10/2/2013 $352,000 $123.94 499433

413-632-013 David B Macleod 2,840 216 26811 $3,586.96 10/21/2013 10/2/2013 $352,000 $123.94 500586

413-631-013 Nicholas & Christal Harlan 2,840 207 26811 $3,586.96 10/24/2013 10/2/2013 $354,500 $124.82 508052

413-633-002 Constance Martinez 2,840 264 26811 $277.60 11/22/2013 6/19/2013 $386,000 $135.92 551935

413-633-012 Aaron M & Torianna M Polly 2,840 262 26811 $277.60 12/4/2013 11/7 /2013 $383,000 $134.86 566032

413-632-008 Patrick B & Holly B Garrett 2,840 211 26811 $277.60 12/13/2013 11/7/2013 $422,500 $148.77 580121

$362,958 $127.80

413-632-005 Kevin & Alison Shrive 2,840 194 26811 $277.60 3/13/2014 2/11/2014 $421,000 $148.24 94438

413-632-014 Robin A Ritcher 3,198 217 26811 $3,868.48 10/17 /2013 10/10/2013 $366,000 $114.45 497607

413-633-001 Martinez David R Trust 3,198 263 26811 $277.60 12/4/2013 11/7/2013 $406,500 $127.11 564681

413-631-012 Jared & Sache Knight 3,198 206 26811 $3,868.48 12/18/2013 12/16/2013 $406,500 $127.11 584921

$393,000 $122.89

413-632-001 Timothy D & Heidi L Adams 3,198 176 26811 $277.60 3/5/2014 2/11/2014 $400,500 $125.23 82855

72 Closed Dwellings

SUMMARY OF DWELLING UNIT ESCROWS

CURRENT ESCROWS AS OF MAY 1, 2014

Unit Building E[QQr_ Base Sales Options & ~ Recording

-- Buyer's Name Premium TQ!ol 5/P $/SF Date of Sale Size Permit Date Plan Price Incentives Dale

Price 413-632-022-1 175 Sage Court 1,877 12/12/2013 2 Martin Aguirre $ 296,500 $ 16,775 $8,000 $305,275 $162.64 1/18/2014 5/19/2014

413-632-018-8 151 Sage Court 2,285 12/12/2013 3 Ralph Garcia $ 327,800 $ 19,600 $8,000 $339,400 $ 148.53 12/1/2013 5/19/2014 413-640-003-9 160 Sage Court 2,285 12/12/2013 3 Dennis Martin $ 327,800 $ 20,200 $8,000 $340,000 $ 148.80 11/21/2013 5/19/2014 413-633-009-3 1475 Sandy Hill Drive 2,285 12/12/2013 3 Win Achariya $ 327,800 $ 17,145 $8,000 $336,945 $ 147.46 10/11/2013 5/19/2014 413-640-005-1 151 Mesquite Court 2,285 3/24/2014 3 Alex Lacy $ 335,562 $ 6,438 $8,000 $334,000 $ 146.17 2/15/2014 9/22/2014

413-641-003-2 136 Mesquite Court 2,285 3/24/2014 3 Peter Paulian $ 335,562 $ 4,338 $8,000 $331,900 $ 145.25 2/26/2014 9/22/2014 $336,449 $147.24

413-632-024-3 139 Sage Court 2,547 12/12/2013 4 Ross Wittman $ 349,000 $ 26,400 $8,000 $367,400 $ 144.25 10/25/2013 5/19/2014

413-632-021-0 169 Sage Court 2,547 12/12/2013 4 Joaquin Contreras $ 349,000 $ 17,245 $8,000 $358,245 $ 140.65 3/6/2014 5/19/2014

413-640-006-2 148 Sage Court 2,547 12/12/2013 4 Gabriel Morales $ 349,013 $ 33,095 $8,000 $374,108 $ 146.88 11/3/2013 5/19/2014

413-633-008-2 1469 Sandy Hill Drive 2,547 12/12/2013 4 Kevin Ford $ 349,000 $ 32,219 $8,000 $373,219 $ 146.53 10/12/2013 5/19/2014

413-633-010-3 1481 Sandy Hill Drive 2,547 12/12/2013 4 Brian Sutton $ 349,000 $ 18,550 $8,000 $359,550 $ 141.17 10/30/2013 5/19/2014

413-641-002-1 142 Mesquite Court 2,547 3/24/2014 4 Cedric Mullins $ 352,478 $ 12,522 $8,000 $357,000 $ 140.16 3/30/2014 9/22/2014 413-641-004-3 130 Mesquite Court 2,547 3/24/2014 4 Jacob Ellsworth $ 352,478 $ 7,522 $8,000 $352,000 $ 138.20 2/19/2014 9/22/2014

$363,075 $142.55

413-641-001-0 148 Mesquite Court 2,840 3/24/2014 5 Curtis Hill $ 371,922 $ 3,078 $8,000 $367,000 $ 129.23 2/22/2014 9/22/2014

413-632-020-9 163 Sage Court 2,840 12/12/2013 5 David Anderson $ 364,500 $ 7,400 $8,000 $363,900 $ 128.13 11/30/2013 5/19/2014

413-632-023-2 181 Sage Court 2,840 12/12/2013 5 Matthew Martin $ 364,500 $ 25,175 $8,000 $381,675 $ 134.39 12/18/2013 5/19/2014

413-640-002-8 166 Sage Court 2,840 12/12/2013 5 Eric Ruida $ 364,500 $ 18,900 $8,000 $375,400 $ 132.18 3/19/2014 5/19/2014 $371,994 $130.98

413-640-001-7 172 Sage Court 3,198 12/12/2013 6 Craig Stokes $ 375,500 $ 30,300 $8,000 $397,800 $124.39 2/26/2014 5/19/2014

18 Escrows

SUMMARY OF UNSOLD DWELLING UNITS

UNSOLD PRODUCTION UNITS AS OF MAY 1, 2014

Building Floor Base Sales Base SLP Options & Buyer Estimated APN Address Unit Size Premium TotalSLP $LSF

Permit Date Plan Price Per SF Incentives Close Date Price

413-640-009-5 127 Mesquite Court 2,285 3/24/2014 3 $ 335,562 $ 146.85 $ 7,500 $8,000 $335,062 $ 146.64 9/22/2014

413-642-003-5 1433 Sandy Hill Drive 2,285 3/24/2014 3 $ 337,239 $ 147.59 $ 8,000 $8,000 $337,239 $ 147.59 9/22/2014

413-642-006-8 1451 Sandy Hill Drive 2,285 3/24/2014 3 $ 337,239 $ 147.59 $ 8,000 $8,000 $337,239 $ 147.59 9/22/2014

413-642-008-0 1463 Sandy Hill Drive 2,285 3/24/2014 3 $ 337,239 $ 147.59 $ 8,000 $8,000 $337,239 $ 147.59 9/22/2014

413-591-001-6 203 Singleton Canyon Rd. 2,285 6/2/2014 3 $ 340,611 $ 149.06 $ 8,000 $8,000 $340,611 $ 149.06 12/17 /2014

413-641-006-5 1424 Sandy Hill Drive 2,285 6/2/2014 3 $ 340,611 $ 149.06 $ 10,000 $8,000 $342,611 $ 149.94 12/17 /2014

413-641-008-7 120 Sandy Hill Court 2,285 6/2/2014 3 $ 340,611 $ 149.06 $ 10,000 $8,000 $342,611 $ 149.94 12/17 /2014

413-590-001-3 145 Singleton Canyon Rd 2,285 6/15/2015 3 $ 350,829 $ 153.54 $ 5,000 $5,000 $350,829 $ 153.54

413-640-010-5 133 Mesquite Court 2,547 3/24/2014 4 $ 352,478 $ 138.39 $ 7,000 $8,000 $351,478 $ 138.00 9/22/2014

413-642-004-6 1439 Sandy Hill Drive 2,547 3/24/2014 4 $ 354,240 $ 139.08 $ 8,000 $8,000 $354,240 $ 139.08 9/22/2014

413-642-007-9 1459 Sandy Hill Drive 2,547 3/24/2014 4 $ 354,240 $ 139.08 $ 8,000 $8,000 $354,240 $ 139.08 9/22/2014

413-641-005-4 1430 Sandy Hill Drive 2,547 6/2/2014 4 $ 357,782 $ 140.47 $ 10,000 $8,000 $359,782 $ 141.26 12/17/2014

413-641-007-6 1418 Sandy Hill Drive 2,547 6/2/2014 4 $357,782 $ 140.47 $ 10,000 $8,000 $359,782 $ 141.26 12/17 /2014

413-590-006-8 175 Singleton Canyon Rd. 2,547 6/15/2015 4 $ 368,515 $ 144.69 $ 10,000 $5,000 $373,515 $ 146.65

413-640-011-6 139 Mesquite Court 2,840 3/24/2014 5 $ 371,922 $ 130.96 $ 7,000 $8,000 $370,922 $ 130.61 9/22/2014

413-642-005 -7 1445 Sandy Hill Drive 2,840 3/24/2014 5 $ 372,781 $ 131.26 $ 8,000 $8,000 $372,781 $ 131.26 9/22/2014

413-641-010-8 112 Sandy Hill Court 2,840 6/2/2014 5 $ 374,644 $ 131.92 $ 10,000 $8,000 $376,644 $ 132.62 12/17 /2014

413-642-002-4 1427 Sandy Hill Dive 2,840 6/2/2014 5 $ 374,644 $ 131.92 $ 5,000 $8,000 $371,644 $ 130.86 12/17 /2014

413-590-002-4 151 Singleton Canyon Rd. 2,840 6/15/2015 4 $ 368,515 $ 129.76 $ 5,000 $5,000 $368,515 $ 129.76

413-632-017-7 145 Sage Court 2,840 12/12/2013 5 $ 364,500 $ 128.35 $ 11,965 $8,000 $368,465 $ 129.74 5/19/2014

413-640-004-0 154 Sage Court 2,840 12/12/2013 5 $ 360,900 $ 127.08 $ 4,500 $8,000 $357,400 $ 125.85 5/19/2014

413-640-007-3 142 Sage Court 2,840 12/12/2013 5 $ 360,900 $ 127.08 $ 7,568 $8,000 $360,468 $ 126.93 5/19/2014

413-632-019-9 157 Sage Court 3,198 12/12/2013 6 $ 375,500 $ 117.42 $ 15,860 $8,000 $383,360 $ 119.87 5/19/2014

413-640-008-4 136 Sage Court 3,198 12/12/2013 6 $ 375,500 $ 117.42 $ 6,968 $8,000 $374,468 $ 117.09 5/19/2014

413-640-012-7 145 Mesquite Court 3,198 3/24/2014 6 $ 382,537 $ 119.62 $ 12,500 $8,000 $387,037 $ 121.02 9/22/2014

413-591-002-7 209 Singleton Canyon Rd. 3,198 6/2/2014 6 $ 384,449 $ 120.22 $ 8,000 $8,000 $384,449 $ 120.22 12/17/2014

413-641-009-8 116 Sandy Hill Court 3,198 6/2/2014 6 $ 384,449 $ 120.22 $ 10,000 $8,000 $386,449 $ 120.84 12/17 /2014

413-642-001-3 1421 Sandy Hill Drive 3,198 6/2/2014 6 $ 384,449 $ 120.22 $ 10,000 $8,000 $386,449 $ 120.84 12/17 /2014

28 Unsold Dus

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APPENDIX D

FORM OF OPINION OF BOND COUNSEL

Upon issuance and delivery of the Bonds, Bond Counsel, proposes to render its final approving opinion in substantially the following form:

[closing date]

City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights)

Calimesa, California

Re: $2,855,000 City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights) Special Tax Bonds, 2014 Series (Improvement Area No. 1)

Ladies and Gentlemen:

We have acted as Bond Counsel to the City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights) (the “District”), in connection with the issuance of its $2,855,000 Special Tax Bonds, 2014 Series (Improvement Area No. 1) (the “Bonds”). The Bonds are being issued under the provisions of Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, of the Government Code of the State of California (the “Act”), and pursuant to a Fiscal Agent Agreement, dated as of August 1, 2014 (the “Fiscal Agent Agreement”), by and between the District and MUFG Union Bank, N.A., as fiscal agent (the “Fiscal Agent”).

The Bonds are limited obligations of the District secured under the Fiscal Agent Agreement by a subordinate pledge of Pledged Tax Revenues and certain other moneys held under the Fiscal Agent Agreement.

In our capacity as Bond Counsel, we have reviewed the Fiscal Agent Agreement, certifications of the District, the Fiscal Agent and others, opinions of counsel to the District and the Fiscal Agent, and such other documents, opinions and instruments as we deemed necessary to render the opinions set forth herein. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the Fiscal Agent Agreement.

Based upon the foregoing, we are of the opinion that:

1. The Bonds constitute valid and binding limited obligations of the District as provided in the Fiscal Agent Agreement, and are entitled to the benefits of the Fiscal Agent Agreement.

2. The Fiscal Agent Agreement has been duly and validly authorized, executed and delivered by the District and, assuming the enforceability thereof against the Fiscal Agent, constitutes the legally valid and binding obligation of the District, enforceable against the District in accordance with its terms. The Fiscal Agent Agreement creates a valid pledge, to secure the payment of principal of and interest on the Bonds, of the Special Taxes and certain other amounts held by the Fiscal Agent in certain funds and accounts established pursuant to the Fiscal Agent Agreement, subject to the provisions of the Fiscal Agent Agreement permitting the application thereof for other purposes and on the terms and conditions set forth therein.

3. Under existing law, and assuming compliance with the covenants mentioned below, interest on the Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 (the

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“Code”) from the gross income of the owners thereof for federal income tax purposes. We are further of the opinion that under existing law, the Bonds are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, that interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code; however, receipt or accrual of interest on Bonds owned by a corporation may affect the computation of its alternative minimum taxable income. A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is computed. We are further of the opinion that interest on the Bonds is exempt from personal income taxes of the State of California under present state law.

The Code imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Non-compliance with such requirements could cause the interest on the Bonds to fail to be excluded from the gross income of the owners thereof retroactive to the date of issuance of the Bonds. Pursuant to the Fiscal Agent Agreement, and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141-150 of the Internal Revenue Code of 1986 being delivered by the District in connection with the issuance of the Bonds, the District is making representations relevant to the determination of, and is undertaking certain covenants regarding or affecting, the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In reaching our opinions described in the immediately preceding paragraph, we have assumed the accuracy of such representations and the present and future compliance by the District with its covenants. Further, except as stated in the preceding paragraph, we express no opinion as to any federal or state tax consequences of the receipt of interest on, or the ownership or disposition of, the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bond or the proceeds thereof predicated or permitted upon the advice or approval of other counsel.

The opinions expressed in paragraphs 1 and 2 above are qualified to the extent the enforceability of the Bonds and the Fiscal Agent Agreement may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally or as to the availability of any particular remedy. The enforceability of the Bonds and the Fiscal Agent Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California.

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

No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds.

Respectfully submitted,

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APPENDIX E

SUMMARY OF FISCAL AGENT AGREEMENT

The following is a summary of certain provisions of the Fiscal Agent Agreement, and is supplemental to the summary of other provisions of such document described elsewhere in this Official Statement. This summary does not purport to be comprehensive or definitive, and reference should be made to such document for full and complete statement of its provisions. All capitalized terms used but not otherwise defined in this Appendix shall have the meanings assigned to such terms in the Fiscal Agent Agreement.

DEFINITIONS

Unless the context requires, the following terms shall have the following meanings:

“Acquisition and Construction Fund” means the fund by such name created and established pursuant to the Fiscal Agent Agreement.

“Act” means the Mello-Roos Community Facilities Act of 1982, as amended, Sections 53311 et seq. of the California Government Code.

“Administrative Expense Account” means the account by such name in the Special Tax Fund created and established pursuant to the Fiscal Agent Agreement.

“Administrative Expense Requirement” means an amount equal to $20,000 per Bond Year and escalating 2% each Bond Year thereafter, or such lesser amount as may be designated in a Written Request of the CFD.

“Administrative Expenses” means the administrative costs with respect to the calculation and collection of the Special Taxes, including all attorneys’ fees and other costs related thereto, the fees and expenses of the Fiscal Agent, any fees for credit enhancement for the Bonds which are not otherwise paid as Costs of Issuance, any costs related to the CFD’s compliance with State and federal laws requiring continuing disclosure of information concerning the Bonds and the CFD, and any other costs otherwise incurred by the City staff on behalf of the CFD in order to carry out the purposes of the CFD as set forth in the Resolution of Formation and any obligation of the CFD under the Fiscal Agent Agreement.

“Annual Debt Service” means the principal amount of any Outstanding Bonds payable in a Bond Year either at maturity or pursuant to a Sinking Fund Payment and any interest payable on any Outstanding Bonds in such Bond Year, if the Bonds are retired as scheduled.

“Authorized Investments” means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein:

(1) Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America (“Direct Obligations”).

(2) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of

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the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):

U.S. Export-Import Bank (“Eximbank”)

Direct obligations or fully guaranteed certificates of beneficial ownership

Farmers Home Administration (“FmHA”)

Certificates of beneficial ownership

Federal Financing Bank

Federal Housing Administration Debentures (“FHA”)

General Services Administration

Participation certificates

Government National Mortgage Association (“GNMA” or “Ginnie Mae”)

GNMA-guaranteed mortgage-backed bonds

GNMA-guaranteed pass-through obligations

U.S. Maritime Administration

Guaranteed Title XI financing

U.S. Department of Housing and Urban Development (HUD)

Project Notes

Local Authority Bonds

New Communities Debentures - U.S. government guaranteed debentures

U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds

(3) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself:

Federal Home Loan Bank System

Senior debt obligations

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Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”)

Participation certificates

Senior debt obligations

Federal National Mortgage Association (“FNMA” or “Fannie Mae”)

Mortgage-backed securities and senior debt obligations

Student Loan Marketing Association (“SLMA” or “Sallie Mae”)

Senior debt obligations

Resolution Funding Corp. (“REFCORP”) obligations

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

(4) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor’s of “AAAm-G”, “AAAm” or “AAm”, and, if rated by Moody’s, rated “Aaa”, “Aal” or “Aa2” (including those of the Fiscal Agent and its affiliates).

(5) Certificates of deposit secured at all times by collateral described in (1) and/or (2) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral.

(6) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC or which are with a bank rated “AA” or better by Standard & Poor’s and “Aa” or better by Moody’s (including those of the Fiscal Agent and its affiliates).

(7) Investment Agreements with any corporation, including banking or financial institutions, provided that

(a) the long-term debt of the provider of any such investment agreement is rated, at the time of investment, at least “AA” and “Aa” by the Rating Agency (without regard to gradations of plus or minus within such category), and

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

(c) any such agreement shall include a provision to the effect that, in the event the long-term debt rating of the provider of such agreement is downgraded below “AA-” or below “Aa” by the applicable Rating Agency, the CFD has the right to withdraw or cause the Fiscal Agent to withdraw all funds invested in such agreement and thereafter to invest such funds pursuant to the Fiscal Agent Agreement.

(8) Commercial paper rated, at the time of purchase, “Prime - 1” by Moody’s and “A-1” or better by Standard & Poor’s.

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(9) Bonds or notes issued by any state or municipality which are rated by Moody’s and Standard & Poor’s in one of the two highest rating categories assigned by such agencies.

(10) Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of “Prime - 1” or “A3” or better by Moody’s and “A-1” or “A” or better by Standard & Poor’s.

(11) Repurchase agreements collateralized by Direct Obligations, GNMAs, FNMAs or FHLMCs with any registered broker/dealer subject to the Securities Investors’ Protection Corporation jurisdiction or any commercial bank insured by the FDIC, if such broker/dealer or bank has an uninsured, unsecured and unguaranteed obligation rated “P-1” or “A3” or better by Moody’s, and “A-1” or “A-” by Standard & Poor’s; provided:

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

(b) the securities are held free and clear of any lien by the Fiscal Agent or an independent third party acting solely as agent (“Agent”) for the Fiscal Agent, and such third party is (i) a Federal Reserve Bank, (ii) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $50 million, or (iii) a bank approved in writing for such purpose by Financial Guaranty Insurance Company, and the Fiscal Agent shall have received written confirmation from such third party that it holds such securities, free and clear of any lien, as agent for the Fiscal Agent; and

(c) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the Fiscal Agent; and

(d) the repurchase agreement has a term of 180 days or less, and the Fiscal Agent or the Agent will value the collateral securities no less frequently than weekly and will liquidate the collateral securities if any deficiency in the required collateral percentage is not restored within two business days of such valuation; and

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

(12) Local Agency Investment Fund (“LAIF”) of the State of California.

(13) Any other investment which the CFD is permitted by law to make.

“Authorized Representative of the CFD” means the Mayor, City Manager, Finance Director, or any other person or persons designated by the Council and authorized to act on behalf of the CFD by a written certificate signed on behalf of the CFD by the Mayor or the City Manager and containing the specimen signature of each such person.

“Bond Counsel” means an attorney at law or a firm of attorneys selected by the CFD of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia.

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“Bond Register” means the books which the Fiscal Agent shall keep or cause to be kept on which the registration and transfer of the Bonds shall be recorded.

“Bondowner” or “Owner” means the person or persons in whose name or names any Bond is registered.

“Bond Year” means the twelve month period commencing on September 2 of each year and ending on September 1 of the following year, except that the first Bond Year for the Bonds shall begin on the Delivery Date and end of the first September 1 which is not more than 12 months after the Delivery Date.

“Business Day” means a day which is not a Saturday or Sunday or a day of the year on which banks in New York, New York, Los Angeles, California, or the city where the corporate trust office of the Fiscal Agent is located, are not required or authorized to remain closed.

“Certificate of Authorized Representative of the CFD” means a written certificate or warrant request executed by an Authorized Representative of the CFD.

“CFD” means the City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights) established pursuant to the Act and the Resolution of Formation.

“City” means the City of Calimesa, California.

“Code” means the Internal Revenue Code of 1986 and any Regulations, rulings, judicial decisions, and notices, announcements, and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it.

“Corporate Trust Office” means the corporate trust office of the Fiscal Agent at Los Angeles, California, or such other office designated from time to time by the Fiscal Agent in writing to the CFD.

“Costs of Issuance” means the costs and expenses incurred in connection with the issuance and sale of the Bonds, including the acceptance and initial annual fees and expenses of the Fiscal Agent and its counsel, legal fees and expenses, costs of printing the Bonds and the preliminary and final official statements for the Bonds, fees of financial consultants and all other related fees and expenses, Bonds, as set forth in a written certificate of an Authorized Representative.

“Costs of Issuance Account” means the account by such name in the Acquisition and Construction Fund created and established pursuant to the Fiscal Agent Agreement.

“Council” means the City Council of the City of Calimesa.

“Defeasance Securities” means any of the following:

(a) Cash

(b) United States Treasury Certificates, Notes and Bonds (including State and Local Government Series -- “SLGS”)

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

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(d) The interest component of Resolution Funding Corp. strips which have been stripped by request to the Federal Reserve Bank of New York and are in book-entry form.

(e) Pre-refunded municipal bonds rated “Aaa” by Moody’s and “AAA” by Standard & Poor’s.

(f) Obligations issued by the following agencies which are backed by the full faith and credit of the United States:

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

Farmers Home Administration - certificates of beneficial ownership

Federal Financing Bank

General Services Administration - participation certificates

U.S. Maritime Administration - guaranteed Title XI financing

U.S. Department of Housing and Urban Development (HUD) - Project Notes, Local Authority Bonds, New Communities Debentures - U.S. government guaranteed debentures, U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds.

“Delivery Date” means the date on which the Bonds were issued and delivered to the initial purchasers thereof.

“Depository” shall mean The Depository Trust Company, New York, New York, and its successors and assigns as securities depository for the Certificates, or any other securities depository acting as Depository under the Fiscal Agent Agreement.

“Fiscal Agent” means MUFG Union Bank, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States of America, at its corporate trust office in Los Angeles, California, and its successors or assigns, or any other bank or trust company which may at any time be substituted in its place as provided in the Fiscal Agent Agreement and any successor thereto.

“Fiscal Agent Agreement” means the Fiscal Agent Agreement, together with any Supplemental Fiscal Agent Agreement approved pursuant to the Fiscal Agent Agreement.

“Fiscal Year” means the period beginning on July 1 of each year and ending on the next following June 30.

“Independent Financial Consultant” means a financial consultant or special tax consultant or firm of either such consultants generally recognized to be well qualified in the financial consulting or special tax consulting field, appointed and paid by the CFD, who, or each of whom:

(1) is, in fact, independent and not under the domination of the CFD;

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

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(3) is not connected with the CFD as a member, officer or employee of the CFD, but who may be regularly retained to make annual or other reports to the CFD.

“Interest Account” means the account by such name created and established in the Special Tax Fund pursuant to the Fiscal Agent Agreement.

“Interest Payment Date” means each March 1 and September 1, commencing March 1, 2015; provided, however, that, if any such day is not a Business Day, interest up to the Interest Payment Date will be paid on the Business Day next preceding such date.

“Investment Agreement” means one or more agreements for the investment of funds of the CFD complying with the criteria therefor as set forth in Subsection (7) of the definition of Authorized Investments.

“Maximum Annual Debt Service” means the maximum sum obtained for any Bond Year prior to the final maturity of the Bonds by adding the following for each Bond Year:

(1) the principal amount of all Outstanding Bonds payable in such Bond Year either at maturity or pursuant to a Sinking Fund Payment; and

(2) the interest payable on the aggregate principal amount of all Bonds Outstanding in such Bond Year if the Bonds are retired as scheduled.

“Moody’s” means Moody’s Investors Service, its successors and assigns.

“Nominee” shall mean the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Fiscal Agent Agreement.

“Outstanding” or “Outstanding Bonds” means all Bonds theretofore issued by the CFD, except:

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

(2) Bonds for payment or redemption of which monies shall have been theretofore deposited in trust (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Fiscal Agent Agreement; and

(3) Bonds which have been surrendered to the Fiscal Agent for transfer or exchange pursuant to the Fiscal Agent Agreement or for which a replacement has been issued pursuant to the Fiscal Agent Agreement.

“Participants” shall mean those broker-dealers, banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository.

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

“Principal Account” means the account by such name in the Special Tax Fund created and established pursuant to the Fiscal Agent Agreement.

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“Project” means those public facilities described in the Resolution of Formation which are to be acquired or constructed within the CFD, including all engineering, planning and design services and other incidental expenses related to such facilities and other facilities, if any, authorized by the qualified electors within the CFD from time to time.

“Project Costs” means the amounts necessary to finance the Project, to create and replenish any necessary reserve funds, to pay the initial and annual costs associated with the Bonds, including, but not limited to, remarketing, credit enhancement, Fiscal Agent and other fees and expenses relating to the issuance of the Bonds and the formation of the CFD, and to pay any other “incidental expenses” of the CFD, as such term is defined in the Act.

“Rating Agency” means Moody’s and Standard & Poor’s, or both, as the context requires.

“Record Date” means the fifteenth day of the month preceding an Interest Payment Date, regardless of whether such day is a Business Day.

“Redemption Account” means the account by such name created and established in the Special Tax Fund pursuant to the Fiscal Agent Agreement.

“Regulations” means the regulations adopted or proposed by the Department of Treasury from time to time with respect to obligations issued pursuant to section 103 of the Code.

“Representation Letter” shall mean the Blanket Letter of Representations from the CFD to the Depository as described in the Fiscal Agent Agreement.

“Reserve Account” means the account by such name created and established in the Special Tax Fund pursuant to the Fiscal Agent Agreement.

“Reserve Requirement” means, as of any date of calculation, an amount equal to the lowest of (1) 10% of the issue price (as defined pursuant to section 148 of the Code), or (2) Maximum Annual Debt Service, or (3) 125% of the average Annual Debt Service of the Outstanding Bonds. Provided, however, the Reserve Requirement on any date of calculation shall not exceed the Reserve Requirement as of the Delivery Date.

“Resolution of Formation” means the Resolution adopted by the City Council of the City on April 16, 2012, pursuant to which the City formed the CFD.

“RMA” means Rate and Method of Apportionment approved by the qualified electors of Improvement Area No. 1 of the CFD at the April 16, 2012 election, as amended from time to time.

“Sinking Fund Payment” means the annual payment to be deposited in the Redemption Account to redeem a portion of the Term Bonds in accordance with the schedule set forth in the Fiscal Agent Agreement.

“Special Taxes” means the Special Tax A (as defined in the RMA) authorized to be levied by the CFD on parcels within Improvement Area No. 1 of the CFD in accordance with the Resolution of Formation, the Act and the voter approval obtained at the April 16, 2012 election in Improvement Area No. 1 of the CFD and any additional special taxes authorized to be levied by the CFD from time to time that are pledged by the CFD to the repayment of the Bonds, together with the proceeds collected from the sale of property pursuant to the foreclosure provisions of this Fiscal Agent Agreement for the delinquency of such Special Taxes remaining after the payment of all the costs related to such foreclosure actions,

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including, but not limited to, all legal fees and expenses, court costs, consultant and title insurance fees and expenses.

“Special Tax Fund” means the fund by such name created and established pursuant to the Fiscal Agent Agreement.

“Standard & Poor’s” means Standard & Poor’s, a division of McGraw-Hill, its successors and assigns.

“Supplemental Fiscal Agent Agreement” means any supplemental fiscal agent agreement amending or supplementing the Fiscal Agent Agreement.

“Surplus Fund” means the fund by such name created and established pursuant to the Fiscal Agent Agreement.

“Tax Certificate” means the certificate by that name to be executed by the CFD on a Delivery Date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code.

“Underwriter” means the institution or institutions, if any, with whom the CFD enters into a purchase contract for the sale of the Bonds.

“Written Request of the CFD” means a request in writing executed by the Mayor, City Manager, Financial Director, or written designee, on behalf of the CFD.

INVESTMENTS

Moneys held in any of the funds and accounts under the Fiscal Agent Agreement shall be invested at the Written Request of the CFD in accordance with the limitations set forth below only in Authorized Investments which shall be deemed at all times to be a part of such funds and accounts. Any loss resulting from such Authorized Investments shall be credited or charged to the fund or account from which such investment was made, and any investment earnings on a fund or account shall be applied as follows: (i) investment earnings on all amounts deposited in the Special Tax Fund (other than the Reserve Account), Acquisition and Construction Fund and Surplus Fund and each Account therein shall be deposited in those respective funds and accounts, and (ii) all other investment earnings shall be deposited in the Interest Account of the Special Tax Fund; provided, however, investment earnings in the Reserve Account shall be deposited in the Interest Account of the Special Tax Fund only to the extent moneys in such Reserve Account exceed the Reserve Requirement. Moneys in the funds and accounts held under the Fiscal Agent Agreement may be invested by the Fiscal Agent at the Written Request of the CFD received at least 2 Business Days prior to the investment date, from time to time, in Authorized Investments subject to the following restrictions:

(1) Moneys in the Interest Account, the Principal Account and the Redemption Account of the Special Tax Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on such dates so as to ensure the payment of principal of, premium, if any, and interest on the Bonds as the same become due.

(2) Moneys in the Acquisition and Construction Fund shall be invested in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available without penalty, as close as practicable to the date the CFD estimates the moneys represented by the

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particular investment will be needed for withdrawal from the Acquisition and Construction Fund. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, amounts in the Acquisition and Construction Fund on the Delivery Date for the Bonds shall not be invested at yields greater than those set forth in the Tax Certificate.

(3) One-half of the amount in the Reserve Account of the Special Tax Fund may be invested only in Authorized Investments which mature not later than two years from their date of purchase by the Fiscal Agent, and one-half of the amount in the Reserve Account may be invested only in Authorized Investments which mature not more than three years from the date of purchase by the Fiscal Agent; provided that such amounts may be invested in an Investment Agreement to the final maturity of the Bonds so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with the Fiscal Agent Agreement; and provided that no such Authorized Investment of amounts in the Reserve Account shall mature later than the respective final maturity date of the Bonds.

(4) In the absence of Written Request of the CFD providing investment directions, the Fiscal Agent shall invest solely in Authorized Investments specified in clause (4) of the definition thereof.

The Fiscal Agent shall sell at the best price obtainable, or present for redemption, any Authorized Investment whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such Funds and Accounts or from such Funds and Accounts. For the purpose of determining at any given time the balance in any such Funds and Accounts, any such investments constituting a part of such Funds and Accounts shall be valued at their cost, except that amounts in the Reserve Account shall be valued at the fair market value thereof and marked to market at least annually. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, the Fiscal Agent shall not be responsible for any loss from investments, sales or transfers undertaken in accordance with the provisions of the Fiscal Agent Agreement. The Fiscal Agent or an affiliate may act as principal or agent in connection with the acquisition or disposition of any Authorized Investments and shall be entitled to its customary fees therefor. Any Authorized Investments that are registrable securities shall be registered in the name of the Fiscal Agent. The Fiscal Agent is authorized, in making or disposing of any investment permitted by the Fiscal Agent Agreement, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Fiscal Agent or for any third person or dealing as principal for its own account.

COVENANTS AND WARRANTY

Warranty. The CFD shall preserve and protect the security pledged under the Fiscal Agent Agreement to the Bonds against all claims and demands of all persons.

Covenants. So long as any of the Bonds issued under the Fiscal Agent Agreement are Outstanding and unpaid, the CFD makes the following covenants with the Bondowners under the provisions of the Act and the Fiscal Agent Agreement (to be performed by the CFD or its proper officers, agents or employees), which covenants are necessary and desirable to secure the Bonds and tend to make them more marketable; provided, however, that said covenants do not require the CFD to expend any funds or moneys other than the Special Taxes and other amounts deposited to the Special Tax Fund:

(1) Punctual Payment; Against Encumbrances. The CFD covenants that it will receive all Special Taxes in trust and will immediately deposit such amounts with the Fiscal Agent, and the CFD shall have no beneficial right or interest in the amounts so deposited except as provided by the Fiscal Agent Agreement. All such Special Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth in the Fiscal Agent Agreement, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the CFD.

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The CFD covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every Bond issued under the Fiscal Agent Agreement, together with the premium, if any, thereon on the date, at the place and in the manner set forth in the Bonds and in accordance with the Fiscal Agent Agreement to the extent that Special Taxes are available therefor, and that the payments into the Funds and Accounts created under the Fiscal Agent Agreement will be made, all in strict conformity with the terms of the Bonds and the Fiscal Agent Agreement, and that it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Fiscal Agent Agreements and of the Bonds issued under the Fiscal Agent Agreement.

The CFD will not mortgage or otherwise encumber, pledge or place any charge upon any of the Special Taxes except as provided in the Fiscal Agent Agreement, and will not issue any obligation or security having a lien or charge upon the Special Taxes superior to the Bonds. Nothing in the Fiscal Agent Agreement shall prevent the CFD from issuing or incurring indebtedness which is payable from a pledge of Special Taxes which is subordinate in all respects to the pledge of Special Taxes to repay the Bonds.

(2) Levy of Special Tax. So long as any Bonds issued under the Fiscal Agent Agreement are Outstanding, the legislative body of the CFD covenants to levy the Special Tax in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay (1) the principal of and interest on the Bonds when due, (2) the Administrative Expenses, and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement.

(3) Commence Foreclosure Proceedings. The CFD covenants for the benefit of the Owners of the Bonds that it will determine or cause to be determined, no later than March 1 and August 1 of each year, whether or not any owner of the property within the CFD are delinquent in the payment of Special Taxes and, if such delinquencies exist, the CFD will order and cause to be commenced no later than April 15 (with respect to the March 1 determination date) or September 1 (with respect to the August 1 determination date), and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installment thereof not paid when due, provided, however, that the CFD shall not be required to order the commencement of foreclosure proceedings if (i) the total Special Tax delinquency in the CFD for such Fiscal Year is less than five percent (5%) of the total Special Tax levied in such Fiscal Year, (ii) the amount in the Reserve Account is equal to the Reserve Requirement, and (iii) the CFD shall have established from any source of lawfully available funds (other than Special Taxes) an escrow fund to provide for the payment of principal of and interest on the Bonds. Notwithstanding the foregoing, if the CFD determines that any single property owner in the CFD is delinquent in excess of five thousand dollars ($5,000) in the payment of the Special Tax, then it will diligently institute, prosecute and pursue foreclosure proceedings against such property owner.

Notwithstanding any provision of the Act or other law of the State to the contrary, in connection with any foreclosure related to delinquent Special Taxes:

(a) The CFD or the Fiscal Agent, is hereby expressly authorized to credit bid at any foreclosure sale, without any requirement that funds be set aside in the amount so credit bid, in the amount specified in Section 53356.5 of the Act, or such less amount as determined under clause (b) below or otherwise under Section 53356.6 of the Act.

(b) The CFD is hereby expressly authorized to use amounts in the Special Tax Fund to pay costs of foreclosure of delinquent Special Taxes in accordance with the Fiscal Agent Agreement.

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(c) The CFD may forgive all or any portion of the Special Taxes levied or to be levied on any parcel in the CFD so long as the CFD determines that such forgiveness is not expected to adversely affect its obligation to pay principal of and interest on the Bonds as such payments become due and payable.

(4) Payment of Claims. The CFD will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Special Taxes or; other funds in the Special Tax Fund (exclusive of amounts transferred to the Administrative Expense Account), or which might impair the security of the Bonds then Outstanding; provided that nothing contained in the Fiscal Agent Agreement shall require the CFD to make any such payments so long as the CFD in good faith shall contest the validity of any such claims.

(5) Books and Accounts. The CFD will keep proper books of records and accounts, separate from all other records and accounts of the CFD, in which complete and correct entries shall be made of all transactions relating to the levy of the Special Tax and the deposits to the Special Tax Fund. Such books of records and accounts shall at all times during business hours be subject to the inspection of the Fiscal Agent or of the Owners of the Bonds then Outstanding or their representatives authorized in writing.

(6) Tax Covenants. The CFD covenants that it shall take all actions necessary in order that interest on the Bonds be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes, and that it shall not use or invest, and shall not permit the use or investment of, and shall not omit to use or invest Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes.

(7) Reduction of Maximum Special Taxes. The CFD finds and determines that, historically, delinquencies in the payment of special taxes authorized pursuant to the Act in community facilities districts in Southern California have from time to time been at levels requiring the levy of special taxes at the maximum authorized rates in order to make timely payment of principal of and interest on the outstanding indebtedness of such community facilities districts. For this reason, the CFD determines that a reduction in the maximum Special Tax rates authorized to be levied on parcels in the CFD below the levels provided in the Fiscal Agent Agreement would interfere with the timely retirement of the Bonds. The CFD determines it to be necessary in order to preserve the security for the Bonds to covenant, and, to the maximum extent that the law permits it to do so, the CFD does covenant, that it shall not initiate proceedings to reduce the maximum Special Tax rates for the CFD, unless, in connection therewith, (i) the CFD receives a certificate from one or more Independent Financial Consultants which, when taken together, certify that, on the basis of the parcels of land and improvements existing in the CFD as of the July 1 preceding the reduction, the maximum amount of the Special Tax which may be levied on then existing Developed Property (as defined in the RMA) in each Bond Year for any Bonds Outstanding will equal at least 110% of the sum on the estimated Administrative Expenses and gross debt service in that Bond Year on all Bonds to remain Outstanding after the reduction is approved, and (ii) the CFD finds that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds. For purposes of estimating Administrative Expenses for the foregoing calculation, the Independent Financial Consultant shall compute the Administrative Expenses for the current Fiscal Year and escalate that amount by two percent (2%) in each subsequent Fiscal Year.

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(8) Covenants to Defend. The CFD covenants that in the event that any initiative is adopted by the qualified electors in the CFD which purports to reduce the maximum Special Tax below the levels specified in the Fiscal Agent Agreement or to limit the power of the CFD to levy the Special Taxes for the purposes set forth in the Fiscal Agent Agreement, it will commence and pursue legal action in order to preserve its ability to comply with such covenants.

(9) Continuing Disclosure. The CFD covenants to comply with the term of the Continuing Disclosure Agreement executed by it with respect to the Bonds. Notwithstanding any other provision of the Fiscal Agent Agreement, failure of the CFD to comply with the Continuing Disclosure Agreement shall not be considered a default under the Fiscal Agent Agreement; however, any Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the CFD of its obligations under the Continuing Disclosure Agreement, including seeking mandate or specific performance by court order.

AMENDMENTS TO FISCAL AGENT AGREEMENT

Supplemental Fiscal Agent Agreements or Orders Not Requiring Bondowner Consent. The CFD may from time to time, and at any time, without notice to or consent of any of the Bondowners, adopt Supplemental Fiscal Agent Agreements for any of the following purposes:

(1) to cure any ambiguity, to correct or supplement any provisions in the Fiscal Agent Agreement which may be inconsistent with any other provision in the Fiscal Agent Agreement, or to make any other provision with respect to matters or questions arising under the Fiscal Agent Agreement or in any additional resolution or order, provided that such action is not materially adverse to the interests of the Bondowners;

(2) to add to the covenants and agreements of and the limitations and the restrictions upon the CFD contained in the Fiscal Agent Agreement, other covenants, agreements, limitations and restrictions to be observed by the CFD which are not contrary to or inconsistent with the Fiscal Agent Agreement as theretofore in effect or which further secure Bond payments;

(3) to modify, amend or supplement the Fiscal Agent Agreement in such manner as to permit the qualification of the Fiscal Agent Agreement under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, or to comply with the Code or regulations issued thereunder, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Owners of the Bonds then Outstanding; or

(4) to modify, alter or amend the rate and method of apportionment of the Special Taxes in any manner so long as such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the CFD to an amount which is less than that permitted under the Fiscal Agent Agreement; or

(5) to modify, alter, amend or supplement the Fiscal Agent Agreement in any other respect which is not materially adverse to the Bondowners.

Supplemental Fiscal Agent Agreements or Orders Requiring Bondowner Consent. Exclusive of the Supplemental Fiscal Agent Agreements described in the Fiscal Agent Agreement, the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding shall have the right to consent to and approve the adoption by the CFD of such Supplemental Fiscal Agent Agreements as shall be deemed necessary or desirable by the CFD for the purpose of waiving, modifying, altering,

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amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Fiscal Agent Agreement; provided, however, that nothing in the Fiscal Agent Agreement shall permit, or be construed as permitting, (a) an extension of the maturity date of the principal, or the payment date of interest on, any Bond, (b) a reduction in the principal amount of, or redemption premium on, any Bond or the rate of interest thereon, (c) a preference or priority of any Bond over any other Bond, or (d) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such Supplemental Fiscal Agent Agreement, without the consent of the Owners of all Bonds then Outstanding.

If at any time the CFD shall desire to adopt a Supplemental Fiscal Agent Agreement, which pursuant to the terms of the Fiscal Agent Agreement shall require the consent of the Bondowners, the CFD shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplemental Fiscal Agent Agreement. The Fiscal Agent shall, at the expense of the CFD, cause notice of the proposed Supplemental Fiscal Agent Agreement to be mailed, by first class mail, postage prepaid, to all Bondowners at their addresses as they appear in the Bond Register. Such notice shall briefly set forth the nature of the proposed Supplemental Fiscal Agent Agreement and shall state that a copy thereof is on file at the office of the Fiscal Agent for inspection by all Bondowners. The failure of any Bondowners to receive such notice shall not affect the validity of such Supplemental Fiscal Agent Agreement when consented to and approved by the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding as required by the Fiscal Agent Agreement. Whenever at any time within one year after the date of the first mailing of such notice, the Fiscal Agent shall receive an instrument or instruments purporting to be executed by the Owners of a majority in aggregate principal amount of the Bonds Outstanding, which instrument or instruments shall refer to the proposed Supplemental Fiscal Agent Agreement described in such notice, and shall specifically consent to and approve the adoption thereof by the CFD substantially in the form of the copy referred to in such notice as on file with the Fiscal Agent, such proposed Supplemental Fiscal Agent Agreement, when duly adopted by the CFD, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the Bonds have consented to the adoption of any Supplemental Fiscal Agent Agreement, Bonds which are owned by the CFD or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the CFD shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination.

Upon the adoption of any Supplemental Fiscal Agent Agreement and the receipt of consent to any such Supplemental Fiscal Agent Agreement from the Owners of not less than a majority in aggregate principal amount of the Outstanding Bonds in instances where such consent is required pursuant to the provisions of the Fiscal Agent Agreement, the Fiscal Agent Agreement shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Fiscal Agent Agreement of the CFD and all Owners of Outstanding Bonds shall thereafter be determined, exercised and enforced under the Fiscal Agent Agreement, subject in all respects to such modifications and amendments.

Notation of Bonds; Delivery of Amended Bonds. After the effective date of any action taken as provided in the Fiscal Agent Agreement, the CFD may determine that the Bonds may bear a notation, by endorsement in form approved by the CFD, as to such action, and in that case upon demand of the Owner of any Outstanding Bond at such effective date and presentation of his Bond for the purpose at the office of the Fiscal Agent or at such additional offices as the Fiscal Agent may select and designate for that purpose, a suitable notation as to such action shall be made on such Bonds. If the CFD shall so determine, new Bonds so modified as, in the opinion of the CFD, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Outstanding Bond at such effective date such new Bonds shall be exchanged at the office of the Fiscal Agent or at

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such additional offices as the Fiscal Agent may select and designate for that purpose, without cost to each Owner of Outstanding Bonds, upon surrender of such Outstanding Bonds.

EVENTS OF DEFAULT; REMEDIES

Events of Default. Any one or more of the following events shall constitute an “event of default”:

(a) Default in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise;

(b) Default in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; or

(c) Except as described in (a) or (b), default shall be made by the CFD in the observance of any of the agreements, conditions or covenants on its part contained in the Fiscal Agent Agreement or the Bonds, and such default shall have continued for a period of 30 days after the CFD shall have been given notice in writing of such default by the Fiscal Agent or the Owners of 25% in aggregate principal amount of the Outstanding Bonds.

The CFD agrees to give notice to the Fiscal Agent immediately upon the occurrence of an event of default under (a) or (b) above and within 30 days of the CFD’s knowledge of an event of default under (c) above. The Fiscal Agent shall not be deemed to have knowledge of any event of default described in (c) above unless a responsible officer shall have actual knowledge thereof or the Fiscal Agent shall have received written notice at its Principal Office.

Remedies of Owners. Following the occurrence of an event of default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated:

(1) By mandamus or other suit or proceeding at law or in equity to enforce his rights against the CFD and any of the members, officers and employees of the CFD, and to compel the CFD or any such members, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in the Fiscal Agent Agreement;

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

(3) By a suit in equity to require the CFD and its members, officers and employees to account as the fiscal agent of an express trust.

Nothing in the Fiscal Agent Agreement, the Bonds shall affect or impair the obligation of the CFD, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners thereof at the respective dates of maturity, as provided in the Fiscal Agent Agreement, out of the Special Taxes and other amounts pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in the Fiscal Agent Agreement.

A waiver of any default or breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any

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default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners by the Act or by the Fiscal Agent Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners.

If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the CFD and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken.

No remedy in the Fiscal Agent Agreement conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given under the Fiscal Agent Agreement or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law.

In case the moneys held by the Fiscal Agent after an event of default pursuant to (a) or (b) above shall be insufficient to pay in full the whole amount so owing and unpaid upon the Outstanding Bonds, then all available amounts shall be applied to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest.

DEFEASANCE

Defeasance. If the CFD shall pay or cause to be paid, or there shall otherwise be paid, to the Owner of an Outstanding Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in the Fiscal Agent Agreement or any Supplemental Fiscal Agent Agreement, then the Owner of such Bond shall cease to be entitled to the pledge of Special Taxes, and, other than as set forth below, all covenants, agreements and other obligations of the CFD to the Owner of such Bond under the Fiscal Agent Agreement shall thereupon cease, terminate and become void and be discharged and satisfied. In the event of a defeasance of all Outstanding Bonds pursuant to the Fiscal Agent Agreement, the Fiscal Agent shall execute and deliver to the CFD all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay over or deliver to the CFD’s general fund all money or securities held by it pursuant to the Fiscal Agent Agreement which are not required for the payment of the principal of, premium, if any, and interest due on such Bonds.

Any Outstanding Bond shall be deemed to have been paid if such Bond is paid in any one or more of the following ways:

(a) by paying or causing to be paid the principal of, premium, if any, and interest on such Bond, as and when the same become due and payable;

(b) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund (exclusive of the Administrative Expense Account) and available for such purpose, is fully sufficient to pay the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable; or

(c) by depositing with the Fiscal Agent or another escrow bank appointed by the CFD, in trust, noncallable Defeasance Securities, in which the CFD may lawfully invest its money, in such amount as will be sufficient, together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund (exclusive of the Administrative Expense

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Account) and available for such purpose, together with the interest to accrue thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond, as and when the same shall become due and payable;

then, at the election of the CFD, and notwithstanding that any Outstanding Bonds shall not have been surrendered for payment, all obligations of the CFD under the Fiscal Agent Agreement and any Supplemental Fiscal Agent Agreement with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the Owners of any such Bond not so surrendered and paid, all sums due thereon and except for the covenants of the CFD contained in certain section of the Fiscal Agent Agreement or any covenants in a Supplemental Fiscal Agent Agreement relating to compliance with the Code. Notice of such election shall be filed with the Fiscal Agent not less than ten days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Fiscal Agent. In connection with a defeasance under (c) above, there shall be provided to the CFD a verification report from an independent nationally recognized certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent or the escrow bank to pay and discharge the principal of, premium, if any, and interest on all Outstanding Bonds to be defeased in accordance with the Fiscal Agent Agreement, as and when the same shall become due and payable, and with respect to defeasance under (b) or (c) above an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with the Fiscal Agent Agreement and any applicable Supplemental Fiscal Agent Agreement. If a forward supply contract is employed in connection with an advance refunding to be effected under (c) above, (i) such verification report shall expressly state that the adequacy of the amounts deposited with the bank under (c) above to accomplish the refunding relies solely on the initial escrowed investments and the maturity principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and (ii) the applicable escrow agreement executed to effect an advance refunding in accordance with (c) above shall provide that, in the event of any discrepancy or difference between the terms of the forward supply contract and the escrow agreement, the terms of the escrow agreement shall be controlling.

Upon a defeasance, the Fiscal Agent, upon request of the CFD, shall release the rights of the Owners of such Bonds which have been defeased under the Fiscal Agent Agreement and any Supplemental Fiscal Agent Agreement and execute and deliver to the CFD all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance under the Fiscal Agent Agreement of all Outstanding Bonds, the Fiscal Agent shall pay over or deliver to the CFD any funds held by the Fiscal Agent at the time of a defeasance, which are not required for the purpose of paying and discharging the principal of, premium, if any, or interest on the Bonds when due. The Fiscal Agent shall, at the written direction of the CFD, mail, first class, postage prepaid, a notice to the Bondowners whose Bonds have been defeased, in the form directed by the CFD, stating that the defeasance has occurred.

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APPENDIX F

BOOK-ENTRY ONLY SYSTEM

The information in this Appendix F concerning The Depository Trust Company (“DTC”), New York, New York, and DTC’s book-entry system has been obtained from DTC and the District takes no responsibility for the completeness or accuracy thereof. The District cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership 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, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. 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 is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on

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behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, premium (if any), and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Fiscal Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Fiscal Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Principal, premium (if any), and interest payments with respect to the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Fiscal Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, certificates representing the Bonds are required to be printed and delivered.

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The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, representing the Bonds will be printed and delivered to DTC in accordance with the provisions of the Indenture.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof.

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APPENDIX G

FORM OF CONTINUING DISCLOSURE AGREEMENT (ISSUER)

$2,855,000 City of Calimesa

Community Facilities District No. 2012-1 (Singleton Heights) Special Tax Bonds, 2014 Series

(Improvement Area No. 1)

This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated as of August 1, 2014, is executed and delivered between the City of Calimesa (the “City”), acting as legislative body of the City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights) (the “District”), and Koppel & Gruber Public Finance, as dissemination agent (the “Dissemination Agent”), in connection with the issuance by District of $2,855,000 aggregate principal amount of Special Tax Bonds, 2014 Series (Improvement Area No. 1) (the “Bonds”). The Bonds are being issued pursuant to a Fiscal Agent Agreement, dated as of August 1, 2014 (the “Fiscal Agent Agreement”), between the District and MUFG Union Bank, N.A., as fiscal agent (the “Fiscal Agent”). The District, the City and the Dissemination Agent covenant and agree as follows:

Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District, the City and the Dissemination Agent for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (as defined below).

Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Agreement, unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report of the City, provided by the District or the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Dissemination Agent” shall mean Koppel & Gruber Public Finance, or any successor Dissemination Agent designated in writing by the District and the City, and which has filed with the District, the City and the Fiscal Agent a written acceptance of such designation.

“EMMA” shall mean the Electronic Municipal Market Access system located at http://www.emma.msrb.org, which is the centralized on-line repository for municipal disclosure documents to be filed with the MSRB pursuant to the Rule, or such other successor repository site as prescribed by the MSRB.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

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“MSRB” shall mean the Municipal Securities Rulemaking Board.

“Obligated Person” shall mean any person, including an issuer of municipal securities, who is either generally or through an enterprise, fund, or account of such person committed by contract or other arrangement to support payment of all, or part of the obligations on the Bonds (other than providers of municipal bond insurance, letters of credit, or other liquidity facilities).

“Official Statement” shall mean the final Official Statement, dated August 5, 2014, relating to the Bonds.

“Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

Section 3. Provisions of Annual Reports.

(a) The City shall, or shall cause the Dissemination Agent to, not later than March 31 after the end of the City’s fiscal year (which fiscal year presently ends June 30), commencing March 31, 2015 with the report for the 2013-14 fiscal year, provide to the MSRB, via EMMA, in an electronic format accompanied by identifying information as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b).

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) above for providing the Annual Report to the MSRB, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the City and the District to determine if the City is in compliance with the first sentence of this subsection (b). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder.

(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in such form as is prescribed by or acceptable to the MSRB.

(d) The Dissemination Agent (if other than the City) shall, if and to the extent, the City or the District has provided an Annual Report in final form to the Dissemination Agent

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for dissemination, file a report with the District and the City certifying that the Annual Report has been provided to the MSRB, via EMMA, pursuant to this Disclosure Agreement, and stating the date it was provided.

Section 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following:

(a) The Annual Report shall contain or incorporate by reference the audited financial statements of the City for the most recently completed Fiscal Year, prepared in accordance with generally accepted accounting principles in effect from time to time. If the City’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. Such financial statements shall be accompanied by a statement substantially as follows:

THE CITY’S ANNUAL FINANCIAL STATEMENTS ARE PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE COMMISSION STAFF’S INTERPRETATION OF RULE 15c2-12. EXCEPT FOR THE SPECIAL TAXES AND CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT RELATING TO THE BONDS, NO FUNDS OR ASSETS OF THE CITY ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS. THE CITY IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE CITY IN EVALUATING WHETHER TO BUY, HOLD OR SELL THE BONDS.

(b) The Annual Report shall also contain or incorporate by reference the

following information:

(i) the principal amount of the Bonds outstanding as of the September 30 preceding the filing of the Annual Report;

(ii) the balances in the Reserve Fund as of the September 30 preceding

the filing of the Annual Report; (iii) any changes to the Rate and Method approved or submitted to the

qualified electors for approval prior to the filing of the Annual Report; (iv) a description of any parcels for which the Special Taxes have been

prepaid, including the amount prepaid, since the date of the last Annual Report;

(v) a table setting forth the estimated assessed value-to-lien ratios for all Taxable Property (as defined in the Rate and Method) within Improvement Area No. 1 of the the District based upon (A) the most recent Special Taxes levy preceding the date of the Annual

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Report, (B) the assessed values of the Taxable Property in Improvement Area No. 1 of the District based on the Riverside County Assessor’s most recent equalized tax roll, (C) the amount of direct debt;

(vi) a table including a list of all taxpayers within Improvement Area No. 1 of the District which own property in Improvement Area No. 1 of the District upon which five percent or more of the total Special Taxes for the most recently completed Fiscal Year have been levied based upon the Riverside County Assessor’s most recent equalized tax roll, including (A) the assessor’s parcel number of such taxpayer’s property, (B) the percentage of Special Taxes payable by each taxpayer, and (C) a statement as to whether any of such taxpayers is delinquent in the payment of Special Taxes;

(vii) a table setting forth, for the five most recent Fiscal Years in which

Special Taxes were levied, the amount of Special Taxes levied in each Fiscal Year and the percentage delinquent as of June 30 of such Fiscal Year and as of the date of the Annual Report, and a description of the status of any foreclosure actions being pursued by the City with respect to delinquent Special Taxes;

(viii) any information not already included under (i) through (vii) above

that the City is required to file in its annual report to the California Debt and Investment Advisory Commission pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended.

(c) Any or all of the items listed in (a) or (b) above may be included by

specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the SEC. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the District and the City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds, which notice shall be given in a timely manner, not in excess of ten (10) business days after the occurrence of such Listed Event:

(1) Principal and interest payment delinquencies;

(2) Non-payment related defaults, if material;

(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, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security;

(7) Modifications to rights of security holders, if material;

(8) Bond calls, if material, and tender offers;

(9) Defeasances;

(10) Release, substitution, or sale of property securing repayment of the securities, if material

(11) Rating changes;

(12) Bankruptcy, insolvency, receivership or similar event of the Obligated Person;

(13) The consummation of a merger, consolidation, or acquisition involving an Obligated Person or the sale of all or substantially all of the assets of the Obligated Person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

(14) Appointment of a successor or additional Fiscal Agent or the change of name of a Fiscal Agent, if material.

(b) As soon as reasonably practicable after obtaining knowledge of the occurrence of any of the events listed in Section 5(a) (1), (3), (4), (5), (6), (9), (11) or (12), the Dissemination Agent shall inform the District and the City of the occurrence of such event. As soon as reasonably practicable after obtaining knowledge of the occurrence of such event, the District and the City shall, or shall cause the Dissemination Agent to, file in a timely manner, not in excess of ten (10) business days after the occurrence of any such event, a notice of such occurrence with the MSRB, via EMMA, in an electronic format accompanied by identifying information as prescribed by the MSRB.

(c) As soon as reasonably practicable after obtaining knowledge of the occurrence of any of any of the events listed in Section 5(a) (2), (7), (8), (10), (13) or (14), the Dissemination Agent shall inform the District and the City of the occurrence of such event and request that the District and the City promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (d).

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(d) Whenever the District or the City obtains knowledge of the occurrence of any event specified in Section 5(a) (2), (7), (8), (10), (13) or (14), the District and the City shall as soon as possible determine if such event would be material under applicable Federal securities law. If the District or the City determines that knowledge of the occurrence of such event would be material under applicable Federal securities law, the City shall, or shall cause the Dissemination Agent to, file in a timely manner, not in excess of ten (10) business days after the occurrence of any such event, a notice of such occurrence with the MSRB, in an electronic format accompanied by identifying information as prescribed by the MSRB.

Section 6. Termination of Reporting Obligation. The District’s and the City’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(b).

Section 7. Dissemination Agent.

(a) The District and the City hereby appoint and engage Koppel & Gruber Public Finance as the Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Agreement. The District and the City may replace the Dissemination Agent with or without cause. If at the time there is no designated Dissemination Agent appointed by the District or the City, the City shall be the Dissemination Agent and undertake or assume its obligations hereunder.

Any company succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act. The Dissemination Agent may resign its duties hereunder by giving 30-days written notice to the District and the City.

(b) The Dissemination Agent shall be paid compensation by the District and the City for its services provided hereunder in accordance with its schedule of fees agreed to between the Dissemination Agent and the District and the City from time to time and for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the District or the City hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the City, holders or beneficial owners or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or the City or an opinion of nationally recognized bond counsel.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District and the City may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

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(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an Obligated Person with respect to the Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to EMMA in the same manner as for a Listed Event under Section 5(b).

No amendment to this Agreement which modifies the duties or rights of the Dissemination Agent shall be made without the prior written consent of the Dissemination Agent.

Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District or the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District or the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District and the City shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

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Section 10. Default. In the event of a failure of the District, the City or the Dissemination Agent to comply with any provision of this Disclosure Agreement, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District, the City or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the District, the City or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District and the City agree to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or the City or an opinion of nationally recognized bond counsel. The obligations of the District and the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

Section 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the City: City of Calimesa 908 Park Avenue Calimesa, California 92320 Attention: City Manager Fax: (909) 795-4399

To the Dissemination Agent: Koppel & Gruber Public Finance 334 Via Vera Cruz, Suite 256 San Marcos, CA 92078 Attention: Lyn Gruber Fax: (760) 510-0288

Section 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the City, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Section 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first written above.

City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights)

City Manager Koppel & Gruber Public Finance, as Dissemination Agent

Authorized Officer

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APPENDIX H

FORM OF CONTINUING DISCLOSURE AGREEMENT (MAJOR PROPERTY OWNER)

This Major Property Owner Continuing Disclosure Agreement (this “Disclosure Agreement”), dated as of August 1, 2014, is executed and delivered by and between Singleton Road, LLC, a Nevada limited liability company (the “Landowner”), and Koppel & Gruber Public Finance, as dissemination agent (the “Dissemination Agent”), in connection with the issuance by the City of Calimesa Community Facilities District No. 2012-1 (Singleton Heights) (the “District”) of the District’s $2,855,000 aggregate principal amount of Special Tax Bonds, 2014 Series (Improvement Area No. 1) (the “Bonds”). The Bonds are being issued pursuant to a Fiscal Agent Agreement, dated as of August 1, 2014 (the “Fiscal Agent Agreement”), between the District and MUFG Union Bank, N.A., as fiscal agent (the “Fiscal Agent”).

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Landowner for the benefit of the holders and Beneficial Owners and in order to assist the Participating Underwriter in complying with the Rule (as defined below). Pursuant to this Disclosure Agreement, the Landowner agrees to provide the information required to be provided by the Landowner hereunder at the time and in the manner required hereunder. This Disclosure Agreement does not address additional undertakings, if any, by or with respect to persons other than the Landowner who may be considered Obligated Persons for purposes of the Rule, which additional undertakings, if any, may be required for the Participating Underwriter to comply with the Rule.

SECTION 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Affiliate” shall mean, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially or as an agent, guardian or other fiduciary, 25 percent or more of any class of Equity Securities of such Person, (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person or (c) each of such Person’s executive officers, directors, joint venturers and general partners; provided, however, that in no case shall the District be deemed to be an Affiliate of the Landowner for purposes of this Disclosure Agreement, nor shall any Person be deemed to be an Affiliate of the Landowner for purposes of this Disclosure Agreement solely by reason of such Person’s ownership of a home within Improvement Area No. 1 of the District. For the purpose of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

“Annual Report” shall mean any Annual Report provided by the Landowner pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

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“Assumption Agreement” shall mean an agreement between any Transferee and the Fiscal Agent and Dissemination Agent containing terms substantially similar to this Disclosure Agreement, whereby such Transferee agrees to provide Annual Reports, Semiannual Reports, and notices of significant events with respect to the property located in the District and owned by such Transferee.

“Beneficial Owner” shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of the Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).

“Continuing Disclosure Agent” or “Dissemination Agent” shall mean Koppel & Gruber Public Finance, or any successor Dissemination Agent designated in writing by the District and which has filed with the Fiscal Agent a written acceptance of such designation.

“EMMA” shall mean the Electronic Municipal Market Access system located at http://www.emma.msrb.org, which is the centralized on-line repository for municipal disclosure documents to be filed with the MSRB pursuant to the Rule, or such other successor repository site as prescribed by the MSRB.

“Equity Securities” of any Person shall mean (a) all common stock, preferred stock, participations, shares, general partnership interests or other equity interests in and of such person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing.

“Fiscal Year” shall mean the period beginning on January 1 of each year and ending on the next succeeding December 31, or any other twelve-month period selected and designated by the Landowner as its official fiscal year period.

“Government Authority” shall mean any national, state or local government, any political subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Listed Event” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“MSRB” shall mean the Municipal Securities Rulemaking Board.

“Obligated Person” shall mean any person, including an issuer of municipal securities, who is either generally or through an enterprise, fund, or account of such person committed by contract or other arrangement to support payment of all, or part of the obligations on the Bonds (other than providers of municipal bond insurance, letters of credit, or other liquidity facilities.

“Official Statement” shall mean the final Official Statement, dated August 5, 2014, relating to the Bonds.

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“Participating Underwriter” shall mean Southwest Securities, Inc., the original Underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds.

“Person” shall mean any natural person, corporation, partnership, firm, association, Government Authority or any other Person whether acting in an individual fiduciary, or other capacity.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“Semiannual Report” shall mean any report to be provided by the Landowner on or prior to March 31 and September 30 of each year pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Transferee” shall have the meaning designated in Section 12 of this Disclosure Agreement.

SECTION 3. Provision of Annual Reports.

(a) The Landowner shall, or upon its receipt of the Annual Report the Dissemination Agent shall, not later than March 31 of each year, commencing March 31, 2015, provide to the MSRB, via EMMA, in an electronic format accompanied by identifying information as prescribed by the MSRB, the Participating Underwriter and the District an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement provided that the audited financial statements, if any, of the Landowner may be submitted separately from the balance of the Annual Report and later than the date required for the filing of the Annual Report if they are not available by that date.

In addition, the Landowner shall, or upon its receipt of the Semiannual Report, the Dissemination Agent shall, not later than March 31 and September 30 of each year, commencing March 31, 2015, provide to the MSRB, the Participating Underwriter and the District a Semiannual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement.

(b) Not later than 15 Business Days prior to the date specified in subsection (a) for providing the Annual Report and Semiannual Report to the MSRB, the Landowner shall provide the Annual Report or the Semiannual Report, as applicable, to the Dissemination Agent or shall provide notification to the Dissemination Agent that the Landowner is preparing, or causing to be prepared, the Annual Report or the Semiannual Report, as applicable, and the date which the Annual Report or the Semiannual Report, as applicable, is expected to be available. The Landowner shall provide a written certification with each Annual Report or Semiannual Report, as applicable, furnished to the Dissemination Agent to the effect that such Annual Report or Semiannual Report, as applicable, constitutes the Annual Report or Semiannual Report, as applicable, required to be furnished by the Landowner hereunder. If by such date, the

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Dissemination Agent has not received a copy of the Annual Report or the Semiannual Report, as applicable, or notification as described in the preceding sentence, the Dissemination Agent shall contact the Landowner to determine if the Landowner is in compliance with the requirements of this subsection (b).

(c) If the Dissemination Agent is unable to provide an Annual Report or Semiannual Report to the MSRB by the date required in subsection (a) or to verify that an Annual Report or Semiannual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in such form as is prescribed by or acceptable to the MSRB..

(d) The Dissemination Agent shall file a report with the Landowner and the District certifying that the Annual Report or the Semiannual Report, as applicable, has been provided to the MSRB pursuant to this Disclosure Agreement, and stating the date it was provided.

SECTION 4. Content of Annual Report and Semiannual Report.

(a) The Landowner’s Annual Report and Semiannual Report shall contain or include by reference the information which is available as of the date of the filing of the Annual Report or the Semiannual Report, as applicable, relating to the following:

(i) An update to the information and all the tables contained in the Official Statement under the section “PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT,” including a discussion of any material changes in the sources of funds to finance development of property owned by the Landowner and its Affiliates within Improvement Area No. 1 of the District, and whether any material defaults exist under any loan arrangement related to such financing.

(ii) As to property owned by the Landowner and its Affiliates, a summary of development activity within Improvement Area No. 1 of the District, including the number of parcels for which building permits have been issued, the number of parcels for which land sales have closed and the amount of land in each such transaction, and in the case of a purchase of a parcel, the name of the purchaser of the parcel and the amount of land in each such transaction.

(iii) Status of any major governmentally-imposed preconditions for commencement or continuation of development of the parcels within Improvement Area No. 1 of the District.

(iv) Status of completion of the development being undertaken by the Landowner and its Affiliates in Improvement Area No. 1 of the District and any major legislative, administrative and judicial challenges known to the Landowner to or affecting the construction of such development or the time for construction of any public or private improvements to be made by the Landowner or any Affiliate within Improvement Area No. 1 of the District (the “Landowner Improvements”).

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(v) Any significant amendments to land use entitlements with respect to parcels within Improvement Area No. 1 of the District that are known to the Landowner.

(vi) Status of Special Tax A payments on all parcels in Improvement Area No. 1 of the District owned by the Landowner and its Affiliates.

(vii) In the Annual Report only, the audited financial statements of the Landowner and any Affiliate owning sufficient property in Improvement Area No. 1 of the District such that is responsible for at least 20% of the Special Tax A in the previous Fiscal Year, if any, for the most recently completed fiscal year (which currently ends on each December 31), prepared in accordance with generally accepted accounting principles as promulgated from time to time by the Financial Accounting Standards Board. If the Landowner or any Affiliate owning sufficient property in Improvement Area No. 1 of the District such that is responsible for at least 20% of the Special Tax A in the previous Fiscal Year, has audited financial statements prepared and the audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements for the preceding year, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) Any and all of the items listed above may be included by specific reference to other documents, including official statements of debt issues which have been submitted to the MSRB or filed with the Securities and Exchange Commission. The Landowner shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Landowner shall give, or cause to be given, notice of the occurrence of any of the following events, if material, under paragraphs (b) and (c) with respect to the Bonds:

(i) Failure to pay any real property taxes, special taxes or assessments levied within Improvement Area No. 1 of the District on a parcel owned by the Landowner or any Affiliate;

(ii) Damage to or destruction of any of the Landowner Improvements which has a material adverse effect on the value of the parcels owned by the Landowner or any Affiliate;

(iii) Material default by the Landowner or any Affiliate on any loan with respect to the construction or permanent financing of the Landowner Improvements;

(iv) Material default by the Landowner or any Affiliate on any loan secured by property within Improvement Area No. 1 of the District owned by the Landowner or any Affiliate;

(v) Material payment default by the Landowner or any Affiliate located in the United States and owning land within Improvement Area No. 1 of the District on

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any loan of the Landowner or such Affiliate (whether or not such loan is secured by property within Improvement Area No. 1 of the District) which is beyond any applicable cure period in such loan;

(vi) The filing of any proceedings with respect to the Landowner or any Affiliate owning land within Improvement Area No. 1 of the District, in which the Landowner or such Affiliate, may be adjudicated as bankrupt or discharged from any or all of their respective debts or obligations or granted an extension of time to pay debts or a reorganization or readjustment of debts; and

(vii) The filing of any lawsuit against the Landowner or any of its Affiliates located in the United States which, in the reasonable judgment of the Landowner, will have a material adverse effect on the completion of the Landowner Improvements or the development of parcels owned by the Landowner or its Affiliates within Improvement Area No. 1 of the District, or litigation which if decided against the Landowner, or any of its Affiliates, in the reasonable judgment of the Landowner, would materially adversely affect the financial condition of the Landowner or its Affiliates owning land within Improvement Area No. 1 of the District.

(viii) A sale or transfer of all or substantially all of the Landowner’s assets or a sale of a majority of the membership interests, partnership interests, or outstanding stock (as applicable) of the Landowner.

(b) Whenever the Landowner obtains actual knowledge of the occurrence of a Listed Event, the Landowner shall as soon as possible determine if such event would be material under applicable federal securities laws.

(c) If the Landowner determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Landowner shall promptly file a notice of such occurrence with the Dissemination Agent which shall then distribute such notice to the MSRB, in an electronic format accompanied by identifying information as prescribed by the MSRB, with a copy to the District.

SECTION 6. Termination of Reporting Obligations; Assumption Agreement.

(a) The Landowner’s obligations under this Disclosure Agreement shall terminate upon the earliest to occur of the following:

(i) the legal defeasance, prior redemption or payment in full of all of the Bonds;

(ii) subject to Section 6(c), the date on which the Landowner and its Affiliates, collectively own property within Improvement Area No. 1 of the District that is responsible for less than twenty percent (20%) of the Special Tax A levied in the Fiscal Year;

(iii) the date on which all of the Special Tax A attributable to the property then owned by Landowner and its Affiliates in Improvement Area No. 1 of the District have been prepaid in full, or

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(iv) upon the delivery by the Landowner to the District of an opinion of nationally recognized bond counsel to the effect that the information required by this Disclosure Agreement is no longer required; provided, that such opinion shall be based on information publicly provided by the Securities and Exchange Commission or a private letter ruling obtained by the Landowner or a private letter ruling obtained by a similar entity to the Landowner.

The Landowner shall give a prompt written notice to the District and the Dissemination Agent of the termination of its obligation under this Disclosure Agreement.

(b) The Landowner shall, in connection with any sale or transfer of ownership of land within Improvement Area No. 1 of the District to a person or entity other than a Landowner Affiliate (together with any Affiliates of such transferee, a “Transferee”) which will result in the Transferee (which term shall include any successors and assigns of the Landowner) becoming responsible for the payment of more than twenty percent (20%) of the Special Tax A levied on property within Improvement Area No. 1 of the District in the Fiscal Year following such transfer, cause such Transferee to enter into an Assumption Agreement assuming in full the obligations of the Landowner under this continuing disclosure agreement. The Landowner and the Fiscal Agent and Dissemination Agent agree to execute a memorandum regarding the transfer of Landowner’s obligations under this Disclosure Agreement to the Transferee, which shall be presented to the District for recording in the Official Records in the office of the County Recorder of Riverside County, California. From and after the date on which such Assumption Agreement becomes effective, the Landowner shall no longer be required to take the property so conveyed to the Transferee into account in connection with its report to be delivered under Section 3(b).

(c) Notwithstanding any of the foregoing, if following a sale or transfer of property described in Section 6(b), the Landowner and its Affiliates shall collectively own property within Improvement Area No. 1 of the District that is responsible for less than twenty percent (20%) of the Special Tax A levied in the Fiscal Year, the Landowner’s reporting obligations hereunder shall not terminate pursuant to clause (ii) of Section 6(a) unless and until the Assumption Agreement required by Section 6(b) has been duly executed and delivered by the Transferee.

(d) Except as expressly provided in this Section 6, The Landowner may not assign its obligations hereunder without the prior written consent of the District.

SECTION 7. Dissemination Agent. The Landowner may from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the Landowner, the Dissemination Agent shall not be responsible in any manner for the form or content of any notice or report prepared by the Landowner pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing 30 days’ prior written notice to the Landowner and the Fiscal Agent (if the Fiscal Agent is other than the Dissemination Agent). The Landowner shall notify the District in writing within five days of any substitution of Dissemination Agent pursuant to this Section 7. The initial Dissemination Agent shall be Koppel & Gruber Public Finance.

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If and so long as the Dissemination Agent is the Fiscal Agent, any Person succeeding the Dissemination Agent’s corporate trust business shall be the successor Dissemination Agent without the filing of any paper or further act.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Landowner may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an Obligated Person with respect to the Bonds, or the type of business conducted;

(b) This Disclosure Agreement, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel addressed to the District, the Fiscal Agent and the Participating Underwriter, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances;

(c) The amendment or waiver either (i) is approved by the Bondowners in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Bondowners, or (ii) does not, in the opinion of nationally recognized bond counsel addressed to the District and the Fiscal Agent, materially impair the interests of the Bondowners or Beneficial Owners of the Bonds; and

(d) The Landowner, or the Dissemination Agent, shall have delivered copies of the amendment and any opinions delivered under (b) and (c) above; provided, further, that any amendment that affects the duties or obligations of the Dissemination Agent under this Disclosure Agreement shall not be made unless the Landowner obtains the Dissemination Agent’s advance written consent thereto.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Landowner shall describe such amendment in the next Annual Report or Semiannual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Landowner. In addition, if the amendment relates to the accounting principles to be followed in preparing audited financial statements, (i) notice of such change shall be given to the MSRB; and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison of financial data described in clause (ii) of the preceding sentence shall be provided at the time financial statements, if any, are filed under Section 4(a)(viii) hereof.

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SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Landowner from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report, Semiannual Report, or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Landowner chooses to include any information in any Annual Report, Semiannual Report, or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Landowner shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Semiannual Report, or notice of occurrence of a Listed Event.

The Landowner acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Landowner, and that under some circumstances compliance with this Disclosure Agreement, without additional disclosures or other action, may not fully discharge all duties and obligations of the Landowner under such laws.

SECTION 10. Default. In the event of a failure of the Landowner to comply with any provision of this Disclosure Agreement, any Participating Underwriter or any Bondowner or Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Landowner or the Dissemination Agent to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Landowner or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement and the Landowner agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall receive reasonable compensation for its services rendered hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Landowner, the Participating Underwriter, Bondowners or Beneficial Owners or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon a direction from the Landowner or an opinion of nationally recognized bond counsel. The obligations of the Landowner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement.

The Dissemination Agent will not, without the Landowner’s prior written consent, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action

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or proceeding in respect of which indemnification may be sought hereunder unless such settlement, compromise or consent includes an unconditional release of the Landowner and its controlling persons from all liability arising out of such claim, action or proceedings. If a claim, action or proceeding is settled with the consent of the Landowner or if there is a final judgment (other than a stipulated final judgment without the approval of the Landowner) for the plaintiff in any such claim, action or proceeding, with or without the consent of the Landowner, the Landowner agrees to indemnify and hold harmless the Dissemination Agent to the extent described herein.

SECTION 12. Landowner as Independent Contractor. In performing under this Disclosure Agreement, it is understood that the Landowner is not an agent of the District.

SECTION 13. Notices. Notices required by this Disclosure Agreement should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing.

Dissemination Agent: Koppel & Gruber Public Finance 334 Via Vera Cruz, Suite 256 San Marcos, CA 92078 Attention: Lyn Gruber Fax: (760) 510-0288

Fiscal Agent: MUFG Union Bank, N.A. 120 S. San Pedro Street, 4th Floor Los Angeles, California 90012 Phone: (213) 972-5675 Fax: (213) 972-5694 E-mail: Lorraine.mcintire@unionbank.com Attention: Lorraine McIntire, Vice President

Participating Underwriter: Southwest Securities, Inc. 2533 South Coast Highway, Suite250 Cardiff, California 92007 Phone: (760) 632-6824 Fax: (760) 632-8621 E-mail: mcavanaugh@swst.com Attention: Mike Cavanaugh

Landowner: Singleton Road, LLC 1399 Franklin Boulevard, 3rd Floor Eugene, Oregon 97403 Attention: Manager Phone: (541) 683-0771 Fax: (541) 683-7364

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SECTION 14. Severability. In case any one or more of the provisions contained herein shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof.

SECTION 15. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Landowner, the District, the Dissemination Agent, the Participating Underwriter and Bondowners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

SECTION 16. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute and deliver this Disclosure Agreement on the date first written above.

SINGLETON ROAD, LLC an Oregon limited liability company By: ________________________ Name: Title: Manager

KOPPEL & GRUBER PUBLIC FINANCE as Dissemination Agent

By: Name: Title:

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APPENDIX I

DISTRICT BOUNDARY MAP

LEGEND

PROPOSED BOUNDARY

- - - - IMPROVEMENT AREA

FEBRUARY2012

MAP OF PROPOSED BOUNDARIES COMMUNITY FACILITIES DISTRICT NO. 2012-1 (SINGLETON HEIGHTS)

CITY OF CALIMESA COUNTY OF RIVERSIDE STATE OF CALIFORNIA

N.T.S

FILED IN THE OFFICE OF THE CITY CLERK THIS _____ DAY OF 2012.

DARLENE GERDES CITY CLERK CITY OF CALIMESA

I HEREBY CERTIFY THAT THE WITHIN MAP SHOWING PROPOSED BOUNDARIES OF COMMUNITY FACILITIES DISTRICT NO. 2012-1(SINGLETON HEIGHTS), CITY OF CALIMESA, COUNTY OF RIVERSIDE, STATE OF CALIFORNIA, WAS APPROVED BY THE CITY COUNCIL OF THE CITY OF PERRIS AT A REGULAR MEETING THEREOF, HELD ON THE ___ DAY OF , 2012, BY ITS RESOLUTION NO.------·

DARLENE GERDES CITY CLERK CITY OF CALIMESA

FILED THIS DAY OF , 2012, AT THE HOUR OF _____ O'CLOCK M. IN THE BOOK OF MAPS OF ASSESSMENT AND COMMUNITY FACILITIES DISTRICTS, PAGE AND INSTRUMENT NO. ___________ IN THE OFFICE OF THE COUNTY RECORDER IN THE COUNTY OF RIVERSIDE, STATE OF CALIFORNIA.

LARRY W. WARD COUNTY RECORDER COUNTY OF RIVERSIDE STATE OF CALIFORNIA

THE LINES AND DIMENSIONS OF EACH LOT OR PARCEL SHOWN ON THIS DIAGRAM SHALL BE THOSE LINES AND DIMENSIONS AS SHOWN ON THE RIVERSIDE COUNTY ASSESSORS MAPS FOR THOSE PARCELS LISTED.

THE RIVERSIDE COUNTY ASSESSORS MAPS SHALL GOVERN FOR ALL DETAILS CONCERNING THE LINES AND DIMENSIONS OF SUCH LOTS OR PARCELS.

PROFESSIONAL FEES

The following professionals are participating in this financing:

• MUFG Union Bank, N.A., Los Angles, California, will serve as the Fiscal Agent and will perform the functions required of it under the Fiscal Agent Agreement.

• Fulbright & Jaworski LLP, Los Angeles California, a member of Norton Rose Fulbright, is acting as Bond Counsel to the City.

• Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, is acting as Disclosure Counsel to the City.

• Harris Realty Appraisal, Newport Beach, California, prepared the Appraisal.

• Koppel & Gruber Public Finance, of San Marcos, California, acted as special tax consultant to the City and will act as administrator to the City with respect to the District and dissemination agent for the District under the Issuer Continuing Disclosure Agreement.

In connection with the issuance of the Bonds, fees payable to the Underwriter, Bond Counsel, Disclosure Counsel, and to the Fiscal Agent for the Bonds, are contingent upon the issuance and delivery of the Bonds.

EXECUTION

The execution and delivery of the Official Statement has been duly authorized by the City of Calimesa on behalf of the District.

CI~ /

By: me

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