AGEEFISHERBARRETI, LLC CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS ADVISORS 750 HAMMOND DRIVE BUILDING 17 ATLANTA, GEORGIA

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1 ~AGEERSHERBARRETT

2 ~ AGEEFISHERBARRETT Trustee Mountain Home Energy Owner Trust 230 West Monroe, Suite 2900 Chicago, Illinois We have audited the accompanying combined balance sheets of Mountain Home Energy Owner Trust, a Grantor Trust, as of September 30, 2010 and 2009 and the related combined statements of loss and trust deficit and cash flows for the years then ended. These combined financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Mountain Home Energy Owner Trust as of September 30,2010 and 2009 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our 2010 audit was conducted for the purpose of forming an opinion on the basic combined financial statements taken as a whole. The accompanying supplementary information as of and for the year ended September 30, 2010 is presented for purposes of additional analysis and is not a required part of the basic 2010 combined financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic 2010 combined financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic 2010 combined financial statements taken as a whole. Atlanta, Georgia December 23, 2010 AGEEFISHERBARRETI, LLC CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS ADVISORS 750 HAMMOND DRIVE BUILDING 17 ATLANTA, GEORGIA (P) (F)

3 MOUNTAIN HOME ENERGY OWNER TRUST Combined Balance Sheets September 30, 2010 and 2009 Assets Current Assets Investments, at market $ 1,092,920 $ 1,106,922 Accounts receivable 1,153, ,711 Total Current Assets 2,246,567 2,060,633 Other assets, net of accumulated amortization 754, ,882 Leasehold improvements and equipment, at cost 28,689,100 28,689,100 Less: accumulated depreciation (8,196,377) (7,313,844) Leasehold improvements and equipment, net 20,492,723 21,375,256 Total Assets $ ,989 $ 24,229,771 Liabilities and Trust Deficit Current Liabilities Current maturities of bonds payable $ 695,000 $ 565,000 Ac.crued management fees payable 798, ,015 Accounts payable 9,265 3,833 Accrued interest payable 190, ,019 Total Current Liabilities 1,693,624 1,454,867 Bonds payable, net of unamortized original issue discount 28,331,072 29,008,782 Total Liabilities 30,024,696 30,463,649 Trust Deficit (6,530,707) (6,233,878) Total Liabilities and Trust Deficit $ ,989 $ 24,229,771

4 Years Ended September 30,2010 and Revenues Energy services $ 7,540,790 $ 8,726,399 Interest income 12 4,029 Total Revenues 7,540,802 8,730,428 Expenses Management fees 4,546,810 5,640,492 Interest expense 2,359,505 2,396,982 Depreciation expense 882, ,533 Trustee fees 29,000 35,875 Professional fees 18,312 29,741 Amortization expense 1,471 1,471 Sweep fees Total Expenses 7,837,631 8,987,737 Net Loss (296,829) (257,309) Trust deficit at the beginning of the year (6,233,878) (6,036,569) Contribution to Owner Trust by Beneficiary -0-60,000 r Trust deficit at the end of the year $ (6,530,707) $(6,233,878)

5 MOUNTAIN HOME ENERGY OWNER TRUST Combined Statements of Cash Flows Years Ended September 30, 2010 and Cash Flows from Operating Activities: Net loss $ (296,829) $ (257,309) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 882, ,533 Net amortization of bond discounts 56,473 56,472 Changes in assets and liabilities: (Increase) decrease in accounts receivable (199,936) 534,901 Increase (decrease) in accrued management fees 106,725 (460,124) Increase (decrease) in accounts payable 5,432 (16,760) Decrease in accrued interest payable (3,400) (2,713) Net cash provided by operating activities 550, ,000 Cash Flows from Investing Activities: Redemptions (purchases) of investments, net 14,002 (347,000) Net cash provided by (used in) investing activities 14,002 (347,000) Cash Flows from Financing Activities: Contribution to Owner Trust by Beneficiary -0-60,000 Principal payments on bonds payable (565,000) (450,000) Net cash used in fmancing activities (565,000) (390,000) Net increase in cash Cash at the beginning of year Cash at the end of year -0- $ -0- Supplemental Disclosure of Cash Flow Information: Cash payments for interest $ $ 2.344,694 See accompanying Notes to Combined Financial Statements.

6 Mountain Home Energy Owner Trust ("Owner Trust"), a Grantor Trust, was created on November 1, 1999, for the purpose of entering into an agreement to develop, finance, construct, equip, operate, and maintain an energy facility ("Energy Facility") that provides electricity, steam and/or chilled water to the James H. Quillen VA Medical Center in Johnson City, Tennessee ("Medical Center") and to East Tennessee State University ("ETSU"). In May 2001, the Energy Facility began providing the Medical Center with its requirements of electricity, steam, and chilled water and ETSU with a portion of its requirements of steam and chilled water. The Owner Trust is also obligated to use its commercially reasonable best efforts to obtain customers in addition to the Medical Center and ETSU. The beneficiary of the Owner Trust is the U. S. Department of Veteran Affairs ("VA" or the "Beneficiary"). In January 2009, the Beneficiary replaced the trustee of the Owner Trust and appointed Wells Fargo Bank, National Association as the trustee ("Owner Trustee"). The Mountain Home Energy Bond Indenture of Trust ("Bond Trust") was created on November 1, 1999, between The Industrial Development Board of the City of Johnson City, Tennessee ("Issuer") and First Union National Bank ("Initial Trustee"). The Indenture of Trust was created in connection the issuance of $31,750,000 in bonds sponsored by the Issuer under The Industrial Development Board of the City of Johnson City, Tennessee 1999 Taxable Series Revenue Bonds ("Revenue Bonds"). The proceeds of the Revenue Bonds were used, among other things, to finance the development and construction of the Energy Facility. The Owner Trust and the Bond Trust were established for the purpose, of managing and administering the requirements of the respective indentures, to ensure the timely payment of interest and principal to the bondholders, to provide additional security against default above the leasehold interest and income stream pledged as security, to maintain the Energy Facility and to protect the reversionary interest of the Beneficiary. Pursuant to the Bond Trust, MBIA Insurance Corporation has unconditionally and irrevocably guaranteed the payment of the principal and the interest obligations of the Revenue Bonds. The Initial Trustee for the Bond Trust was subsequently replaced by U.S. Bank Corporate Trust ("Bond Trustee"). The Bond Trust holds and invests funds collected from the Owner Trust and Mountain Home Energy Center, LLC ("MHEC"), the manager and developer of the Energy Facility to meet the semi-annual interest obligations and mandatory principal maturities of the Revenue Bonds and for other purposes as described in Note 2. Once the Bond Trust has satisfied its purpose, any remaining funds held by the Bond Trustee will be transferred to the Owner Trust. All receipts and disbursements of cash by the Bond Trust have been recorded as agency transactions. Therefore, all income and expense is recorded by the Owner Trust.

7 The combined financial statements include the accounts of the Owner Trust and the Bond Trust. All significant inter-trust accounts and transactions have been eliminated in the combined financial statements. The Owner Trust derives the majority of its revenues from two customers. Although this concentration increases the Owner Trust's credit risk, management believes the Owner Trust is exposed to minimal risk because one customer is a department ofthe U.S. Government and the other is a state university receiving state funding. To further reduce credit risk, the Owner Trust will actively pursue other customers. The Owner Trust is also subject to concentrations of credit risks through money market investments. The credit risk related to money market investments is minimized by the restrictions of the trust agreements as to permissible investments and by the Owner Trust only investing in money market funds secured by U.S. government securities or repurchase agreements secured by U.S. government securities. Leasehold improvements and equipment are stated at cost. Depreciation of leasehold improvements is calculated using the straight-line method over the life of the lease. Depreciation of equipment is calculated using the straight-line method over the estimated useful lives ofthe respective assets. The preparation of combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Subsequent events have been evaluated through December 23, 2010, which if the date the financial statements were available to be issued.

8 The Bond Trust restricts the selection of investments. Permitted investments under the Bond Trust include obligations of, or guaranteed by, the United States, various short-term investments meeting minimum rating requirements set forth in the Bond Trust and other obligations or securities approved in writing by the Beneficiary. At September 30,2010 and 2009, investments were recorded at their net asset value and consisted of various fund money market accounts with shares of pooled funds invested exclusively in short-term U.S. government securities and repurchase agreements secured by U.S. government securities. At September 30, 2010 and 2009, the money market accounts exceeded the rating requirements of the Bond Trust. As permitted by the Bond Trust, the money market accounts were invested in a fund managed by an affiliate of the Bond Trustee and for which the Bond Trustee participates in the profits of the fund. Investments are maintained in various funds held by the Bond Trustee, each restricted in their use by the Bond Trust. The funds and their respective restricted uses are as follows: Revenue Fund - All receipts received with respect to the operation of the Energy Facility are to be remitted to the Trustee within three days of receipt to be deposited in the Revenue Fund. Investments in the Revenue Fund are transferred to other funds to provide payment for the Bond Trust's obligations. Total investments held in the Revenue Fund at September and 2009 were $326,303 and $419,731 respectively. Interest Account of the Bond Fund - Transfers from the Revenue Fund are to be made each month to the Interest Account of the Bond Fund for one-sixth of the amount of interest on the Revenue Bonds due on the semi-annual interest dates of March 1 and September 1. Total investments held in the Interest Account of the Bond Fund at September 30, 2010 and 2009 were $192,119 and $200,802, respectively. Principal Account of the Bond Fund - Transfers from the Revenue Fund are to be made in equal monthly amounts to accumulate the scheduled principal maturity redemption on March 1 of each year. The total investments held in the Principal Account of the Bond Fund at September 30,2010 and 2009 were $405,417 and $321,598, respectively.

9 Expense Fund - Funds are to be transferred from the Revenue Fund to the Expense Fund in the amount needed to increase the amount to cover all expenses associated with the operation of the Energy Facility. No investments were held in the Expense Fund at September 30,2010 and Maintenance Reserve Fund - Transfers from the Revenue Fund are to be made to the Maintenance Reserve Fund in amounts that cover maintenance cost requirements. Total investments held in the Maintenance Reserve Fund at September 30,2010 and 2009 were $120,512 and $76,727, respectively. Enhanced Use Trust Fund - After all the payments required to be made from the Revenue Fund have been made, the Trustee shall transfer on a monthly basis any monies remaining in the Revenue Fund to the Enhanced Use Trust Fund. Total investments held in the Enhanced Use Trust Fund at September 30,2010 and 2009 were $0 and $30,559, respectively. Trust Expense Escrow Account - The Trust Expense Escrow Account was established exclusively for the payment of trust expenses under the Owner Trust. At September 30,2010 and 2009, the Owner Trustee had $48,569 and $57,505, respectively invested in money market investments secured by U. S. government obligations for this account. The Owner Trust agreement restricts the selection of investments for this account. Permitted investments under the Owner Trust agreement include obligations of, or guaranteed by, the United States, various short-term investments meeting minimum rating requirements set forth in the Owner Trust agreement and other obligations or securities approved in writing by the Beneficiary. At September 30, 2010 and 2009, the Debt Service Reserve Fund was secured by a surety bond in the face amount of $2,300,000 purchased by the Bond Trust. The Bond Trust provides for the use of the Debt Service Reserve Fund to pay principal and interest of the Revenue Bonds to the extent that the Principal Account and Interest Account of the Bond Fund are insufficient to meet principal and interest obligations.

10 Bond issuance costs, net of accumulated amortization of $334,467 and $295,283 in 2010 and 2009, respectively Bond issuance costs are being amortized over twenty-five (25) years using the effective interest method. The amortization of bond issuance costs is included in interest expense. Amortization of bond issue costs for the years ended September 30, 2010 and 2009 was $39,184 and $37,712, respectivel y Accumulated Accumulated Cost Depreciation Cost Depreciation Leasehold Improvements $ 28,647,586 $ 8,154,863 $ 28,647,586 $ 7,272,330 Equipment 41,514 41,514 41,514 41,514 $ 28,689,100 $ 8, $ 28,689,1 00 $ 7.313,844 Bonds payable under the Revenue Bonds bear interest at coupon rates ranging from 7.80% to 7.85% with interest payable semi-annually to bondholders on March 1 and September 1. The Bond Trust requires mandatory annual redemptions of bond principal on March 1 of each year. In addition, beginning in 2011, the Owner Trust is required to maintain a sinking fund to make annual mandatory redemptions of the bonds payable maturing in 2019 and 2024 prior to maturity at 100% of the face amount of the Revenue Bonds. The Revenue Bonds are secured by the leasehold interest in the Energy Facility and the cash flow from energy services agreements between the Owner Trust and the Medical Center and ETSU.

11 The Owner Trust has purchased: (1) an insurance policy in the original principal amount of the Revenue Bonds of $31,750,000; and, (2) a $2,300,000 surety bond from MBIA Insurance Corporation to unconditionally guarantee the payment of the Revenue Bonds. The surety bond has a maximum one-time coverage of $2,300,000 and is part of the Debt Service Reserve Fund as more fully described in Note 3. The Owner Trust may use the surety bond in the event a principal payment on the Revenue Bonds becomes due but cannot be paid by the Owner Trust. If the Owner Trust is unable to generate and maintain sufficient revenues to fund the operations of the Energy Facility and consequently cannot make scheduled principal and interest payments on the Revenue Bonds, the insurance policy guarantees payment by the insurance company of all principal and interest amounts as they become due. The principal amount of bonds payable was reduced by an original issue discount of $399,962 and is being amortized over the life of the bonds. Total bonds payable, net of unamortized issue discount, at September 30,2010 and 2009 were as follows: Principal Unamortized original issue discount $ 29,220,000 $ 29,785,000 (193,928) (211,218) The orignal issue discount is being amortized using the effective interest method over the life of the Revenue Bonds. The amortization of the original interest discount is included in interest expense. Total interest expense for the years ended September 30, 2010 and 2009 was $2,359,505 and $2,396,982, respectively. Total bond payable discount amortized for the years ended September 30, 2010 and 2009 was $17,290 and $17,289, respectively.

12 Year Ending September 30, Thereafter $ 695, ,000 1,000,000 1,175,000 1,340,000 24,175,000 The Owner Trust has an agreement with MHEC to operate and maintain the Energy Facility. Monthly management fees are paid from the Owner Trust to MHEC for fixed costs relating to salaries and maintenance of the Energy Facility, as well as reimbursement for certain variable costs. Accrued management fees payable to MHEC were $798,740 and $692,015 at September 30, 2010 and 2009, respectively. Total management fees paid to MHEC for the years ended September 30,2010 and 2009 were $4,546,810 and $5,640,492, respectively. The Owner Trust, a Grantor Trust, is not a tax-paying entity for income tax purposes and, thus, no provision for income tax expense has been recorded in the combined financial statements. In exchange for the development, construction and operation of the Energy Facility, the VA is leasing to the Owner Trust the real property on which the Energy Facility was built through an enhanced-use lease ("Land Lease"). No rent is being charged to the Owner Trust under the Land Lease. The Land Lease terminates on December 17, Upon termination of the Land Lease, the Owner Trust will surrender to the VA possession of all assets constituting the Energy Facility. The VA may terminate the lease before it expires if, after the Energy Facility becomes operational, there has occurred a material failure on the part of the Owner Trust to furnish to the Medical Center on a timely basis its requirements of electricity, steam, and chilled water. The VA has no right to terminate the lease for convemence.

13 During the years ended September 30,2010 the earned revenues were as follows: and 2009, the Trusts had two major customers from which A B* $ 2,401,592 5,091,986 $ 7.493,578 $ 2,798,059 5,853,224 $ 8, $ 122,041 1,012,209 $ 1.134,250 $ 323, ,535 $ As further discussed in Note 6, the Owner Trust has purchased both an insurance policy and surety bond from MBIA Insurance Corporation to unconditionally guarantee the payment of the Revenue Bonds principal and interest obligations and for the $2,300,000 surety bond requirement of the Debt Service Reserve Fund. The ongoing economic downturn has significantly impacted MBIA Insurance Corporation. Management believes, if necessary, that there are potential alternative carriers. However, there can be no assurance that the Owner Trust can obtain an alternative carrier at a reasonable cost.

14 MOUNTAIN HOME ENERGY OWNER TRUST Combining Balance Sheet September 30, 2010 Mountain Home Mountain Home Energy Energy Bond Owner Indenture of Combined Eliminations Trust Trust Assets Current Assets Investments, at market $ 1,092,920 $ -0- $ 48,569 $ 1,044,351 Accounts receivable 1,153, ,153, Receivable from related party -0- (1,044,351) 1,044, Total Current Assets 2,246,567 (1,044,351) 2,246,567 1,044,351 Other assets, net 754, , Leasehold improvements and equipment, net 20,492, ,492, Total Assets $ ,989 ( ) , ,351 Liabilities and Trust Deficit Current Liabilities Current maturities of bonds $ 695, , Accrued management fees payable 798, , Accounts payable 9, , Payable to related party trust -0-0,044,351 ) -0-,044,351 Accrued interest payable 190, , Total Current Liabilities 1,693,624 (1,044,351) 1,693,624 1,044,351 Bonds payable, net 28,331, ,331, Total Liabilities 30,024,696 (1,044,351) 30,024,696 1,044,351 Trust deficit (6,530,707) -0- (6,530,707) -0- Total Liabilities and Trust Deficit $ 23,493,989 $ (1.044,351) $ 23,493,989 $ 1.044,351 See Independent Auditors' report.

15 Mountain Home Energy Owner Trust Mountain Home Energy Bond Indenture of Trust Revenues Energy services $ 7,540,790 $ -0- $ 7,540,790 $ -0- Interest income Total Revenues 7,540, ,540, Expenses Management fees 4,546, ,546, Interest expense 2,359, ,359, Depreciation expense 882, , Trustee fees 29, , Professional fees 18, , Amortization Expense 1, , Total Expenses 7,837, ,837, Net Loss (296,829) -0- (296,829) -0- Trust deficit at the beginning of year (6,233,878) -0- (6,233,878) -0- Contribution to Owner Trust by Beneficiary Trust deficit at the end of year $ (6.530,707) $ -0- $ (6,530,707) $ -0-