NEW ISSUE RATINGS: BOOK-ENTRY ONLY Fitch: “AA+” S&P: “AA” See “RATINGS” herein. In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, subject, however, to certain qualifications described in this Official Statement, under existing law, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations. In addition, in the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. See “TAX MATTERS” herein.

$85,000,000 MARIN MUNICIPAL WATER DISTRICT

FINANCING AUTHORITY (Marin County, California)

Water Revenue Bonds, 2012 Series A (Subordinate Lien)

Dated: Date of Delivery Due: July 1, as shown on the inside cover The $85,000,000 Marin Municipal Water District Financing Authority (Marin County, California) Water Revenue Bonds, 2012 Series A (Subordinate Lien) (the “Bonds”), are being issued by the Marin Municipal Water District Financing Authority (the “Authority”) pursuant to an Indenture of Trust, dated as of June 1, 2012 (the “Indenture”), by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”). The Bonds are special obligations of the Authority payable from Revenues (as defined herein) consisting primarily of installment payments (the “2012 Installment Payments”) payable by the Marin Municipal Water District (the “District”) under an installment sale agreement, dated as of June 1, 2012, between the Authority, as seller, and the District, as purchaser (the “2012 Installment Sale Agreement”). The Bonds are being issued in denominations of $5,000 and any integral multiple thereof. Interest on the Bonds is payable on January 1 and July 1 of each year, commencing January 1, 2013. See “THE BONDS” herein. The Bonds will be delivered in fully registered form only, and, when delivered, 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. Ownership interests in the Bonds may be purchased in book-entry form only. Principal of, premium, if any, and interest on the Bonds will be paid by the Trustee to DTC or its nominee, which will in turn remit such payment to its participants for subsequent disbursement to the beneficial owners of the Bonds. See “THE BONDS—General” herein and “APPENDIX G—BOOK-ENTRY SYSTEM.” The Bonds are being issued to (a) refund the District’s outstanding Marin Municipal Water District (Marin County, California) Water Revenue Refunding Bonds, Series 2002, (b) refund a portion of the District’s outstanding Certificates of Participation (2004 Financing Project), (c) finance a portion of the costs of capital improvements to the District’s municipal water system (the “Water System”), (d) fund interest on a portion of the Bonds, and (e) pay certain costs incurred in connection with issuance, sale and delivery of the Bonds. See “THE FINANCING PLAN” herein. The District is legally required under the 2012 Installment Sale Agreement to make 2012 Installment Payments from a first and prior lien on the Pledged Net Revenues of the Water System, on a parity with certain outstanding obligations of the District (the “Parity Obligations”). “Pledged Net Revenues” are the gross revenues of the Water System, less operating and maintenance expenses of the Water System, less amounts required to pay certain Senior Obligations, described herein. 2012 Installment Payments are scheduled in an amount sufficient to pay, when due, the principal of and interest on the Bonds. Pledged Net Revenues are pledged, as a first and prior lien thereon, to pay the 2012 Installment Payments and payments with respect to any Parity Obligations hereafter issued or incurred by the District. The District has covenanted under the 2012 Installment Sale Agreement to prescribe, revise and collect such charges from the services and facilities of the Water System which will produce gross revenues sufficient in each Fiscal Year to provide Net Revenues equal to at least 1.25 times the aggregate of obligations of the District with respect to the Senior Obligations, the 2012 Installment Payments and payments with respect to any parity obligations hereafter issued or incurred by the District in such Fiscal Year. “Net Revenues” are the gross revenues of the Water System, less operating and maintenance expenses of the Water System. The District will covenant in the 2012 Installment Sale Agreement that it will not issue any obligations senior to the 2012 Installment Payments and Parity Obligations and, specifically, will not issue any obligations on a parity with the Senior Obligations. The 2012 Installment Payments are not subject to abatement. THE OBLIGATION OF THE DISTRICT TO MAKE THE 2012 INSTALLMENT PAYMENTS DESCRIBED HEREIN IS A LIMITED OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES OF THE WATER SYSTEM AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT, MARIN COUNTY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The Bonds are subject to redemption prior to maturity from optional prepayments of 2012 Installment Payments and from scheduled sinking fund payments, as described herein. See “THE BONDS—Redemption” herein. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM AND SECURED SOLELY BY A PLEDGE OF AMOUNTS HELD IN CERTAIN FUNDS AND ACCOUNTS UNDER THE INDENTURE AND THE REVENUES DERIVED FROM THE 2012 INSTALLMENT PAYMENTS MADE BY THE DISTRICT UNDER THE 2012 INSTALLMENT SALE AGREEMENT.

MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES OR YIELDS

SEE THE INSIDE 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 THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. The Bonds are offered when, as and if issued and accepted by the Underwriters, subject to approval as to their legality by Quint & Thimmig LLP, San Francisco, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the Authority by Quint & Thimmig LLP, San Francisco, California, as Disclosure Counsel. Certain legal matters will be passed on for the Authority and the District by Mary R. Casey, Esq., Corte Madera, California, District General Counsel, and for the Underwriters by Fulbright & Jaworski L.L.P., Los Angeles, California. It is anticipated that the Bonds, in book entry form, will be available for delivery through the facilities of DTC in New York, New York, on or about June 20, 2012.

RBC Capital Markets De La Rosa & Co. Stone & Youngberg

A Division of Stifel Nicolaus Dated: May 15, 2012

$85,000,000 MARIN MUNICIPAL WATER DISTRICT

FINANCING AUTHORITY (Marin County, California)

Water Revenue Bonds, 2012 Series A (Subordinate Lien)

MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES OR YIELDS

$32,475,000 Serial Bonds

CUSIP† Prefix: 567821

Maturity Principal Interest CUSIP† Maturity Principal Interest CUSIP† July 1 Amount Rate Yield Suffix July 1 Amount Rate Yield Suffix 2014 $ 320,000 2.00% 0.33% AU7 2023 $2,295,000 5.00% 2.11%c BC6 2015 330,000 2.00 0.50 AV5 2024 2,415,000 5.00 2.26c BD4 2017 1,860,000 3.00 0.81 AW3 2025 2,535,000 5.00 2.38c BE2 2018 1,910,000 4.00 1.00 AX1 2026 2,660,000 5.00 2.48c BF9 2019 990,000 2.00 1.27 AY9 2027 2,800,000 5.00 2.56c BG7 2019 1,000,000 4.00 1.27 BP7 2028 2,940,000 5.00 2.65c BH5 2020 2,045,000 3.75 1.54 AZ6 2029 3,085,000 4.00 2.86c BJ1 2021 2,130,000 4.00 1.76 BA0 2030 470,000 3.20 3.29 BK8 2022 2,205,000 4.25 1.93 BB8 2031 485,000 3.25 3.35 BL6

$18,495,000 5.00% Term Bonds due July 1, 2044, Priced at 113.047%c, to yield 3.45%; CUSIP† 567821 BN2

$34,030,000 4.25% Term Bonds due July 1, 2052, Priced at 100%; CUSIP† 567821 BM4

† Copyright 2012, American Bankers Association. CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, operated by Standard & Poor’s. 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 have been assigned by an independent company not affiliated with the Authority and are included solely for the convenience of the registered owners of the Bonds. None of the Authority, the District or the Underwriters is responsible for the selection or uses of these CUSIP numbers and no representation is made as to their correctness on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the delivery of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds. c Priced to the July 1, 2022, par call date

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the Bonds, nor

shall there be any sale of the Bonds in any state or other jurisdiction in which it is unlawful to make such offer, solicitation or sale in such state or jurisdiction.

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 representations of fact. No dealer, broker, salesperson or other person has been authorized by the Authority, the District or the Underwriters to give any information or to make any representations other than as contained herein in connection with the offering of the Bonds, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Authority, the District or the Underwriters.

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 sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Authority or the District. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder, under any circumstances, shall create any implication that there has been no change in the affairs of any party described herein subsequent to the date as of which such information is presented.

While the District maintains a internet website for various purposes, none of the information on that

website is incorporated by reference herein or intended to assist investors in making any investment decision or to provide any continuing information with respect to the Bonds.

All summaries of the documents referred to in this Official Statement are made subject to the provisions of

such documents, respectively, and do not purport to be complete statements of any or all of such provisions. The Underwriters have submitted the following statement for inclusion in this Official Statement: The

Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

When used in this Official Statement and in any continuing disclosure by the Authority or the District, in

any press release and in any oral statement made with the approval of an authorized officer of the Authority or the District, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, give rise to any implication that there has been no change in the affairs of the Authority or the District since the date hereof.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT

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

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,

IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

MARIN MUNICIPAL WATER DISTRICT FINANCING AUTHORITY 220 Nellen Avenue

Corte Madera, California 94925

BOARD OF DIRECTORS Cynthia Koehler, President

Larry L. Russell, Vice President David Behar, Boardmember

John C. Gibson, Boardmember Armando Quintero, Boardmember

AUTHORITY OFFICIALS

Tom Cronin, Acting Executive Director Oreen Delgado, Treasurer

Mary R. Casey, Esq., General Counsel Stephanie Eichner-Gross, Secretary

__________________________________________________

MARIN MUNICIPAL WATER DISTRICT 220 Nellen Avenue

Corte Madera, California 94925

BOARD OF DIRECTORS Cynthia Koehler, President, Division IV

Larry L. Russell, Vice President, Division V David Behar, Division III John C. Gibson, Division I

Armando Quintero, Division II

DISTRICT OFFICIALS Tom Cronin, Interim General Manager

Oreen Delgado, Finance Division Manager Mark Williamson, Human Resources Division Manager

Michael Ban, P.E., Environmental and Engineering Services Division Manager Roger Mirchandani, Acting Facilities and Watershed Management Division Manager

Mary R. Casey, Esq., General Counsel Stephanie Eichner-Gross, Secretary to the Board

__________________________________________________

SPECIAL SERVICES

Financial Advisor Sperry Capital, Inc. Sausalito, California

Bond and Disclosure Counsel

Quint & Thimmig LLP San Francisco, California

Trustee and Escrow Bank

U.S. Bank National Association San Francisco, California

Verification Agent Grant Thornton LLP

Minneapolis, Minnesota

TABLE OF CONTENTS

INTRODUCTION........................................................................1Issuance of Bonds...................................................................... 1Security for the Bonds ............................................................. 12012 Installment Payments ................................................... 2The Authority ............................................................................. 3The District .................................................................................. 3District Finances........................................................................ 3The County................................................................................... 4Book-Entry System................................................................... 4Continuing Disclosure............................................................. 4Tax Matters ................................................................................. 4Certain Risk Factors ................................................................. 5Other Information..................................................................... 5

THE FINANCING PLAN..........................................................6Refunding of the 2002 Bonds................................................ 6Refunding of the Refunded 2004 Certificates ................. 6The 2012 Project ......................................................................... 7Sources and Uses of Bond Proceeds................................... 7Debt Service Schedule.............................................................. 8

THE BONDS..................................................................................9General .......................................................................................... 9Transfer and Exchange of Bonds........................................ 9Redemption ...............................................................................10

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS............................................................................... 12General ........................................................................................12Revenues .....................................................................................132012 Installment Sale Agreement .....................................13

DISTRICT ORGANIZATION AND WATER SYSTEM....................................................................................... 17Introduction ..............................................................................17Board of Directors ..................................................................17District Management.............................................................18Water System and Treatment Facilities .........................19History of Water Supply.......................................................19Water Supply ............................................................................20Water Rights .............................................................................23Water Rates and Charges .....................................................24Comparative Rates .................................................................27Principal Customers...............................................................27Water Recycling.......................................................................28Capital Improvement Program..........................................28Seismic Considerations ........................................................30

DISTRICT FINANCES .............................................................31Financial Statements..............................................................31Funds and Accounts...............................................................31Revenues and Expenses.........................................................31Outstanding Debt....................................................................37Investments................................................................................39Projection of Revenues, Expenditures and Debt Service Coverage...................................................................40

Risk Management ...................................................................41Employees’ Retirement Plan ...............................................41Deferred Compensation Plan..............................................42Postemployment Benefits Other Than Pensions...........42

CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES ...........................45Article XIIIA..............................................................................45Article XIIIB ..............................................................................46Articles XIIIC and XIIID .......................................................46

RISK FACTORS..........................................................................49Net Revenues; Rate Covenant ..............................................49Limitations on Remedies Available to Owners ..........50Proposition 218 ........................................................................50Parity Obligations ..................................................................51District Expenses.....................................................................51Future Land Use Regulations .............................................51Seismic Considerations ........................................................51Loss of Tax-Exemption.........................................................51Environmental Regulation ..................................................52Secondary Market for Bonds .............................................52

CONTINUING DISCLOSURE ..............................................52

TAX MATTERS .........................................................................53

FINANCIAL ADVISOR...........................................................55

LEGAL MATTERS...................................................................55

ABSENCE OF LITIGATION.................................................55District ........................................................................................55Authority....................................................................................55

RATINGS......................................................................................55

VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS ............................56

UNDERWRITING .....................................................................56

MISCELLANEOUS ..................................................................57 APPENDIX A — AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEARS ENDED

JUNE 30, 2011, AND 2010 APPENDIX B — INVESTMENT POLICY OF THE DISTRICT APPENDIX C — GENERAL INFORMATION CONCERNING THE COUNTY APPENDIX D — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX E — FORM OF OPINION OF BOND COUNSEL APPENDIX F — FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX G — BOOK-ENTRY SYSTEM

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OFFICIAL STATEMENT

$85,000,000 MARIN MUNICIPAL WATER DISTRICT FINANCING AUTHORITY

(Marin County, California) Water Revenue Bonds, 2012 Series A

(Subordinate Lien)

INTRODUCTION This Introduction is not a summary of this Official Statement. It is only a brief

description of, and guide to, and is qualified by, more complete and detailed information contained in the remainder of this Official Statement and the documents summarized or described herein. The offering of the above-captioned Bonds to potential investors is made only by means of the entire Official Statement and potential investors should thoroughly review it prior to purchasing such Bonds.

Unless otherwise defined herein, all capitalized terms used in this Official Statement

that are defined in the Indenture (defined below) will have the meanings set forth therein, some of which are set forth in APPENDIX D—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.

Issuance of Bonds

The $85,000,000 Marin Municipal Water District Financing Authority (Marin County,

California) Water Revenue Bonds, 2012 Series A (Subordinate Lien) (the “Bonds”) are being issued by the Marin Municipal Water District Financing Authority (the “Authority”) to (a) refinance the acquisition and construction of additions, betterments, extensions and improvements (the “2002 Project”) to the District’s municipal water system (the “Water System”) by refunding the District’s outstanding Marin Municipal Water District (Marin County, California) Water Revenue Refunding Bonds, Series 2002 (the “2002 Bonds”), (b) refinance the acquisition and construction of additions, betterments, extensions and improvements (the “2004 Project”) to the Water System by refunding a portion (the “Refunded 2004 Certificates”) of the District’s outstanding Certificates of Participation (2004 Financing Project)(the “2004 Certificates”), (c) finance the acquisition and construction of new additions, betterments, extensions and improvements (the “2012 Project”) to the District’s municipal water system (the “Water System”), as determined by the Board, (d) fund capitalized interest on a portion of the Bonds, and (e) pay certain costs incurred in connection with issuance, sale and delivery of the Bonds.

The Bonds will be issued pursuant to an Indenture of Trust, dated as of June 1, 2012

(the “Indenture”), by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”). The Bonds will be issued under the provisions of Article 4 of Chapter 5 of Division 7 of Title 1 (commencing with section 6500) of the California Government Code (the “Act”). See “THE BONDS” and “SECURITY AND SOURCES OF PAYMENT OF THE BONDS.”

Security for the Bonds

The Bonds are special limited obligations of the Authority payable from and secured by

a pledge of the Revenues, consisting primarily of installment payments (the “2012 Installment Payments”) payable by the District under an Installment Sale Agreement, dated as of June 1, 2012, by and between the Authority, as seller, and the District, as purchaser (the “2012

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Installment Sale Agreement”). See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.”

A reserve fund will not be funded for the Bonds. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY,

PAYABLE SOLELY FROM AND SECURED SOLELY BY A PLEDGE OF AMOUNTS HELD IN CERTAIN FUNDS AND ACCOUNTS UNDER THE INDENTURE AND THE REVENUES DERIVED FROM THE 2012 INSTALLMENT PAYMENTS MADE BY THE DISTRICT UNDER THE 2012 INSTALLMENT SALE AGREEMENT. THE BONDS DO NOT CONSTITUTE A DEBT OF THE AUTHORITY, THE DISTRICT, THE COUNTY OF MARIN (THE “COUNTY”) OR THE STATE OF CALIFORNIA (THE “STATE”) OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND THEY DO NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER.

2012 Installment Payments

In general, the District is required to pay to the Trustee, as assignee of the Authority,

from a first and prior lien on the Pledged Net Revenues, 2012 Installment Payments which are designed to be sufficient in both time and amount to pay, when due, the principal of and interest on the Bonds. “Pledged Net Revenues” are Net Revenues less the District’s obligations with respect to the Senior Obligations (hereinafter defined). “Net Revenues” are the gross revenues of the Water System, less maintenance and operation expenses). The District has covenanted in the 2012 Installment Sale Agreement to prescribe, revise and collect such charges from the services and facilities of the Water System which will produce gross revenues sufficient in each Fiscal Year to provide Net Revenues equal to at least 1.25 times the aggregate annual payment requirements with respect to the Senior Obligations, the aggregate annual payment requirements with respect to the 2012 Installment Sale Agreement and aggregate annual payment requirements with respect to any Parity Obligations in such Fiscal Year.

The obligation of the District to make payments under the 2012 Installment Sale

Agreement will, in all respects, be junior, subordinate and inferior to the District’s obligations with respect to (a) that certain Installment Sale Agreement, dated as of April 1, 2004 (the “2004 Installment Sale Agreement”), by and between the MMWD Financing Corporation and the District, which, after the refunding of the Refunded 2004 Certificates, will be outstanding in the principal amount of $6,760,000, securing the portion of the 2004 Certificates not refunded with the proceeds of the Bonds, and (b) that certain Installment Sale Agreement, dated as of May 1, 2010 (the “2010 Installment Sale Agreement”), by and between the Authority and the District, which is outstanding in the principal amount of $31,850,000, securing the Marin Municipal Water District Financing Authority (Marin County, California) Water Revenue Bonds, 2010 Series A (the “2010 Bonds”). The District’s obligations under the 2004 Installment Sale Agreement and under the 2010 Installment Sale Agreement are collectively referred to herein as the “Senior Obligations.” See “DISTRICT FINANCES—Outstanding Debt.”

The District’s obligations with respect to the 2012 Installment Sale Agreement and any

additional obligations hereafter issued and incurred on a parity as to payment and security with the 2012 Installment Payments (collectively, the “Parity Obligations”) are secured by a first lien on the Pledged Net Revenues.

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The District has covenanted in the 2012 Installment Sale Agreement that it will not issue any obligations senior to the 2012 Installment Payments and Parity Obligations and, specifically, will not issue any obligations on a parity with the Senior Obligations.

THE OBLIGATION OF THE DISTRICT TO MAKE THE 2012 INSTALLMENT

PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.

The Authority

The Authority is a joint exercise of powers authority duly organized and existing under

and pursuant to that certain Joint Exercise of Powers Agreement, dated as of April 16, 2010, between the District and the California Municipal Finance Authority, for the primary purpose of providing financial assistance to the District. The Board of Directors of the Authority consists of the Board of Directors of the District (the “Board”). See “THE AUTHORITY.”

The District

The District is a special district that provides water to residents of a portion of the

County, which is located immediately north of the City of San Francisco. The District was formed in 1912 under the authority of the Municipal Water District Act of 1911 (Division 20 of the Water Code of the State) (the “Municipal Water District Act”). The District serves a population of approximately 185,000 through 61,266 service connections. The District’s service area includes the southern and central portions of the County, and most of the County’s cities as well as substantial unincorporated areas.

The District is governed by its five-member Board, each member representing one of the

five District divisions. The General Manager oversees the day-to-day activities of the District, and supervises its 244 employees. Pursuant to the Municipal Water District Law, the District is empowered to own and operate the Water System.

For further information concerning the District, see “DISTRICT ORGANIZATION

AND WATER SYSTEM.”

District Finances The District’s fiscal year 2010-11 revenues totaled approximately $56.2 million. Water

sales are the primary source of revenue for the District and, in general, account for approximately 96% of District revenue. Other revenue sources include connection charges, a fire flow service fee and interest income. The District does not receive any property tax revenues.

The District has the power and authority to establish charges for service without the

review or approval of any other governmental body. The District’s rates and charges are established by ordinance of the Board. The District can refuse or terminate service to delinquent customers and can require full payment of delinquent amounts and reconnection charges to resume service. Unpaid charges may become a lien on real property by recordation of a notice thereof.

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For further information concerning District finances, see “DISTRICT FINANCES.”

The County The County is located just north of the Golden Gate Bridge and is one of the nine

counties making up the San Francisco Bay Area. Geographically, the County forms a large, southward-facing peninsula, with the Pacific Ocean to the west, San Pablo Bay and San Francisco Bay to the east, and – across the Golden Gate – the City of San Francisco to the south. The County's northern border is with Sonoma County. For further information concerning the County, see APPENDIX C—GENERAL INFORMATION CONCERNING THE COUNTY.

Book-Entry System

The Bonds are being issued as fully registered bonds, registered in the name of Cede &

Co. as nominee of The Depository Trust Company, New York, New York (“DTC”) and ultimate purchasers of Bonds will not receive physical certificates representing their interests in the Bonds. Transfers and exchanges of Bonds will be conducted in accordance with DTC procedures. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Bondholders or registered owners thereof means Cede & Co. as aforesaid, and not the Beneficial Owners (as defined in Appendix G) of the Bonds. See “THE BONDS—General” and APPENDIX G—BOOK-ENTRY SYSTEM.

Continuing Disclosure

The ultimate security for the payments of principal and interest on the Bonds comes from the 2012 Installment Payments to be made by the District, and, therefore, the District, as an obligated person within the meaning of the Rule (defined below), has agreed to undertake the continuing disclosure responsibilities required by the Rule as applicable to the Bonds. The Authority has not undertaken a commitment to provide any continuing disclosure with respect to the Bonds.

The District has covenanted in a continuing disclosure certificates (the “Continuing

Disclosure Certificate”) to provide, or cause to be provided, certain annual financial information and operating data including, but not limited to, its respective audited financial statements and, in a timely manner, notice of certain material events for purposes of Rule 15c2–12(b)(5) adopted by the Securities and Exchange Commission (the “Rule”). See “CONTINUING DISCLOSURE” and APPENDIX F—FORM OF CONTINUING DISCLOSURE CERTIFICATE for a description of the specific nature of the annual reports and notices of certain enumerated events to be provided by the District, and a description of the terms of the Continuing Disclosure Certificate pursuant to which such reports and notices are to be made.

The District has never failed to comply in all material respects with any previous

undertakings with regard to the Rule to provide annual reports or notices of material events although the District has not consistently filed notices of the downgrades of the ratings of the municipal bond insurer that insured certain of the Senior Obligations.

Tax Matters

In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, subject, however, to certain qualifications described in this Official Statement, under existing law, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal

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alternative minimum tax for individuals and corporations. In addition, in the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State. See “TAX MATTERS.”

Certain Risk Factors

Certain events could affect the ability of the Authority to make payments when due on the Bonds and the ability of the District to make the 2012 Installment Payments when due. See “CERTAIN RISK FACTORS” for a discussion of some of the risk factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Bonds.

Other Information

There follows in this Official Statement, which includes the cover page, the inside cover

page and appendices hereto, a brief description of the Bonds, the Indenture, the 2012 Installment Sale Agreement and other documents, risk factors and certain other information relevant to the issuance of the Bonds. All references herein to the Indenture, the 2012 Installment Sale Agreement and other documents, agreements and statutes, and the description of the Bonds included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entirety by reference to each such document, agreement or statute, and to the form of the Bonds included in the Indenture. A summary of certain provisions of the Indenture and the 2012 Installment Sale Agreement is included in APPENDIX D—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. The audited financial statements of the District for fiscal years 2010 and 2011 are included in APPENDIX A—AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEARS ENDED JUNE 30, 2011, AND 2010.

During the initial offering period for the Bonds, copies of the 2012 Installment Sale

Agreement and the Indenture may be obtained, upon written request and payment of the costs of duplication and mailing, from the Authority, c/o Marin Municipal Water District, 220 Nellen Avenue, Corte Madera, CA 94925, Attention: Finance Manager. After delivery of the Bonds copies of such documents may be obtained from the Trustee.

The information set forth herein and in the Appendices hereto has been furnished by the

District and the Authority and includes information which has been obtained from other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the District, the Authority or the Underwriters (hereinafter defined).

The information and expressions of opinion herein speak only as of the date of this

Official Statement and are subject to change without notice. Neither delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement will, under any circumstances, create any implication that there has been no change in the affairs of the District or the Authority since the date hereof.

All financial and other information presented in this Official Statement has been

provided by the District and the Authority from their records, except for information expressly attributed to other sources. The presentation of information is intended to show recent historic information and is not intended to indicate future or continuing trends in the financial or other affairs of the District and the Authority. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future.

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THE FINANCING PLAN

Refunding of the 2002 Bonds

A portion of the proceeds of the Bonds, together with certain moneys pledged to the 2002 Bonds, will be held in trust in a separate fund (the “2002 Escrow Fund”) for the 2002 Bonds, established under an Escrow Agreement, dated as of the date of delivery of the Bonds (the “2002 Escrow Agreement”), by and between the District and U.S. Bank National Association, as escrow bank (the “Escrow Bank”), as security solely for the 2002 Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS.”

The moneys in the 2002 Escrow Fund, will be sufficient to provide for the payment of

the principal of and interest on the 2002 Bonds to and including July 1, 2012, and will be applied on July 1, 2012, to the redemption of the 2002 Bonds maturing on and after July 1, 2013, at a redemption price equal to the principal amounts thereof.

The sufficiency of the moneys, deposited in the 2002 Escrow Fund for such purposes

will be verified by Grant Thornton LLP (the “Verification Agent”). See “VERIFICATION OF MATHEMATICAL COMPUTATIONS” herein. Assuming the accuracy of the Verification Agent’s computations, as a result of the deposit and application of funds as provided in the 2002 Escrow Agreement, the obligations of the District with respect to the 2002 Bonds will be defeased and discharged. The amounts deposited in the 2002 Escrow Fund will be held in trust solely for the 2002 Bonds and will not be available to pay principal of, or premium or interest on, the Bonds or any obligations other than the 2002 Bonds.

Refunding of the Refunded 2004 Certificates

A portion of the proceeds of the Bonds, together with certain moneys pledged to the 2004 Certificates, will be used to purchase direct obligations of the United States of America (collectively, the “2004 Escrow Securities”), to be held in trust in a separate fund (the “2004 Escrow Fund”) for the Refunded 2004 Certificates (being a portion of the callable outstanding 2004 Certificates, being approximately 75% of the presently outstanding 2004 Certificates), established under an Escrow Agreement, dated as of the date of delivery of the Bonds (the “2004 Escrow Agreement”), by and between the District and the Escrow Bank, as security solely for the Refunded 2004 Certificates. See “ESTIMATED SOURCES AND USES OF FUNDS.”

The 2004 Escrow Securities will mature at such times and in such amounts, and will

bear interest payable at such times and in such amounts, that, together with the moneys available in the 2004 Escrow Fund, will be sufficient to provide for the principal and interest due with respect to the Refunded 2004 Certificates to and including July 1, 2014, and to redeem the Refunded 2004 Certificates maturing on and after July 1, 2015, in full on July 1, 2014, at a redemption price equal to the principal amounts thereof plus accrued interest to such date.

The sufficiency of the moneys, investment earnings and maturing 2004 Escrow

Securities for such purposes will be verified by the Verification Agent. See “VERIFICATION OF MATHEMATICAL COMPUTATIONS” herein. Assuming the accuracy of the Verification Agent’s computations, as a result of the deposit and application of funds as provided in the 2004 Escrow Agreement, the obligations of the District with respect to the Refunded 2004 Certificates will be defeased and discharged. The maturing principal of and the investment income to be derived from the 2004 Escrow Securities will be held in trust solely for the

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Refunded 2004 Certificates and will not be available to pay principal of, or premium or interest on, the Bonds or any obligations other than the Refunded 2004 Certificates.

The 2012 Project

A portion of the proceeds of the Bonds will be used to finance the 2012 Project, being

the acquisition and construction of additions, betterments, extensions and improvements to the Water System, as described in “DISTRICT ORGANIZATION AND WATER SYSTEM—Capital Improvement Program.”

Sources and Uses of Bond Proceeds

The sources and uses of proceeds to be received from the sale of the Bonds are as

follows:

SOURCES AND USES OF BOND PROCEEDS

Sources of Funds Principal Amount of Bonds $85,000,000.00 Plus: Net Original Issue Premium 8,273,834.95 Plus: Released 2002 Moneys 385,618.75 Plus: Released 2004 Moneys 484,006.25

Total Sources $94,143,459.95 Uses of Funds

Deposit to 2002 Escrow Fund (1) $16,570,618.75 Deposit to 2004 Escrow Fund (2) 21,555,504.76 Deposit to Project Fund (3) 54,586,608.13 Deposit to Interest Account (4) 965,000.00 Cost of Issuance (5) 465,728.31

Total Uses $94,143,459.95 (1) The amount deposited in the 2002 Escrow Fund will be sufficient to defease the 2002 Bonds. See “PLAN OF

FINANCING—Refunding of 2002 Bonds.” (2) The amount deposited in the 2004 Escrow Fund will be used to purchase the 2004 Escrow Securities which,

together with the cash deposited therein, will be sufficient to defease the Refunded 2004 Certificates. See “PLAN OF FINANCING—Refunding of Refunded 2004 Certificates.”

(3) The amount deposited in the Project Fund will be used to pay the costs of the 2012 Project. See “PLAN OF FINANCING—2012 Project.”

(4) The amount deposited in the Interest Account will be used to pay interest on a portion of the Bonds through July 1, 2013.

(5) This amount will be used to pay the Underwriters’ discount, costs of issuance of the Bonds, including the fees and expenses of Bond Counsel, Disclosure Counsel, the Trustee, the District’s financial advisor and the rating agencies, costs of printing this Official Statement and other costs incurred in connection with the issuance of the Bonds.

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Debt Service Schedule The following table sets forth the scheduled debt service due on the Bonds, assuming

no redemption of Bonds (other than mandatory sinking payment redemption) prior to maturity.

Year Ending

July 1 Principal (1) Interest (2) Total

2013 — $ 2,918,213.20 $ 2,918,213.20 2014 $ 320,000 3,768,077.50 4,088,077.50 2015 330,000 3,761,677.50 4,091,677.50 2016 — 3,755,077.50 3,755,077.50 2017 1,860,000 3,755,077.50 5,615,077.50 2018 1,910,000 3,699,277.50 5,609,277.50 2019 1,990,000 3,622,877.50 5,612,877.50 2020 2,045,000 3,563,077.50 5,608,077.50 2021 2,130,000 3,486,390.00 5,616,390.00 2022 2,205,000 3,401,190.00 5,606,190.00 2023 2,295,000 3,307,477.50 5,602,477.50 2024 2,415,000 3,192,727.50 5,607,727.50 2025 2,535,000 3,071,977.50 5,606,977.50 2026 2,660,000 2,945,227.50 5,605,227.50 2027 2,800,000 2,812,227.50 5,612,227.50 2028 2,940,000 2,672,227.50 5,612,227.50 2029 3,085,000 2,525,227.50 5,610,227.50 2030 470,000 2,401,827.50 2,871,827.50 2031 485,000 2,386,787.50 2,871,787.50 2032 500,000 2,371,025.00 2,871,025.00 2033 525,000 2,346,025.00 2,871,025.00 2034 550,000 2,319,775.00 2,869,775.00 2035 580,000 2,292,275.00 2,872,275.00 2036 610,000 2,263,275.00 2,873,275.00 2037 640,000 2,232,775.00 2,872,775.00 2038 670,000 2,200,775.00 2,870,775.00 2039 705,000 2,167,275.00 2,872,275.00 2040 740,000 2,132,025.00 2,872,025.00 2041 3,010,000 2,095,025.00 5,105,025.00 2042 3,160,000 1,944,525.00 5,104,525.00 2043 3,320,000 1,786,525.00 5,106,525.00 2044 3,485,000 1,620,525.00 5,105,525.00 2045 3,660,000 1,446,275.00 5,106,275.00 2046 3,815,000 1,290,725.00 5,105,725.00 2047 3,980,000 1,128,587.50 5,108,587.50 2048 4,145,000 959,437.50 5,104,437.50 2049 4,325,000 783,275.00 5,108,275.00 2050 4,505,000 599,462.50 5,104,462.50 2051 4,700,000 408,000.00 5,108,000.00 2052 4,900,000 208,250.00 5,108,250.00

TOTAL $85,000,000 $96,607,480.70 $180,642,480.70 (1) Includes mandatory sinking fund installments. (2) Interest in 2013 is net of capitalized interest funded from Bond proceeds.

Pursuant to the 2012 Installment Sale Agreement, the District is required to make 2012

Installment Payments which have been calculated to be sufficient to fund the scheduled interest and principal payments due on the Bonds. The 2012 Installment Payments are due on

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the fifteenth calendar day of the month preceding each Interest Payment Date. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS—2012 Installment Payments.”

THE BONDS

General The Bonds will be issued in fully registered form without coupons in denominations of

$5,000 or any integral multiple thereof. The Bonds will mature on July 1 in each of the years and in the amounts, and will bear interest (calculated on the basis of a 360-day year of twelve 30-day months) at the rates set forth on the inside cover page hereof.

Interest on the Bonds will be payable semiannually on each January 1 and July 1,

commencing January 1, 2013 (each, an “Interest Payment Date”), to the persons whose names appear on the Registration Books as the Owners thereof as of the fifteenth calendar day of the month immediately preceding each such Interest Payment Date (each, a “Record Date”), such interest to be paid by check of the Trustee mailed by first-class mail to the Owners at the respective addresses of such Owners as they appear on the Registration Books; provided, however, that payment of interest may be made by wire transfer in immediately available funds to an account in the United States of America to any Owner of Bonds in the aggregate principal amount of $1,000,000 or more who furnishes written wire instructions to the Trustee at least five days before the applicable Record Date. Principal of any Bond and any premium upon redemption will be paid by check of the Trustee upon presentation and surrender thereof at the corporate trust office of the Trustee, except as provided in APPENDIX G—BOOK-ENTRY SYSTEM. Principal of and interest and premium (if any) on the Bonds will be payable in lawful money of the United States of America.

Each Bond will be dated as of its date of authentication and will bear interest from the

Interest Payment Date next preceding such date of authentication thereof, unless (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date, or (b) it is authenticated on or before December 15, 2012, in which event it will bear interest from the Closing Date; provided, however, that if, as of the date of authentication of any Bond, interest thereon is in default, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon.

The Bonds, when issued, will be registered in the name of Cede & Co., as registered

owner and nominee of The Depository Trust Company, New York, New York (“DTC,” and together with any successor securities depository, the “Securities Depository”). DTC will act as Securities Depository for the Bonds. Individual purchases of the Bonds will be made in book-entry form. Purchasers will not receive certificates representing their ownership interest in the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Bondholders or the Owners of the Bonds means Cede & Co. as aforesaid, and not the Beneficial Owners (as defined in Appendix G) of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, principal of and interest on the Bonds are payable by wire transfer of same day funds by the Trustee to Cede & Co., as nominee for DTC. DTC is obligated, in turn, to remit such amounts to the Participants for subsequent disbursement to the Beneficial Owners. See APPENDIX G—BOOK-ENTRY SYSTEM.

Transfer and Exchange of Bonds

Any Bond may, in accordance with its terms, be transferred on the Registration Books maintained by the Trustee by the person in whose name it is registered, in person or by his duly

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authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Transfer of any Bond will not be permitted by the Trustee during the period established by the Trustee for selection of Bonds for redemption or if such Bond has been selected for redemption pursuant to the Indenture. Whenever any Bond or Bonds are required to be surrendered for transfer, the Authority will execute and the Trustee will authenticate and will deliver a new Bond or Bonds for a like aggregate principal amount and of like maturity. The Trustee may require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer.

Any Bond may be exchanged at the Office of the Trustee for a like aggregate principal

amount of Bonds of other authorized denominations and of like maturity. Exchange of any Bond will not be permitted during the period established by the Trustee for selection of Bonds for redemption or if such Bond has been selected for redemption. The Trustee may require the Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange.

Redemption

Mandatory Redemption of Bonds From Optional Prepayment of 2012 Installment Payments.

The Bonds maturing on and after July 1, 2023, are subject to mandatory redemption as a whole or in part, upon 30 days’ written notice to the Trustee by the District (or such shorter period as shall be approved by the Trustee in its sole discretion) of its intention to optionally prepay the 2012 Installment Payments, on any date on or after July 1, 2022, from any available source of funds of the District, at a redemption price equal to the principal amount of the Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. Any such redemption shall be in such order of maturity as the District shall designate (and, if no specific order of redemption is designated by the District, in inverse order of maturity).

Mandatory Sinking Fund Redemption. The Bonds maturing on July 1, 2044, are subject to

redemption from Mandatory Sinking Fund Payments in part on July 1 in each year on or after July 1, 2032, to the extent of the sinking fund payment made by the Authority, derived from 2012 Installment Payments by the District, with respect to each such redemption date, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium, as follows:

Sinking Account

Redemption Date (July 1)

Principal Amount to be

Redeemed or Purchased 2032 $ 500,000 2033 525,000 2034 550,000 2035 580,000 2036 610,000 2037 640,000 2038 670,000 2039 705,000 2040 740,000 2041 3,010,000 2042 3,160,000 2043 3,320,000 2044† 3,485,000

†Maturity

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The Bonds maturing on July 1, 2052, are subject to redemption from Mandatory

Sinking Fund Payments in part on July 1 in each year on or after July 1, 2045, to the extent of the sinking fund payment made by the Authority, derived from 2012 Installment Payments by the District, with respect to each such redemption date, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium, as follows:

Sinking Account

Redemption Date (July 1)

Principal Amount to be

Redeemed or Purchased 2045 $3,660,000 2046 3,815,000 2047 3,980,000 2048 4,145,000 2049 4,325,000 2050 4,505,000 2051 4,700,000 2052† 4,900,000

†Maturity

In the event that the Trustee redeems Bonds maturing on July 1, 2044, or July 1, 2052,

in part but not in whole pursuant to the other redemption provisions of the Indenture, the amount of the Bonds maturing on July 1, 2044, or July 1, 2052, as applicable, to be redeemed in each subsequent year as described above will be reduced in such order as shall be determined by the District.

Partial Redemption; Selection. All or a portion of any Bond may be redeemed, but only by

lot and in a principal amount equal to an authorized denomination. In the event that less than all of the Bonds Outstanding of a particular maturity are to be redeemed, the Trustee will select the Bonds to be redeemed from all of the Bonds of such maturity or portion thereof not previously called for redemption by lot. Upon surrender of any Bond for redemption in part, the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of authorized denominations of the same maturity and in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered.

Purchase In Lieu of Redemption. In lieu of redemption of Bonds as described above,

amounts held by the Trustee for such redemption received from the District may also be used on any Interest Payment Date, upon receipt by the Trustee at least 75 days prior to the next scheduled Interest Payment Date of the written request of an Authorized Representative of the Authority, for the purchase of Bonds at public or private sale as and when and at such prices (including brokerage, accrued interest and other charges) as the District may in its discretion direct, but not to exceed the redemption price which would be payable if such Bonds were redeemed. The aggregate principal amount of Bonds of the same maturity purchased in lieu of redemption pursuant to the foregoing provisions of the Indenture shall not exceed the aggregate principal amount of Bonds of such maturity which would otherwise be subject to such redemption.

Notice of Redemption. Prior Notice of any such redemption will be given by the Trustee

on behalf and at the expense of the District by mailing a copy of a redemption notice by first class mail at least 20 days and not more than 60 days prior to the date fixed for redemption to each Owner of the Bond or Bonds to be redeemed at the address shown on the Registration Books and to the Securities Depositories and to the Information Services; provided, however, that neither the failure to receive such notice nor any defect in any notice will affect the

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sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest from and after the redemption date.

All notices of redemption will state the date of the notice, the redemption date, the

place or places of redemption, whether less than all of the Bonds (or all Bonds of a single maturity) are to be redeemed, the CUSIP numbers and (in the event that not all Bonds within a maturity are called for redemption) Bond numbers of the Bonds to be redeemed, the maturity or maturities of the Bonds to be redeemed, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed and, if such redemption is made pursuant to the provisions of the Indenture for mandatory redemption from optional payments of 2012 Installment Payments, that such redemption is conditioned upon receipt by the Trustee of sufficient funds to ensure the payment of the redemption price, including principal, interest and redemption premium, if any. Each such notice shall also state that on the redemption date there will become due and payable on each of said Bonds the redemption price thereof, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered.

So long as the book-entry system is used for the Bonds, the Trustee will give any notice

of redemption or any other notices required to be given to registered Owners of Bonds only to DTC. Any failure of DTC to advise any Participant (as herein defined), or of any Participant to notify the Beneficial Owner (as herein defined), of any such notice and its content or effect will not affect the validity of the redemption of the Bonds called for redemption or any other action premised on such notice. Beneficial Owners may desire to make arrangements with a Participant so that all notices of redemption or other communications to DTC which affect such Beneficial Owners, and notification of all interest payments, will be forwarded in writing by such Participant. See APPENDIX G—BOOK-ENTRY SYSTEM.

Effect of Redemption. The Bonds or portions of Bonds so to be redeemed will, on the

redemption date, become due and payable at the redemption price therein specified, and from and after such date interest with respect to such Bonds or portions of Bonds will cease to accrue and be payable. Upon surrender of such Bonds for redemption in accordance with said notice, such Bonds will be paid by the Trustee at the redemption price. Installments of interest due on or prior to the redemption date will be payable as herein provided for payment of interest. Upon surrender for any partial redemption of any Bond, there will be prepared for the Owner a new Bond or Bonds of the same maturity in the amount of the unpaid principal.

All Bonds paid at maturity or prepaid prior to maturity pursuant to the provisions of

the Indenture will be cancelled upon surrender thereof and destroyed.

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

General The Bonds are special limited obligations of the Authority payable solely from and

secured solely by the Revenues pledged therefor under and as such term is defined in the Indenture, together with amounts on deposit from time to time in the funds and accounts held by the Trustee under the Indenture.

Under the Indenture, the Authority assigns to the Trustee, for the benefit of the Owners

from time to time of the Bonds, all of the Revenues and all of the rights of the Authority in the 2012 Installment Sale Agreement (except for certain rights to indemnification set forth therein). The Trustee is entitled to collect and receive all of the Revenues, and any Revenues collected or

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received by the Authority are required to be held, and to have been collected or received, by the Authority as the agent of the Trustee and must be paid by the Authority to the Trustee.

THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY,

PAYABLE SOLELY FROM AND SECURED SOLELY BY A PLEDGE OF AMOUNTS HELD IN CERTAIN FUNDS AND ACCOUNTS UNDER THE INDENTURE AND THE REVENUES DERIVED FROM THE 2012 INSTALLMENT PAYMENTS MADE BY THE DISTRICT UNDER THE 2012 INSTALLMENT SALE AGREEMENT. THE BONDS DO NOT CONSTITUTE A DEBT OF THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND THEY DO NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER.

Revenues

“Revenues” are defined in the Indenture as (a) all 2012 Installment Payments and

prepayments thereof, and (b) subject to the provisions of the Indenture, all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to the Indenture.

2012 Installment Sale Agreement

Special Obligation. The District’s obligation to pay the 2012 Installment Payments will be a special obligation limited solely to Pledged Net Revenues. Under no circumstances will the District be required to advance any moneys derived from any source of income other than the Pledged Net Revenues and other sources specifically identified in the 2012 Installment Sale Agreement for the payment of the 2012 Installment Payments, nor will any other funds or property of the District be liable for the payment of the 2012 Installment Payments.

The obligations of the District to make the 2012 Installment Payments from Pledged

Net Revenues and to perform and observe the other agreements contained in the 2012 Installment Sale Agreement will be absolute and unconditional and will not be subject to any defense or any right of set-off, counterclaim or recoupment arising out of any breach of the District, the Authority or the Trustee of any obligation to the District or otherwise with respect to the Project, whether under the 2012 Installment Sale Agreement or otherwise, or out of indebtedness or liability at any time owing to the District by the Authority or the Trustee. Until such time as all of the 2012 Installment Payments will have been fully paid or prepaid, the District (a) will not suspend, abate, or discontinue any payments provided for in the 2012 Installment Sale Agreement, (b) will perform and observe all other agreements contained in the 2012 Installment Sale Agreement, and (c) will not terminate the Term of the 2012 Installment Sale Agreement for any cause, including, without limiting the generality of the foregoing, the occurrence of any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the Project, the taking by eminent domain of title to or temporary use of any or all of the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either thereof or any failure of the Authority or the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Indenture or the 2012 Installment Sale Agreement.

Pledge of Pledged Net Revenues. The District agrees that the payment of the 2012

Installment Payments shall be secured by a pledge, charge and first and prior lien upon

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Pledged Net Revenues, and Pledged Net Revenues sufficient to pay the 2012 Installment Payments as they become due and payable are pledged, charged, assigned, transferred and set over by the District to the Authority and its assigns for the purpose of securing payment of the 2012 Installment Payments. The Pledged Net Revenues shall constitute a trust fund for the security and payment of the 2012 Installment Payments.

Deposit to Revenue Fund; Transfer to Pay Installment Payments. All of the Gross Revenues

shall be deposited by the District immediately upon receipt in the Revenue Fund. The District shall withdraw from the Revenue Fund such amounts at such times as

shall be required to pay all Maintenance and Operation Costs as they come due and payable. The District shall withdraw from the Revenue Fund such amounts at such times as

shall be required to pay all payments with respect to the Senior Obligations. The District covenants and agrees that all Gross Revenues will be held by the District in

the Revenue Fund in trust for the benefit of the Trustee (as assignee of the rights of the Authority under the 2012 Installment Sale Agreement), the Owners of the Senior Obligations, the Owners, the owners of any Parity Obligations and the owners of any Subordinate Obligations.

On or before each Installment Payment Date, the District shall withdraw from the

Revenue Fund and transfer to the Trustee, for deposit in the Bond Fund, amounts which, together with the balance then on deposit in the Bond Fund (other than amounts resulting from the prepayment of the 2012 Installment Payments and other than amounts required for payment of the principal of or interest on any Bonds which have matured or been called for redemption but which have not been presented for payment), is equal to the aggregate amount of the 2012 Installment Payment coming due and payable on the next succeeding Interest Payment Date.

In addition, the District shall withdraw from the Revenue Fund such amounts at such

times as shall be required to pay (i) the principal of and interest on any Parity Obligations and otherwise comply with the provisions of the instruments authorizing the issuance of any Parity Obligations; and (ii) pay all other amounts when and as due and payable under the 2012 Installment Sale Agreement.

Release from Lien. Following the transfer with respect to the July 1 Interest Payment

Date, Pledged Net Revenues in excess of amounts required for the payment of Installment Payments and any Parity Obligations in that Fiscal Year shall be released from the lien of the 2012 Installment Sale Agreement and shall be available for any lawful purpose of the District.

Rates, Fees and Charges. The District will, at all times while any of the 2012 Installment

Payments, any Parity Obligations and any Subordinate Obligations remain Outstanding, fix, prescribe and collect rates, fees and charges for the Water Service for each Fiscal Year so as to yield Gross Revenues at least sufficient, after making reasonable allowances for contingencies and errors in the estimates, to pay the following amounts during such Fiscal Year in the order below set forth:

(1) All current Maintenance and Operation Costs. (2) Payments required with respect to the Senior Obligations. (3) The 2012 Installment Payments and all payments required with respect to

the any Parity Obligations.

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(4) Payments required with respect to the any Subordinate Obligations. (5) All payments to meet any other obligations of the District which are charges,

liens or encumbrances upon, or payable from, the Pledged Net Revenues. (6) Any other lawful purposes of the District, including, but not limited to,

deposits to the Rate Stabilization Fund. In addition, the District shall fix, prescribe and collect rates, fees and charges for the

Water Service during each Fiscal Year which are sufficient to yield Net Revenues at least equal to one hundred twenty-five percent (125%) of the amounts payable under the preceding paragraphs (2) and (3) above in such Fiscal Year.

No Obligations Superior to Installment Payments. In order to protect further the availability of the Pledged Net Revenues and the security for the 2012 Installment Payments and any Parity Obligations, the District agrees that the District shall not, so long as any 2012 Installment Payments or any Parity Obligations are outstanding, issue or incur any obligations payable from Gross Revenues, Net Revenues or Pledged Net Revenues superior to the 2012 Installment Payments or any Parity Obligations and specifically shall not issue any obligations on a parity with the Senior Obligations.

Additional Obligations. The District further covenants that it will not issue or incur any

Parity Obligations unless among other things, the requirements of either clause (i) or (ii) below are satisfied:

(i) Test Period Net Revenues (as defined below) are at least equal to 125% of the

Debt Service for each of the five Fiscal Years commencing with the first full Fiscal Year following the period of capitalized interest (if any) for the Parity Obligations, as evidenced by a Certificate of the District;

or (ii) projected Net Revenues (as described below) are at least equal to 125% of

Debt Service for each of the five Fiscal Years commencing with the first full Fiscal Year following the period of capitalized interest, if any, for the Parity Obligations, as evidenced by a Certificate of the District.

The projections described in (ii) above may take into account (A) only increases in the

charges made for service from the Water System adopted by the District prior to the date of issuance or incurrence of such Parity Obligations and which are scheduled to be effective within 36 months following the date of issuance or incurrence of such Parity Obligations, and (ii) an allowance for Net Revenues from any additions or connections to or improvements or extensions of the Water System, all in an amount equal to the estimated additional average annual Net Revenues to be derived from such additions, connections, improvements or extensions.

Notwithstanding the requirements described above, Parity Obligations may be issued

or incurred to refund outstanding Parity Obligations if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased in any Fiscal Year in which Parity Obligations (outstanding on the date of issuance or incurrence of such refunding Parity Obligations, but excluding such refunding Parity Obligations) not being refunded are outstanding.

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“Test Period Net Revenues” means, with respect to the issuance of any Parity Obligations, the maximum amount of Net Revenues for either the prior Fiscal Year or any consecutive twelve month period during the eighteen months immediately preceding the issuance of such Parity Obligations.

The District may but shall not be required to fund a reserve fund or obtain a Qualified

Reserve Fund Credit Instrument with respect to any Parity Obligations. If a reserve fund is funded for any Parity Obligations or a Qualified Reserve Fund Credit Instrument is obtained with respect to any Parity Obligations, such funded reserve fund or Qualified Reserve Fund Credit Instrument shall secure only the related Parity Obligations and shall not support the 2012 Installment Sale Agreement or any other Parity Obligations. The Bonds are not secured by a reserve fund or a Qualified Reserve Fund Credit Instrument.

Subordinate Obligations. The District further covenants that the District shall not issue or

incur any Subordinate Obligations unless Test Period Net Revenues or projected Net Revenues, calculated in the same manner as described in above with respect to additional Parity Obligations, are equal to at least 100% of the sum of the Debt Service and debt service obligations on all Subordinate Obligations outstanding immediately subsequent to the incurring of such additional obligations.

Additional Payments. In addition to the 2012 Installment Payments, the District will

pay, from Pledged Net Revenues, when due all costs and expenses incurred by the Authority to comply with the provisions of the Indenture and the 2012 Installment Sale Agreement, including, without limitation all Costs of Issuance (to the extent not paid from amounts on deposit in the Costs of Issuance Fund), compensation due to the Trustee for its fees, costs and expenses incurred under the Indenture, compensation due to the Authority for its fees, costs and expenses incurred under the Indenture and all costs and expenses of attorneys, auditors, engineers and accountants.

2012 Installment Payments. 2012 Installment Payments are required to be made by the

District under the 2012 Installment Sale Agreement on the fifteenth (15th) day of each June and December (each a “Due Date”). The Trustee will apply such amounts as are necessary to make principal and interest payments due with respect to the Bonds on January 1 and July 1 of each year sufficient to meet the Bond amortization schedule.

Rate Stabilization Fund. A “Rate Stabilization Fund” is created under the 2012 Installment Sale Agreement to be held and maintained by the District. From time to time, the District may deposit in the Rate Stabilization Fund from Gross Revenues such amounts as the District may determine, provided that deposits for each Fiscal Year may be made until (but not after) one hundred eighty (180) days following the end of such Fiscal Year. The District may withdraw amounts from the Rate Stabilization Fund (i) for transfer to the Revenue Fund for inclusion in Gross Revenues for any Fiscal Year, such withdrawals to be made until (but not after) one hundred eighty (180) days after the end of such Fiscal Year, or (ii) for any other lawful purpose of the District. No deposit of Gross Revenues to the Rate Stabilization Fund may be made to the extent that such Gross Revenues were included in the calculations of the additional bonds test hereof and withdrawal of the Gross Revenues to be deposited in the Rate Stabilization Fund from Gross Revenues that would cause noncompliance with the rate covenant. The Rate Stabilization Fund is not pledged to secure the payments with respect to the Senior Obligations, the payment of the 2012 Installment Payments, the payments with respect to any Parity Obligations or the payments with respect to any Subordinate Debt.

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DISTRICT ORGANIZATION AND WATER SYSTEM

Introduction The District provides water to residents of the southern and central portion of the

County. The District’s service area covers 147 square miles extending northward from the Golden Gate Bridge to the City of Novato and westward from San Francisco Bay to the San Geronimo Valley on its westerly border. The District currently services a population of approximately 185,000 through 61,266 service connections. The District’s service area includes the cities of Belvedere, Corte Madera, Fairfax, Larkspur, Mill Valley, Ross, Sausalito, San Anselmo, San Rafael and Tiburon, as well as a large unincorporated area of the County.

The District was formed in 1912 for the purpose of developing a domestic water

supply within its boundaries. It was the first water district in the state to be organized under the Municipal Water District Act.

Board of Directors

The five-member Board governs the District. Each director represents one of the five

District divisions of approximately equal population. The directors serve overlapping four-year terms. The Board annually selects a president from among its members. The current directors are:

• Cynthia Koehler, President (Division IV), was first elected to the Board in 2004. She has been a public interest attorney and environmental advocate in the Bay Area for almost 22 years. Currently she is California Water Legislative Director for the Environmental Defense Fund and an Adjunct Professor at Golden Gate University School of Law.

• Larry L. Russell, Vice President (Division V), has been on the Board since 2005. He is a

licensed Civil, Chemical and Corrosion Engineer, and is an expert in applied environmental chemistry and engineering with special emphasis on water quality, taste and odor control, corrosion control and materials selection and performance, ground water quality management, storm water runoff, water source selection, chemical usage in water and wastewater treatment. He has served one year as President of the Board and has chaired the District Operations Committee for several years.

• David Behar (Division III), was elected to the Board in 2006. He is currently Climate

Program Director for the San Francisco Public Utilities Commission (the “SFPUC”), where he has worked for nearly seven years. Prior to joining the SFPUC, he served as a senior consultant to the Natural Resources Defense Council, executive director of The Bay Institute, and Chief Financial Officer for Switzer Communications.

• John C. (Jack) Gibson (Division I), was elected to the board in 1994. He has been a

practicing lawyer for over 30 years. Mr. Gibson is a principal with the law firm of Gibson MacPhee, specializing in business, estate planning, and real estate law. He currently serves on the boards of directors for seven non-profit agencies and two for-profit organizations.

• Armando Quintero (Division II) was appointed to the Board in 2009 to fill a vacant

seat and was elected to the Board in 2010. He is the Director of Development for the Sierra Nevada Research Institute at UC Merced. Mr. Quintero has served on a number of Boards including The Sequoia Parks Foundation, Los Cenzontles Mexican Arts

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Center, the San Rafael Parks and Recreation Commission and has been an active parent leader with the San Rafael City Schools.

District Management

The Board appoints a general manager, board secretary, and legal counsel. The District consists of five divisions, each with its own area of responsibility, as

follows: (1) Finance, (2) Environmental and Engineering Services, (3) Facilities and Watershed, (4) Legal, and (5) Human Resources. The District’s staff consists of 244 full-time employees. The General Manager oversees the day-to-day activities of the District and reports to the Board.

• Tom Cronin is the District’s Interim General Manager. He joined the District in

November 1975. He is responsible for managing the day-to-day operations of the District and oversees a staff of 244. Mr. Cronin studied business management and has held managerial positions within the Facilities and Watershed Division of the District since 1997 and was appointed Facilities and Watershed Division Manager in 2011.

• Oreen Delgado is the District’s Finance Manager, appointed in October 2011. She has

been with the District for nineteen years of which twelve years were as the Assistant Finance Manager. Ms. Delgado has a bachelor of science degree in Accounting and Small Business Management from California State University, San Francisco.

• Mark Williamson is the District’s Human Resources Manager, a position he has held since 2007. He received a bachelor’s degree from Sanford University in 1976 and a Masters Degree from Western Kentucky University in 1987. Mr. Williamson has 22 years experience in human resources management with both private and public employers.

• Michael Ban is the District’s Manager of the Environmental and Engineering Services

Division. Mr. Ban has worked in the water resources field for over 24 years. Prior to joining the District, Mr. Ban served as the Director of Water Resources and Conservation for the City of Petaluma. Mr. Ban has a bachelor of science degree in Civil Engineering from the University of California, Davis, and is a California registered Professional Engineer.

• Roger Mirchandani is the District’s Acting Facilities and Watershed Manager. Mr.

Mirchandani has been with the District since 1986. He received a Bachelor of Arts degree in sociology from the University of California, Berkeley in 1982.

• Mary R. Casey, Esq. has served as the District’s General Counsel for the last fourteen

years. She received her undergraduate degree from Providence College in 1979 and her law degree from Southwestern University School of Law in 1982. Ms. Casey has practiced municipal/public agency law for her entire career.

• Stephanie Eichner-Gross is the District’s secretary to the Board and administrative

secretary to the General Manager and General Counsel. She has been with the District since 2002. Prior to joining the District, Ms. Eichner-Gross worked for three public agencies and has over 20 years of public service. She is a graduate of Santa Rosa Junior College.

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Water System and Treatment Facilities

The District owns and operates water production, storage, treatment and distribution facilities to serve customers within its boundaries. The current water system of the District consists of 80 square miles of watershed lands, seven reservoirs with a storage capacity of 79,566 acre-feet (one acre-foot is equal to 325,851 gallons, enough water to cover one acre to a depth of one foot), 913 miles of pipeline, 127 storage tanks, 95 pumping stations, three potable water treatment facilities, and one water recycling facility. District-owned land, including watershed, totals 22,450 acres. Five of the seven District reservoirs (Alpine, Bon Tempe, Kent, Lagunitas, and Phoenix Lakes) are located on the north slopes of Mt. Tamalpais in the County. The other two (Nicasio and Soulajule) are located outside the District’s service area in the western portion of the County. Presented below are summary descriptions of the District’s reservoirs:

1. Alpine Lake was built in 1919 and has an arched concrete dam. The dam was raised in

1923 and 1941 to its present height and a total storage capacity of 8,891 acre-feet.

2. Bon Tempe Lake has an earth-fill dam and was built in 1948 with a capacity of 4,017 acre-feet.

3. Kent Lake has an earth-fill dam and was built in 1953. The structure was enlarged in

1982 to accommodate a total capacity of 32,895 acre-feet.

4. Lake Lagunitas, the oldest facility, is an earth-fill dam built in 1872. Lake Lagunitas still maintains its original capacity of 350 acre-feet.

5. Phoenix Lake, an earth-fill dam, was constructed in 1905 and was significantly

modified in 1968 and 1985. The last modification reduced the lake’s capacity to 411 acre-feet. It now serves primarily as a scenic resource for the community and is used as a water supply source only in very dry years.

6. Nicasio Reservoir has an earth-fill dam and was built in 1960, with a capacity of

22,430 acre-feet.

7. Soulajule Reservoir is impounded by an earth-fill dam built in 1979 with a capacity of 10,572 acre-feet. The District operates three water treatment facilities: San Geronimo Treatment Plant,

Bon Tempe Treatment Plant and the Ignacio Pump Station, where the quality of potable water purchased from the Sonoma County Water Agency (the “SCWA”) is adjusted to match that of the water in the rest of the District system, and one water recycling facility, the Las Gallinas Valley Water Recycling Plant. The San Geronimo and Bon Tempe Treatment Plants, with 35 million gallons per day (mgd) and 20 mgd maximum capacity, respectively, treat water originating from District reservoirs. The Ignacio Pump Station, with 16 mgd maximum capacity, performs chemical treatment in a “polishing” operation on water received from the SCWA via the North Marin Intertie Pipeline. See “Water Supply” below. The Las Gallinas Valley Water Recycling Plant, with a 2 mgd maximum capacity, performs tertiary treatment of wastewater effluent and distributes water used mainly for irrigation to more than 350 service connections through more than 25 miles of pipeline.

History of Water Supply

Historically, the District has relied on rainfall runoff collected in the western portion of the County for its water supply. Based upon District studies, the water supply potential of the

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western County basins has been developed to the maximum reasonable extent. The District’s heavy reliance upon rainfall runoff for its water supply and its water storage capacity, limited, by environmental concerns, has made the District very vulnerable to water shortages arising from changes in hydrological conditions. To mitigate this situation, the District negotiated a contract with SCWA for delivery of up to 4,300 acre-feet of water per year (AFA). Such deliveries were to occur only in the winter months, when water demand was lowest, and only when SCWA had water surplus to its needs. In addition, the District developed and implemented a project to provide additional treatment to treated wastewater such that the produced water could be used to replace some selected potable water use.

Nevertheless, severe drought conditions occurred in 1976-77 and reoccurred in 1987-92.

In each case, such drought conditions compelled the District to impose water rationing and substantially increase water rates. See “—Water Supply—Water Consumption” and “—Water Rates and Charges” below.

Faced with limited water resources and storage capacity and increasing demand for

water, the District, in 1989, completed a Water Supply Master Plan (WSMP) to identify the appropriate method of securing an adequate water supply. The WSMP recommended that the District secure an additional water supply of up to 10,000 AFA, to meet existing dry year supply shortfalls and projected growth through 2025.

Consequently, the District negotiated improvements to the terms of its existing contract

with SCWA and signed a new contract in 1991 with SCWA allowing delivery of up to an additional 10,000 AFA. Subsequently, in 1992, the District’s electorate approved Measure V, authorizing issuance of up to $37.5 million of revenue bonds to fund a variety of water system improvements, including improvements to import additional water supply from SCWA, water reclamation, conservation/efficiency projects, water quality improvements and other general projects. In 1993, the District issued $39 million in revenue bonds to fund approximately $17 million of the $37.5 million for projects authorized under Measure V and refund prior debt. Approximately $11.8 million was to be used to fund improvements needed to import additional water supply from SCWA. The cost of a 13-mile pipeline and other facilities needed to import additional supply from SCWA was estimated at $62 million, and was not funded by the 1993 revenue bonds. The additional $62 million needed to fund the pipeline was to be included in a future debt issuance. The District has not pursued this project due to costs and a diminished need for additional water given reductions in water demand. Therefore, the District does not intend to pursue this project at this time. While the District’s contractual entitlements from SCWA are now 14,300 AFA, the District has been able to meet customer demands for the last eight years by importing less than 8,000 AFA. Water Supply

Overview. Historically, the District’s water supply has come primarily from rainfall runoff captured on the north slope of Mt. Tamalpais in the westerly slopes of the California coastal range. District facilities, constructed in stages during the twentieth century, diverted approximately two-thirds of the flow of Lagunitas Creek above Kent Lake and more than one-third of the flow of Nicasio Creek to the developed areas of the eastern portion of the County. The District’s watershed system has four units: Lagunitas Creek above Kent Lake, Nicasio Creek above Nicasio Dam, Ross Creek above Phoenix Lake and Walker Creek above Soulajule Reservoir. The District and its predecessor agencies have maintained rainfall records for a period of over 130 years. Average annual precipitation varies across the drainage basins above the reservoirs from about 60 inches above Kent Lake to 28 inches on Walker Creek. Average annual net runoff (total runoff less losses) on the District’s watershed lands is more than 75,000 acre-feet. However, year-to-year net runoff figures vary significantly from a high net runoff in fiscal year 1982-83 of approximately 213,000 acre-feet to a low of approximately

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3,000 acre-feet in fiscal year 1976-77. Today, about 75% of the potable water used by District customers comes from the local reservoir system.

The District has considerable stewardship responsibility for the aquatic species that

reside in the streams below its reservoirs. In particular, the District must release water from its reservoirs to help sustain downstream fisheries. To meet the terms included in the District’s water rights, an average of about 12,500 acre-feet per year is released for that purpose.

In addition to the above-described local water sources, since 1976 the District has

contracted for imported delivery from SCWA. The latest contract with SCWA, executed in January 1996, allows the District to take delivery of up to 14,300 acre-feet of water per year. The contract remains in effect until June 30, 2014, and can be extended at the District’s option, for a term not to exceed June 30, 2040, which is the term of SCWA’s Restructured Agreement for Water Supply with its water contractors. In 2011, the District produced 25,000 acre-feet of water for its customers, including over 5,100 acre-feet of water imported from SCWA.

The District’s current water supplies can serve a commitment of approximately 28,000

acre-feet-year based on the District’s estimate of the yield of all supplies available to the District. Such estimate of yield includes about 20,000 acre-feet per year from the District’s reservoirs and reclaimed water projects and a little less than 8,000 acre-feet per year of water from the SCWA.

Water use is measured both as the amount of water produced at District plants and

the amount of water consumed by District customers as recorded by their water meters. Water Production. Water production is the total amount of potable water treated by the

District for distribution throughout its system. The amount of water produced by the District is always larger than metered consumption by customers because of system losses and other non-metered uses. Table 1 shows water production, water purchases and lake storage data for the period from fiscal year 1999-2000 through fiscal year 2010-11. As of March 14, 2012, lake storage was at 85% of capacity. For an explanation of the District’s water yield based on lake storage and other supplies, see “Water Supply” above.

TABLE 1

MARIN MUNICIPAL WATER DISTRICT ANNUAL POTABLE WATER PRODUCTION AND STORAGE

(acre-feet)

Fiscal Treated Water Imported from Total Lake Year Production SCWA Production Storage*

1999-00 22,631 7,820 30,451 77,072 2000-01 23,541 8,183 31,724 64,326 2001-02 22,926 8,412 31,338 75,062 2002-03 22,456 8,198 30,654 78,436 2003-04 24,026 7,785 31,811 72,428 2004-05 21,113 7,848 28,961 79,419 2005-06 22,164 7,115 29,279 77,676 2006-07 22,645 7,502 30,147 64,704 2007-08 22,165 7,568 29,733 67,367 2008-09 19,989 7,847 27,836 63,654 2009-10 18,529 6,702 25,231 78,491 2010-11 19,994 5,378 25,372 77,591

Source: Marin Municipal Water District. *As of June 1 of year shown.

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Water Consumption. Table 2 summarizes metered water consumption by customer class

for fiscal years 2007 to 2011. Un-metered water uses include firefighting, evaporation, District usage for backwashing and line flushing, leaks/breaks and other system losses.

The District calculates gross per capita demand by dividing total production (fiscal

year basis) by the estimated population served; these calculations include commercial and industrial water use in the per capita derivation. Gross per capita demand in non-drought years has varied from a low of 128 gallons per capita per day (gpcd) in fiscal year 2008-09 to a high of 177 gpcd in fiscal year 1986-87. In the drought years of 1976 through 1978, rationing lowered gross per capita demand to an all-time low of 80 gpcd. After removal of the rationing program, demand rose to 130 gpcd in fiscal year 1978-79. During the drought years of 1987 to 1992, rationing lowered gross per capita demand to less than 120 gpcd. After this event, per capita use increased again to almost 155 gpcd.

The District projects its daily per capita water use for 2015 and 2020 will be 129 and

124 gpcd, respectively. These values comply with the District’s SBX7-7 (the Water Conservation Bill of 2009) targets for 2015 and 2020 of 137 and 124 gpcd, respectively. In addition to meeting the daily per capita water use target on an individual basis, the Water Conservation Bill of 2009 also allows urban water retail suppliers to plan, comply and report on the 2015 and 2020 water use targets on a regional basis. The District has joined a regional alliance with SCWA’s water contractors, which include the cities of Santa Rosa, Rohnert Park, Sonoma, Cotati, Petaluma, Town of Windsor, North Marin Water District and Valley of the Moon Water District to comply with daily per capita water use targets on a regional basis. Members of the regional alliance project that the regional alliance will be in compliance with its 2015 and 2020 SBX7-7 water use targets.

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TABLE 2 MARIN MUNICIPAL WATER DISTRICT

METERED WATER USE BY CUSTOMER CLASS (in acre-feet by fiscal year (1)(2))

Customer Class 2007 2008 2009 2010 2011

Residential: Single-family & multi-family dwelling units, apartments, condominiums, mobile homes

19,982

19,484

18,764

17,104

17,092

Institutional: San Quentin Prison, hospitals, hotels, fire stations

1,693

1,766

1,721

1,639

1,637

Business Establishments: Office buildings, restaurants, industrial, manufacturing, retail stores, schools, churches, and other service-oriented businesses

3,217

3,132

2,954

2,758

2,770

Irrigation: Parks, golf courses, nurseries

2,687

2,729

2,485

2,061

2,167

Total Metered Water Use 27,579 27,111 25,924 23,562 23,666 Total Water Production (2) 30,837 30,342 28,375 25,998 26,133 Unmetered Water Uses (3) 3,258 3,231 2,451 2,436 2,467 Percentage of Unmetered Water Use 11% 11% 9% 9% 9% Source: Marin Municipal Water District. (1) One acre-foot equals 435.6 hundred cubic feet (ccf). (2) Water production includes potable and reclaimed water. (3) Includes water used for firefighting, evaporation, District usage for backwashing and line flushing, and system

losses. Table 3 summarizes the percentage contribution by customer class to water sale

revenues for the fiscal years 2006-07 through 2010-11. In fiscal year 2010-11, residential water use, which includes single-family and multi-family dwelling units, comprised approximately 79% of the total water use in the District, while non-residential customers accounted for approximately 21% of the total water use in the District.

TABLE 3

MARIN MUNICIPAL WATER DISTRICT PERCENTAGE CONTRIBUTION TO WATER SALES REVENUES BY CLASS OF USER

For Fiscal Years 2006-07 through 2010-11

Customer Class 2006-07 2007-08 2008-09 2009-10 2010-11

Residential 78.59% 78.38% 79.02% 79.55% 79.13% Non-Residential 21.41 21.62 20.98 20.45 20.87 Total 100.00% 100.00% 100.00% 100.00% 100.00%

Source: Marin Municipal Water District.

Water Rights

The District holds 5 appropriative water rights and one water license, and 3 pre-1914

water rights, to operate its local reservoir system. Rights to divert water were granted to the District by the California State Water Resources Control Board (SWRCB) and allow diversion of over 86,000 AF of water per year. District water supply can be obtained from Lagunitas Creek, Walker Creek, Ross Creek and Nicasio Creek in the County, via the District’s water

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rights, and, through water rights of the SCWA, the Russian River in Sonoma County. See “—Water Supply” above.

With respect to the Russian River, the District purchases Russian River water from

SCWA. SCWA has rights to re-divert up to 75,000 acre-feet per year. SCWA currently provides 46,000 AF/year of water to all of its customers, including the District. See Table 1 for a history of the District’s imports from SCWA.

SCWA has entered into certain continuing disclosure agreements pursuant to which

SCWA is contractually obligated for the benefit of owners of certain of their outstanding obligations, to file certain annual reports, notices of certain material events as defined under Rule 15c2-12 of the Securities Exchange Act of 1934, as amended (“Rule 15c2-12”), and annual audited financial statements (the “SCWA Information”) with certain information repositories (a current listing of such repositories is maintained on the Internet at http://emma.msrb.org). SCWA HAS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE AUTHORITY, THE DISTRICT, THE TRUSTEE OR THE OWNERS OF THE BONDS TO PROVIDE SCWA INFORMATION TO THE AUTHORITY, THE DISTRICT OR THE OWNERS OF THE BONDS.

SCWA HAS NOT REVIEWED THIS OFFICIAL STATEMENT AND HAS NOT MADE

REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED OR INCORPORATED HEREIN, INCLUDING INFORMATION WITH REGARD TO SCWA. SCWA IS NOT CONTRACTUALLY OBLIGATED, AND HAS NOT UNDERTAKEN, TO UPDATE SUCH INFORMATION FOR THE BENEFIT OF THE AUTHORITY, THE DISTRICT OR THE OWNERS OF THE BONDS UNDER RULE 15c2-12.

Water Rates and Charges

The District has the power and authority under California law to establish charges for service without the review or approval of any other government body. The District’s rates and charges are established by ordinance of the Board. The District has the right to refuse or terminate water service to delinquent customers and to require full payment of delinquent amounts and reconnection charges to resume service. Unpaid charges may become a lien on property by recordation of a notice thereof.

In 1992, the District adopted a tiered rate structure pursuant to a water rate study

conducted at that time. The rate structure incorporated a fixed service charge for all users and a tiered water use charge based on the volume of water used. Since 2005, the District has increased water rates five times (4% effective in fiscal year 2008, 11.25% effective in fiscal year 2009, 8.25% effective in fiscal year 2010, 11.5% effective in fiscal year 2011, and 4% effective in fiscal year 2012). Table 4 summarizes the current water rates which were adopted by the Board on April 27, 2011 (for fiscal year 2012), and the water rates adopted by the Board on April 19, 2012 (for fiscal year 2013), which reflect an increase of 6% over the prior rates. The new fiscal year 2013 rates became effective for water consumption on May 1, 2012, and become effective on all meter readings starting on July 1, 2012.

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TABLE 4 MARIN MUNICIPAL WATER DISTRICT

SUMMARY OF CURRENT WATER RATES

Bi-Monthly Fixed Service

(As of June 1, 2011) (As of May 1, 2012) Meter Size Service Charge Service Charge

5/8” $20.31 $21.53 3/4” $22.46 $23.81

1” $31.02 $32.88 1-1/2” $52.51 $55.66

2” $78.16 $82.85 3” $146.71 $155.51 4” $202.54 $214.69 6” $437.51 $463.76 8” $865.94 $917.90

10” $1,294.38 $1,372.04 Source: Marin Municipal Water District.

Bi-Monthly Volume Charge

(As of 6/1/11) (As of 5/1/12) Winter Use (1) Summer Use (1) Rate Rate Bi-Monthly Bi-Monthly

Tiered Water Rate ($/ccf)(2) ($/ccf) Quantity (ccf) Quantity (ccf) Single Family

Tier 1 $ 3.53 $ 3.74 0-21 0-26 Tier 2 $7.06 $7.48 22-48 27-59 Tier 3 $14.12 $14.97 49-80 60-99 Tier 4 $21.18 $22.45 81+ 100+

Duplex Residential Tier 1 $ 3.53 $ 3.74 0-24 0-26 Tier 2 $7.06 $7.48 25-48 27-59 Tier 3 $14.12 $14.97 49-80 60-99 Tier 4 $21.18 $22.45 81+ 100+

Multi-Family (per dwelling unit) Tier 1 $ 3.53 $ 3.74 0-12 0-12 Tier 2 $7.06 $7.48 13-22 13-24 Tier 3 $14.12 $14.97 23-30 25-32 Tier 4 $21.18 $22.45 31+ 33+

Non-Residential (3) Tier 1 $ 3.53 $ 3.74 0-85 0-85 Tier 2 $7.06 $7.48 86-150 86-150 Tier 3 $14.12 $14.97 Over 150 Over 150

Source: Marin Municipal Water District. (1) Winter use is from December 1 to May 31. Summer use is from June 1 to November 30. (2) A billing unit of water is equal to 100 cubic feet (ccf), or 748 gallons. (3) Includes business, institutional and irrigation customers. The quantity of water charged at each rate is set as a percentage of the water budget for non-residential customers.

Connection fees for residential service are $29,260 per acre-foot of estimated annual

consumption. The annual consumption for residential use is based on the area average of the neighborhood in which the unit(s) are to be built.

For all other uses, such as business, industrial, agricultural or institutional, the

connections fees are based on consumption estimates formulated from information provided

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by the applicant. The amount of water purchased at the time of application, based on consumption estimates, becomes the water entitlement for the property to be served.

The District bills residential customers on a bi-monthly basis. Based upon the newly

adopted rate structure shown in Table 4, an average bi-monthly water bill for a residential customer based on 21 ccf of water use in winter or summer periods will be $100.07; or $50.04 per month.

Table 5 presents the average monthly water bill paid by the residents of a single-family

home in the District based on average annual consumption for calendar years 2000 through 2011. The District’s rates are set to encourage conservation, provide for ongoing operations and maintenance, debt service, and current and future capital needs.

TABLE 5

MARIN MUNICIPAL WATER DISTRICT AVERAGE MONTHLY CHARGE FOR DISTRICT WATER BASED ON

AVERAGE ANNUAL RESIDENTIAL WATER USE For Years 2000 through 2011

Average Residential Average Average

Calendar Monthly use Charge Monthly Year (ccf) per ccf (1) Charge

2000 11.2 $3.23 $36.18 2001 11.8 $3.27 $38.59 2002 10.8 $3.29 $35.53 2003 10.6 $3.35 $35.51 2004 11.7 $3.74 $43.76 2005 10.6 $3.84 $40.70 2006 10.5 $3.98 $41.79 2007 10.9 $4.16 $45.34 2008 11.1 $4.62 $51.28 2009 10.4 $4.78 $49.71 2010 9.7 $5.31 $58.49 2011 9.6 $5.46 $58.94

Source: Marin Municipal Water District. (1) The average residential monthly use was calculated using total residential water sales (not including reclaimed

water) and determining the average annual usage per residential service. From 1997 through 2012, the District collected a $75 per year fire flow fee to improve

the available flow to fire hydrants in key locations throughout the District and the seismic hardening of key transmission lines and tanks within the District’s transmission system. This fee was specifically dedicated to these purposes and is not considered by the District as part of its Gross Revenues. The fee was charged per parcel. This fee expired in April 2012. The District is currently pursuing an extension of this fee for 19 years. The public hearing for approval of the fee by the Board is scheduled for May 17, 2012.

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Comparative Rates

Table 6 shows comparative rates charges by water suppliers in the San Francisco Bay area:

TABLE 6 MARIN MUNICIPAL WATER DISTRICT

COMPARATIVE ANNUAL RESIDENTIAL WATER CHARGES For 21 ccfs (bi-monthly)

As of April 2012

Average Annual Household Water

Water Supplier Service Charge City of Palo Alto $776 San Francisco Public Utilities Commission 644 City of Hayward 622 Contra Costa Water District 616 Marin Municipal Water District 567 North Marin Water District 560 City of Mountain View 558 Dublin San Ramon Services District 551 City of Los Altos 540 East Bay Municipal Utility District 521 Alameda County Water District 487 City of Livermore 483 San Jose Municipal Water 402 City of Pleasanton 344

Source: Marin Municipal Water District.

Principal Customers

Table 7 lists the District’s ten largest customers for fiscal year 2011. The District’s

board has adopted a policy of confidentiality with respect to information on individual water use; however the ten largest customers shown below collectively accounted for approximately 4.6% of revenue from water sales. Sales from no one customer exceeds 2.5% of total water sales revenue.

TABLE 7

MARIN MUNICIPAL WATER DISTRICT PRINCIPAL DISTRICT CUSTOMERS

For Fiscal Year 2010-11

Name Type of Business San Quentin State Prison Prison Fort Baker National Park San Geronimo Golf Club Golf course Meadow Club Golf course Peacock Gap Holdings LLC Golf course Tamalpais Union HS District School district Marin General Hospital Hospital 195-205 Tamal Vista, LLC Mixed Use Residential/Commercial Dominican University of California Private college County of Marin Local Government

Source: Marin Municipal Water District.

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Water Recycling

Water recycling is one of the District’s most reliable water supplies. The use of recycled

water conserves potable water, reduces wastewater discharge to San Francisco Bay, provides an important drought-proof source of water and preserves water in the District’s reservoirs. MMWD was one of the first water agencies in Northern California to build a recycled water system. The 1-million-gallon-per-day (mgd) Las Gallinas Water Recycling Facility was completed in 1981. In 1989, the District upgraded the plant in order to meet the more stringent water quality requirements of the State Department of Health Services and expanded the plant’s capacity to 2 mgd. During the 1990s the District expanded the distribution system to a total of 25 miles which now serves 335 services and averages about 600 acre-feet per year (about 2% of total District demand). While most of the use is for landscape irrigation, the District is a leader in recycled water innovation and has been successful in achieving permitting of its use for toilet flushing, commercial laundries, air conditioning cooling towers, and car washes.

The District continues to look for opportunities to further develop water recycling

within its service area. The market for recycled water has been mapped and planned. The most cost effective option is to extend the recycled water distribution system to the Peacock Gap area to serve an 18-hole golf course and adjacent parks, and multi-family residential facilities.

Capital Improvement Program

As shown in Table 8, the District’s budgeted expenditures for its capital improvement program for Fiscal Years 2013 through 2017 are $108.8 million in 2012 dollars. The projects include replacement and upgrade of transmission and distribution system facilities, pump stations, storage tanks, and improvements to the District’s water treatment facilities and water recycling facility.

Pipeline Replacement Program. The pipeline replacement program is designed to maintain

and improve the level of service, quality and safety of the District’s distribution and transmission piping system. Projects in this program provide for replacement of worn and deteriorated transmission and distribution system piping. Pipeline segments are selected for inclusion in this program based primarily on leak history. A segment’s leak history is the primary indicator used to assess pipe condition and remaining service life. The District maintains records of all leaks and leak repairs. Staff utilizes the District’s GIS to identify pipe segments with a significant leak rate (generally ≥ 1 leak/year/1,000 ft pipe). The segments identified through this process are added to the pipeline replacement (leak) list. Pipe segments on the leak list undergo a thorough investigation to determine their complete leak history, year installed, type of pipe material, as-installed details and potential real property issues. Pipeline replacements are prioritized primarily based on leak rate and risk related to damages to the environment or property in the event of a main break. Special consideration is given to pipelines in close proximity to salmonid bearing streams. Finally, when given adequate notification, the District endeavors to replace pipeline segments in advance of planned street work that coincide with pipe segments on the pipeline replacement list or that may be disturbed by the construction. The pipeline replacement program is funded at $2.75 million annually, which supports replacement of approximately 2.5 miles of pipe at current costs.

Distribution Pump Station Replacement Program. The distribution pump station

replacement program provides for the planning, design, construction and replacement of the District’s pump stations. The District has 75 distribution pump stations in service. A significant number of these pump stations are now over 50 years old. A number of the pump

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houses are in poor condition, provide inadequate space for safe maintenance and repair of equipment, have poor and/or unsafe access, or provide insufficient space to allow inadequate pumps to be replaced with adequate equipment. Prioritization for pump station replacements is based on the following factors; station age, condition, type of construction, adequacy of interior space, station access, lack of standby pump and pump adequacy. This program is budgeted at $1 million annually.

Redwood Tank Replacement Program. The redwood tank replacement program provides

for the planning, design, construction and replacement deteriorated redwood storage tanks. Redwood storage tanks often present water quality challenges, are seismically vulnerable, and leak. Since 2001, this program has replaced approximately 32 redwood storage tanks. There are 19 redwood tanks that remain. The tanks are prioritized from the combination of their field condition rating and their storage adequacy rating. Further, most of the redwood tanks are the sole storage for a pressure zone, like this year’s projects of Fairfax Manor Top Tank and Slide Gulch Tank. Over the past 10 years, the District has invested approximately $21 million replacing deficient redwood tanks. The current level of funding allows replacement of 2 or 3 tanks per year. The Five Year Capital Plan funds this program at $9.2 million, and is part of the Storage Tanks program, as noted in Table 8.

Pine Mountain Tunnel Repair/Replacement Project. Pine Mount Tunnel (PMT) is an almost

2-mile long horseshoe shaped tunnel extending from upper Lagunitas Creek to a point near Fairfax that started delivering water to District residents in 1919. The District discontinued using the tunnel as a conveyance system in the early 1970s, and began using the tunnel for storage and surge control. The project includes decommissioning of the PMT and construction of approximately 4 million gallons of new storage. This project is budgeted at $9 million, and is part of the Storage Tanks program, as noted in Table 8.

Ross Reservoir Replacement Project. The 1 million gallon (MG) Ross Reservoir, constructed

in the 1920s, is undersized and has reached the end of its useful life, and the reservoir’s site is subject to erosion. This project includes planning, design and construction of approximately 4 million gallons of new storage. This project is budgeted at $7.3 million, and is part of the Storage Tanks program.

Las Gallinas Water Recycling Facility—Filter Replacement. The District’s Las Gallinas Water

Recycling Facility uses sand filtration to achieve recycled water that meets California Title 22 regulations for unrestricted reuse. The filters are the original equipment installed in the 1980s. This project replaces the filters which are nearing the end of their useful life. The District will evaluate other technologies such as fuzzy filters and membranes to achieve compliance with Title 22, and will also coordinate replacement with the Las Gallinas Valley Sanitation District’s recycled water project, which is scheduled to begin construction in 2011 and be finished in 2012. The Filter Replacement project is scheduled to begin in FY 2017 and is budgeted at $2.5 million, and is part of the Water Treatment Plants program.

Soulajule Hypolimnetic Aeration System Project. The San Francisco Bay Regional Water

Quality Control Board is requiring the District to implement a study plan to investigate the potential for methylmercurymethyl mercury bioaccumulation and production in Soulajule Reservoir and its downstream water body, Arroyo Sausal. The Regional Board made this directive as part of the implementation plan for the Walker Creek Watershed Mercury Total Maximum Daily Load (TMDL). This project anticipates the potential need to install a Hypolimnetic aeration system at Soulajule. The studies will begin in FY 2012 and conclude in FY 2013. The total budget for this project is $1,050,000, and is part of the Reservoir/Dam Facilities program.

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The District intends to use a portion of the proceeds of the Bonds to finance a portion of these projects through fiscal year 2017. See “FINANCING PLAN.” The District currently intends to finance the remaining projects with available revenues on a pay-as-you-go basis, and not through the issuance of additional bonds or other debt instruments. The following table displays these projects and highlights those that are intended to be financed from the proceeds of the Bonds.

TABLE 8

MARIN MUNICIPAL WATER DISTRICT FIVE YEAR CAPITAL IMPROVEMENT PROGRAM SUMMARY

(Dollars in Thousands)

Category/Project Title 2012-13 2013-14 2014-15 2015-16 2016-17 Total Facility Replacements/Improvements

Distribution/Transmission System Pipeline Replacement $ 2,750 $ 2 ,750 $ 2,750 $ 2,750

$ 2,750 $ 13,750

Corrosion Protection 1,015 1,015 1,015 1,015 1,015 5,075 Control Valves and Meters 600 600 600 600 300 2,700 Pump Stations 1,770 1,285 1,285 1,285 1,285 6,910 Storage Tanks 3,480 3,480 8,780 10,480 2,480 28,700 Water System Controls 85 35 535 585 2,835 4,075 Water Treatment Plants 1,360 1,385 885 1,235 1,935 6,800 Reservoir / Dam Facilities 450 1,450 200 200 200 2,500 Buildings and Grounds 315 315 315 315 315 1,575 Watershed 250 250 250 250 250 1,250

12,075 12,565 16,615 18,715 13,365 73,335 Water Supply Improvement Projects 600 - - - - 600 Subtotal 12,675 12,565 16,615 18,715 13,365 73,935 Capital Purchases/Equipment Purchases 460 1,165 685 210 410 2,930 Fire Flow Improvement Program 4,500 4,500 4,500 4,500 4,500 22,500 Reimbursable Projects 1,880 1,880 1,880 1,880 1,880 9,400

Grand Total Capital Program $19,515 $20,110 $23,680 $25,305 $20,155 $108,765 Funding Sources

Bond Proceeds Fire Flow Fee (1) By District (2) Anticipated Revenue from Non-District Funding Sources

Total Funding $19,515 $20,110 $23,680 $25,305 $20,155 $108,765 Total capital projects financed or paid for by District

$13,135 $13,730 $17,300 $18,925 $13,775 $76,865

Source: Marin Municipal Water District. (1) The fire flow fee expired in April 2012. The District is currently pursuing an extension this fee for 19 years. The

public hearing for approval of the fee by the District’s Board of Directors is scheduled for May 17, 2012. (2) Derived from net revenues remaining after the payment of all debt service.

Seismic Considerations

One of the objectives involved in the planning and operation of the District’s water

system is to minimize potential effects on service availability and financial resources arising from natural disasters such as earthquakes.

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Several active fault zones lie within Northern California. In recognition of the potential

hazard, the District’s water conveyance facilities are designed, at a minimum, in accordance with the recommendations of the Uniform Building Code and appropriate American Water Works Association Standards.

The District has implemented a risk management and security program, approved by

District voters in 1997, to identify risk and fund remedial actions to minimize exposure to damage from, and operational problems associated with, earthquakes and other disasters. To date, no District facilities have suffered any major earthquake damage.

DISTRICT FINANCES

Financial Statements A copy of the audited financial statements of the District for fiscal year 2010-11

audited by Caporicci & Larson, Inc., A Subsidiary of Marcum LLP, Certified Public Accountants, San Francisco, California, is included in APPENDIX A—AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEARS ENDED JUNE 30, 2011, AND 2010.

Funds and Accounts

The District accounts for its activities using enterprise fund accounting methods. Its

financial statements use the accrual basis of accounting. Under this method, all assets and liabilities associated with operations are included on the balance sheet, revenues are recorded when earned, and expenses are recorded at the time liabilities are incurred.

Revenues and Expenses

Table 9 summarizes the District’s revenues, expenses, and changes in fund equity for

fiscal years 2007-08 through 2010-11 and comparative revenues and expenses for the nine months ended March 31, 2011, and March 31, 2012. The District’s primary source of revenue is water sales which, in general, have accounted for approximately 93% of District revenue. In fiscal year 2010-11, residential users accounted for 72% of sales by volume and 74% of revenues generated, with industrial, commercial and other users accounting for the balance. Other revenue sources include connection charges and interest income. Personnel expenses account for about 53% of operating expenses, followed by expenses for operations, materials and supplies, electric power, and interest expense. The District’s net income in fiscal year 2010-11 was approximately $3.4 million.

For fiscal year 2010-11, total operating revenue of $56.3 million increased by $3.1

million and operating expenses of $56.2 million decreased by $1.3 million, providing an increase of net operating income of $4.4 million when compared to the prior year. The District’s net income increased by $1.6 million from the prior year.

The major changes in net income from the prior fiscal year were from the following:

• Water sales increased by $3.8 million due to an 11.5% rate increase effective March 1, 2010, and a 0.5% increase in consumption from the prior year.

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• Operating expenses decreased by $1.3 million. Decreases include electrical power costs ($0.4 million), water purchases ($0.7 million), and materials and other expenses ($0.5 million). Decreases in operating expenses were offset by a $0.2 million increase in personnel expenses and a $0.1 million increase in depreciation.

• Non-operating revenues, net, decreased by $1.9 million, largely as result of the

additional $1.5 million in interest expense due on the 2010 Bonds.

• Capital contributions decreased by $1 million. Capital contributions include connection fees and the $75 per parcel fire flow fee. The decrease in capital contributions was largely due to a $0.8 million decrease in capital-related connections fee and a $0.2 million decrease in capital grants.

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TABLE 9 MARIN MUNICIPAL WATER DISTRICT

REVENUES, EXPENSES, AND CHANGES IN FUND EQUITY For fiscal years 2007-08 through 2010-11 and for the

nine months ended March 31, 2011, and March 31, 2012

Fiscal Year Ended June 30, 9 Months Ended March 31, 2008 2009 2010 2011 2011 2012 Operating Revenue Water sales $49,151,241 $ 50,802,203 $ 50,111,192 $ 53,969,373 $ 42,197,231 $ 42,791,203 Connection charges 1,371,798 2,748,427 1,311,139 1,009,829 747,717 874,551 Other operating revenue (1) 1,949,345 999,306 1,727,948 1,300,208 666,202 674,053

Total operating revenues 52,472,384 54,549,936 53,150,279 56,279,410 43,611,150 44,339,807

Operating Expenses Personnel services 28,007,711 30,580,025 29,857,987 30,042,858 20,904,654 22,055,714 Materials and supplies 2,191,405 2,819,763 2,195,723 2,062,044 1,523,061 1,501,174 Operations 3,281,368 3,297,487 2,220,017 2,042,623 1,317,698 1,312,114 Water conservation rebate program

804,942 800,888 742,202 94,634 94,249 1,175

Electrical power 3,316,592 3,230,402 3,167,677 2,738,066 1,993,503 2,117,288 Water purchased 4,644,304 4,912,997 5,617,017 4,960,870 3,712,267 4,036,841 Insurance, including claims 1,389,867 1,236,816 1,313,605 1,896,908 1,566,641 1,258,569 General and administrative 2,331,121 1,908,107 2,029,949 1,913,577 1,122,942 1,420,062 Depreciation 8,723,816 9,713,604 10,350,791 10,480,987 7,688,765 8,052,752 Research and Development 106,138 — — — — — Indirect costs capitalized (2) ( 2,575,500) — — — — —

Total operating expenses 52,221,764 58,500,089 57,494,968 56,232,567 39,923,780 41,755,689

Net operating income (loss) 250,620 (3,950,153) (4,344,689) 46,843 3,687,370 2,584,118 Non-operating revenue (expense)

Federal and state grant income 953,276 512,257 496,263 321,968 221,812 450,031 Net increase (decrease) in the fair value of investments

299,537 (560,702) (52,176) 75,634 (55,678) 38,623

Interest income 2,122,526 1,380,137 440,625 237,886 174,859 86,665 Other 1,262,289 1,178,798 1,520,928 1,407,414 1,088,645 1,161,288 Interest expense (2,707,312) (2,574,404) (2,399,793) (3,887,448) (2,916,128) (2,717,322) Total non-operational revenue (expense)

1,930,316 (63,914) 5,847 (1,844,546) (1,486,490) (980,715)

Total operating income (loss) before capital contributions 2,180,936 (4,014,067) (4,338,842) (1,797,703) 2,200,880 1,603,403 Capital contributions: Fire Flow Fee 4,510,433 4,502,860 4,467,136 4,483,662 2,537,758 2,563,488 Connection Fees and Grants 1,575,775 1,571,046 1,680,403 700,759 440,573 165,881 Total Capital Contribution (3) 6,086,208 6,073,906 6,147,539 5,184,421 2,978,331 2,729,369 NET INCOME 8,267,144 2,059,839 1,808,697 3,386,718 5,179,211 4,332,772 Fund equity—beginning of fiscal year

273,877,200 282,899,996 284,959,835 286,768,532 286,768,532 290,155,250

Prior period adjustment 755,652 — — — — —

Fund equity—end of fiscal year $282,899,996 $284,959,835 $286,768,532 $290,155,250 $291,947,743 $294,488,022 Source: Marin Municipal Water District Audited Financial Statements for 2007-08 through 2010-11. Data for nine months ended March 31, 2011, and March 31, 2012, is unaudited. (1) Other Operating Revenue includes miscellaneous income (settlements, reimbursements, misc fees etc), rent

revenue, grants (federal, state and other), special read and late charges, watershed permits and other various revenues.

(2) Presentation of indirect costs capitalized changed effective in fiscal year 2008-09. Amounts for indirect costs capitalized have been allocated to the applicable expense.

(3) These revenues are restricted in use and are not part of Pledged Net Revenues.

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Table 10 presents District revenues and expenditures for each of the last five fiscal years, including debt service coverage for all of the District’s obligations backed by a pledge of Net Revenues:

TABLE 10

MARIN MUNICIPAL WATER DISTRICT CALCULATION OF NET REVENUES AND DEBT SERVICE COVERAGE

For fiscal years 2006-07 through 2010-11 2007 2008 2009 2010 2011 Gross Revenues Water sales and service charge $47,022,277 $49,151,241 $50,802,203 $50,111,192 $53,969,373 Connection charges 2,404,381 1,371,798 2,748,427 1,311,139 1,009,829 Other operating revenues (1) 4,033,353 4,177,298 2,690,361 3,745,139 3,029,590 Interest income 2,488,169 2,122,526 1,380,137 440,625 237,886

Total Gross Revenues 55,948,180 56,822,863 57,621,128 55,608,095 58,246,678 Maintenance & Operations Costs Personnel services 26,766,178 28,007,711 30,580,025 29,857,987 30,042,858 Materials and supplies 2,212,118 2,191,405 2,819,763 2,195,723 2,062,044 Operations 3,579,822 3,281,368 3,297,487 2,220,017 2,042,623 Water conservation rebate program 358,777 804,942 800,888 742,202 94,634 Electrical Power 2,991,607 3,316,592 3,230,402 3,167,677 2,738,066 Water purchased 4,403,617 4,644,304 4,912,997 5,617,017 4,960,870 Insurance, including claims 1,466,562 1,389,867 1,236,816 1,313,605 1,896,908 General and administrative 2,110,195 2,004,985 1,908,107 2,029,949 1,913,577 Indirect costs capitalized (2) (2,501,785) (2,575,500) — — —

Total Maintenance & Operations Costs 41,387,091

43,065,674

48,786,485

47,144,177

45,751,580

Net Revenues 14,561,089 13,757,189 8,834,643 8,463,918 12,495,098 2002 Bonds Debt Service 3,373,613 3,366,738 3,367,513 3,353,338 2,222,038 2004 Installment Payments 3,436,712 3,437,337 3,441,237 3,443,337 3,453,325

Total Debt Service 6,810,325 6,804,075 6,808,750 6,796,675 5,675,363 Debt Service Coverage Ratio (3) 2.14x 2.02x 1.30x 1.25x 2.20x Net Revenues after Debt Service $7,750,763 $6,953,114 $2,672,711 $1,650,052 $5,090,353 Clean Renewable Energy Bonds Debt Service (4) — — $122,250 $122,250 $122,250 Source: Marin Municipal Water District. (1) Other Operating Revenue includes miscellaneous income (settlements, reimbursements, misc fees etc), rent

revenue, grants (federal, state and other), special read and late charges, watershed permits and other various revenues.

(2) Effective 2009, labor and equipment costs charged to assets under construction allocated to each of the applicable expense categories.

(3) Debt Service Coverage equals Net Revenues divided by Total Debt Service. (4) Debt Service on the Clean Renewable Energy Bonds is paid after all other debt service.

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Table 11 presents the District’s balance sheet as of June 30, 2007, through June 30, 2011.

TABLE 11

MARIN MUNICIPAL WATER DISTRICT BALANCE SHEET

As of June 30, 2007 through June 30, 2011

2007 2008 2009 2010 2011 Assets Current Assets:

Cash & investments $ 41,738,434 $ 29,163,697 $ 13,268,037 $2,815,848 $6,770,936 Customer-billed (net of allowance for doubtful accounts of $236,707, $272,314, $25,890, $265,890, $265,327 and $303,010 in 2007 to 2011 respectively) 4,524,129 5,343,192 5,024,195 4,076,961 4,418,580 Customer-unbilled 3,785,190 4,540,399 4,526,868 4,485,231 4,082,813 Interest and other (net of allowance for doubtful accounts of $159,324, $176,525, $180,073, $180,073 and $436,604 in 2007 to 2011, respectively) 1,530,740 2,076,380 2,517,060 1,416,213 449,336 Materials and supplies 1,336,544 1,442,535 1,512,725 1,329,100 1,225,973 Note receivable 200,000 200,000 — — — Prepaid expenses 317,216 347,626 716,904 478,958 498,481

Total Current Assets 53,432,253 43,113,829 27,565,789 14,602,311 17,446,119 Restricted & Designated Assets:

Cash & investments: Restricted & designated funds 15,552,266 19,102,427 20,600,023 50,253,117 39,954,505 Deposits & advances 3,285,782 2,546,866 1,405,611 1,705,896 2,110,836

Total Restricted & Designated Assets 18,838,048 21,649,293 22,005,634 51,959,013 42,065,341

Utility Plant: Land, Land Rights and Depreciable Assets 390,391,474 406,374,045 431,953,122 451,031,087 469,464,265 Construction work in progress 15,078,435 18,407,108 20,694,560 23,805,971 25,039,690 405,469,909 424,781,153 452,647,682 474,837,058 494,503,955 Less—accumulated depreciation 131,482,653 139,783,454 146,782,068 156,641,467 166,909,603 Utility Plant, Net 273,987,256 284,997,699 305,865,614 318,195,591 327,594,352

Notes Receivable 200,000 — — — — Bond issuance costs, net 789,134 747,098 756,855 935,545 883,223 Sonoma County Water Rights (1) (net of accumulated amortization of $2,040,622 and $2,324,722 in 2007 and 2008, respectively)

7,152,978

6,868,878 — — —

Total Assets $354,399,669 $357,376,797 $356,193,892 $385,692,460 $387,989,035 (continued on next page)

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2007 2008 2009 2010 2011 Liabilities & Equity Current Liabilities: Accounts payable $ 4,311,277 $ 4,218,429 $ 4,878,251 $ 3,631,636 $ 3,487,093 Accrued payroll & payroll expenses

5,524,190 5,793,270 3,606,783

3,852,627

4,842,870 Accrued interest payable 24,000 24,000 24,000 — — Customer & other deposits 775,594 730,633 699,080 410,140 397,551 Total current liabilities 10,635,061 10,766,332 9,208,114 7,894,403 8,727,514

Other Liabilities: Current maturities of long-term debt 4,234,869 4,363,531 4,619,585 3,537,250 3,677,250 Accrued interest payable 1,370,677 1,310,970 1,243,508 1,185,789 1,885,193 Wolfback Ridge special assessment deposits (2) 214,024 216,628 — — — Agency deposits 190,065 180,720 192,831 194,778 311,876 Customer advances for construction 5,071,041 3,104,979 1,981,620 1,375,739 2,156,221 Provision for self-insurance claims 1,041,149 1,054,697 858,204 784,613 1,266,000 Total other liabilities 12,121,825 10,231,525 8,895,748 7,078,169 9,296,540

Long-Term Liabilities: Claims Payable – due in more than one year (2) — — 1,204,612 1,529,038 1,760,774 Compensated Absences – due in more than one year (2) — — 1,209,558 1,367,181 655,504 Long-Term Debt, Net Current Maturities 57,765,583 53,478,944 50,716,025 81,055,137 77,393,453

Total long term liabilities 57,765,583 53,478,944 53,130,195 83,951,356 79,809,731 Total liabilities 80,522,469 74,476,801 71,234,057 98,923,928 97,833,785

Commitments and Contingencies Fund Equity: Invested in capital assets, net of related debt 211,986,804 227,155,224 243,945,226

273,838,602

273,186,687

Restricted for fire flow program 7,649,780 8,263,843 6,845,171 3,999,728 3,855,977 Unrestricted 54,240,616 47,480,929 34,169,438 8,930,202 13,112,586 Total fund equity 273,877,200 282,899,996 284,959,835 286,768,532 290,155,250

Total Liabilities & Fund Equity $354,399,669 $357,376,797 $356,193,892 $385,692,460 $387,989,035 Source: Marin Municipal Water District Audited Financial Statements for 2006-07 through 2010-11. (1) Effective 2009, Sonoma County Water Rights, net of amortization included in Land, Land Rights and

Depreciable Assets (2) Effective 2009, amounts payable in more than one year presented as long term.

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Outstanding Debt Table 12 summarizes the District’s outstanding debt as of March 31, 2012, which

consisted of the 2002 Bonds, the 2004 Installment Sale Agreement, the 2010 Installment Sale Agreement and the Clean Renewable Energy Bonds.

TABLE 12

MARIN MUNICIPAL WATER DISTRICT OUTSTANDING DEBT AS OF MARCH 31, 2012

Interest

Rate Final

Maturity Outstanding

Principal Balance 2002 Bonds 2.50-5.00% 7/1/2023 $16,185,000 2004 Installment Payments 2.50-5.25% 7/1/2029 25,995,000 2010 Installment Payments 3.375-5.00% 7/1/2040 31,850,000 Clean Renewable Energy Bonds (1) 0.00% 9/30/2023 1,467,000

Source: Marin Municipal Water District (1) Payable from Net Revenues on a subordinate basis to the Senior Obligations.

On October 1, 2002, the District issued the 2002 Bonds, which are payable through July 1, 2023. The proceeds of the 2002 Bonds were used to refund the District’s then outstanding 1993 Bonds. The 1993 Bonds were used to finance certain improvements to the Water System and to refund, together with other available moneys, certain water revenue bonds then outstanding in the aggregate principal amount of $20,220,000. The 2002 Bonds will be refunded from a portion of the proceeds of the Bonds.

On April 30, 2004, the District caused the execution and delivery of the $40,165,000

2004 Certificates of Participation for the purpose of refunding the $11,925,000 of outstanding 1994 Revenue Bonds, prepayment of the Federal Drought Loan and the State Reclamation Loan in the amounts of $2,592,146 and $2,528,101, respectively, financing capital improvements to the District’s water system, funding a deposit to a reserve fund, and paying the costs of the financing. The Refunded 2004 Certificates, being approximately 75% of the 2004 Certificates, will be refunded from a portion of the proceeds of the Bonds.

On September 29, 2008, the District entered into two installment sale agreements,

which constituted Clean Renewable Energy Bonds (the “CREBs”), for the installation of solar panels on the District’s administration building and at its corporate yard. The CREBs were structured so that the investor in the CREBs receives a federal income tax credit in lieu of interest. The amount of the tax credit is set by the U.S. Treasury Department on a daily basis. The total principal amount of the CREBs for both projects was $1,956,000. The net proceeds of the two issues were $1,845,030, less original issue discount of $56,630 and issuance costs of $54,340. The debt service is paid annually over 15 years in the amount of $122,250, principal only. The issues mature on September 30, 2023. The District’s obligations with respect to the CREBs are payable on a subordinate basis to its obligations with respect to the 2002 Bonds, the 2004 Installment Payments, the 2012 Installment Payments and any future Parity Obligations.

Another $963,000 in CREBs was authorized by the Internal Revenue Service for a solar

panel project on the District’s watershed but remains unissued.

On April 21, 2010, the Authority issued the 2010 Bonds for the purpose of financing capital improvements to the Water System, funding a deposit to a reserve fund, and paying the costs of the financing.

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Table 13 summarizes the District’s debt service on its outstanding Senior Obligations after the delivery of the Bonds. See “PLAN OF FINANCE.”

TABLE 13

MARIN MUNICIPAL WATER DISTRICT DEBT SERVICE PAYMENTS SCHEDULE

UPON DELIVERY OF THE BONDS

Year 2004 2010 2012 Ending Installment Sale Installment Sale Installment Sale July 1 Agreement Agreement (1) Agreement (1) Total

2013 $2,175,925.00 $1,526,337.50 $ 2,918,213.20 $ 6,620,475.70 2014 1,169,425.00 1,526,337.50 4,088,077.50 6,783,840.00 2015 1,168,425.00 1,526,337.50 4,091,677.50 6,786,440.00 2016 887,250.00 2,236,337.50 3,755,077.50 6,878,665.00 2017 — 2,232,937.50 5,615,077.50 7,848,015.00 2018 — 2,236,187.50 5,609,277.50 7,845,465.00 2019 — 2,235,187.50 5,612,877.50 7,848,065.00 2020 — 2,234,937.50 5,608,077.50 7,843,015.00 2021 — 2,232,687.50 5,616,390.00 7,849,077.50 2022 — 2,237,287.50 5,606,190.00 7,843,477.50 2023 — 2,236,068.75 5,602,477.50 7,838,546.25 2024 — 2,235,700.00 5,607,727.50 7,843,427.50 2025 — 2,236,100.00 5,606,977.50 7,843,077.50 2026 — 2,234,750.00 5,605,227.50 7,839,977.50 2027 — 2,236,000.00 5,612,227.50 7,848,227.50 2028 — 2,234,500.00 5,612,227.50 7,846,727.50 2029 — 2,235,250.00 5,610,227.50 7,845,477.50 2030 — 2,233,000.00 2,871,827.50 5,104,827.50 2031 — 2,232,750.00 2,871,787.50 5,104,537.50 2032 — 2,234,250.00 2,871,025.00 5,105,275.00 2033 — 2,237,250.00 2,871,025.00 5,108,275.00 2034 — 2,236,500.00 2,869,775.00 5,106,275.00 2035 — 2,232,000.00 2,872,275.00 5,104,275.00 2036 — 2,233,750.00 2,873,275.00 5,107,025.00 2037 — 2,236,250.00 2,872,775.00 5,109,025.00 2038 — 2,234,250.00 2,870,775.00 5,105,025.00 2039 — 2,232,750.00 2,872,275.00 5,105,025.00 2040 — 2,236,500.00 2,872,025.00 5,108,525.00 2041 — — 5,105,025.00 5,105,025.00 2042 — — 5,104,525.00 5,104,525.00 2043 — — 5,106,525.00 5,106,525.00 2044 — — 5,105,525.00 5,105,525.00 2045 — — 5,106,275.00 5,106,275.00 2046 — — 5,105,725.00 5,105,725.00 2047 — — 5,108,587.50 5,108,587.50 2048 — — 5,104,437.50 5,104,437.50 2049 — — 5,108,275.00 5,108,275.00 2050 — — 5,104,462.50 5,104,462.50 2051 — — 5,108,000.00 5,108,000.00 2052 — — 5,108,250.00 5,108,250.00

Totals $5,401,025.00 $60,452,193.75 $180,642,480.70 $246,495,699.45 Source: Marin Municipal Water District. (1) Payments are net of capitalized interest.

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Investments The District has adopted an investment policy (the “Investment Policy”), last revised

on January 5, 2012, to cover all funds and investment activities of the District, except investments governed by bond indentures and employee deferred compensation funds. The text of the Investment Policy is attached as APPENDIX B—INVESTMENT POLICY OF THE DISTRICT.

Table 14 is a schedule of the District’s cash and investments, totaling $30,861,260, as

of March 31, 2012.

TABLE 14 MARIN MUNICIPAL WATER DISTRICT

SCHEDULE OF CASH AND INVESTMENTS As of March 31, 2012

Investment Percent Amount

United States Agency Notes 9.87% $ 3,046,530 State Local Agency Investment Fund 72.56 22,392,041 Money Market Fund 16.69 5,151,439 Corporate Medium Term Notes 0.88 271,250 Total Investments 100.00% $30,861,260

Source: Marin Municipal Water District.

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Projection of Revenues, Expenditures and Debt Service Coverage

Table 15 presents a projection of Water System revenues and expenditures for each of the five fiscal years ending June 30, 2012, through June 30, 2016, including debt service coverage for the Bonds and outstanding Parity Obligations.

TABLE 15

MARIN MUNICIPAL WATER DISTRICT PROJECTION OF REVENUES, EXPENDITURES AND DEBT SERVICE COVERAGE

Fiscal Years Ended June 30, 2012 (1) 2013 2014 2015 2016 Gross Revenues Water Sales Revenues (2) Service Charges Other Revenues (3) Interest Income Total Gross Revenues

Maintenance & Operations Costs Personnel services (4) Materials and supplies Operations Electrical Power Water purchased Insurance, including claims General and administrative Total Maintenance & Operation Costs

Net Revenues Debt Service (5) Debt Service Coverage Ratio (6) Source: Marin Municipal Water District. (1) Includes actual as of March 31, 2012 and projections for revenues and expenses from April 1 to June 30, 2012. (2) The water sales revenues projected for fiscal years 2013-2016 assume a 2% reduction from the fiscal year 2010

sales volume. Water sales revenues in fiscal year 2013 reflect the 6% rate increase approved by the Board on April 19, 2012. Water sales revenues in fiscal years 2014, 2015 and 2016 reflect a 5% annual rate increase for projection purposes only. The projected annual rate increases for fiscal years 2014, 2015 and 2016 have been presented to the Board but have not been approved. Any rate increase will need to comply with the Proposition 218 procedures. Additional rate increases will not be considered until 2013.

(3) Other Revenue includes connection charges, miscellaneous income (settlements, misc fees etc), rent revenue, grants (federal, state and other), special read and late charges, watershed permits and other various revenues.

(4) Personnel service expenses reflect proposed increased benefits and the filling of current vacancies in District positions.

(5) Based on revised debt service through July 1 of each year following the issuance of the 2012 Revenue Bonds and refunding of the 2002 Revenue Bonds and Refunded 2004 COPs.

(6) Debt Service Coverage equals Net Revenues divided by Total Debt Service. Debt Service Coverage in 2012 includes the refunded 2002 Bonds principal due July 1, 2012.

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Risk Management

The District is exposed to various risks of loss related to workers’ compensation and general liability. It is the policy of the District not to purchase commercial insurance for risk of losses to which it is exposed for general and auto liability. Instead, District management believes it is more economical to manage this risk internally and set aside assets for claim settlements. However, the District carries excess liability insurance for losses in excess of $250,000, not to exceed $10,000,000 on a per occurrence basis. For the last 15 years, settled claims have not exceeded the District’s policy limits in any fiscal year.

The District is self-insured for workers’ compensation, and has purchased an umbrella

policy to cover catastrophic losses. The policy has a self-insured retention of $750,000 per occurrence with a maximum limit of indemnity per occurrence of $25,000,000.

Claim liabilities are recorded when it is probable that a loss has occurred and the

amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claim liabilities depend on such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claim liabilities does not necessarily result in an exact amount. Claim liabilities are reevaluated periodically to take into consideration recently settled claims, the frequency of claims, and other economic and social factors. These liabilities are the District’s best estimate based on available information. Changes in the reported liabilities for the years ended June 30, 2011 and 2010 resulted from the following:

Employees’ Retirement Plan

Plan Description. The District contributes to the California Public Employees Retirement System (“CalPERS”) to provide defined retirement benefits for its employees. CalPERS is a multiple-employer public retirement system that acts as a common investment and administrative agent for participating public entities within the State. A menu of benefit provisions as well as other requirements are established by State statutes within the Public Employees’ Retirement Law. The District selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through District ordinance (the “Plan”). CalPERS issues a separate comprehensive annual financial report. Copies of the CalPERS’ annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, CA 95814.

Funding Policy. Active plan members in the Plan are required to contribute 8% of their

annual covered salary. The District is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. Beginning July I, 1999, the District began paying 1.5% of the employee share of the retirement plan cost.

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Starting January 1, 2001, the District began paying an additional 1.5%, bringing the District’s commitment to the employee plan members’ contribution up to a total of 3%. The District’s portion of the employee contribution decreased to 2% effective July 1, 2011 and effective July 1, 2012 will decrease to 1%. The District contributes the full 8% of the employee share of the contribution for the District’s general manager. The District’s contribution on behalf of the District’s five division managers was 8% and decreased to 7% effective July 1, 2011 and effective July 1, 2012 will decrease to 6%.

Annual Pension Cost. For the fiscal years ended June 30, 2011 and 2010, the District

contributed $3,873,838 and $3,835,150, respectively, to the employees’ pension plan. The required contributions for the fiscal year ended June 30, 2011, were determined as part of the June 30, 2008, actuarial valuation using the entry age normal actuarial cost method with the contributions determined as a percent of pay. The actuarial assumptions included a 7.75% investment rate of return (net of administrative expenses), 3.25% to 14.45% projected salary increases that vary depending on age, duration and type of service, and a 3.0% cost-of-living adjustment. The actuarial value of the Plan assets was determined using a technique that smoothes the effect of short-term volatility in the market value of investments over a fifteen year amortization period. The payroll for District employees covered by the Plan was $22.3 million and $22.4 million for the years ended June 30, 2011 and 2010, which were 93% and 95% of the total District payroll of $24.0 million and $23.7 million, respectively.

THREE YEAR TREND INFORMATION FOR CalPERS

Fiscal Year Annual Percentage Net

Ended Pension of APC Pension June 30, Cost (APC) Contributed Obligation

2009 $3,711,610 100% — 2010 $3,835,150 100% — 2011 $3,873,838 100% —

FUNDED STATUS OF PLAN

Actuarial Actuarial Actuarial Unfunded Percentage of Valuation Value of Plan Accrued (Overfunded) Funded Covered Covered

Date Assets Liability Liability) Ratio Payroll Payroll 6/30/2008 $116,111,118 $133,294,684 $17,183,566 87.1% $19,339,207 88.9% 6/30/2009 121,577,449 152,593,563 31,016,114 79.7 21,528,551 144.1 6/30/2010 127,387,127 160,834,354 33,447,227 79.2 22,384,546 149.4 Deferred Compensation Plan

The District offers its employees a deferred compensation plan created in accordance with Internal Revenue Code (IRC) Section 457. The plan permits eligible employees to defer a portion of their salary until future years. The deferred compensation is not available to employees until retirement, termination, death or unforeseeable emergency. Plan assets are managed and invested by independent third party custodians. The assets are not subject to claims by creditors of the District and are not reflected in the accompanying financial statements.

Postemployment Benefits Other Than Pensions

Plan Description. The District provides retiree medical insurance and dental benefits to eligible retirees and a dependent in accordance with various labor agreements. Medical insurance benefits are provided under the CalPERS health plan. Dental benefits are provided by a private insurance carrier.

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Eligibility. The District provides medical and dental benefits to employees if they retire

from the District on or after age 50 (unless disabled) and are eligible for a CalPERS pension. The medical benefits cover the employee and their one dependent from retirement date for life. The employee and their one dependent receive dental coverage from retirement until the employee reaches age 65. Employees are not obligated to contribute unless plan costs exceed the District’s maximum contribution.

For health insurance, the District pays the cost for the health insurance premium up to

the cost for the retiree plus one dependent. Medicare Supplemental insurance coverage is used when a plan participant reaches age 65.

For dental coverage, the District pays the entire cost of the dental insurance until the

retiree reaches age 65. The retiree at age 65 may elect to continue coverage for themselves plus a dependent at their own cost.

Funding Policy. The contribution requirement of plan members and the District are

established and may be amended by agreement between the District and its collective bargaining units. The District must agree to make a defined monthly payment towards the cost of each retiree’s medical and dental coverage. The required contribution is based on an amount established by the District annually. Effective January 1, 2011, the District’s contribution rate for medical coverage was up to $568.99 and $1,137.98 per month for retiree and retiree plus one dependent, respectively. For dental coverage the annual contribution amount is up to $1,500 and $3,000 for retiree and retiree plus one dependent, respectively. Actual contributions by the District for each retiree for medical and dental benefits vary depending on medical plan coverage and actual dental costs.

The District’s contribution requirements for the plan provides for annual contributions

authorized by the Board. The required contribution rate is based on the annual required contribution (ARC), an amount that is actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) of the District’s plan over a period not to exceed thirty years. The current ARC rate is 19.6% in both Fiscal Year 2011 and 2010, respectively.

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Annual OPEB Cost and Net OPEB Obligation. For the year ended June 30, 2011 and 2010, the District’s annual OPEB cost (expense) of $3,067,000 and $3,823,011, was equal to the ARC plus the accrued interest on prior OPEB liabilities. Actual contributions were based on the actuarial projection for the year. The District’s net OPEB obligation as of and for the fiscal year June 30, 2011 and 2010 was as follows:

Net OPEB obligation as of June 30, 2009 $ 77,566 Annual required contribution $3,817,000 Interest accrued on OPEB obligation 6,011 Annual OPEB costs 3,823,011 Contributions made (3,900,577) Decrease in net OPEB obligation (77,566) Net OPEB obligation as of June 30, 2010 —- Annual required contribution

$3,067,000

Interest accrued on OPEB obligation —- Annual OPEB costs 3,067,000 Contributions made (3,067,000) Increase in net OPEB obligation —- Net OPEB obligation as of June 30, 2011 —-

The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to

the plan and the net OPEB obligation for the current fiscal year and each of the two preceding years are as follows:

Fiscal Year Annual Percentage of Net

Ended OPEB Annual OPEB OPEB June 30, Cost Cost Contributed Obligation/(Asset)

2009 $3,697,000 97.90% $77,566 2010 3,823,011 102.03% —- 2011 3,067,000 100.00% —-

Funded Status and Funding Progress. As of January 1, 2009, the most recent actuarial

valuation date, the plan was not funded. The actuarial accrued liability for benefits was $30,211,000, and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $30,211,000. The covered payroll (annual payroll of active employees covered by the plan) was $21,593,000, and the ratio of the UAAL to the covered payroll was 140%.

For the year ended June 30, 2010, and 2011, $2,520,904 and $1,502,000, respectively,

were contributed to an irrevocable trust established with CalPERS to temporarily hold funds in anticipation of unfunded future retiree benefits. The contribution amounts were not reflected in the actuarial calculation as of January 1, 2009.

Actuarial valuations of an ongoing plan involve estimates of the value of reported

amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

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Actuarial Methods and Assumptions. Projections of benefits for financial reporting

purposes are based on the substantive plan (the plan as understood by the District and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the District and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the January 1, 2009, actuarial valuation, the entry age level percentage of payroll

method was used. The actuarial assumptions included a 7.75% investment rate of return (net of administrative expenses), which is based upon the expected rate of return on the CalPERS CERBT; an annual healthcare cost trend rate of 9.7% initially, graded down by decrements to an ultimate rate of 4.5% percent after 7 years for the HMO plan and an annual healthcare cost trend rate of 10.5% initially, graded down by decrements to an ultimate rate of 4.5% after 7 years for the PPO plans, respectively; and a 4% dental cost trend rate. These rates include an inflation assumption of 3% and projected payroll increases of 3.25%. The UAAL is being amortized as a level percentage of payroll on a closed basis. The remaining amortization period at June 30, 2011, was 29 years.

Change in CalPERS Discount Rate. In a March 16, 2012, Circular Letter to all public

agency employers who participate in the CalPERS pension system, the CalPERS Board of Administration announced a reduction in the discount rate assumption, or the assumed rate of investment return for pension fund assets, from 7.75% to 7.50%. The significance of this decision is that the percentage of covered payroll that employers pay each year into the fund will increase by 1.0% to 2.0% for participants in the Miscellaneous plans, which is the plan applicable to District employees.

The discount rate is used by actuaries to calculate the present value of an employer’s

future annual pension obligations. The lower discount rate will increase this present value and require a larger employer contribution to address the unfunded portion of the liability. The unfunded liability is that amount by which the present value liability exceeds the value of pension fund assets. The increase in the required contribution rate will be phased in over two years starting in fiscal year 2013-14. The precise amount of the increase will depend, in part, on a valuation report due in Fall 2012. The same discount rate reduction was announced for OPEB actuarial calculations in 2011 and will be reflected in the District’s actuarial OPEB calculations for fiscal year 2013-14 and thereafter.

Long Term Pension and OPEB Plan Funding. The District plans to continue funding the

pension and OPEB plans by making the annual required contribution amounts determined by the annual actuarial valuations. To review the long term issue of the unfunded liabilities for both plans, the Board has created a Compensation Committee to review the pension, OPEB and other personnel benefits. It is anticipated the Compensation Committee will make recommendations to the Board in the spring of 2013.

CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES

Article XIIIA

Article XIIIA of the State Constitution provides that the maximum ad valorem tax on real property cannot exceed 1% of the “full cash value,” which is defined as “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under ‘full cash value’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a

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change in ownership has occurred after the 1975 assessment,” subject to exceptions for certain circumstances of transfer or reconstruction and except with respect to certain voter approved debt. The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% per year, or decreases in the consumer price index or comparable local data, or to reflect reduction in property value caused by damage, destruction or other factors.

Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special

taxes, while generally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. As amended, Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service on certain voter-approved general obligation bonds for the acquisition or improvement of real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State laws resulting in increased tax revenues.

Under California law, any fee which exceeds the reasonable cost of providing the service

for which the fee is charged is a “special tax,” which under Article XIIIA must be authorized by a two-thirds vote of the electorate. Accordingly, if a portion of the District’s water user rates were determined by a court to exceed the reasonable cost of providing service, the District would not be permitted to continue to collect that portion unless it were authorized to do so by a two-thirds majority of the votes cast in an election to authorize the collection of that portion of the rates or fees. The reasonable cost of providing water services has been determined by the State Controller to include depreciation and allowance for the cost of capital improvements. In addition, the California courts have determined that fees such as capacity fees will not be special taxes if they approximate the reasonable cost of constructing the water or wastewater capital improvements contemplated by the local agency imposing the fee. See “THE WATER SYSTEM—Water Rates, Fees and Charges.”

Article XIIIB

Article XIIIB of the California Constitution limits the annual appropriations of proceeds of taxes by State and local government entities to the amount of appropriations of the entity for the prior fiscal year, as adjusted for changes in the cost of living, changes in population and changes in services rendered by the entity. User fees and charges are considered proceeds of taxes only to the extent they exceed the reasonable costs incurred by a governmental entity in supplying the goods and services for which such fees and charges are imposed.

To the extent that assessments, fees and charges collected by the District are used to

pay the costs of maintaining and operating the Water System and payments due on the 2004 Installment Sale Agreement, the 2010 Installment Sale Agreement, the 2012 Installment Sale Agreement and future Parity Obligations, the District believes that such moneys are not subject to the annual appropriations limit of Article XIIIB.

Articles XIIIC and XIIID

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 contained a number of interrelated provisions affecting the ability of local governments, including the District, to levy and collect both existing and future taxes, assessments, fees and charges.

Section 1 of Article XIIIC requires majority voter approval for the imposition, extension

or increase of general taxes and Section 2 thereof requires two thirds voter approval for the imposition, extension or increase of special taxes. These voter approval requirements of Article

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XIIIC reduce the flexibility of the District to raise revenues by the levy of general or special taxes and, given such voter approval requirements, no assurance can be given that the District will be able to enact, impose, extend or increase any such taxes in the future to meet increased expenditure requirements.

Section 3 of Article XIIIC expressly extends the initiative power to give voters the power

to reduce or repeal local taxes, assessments, fees and charges, regardless of the date such taxes, assessments, fees or charges were imposed. Section 3 expands the initiative power to include reducing or repealing assessments, fees and charges, which had previously been considered administrative rather than legislative matters and therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of Article XIIIC to fees imposed after November 6, 1996, the effective date of Proposition 218, and absent other legal authority could result in the reduction in any existing taxes, assessments or fees and charges imposed prior to November 6, 1996.

“Fees” and “charges” are not expressly defined in Article XIIIC or in SB 919, the

Proposition 218 Omnibus Implementation Act enacted in 1997 to prescribe specific procedures and parameters for local jurisdictions in complying with Article XIIIC and Article XIIID (“SB 919”). However, on July 24, 2006, the California Supreme Court ruled in Bighorn-Desert View Water Agency v. Virjil (Kelley) (the “Bighorn Decision”) that charges for ongoing water delivery are property-related fees and charges within the meaning of Article XIIID and are also fees or charges within the meaning of Section 3 of Article XIIIC. The California Supreme Court held that such water service charges may, therefore, be reduced or repealed through a local voter initiative pursuant to Section 3 of Article XIIIC.

In the Bighorn Decision, the Supreme Court stated that nothing in Section 3 of Article

XIIIC authorizes initiative measures that impose voter-approval requirements for future increases in fees or charges for water delivery. The Supreme Court stated that water providers may determine rates and charges upon proper action of the governing body and that the governing body may increase a charge which was not affected by a prior initiative or impose an entirely new charge.

The Supreme Court further stated in the Bighorn Decision that it was not holding that

the initiative power is free of all limitations and was not determining whether the initiative power is subject to the statutory provision requiring that water service charges be set at a level that will pay debt service on bonded debt and operating expenses. Such initiative power could be subject to the limitations imposed on the impairment of contracts under the contract clause of the United States Constitution. Additionally, SB 919 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after [the effective date of Proposition 218] assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution. No assurance can be given that the voters of the District will not, in the future, approve initiatives which repeal, reduce or prohibit the future imposition or increase of assessments, fees or charges, including the District’s water service fees and charges, which are the source of Net Revenues pledged to the payment of debt service on the 2004 Installment Sale Agreement, the 2012 Installment Sale Agreement and any future Parity Obligations.

Notwithstanding the fact that water service charges may be subject to reduction or

repeal by voter initiative undertaken pursuant to Section 3 of Article XIIIC, the District has covenanted to levy and charge rates which meet the requirements of the 2004 Installment Sale and the 2012 Installment Sale Agreement in accordance with applicable law.

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Article XIIID defines a “fee” or “charge” as any levy other than an ad valorem tax, special tax, or assessment imposed upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property-related service. A “property-related service” is defined as “a public service having a direct relationship to a property ownership.” In the Bighorn Decision, the California Supreme Court held that a public water agency’s charges for ongoing water delivery are fees and charges within the meaning of Article XIIID. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, the local government’s ability to increase such fee or charge may be limited by a majority protest.

The District’s water charge is a commodity charge based on the volume of water

consumed. The District has ratified prior water rate measures and otherwise complied with the applicable notice and protest procedures of Article XIIID for its current water rates and charges. There has not been nor is there any pending challenge to any of the District’s water fees and charges approved since the effective date of Proposition 218. While the General Counsel to the District is of the opinion, based upon the judicial precedent in place during the period of these rate increases, that a reviewing court could reasonably uphold the validity of those increases, neither the District nor the General Counsel to the District can predict with certainty the outcome of a challenge to the increases in the District’s water rates and charges that were not approved in accordance with the notice and hearing requirements of Article XIIID if one were brought.

In addition, Article XIIID also includes a number of limitations applicable to existing

fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service; (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel; and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted.

Article XIIID establishes procedural requirements for the imposition of assessments,

which are defined as any charge upon real property for a special benefit conferred upon the real property. Standby charges are classified as assessments. Procedural requirements for assessments under Article XIIID include conducting a public hearing and mailed protest procedure, with notice to the record owner of each parcel subject to the assessment. The assessment may not be imposed if a majority of the ballots returned oppose the assessment, with each ballot weighted according to the proportional financial obligation of the affected parcel.

Existing, new or increased assessments are subject to the procedural provisions of

Proposition 218. However, certain assessments existing on November 6, 1996, are classified as exempt from the procedures and approval process of Article XIIID. Expressly exempt assessments include (i) an assessment imposed exclusively to finance capital costs or maintenance and operation expenses for sewers, water, flood control and drainage systems, but subsequent increases are subject to the procedures and approval requirements; (ii) an assessment imposed pursuant to a petition signed by all affected landowners (but subsequent increases are subject to the procedural and approval requirements); (iii) assessments, the proceeds of which are used exclusively to pay bonded indebtedness, where failure to pay would violate the U.S. Constitution’s prohibition against the impairment of contracts; and (iv)

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any assessment which has previously received approval by a majority vote of the voters (but subsequent increases are subject to the procedural and approval requirements).

On July 14, 2008, the California Supreme Court ruled in Silicon Valley Taxpayers

Association, Inc. v. Santa Clara County Open Space Authority (the “SCCOSA Decision”) that the Santa Clara County Open Space Authority’s county-wide assessment which was designed to fund the acquisition and maintenance of unspecified open-space lands in the County was invalid under Proposition 218. The Court held that deference should not be accorded to local agencies when Proposition 218 legislative acts are challenged. Under Proposition 218, courts must make an independent review of whether the assessment and formation of an assessment district meet the “special benefit” and proportionality requirements of Article XIIID. Further, while an assessment will not be invalidated because it confers a benefit upon the public at large, the “special benefit” must affect the assessed property in a distinct and particular manner not shared by other parcels and the public at large. Specifically, in the SCCOSA Decision the assessment did not meet the requirements of a “special benefit” and the assessment was not proportional to the special benefits conferred. Finally, the Court held that the Santa Clara Open Space Authority did not meet the proportionality requirement of Article XIIID because it did not specifically identify the improvements to be financed by the assessment and failed to sufficiently connect any costs of and benefits received from the open space assessment to the specific assessed parcels.

The District believes that current water fees and charges that are subject to Proposition

218 comply with the provisions thereof and that the District will continue to comply with the rate covenant set forth in the 2012 Installment Sale Agreement in conformity with the provisions of Article XIIID of the California State Constitution. To date, there have been no legal challenges to water rate increases implemented by the District pursuant to Proposition 218 or otherwise.

The interpretation and application of Proposition 218 will ultimately be determined by

the courts or through implementing legislation with respect to a number of the matters described above, and it is not possible at this time to predict with certainty the outcome of such determination or the nature or scope of any such legislation.

RISK FACTORS The following section describes certain special considerations and risk factors affecting the risk of

nonpayment or the security for the Bonds. The following discussion is not meant to be an exhaustive or definitive description of the risks associated with a purchase of any Bond and does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following special factors regarding the Bonds, together with all other information in this Official Statement in order to make an informed investment decision with respect to the Bonds. There can be no assurance that other risk factors are not or will not become material in the future. Net Revenues; Rate Covenant

Net Revenues are dependent upon the demand for water sales, which can be affected by population factors, more stringent drinking water regulations, or problems with the District’s treatment facilities. There can be no assurance that water service demand will be consistent with the levels contemplated in this Official Statement. A decrease in the demand for water could require an increase in rates or charges in order to comply with the rate covenant. The District’s ability to meet its rate covenant is dependent upon its capacity to increase rates without driving down demand to a level insufficient to meet debt service with respect to the 2004 Installment Payments, the 2010 Installment Payments, the 2012

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Installment Payments and any future Parity Obligations. Projections shown herein assume rate increases not yet approved. If rates are not increased, the debt service coverages could be lower than presented.

Limitations on Remedies Available to Owners

The ability of the District to comply with its covenants under the 2012 Installment Sale Agreement and to generate Net Revenues sufficient to pay the 2004 Installment Payments, the 2010 Installment Payments, the 2012 Installment Payments and any future Parity Obligations may be adversely affected by actions and events outside of the control of the District, and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges. Furthermore, any remedies available to the Owners upon the occurrence of an event of default under the 2012 Installment Sale Agreement are in many respects dependent upon judicial actions, which are often subject to discretion and delay and could prove both expensive and time consuming to obtain.

In addition to the limitations on Owner remedies contained in the 2004 Installment Sale

Agreement, the 2010 Installment Sale Agreement and the 2012 Installment Sale Agreement, the rights and obligations under the 2004 Installment Sale Agreement, the 2010 Installment Sale Agreement and the 2012 Installment Sale Agreement may be subject to the following: the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights.

Proposition 218

On November 5, 1996, the voters of the State approved Proposition 218, the so-called “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the State Constitution which affect the ability of local governments to levy and collect both existing and future taxes, assessments, fees and charges. Proposition 218, which became effective on November 6, 1996 (although application of some of its provisions was deferred until July 1, 1997) changes, among other things, the procedure for the imposition of new or increased fees or charges. Specifically, Article XIII C requires that all new local taxes be submitted to the electorate for approval before such taxes become effective. General taxes, imposed for general governmental purposes of the District, require a majority vote, and special taxes, imposed for specific purposes require a two-thirds vote. Under Proposition 218, the District can only continue to collect taxes that were imposed after January 1, 1995, if they are approved by the voters by November 6, 2002.

However, there can be no assurance that the voters of the District will not, in the future,

approve an initiative which attempts to reduce the District’s water rates or curtail their increase.

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Parity Obligations As described in “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS”

above, the 2012 Installment Sale Agreement permits the District to issue or incur Parity Obligations, its obligations under which would be payable on a parity with the 2012 Installment Payments. In the event of a decline in Pledged Net Revenues available to pay the 2012 Installment Payments, the existence of Parity Obligations could adversely affect the District’s ability to pay the 2012 Installment Payments.

District Expenses

There can be no assurance that expenses of the District will be consistent with the levels contemplated in this Official Statement. Changes in technology, changes in quality standards, increases in the cost of operation of the Water System or other expenses could require substantial increases in rates or charges in order to comply with the rate covenant in the 2012 Installment Sale Agreement. Such rate increases could drive down demand for water and related services or otherwise increase the possibility of nonpayment of the 2012 Installment Payments.

Future Land Use Regulations

Development within the District’s service area is contingent upon the future

construction and acquisition of a number of public improvements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, drainage facilities and street lighting, as well as the necessary local in-tract improvements. The installation of the necessary infrastructure improvements and the construction of the residential development are subject to the receipt of discretionary approvals from a number of public agencies concerning the layout and design of the development, the nature and extent of the improvements, land use, health and safety requirements and other matters. The failure to obtain any such approval could adversely affect the planned land development within the District.

In addition, there can be no assurance that 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.

Seismic Considerations

The District is located in close proximity to several seismically active earthquake faults. The District area has experienced earthquakes with a Richter magnitude of 6.0 or greater and with the epicenter being within the San Francisco Bay Area. If there were to be an occurrence of severe seismic activity in the area of the District, there could be an interruption in the service provided by the Water System, resulting in a temporary reduction in the amount of Net Revenues available to pay the 2012 Installment Payments and debt service on the Senior Obligations when due.

Loss of Tax-Exemption

As discussed under the caption “TAX MATTERS,” interest with respect to the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were delivered, as a result of future acts or omissions of the District in violation of its covenants in the 2012 Installment Sale Agreement. Should such an event of taxability occur, the Bonds are not subject to special redemption and will remain Outstanding until maturity or until redeemed under other provisions set forth in the Indenture.

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Environmental Regulation

The kind and degree of water treatment which is effected through the Water System is regulated, to a large extent, by the federal government and the State. Treatment standards set forth in federal and State law control the operations of the Water System and mandate the technology it must use. In the event that the federal government, acting through the Environmental Protection Agency, or the State, acting through the Department of Health Services, or additional federal or state legislation, should impose stricter water quality standards upon the Water System, the District’s expenses could increase accordingly and rates and charges would have to be increased to offset those expenses. It is not possible to predict the direction federal or State regulation will take with respect to drinking water quality standards, although it is likely that both will impose more stringent standards with attendant higher costs.

Secondary Market for Bonds

There can be no guarantee that there will be a secondary market for the Bonds or, if a

secondary market exists, that any 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, prices of issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price.

CONTINUING DISCLOSURE The ultimate security for the payments of principal of and interest on the Bonds comes

from the 2012 Installment Payments to be made by the District and, therefore, the District, as an obligated person within the meaning of the Rule (defined below), has agreed to undertake the disclosure responsibilities required by the Rule with respect to the Bonds by executing separate Continuing Disclosure Certificate. The Authority has not undertaken to provide any continuing disclosure required by the Rule.

The District has covenanted for the benefit of holders and Beneficial Owners of the

Bonds to provide certain financial information and operating data relating to the District (the “Annual Report”) by not later than nine months following the end of the District’s fiscal year (which date would be March 30 following the current end of the District’s fiscal year on June 30), commencing with the report for the 2011-12 fiscal year, and to provide notices of the occurrence of certain enumerated events. The Annual Report will be filed by the District with the Municipal Securities Rulemaking Board (the “MSRB”). The notices of material events will be filed by the District with the MSRB. The specific nature of the information to be made available and to be contained in the notices of material events is summarized below under the caption APPENDIX F—FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriters in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”). The District has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events although the District has not consistently filed notices of the downgrades of the ratings of municipal bond insurer that insured certain of the Senior Obligations.

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TAX MATTERS Federal tax law contains a number of requirements and restrictions which apply to the

Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The Authority and the District have covenanted to comply with all requirements that must be satisfied in order for the interest on the Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.

Subject to compliance by the Authority and the District with certain covenants, interest

on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations but Bond Counsel expresses no opinion as to whether interest on the Bonds is taken into account in computing adjusted current earnings, which is used as an adjustment in determining the federal alternative minimum tax for certain corporations. Failure to comply with certain of such covenants could cause interest on the Bonds to be includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.

In rendering its opinion, Bond Counsel will rely upon certifications of the District with

respect to certain material facts within their respective knowledge and upon the mathematical computation of the yield on the Bonds and the yield on certain investments by the Verification Agent. Bond Counsel’s opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result.

Ownership of the Bonds may result in collateral federal income tax consequences to

certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to applicability of any such collateral consequences.

The issue price (the “Issue Price”) for each maturity of the Bonds is the price at which a

substantial amount of such maturity of the Bonds is first sold to the public. The Issue Price of a maturity of the Bonds may be different from the prices set forth, or the price corresponding to the yields set forth, on the inside cover page hereof.

Owners of Bonds who dispose of Bonds prior to the stated maturity (whether by sale,

redemption or otherwise), purchase Bonds in the initial public offering, but at a price different from the Issue Price, or purchase Bonds subsequent to the initial public offering, should consult their own tax advisors.

If a Bond is purchased at any time for a price that is less than the Bond’s stated

redemption price at maturity (the “Reduced Issue Price”), the purchaser will be treated as having purchased a Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser’s election, as it accrues. Such treatment would apply to any purchaser who purchases a Bond for a price that is less than its Revised Issue Price. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their

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own tax advisors regarding the potential implications of market discount with respect to the Bonds.

An investor may purchase a Bond at a price in excess of its stated principal amount.

Such excess is characterized for federal income tax purposes as “bond premium” and must be amortized by an investor on a constant yield basis over the remaining term of the Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax-exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor’s basis in the Bond. Investors who purchase a Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Bond’s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Bond.

There are or may be pending in the Congress of the United States legislative proposals,

including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation.

The Internal Revenue Service (the “IRS”) has an ongoing program of auditing tax

exempt obligations to determine whether, in the view of the IRS, interest on such tax exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the IRS will commence an audit of the Bonds. If an audit is commenced, under current procedures the IRS may treat the Issuer as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome.

Payments of interest on, and proceeds of the sale, redemption or maturity of, tax

exempt obligations, including the Bonds, are in certain cases required to be reported to the IRS. Additionally, backup withholding may apply to any such payments to any Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Bond owner who is notified by the IRS of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes.

In the further opinion of Bond Counsel, interest on the Bonds is exempt from California

personal income taxes. Ownership of the Bonds may result in other state and local tax consequences to certain

taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding the applicability of any such state and local taxes.

The complete text of the final opinion that Bond Counsel expects to deliver upon the

issuance of the Bonds is set forth in APPENDIX E—FORM OF OPINION OF BOND COUNSEL.

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FINANCIAL ADVISOR The District has retained Sperry Capital Inc., Sausalito, California, as financial advisor

(the "Financial Advisor") in connection with the planning, sale and delivery of the Bonds. The fees of the Financial Advisor are contingent upon the delivery of the Bonds. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities.

LEGAL MATTERS The validity of the 2012 Installment Sale Agreement, the Indenture and the Bonds, and

certain other legal matters, are subject to the approving opinion of Quint & Thimmig LLP, Bond Counsel. A complete copy of the proposed form of Bond Counsel’s opinion is contained in APPENDIX E—FORM OF OPINION OF BOND COUNSEL. Quint & Thimmig LLP is also serving as disclosure counsel to the Authority in connection with the Bonds. Certain legal matters will also be passed upon for the Authority and the District by Mary R. Casey, Esq., General Counsel to the District, and for the Underwriters by Fulbright & Jaworski L.L.P., Los Angeles, California.

Payment of the fees and expenses of Bond Counsel and Disclosure Counsel is

contingent upon the execution and delivery of the Bonds.

ABSENCE OF LITIGATION

District The District is not aware of any litigation that is pending or threatened concerning the

validity of the 2012 Installment Sale Agreement. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the District’s ability to make the 2012 Installment Payments. There are a few lawsuits and claims pending against the District. In the opinion of the District, the aggregate amount of liability that the District might incur as a result of adverse decisions in cases not covered under the District’s various insurance programs would not materially adversely impact the District’s ability to make the 2012 Installment Payments.

Authority

The Authority is not aware of any litigation that is pending or threatened concerning the

validity of the Indenture or the 2012 Installment Sale Agreement or its issuance of the Bonds.

RATINGS Fitch Ratings (“Fitch”) has assigned the rating of “AA+” to the Bonds and Standard &

Poor’s Ratings Services, a Standard & Poor's Financial Services LLC business (“S&P”), has assigned the rating of “AA” to the Bonds. Such ratings reflect only the view of such organizations and any desired explanation of the significance of such ratings should be obtained from Fitch at One State Street Plaza, New York, NY 10004, and from S&P at 55 Water Street, New York, NY 10041, (212) 208-8000. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by Fitch

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and/or S&P if, in the judgment of Fitch and/or S&P, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price for the Bonds.

VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS

Upon delivery of the Bonds, the arithmetical accuracy of certain computations included in the schedules provided by the Underwriters on behalf of the District relating to the computation of (a) the adequacy of forecasted receipts of principal of and interest on the securities and cash to be held pursuant to the Escrow Agreement to pay, when due, the principal and interest with respect to the 2002 Bonds and the Refunded 2004 Certificates, and (b) the yields with respect to the Bonds and the securities to be deposited to the Escrow Fund, will be verified by the Verification Agent. Such verification of the accuracy of the mathematical computations shall be based solely upon information and assumptions supplied to such accountants by the Underwriters. Such accountants have restricted their procedures to examining the arithmetical accuracy of certain computations and have not make a study or evaluation of the information and assumptions on which the computations are based, and accordingly, have not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome.

UNDERWRITING The Bonds will be sold to RBC Capital Markets, LLC, E. J. De La Rosa & Co., Inc. and

Stifel, Nicolaus & Company, Incorporated, DBA Stone & Youngberg, a Division of Stifel Nicolaus (the “Underwriters”) under a bond purchase agreement among the Authority, the District and the Underwriters. The Underwriters have agreed to purchase the Bonds at a purchase price of $93,031,356.93, which amount represents the principal amount of the Bonds of $85,000,000, less $242,478.02, representing the Underwriters’ discount, plus $8,273,834.95, representing net original issue premium. The obligation of the Underwriters to make such purchase is subject to certain terms and conditions set forth in the bond purchase agreement relating to the Bonds.

The Underwriters may offer and sell the Bonds to certain dealers and others at prices

different from the prices stated on the inside cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriters.

E. J. De La Rosa & Co., Inc., one of the Underwriters of the Bonds, has entered into

separate agreements with UnionBanc Investment Services LLC, City National Securities, Inc. and Credit Suisse Securities USA LLC for retail distribution of certain municipal securities offerings, at the original issue prices. Pursuant to said agreements, if applicable to the Bonds, E. J. De La Rosa & Co., Inc. will share a portion of its underwriting compensation with respect to the Bonds with UnionBanc Investment Services LLC, City National Securities, Inc. or Credit Suisse Securities USA LLC.

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MISCELLANEOUS Insofar as any statements made in this Official Statement involve matters of opinion or

of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of the statements will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the owners of the Bonds.

The execution and delivery of this Official Statement have been duly authorized by the

Authority and the District.

MARIN MUNICIPAL WATER DISTRICT FINANCING AUTHORITY By /s/ Oreen Delgado

Treasurer MARIN MUNICIPAL WATER DISTRICT By /s/ Oreen Delgado

Finance Manager

THIS PAGE INTENTIONALLY LEFT BLANK

Appendix A

APPENDIX A

AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEARS ENDED JUNE 30, 2011, AND 2010

THIS PAGE INTENTIONALLY LEFT BLANK

Marin Municipal Water District

Corte Madera, California

Basic Financial Statements And Independent Auditors’ Report For the years ended June 30, 2011 and 2010

Marin Municipal Water District Basic Financial Statements For the years ended June 30, 2011 and 2010 Table of Contents

Page FINANCIAL SECTION Independent Auditors’ Report ................................................................................................................................. 1 Management’s Discussion and Analysis ................................................................................................................ 3 Basic Financial Statements: Statements of Net Assets ...................................................................................................................................... 10 Statements of Revenues, Expenses and Changes in Net Assets ..................................................................... 13 Statements of Cash Flows .................................................................................................................................... 14

Statements of Fiduciary Net Assets .................................................................................................................... 16 Notes to Basic Financial Statements ................................................................................................................... 18

Required Supplementary Information: Pension Plan – Schedule of Funding Progress .................................................................................................. 40 OPEB Plan – Schedule of Funding Progress ...................................................................................................... 40 Other Supplementary Information:

Statement of Changes in Fiduciary Assets and Liabilities .............................................................................. 42 Expenses by Function – Last Ten Fiscal Years, Including Projection for Fiscal 2012 ................................... 43 Revenue by Source – Last Ten Fiscal Years, Including Projection for Fiscal 2012 ....................................... 44 Computation of Debt Service Requirements ..................................................................................................... 45 Bonded Debt Service Coverage – Last Ten Fiscal Years .................................................................................. 46 Miscellaneous Statistics – June 30, 2011 ............................................................................................................. 47 Schedules of Cash and Investments ................................................................................................................... 48 Insurance in Force ................................................................................................................................................. 49 Schedules of Utility Plant and Accumulated Depreciation ............................................................................. 50 Fire Flow Parcel Fee Program .............................................................................................................................. 51 Cumulative Total of Fire Flow Parcel Fee Program ......................................................................................... 52 Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ............................................................................................................................ 57

C&LCaporicci & Larson, Inc.A Subsidiary of Marcum LLPCertifi ed Public Accountants

www.c-lcpa.com

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of the Marin Municipal Water District Corte Madera, California We have audited the accompanying financial statements of the enterprise fund and the fiduciary fund of Marin Municipal Water District (District), as of, and for the years ended, June 30, 2011 and 2010, which collectively comprise the District’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District’s management. Our responsibility is to express opinions on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the comptroller general of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 opinions.

In our opinion, the financial statements referred to above, present fairly, in all material respects, the respective financial positions of the enterprise fund and the fiduciary fund of the District, as of June 30, 2011 and 2010, and the respective changes in financial positions and, where applicable, cash flows thereof, for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated December 8, 2011 on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grants, agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance, and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governmental Auditing Standards and should be considered in assessing the results of our audit.

2

To the Board of Directors of the Marin Municipal Water District Corte Madera, California Page Two Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and the schedules of funding progress on pages 3 through 8 and 41 through 55 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District’s financial statements as a whole. The statement of changes in fiduciary assets and liabilities and other supplementary information, are presented for purposes of additional analysis and are not a required part of the financial statements. The statement of changes in fiduciary assets and liabilities is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The other supplementary information have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.

Caporicci & Larson, Inc. A Subsidiary of Marcum LLP Certified Public Accountants San Francisco, California December 8, 2011

3

Marin Municipal Water District Management Discussion and Analysis

June 30, 2011

As management of the Marin Municipal Water District (MMWD), we offer readers of MMWD’s financial statements this narrative overview and analysis of the financial statements of MMWD for the fiscal year ended June 30, 2011. We encourage readers to consider the information presented here and in our basic financial statements, which begin on page 9.

Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the MMWD’s basic financial statements. MMWD’s basic financial statements are for a single proprietary fund and include the financial statements, notes to those financial statements and other supplementary and statistical information. Proprietary Fund Financial Statements MMWD’s operations are accounted for as a single proprietary enterprise fund using the full accrual basis of accounting. In this regard, MMWD operations are accounted for in a manner similar to a private business enterprise. Within this one proprietary fund, MMWD segregates revenues and expenses for various purposes such as operations, debt service and capital improvements, but that segregation does not create separate proprietary funds.

Notes to the Financial Statements

The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. The notes to the financial statements can be found beginning on page 17 of this report.

Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain supplementary and statistical information. Supplementary and statistical information can be found beginning on page 43 of this report.

Financial Highlights • Total assets of MMWD exceeded total liabilities at the close of the fiscal year by $290 million (net

assets).

• Net assets as of June 30, 2011 increased by $3.4 million compared to fiscal 2010.

• Operating revenues increased by $3.1 million as compared to fiscal 2010.

• Capital assets net of accumulated depreciation at June 30, 2011 increased by $9.4 million as compared to June 30, 2010.

• Operating expenses decreased by $1.3 million as compared to fiscal 2010.

• MMWD experienced a net operating income of $0.05 million for the fiscal year ended June 30, 2011, compared to a net operating loss of $4.3 million for the previous fiscal year; an increase of $4.4 million in net operating income over the prior year.

4

Financial Condition The District’s net assets increased by $3.4 million during the fiscal year (see Table 1 below) due largely to net income from capital contributions during the year. Long-term liabilities decreased by $4.1 million due to the reduction in principal due on payment of debt service. The District’s investment in capital assets net of related debt represents the largest portion of net assets (94%). The amount invested in capital assets, net of related debt remained relatively flat, due to additions to capital assets being offset by depreciation and disposals. Table 1 FUND EQUITY

June 30, June 30, Increase/ % June 30, Increase/ %2011 2010 (Decrease) Change 2009 (Decrease) Change

Current and other assets 60,394,683$ 67,496,869$ (7,102,186)$ -10.52% 50,328,278$ 17,168,591$ 34.11%Capital assets 327,594,352 318,195,591 9,398,761 2.95% 305,865,614 12,329,977 4.03%

Total assets 387,989,035 385,692,460 2,296,575 0.60% 356,193,892 29,498,568 8.28%

Current and other liabilities 18,024,054 14,972,572 3,051,482 20.38% 18,103,862 (3,131,290) -17.30%Long-term liabilities, net 79,809,731 83,951,356 (4,141,625) -4.93% 53,130,195 30,821,161 58.01%

Total liabilities 97,833,785 98,923,928 (1,090,143) -1.10% 71,234,057 27,689,871 38.87%

Net assets:

Invested in capital assets, net of related debt 273,186,687 273,838,602 (651,915) -0.24% 243,945,226 29,893,376 12.25%Restricted 3,855,977 3,999,728 (143,751) -3.59% 6,845,171 (2,845,443) -41.57%Unrestricted 13,112,586 8,930,202 4,182,384 46.83% 34,169,438 (25,239,236) -73.86%

Total net assets 290,155,250$ 286,768,532$ 3,386,718$ 1.18% 284,959,835$ 1,808,697$ 0.63%

2011 vs. 2010 2010 vs. 2009

5

Table 2 Results of Operations /Statement of Revenues, Expenses and Changes in Fund Equity

June 30, June 30, Increase/ % June 30, Increase/ %2011 2010 (Decrease) Change 2009 (Decrease) Change

Revenues:Water sales and service charges 53,969,373$ 50,111,192$ 3,858,181$ 7.70% 50,802,203$ (691,011)$ -1.36%Connection charges 1,009,829 1,311,139 (301,310) -22.98% 2,748,427 (1,437,288) -52.29%Other operating revenue 1,300,208 1,727,948 (427,740) -24.75% 999,306 728,642 72.91%

Total operating revenue 56,279,410 53,150,279 3,129,131 5.89% 54,549,936 (1,399,657) -2.57%

Expenses:Personnel and related 30,042,858 29,857,987 184,871 0.62% 30,580,025 722,038 2.36%Electrical power 2,738,066 3,167,677 (429,611) -13.56% 3,230,402 62,725 1.94%Water purchased 4,960,870 5,617,017 (656,147) -11.68% 4,912,997 (704,020) -14.33%Other expenses 8,009,786 8,501,496 (491,710) -5.78% 10,063,061 1,561,565 15.52%Depreciation and amortization 10,480,987 10,350,791 130,196 1.26% 9,713,604 637,187 6.56%

Total operating expenses 56,232,567 57,494,968 1,262,401 2.20% 58,500,089 (1,005,121) -1.72%

Net operating income (loss) 46,843 (4,344,689) 4,391,532 101.08% (3,950,153) (394,536) -9.99%

Nonoperating revenue, net 2,042,902 2,405,640 (362,738) -15.08% 2,510,490 (104,850) -4.18%Less: Interest expense (3,887,448) (2,399,793) 1,487,655 61.99% (2,574,404) (174,611) -6.78%

Total nonoperating revenue/(expense) (1,844,546) 5,847 (1,850,393) -31646.88% (63,914) 69,761 109.15%

Income before capital contributions (1,797,703) (4,338,842) 2,541,139 58.57% (4,014,067) (324,775) -8.09%

Capital contributions 5,184,421 6,147,539 (963,118) -15.67% 6,073,906 73,633 1.21%

Net Income 3,386,718 1,808,697 1,578,021 87.25% 2,059,839 (251,142) -12.19%

Net Assets:Beginning of year 286,768,532 284,959,835 1,808,697 0.63% 282,899,996 2,059,839 0.73%

End of year 290,155,250$ 286,768,532$ 3,386,718$ 1.18% 284,959,835$ 1,808,697$ 0.63%

2010 vs. 20092011 vs. 2010

Total operating revenues of $56.3 million increased by $3.1 million over the prior year; operating expenses of $56.2 million decreased by $1.3 million from the prior year. As a result, net operating income increased $4.4 million over the prior year. The major changes in net income from the prior fiscal year were from the following:

• Water sales increased by $3.8 million due to an 11.5% rate increase effective March 1, 2010, and a 0.5% increase in consumption over the prior year.

• Operating expenses decreased by $1.3 million. The largest factors were decreases in electrical power costs ($0.4 million), water purchased ($0.7 million) and materials and other expenses ($0.5 million). Decreases in operating expenses were offset by a $0.2 million increase in personnel expenses and a $0.1 million increase in depreciation.

• Non-operating revenues, net, decreased by $1.9 million largely as a result of the additional $1.7 million in interest expense due on the 2010 Revenue Bond issue.

• Capital contributions, which include connection fees and the $75 per parcel Fire Flow Fee, decreased by $1.0 million, due largely to a $0.8 million decrease in capital-related connection fees and a $0.2 million decrease in capital grants.

6

Table 3 CAPITAL ASSETS, NET OF ACCUMULATED DEPRECIATION

June 30, June 30, Increase/ % June 30, Increase/ %2011 2010 (Decrease) Change 2009 (Decrease) Change

Plant, buildings and equipment, net 285,943,211$ 277,494,069$ 8,449,142$ 3.04% 268,538,167$ 8,955,902$ 3.34%Land 10,594,873 10,594,873 - 0.00% 10,048,109 546,764 5.44%Construction in progress 25,039,690 23,805,971 1,233,719 5.18% 20,694,560 3,111,411 15.03%

Sonoma County Water Rights, net 6,016,578 6,300,678 (284,100) -4.51% 6,584,778 (284,100) -4.31%Total 327,594,352$ 318,195,591$ 9,398,761$ 2.95% 305,865,614$ 12,329,977$ 4.03%

2010 vs. 20092011 vs. 2010

The District had $285.9 million (net of accumulated depreciation) invested in water utility capital assets as of June 30, 2011. This amount represents an increase of $8.4 million over the prior fiscal year. The investment in capital assets includes: land, buildings, improvements, water treatments plants, filter plants, water transmission and distribution mains, water storage facilities, reservoirs, pump stations, water reclamation facilities, machinery, equipment and water rights (see Table 3 above). Table 4 LONG TERM DEBT

June 30, June 30, Increase/ % June 30, Increase/ %2011 2010 (Decrease) Change 2009 (Decrease) Change

2002 Revenue Refunding Bonds 16,185,000$ 17,625,000$ (1,440,000)$ -8.17% 19,005,000$ (1,380,000)$ -7.26%2004 Certificates of Participation 25,995,000 28,110,000 (2,115,000) -7.52% 30,145,000 (2,035,000) -6.75%2010 Water Revenue Bonds 31,850,000 31,850,000 - 100.00% - 31,850,000 Clean Renewable Energy Bonds (CREBs) 1,467,000 1,589,250 (122,250) -7.69% 1,711,500 (122,250) -7.14%

Unamortized costs, net 1,896,453 1,880,887 15,566 0.83% (145,475) 2,026,362 -1392.93%77,393,453$ 81,055,137$ (3,661,684)$ -4.52% 50,716,025$ 30,339,112$ 59.82%

2010 vs. 20092011 vs. 2010

As of June 30, 2011 the District had total long-term debt outstanding of $77.4 million, net of unamortized costs, which is a decrease of $3.7 million over the prior year. On May 26, 2010, the Marin Municipal Water District Financing Authority (Authority) issued Water Revenue Bonds, 2010 Series A. These bonds were issued to finance the acquisition and construction of additions, betterments, extensions and improvements to the Marin Municipal Water District water system. The bonds are special limited obligations of the Authority payable from, and secured by, a pledge of revenues, consisting primarily of installment payments payable by the District under an installment sale agreement. The District is required by bond covenants to maintain principal, interest and reserve funds for each bond issue outstanding. In addition, the District is required to set rates and charges to yield revenues equal to at least 125% of the current annual debt service requirements of the outstanding revenue bonds and certificates of participation. The coverage of annual debt service for the year ended June 30, 2011 was 220%.

7

Looking Forward From its formation in 1912, as the State of California’s first Municipal Water District, until 1975, the Marin Municipal Water District (MMWD) relied on a local reservoir system to supply all of the water required by its customers. However, by 1975 water demand had increased to the point that a supplemental water supply source was required by the District. To obtain this supplemental water supply, the District entered into a contract with the Sonoma County Water Agency (SCWA). SCWA was formed in the 1950’s. It obtains its water supply primarily from the Russian River Project, a joint County-Federal project that includes two Federal owned reservoirs: Lakes Mendocino and Sonoma. While the SCWA water distribution system is paid for by water users, the local share of the cost of the two reservoirs is paid for by property taxes in Sonoma County. SCWA payments to the Federal Government, both principal and interest, will total about $211 million when the final payment is made in 2034. MMWD’s original contracts with SCWA were for “surplus” or “as-available” water supply. This means that water would be delivered to MMWD only after the needs of SCWA’s other customers were met. As those customers’ needs increased, the reliability of the water supply provided to MMWD declined. In response to this increased risk, MMWD negotiated changes to its contracts with SCWA to put MMWD water deliveries on a par with the terms offered SCWA regular customers. To effect this change in water delivery reliability, MMWD agreed to reimburse SCWA for a portion of the cost of the Federal reservoir projects being paid by Sonoma County property taxes. The District has made three such payments to SCWA; in 1984, 1996 and 2005. With the last, and final, 2005 payment of $6.3 million, all of MMWD’s contracted water supply from SCWA is now classed as “firm”, which is the highest available classification. This one-time payment increased the reliable supply of the MMWD water system by about 850 acre-feet per year. MMWD continues to work toward improving its water source-of-supply options, however, work towards building a desalination facility has been put on hold. Recent declines in consumption and the economy have made the building of such a facility a lower priority. Water conservation will continue to take the lead in the District’s efforts to keep consumption at sustainable levels. Effective July 1, 2004 the District became self-insured for workers’ compensation. In the four years prior to becoming self-insured for workers’ compensation insurance, the number and severity of workers’ compensation claims had been significantly reduced yet our rate for insurance had more than doubled. By self-insuring and setting aside adequate reserves to pay future claims, the District has protected itself from the spiraling premiums and has better control over its workers’ compensation program. An umbrella policy, with a self-insured retention (SIR) of $750,000 has been purchased to protect the District from catastrophic losses. Annual actuarial studies are done to provide the District with the rate to be charged internally. The District maintained a reserve of $2,434,000 in its Workers Compensation Fund at June 30, 2011. In the case of general liability insurance, the District has chosen to purchase a policy with a high SIR of $250,000. The risk associated with this change has proved to be small. The majority of claims paid by MMWD have fallen well below this SIR. The District continues to actively monitor claims. The “Claims Committee”, made up of senior District staff members, reviews and investigates all claims filed against the District. This approach has proven to be successful in minimizing the level of payment made on many of the claims.

8

As noted above, the District adopted, and is in compliance with, GASB 45. An actuarial assessment has been completed along with a recent update. The District established a trust, as required by GASB 45, with the California Public Employees Retirement System, and intends to annually fully fund the trust in the amounts to be determined by the actuarial study. In fiscal year 2010-11 the District deposited $3.1 million into this trust. MMWD realized an operating profit of $0.05 million for the year ended June 30, 2011, an increase of $4.4 million from the $4.3 million operating loss in fiscal 2010. MMWD had operating and capital reserves of $14.9 million at June 30, 2011. Request for Information This financial report is to provide interested parties with a general overview of the District’s finances. If you have any questions about this report or need additional information, you may submit a request in writing to: Finance Manager, Marin Municipal Water District, 220 Nellen Avenue, Corte Madera, CA 94925, or telephone (415) 945-1404.

BASIC FINANCIAL STATEMENTS

9

Marin Municipal Water DistrictStatements of Net AssetsEnterprise FundJune 30, 2011 and 2010

2011 2010

ASSETS

Current assets:Cash and investments 6,770,936$ 2,815,848$ Receivables:

Customer - billed (net of allowances for doubtful accounts of $303,010 and $265,327 in 2011 and 2010, respectively.) 4,418,580 4,076,961

Customer - unbilled 4,082,813 4,485,231 Interest and other (net of allowances for doubtful accounts of

$436,604 and $180,073 in 2011 and 2010, respectively.) 449,336 1,416,213 Materials and supplies 1,225,973 1,329,100 Prepaid expenses 498,481 478,958

Total current assets 17,446,119 14,602,311

Restricted and designated assets:Cash and investments:

Restricted 31,856,976 44,429,904 Designated 8,097,529 5,823,213 Designated 8,097,529 5,823,213 Deposits and advances 2,110,836 1,705,896

Total restricted and designated assets 42,065,341 51,959,013

Capital Assets:Land and land rights 10,594,873 10,594,873 Depreciable assets 458,869,392 440,436,214 Construction-in-progress 25,039,690 23,805,971

Total capital assets 494,503,955 474,837,058 Less accumulated depreciation 166,909,603 156,641,467

Total capital assets, net of accumulated depreciation 327,594,352 318,195,591

Deferred Charges 883,223 935,545

Total assets 387,989,035$ 385,692,460$

(Continued)

See accompanying Notes to Financial Statements.10

Marin Municipal Water DistrictStatement of Net AssetsEnterprise Fund, ContinuedJune 30, 2011 and 2010

2011 2010

LIABILITIES

Liabilities:Current liabilities:

Accounts payable 3,487,093$ 3,631,636$ Accrued payroll and payroll expenses 936,515 855,528 Compensated absences 3,906,355 2,997,099 Customer and other deposits 397,551 410,140

Total current liabilities 8,727,514 7,894,403

Current liabilities payable from restricted and designated assets:Long-term debt - due within one year 3,677,250 3,537,250 Accrued interest payable 1,885,193 1,185,789 Agency deposits payables 311,876 194,778 Customer advances for construction 2,156,221 1,375,739 Claims payable 1,266,000 784,613

Total current liabilities payable from restricted and designated assets 9,296,540 7,078,169

Long Term Liabilities

Claims payable- due in more than one year 1,760,774 1,529,038

Compensated absences- due in more than one year 655,504 1,367,181 Long-term debt - due in more than one year 77,393,453 81,055,137

Total long term liabilities 79,809,731 83,951,356

Total liabilities 97,833,785 98,923,928

NET ASSETSInvested in capital assets, net of related debt 273,186,687 273,838,602 Restricted for fire flow parcel fee program 3,855,977 3,999,728 Unrestricted 13,112,586 8,930,202

Total net assets 290,155,250$ 286,768,532$

(Concluded)

See accompanying Notes to Financial Statements.

11

Marin Municipal Water DistrictStatements of Revenues, Expenses and Changes in Net AssetsEnterprise FundFor the Years Ended June 30, 2011 and 2010

2011 2010

OPERATING REVENUES

Water sales and service charges 53,969,373$ 50,111,192$ Connection charges 1,009,829 1,311,139 Other operating revenue 1,300,208 1,727,948

Total operating revenues 56,279,410 53,150,279

OPERATING EXPENSES

Personnel services 30,042,858 29,857,987 Materials and supplies 2,062,044 2,195,723 Operations 2,042,623 2,220,017 Water conservation rebate program 94,634 742,202 Electrical power 2,738,066 3,167,677 Water purchased 4,960,870 5,617,017 Insurance, including claims 1,896,908 1,313,605 General and administrative 1,913,577 2,029,949 Depreciation and amortization 10,480,987 10,350,791

Total operating expenses 56,232,567 57,494,968

Operating income (loss) 46,843 (4,344,689)

NONOPERATING REVENUES (EXPENSES)

Federal, state and other grants 321,968 496,263 Investment income (loss) 75,634 (52,176) Interest income 237,886 440,625 Other income (Note 10) 1,407,414 1,520,928 Interest expense (3,887,448) (2,399,793)

Total nonoperating revenues (expenses), net (1,844,546) 5,847

Total operating income (loss) before capital contributions (1,797,703) (4,338,842)

Capital contributions (Note 10) 5,184,421 6,147,539

Net income 3,386,718 1,808,697

NET ASSETS:

Beginning of year 286,768,532 284,959,835

End of year 290,155,250$ 286,768,532$

See accompanying Notes to Financial Statements.

12

Marin Municipal Water DistrictStatements of Cash FlowsEnterprise FundFor the Years Ended June 30, 2011 and 2010

2011 2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Cash received from customers 55,027,412$ 50,832,353$ Other operating revenue 1,497,205 3,905,956 Cash payments to employees (29,764,292) (29,454,520) Cash payments to suppliers for goods and services (15,056,538) (16,665,675)

Net cash provided by operating activities 11,703,787 8,618,114

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES:

Rent and watershed permits and other income 1,462,614 1,468,892 Proceeds from insurance recovery - 50,000 Increase in deposits - North Bay Watershed Association 117,098 1,947 Federal, state and other grant revenues 1,089,708 496,263

Net cash provided by noncapital financing activities 2,669,420 2,017,102

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:

Proceeds from 2010 Water Revenue Bonds, net of originalProceeds from 2010 Water Revenue Bonds, net of originalpremium and bond issuance costs - 33,576,591

Principal payments on long-term debt (3,521,684) (4,619,585) Interest paid on long-term debt (3,188,044) (2,406,486) Acquisition and construction of capital assets (19,684,396) (24,362,980) Decrease in customer advances for construction 780,482 (605,881) Proceeds from fire flow parcel fee 4,483,662 4,467,136 Proceeds from the sale of assets - 514,350 Cash contributions in aid of construction 500,656 1,760,787

Net cash provided (used) by capital and related financing activities (20,629,324) 8,323,932

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of investment securities 7,027,820 23,782,530 Purchase of investment securities (6,990,000) (7,000,000) Interest received on investments 240,026 632,680

Net cash provided by investing activities 277,846 17,415,210

Net change in cash and cash equivalents (5,978,271) 36,374,358

CASH AND CASH EQUIVALENTS:

Beginning of year 47,563,878 11,189,520

End of year 41,585,607$ 47,563,878$

See accompanying Notes to Financial Statements. (0) (Continued)

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Marin Municipal Water DistrictStatements of Cash FlowsEnterprise Fund, ContinuedFor the Years Ended June 30, 2011 and 2010

2011 2010

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES

Operating income (loss) 46,843$ (4,344,689)$ Adjustments to reconcile operating income (loss) to net cash provided by

operating activities:Depreciation and amortization 10,480,987 10,350,791 (Increase) decrease in assets :

Receivables, net 257,796 1,586,780 Materials and supplies 103,127 183,625 Prepaid expenses (19,523) 237,946

Increase (decrease) in liabilities:Accounts payable (144,543) (51,892) Accrued payroll and payroll expenses 278,566 403,467 Claims payable 713,123 250,835 Customer deposits (12,589) 1,251

Net cash used in operating activities 11,703,787 8,618,114

RECONCILIATION OF CASH AND CASH EQUIVALENTS

Unrestricted 6,770,936 2,815,848 Unrestricted 6,770,936 2,815,848 Restricted 31,856,976 44,429,904 Designated 8,097,529 5,823,213 Deposits and advances 2,110,836 1,705,896

Total cash and investments 48,836,277 54,774,861

Less investments with original maturities in excess of three months (7,250,670) (7,210,983)

Cash and cash equivalents 41,585,607$ 47,563,878$

NON-CASH INVESTING, CAPITAL AND FINANCING ACTIVITIESIncrease (decrease) in fair value of investments 9,000 278,238 Amortization of deferred charges (52,322) (52,322)

See accompanying Notes to Financial Statements.

14

Marin Municipal Water DistrictStatements of Fiduciary Net AssetsAgency Fund

Wolfback Ridge Assessment District 2011 2010

ASSETS

Cash and investments 242,284$ 218,324$

Total assets 242,284$ 218,324$

LIABILITIES

Deposits and Advances 242,284$ 218,324$

Total liabilities 242,284$ 218,324$

See accompanying Notes to Basic Financial Statements.

June 30, 2011 and 2010

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NOTES TO FINANCIAL STATEMENTS

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Marin Municipal Water District Notes to Basic Financial Statements For the years ended June 30, 2011 and 2010

18

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Marin Municipal Water District (the “District”) was formed on April 25, 1912 as a public district under the provisions of the Municipal Water District Act of 1911 for the purpose of developing a domestic water supply for the central and southwestern areas of Marin County. The District is governed by a five-member Board of Directors who are elected for four-year alternating terms. A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: A. Reporting Entity

Generally accepted accounting principles of the United States of America require that these financial statements present the District (the primary government) and its component units. Component units generally are legally separate entities for which a primary government is financially accountable. Financial accountability ordinarily involves meeting both of the following criteria: the primary government is accountable for the potential component unit and is able to impose its will upon the potential component unit, or there is a possibility that the potential component unit may provide specific financial benefits or impose specific financial burdens on the primary government. The MMWD Financing Corporation ("Financing Corporation") is a blended component unit that is a separate government entity that was created in 2004. It is reported as if it was part of the primary government as the District Board of Directors, although acting in a different capacity, is the controlling authority. Accounting and administrative functions are performed by the District. The purpose of the Financing Corporation was to issue debt, acquire certain property pursuant to an installment agreement with the District and defease certain outstanding debt. In May 2004 the Financing Corporation issued the 2004 Certificates of Participation. The Financing Corporation does not issue separate financial statements. See Note 5 for additional information. In April 2010, the District formed the Marin Municipal Financing Authority (Financing Authority), a joint powers authority, with the California Municipal Financing Authority. The Authority is also reported as if it was part of the primary government as the District’s Board of Directors, although acting in a different capacity, is the controlling authority. Accounting and administrative functions are performed by the District. The purpose of the Financing Authority was to issue debt to acquire certain property pursuant to an installment agreement with the District. In May 2010 the Financing Authority issued the 2010 Series A, Water Revenue Bonds. The Financing Authority does not issue separate financial statements. See Note 5 for additional information. A fiduciary fund is used to account for resources held for the benefit of others outside the District. The District's fiduciary fund consists of the Wolfback Ridge Assessment District Agency Fund, for which the District is acting as an agent for the property owners and bondholders. Assets held by the District as an agent for the fiduciary fund are excluded from the District's balance sheet.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

19

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

B. Basis of Accounting and Measurement Focus

The District accounts for its activities as a proprietary fund. The financial statements are accounted for on a flow of economic resources measurement focus, using the accrual basis of accounting. Under this method all assets and liabilities associated with operations are included on the balance sheet, revenues are recorded as earned and expenses are recorded at the time liabilities are incurred. Grants and similar items are recognized as revenue as soon as all eligibility requirements are met. The accounting for fiduciary funds is much like that used for proprietary funds. The District has elected, under Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Activities That Use Proprietary Fund Accounting, to apply all applicable GASB pronouncements as well as any applicable pronouncements of the Financial Accounting Standards Board, the Accounting Principles Board, or any Accounting Research Bulletins issued on or before November 30, 1989, unless these pronouncements conflict with or contradict GASB pronouncements. The intent of the District is to establish water usage rates sufficient to provide for payment of general operations and maintenance expenses as well as required debt service. When both restricted and unrestricted resources are available for use, restricted resources are generally assumed to have been used first.

The District distinguishes operating revenues and expenses from non-operating items. Operating revenues include revenues derived from water sales and water related activities; operating expenses include all expenses applicable to the furnishing of these services. Nonoperating revenue and expenses include revenue and expenses not associated with the District's normal business of supplying water. Non-operating revenues and expenses include interest income and expense, gain and loss on disposition of property and equipment, grants, and other peripheral activities. Although capital contributions, as well as special and extraordinary items when there are any, are shown separately, technically they are subcategories of non-operating revenues and expenses.

B. Cash, Cash Equivalents and Investments

Investments are stated at fair value based on quoted market prices. For purposes of the statement of cash flows, the District considers all highly liquid investments (including restricted and designated assets) with original maturities of three months or less to be cash equivalents.

C. Materials and Supplies Materials and supplies are stated at the lower of average cost or market.

D. Capital Assets

The cost of purchased and self-constructed additions to utility plant and major replacements of property are capitalized with a capitalization threshold of $2,000. Cost includes materials, direct labor, transportation, and such indirect items as engineering, supervision, employee fringe benefits, and interest incurred during the construction period. Repairs, maintenance, and minor replacements of property are charged to expense. Contributed assets are capitalized at the developer's cost, which approximates fair value.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

20

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued E. Capital Assets, Continued

Depreciation is computed on the straight-line basis over the estimated useful lives of the various classes of assets as follows:

Buildings 20-40 years Dams and reservoirs 100 years Pumping plant 20-40 years Water treatment plant 30 years Transmission and distribution 40-75 years Vehicles 12 years Equipment 5-40 years

F. Bond Issuance Costs/Advance Refunding of Long-Term Debt

Bond issuance costs and original issue discounts/premiums are amortized over the lives of the related bonds. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight line method which does not signidicantly differ from the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges. Accounting gains or losses resulting from advance refunding of long-term debt is deferred in accordance with GASB Statement No. 23, Accounting and Financial Reporting for Refunding of Debt Reported by Proprietary Activities. Deferred amounts on bond refunding are amortized over the life of the remaining life of the old debt (had it not been refunded) or the life of the new debt, whichever is shorter.

G. Compensated Absences

Unused vacation may be accumulated and paid to a District employee at the time of termination from District employment in accordance with the current collective bargaining agreement. At the time of retirement, an employee will be paid out, in a lump sum, seventy-five percent of their accumulated sick leave balance, not to exceed 750 hours, based upon their current salary. Compensated absences are expensed in the fiscal year incurred.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

21

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

H. Customer Advances for Construction, Contributions in Aid of Construction and Connection Fees

Customer advances for construction include deposits which are restricted to fund new subdivisions, transmission lines, tank and storage facilities, and other specific assets, along with connection fees. Connection fees are assessed on new connections to recover the past and future capital costs of the District's water system. Upon completion of construction of specific assets, the District will record an amount equal to the actual construction costs of providing service as connection charge revenue and will record the portion relating to the recovery of past and future capital costs, other fees, and advances as contributions in aid of construction. Advances in excess of construction costs are refundable.

I. Net Assets

In the government-wide financial statements, net assets are classified in the following categories:

Invested in Capital Assets, Net of Related Debt – This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that is attributed to the acquisition, construction, or improvement of the capital assets. Restricted Net Assets – This amount is restricted by external creditors, grantors, contributors, laws or regulations of other governments. Unrestricted Net Assets – This amount is all net assets that do not meet the definition of “invested in capital assets, net of related debt” or “restricted net assets.”

J. Water Sales Revenue

Generally, customers are billed as the water meters are read on a bimonthly cyclical basis. Revenues related to water delivered through the fiscal year-end, but unbilled, are accrued.

K. Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management, at the date of the financial statements, to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities as well as the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

22

2. CASH AND INVESTMENTS The District pools its cash and investments for investment purposes. Certain cash and investments are segregated for specific purposes (see Note 3). Under the provisions of the District’s investment policy, and in accordance with California Government Code, the following investments are authorized:

MaximumMaximum Minimum Credit Percentage of

Authorized Investment Type Maturity Quality Portfolio

U.S. treasury Bonds/Notes/Bills 365 days N/A No limitU.S. Government Agency Obligation 5 years N/A No limitTime Certificates of Deposits 365 days AAA 20%Money Market Mutual Fund N/A AAAm 10%California Local Agency Investment N/A N/A No limitNegotiable Certificate of Deposit 180 days AA 20%Medium Term Corporate Notes 5 years A 30%Commercial Paper 180 days AAA 15%Bank's Acceptances 270 days AAA 40%Repurchase Agreements 90 days AAA 10%

Investments are stated at fair value. Included in investment income (loss) on the accompanying statement of activities and changes in net assets is the net change in the fair value of investments, which consists of realized gains or losses and the unrealized appreciation (depreciation) of those investments. Measurement of the fair value of investments is based upon quoted market prices, if available. The estimated fair value of investments that have no quoted market price is determined based on equivalent yields for such securities of for securities of comparable maturity, quality, and type as obtained from market makers.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

23

2. CASH AND INVESTMENTS, Continued

Investments made by the District are summarized below at June 30, 2011 and 2010:

2011 2010

Cash in banks 3,216,582$ 2,922,839$ U.S. Government Obligations 6,989,420 6,028,450 Corporate notes 261,250 1,178,750 Money Market 2,099,755 3,422,307 Reserve fund - 2002 Revenue Bonds, 2004 Certificates of Participation and 2010 Water Revenue Fund 8,228,273 9,136,823 Project fund - 2010 Water Revenue Fund 18,420,890 30,000,000 Local Agency Investment Fund 9,862,391 2,304,013

Total 49,078,561$ 54,993,182$

Cash and investments, unrestricted 6,770,936$ 2,815,848$ Cash and investments, restricted 31,856,976 44,429,904 Cash and investments, designated 8,097,529 5,823,213 Cash and investments, deposits and advances 2,110,836 1,705,896 Cash and investments - Agency Fund 242,284 218,324

Total 49,078,561$ 54,993,185$

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a depositor will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counter-party (e.g., broker-dealer) to a transaction, a depositor will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the District's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits, other than the following provisions for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governments units by pledging securities in an undivided collateral pool held by a depository regulated under state law. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

24

2. CASH AND INVESTMENTS, Continued The carrying amount of the District's deposits as of June 30, 2011 and 2010 was $3,216,582 and $2,922,839 respectively. The bank balance of deposits as of June 30, 2011 and 2010 was $3,863,481 and $3,033,548, of which $500,000 was covered by federal depository insurance. The difference between the carrying amount and the bank balance is primarily due to checks outstanding at June 30, 2011 and 2010. The remaining was uninsured and not collateralized in the District's name. However, as noted above, the financial institutions which hold these deposits are required by state statute to maintain collateral pools against all public deposits they hold. As a means to limiting its exposure to fair value losses arising from interest rates, the District's investment policy limits the District's investment portfolio to maturities of five years or less. Under the District's investment guidelines and state statute, the District is authorized to invest in certificates of deposit, U.S. government securities, the State Local Agency Investment Fund, and other investment pools, money market funds and commercial paper with a bond rating of "A" or better. As of June 30, 2011, one of the District’s investments on Medium Term Corporate Notes were in default even though the investment at time of purchase was rated in accordance with the investment policy. The investment in default has been recorded at fair market value of $261,250, while the cost basis of the investment was $982,320. Interest Rate Risk – Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. As a means of limiting exposure to fair value losses arising from rising interest rates, the District’s investment policy provides that final maturities of securities cannot exceed five years. Specific maturities of investments depend on liquidity needs. At June 30, 2011 and 2010, the District’s pooled cash and investments had the following maturities:

Maturity 2011 2010

Less than one year 85% 88%One to two years 0% 0%Two to five years 15% 12%

The District's investments at June 30, 2011 are summarized as follows:

12 Months 13 to 24 25 to 60 More thanInvestment Type Fair Value Or Less Months Month 60 Months

U. S. Government Agency Obligation 6,989,420$ -$ -$ 6,989,420$ -$ Corporate Notes 261,250 261,250 - - - State investment pool (LAIF) 9,862,391 9,862,391 - - - Money market 2,099,755 2,099,755 - - - Held by bond trustee:

Money market 26,649,163 26,649,163 - - -

Total 45,861,979$ 38,872,559$ -$ 6,989,420$ -$

Remaining Maturity (in Months)

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

25

2. CASH AND INVESTMENTS, Continued Credit Risk – This is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. It is measured by the assignment of a rating by a nationally recognized credit rating organization. Presented below are the actual ratings, as of year-end, for each investment type:

ExemptFrom

Investment Type Fair Value Disclosure Aa A In Default Not Rated

U. S. Government Agency Obligation 6,989,420$ 6,989,420$ -$ -$ -$ -$ Corporate Notes 261,250 - - - 261,250 - State investment pool (LAIF) 9,862,391 - - - - 9,862,391 Money market 2,099,755 - - - - 2,099,755 Held by bond trustee:

Money market 26,649,163 - - - - 26,649,163

Total 45,861,979$ 6,989,420$ -$ -$ 261,250$ 38,611,309$

Rating as of Year-End

The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429, under the oversight of the Treasurer of the State of California. The balance is available for withdrawal on demand. The District’s investments with LAIF at June 30, 2011 include a portion of the pool funds invested in Structured Notes and Asset-Backed Securities. These investments include the following:

Structured Notes are debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. Asset-Backed Securities, the bulk of which are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (such as Collateralized Mortgage Obligations) or credit card receivables.

As of June 30 2011, the District had $9,862,391 invested in LAIF, which had invested 5.01% of the pool investment funds in Structured Notes and Asset-Backed Securities. The District reports its investment in LAIF at the fair value amount provided by LAIF, which is the same as the value of the pool share. The fair value of LAIF was calculated by applying a factor of 1.001576470 to total investments held by LAIF.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

26

3. RESTRICTED AND DESIGNATED ASSETS The District, because of certain bond covenants and legal requirements, is required to establish and maintain prescribed amounts of resources (consisting of cash and investments) that can be used only for their specified purposes. A portion of the District's cash and investments have been internally designated for the acquisition or the construction of specific capital projects and future self insurance claims. These designations may be removed at the discretion of the Board. Restricted and designated cash and investments are as follows as of June 30:

2011 2010

Restricted cash and investments:2002 Revenue Bonds, 2004 Certificates of Participation and 2010 Revenue Bonds:

Principal and interest fund 6,145,742$ 7,145,320$ Reserve fund 3,122,491 3,090,078 Project fund 18,420,890 30,000,000

Agency deposits 311,876 194,778 Fire Flow Parcel Fee Program 3,855,977 3,999,728

Total restricted funds 31,856,976 44,429,904

Designated cash and investments:Capital projects 4,163,529 2,517,213 Liability claims 3,934,000 3,306,000

Total designated funds 8,097,529 5,823,213

Total restricted & designated cash and investments 39,954,505$ 50,253,117$

June 30,

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

27

4. CAPITAL ASSETS Capital assets consists of the following at June 30:

Balance Balance BalanceJuly 1, 2009 Additions Reductions July 1, 2010 Additions Reductions June 30, 2011

Capital assets not being depreciated, excluding construction in progress:

Land and land rights 10,048,109$ 546,764$ -$ 10,594,873$ -$ -$ 10,594,873$

Capital assets being depreciated: Sonoma County Water Rights 9,193,601 - - 9,193,601 - - 9,193,601

Buildings 17,165,185 2,350,829 - 19,516,014 1,148,803 - 20,664,817 Dams and reservoirs 85,269,192 3,757,145 88,222 88,938,115 2,205,461 8,250 91,135,326 Pumping plants 22,396,751 1,013,097 - 23,409,848 1,071,433 - 24,481,281 Water treatment plants 35,086,377 1,381,999 - 36,468,376 3,660,878 - 40,129,254 Transmission and distribution 224,562,490 9,778,128 - 234,340,618 10,380,276 145,265 244,575,629 Vehicles 6,813,743 203,229 249,064 6,767,908 49,610 56,147 6,761,371 Equipment 21,417,674 580,317 196,257 21,801,734 126,379 - 21,928,113

Total assets being depreciated 421,905,013 19,064,744 533,543 440,436,214 18,642,840 209,662 458,869,392

Total capital assets, excluding construction in progress 431,953,122 19,611,508 533,543 451,031,087 18,642,840 209,662 469,464,265

Construction in progress 20,694,560 25,173,320 22,061,909 23,805,971 19,717,675 18,483,956 25,039,690

Total capital assets 452,647,682 44,784,828 22,595,452 474,837,058 38,360,515 18,693,618 494,503,955

Less accumulated depreciation for: Sonoma County Water Rights 2,608,823 284,100 - 2,892,923 284,100 - 3,177,023

Buildings 6,889,397 794,430 - 7,683,827 845,525 - 8,529,352 Dams and reservoirs 24,206,015 1,355,771 60,781 25,501,005 1,391,254 5,799 26,886,460 Pumping plants 12,082,448 773,841 - 12,856,289 818,920 - 13,675,209 Water treatment plants 20,751,583 963,626 - 21,715,209 1,007,520 13,875 22,708,854 Transmission and distribution 60,309,877 4,290,799 - 64,600,676 4,523,573 85,937 69,038,312 Vehicles 4,127,748 514,459 250,340 4,391,867 449,334 57,815 4,783,386 Equipment 15,806,177 1,327,711 134,217 16,999,671 1,177,393 66,057 18,111,007

Total accumulated depreciation 146,782,068 10,304,737 445,338 156,641,467 10,497,619 229,483 166,909,603

Total capital assets, net 305,865,614$ 34,480,091$ 22,150,114$ 318,195,591$ 27,862,896$ 18,464,135$ 327,594,352$

20112010

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

28

4. CAPITAL ASSETS, Continued

Sonoma County Water Rights In January 1996, the District revised its agreement with the Sonoma County Water Agency (the "Agency") for the purchase of water during off-peak periods. The revised contract guarantees the District a source of water during drought years. For revisions to the agreement the District has paid $2,867,344, which has been capitalized, and is being amortized, over the life of the agreement of 18 years on a straight-line basis.

In June 2005, MMWD exercised an option within the agreement to convert 5,000 acre-feet of water from an "as available" basis to a "firm" basis of water supply from Sonoma County Water Agency for a one-time payment of $6,326,257. This amount is being amortized on a straight-line basis over the remaining term of the agreement of nine years, plus an additional 40 years which is the renewal term at the option of the District, as management believes it is likely the agreement will be renewed. 5. LONG-TERM DEBT Long-term debt consists of the following at June 30:

Issue Due Interest

Date Serially Rate 2011 2010

2002 Revenue Refunding Bonds 10/1/02 To 2023 2.50% - 5.00% 17,625,000$ 19,005,000$

2004 Certificates of Participation 4/1/04 To 2030 2.50% - 5.25% 28,110,000 30,145,000

2010 Water Revenue Bonds 5/1/10 To 2040 2.50% - 5.00% 31,850,000 31,850,000

Clean Renewable Energy Bonds 9/29/08 To 2023 Tax credit 1,589,250 1,711,500

Total 79,174,250 82,711,500

Deferred amount on refunding, net (1,740,006) (1,942,927)

Original issue premium/discount, net 3,636,459 3,823,814

Less Long-term debt, due within one year (3,677,250) (3,537,250)

Long-term debt - Due in more than one year 77,393,453$ 81,055,137$

Principal Amount

On October 1, 2002, the District issued $32,755,000 of 2002 Revenue Bonds for the purpose of refunding the $32,510,000 of outstanding 1993 Revenue Bonds. Interest payments are payable semi-annually on January 1 and July 1. The bonds mature through July 1, 2023, and bear interest at the rate of 5%. The Bonds are special obligations of the District payable from and secured by a pledge of the Net Revenues of Water systems. The net proceeds of $34,167,677 from these refunding bonds were transferred to a trustee and placed in an irrevocable trust to redeem the 1993 Revenue Bonds. These funds were invested in U.S. government securities to provide for the redemption price and interest through the call date. Accordingly, the 1993 Revenue Bonds were removed from the balance sheet as of June 30, 2003. The advanced refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2,597,631, offset by interest payable of $447,325 and resulting in a net amount of $2,150,306 that has been deferred in accordance with GASB Statement No. 23.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

29

5. LONG TERM DEBT, Continued On April 30, 2004, the District issued $40,165,000 of 2004 Certificates of Participation (COPs) for the purpose of refunding the $11,925,000 of outstanding 1994 Revenue Bonds, prepayment of the Federal Drought Loan and the State Reclamation Loan in the amounts of $2,592,146 and $2,528,101, respectively, financing capital improvements to the District's water system, funding a deposit to a reserve fund, and paying the costs of the financing. Interest payments are payable semi-annually on January 1 and July 1. The bonds mature through July 1, 2029, and bear interest at the rate of 5%. The COPs are limited obligations of the District payable from, and secured by, a pledge of the Net Revenues of Water systems. The refunding took advantage of lower interest rates which were available and resulted in reductions in debt service requirements over the life of the new debt. Proceeds of $11,869,114 from the COPs were transferred to a trustee and placed in an irrevocable trust to redeem the 1994 Revenue Bonds. These funds were invested in U.S. government securities to provide for the redemption price and interest through the call date. Accordingly, the 1994 Revenue Bonds were removed from the balance sheet as of June 30, 2004. Proceeds of approximately $25 million from the COPS were transferred to a trustee to fund capital improvements to the District's water system over the next three years. These funds were fully invested in a guaranteed investment contract. As of June 30, 2008 there were no funds remaining. The advanced refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $1,208,048 which has been deferred in accordance with GASB Statement No. 23. The deferred amounts on bond refundings are being amortized over the life of the new debt on a straight-line basis, and total amortization related to the above bond refundings for fiscal 2011 and 2010 was $202,921 each, which were included in interest expense. On September 29, 2008, the District issued Clean Renewable Energy Bonds (CREBs) for the installation of solar panels on the District's administration building and at its corporate yard. The CREBs were authorized by the Internal Revenue Service and are structured so that bondholders receive a federal income tax credit in lieu of interest. The amount of the tax credit is set by the U.S. Treasury department on a daily basis. The total principal amount of the CREBs issued for both projects was $1,956,000. The net proceeds of the two issues were $1,845,030, less original issue discount of $56,630 and issuance costs of $54,340. The debt service is paid annually over 15 years in the amount of $122,250, principal only. The issues mature on September 30, 2023. The installment payments are payable from the net revenue of the District. On May 26, 2010, the joint power authority, Marin Municipal Water District Financing Authority issued the 2010 Series A Water Revenues Bonds in the amount of $32,235,000 to fund the acquisition and construction of additions, betterments, extensions and improvements to the District’s municipal water system including, but not limited to: watershed improvement projects, water treatment and water quality projects, water distribution piping and related facility projects, water storage projects and computer and technology system projects. Interest payments are payable semi-annually on January 1 and July 1. The bonds mature through July 1, 2040, and bear interest at the rate of 5%. The Bonds are special limited obligations of the Financing Authority payable from and secured by a pledge of the Net Revenues of Water Systems.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

30

5. LONG-TERM DEBT, Continued The District is subject to certain debt covenants, the most restrictive of which requires the setting of rates and charges to yield net revenue equal to at least 125 percent of the current annual debt service requirement of the revenue bonds and other parity debt, as well as the establishment of certain principal, interest and reserve funds. The 2002 Revenue Bonds, 2004 COPS and 2010 Revenues Bonds are collateralized by a pledge of the District's net revenues of Water Systems, as defined in the Master Indenture. The total principal and interest remaining on the bonds is $127,071,540, payable through June, 2040. For FYE 10/11 principal and interest paid, and total net revenues of Water Systems received, were $7,350,093 and $11,012,321 respectively. For FYE 09/10 principal and interest paid, and total net revenues of Water Systems received, were $6,796,675 and $8,463,918 respectively. The District has entered into capital lease agreements to finance the acquisition of certain equipment. The capital leases have been paid off in full as of June 30, 2011. Changes in long-term obligations and debt for the fiscal years ended June 30, 2011, and 2010 are as follows:

Balance Balance Balance Due Within

J uly 1, 2009 Additio ns Reduc tio ns J uly 1, 2010 Additio ns Reduc tio ns J une 30, 2011 One Year

Bo nds payable :

2002 21,440,000$ -$ 2,435,000$ 19,005,000$ -$ 1,380,000$ 17,625,000$ 1,440,000$

2004 32,105,000 - 1,960,000 30,145,000 - 2,035,000 28,110,000 2,115,000

2010 - 31,850,000 - 31,850,000 - - 31,850,000 -

C lean Renewable Energy Bo nds (CREBs ) 1,833,750 - 122,250 1,711,500 - 122,250 1,589,250 122,250

Capita l leas e o bliga tio n 102,335 - 102,335 - - - - -

To ta l 55,481,085$ 31,850,000$ 4,619,585$ 82,711,500$ -$ 3,537,250$ 79,174,250$ 3,677,250$

20112010

The annual debt service requirements are as follows:

Fiscal Year CREBSEnding June 30, Principal Interest Principal Interest Principal Interest Principal

2012 1,440,000$ 792,838$ 2,115,000$ 1,345,700$ -$ 1,526,338$ 122,250$ 2013 1,485,000 747,107 1,895,000 1,261,313 - 1,526,338 122,250 2014 1,535,000 684,601 1,930,000 1,165,688 - 1,526,338 122,250 2015 1,615,000 605,851 2,040,000 1,066,438 - 1,526,338 122,250 2016 1,700,000 522,975 2,145,000 959,131 710,000 1,526,338 122,250

2017-2021 6,040,000 1,677,625 5,615,000 3,747,363 4,045,000 7,126,938 611,250 2022-2026 3,810,000 239,313 6,210,000 2,318,063 4,975,000 6,204,906 366,750 2027-2031 - - 6,160,000 634,750 6,235,000 4,936,500 - 2032-2036 - - - - 7,960,000 3,213,750 - 2037-2041 - - - - 7,925,000 1,014,750 -

Total 17,625,000$ 5,270,310$ 28,110,000$ 12,498,446$ 31,850,000$ 30,128,534$ 1,589,250$

2002 Revenue Bonds 2004 COP 2010 Revenue Bonds

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

31

5. LONG-TERM DEBT, Continued Non-District Obligation: During October 1996, the District issued the following debt, for which the District is acting as an agent for the property owners and bondholders; accordingly, unpaid principal balances on June 30, 2011 and 2010 are not included in the District's financial statements. During the fiscal years ended June 30, 2011 and 2010, bonds in the amounts of $25,000 and $95,000 respectively were repaid:

Issue Due Interest Authorized Outstanding OutstandingDate Serially Rates And Issued June 30, 2011 June 30, 2010

Limited obligation bonds:Wolfback Ridge Assessment District 10/3/96 9/2/25 4.75% - 6.50% 996,920$ 540,000$ 565,000$

6. DEFINED BENEFIT PENSION PLAN Plan Description: The District contributes to the California Public Employees Retirement System (CalPERS to provide defined retirement benefits for its employees. CalPERS is a multiple-employer public retirement system that acts as a common investment and administrative agency for participating public entities within the State of California. A menu of benefit provisions as well as other requirements are established by State statutes within the Public Employees' Retirement Law. The District selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through District ordinance. CalPERS issues a separate comprehensive annual financial report. Copies of the CalPERS annual financial report may be obtained from their offices at 400 “P” Street, Sacramento, California 95814. Funding Policy: Active plan members in the Plan are required to contribute 8% of their annual covered salary. The District is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. Beginning July 1, 1999, the District began paying 1.5% of the employee share of the retirement plan cost. Starting January 1, 2001, the District began paying an additional 1.5% bringing the District's commitment to the employee plan members' contribution up to a total of 3%. The District contributes the full 8% of the employee share of the contribution for the District's general manager and five division managers. Annual Pension Cost: For the fiscal years ended June 30, 2011 and 2010, the District contributed $3,873,838 and $3,835,150, respectively, to the employees' pension plan. The required contributions for the fiscal year ended June 30, 2011 were determined as part of the June 30, 2008 actuarial valuation using the entry age normal actuarial cost method with the contributions determined as a percent of pay. The actuarial assumptions included a 7.75% investment rate of return (net of administrative expenses), 3.25% to 14.45% projected salary increases that vary depending on age, duration and type of service, and a 3.0% cost-of-living adjustment. The actuarial value of the Plan assets was determined using a technique that smoothes the effect of short-term volatility in the market value of investments over a fifteen year amortization period. The payroll for District employees covered by the Plan were $22.3 million and $22.4 million for the years ended June 30, 2011 and 2010, which were 93% and 95% of the total District payroll of $24.0 million and $23.7 million, respectively.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

32

6. DEFINED BENEFIT PENSION PLAN, Continued

THREE-YEAR TREND INFORMATION FOR CalPERS

Annual Percentage ofPension APC Net Pension

Fiscal Year Cost (APC) Contributed Obligation

6/30/2009 3,711,610$ 100% -$ 6/30/2010 3,835,150 100% - 6/30/2011 3,873,838 100% -

Funded Status of Plan

Actuarial Actuarial Actuarial Unfunded Percentage of Valuation Value of Accrued (Overfunded) Funded Covered Covered

Date Assets Liability Liability Ratio Payroll Payroll

6/30/2010 127,387,127$ 160,834,354$ 33,447,227$ 79.2% 22,384,546$ 149.4%

7. DEFERRED COMPENSATION PLAN The District offers its employees a deferred compensation plan created in accordance with Internal Revenue Code (IRC) Section 457. The plan permits eligible employees to defer a portion of their salary until future years. The deferred compensation is not available to employees until retirement, termination, death or unforeseeable emergency. Plan assets are managed and invested by independent third party custodians. The assets are not subject to claims by creditors of the District and are not reflected in the accompanying financial statements. 8. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS In FYE 2009, the District implemented Governmental Accounting Standards Board Statements No. 45, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions by State and Local Governmental Employers (GASB 45). A. Plan Description

The District provides retiree medical insurance and dental benefits to eligible retirees and a dependent in accordance with various labor agreements. Medical insurance benefits are provided under the CalPERS health plan. Dental benefits are provided by a private insurance carrier.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

33

8. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS, Continued B. Eligibility

The District provides medical and dental benefits to employees if they retire from the District on or after age 50 (unless disabled), and are eligible for a CalPERS pension. The medical benefits cover the employee and their one dependent from retirement date for life. The employee and their one dependent receive dental coverage from retirement until the employee reaches age 65. Employees are not obligated to contribute unless plan costs exceed the District's maximum contribution. For health insurance, the District pays the cost for the health insurance premium up to the cost for the retiree plus one dependent. Medicare Supplemental insurance coverage is used when a plan participant reaches age 65. For dental coverage, the District pays the entire cost of the dental insurance until the retiree reaches age 65. The retiree at age 65 may elect to continue coverage for themselves plus a dependent at their own cost.

C. Funding Policy

The contribution requirement of plan members and the District are established and may be amended by agreement between the District and its collective bargaining units. The District must agree to make a defined monthly payment towards the cost of each retiree's medical and dental coverage. The required contribution is based on an amount established by the District annually. Effective January 1, 2011, the District's contribution rate for medical coverage was up to $568.99 and $1,137.98 per month for retiree and retiree plus one dependent, respectively. For dental coverage the annual contribution amount is up to $1,500 and $3,000 for retiree and retiree plus one dependent, respectively. Actual contributions by the District for each retiree for medical and dental benefits vary depending on medical plan coverage and actual dental costs. The District's contribution requirements for the plan provides for annual contributions authorized by the District's board of directors. The required contribution rate is based on the annual required contribution (ARC), an amount that is actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) of the District's plan over a period not to exceed thirty years. The ARC rate is 19.6% in both FYE 2011 and FYE 2010, respectively.

D. Annual OPEB Cost and Net OPEB Obligation For the years ended June 30, 2011 and 2010, the District's annual OPEB costs (expenses) of $3,067,000 and $3,823,011, was equal to the ARC plus the accrued interest on prior OPEB liabilities. Actual contributions were based on the actuarial projection for the year. The District's net OPEB obligations as of and for the fiscal year June 30, 2011 and 2010 were as follows:

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

34

8. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS, Continued

D. Annual OPEB Cost and Net OPEB Obligation, Continued

Net OPEB obligation as of June 30, 2009 77,566$

Annual required contribution 3,817,000$ Interest accrued on OPEB obligation 6,011 Annual OPEB costs 3,823,011 Contributions made (3,900,577)

Decrease in net OPEB obligation (77,566)

Net OPEB obligation as of June 30, 2010 -$

Annual required contribution 3,067,000$ Interest accrued on OPEB obligation - Annual OPEB costs 3,067,000 Contributions made (3,067,000)

Increase in net OPEB obligation -

Net OPEB obligation as of June 30, 2011 -$

The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for the current fiscal year and each of the two preceding years are as follows:

Percentage of Annual Annual OPEB Cost Net OPEB

Fiscal Year OPEB Cost Contributed Obligation/(Asset)

6/30/2009 3,697,000$ 97.90% 77,566$ 6/30/2010 3,823,011 102.03% - 6/30/2011 3,067,000 100.00% -

E. Funded Status and Funding Progress

As of January 1, 2009, the most recent actuarial valuation date, the plan was not funded. The actuarial accrued liability for benefits was $30,211,000, and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $30,211,000. The covered payroll (annual payroll of active employees covered by the plan) was $21,593,000, and the ratio of the UAAL to the covered payroll was 140%.

For the years ended June 30, 2010 and 2011, $2,520,904 and $1,502,800 respectively were contributed to an irrevocable trust established with CalPERS to temporarily hold funds in anticipation of unfunded future retiree benefits. The contribution amount was not reflected in the actuarial calculation as of January 1, 2009.

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

35

8. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS, Continued E. Funded Status and Funding Progress, Continued

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

F. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the District and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the District and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the January 1, 2009, actuarial valuation, the entry age level percentage of payroll method was used. The actuarial assumptions included a 7.75% investment rate of return, (net of administrative expenses), which is based upon the expected rate of return on the CalPERS CERBT; an annual healthcare cost trend rate of 9.7% initially, graded down by decrements to an ultimate rate of 4.5% percent after 7 years for the HMO plan, and an annual healthcare cost trend rate of 10.5% initially, graded down by decrements to an ultimate rate of 4.5% after 7 years for the PPO plans respectively; and a 4% dental cost trend rate. These rates include an inflation assumption of 3% and projected payroll increases of 3.25%. The UAAL is being amortized as a level percentage of payroll on a closed basis. The remaining amortization period at June 30, 2011 was 29 years.

9. OTHER INCOME/CAPITAL CONTRIBUTIONS Other income and capital contributions are comprised of the following for the years ending June 30:

2011 2010

Other income:Rents and royalties 1,462,614$ 1,490,121$ Insurance proceeds - 50,000 Net gain (loss) on sale of assets (55,200) (19,193)

Total other income 1,407,414$ 1,520,928$

Capital contributions:Fire flow parcel fee 4,483,662$ 4,467,136$ Federal, State and Other Grants 200,103 318,222 Contributions in aid of construction 500,656 1,362,181

Total capital contributions 5,184,421$ 6,147,539$

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

36

10. COMMITMENTS AND CONTINGENCIES Capital Budget The District's fiscal 2011 capital budget is approximately $20,406,424, of which approximately $1,637,000 is anticipated to be reimbursed to the District by contractors, users and grants. Construction Commitment As of June 30, 2011, the District has $2,420,227 of outstanding construction contracts and purchase orders. This is the amount that the District will be obligated to pay if all contractors perform per their contract. The District could substantially reduce the amount of this commitment by notifying contractors to suspend further work and paying for work completed to that point. Legal Matters The District is a defendant in a number of lawsuits and claims pending at June 30, 2011. Based on correspondence with the District's legal counsel, it is the opinion of District management that unfavorable outcomes are unlikely and that the settlement of such pending cases would not have a material adverse effect on the District's financial position. Accordingly, no provision for any liability that may result from adjudication has been made in the accompanying financial statements. Grants The District participates in several federal and state grant programs. These programs are subject to examination by the grantors and the amount, if any, of expenses which may be disallowed by the granting agency cannot be determined at this time. The District expects such amounts, if any, to be immaterial. Joint Power Agreement The District participates in a joint powers agreement through the Marin Emergency Radio Authority ("MERA") under an operating agreement dated February 1, 1999. MERA was created July 1, 1997 by an agreement between certain public agencies in Marin County to provide a public safety radio system to its members. The members have agreed to assign a portion of their revenues to make annual payments to MERA on a pro rata basis to cover the costs of debt financing and operating the system. The District's annual payments related to the debt financing and to fund operations are recorded as an expense. The future payments required for the fiscal years ending after June 30, 2011 are as follows:

2012 20,286$ 2013 20,311 2014 20,301 2015 20,306 2016 20,308

2017-2021 101,586

Total 203,098$

Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2011 and 2010

37

11. RISK MANAGEMENT The District is exposed to various risks of loss related to workers' compensation and general liability. It is the policy of the District not to purchase commercial insurance for risk of losses to which it is exposed for general and auto liability. Instead, District management believes it is more economical to manage this risk internally and set aside assets for claim settlements. However, the District carries excess liability insurance for losses in excess of $250,000, not to exceed $10,000,000 on a per occurrence basis. Settled claims have never exceeded the District's policy limits in any fiscal year. The District is self-insured for workers' compensation, and has purchased an umbrella policy to cover catastrophic losses. The policy has a self-insured retention of $750,000 per occurrence with a maximum limit of indemnity per occurrence of $25,000,000. Claim liabilities are recorded when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claim liabilities depend on such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claim liabilities does not necessarily result in an exact amount. Claim liabilities are reevaluated periodically to take into consideration recently settled claims, the frequency of claims, and other economic and social factors. These liabilities are the District's best estimate based on available information. Changes in the reported liabilities for the years ended June 30, 2011 and 2010 resulted from the following:

Workers Compensation

General Liabilities Total

Workers Compensation

General Liabilities Total

Balance at the beginning of year 1,702,000$ 611,651$ 2,313,651$ 1,308,000$ 754,816$ 2,062,816$ Current year claims and changes in estimate 1,153,480 850,821 2,004,301 482,723 271,481 754,204 Claims payments (421,480) (869,698) (1,291,178) (88,723) (414,646) (503,369)

Balance at the end of year 2,434,000$ 592,774$ 3,026,774$ 1,702,000$ 611,651$ 2,313,651$

Due within one year 706,000 560,000 1,266,000 200,157 584,456 784,613

2011 2010

12. COMPENSATED ABSENCES The District records a liability to recognize the financial effect of unused vacation and other compensated absences. Changes in the reported liabilities for the years ended June 30, 2011 and 2010 resulted from the following:

Balance Balance Balance Due Within

J uly 1, 2009 Additio ns Reduc tio ns J uly 1, 2010 Additio ns Reduc tio ns J une 30, 2011 One Year

Co mpens a ted Abs ences 4,015,680$ 3,397,011$ (3,048,411)$ 4,364,280$ 3,716,818$ (3,519,239)$ 4,561,859$ 3,906,355$

To ta l 4,015,680$ 3,397,011$ (3,048,411)$ 4,364,280$ 3,716,818$ (3,519,239)$ 4,561,859$ 3,906,355$

2010 2011

38

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39

REQUIRED SUPPLEMENTARY INFORMATION

40

1. PUBLIC EMPLOYEE RETIREMENT SYSTEMS SCHEDULE OF FUNDING PROGRESS

Funded Status of Plan

Actuarial Actuarial Actuarial Unfunded Percentage of Valuation Value of Accrued (Overfunded) Funded Covered Covered

Date Assets Liability Liability Ratio Payroll Payroll

6/30/2008 116,111,118$ 133,294,684$ 17,183,566$ 87.1% 19,339,207$ 88.9%6/30/2009 121,577,449 152,593,563 31,016,114 79.7% 21,528,551 144.1%6/30/2010 127,387,127 160,834,354 33,447,227 79.2% 22,384,546 149.4%

2. OTHER POSTEMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS

Funded Status of Plan

Entry Age Actuarial Liability as Actuarial Actuarial Actuarial Unfunded Percentage of Valuation Value of Accrued (Overfunded) Funded Covered Covered

Date Assets Liability Liability Ratio Payroll Payroll

1/1/2007 -$ 33,973,000$ 33,973,000$ 0.0% 18,850,000$ 180.2%1/1/2009 - 30,211,000 30,211,000 0.0% 21,593,000 139.9%

OTHER SUPPLEMENTARY INFORMATION

41

Marin Muncipal Water DistrictStatement of Changes in Fiduciary Assets and LiabilitiesAgency Fund

Balance BalanceJuly 1, 2010 Additions Deductions June 30, 2011

Wolfback Ridge Assessment District

Assets:Cash and investments 218,324$ 90,466$ 66,506$ 242,284$

Total assets 218,324$ 90,466$ 66,506$ 242,284$

Liabilities:Deposits and Advances 218,324$ 90,466$ 66,506$ 242,284$

Total liabilities 218,324$ 90,466$ 66,506$ 242,284$

For the year ended June 30, 2011

42

Marin Municipal Water District

EXPENSES BY FUNCTION

Last ten fiscal years, including projection for fiscal 2012

(2) (2)Year Environmental Facilities and

Ended (1) Finance and and Engineering WatershedJune 30, Total Administration Services Management

2002 53,970,144$ 18,421,051 25,786,004 9,763,089 2003 60,887,055$ 19,043,496 31,540,601 10,302,958 2004 63,645,595$ 24,260,480 29,074,189 10,310,926 2005 (4) 78,382,877$ 30,324,761 36,132,970 11,925,146 2006 77,595,405$ 26,236,245 37,511,208 13,847,952 2007 78,190,795$ 27,958,678 36,553,615 13,678,502 2008 79,006,918$ 29,083,716 36,896,489 13,026,713 2009 89,197,957$ 31,831,289 42,462,362 14,904,307 2010 87,069,705$ 34,835,637 39,085,421 13,148,647 2011 83 522 815$ 35 644 100 36 672 491 11 206 2242011 83,522,815$ 35,644,100 36,672,491 11,206,224 2012 (3) 82,310,411$ 42,758,207 27,352,992 12,199,212

(1) Includes capitalized expenditures.(2) Effective FY 1998, three divisions (i.e., Engineering, Operations and Maintenance, and Environmental Resources) were

restructured to form the Environmental and Engineering Services and the Facilities and Watershed Management divisions,respectively.

(3) Proposed budget.(4) Includes $6.3 million for purchase of firm water supply for 850 acre feet from Sonoma County Water Agency.

Schedule 143

Marin Municipal Water District

REVENUE BY FUNCTION

Last ten fiscal years, including projection for fiscal 2012

YearEnded Service Connection Interest Fire Flow

June 30, Total Water Sales Charge Charges Income Parcel Fee Other

2002 $56,591,758 33,712,484 7,125,629 598,987 3,244,267 4,492,279 7,461,862 a2003 $51,170,610 31,921,484 7,142,859 756,064 2,748,008 4,501,590 4,154,227 2004 $54,692,877 37,468,439 7,274,608 1,064,407 2,393,779 4,469,177 2,105,432 2005 $53,827,306 35,106,514 7,432,686 1,183,221 3,154,354 4,493,532 2,457,502 2006 $54,210,388 35,288,474 7,463,215 1,384,544 2,698,064 4,501,377 2,941,692 2007 $62,052,236 39,462,839 7,559,438 2,490,105 2,488,169 4,507,996 5,543,689 2008 $63,196,220 41,305,864 7,845,377 1,371,798 2,134,914 4,510,433 6,027,834 2009 $63,134,332 42,628,226 8,173,977 2,748,427 1,380,137 4,502,860 3,700,705 2010 $61,703,446 41,557,677 8,553,515 1,311,139 440,623 4,467,137 5,373,355 2011 $63,506,733 45,101,916 8,867,457 1,009,829 237,886 4,483,662 3,805,983 2012 $65,083,164 46,028,455 9,350,445 1,350,000 250,000 4,500,000 3,604,264 b $ , , , , , , , , , , , , ,

a Includes $1,850,606 for the sale of the facilities and rights to Hamilton Air Force Base to North Marin Water Districtb Proposed budget

Schedule 2 44

Marin Municipal Water District

COMPUTATION OF DEBT SERVICE REQUIREMENTS

June 30, 2011

The District covenants state that so long as the Revenue Bonds are outstanding, it will fix connection charges and water rates so as to provide annual revenues at least sufficient to pay the necessary expenses of maintaining andoperating the system and not less than 125% of the annual debt service due on the Revenue Bonds, and otherparity debt.

Debit ServiceCoverage

Net revenues___________________________________ 12,495,099$ = 220%

Debt service requirements 5,675,363$ (1)

(1)2002 Water Revenue Refunding Bonds and 2004 Certificates of Participation

Schedule 345

2002 2003 2004 2005 2006 (2) 2007 (2) 2008 (2) 2009 (2) 2010 (2) 2011 (2)

Marin Municipal Water District

BONDED DEBT SERVICE COVERAGE LAST TEN FISCAL YEARS

Year ended June 30,

Schedule 4

Operating revenueWater sales, connection charges

and other operating revenue 43,664,071$ 40,158,854$ 46,519,638$ 44,328,303$ 46,626,751$ 53,460,011$ 54,700,337$ 56,240,991 55,167,470 58,008,792 (2)

Operating expenseSource of supply 3,749,595 3,963,501 3,914,787 4,003,234 4,122,824 4,403,617 4,644,304 4,912,997 5,617,017 4,960,870 Other operating expense (1) 25,544,190 27,383,719 30,832,211 33,751,565 36,163,685 36,983,474 38,421,370 44,202,172 41,527,160 40,790,710 (2)

Total operating expense 29,293,785 31,347,220 34,746,998 37,754,799 40,286,509 41,387,091 43,065,674 49,115,168 47,144,177 45,751,580

I t t i ti f d 3 244 267 2 748 008 2 393 779 3 154 354 2 698 064 2 488 169 2 122 526 1 380 137 440 625 237 886Interest income on operating funds 3,244,267 2,748,008 2,393,779 3,154,354 2,698,064 2,488,169 2,122,526 1,380,137 440,625 237,886

Net operating income available forbonded debt service 17,614,553$ 11,559,643$ 14,166,419$ 9,727,858$ 9,038,306$ 14,561,088$ 13,757,189$ 8,505,959$ 8,463,918$ 12,495,099$

Actual annual bonded debt service 4,945,669$ 4,843,998$ 5,295,968$ 5,318,943$ 6,794,163$ 6,810,325$ 6,804,075$ 6,808,750$ 6,796,675$ 5,675,363$

Coverage factor 3.56 2.39 2.67 1.83 1.33 2.14 2.02 1.25 1.25 2.20

(1) Excludes depreciation and interest.

(2) In fiscal 2006, 2007and 2008, operating revenue includes grant and rent/ lease revenue. Operating expenses exclude amortization expense and research and development expenses.

Schedule 446

Marin Municipal Water District

MISCELLANEOUS STATISTICS

June 30, 2011

Service AreaSquare miles 147Population 191,000

Water SupplyWatershed lands (acres) 21,250 Number of storage reservoirs 7 Total reservoir storage capacity in acre-feet 79,566

In millions of gallons 29,927 Average yearly rainfall in inches at Lake Lagunitas 52 Average yearly runoff, less losses *in acre-feet 61,415

In millions of gallons 20,012 Water imported from Russian River (average annual, acre-feet) 7,700 Operational yield (acre-feet) ** 28,500

Water UseService connections (active) 61,266

Residential 55,769 Other 5,497

Maximum annual use (1987) in acre-feet 33,100 In millions of gallons 10,785 Average annual use from fiscal year 2001-2011 in acre-feet 29,200

In millions of gallons 9,500

FinanceBudget 2011/12 fiscal year revenues(not including Fire Flow) 60,583,164$ Budget 2011/12 fiscal year disbursements(not including Fire Flow)

Operations 59,191,396$ Debt service 7,212,591 Capital purchases and projects 15,906,424

Total budgeted 2011/12 fiscal year disbursements 82,310,411$

Utility plant - net book value 302,554,662$

FacilitiesMiles of pipeline 889 Number of storage tanks 124 Total tank storage capacity (millions of gallons) 82 Number of pump stations 90 Number of potable water treatment plants 3 Maximum daily treatment plant capacity (millions of gallons) 59 Average daily treatment plant production (millions of gallons) 25

Recycled Water FacilitiesMiles of pipeline 24 Number of storage tanks 3 Total tank storage capacity (millions of gallons) 1.9 Number of pump stations 5 Number of potable water treatment plants 1 Maximum daily treatment plant capacity (millions of gallons) 2

* Due to evaporation ** Amount of water that can be supplied in all but the driest years.

Schedule 547

Marin Municipal Water District

SCHEDULE OF CASH AND INVESTMENTS

Schedule of Cash and Investments

June 30, 2011 June 30, 2010

Cash held by DistrictCash and investments 12,325,627$ 13,310,732$ Cash-North Bay Watershed Association 241,380 241,614 Deposits in pooled investment funds 9,862,391 2,304,016

Total 22,429,398 15,856,362

Investments held by othersFiscal agents (includes government securities) 26,649,163 39,136,823

Total cash and investments 49,078,561$ 54,993,185$

Distribution of cash and investmentsGeneral operations 6,770,936$ 2,815,848$ Liability claims 1,500,000 1,500,000 Bond reserve 8,228,273 9,136,823 2010 Revenue Bond construction fund 18,420,890 30,000,000 Bond debt 1,039,960 1,098,575 Capital projects 4,163,529 2,517,213 Deposits and advances 2,110,836 1,705,896 Agency Fund - Wolfback Ridge Assessment District 242,284 218,324 Workers Compensation Self Insurance Fund 2,434,000 1,806,000 North Bay Watershed Assocation 115,876 187,778 Integrated Regional Water Management Plan 196,000 7,000 Fire Flow 3,855,977 3,999,728

Total cash and investments 49,078,561$ 54,993,185$

Schedule 648

Marin Municipal Water District

INSURANCE IN FORCE

June 30, 2011

Types of Coverage Coverage Limits

1. General and Automobile Liability (excess coverage beginning above$100,000 to $5,000,000 per occurrence) Self-insured to $250,000

2. Property - buildings, facilities and contents covered under "all risk" policy for losses from fire, lightning, theft, vandalism, etc. (Blanket Limit) 100,000,000$

3. Boiler and Machinery - designated locations 100,000,000$

4. Blanket Dishonesty Bond 1,000,000$

5. Worker's Compensation Self Insured to $750,000

6 Excess Liability including E&O and Employment Practices $10,000,000 ea. Occurrence

Schedule 749

Marin Municipal Water District

SCHEDULE OF UTILITY PLANT AND ACCUMULATED DEPRECIATION

Year ended June 30, 2011

Utility Plant (excluding construction-in-progress)

Balance Disposals and BalanceDescription June 30, 2010 Additions Adjustments June 30, 2011

Sonoma County Water Rights 9,193,601$ -$ -$ 9,193,601$ Land 10,594,873 - - 10,594,873 Buildings 19,516,014 1,148,803 - 20,664,817 Dams and reservoirs 88,938,115 2,205,461 (8,250) 91,135,326 Pumping plants 23,409,848 1,071,433 - 24,481,281 Water treatment plants 36,468,376 4,077,142 (416,264) 40,129,254 Transmission and distribution lines 234,340,618 10,380,276 (145,265) 244,575,629 Vehicles 6,767,908 49,610 (56,147) 6,761,371 Equipment 21,801,734 124,275 2,104 21,928,113

Total Plant-In-Service 451,031,087$ 19,057,000$ (623,822)$ 469,464,265$

Accumulated Depreciation

Balance Disposals and Balance Description June 30, 2010 Depreciation Adjustments June 30, 2011

Schedule 8

Sonoma County Water Rights 2,892,923$ 284,100$ -$ 3,177,023 Buildings - Accum Dep 7,683,827 780,439 65,086 8,529,352 Dams and reservoirs - Accum Dep 25,501,005 1,391,254 (5,799) 26,886,460 Pumping plants - Accum Dep 12,856,289 818,920 - 13,675,209 Water treatment plants - Accum Dep 21,715,209 993,645 (1) 22,708,854 Trans and Dist lines - Accum Dep 64,600,676 4,519,705 (82,069) 69,038,312 Vehicles - Accum Dep 4,391,867 449,334 (57,815) 4,783,386 Equipment - Accum Dep 16,999,671 1,177,393 (66,057) 18,111,007

Accumulated Depreciation 156,641,467$ 10,414,790$ (146,655)$ 166,909,603$

Schedule 850

Marin Municipal Water District

FIRE FLOW PROGRAM

Year ended June 30, 2011

Fire Flow MMWDParcel Contributions

Fee Program to Fire Flow *

Balance as of July 1, 2010 3,999,728$ 189,225$

RevenueParcel fee 4,483,662 - Interest income 18,235 - Marin Municipal Water District contribution - 750,000

Total Revenue 4,501,897 750,000

ExpensesPersonnel 1,150,107 109,740 Materials and supplies 574,036 35,906 General and administrative 2,426 949 Operations 85,374 5,357 Construction contracts 2,753,118 156,716 Professional fees 80,587 3,603

Total Expense 4,645,648 312,271

Balance at June 30, 2011 3,855,977$ 626,954$

* The Fire Flow Parcel Fee Program is funded by a $75 per parcel fee charged and collected bythe Marin County Tax Collector. The District's annual contribution to the Fire Flow Programis $750,000. The District's annual contribution comes in the form of pipelines and otherfacilities being replaced in accordance with the requirements of the Fire Flow Master Plan,thus alleviating the need to fund those projects from the parcel fee.

Note - The Kennedy Jenks report in the amount of $540,000 remains a debt of the Fire Flow Parcel Fee Program and may be reimbursed to the District or may be used in future years to offset theDistrict's contribution to the program.

Schedule 951

Marin Municipal Water DistrictCUMULATIVE TOTAL OF FIRE FLOW PROGRAM

MMWD Contributions to Fire Flow

Project 1996-2006 2007 2008 2009 2010 2011 Total2006-2007 San Rafael Pipeline Replacement -$ 25,163$ 277,693$ 9,939$ 13$ 953$ 313,761$ 2010-2011 San Rafael Pipeline Replacement 92,752 92,752 Almonte Blvd Transmission Line Replacement 98,512 987,665 12,524 - 1,628 1,100,329 Alvina and Oak Avenue, Pipeline Replacement, San Rafael 42,995 - - - 42,995 Bret Harte Heights Pipeline Replacement, San Rafael 165,496 - - - 165,496 Cascade Canyon Phase I Pipeline Replacement, Fairfax 376,193 - - - 376,193 Clark Street Pipeline Replacement, San Rafael 65,811 - - - 65,811 Crown, Upland and S. Ridgewood Road, Kentfield 311,038 - - - 311,038 Currey and Platt Avenue Pipeline Replacement, Sausalito 128,091 - - - 128,091 Fairfax Pipeline Replacement - 20,218 4,461 14,112 187,732 - 226,523 Fairfax Pipeline Replacement 523,784 - - - 523,784 Fire Flow Election and Hearing 89,782 - - - 89,782 Floribel and Allyn Ave Pipeline Replacement, San Anselmo 1,997 124,560 3,522 2,721 132,800 Glenwood Forrest Tank Replacement 371,785 20,525 392,310 Hillside Avenue Pipeline Replacement, Mill Valley 254,617 - - - 254,617 Kentfield Pipeline Replacement 77,591 2,276 390 20 2,039 82,316 Larkspur Pipeline Replacement 434,957 - - - 434,957 Lone Tree (Lapachet) Tank Removal, Mill Valley 449,297 - - - 449,297 Marin Pipeline Rehabilitation 122,017 - - - 122,017 Marina Vista/Sunrise, Larkspur 38,973 - - - 38,973

Marion Avenue Pipeline Replacement, Sausalito 81,313 - - - 81,313 Mill Valley & Sausalito 588,789 16,600 - - 3,306 - 608,695 p p yand San Rafael 67,739 - - - 67,739 Nevada St Pipeline Replacement, Sausalito 19,959 45,001 64,960 Northern Avenue Pipeline Replacement, Tam Valley 192,261 - - - 192,261 Ross Pipeline Replacement Project - - 19,643 63,501 1,329 84,473 Ross/Sausalito Transmission Line 433,883 - - - 433,883 Ross/Sausalito Pipeline Relocation- Edna 48,904 48,904 San Anselmo Pipeline Replacement 345,969 170 - 31 346,170 San Anselmo Pipeline Replacement 40,170 352,324 8,929 382 401,805 San Rafael Pipeline Replacement 295,195 75,307 270 818 6,031 - 377,621 San Rafael Pipeline Replacement 490,507 - - - 490,507 San Rafael Pipeline Replacement 17,724 144,141 161,865 Sausalito & Corte Madera Pipeline Replacement 441 59,843 93,377 4,261 346 158,268

South Pipeline Replacement - Tiburon, Mill Valley, and Sausalito 10,655 - - - - - 10,655 Tamalpais Avenue Pipeline Replacement, Mill Valley 638 - - - - - 638 Treanor Avenue, San Rafael 41,000 - - - - - 41,000 Union and Park Street Pipeline Replacement, San Rafael 179,141 - - - - - 179,141 Vernal Avenue Tank Piping, Tam Valley 11,000 - - - - - 11,000 Villa Avenue Pipe Relocation, San Rafael 58,053 - - - - - 58,053 West End Area Pipeline Replacement, San Rafael 330,465 - - - - - 330,465 West MMWD PR 268,713 2,774 1,056 - - - 272,543

West Pipeline Replacement - Fairfax, Woodacre, Lagunitas and Ross 107,243 - - - - - 107,243

6,724,326$ 1,666,900$ 422,181$ 96,928$ 650,438$ 312,271$ 9,873,044$

Schedule 1052

Marin Municipal Water DistrictCUMULATIVE TOTAL OF FIRE FLOW PROGRAM

Fire Flow Parcel Fee Program Projects

Project 1997-2006 2007 2008 2009 2010 2011 Total2000/01 Tank Seismic Retrofit 16,471$ 4,678$ -$ -$ - 21,149$ Alto Tiburon 189,638 1,273,650 982,109 17,772 - 2,463,169 Bay View Pipeline Replacement, Mill Valley 387,360 - - - - 387,360 Blithdale Area Pipe Replacement 1,345,088 - - - - 1,345,088 Blithedale Canyon, Mill Valley 349,341 - - - - 349,341 Blithedale Canyon/Summit Upper Tank System 813,982 202,989 11,190 - - 1,028,161 Bon Tempe Treatment Plant Seismic Retrofit 367,125 - - - - 367,125 Bon Tempe Washwater Tank Seismic Improvements 106,574 - - - - 106,574 Bret Harte Road Pipeline Replacement, San Rafael 543,405 3,684 - - - 547,089 Buena Vista Avenue Pipeline Replacement, Mill Valley 876,273 - - - - 876,273 Butterfield & Arroyo, San Anselmo 12,846 - - - - 12,846 Cascade Canyon Phase II Pipeline Replacement, Fairfax 858,577 - - - - 858,577 Cascade Canyon Phase III Pipeline Replacement, Fairfax 636,775 - - - - 636,775 Cascade Drive Pipeline Replacement, Mill Valley 774,892 - - - - 774,892 Chapman Drive Pipeline Replacement 607,993 - 20,967 12,429 8,279 977 650,645 Concrete Pipe Road Pipeline Replacement 4,616,932 6,722 1,362 - 2,357 4,627,373 Consultant Services 1,841 - - - - 1,841 Cornelia Avenue Pipeline Replacement, Mill Valley 208,296 - - - - 208,296 Corte Madera Avenue, Mill Valley 435,346 - - - - 435,346 Corte Madera Pipeline Replacement 372,840 - - - - 372,840 Country Club Pipeline Replacement 489,770 2,734 759 - - 493,263 Cypress Ridge, Sausalito 757,783 7,997 18,300 285 - 784,365 Dominican Area Pipe Replacement - Phase I, II and III 1,904,199 - - - - 1,904,199 Elinor Pump Bypass Discharge Port 7,574 - - - - 7,574 Fern Canyon to Summit Easement PRP - - - 2,548 62,926 1,035 66,509 Fire Flow Master Plan 05/06-Concrete Pipe Rd Retaining Walls 196,156 4,782 234 - - 201,172 Fire Flow Master Plan 05/06-Restoration of landscape and irrigation,Tiburon - - 18,139 78,772 - 96,911 Fire Flow Master Plan 06/07-Concrete Pipe Rd Pipeline Replacement 4,880 16,705 164,865 3,031,268 26,115 3,516 3,247,349 Fire Flow Master Plan 06/07-Country Club Area Pipeline Replacement 49,820 52,833 1,163,472 10,886 19,715 1,296,726 Fire Flow Master Plan 06/07-Glenwood Area Pipeline Replacement 749 32,977 - 782,786 24,656 841,168 Fire Flow Master Plan 06/07-Lagoon Rd, City of Belvedere 4,880 21,240 629,867 8,973 1,186 666,146 Fire Flow Master Plan 06/07-Sausalito Blvd Pipeline Replacement 24,573 545,672 36,446 15,693 - 622,384 Fire Flow Master Plan 06/07-Strawberry Point Pipeline Replacement 23,630 38,137 836,708 20,411 5,019 488 924,393 Fire Flow Master Plan 07/08-Summit Ave & Fairway Dr Pipeline Replacement 4,880 20,545 296,592 288,118 - 6,598 616,733 Fire Flow Master Plan 07/08-Tamalpais Valley Pipeline Replacement 4,880 20,845 43,493 547,276 23,137 440 640,071 Fire Flow Master Plan 08/09-Baltimore Canyon Area PRP - - - 405,104 12,368 773 418,245 Fire Flow Master Plan 08/09-Chapman Park Pipeline Installation,Corte Madera - - 8,144 321,150 6,427 4,233 339,954 Fire Flow Master Plan 08/09-Christmas Tree Hill Pipeline,Corte Madera - - 3,783 469,930 39,213 814 513,740 Fire Flow Master Plan 09/10-Bayside Acres Area PRP - - - 18,495 532,343 292,313 843,151 Fire Flow Master Plan 09/10-Greenbrae PRP Area - - - 9,539 403,953 471,540 885,032 Fire Flow Master Plan 09/10-Summit Avenuen Area PRP - - - 26,967 371,904 31,747 430,618 Fire Flow Master Plan 09/10-Meadowsweet Dr PRP - - - - 333,006 1,346 334,352

Schedule 10.153

Marin Municipal Water DistrictCUMULATIVE TOTAL OF FIRE FLOW PROGRAM

Fire Flow Parcel Fee Program Projects

Project 1997-2006 2007 2008 2009 2010 2011 TotalFire Flow Master Plan 09/10-Throckmorton PRP - - - - 439,436 415,241 854,677 Fire Flow Master Plan 10/11-Ross Valley PRP - - - - 9,173 293,549 302,722 Fire Flow Master Plan 10/11-Kent Woodland Phase 1 PRP - - - - 5,763 879,206 884,969 Fire Flow Master Plan 10/11-Kent Woodland Phase 2 PRP - - - - 8,068 902,525 910,593 Fire Flow Master Plan 10/11-Tanks Seismic Retrofit - - - - 1,302 313,394 314,696 Fire Flow Master Plan 10/11-Dominican Area PRP 83,355 83,355 Fire Flow Master Plan 10/11-Chula Vista PRP 29,462 29,462 Fire Flow Master Plan 11/12-Gerstle Park PRP 36,890 36,890 Fire Flow Master Plan 11/12-Jordan Avenue, SA PRP 14,862 14,862 Forbes Reservoir Seismic Improvements 227,453 - - - - 227,453 Greenbrae Pipeline Replacement 502,315 - - - - 502,315 Gunsite Pass Access Improvement Culvert Installation - - 1,276 61,378 52,589 115,243 H Line Tank System Phase I 879,862 18,412 - - - 898,274 H Line Tank System Phase II 692,860 136,754 7,007 - - 836,621 Hawthorne Hills Tank Replacement 795,152 - - - - 795,152 Ignacio Pump Station Seismic Retrofit 1,465 - - - - 1,465 Kent Woodlands 1st Lift 656,468 87,833 2,628 65 - 11,247 758,241 Kent Woodlands Pipeline Replacement Phase I 781,996 - - - - 781,996 Kent Woodlands Pipeline Replacement Phase II 840,504 - - - - 840,504 Lagunitas Pump Station Seismic Retrofit 275,426 - - - - 275,426 Lincoln Avenue Area, San Rafael Pipeline 918,452 - - - - 918,452 Lovell Avenue, Mill Valley 1,168,186 12,627 4,966 - - 1,185,779 Lucas Valley Tank Seismic Improvements 92,552 - - 92,552 Mann Drive Fire Flow Master Plan , San Rafael 4,880 8,480 4,356 - - 17,716 Manor Hill Area, Fairfax 967,010 33,425 - - - 1,000,435 Marinwood Tank Seismic Retrofit 105,771 - - - - 105,771 Marlin Avenue Pipeline Replacement, Mill Valley 844,159 - - - - 844,159 Miller Avenue Pipeline Replacement, Mill Valley 1,286,704 - - - - 1,286,704 Montecito and California Park Pipeline Replacement, San Rafael 430,563 - 6,994 - - 437,557 Montecito Area Pipeline Replacement, San Rafael 439,551 - - - - 439,551 Morrison Road Pipeline Replacement, Ross 290,060 - - - - 290,060 Norman Way Regulator & Pipe 88,093 - - - - 88,093 Oak Avenue, San Anselmo Pipeline Replacement 574,307 - - - - 574,307 Oakmont & Fairhills Pipeline Replacement, San Rafael 587,735 - - - - 587,735 Phoenix Bypass Stabilization, Ross 364,385 - - - - 364,385 Phoenix Lake Rd Pipeline Seismic Reliability - 189,145 547,662 850,097 1,586,904 Redwood and Cal Park Hill Pipeline Replacement 229,450 - - - - 229,450 Ross Reservoir Seismic Retrofit 25,850 - - - - 25,850 San Geronimo Booster Pump Station Seismic Retrofit 64,591 - - - - 64,591 San Geronimo Treatment Plant Control Room Retrofit 313,682 - - - - 313,682 Steel Tank Seismic Retrofit 1,040,598 - 1,931 - - 1,042,529 Summit Avenue & Ethel Avenue Pipeline Replacement, Mill Valley 491,906 - - - - 491,906

Schedule 10.154

Marin Municipal Water DistrictCUMULATIVE TOTAL OF FIRE FLOW PROGRAM

Fire Flow Parcel Fee Program Projects

Project 1997-2006 2007 2008 2009 2010 2011 TotalSummit Avenue, Mill Valley 473,653 - - - - 473,653 Tam Valley Pipeline Replacement 549,062 - - - - 549,062 Tamalpais Drive Pipeline Replacement, Corte Madera 362,526 - - - - 362,526 Throckmorton Avenue, Mill Valley Pipeline Replacement 34,275 - - - - 34,275 Throckmorton Ridge, Mill Valley Pipeline Replacement 1,220,667 - - - - 1,220,667 Tiburon 1st Lift Tank Seismic Improvements 128,281 - - - - 128,281 Tiburon Supply Pipeline 812,911 - - - - 812,911 Toyon Drive Pipeline Replacement, Kentfield 677,978 - - - - 677,978 Twin Oaks Pipeline Replacement, San Rafael 225,424 - - - - 225,424 Valley View and Fairhills Pipeline Replacement, San Rafael 412,140 - - - - 412,140 Warner Canyon Pipeline Replacement, Mill Valley 819,562 - - - - 819,562 West End, San Rafael 459,426 15,113 6,179 - - 480,718 Wilson Way Tank Upgrade 712,358 - - - - - 712,358

39,865,618$ 2,568,834$ 4,271,767$ 6,318,990$ 2,936,594$ 4,645,648$ 60,607,451$

Schedule 10.155

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C&LCaporicci & Larson, Inc.A Subsidiary of Marcum LLPCertifi ed Public Accountants

www.c-lcpa.com

INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors of the Marin Municipal Water District Corte Madera, California We have audited the financial statements of the Marin Municipal Water District (District) as of and for the year ended June 30, 2011, and have issued our report thereon dated December 8, 2011. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the District’s internal control over financial reporting as a basis for designing our audit procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statements amounts.

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To the Board of Directors of the Marin Municipal Water District Corte Madera, California Page 2 However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The result of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of District management, the Members of the Board of Directors, others within the entity, and federal and state awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Caporicci & Larson, Inc. A Subsidiary of Marcum LLP Certified Public Accountants San Francisco, California December 8, 2011

Appendix B

APPENDIX B

INVESTMENT POLICY OF THE DISTRICT

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ARIN MUNICIPAL M

WATER DISTRICT BOARD POLICY No. 33

DATE: Reviewed 1-7-09 Reviewed 1-6-10 Revised 1-5-11 Revised 1-5-12

SUBJECT: INVESTMENT POLICY I. Introduction

The purpose of this document is to identify various policies and procedures that enhance opportunities for a prudent and systematic investment policy and to organize and formalize investment-related activities. The investment policies and practices of the Marin Municipal Water District ("District") are based on State law and prudent money management. All funds will be invested in accordance with the District's Investment Policy and the authority governing investments for local agencies as set forth in the California Government Code, §53601 through §53659.

II. Scope It is intended that this policy cover all funds and investment activities of the District, except investments governed by employment retirement funds and bond documents. The provisions of relevant bond documents will restrict the investment of bond proceeds.

III. Prudence Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. All persons investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds shall act with care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the District.

Board Policy # 33 – Investment Policy

IV. Objectives

The primary objectives, in priority order, of the District's investment activities shall be:

1. Safety. Safety of principal is the foremost objective of the investment program. The District's investments shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio. The District shall seek to preserve principal by mitigating the two types of risk: credit risk and market risk.

2. Liquidity. The District's investment portfolio will remain sufficiently liquid

to enable the District to meet its cash flow requirements.

3. Return on Investment. The District's investment portfolio shall be designed with the objective of attaining a market rate of return on its investments consistent with the constraints imposed by its safety objective and cash flow considerations.

4. Public Trust. All participants in the investment process shall act as

custodians of the public trust. Investment officials shall recognize that the investment portfolio is subject to public review and evaluation. The overall program shall be designed and managed with a degree of professionalism that is worthy of the public trust.

It is the District’s intent at time of purchase, to hold all investments until maturity to ensure the return of all invested principal dollars.

V. Delegation of Authority The management and oversight responsibility for the investment program is hereby

delegated to the Finance Manager who shall monitor and review all investments for consistency with this investment policy. This delegation of authority shall remain in place until revoked by the Board of Directors. The Finance Manager may delegate the day-to-day operations of investing to his/her designee(s), but not the responsibility for the overall investment program. No person may engage in an investment transaction except as provided under the limits of this policy.

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VI. Ethics and Conflict of Interest Officers and employees involved in the investment process shall refrain from

personal business activities that could conflict with proper execution of the investment program, or which could impair their ability to make impartial decisions.

Board Policy # 33 – Investment Policy

VII. Selection of Financial Institutions and Broker/Dealers The Finance Manager shall maintain a list of authorized broker/dealers and

financial institutions which are approved for investment purposes in the State of California, and who have proof of National Association of Security Dealers certification. It shall be the policy of the District to purchase securities only from authorized institutions or firms. All authorized firms must also provide certification that they have received and read the District's Investment Policy.

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VIII. Permitted Investment Instruments 1. Government obligations for which the full faith and credit of the United States

are pledged for the payment of principal and interest. 2. Obligations issued by Agencies or Instrumentalities of the United States

Government. 3. Repurchase Agreements used solely as short-term investments not to exceed

90 days.

a. The following collateral restrictions will be observed: Only United States Treasury securities or Federal Agency securities will be acceptable collateral. All securities underlying Repurchase Agreements must be delivered to the District's custodian bank vs. payment. The market value of securities that underlay a Repurchase Agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be reviewed on a regular basis and adjusted no less than quarterly. Collateral shall not include strips, zero-coupon instruments or instruments with maturities in excess of five years. The right of substitution will be granted, provided that permissible collateral is maintained.

4. Banker's Acceptances issued by domestic or foreign banks, which are eligible

for purchase by the Federal Reserve System, the short-term paper of which is rated in the highest category by Moody's Investors Services or by Standard & Poor's Corporation.

a. Purchases of Banker's Acceptances may not exceed 180 days maturity

or 40 percent of the District's surplus money. However, no more than 30% or $2,000,000 of the District's surplus funds, whichever is less, may be invested in the Banker's Acceptance of any one commercial bank.

Board Policy # 33 – Investment Policy

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5. Commercial paper issued by an entity meeting the following conditions in Option 1 or Option 2 below: Option 1:

1. Is organized and operating in the United States as a general corporation and has total assets in excess of $500 million.

2. Has debt other than commercial paper, if any, that is rated “A” or

higher by a nationally recognized rating agency. Option 2:

1. Is organized within the United States as a special purpose corporation, trust or limited liability company.

2. Has program-wide credit enhancements including, but not limited

to, over-collateralization, letters of credit or surety bond. 3. Has commercial paper that is rated “A-1” or higher by a nationally

recognized rating agency. a. Purchases of eligible commercial paper may not exceed 270 days to

maturity nor represent more than 10 percent or $1,000,000 from an issuing corporation, whichever is less.

b. Purchases of commercial paper may not exceed 15 percent of the

District's surplus money that may be invested.

6. Medium term corporate notes issued by corporations organized and operating

within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Medium term corporate notes shall, at the time the note is purchased, be rated as follows:

a. 1 year or less A rating by two major rating agencies 1 - 2 years AA rating by at least one major rating agency 2 - 4 years AA rating by two major rating agencies 4 - 5 years AAA rating by two major rating agencies b. Investments will be limited to a maximum of 30 percent of the District's

portfolio.

Board Policy # 33 – Investment Policy

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7. Federal Deposit Insurance Company (FDIC) insured or fully collateralized time certificates of deposit in financial institutions located in California, including United States branches of foreign banks licensed to do business in California. The maximum maturity of a time deposit shall not exceed 180 days. All time deposits must be collateralized in accordance with California Government Code §53651 and §53652, either at 150 percent by promissory notes secured by first mortgages and first trust deeds upon improved residential property in California eligible under Section 53651(m) or 110 percent by eligible marketable securities listed in subsections (a) through (l), (n) and (o) of §53651, or 105% of letters of credit issued by the Federal Home Loan Bank of San Francisco per subsection (p) of §53651.

8. Negotiable certificates of deposit or deposit notes issued by a nationally or

State chartered bank or a State or Federal savings and loan association or by a State licensed branch of a foreign bank; provided that the senior debt obligations of the issuing institution are rated "AA" or better by Moody's or Standard & Poor's.

a. Purchase of negotiable certificates of deposit may not exceed 20

percent of the District's surplus money. 9. State of California's Local Agency Investment Fund. Investment in LAIF may

not exceed $50 million per account.

10. Shares of beneficial interest issued by diversified management companies (Money Market Mutual Funds) investing in the securities and obligations authorized by sections (a) through (l) of California Government Code §53601. To be eligible for investment pursuant to this subdivision these companies shall either: (1) attain the highest ranking letter or numerical rating provided by not less than two of the three largest nationally recognized rating services; or (2) have an investment advisor registered with the Securities and Exchange Commission with not less than five years experience investing in securities and obligations authorized by California Government Code §53601 and with assets under management in excess of $500,000,000.

b. The purchase price of shares shall not exceed 10 percent of the

District's surplus money and no more than 10 percent invested in shares of any one mutual fund.

11. Registered state warrants or treasury notes or bonds of California, including

bonds payable solely out of the revenues from a revenue-producing property owned, controlled or operated by the state or by a department, board, agency, or authority of California.

Board Policy # 33 – Investment Policy

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12. Bonds, notes or warrants or other evidences of indebtedness of a local

agency within the state of California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled or operated by the by the local agency, or by a department, board, agency, or authority of the local agency of California.

The following summary of maximum percentage limits, by instrument, are

established for the District's total investment portfolio: Investment Type Percentage Repurchase Agreements ..................................... 0 to 10% Local Agency Investment Fund ........................... $50,000,000 per account U.S. Treasury Bonds/Notes/Bills ......................... 0 to 100% U.S. Government Agency Obligations ................. 0 to 100% Banker's Acceptances ......................................... 0 to 40% Commercial Paper ............................................... 0 to 15% Negotiable Certificates of Deposit ....................... 0 to 20% Time Certificates of Deposit ................................ 0 to 20% Medium Term Corporate Notes ........................... 0 to 30%

Registered State Warrants or Local Agency Indebtedness ...................................................... 0 to 20%

IX. Safekeeping of Securities and Internal Controls To protect against fraud, embezzlement or losses caused by collapse of an

individual securities dealer, all securities owned by the District shall be held by an independent third party safekeeping institution, acting as agent for the District under the terms of a custody agreement or PSA agreement (repurchase agreement collateral). All trades executed by a dealer will settle on a delivery vs. payment ("DVP") basis to ensure that securities are deposited in the District safekeeping institution prior to the release of funds. The safekeeping institution shall annually provide a copy of its most recent report on internal controls – Service Organization Control Reports (formerly 70, or SAS 70) prepared in accordance with the Statement on Standards for Attestation Engagements (SSAE) No. 16 (effective June 15, 2011).

Board Policy # 33 – Investment Policy

Securities held in custody for the District shall be monitored by the Finance Manager to verify investment holdings. Management shall establish a system of internal controls, which shall be documented in writing and reviewed with the independent auditor. The controls shall be designed to prevent the loss of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the District.

X. Maximum Maturity Investment maturities shall be based on a review of cash flow forecasts. Maturities

will be scheduled to permit the District to meet all projected obligations. The maximum maturity will not exceed five years. XI. Ineligible Investments Security types which are prohibited include, but are not limited to: (a) "Complex" derivative structures such as range notes, dual index notes,

inverse floaters, leveraged or de-leveraged floating rate notes, or any other complex variable rate or structured note.

(b) Interest only strips that are derived from a pool of mortgages, or any security

that could result in zero interest accrual if held to maturity. (c) Reverse Repurchase Agreements.

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XII. Portfolio Adjustments Portfolio percentage limitations for each investment category are applicable only at

the date of purchase. Should an investment percentage limitation be exceeded due to an incident such as a fluctuation in portfolio size, the Finance Manger is not required to sell the affected securities.

Should a security held in the portfolio be downgraded below the minimum criteria

included in this Investment Policy, a determination will be made by the Finance Manager whether to sell the investment. Any sale of an investment due to a downgrade will be done in a manner to minimize losses on sale of such security.

Board Policy # 33 – Investment Policy

If a security is downgraded to a level that is less than investment grade (rating less than Ba1 or BB+), the Finance Manager shall sell such affected security immediately. If the immediate liquidation of the security is not in the best interest of the District, the Finance Manager, in consultation with an ad hoc committee made up of the General Manager and the Finance Committee President, may dispose of the security in an orderly and prudent manner considering the circumstances, under terms and conditions approved by the ad hoc committee. The description and amounts of any securities downgraded below the District investment criteria are to be included in the monthly investment report.

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XIII.

Reporting Requirements

The Finance Manager shall render to the District Board a monthly investment report

which shall include, at a minimum the following information for each individual investment:

Type of investment instrument (i.e., Treasury Bill, medium term note) Issuer name (i.e., General Electric) Purchase date (settlement date) Maturity date Par value Purchase price Current market value and the source of the valuation (quarterly) Overall portfolio yield based on cost The monthly report also shall (i) state compliance of the portfolio to the statement of

investment policy, or manner in which the portfolio is not in compliance, (ii) include a description of any of the District's funds, investments or programs that are under the management of contracted parties, including lending programs, (iii) description of investments downgraded below the District’s investment criteria or below investment grade and hold or sell status and (iv) include a statement denoting the ability of the District to meet its expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may, not be available.

This monthly report shall be submitted within 30 days following the end of the month.

The Finance Manager shall annually render to the Board a statement of investment

policy, which the Board shall consider at a public meeting.

Board Policy # 33 – Investment Policy

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GLOSSARY OF TERMS Bankers Acceptances. Are negotiable time drafts or bills of exchange drawn on and accepted by a commercial bank. Acceptance of the draft obligates the bank to pay the bearer the face amount of the draft at maturity. In addition to the guarantee by the accepting bank, the transaction is identified with a specific commodity. The sale of the underlying goods will generate the funds necessary to liquidate the indebtedness. Banker's Acceptances are usually created to finance the import and export of goods, the shipment of goods within the United States and the storage of readily marketable staple commodities. Banker's Acceptances are sold at a discount from par and the amount and maturity date are fixed. Bankers Acceptances have the backing of both the bank and the pledged commodities with no known principal loss in over 70 years. State law permits agencies to invest 40 percent of a portfolio and 30 percent with a single issuer in Bankers’ Acceptances with a maximum maturity of 180 days. Certificate of Deposit. A deposit insured up to $250,000 by the FDIC, or collateralized at a minimum of 110 percent by the financial institution if over $250,000, at a set rate for a specified period of time. Collateral. Securities, evidence of deposit or pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposit of public moneys. Corporate Medium Term Notes. Are unsecured promissory notes issued by corporations operating within the United States. The notes are in the one-to-five year maturity range. Notes must have at least an "A" rating by a nationally recognized rating service. State law permits agencies to invest 30 percent of the total portfolio and 10 percent with a single issuer in corporate medium term notes with a maximum maturity of 5 years. Commercial Paper. Is an unsecured promissory note of industrial corporations, utilities and bank holding companies having assets in excess of $500 million and an "A" or higher rating for the issuer's debentures. Interest is discounted from par and calculated using the actual number of days on a 360-day year. The notes are in bearer form, mature from one to 180 days and generally start at $100,000. There is a secondary market for commercial paper and an investor may sell them prior to maturity. Commercial paper is backed by unused lines of credit from major banks. State Code permits agencies to invest 25 percent and 10 percent with a single issuer in commercial paper with a maximum maturity of 270 days. Credit Risk. Defined, as the risk of loss due to failure of the issuer of a security shall be mitigated by investing in investment grade securities and by diversifying the investment portfolio so that the failure of any one issuer does not unduly harm the District's capital base and cash flow. Current Yield. The interest paid on an investment expressed as a percentage of the current price of the security.

Board Policy # 33 – Investment Policy

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Custody. A banking service that provides safekeeping for the individual securities in a customer's investment portfolio under a written agreement which also calls for the bank to collect and pay out income, to buy, sell, receive and deliver securities when ordered to do so by the principal. Delivery vs. Payment (DVP). Delivery of securities with a simultaneous exchange of money for the securities. Fannie Mae. Trade name for the Federal National Mortgage Association (FNMA), a United States sponsored corporation. Federal Reserve System. The central bank of the United States which consists of a seven member Board of Governors, 12 regional banks and 5,700 commercial banks that are members. Federal Deposit Insurance Corporation (FDIC). Insurance provided to customers of a subscribing bank that guarantees deposits to a set limit (currently $250,000) per account. Freddie Mac. Trade name for the Federal Home Loan Mortgage Corporation (FHLMC), a United States sponsored corporation. Ginnie Mae. Trade name for the Government National Mortgage Association (GNMA), a direct obligation bearing the full faith and credit of the United States Government. Interest Rate. The annual yield earned on an investment, expressed as a percentage. Liquidity. Refers to the ability to rapidly convert an investment into cash. Local Agency Investment Fund (LAIF) Demand Deposit. Established by the State to enable financial managers to place idle funds in a pool for investment. Each agency is currently limited by LAIF to an investment of $50 million plus any bond proceeds. Market Risk. Defined as market value fluctuations due to overall changes in the general level of interest rates, shall be mitigated by limiting the maximum maturity of any one security to five years, structuring the portfolio based on historic and current cash flow analysis eliminating the need to sell securities prior to maturity and avoiding the purchase of long-term securities for the sole purpose of short-term speculation. Market Value. The price at which a security is trading and could presumably be purchased or sold. Maturity. The date upon which the principal or stated value of an investment becomes due and payable. Portfolio. Collection of securities held by an investor.

Board Policy # 33 – Investment Policy

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Purchase Date. The date in which a security is purchased for settlement on that or a later date. Rate of Return. The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond or the current income return. Repurchase Agreement (REPO). Contractual arrangement between a financial institution or dealer and an investor. The investor puts up their funds for a certain number of days at a stated yield. In return, they take title to a given block of securities as collateral. At maturity, the securities are repurchased and the funds are repaid with interest. Reverse Repurchase Agreement (Reverse REPO). A transaction where the seller (District) agrees to buy back from the buyer (bank) the securities at an agreed upon price after a stated period of time. Sallie Mae. Trade name for the Student Loan Marketing Association (SLMA), a United States sponsored corporation. Treasury Bills (T-Bills). United States Treasury Bills which are short-term, direct obligations of the United States Government issued with original maturities of 13 weeks, 26 weeks and 52 weeks; sold in minimum amounts of $10,000 in multiples of $5,000 above the minimum. Issued in book entry form only. T-bills are sold on a discount basis. United States Government Agencies. Instruments issued by various United States Government Agencies most of which are secured only by the credit worthiness of the particular agency.

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Appendix C Page 1

APPENDIX C

GENERAL INFORMATION CONCERNING THE COUNTY

The information in this section of the Official Statement is presented as general background data. The Bonds are payable solely from the revenues of the Water System and other sources as described in the Official Statement.

Population

With an area of 606 square miles (including 201 square miles of public lands and 86 square miles of

water/wetlands), and a January 1, 2011 population of approximately 254,692, the County’s population is one of the most stable in the Bay Area. The table below illustrates the relative increase in population in the County, the State and the nation since 2000.

COUNTY, STATE AND UNITED STATES POPULATION

Year County(1) State(1) United States(2) 2000 247,289 33,873,086 281,421,906 2001 248,903 34,430,970 285,039,803 2002 249,813 35,063,959 287,726,647 2003 250,453 35,652,700 290,210,914 2004 250,840 36,199,342 292,892,127 2005 251,820 36,675,346 295,560,549 2006 253,818 37,114,598 298,362,973 2007 248,025 36,399,676 301,290,332 2008 249,546 36,704,375 304,059,724 2009 250,760 36,966,713 305,529,237 2010 252,279 37,223,900 308,745,538 2011 254,692 37,510,766 N/A

Sources: State of California Department of Finance for information relating to the County and the State, and the

United States Census Bureau for information relating to the United States.

Appendix C Page 2

Employment The County's unemployment rate has consistently been one of the lowest in California, and

continues to be among the lowest level of all Bay Area Counties at 6.7% as of January, 2012, compared to the State unemployment level of 11.3% during the same month. The table below illustrates unemployment levels in the County compared to State and national unemployment levels for the past five years.

COUNTY, STATE AND UNITED STATES CIVILIAN LABOR FORCE, EMPLOYMENT AND

UNEMPLOYMENT ANNUAL AVERAGES (1)

Year Area Civilian Labor Force Employment Unemployment

Unemployment Rate

2007 County 132,700 127,900 4,800 3.6 State 17,970,800 17,011,000 959,800 5.3 United States 153,124,000 146,047,000 7,078,000 4.6

2008 County 133,000 126,800 6,200 4.7 State 18,251,600 16,938,300 1,313,200 7.2 United States 154,287,000 145,362,000 8,924,000 5.8

2009 County 132,100 121,700 10,300 7.8 State 18,250,200 16,163,900 2,086,200 11.4 United States 154,142,000 139,877,000 14,265,000 9.3

2010 County 131,400 120,600 10,800 8.3 State 18,176,200 15,916,300 2,259,900 12.4 United States 153,889,000 139,064,000 14,825,000 9.6

2011 County 135,300 125,400 10,000 7.4 State 18,384,900 16,226,600 2,158,300 11.7 United States 153,616,667 139,869,250 13,747,417 8.9

Source: California Employment Development Department for County and State figures (Benchmark March 2011).

United States Bureau of Labor Statistics for United States figures (Benchmark 2010). (1) Not seasonally adjusted.

Appendix C Page 3

Major Employers Within the County The table below demonstrates the scope and diversity of the County's 25 largest employers.

TWENTY FIVE LARGEST EMPLOYERS IN THE COUNTY

Entity Location Type of Business

Autodesk Inc. San Rafael Computer Software-Manufacturers Bay Area Sea Kayakers San Rafael Membership Sports & Recreation Clubs Bradley Real Estate Tiburon Real Estate Cagwin & Dorward Landscape Novato Landscape Contractors California Alpine Club Mill Valley Wedding Chapels College of Marin Kentfield Schools-Universities & Colleges Academic Corrections Dept San Quentin State Govt-Correctional Institutions Dominican University of California San Rafael Schools-Universities & Colleges Academic Fireman's Fund Insurance Co Novato Insurance Golden Gate Bridge San Rafael Bridge & Tunnel Operating Companies Kaiser Permanente Medical Ctr San Rafael Hospitals Leon's Bar B'Q Inc Mill Valley Food Products-Retail Macy's Corte Madera Department Stores Managed Health Network Inc. San Rafael Health Plans Marin Community College Kentfield Schools-Universities & Colleges Academic Marin County Health & Human San Rafael County Government-Social/Human Resources Marin County Sheriff’s Dept San Rafael Sheriff Marin General Hospital Greenbrae Hospitals Marin Group Sausalito Product Development & Marketing Marin Independent Journal Novato Newspapers (Publishers/Mfrs) Novato Community Hospital Novato Hospitals San Rafael Human Resources San Rafael Government Offices-City, Village & Twp Sonnen Motorcars-Audi-VW San Rafael Automobile Dealers-New Cars Township Building Svc Co Novato Janitor Service YMCA San Rafael Youth Organizations & Centers

Source: State of California Employment Development Department. America's Labor Market Information System

(ALMIS) Employer Database, 2012 1st Edition. Employer information is provided by infoUSA, Omaha, NE, 800/555-5211. Copyright 2011.

Appendix C Page 4

Employment By Industry Over the past several decades, the County has evolved from a bedroom community for San

Francisco businesses to a more self-sufficient, diversified business community. The County has developed a community of small entrepreneur businesses that are service, professional, technical and scientific in operation. The table below illustrates the continued growth of the County’s employment base and the contribution of the key economic sectors.

COUNTY WAGE AND SALARY EMPLOYMENT BY INDUSTRY

ANNUAL AVERAGE

2005 2006 2007 2008 2009 2010(1) Total, All Industries 108,800 108,700 109,000 109,300 102,400 101,000 Total Farm 600 700 500 500 500 500 Total Nonfarm 108,200 108,000 108,500 108,800 101,900 100,500 Goods Producing 11,000 10,400 10,500 10,100 8,200 7,800 Manufacturing 2,500 2,400 2,100 2,100 2,000 2,100 Durable Goods 1,200 1,200 900 900 800 800 Nondurable Goods 1,300 1,200 1,200 1,200 1,200 1,300

Service Providing 97,200 97,600 97,900 98,700 93,700 92,700 Trade, Transportation & Utilities 18,800 18,300 18,500 18,200 16,500 16,800 Wholesale Trade 2,600 2,700 2,700 2,700 2,300 2,400 Retail Trade 14,900 14,300 14,600 14,400 13,100 13,200 Transportation, Warehousing & Utilities 1,400 1,300 1,200 1,200 1,100 1,200

Information 3,100 2,200 2,400 2,200 2,000 1,900 Financial Activities 9,300 9,200 8,800 8,200 7,500 6,800 Finance & Insurance 6,500 6,400 6,100 5,500 5,000 4,700 Real Estate & Rental & Leasing 2,800 2,800 2,600 2,700 2,500 2,100

Professional & Business Services 18,500 19,600 19,500 20,300 18,500 18,900 Professional, Scientific & Technical Services 10,700 11,200 11,100 11,700 10,700 10,900 Management of Companies & Enterprises 2,200 2,300 2,200 2,100 1,900 1,900 Administrative & Support & Waste Services 5,600 6,100 6,300 6,500 5,800 6,100

Educational & Health Services 15,600 15,800 15,700 16,100 16,900 16,300 Educational Services 3,200 3,100 3,300 3,400 3,400 3,300 Health Care & Social Assistance 12,400 12,600 12,400 12,800 13,400 13,000

Leisure & Hospitality 12,600 12,700 13,000 13,400 12,700 12,100 Arts, Entertainment & Recreation 2,600 2,500 2,800 2,900 2,800 2,500 Accommodation & Food Services 10,000 10,200 10,300 10,500 9,900 9,600

Other Services 4,600 4,800 5,000 4,900 4,700 5,000 Government 14,700 15,000 15,100 15,500 15,000 14,900 Federal Government 900 900 700 900 1,000 1,000 State Government 1,800 1,800 1,900 2,100 2,200 2,100 Local Government 12,000 12,300 12,400 12,500 11,900 11,800

Source: California Employment Development Department. (1) Most recent annual data available. March 2010 Benchmark.

Appendix C Page 5

Personal Income The County enjoys one of the highest levels of effective buying income in the Bay Area and in the

entire United States. The table below compares the County effective income with that of the State and the United States.

COUNTY OF MARIN, STATE OF CALIFORNIA AND UNITED STATES

EFFECTIVE BUYING INCOME

Year

Area

Total Effective Buying Income (000’s Omitted)

Median Household Effective

Buying Income 2007 County $10,585,120 $67,799

California $814,894,438 $48,203 United States $6,300,794,040 $41,792

2008 County $10,769,315 $68,816 California $832,531,445 $48,952 United States $6,443,994,426 $42,303

2009 County $10,508,733 $71,591 California $844,823,319 $49,736 United States $6,571,536,768 $43,252

2010 County $10,453,585 $68,688 California $801,393,027 $47,177 United States $6,365,020,076 $41,368

2011 County $10,592,305 $68,667 California $814,578,458 $47,062 United States $6,438,704,664 $41,253

Source: Nielsen Claritas, Inc.

Appendix C Page 6

Construction Activity

The level of construction activity in the County as measured by total building permit valuations and the annual unit total of new residential and nonresidential permits since 2006 are shown below.

COUNTY BUILDING PERMIT ACTIVITY

Building Permit Valuations For Years 2006 through 2010

(000s) 2006 2007 2008 2009 2010 (1) Valuation (in thousands)

Residential $242,107 $279,505 $220,553 $200,127 $203,801 Non-residential 95,262 112,539 202,481 115,501 93,279

Total Valuation (1) $337,369 $392,044 $423,035 $315,627 $297,080 New Dwelling Units:

Single Family 155 151 147 65 75 Multiple Family 51 10 25 97 0

Total Units 206 161 172 162 75 Source: Construction Industry Research Board Totals may not add up due to independent rounding. (1) Most recent annual data available. Commercial Activity

The following table presents retail and total taxable transactions for the County from 2005 through 2009.

COUNTY TAXABLE TRANSACTIONS BY SECTOR (in thousands)

2005 2006 2007 2008 Apparel Stores $ 155,305 $ 156,944 $ 163,447 $ 201,280 General Merchandise Stores 446,920 461,184 460,821 402,168 Specialty Stores (1) 479,661 490,874 — — Food Stores 195,817 201,870 209,609 213,437 Eating and Drinking Places 395,421 409,938 435,046 442,979 Home Furnishings and Appliances 209,690 202,529 199,860 206,525 Building Materials 337,508 338,773 329,500 277,548 Automotive 864,068 896,243 608,934 486,808 Service Stations ( 2) — — 308,446 337,412 Other Retail Stores 81,353 86,441 585,804 505,997

Total Retail Stores $3,165,743 $3,244,796 $3,301,467 $3,074,694 Business and Personal Services 191,287 180,523 184,488 199,636 All Other Outlets 814,414 859,945 911,226 884,569

Total All Outlets (4) $4,171,444 $4,285,264 $4,397,181 $4,158,899 2009 (3) 2010 Retail Store and Food Services Motor Vehicle and Parts Dealers $ 434,910 $ 485,061 Furniture and Home Furnishings 106,960 109,379 Electronic and Appliance 129,928 123,308 Bldg. Matrl. and Garden Equip. and Supplies 246,690 237,664 Food and Beverage 246,161 259,294 Health and Personal Care 109,301 114,342

Appendix C Page 7

Gasoline Stations 258,624 301,124 Clothing and Clothing Accessories 243,655 263,834 Sporting Goods, Hobby, Book and Music 128,490 131,892 General Merchandise 261,529 265,063 Miscellaneous Store Retailers 157,795 175,970 Nonstore Retailers 26,001 25,596 Food Service and Drinking Places 418,831 422,951 Retail and Food Services Totals 2,768,875 2,915,477 All Other Outlets 891,160 918,692 Total All Outlets (4) $3,660,036 $3,834,169

Source: California Board of Equalization, Taxable Sales in California (Sales & Use Tax). (1) Starting 2007, Specialty Stores Group is included in All Other Retail Stores Group. (2) Starting 2007, Service Stations are reported separately from “Automotive.” (3) Starting in 2009, categories were revised from prior years. Most recent annual data available. (4) Totals may not add up due to independent rounding. Education

The number of public schools in the County are provided in the table below. For the 2010-11 academic year, approximately 30,574 students were enrolled in grades K through 12 in the public schools in the County.

COUNTY PUBLIC SCHOOLS

(Academic Year 2010-11)

Level No. of Schools

Elementary Schools (K-8) 45 Middle/Junior High Schools (6-8) 11 High Schools (9-12) 9 Continuation Schools 2 Alternative Education, Independent Study 6 Charter Schools 2

Total 75 Source: Marin County Office of Education and the California Department of Education.

Community colleges in California are locally operated and administered. They offer Associate of

Arts and Associate of Science degrees and have extensive vocational curricula. There is one community college district in the County, the College of Marin, with an enrollment of approximately 10,000 credit and noncredit students at two campuses.

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Appendix D Page 1

APPENDIX D

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a summary of certain provisions of the Indenture and the 2012 Installment Sale

Agreement which are not described elsewhere in this Official Statement. This summary does not purport to be comprehensive and reference should be made to the Indenture and the 2012 Installment Sale Agreement for a full and complete statement of its provisions.

DEFINITIONS

“Act” means Articles 1 through 4 (commencing with section 6500) of Chapter 5, Division 7, Title 1 of

the California Government Code, as in existence on the Closing Date or as thereafter amended from time to time.

“Additional Payments” means the payments so designated and required to be paid by the District

pursuant to the 2012 Installment Sale Agreement. “Authority” means the Marin Municipal Water District Financing Authority, a joint exercise of

powers authority organized and existing under and by virtue of the laws of the State, and any successor thereto.

“Authorized Denomination” means the amount of $5,000 or any integral multiple thereof. “Authorized Representative” means: (a) with respect to the Authority, its President, Vice President,

Executive Director, Treasurer or any other person designated as an Authorized Representative of the Authority by a Written Certificate of the Authority signed by its Executive Director, and filed with the District and the Trustee; and (b) with respect to the District, its President, Vice President, General Manager, Finance Manager or any other person designated as an Authorized Representative of the District by a Written Certificate of the District signed by its Finance Manager and filed with the Authority and the Trustee.

“Board of Directors” means the governing body of the Authority. “Bond Counsel” means (a) Quint & Thimmig LLP, or (b) any other attorney or firm of attorneys

appointed by or acceptable to the Authority of nationally-recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Code.

“Bond Fund” means the fund by that name established and held by the Trustee pursuant to the

Indenture. “Bond Law” means the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4

(commencing with section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code, as in existence on the Closing Date or as thereafter amended from time to time.

“Bond Year” means each twelve-month period extending from July 2 in one calendar year to July 1

of the succeeding calendar year, both dates inclusive; provided that the first Bond Year with respect to the Bonds shall commence on the Closing Date and end on July 1, 2012.

“Bonds” means the Marin Municipal Water District Financing Authority (Marin County, California)

Water Revenue Bonds, 2012 Series A (Subordinate Lien), authorized by and at any time Outstanding pursuant to the Indenture.

“Business Day” means (a) any day that is not a Saturday, Sunday or legal holiday or day on which

banking institutions in the State are closed, or (b) a day on which the New York Stock Exchange is closed.

Appendix D Page 2

“Closing Date” means the date of delivery of the Bonds to the Original Purchaser. “Code” means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as

otherwise referenced in the Indenture) as it may be amended to apply to obligations issued on the Closing Date, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under such Code.

“Completion Date” means, with respect to the 2012 Project, the date on which the District files a

Written Certificate with the Trustee stating that the acquisition and construction of the Project has been completed.

“Continuing Disclosure Certificate” means the continuing disclosure certificate to be executed on the

Closing Date by the District, as it may be amended from time to time in accordance with the terms thereof. “Corporation” means the MMWD Financing Corporation, a nonprofit, public benefit corporation,

organized and existing under the laws of the State. “Costs of Issuance” means all expenses incurred in connection with the authorization, issuance, sale

and delivery of the Bonds, including but not limited to all compensation, fees and expenses (including but not limited to fees and expenses for legal counsel) of the Authority or the District, initial fees and expenses of the Trustee (including but not limited to fees and expenses for legal counsel), compensation to any financial consultants or underwriters, legal fees and expenses, filing and recording costs, rating agency fees, costs of preparation and reproduction of documents, out-of-pocket expenses of the Authority and the District, the Authority and District staff costs and costs of printing.

“Costs of Issuance Fund” means the fund by that name established and held by the Trustee

pursuant to the Indenture. “Debt Service” means, during any period of computation, the amount obtained for such period by

totaling the following amounts: (a) The principal components of payments with respect to the Senior Obligations coming due and

payable by their terms in such period; (b) The payments of interest with respect to the Senior Obligations coming due and payable by

their terms in such period; (c) The principal components of the 2012 Installment Payments and of payments with respect to

Parity Obligations coming due and payable by their terms in such period; and (d) The interest component of the 2012 Installment Payments and of payments with respect to Parity

Obligations coming due and payable by their terms in such period. “Defeasance Obligations” means (a) cash, (b) direct non-callable obligations of the United States of

America, (c) securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged, (d) Refcorp interest strips, (e) CATS, TIGRS, STRPS, and (f) defeased municipal bonds rated “AAA” by S&P or “Aaa” by Moody’s (or any combination of the foregoing).

“District” means the Marin Municipal Water District, a municipal water district organized and

existing under and by virtue of its charter and the laws of the State. “Escrow Bank” means U.S. Bank National Association, a national banking association organized and

existing under the laws of the United States of America, or its successor, as escrow bank under the 2002 Escrow Agreement and the 2004 Escrow Agreement.

Appendix D Page 3

“Event of Default,” with respect to the Indenture, means any of the events specified in the Indenture and with respect to the 2012 Installment Sale Agreement, means any of the events specified in the 2012 Installment Sale Agreement.

“Federal Securities” means (a) cash (insured at all times by the Federal Deposit Insurance

Corporation), and (b) obligations of, or obligations guaranteed as to principal and interest by, the United States or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States including: (i) United States treasury obligations, (ii) all direct or fully guaranteed obligations, (iii) Farmers Home Administration, (iv) General Services Administration, (v) Guaranteed Title XI financing, (vi) Government National Mortgage Association (GNMA), and (vii) State and Local Government Series.

“Fair Market Value” means the price at which a willing buyer would purchase the investment from

a willing seller in a bona fide, arm’s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term “Fair Market Value” means the acquisition price in a bona fide arm’s length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State but only if at all times during which the investment is held its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States.

“Fiscal Year” means any twelve-month period extending from July 1 in one calendar year to June

30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Authority or the District, as applicable, as its official fiscal year period.

“Government Obligations” means, with respect to the Bonds: (a) direct obligations (other than an

obligation subject to variation in principal repayment) of the United States of America (“U.S. Treasury Obligations”), (b) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United Sates of America when such obligations are backed by the full faith and credit of the United States of America, or (d) evidence of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated.

“Gross Revenues” means all gross income and revenue received or receivable by the District from

the ownership or operation of the Water System, determined in accordance with generally accepted accounting principles, including all fees, rates, tolls and charges (including connection fees and standby charges) received by the District for the Water Service and the other services of the Water System and all proceeds of insurance covering business interruption loss relating to the Water System and all other income and revenue howsoever derived by the District from the ownership or operation of the Water System or arising from the Water System, but excluding refundable deposits made to establish credit and advances or contributions in aid of construction and main extension fees.

“Indenture” means the Indenture of Trust, dated as of June 1, 2012, by and between the Authority

and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture pursuant to the provisions of the Indenture.

“Independent Accountant” means any certified public accountant or firm of certified public

accountants, appointed and paid by the Authority or the District, and who, or each of whom (a) is in fact

Appendix D Page 4

independent and not under domination of the Authority or the District; (b) does not have any substantial interest, direct or indirect, in the Authority or the District; and (c) is not connected with the Authority or the District as an officer or employee of the Authority or the District but who may be regularly retained to make annual or other audits of the books of or reports to the Authority or the District.

“Independent Counsel” means an attorney duly admitted to the practice of law before the highest

court of the state in which such attorney maintains an office and who is not an employee of the Authority, the Trustee or the District.

“Information Services” means the Electronic Municipal Market Access System (referred to as

“EMMA”), a facility of the Municipal Securities Rulemaking Board (at http://emma.msrb.org) or, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other national information services providing information with respect to called bonds as the Authority may designate in a Certificate of the Authority delivered to the Trustee.

“Interest Account” means the account by that name established in the Bond Fund pursuant to the

Indenture. “Interest Payment Date” means each January 1 and July 1, commencing January 1, 2013. “Maintenance and Operation Costs” means the reasonable and necessary costs paid or incurred by

the District for maintaining and operating the Water System, determined in accordance with Generally Accepted Accounting Principles, including all costs of water purchased by the District for resale through the Water System, and including all reasonable expenses of management and repair and all other expenses necessary to maintain and preserve the Water System in good repair and working order, and including all administrative costs of the District that are charged directly or apportioned to the operation of the Water System, such as salaries and wages of employees, overhead, taxes (if any) and insurance premiums, and including all other reasonable and necessary costs of the District, such as compensation, reimbursement and indemnification of the Trustee and fees and expenses of independent certified public accountants; but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles.

“Moody’s” means Moody’s Investors Service, New York, New York, or its successors. “Net Revenues” means, for any period, an amount equal to all of the Gross Revenues received

during such period minus the amount required to pay all Maintenance and Operation Costs becoming payable during such period.

“Original Purchaser” means the original purchaser of the Bonds upon their delivery by the Trustee

on the Closing Date. “Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the

provisions of the Indenture) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with the Indenture, including Bonds (or portions thereof) described in the Indenture; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture.

“Owner,” whenever used in the Indenture with respect to a Bond, means the person in whose name

the ownership of such Bond is registered on the Registration Books. “Parity Obligations” means any leases, loan agreements, installment sale agreements, bonds, notes,

interest rate swap agreements, currency swap agreements, forward payment agreements, futures, or contracts providing for payments based on levels of, or changes in, interest rates, currency exchange rates, stock or other indices, or contracts to exchange cash flows or a series of payments, or contracts, including, without limitation, interest rate floors or caps, options, puts or calls to hedge payment, currency, rate, spread, or similar exposure (except termination payments relating thereto which shall be payable on a subordinate

Appendix D Page 5

basis) or other obligations of the District payable from and secured by a pledge of and lien upon any of the Pledged Net Revenues on a parity with the 2012 Installment Payments, entered into or issued pursuant to and in accordance with the 2012 Installment Sale Agreement.

“Participating Underwriter” shall have the meaning ascribed thereto in the Continuing Disclosure

Certificate. “Permitted 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, but only to the extent that the same are acquired at Fair Market Value (provided the Trustee may rely upon the Request of the Authority directing investment under the Indenture as a determination that such investment is a Permitted Investment):

(a) Government Obligations. (b) 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 the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):

1. U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. U.S. Farmers Home Administration (FmHA) Certificates of Beneficial Ownership

3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation Certificates 6. Government National Mortgage Association (GNMA or Ginnie Mae) GNMA—guaranteed mortgage-backed bonds GNMA—guaranteed pass-through obligations 7. U.S. Maritime Administration Guaranteed Title XI financing 8. 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

(c) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies which are not backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):

1. Federal Home Loan Bank System

Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)

Participation Certificate Senior debt obligations

Appendix D Page 6

3. Federal National Mortgage Association (FNMA or Fannie Mae) Mortgage-backed securities and senior debt obligations

4. Student Loan Marketing Association (SLMA or Sallie Mae)

Senior debt obligations 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System

Consolidated systemwide bonds and notes

(d) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, if rated by S&P, having a rating at the time of investment of “AAAm” or “AAAm-G”; and if rated by Moody’s having a rating at the time of investment of “Aaa,” including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries provide investment advisory or other management services.

(e) Certificates of deposit secured at all times by collateral described in (a) and/or (b) above. Such

certificates must be issued by commercial banks or savings and loan associations (including the Trustee or its affiliates). The collateral must be held by a third party and the Owners must have a perfected first security interest in the collateral.

(f) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are

fully insured by FDIC or secured at all times by collateral described in (a) and/or (b) above. (g) Commercial paper rated, at the time of purchase, “Prime-1” by Moody’s and “A-1” or better by

S&P. (h) Federal funds or bankers acceptances with a maximum term of 180 days of any bank which has

an unsecured, uninsured and unguaranteed obligation rating at the time of investment of “Prime-1” or better by Moody’s and “A-1” or better by S&P.

(i) The Local Agency Investment Fund of the State, created pursuant to 16429.1 of the California

Government Code. (j) Municipal obligations rated “A” or higher by S&P. (k) Other forms of investments that satisfy the District’s Statement of Investment Policy as of the

time of investment. “Pledged Net Revenues” means, for any period, an amount equal to all Net Revenues minus all

amounts required to be paid with respect to the Senior Obligations during such period. “Principal Account” means the account by that name established in the Bond Fund pursuant to the

Indenture. “Principal Corporate Trust Office” means the corporate trust office of the Trustee in San Francisco,

California, or such other or additional offices as may be specified to the District and the Authority by the Trustee; provided, however, that for the purposes of maintenance of the Registration Books and presentation of Bonds for transfer, exchange or payment such term shall mean in care of the corporate trust office of U.S. Bank National Association in St. Paul, Minnesota, or such other office designated by the Trustee from time to time, or at such other or additional offices as may be specified by the Trustee in writing to the District and the Authority.

“Projects” means, collectively, the 2002 Project, the 2004 Project and the 2012 Project.

Appendix D Page 7

“Qualified Reserve Fund Credit Instrument” means an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or insurance company with respect to any Parity Obligations.

“Rate Stabilization Fund” means the fund by that name established and held by the District

pursuant to the 2012 Installment Sale Agreement. “Rating Category” means, with respect to any Permitted Investment, one of the generic categories of

rating by Moody’s and S&P applicable to such Permitted Investment, without regard to any refinement or graduation of such rating category by a plus or minus sign or a numeral.

“Record Date” means, with respect to any Interest Payment Date, the fifteenth day of the calendar

month preceding an Interest Payment Date. With respect to any payment of defaulted interest a special Record Date shall be established in accordance with the provisions of the Indenture.

“Redemption Fund” means the fund by that name established pursuant to the Indenture. “Refunded 2004 Certificates” means the portion of the 2004 Certificates to be refunded from a portion

of the proceeds of the Bonds. “Registration Books” means the records maintained by the Trustee pursuant to the Indenture for the

registration and transfer of ownership of the Bonds. “Regulations” means the regulations of the United States Department of Treasury issued under the

Code. “Revenue Fund” means the fund by that name established and held by the District into which all

Gross Revenues are deposited. “Revenues” means (a) all amounts received by the Authority or the Trustee pursuant or with

respect to the 2012 Installment Sale Agreement, including, without limiting the generality of the foregoing, all of the 2012 Installment Payments (including both timely and delinquent payments, any late charges, and whether paid from any source) and prepayments, and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to the Indenture; but excluding any Additional Payments.

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor's Financial Services LLC

business, New York, New York, or its successors. “Securities Depositories” means The Depository Trust Company, 55 Water Street, 50th Floor, New

York, NY 10041-0099, Attention: Call Notification Department, Fax (212) 855-7232; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee.

“Senior Obligations” means the 2004 Installment Sale Agreement and the 2010 Installment Sale

Agreement. “Sinking Account” means the account by that name in the Bond Fund established pursuant to the

Indenture. “State” means the State of California. “Subordinate Obligations” means any obligations of the District payable from and secured by a

pledge of and lien upon any of the Pledged Net Revenues subordinate to the 2012 Installment Payments and any Parity Obligations, entered into or issued pursuant to and in accordance with the 2012 Installment Sale Agreement.

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“Supplemental Indenture” means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending the Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.

“Tax Certificate” means the certificate of the Authority dated the Closing Date, with respect to tax

matters. “Term Bonds” means the Bonds maturing on July 1, 2044, and July 1, 2052. “Trustee” means U.S. Bank National Association, a national banking association organized and

existing under the laws of the United States of America, or its successor, as Trustee under the Indenture as provided in the Indenture.

“2002 Bonds” means the $32,755,000 Marin Municipal Water District (Marin County, California)

Water Revenue Refunding Bonds, Series 2002, currently outstanding in the principal amount of $16,185,000. “2002 Escrow Agreement” means that certain escrow deposit and trust agreement, dated the Closing

Date, by and between the District and the Escrow Bank, relating to the defeasance of the 2002 Bonds. “2002 Escrow Fund” means the fund by that name held by the Escrow Bank under the 2002 Escrow

Agreement. “2002 Project” means the additions, betterments, extensions and improvements to the Water

System financed with the proceeds of the 2002 Bonds. “2004 Certificates” means the certificates of participation representing direct, undivided fractional

interest in the 2004 Installment Payments, currently outstanding in the principal amount of $27,795,000. “2004 Escrow Agreement” means that certain escrow deposit and trust agreement, dated the Closing

Date, by and between the District and the Escrow Bank, relating to the defeasance of the Refunded 2004 Certificates.

“2004 Escrow Fund” means the fund by that name held by the Escrow Bank under the 2004 Escrow

Agreement. “2004 Installment Payments” means the payments required to be paid by the District pursuant to

the 2004 Installment Sale Agreement. “2004 Installment Sale Agreement,” being that certain 2012 Installment sale agreement, dated as of

April 1, 2004, by and between the Corporation and the District, and any duly authorized and executed amendment or supplement thereto.

“2004 Project” means the additions, betterments, extensions and improvements to the Water

System financed with the proceeds of the 2004 Certificates. “2010 Installment Payments” means the payments required to be paid by the District pursuant to

the 2010 Installment Sale Agreement. “2010 Installment Sale Agreement” means that certain 2012 Installment Sale Agreement, dated as of

May 1, 2010, by and between the Authority and the District, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Indenture.

“2012 Installment Payment Date” means not later than the fifteenth (15th) calendar day of the month

preceding each Interest Payment Date. “2012 Installment Payments” means the payments required to be paid by the District pursuant to

the 2012 Installment Sale Agreement.

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“2012 Installment Sale Agreement” means that certain 2012 Installment Sale Agreement, dated as of June 1, 2012, by and between the Authority and the District, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Indenture.

“2012 Project” means the additions, betterments, extensions and improvements to the Water

System financed with the proceeds of the Bonds. “2012 Project Costs” means, with respect to any component of the 2012 Project, all costs of the

acquisition and construction thereof which are paid from moneys on deposit in the 2012 Project Fund, including but not limited to:

(a) all costs required to be paid to any person under the terms of any agreement for or relating to the

Acquisition and Construction of component of the 2012 Project; (b) obligations incurred for labor and materials in connection with the Acquisition and Construction

of such component of the 2012 Project; (c) the cost of performance or other bonds and any and all types of insurance that may be necessary

or appropriate to have in effect in connection with the Acquisition and Construction of such component of the 2012 Project;

(d) all costs of engineering and architectural services, including the actual out-of-pocket costs for test

borings, surveys, estimates, plans and specifications and preliminary investigations therefor, development fees, sales commissions, and for supervising construction, as well as for the performance of all other duties required by or consequent to the proper Acquisition and Construction of such component of the 2012 Project;

(e) any sums required to reimburse the District for advances made for any of the above items or for

any other costs incurred and for work done which are properly chargeable to the Acquisition and Construction of such component of the 2012 Project; and

(f) all financing costs incurred in connection with the Acquisition and Construction of such

component of the 2012 Project, including but not limited to Delivery Costs and other costs incurred in connection with the 2012 Installment Sale Agreement and the financing of the 2012 Project.

“2012 Project Fund” means the fund by that name established and held by the Trustee pursuant to

the Indenture. “Water Service” means the water furnished, made available or sold by the Water System. “Water System” means all land and water facilities used and useful by the District for the

production, storage, conveyance, treatment and distribution of water now owned by the District, together with all additions, betterments, extensions or improvements to such facilities or any part thereof hereafter acquired or constructed by the District.

“Written Certificate,” “Written Request” and “Written Requisition” of the Authority or the District

mean, respectively, a written certificate, request or requisition signed in the name of the Authority or the District by its Authorized Representative. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument.

THE INDENTURE

Establishment and Application of Costs of Issuance Fund The moneys in the Costs of Issuance Fund shall be disbursed by the Trustee to pay the Costs of

Issuance. The Trustee shall disburse moneys in the Costs of Issuance Fund only upon a receipt of a

Appendix D Page 10

sequentially numbered requisition, with bills, invoices or statements attached, signed by a District Representative setting forth the amounts to be disbursed for payment or reimbursement of Costs of Issuance and the name and address of the person or persons to whom said amounts are to be disbursed, stating that the amounts to be disbursed are for Costs of Issuance properly chargeable to the Costs of Issuance Fund. On December 20, 2012, or upon the earlier Written Request of the District, all amounts remaining in the Costs of Issuance Fund shall be transferred by the Trustee to the 2012 Project Fund and the Costs of Issuance Fund shall be closed.

Establishment and Application of Project Fund

Moneys in the 2012 Project Fund shall be used solely for the payment of the 2012 Project Costs. The

Trustee shall disburse moneys in the 2012 Project Fund from time to time to pay 2012 Project Costs (or to reimburse the District for payment of 2012 Project Costs) upon receipt by the Trustee of a Written Requisition of the District which: (i) states with respect to each disbursement to be made (A) the requisition number, (B) the name and address of the person, firm or corporation to whom payment will be made, (C) the amount to be disbursed, (D) that each obligation mentioned therein is a proper charge against the 2012 Project Fund and has not previously been disbursed by the Trustee from amounts in the 2012 Project Fund, (E) that all conditions precedent set forth in the 2012 Installment Sale Agreement with respect to such disbursement have been satisfied, and (F) that the amount of such disbursement is for a 2012 Project Cost; (ii) specifies in reasonable detail the nature of the obligation; and (iii) is accompanied by a bill or statement of account (if any) for each obligation. The Trustee may conclusively rely on the information contained in any Written Requisition and shall have no responsibility with respect to the application of any funds disbursed in accordance with such Written Requisitions. Upon the filing with the Trustee of a Written Certificate of the District stating that the 2012 Project has been completed or that all Written Requisitions intended to be filed by the District have been filed, the Trustee shall withdraw all amounts then on deposit in the 2012 Project Fund and transfer such amounts to the District for deposit in the Revenue Fund and the 2012 Project Fund shall be closed..

Pledge and Assignment; Bond Fund

Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in any fund or account established pursuant to the Indenture are pledged to secure the payment of the principal of and interest on the Bonds. Said pledge shall constitute a first lien on and security interest in such assets and shall attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act.

The Authority transfers in trust, grants a security interest in and assigns to the Trustee, for the

benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the rights of the Authority in the 2012 Installment Sale Agreement (except for certain rights to indemnification set forth therein), and the Trustee shall be entitled to and shall collect and receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and shall, subject to the provisions of the Indenture, take all steps, actions and proceedings which the Trustee determines to be reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority, all of the obligations of the District under the 2012 Installment Sale Agreement.

The assignment of 2012 Installment Sale Agreement to the Trustee is solely in its capacity as Trustee

under the Indenture and the duties, powers and liabilities of the Trustee in acting thereunder shall be subject to the provisions of the Indenture, including, without limitation, the provisions of the Indenture. The Trustee shall not be responsible for any representations, warranties, covenants or obligations of the Authority.

Revenues shall be promptly deposited by the Trustee upon receipt thereof in a special fund

designated as the “Bond Fund” which the Trustee shall establish, maintain and hold in trust. Within the Bond Fund there shall be established an Interest Account, a Principal Account and a Sinking Account. All

Appendix D Page 11

Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture.

Allocation of Revenues

Not later than the Business Day preceding each Interest Payment Date, the Trustee shall transfer from the Bond Fund and deposit into the following respective accounts, the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

(a) The Trustee shall deposit in the Interest Account an amount required to cause the aggregate

amount on deposit in the Interest Account equal to the amount of interest coming due and payable on such Interest Payment Date on all Bonds then Outstanding.

(b) The Trustee shall deposit in the Principal Account an amount, if any, required to cause the

aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on such Interest Payment Date.

(c) The Trustee shall deposit in the Sinking Account an amount, if any, required to cause the

aggregate amount on deposit in the Sinking Account to equal the aggregate principal amount of the Term Bonds required to be redeemed on such Interest Payment Date.

(d) If the then applicable Interest Payment Date is January 1, all remaining moneys shall be held by

the Trustee in the Bond Fund and applied for the next succeeding July 1 Interest Payment Date deposits. If the then applicable Interest Payment Date is July 1, all remaining moneys shall be transferred to the District.

Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by

the Trustee solely for the purpose of paying interest on the Bonds and interest with respect to all Parity Obligations as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Indenture).

Application of Principal Account. All amounts in the Principal Account shall be used and withdrawn

by the Trustee solely to pay the principal amount of the Bonds and principal with respect to all Parity Obligations at their respective maturity dates.

Application of Sinking Account. All amounts in the Sinking Account shall be used and withdrawn

by the Trustee solely to pay the aggregate principal amount of the Term Bonds required to be redeemed on such July 1 and sinking fund obligations with respect to all Parity Obligations.

Application of Redemption Fund. The Trustee shall establish and maintain the Redemption Fund,

amounts in which shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Bonds to be redeemed; provided, however, that at any time prior to the selection of Bonds for redemption, the Trustee may apply such amounts to the purchase of Bonds at public or private sale.

Investments

All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments. Such investments shall be directed by the District pursuant to a Written Request of the District filed with the Trustee at least two (2) Business Days in advance of the making of such investments (which Written Request shall certify that the investments constitute Permitted Investments). In the absence of any such directions, the Trustee shall invest any such moneys in Permitted Investments described in clause (h) of the definition thereof. Permitted Investments purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account.

Appendix D Page 12

All interest or gain derived from the investment of amounts in any of the funds or accounts established under the Indenture shall be deposited in the Bond Fund, and except that interest or gain derived from the investment of amounts in the 2012 Project Fund shall be retained therein and used for the purposes thereof. To the extent that any investment agreement requires the payment of fees, such fees shall be paid from available moneys in the Bond Fund after the deposit of moneys described in the Indenture. For purposes of acquiring any investments under the Indenture, the Trustee may commingle funds held by it under the Indenture. The Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee or its affiliates may act as sponsor, advisor or depository with respect to any Permitted Investment. To the extent that any Permitted Investment purchased by the Trustee are registrable securities such Permitted Investment shall be registered in the name of the Trustee. The Trustee shall incur no liability for losses arising from any investments made pursuant to the Indenture.

Such investments shall be valued by the Trustee at the market value thereof, exclusive of accrued

interest. Deficiencies in the amount on deposit in any fund or account resulting from a decline in market value shall be restored no later than the succeeding valuation date.

Covenants

Punctual Payment. The Authority shall punctually pay or cause to be paid the principal of and interest on all the Bonds in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Indenture.

Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the

extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in the Indenture shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.

Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien,

charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by the Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, and reserves the right to issue other obligations for such purposes. Nothing in the Indenture shall in any way limit the District’s ability to encumber its assets in accordance with the 2004 Installment Sale Agreement, the 2010 Installment Sale Agreement or the 2012 Installment Sale Agreement.

Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to

law to issue the Bonds and to enter into the Indenture and to pledge and assign the Revenues and other assets purported to be pledged and assigned, respectively, under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee shall at all times, subject to the provisions of the Indenture and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bond Owners under the Indenture against all claims and demands of all persons whomsoever.

Accounting Records. The Trustee shall at all times keep, or cause to be kept, proper books of record

and account, prepared in accordance with industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of Bonds, the Revenues, the 2010 Installment Sale Agreement and all funds and accounts established pursuant to the Indenture. Such books of record and account shall be available for inspection by the Authority and the District, during business hours and under reasonable circumstances.

Appendix D Page 13

No Additional Obligations. The Authority covenants that no additional bonds, notes or other

indebtedness shall be issued or incurred which are payable out of the Revenues in whole or in part. Tax Covenants. The Authority covenants to and for the benefit of the Owners that it will: (a) neither make or use nor cause to be made or used any investment or other use of the proceeds of

the Bonds or the moneys and investments held in the funds and accounts established under the Indenture which would cause the Bonds to be arbitrage bonds under section 103(b) and section 148 of the Code and the Regulations issued under section 148 of the Code or which would otherwise cause the interest payable on the Bonds to be includable in gross income for federal income tax purposes;

(b) not take or cause to be taken any other action or actions, or fail to take any action or actions, which

would cause the interest payable on the Bonds to be includable in gross income for federal income tax purposes;

(c) at all times do and perform all acts and things permitted by law and necessary or desirable in

order to assure that interest paid by the Authority on the Bonds will be excluded from the gross income, for federal income tax purposes, of the Owners pursuant to section 103 of the Code; and

(d) not take any action or permit or suffer any action to be taken if the result of the same would be to

cause the Bonds to be “federally guaranteed” within the meaning of section 149(b) of the Code and the Regulations.

In furtherance of the above covenants, the Authority shall execute, deliver and comply with the

provisions of the Tax Certificate, which is by this reference incorporated into the Indenture and made a part of the Indenture as if set forth in the Indenture in full including all of the defined terms therein, and by its acceptance of the Indenture the Trustee acknowledges receipt of the Tax Certificate and acknowledges its incorporation in the Indenture. The Trustee agrees it will invest funds held under the Indenture in accordance with the terms of the Indenture (this covenant shall extend throughout the term of the Bonds, to all funds and accounts created under the Indenture and all moneys on deposit to the credit of any fund or account).

Rebate Fund

The Trustee shall establish and maintain, when required, a fund separate from any other fund established and maintained under the Indenture designated as the Rebate Fund. Within the Rebate Fund, the Trustee shall maintain such accounts as shall be necessary to comply with instructions of the Authority given pursuant to the terms and conditions of the Tax Certificate. Subject to the transfer provisions provided in paragraph (e) below, all money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the rebate requirement (required by the Tax Certificate and referred to in the Indenture as the “Rebate Requirement”), for payment to the federal government of the United States of America. Neither the Authority nor the Owner of any Bonds shall have any rights in or claim to such money. All amounts deposited into or on deposit in the Rebate Fund shall be governed by the Indenture and by the Tax Certificate (which is incorporated into the Indenture by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the directions of the Authority including supplying all necessary information in the manner provided in the Tax Certificate, and shall have no liability or responsibility to enforce compliance by the Authority with the terms of the Tax Certificate or any other tax covenants contained in the Indenture. The Trustee shall not be responsible for calculating rebate amounts or for the adequacy or correctness of any rebate report or rebate calculations. The Trustee shall have no independent duty to review such calculations or enforce the compliance by the Authority with such rebate requirements. The Trustee shall have no duty or obligation to determine the applicability of the Code and shall only be obligated to act in accordance with written instructions provided by the Authority.

Upon the Authority’s written direction, an amount shall be deposited to the Rebate Fund by the

Trustee from deposits by the Authority, if and to the extent required, so that the balance in the Rebate Fund shall equal the Rebate Requirement. Computations of the Rebate Requirement shall be furnished by or on

Appendix D Page 14

behalf of the Authority in accordance with the Tax Certificate. The Trustee shall supply to the Authority all necessary information in the manner provided in the Tax Certificate to the extent such information is reasonably available to the Trustee.

The Trustee shall have no obligation to rebate any amounts required to be rebated pursuant to the

Indenture, other than from moneys held in the funds and accounts created under the Indenture or from other moneys provided to it by the Authority.

At the written direction of the Authority, the Trustee shall invest all amounts held in the Rebate

Fund in Permitted Investments, subject to the restrictions set forth in the Tax Certificate. Moneys shall not be transferred from the Rebate Fund except as provided in paragraph (e) below. The Trustee shall not be liable for any consequences arising from such investment.

Upon receipt of the Authority’s written directions, the Trustee shall remit part or all of the balances

in the Rebate Fund to the United States, as so directed. In addition, if the Authority so directs, the Trustee will deposit money into or transfer money out of the Rebate Fund from or into such accounts or funds as directed by the Authority’s written directions; provided, however, only moneys in excess of the Rebate Requirement may, at the written direction of the Authority, be transferred out of the Rebate Fund to such other accounts or funds or to anyone other than the United States in satisfaction of the arbitrage rebate obligation. Any funds remaining in the Rebate Fund after each five year remission to the United States, redemption and payment of all of the Bonds and payment and satisfaction of any Rebate Requirement, or provision made therefor satisfactory to the Trustee, shall be withdrawn and remitted to the Authority.

Notwithstanding any other provision of the Indenture, the obligation to remit the Rebate

Requirement to the United States and to comply with all other requirements of the Indenture and the Tax Certificate shall survive the defeasance or payment in full of the Bonds.

Collection of Amounts Due Under the 2012 Installment Sale Agreement

The Trustee shall promptly collect all amounts due from the District pursuant to the 2012 Installment Sale Agreement. Subject to the provisions of the Indenture, the Trustee shall enforce, and take all steps, actions and proceedings which the Trustee determines to be reasonably necessary for the enforcement of all of its rights thereunder as assignee of the Authority, for the enforcement of all of the obligations of the District under the 2012 Installment Sale Agreement.

The Authority shall not amend, modify or terminate any of the terms of the 2012 Installment Sale

Agreement, or consent to any such amendment, modification or termination, without the prior written consent of the Trustee. The Trustee shall give such written consent only if (a) in the opinion of Bond Counsel, such amendment, modification or termination will not materially adversely affect the interests of the Owners, or (b) the Trustee first obtains the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding to such amendment, modification or termination.

Continuing Disclosure

The District has covenanted to comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Indenture, failure of the District to comply with the Continuing Disclosure Certificate shall not constitute an Event of Default under the Indenture; provided, however, that any Participating Underwriter or any Owner or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the District of its obligations under the Continuing Disclosure Certificate, including seeking mandate or specific performance by court order.

Appendix D Page 15

Events of Default and Remedies

Events of Default. The following events shall be Events of Default under the Indenture: (a) Default in the due and punctual payment of the principal of any Bonds when and as the same

shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise.

(b) Default in the due and punctual payment of any installment of interest on any Bonds when and

as the same shall become due and payable. (c) Default by the Authority in the observance of any of the other covenants, agreements or

conditions on its part in the Indenture or in the Bonds, if such default shall have continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee; provided, however, that if in the reasonable opinion of the Authority the default stated in the notice can be corrected, but not within such sixty (60) day period, such default shall not constitute an Event of Default under the Indenture if the Authority shall commence to cure such default within such sixty (60) day period and thereafter diligently and in good faith cure such failure in a reasonable period of time.

(d) The occurrence and continuation of an event of default with respect to any Parity Obligation. Remedies Upon Event of Default If any Event of Default shall occur, then, and in each and every such case during the continuance of

such Event of Default, the Trustee may, and shall at the written direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, upon notice in writing to the Authority and the District, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding.

Any such declaration is subject to the condition that if, at any time after such declaration and before

any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority or the District shall deposit with the Trustee a sum sufficient to pay all the principal of and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds to the extent permitted by law, and the reasonable fees, charges and expenses (including those of its attorneys) of the Trustee, and any and all other Events of Default known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority, the District and the Trustee, or the Trustee if such declaration was made by the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon.

Application of Revenues and Other Funds After Default. If an Event of Default shall occur and be

continuing, all Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture shall be applied by the Trustee as follows and in the following order:

(a) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of

the Owners of the Bonds and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture;

Appendix D Page 16

(b) To the payment of the principal of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid) in accordance with the provisions of the Indenture, as follows:

First: To the payment to the persons entitled thereto of all installments of interest then due

in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and

Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds

which shall have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate borne by the respective Bonds (to the extent permitted by law), and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference.

Trustee to Represent Bond Owners. The Trustee is irrevocably appointed (and the successive

respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, the Indenture and applicable provisions of any law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Bond Owners, the Trustee in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the execution of any power granted in the Indenture, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the Bonds, the Indenture or any other law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Owners of such Bonds, subject to the provisions of the Indenture.

Bond Owners’ Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding,

the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee under the Indenture, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would expose it to liability.

Limitation on Bond Owners’ Right to Sue. Notwithstanding any other provision of the Indenture, no

Owner of any Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, the 2012 Installment Sale Agreement or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have failed to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) no direction inconsistent with

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such written request shall have been given to the Trustee during such sixty (60) day period by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding.

Such notification, request, tender of indemnity and refusal or omission are declared, in every case,

to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, the Indenture, the 2012 Installment Sale Agreement or other applicable law with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of the Indenture.

Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee or to the Owners of

the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given under the Indenture or now or hereafter existing at law or in equity or otherwise.

No Waiver of Default. No delay or omission of the Trustee or of any Owner of the Bonds to exercise

any right or power arising upon the occurrence of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and every power and remedy given by the Indenture to the Trustee or the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient.

Modification or Amendment

The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds and

of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto, which the Authority and the Trustee may enter into when the written consents of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding shall have been filed with the Trustee. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted in the Indenture, or deprive the Owners of the Bonds of the lien created by the Indenture on such Revenues and other assets (except as expressly provided in the Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof.

The Indenture and the rights and obligations of the Authority, of the Trustee and the Owners of the

Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority and the Trustee may enter into without the consent of any Bond Owners, if the Trustee has been furnished an opinion of counsel that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners of the Bonds, including, without limitation, for any one or more of the following purposes:

(i) to add to the covenants and agreements of the Authority in the Indenture contained

other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power reserved to or conferred upon the Authority;

(ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or

omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the Authority may deem necessary or desirable;

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(iii) to modify, amend or supplement the Indenture in such manner as to permit the

qualification under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; or

(iv) to modify, amend or supplement the Indenture in such manner as to cause interest on

the Bonds to remain excludable from gross income under the Code.

The Trustee may in its discretion, but shall not be obligated to, enter into any such Supplemental Indenture which materially adversely affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise.

Prior to the Trustee entering into any Supplemental Indenture, there shall be delivered to the

Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of the Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion from gross income for purposes of federal income taxes of interest on the Bonds.

(e) Written notice of any amendment or modification made pursuant to the Indenture shall be

given by the Authority to any rating agency then rating the Bonds at least thirty (30) days prior to the effective date of such amendment or modification.

Defeasance

Discharge of Indenture. Any or all of the Outstanding Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable by the Authority under the Indenture:

(a) by paying or causing to be paid the principal of and interest on such Bonds, as and when the

same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, Defeasance Obligations in the

necessary amount (as provided in the Indenture) to pay or redeem such Bonds; or (c) by delivering to the Trustee, for cancellation by it, such Bonds. If the Authority shall also pay or cause to be paid all other sums payable under the Indenture by

the Authority, then and in that case, at the election of the Authority (evidenced by a Written Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and the Indenture), and notwithstanding that any of such Bonds shall not have been surrendered for payment, the Indenture and the pledge of Revenues and other assets made under the Indenture with respect to such Bonds and all covenants, agreements and other obligations of the Authority under the Indenture with respect to such Bonds shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the Authority, the Trustee shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver to the District all moneys or securities or other property held by it pursuant to the Indenture which are not required for the payment or redemption of any of such Bonds not theretofore surrendered for such payment or redemption.

Discharge of Liability on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of

money or securities in the necessary amount (as provided in the Indenture) to pay or redeem any Outstanding Bonds (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 maturity, notice of such redemption shall have been given or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the Authority in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of the Indenture.

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The Authority may at any time surrender to the Trustee for cancellation by it any Bonds previously

issued and delivered, which the Authority may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.

Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted

that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and shall be:

(a) lawful money of the United States of America in an amount equal to the principal amount of

such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds and all unpaid interest thereon to the redemption date; or

(b) Defeasance Obligations, the principal of and interest on which when due will, in the written

opinion of an Independent Accountant filed with the District, the Authority and the Trustee, provide money sufficient to pay the principal of and interest on the Bonds to be paid or redeemed, as such principal and interest become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or provision satisfactory to the Trustee shall have been made for the giving of such notice;

provided, in each case, that (i) the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Written Request of the Authority) to apply such money to the payment of such principal and interest with respect to such Bonds, and (ii) the Authority shall have delivered to the Trustee an opinion of Bond Counsel to the effect that such Bonds have been discharged in accordance with the Indenture (which opinion may rely upon and assume the accuracy of the Independent Accountant’s opinion referred to above).

THE 2012 INSTALLMENT SALE AGREEMENT

Sale of Project

The Authority sells the Projects to the District, and the District purchases the Projects from the Authority, upon the terms and conditions set forth in the 2012 Installment Sale Agreement.

Term of Sale

The 2012 Installment Sale Agreement shall take effect on the Closing Date, and shall end on the earlier of July 1, 2040, or such earlier date on which the Bonds shall no longer be Outstanding under the Indenture.

Title

Upon the Completion Date of each component of the 2012 Project, title to such component shall be deemed conveyed to and vested in the District. The Authority and the District shall execute, deliver and cause to be recorded any and all documents necessary to convey such title to the District.

2012 Installment Payments

Obligation to Pay. In consideration of the sale of the Projects by the Authority under the 2012 Installment Sale Agreement, the District agrees to pay to the Authority, its successors and assigns, as the purchase price for the Projects during each Fiscal Year, from Pledged Net Revenues, the 2012 Installment Payments (denominated into components of principal and interest) for a portion of the Projects in the respective principal amounts specified in the 2012 Installment Sale Agreement, plus interest commencing

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on the Closing Date, to be due and payable on the respective 2012 Installment Payment Dates commencing December 15, 2012. The 2012 Installment Payments are equal to the debt service payments on the Bonds. Any amount held in the Bond Fund, the Interest Account, the Principal Account or the Sinking Account on any 2012 Installment Payment Date, derived from any source of funds of the District, shall be credited towards the 2012 Installment Payment then due and payable by the District. 2012 Installment

Special Obligation; Absolute and Unconditional Obligations; No Abatement. The District’s obligation

to pay the 2012 Installment Payments shall be a special obligation limited solely to Pledged Net Revenues. Under no circumstances shall the District be required to advance any moneys derived from any source of income other than the Pledged Net Revenues and other sources specifically identified in the 2012 Installment Sale Agreement for the payment of the 2012 Installment Payments, nor shall any other funds or property of the District be liable for the payment of the 2012 Installment Payments. However, the obligation of the District to pay the 2012 Installment Payments from Pledged Net Revenues and to perform and observe the other agreements contained in the 2012 Installment Sale Agreement is absolute and unconditional and is not subject to: (a) any reduction or abatement whatsoever due to the destruction of or damage to the Projects or any portion thereof, taking of the Projects or any portion thereof in eminent domain proceedings; or (b) any defense or any right of set-off, counterclaim or recoupment arising out of any breach by the Authority or the Trustee of any obligation to the District or otherwise with respect to the Projects, whether under the 2012 Installment Sale Agreement or otherwise, or out of indebtedness or liability at any time owing to the District by the Authority or the Trustee. Until all of the 2012 Installment Payments and other amounts coming due and payable under the 2012 Installment Sale Agreement have been fully paid or prepaid, the District will not suspend or discontinue payment of any 2012 Installment Payments or such other amount, and will perform and observe all other agreements contained in the 2012 Installment Sale Agreement.

Reduction Upon Partial Prepayment. In the event the District prepays less than all of the remaining

principal components of the 2012 Installment Payments, the amount of such prepayment shall be applied to reduce the principal component of the subsequent remaining 2012 Installment Payments and the interest component of each subsequent remaining 2012 Installment Payment shall be reduced by the aggregate corresponding amount of interest which would otherwise be payable with respect to the Bonds redeemed as a result of such prepayment.

Rate on Overdue Payments. In the event the District should fail to make any of the payments

required in the 2012 Installment Sale Agreement so that there are insufficient moneys on hand in the Interest Account, the Principal Account or the Sinking Account to pay any 2012 Installment Payment in full on an Interest Payment Date, the 2012 Installment Payment in default shall continue as an obligation of the District until the amount in default shall have been fully paid and the District agrees to pay the same with interest thereon, to the extent permitted by law, from the date thereof at the rate of interest payable on the Bonds.

Assignment. The District understands and agrees that all 2012 Installment Payments have

previously been assigned by the Authority to the Trustee in trust, pursuant to the Indenture, for the benefit of the Owners of the Bonds, and the District assents to such assignment. The Authority directs the District, and the District agrees, to pay all of the 2012 Installment Payments to the Trustee at its Office.

Pledge and Application of Pledged Net Revenues

Pledge of Pledged Net Revenues. The District agrees that the payment of the 2012 Installment Payments shall be secured by a pledge, charge and first and prior lien upon Pledged Net Revenues, and Pledged Net Revenues sufficient to pay the 2012 Installment Payments as they become due and payable are pledged, charged, assigned, transferred and set over by the District to the Authority and its assigns for the purpose of securing payment of the 2012 Installment Payments. The Pledged Net Revenues shall constitute a trust fund for the security and payment of the 2012 Installment Payments.

Deposit to and Transfer from Revenue Fund. All of the Gross Revenues shall be deposited by the

District immediately upon receipt in the Revenue Fund.

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The District shall withdraw from the Revenue Fund such amounts at such times as shall be required to pay all Maintenance and Operation Costs as they come due and payable.

The District shall withdraw from the Revenue Fund such amounts at such times as shall be

required to pay all payments with respect to the Senior Obligations. The District covenants and agrees that all Gross Revenues will be held by the District in the

Revenue Fund in trust for the benefit of the Trustee (as assignee of the rights of the Authority under the 2012 Installment Sale Agreement), the owners of the Senior Obligations, the Owners, the owners of any Parity Obligations and the owners of any Subordinate Obligations.

On or before each 2012 Installment Payment Date, the District shall withdraw from the Revenue

Fund and transfer to the Trustee, for deposit into the Bond Fund, amounts which, together with the balance then on deposit in the Bond Fund (other than amounts resulting from the prepayment of the 2012 Installment Payments pursuant to the Indenture and other than amounts required for payment of the principal or interest with respect to any Bonds which have matured or been called for redemption but which have not been presented for payment), is equal to the aggregate amount of the 2012 Installment Payment coming due and payable on the next succeeding Interest Payment Date.

In addition, the District shall withdraw from the Revenue Fund such amounts at such times as shall

be required to pay (i) the principal of and interest on any Parity Obligations and otherwise comply with the provisions of the instruments authorizing the issuance of any Parity Obligations; and (ii) pay all other amounts when and as due and payable under the 2012 Installment Sale Agreement.

Release from Lien. Following the transfer described above with respect to the July 1 Interest

Payment Date, Pledged Net Revenues in excess of amounts required for the payment of 2012 Installment Payments and any Parity Obligations in that Fiscal Year shall be released from the lien of the 2012 Installment Sale Agreement and shall be available for any lawful purpose of the District.

Rates, Fees and Charges

The District will, at all times while any of the 2012 Installment Payments, any Parity Obligations and any Subordinate Obligations remain Outstanding, fix, prescribe and collect rates, fees and charges for the Water Service for each Fiscal Year so as to yield Gross Revenues at least sufficient, after making reasonable allowances for contingencies and errors in the estimates, to pay the following amounts during such Fiscal Year in the order below set forth:

(i) All current Maintenance and Operation Costs. (ii) Payments required with respect to the Senior Obligations. (iii) The 2012 Installment Payments and all payments required with respect to the any

Parity Obligations. (iv) Payments required with respect to the any Subordinate Obligations. (v) All payments to meet any other obligations of the District which are charges, liens or

encumbrances upon, or payable from, the Pledged Net Revenues. (vi) Any other lawful purposes of the District, including, but not limited to, deposits to the

Rate Stabilization Fund in accordance the 2012 Installment Sale Agreement. In addition, the District shall fix, prescribe and collect rates, fees and charges for the Water Service

during each Fiscal Year which are sufficient to yield Net Revenues at least equal to one hundred twenty-five percent (125%) of the amounts payable under the preceding paragraphs (ii) and (iii) above in such Fiscal Year.

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Limitations on Future Obligations Secured by Net Revenues

No Obligations Superior to 2012 Installment Payments. In order to protect further the availability of the Pledged Net Revenues and the security for the 2012 Installment Payments and any Parity Obligations, the District agrees that the District shall not, so long as any 2012 Installment Payments or any Parity Obligations are outstanding, issue or incur any obligations payable from Gross Revenues, Net Revenues or Pledged Net Revenues superior to the 2012 Installment Payments or any Parity Obligations and specifically shall not issue any obligations on a parity with the Senior Obligations.

Parity Obligations. The District further covenants that it will not issue or incur any Parity

Obligations unless among other things, the requirements of either clause (i) or (ii) below are satisfied:

(i) Test Period Net Revenues (as defined below) are at least equal to 125% of the Debt Service for each of the five Fiscal Years commencing with the first full Fiscal Year following the period of capitalized interest (if any) for the Parity Obligations, as evidenced by a Certificate of the City;

or (ii) Projected Net Revenues (as described below) are at least equal to 125% of Debt Service

for each of the five Fiscal Years commencing with the first full Fiscal Year following the period of capitalized interest, if any, for the Parity Obligations, as evidenced by a Certificate of the City.

The projections described in (ii) above may take into account (A) only increases in the charges made

for service from the Water System adopted by the District prior to the date of issuance or incurrence of such Parity Obligations and which are scheduled to be effective within 36 months following the date of issuance or incurrence of such Parity Obligations, and (ii) an allowance for Net Revenues from any additions or connections to or improvements or extensions of the Water System, all in an amount equal to the estimated additional average annual Net Revenues to be derived from such additions, connections, improvements or extensions.

Notwithstanding the requirements described above, Parity Obligations may be issued or incurred

to refund outstanding Parity Obligations if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased in any Fiscal Year in which Parity Obligations (outstanding on the date of issuance or incurrence of such refunding Parity Obligations, but excluding such refunding Parity Obligations) not being refunded are outstanding.

“Test Period Net Revenues” means, with respect to the issuance of any Parity Obligations, the

maximum amount of Net Revenues for either the prior Fiscal Year or any consecutive twelve month period during the eighteen months immediately preceding the issuance of such Parity Obligations.

The District may but shall not be required to fund a reserve fund or obtain a Qualified Reserve

Fund Credit Instrument with respect to any Parity Obligations. If a reserve fund is funded for any Parity Obligations or a Qualified Reserve Fund Credit Instrument is obtained with respect to any Parity Obligations, such funded reserve fund or Qualified Reserve Fund Credit Instrument shall secure only the related Parity Obligations and shall not support the 2012 Installment Sale Agreement or any other Parity Obligations.

Subordinate Obligations. The District further covenants that the District shall not issue or incur any

Subordinate Obligations unless Test Period Net Revenues or projected Net Revenues, calculated in the same manner as described in paragraph (b) above, are equal to at least 100% of the sum of the Debt Service and debt service obligations on all Subordinate Obligations outstanding immediately subsequent to the incurring of such additional obligations.

Additional Payments

In addition to the 2012 Installment Payments, the District shall pay, from Net Revenues, when due all costs and expenses incurred by the Authority to comply with the provisions of the Indenture and the

Appendix D Page 23

2012 Installment Sale Agreement, including, without limitation all Costs of Issuance (to the extent not paid from amounts on deposit in the Costs of Issuance Fund), compensation due to the Trustee for its fees, costs and expenses incurred under the Indenture, compensation due to the Authority for its fees, costs and expenses incurred under the Indenture and all costs and expenses of attorneys, auditors, engineers and accountants.

Payment of Rebatable Amounts

The District agrees to furnish all information to, and cooperate fully with, the Authority and its officers, employees, agents and attorneys, in order to assure compliance with the provisions of he Indenture. In the event that the Authority shall determine, pursuant to the Indenture, that any amounts are due and payable to the United States of America thereunder and that neither the Authority nor the Trustee has on deposit an amount of available moneys (excluding moneys on deposit in the funds and accounts established for the payment of the principal of or interest or redemption premium, if any, on the Bonds) to make such payment, the Authority shall promptly notify the District of such fact. Upon receipt of any such notice, the District shall promptly pay to the Trustee from any source of legally available funds, the amounts determined by the Authority to be due and payable to the United States of America.

Rate Stabilization Fund

From time to time, the District may deposit in the Rate Stabilization Fund from Gross Revenues

such amounts as the District may determine, provided that deposits for each Fiscal Year may be made until (but not after) one hundred eighty (180) days following the end of such Fiscal Year.

The District may withdraw amounts from the Rate Stabilization Fund (i) for transfer to the Revenue

Fund for inclusion in Gross Revenues for any Fiscal Year, such withdrawals to be made until (but not after) one hundred eighty (180) days after the end of such Fiscal Year, or (ii) for any other lawful purpose of the District.

All interest or other earnings on deposits in the Rate Stabilization Fund shall be withdrawn

therefrom and accounted for as Gross Revenues. Notwithstanding the foregoing, (i) no deposit of Gross Revenues to the Rate Stabilization Fund may

be made to the extent that such Gross Revenues were included the calculations of the incurrence of Parity Obligations and withdrawal of the Gross Revenues to be deposited in the Rate Stabilization Fund from Gross Revenues that would cause noncompliance with the rate covenant of the 2012 Installment Sale Agreement and (ii) no deposit of Net Revenues shall be made in the Rate Stabilization Fund to the extent that such deposit would cause noncompliance with the rate covenant of the 2012 Installment Sale Agreement in any Fiscal Year.

The Rate Stabilization Fund is not pledged to secure the payments with respect to the Senior

Obligations, the payment of the 2012 Installment Payments, the payments with respect to any Parity Obligations or the payments with respect to any Subordinate Debt.

Covenants

Maintenance, Utilities, Taxes and Assessments. Throughout the Term of the 2012 Installment Sale Agreement, all improvement, repair and maintenance of the Water System shall be the responsibility of the District, and the District shall pay for or otherwise arrange for the payment of all utility services supplied to the Water System, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Water System resulting from ordinary wear and tear.

The District shall also pay or cause to be paid all taxes and assessments of any type or nature, if any,

charged to the Authority or the District affecting any part of the Water System or the respective interests or estates therein; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the District shall be obligated to pay only

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such installments as are required to be paid during the Term of the 2012 Installment Sale Agreement as and when the same become due.

The District may, at the District’s expense and in its name, in good faith contest any such taxes,

assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority shall notify the District that, in its opinion, by nonpayment of any such items, the interest of the Authority under the 2012 Installment Sale Agreement or under the Indenture will be materially adversely affected, in which event the District shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority.

Operation of Water System. The District covenants and agrees to operate or cause to be operated the

Water System in an efficient and economical manner and to operate, maintain and preserve or caused to be operated, maintained and preserved the Water System in good repair and working order. The District covenants that, in order to fully preserve and protect the priority and security of the Bonds, the District shall pay from the Gross Revenues and discharge all lawful claims for labor, materials and supplies furnished for or in connection with the Water System which, if unpaid, may become a lien or charge upon the Gross Revenues or the Net Revenues prior or superior to the lien granted under the 2012 Installment Sale Agreement, or which may otherwise impair the ability of the District to pay the 2012 Installment Payments in accordance with the 2012 Installment Sale Agreement.

Insurance. The District shall maintain or cause to be maintained, throughout the Term of the 2012

Installment Sale Agreement, but only if and to the extent available at reasonable cost from reputable insurers, liability and casualty insurance in such amounts and against such risks as shall be appropriate for wastewater systems of like size and with similar facilities as the Water System. Such insurance may be maintained as part of or in conjunction with any other insurance carried by the District and may be maintained in whole or in part in the form of self-insurance by the District or in the form of the participation by the District in a joint powers agency or other program providing pooled insurance. All amounts collected from insurance against accident to or destruction of any portion of the Water System shall be used to repair, rebuild or replace such damaged or destroyed portion of the Water System. The proceeds of liability insurance shall be applied toward the extinguishment or satisfaction of the liability with respect to which such proceeds shall have been paid.

Eminent Domain. Any amounts received as awards as a result of the taking of all or any part of the

Water System by the lawful exercise of eminent domain, at the election of the District (evidenced by a Written Certificate of the District filed with the Trustee and the Authority) shall either (a) be used for the acquisition or construction of improvements and extension of the Water System in replacement of the condemned portions thereof, or (b) applied as a credit against the District’s obligation to make the 2012 Installment Payments and payments with respect to any Parity Obligations in accordance with written instructions of the District filed with the Trustee.

Records and Accounts. The District shall keep proper books of record and accounts of the Water

System, separate from all other records and accounts, in which complete and correct entries shall be made of all transactions relating to the Water System. Said books shall, upon prior request, be subject to the reasonable inspection by the Owners of not less than ten percent (10%) in aggregate principal amount of the Outstanding Bonds, or their representatives authorized in writing. The District shall cause the books and accounts of the Water System to be audited annually by an Independent Accountant, not more than one hundred eighty (180) days after the close of each Fiscal Year, and shall make a copy of such report available for inspection by the Bond Owners at the office of the District.

Continuing Disclosure. The District covenants and agrees that it will comply with and carry out all

of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the 2012 Installment Sale Agreement, failure of the District to comply with the Continuing Disclosure Certificate shall not constitute an Event of Default under the 2012 Installment Sale Agreement; provided, however, that any Participating Underwriter or any Owner or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the District of its obligations under 2012 Installment Sale Agreement, including seeking mandate or specific performance by court order.

Appendix D Page 25

Tax Covenants.

Private Activity Bond Limitation. The District shall assure that proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code.

Federal Guarantee Prohibition. The District shall not take any action or permit or suffer any

action to be taken if the result of the same would be to cause any of the Bonds to be “federally guaranteed” within the meaning of section 149(b) of the Code.

Rebate Requirement. The District shall take any and all actions necessary to assure

compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds.

No Arbitrage. The District shall not take, or permit or suffer to be taken by the Trustee or

otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Bonds to be “arbitrage bonds” within the meaning of section 148 of the Code.

Maintenance of Tax-Exemption. The District shall take all actions necessary to assure the

exclusion of interest with respect to the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the Closing Date.

Access to the Water System. The District agrees that the Authority and the Trustee, and any duly

authorized representative thereof, shall have the right at all reasonable times to enter upon and to examine and inspect the Water System. The District further agrees that the Authority and the Trustee, and any duly authorized representative thereof, shall have such rights of access to the Water System as may be reasonably necessary to cause the proper maintenance of the Water System in the event of failure by the District to perform its obligations under the 2012 Installment Sale Agreement.

Release and Indemnification Covenants. The District shall and agrees to indemnify and save the

Authority and the Trustee and their respective officers, agents, successors and assigns harmless from and against all claims, losses and damages, including legal fees and expenses, arising out of (a) the use, maintenance, condition or management of, or from any work or thing done on the Water System by the District, (b) any breach or default on the part of the District in the performance of any of its obligations under the 2012 Installment Sale Agreement, (c) any negligence or willful misconduct of the District or of any of its agents, contractors, servants, employees or licensees with respect to the Water System, (d) any act or negligence of any sublessee of the District with respect to the Water System, (e) the Acquisition and Construction of the Project or the authorization of payment of the Project Costs, (f) the performance by the Trustee of its duties and obligations under the Indenture, including any duties referred to in the Indenture, (g) the presence on, under or about, or release from, the Water System of any substance, material or waste which is, or which becomes, regulated or classified as hazardous or toxic under State, federal or local law, or (h) the offer, sale and issuance of the Bonds. No indemnification is made under the 2012 Installment Sale Agreement for adjudicated willful misconduct or negligence by the Authority or the Trustee, or their respective officers, employees, successors or assigns. The rights of the Trustee and the obligations of the District under 2012 Installment Sale Agreement shall survive the termination of the 2012 Installment Sale Agreement and the resignation or removal of the Trustee.

Assignment by the District. The obligations of the District under the 2012 Installment Sale

Agreement may not be assigned by the District. Sale or Other Disposition of Water System. Except as provided in the 2012 Installment Sale

Agreement, the District covenants that the Water System shall not be encumbered, sold, leased, pledged, any charge placed thereon, or otherwise disposed of, as a whole or substantially as a whole; provided, however, the District may lease the Water System to a related public entity that (a) assumes all liabilities of

Appendix D Page 26

the District with respect to the Water System, and (b) covenants to maintain Gross Revenues sufficient to operate and maintain the Water System and duly provide for the punctual payment of all obligations assumed by such related public entity in connection with such lease including, but not limited to, the 2012 Installment Payments under the 2012 Installment Sale Agreement. Neither the Net Revenues nor any other funds pledged or otherwise made available to secure payment of the 2012 Installment Payments shall be mortgaged, encumbered, sold, leased, pledged, any charge placed thereon, or disposed or used except as authorized by the terms of the 2012 Installment Sale Agreement. The District shall not enter into any agreement which impairs the operation of the Water System or any part of it necessary to secure adequate Net Revenues to pay the 2012 Installment Payments, or which otherwise would impair the rights of the Bond Owners and the owners of any Parity Obligations with respect to the Net Revenues. If any substantial part of the Water System shall be sold, the payment therefor shall either (a) be used for the acquisition or construction of improvements, extensions or replacements of Project constituting part of the Water System, or (b) to the extent not so used, be paid to the Trustee to be applied to prepay the 2012 Installment Payments or any Parity Obligations, in accordance with written instructions of the District filed with the Trustee.

Amendment of 2012 Installment Sale Agreement. The District and the Authority shall have the right

to modify or amend the 2012 Installment Sale Agreement without the consent of any of the Bond Owners or any of the owners of Parity Obligations, but only if such amendment or modification does not cause interest represented by the Bonds to be includable in gross income for federal income tax purposes in the opinion of Bond Counsel, and only if such amendment or modification does not materially adversely affect the interests of the Owners of the Bonds or the owners of any Parity Obligations in the opinion of Bond Counsel, and only if such amendment or modification is for any one or more of the following purposes:

(a) to provide for the issuance of Parity Obligations pursuant to 2012 Installment Sale Agreement; (b) to add to the covenants and agreements of the District contained in the 2012 Installment Sale

Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power reserved in the 2012 Installment Sale Agreement to or conferred upon the District;

(c) to cure any ambiguity, or to cure, correct or supplement any defective provision contained in the

2012 Installment Sale Agreement, or in any other respect whatsoever as the Authority and the District may deem necessary or desirable; or

(d) to amend any provision thereof for the purpose of complying with the applicable requirements

of the Code.

Events of Default and Remedies Events of Default Defined. The following events shall be Events of Default under the 2012

Installment Sale Agreement: (a) Failure by the District to pay any 2012 Installment Payment when and as the same become due

and payable under the 2012 Installment Sale Agreement. (b) Failure by the District to pay any Additional Payment when due and payable under the 2012

Installment Sale Agreement, and the continuation of such failure for a period of ten (10) days. (c) Failure by the District to observe and perform any covenant, condition or agreement on its part

to be observed or performed, other than as referred to in the preceding clauses (a) or (b), for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the District by the Authority or the Trustee; provided, however, that if the District shall notify the Authority and the Trustee that in its reasonable opinion the failure stated in the notice can be corrected, but not within such thirty (30) day period, such failure shall not constitute an Event of Default under the 2012 Installment Sale Agreement if the District shall commence to cure such failure within such thirty (30) day period and thereafter diligently and in good faith cure such failure in a reasonable period of time.

(d) The filing by the District of a voluntary petition in bankruptcy, or failure by the District

promptly to lift any execution, garnishment or attachment, or adjudication of the District as a bankrupt, or

Appendix D Page 27

assignment by the District for the benefit of creditors, or the entry by the District into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the District in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may hereafter be enacted.

(e) The occurrence and continuation of any payment event of default under and as defined in the

instruments authorizing the issuance of any Parity Obligations. Remedies on Default. Whenever any Event of Default shall have happened and be continuing, the

Trustee as assignee of the Authority shall have the right, at its option and without any further demand or notice, but subject in all respects to the provisions of the Indenture, to:

(a) declare all principal components of the unpaid 2012 Installment Payments, together with

accrued interest thereon at the net effective rate of interest per annum then borne by the Outstanding Bonds from the immediately preceding Interest Payment Date on which payment was made, to be immediately due and payable, whereupon the same shall immediately become due and payable;

(b) take whatever action at law or in equity may appear necessary or desirable to collect the 2012

Installment Payments then due or thereafter to become due during the Term of the 2012 Installment Sale Agreement, or enforce performance and observance of any obligation, agreement or covenant of the District under the 2012 Installment Sale Agreement; and

(c) as a matter of right, in connection with the filing of a suit or other commencement of judicial

proceedings to enforce the rights of the Trustee and the Bond Owners under the 2012 Installment Sale Agreement, cause the appointment of a receiver or receivers of the Gross Revenues and other amounts pledged under the 2012 Installment Sale Agreement, with such powers as the court making such appointment shall confer.

The provisions of the preceding clause (a), however, are subject to the condition that if, at any time

after the principal components of the unpaid 2012 Installment Payments shall have been so declared due and payable pursuant to the preceding clause (a), and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the District shall deposit with the Trustee a sum sufficient to pay all principal components of the 2012 Installment Payments coming due prior to such declaration and all matured interest components (if any) of the 2012 Installment Payments, with interest on such overdue principal and interest components calculated at the net effective rate of interest per annum then borne by the Outstanding Bonds, and the reasonable expenses of the Trustee (including any fees and expenses of its attorneys), and any and all other defaults known to the Trustee (other than in the payment of the principal and interest components of the 2012 Installment Payments due and payable solely by reason of such declaration) shall have been made good, then, and in every such case, with the written consent of the Trustee, shall rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. As provided in 2012 Installment Sale Agreement, the Trustee shall be required to exercise the remedies provided in the 2012 Installment Sale Agreement in accordance with the Indenture.

No Remedy Exclusive. No remedy in the 2012 Installment Sale Agreement conferred upon or

reserved to the Authority is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under the 2012 Installment Sale Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in the 2012 Installment Sale Agreement it shall not be necessary to give any notice, other than such notice as may be required in the 2012 Installment Sale Agreement or by law.

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Appendix E Page 1

APPENDIX E

FORM OF OPINION OF BOND COUNSEL

[Closing Date]

Marin Municipal Water District Financing Authority 220 Nellen Avenue Corte Madera, California 94925

OPINION: $85,000,000 Marin Municipal Water District Financing Authority (Marin County, California) Water Revenue Bonds, 2012 Series A (Subordinate Lien)

Members of the Authority:

We have acted as bond counsel in connection with the delivery by the Marin Municipal Water District Financing Authority (the “Authority”) of $85,000,000 aggregate principal amount of the bonds of the Authority designated the “Marin Municipal Water District Financing Authority (Marin County, California) Water Revenue Bonds, 2012 Series A (Subordinate Lien)” (the “Bonds”), pursuant to the provisions of Article 4 (commencing with section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the “Law”), an indenture of trust, dated as of June 1, 2012 (the “Indenture”), by and between the Authority and U.S. Bank National Association, as trustee, and a resolution of the Authority adopted on April 5, 2012. The Bonds are secured by Revenues (as defined in the Indenture), including certain payments made by the Marin Municipal Water District (the “District”) under an installment sale agreement, dated as of June 1, 2012 (the “Installment Sale Agreement”), by and between the Authority and the District. The obligation of the District to make payments under the Installment Sale Agreement is, in all respects, on a parity, as to payment and security, with the District’s obligations with respect to any parity obligations hereafter issued or incurred by the District (collectively, the “Parity Obligations”). We have examined the Law and such certified proceedings and other papers as we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the Authority

and the District contained in the Indenture and the Installment Sale Agreement, as applicable, and in the certified proceedings, and upon other certifications furnished to us, without undertaking to verify the same by independent investigation.

Based upon our examination we are of the opinion, under existing law, that: 1. The Authority is a duly constituted joint exercise of powers authority under the laws of the State of

California with power to enter into the Indenture, to perform the agreements on its part contained therein and to issue the Bonds.

2. The Bonds constitute legal, valid and binding special obligations of the Authority enforceable in

accordance with their terms and payable solely from the sources provided therefor in the Indenture. 3. The Indenture has been duly approved by the Authority and constitutes a legal, valid and

binding obligation of the Authority enforceable against the Authority in accordance with its terms. 4. The Indenture establishes a valid first and exclusive lien on and pledge of the Revenues (as such

term is defined in the Indenture) and other funds pledged thereby for the security of the Bonds, in accordance with the terms of the Indenture.

5. The Installment Sale Agreement has been duly approved by the Authority and constitutes a

legal, valid and binding obligation of the Authority enforceable against the Authority in accordance with its terms.

Appendix E Page 2

6. The District is a municipal water district duly organized and existing under the laws of the State

of California, with power to enter into the Installment Sale Agreement and to perform the agreements on its part contained therein.

7. The Installment Sale Agreement has been duly approved by the District and constitutes a legal,

valid and binding obligation of the District enforceable against the District in accordance with its terms. 8. The Installment Sale Agreement establishes a valid first and exclusive lien on and pledge of the

Pledged Net Revenues (as such term is defined in the Indenture) and other funds pledged thereby for the security of the Installment Sale Agreement and the Parity Obligations, in accordance with the terms of the Installment Sale Agreement.

9. Subject to compliance by the Authority and the District with certain covenants, interest on the

Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as amended, but we express no opinion as to whether interest on the Bonds is taken into account in computing adjusted current earnings, which is used as an adjustment in determining the federal alternative minimum tax for certain corporations. Failure to comply with certain of such covenants could cause interest on the Bonds to be includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.

10. Interest on the Bonds is exempt from personal income taxation imposed by the State of

California. Ownership of the Bonds may result in other tax consequences to certain taxpayers, and we express

no opinion regarding any such collateral consequences arising with respect to the Bonds. The rights of the owners of the Bonds and the enforceability of the Bonds, the Indenture and the

Installment Sale Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity.

With respect to the opinions expressed herein, the enforceability of the Installment Sale Agreement

is subject to the limitations on the imposition of certain fees and charges by the District related to its municipal water system under Articles XIIIC and XIIID of the California Constitution. In addition, the rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity.

In rendering this opinion, we have relied upon certifications of the Authority, the District and

others with respect to certain material facts. Our opinion represents our legal judgment based upon such review of the law and the facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

Respectfully submitted,

Appendix F Page 1

APPENDIX F

FORM OF CONTINUING DISCLOSURE CERTIFICATE This CONTINUING DISCLOSURE CERTIFICATE (the “Disclosure Certificate”) is executed and

delivered by the MARIN MUNICIPAL WATER DISTRICT (the “District”) in connection with the issuance by the Marin Municipal Water District Financing Authority (the “Authority”) of its Marin Municipal Water District Financing Authority (Marin County, California) Water Revenue Bonds, 2012 Series A (Subordinate Lien), in the aggregate principal amount of $85,000,000 (the “Bonds”). The Bonds are being issued pursuant to an indenture of trust, dated as of June 1, 2012 (the “Indenture”), by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”). The District covenants and agrees as follows:

Section 1. Definitions. In addition to the definitions set forth in the Indenture, which apply to any

capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 1, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as

described in, Sections 3 and 4 of this Disclosure Certificate. “Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or

consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

“Dissemination Agent” shall mean U.S. Bank National Association or any successor Dissemination

Agent designated in writing by the District and which has filed with the District a written acceptance of such designation. In the absence of such a designation, the District shall act as the Dissemination Agent.

“EMMA” or “Electronic Municipal Market Access” means the centralized on-line repository for

documents filed with the MSRB, such as official statements and disclosure information relating to municipal bonds, notes and other securities as issued by state and local governments.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. “MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the

Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.

“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 Authority under the

Securities Exchange Act of 1934, as the same may be amended from time to time. Section 2. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and

delivered by the District for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

Section 3. Provision of Annual Reports. (a) Delivery of Annual Report to MSRB. The District shall, or shall cause the Dissemination Agent to,

not later than nine months after the end of the District’s fiscal year (which currently ends on June 30), commencing with the report for the 2011-2012 Fiscal Year, which is due not later than March 30, 2013, provide to the Participating Underwriter and to file with EMMA, in a readable PDF or other electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate

Appendix F Page 2

documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date.

(b) Change of Fiscal Year. If the District’s fiscal year changes, it shall give notice of such change in the

same manner as for a Listed Event under Section 5(d). (c) Delivery of Annual Report to Dissemination Agent. Not later than fifteen (15) Business Days prior

to the date specified in subsection (a) for providing the Annual Report to EMMA, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District.

(d) Report of Non-Compliance. If the District is unable to provide an Annual Report by the date

required in subsection (a), the Dissemination Agent shall send a notice to EMMA in substantially the form attached as Exhibit A.

(e) Annual Compliance Certification. The Dissemination Agent shall, if the Dissemination Agent is

other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided.

Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference

the following: (a) Financial Statements. Audited financial statements of the District for the preceding fiscal year,

prepared in accordance with the laws of the State and including all statements and information prescribed for inclusion therein by the Controller of the State. If the District’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) Other Annual Information. To the extent not included in the audited final statement of the

District, the Annual Report shall also include operating data with respect to the District for preceding fiscal year, substantially similar to that provided in the corresponding tables and charts in the official statement for the Bonds, as follows:

(i) Table 1—Annual Water Production and Storage;

(ii) Table 2—Metered Water Use by Customer Class; (iii) Table 3—Percentage Contribution to Water Sales Revenues by Class of User; (iv) Table 4—Summary of Current Water Rates; (v) Table 5—Average Monthly Charge for District Water Based on Average Annual

Residential Water Use; (vi) Table 7—Principal District Customers;

(vii) Using format of Table 15, a calculation of Debt Service Coverage; and (viii) The District’s budgeted expenditures for its capital improvement program for the

next five years. (c) Cross References. Any or all of the items listed above may be included by specific reference to

other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The District shall clearly identify each such other document so included by reference.

If the document included by reference is a final official statement, it must be available from EMMA. (d) Further Information. In addition to any of the information expressly required to be provided

under paragraph (b) of this Section 4, the District shall provide such further information, if any, as may be

Appendix F Page 3

necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

Section 5. Reporting of Significant Events. (a) Reportable Events. The District shall, or shall cause the Dissemination Agent (if not the District) to,

give notice of the occurrence of any of the following events with respect to the Bonds:

(1) Principal and interest payment delinquencies. (2) Unscheduled draws on debt service reserves reflecting financial difficulties. (3) Unscheduled draws on credit enhancements reflecting financial difficulties. (4) Substitution of credit or liquidity providers, or their failure to perform. (5) Defeasances. (6) Rating changes. (7) Tender offers. (8) Bankruptcy, insolvency, receivership or similar event of the obligated person. (9) 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 Bonds, or other material events affecting the tax status of the Bonds.

(b) Material Reportable Events. The District shall give, or cause to be given, notice of the occurrence of

any of the following events with respect to the Bonds, if material: (1) Non-payment related defaults. (2) Modifications to rights of Bond holders. (3) Bond calls. (4) The release, substitution, or sale of property securing repayment of the Bonds. (5) 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.

(6) Appointment of a successor or additional trustee, or the change of name of a trustee.

(c) Time to Disclose. The District shall, or shall cause the Dissemination Agent (if not the District) to,

file a notice of such occurrence with EMMA, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of any Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(5) and (b)(3) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to owners of affected Bonds under the Indenture.

Section 6. Identifying Information for Filings with EMMA. All documents provided to EMMA

under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.

Appendix F Page 4

Section 7. Termination of Reporting Obligation. The District’s obligations under this Disclosure

Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of 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.

Section 8. Dissemination Agent. (a) Appointment of Dissemination Agent. The District may, from time to time, appoint or engage a

Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the District, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District.

(b) Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by

the District for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the District from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, 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 an opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the District.

Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate,

the District may amend this Disclosure Certificate (and the Dissemination Agent shall agree to any amendment so requested by the District that does not impose any greater duties or risk of liability on the Dissemination Agent), and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a), 4

or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or the type of business conducted;

(b) Compliance as of Issue Date. The undertaking, as amended or taking into account such waiver,

would, in the opinion of a nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) Consent of Holders; Non-impairment Opinion. The amendment or waiver either (i) is approved by

the Bondholders in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Bondholders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bondholders or Beneficial Owners.

If this Disclosure Certificate is amended or any provision of this Disclosure Certificate is waived, the

District shall describe such amendment or waiver in the next following Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(d), 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.

Appendix F Page 5

Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate 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 Certificate. If the District 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 Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 11. Default. In the event of a failure of the District to comply with any provision of this

Disclosure Certificate, any Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. The sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.

Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent

shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which 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 obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District,

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.

Any or all of the items listed above may be included by specific reference to other documents,

including official statements of debt issues of the District or related public entities, which have been submitted to the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference.

Date: [Closing Date]

MARIN MUNICIPAL WATER DISTRICT By

Authorized Officer ACKNOWLEDGED: U.S. BANK NATIONAL ASSOCIATION, as Dissemination Agent By

Authorized Officer

Appendix F Page 6

EXHIBIT A

NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Marin Municipal Water District Financing Authority Name of Obligor: Marin Municipal Water District Name of Issue: Marin Municipal Water District Financing Authority (Marin County, California)

Water Revenue Bonds, 2012 Series A (Subordinate Lien) Date of Issuance: [Closing Date]

NOTICE IS HEREBY GIVEN the Municipal Securities Rulemaking Board that the Marin Municipal Water District (the “District”) has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate, dated [Closing Date], executed by the District. The District anticipates that the Annual Report will be filed by __________.

Dated: _______________________

U.S. BANK NATIONAL ASSOCIATION, as Dissemination Agent By Title

cc: Trustee

Appendix G Page 1

APPENDIX G

BOOK-ENTRY SYSTEM The following description of the Depository Trust Company (“DTC”), the procedures and record keeping

with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

None of the Authority (the “Issuer”), the Trustee (the “Agent”) or the District take any

responsibility for the information contained in this Appendix. No assurances can be given 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.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the

securities (the “Bonds”). The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue.

2. DTC, the world’s largest 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, corporate and municipal debt issues, and money market instrument 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 of DTC, the 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 is rated AA+ by Standard & Poor’s. 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 and www.dtc.org.

3. 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.

Appendix G Page 2

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 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.

4. 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 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.

5. 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 transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security 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 the notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being

redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to

the Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer 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 the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Redemption proceeds, distributions, 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 Issuer or 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 nor its nominee, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or 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.

9. DTC may discontinue providing its services as securities depository with respect to the Bonds at

any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered.

10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or

a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.

Appendix G Page 3

11. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.

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