                                        

                                                                                                  .     

        .          .                    .  .             

          .            .

          .    .              .                   .                        . .        .   .                          .    .      .     .                    .                                                                                                                                                     

  .                                         

            .                  .                         .         .              .              .      .  .  

                  .       

    .              

          .     .      .    .                 

     .             

                           .     

      .            .                  .  

            

                                                                                              

                                                                                                        

                                       

                  SOUTH SAN JOAQUIN IRRIGATION DISTRICT

BOARD OF DIRECTORS

John Holbrook, President Ralph Roos, Vice President Robert Holmes, Director Dave Kamper, Director Dale Kuil, Director

DISTRICT STAFF

Jeffrey K. Shields, General Manager Bere Lindley, Finance and Administration Manager

SPECIAL SERVICES

General Counsel

Steven P. Emrick, Esq.

Bond Counsel

Stradling Yocca Carlson & Rauth, a Professional Corporation Sacramento, California

Financial Advisor

Public Finance Resources Walnut Creek, California

Trustee

Union Bank, N.A. San Francisco, California

Verification Agent

Causey, Demgen & Moore Inc. Denver, Colorado      TABLE OF CONTENTS Page

SUMMARY STATEMENT ...... i

INTRODUCTION ...... 1

REFUNDING PLAN...... 2 General...... 2 Verification of Mathematical Computations ...... 2

THE 2012 BONDS ...... 3 General Provisions...... 3 Transfers and Exchanges Upon Termination of Book-Entry Only System...... 3 Redemption of the 2012 Bonds ...... 4 Notice of Redemption...... 4 Book-Entry Only System...... 5

DEBT SERVICE PAYMENT SCHEDULE ...... 5

SECURITY FOR THE 2012 BONDS...... 5 Limited Obligations Payable From Net Revenues ...... 5 Rate Covenant...... 6 Rate Stabilization Fund...... 6 Additional Indebtedness ...... 6 Reserve Fund ...... 7

ESTIMATED SOURCES AND USES OF FUNDS ...... 8

THE DISTRICT...... 8 General...... 8 Governance and Management ...... 9 District Powers...... 10 Land and Land Use...... 10 Employees and Employee Benefits ...... 10 Budget Process...... 12 District Insurance...... 12 District Water Rights ...... 13 Bay-Delta Matters...... 13 Irrigation Distribution System ...... 15 Treated Water System...... 16 Other Water Sales...... 16 Outstanding Indebtedness...... 17 Future System Improvements...... 17 Tri-Dam Project...... 17 Tri-Dam Power Authority...... 18 Retail Electric Project...... 18

HISTORIC AND PROJECTED TREATED WATER DELIVERIES...... 19 Historic Treated Water Deliveries...... 19 Historic Treated Water Revenues ...... 20

i TABLE OF CONTENTS (continued) Page

Projected Treated Water Deliveries...... 21 Projected Treated Water Revenues...... 22

HISTORIC AND PROJECTED IRRIGATION SALES...... 23 Historic Irrigation Accounts, Deliveries and Service Charges...... 23 Projected Irrigation Accounts, Deliveries and Service Charges...... 23

HISTORIC AND PROJECTED TRI-DAM PROJECT REVENUES ...... 24 Historic Tri-Dam Project Revenues...... 24 Projected Tri-Dam Project Revenues ...... 24

HISTORIC AND PROJECTED TRI-DAM POWER AUTHORITY REVENUES ...... 25 Historic Tri-Dam Power Authority Revenues ...... 25 Projected Tri-Dam Power Authority Revenues...... 25

HISTORIC AND PROJECTED 1% PROPERTY TAX REVENUES ...... 26 Property Tax Revenues...... 26

DISTRICT FINANCIAL INFORMATION ...... 28 Financial Statements...... 28 District Reserve Policies...... 28 Historic Operating Results and Debt Service Coverage...... 29 Projected Operating Results and Debt Service Coverage...... 29

LITIGATION...... 31

CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES ...... 31 Article XIIIB...... 31 Proposition 218...... 32 Future Initiatives...... 33

APPROVAL OF LEGAL PROCEEDINGS...... 33

TAX MATTERS...... 34

FINANCIAL ADVISOR ...... 35

RATING ...... 35

UNDERWRITING ...... 35

CONTINUING DISCLOSURE UNDERTAKING...... 36

MISCELLANEOUS ...... 36

APPENDIX A SOUTH SAN JOAQUIN IRRIGATION DISTRICT FINANCIAL STATEMENTS ...... A-1

ii TABLE OF CONTENTS (continued) Page

APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE...... B-1

APPENDIX C FORM OF OPINION OF BOND COUNSEL...... C-1

APPENDIX D INFORMATION CONCERNING DTC...... D-1

APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ...... E-1

iii      SUMMARY STATEMENT

This summary is subject in all respects to the more complete information contained in this Official Statement, and the offering of the 2012 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not otherwise defined in this Summary Statement have the meanings ascribed to them in this Official Statement.

Purpose. The 2012 Bonds are being issued to provide funds: (i) to refund all of the currently outstanding South San Joaquin Irrigation District Revenue Certificates of Participation, Series 2008A; (ii) to fund a reserve fund for the 2012 Bonds; and (iii) to pay costs of issuance of the 2012 Bonds, all as more fully described herein.

Security for the 2012 Bonds. The 2012 Bonds are limited obligations of the District payable solely from Net Revenues of the District’s Water System remaining after payment of Operation and Maintenance Costs and amounts on deposit in certain funds and accounts created under the Indenture, including the Rate Stabilization Fund. The District may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2012 Bonds in the future as described herein.

The obligation of the District to pay principal of and interest on the 2012 Bonds pursuant to the Indenture does not constitute an obligation for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. The obligation of the District to pay principal of and interest on the 2012 Bonds is a special obligation of the District payable solely from Net Revenues, and does not constitute a debt of the District or of the State of California or any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction.

Refunding Plan. A portion of the proceeds of the 2012 Bonds will be transferred to Union Bank, N.A., as trustee with respect to the 2008A Certificates, to prepay the $19,125,000 currently outstanding aggregate principal amount of the 2008A Certificates on or about the date of issuance of the 2012 Bonds.

Rate Covenant. The Indenture will require the District, to the fullest extent permitted by law, to fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Water Service which are reasonably expected, on the first day of each Fiscal Year, to be at least sufficient to yield during such Fiscal Year Net Revenues equal to 125% of the Debt Service payable in such Fiscal Year; provided, however, that for purposes of the foregoing covenant, Revenues in such Fiscal Year do not include any amount reasonably expected to be transferred from the Rate Stabilization Fund to the Revenue Fund in excess of 25% of Debt Service for such Fiscal Year. The District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but will not reduce the rates and charges then in effect unless the District reasonably expects Net Revenues from such reduced rates and charges to be at all times sufficient to meet the foregoing requirements.

Additional Contracts and Bonds Test. The Indenture permits the District to execute any Contracts or issue any Bonds on a parity with the obligation to pay principal of and interest on the 2012 Bonds, provided that certain conditions are satisfied as described herein.

Reserve Fund. The Indenture establishes a Reserve Fund to be held by the Trustee solely for the benefit of the Owners of the 2012 Bonds. The Reserve Fund is required to be funded in the amount of: (i) $1,797,500 and thereafter (ii) the lesser of the Initial Reserve Requirement or the maximum payments of principal of and interest on the 2012 Bonds payable in any Fiscal Year. The Trustee will apply moneys in the Reserve Fund in accordance with the Indenture.

Rate Stabilization Fund. The Indenture creates a Rate Stabilization Fund which is held by the District. The District may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund and transfer such amounts to the Revenue Fund for application in accordance with the Indenture or, in the

i event that all or a portion of the 2012 Bonds are discharged in accordance with the Indenture, transfer all or any portion of such amounts for application to the payment of the 2012 Bonds in accordance with the Indenture.

Redemption. The 2012 Bonds are subject to extraordinary redemption from Net Proceeds of insurance or condemnation as described herein. The 2012 Bonds are not subject to optional redemption prior to maturity.

The District. The District was formed in 1909 under the Wright-Bridgford Act, enacted in 1897, the predecessor of the Irrigation District Law (Division 11 of the State Water Code), for the primary purpose of collecting, storing and delivering irrigation water to farmers and ranchers within the District. The District constructed a variety of hydroelectric facilities beginning in the 1950s. The District commenced deliveries of treated water to certain cities within and outside the boundaries of the District in 2005.

The District includes approximately 72,200 acres of land bounded roughly by Lonetree Road and French Camp Road on the north, the Stanislaus River on the south, Airport Road on the west and the Stanislaus County line on the east. The majority of the Cities of Manteca and Ripon and all of the City of Escalon lie within the District. The District includes approximately 88,525 urban residents and 10,743 rural residents. There are approximately 54,200 acres of irrigated agricultural land planted in a variety of crops. The District currently provides agricultural water to approximately 3,140 customers and treated water to the Cities of Manteca, Lathrop and Tracy.

The District, together with Oakdale Irrigation District, owns pre-1914 water rights to the Stanislaus River and three storage reservoirs with a capacity of approximately 230,400 acre-feet. These water rights were recognized in a 1988 Stipulation and Agreement with the United States Department of the Interior which provides that the two districts receive the first 600,000 acre-feet of inflow to New Melones Reservoir and a quantity of water stored in New Melones Reservoir when inflow is less than 600,000 acre-feet. In addition, the District has the right to store conserved water in New Melones Reservoir and to use the conserved water in later years under certain circumstances. See the caption “SOUTH SAN JOAQUIN IRRIGATION DISTRICT—District Water Rights.”

The District, together with Oakdale, also owns and operates hydroelectric facilities connected with these storage reservoirs. The District and Oakdale have entered into an energy marketing services agreement with Shell Energy North America (US), L.P. pursuant to which the power and energy from these facilities are sold under short term contracts entered into from time-to-time. See the caption “SOUTH SAN JOAQUIN IRRIGATION DISTRICT—Tri-Dam Project.” In addition, the District is the sole owner of Woodward Reservoir with a capacity of 36,000 acre-feet, which reservoir includes the Woodward and Frankenheimer hydro-electric facilities.

The District and Oakdale are the sole members of the Tri-Dam Power Authority. The Authority runs and operates the Sandbar Project, a hydroelectric facility completed in 1987, the power and energy of which is sold to Pacific Gas and Electric pursuant to a long term contract. See the caption “SOUTH SAN JOAQUIN IRRIGATION DISTRICT—Tri-Dam Power Authority.”

ii $17,975,000 SOUTH SAN JOAQUIN IRRIGATION DISTRICT REFUNDING REVENUE BONDS, SERIES 2012A

INTRODUCTION

General

This Official Statement, including the cover page, the inside cover page and all appendices hereto, provides certain information concerning the sale and delivery of the South San Joaquin Irrigation District Refunding Revenue Bonds, Series 2012A (the “2012 Bonds”). The 2012 Bonds are being issued pursuant to an Indenture of Trust, dated as of April 1, 2012 (the “Indenture”), by and between the South San Joaquin Irrigation District (the “District”) and Union Bank, N.A., San Francisco, California, as trustee (the “Trustee”). Descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. Capitalized terms used and not otherwise defined herein have the meanings ascribed to them in Appendix B—“DEFINITIONS AND SUMMARY OF THE INDENTURE.”

The 2012 Bonds are being issued to provide funds: (i) to refund all of the $19,125,000 outstanding principal amount of the South San Joaquin Irrigation District Revenue Certificates of Participation, Series 2008A (the “2008A Certificates”), as described under the caption “REFUNDING PLAN;” (ii) to fund a reserve fund for the 2012 Bonds; and (iii) to pay costs of issuance of the 2012 Bonds. See the caption “ESTIMATED SOURCES AND USES OF FUNDS.”

The 2012 Bonds are limited obligations of the District payable solely from Net Revenues, which consist of Revenues of the District’s Water System remaining after payment of Operation and Maintenance Costs, as such terms are defined in Appendix B hereto, and amounts on deposit in certain funds and accounts created under the Indenture, including the Rate Stabilization Fund. The District may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2012 Bonds in the future. See the caption “SECURITY FOR THE 2012 BONDS—Additional Contracts and Bonds.”

The summaries and references to the Indenture and all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary or reference is qualified in its entirety by reference to the full Indenture and each such document, statute, report or instrument, copies of which are available for inspection at the offices of the District in Manteca, California and will be available from the Trustee upon request and payment of duplication cost. The capitalization of any word not conventionally capitalized or otherwise defined herein indicates that such word is defined in the Indenture and, as used herein, has the meaning given to it in the Indenture. Unless otherwise indicated, all financial and statistical information herein has been provided by the District.

The District regularly prepares a variety of reports, including audits, budgets and related documents. Any registered owner of the 2012 Bonds (each, an “Owner”) may obtain a copy of such reports, as available, from the Trustee or the District. Additional information regarding the Official Statement may be obtained by contacting the Trustee or South San Joaquin Irrigation District, 11011 East Highway 120, Manteca, California Telephone: (209) 249-4600.

A change has been made to this Official Statement since the Preliminary Official Statement dated April 20, 2012 to provide information with respect to the availability of the District’s audited financial statements for Fiscal Year 2011. See the caption “DISTRICT FINANCIAL INFORMATION—Financial Statements.”

1 REFUNDING PLAN General

The District caused the execution and delivery of the 2008A Certificates, which are currently outstanding in the aggregate principal amount of $19,125,000, pursuant to a Trust Agreement, dated as of July 1, 2008 (the “2008A Trust Agreement”), by and among the District, the California Public Agency Leasing Corporation (the “Corporation”) and Union Bank, N.A. (formerly known as Union Bank of California, N.A.), as trustee. The 2008A Certificates are payable from installment payments made under an Installment Purchase Agreement, dated as of July 1, 2008 (the “2008A Installment Purchase Agreement”), by and between the District and the Corporation. The District plans to apply a portion of the proceeds of the 2012 Bonds to refund all outstanding obligations with respect to the 2008A Certificates.

To effect such refunding, the District will cause a portion of the proceeds of the 2012 Bonds to be deposited into the Escrow Fund (the “2008A Escrow Fund”) established under the Escrow Agreement (Series 2008A), dated as of April 1, 2012 (the “2008A Escrow Agreement”), by and between the District and Union Bank, N.A., as escrow agent (the “Escrow Agent”). Such amounts and amounts transferred from certain funds held under the 2008A Trust Agreement will be held in cash or invested in direct general obligations of the United States of America (the “Defeasance Obligations”). The Defeasance Obligations will be scheduled to mature in such amounts and at such times and bear interest at such rates as to provide amounts sufficient to pay all regularly scheduled payments of principal and interest with respect to the 2008A Certificates through August 1, 2013 and to pay on August 1, 2013 the principal with respect to the 2008A Certificates maturing after August 1, 2013, plus interest with respect thereto accrued to such date, without premium. All Defeasance Obligations will be irrevocably pledged to secure, when due, the payment of the principal, interest and premium due with respect to the 2008A Certificates.

As a result of the deposit and investment of funds under the 2008A Escrow Agreement, all of the District’s obligations with respect to the 2008A Certificates, including the pledge and lien on the Revenues of the Water System which secure the District’s obligations represented by the 2008A Certificates, will be fully discharged upon the execution and delivery of the 2012 Bonds. The sufficiency of the Defeasance Obligations to pay such amounts will be verified by Causey, Demgen & Moore Inc., Denver, Colorado (the “Verification Agent”). See the caption “—Verification of Mathematical Computations” below.

The portion of the proceeds of the 2012 Bonds deposited with the Escrow Agent are pledged solely to the payment of the 2008A Certificates and will not be available for the payments of principal of and interest on the 2012 Bonds.

Verification of Mathematical Computations

Upon delivery of the 2012 Bonds, the Verification Agent, a firm of independent public accountants, will deliver a report on the mathematical accuracy of certain computations based upon certain information and assertions provided to them by the Underwriter relating to: (a) the adequacy of the maturing principal of and interest earned on the Defeasance Obligations, together with the cash to be concurrently deposited in the 2008A Escrow Fund, to pay all regularly scheduled payments of principal and interest with respect to the 2008A Certificates through August 1, 2013 and to pay on August 1, 2013 the principal with respect to the 2008A Certificates maturing after August 1, 2013, plus interest with respect thereto accrued to such date, without premium; and (b) the computations of yield of the 2012 Bonds and the Defeasance Obligations which support Bond Counsel’s opinion that interest on the 2012 Bonds is not includable in gross income for federal income tax purposes.

2 THE 2012 BONDS

General Provisions

The 2012 Bonds will be issued in the aggregate principal amount of $17,975,000. The 2012 Bonds will be dated as of the date of initial issuance thereof (the “Issuance Date”), will bear interest from such date at the rates per annum set forth on the cover page hereof, payable on October 1, 2012 and each April 1 and October 1 thereafter (each, an “Interest Payment Date”), and will mature on the dates set forth on the cover page hereof. Interest on the 2012 Bonds will be computed on the basis of a 360-day year of twelve 30-day months.

The 2012 Bonds will be issued only in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the 2012 Bonds. Ownership interests in the 2012 Bonds may be purchased in book-entry form, in denominations of $5,000 or any integral multiple thereof. See the caption “— Book-Entry Only System” below and Appendix D attached hereto.

In the event that the book-entry only system described below is discontinued, the principal of and redemption premium (if any) on the 2012 Bonds are payable by check or draft of the Trustee upon presentation and surrender thereof at maturity or upon prior redemption at the office of the Trustee in Los Angeles, California (the “Office of the Trustee”). Interest on the 2012 Bonds is payable on each Interest Payment Date to the person whose name appears on the registration books maintained by the Trustee (the “Registration Books”) as the Owner thereof as of the close of business on the fifteenth day of the calendar month preceding the Interest Payment Date (the “Record Date”), such interest to be paid by check of the Trustee, sent by first class mail to the Owner at such Owner’s address as it appears on the Registration Books. An Owner of $1,000,000 or more in principal amount of 2012 Bonds may, at such Owner’s option, be paid interest by wire transfer of immediately available funds in accordance with written instructions provided to the Trustee by such Owner prior to the applicable Record Date. The principal of and interest and premium on the 2012 Bonds will be payable in lawful money of the United States of America.

Interest on any 2012 Bond will be payable from the Interest Payment Date preceding the date of issuance thereof, unless such date is after a Record Date and on or before the succeeding Interest Payment Date, in which case interest thereon will be payable from such Interest Payment Date, or unless such date is on or before July 15, 2012, in which case interest thereon will be payable from the Issuance Date.

Transfers and Exchanges Upon Termination of Book-Entry Only System

In the event that the book-entry system described above is abandoned, the 2012 Bonds will be printed and delivered as provided in the Indenture. Thereafter, any 2012 Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2012 Bond at the Office of the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. The Trustee is not required to register the transfer of any 2012 Bond during the period in which the Trustee is selecting 2012 Bonds for redemption and any 2012 Bond that has been selected for redemption.

Whenever any 2012 Bond or 2012 Bonds is surrendered for transfer, the District will execute and the Trustee will authenticate and deliver a new 2012 Bond or 2012 Bonds of authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee will require the 2012 Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2012 Bonds, the Trustee will cancel and destroy the 2012 Bonds that it has received.

3 2012 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of other authorized denominations of the same series and maturity. The Trustee is not required to exchange any 2012 Bond during the period in which the Trustee is selecting 2012 Bonds for redemption and any 2012 Bond that has been selected for redemption. The Trustee will require the 2012 Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of 2012 Bonds, the Trustee will cancel and destroy the 2012 Bonds that it has received.

Redemption of the 2012 Bonds

No Optional Redemption. The 2012 Bonds are not subject to optional redemption prior to maturity.

Extraordinary Redemption. The 2012 Bonds are subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity and within maturities as directed by the District in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds of insurance or condemnation, upon the terms and conditions of, and as provided for in, the Indenture, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. See Appendix B under the captions “PARTICULAR COVENANTS— Insurance” and “PARTICULAR COVENANTS—Eminent Domain Proceeds,” respectively, for a description of the circumstances under which the 2012 Bonds could be subject to extraordinary redemption from Net Proceeds of insurance or condemnation.

Notice of Redemption

When redemption is authorized or required, the Trustee will give notice to the Owners of the 2012 Bonds designated for redemption. Notice of redemption will be mailed by first class mail at least 20 days but not more than 60 days before any Redemption Date, to the respective Owners of any 2012 Bonds designated for redemption at their addresses appearing on the Registration Books, to the Securities Depositories and the Information Services; provided that, in the case of notice of optional redemption not related to an advance or current refunding, such notice may be given only if sufficient funds have been deposited with the Trustee to pay the applicable Redemption Price of the 2012 Bonds to be redeemed, provided that such notice may be cancelled by the District upon Written Request delivered to the Trustee not less than five days prior to such Redemption Date. Each notice of redemption will state the date of notice, the Redemption Date, the place or places of redemption, the Redemption Price, will designate the maturities, CUSIP numbers, if any, and, if less than all 2012 Bonds of any such maturity are to be redeemed, the serial numbers of the 2012 Bonds of such maturity to be redeemed by giving the individual number of each 2012 Bond or by stating that all 2012 Bonds between two stated numbers, both inclusive, have been called for redemption and, in the case of 2012 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice will also state that on the Redemption Date there will become due and payable on each of said 2012 Bonds or parts thereof designated for redemption the Redemption Price thereof or of said specified portion of the principal thereof in the case of a 2012 Bond to be redeemed in part only, together with interest accrued thereon to the Redemption Date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such Redemption Date interest thereon ceases to accrue, and will require that such 2012 Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2012 Bond. Notice of redemption of 2012 Bonds will be given by the Trustee, at the expense of the District, for and on behalf of the District.

With respect to any notice of optional redemption of 2012 Bonds, such notice will state that such redemption will be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such 2012 Bonds to be redeemed

4 and that, if such moneys have not been so received, said notice will be of no force and effect and the Trustee will not be required to redeem such 2012 Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption will not be made, and the Trustee will within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.

Book-Entry Only System

One fully-registered 2012 Bond of each maturity will be issued in the principal amount of the 2012 Bonds of such maturity. Such 2012 Bond will be registered in the name of Cede & Co. and will be deposited with DTC.

The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the 2012 Bonds will be printed and delivered and will be governed by the provisions of the Indenture with respect to payment of principal and interest and rights of exchange and transfer.

The District cannot and does not give any assurances that DTC Participants or others will distribute payments of principal of and interest on the 2012 Bonds received by DTC or its nominee as the registered Owner, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will service and act in the manner described in this Official Statement. See Appendix D hereto for additional information concerning DTC.

DEBT SERVICE PAYMENT SCHEDULE

Set forth below is a schedule of principal of and interest on the 2012 Bonds for the period ending October 1 in each of the years indicated:

October 1 Principal Interest Total 2012 $ 2,030,000.00 $ 270,141.11 $ 2,300,141.11 2013 2,050,000.00 596,200.00 2,646,200.00 2014 2,110,000.00 534,700.00 2,644,700.00 2015 2,180,000.00 471,400.00 2,651,400.00 2016 2,260,000.00 384,200.00 2,644,200.00 2017 2,355,000.00 293,800.00 2,648,800.00 2018 2,445,000.00 199,600.00 2,644,600.00 2019 2,545,000.00 101,800.00 2,646,800.00 TOTAL $ 17,975,000.00 $ 2,851,841.11 $ 20,826,841.11

SECURITY FOR THE 2012 BONDS

Limited Obligations Payable From Net Revenues

The District is obligated to make payments of principal of and interest on the 2012 Bonds solely from Net Revenues of the District’s Water System, along with amounts on deposit in the Rate Stabilization Fund and certain other funds and accounts created under the Indenture. The term “Net Revenues” means, for any Fiscal Year of the District (currently, the District’s Fiscal Year commences on January 1 of each year) (“Fiscal Year”), the Revenues of the Water System for such Fiscal Year less the Operation and Maintenance Costs of the Water System for such Fiscal Year. See Appendix B—“DEFINITIONS AND SUMMARY OF INDENTURE” for a detailed discussion of the terms of the Indenture. The District does not have any obligations payable from Net Revenues on a parity with the obligation to pay principal of and interest on the 2012 Bonds.

5 THE OBLIGATION OF THE DISTRICT TO PAY PRINCIPAL OF AND INTEREST ON THE 2012 BONDS DOES NOT CONSTITUTE AN OBLIGATION OF THE DISTRICT FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE DISTRICT TO PAY PRINCIPAL OF AND INTEREST ON THE 2012 BONDS UNDER THE INDENTURE IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OR INDEBTEDNESS OF THE DISTRICT, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

Rate Covenant

The Indenture will require the District, to the fullest extent permitted by law, to fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Water Service which are reasonably expected, on the first day of each Fiscal Year, to be at least sufficient to yield during such Fiscal Year Net Revenues equal to 125% of the Debt Service payable in such Fiscal Year; provided, however, that for purposes of the foregoing covenant, Revenues in such Fiscal Year do not include any amount reasonably expected to be transferred from the Rate Stabilization Fund to the Revenue Fund in excess of 25% of Debt Service for such Fiscal Year. The District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but will not reduce the rates and charges then in effect unless the District reasonably expects Net Revenues from such reduced rates and charges to be at all times sufficient to meet the foregoing requirements.

Rate Stabilization Fund

The Indenture creates a special fund designated as the “Rate Stabilization Fund” which is held by the District in trust. The District has covenanted to maintain and to hold the Rate Stabilization Fund separate and apart from other funds so long as any 2012 Bonds remain unpaid. Money transferred by the District to the Rate Stabilization Fund in accordance with the Indenture will be held in the Rate Stabilization Fund and applied in accordance with the Indenture.

The District may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund and transfer such amounts to the Revenue Fund for application in accordance with the Indenture or, in the event that all or a portion of the 2012 Bonds are discharged in accordance with the Indenture, transfer all or any portion of such amounts for application to the payment of the 2012 Bonds in accordance with the Indenture.

Additional Indebtedness

The District may at any time execute any Contract or issue any Bonds, as the case may be, in accordance with the Indenture; provided:

(i) The Net Revenues for the most recent audited Fiscal Year preceding the date of adoption by the Board of Directors of the District of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the District and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the District, produce a sum equal to at least 125% of the Debt Service for such Fiscal Year; and

(ii) The Net Revenues for the most recent audited Fiscal Year preceding the date of the execution of such Contract or the date of adoption by the Board of Directors of the District of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the Water Service and the Retail Electric System,

6 if applicable, approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the District, produce a sum equal to at least 125% of the Debt Service for such Fiscal Year plus the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year assuming that such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year, plus the Debt Service which would have accrued had such Contract been executed or Bonds been issued at the beginning of such Fiscal Year; and

(iii) The estimated Net Revenues for the then current Fiscal Year and for each Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Parity Project, as evidenced by a certificate of the General Manager of the District on file with the District, including (after giving effect to the completion of all such uncompleted Parity Projects) an allowance for estimated Net Revenues for each of such Fiscal Years arising from any increase in the income, rents, fees, rates and charges estimated to be fixed, prescribed or received for the Water Service and the Retail Electric System, if applicable, and which are economically feasible and reasonably considered necessary based on projected operations for such period, as evidenced by a certificate of the General Manager on file with the District, produce a sum equal to at least one 125% of the estimated Debt Service for each of such Fiscal Years, after giving effect to the execution of all Contracts and the issuance of all Bonds estimated to be required to be executed or issued to pay the costs of completing all uncompleted Parity Projects within such Fiscal Years, assuming that all such Contracts and Bonds have maturities, interest rates and proportionate principal repayment provisions similar to the Contract last executed or then being executed or the Bonds last issued or then being issued for the purpose of acquiring and constructing any of such uncompleted Parity Projects.

For purposes of the foregoing requirements, Revenues in any Fiscal Year do not include any amounts transferred from the Rate Stabilization Fund to the Revenue Fund in excess of 25% of the Debt Service for such Fiscal Year.

Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding in an amount in excess of 10%.

Reserve Fund

The Indenture establishes a Reserve Fund to be held by the Trustee solely for the benefit of the Owners of the 2012 Bonds. The Reserve Fund is required to be funded in the amount of: (i) $1,797,500 (the “Initial Reserve Requirement”); and thereafter (ii) the lesser of the Initial Reserve Requirement or the maximum payments of principal of and interest on the 2012 Bonds payable in any Fiscal Year (the “Reserve Requirement”). The Trustee will establish and hold in trust the Reserve Fund and deposit therein the amounts required to be deposited therein pursuant to the Indenture and apply moneys in the Reserve Fund in accordance with the Indenture.

If three Business Days prior to any Interest Payment Date the money in the 2012 Payment Account is insufficient to make the payments required by the Indenture on such Interest Payment Date with respect to the 2012 Bonds, the Trustee will transfer the amount of such insufficiency from the Reserve Fund to the Interest Account or the Principal Account, as applicable.

In the event that the Trustee has transferred money from the Reserve Fund to the Principal Account or Interest Account, as applicable, in accordance with the Indenture, upon receipt of the moneys from the District to increase the balance in the Reserve Fund to the Reserve Requirement, the Trustee will deposit such money in the Reserve Fund.

7 If the amount available and contained in the Reserve Fund exceeds the Reserve Requirement and if the District is not then in default hereunder, the Trustee will semiannually on or before April 1 and October 1 withdraw the amount of such excess from the Reserve Fund and deposit such amount in the Interest Account, and for this determination the Trustee will make a valuation of the Reserve Fund on each Interest Payment Date. Except for such withdrawals, all moneys in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of paying when due principal of and interest on the 2012 Bonds in the event that no other moneys of the District are available therefor or to pay such amounts at maturity.

For the purpose of determining the amount in the Reserve Fund, all Permitted Investments credited to the Reserve Fund will be valued at market value, or, if not ascertainable, at cost (inclusive of all interest accrued but not paid). In making any valuations of Permitted Investments, the Trustee will utilize such securities pricing services as may be available to it, including those within the Trustee’s regular accounting system.

The District may satisfy the Reserve Requirement by the deposit of: (a) a surety bond; (b) a municipal bond insurance policy; (c) an unconditional irrevocable letter of credit; or (d) any other security device, in each case issued by providers whose long term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, is rated, at the time such security device is issued, “AA” or better by S&P.

ESTIMATED SOURCES AND USES OF FUNDS

The following table sets forth the estimated sources and uses of funds:

Sources(1): Principal Amount $17,975,000 Plus Original Issue Premium 1,751,145 District Contribution(2) 2,506,250 Total Sources $22,232,395

Uses(1): Transfer to Escrow Agent for Prepayment of 2008A Certificates $20,106,401 Deposit to Reserve Fund 1,797,500 Deposit to Costs of Issuance Fund(3) 328,494 Total Uses $22,232,395

(1) All amounts rounded to the nearest dollar. Totals may not add due to rounding. (2) Reflects moneys held in funds and accounts established under the 2008A Trust Agreement. (3) Includes Underwriter’s discount and certain legal, financing and printing costs.

THE DISTRICT

General

The District was formed in 1909 under the Wright-Bridgford Act, enacted in 1897, the predecessor of the Irrigation District Law (Division 11 of the State Water Code), for the primary purpose of collecting, storing and delivering irrigation water to farmers and ranchers within the District. The District constructed a variety of hydroelectric facilities beginning in the 1950s. The District commenced deliveries of treated water to certain cities within and outside the boundaries of the District in 2005.

The District includes approximately 72,200 acres of land bounded roughly by Lonetree Road and French Camp Road on the north, the Stanislaus River on the south, Airport Road on the west and the Stanislaus County line on the east. The majority of the Cities of Manteca and Ripon and all of the City of Escalon lie within the District. The District includes approximately 88,525 urban residents and 10,743

8 rural residents. There are approximately 54,200 acres of irrigated agricultural land planted in a variety of crops. The District currently provides agricultural water to approximately 3,140 customers and treated water to the Cities of Manteca, Lathrop and Tracy.

The District, together with Oakdale Irrigation District (“Oakdale”), owns pre-1914 water rights to the Stanislaus River and three storage reservoirs with a capacity of approximately 230,400 acre-feet. These water rights were recognized in a 1988 Stipulation and Agreement with the United States Department of the Interior which provides that the two districts receive the first 600,000 acre-feet of inflow to New Melones Reservoir and a quantity of water stored in New Melones Reservoir when inflow is less than 600,000 acre-feet. In addition, the District has the right to store conserved water in New Melones Reservoir and to use the conserved water in later years under certain circumstances. See the caption “—District Water Rights.”

The District, together with Oakdale, also owns and operates hydroelectric facilities connected with these storage reservoirs. The District and Oakdale sell all of the power and energy from these facilities under short term contracts entered into from time-to-time. See the caption “—Tri-Dam Project.” In addition, the District is the sole owner of Woodward Reservoir with a capacity of 36,000 acre-feet, which reservoir includes the Woodward and Frankenheimer hydro-electric facilities.

The District and Oakdale are the sole members of the Tri-Dam Power Authority (the “Authority”). The Authority runs and operates the Sandbar Project, a hydroelectric facility completed in 1987, the power and energy of which is sold to Pacific Gas and Electric (“PG&E”) pursuant to a take-and-pay contract. See the caption “—Tri-Dam Power Authority.”

In 1995, the District entered into water supply development agreements with the cities of Manteca, Escalon, Lathrop and Tracy (the “Water Supply Development Agreements”) pursuant to which the District agreed to provide treated water to such cities (the “Cities”). The Water Supply Development Agreements obligated the Cities to pay the capital costs of a water treatment plant (the “Water Treatment Plant”), approximately 40 miles of raw water and treated water pipelines and certain other capital improvements (together with the Water Treatment Plant, the “Treated Water Facilities”) necessary to treat and distribute water to the Cities. The Treated Water Facilities were completed in 2005 and the District commenced treated water delivery to the cities of Manteca, Lathrop and Tracy shortly thereafter. See the caption “—Treated Water System.”

Governance and Management

The District is governed by a 5-member Board of Directors (the “Board”) which is elected by qualified voters in the District to 4-year terms. The current directors are set forth below:

Director Expiration of Term Occupation John Holbrook, President December 2012 Construction Inspector (retired) Ralph Roos, Vice President December 2014 Farmer Robert Holmes, Director December 2014 Farmer Dave Kamper, Director December 2012 Farmer Dale Kuil, Director December 2012 Farmer/Businessman

Day-to-day management of the District is delegated to the Manager. Jeffrey K. Shields, General Manager, joined the District in 2004. Prior to that time, Mr. Shields served as a principal of Utility Systems Associates, Inc. from 2003 to 2004, Director of West Coast Marketing for UBS Warburg Energy, LLC from 2001 to 2003, Director of West Origination for Enron North America from 2000 to 2001, General Manager and Chief Executive Officer of Emerald People’s Utility District from 1991 to 2000, General Manager and Chief Executive Officer of Trinity Public Utility District from 1984 to 1990, Director of Land Use Planning for the County of Trinity, California from 1979 to 1984 and Senior Vice President of Eco-Impact Consulting from 1978 to 1979. Mr. Shields has been involved in the formation and expansion of 6 community-owned electric utilities

9 and has over 20 years of experience managing electric utilities in California and Oregon. Mr. Shields has served on the Board of Directors of a variety of professional organizations, including the Northwest Public Power Council, Northwest Energy Coalition, California-Oregon Transmission Project, California Special Districts Risk Management Authority and the American Samoa Power Authority. Mr. Shields is the recipient of several awards, including the American Public Power Association’s Hobart Award, Northwest Energy Coalition’s Headwaters Award, and the California Public/Private Venture Council’s “Best and Brightest” award. Mr. Shields received a Bachelor of Science degree in Biological Science from California State University, Humboldt in 1978.

Bere Lindley, CPA, Finance and Administration Manager, joined the District in 2010. Prior to that time, Mr. Lindley served as an independent financial and accounting consultant to several businesses, including a publicly traded health insurance company in Bend, Oregon, as financial controller and later as vice president and chief financial officer responsible for financial and administrative functions for several publishing businesses from 1999 to 2007 and as financial controller to Emerald People’s Utility District, a large public utility district in Oregon, from 1989 to 1999. Mr. Lindley worked as a certified public accountant for approximately 12 years prior to 1989, including as a sole practitioner. Mr. Lindley received a B.B.A degree in Accounting from the University of Oregon and is a certified public accountant licensed in the State of Oregon as well as a certified management accountant. Mr. Lindley is a member of the American Institute of Certified Public Accountants and the Institute of Management Accountants.

District Powers

Under the Law, the District has broad general powers over the use of water within its boundaries, including the right of eminent domain, authority to acquire, control, distribute, store, spread, sink, treat, purify, reclaim, process and salvage any water for beneficial use, to sell treated or untreated water, to acquire or construct hydroelectric facilities and sell the power and energy produced to persons within or without the District, to contract with the United States, other political subdivisions, public utilities, or other persons, and, subject to Article XIIIA of the State constitution, to levy taxes on lands, to levy ground water assessments for the production of water from ground water supplies within the District, and to fix charges for delivered water.

Land and Land Use

The District encompasses an area of approximately 72,200 acres, of which approximately 18,000 acres are presently urban or suburban and approximately 54,200 acres are agricultural. Urban areas in the District include the Cities of Escalon, Ripon and Manteca, which are located in southern San Joaquin County. The City of Lathrop borders the western edge of the District but is not included within the District. The District lies generally southeast of the Stockton metropolitan area, and is bounded on the south and east by the San Joaquin-Stanislaus County line. Highway 99 runs through the District. Land within the District is relatively level, with elevations from 20 feet above sea level at the west end of the District to 130 feet above sea level at the east end. The District has hot, dry summers and cool, moist winters. Average rainfall is approximately 11 inches a year, and the frost-free growing season is generally 355 days.

Employees and Employee Benefits

General. The District currently employs approximately 87 persons, of whom 26 work in the irrigation water department, 16 work in the treated water division, 1 works in the electric power division, 26 work in maintenance operations, 5 work in accounting and clerical support, 6 work in engineering and 7 work in administration.

Currently, 54 employees of the District are represented by the International Brotherhood of Electrical Workers Union – Local 1245 and the remaining employees of the District are not represented by a union. The District has not experienced any strike or other labor actions.

10 Pension. The District contributes to the California Public Employees Retirement System (“CALPERS”), an agent multiple-employer defined benefit pension plan (the “Pension Plan”) which acts as a common investment and administrative agent for its participating member employers. The Pension Plan provides retirement, disability, annual cost-of-living adjustments and death benefits to Pension Plan members and beneficiaries. Benefit provisions under the Pension Plan are established by statutes of the State of California and by District resolution. Funding contributions for the Pension Plan are determined annually on an actuarial basis as of June 30 by CALPERS; the District must fund those contribution amounts. The Pension Plan’s provisions and benefits in effect at January 1, 2012, are summarized as follows:

Benefit vesting schedule 5 years service Benefit payments monthly for life Retirement age 50 Monthly benefits, as a % of annual salary 1.092-2.418% Required employee contribution rate 8.000% Required employer contribution rate 17.671%

The District paid 100% of the annual employer contributions of $910,494, $762,422 and $724,289 for the years ended June 30, 2011, 2010 and 2009, respectively.

CALPERS determines contribution requirements using a modification of the Entry Age Normal Method. Under this method, the District’s total normal benefit cost for each employee from date of hire to date of retirement is expressed as a level percentage of the related total payroll cost. Normal benefit cost under this the Entry Age Normal Method is the level amount the employer must pay annually to fund an employee’s projected retirement benefit. This level percentage of payroll method is used to amortize any unfunded actuarial liabilities. The actuarial assumptions used to compute contribution requirements are also used to compute the actuarial accrued liability. The District does not have a net pension obligation since it pays these actuarially required contributions monthly.

CALPERS uses the market related value method of valuing the Pension Plan’s assets. An investment rate of return of 7.75% (decreasing to 7.50% effective July 1, 2012) is assumed, including inflation at 3.0%. Annual salary increases are assumed to vary by duration of service. Changes in liability due to Pension Plan amendments, changes in actuarial assumptions, or changes in actuarial methods are amortized as a level percentage of payroll on a closed basis over twenty years. Investment gains and losses are accumulated as they are realized and ten percent of the net balance is amortized annually.

The Pension Plan’s actuarial value (which differs from market value) and funding progress over the most recently available three years is set forth below at the actuarial valuation date of June 30. As further discussed below, the District’s Pension Plan is included within a pooled pension plan. Information in the following table is for the pooled plan as a whole:

Entry Age Unfunded Annual Valuation Accrued Actuarial Value Actuarial Accrued Funded Covered UAAL as % of Date Liability of Assets Liability (“UAAL) Ratio Payroll Payroll 6/30/2008 $1,537,909,933 $1,337,707,835 $200,202,098 87.0% $333,307,600 60.1% 6/30/2009 1,834,424,640 1,493,430,831 340,993,809 81.4 355,150,151 96.0 6/30/2010 1,972,910,641 1,603,482,152 369,428,489 81.3 352,627,380 104.8

Audited annual financial statements and ten-year trend data are available from CALPERS at 400 Q Street, Sacramento, California 95811. CALPERS reports this information approximately seventeen months after the end of its June 30 fiscal year.

11 As required by State law, effective July 1, 2005, the District’s miscellaneous plan was terminated and the employees in this plan were required by CALPERS to join new statewide pools. One of the conditions of entry to these pools was that the District true-up any unfunded liability on the former plan, either by paying cash or by increasing its future contribution rates through a Side Fund offered by CALPERS. The District satisfied its miscellaneous plan’s unfunded liability of $721,723 by agreeing to contribute that amount to the side fund through an addition to its normal contribution rates over the next 11 years.

Further information with respect to the Pension Plan is set forth in Note 10 and the Supplementary Information to the District’s audited financial statements for Fiscal Year 2010 attached hereto as Appendix A.

Other Post-Retirement Employee Benefits. The District provides a portion of the cost of medical insurance for retired District employees for up to 180 months after retirement from the District. The Governmental Accounting Standards Board’s Statement No. 45 (“GASB 45”) requires governmental agencies that fund post-employment benefits on a pay-as-you go basis, such as the District, to account for and report the outstanding obligations and commitments related to such post-employment benefits in essentially the same manner as for pensions. In August 2008, the Board of the District approved the engagement of a consultant (the “Actuarial Consultant”) to calculate the District’s post-employment benefits funding status. In a report dated July 1, 2010, the Actuarial Consultant concluded that, as of December 31, 2010, the District’s unfunded actuarial accrued liability for post-employment benefits was $39,915. The Actuarial Consultant also concluded that the District’s annual required contribution (the actuarial value of benefits earned during Fiscal Year 2010 plus costs to amortize the unfunded actuarial accrued liability, or “ARC”) was $72,850. The District paid $79,805 for post-employment benefits in Fiscal Year 2010 and $73,978 for post-employment benefits in Fiscal Year 2011, in each case slightly more than the ARC. While requiring the District to disclose the unfunded actuarial accrued liability and the ARC in its financial statements, GASB 45 does not require the District to amortize the ARC.

For Fiscal Year 2012, the District has budgeted $74,724 with respect to post-employment benefits, which is equal to the expected amount of the ARC for Fiscal Year 2012. The District currently does not expect that any increased funding of post employment benefits in the future will have a material adverse effect on the ability of the District to make payments of principal of and interest on the 2012 Bonds.

Further information with respect to the District’s post-employment benefits funding status is set forth in Note 11 and the Supplementary Information to the District’s audited financial statements for Fiscal Year 2010 attached hereto as Appendix A.

Budget Process

Prior to October 1 of each year, the Manager submits a proposed budget for the District for the Fiscal Year commencing the following January 1 to the Board of the District. The Board generally discusses the budget at one of its regularly-scheduled public meetings to provide an opportunity for comments from residents and ratepayers. Subsequent to the public workshops, the Board approves the budget prior to January 1. The District’s budget is prepared on the accrual basis and includes the District’s projected treated water, irrigation water and hydroelectric system revenues and expenses.

The Board adopted capital and operating budgets for Fiscal Year 2012 on November 22, 2011.

District Insurance

The District is insured for real property, contents and equipment on a blanket replacement cost basis (subject to policy conditions and exclusions such as flood and earth movement) through commercial carriers with a limit of $1,000,000 per occurrence and $3,000,000 aggregate, with excess insurance coverage of $10,000,000 per occurrence.

12 The District is insured for comprehensive general and automobile liability with a limit of $1,000,000 per occurrence and $3,000,000 aggregate, with excess insurance coverage of $10,000,000 per occurrence. The District’s comprehensive general liability coverage includes commercial liability, public officials liability and professional liability (errors and omissions) with respect to District’s operations as a water and irrigation district.

The District also maintains worker’s compensation insurance up to statutory limits.

The District paid no material uninsured losses during the last three Fiscal Years.

District Water Rights

The District holds jointly with Oakdale substantial adjudicated pre-1914 water rights with respect to the Stanislaus River. The District alone owns the right to store water at Woodward Reservoir, which has a licensed capacity of 36,000 acre-feet. The District, together with Oakdale, originally received an appropriation right for the storage and use of Stanislaus River water in Melones Dam constructed by the District and Oakdale in 1926. The District’s and Oakdale’s appropriation rights were expanded upon by the receipt of additional water rights from the State Water Rights Board, the predecessor of the State Water Resources Control Board, with priorities ranging from 1927 to 1948 for the storage and diversion of Stanislaus River water in Donnells Reservoir, Beardsley Reservoir and Tulloch Reservoir, each of which was constructed as part of the Tri-Dam Project.

In 1972, at the time that the Bureau of Reclamation (the “Bureau”) provided for the construction of the New Melones Dam and Reservoir, the Bureau, the District and Oakdale executed a stipulation (the “1972 Stipulation”) which provided that the District and Oakdale were entitled to the first 654,000 acre-feet of annual inflow into New Melones Reservoir. The 1972 Stipulation also ratified other provisions regarding the District and Oakdale’s power generation rights.

In 1988, the District, Oakdale and the Bureau, on behalf of the United States of America, negotiated a modification (the “Modification”) of the 1972 Stipulation which resulted in the District and Oakdale jointly relinquishing their rights to 54,000 acre-feet of Stanislaus River water in each year and the Bureau agreeing to make available to the District and Oakdale the first 600,000 acre-feet of inflow into the New Melones Reservoir. Under the Modification, the District and Oakdale agreed to limit their diversions to 600,000 acre-feet of water in each year. In addition, the Modification provides for the District’s right to store water in a conservation account for use in critically dry years. The Modification further grants the District and Oakdale the rights to receive additional amounts of Stanislaus River water stored in the New Melones Reservoir above actual inflow when inflow is less than 600,000 acre-feet, subject to the 600,000 acre-feet maximum in each year. As used in the Modification, the term “year” consists of the water year, which is October 1 through September 30 of the following year.

Bay-Delta Matters

Most of California’s developed water supply flows into or is exported from the critical Sacramento-San Joaquin River Delta/San Francisco Bay Estuary (the “Bay-Delta”). Beset by degraded environmental conditions, conflicting federal and state laws, and extensive litigation, the Bay-Delta has become a bottleneck to water supply for the Central Valley Project and State Water Project. In December 1994, key federal and state agencies, together with stakeholders in the water community representing agricultural, urban and environmental perspectives, entered into a historic document entitled “Principles for Agreement on Bay/Delta Standards Between the State of California and the Federal Government” (the “Bay/Delta Accord”). Hailed as a truce in California’s water wars, the Bay/Delta Accord outlined new water quality standards designed to restore and protect the Bay-Delta Estuary and aquatic species, including anadromous fish. The Bay/Delta Accord was expected to reduce the water available for consumptive uses by an average of 300,000-400,000 acre-feet per year, and to assure water users that no additional reductions

13 would occur for purposes of implementing statutes, such as the Federal Endangered Species Act. The Bay/Delta Accord also called for a cooperative state-federal program, known as “CALFED.” Several recent decisions by the United States District Court for the Eastern District of California have held that biological opinions issued by federal fisheries agencies to protect delta smelt and other aquatic species were deficient and required them to be re-done, but continued to enforce instream flow schedules for federal Central Valley Project reservoirs and restrictions on pumping water from the Bay-Delta. These decisions and other pending regulatory actions suggest continuing uncertainty in the reliability of the Bay-Delta as a dependable water source in the near future. Such changes could also impact the District and other major water rights owners and water users in the San Joaquin River watershed. Among the actual or potential regulatory activities are the following:

1. The Governor of California’s Delta Vision Task Force has issued wide-ranging recommendations for the Bay-Delta, among which are that the State of California use (i) the authority to regulate the public trust and (ii) the authority under Article X, Section II of the California Constitution to determine reasonable and beneficial water uses by water rights holders and water users in order to protect fisheries and increase the reliability of the State’s water supply for urban areas.

2. In Decision 1641, the State Water Resources Control Board (the “SWRCB”) ordered the implementation of the flow schedule described in the San Joaquin River Agreement, to which the District is a party, to implement the Water Quality Control Plan for the San Francisco Bay/Sacramento-San Joaquin Delta Estuary that was adopted in May 1995 (the “Bay-Delta Standards”). The District is a member of the San Joaquin River Group Authority, a joint powers authority, and along with other members of the San Joaquin River Group Authority, contractually committed to supply a quantity of water to assist in meeting the flow schedule. The District’s contractual obligation expired at the end of 2011.

3. The SWRCB last updated the Bay-Delta Standards in 2006. The SWRCB is in the process of updating the Bay-Delta Standards and is preparing a substitute environmental document as part of such process. The substitute environmental document will serve as the environmental review document for compliance with the California Environmental Quality Act. The SWRCB also recently issued three technical appendices. One is in support of the new standards and the other two describe impacts to agriculture and hydropower generation. The technical appendices are premised on San Joaquin River flow standards that would be based on a range from 20% to 60% of unimpaired runoff. The SWRCB is expected to prepare a plan based on the environmental document and at some point in the future, commence proceedings to enforce the new standards. In past enforcement proceedings, the SWRCB has implemented standards based on the water rights priority system. If the same process is observed in this upcoming process, the Bureau’s water rights for New Melones Reservoir would be the first to be affected as they are junior in priority to those of the District. The effect of the new standards on the District’s water supply depend upon what standards are adopted and how the SWRCB implements the new standards.

4. A biological opinion issued under the federal Endangered Species Act by the National Marine Fisheries Service in June 2009 imposed new flow requirements on the Bureau in its operation of New Melones Reservoir. The District believes that full implementation of the new flow requirements would compel the District to divert less water in certain years. The District and Oakdale challenged the biological opinion in U.S. District Court, and in its decision, the trial court affirmed that the District’s water rights were not subject to the biological opinion. The trial court also overturned the biological opinion and required the National Marine Fisheries Service to re-consult with the Department of the Interior and issue a new opinion. However, the court left the opinion in effect during the consultation process. The United States has appealed the decision. The Bureau has stated that it will follow the required flow schedule during the consultation process. The District believes that doing so will result in less storage at New Melones Reservoir and could reduce the capability of the Bureau to meet its obligations to the District under the Modification described under the caption “—District Water Rights.”

14 5. The Stanislaus River and other San Joaquin River tributaries have been listed as impaired water bodies under the Federal Clean Water Act and Total Maximum Daily Loads (“TMDL”) for dissolved oxygen, salt and boron have been set for the Bay-Delta. In addition, a TMDL for temperature could be set for the Bay-Delta. It is possible that regulatory actions to enforce such standards could be imposed, which could limit the District’s drainage to the San Joaquin River system or require that additional flows be provided to the San Joaquin River system.

The District often participates with other irrigation districts with water rights on the eastern side of the San Joaquin River in regulatory proceedings involving the above issues and in related litigation.

Irrigation Distribution System

General. Water supplied by the District originates in the snowpack in the Sierra Nevada mountains drained by the Stanislaus River and in the natural flows of the Stanislaus River. The District has rights to certain water in the Stanislaus River and to water stored in the New Melones Reservoir behind the Bureau’s New Melones Dam. See the caption “ District Water Rights.”

The District’s distribution system includes the Goodwin Diversion Dam (“Goodwin Dam”) on the Stanislaus River below the New Melones Dam, which the District owns equally with Oakdale and Stockton-East Water District (“SEWD”), at which water is diverted into the District’s approximately 31 miles of main canals and 350 miles of laterals and pipelines and 80 miles of drains. In addition to these surface irrigation water facilities, the District owns and operates 32 deep well pumps. The District’s approximately 380 mile canal distribution system, providing a turnout to each 40 acre parcel in the District, was almost entirely replaced with a pipeline system in the 1960s. A majority of the remaining distribution system has consisted of a pipeline system in recent years.

Water Service Charges. The District annually adopts rates and charges for agricultural water service in the District by Board action, and the approval of the voters or any other governmental agency or body is not required. For information with respect to certain constitutional provisions which may affect the ability of the District to increase rates and charges, see the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES.”

The District’s 2012 water service charge of $24 per acre is payable by all property owners receiving irrigation service during Fiscal Years. The water service charge is unchanged from 2011.

The table below sets forth a comparison of the latest District water service charges (in Fiscal Year 2012) to the current charges of agricultural water providers in the vicinity of the District. The table represents the cost per acre-foot of a base allotment per parcel set in each year or a flat charge per acre in each respective district:

15 Water Provider Rate District(1) $24.00 per acre Stockton-East Water District(2) $4.66 per acre-foot Oakdale Irrigation District Varies from $30.00 per acre (parcels of 2 acres or smaller) to $19.50 per acre (parcels of greater than 10 acres) Modesto Irrigation District(3) 27.00 per acre (36” allotment) Turlock Irrigation District 26.00 per acre (24” allotment)

(1) The District charged $24.00 per acre in Fiscal Year 2012 with a minimum charge per parcel of $50.00. (2) Rate for agricultural surface water is charged per acre-foot of water provided. (3) Modesto Irrigation District charge is without regard to parcel size. Additional water is available in certain years at an increased cost. Source: District.

Collection Procedures. The District is on an annual billing cycle for water charges, billing landowners in advance of the water year. The District sends out bills in November prior to the start of the Fiscal Year. Payment is due in two installments, December 20 prior to the start of the Fiscal Year and June 20 of such Fiscal Year, and is considered delinquent if not paid by those dates.

Treated Water System

In 1995, the District entered into the Water Supply Development Agreements pursuant to which the District agreed to provide treated water to the Cities. The Water Supply Development Agreements obligated the Cities to pay the capital costs of the 40 mgd Water Treatment Plant, 40 miles of raw water and treated water pipelines and certain other capital improvements necessary to treat and distribute water to the Cities.

The Treated Water Facilities were completed in 2005 and the District commenced treated water delivery to the cities of Manteca, Lathrop and Tracy shortly thereafter. In 2006, the City of Tracy and the District entered into that certain Escalon Amendment to Tracy-SSJID Water Supply Development Agreement dated as of March 28, 2006 (the “Escalon Amendment”). Pursuant to the Escalon Amendment, the City of Tracy has agreed to purchase the treated water allocable to the City of Escalon under the City of Escalon’s Water Supply Development Agreement dated October 1, 1995. By its terms, the Escalon Amendment continues in force until such time as the City of Escalon constructs water treatment and conveyance facilities capable of treating and conveying water for municipal use. For planning purposes, the District does not project any treated water sales to the City of Escalon through Fiscal Year 2012.

Pursuant to the terms of the Water Supply Development Agreements, the Cities are obligated to pay all fixed and variable operation and maintenance costs of the Treated Water Facilities as well as pay the District for raw water supplied to the Water Treatment Plant for treatment. The Cities’ payment obligations are payable from revenues of each City’s water fund on a take-or-pay basis and are payable by the Cities as operation and maintenance expenses of each City’s water system prior to any City debt secured by water revenues. The Cities’ obligations under the Water Supply Development Agreements are several and not joint. See the caption “HISTORIC AND PROJECTED TREATED WATER DELIVERIES.”

Other Water Sales

Out of District Water Sales. The District enters into certain arrangements from time to time to sell raw water to entities outside of the District. These sales vary significantly from year-to-year based on weather, regulatory and other factors. Water deliveries to entities outside of the District have ranged from 130 acre feet to 45,000 acre feet during the last five Fiscal Years. Set forth below is a description of current long-term arrangements pursuant to which the District sells such raw water.

16 City of Ripon. The District currently delivers raw water from time-to-time to the City of Ripon pursuant to a contract entered into in 1999 (the “Ripon Agreement”). The Ripon Agreement expires in 2029, subject to extension on terms mutually acceptable to the parities. The City of Ripon has been negotiating with the City of Lathrop and the District to obtain 4,695 acre-feet of drinking water from the Treatment Plant in lieu of the raw water pursuant to the Ripon Agreement. No treated water agreement with the City of Lathrop and the District has been completed. If a treated water contract is implemented, the City of Ripon would need to construct approximately 7 miles of pipeline. Such a project would be subject to environmental review and consent of certain other cities.

Outstanding Indebtedness

Upon the refunding of the 2008A Certificates as described under the caption “REFUNDING PLAN,” the District will have no other outstanding indebtedness payable from Revenues or Net Revenues.

Future System Improvements

The District routinely makes capital improvements and additions to the District’s irrigation system, treated water facilities and other District facilities. Except as described below, the District does not currently project issuing any Bonds or entering any Contract to finance such improvements or additions.

The District is currently developing a retail electric project. See the caption “—Retail Electric Project.” In the event that the District undertakes the retail electric project, the District may issue Bonds or execute Contracts to acquire such project. In such event, the revenues generated by such retail electric project will constitute Revenues under the Indenture. See Appendix B hereto.

Tri-Dam Project

In 1948, the District and Oakdale agreed jointly to develop the Tri-Dam Project. The Tri-Dam Project includes Donnells Dam, Tunnel and Power Plant, the Beardsley Dam, Afterbay Dam and Power Plant, the Tulloch Dam, Afterbay and Power Plant and related facilities. The Tri-Dam Project was constructed pursuant to and is operated in accordance with Federal Energy Regulatory Commission Licenses No. 2005 and 2067, as amended, which expired in December 2004. New 40-year licenses have been issued, the current term of which expires on December 31, 2045.

Certain information with respect to the Tri-Dam Project reservoirs is set forth below:

Reservoirs

Reservoir and Year Maximum Acre-Feet Height Constructed Storage Capacity (in feet) Type of Dam Donnells (1958) 64,325 483 Concrete arch dam Beardsley (1958) 97,802 280 Earth, gravel and rock fill dam Tulloch (1958)(1) 66,968 200 Gravity concrete dam

(1) The District’s joint storage rights in Donnells, Beardsley and Tulloch Reservoirs are included in the District’s entitlement to the Modification. See the caption “—District Water Rights.” Source: District.

The Tri-Dam Project is managed by the District and Oakdale through a joint board of directors comprised of the board of directors of each district. The District’s share of the initial cost of the Tri-Dam Project was financed by the issuance of the South San Joaquin Tri-Dam Bonds in 1955. Pursuant to the terms of the Tri-Dam Project governing contract, PG&E purchased all the power and energy produced by the Tri-Dam Project. The contract with PG&E for sale of power and energy ended December 31, 2004 in accordance with its

17 terms. In late 2004, the Tri-Dam Project entered into a five year (Jan 1, 2005 through December 31, 2010) power sale agreement with PG&E. This agreement was terminated in 2008 and replaced with an energy management series agreement with Shell Energy North America (“SENA”) effective January 1, 2009 (the “Shell Agreement”). Pursuant to the Shell Agreement, SENA is obligated to market energy on behalf of Tri-Dam but is not obligated to purchase power or energy for its own account. As a result, Tri-Dam Project revenues during the term of the Shell Agreement will fluctuate based on market prices and other factors. The Shell Agreement terminates on December 31, 2013. subject to certain rights of early termination. See the caption “HISTORIC AND PROJECTED TRI-DAM PROJECT REVENUES.”

In accordance with Tri-Dam Project Resolution TDP 2008-02 dated as of February 26, 2008, which governs the Tri-Dam Project’s fund reserve and revenue distribution policies, the District is entitled to a 50% share of all revenues distributed by the Tri-Dam Project. By Resolution TDP 2009-05, the Tri-Dam Project’s Maintenance Reserve Fund was made available, and by vote of the joint board of directors of the Tri-Dam Project, the Self-Insurance Reserve Fund could be made available, to pay the costs to design and construct the Tulloch Third Unit Project. The resolution also specified the terms for future replenishment of the reserves from available cash on an annual basis. The Tri-Dam Project intends to devote a portion of the Self-Insurance Reserve Fund in 2012 to construct certain recreational improvements at Beardsley Reservoir required by the new license for that project. In approving Resolution TDP 2009-05, the joint board of directors of the District and Oakdale found that the temporary changes to the reserve fund levels would not “jeopardize their ability to operate or maintain the Tri-Dam Project facilities or the ability of either district to make debt service on their outstanding bonds.” While there is no assurance that the Tri-Dam Project’s reserve funds and revenue distribution policies will not undergo further change, the District has covenanted in the Indenture not to consent to or acquiesce in the entry into of any amendment, revision or restatement of Tri-Dam Project Resolutions TDP 2008-02 or TDP 2009-05 if such amendment, revision or restatement has a material adverse effect upon the District’s ability to pay principal of and interest on the 2012 Bonds.

Tri-Dam Power Authority

The Authority was formed for the purpose of exercising common powers in constructing, owning, operating and maintaining facilities for the generation of electric energy. The Sandbar Project was originally financed from revenue bonds issued by the Authority. There are currently $14,160,000 aggregate principal amount of refunding revenue bonds of the Authority outstanding (the “Sandbar Obligations”). PG&E contracted to purchase all of the power produced by the Sandbar Project under a contract (the “Sandbar Contract”) on a take-and-pay basis. All revenues from the Sandbar Project are pledged to the Authority’s outstanding refunding revenue bonds.

In accordance with the Authority’s revenue distribution policy approved by the Authority’s Board of Directors, the Authority’s revenues shall be distributed to the District pro rata after debt service upon the Sandbar Obligations. While there can be no assurance that the Authority’s fund reserve and revenue distribution policies will not change, the District has covenanted in the Indenture not to consent to or acquiesce in the entry into of any change in the Authority’s fund reserve or revenue distribution policies which has a material adverse effect upon the District’s ability to obtain adequate Net Revenues for the payment of the Installment Payments.

The District expects to receive monies from the Sandbar Project during the next five year period in excess of the amount necessary to pay the operating and maintenance expenses of the Authority and debt service on the Sandbar Obligations. See the caption “HISTORIC AND PROJECTED TRI-DAM POWER AUTHORITY REVENUES—Projected Tri-Dam Power Authority Revenues.”

Retail Electric Project

The District has been reviewing options to provide retail electric service to portions of the District since the early 2000s. The initial investigation of the option to acquire electric distribution assets of PG&E in

18 the District territory was completed in May 2005. In June 2005, the Board voted unanimously to file an application with San Joaquin County Local Agency Formation Commission (“LAFCO”) in order to exercise the District’s authority in the California Water Code to provide retail energy services.

The San Joaquin County Planning Department completed the necessary California Environmental Quality Act (“CEQA”) compliance document, namely an Environmental Impact Report (“EIR”), and this EIR was certified by the San Joaquin County Planning Commission in May 2006. In April 2006, the California Public Utilities Commission (“CPUC”) approved a resolution acknowledging that there would not be a significant impact to PG&E customers that will remain under PG&E service. LAFCO, however, voted to deny the District’s application to exercise the latent power of providing retail electricity services.

In September 2009, the District filed a new application with LAFCO to exercise the District’s authority to provide retail energy services. PA Consulting Group, Inc., was retained by LAFCO to prepare an independent analysis of the District’s application and issued reports in May 2010 and February 2011 (collectively, the “PA Consulting Report”). The PA Consulting Report contains a number of assumptions with which the District does not agree, including a higher purchase price for the PG&E system than the District believes is reasonable and higher wholesale power prices then the District projects in the charts under the captions “HISTORIC AND PROJECTED TRI-DAM PROJECT REVENUES—Projected Tri-Dam Project Revenues” “HISTORIC AND PROJECTED TRI-DAM POWER AUTHORITY REVENUES—Projected Tri-Dam Power Authority Revenues” and “DISTRICT FINANCIAL INFORMATION—Projected Operating Results and Debt Service Coverage.” While the District does not agree with certain assumptions in the PA Consulting Report, the District believes that its plan to provide retail electric service is feasible even using the PA Consulting Report assumptions. A draft environmental impact statement was issued by LAFCO for public review in November 2011. Public review ended on January 17, 2012. LAFCO is preparing responses to the comments. The District expects action by LAFCO on its application in 2012.

In the event that the District does undertake the retail electric project, the District assumes, for purposes of financial analysis, that it will pay $65 million for these assets, including severance, and pay an additional amount of approximately $65 million in capital improvements and other costs as part of the plan. These funds are anticipated to be paid from a combination of District reserves, distributions from the Tri-Dam Project and the Authority and proceeds of District Contracts or Bonds secured by Revenues on a parity with the 2012 Bonds.

HISTORIC AND PROJECTED TREATED WATER DELIVERIES

Historic Treated Water Deliveries

The following table summarizes treated water deliveries by the District for the five most recent Fiscal Years.

Historic Treated Water Deliveries (Acre-Feet)

2011(1) 2010 2009 2008 2007 City of Tracy 11,330 10,595 11,126 8,587 9,150 City of Manteca 5,485 5,745 6,971 6,817 6,286 City of Lathrop 983 1,091 1,650 1,412 2,283 City of Escalon 0 0 0 0 0 TOTAL 17,798 17,431 19,747 16,816 17,719

(1) Reflects actual unaudited amounts. Source: District.

19 Reduced water deliveries in Fiscal Years 2010 and 2011 reflect higher precipitation in the spring and cooler summers in each Fiscal Year.

Historic Treated Water Revenues

The following table summarizes the Revenues collected by the District in each of the three most recent Fiscal Years in connection with treated water sales to the Cities.

Historic Treated Water Revenues(1)

Fiscal Year Revenues from (Ending December 31) Treated Water Sales 2011(2) City of Tracy $2,746,280 City of Manteca 2,045,320 City of Lathrop 1,191,834 City of Escalon 10,094 Total $5,993,528 2010 City of Tracy $2,676,357 City of Manteca 2,146,831 City of Lathrop 1,237,456 City of Escalon 12,683 Total $6,073,327 2009 City of Tracy $2,540,836 City of Manteca 2,115,767 City of Lathrop 1,242,086 City of Escalon 4,526 Total $5,903,215 2008 City of Tracy $2,336,616 City of Manteca 1,969,375 City of Lathrop 1,156,889 City of Escalon 8,441 Total $5,471,321 2007 City of Tracy $3,001,451 City of Manteca 2,272,095 City of Lathrop 1,579,273 City of Escalon 0 Total $6,852,819

(1) Cities are invoiced monthly based upon actual figures reconciled to the general ledger for Water Treatment Plant expenditures. (2) Reflects actual unaudited amounts. Source: District.

20 Projected Treated Water Deliveries

The District estimates that treated water deliveries for the current and next four Fiscal Years will be as follows.

Projected Treated Water Deliveries (Acre-Feet)

2012 2013 2014 2015 2016 City of Tracy 11,387 11,501 11,616 11,790 11,967 City of Manteca 5,512 5,567 5,623 5,707 5,793 City of Lathrop 988 998 1,008 1,023 1,038 City of Escalon 0 0 0 0 0 TOTAL 17,887 18,066 18,247 18,520 18,798

Source: District.

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21 Projected Treated Water Revenues

The District estimates that Revenues collected by the District in the current and each of the next four Fiscal Years for treated water sales will be as follows.

Projected Treated Water Revenues

Fiscal Year Revenues from (Ending December 31) Treated Water Sales(1) 2012 City of Tracy $2,792,898 City of Manteca 2,480,294 City of Lathrop 1,323,940 City of Escalon 12,157 Total $6,609,289 2013 City of Tracy $2,905,452 City of Manteca 2,580,250 City of Lathrop 1,377,294 City of Escalon 12,647 Total $6,875,643 2014 City of Tracy $3,022,542 City of Manteca 2,684,234 City of Lathrop 1,432,799 City of Escalon 13,157 Total $7,152,732 2015 City of Tracy $3,159,916 City of Manteca 2,806,233 City of Lathrop 1,497,920 City of Escalon 13,755 Total $7,477,824 2016 City of Tracy $3,303,534 City of Manteca 2,933,776 City of Lathrop 1,566,001 City of Escalon 14,380 Total $7,817,691

(1) Projections are based upon the assumption that approximately 38% of total treated water revenues will be collected from the City of Manteca, approximately 20% of total treated water revenues will be collected from City of Lathrop and approximately 42% of total treated water revenues will be collected from the City of Tracy, including the City of Escalon’s project allotment. Source: District.

22 HISTORIC AND PROJECTED IRRIGATION SALES

Historic Irrigation Accounts, Deliveries and Service Charges

The following table summarizes the number of irrigation accounts, deliveries and service charges for the five most recent Fiscal Years.

Historic Irrigation Accounts, Deliveries and Service Charges

Fiscal Year Number of Irrigation Total Acre-Feet Service (Ending December 31) Accounts Delivered Charges 2011(1) 3,140 195,301 $ 1,338,919 2010 3,351 189,370 1,334,798 2009 3,344 206,033 1,336,307 2008 3,356 205,988 1,334,961 2007 3,297 243,541 20,934

(1) Reflects actual unaudited amount. Reduction in number of accounts in 2011 reflects board decision to exempt parcels of less than ½ acres that do not receive irrigation water from service charges. Source: District.

In Fiscal Year 2007, the District waived collection of Water Service Charges for Fiscal Year 2008.

Projected Irrigation Accounts, Deliveries and Service Charges

The District estimates that the irrigation accounts, deliveries and service charges by the District for the current and next four Fiscal Years will be as follows.

Projected Irrigation Accounts, Deliveries and Service Charges

Fiscal Year Number of Irrigation Total Acre-Feet Service (Ending December 31) Accounts Delivered Charges 2012 3,140 195,300 $1,693,092 2013 3,138 195,000 1,692,245 2014 3,135 194,805 1,690,553 2015 3,132 194,610 1,688,863 2016 3,129 194,416 1,687,174

Source: District.

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23 The District expects the number of irrigation accounts to decline gradually as a result of increased urbanization of the District’s service area.

HISTORIC AND PROJECTED TRI-DAM PROJECT REVENUES

Historic Tri-Dam Project Revenues

The following table summarizes revenues received by the Tri-Dam Project in each of the five most recent Fiscal Years, including Tri-Dam Project revenues distributed by the Tri-Dam Project to the District.

Historic Tri-Dam Project Revenues

2011(1) 2010 2009 2008 2007 Tri-Dam Project Total Revenues $ 25,340,160 $ 19,938,836(2) $ 18,441,077 $ 31,160,562 $ 23,150,279 Tri-Dam Project Operation and Maintenance Expenses (7,427,522) (7,239,728) (6,456,922) (6,349,848) (4,631,205) Revenues Available for Distribution $ 17,912,638 $ 12,699,108 $ 11,984,155 $ 24,810,714 $ 18,519,074

Revenues Distributed to the District $ (12,955,114) $ (1,700,000)(3) $ (6,500,000) $ (9,400,000) $ (10,600,000) Revenues Distributed to Oakdale (12,955,114) (1,700,000) (6,500,000) (9,400,000) (10,600,000)

(1) Reflects actual unaudited amount. (2) Excludes one time receipt of $6,639,395 of proceeds of business interruption insurance. (3) Decrease in 2010 revenues reflects a decrease in power generation resulting from the shutdown of the Donnells generator from September 2009 until April 2010. Source: Tri-Dam Project.

Tri-Dam Project revenues are distributed to the District and Oakdale in accordance with policies developed by the Tri-Dam Project. See the caption “THE DISTRICT—Tri-Dam Project.”

Projected Tri-Dam Project Revenues

The District estimates that revenues received by the Tri-Dam Project in each of the current and each of the next four Fiscal Years, including Tri-Dam Project revenues distributed to the District, will be as follows.

Projected Tri-Dam Project Revenues

2012 2013 2014 2015 2016 Tri-Dam Project Total Revenues $ 25,861,239 $ 27,169,836 $ 30,040,195 $ 30,525,119 $ 33,539,314 Tri-Dam Project Operation and Maintenance Expenses (6,323,292) (6,576,224) (6,839,273) (7,112,844) (7,397,357) Revenues Available for Distribution $ 19,537,947 $ 20,593,612 $ 23,200,922 $ 23,412,275 $ 26,141,957

Revenues Distributed to the District $ (9,768,974) $ (10,296,806) $ (11,600,461) $ (11,706,138) $(13,070,978) Revenues Distributed to Oakdale (9,768,974) (10,296,806) (11,600,461) (11,706,138) (13,070,978)

Source: Tri-Dam Project.

Projected Tri-Dam Project Revenues assume normal hydrology and market rates for the sale of electricity. The above numbers reflect 2012 budgeted amounts and the projections set forth in certain reports prepared by consultants to the District, and assume increases in future wholesale electric rates. There can be no assurance that future wholesale electric rates will increase as set forth in the above table and lower

24 wholesale electric rates could result in materially lower Tri-Dam Project revenues received by the District in the years shown.

Tri-Dam Project revenues are distributed to the District and Oakdale in accordance with policies developed by the Tri-Dam Project. See the caption “—Tri-Dam Project.”

HISTORIC AND PROJECTED TRI-DAM POWER AUTHORITY REVENUES

Historic Tri-Dam Power Authority Revenues

The following table summarizes revenues received by the Authority in each of the five most recent Fiscal Years, including Authority revenues distributed to the District.

Historic Tri-Dam Power Authority Revenues(1)

2011(2) 2010 2009 2008 2007 Tri-Dam Power Authority Total Revenues $ 7,825,750 $ 6,007,071 $ 6,055,155 $ 7,319,352 $ 6,370,212 Tri-Dam Power Authority Operation and Maintenance Expenses (688,267) (832,449) (601,208) (731,182) (536,417) Tri-Dam Power Authority Debt Service (2,850,018) (2,142,343) (3,254,432) (3,254,432) (3,254,432) Revenues Available for Distribution $ 4,287,465 $ 3,032,279 $ 2,199,515 $ 3,333,738 $ 2,579,363

Revenues Distributed to the District $ (1,000,000) $ (200,000) $ (1,800,000) $ (1,800,000) $ (1,500,000) Revenues Distributed to Oakdale (1,000,000) (200,000) (1,800,000) (1,800,000) (1,500,000)

(1) All Authority Revenues remaining after Operation and Maintenance Expenses were retained in Authority funds and accounts pursuant to the Authority reserve policy. (2) Reflects actual unaudited amount. Source: The Authority.

Authority revenues are distributed to the District and Oakdale in accordance with policies developed by the Authority. See the caption “THE DISTRICT—Tri-Dam Power Authority.”

Projected Tri-Dam Power Authority Revenues

The District estimates that revenues received by the Authority in the current and each of the next four Fiscal Years, including Authority Revenues distributed to the District, will be as follows.

Projected Tri-Dam Power Authority Revenues

2012 2013 2014 2015 2016 Tri-Dam Power Authority Total Revenues $ 7,521,000 $ 7,901,568 $ 8,736,330 $ 8,877,356 $ 9,753,948 Tri-Dam Power Authority Operation and Maintenance Expenses (805,459) (829,623) (854,511) (880,147) (906,551) Tri-Dam Power Authority Debt Service (2,851,616) (2,849,000) (2,847,100) (2,846,300) (4,459,900) Revenues Available for Distribution $ 3,683,925 $ 4,222,945 $ 5,034,719 $ 5,150,909 $ 4,387,497

Revenues Distributed to the District $ (1,931,963) $ (2,111,473) $ (2,517,359) $ (2,575,454) $ (2,193,748) Revenues Distributed to Oakdale (1,931,963) (2,111,473) (2,517,359) (2,575,454) (2,193,748)

Source: The Authority.

25 Projected Authority revenues assume normal hydrology and current rates under the PG&E contract. The above numbers reflect 2012 budgeted amounts and increases projected by the District.

Authority revenues are distributed to the District and Oakdale in accordance with policies developed by the Authority. See the caption “—Tri-Dam Power Authority.”

HISTORIC AND PROJECTED 1% PROPERTY TAX REVENUES

Property Tax Revenues

General. The County levies a 1% ad valorem property tax on behalf of all taxing agencies in the County, including the District. The taxes collected are allocated to taxing agencies within the County, including the District, on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of “situs” growth in assessed value (new construction, change of ownership, and inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than county-wide or less than city-wide special districts.

The District received $3,249,823 in Fiscal Year 2011 as the District’s share of the County’s 1% ad valorem property tax. From time to time legislation has been considered as part of the State of California budget to shift Property Tax Revenues from special districts to school districts or other governmental entities. While legislation enacted in connection with the 1992-93 State of California budget shifted approximately 35% of many special districts’ shares of the countywide 1% ad valorem property tax, certain special districts were exempted.

The 2004-05 State budget reallocated additional portions of the special districts’ shares of the county-wide 1% ad valorem property tax, shifting a portion of the Property Tax Revenues collected by the County from special districts to school districts. As a result of the 2004-05 State of California budget, the District lost approximately $3,000,000 of Property Tax Revenues, cumulatively, over Fiscal Years 2005 and 2006. Pursuant to the 2004-05 State of California budget, such Property Tax Revenues reverted to the District in Fiscal Year 2007.

On November 2, 2004, State voters approved Proposition 1A, which amends the State Constitution to significantly reduce the State’s authority over major local government revenue sources. Under Proposition 1A, the State may not, among other things: (i) shift property taxes from local governments to schools or community colleges; or (ii) change how 1% ad valorem property tax revenues are shared among local governments without two-thirds approval of both houses of the State Legislature. Beginning in Fiscal Year 2009-10, the State may shift to schools and community colleges a limited amount of local government Property Tax Revenues if certain conditions are met, including: (a) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State; and (b) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Given the magnitude of the State’s projected budgetary deficit, it is possible that the Governor may proclaim that a shift of additional local property tax revenue, including tax revenue of the District, is needed due to severe financial hardship.

On July 28, 2009, the Governor of the State signed a revised State fiscal year 2009-10 budget which included a shift of approximately 8% of the 1% ad valorem property tax revenues (other than unitary taxes) from certain local agencies, including the District, to school districts and other governmental agencies. The District believes that pursuant to Proposition 1A, the State is obligated to repay the portion of the 1% ad

26 valorem property taxes that is subject to such shift, totaling $306,838, to the District by State fiscal year 2012-13, plus interest at the rate of 2% per annum, all in accordance with Proposition 1A.

There can be no assurance that the Property Tax Revenues that the District currently expects to receive will not be temporarily shifted from the District pursuant to Proposition 1A in the current or future Fiscal Years. The State of California is currently projecting a large deficit for Fiscal Year 2012-13. Various proposals have been circulated to address this projected deficit, including a temporary shift of Property Tax Revenues from special districts such as the District. The District cannot predict whether the State of California will again temporarily shift some amount of the Property Tax Revenues away from the District in the current or future Fiscal Years. If the property tax formula is permanently changed in the future it could have a material adverse effect on the receipt of Property Tax Revenues by the District.

Property Tax Revenues. The following table provides a record of the amount the District received as its share of the 1% ad valorem property tax during the five most recent Fiscal Years.

Property Tax Revenues 2007 Through 2011

Amount Received Fiscal Year by District(1) 2011(2) $ 3,249,823 2010(3) 3,210,297 2009 3,362,531 2008 4,098,199 2007 4,194,627

(1) District allocation based on County fiscal year ending on June 30; differs from Property Tax Revenues shown under “DISTRICT FINANCIAL INFORMATION—Historic Operating Results and Debt Service Coverage,” which is based on District Fiscal Year ending December 31. (2) Reflects actual unaudited amount. (3) In accordance with Generally Accepted Accounting Principles, the District recognized the amount of $306,838, which was temporarily shifted to the State pursuant to Proposition 1A, as Property Tax Revenues for Fiscal Year 2009. The District believes that, pursuant to Proposition 1A, the State is obligated to repay such amount to the District by State fiscal year 2012-13, plus interest at the rate of 2% per annum. See the caption “—General.” Source: District.

Projected Property Tax Revenues 2012 Through 2016

Amount Received Fiscal Year by District(1) 2012 $3,249,823 2013 3,282,321 2014 3,315,144 2015 3,381,447 2016 3,482,891

(1) District allocation based on County fiscal year ending on June 30; differs from Property Tax shown under “DISTRICT FINANCIAL INFORMATION—Historic Operating Results and Debt Service Coverage,” which is based on District Fiscal Year ending December 31. Source: District.

Because of the recent decrease in property values in certain areas of the State, certain counties have announced that they will review the assessed values of properties within those counties. Such a review may

27 result in a decrease in assessed values which would result in a decrease in collections of the 1% ad valorem property tax by such counties. The County has not announced that it will review the assessed values of properties within the County. There can be no assurance, however, that the County will not decide to review the assessed values of properties within the County in the future.

DISTRICT FINANCIAL INFORMATION

Financial Statements

A copy of the most recent audited financial statements of the District prepared by Marcia Fritz & Company, Certified Public Accountants, Citrus Heights, California (the “Auditor”) are included as Appendix A hereto (the “Financial Statements”). The Auditor’s letter concludes that the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the District, as of December 31, 2010 and 2009, and the respective changes in financial position and, cash flows thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America. The Auditor has not been asked to consent to the inclusion of the Financial Statements in this Official Statement

The summary operating results contained under the caption “—Historic Operating Results and Debt Service Coverage” are derived from the Financial Statements (excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto.

The audited financial statements of the District for Fiscal Year 2011 are expected to be accepted by the Board of Directors on May 7, 2012. When accepted, such financial statements will be posted on the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/.

District Reserve Policies

The District has established reserve funds in order to ensure that the District will at all times have sufficient funding available to meet operating, capital and debt service obligations.

The District currently maintains the following reserves which are unrestricted and may be redesignated for debt service and other purposes: (i) a $2,000,000 reserve designated for state or federal actions; (ii) a $1,000,000 reserve designated for contractual or legal obligations; (iii) a $10,000,000 reserve designated for expenses of new operating programs; (iv) a $10,000,000 reserve designated for susceptibility to natural disasters; and (v) a $15,000,000 reserve designated for operation and maintenance and rate stabilization. These reserves total $38,000,000. All of such reserves are currently fully funded. As of April 1, 2012, the District maintains unrestricted additional reserves in the approximate amount of $20,000,000. Such additional reserves may be expended for any District purpose. In addition, as of April 1, 2012, the District maintains a restricted debt service reserve of $2,500,000 and a reserve of approximately $5,000,000 for capital improvement and replacement costs of the Water Treatment Plant.

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28 Historic Operating Results and Debt Service Coverage

The following table is a summary of operating results of the District for the last three Fiscal Years. These results have been derived from the District’s Financial Statements but exclude certain non-cash items and include certain other adjustments. The table has not been audited by the District’s Auditor. Operating results for prior Fiscal Years are not comparable as a result of significant changes in how Operation and Maintenance Costs were categorized for financial statement purposes.

Historic Operating Results and Debt Service Coverage Fiscal Year Ended December 31

2011(1) 2010 2009 REVENUES Hydroelectric revenues Tri-Dam Project distributions $ 12,955,114 $ 1,700,000 $ 6,500,000 Tri-Dam Power Authority distributions 1,000,000 200,000 1,800,000 Sales of Water Treated Water Revenues(2) 5,993,528 6,073,327 5,903,400 Other water deliveries 525,423 2,763,241 8,263,970 1% Property Tax revenues 3,249,823 3,210,297 3,734,550 Interest and investment revenues 928,064 1,025,033 2,419,831 Water service charges 1,338,919 1,332,958 1,338,412 Solar and small hydroelectric generation 1,369,576 1,335,568 2,346,169 Gain (loss) on disposal of property 153,231 12,301 - Capital contributions, cash only(3) 2,088,302 1,380,839 980,951 Other Operating Revenues 109,411 123,894 187,715 Total Revenues $ 29,711,391 $ 19,157,458 $ 33,474,998

OPERATION AND MAINTENANCE COSTS General and administrative $ 1,261,648 $ 1,069,662 $ 1,435,037 Wages 5,628,596 5,286,934 5,117,278 Payroll taxes and benefits 4,315,173 4,071,922 5,247,031 Materials and supplies 1,845,177 1,710,713 1,829,474 Maintenance, repairs and improvements 463,041 552,123 908,282 Conservation(4) 1,496,802 - - Utilities 723,975 746,033 921,175 Total Operation and Maintenance Expenses $ 15,734,413 $ 13,437,387 $ 15,458,277

NET REVENUES $ 13,976,978 $ 5,720,071 $ 18,016,721

DEBT SERVICE 2008A Installment Purchase Agreement $ 2,825,420 $ 2,827,820 $ 2,827,269

COVERAGE 4.95 2.02 6.37

REVENUES AVAILABLE FOR OTHER DISTRICT PURPOSES $ 11,151,558 $ 2,840,121 $ 15,189,452

(1) Reflects actual unaudited amounts. (2) Includes payments received from the Cities for Water Treatment Plant operation and maintenance expenses. (3) Reflects contributions received from land developers as well as contributions received from the Cities pursuant to the Water Supply Development Agreements. See the caption “SOUTH SAN JOAQUIN IRRIGATION DISTRICT—Treated Water System.” (4) Reflects costs associated with temporary program to provide partial reimbursement to District irrigation customers for certain water conservation measures and improvements. Source: District.

Projected Operating Results and Debt Service Coverage

The District’s estimated projected operating results for the Fiscal Years ending December 31, 2012 to December 31, 2016 are set forth below, reflecting certain significant assumptions concerning future events

29 and circumstances. The financial forecast represents the District’s estimate of projected financial results based on the assumptions set forth in the footnotes to the table below. The assumptions set forth in the footnotes to the table set forth below are material in the development of the District’s financial projections, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material.

Projected Operating Results and Debt Service Coverage Fiscal Years ended December 31

2012(1) 2013 2014 2015 2016 REVENUES Hydroelectric revenues Tri-Dam Project distributions(2) $ 9,768,974 $ 10,296,806 $ 11,600,461 $ 11,706,138 $ 13,070,978 Tri-Dam Power Authority distributions(3) 1,931,963 2,111,473 2,517,359 2,575,454 2,193,748 Sales of water Treated Water Revenues(4) 6,383,579 6,512,931 6,643,189 6,776,053 6,911,574 Other water deliveries(5) 2,012,516 3,569,913 3,641,311 3,714,137 3,788,420 1% Property Tax revenues(6) 3,249,823 3,282,321 3,315,144 3,381,447 3,482,891 Interest and investment revenues(7) 598,501 718,201 790,021 869,023 955,926 Water service charges(8) 1,693,092 1,693,092 1,693,092 1,693,092 1,693,092 Solar and small hydroelectric generation(9) 1,248,600 775,584 331,384 344,639 358,425 Gain (loss) on disposal of property 12,000 26,600 27,132 27,674 28,226 Capital Contributions, Cash Only(10) 923,000 923,000 923,000 923,000 923,000 Other Operating Revenues(11) 91,155 120,949 123,368 125,836 128,352 Total Revenues $ 27,913,202 $ 30,030,869 $ 31,605,462 $ 32,136,495 $ 33,534,635

OPERATION AND MAINTENANCE COSTS General and administrative(12) $ 1,684,388 $ 1,668,463 $ 1,701,832 $ 1,735,869 $ 1,770,587 Wages(13) 6,345,773 6,536,146 6,732,231 6,934,198 7,142,224 Payroll taxes and benefits(14) 4,227,360 4,354,180 4,484,806 4,619,350 4,757,931 Materials and supplies(15) 1,865,084 1,918,107 1,956,469 1,995,598 2,035,510 Maintenance, repairs and improvements(16) 990,014 555,268 566,373 577,701 589,255 Utilities(17) 1,189,747 1,225,440 1,262,203 1,300,069 1,339,071 Conservation(18) 1,140,000 1,250,000 - - - Total Operation and Maintenance Expenses $ 17,442,366 $ 17,507,604 $ 16,703,914 $ 17,162,785 $ 17,634,578

Net Revenues $ 10,470,836 $ 12,523,265 $ 14,901,548 $ 14,937,710 $ 15,900,058

DEBT SERVICE 2008A Installment Purchase Agreement(19) $ 367,510 $ - $ - $ - $ - 2012A Installment Purchase Agreement(20) 2,297,185 2,639,010 2,637,510 2,644,210 2,637,010 Total Debt Service $ 2,664,695 $ 2,639,010 $ 2,637,510 $ 2,644,210 $ 2,637,010

COVERAGE 3.93 4.75 5.65 5.65 6.03

NET REVENUES AVAILABLE FOR $ 7,806,141 $ 9,884,255 $ 12,264,038 $ 12,293,500 $ 13,263,048 OTHER DISTRICT PURPOSES

(1) Based on District Fiscal Year 2012 budget adopted on November 22, 2011. See the caption “SOUTH SAN JOAQUIN IRRIGATION DISTRICT—Budget Process.” (2) Based on projections set forth under the caption “HISTORIC AND PROJECTED TRI-DAM PROJECT REVENUES—Projected Tri-Dam Project Revenues.” Reflects projections set forth in certain reports prepared by consultants to the District, with certain adjustments, and assumes increases in future wholesale electric rates. There can be no assurance that future wholesale electric rates will increase as set forth in the above table and lower wholesale electric rates could result in materially lower Tri-Dam Project revenues received by the District in the years shown. (3) Based on projections set forth under the caption “HISTORIC AND PROJECTED TRI-DAM POWER AUTHORITY REVENUES—Projected Tri-Dam Power Authority Revenues.” (4) Treated Water Revenues projected to increase by approximately 2% per annum from Fiscal Year 2012 budgeted amount. (5) Amounts for Fiscal Years 2013 through 2016 reflect historical averages. Projected to increase by approximately 2% per annum from Fiscal Year 2013 amount in Fiscal Year 2014 and thereafter.

(Footnotes Continued on Following Page)

30 (Continued from Previous Page)

(6) 1% Property Tax Revenues projected to remain at Fiscal Year 2011 levels in Fiscal Year 2012, to increase by approximately 1% per annum in Fiscal Years 2013 and 2014 and to increase by approximately 2% in Fiscal Year 2015 and 3% in Fiscal Year 2016. See the caption “HISTORIC AND PROJECTED 1% PROPERTY TAX REVENUES.” (7) Interest and investment income projected at 0.9% per annum on District reserves in Fiscal Year 2012, rising to 1.4% in Fiscal Year 2016. (8) Water Service Charges for irrigation service projected to be levied at Fiscal Year 2012 levels. (9) Decrease from Fiscal Year 2012 amount in Fiscal Year 2013 reflects expiration of incentive program offered by the State. Projected to increase approximately 3% per annum from Fiscal Year 2014 amount in Fiscal Year 2015 and thereafter. (10) Projected to remain at Fiscal Year 2012 levels. Reflects projected contributions received from the Cities pursuant to the Water Supply Development Agreements. See the caption “SOUTH SAN JOAQUIN IRRIGATION DISTRICT—Treated Water System.” (11) Projected to increase by approximately 2% per annum beginning in Fiscal Year 2013. (12) Projected to increase by approximately 2% per annum beginning in Fiscal Year 2013. (13) Projected to increase by approximately 3% per annum from Fiscal Year 2012 budgeted amount. (14) Projected to increase by approximately 3% per annum from Fiscal Year 2012 budgeted amount. (15) Projected to increase by approximately 2% per annum beginning from Fiscal Year 2012 budgeted amount. (16) Projected to increase by approximately 2% per annum beginning in Fiscal Year 2013. (17) Projected to increase by approximately 3% per annum beginning in Fiscal Year 2013. (18) Reflects costs associated with temporary program ending in 2013 to provide partial reimbursement to District irrigation customers for certain water conservation measures and improvements. (19) Reflects refunding of 2008A Certificates from proceeds of the 2012 Bonds. See the caption “REFUNDING PLAN.” (20) Net of Reserve Fund earnings. Source: District.

LITIGATION

There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the District, threatened against the District affecting the existence of the District or the titles of its directors or officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the 2012 Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the 2012 Bonds, the Indenture or any action of the District contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the District or its authority with respect to the 2012 Bonds or any action of the District contemplated by any of said documents, nor to the knowledge of the District, is there any basis therefor.

CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES

Article XIIIB

The State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The “base year” for establishing such appropriation limit is the 1978-79 fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if: (i) the financial responsibility for a service is transferred to another public entity or to a private entity; (ii) the financial source for the provision of services is transferred from taxes to other revenues; or (iii) the voters of the entity approve a change in the limit for a period of time not to exceed four years.

Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions and refunds of taxes. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from: (a) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation); and (b) the investment of tax revenues. Article XIIIB includes a

31 requirement that if an entity’s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.

Certain expenditures are excluded from the appropriations limit including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by the voters and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the providing of existing services more costly.

The District is of the opinion that the rates imposed by the District do not exceed the costs that the District reasonably bears in providing water service. The District will covenant in the Indenture that, to the fullest extent permitted by law, it will prescribe rates and charges that it reasonably expects to be sufficient to provide Net Revenues for payment of principal of and interest on the 2012 Bonds in each year.

Proposition 218

General. An initiative measure entitled the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State of California at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the “Title and Summary” of the Initiative prepared by the California Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.”

Article XIIID. Article XIIID defines the terms “fee” and “charge” to mean “any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service.” A “property-related service” is defined as “a public service having a direct relationship to property ownership.” Article XIIID further provides that reliance by an agency on any parcel map (including an assessor’s parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership.

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, if and to the extent that a fee or charge imposed by a local government for water service is ultimately determined to be a “fee” or “charge” as defined in Article XIIID, the local government’s ability to increase such fee or charge may be limited by a majority protest.

In addition, Article XIIID 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.

Based upon the California Court of Appeal decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the State Supreme Court, it was generally believed that Article XIIID did not apply to charges for water services that are “primarily based on the amount consumed” (i.e., metered water rates), which had been held to be commodity charges related to consumption of the service, not property ownership. The State Supreme Court ruled in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (2006) (the “Bighorn Case”), however, that fees for ongoing water service through an existing connection were properly-related fees and charges. The State Supreme Court

32 specifically disapproved the holding in Howard Jarvis Taxpayers Association v. City of Los Angeles that metered water rates are not subject to Proposition 218.

The District has complied with the notice, hearing and protest procedures in Article XIIID with respect to water rate increases, as further explained by the State Supreme Court decision in the Bighorn Case, since 2010, the first year after the decision in Bighorn Case in which the District adopted a new or increased charge.

Article XIIIC. Article XIIIC provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments. Article XIIIC does not define the terms “local tax,” “assessment,” “fee” or “charge,” so it was unclear whether the definitions set forth in Article XIIID referred to above are applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, 1996. On July 24, 2006, the Supreme Court held in the Bighorn Case that the provisions of Article XIIIC included rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting obligations. The District does not believe that Article XIIIC grants to the voters within the District the power to repeal or reduce the water charges in a manner which would be inconsistent with the contractual obligations of the District. However, there can be no assurance of the availability of particular remedies adequate to protect the beneficial owners of the 2012 Bonds. Remedies available to beneficial owners of the 2012 Bonds in the event of a default by the District are 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 specific limitations on remedies contained in the applicable documents themselves, the rights and obligations with respect to the 2012 Bonds and the Indenture are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel (the form of which is attached as Appendix C), will be similarly qualified.

The District believes that its current water rates and other property-related charges comply with the requirements of Proposition 218 and expects that any increases in current rates and charges or the adoption of any new future water rates and other property-related charges will be subject to compliance with Proposition 218’s procedural and substantive requirements to the extent applicable thereto.

Future Initiatives

Articles XIIIB, XIIIC and XIIID were adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiatives could be proposed and adopted affecting the District’s revenues or ability to increase revenues.

APPROVAL OF LEGAL PROCEEDINGS

The valid, legal and binding nature of the 2012 Bonds is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, acting as Bond Counsel. The form of such legal opinion is attached hereto as Appendix C, and such legal opinion will be attached to each 2012 Bond. Certain legal matters will be passed upon for the District by Steven P. Emrick, General Counsel to the District, for the Underwriter by its counsel, Ballard Spahr LLP, Salt Lake City, Utah, and for the Trustee by its counsel.

33 TAX MATTERS

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the 2012 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the 2012 Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2012 Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations.

Bond Counsel’s opinion as to the exclusion from gross income of interest on the 2012 Bonds is based upon certain representations of fact and certifications made by the District and others and is subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issuance of the 2012 Bonds to assure that interest on the 2012 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2012 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2012 Bonds. The District has covenanted to comply with all such requirements.

The amount by which a 2012 Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2012 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the 2012 Bond Owner’s basis in the applicable 2012 Bond (and the amount of tax-exempt interest received with respect to the 2012 Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2012 Bond Owner realizing a taxable gain when a 2012 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2012 Bond to the Owner. Purchasers of the 2012 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.

The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax exempt bond issues, including both random and targeted audits. It is possible that the 2012 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2012 Bonds might be affected as a result of such an audit of the 2012 Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2012 Bonds to the extent that it adversely affects the exclusion from gross income of interest on the 2012 Bonds or their market value.

It is possible that subsequent to the issuance of the 2012 Bonds there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the 2012 Bonds or the market value of the 2012 Bonds. Recently, proposed legislative changes have been introduced in Congress, which, if enacted, could result in additional federal income or state tax being imposed on owners of tax-exempt state or local obligations, such as the 2012 Bonds. The introduction or enactment of any of such changes could adversely affect the market value or liquidity of the 2012 Bonds. No assurance can be given that subsequent to the issuance of the 2012 Bonds such changes (or other changes) will not be introduced or enacted or interpretations will not occur. Before purchasing any of the 2012 Bonds, all potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the 2012 Bonds.

34 Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the 2012 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest for federal income tax purposes with respect to any 2012 Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.

Although Bond Counsel has rendered an opinion that interest on the 2012 Bonds is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the ownership of the 2012 Bonds and the accrual or receipt of interest on the 2012 Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2012 Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2012 Bonds.

A complete copy of the proposed opinion of Bond Counsel is set forth in Appendix C—“FORM OF OPINION OF BOND COUNSEL.”

FINANCIAL ADVISOR

The District has retained Public Finance Resources, Walnut Creek, California, as financial advisor (the “Financial Advisor”) in connection with the issuance of the 2012 Bonds. The Financial Advisor has not undertaken to make an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement.

RATING

The District expects that Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”) will assign the 2012 Bonds the rating of “AA”. There is no assurance that any credit rating given to the 2012 Bonds will be maintained for any period of time or that the rating may not be lowered or withdrawn entirely by S&P, if, in the judgment of S&P, circumstances so warrant. Any downward revision or withdrawal of such rating may have an adverse effect on the market price of the 2012 Bonds. Such rating reflects only the views of S&P, and an explanation of the significance of such rating may be obtained from S&P.

UNDERWRITING

The 2012 Bonds will be purchased by Cantella & Co., Inc. (the “Underwriter”) pursuant to a Purchase Contract, dated April 25, 2012 (the “Purchase Contract”), by and between the District and the Underwriter. Under the Purchase Contract, the Underwriter has agreed to purchase all, but not less than all, of the 2012 Bonds for an aggregate purchase price of $19,546,395.40 (representing the principal amount of the 2012 Bonds, less an Underwriter’s discount of $179,750.00, plus an original issue premium of $1,751,145.40). The Purchase Contract provides that the Underwriter will purchase all of the 2012 Bonds if any are purchased, the obligation to make such a purchase being subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions.

The initial public offering prices stated on the inside front cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the 2012 Bonds to certain dealers (including dealers depositing 2012 Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices.

35 CONTINUING DISCLOSURE UNDERTAKING

The District has covenanted in a Continuing Disclosure Certificate for the benefit of the holders and beneficial owners of the 2012 Bonds to provide certain financial information and operating data relating to the District by not later than the 270 days following the end of the District’s Fiscal Year (currently its Fiscal Year ends on December 31) (the “Annual Report”), commencing with the report for Fiscal Year ending December 31, 2011, and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed by the District with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in Appendix E—“FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriter in complying with Section (b)(5) of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934.

The District filed the Annual Reports for Fiscal Years 2008 through 2010 in 2011 and 2012, after the time by which such Annual Reports were required to be filed pursuant to the District’s undertaking entered into in connection with the 2008A Certificates. Other than as described in the previous sentence, the District has not failed to comply with the terms of its existing continuing disclosure agreements in the last five years in any material respect.

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 such statements made 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 2012 Bonds.

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

SOUTH SAN JOAQUIN IRRIGATION DISTRICT

By: /s/ John Holbrook President of the Board of Directors

36 APPENDIX A

SOUTH SAN JOAQUIN IRRIGATION DISTRICT FINANCIAL STATEMENTS      SOUTH SAN JOAQUIN IRRIGATION DISTRICT

Annual Financial Report 2010

P. O. Box 747, Ripon, CA 95366-0747 | 209-249-4600     

SSJID | Annual Report | 2010 2 December 31, 2010 and 2009

Contents

Auditor’s Report...... 7 Management’s Discussion and Analysis ...... 9 27 BasicFinancialStatements...... 29 34 Notes to the Basic Financial Statements ...... 35 62 Supplementary Information

Schedule of Funding Progress for Pension Benefits ...... 65

Schedule of Funding Progress for Other Postemployment Benefits 65

SSJID | Annual Report | 2010 3     

SSJID | Annual Report | 2010 4 Auditor’s Report

SSJID | Annual Report | 2010 5     

SSJID | Annual Report | 2010 6 INDEPENDENT AUDITOR’S REPORT To the Board of Directors South San Joaquin Irrigation District Manteca, California

We have audited the accompanying financial statements of the business-type activities of the South San Joaquin Irrigation District as of and for the years ended December 31, 2010 and 2009, 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the South San Joaquin Irrigation District, as of December 31, 2010 and 2009, and the respective changes in financial position and, cash flows thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 9 through 27 and 65 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.

Marcia Fritz & Company July 5, 2011     

SSJID | Annual Report | 2010 8 Management’s Discussion and Analysis

SSJID | Annual Report | 2010 9     

SSJID | Annual Report | 2010 10 Introduction

In this discussion and analysis, management provides an overview of the South San Joaquin Irrigation District’s (“the District”) financial position at December 31, 2010 and 2009 and its financial performance for the years then ended. Condensed financial information from 2008 is also presented for comparison only. Limited information is presented about conditions and events that may affect the District’s future financial position and performance. The intent is to provide context for understanding the financial statements and the District’s prospects, and assistance interpreting the financial statements. This discussion and analysis presents management’s perspective and should be read in conjunction with the District’s financial statements and accompanying notes which follow this discussion and analysis.

History of the District The District was formed in May 1909 to provide reliable and affordable irrigation water to the areas surrounding Escalon, Manteca, and Ripon. The District owns valuable water rights, most of which are co owned with Oakdale Irrigation District. The water rights include rights acquired prior to the enactment of the California Water Commission Act in 1914. This is important because the District can change the place and purpose of use of pre 1914 rights without regulatory approval. The pre 1914 rights have origins as early as 1853. The age of the water rights is significant because it gives the District a very high priority to available water relative to holders of newer rights. In 1929, the two Districts’ pre 1914 rights were confirmed by a judgment entered in San Joaquin County Superior Court. The judgment establishes a summary response against future challenges to the existence of the District’s rights. The pre 1914 rights are used in part to supply drinking water to cities within the District and to the cities of Lathrop and Tracy (see description of water treatment plant project below). The District also owns a water rights license to store water in Woodward Reservoir. Together with Oakdale Irrigation District, the District also owns water rights licenses to store water in Melones (Old), Donnells, Beardsley, and Tulloch Reservoirs. Melones was submerged by completion of New Melones Dam in 1978. The District has an operations agreement with the United States Bureau of Reclamation (USBR) that recognizes and confirms Oakdale Irrigation District’s and the District’s water rights and requires the USBR to make available to the two districts at Goodwin Dam the first 600,000 acre feet of inflow to New Melones each year. The ingenuity of the original design and the topography of the District afford the advantage of a transmission and distribution system that is entirely gravity fed. Without the need for pumping, the effects are lower operating costs and greater reliability. In 1913 Goodwin Dam was completed on the Stanislaus River to divert water to the District’s transmission and distribution system, and the first irrigation water was delivered to 14,000 acres in 1914. In 1917 the District completed Woodward Reservoir which allows the District more control over

SSJID | Annual Report | 2010 11 the amount of water entering the distribution system at any time. This reduces waste and conserves water for beneficial use. Today the District encompasses 72,000 acres and supplies water to 3,500 parcels comprising about 50,000 acres using 350 miles of canals and pipelines, 870 miles of drains, supplemented by 28 deep wells on pumps. The two districts completed Melones Reservoir in 1926. Melones was inundated by the construction and filling of New Melones in 1978. During the first 40 years of the District’s existence, water flow was not always sufficient to supply irrigation in the latter part of the season. In 1948 the District and the Oakdale Irrigation District formed a joint venture known as the Tri Dam Project. The Tri Dam project built, and continues to operate, Donnells, Beardsley dams on the Middle Fork of the Stanislaus River, and Tulloch Dam on the main stem of the Stanislaus River. Storage in Tulloch Dam is now regulated by the USBR under agreement with the two irrigation districts. These facilities store water which provides a more reliable supply of irrigation water throughout the irrigation season. Not incidentally, the Tri Dam Project also operates hydroelectric generators at all three dams which paid for the dams and now provides a significant source of revenue to the District. The two Districts own licenses to store water for irrigation and power in Donnells, Beardsley and Tulloch Reservoirs. In 1982 the District and Oakdale Irrigation District formed another joint venture known as the Tri Dam Power Authority. Tri Dam Power Authority built and operates the Sandbar hydroelectric generating plant on the Middle Fork of the Stanislaus River in Tuolumne County. Whereas the Tri Dam Project is not a formal entity, the Tri Dam Power Authority is a statutory joint powers authority formed under provisions of the California Government Code. In 1995 the District entered into agreements with the cities of Escalon, Lathrop, Manteca, and Tracy to build and operate a water treatment plant to provide an additional source of potable water to these cities. The water treatment plant began operation in July, 2005. Besides the treatment plant, the project includes a raw water pipeline from Woodward Reservoir, 40 miles of transmission pipes and pump stations that deliver water to the cities. The history of South San Joaquin Irrigation District is characterized by a tradition of building on natural advantages and opportunities by undertaking major projects to expand beneficial use of the District’s water resources and diversify its services to the communities of the District. These major projects have provided substantial improvements to the quality of life in the communities of the District, and also account for the strength of the District’s financial position and operating results.

A Diversity of Services The District is involved in 3 distinct lines of service besides supply of irrigation water: Hydroelectric generation Domestic water treatment plant Solar electric generating plant

SSJID | Annual Report | 2010 12 In keeping with its history, the District is now endeavoring to exercise its authority under the California Water Code to provide retail electric services to its constituents in the future, at a significant discount from rates charged by PG&E.

Hydroelectric generation The District owns jointly, with Oakdale Irrigation District, hydroelectric generating plants operated by the Tri Dam Project and the Tri Dam Power Authority. The District also owns a 2.8 MW hydroelectric generating plant located on the main supply canal downstream from Woodward Reservoir and the 5.2 MW Frankenheimer facility on the main supply canal upstream from Woodward Reservoir. These two plants utilize water flow in the irrigation transmission canals and only operate during the irrigation season. Tri Dam Project The Tri Dam Project is not a formal entity distinct from the two Districts that own it. The District’s investment in the Tri Dam Project is reported in the statement of net assets as the District’s share of the net assets of the Project. The five elected directors from each of the two districts meet jointly as the “Joint Boards of Directors” of Tri Dam Project. Action by the Joint Boards requires the affirmative vote of 3 directors from each Board. Executive management of the Tri Dam Project is vested in the Tri Dam Project’s general manager by the Joint Board. The Tri Dam Project is operated by employees hired by the general manager. Tri Dam Project is engaged in water diversion, storage, and hydroelectric generation from several locations on the Middle Fork and main stem of the Stanislaus River in Tuolumne and Calaveras Counties, California. It operates Donnells dam, reservoir and power plant; Beardsley dam, reservoir, and power plant; Tulloch dam, reservoir, and power plant; and Goodwin dam and reservoir, along with several ancillary facilities. Water is delivered by Tri Dam Project to each District’s irrigation system. Electric output of Tri Dam Project previously was sold to Pacific Gas & Electric Company (PG&E) under an agreement which was terminated on December 31, 2008 by agreement with PG&E. Tri Dam Project simultaneously entered into a five year power purchase and marketing agreement with Shell Energy North America for the marketing of the Project’s energy production beginning January 1, 2009. Construction began on a third generator with 7 MW capacity at Tulloch Dam in 2009. The most recent estimate of the total cost is $27 million which is being funded from Tri Dam Project’s cash reserves and operating cash flows. Accumulated costs through the date of this report are $20 million, and the project is scheduled for completion in the spring of 2012. The Donnells generator unexpectedly went out of service on September 2, 2009 due to electrical and mechanical failure and remained out of service through the remainder of the year. Restoration of the unit to service occurred in the spring of 2010. Tri Dam Project suffered insured repair costs and insured lost revenue from the generator outage. During the latter part of 2010 Tri Dam Project received insurance proceeds of $5.4 million for repair costs, and $6.6 million for business interruption.

SSJID | Annual Report | 2010 13 Tri Dam Power Authority Whereas the Tri Dam Project is not a formal entity, the Tri Dam Power Authority is a joint powers authority formed under provisions of the California Government Code. The five elected directors from each of the two districts comprise the ten commissioners of the Tri Dam Power Authority. Executive management of Tri Dam Power Authority is vested in its general manager. The Tri Dam Power Authority and the Tri Dam Project share the same management, administrative facilities, and operations and maintenance staff. Tri Dam Power Authority reimburses the Project for the Authority’s share of expenses. Tri Dam Power Authority is engaged in hydroelectric generation and transmission from a single power plant, known as Sandbar, on the Middle Fork of the Stanislaus River located in the Stanislaus National Forest, Tuolumne County, California. Electric output from the plant is sold to Pacific Gas & Electric Company under agreements which extend through 2016. The Sandbar plant is licensed by the Federal Energy Regulatory Commission for 50 years through 2033. The Sandbar plant was constructed with $62,000,000 of proceeds of 1984 bonds issued by Tri Dam Power Authority with an original interest rate of 11.375%. That debt was refunded in 1994 for $52,055,000 at a rate of 7.25%. The remaining 1994 bonds were refunded on May 1, 2005 with $28,855,000 of bonds payable over 12 years at 5.15% per annum interest. On October 1, 2010 the 2005 bonds were refunded by the Series 2010 Revenue Refunding Bonds issued in the amount of $16,400,000 with a net interest cost of 3.3% per annum and a present value savings of $810,000.

Domestic water treatment plant The District‘s Nick C. DeGroot Water Treatment Plant has been producing potable water under contract with the cities of Manteca, Lathrop, Escalon, and Tracy since July 2005. These four cities provided the funds for the construction and equipping of the water treatment plant and transmission pipelines, and they continue to provide funds for additional purchases and replacement of capital equipment. Funds received from the cities for these purposes are reported under non operating revenues as capital contributions. By purchasing the treated water output of the treatment plant from the District at cost, the three cities also provide for the District’s expenses of operating the plant. Escalon does not currently take water from the Treatment Plant. The District bills the cities monthly for the actual operating expenses of the water treatment plant (excluding depreciation expense). The cost of the plant’s water supply, which comes from the District’s Woodward Reservoir, is part of the operating expenses billed to the cities.

Solar electric generating plant In 2008 the district completed construction of the Robert O. Shulz Solar Farm. This is a utility scale solar photovoltaic project on a 40 acre site adjacent to the Nick C. DeGroot Water Treatment Plant. Phase I of the project consists of a 997 kW crystalline PV array and was

SSJID | Annual Report | 2010 14 completed in June 2008. Phase II is a 378 kW thin film array. Construction began in 2008 and the project was completed in March 2009. Electricity generated at the solar farm is delivered to the adjacent water treatment plant with daily surplus net metered by PG&E. An annual economic “true up” is calculated for the surplus energy sold back to the grid with the goal to be a zero energy cost for the water treatment plant. The project will receive approximately $6 million over a five year period in state renewable energy incentives.

Governance The District operates under Division 11 of the California Water Code and is governed by a board of five directors elected to staggered terms from five geographic divisions of the District. The board appoints the general manager who is responsible for the operations of the District.

Financial Statements The District’s financial statements include a balance sheet; a statement of revenues, expenses and changes in net assets; and a statement of cash flows. These financial statements are known as the “basic financial statements” and comply with generally accepted accounting principles, which for all state and local governments including the District, are set forth in Governmental Accounting Standards Board (GASB) Statements. In many, but not all cases, GASB Statements incorporate the provisions of Financial Accounting Standards Board Statements which establish generally accepted accounting principles for nongovernmental entities. The District’s activities are business type activities and are accounted for as an enterprise fund. The accounting principles for an enterprise fund more closely resemble those of a commercial entity than a government. Balance Sheet The balance sheet provides information about assets, obligations (liabilities), and net assets of the District at a specific point in time. All amounts (except for investments in marketable debt securities) are shown at cost. Therefore, the liabilities and net assets sections of this statement reveal the sources of the District’s capital, and the assets section shows how the capital has been used. The net assets section reveals the life to date results of operations. Current assets and current liabilities are shown separately from other assets and liabilities to enable the reader to evaluate the adequacy of the District’s working capital. Working capital is the excess of current assets over current liabilities, and current assets and current liabilities are those which liquidate within one year. Statement of Revenues, Expenses, and Changes in Net Assets The statement of revenues, expenses and changes in net assets provides information regarding the District’s financial performance during the year. The difference between revenues and expenses is the change in net assets for the period. The total net assets in the statement of net assets represents the life to date accumulation of changes in net assets.

SSJID | Annual Report | 2010 15 Revenues earned and expenses incurred during the year are presented in two categories: operating and nonoperating. This allows the reader to evaluate the financial results of operating activities separately from other sources of income and expense. Earnings of the Tri Dam entities are shown as nonoperating revenues because the District delegates operation of those activities to the joint venture organization. The statement ends by showing how net income for the year, including capital contributions, accounts for the change in net assets that occurred during the year. Statement of Cash Flows Because revenues and expenses are not cash flows, generally accepted accounting principles require we provide the statement of cash flows. The statement of cash flows reports sources and uses of cash in four categories: operating activities, noncapital financing activities, capital financing activities, and investing activities. The statement also presents a reconciliation of the differences between net income from operations and net cash flows from operations.

Financial Highlights

2010 2009 2008 Current assets $31,509,019 $39,879,075 $48,168,192 Other assets and investments 23,686,741 21,900,878 7,500,953 Restricted assets 64,345,911 56,276,926 62,363,572 Capital assets 198,782,430 199,223,126 197,316,430 Total assets $318,324,101 $317,280,005 $315,349,147

Current liabilities $5,218,389 $5,156,857 $6,088,579 Liabilities payable from restricted assets 0 1,509,806 1,509,806 Long term liabilities 20,561,301 22,729,580 24,316,817 Total Liabilities 25,779,690 29,396,243 31,915,202

Net assets invested in capital assets, net of related debt 193,160,163 192,390,099 190,792,790 Restricted net assets 66,780,707 58,141,325 62,840,231 Unrestricted net assets 32,603,541 37,352,338 29,800,925 Total net assets 292,544,411 287,883,762 283,433,946

Total liabilities and net assets $318,324,101 $317,280,005 $315,349,148

2010 and 2009 Balance Sheets Compared Current assets decreased by almost $8.7 million, or 22%, during 2010. This decrease was nearly all concentrated in the cash accounts. This is primarily caused by reduced cash distributions from Tri Dam Project. Cash distributions from Tri Dam Power Authority and Project were only

SSJID | Annual Report | 2010 16 $1.9 million in 2010 whereas the District had received $8.3 million of cash distributions from the two entities in 2009. Tri Dam distributions were limited because, throughout 2010 Tri Dam was paying for construction of the new, third generating unit on Tulloch Dam from operating cash flow and reserves. In addition, the generator at Donnell’s Dam was out of service for the first four months of the year, as described above, which significantly reduced operating revenues for Tri Dam Project.

$250

$200

$150

2010 $100 2009 2008 $50

$0 Current assets Other assets Restricted Capital assets and assets investments

Restricted assets consist mostly of the District’s investment in the Tri Dam Project. Restricted assets also include some cash and some investments in marketable securities. Components of restricted assets are shown in the table below.

Restricted Assets 2010 2009 2008

Construction fund irrigation $13,008,977 $13,717,732 15,812,938.00 Construction and capital replacement funds water treatment 5,155,191 4,685,640 $4,468,222 Debt service reserve fund 2,503,755 2,503,365 2,504,738 Investment in Tri Dam Project 46,074,299 38,723,744 39,822,102 Total restricted assets $66,742,222 $59,630,481 $62,608,000 Less: restricted cash reported in current assets (2,396,311) (3,353,555) (290,520) Noncurrent restricted assets $64,345,911 $56,276,926 $62,317,480

SSJID | Annual Report | 2010 17 Restricted assets increased almost $7.1 million in 2010, mostly because Tri Dam operations resulted in an increase in net assets after accounting for distributions to the two irrigation districts. Depreciable assets increased almost $8.5 million during 2010 due to completion of several water system improvements which were transferred out of construction work in progress during 2010. Non depreciable assets consist mostly of construction in progress which declined in 2010 as construction projects which were completed and transferred to depreciable assets exceeded new construction in progress.

$30

$25

$20

$15 2010 2009 $10 2008

$5

$0 Current liabilities Liabilities payable Long term liabilities from restricted assets

Liabilities payable from restricted assets dropped to zero by during 2010 from over $1.5 million. This amount was for funds paid by the municipal customers of the water treatment plant toward a particular set of capital improvement projects. These funds were potentially refundable to the extent not used for these particular improvements. When the work was completed, it was agreed by the cities that the District should continue to hold these funds and add them to the restricted capital replacement fund of the water treatment plant. Following this agreement, the amount of this liability became a capital contribution increasing restricted net assets. 2009 and 2008 Balance Sheets Compared Although current assets did not change materially over the course of 2009, there were some significant changes within this category. Accounts receivable increased by $1.6 million or 57%. Cash and investments were down by a similar amount. The change in accounts receivable is mostly due to a difference in the timing of collections for a few large receivables: billings for

SSJID | Annual Report | 2010 18 domestic water to the three participating cities, an electric utility had fallen three months behind in paying for electricity from the solar farm, and Tri Dam Power Authority had declared but not paid a cash distribution to the District of $650,000. “Notes and loans receivable” is a new item for 2009, in the amount of $811,778. This consists, in part, of a $306,838 receivable from the State of California, commonly known as the Proposition 1A receivable. Under the provisions of Proposition 1A, which amended the state constitution in 2004, the State of California borrowed 8% of the District’s Proposition 13 subvention revenues for the 2009 2010 property tax year. On July 1, 2009, the Governor proclaimed an emergency pursuant to Proposition 1A, and on July 28, 2009 the state assembly passed budget acts to authorize, and establish the terms of, the Proposition 1A borrowing. The state is required to repay this borrowing plus interest at 2% by June 30, 2013. After repayment of this initial borrowing, the California legislature may consider only one additional borrowing within a ten year period. The District’s investment in the Tri Dam Project decreased in 2009 from 2008 by about $1.1 million because Tri Dam Project distributions to the two Districts exceeded its net income for the year. Construction costs have dropped in recent years, so the District engaged in an accelerated effort to replace and upgrade portions of the irrigation infrastructure during 2008 and 2009 which added about $7.8 million to the cost of capital assets in 2009 before depreciation, or about $1.9 million net of the year’s depreciation expense. Non depreciable assets consisted mostly of construction in progress which declined in 2009 as construction projects were completed and transferred to depreciable assets. Current liabilities fell by 47% or $4.5 million dollars during 2009. A major component of this decrease was the balance of accounts payable which dropped by about $2.2 million due to the timing of when construction invoices were paid near the year end. The other major change in current liabilities relates to a prior period adjustment recorded in 2009.

SSJID | Annual Report | 2010 19 2010 2009 2008 Operating Revenues Irrigation sales $1,332,958 $1,338,412 $13,799 Other water sales 8,836,568 14,167,370 7,788,119 Electric sales 1,335,568 2,346,169 817,898 Other 123,894 187,715 424,862 Total Operating Revenues 11,628,988 18,039,666 9,044,678

Nonoperating Revenues Proposition 13 subvention 3,210,297 3,734,550 4,098,199 Interest income 1,025,033 2,419,831 2,653,773 Distributions from Tri Dam Project & Power Authority 1,900,000 8,300,000 11,200,000 Undistributed earnings of Tri Dam Project 7,350,555 (1,098,358) 2,711,473 Gain (loss) on property and equipment 12,301 (77,932) 38,840 Total Nonoperating Revenues 13,498,186 13,278,091 20,702,285

Total Revenues $25,127,174 $31,317,757 $29,746,963

2010 and 2009 Revenues Compared The comparative statement of revenues shows changes from 2009 to 2010 in the District’s revenues, classified into operating and nonoperating categories. Total revenues dropped about $6.2 million and this is mostly attributable to a decline in “other water sales”. Sales of water to other districts and agencies is the largest component of other water sales. This revenue source can fluctuate widely from year to year. The amount of income realized depends on the supply of water available to the District, the amounts needed by other districts and agencies, the market price, and the availability of capacity in delivery facilities.

SSJID | Annual Report | 2010 20 $16

$14

$12

$10

$8 2010 2009 $6 2008 $4

$2

$0 Irrigation sales Other water Electric sales Other sales

Income from electric sales fell by just over $1 million. This is almost entirely due to a decrease in revenues of the solar electric generating plant, because of the terms of a one time state incentive program. Under the Self Generation Incentive Program the District received the full available incentive in 2009, after the District had demonstrated the solar plant was operational. In 2010 the District did not have this incentive income. The District also qualifies for financial incentive under the California Solar Initiative which pays over the course of five years of demonstrated performance. Interest income declined as a result of falling yields within the District’s investment portfolio. This is partly due to market conditions, and partly caused by a move to shorter term investments in anticipation of the Division 9 construction project and an expectation that interest rates will enter a rising trend.

SSJID | Annual Report | 2010 21 $12

$10

$8

$6 2010 $4 2009 2008 $2

$0

$2 Proposition 13 Interest income Distributions from Undistributed subvention Tri Dam Project & earnings of Tri Power Authority Dam Project

From 2009 to 2010, Tri Dam distributions fell from $8.3 million to $1.9 million, a decrease of $6.4 million or 77%. The Donnells generator breakdown occurred two months after the last planned distribution of 2009 to the District, and played no role in the reduced distributions of 2009. However, the breakdown was a factor in the reduced distributions of 2010. Other factors were the costs of construction for the third generator at Tulloch Dam, and the continuation of low prices in the wholesale electric market. Tri Dam has insurance coverage for the repair costs of the damaged Donnells generator and for the revenues lost when the generator was not operating. Late in 2010, a partial settlement was agreed upon with the insurer which, in large part, made possible a cash distribution in January, 2011 of $8,455,000 to the District. Equity in undistributed earnings of Tri Dam Project is the difference between the amounts distributed to the District, and the District’s share of the change in net assets of the Project. In 2009 the District’s share of Tri Dam Project’s change in net assets was $1.1 million short of the amount of cash distributed, and this shortfall is reported in the statement of revenues and expenses as a loss. In 2010, the growth in net assets exceeded amounts distributed, and the District’s share of this undistributed increase in its Tri Dam investment was $7,350,555. 2009 and 2008 Revenues Compared The District typically makes some quantity of water available to other districts and agencies. In 2009, income from such water sales increased by $6 million or 177%. This revenue source can fluctuate widely from year to year. The amount of income realized depends on the supply of

SSJID | Annual Report | 2010 22 water available to the District, the amounts needed by other districts and agencies, the market price, and the availability of transmission capacity. Income from the solar electric generating plant rose in 2009 by 221% or $1.7 million for two reasons: first, because 2009 was the first full year of operation, and, second, because of the terms of two different state incentive programs. Under the Self Generation Incentive Program the District received the full available incentive in 2009, after the District had demonstrated the solar plant was operational. The District also qualified for financial incentive under the California Solar Initiative which pays over the course of five years of demonstrated performance. The change in water treatment plant revenue from 2008 to 2009 is primarily the result of a couple of factors including the end of special support by the District after 2008, and the prior period adjustment described above. Cash distributions from Tri Dam Project fell significantly in 2009 from the 2008 level. The decrease was 31% or $2.9 million. The cause of this was a reduction in the price of electricity from a weighted average of 8.28¢ per kWh in 2008 to 4.33¢ in 2009. The generator breakdown occurred two months after the last planned distribution of 2009 to the District and played no role in the reduced distribution. Equity in undistributed earnings of Tri Dam Project is the difference between the amounts distributed to the District, and the Districts share of the change in net assets of the Project. In 2008 the District’s equity in the Tri Dam Project increased by $2.7 million because the District’s share of what the Project earned was $2.7 million in excess of the amounts distributed to the District. In 2009 the District’s share of Tri Dam Project’s change in net assets was $1.1 million short of the amount of cash distributed, and this shortfall is reported in the statement of revenues and expenses as a loss.

2010 2009 2008

Wages, benefits, & payroll taxes $9,701,429 $10,716,052 $8,848,063 Materials & supplies 1,711,529 1,829,990 1,628,751 Maintenance, repairs, and improvements 556,158 948,042 998,540 Utilities 747,437 922,181 684,687 General and administrative 3,716,859 3,027,729 1,835,191 Depreciation 5,957,370 5,981,417 5,620,984 Total operating expenses $22,390,782 $23,425,411 $19,616,216

2010 and 2009 Operating Expenses Compared The condensed statement of operating expenses shows little change in total operating expenses. Overall, operating expenses dropped about 4.5%, or just over $1 million from 2009 to 2010. Wages, benefits and payroll taxes fell over 9%, or $1 million. This decrease is entirely attributable to the District’s decision to fully fund its actuarial accrued liability for other post

SSJID | Annual Report | 2010 23 employment benefits (“OPEB”) 2009. Government Accounting Standards Board (“GASB”) Statement 45 required the District to recognize, for the first time, the unfunded actuarial accrued liability for medical benefits the District is obligated to provide to certain qualifying retirees in the future. Once this unfunded liability of $1,167,476 had been identified, the board of directors chose to fully fund it with a payment to a trust administered by CalPERS. This drove the OPEB expense to $1.2 million in 2009. It is now the policy of the district to fully fund each year’s expense. In 2010 the OPEB expense has dropped to $74,000 which is the amount accrued only for 2010. The other significant change within operating expenses was an increase of almost $700,000, or 23%, in general and administrative expense. This is caused by an increase in legal fees which are largely attributable to the District’s intervention in PG&E’s general rate case at the California Public Utilities Commission, and to the District’s preparations to begin providing retail electric service. 2009 and 2008 Operating Expenses Compared Overall, operating expenses increased almost 18% from 2008 to 2009. There were several contributors to this increase: recognition of a liability for future retirement medical benefits, increased water volume demanded of the water treatment plant, 12 months operation of the solar generation plant for the first time, and a number of upgrades to irrigation system controls that did not meet the threshold to be capitalized rather than expensed. Labor costs rose about $1.9 million during 2009. This was mostly in the area of benefit costs. The largest component of the increase in benefit costs was related to the implementation of GASB Statement 45 as described above. Output of the water treatment plant increased 16% and this drove an increase in the variable costs of the plant.

2010 2009 2008

Cash used by operating activities ($4,136,038) ($5,099,752) ($543,363) Cash provided by noncapital financing activities 3,256,878 5,227,712 5,898,199 Cash used by capital and related financing activities (6,857,736) (9,529,228) 13,860,832 Cash provided by investing activities 232,896 24,056,884 (16,654,900) Net Increase (Decrease) in Cash and Cash Equivalents ($7,504,000) $14,655,616 $2,560,768

2010 and 2009 Cash Flows Compared The condensed statement of cash flows shows that cash increased almost $14.7 million during 2009, but decreased $7.5 million in 2010. The reasons are found within the four categories of cash flows presented. Operating activities used $3.8 million of cash in 2010 compared to $5.4

SSJID | Annual Report | 2010 24 million in 2009. This decrease in cash used occurred in cash outlays for operating expenses and was caused partly by lower employee benefit costs described above, and partly by the timing of payments. Cash provided by noncapital financing activities includes distributions from Tri Dam Power Authority which were $1.6 million less in 2010 than in 2009 for reasons of timing. Net cash flow of Tri Dam Power Authority in 2010 was about the same as in 2009. The 2009 distribution was largely a reflection of cash flows in prior periods. This category of cash flows also includes Proposition 13 subvention (property tax) receipts from San Joaquin County, which were reduced in 2010 because assessable property values have declined, and because the state borrowed from the District’s property tax receipts. Under the provisions of Proposition 1A, which amended the state constitution in 2004, the State of California borrowed 8% of the District’s Proposition 13 subvention revenues for the 2009 2010 property tax year. The lower Tri Dam Power Authority distributions and the state’s Proposition 1A borrowing caused a $2.3 million decline in cash provided by noncapital financing activities. In 2010, cash flows from capital and related financing activities used about $1.7 million more than in 2009. The causes of the increase include a land purchase of about $700,000. This property was acquired as a possible future site for the District headquarters and a yard for equipment and inventory. Almost $700,000 was spent on equipment, vehicles, and excavators in 2010 as compared to $173,000 in 2009. $872,000 was spent on additions and improvements to the water treatment system in 2010 while only about $50,000 was spent in 2009. Cash provided by investing activities was much higher in 2009 than in 2010. The two primary reasons are that cash distributions from Tri Dam Project and Tri Dam Power Authority were much higher in 2009, and during 2009 funds were shifted from securities investments to interest bearing cash accounts. 2009 and 2008 Cash Flows Compared The statement of cash flows shows that operating activities used $5.1 million of cash in 2009 compared to only $543,363 in 2008. This is because accounts receivable grew by $1.6 million, accounts payable fell by almost $2.2 million, and deferred revenue fell by just over $2.0 million. The 2009 change in accounts receivable is mostly due to a difference in the timing of collections for a few large receivables: billings for domestic water to the three participating cities, an electric utility had fallen three months behind in paying for electricity from the solar farm, and Tri Dam Power Authority had declared but not paid a cash distribution to the District of $650,000. Accounts payable dropped by about $2.2 million in 2009 due to the timing of when construction invoices were paid near the end of 2009. Deferred revenue fell because, during 2009, the District discontinued the practice of collecting in advance a full year’s payment from the municipal customers of the water treatment plant, for fixed expenses. During 2009, the District began billing for this amount monthly in arrears. In 2008, cash flows from capital and related financing activities provided $13.9 million between what was spent on capital improvements and $25 million received as proceeds of new long term debt. In 2009 this category of activities used $9 million. The most important cause of this reversal in 2009 was the absence of long term borrowing in 2009. During both years the

SSJID | Annual Report | 2010 25 District was engaged in an unusually high level of capital spending to replace and improve infrastructure. Due in part to the issuance of long term debt in 2008, cash flows from investing activities changed from a negative $16.7 million in 2008 to a positive $23 million in 2009. The biggest difference between the two years in this category of cash flows was that the District disbursed $28 million to purchase investments in 2008 to temporarily hold cash reserves from the proceeds of the 2008 long term debt sale and other sources.

Expectations for 2011 Due to continuing economic problems in the region, Proposition 13 subvention property tax revenue is expected to fall a few percentage points as compared to 2010. For the 2009 2010 property tax year, the state borrowed 8% of the District’s property tax revenue under the provisions of Proposition 1A. That had an impact on cash flow in 2010, which will not affect 2011. No increases are planned for irrigation rates. Revenue from outside water sales is expected to be about the same as in 2010. The generator that failed at Donnells dam was out of service for parts of 2009 and 2010. In 2011, that generator is expected to be in service for a full calendar year for the first time since 2008. This factor, with expected high river flows, contributes to an expectation of much higher cash distributions from Tri Dam. The District expects a 600% increase in 2011 yielding about $14,000,000 of cash flow.

Capital Improvements In 2011 the District will begin construction of a major capital improvement project that the District expects to complete in 2012 at a cost of about $14 million. This project, known as the Division 9 Project will build a pressurized distribution system parallel to the existing system in one of the District’s nine geographical divisions. A pressurized system has several advantages: Irrigators can use drip or sprinkler delivery instead of flooding without investing in, and operating, their own groundwater pumps. Less water is used to irrigate a given area. Water is available to irrigators more frequently which allows growers to maintain optimal soil moisture levels, instead of on a 10 or 20 day rotation which causes wide fluctuations in soil moisture. Enables accurate metering of water use. Positions the District to comply with known future requirements to bill irrigators on the basis of water volume usage. Partly to accommodate the diversion of personnel to this project, spending on other capital improvements will be scaled back from the above average levels of recent years to levels that are closer to long term averages.

SSJID | Annual Report | 2010 26 Requests for Information This discussion is intended to provide management’s perspective on the District’s financial position and results of operations. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Supervisor, PO Box 747, Ripon, CA 95366.

SSJID | Annual Report | 2010 27     

SSJID | Annual Report | 2010 28 Basic Financial Statements

SSJID | Annual Report | 2010 29 2009 2010 Restated ASSETS Current Assets Cash unrestricted $8,819,764 $15,366,520 Cash restricted 2,396,311 3,353,555 Investments in marketable securities 16,190,106 16,176,648 Accounts receivable 3,062,203 4,266,966 Accrued interest receivable unrestricted 124,072 181,286 Accrued interest receivable restricted 38,485 20,650 Inventories 200,194 226,189 Prepayments 677,884 287,261 Total Current Assets 31,509,019 39,879,075

Other Assets and Investments Investments in marketable securities (net of current and restricted investments) 22,846,532 21,089,100 Notes and loans receivable 840,209 811,778 Total Other Assets and Investments 23,686,741 21,900,878

Restricted Assets Investments (Reserves for debt service, construction, water treatment plant) 18,271,612 17,553,182 Investment in Tri Dam Project 46,074,299 38,723,744 Total Restricted Assets 64,345,911 56,276,926

Capital Assets Non depreciable 9,400,916 12,415,865 Depreciable 232,189,006 223,712,081 Less accumulated depreciation (42,807,492) (36,904,820) Total Capital Assets 198,782,430 199,223,126

TOTAL ASSETS $318,324,101 $317,280,005

The accompanying notes to the financial statements are an integral part of this statement.

SSJID | Annual Report | 2010 30 2009 2010 Restated LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $773,027 $882,976 Accrued expenses 574,621 548,389 Deferred revenue 1,334,798 1,336,307 Accrued employee time off payable 525,943 454,185 Current portion of long term debt 2,010,000 1,935,000 Total Current Liabilities 5,218,389 5,156,857

Liabilities Payable from Restricted Assets Refundable deposits for water treat. plant improve. 0 1,509,806 Total Liabilities Payable from Restricted Assets 0 1,509,806

Long Term Liabilities Accrued employee time off payable 1,436,301 1,594,580 LT Debt 2008 Certificates of Participation 19,125,000 21,135,000 Total Long Term Liabilities 20,561,301 22,729,580

TOTAL LIABILIITES 25,779,690 29,396,243

Net Assets Invested in capital assets, net of related debt 193,160,163 192,390,099 Restricted 66,780,707 58,141,325 Unrestricted 32,603,541 37,352,338 TOTAL NET ASSETS 292,544,411 287,883,762

TOTAL LIABILITIES AND NET ASSETS $318,324,101 $317,280,005

The accompanying notes to the financial statements are an integral part of this statement.

SSJID | Annual Report | 2010 31 2009 2010 Restated OPERATING REVENUES Irrigation sales $1,332,958 $1,338,412 Other water sales 8,836,568 14,167,370 Electric sales 1,335,568 2,346,169 Other 123,894 187,715 Total Operating Revenues 11,628,988 18,039,666

OPERATING EXPENSES Wages 5,505,963 5,359,487 Payroll taxes and benefits 4,195,466 5,356,565 Materials and supplies 1,711,529 1,829,990 Maintenance, repairs, and improvements 556,158 948,042 Utilities 747,437 922,181 Conservation 00 General and administrative 3,716,859 3,027,729 Depreciation 5,957,370 5,981,417 Total Operating Expenses 22,390,782 23,425,411

Net Loss From Operations (10,761,794) (5,385,745)

NONOPERATING REVENUES (EXPENSES) Proposition 13 subvention 3,210,297 3,734,550 Interest income 1,025,033 2,419,831 Changes in market value of investments (167,185) (728,478) Interest expense (799,203) (931,420) Gain (loss) on property and equipment 12,301 (77,932) Tri Dam Power Authority distributions 200,000 1,800,000 Tri Dam Project distributions 1,700,000 6,500,000 Undistributed earnings of Tri Dam Project 7,350,555 (1,098,358) Total Nonoperating Revenues (Expenses) 12,531,798 11,618,193

Net Income (Loss) before Contributions 1,770,004 6,232,448 Capital contributions 2,890,645 1,793,649 Change in Net Assets 4,660,649 8,026,097

Net Assets, Beginning of Year 287,883,762 279,857,664

NET ASSETS, END OF YEAR $292,544,411 $287,883,761

The accompanying notes to the financial statements are an integral part of this statement.

SSJID | Annual Report | 2010 32 2009 2010 Restated

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $12,708,347 $14,151,216 Other receipts 123,894 187,715 Payments for goods and services (7,180,329) (9,098,579) Payments to employees for services (9,787,950) (10,340,104) Cash Used by Operating Activities (4,136,038) (5,099,752)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Property tax receipts 3,056,878 3,427,712 Tri Dam Power Authority cash distributions 200,000 1,800,000 Cash Provided by Noncapital Financing Activities 3,256,878 5,227,712

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions 1,380,839 980,951 Proceeds from the sale of property, plant, and equipment 12,301 (77,932) Purchase of property, plant, and equipment (5,516,674) (7,570,827) Payments on long term debt (1,935,000) (1,930,000) Interest payments on long term debt (799,203) (931,420) Cash Used by Capital and related Financing Activities (6,857,736) (9,529,228)

CASH FLOWS FROM INVESTING ACTIVITIES Interest received 1,064,412 2,898,860 Purchases of investment securities (117,465,557) (104,152,402) Proceeds from sales and maturities of investment securities 114,809,052 118,819,954 Purchases of notes and loans receivable 124,988 (9,528) Tri Dam Project cash distributions 1,700,000 6,500,000 Cash Provided by Investing Activities 232,896 24,056,884

Net Increase (Decrease) in Cash and Cash Equivalents (7,504,000) 14,655,616 Cash and Cash Equivalents at Beginning of Year 18,720,075 4,064,458 Cash and Cash Equivalents at End of Year $11,216,075 $18,720,074

The accompanying notes to the financial statements are an integral part of this statement.

SSJID | Annual Report | 2010 33 2010 2009 Restated

RECONCILIATION OF NET LOSS FROM OPERATIONS TO CASH USED FOR OPERATING ACTIVITIES

Net Loss From Operations ($10,761,795) ($5,385,745) Depreciation 5,957,370 5,981,417 (Increase) Decrease in operating assets Accounts receivable 1,204,763 (1,460,761) Inventories 25,995 (21,017) Prepayments (390,623) (48,406) Increase (Decrease) in operating liabilities Accounts payable (109,949) (2,179,674) Accrued expenses 26,232 (121,540) Deferred revenue (1,509) (2,239,975) Accrued employee time off payable (86,521) 375,948 Inspection deposits 00 Cash Used by Operating Activities ($4,136,038) ($5,099,753)

RECONCILIATION OF CASH TO BALANCE SHEET Cash unrestricted $8,819,764 $15,366,520 Cash restricted 2,396,311 3,353,555

Cash $11,216,075 $18,720,075

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

Assets received as capital contributions $1,509,806 $812,698 Prop. 13 subvention withheld and lent to State of Calif. 0 306,838

The accompanying notes to the financial statements are an integral part of this statement.

SSJID | Annual Report | 2010 34 Notes to the Basic Financial Statements

SSJID | Annual Report | 2010 35     

SSJID | Annual Report | 2010 36 NOTE 1 – Organization and Description of Business

The South San Joaquin Irrigation District (District) was formed in 1909 and operates as a nonregulated special district of the State of California under the California Water Code which authorizes the District to provide water, electricity, and related recreational facilities. The District provides and distributes irrigation water from the Stanislaus River to a region surrounding the cities of Manteca, Escalon and Ripon. The boundaries encompass about 72,200 acres. The district also owns and operates the Nick C. DeGroot Water Treatment Plant which processes potable water for Manteca, Escalon, Tracy, and Lathrop. The district is governed by an elected five member board of directors. The board of directors has the authority to fix rates and charges for the District’s commodities and services. The District may also incur indebtedness, including issuing bonds, and is exempt from federal and state income taxes.

NOTE 2 – Summary of Significant Accounting Policies

Significant accounting policies are those where Generally Accepted Accounting Principles require the District to choose from allowable alternative methods.

A. Reporting Entity As required by generally accepted accounting principles, these financial statements present the District as well as the District’s one half share of the Tri Dam Project. Tri Dam Project is a joint venture formed in 1948 under a joint cooperation agreement between the District and Oakdale Irrigation District for the purpose of operating the dams, reservoirs, canals, and hydroelectric generating plants jointly and equally owned by the District and the Oakdale Irrigation District. The financial statements do not include the Tri Dam Power Authority as it is a separate legal entity, in the form of a joint powers authority, which the District cannot control without the agreement of a majority of the directors of the Oakdale Irrigation District. Tri Dam Power Authority issues its own audited financial statements.

B. Basis of Accounting These financial statements are prepared in conformity with accounting principles generally accepted (“GAAP”) in the United States of America. The Governmental Accounting Standards Board (“GASB”) is the acknowledged standard setting body for accounting and financial reporting standards followed by government entities in the U. S. A. The District is presented as a single enterprise fund. Enterprise funds are used to

SSJID | Annual Report | 2010 37 account for operations that are financed and operated in a manner similar to private business where activities are financed in whole or in substantial part by fees charged in exchange for goods and service provided by the District. The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange like transactions are recognized when the exchange takes place, so revenues are recognized when earned rather than when received, and expenses are recorded when incurred rather than when paid.

Private sector standards of accounting and financial reporting issued by the Financial Accounting Standard Board (“FASB”) prior to December 1, 1989, are followed in the District’s financial statements to the extent that those standards do not conflict with or contradict GASB statements. The District also has the option of following subsequent private sector guidance subject to this same limitation. The District has elected to follow subsequent private sector guidance.

Internal transactions between operating divisions of the District have been recorded for management purposes. These internal transactions have been eliminated to avoid double counting of revenues and expenses in the consolidated financial statements.

GASB requires a distinction in the financial statements between operating and nonoperating revenues and expenses, but GASB has not established a standard for the distinction. The District classifies as operating revenues those charges for goods and services which constitute the primary business activities of the District. Operating expenses are those required to provide the primary goods and services of the District and to earn the operating revenues. Nonoperating revenues generally result from nonexchange transactions, financing transactions, or ancillary activities.

C. Revenue Recognition The District receives what is known as Proposition 13 Subvention income from San Joaquin County. This is a share of property taxes collected by the county. The District recognizes this property tax income only when it becomes susceptible to accrual, that is, when it becomes measurable and available to the District. As of the financial statement date, management accrues the amount of property tax income which it estimates will be collected early enough (within 60 days) to pay current liabilities existing as of the financial statement date.

D. Capital Assets Property, plant, equipment and infrastructure are reported at historical cost. If the individual cost is less than $10,000 or the estimated usefully life is less than one year, then the cost is reported as an expense rather than as a capital asset. The District capitalizes as part of the asset cost, any significant interest incurred during the

SSJID | Annual Report | 2010 38 construction phase of the asset. Donated property and assets constructed by developers are recorded at estimated fair market value at the date of donation. Depreciation is provided using the straight line method for assets other than land. Estimated useful lives as are follows:

Assets Years Dams, canals and distributor laterals 25 100 Pumping equipment and turbines 10 50 Drainage laterals 40 100 Buildings 19 40 Machinery and equipment 5 20 Office equipment 3 15 Vehicles and trucks 4 10

E. Cash GAAP allows a financial statement issuer to choose the focus of the statement of cash flows as either cash or “cash and cash equivalents”. The District uses only cash as the focus of the statement. Cash includes restricted and unrestricted amounts of cash on hand, demand deposits, and positions in a money market mutual fund or a cash and investment pool, if they have the same liquidity characteristics as a demand deposit.

F. Use of Restricted Assets The use of some assets can be restricted to certain purposes by law, by grantors of the assets, by legislative acts of the board of directors, or by contracts to which the District is a party. When the District has a choice to use either restricted or unrestricted funds the District’s policy is normally to use restricted funds first.

G. Accounts Receivable Trade and property tax receivables are not shown net of an allowance for uncollectible amounts because the amounts estimated by management to be uncollectible are immaterial. Property taxes are levied as of March 1 on property values assessed as of the same date. State statutes provide that the property tax rate is limited generally to one percent of assessed value, and can be levied by only the county, and shared by applicable jurisdictions within the county. The County of San Joaquin collects the taxes and distributes them to taxing jurisdictions on the basis of assessed valuations subject to voter approved debt. Property taxes are due to the county on November 1 and March 1, and become delinquent on December 10 and April 10. The District receives property taxes pursuant to an arrangement with the County known as the “Teeter Plan”. Under the plan, the County assumes responsibility for the collection of delinquent taxes and pays the full allocation to the District. The District recognizes property tax revenues in the fiscal year in which they are due to the District and accrues as a receivable such taxes received within 60 days after the year end.

SSJID | Annual Report | 2010 39 H. Inventory Inventories are valued at cost based upon physical determinations made at the end of each year.

I. Prepayments Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepayments in the financial statements.

J. Investment Basis All investments are carried at their fair market value. Market values may have changed significantly after year end.

K. Compensated Absences The total amount of liability for compensated absences is reflected in the basic financial statements. It is the government’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. There is liability for a portion of unpaid accumulated sick leave since the district does have a collective bargaining agreement with or on behalf of its employees which provides payments up to 100 percent of the accumulated and unused portion of sick leave amounts when employees separate from service with the District either at retirement or other termination of employment.

L. Use of Estimates The preparation of financial statements in conformity with the accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

SSJID | Annual Report | 2010 40 NOTE 3 – Cash and Investments

A. Classification

Cash and investments are classified in the financial statements as shown below at December 31, 2010 and 2009:

2010 2009 Cash unrestricted $8,819,764 $15,366,520 Cash restricted 2,396,311 3,353,555 Investments in marketable securities current portion 16,190,106 16,176,648 Investments in marketable securities (net of current and restricted investments) 22,846,532 21,089,100 Investments (Reserves for debt service, construction, water treatment plant) 18,271,612 17,553,182 Total cash and investments $68,524,325 $73,539,005

B. Investment Policy

Under the provisions of the District’s investment policy, and in accordance with California Government code, the following investments are authorized:

Maximum Maximum Maximum Minimum Authorized Investment Type Percentage of Investment in Maturity Credit Quality Portfolio One issuer

Bonds issued by the District 5 years None N/A Obligations issued by United States government or 5 years None None its agencies Obligations issued by any state or any local agency 5 years None None within any state in the United States Bankers acceptances 180 days 40% 30% Commercial paper 270 days A1/P1/F1 25% 10% Negotiable certificates of deposits 5 years 30% None Medium term corporate notes 5 years A 30% None California Local Agency Investment Fund N/A None None Collateralized obligations and mortgage backed 5 years A 20% None bonds Repurchase agreements 5 years None None Highest from Money market funds N/A 20% None 2 NSROs

SSJID | Annual Report | 2010 41 C. Interest Rate Risk

Interest rate risk is the risk that increases in market interest rates will decrease the market value of an investment. Normally, the longer the remaining maturity of an investment, the greater is the sensitivity of its market value to changes in the market interest rates. The District’s investment policy limits exposure to interest rate risk by requiring that maturities be planned to accommodate the District’s operating cash flow forecast so that securities can be held to maturity to avoid realizing losses on premature sales. Information about the sensitivity of the fair values of the District’s investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the District’s investments by maturity or earliest call date as of December 31, 2010. Amounts in this table include accrued interest.

2010 INVESTMENTS BY MATURITY

Maturity

Credit Rating 12 months 13-24 Investments Moodys/S&P or less months 25 months+ Totals

Federal Agency Securities: Federal Home Loan Banks Aaa/AAA $12,558,954 $5,061,800 $2,503,750 $20,124,504 Federal Home Loan Mortgage Corp. Aaa/AAA 1,006,950 5,099,650 9,916,950 16,023,550 Federal National Mortgage Association Aaa/AAA 518,045 5,021,700 2,001,180 7,540,925

Corporate Medium Term Notes Aa3 270,833 270,833 A1/A 275,763 275,763 A1/AA 1,043,460 1,043,460 A3/A 918,514 918,514

Money Market Mutual Funds Fidelity Money Funds Not Rated 6,350,812 6,350,812 Blackrock Liquidity Fund Not Rated 5 5

Local Agency Investment Fund 4,588,161 4,588,161

Certificates of Deposit FDIC Insured 2,701,302 1,465,132 4,166,434

Asset Backed Securities Federal Home Loan Mortgage Corp Not Rated 248,062 274,009 522,070 Fidelity National Mortgage Association Not Rated 1,078,477 1,078,477

Municipal Bonds New Jersey Economic Development Aa3/AA 119,657 119,657 California St Rans Ser MIG1/SP-1 4,719,950 4,719,950 Los Angeles Calif St Bldg Auth A2/BBB 504,110 504,110

Cash on Hand and in Bank 434,242 434,242

Total $36,293,835 $17,965,751 $14,421,880 $68,681,466

SSJID | Annual Report | 2010 42 Information about the sensitivity of the fair values of the District’s investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the District’s investments by maturity or earliest call date as of December 31, 2009. Amounts in this table include accrued interest.

2009 INVESTMENTS BY MATURITY

Maturity 12 months 13-24 Investments Credit Rating or less months 25 months+ Totals

Federal Agency Securities: Federal Home Loan Banks AAA $4,028,120 $8,750,178 $15,811,435 $28,589,733 Federal Home Loan Mortgage Corp. AAA 2,004,820 996,880 3,001,700 Federal National Mortgage Assoc. AAA 995,000 995,000 Federal National Mortgage Assoc. AAA 2,478,125 2,478,125

Corporate Medium Term Notes AA3 276,925 276,925 A1 295,416 295,416 A3 1,469,984 931,281 2,401,265 BAA1 55,037 55,037 B2 457,947 402,055 860,002 Not Rated 952,496 952,496

Money Market Mutual Funds Fidelity Money Funds AAAm 13,795,458 13,795,458 Blackrock Liquidity Fund AAAm 25,240 25,240

Local Agency Investment Fund 4,375,133 4,375,133

Certificates of Deposit FDIC Insured 7,265,000 7,265,000

Asset Backed Securities Federal Home Loan Mortgage Corp Not Rated 1,721,594 437,722 430,397 2,589,713 Fidelity National Mortgage Assoc. Not Rated 2,472,418 2,186,787 4,659,205

Municipal Bonds New Jersey Economic Development A1 115,724 115,724

EQUITY - CIT GROUP (CIT) Not Rated 254,205 254,205

Cash on Hand and in Bank 750,894 750,894

Total $38,162,866 $15,498,897 $20,074,508 $73,736,271

SSJID | Annual Report | 2010 43 The District is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429.1 under the oversight of the Treasurer of the State of California. 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 balance is available for withdrawal on demand, and is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. Included in LAIF’s investment portfolio are collateralized mortgage obligations, mortgage backed securities, other asset backed securities, loans to certain state funds, and floating rate securities issued by federal agencies, government sponsored enterprises, United States Treasury Notes and Bills, and corporations.

Money market funds and mutual funds are available for withdrawal on demand and at December 31, 2010, matured in an average of 55 days.

D. Concentration of Credit Risk

Investments in the securities of any individual issuer, other than U.S. Treasury securities, mutual funds, and external investment funds, that represent 5% or more of total District wide investments are as follows at December 31, 2010.

Issuer Investment Type Amount Federal Home Loan Bank Federal Agency Securities $20,124,504 Federal National Mortgage Assoc. Federal Agency Securities 7,540,925 Federal Home Loan Mortgage Corp Federal Agency Securities 16,545,620 California St Rans Ser Municipal Bonds 4,719,950

Investments in the securities of any individual issuer, other than U.S. Treasury securities, mutual funds, and external investment funds, that represent 5% or more of total District wide investments are as follows at December 31, 2009.

Issuer Investment Type Amount Federal Home Loan Bank Federal Agency Securities $ 28,589,733 Federal National Mortgage Assoc. Federal Agency Securities 4,659,205

At December 31, 2010, cash included $433,442 held in commercial banks of which 100% was insured by the Federal Deposit Insurance Corporation. On November 9, 2010 the FDIC implemented section 343 of the Dodd Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance for noninterest bearing demand accounts for the period of December 31, 2010 through December 31, 2012. At December 31, 2009, cash included $450,194 held in commercial banks of which 100% was either insured by the Federal Deposit Insurance Corporation or collateralized, as shown in the following table:

SSJID | Annual Report | 2010 44 2010 2009 FDIC insured $433,442 $250,000 Uninsured and collateralized 500,194 Total $433,442 $750,194

E. Restricted Cash and Investments

Cash and short term investments restricted for use only in capital projects is reported as noncurrent assets. The District follows the practice of reporting in this category the funds contributed by the cities of Escalon, Lathrop, Manteca and Tracy for the purpose of financing capital improvements and replacements to the Nick C. DeGroot Water Treatment Plant and related facilities.

NOTE 4 –Accounts and Notes Receivable

Accounts receivable are composed of the following elements:

2010 2009

Proposition 13 subvention 1,887,485 2,071,005 Water treatment plant sales 767,679 1,117,148 Irrigation charges 389,715 405,279 Miscellaneous 17,324 19,341 PG&E 311,030 Tri Dam Authority 650,000 Total 3,062,203 4,573,804

Notes and loans receivable consist of two significant amounts. Effective July 28, 2009, per the amended Developer’s Agreement dated October 1, 2008, between South San Joaquin Irrigation District and a real estate developer, the District recognizes a note receivable of $495,412 for the developer’s financial responsibility to reimburse the District for the cost of installing certain improvements to District facilities which benefit the developer’s project, as outlined in the agreement. This amount becomes payable to the District, plus interest at the rate of 4.5% per annum when any permits are issued by the City of Manteca for said developer’s project or July 28, 2017, whichever occurs first.

SSJID | Annual Report | 2010 45 The second item in notes and loans receivable is a loan to the State of California. Under the provisions of Proposition 1A and as part of the 2009/10 budget package passed by the California state legislature on July 28, 2009, the State of California borrowed 8% of the amount of property tax revenue, including those property taxes associated with the in lieu motor vehicle license fee, the triple flip in lieu sales tax, and supplemental property tax, apportioned to cities, counties and special districts (excluding redevelopment agencies). The state is required to repay this borrowing plus interest by June 30, 2013. After repayment of this initial borrowing, the California legislature may consider only one additional borrowing within a ten year period. The amount of this borrowing pertaining to the District at December 31, 2010 and at December 31, 2009 was $306,838.

SSJID | Annual Report | 2010 46 NOTE 5 – Investment in the Tri Dam Project

The District has a fifty percent investment in the Tri Dam Project. The Tri Dam Project’s condensed audited financial data is presented below.

2010 2009 Current assets $38,858,913 $34,017,019 Noncurrent assets 2,908,489 3,126,124 Capital assets 52,473,923 42,420,349 Total assets $94,241,325 $79,563,492

Current liabilities $2,056,714 $2,095,960 Long term liabilities 36,013 20,045 Total liabilities 2,092,727 2,116,005

Net assets invested in capital assets 52,473,923 42,420,349 Unrestricted net assets 39,674,675 35,027,138 Total net assets 92,148,598 77,447,487

Total liabilities and net assets $94,241,325 $79,563,492

2010 2009 Operating revenues $19,322,875 $17,580,837 Operating expenses 8,477,120 7,637,794 Net Income from Operations 10,845,755 9,943,043

Nonoperating Revenues Investment earnings 106,168 408,615 Water sales 109,804 103,481 Rental of equipment and facilities 61,037 45,041 Reimbursements 77,860 40,451 Other 261,092 262,652 Total Nonoperating Revenues 615,961 860,240

Extraordinary income item business interruption insur. 6,639,395 Change in Net Assets 18,101,111 10,803,283 Net assets, beginning of year 77,447,487 79,644,204 Less: Distributions to OID and SSJID (3,400,000) (13,000,000) Net Assets, End of Year $92,148,598 $77,447,487

SSJID | Annual Report | 2010 47 NOTE 6 – Property, Plant & Equipment

Changes in property, plant and equipment accounts for the year ended December 31, 2010 are summarized below:

December 31, Transfers and December 31, 2009 Additions Disposals Adjustments 2010 Capital assets not being depreciated: Land $ 280,323 $ 694,537 $ $ $ 974,860 Water Treatment Plant Land 5,834,926 5,834,926 Solar Land 512,400 512,400 Construction in progress Irrigation 4,855,909 3,381,047 (6,157,691) 2,079,265 Construction in progress WTP 783,081 434,752 (1,218,367) (535) Construction in progress Solar 149,225 26,549 (175,774) (0) Total 12,415,864 4,536,884 (7,551,833) 9,400,915

Capital assets being depreciated: Improvements 243,014 243,014 Dams, canals, and laterals 84,401,243 6,080,573 90,481,816 Buildings 1,380,655 1,380,655 Vehicle and excavators 2,810,724 462,325 (83,329) 3,189,721 Machinerey and equipment 1,806,256 50,148 77,118 1,933,522 WTP Vehicles 254,509 171,277 425,786 Improvements 10,300 373,067 383,367 Water treatment plant building and equipment 49,597,462 12,222 (135,132) 270,890 49,745,442 Water treatment plant orig. construction 61,770,051 437,281 574,410 62,781,742

WTP Pump stations Orig. construction 9,732,439 9,732,439 Solar plant 11,715,729 175,774 11,891,503 Total 223,712,082 1,143,553 (218,461) 7,551,833 232,189,007

Less accumulated depreciation: Improvements (130,429) (13,994) (144,423) Dams, canals, and laterals (23,319,230) (1,822,836) (25,142,066) Buildings (441,574) (32,384) (473,958) Vehicle and excavators (1,599,003) (295,740) 54,697 (1,840,046) Machinerey and equipment (1,057,398) (130,716) (1,188,114) WTP Vehicles (201,395) (24,670) (226,065) Improvements (12,863) (12,863) Water treatment plant building and equipment (3,722,026) (1,246,984) (4,969,010) Water treatment plant orig. construction (4,634,555) (1,572,654) (6,207,208)

WTP Pump stations Orig. construction (973,245) (324,415) (1,297,659) Solar plant (825,965) (480,114) (1,306,079) Total (36,904,820) (5,957,370) 54,697 (42,807,492)

Net Depreciable Capital Assets 186,807,262 (4,813,817) (163,763) 7,551,833 189,381,515

Net Capital Assets $ 199,223,126 $ (276,933) $ (163,763) $ $ 198,782,430

SSJID | Annual Report | 2010 48 Changes in property, plant and equipment accounts for the year ended December 31, 2009 are summarized below:

December 31, Transfers and December 31, 2008 Additions Disposals Adjustments 2009 Capital assets not being depreciated: Land $ 280,323 $ $ $ $ 280,323 Water Treatment Plant Land 6,347,326 (512,400) 5,834,926 Solar Land 512,400 512,400 Construction in progress Irrigation 6,475,395 6,051,826 (117,702) (7,553,610) 4,855,909 Construction in progress WTP 192,148 590,933 783,081 Construction in progress Solar 2,602,692 926,522 (3,466) (3,376,523) 149,225 Total 15,897,884 7,569,281 (121,168) (10,930,134) 12,415,864

Capital assets being depreciated: Improvements 262,759 (19,745) 243,014 Dams, canals, and laterals 77,203,830 4,539 (100,981) 7,293,856 84,401,243 Buildings 1,409,507 (28,852) 1,380,655 Vehicle and excavators 3,052,486 172,848 (160,101) (254,509) 2,810,724 Machinerey and equipment 1,762,356 (215,854) 259,754 1,806,256 WTP Vehicles 254,509 254,509 Improvements Water treatment plant building and equipment 49,549,132 48,330 49,597,462 Water treatment plant orig. construction 61,434,600 335,451 61,770,051

WTP Pump stations Orig. construction 9,732,439 9,732,439 Solar plant 8,339,175 31 3,376,523 11,715,729 Total 212,746,284 561,167 (525,503) 10,930,134 223,712,082

Less accumulated depreciation: Improvements (137,207) (14,729) 21,507 (130,429) Dams, canals, and laterals (21,513,284) (1,831,296) 25,350 (23,319,230) Buildings (429,653) (32,383) 20,462 (441,574) Vehicle and excavators (1,576,960) (303,550) 122,384 159,124 (1,599,003) Machinerey and equipment (1,118,994) (138,137) 199,733 (1,057,398) WTP Vehicles (42,271) (159,124) (201,395) Improvements Water treatment plant building and equipment (2,483,496) (1,244,569) 6,039 (3,722,026) Water treatment plant orig. construction (3,066,090) (1,572,978) 14,899 (10,385) (4,634,555)

WTP Pump stations Orig. construction (653,176) (324,415) 4,346 (973,245) Solar plant (348,878) (477,087) (825,965) Total (31,327,738) (5,981,417) 404,335 (36,904,820)

Net Depreciable Capital Assets 181,418,546 (5,420,250) (121,168) 10,930,134 186,807,262

Net Capital Assets $ 197,316,430 $ 2,149,031 $0(242,335) $ $ 199,223,126

SSJID | Annual Report | 2010 49 Donated property and assets constructed by developers are recorded at estimated fair market value at the date of donation. The District recognized capital contributions from various sources as follows:

2010 2009

Developers $ 263,282 $ 1,331,772 City of Tracy 889,833 156,534 City of Manteca 1,023,285 180,012 City of Lathrop 714,245 125,331 Total capital contributions $ 2,890,645 $ 1,793,649

NOTE 7 – Operating Leases

The District utilizes various pieces of equipment that are leased under a number of non cancelable operating leases. These leases contains renewal options for additional future periods. Minimum rental payments due under the leases for future calendar years are as follows:

2011 $10,429 2012 6744 2013 3934 Total $21,107

NOTE 8 – Long Term Liabilities

Long term debt consists of Series 2008A Revenue Certificates of Participation issued on July 1, 2008 in the original amount of $25,000,000. Debt service requires principal payments, ranging from $1,930,000 to $2,715,000 due on July 27 annually through 2019, and semi annual interest payments, ranging from $55,568 to $412,259, due on January 27 and July 27 through July 27, 2019. Interest rates range from 3.4% to 4.1%. Long term debt is classified in the balance sheets of December 31, 2010 and 2009 as follows:

2010 2009 Current portion $2,010,000 1,935,000 Long term portion 19,125,000 21,135,000 Total $21,135,000 $23,070,000

SSJID | Annual Report | 2010 50 Debt service requirements to maturity, for years ending December 31, are as follows:

Principal Interest Total 2011 $2,010,000 $815,420 $2,825,420 2012 2,090,000 735,020 2,825,020 2013 2,175,000 651,420 2,826,420 2014 2,260,000 564,420 2,824,420 2015 2,340,000 487,580 2,827,580 2016 – 2019 10,260,000 943,990 11,203,990 Total $21,135,000 $4,298,030 $25,433,030

Activity during the years ending December 31, 2010 and 2009, in the long term debt accounts, was as shown in the following table:

December 31, December 31, Due Within 2009 Additions Reductions 2010 One Year 2008A Revenue Certificates of Participation $ 23,070,000 $ $ (1,935,000) $ 21,135,000 $ 2,010,000

Accrued employee time off payable $ 2,048,765 $ 515,632 $ (602,153) $ 1,962,244 $ 525,943

December 31, December 31, Due Within 2008 Additions Reductions 2009 One Year 2008A Revenue Certificates of Participation $ 25,000,000 $ $ (1,930,000) $ 23,070,000 $ 1,935,000

Accrued employee time off payable $ 1,672,816 $ 642,556 $ (266,607) $ 2,048,765 $ 454,185

NOTE 9 – Net Assets

Net assets are the excess of all the District’s assets over all its liabilities. Net assets are divided into three components under GASB Statement 34.

“Net assets invested in capital assets, net of related debt” describes the portion of net assets which is represented by the current net book value of the District’s capital assets,

SSJID | Annual Report | 2010 51 less the outstanding balance of any debt issued to finance these assets. If a material amount of such debt remains unspent, that amount of the debt is excluded from the calculation of net assets invested in capital assets, net of related debt. Net assets invested in capital assets, net of related debt is made up of the following components as of December 31, 2010 and 2009:

2010 2009 Total capital assets, net of accumulated depreciation$ 198,782,430 $ 199,223,126 Less current portion LT debt (2,010,000) (1,935,000) Less noncurrent portion LT debt (19,125,000) (21,135,000) Add Unspent Proceeds of Debt: Debt service reserve fund 2,503,755 2,503,365 Construction fund cash and investments 13,008,978 13,733,608 $ 193,160,163 $ 192,390,099

The second component of net assets is restricted net assets which are restricted assets less related liabilities. Restricted assets are assets whose use has been restricted to certain purposes by law, by grantors of the assets, by enforceable legislative acts of the District’s board of directors, or by contracts to which the District is a party. The following table shows the composition of restricted net assets for December 31, 2010 and 2009.

2010 2009

Debt service reserve $ 2,503,755 $ 2,503,365 Construction fund 13,039,206 13,733,608 Water treatment plant funds 5,163,447 4,690,414 Investment in Tri Dam 46,074,299 38,723,744 Less: liabilities payable from restricted assets 0 (1,509,806) Total $ 66,780,707 $ 58,141,325

The third component of net assets is unrestricted net assets which is simply the amount of net assets that does not qualify as either restricted net assets, or as net assets invested in capital assets net of related debt.

SSJID | Annual Report | 2010 52 NOTE 10 – Retirement Plan

The District contributes to a defined benefit retirement plan for its employees. The following disclosures are required by GASB Statement 27:

Plan Description

Name of plan: The Miscellaneous Plan of the South San Joaquin Irrigation District

Administrator: California Public Employees Retirement System (CALPERS)

Type of plan: Agent multiple employer defined benefit pension

Type of benefits: Retirement, disability, annual cost of living adjustments and death benefits to plan members and beneficiaries

Authority for benefits: Benefit provisions are established by state statute and the District’s board of directors.

CalPERS report: Copies of the PERS annual financial report may be obtained from their Executive Office, 400 P Street, Sacramento, CA 95814.

Funding Policy

Funding policy authority: Required plan contribution amounts are determined annually on an actuarial basis as of June 30 by CALPERS.

Required contribution: Employer, for year ending June 30, 2011: 14.133% Employer, for year ending June 30, 2012: 17.041% Employee, 8%

Actuarial Methods and Assumptions

Valuation date: June 30, 2009

Actuarial cost method: Entry age normal cost

Amortization method: Level percentage of payroll

Average remaining period: 19 years as of the valuation date

SSJID | Annual Report | 2010 53 Asset valuation method: 15 year smoothed market Investment rate of return: 7.75% net of administrative expenses

Projected salary increases: 3.55% to 14.45% per annum depending on age, service, and type of employment

Inflation: 3.00% per annum

Payroll growth: 3.25% per annum

Individual salary growth: A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.00% and an annual productivity growth of 0.25%

Annual Pension Cost and Net Pension Obligation

Employer Actual as % of Year Ending Required Required Contribution Contribution June 30, 2010 $778,830 100% June 30, 2009 $439,736 100% June 30, 2008 $401,826 100%

As required contribution amounts have been paid fully and timely, there is no net pension obligation.

NOTE 11: Other Postemployment Benefits

The District provides a defined benefit medical plan for its retirees. The following disclosures are required by GASB Statements 43 and 45:

Plan Description

Name of plan: South San Joaquin OPEB Medical Benefits Plan

Administrator: The District

Type of plan: Single employer defined benefit plan

SSJID | Annual Report | 2010 54 Type of benefits: Payment of post employment medical insurance premiums, ranging from nothing to 100% for retiree and spouse, for up to 180 months. Amount of benefit depends on employee’s number of unused sick days at retirement date, length of employment, and bargaining unit membership. Upon retirement, if qualified, employee elects whether to participate.

Authority for benefits: District’s Board of Directors

Funding Policy

Funding policy authority: District’s Board of Directors

Required contribution: Employee: $0 and at least 10 sick days upon retirement Employer: see table below following Actuarial Methods and Assumptions.

Actuarial Methods and Assumptions

Valuation date: July 1, 2010

Actuarial cost method: Entry age normal cost

Amortization method: Level percentage of payroll

Average remaining period: 30 years open

Asset valuation method: Market value

Investment rate of return: 7.75% per annum

Projected salary increases: 3.25% per annum

Healthcare Inflation: Starting at 9.0% and declining to 4.5% per annum for 2017 and later

Payroll growth: 3.25% per annum

SSJID | Annual Report | 2010 55 Annual Required Contribution, OPEB Cost, and Net OPEB Obligation

Annual Required Contribution ("ARC") Amorization of Interest to Year Year Ending Normal Cost UAAL* End ARC December 31, 2009 $60,952 $1,268,096 ($39,798) $1,289,250 December 31, 2010 $67,865 $2,309 $2,676 $72,850

*UAAL = Unfunded Actuarial Accrued Liability

Annual OPEB Cost Interest on ARC Annual OPEB Year Ending NOPEBO ARC Adjustment Cost December 31, 2009 $0 $1,289,250 $0 $1,289,250 December 31, 2010 $6,196 $72,850 ($4,983) $74,063

Net OPEB Obligation ("NOPEBO")

Annual OPEB Less: Employer Beginning Ending Year Ending Cost Contribution NOPEBO NOPEBO December 31, 2009 $1,289,250 ($1,209,303) $0 $79,947 December 31, 2010 $74,063 ($79,805) $79,947 $74,205

Background Information

Actuarial valuations involve estimates and assumptions about the distant future that are continually revised. The schedule of funding progress, located following the notes, provides multi year trend data to help determine whether net plan assets are increasing or decreasing over time. Benefits are projected based on benefit levels as of the date of the valuation and do not explicitly reflect the potential effects of legal or contractual funding limitations. Actuarial valuations take a long term perspective that involves the use of techniques designed to reduce volatility.

SSJID | Annual Report | 2010 56 NOTE 12 – Risk Management

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disaster, for which the District carries commercial insurance. The following is a summary of the insurance policies in force carried by the District as of December 31, 2010.

Limit per Aggregate Type of Coverage Deductible Occurrence Limit

General liability $1,000,000 $3,000,000 $5,000 Automobile liability 1,000,000 0 0 Hired & non owned automobile liability 1,000,000 0 0 Bodily injury and advertising injury 1,000,000 3,000,000 5,000 Personal injury and advertising injury 1,000,000 3,000,000 5,000 Employment related practices injury 1,000,000 3,000,000 5,000 Professional liability 1,000,000 3,000,000 5,000 Wrongful acts 1,000,000 3,000,000 5,000 Employee benefits liability 1,000,000 3,000,000 5,000 Fire damage 1,000,000 0 5,000 Employee dishonesty 250,000 0 250 Forgery or alteration 250,000 0 250 Theft, disappearance, and destruction 0 250,000 250 (inside and outside) Computer fraud 100,000 0 250 Excess insurance 10,000,000 10,000,000 0

The District paid no material uninsured losses during the last three fiscal years. Liabilities of the District are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. The District considers claims incurred and reported, as well as claims incurred but not reported, to be immaterial and has not accrued an estimate of such claims payable.

NOTE 13 – Commitments and Contingencies

Water Rights Litigation

Since 1987, the Water resources Control Board has periodically conducted hearings (the Bay Delta Hearings) relating to the development and implementation of water quality control plans for the San Francisco, Sacramento, and San Joaquin areas. These plans

SSJID | Annual Report | 2010 57 require, among other measures, that water be released for flow into the Delta by water rights holders such as the District. It is not possible to predict the outcome of these hearings; however, it is possible to state that the future outcome could have a serious impact upon the water rights of the District and its joint venture, the Tri Dam Project. Increasingly, the regulatory trends threaten the rights of water districts. The District may incur substantial litigation or administration expense in protecting its water rights. It is not possible to estimate the potential cost or to determine the financial impact of the hearings on the District.

Other Litigation

The District is involved in other litigation concerning water quality issues. The ultimate outcome of such litigation is not presently determinable, and the District believes that such matters will not have a material adverse impact upon the District’s financial position based upon information available at the present time.

NOTE 14 – Jointly Governed Organizations

Jointly governed organizations are legal entities or other organizations that result from a contractual arrangement and that are owned, operated, or governed by two or more participants as a separate and specific activity subject to joint control in which the participants retain an ongoing financial interest or ongoing financial responsibility. The District is a participant in the following organizations.

San Joaquin River Group Authority

The District, along with other districts and water agencies, is a member of the Authority. The Authority members have reached agreements with federal, state, and local agencies receiving water exported to them via Sacramento/San Joaquin River Bay/Delta Estuary in regard to implementing the San Joaquin River portion of the Bay Delta 1995 Water quality Plan. A key factor of the Plan requires implementation of the Vernalis Adaptic Management Plan (“VAMP”). The above agreements require Authority members to provide water under certain conditions to assist in meeting water flow and other provisions of the VAMP. The Authority is obligated to provide a maximum of 110,000 acre feet per year with South San Joaquin Irrigation District obligated to provide 11,000 acre feet. The Authority is to receive payment for all water provided, and the District received $486,260 for its share of water transferred during 2009. The District is also obligated to fund a prorate share of the Authority’s annual operating budget each year. In 2009 the District's share of the budget was $343,015.37. Agreements to implement VAMP are in effect through 2011. Negotiations to further extend VAMP are ongoing.

SSJID | Annual Report | 2010 58 Tri Dam Power Authority

Under a Joint Powers Agreement dated October 14, 1982 between the District and the Oakdale Irrigation District, the Tri Dam Power Authority (the Authority) was formed as a separate legal entity. The Authority was formed for the purpose of exercising common powers in constructing, operating, and maintaining facilities for the generation of electrical energy. The Authority has constructed and operates a hydroelectric power facility on the Stanislaus River known as the Sand Bar project. Pacific Gas and Electric Company has contracted to purchase all power produced by this facility. The Authority is governed through a joint Board of Directors. However, operations and net assets of the Authority belong solely to the Authority as a separated legal entity. Should the Authority become insolvent, neither District would be liable for Authority debts. Accordingly, the Authority has been excluded from the District’s financial statements. The Authority, although not required to do so, has made the periodic cash distributions to both districts from the Authority’s surplus funds. These cash distributions are recorded as other venues by the District when received in cash.

NOTE 15: Correction of Accounting Error

The financial statements for 2009 have been restated to report a long term note receivable in the amount of $495,412 and to increase contributed capital by the same amount. Interest income and “accrued interest receivable – unrestricted” has been increased by $9,528. The underlying transaction is described in Note 4 – Accounts and Notes Receivable.

NOTE 16: Reclassifications Certain reclassifications have been made to the 2009 financial statement presentation to correspond to the current year’s format. Net assets and changes in net assets are unchanged due to these reclassifications.

NOTE 17: Subsequent Events The District has evaluated events subsequent to the balance sheet dates through June 30, 2011. GASB Statement No. 56 requires consideration of subsequent “events that provide evidence with respect to conditions that did not exist at the date of the statement of net assets [balance sheet] but arose subsequent to that date.” These subsequent events must be disclosed if their disclosure is essential to the user’s understanding of the financial statements.

SSJID | Annual Report | 2010 59 During January, 2011 the District received a distribution of $8,455,114 from Tri Dam Project.

NOTE 18: New Accounting Standards

GASB No. 45

In June 2004, the Government Accounting Standards Board issued Statement No. 45 “Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pension”. This pronouncement is effective for the year ended June 30, 2010. This pronouncement requires significant changes to the accounting and disclosures associated with postemployment benefits (OPEB). The District has implemented this for the year ended December 31, 2009.

GASB No. 49

In November 2006, the Governmental Accounting Standards Board issued Statement No. 49 “Accounting and Financial Reporting for Pollution Remediation Obligations.” This pronouncement is effective for periods beginning after December 15, 2007. This Statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups. This pronouncement did not have any effect on the financial statements of the District for the year ended December 31, 2010.

GASB No. 51

In June 2007, the Governmental Accounting Standards Board issued Statement No. 51 “Accounting and Financial Reporting for Intangible Assets.” This pronouncement is effective for periods beginning after June 15, 2009. Retroactive reporting of these intangible assets is encouraged but not required. This Statement requires that all intangible assets not specifically excluded by its scope provisions be classified as capital assets. The District recognizes this pronouncement may have an effect on the District’s financial statements in the year of adoption, but has not yet quantified those effects.

GASB No. 52

In November 2007, the Governmental Accounting Standards Board issued Statement No. 52 “Land and Other Real Estate Held as Investments by Endowments”. This pronouncement is effective for periods beginning after June 15, 2008, with earlier application encouraged. The Statement requires endowments to report their land and

SSJID | Annual Report | 2010 60 other real estate investments at fair value, creating consistency in reporting among similar entities that exist to invest resources for the purpose of generating income. The District has no endowments at December 31, 2010.

GASB No. 53

In June 2008, the Governmental Accounting Standards Board issued Statement No. 53 “Accounting and Financial Reporting for Derivative Investments”. This pronouncement is effective for periods beginning after June 15, 2009 with earlier application encouraged. The Statement requires governments to measure most derivative instruments at fair value in their financial statements that are prepared on the economic resources measurement focus and the accrual basis of accounting. The guidance in this Statement also addresses hedge accounting requirements. The District held no derivative instruments at December 31, 2010 and 2009.

GASB No. 54

In March 2009, the Government Accounting Standards Board issued Statement No. 54 “Fund Balance Reporting and Governmental Fund Type Definitions.” This pronouncement is effective for periods beginning after June 15, 2010 with early implementation encouraged. The provisions of this statement should be applied retroactively by restating fund balance for all periods presented. This pronouncement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The initial distinction that is made in reporting information in reporting fund balance information is identifying amounts that are considered non spendable, such as fund balance associated with inventories. This statement also provides for additional classification as restricted, committed, assigned, and unassigned based on the relative strength of the constraints that control how specific accounts can be spent. The District has no governmental funds at December 31, 2010 and 2009.

GASB No. 55

In March 2009, the Government Accounting Standards Board issued Statement No. 55 “The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments.” The requirements of this statement were effective upon its issuance. This pronouncement incorporated the hierarchy of generally accepted accounting principles (GAAP) for state and local governments into the Governmental Accounting Standards Board’s (GASB) authoritative literature. The “GAAP Hierarchy” consists of the sources of accounting principles used in the preparation of financial statements of state and local governmental entities that are presented in conformity with GAAP and the

SSJID | Annual Report | 2010 61 framework for selecting those principles. This pronouncement had no effect on the financial statements of the District for the year ended December 31, 2010.

GASB No. 56

In March 2009, the Government Accounting Standards Board issued Statement No. 56 “Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards”. The requirements of this statement were effective upon its issuance. This standard does not establish new accounting standards but rather incorporates the existing guidance (to the extent appropriate in a governmental environment) into the GASB standards. This pronouncement addresses three issues not included in the authoritative literature that establishes accounting principles – related party transactions, going concern considerations, and subsequent events. This pronouncement had no effect on the financial statements of the District for the year ended December 31, 2010.

SSJID | Annual Report | 2010 62 Required Supplementary Information

SSJID | Annual Report | 2010 63     

SSJID | Annual Report | 2010 64 Retirement Plan Required Supplementary Information The schedule of funding progress for the PERS risk pool in which the District’s plan is a member, is presented below as required supplementary information, and reports multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. The most recent actuarial valuation was prepared as of June 30, 2009.

Schedule of Funding Progress for Pension Benefits Accrued Actuarial Value Unfunded Funded Annual Valuation Liabilities of Assets Liabilities Ratio Covered UL as a % of Date (AL) (AVA) (UL) (AVA/AL) Payroll Payroll 6/30/2007 $1,315,454,361 $1,149,247,298 $166,207,063 87.4% $289,090,187 57.5% 6/30/2008 $1,537,909,933 $1,337,707,835 $200,202,098 87.0% $333,307,600 60.1% 6/30/2009 $1,834,424,640 $1,493,430,831 $340,993,809 81.4% $355,150,151 96.0%

Required Supplementary Information for Other Postemployment Benefits (“OPEB”) The schedule of funding progress for the District’s OPEB, is presented below as required supplementary information, and reports multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Schedule of Funding Progress for Other Postemployment Benefits

Actuarial Unfunded Actuarial Value Valuation Date Accrued Liability Actuarial Liability Funded Ratio of Assets (AVA) (AAL) (UAL) (AAL - AVA) (AVA/AAL) 12/31/2008 $1,268,096 $0 $1,268,096 0% 12/31/2009 $1,568,982 $1,529,067 $39,915 97% 12/31/2010 $1,668,141 $1,647,570 $20,571 99%

SSJID | Annual Report | 2010 65      APPENDIX B

DEFINITIONS AND SUMMARY OF THE INDENTURE

The following is a summary of certain provisions of the Indenture which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the Indenture for a full and complete statement of the provisions thereof.

DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS

Definitions. Unless the context otherwise requires, the terms defined in the Indenture will, for all purposes of the Indenture and of any indenture supplemental thereto and of any certificate, opinion or other document therein mentioned, have the meanings therein specified, to be equally applicable to both the singular and plural forms of any of the terms therein defined.

Accountant’s Report. The term “Accountant’s Report” means a report signed by an Independent Certified Public Accountant.

Authorized Representative. The term “Authorized Representative” means, with respect to the District, its President, Vice President, Secretary, General Manager, Chief Financial Officer or any other person designated as an Authorized Representative of the District by a Certificate of the District signed by its President, Vice President, Secretary, General Manager or Chief Financial Officer and filed with the Trustee.

Bond Counsel. The term “Bond Counsel” means Stradling Yocca Carlson & Rauth, a Professional Corporation, or another firm of nationally recognized attorneys experienced in the issuance of obligations the interest on which is excludable from gross income under Section 103 of the Code.

Bonds. The term “Bonds” means all revenue bonds or notes of the District authorized, executed, issued and delivered by the District, the payments of which are payable from Net Revenues on a parity with the 2012 Bonds and which are secured by a pledge of and lien on Revenues as described in the Indenture.

Bond Year. The term “Bond Year” means the period beginning on the date of issuance of the 2012 Bonds and ending on _____ 1, 20__, and each successive one year or, during the last period prior to maturity, shorter period thereafter until there are no Outstanding 2012 Bonds.

Business Day. The term “Business Day” means: (i) a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State, or in any other state in which the Office of the Trustee is located, are closed; or (ii) a day on which the New York Stock Exchange is not closed.

Certificate; Direction; Request; Requisition. The terms “Certificate,” “Direction,” “Request,” and “Requisition” of the District mean a written certificate, direction, request or requisition signed in the name of 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 will be read and construed as a single instrument. If and to the extent required by the Indenture, each such instrument will include the statements provided for therein.

Closing Date. The term “Closing Date” means the date on which the 2012 Bonds are delivered to the original purchaser thereof.

Code. The term “Code” means the Internal Revenue Code of 1986, as amended.

Continuing Disclosure Certificate. The term “Continuing Disclosure Certificate” means the Continuing Disclosure Certificate, dated the Closing Date, by the District, as originally executed or as it may be from time to time amended or supplemented in accordance with its terms.

B-1 Contracts. The term “Contracts” means all contracts of the District later authorized and executed by the District, the payments under which are payable from Net Revenues on a parity with the 2012 Bonds and which are secured by a pledge and lien on Revenues as described in the Indenture; but excluding contracts entered into for operation and maintenance of the Water System and operation and maintenance of a Retail Electric System, to the extent that revenues of the Retail Electric System is included in Revenues, as provided in the definition of “Revenues.”

Date of Operation. The term “Date of Operation” means, with respect to any uncompleted component of a Parity Project, the estimated date by which such uncompleted component of a Parity Project will have been completed and, in the opinion of an engineer, will be ready for operation by or on behalf of the District.

Debt Service. The term “Debt Service” means, for any period of calculation, the sum of: (1) the interest payable on all outstanding Bonds, assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are prepaid or paid from sinking fund payments as scheduled (except to the extent that such interest is capitalized); (2) those portions of the principal amount of all outstanding serial Bonds maturing in such period; (3) those portions of the principal amount of all outstanding term Bonds required to be prepaid or paid in such period; and (4) those portions of the Contracts required to be made during such period, (except to the extent the interest evidenced and represented thereby is capitalized); but less the earnings to be derived from the investment of moneys on deposit in debt service reserve funds established for Bonds or Contracts; provided that, as to any such Bonds or Contracts bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt Service will, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of: (i) the then current variable interest rate borne by such Bonds or Contracts plus 1%; and (ii) the highest variable rate borne over the preceding 24 months by outstanding variable rate debt issued by the District or, if no such variable rate debt is at the time outstanding, by variable rate debt of which the interest rate is computed by reference to an index comparable to that to be utilized in determining the interest rate for the debt then proposed to be issued; provided further that if any series or issue of such Bonds or Contracts have 25% or more of the aggregate principal amount of such series or issue due in any one year, Debt Service will be determined for the period of determination as if the principal of and interest on such series or issue of such Bonds or Contracts were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of 25 years from the date of calculation; and provided further that, as to any such Bonds or Contracts or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds or Contracts or portions thereof, such accreted discount will be treated as interest in the calculation of Debt Service; and provided further that the amount on deposit in a debt service reserve fund on any date of calculation of Debt Service will be deducted from the amount of principal due at the final maturity of the Bonds and Contracts for which such debt service reserve fund was established and to the extent the amount in such debt service reserve fund is in excess of such amount of principal, such excess will be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted.

Depository; DTC. The term “Depository” or “DTC” means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the 2012 Bonds.

District. The term “District” means South San Joaquin District, an irrigation district duly organized and existing under and by virtue of the laws of the State.

Event of Default. The term “Event of Default” means any of the events specified in the Indenture.

Federal Securities. The term “Federal Securities” means any direct, noncallable general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), or noncallable obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America.

Fiscal Year. The term “Fiscal Year” means the twelve month period beginning on January 1 of each year and ending on the next succeeding December 31, both dates inclusive, or any other twelve month period later selected and designated as the official fiscal year period of the District.

B-2 Indenture. The term “Indenture” means the Indenture of Trust, dated as of April 1, 2012, by and between the District and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture.

Independent Certified Public Accountant. The term “Independent Certified Public Accountant” means any firm of certified public accountants appointed by the District, each of whom is independent of the District pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants.

Independent Financial Consultant. The term “Independent Financial Consultant” means a financial consultant or firm of such consultants appointed by the District, and who, or each of whom: (1) is in fact independent and not under domination of the District; (2) does not have any substantial interest, direct or indirect, with the District; and (3) is not connected with the District as an officer or employee thereof, but who may be regularly retained to make reports thereto.

Information Services. The term “Information Services” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system; or, in accordance with the then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the District may specify in a certificate to the Trustee and as the Trustee may select.

Interest Account. The term “Interest Account” means the account by that name in the Payment Fund established pursuant to the Indenture.

Interest Payment Date. The term “Interest Payment Date” means October 1, 2012 and each April 1 and October 1 thereafter.

Investment Agreement. The term “Investment Agreement” means an investment agreement by a provider, supported by appropriate opinions of counsel, provided that, without limiting the foregoing, any such Investment Agreement will: (i) be from a provider rated by S&P or Moody’s at “A-” or “A3”, respectively, or above; (ii) require the District to terminate such agreement and immediately reinvest the proceeds thereof in other Permitted Investments if the rating assigned to the provider by S&P or Moody’s falls to “BBB+” or “Baa1”, respectively, or below; and (iii) expressly permit the withdrawal, without penalty, of any amounts necessary at any time to fund any deficiencies on account of debt service requirements with respect to the 2012 Bonds, together with such amendments as may be approved by the District and the Trustee from time to time.

Letter of Representations. The term “Letter of Representations” means the letter of the District and the Trustee delivered to and accepted by the Depository on or prior to delivery of the 2012 Bonds as book entry bonds setting forth the basis on which the Depository serves as depository for such book entry bonds, as originally executed or as it may be supplemented or revised or replaced by a letter from the District and the Trustee delivered to and accepted by the Depository.

Manager. The term “Manager” means the General Manager of the District, or any other person designated by the General Manager to act on behalf of the General Manager.

Net Proceeds. The term “Net Proceeds” means, when used with respect to any casualty insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys fees) incurred in the collection of such proceeds.

Net Revenues. The term “Net Revenues” means, for any Fiscal Year, the Revenues for such Fiscal Year less the Operation and Maintenance Costs for such Fiscal Year.

Nominee. The term “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Indenture.

Office of the Trustee. The term “Office of the Trustee” means with respect to the Trustee, the principal corporate trust office of the Trustee in San Francisco, California, or such other or additional offices as may be

B-3 specified in writing by the Trustee to the District, except that with respect to presentation of 2012 Bonds for payment or for registration of transfer and exchange such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business is conducted.

Operation and Maintenance Costs. The term “Operation and Maintenance Costs” means: (1) costs spent or incurred for maintenance and operation of the Water System calculated in accordance with generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Water System in good repair and working order, and including administrative costs of the District that are charged directly or apportioned to the Water System, including but not limited to salaries and wages of employees, payments to the Public Employees Retirement System, overhead, insurance, taxes (if any), fees of auditors, accountants, attorneys, consultants or engineers and insurance premiums, and including all other reasonable and necessary costs of the District or charges (other than Debt Service) required to be paid by it to comply with the terms of the Indenture or any other Contract or of any resolution or indenture authorizing the issuance of any Bonds or of such Bonds; (2) all costs of water purchased or otherwise acquired for delivery by the Water System (including any interim or renewed arrangement therefor), but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature and any amounts transferred to the Rate Stabilization Fund; and (iii) to the extent that revenues from the Retail Electric System are included in Revenues, as provided in the definition of “Revenues,” costs spent or incurred for maintenance and operation of the Retail Electric System calculated in accordance with generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Retail Electric System in good repair and working order, and including administrative costs of the District that are charged directly or apportioned to the Retail Electric System, including but not limited to salaries and wages of employees, payments to the Public Employees Retirement System, overhead, insurance, taxes (if any), fees of auditors, accountants, attorneys, consultants or engineers and insurance premiums.

Opinion of Counsel. The term “Opinion of Counsel” means a written opinion of counsel (including but not limited to general counsel or Bond Counsel to the District) selected by the District. If and to the extent required by the provisions of the Indenture, each Opinion of Counsel will include the statements provided for in the Indenture.

Outstanding. The term “Outstanding,” when used as of any particular time with reference to 2012 Bonds, means (subject to the provisions of the Indenture) all 2012 Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except: (i) 2012 Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) 2012 Bonds with respect to which all liability of the District has been discharged in accordance with the Indenture, including 2012 Bonds (or portions thereof) described therein; and (iii) 2012 Bonds for the transfer or exchange of or in lieu of or in substitution for which other 2012 Bonds have been authenticated and delivered by the Trustee pursuant to the Indenture.

Owner; 2012 Bond Owner. The term “Owner” or “2012 Bond Owner,” whenever used in the Indenture with respect to a 2012 Bond, means the person in whose name the ownership of such 2012 Bond is registered on the Registration Books.

Parity Project. The term “Parity Project” means any additions, betterments, extensions or improvements to the District’s Water System (or to a Electric Retail System if the Revenues of the Electric Retail System are included in “Revenues” as provided in the definition thereof) designated by the Board of Directors of the District as a Parity Project, the acquisition and construction of which is to be paid for with the proceeds of any Contracts or Bonds.

Participants. The term “Participants” means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds book entry certificates as securities depository.

Payment Fund. The term “Payment Fund” means the fund by that name established pursuant to the Indenture.

Permitted Investments. The term “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. The Trustee is entitled to rely upon the written investment direction of the District as a representation that such

B-4 investment constitutes a legal investment under the laws of the State: (a) for all purposes, including but not limited to defeasance investments in refunding escrow accounts: (1) cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in clause (2) below); and (2) direct obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury, including REFCORP Interest STRIPS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America; and (b) for all purposes other than defeasance investments in refunding escrow accounts: (1) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including the Export - Import Bank; Farmers Home Administration; General Services Administration; U.S. Maritime Administration; Government National Mortgage Association (GNMA); U.S. Department of Housing & Urban Development (PHA’s); and Federal Housing Administration; (2) bonds, notes or other evidences of indebtedness rated at least “AA-” or “Aa3” by the applicable Rating Agency issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years; (3) U.S. dollar denominated deposit accounts, certificates of deposit, federal funds and banker’s acceptances with domestic commercial banks (including the Trustee) which are either insured by the Federal Deposit Insurance Corporation or have a rating on their short term certificates of deposit on the date of purchase of “A-1” or “A-1+” by S&P and “P-1” by Moody’s and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (4) commercial paper which is rated at the time of purchase in the single highest classification, “A-1+” by S&P and “P-1” by Moody’s and which matures not more than 270 days after the date of purchase; (5) investments in a money market fund rated “AAm”, “AAAm” or “AAAm-G” or better by S&P, including such funds for which the Trustee or an affiliate acts as investment advisor or provides other services; (6) pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice and which are rated, based on the escrow, in the highest rating category of S&P and Moody’s; (7) any Investment Agreement; and (8) the Local Agency Investment Fund of the State of California.

Principal Account. The term “Principal Account” means the account by that name within the Payment Fund established pursuant to the Indenture.

Rate Stabilization Fund. The term “Rate Stabilization Fund” means the fund by that name established pursuant to the Indenture.

Rating. The term “Rating” means any currently effective rating on the 2012 Bonds issued by a Rating Agency.

Rating Agency. The term “Rating Agency” means S&P.

Rebate Fund. The term “Rebate Fund” means the fund by that name established pursuant to the Indenture.

Record Date. The term “Record Date” means, with respect to any Interest Payment Date, the fifteenth (15th) day of the calendar month preceding such Interest Payment Date, whether or not such day is a Business Day.

Redemption Date. The term “Redemption Date” means the date fixed for an optional redemption prior to maturity of the 2012 Bonds.

Redemption Fund. The term “Redemption Fund” means the fund by that name established pursuant to the Indenture.

Redemption Price. The term “Redemption Price” means, with respect to any 2012 Bond (or portion thereof), the principal amount of such 2012 Bond (or portion) plus the interest accrued to the applicable Redemption Date and the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such 2010 Bond and the Indenture.

B-5 Registration Books. The term “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the 2012 Bonds pursuant to the Indenture.

Reserve Fund. The term “Reserve Fund” means the fund by that name established pursuant to the Indenture.

Reserve Requirement. The term “Reserve Requirement” means initially: (i) $_____; and thereafter (ii) the lesser of the amount set forth in clause (i) or the maximum payments of principal of and interest on the 2012 Bonds payable in any Fiscal Year.

Responsible Officer of the Trustee. The term “Responsible Officer of the Trustee” means any officer within the corporate trust division (or any successor group or department of the Trustee) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time will be such officers, respectively, with responsibility for the administration of the Indenture.

Retail Electric System. The term “Retail Electric System” means the whole and each and every part of any retail electrical distribution system of the District later acquired or constructed and delivering electric power for direct sale to the public.

Revenue Fund. The term “Revenue Fund” means those District accounts designated by the District as account numbers 49-100 through 49-993, but excluding account number 49-800, together with other accounts created in the future and designated by action of the Board of Directors as a part of the Revenue Fund by that name established pursuant to the Indenture.

Revenues. The term “Revenues” means: (1) all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Water System, including, without limiting the generality of the foregoing: (a) all income, rents, rates, fees, charges or other moneys derived by the District from the sale, furnishing and supplying of water for irrigation purposes; plus (b) all income, rents, rates, fees, charges or other moneys derived by the District from the sale, furnishing and supplying of treated water, including but not limited to all amounts received by the District pursuant to the Water Supply Development Agreements; plus (c) the proceeds of any stand-by or water availability charges; plus (d) capital facility fees, development fees or similar charges, penalties, interest and rental income related to the Water System, and income from private work by the District; plus (e) other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Water System; plus (2) all proceeds of the County of San Joaquin 1% ad valorem property tax received by the District; plus (3) all income, rents, rates, fees, charges or other moneys derived by the District as its share of distributed revenues from the Tri-Dam Project; plus (4) all income, rents, rates, fees, charges or other moneys derived by the District as its share of distributed revenues from the Tri-Dam Power Authority; plus (5) if and to the extent that Retail Electric System facilities are financed from the proceeds of Contracts or Bonds, all income, rents, rates, fees, charges or other moneys derived by the District from the operation of the Retail Electric System; plus (6) all income, rents, rates, fees, charges or other moneys derived by the District as incentive payments from the State of California Solar Initiative; plus (7) the earnings on and income derived from the investment of the amounts described in clauses (1), (2), (3), (4), (5) and (6) above, and on the general unrestricted reserves of the District and amounts in the Rate Stabilization Fund; but excluding in all cases customer deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the District, and excluding any proceeds of taxes restricted by law to be used by the District to pay obligations of the District other than Bonds or Contracts. “Revenues” also include all amounts transferred from the Rate Stabilization Fund to the Revenue Fund during any Fiscal Year in accordance with the Indenture and do not include any amounts transferred from the Revenue Fund to the Rate Stabilization Fund during any Fiscal Year in accordance with the Indenture.

S&P. The term “S&P” means The term “S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, or any successor thereto.

Securities Depositories. The term “Securities Depositories” means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or

B-6 such other securities depositories as the District may designate in a Written Request of the District deliver to the Trustee.

State. The term “State” means the State of California.

Supplemental Indenture. The term “Supplemental Indenture” means any indenture later duly authorized and entered into between the District and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized thereunder.

Tax Certificate. The term “Tax Certificate” means the Tax Certificate dated the Closing Date, concerning certain matters pertaining to the use and investment of proceeds of the 2012 Bonds issued by the District on the date of issuance of the 2012 Bonds, including any and all exhibits attached thereto.

Tri-Dam Power Authority. The term “Tri-Dam Power Authority” means the joint powers authority formed pursuant to Chapter 5 of Division 7 of the Government Code of the State of California, as amended, by Oakdale Irrigation District and the District in order to operate and maintain the Sandbar electric energy generation project and related facilities.

Tri-Dam Project. The term “Tri-Dam Project” means the joint venture through which Oakdale Irrigation District and the District jointly operate and maintain the Beardsley, Donnells and Tulloch projects located on the Stanislaus River in Tuolumne County, California, including the dams, tunnels, penstocks, power houses, communications systems, general offices and related facilities.

Trustee. The term “Trustee” means Union Bank, N.A., a national banking association duly organized and existing under the laws of the United States of America, or its successor as Trustee under the Indenture as provided therein.

2012 Bonds. The term “2012 Bonds” means the South San Joaquin Irrigation District Refunding Revenue Bonds, Series 2012A, issued under the Indenture.

Valuation Date. “Valuation Date” means the fifth Business Day preceding the date of redemption.

Value. The term “Value” which will be determined as of the end of each month, means that the value of any investments will be calculated as follows: (a) for the purpose of determining the amount of any fund, all Permitted Investments credited to such fund will be valued at fair market value. The Trustee will determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers include, but are not limited to, pricing services provided by Financial Times Interactive Data Corporation, Bank of America Merrill Lynch and Morgan Stanley Smith Barney. (b) As to certificates of deposit and bankers’ acceptances: the face amount thereof, plus accrued interest. (c) As to any investment not specified above: market value, or, if the market value is not ascertainable by the District or the Trustee, at cost.

Water Service. The term “Water Service” means the water distribution service made available or provided by the Water System.

Water System. The term “Water System” means, the whole and each and every part of the water system of the District, including facilities for irrigation service and treated water service, and including the portion thereof existing on the date of the Indenture, and including all additions, betterments, extensions and improvements to such water system or any part thereof later acquired or constructed.

Water Supply Development Agreements. The term “Water Supply Development Agreements” means: (1) the Water Supply Development Agreement, dated as of July 1, 1995, by and between the District and the City of Manteca, as originally executed and as it may from time to time be amended or supplemented in accordance with its terms; (2) the Water Supply Development Agreement, dated as of July 1, 1995, by and between the District and the City of Tracy, as originally executed and as it may from time to time be amended or supplemented in accordance with its terms; (3) the Water Supply Development Agreement, dated as of October 1, 1995, by and between the

B-7 District and the City of Escalon, as originally executed and as it may from time to time be amended or supplemented in accordance with its terms; (4) the Water Supply Development Agreement, dated as of October 1, 1995, by and between the District and the City of Lathrop, as originally executed and as it may from time to time be amended or supplemented in accordance with its terms; and (5) all other agreements previously or later authorized and executed by the District through which the District agrees to supply treated water to third parties by means of facilities owned and operated by the District.

Written Consent of the District; Written Order of the District; Written Request of the District; Written Requisition of the District. The terms “Written Consent of the District,” “Written Order of the District,” “Written Request of the District,” and “Written Requisition of the District” mean, respectively, a written consent, order, request or requisition signed by or on behalf of the District by the President or General Manager or its Chief Financial Officer or by the Secretary or by any two persons (whether or not members of the Board of Directors) who are specifically authorized by resolution of the District to sign or execute such a document on its behalf.

Content of Certificates and Opinions. Every certificate or opinion provided for in the Indenture except the certificate of destruction provided for therein, with respect to compliance with any provision thereof will include: (1) a statement that the person making or giving such certificate or opinion has read such provision and the definitions in the Indenture relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement that, in the opinion of such person he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such person, such provision has been complied with.

Any such certificate or opinion made or given by an officer of the District may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an Independent Certified Public Accountant or Independent Financial Consultant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an Independent Certified Public Accountant or Independent Financial Consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the District) upon a certificate or opinion of or representation by an officer of the District, unless such counsel or Independent Certified Public Accountant or Independent Financial Consultant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person’s certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the District, or the same counsel or Independent Certified Public Accountant or Independent Financial Consultant, as the case may be, need not certify to all of the matters required to be certified under any provision of the Indenture, but different officers, counsel or Independent Certified Public Accountants or Independent Financial Consultants may certify to different matters, respectively.

THE 2012 BONDS

Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the 2012 Bonds, which will upon reasonable notice and at reasonable times be open to inspection during regular business hours by the District and the Owners; and, upon presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the 2012 Bonds as provided in the Indenture. The person in whose name any 2012 Bond is registered will be deemed the Owner thereof for all purposes of the Indenture, and payment of or on account of the interest on and principal and Redemption Price of by such 2012 Bonds will be made only to or upon the order in writing of such registered Owner, which payments will be valid and effectual to satisfy and discharge liability upon such 2012 Bond to the extent of the sum or sums so paid.

2012 Bonds Mutilated, Lost, Destroyed or Stolen. If any 2012 Bond becomes mutilated, the District, at the expense of the Owner of said 2012 Bond, will execute, and the Trustee will thereupon authenticate and deliver, a new 2012 Bond of like tenor, series and authorized denomination in exchange and substitution for the 2012 Bonds

B-8 so mutilated, but only upon surrender to the Trustee of the 2012 Bond so mutilated. Every mutilated 2012 Bond so surrendered to the Trustee will be canceled by it. If any 2012 Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee is given, the District, at the expense of the Owner, will execute, and the Trustee will thereupon authenticate and deliver, a new 2012 Bond of like tenor, series and authorized denomination in lieu of and in substitution for the 2012 Bond so lost, destroyed or stolen (or if any such 2012 Bond has matured or be about to mature, instead of issuing a substitute 2012 Bond, the Trustee may pay the same without surrender thereof). The District may require payment by the Owner of a sum not exceeding the actual cost of preparing each new 2012 Bond issued under the Indenture and of the expenses which may be incurred by the District and the Trustee in the premises. Any 2012 Bond issued under the provisions of the Indenture in lieu of any 2012 Bond alleged to be lost, destroyed or stolen will constitute an original additional contractual obligation on the part of the District whether or not the 2012 Bond so alleged to be lost, destroyed, or stolen be at any time enforceable by anyone, and will be entitled to the benefits of the Indenture with all other 2012 Bonds secured by the Indenture. Notwithstanding any other provision of the Indenture, in lieu of delivering a new 2012 Bond for a 2012 Bond which has been mutilated, lost, destroyed or stolen and which has matured or has been selected for redemption, the Trustee may make payment of such 2012 Bond upon receipt of indemnity satisfactory to the Trustee.

Book Entry System.

(a) Election of Book Entry System. Prior to the issuance of the 2012 Bonds, the District may provide that such 2012 Bonds will be initially issued as book entry 2012 Bonds. If the District elects to deliver any 2012 Bonds in book entry form, then the District will cause the delivery of a separate single fully registered bond (which may be typewritten) for each maturity date of such 2012 Bonds in an authorized denomination corresponding to that total principal amount of the 2012 Bonds designated to mature on such date. Upon initial issuance, the ownership of each such 2012 Bond will be registered in the 2012 Bond Registration Books in the name of the Nominee, as nominee of the Depository, and ownership of the 2012 Bonds, or any portion thereof may not thereafter be transferred except as provided in the Indenture.

With respect to book entry 2012 Bonds, the District and the Trustee have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book entry 2012 Bonds. Without limiting the immediately preceding sentence, the District and the Trustee have no responsibility or obligation with respect to: (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book entry 2012 Bonds; (ii) the delivery to any Participant or any other person, other than an Owner as shown in the 2012 Bond Registration Books, of any notice with respect to book entry 2012 Bonds, including any notice of redemption; (iii) the selection by the Depository and its Participants of the beneficial interests in book entry 2012 Bonds to be redeemed in the event the District redeems the 2012 Bonds in part; or (iv) the payment by the Depository or any Participant or any other person, of any amount of principal of, premium, if any, or interest on book entry 2012 Bonds. The District and the Trustee may treat and consider the person in whose name each book entry 2012 Bond is registered in the 2012 Bond Registration Books as the absolute Owner of such book entry 2012 Bond for the purpose of payment of principal of, premium and interest on such 2012 Bond, for the purpose of giving notices of redemption and other matters with respect to such 2012 Bond, for the purpose of registering transfers with respect to such 2012 Bond, and for all other purposes whatsoever. The Trustee will pay all principal of, premium, if any, and interest on the 2012 Bonds only to or upon the order of the respective Owner, as shown in the 2012 Bond Registration Books, or his respective attorney duly authorized in writing, and all such payments will be valid and effective to fully satisfy and discharge the District’s obligations with respect to payment of principal of, premium, if any, and interest on the 2012 Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the 2012 Bond Registration Books, will receive a 2012 Bond evidencing the obligation to make payments of principal of, premium, if any, and interest on the 2012 Bonds. Upon delivery by the Depository to the District and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions in the Indenture with respect to Record Dates, the word Nominee in the Indenture will refer to such nominee of the Depository.

(b) Delivery of Letter of Representations. In order to qualify the book entry 2012 Bonds for the Depository’s book entry system, the District and the Trustee will execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations will not in any way impose upon the District or the Trustee any obligation whatsoever with respect to persons having interests in such book entry 2012

B-9 Bonds other than the Owners, as shown on the 2012 Bond Registration Books. By executing a Letter of Representations, the Trustee will agree to take all action necessary at all times so that the Trustee will be in compliance with all representations of the Trustee in such Letter of Representations. In addition to the execution and delivery of a Letter of Representations, the District and the Trustee will take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify book entry 2012 Bonds for the Depository’s book entry program.

(c) Selection of Depository. In the event that: (i) the Depository determines not to continue to act as securities depository for book entry 2012 Bonds; or (ii) the District determines that continuation of the book entry system is not in the best interest of the beneficial owners of the 2012 Bonds or the District, then the District will discontinue the book entry system with the Depository. If the District determines to replace the Depository with another qualified securities depository, the District will prepare or direct the preparation of a new single, separate, fully registered 2012 Bond for each of the maturity dates of such book entry 2012 Bonds, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in clause (e) below. If the District fails to identify another qualified securities depository to replace the Depository, then the 2012 Bonds will no longer be restricted to being registered in such 2012 Bond Registration Books in the name of the Nominee, but will be registered in whatever name or names the Owners transferring or exchanging such 2012 Bonds designate, in accordance with the provisions of the Indenture.

(d) Payments To Depository. Notwithstanding any other provision of the Indenture to the contrary, so long as all Outstanding 2012 Bonds are held in book entry form and registered in the name of the Nominee, all payments of principal of, redemption premium, if any, and interest on such 2012 Bond and all notices with respect to such 2012 Bond will be made and given, respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions in the Indenture.

(e) Transfer of 2012 Bonds to Substitute Depository. (i) The 2012 Bonds will be initially issued as provided in the Indenture. Registered ownership of such 2012 Bonds, or any portions thereof, may not thereafter be transferred except: (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) below (“Substitute Depository”); provided that any successor of DTC or Substitute Depository will be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the District that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository is qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the District that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository.

(ii) In the case of any transfer pursuant to clause (A) or clause (B) above, upon receipt of all Outstanding 2012 Bonds by the Trustee, together with a Written Request of the District to the Trustee designating the Substitute Depository, a single new 2012 Bond, which the District prepares or cause to be prepared, will be issued for each maturity of 2012 Bonds then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such Written Request of the District. In the case of any transfer pursuant to clause (C) above, upon receipt of all Outstanding 2012 Bonds by the Trustee, together with a Written Request of the District to the Trustee, new 2012 Bonds, which the District will prepare or cause to be prepared, will be issued in such denominations and registered in the names of such persons as are requested in such Written Request of the District, subject to the limitations of the Indenture, provided that the Trustee is not required to deliver such new 2012 Bonds within a period of less than sixty (60) days from the date of receipt of such Written Request from the District.

(iii) In the case of a partial redemption or an advance refunding of any 2012 Bonds evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) will make an appropriate notation on such 2012 Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee will not be liable for such Depository’s failure to make such notations or errors in

B-10 making such notations and the records of the Trustee as to the Outstanding principal amount of such 2012 Bonds will be controlling.

(iv) The District and the Trustee are entitled to treat the person in whose name any 2012 Bond is registered as the Owner thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the District; and the District and the Trustee have no responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the 2012 Bonds. Neither the District nor the Trustee have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any 2012 Bonds, and the Trustee may rely conclusively on its records as to the identity of the Owners of the 2012 Bonds.

ISSUANCE OF 2012 BONDS

Validity of 2012 Bonds. The validity of the authorization and issuance of the 2012 Bonds is not dependent on and will not be affected in any way by any proceedings taken by the District or the Trustee with respect to any other agreement. The recital contained in the 2012 Bonds that the same are issued pursuant to the Constitution and laws of the State are conclusive evidence of the validity and of compliance with the provisions of law in their issuance.

REDEMPTION OF 2012 BONDS

Selection of 2012 Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2012 Bonds, the Trustee will select the 2012 Bonds for redemption as a whole or in part on any date as directed by the District and by lot within each maturity in integral multiples of $5,000 in accordance with the Indenture. The Trustee will promptly notify the District in writing of the numbers of the 2012 Bonds or portions thereof so selected for redemption.

Partial Redemption of 2012 Bonds. Upon surrender of any 2012 Bond redeemed in part only, the District will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the District, a new 2012 Bond or 2012 Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the 2012 Bonds surrendered and of the same series, interest rate and maturity.

Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued to the date fixed for redemption on, the 2012 Bonds (or portions thereof) so called for redemption being held by the Trustee, on the Redemption Date designated in such notice, the 2012 Bonds (or portions thereof) so called for redemption will become due and payable, interest on the 2012 Bonds so called for redemption will cease to accrue, said 2012 Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture, and the Owners of said 2012 Bonds will have no rights in respect thereof except to receive payment of the Redemption Price thereof. The Trustee will, upon surrender for payment of any of the 2012 Bonds to be redeemed on their Redemption Dates, pay such 2012 Bonds at the Redemption Price. All 2012 Bonds redeemed pursuant to the provisions of the Indenture will be canceled upon surrender thereof.

REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST

Pledge and Assignment; Revenue Fund. (a) All of the Revenues, all amounts held in the Revenue Fund and the Rate Stabilization Fund described in the Indenture and any other amounts (including proceeds of the sale of the 2012 Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund) have been irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the 2012 Bonds in accordance with their terms and the provisions of the Indenture, and the Revenues will not be used for any other purpose while the 2012 Bonds remain Outstanding; provided that out of the Revenues and amounts on deposit in the Revenue Fund and the Rate Stabilization Fund there may be apportioned such sums for such purposes as are expressly permitted in the Indenture. Such pledge, together with the pledge created by all other Contracts and Bonds, constitutes a first lien on and security interest on Revenues and, subject to application of Revenues and all

B-11 amounts on deposit in the Revenue Fund and the Rate Stabilization Fund as permitted in the Indenture, the Revenue Fund, the Rate Stabilization Fund and other funds, accounts and subaccounts created thereunder for the payment of the principal of and interest, and the premium, if any, on the 2012 Bonds and all Contracts and Debt Service on Bonds in accordance with the terms thereof, and will attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act and will be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the District, irrespective of whether such parties have notice of the Indenture.

(b) In order to carry out and effectuate the pledge and lien contained in the Indenture, the District has agreed and covenanted that all Revenues will be received by the District in trust and deposited when and as received in a special fund designated as the “Revenue Fund,” which fund has been continued and which fund the District has agreed and covenanted to maintain and to hold separate and apart from other funds so long as the 2012 Bonds and any Contracts or Debt Service on Bonds remain unpaid. Moneys in the Revenue Fund will be used and applied by the District as provided in the Indenture. All moneys in the Revenue Fund will be held in trust and applied, used and withdrawn for the purposes set forth in the Indenture.

The District will, from the moneys in the Revenue Fund, pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs become due and payable. All remaining moneys in the Revenue Fund will be set aside by the District at the following times for the transfer to the following respective special funds in the following order of priority:

(i) Interest and Principal Payments. Not later than the fifth Business Day prior to each Interest Payment Date, the District will, from the moneys in the Revenue Fund, transfer to the Trustee for deposit in the Payment Fund the payments of interest and principal on the 2012 Bonds due and payable on such Interest Payment Date. The District will also, from the moneys in the Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or Contract.

(ii) Reserve Funds. On or before each Interest Payment Date the District will, from the remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the Trustee for deposit in the Reserve Fund and to the applicable trustee for such other reserve funds and/or accounts, if any, as may have been established in connection with Bonds or Contracts, that sum, if any, necessary to restore such funds or accounts to an amount equal to the reserve requirement with respect thereto; provided, however, that the District may provide for the Reserve Requirement with respect to the Reserve Fund by means other than cash and Permitted Investments pursuant to the Indenture.

(iii) Surplus. Moneys on deposit in the Revenue Fund on any date when the District reasonably expects such moneys will not be needed for the payment of Operation and Maintenance Costs or for any of the purposes described in clauses (b)(i) or (b)(ii) may be expended by the District at any time for any purpose permitted by law, including but not limited to the deposit of amounts in the Rate Stabilization Fund in accordance with the Indenture.

(iv) Investments. All moneys held by the District in the Revenue Fund will be invested in Permitted Investments and the investment earnings thereon will remain on deposit in such fund, except as otherwise provided in the Indenture.

Allocation of Revenues. There has been established with the Trustee the Payment Fund which the Trustee has covenanted to maintain and hold in trust separate and apart from other funds held by it so long as any principal of and interest on the 2012 Bonds remain unpaid. The Trustee will also establish and hold within the Payment Fund: (1) an Interest Account; and (2) a Principal Account. Except as directed in the Indenture, all payments of interest and principal on the 2012 Bonds received by the Trustee pursuant to the Indenture will be promptly deposited by the Trustee upon receipt thereof into the applicable account or subaccount of the Payment Fund as set forth in the Indenture; except that all moneys received by the Trustee and required under the Indenture to be deposited in the

B-12 Redemption Fund will be promptly deposited into the applicable account therein as set forth in the Indenture. All payments of interest and principal on the 2012 Bonds deposited with the Trustee will be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture.

The Trustee will transfer from the Payment Fund and deposit into the following respective accounts or subaccounts, as applicable, the following amounts in the following order of priority and at the following times, the requirements of each such account (including the making up of any deficiencies in any such account or subaccount 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 or subaccount subsequent in priority:

(a) Interest Account. Not later than the Business Day preceding each Interest Payment Date, the Trustee will deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all 2012 Bonds then Outstanding. No deposit need be made into the Interest Account so long as there is in such account moneys sufficient to pay the interest becoming due and payable on such date on all 2012 Bonds then Outstanding.

Except as provided in the Indenture, moneys in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the 2012 Bonds when due and payable (including accrued interest on any 2012 Bonds redeemed prior to maturity pursuant to the Indenture).

(b) Principal Account. Not later than the Business Day preceding each date on which the principal of the 2012 Bonds becomes due and payable under the Indenture, the Trustee will deposit in the Principal Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2012 Bonds coming due and payable on such date or subject to mandatory sinking fund redemption on such date. No deposit need be made into the Principal Account so long as there is in such account moneys sufficient to pay the principal becoming due and payable on such date on all 2012 Bonds then Outstanding.

Except as provided in the Indenture, moneys in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal of the 2012 Bonds when due and payable.

Application of Redemption Fund. There has been established with the Trustee a special fund designated as the “Redemption Fund.” All amounts in each account of the Redemption Fund will be used and withdrawn by the Trustee solely for the purpose of paying the Redemption Price of the 2012 Bonds to be redeemed on any Redemption Date pursuant to the Indenture; provided, however, that at any time prior to selection for redemption of any such 2012 Bonds, upon written direction of the District, the Trustee will apply such amounts to the purchase of 2012 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as will be directed pursuant to a Written Request of the District, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2012 Bonds.

Investments. All moneys in any of the funds, accounts or subaccounts established with the Trustee pursuant to the Indenture will be invested by the Trustee solely in Permitted Investments. Such investments will 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 directions will be promptly confirmed to the Trustee in writing). In the absence of any such directions from the District, the Trustee will invest any such moneys in Permitted Investments described in clause (b)(5) of the definition thereof; provided, however, that any such investment will be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee has received a written direction from the District specifying a specific money market fund and, if no such written direction from the District is so received, the Trustee will hold such moneys uninvested. Obligations purchased as an investment of moneys in any fund will be deemed to be part of such fund, account or subaccount.

All interest or gain derived from the investment of amounts in any of the funds, accounts or subaccounts established under the Indenture will be deposited in the Interest Account unless otherwise provided in the Indenture, except that the investment earnings on the Rate Stabilization Fund will be transferred to the Revenue Fund upon receipt thereof. For purposes of acquiring any investments under the Indenture, the Trustee may commingle funds

B-13 (other than the Rebate Fund) held by it thereunder, but will account for each separately. 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 will incur no liability for losses arising from any investments made pursuant to the Indenture.

The District has acknowledged that to the extent that regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District the right to receive brokerage confirmations of security transactions as they occur, the District has specifically waived receipt of such confirmations to the extent permitted by law. The Trustee will furnish the District periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Indenture. Upon the District’s election, such statements will be delivered via the Trustee’s Online Trust and Custody service and upon electing such service; paper statements will be provided only upon request. The District has waived the right to receive brokerage confirmations of security transactions effected by the Trustee as they occur, to the extent permitted by law. The District further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker.

The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture. The District will invest, or cause to be invested, all moneys in any fund, accounts or subaccounts established with the Trustee as provided in the Tax Certificate. In making any valuations of investments under the Indenture, the Trustee may utilize and rely on computerized securities pricing services that may be available to the Trustee, including those available through the Trustee’s accounting system.

Rebate Fund.

(a) Establishment. The Trustee will establish a fund for the 2012 Bonds designated the “Rebate Fund.” Absent an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2012 Bonds will not be adversely affected, the District will cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Indenture and the Tax Certificate. All money at any time deposited in the Rebate Fund will be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund will be governed by the Indenture and the Tax Certificate, unless and to the extent that the District delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2012 Bonds will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained in the Indenture or in the Tax Certificate, the Trustee: (i) will be deemed conclusively to have complied with the provisions thereof if it follows all Requests of the District; and (ii) will have no liability or responsibility to enforce compliance by the District with the terms of the Indenture and the Tax Certificate; and (iii) may rely conclusively on the District’s calculations and determinations and certifications relating to rebate matters; and (iv) will have no responsibility to independently make any calculations or determinations or to review the District’s calculations or determinations thereunder.

(i) Annual Computation. Within 55 days of the end of each Bond Year (as such term is defined in the Tax Certificate), the District will calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Indenture and the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the “1½% Penalty”) has been made), for such purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b) of the Treasury Regulations (the “Rebatable Arbitrage”). The District will obtain expert advice as to the amount of the Rebatable Arbitrage to comply with the Rebate Fund provisions of the Indenture.

(ii) Annual Transfer. Within 55 days of the end of each Bond Year, upon the Written Request of the District, an amount will be deposited to the Rebate Fund by the Trustee from any Net Revenues legally available for such purpose (as specified by the District in the aforesaid Written Request), if and to the extent required so that the balance in the Rebate Fund will equal the amount of Rebatable Arbitrage so calculated in accordance with clause (i) above. In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit

B-14 therein, upon Written Request of the District, the Trustee will withdraw the excess from the Rebate Fund and then credit the excess to the Interest Account.

(iii) Payment to the Treasury. The Trustee will pay, as directed by Written Request of the District, to the United States Treasury, out of amounts in the Rebate Fund: (A) Not later than 60 days after the end of: (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (B) Not later than 60 days after the payment of all the 2012 Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section 1.148-3 of the Treasury Regulations.

In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the District will calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant the Indenture will be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and will be accompanied by Internal Revenue Service Form 8038-T (prepared by the District), or will be made in such other manner as provided under the Code.

(b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the 2012 Bonds and the payments described in clause (a) above being made may be withdrawn by the District and utilized in any manner by the District.

(c) Survival of Defeasance. Notwithstanding anything in the Indenture to the contrary, the obligation to comply with the Rebate Fund requirements of the Indenture will survive the defeasance or payment in full of the 2012 Bonds.

Application of Funds, Accounts and Subaccounts When No 2012 Bonds are Outstanding. On the date on which all 2012 Bonds are retired under the Indenture or provision made therefor pursuant thereto and after payment of all amounts due the Trustee thereunder, all moneys then on deposit in any of the funds, accounts or subaccounts (other than the Rebate Fund) established with the Trustee pursuant to the Indenture applicable to the respective series of 2012 Bonds will be withdrawn by the Trustee and paid to the District for use by the District at any time for any purpose permitted by law.

PARTICULAR COVENANTS

Punctual Payment. The District will punctually pay or cause to be paid the principal and interest to become due in respect of all of the 2012 Bonds, in strict conformity with the terms of the 2012 Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Net Revenues and other assets pledged for such payment as provided in the Indenture.

Extension of Payment of 2012 Bonds. The District will not directly or indirectly extend or assent to the extension of the maturity of any of the 2012 Bonds or the time of payment of any claims for interest by the purchase of such 2012 Bonds or by any other arrangement, and in case the maturity of any of the 2012 Bonds or the time of payment of any such claims for interest will be extended, such 2012 Bonds or claims for interest will 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 for the principal of all of the 2012 Bonds then Outstanding and of all claims for interest thereon which have not been so extended. Nothing in the Indenture limits the right of the District to issue Bonds for the purpose of refunding any Outstanding 2012 Bonds, and such issuance will not be deemed to constitute an extension of maturity of 2012 Bonds.

Against Encumbrances. The District will not make any pledge of or place any lien on Revenues or the moneys in the Revenue Fund or the Rate Stabilization Fund except as provided in the Indenture. The District may at any time, or from time to time, execute Contracts or issue Bonds as permitted in the Indenture. The District may also at any time, or from time to time, incur evidences of indebtedness or incur other obligations for any lawful

B-15 purpose which are payable from and secured by a pledge of lien on Revenues on any moneys in the Revenue Fund and the Rate Stabilization Fund as may from time to time be deposited therein, provided that such pledge and lien will be subordinate in all respects to the pledge of and lien thereon provided in the Indenture.

Power to Issue 2012 Bonds and Make Pledge and Assignment. The District is duly authorized pursuant to law to issue the 2012 Bonds and to enter into the Indenture and to pledge and assign the Revenues and other assets purported to be pledged and assigned under the Indenture in the manner and to the extent provided in the Indenture. The 2012 Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the District in accordance with their terms, and the District and the Trustee will 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 2012 Bond Owners under the Indenture against all claims and demands of all persons whomsoever.

Accounting Records and Financial Statements. (a) The Trustee will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries are made of all transactions made by it relating to the proceeds of 2012 Bonds and all funds, accounts and subaccounts established by it pursuant to the Indenture. Such books of record and account will be available for inspection by the District upon reasonable prior notice during business hours and under reasonable circumstances. (b) The District will keep appropriate accounting records in which complete and correct entries are made of all transactions relating to the Water System, which records will be available for inspection by the Trustee (which has no duty to inspect such records) at reasonable hours and under reasonable conditions. (c) The District will prepare and file with the Trustee annually within 270 days of each Fiscal Year (commencing with the Fiscal Year ending December 31, 2011) financial statements of the District for the preceding Fiscal Year prepared in accordance with generally accepted accounting principles, together with an Accountant’s Report thereon. The Trustee has no duty to review such financial statements.

Tax Covenants. Notwithstanding any other provision of the Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of the portion of interest on the 2012 Bonds will not be adversely affected for federal income tax purposes, the District has covenanted to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the 2012 Bonds and has specifically covenanted, without limiting the generality of the foregoing, as follows:

(a) Private Activity. The District will take no action or refrain from taking any action or make any use of the proceeds of the 2012 Bonds or of any other moneys or property which would cause the 2012 Bonds to be “private activity bonds” within the meaning of Section 141 of the Code;

(b) Arbitrage. The District will make no use of the proceeds of the 2012 Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the 2012 Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code;

(c) Federal Guarantee. The District will make no use of the proceeds of the 2012 Bonds or take or omit to take any action that would cause the 2012 Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code;

(d) Information Reporting. The District will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code necessary to preserve the exclusion of interest on the 2012 Bonds pursuant to Section 103(a) of the Code;

(e) Hedge Bonds. The District will make no use of the proceeds of the 2012 Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the 2012 Bonds to be considered “hedge bonds” within the meaning of Section 149(g) of the Code unless the District takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the 2012 Bonds for federal income tax purposes; and

B-16 (f) Miscellaneous. The District will take no action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed by the District in connection with the issuance of the 2012 Bonds and will comply with the covenants and requirements stated therein and incorporated by reference in the Indenture.

The foregoing tax covenants are not applicable to, and nothing contained in the Indenture prevents the District from causing the Trustee to issue revenue bonds or to execute and deliver contracts payable on a parity with the 2012 Bonds, the interest with respect to which has been determined by Bond Counsel to be subject to federal income taxation.

Waiver of Laws. The District will not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time later in force that may affect the covenants and agreements contained in the Indenture or in the 2012 Bonds, and all benefit or advantage of any such law or laws has been expressly waived by the District to the extent permitted by law.

Further Assurances. The District will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the 2012 Bonds of the rights and benefits provided in the Indenture.

Budgets. On or prior to the fifteenth day of each Fiscal Year, the District will certify to the Trustee that the amounts budgeted for payment of the principal of and interest on the 2012 Bonds are fully adequate for the payment of all such payments for such Fiscal Year. If the amounts so budgeted are not adequate for the payment of the principal of and interest on the 2012 Bonds due under the Indenture, the District will take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the District in the then ensuing Fiscal Year for the payment of the principal of and interest on the 2012 Bonds due under the Indenture and will notify the Trustee of the proceedings then taken or proposed to be taken by the District.

Observance of Laws and Regulations. To the extent necessary to assure its performance under the Indenture, the District will well and truly keep, observe and perform all valid and lawful obligations or regulations now or later imposed on the District by contract, or prescribed by any law of the United States of America, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or later acquired by the District, respectively, including its right to exist and carry on its business, to the end that such contracts, rights and franchises will be maintained and preserved, and will not become abandoned, forfeited or in any manner impaired.

Compliance with Contracts. The District will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner materially impair adversely affect the ability of the District to pay principal of or interest on the 2012 Bonds; and the District will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Water System, to the extent that the District is a party thereto.

Prosecution and Defense of Suits. The District will promptly, upon request of the Trustee or any 2012 Bond Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Water System or any part thereof, whether now existing or later developing, prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and indemnify and save the Trustee (including all of its employees, officers and directors), the Trustee and every 2012 Bond Owner harmless from all loss, cost, damage and expense, including attorneys’ fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding.

The District will defend against every suit, action or proceeding at any time brought against the Trustee (including all of its employees, officers and directors) or any 2012 Bond Owner upon any claim arising out of the receipt, application or disbursement of any of the payments of principal of or interest on the 2012 Bonds or involving the rights of the Trustee or any 2012 Bond Owner under the Indenture; provided that the Trustee or any

B-17 2012 Bond Owner at such party’s election may appear in and defend any such suit, action or proceeding. The District will indemnify and hold harmless the Trustee and the 2012 Bond Owners against any and all liability claimed or asserted by any person, arising out of such receipt, application or disbursement, and indemnify and hold harmless the 2012 Bond Owners against any attorneys’ fees or other expenses which any of them may incur in connection with any litigation (including pre-litigation activities) to which any of them may become a party by reason of ownership of 2012 Bonds. The District will promptly reimburse any 2012 Bond Owner in the full amount of any attorneys’ fees or other expenses which such Owner may incur in litigation or otherwise in order to enforce such party’s rights under the Indenture or the 2012 Bonds, provided that such litigation is concluded favorably to such party’s contentions therein.

Continuing Disclosure. The District has covenanted and agreed that it will comply with and carry out all of its obligations under the Continuing Disclosure Certificate to be executed and delivered by the District in connection with the issuance of the 2012 Bonds. Notwithstanding any other provision of the Indenture, failure of the District to comply with the Continuing Disclosure Certificate will not be considered an Event of Default; however, any Owner 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 the foregoing obligation. “Beneficial Owner” means any person which: (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any 2012 Bonds (including persons holding 2012 Bonds through nominees, depositories or other intermediaries); or (b) is treated as the owner of any 2012 Bonds for federal income tax purposes.

Against Sale or Other Disposition of Property. The District will not enter into any agreement or lease which impairs the operation of the Water System or any part thereof necessary to secure adequate Revenues for the payment of the principal of and interest on the 2012 Bonds, or which would otherwise impair the operation of the Water System. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the Water System, or any material or equipment which has become worn out, may be sold if such sale will not impair the ability of the District to pay the principal of and interest on the 2012 Bonds and if the proceeds of such sale are deposited in the Revenue Fund.

Nothing in the Indenture restricts the ability of the District to sell any portion of the Water System if such portion is immediately repurchased by the District and if such arrangement cannot by its terms result in the purchaser of such portion of the Water System exercising any remedy which would deprive the District of or otherwise interfere with its right to own and operate such portion of the Water System.

Against Competitive Facilities. To the extent that it can so legally obligate itself, the District has covenanted that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the District any water system competitive with the Water System.

Maintenance and Operation of the Water System. The District will maintain and preserve the Water System in good repair and working order at all times and will operate the Water System in an efficient and economical manner and will pay all Operation and Maintenance Costs as they become due and payable.

Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the funds, accounts or subaccounts created under the Indenture or on any funds in the hands of the District pledged to pay the principal of or interest on the 2012 Bonds or to the Owners prior or superior to the lien under the Indenture.

Insurance. (a) The District will procure and maintain or cause to be procured and maintained insurance on the Water System with responsible insurers in such amounts and against such risks (including damage to or destruction of the Water System) as are usually covered in connection with facilities similar to the Water System so long as such insurance is available from reputable insurance companies.

In the event of any damage to or destruction of the Water System caused by the perils covered by such insurance, the Net Proceeds thereof will be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Water System. The District will begin such reconstruction, repair or replacement promptly

B-18 after such damage or destruction occurs, and will continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same will be completed and the Water System will be free and clear of all claims and liens.

If such Net Proceeds exceed the costs of such reconstruction, repair or replacement portion of the Water System, and/or the cost of construction of additions, betterments, extensions or improvements to the Water System, then the excess Net Proceeds will be applied in part to the redemption of 2012 Bonds as provided in the Indenture and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2012 Bonds then bears to the aggregate unpaid principal amount of such Bonds and Contracts. If such Net Proceeds are sufficient to enable the District to retire the entire obligation evidenced by the Indenture prior to the final due date of the 2012 Bonds as well as the entire obligations evidenced by Bonds and Contracts then remaining unpaid prior to their final respective due dates, the District may elect not to reconstruct, repair or replace the damaged or destroyed portion of the Water System, and/or not to construct other additions, betterments, extensions or improvements to the Water System; and thereupon such Net Proceeds will be applied to the redemption of 2012 Bonds as provided in the Indenture and to the retirement of such Bonds and Contracts.

(b) The District will procure and maintain such other insurance as it deems advisable or necessary to protect its interests and the interests of the 2012 Bond Owners, which insurance affords protection in such amounts and against such risks as are usually covered in connection with water systems similar to the Water System.

(c) Any insurance required to be maintained by clause (a) above and, if the District determines to procure and maintain insurance pursuant to clause (b) above, such insurance, may be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and manner usually maintained in connection with water systems similar to the Water System and is, in the opinion of an accredited actuary, actuarially sound.

Payment of Taxes and Compliance with Governmental Regulations. The District will pay and discharge all taxes, assessments and other governmental charges which may later be lawfully imposed upon the Water System, or any part thereof or upon the Revenues when the same become due. The District will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Water System, or any part thereof, but the District is not required to comply with any regulations or requirements so long as the validity or application thereof is contested in good faith.

Collection of Rates and Charges. The District will have in effect at all times by-laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Water Service to such customer and providing for the billing thereof and for a due date and a delinquency date for each bill.

Eminent Domain Proceeds. If all or any part of the Water System, Tri-Dam Project, the Tri-Dam Power Authority facilities or, if and to the extent that Retail Electric System facilities are financed from the proceeds, Contracts or Bonds, the Retail Electric System are taken by eminent domain proceedings of the Net Proceeds thereof will be applied as follows:

(a) If: (1) the District files with the Trustee a certificate showing: (i) the estimated loss of annual Net Revenues, if any, suffered or to be suffered by the District by reason of such eminent domain proceedings; (ii) a general description of the additions, betterments, extensions or improvements to the Water System, the Tri-Dam Project, the Tri-Dam Power Authority facilities or the Retail Electric System facilities proposed to be acquired and constructed by the District from such Net Proceeds; and (iii) an estimate of the additional annual Net Revenues to be derived from such additions, betterments, extensions or improvements; and (2) the District, on the basis of such certificate filed with the Trustee, determines that the estimated additional annual Net Revenues will sufficiently offset the estimated loss of annual Net Revenues resulting from such eminent domain proceedings so that the ability of the District to meet its obligations under the Indenture will not be substantially impaired (which determination will be final and conclusive), then the District will promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance

B-19 with such certificate and such Net Proceeds will be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the District for such purpose will be deposited in the Revenue Fund.

(b) If the foregoing conditions are not met, then such Net Proceeds will be applied by the District in part to the redemption of 2012 Bonds as provided in the Indenture and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2012 Bonds then bears to the aggregate unpaid principal amount of such Bonds and Contracts.

Enforcement of Contracts. The District will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with any contracts previously or later entered into if such rescission or amendment would in any manner impair or adversely affect the ability of the District to pay principal of and interest on the 2012 Bonds.

Covenants Relating to Tri-Dam Power Authority. (a) The District will not take or omit to take any action under the agreements, conditions, covenants and terms governing the Tri-Dam Power Authority which has a material adverse effect upon the District’s ability to pay principal of and interest on the 2012 Bonds. (b) The District will not consent to or acquiesce in the entry into of any Tri-Dam Power Authority agreement or lease which has a material adverse effect upon the District’s ability to pay principal of and interest on the 2012 Bonds. (c) The District will not consent to or acquiesce in the entry into of any change in the Tri-Dam Power Authority’s fund reserve or revenue distribution policies which has a material adverse effect upon the District’s ability to pay principal of and interest on the 2012 Bonds.

Covenants Relating to Tri-Dam Project. (a) The District will not take or omit to take any action under the agreements, conditions, covenants and terms governing the Tri-Dam Project which has a material adverse effect upon the District’s ability to pay principal of and interest on the 2012 Bonds. (b) The District will not consent to or acquiesce in the entry into of any agreement or lease which has a material adverse effect upon the District’s ability to pay principal of and interest on the 2012 Bonds. (c) The District will not consent to or acquiesce in the entry into of any amendment, revision or restatement of Tri-Dam Project Resolution TDP 2008-02 dated as of February 26, 2008 or TDP 2009-05, which governs the Tri-Dam Project’s fund reserve and revenue distribution policies, if such amendment, revision or restatement has a material adverse effect upon the District’s ability to pay principal of and interest on the 2012 Bonds.

EVENTS OF DEFAULT AND REMEDIES OF 2012 BOND OWNERS

Events of Default. The following events will be Events of Default under the Indenture: (a) Default by the District in the due and punctual payment of the principal of any 2012 Bonds, the principal of any Bonds or the principal with respect to any Contract, when and as the same become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise. (b) Default by the District in the due and punctual payment of any installment of interest on any 2012 Bonds, any installment of interest on any Bond or any installment of interest with respect to any Contract, when and as the same become due and payable. (c) Default by the District in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the 2012 Bonds, or required by any Bond or indenture relating thereto or by any Contract, if such default continues for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, has been given to the District by the Trustee or by the Owners of not less than a majority in aggregate principal amount of 2012 Bonds Outstanding, a majority in principal amount of such Bond outstanding, or a majority in principal amount outstanding with respect to such Contract, as applicable; provided, however, that if in the reasonable opinion of the District the default stated in the notice can be corrected, but not within such sixty (60) day period and corrective action is instituted by the District within such sixty (60) day period and diligently pursued in good faith until the default is corrected such default will not be an Event of Default. (d) The District files a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction will approve a petition filed with or without the consent of the District seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction assumes custody or

B-20 control of the District or of the whole or any substantial part of its property. (e) Payment of the principal of any Bond or with respect to any Contract is accelerated in accordance with its terms.

Remedies Upon Event of Default. If any Event of Default specified clauses (d) or (e) occur and are continuing, the Trustee will, and for any other Event of Default, the Trustee may, and, at the written direction of the Owners of not less than a majority in aggregate principal amount of the 2012 Bonds at the time Outstanding, will, in each case, upon notice in writing to the District, declare the principal of all of the 2012 Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same will become and be immediately due and payable, anything in the Indenture or in the 2012 Bonds contained to the contrary notwithstanding. Nothing contained in the Indenture permits or require the Trustee to accelerate payments due under the Indenture if the District is not in default of its obligation thereunder.

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 has been obtained or entered, the District deposits with the Trustee a sum sufficient to pay all the principal of and installments of interest on the 2012 Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective 2012 Bonds to the extent permitted by law, and the reasonable charges and expenses of the Trustee, or deposits with the applicable trustee with respect to any Contract a sum sufficient to pay all the principal and installments of interest with respect to such Contract payment of which is overdue, with interest on such overdue principal at the rate borne by such Contract to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Contract, or deposits with the applicable trustee with respect to any Bond a sum sufficient to pay all the principal of and installment of interest on such Bond payment of which is overdue, with interest on such overdue principal at the rate borne by such Bonds to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Bonds, and any and all other Events of Default known to the Trustee or the applicable trustee with respect to such Contract or Bonds (other than in the payment of principal of and interest on the 2012 Bonds, payment of principal and interest with respect to such Contract or payment of principal and interest on such Bond, as applicable, due and payable solely by reason of such declaration) have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate have been made therefor, then, and in every such case the Trustee will on behalf of the Owners of all of the 2012 Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment will extend to or affect any subsequent Event of Default, or impair or exhaust any right or power consequent thereon.

Application of Revenues and Other Funds After Default. If an Event of Default occurs and is continuing, all Revenues held or thereafter received by the Trustee and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (other than amounts held in the Rebate Fund) will be applied in the following order: (i) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the 2012 Bonds, Contract or Bonds and payment of reasonable fees 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; (ii) To the payment of Operation and Maintenance Costs; (iii) To the payment of the principal of and interest then due on the 2012 Bonds (upon presentation of the 2012 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, the payment of the principal and interest then due with respect to such Contract in accordance with the provisions thereof and the payment of the principal of and interest then due on such Bonds in accordance with the provisions thereof and of any indenture related thereto, in the following order of priority: First: To the payment to the persons entitled thereto of all installments of interest then due on the 2012 Bonds, with respect to such Contract or on such Bonds, as applicable, in the order of the maturity of such installments, and, if the amount available is not 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 2012 Bonds, principal with respect to such Contract or principal of any Bonds, as applicable, which have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate of 8% per annum, and, if the amount available is not sufficient to pay in full all the 2012 Bonds, all amounts due under such Contract or all the Bonds, as applicable, 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; and Third: If there exists any remainder after the foregoing payments, such remainder will be paid to the District.

B-21 Trustee to Represent 2012 Bond Owners. The Trustee has been irrevocably appointed (and the successive respective Owners of the 2012 Bonds, by taking and holding the same, will be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney in fact of the Owners of the 2012 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 2012 Bonds or the Indenture and applicable provisions of 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 2012 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 2012 Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, will proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it deems 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 therein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the 2012 Bonds or the Indenture or any law; and upon instituting such proceeding, the Trustee will 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 2012 Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the 2012 Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee will be brought in the name of the Trustee for the benefit and protection of all the Owners of such 2012 Bonds, subject to the provisions of the Indenture.

2012 Bond Owners’ Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the 2012 Bonds then Outstanding 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 conduct in all remedial proceedings taken by the Trustee under the Indenture, provided that such direction will not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee has the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to 2012 Bond Owners not parties to such direction.

Suit by Owners. No Owner of any 2012 Bonds has 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 with respect to the 2012 Bonds, unless: (a) such Owners have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of not less than a majority in aggregate principal amount of the 2012 Bonds then Outstanding have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee has failed to comply with such request for a period of 60 days after such written request has been received by, and said tender of indemnity has been made to, the Trustee; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Owners of a majority in aggregate principal amount of the 2012 Bonds then Outstanding.

Such notification, request, tender of indemnity and refusal or omission are, in every case, conditions precedent to the exercise by any Owner of 2012 Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners of 2012 Bonds 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 2012 Bonds, or to enforce any right under the 2012 Bonds, the Indenture, or applicable law with respect to the 2012 Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right will be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding 2012 Bonds, subject to the provisions of the Indenture.

Absolute Obligation of the District. Nothing in the Indenture or in the 2012 Bonds affects or impairs the obligation of the District, which is absolute and unconditional, to pay the principal of and interest on the 2012 Bonds to the respective Owners of the 2012 Bonds at their respective dates of maturity, or upon call for redemption, as provided in the Indenture, but only out of the Revenues, the Revenue Fund, the Rate Stabilization Fund and other assets therein pledged therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the 2012 Bonds.

B-22 Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee or to the Owners of the 2012 Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, will be cumulative and in addition to any other remedy given under the Indenture or now or later 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 2012 Bonds to exercise any right or power arising upon the occurrence of any Event of Default will impair any such right or power or be construed to be a waiver of any such Event of Default or an acquiescence therein.

THE TRUSTEE

Duties, Immunities and Liabilities of Trustee. (a) The Trustee will, prior to an Event of Default, and after the curing or waiving of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture and no implied covenants or duties will be read into the Indenture against the Trustee. The Trustee will, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

(b) The District may remove the Trustee at any time, unless an Event of Default has occurred and is then continuing, and will remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the 2012 Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee ceases to be eligible in accordance with the Indenture, or becomes incapable of acting, or is adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property is appointed, or any public officer takes control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and thereupon will promptly appoint a successor Trustee by an instrument in writing.

(c) The Trustee may at any time resign by giving written notice of such resignation to the District and by giving the 2012 Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, the District will promptly appoint a successor Trustee by an instrument in writing.

(d) Any removal or resignation of the Trustee and appointment of a successor Trustee will become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee has been appointed and have accepted appointment within 45 days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any 2012 Bond Owner (on behalf of himself and all other 2012 Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture will signify its acceptance of such appointment by executing and delivering to the District and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, will become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Indenture; but, nevertheless at the Written Request of the District or the request of the successor Trustee, such predecessor Trustee will execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon request of the successor Trustee, the District will execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in the Indenture, the District will mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts under the Indenture to each rating agency which is then rating the 2012 Bonds and to the 2012 Bond Owners at the addresses shown on

B-23 the Registration Books. If the District fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee will cause such notice to be mailed at the expense of the District.

(e) Any Trustee appointed under the provisions of the Indenture in succession to the Trustee will be a trust company, banking association or bank having the powers of a trust company, having a combined capital and surplus of at least Seventy Five Million Dollars ($75,000,000), and subject to supervision or examination for federal or state authority. If such bank, banking association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of the Indenture the combined capital and surplus of such trust company, banking association or bank will be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee ceases to be eligible in accordance with the provisions of the Indenture, the Trustee will resign immediately in the manner and with the effect specified therein.

Merger or Consolidation. Any trust company, banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, banking association or bank resulting from any merger, conversion or consolidation to which it is a party or any trust company, banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such trust company, banking association or bank is eligible under the Indenture, will be the successor to such Trustee, without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding.

Liability of Trustee. (a) The recitals of facts in the Indenture and in the 2012 Bonds are statements of the District, and the Trustee does not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture or the 2012 Bonds, nor will the Trustee incur any responsibility in respect thereof, other than as expressly stated in the Indenture in connection with the respective duties or obligations therein or in the 2012 Bonds assigned to or imposed upon it. The Trustee is, however, responsible for its representations contained in its certificate of authentication on the 2012 Bonds. The Trustee is not liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. The Trustee may become the Owner of 2012 Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of 2012 Bond Owners, whether or not such committee represents the Owners of a majority in principal amount of the 2012 Bonds then Outstanding.

(b) The Trustee is not liable for any error of judgment made in good faith by a responsible officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts.

(c) The Trustee is not liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority (or such other percentage provided for in the Indenture) in aggregate principal amount of the 2012 Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture.

(d) The Trustee is not liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture.

(e) The Trustee will not be deemed to have knowledge of any Default or Event of Default under the Indenture or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default thereunder unless and until a Responsible Officer of the Trustee has actual knowledge of such event or the Trustee has been notified in writing, in accordance with the Indenture, of such event by the District or the Owners of not less than 50% of the 2012 Bonds then Outstanding. Except as otherwise expressly provided in the Indenture, the Trustee is not bound to ascertain or inquire as to the performance or observance by the District of any of the terms, conditions, covenants or agreements in the Indenture of any of the documents executed in connection with the 2012 Bonds, or as to the existence of an Event of Default thereunder or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default thereunder. The Trustee is not responsible for the validity, effectiveness or priority of any collateral given to or held by it.

B-24 (f) No provision of the Indenture requires the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties under the Indenture, or in the exercise of any of its rights or powers.

(g) The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of Owners pursuant to the Indenture, unless such Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee under the Indenture will be construed to impose a duty to exercise such power, right or remedy.

(h) Whether or not expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to the provisions of the Indenture.

(i) The Trustee has no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the 2012 Bonds.

(j) The immunities extended to the Trustee also extend to its directors, officers, employees and agents.

(k) The Trustee may execute any of the trusts or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and will not be answerable for the conduct of the same if appointed by it with reasonable care.

(l) The Trustee will not be considered in breach of or in default in its obligations under the Indenture or progress in respect thereto in the event of enforced delay (“unavoidable delay”) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Water System, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.

(m) The Trustee has agreed to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee has received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate will be amended and replaced whenever a person is to be added or deleted from the listing. If the District elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions will be deemed controlling. The Trustee will not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The District has agreed to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties.

(n) The Trustee is not concerned with or accountable to anyone for the subsequent use or application of any moneys which are released or withdrawn in accordance with the provisions of the Indenture.

(o) The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Owners pursuant to the provisions thereof unless such

B-25 Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby.

(p) The permissive right of the Trustee to do things enumerated in the Indenture are not construed as a duty and the Trustee is not answerable for other than its negligence or willful misconduct.

(q) The Trustee has no responsibility or liability with respect to any information, statements or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the 2012 Bonds.

Right to Rely on Documents. The Trustee will be protected in acting upon any notice, resolution, requisition, request, consent, order, certificate, report, opinion, notes, direction, facsimile transmission, electronic mail or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the District, with regard to legal questions, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered by it under the Indenture in good faith and in accordance therewith.

The Trustee may treat the Owners of the 2012 Bonds appearing in the Trustee’s Registration Books as the absolute owners of the 2012 Bonds for all purposes and the Trustee will not be affected by any notice to the contrary.

Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee deems it necessary or desirable that a matter be proved or established prior to taking or suffering any action thereunder, such matter (unless other evidence in respect thereof is specifically prescribed) may be deemed to be conclusively proved and established by a Certificate, Request or Requisition of the District, and such Certificate, Request or Requisition will be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Certificate, Request or Requisition, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable.

Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Indenture will be retained in their respective possession and will be subject at all reasonable times to the inspection of the District and any 2012 Bond Owner, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions.

Compensation and Indemnification. The District will pay to the Trustee from time to time all reasonable compensation for all services rendered under the Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Indenture.

The District will indemnify, defend and hold harmless the Trustee, its officers, employees, directors and agents from and against any loss, costs, claims, liability or expense (including fees and expenses of its attorneys and advisors) incurred without negligence or bad faith on its part, arising out of or in connection with the execution of the Indenture, acceptance or administration of the trust under the Indenture, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers thereunder. The rights of the Trustee and the obligations of the District under the Indenture survive removal or resignation of the Trustee thereunder or the discharge of the 2012 Bonds and the Indenture.

MODIFICATION OR AMENDMENT OF THE INDENTURE

Amendments Permitted. (a) The Indenture and the rights and obligations of the District and of the Owners of the 2012 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 District and the Trustee may enter into when the written consent of the Owners of a majority in aggregate principal amount of all 2012 Bonds then Outstanding, exclusive of 2012 Bonds disqualified as provided in the Indenture, have been filed with the Trustee. No such modification or amendment may: (1) extend the fixed maturity of any 2012 Bonds, or reduce the amount of principal thereof or

B-26 premium (if any) thereon, or extend the time of payment, or change the rate of interest or 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 2012 Bond so affected; or (2) reduce the aforesaid percentage of 2012 Bonds the consent of the Owners of which is required to affect 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 therein, or deprive the Owners of the 2012 Bonds of the lien created by the Indenture on such Revenues and other assets except as permitted therein, without the consent of the Owners of all of the 2012 Bonds then Outstanding. It is not necessary for the consent of the 2012 Bond Owners to approve the particular form of any Supplemental Indenture, but it is sufficient if such consent approves the substance thereof. Promptly after the execution by the District and the Trustee of any Supplemental Indenture pursuant to the provisions of the Indenture, the Trustee will mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency and the Owners of the 2012 Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such Supplemental Indenture.

(b) The Indenture and the rights and obligations of the District, the Trustee and the Owners of the 2012 Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the District and the Trustee may enter into without the consent of any 2012 Bond Owners, if the Trustee receives an opinion of Bond Counsel to the effect that the provisions of such Supplemental Indenture will not materially adversely affect the interests of the Owners of the Outstanding 2012 Bonds, including, without limitation, for any one or more of the following purposes: (1) to add to the covenants and agreements of the District contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the 2012 Bonds (or any portion thereof), or to surrender any right or power therein reserved to or conferred upon the District; (2) 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 District may deem necessary or desirable; (3) to modify, amend or supplement the Indenture in such manner as to permit the qualification thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute thereunder in effect, and to add such other terms conditions and provisions as may be permitted by said act or similar federal statute; and (4) to modify, amend or supplement the Indenture in such manner as to cause interest on the 2012 Bonds to remain excludable from gross income under the Code.

(c) The Trustee may in its discretion, but is not obligated to, enter into any such Supplemental Indenture authorized by the Indenture which materially adversely affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise.

(d) Prior to the Trustee entering into any Supplemental Indenture under the provisions of the Indenture, there will 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 of interest on the 2012 Bonds from federal income taxation and from state income taxation.

Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to the provisions of the Indenture, the Indenture will be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the District, the Trustee and all Owners of 2012 Bonds Outstanding will thereafter be determined, exercised and enforced thereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture will be deemed to be part of the terms and conditions of the Indenture for any and all purposes.

Endorsement of 2012 Bonds; Preparation of New 2012 Bonds. 2012 Bonds delivered after the execution of any Supplemental Indenture pursuant to the provisions of the Indenture may, and if the Trustee so determines will, bear a notation by endorsement or otherwise in form approved by the District and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any 2012 Bonds Outstanding at the time of such execution and presentation of his or her 2012 Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation will be made on such 2012 Bonds. If the Supplemental Indenture so provides, new 2012 Bonds so

B-27 modified as to conform, in the opinion of the District and the Trustee, to any modification or amendment contained in such Supplemental Indenture, will be prepared and executed by the District and authenticated by the Trustee, and upon demand on the Owners of any 2012 Bonds then Outstanding will be exchanged at the Office of the Trustee, without cost to any 2012 Bond Owner, for 2012 Bonds then Outstanding, upon surrender for cancellation of such 2012 Bonds, in equal aggregate principal amount of the same maturity.

Amendment of Particular 2012 Bonds. The provisions of the Indenture do not prevent any 2012 Bond Owner from accepting any amendment as to the particular 2012 Bonds held by him.

DEFEASANCE

Discharge of Indenture. The 2012 Bonds may be paid by the District in any of the following ways, provided that the District also pays or causes to be paid any other sums payable under the Indenture by the District: (a) by paying or causing to be paid the principal of and interest and redemption premiums (if any) on the 2012 Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in the Indenture) to pay or redeem all 2012 Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, all of the 2012 Bonds then Outstanding.

If the District also pays or causes to be paid all other sums payable under the Indenture by the District, then and in that case, at the election of the District (as evidenced by a Certificate of the District, filed with the Trustee, signifying the intention of the District to discharge all such indebtedness and the Indenture), and notwithstanding that any 2012 Bonds have not been surrendered for payment, the Indenture and the pledge of Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the District under the Indenture will cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the District, the Trustee will execute and deliver to the District all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee will pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture which are not required for the payment or redemption of 2012 Bonds not theretofore surrendered for such payment or redemption to the District.

Discharge of Liability on 2012 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 2012 Bonds (whether upon or prior to the maturity or the Redemption Date of such 2012 Bonds), provided that, if such Outstanding 2012 Bonds are to be redeemed prior to maturity, notice of such redemption has been given as provided in the Indenture or provisions satisfactory to the Trustee has been made for the giving of such notice, then all liability of the District in respect of such 2012 Bonds will cease, terminate and be completely discharged, and the Owners thereof will 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.

The District may at any time surrender to the Trustee for cancellation by it any 2012 Bonds previously issued and delivered, which the District may have acquired in any manner whatsoever, and such 2012 Bonds, upon such surrender and cancellation, will 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 2012 Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds, accounts and subaccounts established pursuant to the Indenture and will be:

(a) lawful money of the United States of America in an amount equal to the principal amount of such 2012 Bonds and all unpaid interest thereon to maturity, except that, in the case of 2012 Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption has been given as provided in the Indenture or provisions satisfactory to the Trustee have been made for the giving of such notice, the amount to be deposited or held will be the principal amount of such 2012 Bonds and all unpaid interest and premium, if any, thereon to the Redemption Date; or

B-28 (b) Federal Securities the principal of and interest on which when due will, in the written opinion of an Independent Certified Public Accountant or Independent Financial Consultant filed with the District and the Trustee, provide money sufficient to pay the principal of and all unpaid interest to maturity, or to the Redemption Date (with premium, if any), as the case may be, on the 2012 Bonds to be paid or redeemed, as such principal, interest and premium, if any, become due, provided that in the case of 2012 Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption has been given as provided in the Indenture or provision satisfactory to the Trustee has been made for the giving of such notice;

provided, in each case, that: (i) the Trustee has been irrevocably instructed (by the terms of the Indenture or by Written Request of the District) to apply such money to the payment of such principal, interest and premium, if any, with respect to such 2012 Bonds; and (ii) the District has delivered to the Trustee an opinion of Bond Counsel addressed to the District and the Trustee to the effect that such 2012 Bonds have been discharged in accordance with the Indenture (which opinion may rely upon and assume the accuracy of the Independent Certified Public Accountant’s or Independent Financial Consultant’s opinion referred to above).

Payment of 2012 Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any 2012 Bonds and remaining unclaimed for two (2) years after the principal of all of the 2012 Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in the Indenture), if such moneys were so held at such date, or two (2) years after the date of deposit of such moneys if deposited after said date when all of the 2012 Bonds became due and payable, will be repaid to the District free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the District and the Trustee indemnifying the Trustee with respect to claims of Owners of 2012 Bonds which have not yet been paid, and all liability of the Trustee with respect to such moneys will thereupon cease; provided, however, that before the repayment of such moneys to the District as aforesaid, the Trustee will at the written direction of the District (at the cost of the District) first mail to the Owners of 2012 Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the 2012 Bonds so payable and not presented and with respect to the provisions relating to the repayment to the District of the moneys held for the payment thereof.

MISCELLANEOUS

Liability of District Limited to Revenues. Notwithstanding anything in the Indenture or the 2012 Bonds, but subject to the priority of payment with respect to Operation and Maintenance Costs, the District is not required to advance any moneys derived from any source other than the Revenues, the Revenue Fund, the Rate Stabilization Fund and other moneys pledged under the Indenture for any of the purposes in the Indenture mentioned, whether for the payment of the principal of or interest on the 2012 Bonds or for any other purpose of the Indenture. Nevertheless, the District may, but is not required to, advance for any of the purposes of the Indenture any funds of the District which may be made available to it for such purposes.

Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture either the District or the Trustee is named or referred to, such reference includes the successors or assigns thereof, and all the covenants and agreements in the Indenture contained by or on behalf of the District or the Trustee bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not.

Limitation of Rights to Parties and 2012 Bond Owners. Nothing in the Indenture or in the 2012 Bonds expressed or implied is intended or will be construed to give to any person other than the District, the Trustee and the Owners of the 2012 Bonds, any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision therein contained; and all such covenants, conditions and provisions are and are for the sole and exclusive benefit of the District, the Trustee and the Owners of the 2012 Bonds.

Waiver of Notice; Requirement of Mailed Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice will not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in the Indenture any notice is required to be given by

B-29 mail, such requirement will satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail.

Destruction of 2012 Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee and the delivery to the District of any 2012 Bonds, the Trustee will destroy such 2012 Bonds as may be allowed by law, and deliver a certificate of such destruction to the District.

Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the 2012 Bonds is for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions will be deemed severable from the remaining provisions contained in the Indenture and such invalidity, illegality or unenforceability will not affect any other provision of the Indenture, and the Indenture will be construed as if such invalid or illegal or unenforceable provision had never been contained therein. The District has declared that it would have entered into the Indenture and each and every other section, paragraph, sentence, clause or phrase thereof and authorized the issuance of the 2012 Bonds pursuant thereto irrespective of the fact that any one or more sections, paragraphs, sentences, clauses or phrases of the Indenture may be held illegal, invalid or unenforceable.

Evidence of Rights of 2012 Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by 2012 Bond Owners may be in any number of concurrent instruments of substantially similar tenor and will be signed or executed by such 2012 Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of 2012 Bonds transferable by delivery, will be sufficient for any purpose of the Indenture and will be conclusive in favor of the Trustee and the District if made in the manner provided in the Indenture.

The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The Ownership of 2012 Bonds will be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any 2012 Bond will bind every future Owner of the same 2012 Bond and the Owner of every 2012 Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the District in accordance therewith or reliance thereon.

Disqualified 2012 Bonds. In determining whether the Owners of the requisite aggregate principal amount of 2012 Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, 2012 Bonds which are known by the Trustee to be owned or held by or for the account of the District, or by any other obligor on the 2012 Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the District or any other obligor on the 2012 Bonds, will be disregarded and deemed not to be Outstanding for the purpose of any such determination. 2012 Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of the Indenture if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right to vote such 2012 Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the District or any other obligor on the 2012 Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel will be full protection to the Trustee. Upon request, the District will certify to the Trustee those 2012 Bonds that are disqualified pursuant to the Indenture and the Trustee may conclusively rely on such certificate.

Money Held for Particular 2012 Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular 2012 Bonds (or portions of 2012 Bonds in the case of registered 2012 Bonds redeemed in part only) will, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the 2012 Bonds entitled thereto, subject, however, to the provisions of the Indenture but without any liability for interest thereon.

Funds, Accounts and Subaccounts. Any fund, account or subaccount required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports

B-30 or statements with respect thereto, be treated either as a fund, an account or a subaccount; but all such records with respect to all such funds, accounts and subaccounts will at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of the Indenture and for the protection of the security of the 2012 Bonds and the rights of every Owner thereof.

Waiver of Personal Liability. No member, officer, agent, employee, consultant or attorney of the District is individually or personally liable for the payment of the principal of or premium or interest on the 2012 Bonds or subject to any personal liability or accountability by reason of the issuance thereof; but nothing contained in the Indenture relieves any such member, officer, agent, employee, consultant or attorney from the performance of any official duty provided by law or by the Indenture.

CUSIP Numbers. Neither the Trustee nor the District are liable for any defect or inaccuracy in the CUSIP number that appears on any 2012 Bond or in any redemption notice. The Trustee may, in its discretion, include in any redemption notice a statement to the effect that the CUSIP numbers on the 2012 Bonds have been assigned by an independent service and are included in such notice solely for the convenience of the 2012 Bondholders and that neither the District nor the Trustee are liable for any inaccuracies in such numbers.

Choice of Law. THE INDENTURE IS GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.

B-31      APPENDIX C

FORM OF OPINION OF BOND COUNSEL

Upon issuance of the 2012 Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form:

May __, 2012

South San Joaquin Irrigation District 11011 East Highway 120 Manteca, California 95336

Re: South San Joaquin Irrigation District Refunding Revenue Bonds, Series 2012A

Members of the Board of Directors:

We have examined a certified copy of the record of the proceedings of the South San Joaquin Irrigation District (the “District”) relative to the issuance of the $______Refunding Revenue Bonds, Series 2012A, dated the date hereof (the “2012 Bonds”), and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the District, the initial purchaser of the 2012 Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us.

The 2012 Bonds are being issued pursuant to an Indenture of Trust, dated as of April 1, 2012 (the “Indenture”), by and between the District and Union Bank, N.A., as trustee (the “Trustee”). The 2012 Bonds mature on the date and in the amount referenced in the Indenture. The 2012 Bonds are dated their date of delivery and bear interest at the rates per annum referenced in the Indenture. The 2012 Bonds are registered in the form set forth in the Indenture.

Based on our examination as Bond Counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that:

1. The proceedings of the District show lawful authority for the issuance and sale of the 2012 Bonds under the laws of the State of California now in force, and the Indenture has been duly authorized, executed and delivered by the District, and, assuming due authorization, execution and delivery by the Trustee, as appropriate, the 2012 Bonds and the Indenture are valid and binding obligations of the District enforceable against the District in accordance with their terms.

2. The obligation of the District to make the payments of principal of and interest on the 2012 Bonds from Net Revenues (as such term is defined in the Indenture) is an enforceable obligation of the District and does not constitute an indebtedness of the District in contravention of any constitutional or statutory debt limit or restriction.

3. Under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the 2012 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. It should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations.

4. Interest on the 2012 Bonds is exempt from State of California personal income tax.

C-1 5. The amount by which a 2012 Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2012 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the “Code”); such amortizable bond premium reduces the 2012 Bond Owner’s basis in the applicable 2012 Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2012 Bond premium may result in a 2012 Bond Owner realizing a taxable gain when a 2012 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2012 Bond to the Owner. Purchasers of the 2012 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.

The opinions expressed herein as to the exclusion from gross income of interest on the 2012 Bonds are based upon certain representations of fact and certifications made by the District and are subject to the condition that the District comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2012 Bonds to assure that such interest on the 2012 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2012 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2012 Bonds. The District has covenanted to comply with all such requirements.

The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the 2012 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest on the 2012 Bonds for federal income tax purposes with respect to any 2012 Bond if any such action is taken or omitted based upon the opinion or advice of counsel other than ourselves. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the 2012 Bonds.

The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Indenture and the 2012 Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California.

We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction.

We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the 2012 Bonds or other offering material relating to the 2012 Bonds and expressly disclaim any duty to advise the owners of the 2012 Bonds with respect to matters contained in the Official Statement.

Respectfully submitted,

C-2 APPENDIX D

INFORMATION CONCERNING DTC

The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2012 Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the 2012 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2012 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2012 Bonds. The 2012 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 2012 Bond will be issued for each annual maturity of the 2012 Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC 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.

Purchases of 2012 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2012 Bonds on DTC’s records. The ownership interest of each actual purchaser of each 2012 Bonds (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2012 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 bonds representing their ownership interests in 2012 Bonds, except in the event that use of the book-entry system for the 2012 Bonds is discontinued.

To facilitate subsequent transfers, all 2012 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 2012 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2012 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose

D-1 accounts such 2012 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2012 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2012 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2012 Bonds documents. For example, Beneficial Owners of 2012 Bonds may wish to ascertain that the nominee holding the 2012 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the 2012 Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2012 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts 2012 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the 2012 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the District, 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 the District or the Trustee, 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.

A 2012 Bond Owner shall give notice to elect to have its 2012 Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such 2012 Bond by causing the Direct Participant to transfer the Participant’s interest in the 2012 Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of 2012 Bond in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2012 Bond are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered 2012 Bond to the Trustee’s DTC account.

DTC may discontinue providing its services as depository with respect to the 2012 Bonds at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered.

The District may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, 2012 Bonds will be printed and delivered to DTC.

THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE 2012 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2012 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.

D-2 APPENDIX E

FORM OF CONTINUING DISCLOSURE CERTIFICATE

Upon issuance of the 2012 Bonds, the District proposes to enter into a Continuing Disclosure Certificate in substantially the following form:

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the South San Joaquin Irrigation District (the “District”) in connection with the execution and delivery of its $______Refunding Revenue Bonds, Series 2012A (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of April 1, 2012 (the “Indenture”), by and between the District and Union Bank, N.A., as trustee (the “Trustee”). The District covenants and agrees as follows:

1. Purpose of this 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 the Rule.

2. 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, the following capitalized terms shall have the following meanings:

Annual Report. The term “Annual Report” means any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

Beneficial Owner. The term “Beneficial Owner” means 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.

EMMA. The term “EMMA” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/.

Fiscal Year. The term “Fiscal Year” means the one-year period ending on the last day of December of each year.

Holder. The term “Holder” means a registered owner of the Bonds.

Listed Events. The term “Listed Events” means any of the events listed in Sections 5(a) and (b) of this Disclosure Certificate.

Official Statement. The term “Official Statement” means the Official Statement dated April __, 2012 relating to the Bonds.

Participating Underwriter. The term “Participating Underwriter” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

Rule. The term “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

3. Provision of Annual Reports.

(a) The District shall provide not later than 270 days following the end of its Fiscal Year (commencing with Fiscal Year 2012) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may be

E-1 submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate.

(b) If the District is unable to provide to EMMA an Annual Report by the date required in subsection (a), the District shall send to EMMA a notice in the manner prescribed by the Municipal Securities Rulemaking Board.

4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following:

(a) The audited financial statements of the District for the prior Fiscal Year, prepared in accordance with accounting principles generally accepted in the United States of America as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. 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 financing 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 come available.

(b) Principal amount of the Bonds outstanding.

(c) Balance in the Reserve Fund and a statement of the reserve requirement with respect thereto.

(d) An update of the information in the following tables under the caption “HISTORIC AND PROJECTED TREATED WATER DELIVERIES” in the Official Statement:

(i) Historic Treated Water Deliveries; and

(ii) Historic Treated Water Revenues.

(e) An update of the information in the table entitled “Historic Irrigation Accounts, Deliveries and Service Charges” under the caption “HISTORIC AND PROJECTED IRRIGATION SALES” in the Official Statement.

(f) An update of the information in the table entitled “Historic Tri-Dam Project Revenues” under the caption “HISTORIC AND PROJECTED TRI-DAM PROJECT REVENUES” in the Official Statement.

(g) An update of the information in the table entitled “Historic Tri-Dam Power Authority Revenues” under the caption “HISTORIC AND PROJECTED TRI-DAM POWER AUTHORITY REVENUES” in the Official Statement.

(h) An update of the information in the table entitled “Property Tax Revenues” under the caption “HISTORIC AND PROJECTED 1% PROPERTY TAX REVENUES” in the Official Statement.

(i) An update of the information in the table entitled “Historic Operating Results and Debt Service Coverage” under the caption “DISTRICT FINANCIAL INFORMATION” in the Official Statement.

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 each of the Repositories; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the District shall clearly identify each such document so included by reference.

E-2 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event:

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. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB);

6. tender offers;

7. defeasances;

8. ratings changes; and

9. bankruptcy, insolvency, receivership or similar proceedings.

Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.

(b) Pursuant to the provisions of this Section 5, 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. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds;

2. modifications to the rights of Bond holders;

3. optional, unscheduled or contingent Bond redemptions;

4. release, substitution or sale of property securing repayment of the Bonds;

5. non-payment related defaults;

6. the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, 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; and

E-3 7. appointment of a successor or additional trustee or the change of the name of a trustee.

(c) If the District determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the District shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the event.

6. Customarily Prepared and Public Information. Upon request, the District shall provide to any person financial information and operating data regarding the District which is customarily prepared by the District and is publicly available.

7. Termination of Obligation. The District’s obligations under this Disclosure Certificate shall terminate upon the legal 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(c).

8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. The District will provide notice of such amendment to the Municipal Securities Rulemaking Board.

9. 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 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 notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event.

10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any Holders or Beneficial Owners of at least 50% aggregate principal amount of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and 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.

No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the District satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the District shall have refused to comply therewith within a reasonable time.

11. Dissemination Agent. The District may from time to time appoint or engage a dissemination agent to assist the District in carrying out its obligations under this Disclosure Certificate and may discharge any such dissemination agent with or without appointing a successor dissemination agent.

12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, 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.

Dated: May __, 2012 SOUTH SAN JOAQUIN IRRIGATION DISTRICT

By: Its: President

E-4

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