EASTERN MUNICIPAL WATER DISTRICT COMMUNITY FACILITIES DISTRICT NO (MORGAN HILL) IMPROVEMENT AREA B 2005 SPECIAL TAX BONDS

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1 EASTERN MUNICIPAL WATER DISTRICT COMMUNITY FACILITIES DISTRICT (MORGAN HILL) IMPROVEMENT AREA B 2005 SPECIAL TAX BONDS ANNUAL DISCLOSURE REPORT DATED December 20, 2013

2 Content of Annual Disclosure Report Pursuant to the Continuing Disclosure Agreement Dated October 1, 2005 Eastern Municipal Water District has agreed to provide annual continuing disclosure information as outlined in the "Form of Continuing Disclosure Certificate" for the following bond issue: EASTERN MUNICIPAL WATER DISTRICT COMMUNITY FACILITIES DISTRICT (MORGAN HILL) IMPROVEMENT AREA B 2005 SPECIAL TAX BONDS ISSUED ON VEMBER 29, 2005 The following are the cusip numbers related to the bond issue: Maturity (September 1) CUSIP No. * LZD LZE LZF LZG LZH LZJ LZK LZL LZM LZN LZP LZQ LZR LZS LZW LZX LZY LZZ LZU LZV4 * CUSIP is a registered trademark of the American Bankers Association. Report Prepared by Psomas on behalf of EMWD.

3 Eastern Municipal Water District Community Facilities District No (Morgan Hill) Improvement Area B 2005 Special Tax Bonds Issued on November 29, 2005 Table of Contents Exhibit No. and Exhibit Title A. Financial Statements B. 1. Principal Outstanding 2. Fund Balances and Reserve Requirements 3. Assessed Valuations 4. Rate and Method of Apportionment Update 5. Special Taxes Collected and Delinquency 6. Foreclosure Actions 7. Development Status 8. Ratio of Assessed Values to Allocated Share of Bonds 9. Projects - Status of Construction C. Reporting of Significant Events

4 Exhibit A Financial Statements The comprehensive annual financial report for Eastern Municipal Water District dated as of October 31, 2013 is available on the District's website: Exhibit A - Page 1

5 Exhibit B-1 1. Principal Outstanding Principal amount of bonds outstanding as of September 2, 2013 for the Bonds is $ 9,420, Eastern Municipal Water District Community Facilities District No (Morgan Hill) Improvement Area B 2005 Special Tax Bonds Dated: 11/29/05 Payment Date Interest Rate Original Principal Bond Call Amounts Principal Outstanding Semi-Annual Interest Total Principal & Interest Annual Debt Service 1-Mar-06 $11,735, $147, $147, Sep-06 $11,735, $289, $289, $437, Mar-07 $11,735, $289, $289, Sep % $210, $11,525, $289, $499, $788, Mar-08 $11,525, $286, $286, Sep % $215, $11,310, $286, $501, $787, Mar-09 $11,310, $282, $282, Sep % $220, $11,090, $282, $502, $784, Mar-10 $11,090, $278, $278, Sep % $230, $10,860, $278, $508, $786, Mar-11 $10,860, $273, $273, Sep % $240, $10,620, $273, $513, $786, Mar-12 $10,620, $268, $268, Sep-12 * 4.350% $250, $705, $9,665, $268, $518, $786, Mar-13 $9,665, $245, $245, Sep % $245, $9,420, $245, $490, $735, Mar-14 $9,420, $239, $239, Sep % $250, $9,170, $239, $489, $729, Mar-15 $9,170, $233, $233, Sep % $260, $8,910, $233, $493, $727, Mar-16 $8,910, $227, $227, Sep % $275, $8,635, $227, $502, $730, Mar-17 $8,635, $221, $221, Sep % $290, $8,345, $221, $511, $732, Mar-18 $8,345, $214, $214, Sep % $300, $8,045, $214, $514, $728, Mar-19 $8,045, $206, $206, Sep % $310, $7,735, $206, $516, $723, Mar-20 $7,735, $199, $199, Sep % $330, $7,405, $199, $529, $728, Mar-21 $7,405, $190, $190, Sep % $345, $7,060, $190, $535, $726, Mar-22 $7,060, $182, $182, Sep % $365, $6,695, $182, $547, $729, Mar-23 $6,695, $173, $173, Sep % $375, $6,320, $173, $548, $721, Mar-24 $6,320, $163, $163, Sep % $395, $5,925, $163, $558, $722, Mar-25 $5,925, $153, $153, Sep-25 ** 5.100% $415, $5,510, $153, $568, $722, Mar-26 $5,510, $143, $143, Sep-26 ** 5.100% $440, $5,070, $143, $583, $726, Mar-27 $5,070, $132, $132, Sep-27 ** 5.100% $460, $4,610, $132, $592, $724, Mar-28 $4,610, $120, $120, Sep-28 ** 5.100% $480, $4,130, $120, $600, $720, Mar-29 $4,130, $108, $108, Sep-29 ** 5.100% $510, $3,620, $108, $618, $726, Mar-30 $3,620, $95, $95, Sep-30 *** 5.250% $530, $3,090, $95, $625, $720, Mar-31 $3,090, $81, $81, Sep-31 *** 5.250% $560, $2,530, $81, $641, $722, Mar-32 $2,530, $66, $66, Sep-32 *** 5.250% $585, $1,945, $66, $651, $717, Mar-33 $1,945, $51, $51, Sep-33 *** 5.250% $615, $1,330, $51, $666, $717, Mar-34 $1,330, $34, $34, Sep-34 *** 5.250% $650, $680, $34, $684, $719, Mar-35 $680, $17, $17, Sep-35 *** 5.250% $680, $0.00 $17, $697, $715, Total $11,030, $705, $10,794, $21,824, $21,824, * Bond Call * Denotes Sinking Fund for Term Bond 2029 ** Denotes Sinking Fund for Term Bond 2035 Exhibit B-1 - Page 1

6 Exhibit B-2 2. Fund Balances and Reserve Requirements As of September 30, 2013 Account Balance Account Name 1 Cost of Issuance Account $0.00 Redemption Account $87, Reserve Account $732, Admin Expense Fund $11, Interest Account $0.00 EMWD Capacity Account $0.00 EMWD Imp Account Total $0.00 RCWD Capacity Account $0.00 RCWD Other Imp Account Total $0.00 County of Riverside Facilities $0.00 TOTAL $831, Special Tax Fund The Special Tax Revenues deposited in the Special Tax Fund will be held in trust and deposited into the following funds and accounts in the following order of priority: 1. Administrative Expense 2. Interest Account 3. Principal Account 4. Redemption Account 5. Reserve Account 6. Rebate Fund 7. Special Tax Holding Fund Reserve Account of the Special Tax Fund The Reserve Fund must be maintained at the Reserve Requirement which is defined as, an amount equal to the lesser of (a) Maximum Annual Debt Service on the Outstanding Bonds, (b) 10% of the initial principal amount of the Bonds, or (c) 125% of Average Annual Debt Service. In the event that special tax revenue is insufficient to pay debt service, money may be transferred from this Account to the Special Tax Fund. The Reserve Fund would then be replenished by increasing the next annual special tax levy to the extent permitted by law. The current Bond Reserve Requirement is $732, balance in the Reserve Fund was $732, As of September 30, 2013, the 1 Source: Eastern Municipal Water District Exhibit B-2 - Page 1

7 3. Assessed Valuations Exhibit B-3 The tables in this section detail the largest property owners, assessed valuation, and development status for this CFD. Note the following with respect to the title headings for the tables: Assesse Name is information provided by Riverside County s Equalized Roll for Fiscal Year and may or may not accurately reflect actual property ownership. Assessed Valuation (AV) is provided by Riverside County Assessor s records for Fiscal Year and may or may not accurately reflect actual market value. Developed is defined as any parcel that has a value for improvements and which are classified as non-vacant by Riverside County Assessors Office. Largest Property Owners Based on Total Annual Special Tax Assesse Name Parcels Total Special Tax Fiscal Year % of Total Special Tax Total AV Fiscal Year % of Total AV ALLEN KIRK 1 $3, % $702, % CLARKE STEVE C 1 $3, % $653, % DEBOARD RYAN H 1 $3, % $654, % DREXEL DAVID 1 $3, % $705, % GUNDELFINGER RICHARD A 1 $3, % $686, % HARRINGTON JONATHAN 1 $3, % $681, % MALDONADO JASON PAUL 1 $3, % $472, % THOMAS MARK W 1 $3, % $648, % WALTZ MARK RICHARD 1 $3, % $701, % WASKA DARRELL EUGENE 1 $3, % $701, % Subtotal 10 $39, % $6,603, % All Others 346 $712, % $135,554, % TOTAL 356 $752, % $142,157, % Development Status Status Parcels Total Special Tax Fiscal Year % of Total Special Tax Total AV Fiscal Year % of Total AV Developed 356 $752, % $142,157, % Undeveloped 0 $ % $ % TOTAL 356 $752, % $142,157, % Exhibit B-3 - Page 1

8 Exhibit B-4 4. Rate and Method of Apportionment Update RMA Update There have been no changes to the Rate and Method of Apportionment as of the date of this Rate and Method of Apportionment The following is a summary of the Rate and Method of Apportionment. For complete details please refer to the CFD Report filed with Eastern Municipal Water District or the Revised Notice of Special Tax Lien, recorded May 13, 2005, Document No In general, the Rate and Method of Apportionment imposes a different Maximum Special Tax on Taxable Property within Improvement Area B depending upon whether such Taxable Property is classified as Developed Property (in general, Taxable Property included in a Final Map recorded prior to January 1 preceding the Fiscal Year in which the Special Tax is being levied and for which a building permit for new construction was issued prior to April 1 preceding such Fiscal Year), Approved Property (in general, parcels of Taxable Property included in a Final Map recorded prior to January 1 preceding the Fiscal Year in which the Special Tax is being levied but for which no building permit was issued prior to April 1 preceding such Fiscal Year), Undeveloped Property (in general, Taxable Property that is not Developed Property or Approved Property ), Public Property or Property Owner s Association Property. Different Maximum Special Taxes are also applicable to Developed Property depending whether such Developed Property is considered Residential Property or Non-Residential Property. Pursuant to the Rate and Method of Apportionment the Board is required to determine the Special Tax Requirement for Improvement Area B for each Fiscal Year. The Special Tax Requirement for Improvement Area B is the amount required in any Fiscal Year to pay: (i) annual debt service on all outstanding Bonds during the calendar year which commences in the Fiscal Year for which the Special Tax is being levied, (ii) periodic costs on the Bonds, (iii) Administrative Expenses, (iv) an amount equal to any anticipated shortfall due to Special Tax delinquencies in the prior Fiscal Year, and (v) any amounts required to establish or replenish the Reserve Account, less (vi) a credit for funds available to reduce the annual Special Tax levy as determined pursuant to the applicable Resolution. Exhibit B-4 - Page 1

9 Exhibit B-4 The Special Tax Requirement for Improvement Area B is to be satisfied first by levying the Special Tax Proportionately on each Parcel of Developed Property within Improvement Area B at up to 100% of the applicable Assigned Special Tax. If additional moneys are needed to satisfy the Special Tax Requirement, the Special Tax shall be levied Proportionately on each Parcel of Approved Property at up to 100% of the Maximum Special Tax for Approved Property. If additional moneys are still needed to satisfy the Special Tax Requirement, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property. If additional moneys are still needed to satisfy the Special Tax Requirement, the Special Tax that is to be levied on each Parcel of Developed Property whose Maximum Special Tax is derived by the application of the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Special Tax. Finally, any additional amounts required in order to satisfy the Special Tax Requirement shall be raised by the levy of the Special Tax Proportionately on each Parcel of Public Property and/or Property Owner s Association Property that is not Exempt Property at up to 100% of the applicable Maximum Special Tax. Notwithstanding the above, under no circumstances will the Special Tax levied against any Parcel of Residential Property be increased by more than 10% per Fiscal Year as a consequence of a delinquency or default by the owner of any other Parcel within Improvement Area B. The Assigned Special Taxes for Developed Property that is classified as Residential Property range from $2,030 to $4,700, depending upon the size of the residence. The Maximum Special Tax for each Parcel of Approved Property is the quotient obtained by dividing (a) the product of (i) $12,484 multiplied by (ii) the number of Acres of Taxable Property within the applicable Final Map (excluding acres associated with Public Property and/or Property Owner s Association Property that is not Exempt Property) by (b) the number of residential lots within such Final Map. The Maximum Special Tax for each Parcel of Undeveloped Property is $12,484 per Acre. The Rate and Method provides that the annual Special Tax may not be levied after Fiscal Year for Improvement Area B Exhibit B-4 - Page 2

10 Exhibit B-5 5. Special Taxes Collected and Delinquency The table included in this section summarizes the delinquencies through October 31, Note the following with respect to the title headings for the table: Delinquency Charges - Includes a 10% penalty for each past due installment and 1.5% per month on each past due installment, which begins to accrue July 1st of the tax year following the delinquency. Amount Due - Does not include judicial foreclosure costs if a parcel has a foreclosure judgment recorded. Delinquent % of Levy - Does not include judicial foreclosure costs if a parcel has a foreclosure judgment recorded. Special Tax Special Tax Delinquent Special Tax Delinquent Delinquenc Amount Delinquent Tax Year Levied Collected Amount Parcels y Charges Due % of Levy $791, $790, $1, $1, $2, % $829, $827, $2, $2, $5, % $912, $910, $2, $1, $3, % $934, $934, $ $0.00 $ % $883, $876, $6, $3, $10, % $831, $825, $5, $1, $7, % $704, $700, $3, $ $4, % TOTAL $5,887, $5,864, $22, $11, $34, Exhibit B-5 - Page 1

11 6. Foreclosure Actions Exhibit B-6 Foreclosure Covenant Pursuant to Section of the California Government Code, the Community Facilities District covenants in the Resolution with and for the benefit of the Owners of the Bonds, that it will order and cause to be commenced, on or before October 1, of the Fiscal Year immediately following the Fiscal Year in which a delinquency in the payment of Special Tax occurs, and thereafter diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the Superior Court to foreclosure the lien of the Special Tax or any installment thereof not paid when due, provided that the Community Facilities District is not required to commence or pursue such proceedings, if both (i) the aggregate amount of such delinquent Special Taxes does not exceed five percent (5%) of the total Special Taxes due and payable for the Fiscal Year in question and (ii) the balance on deposit in the Reserve Account is not less than the Reserve Requirement. Foreclosure Actions The Water District will prepare the filing of Judicial Foreclosure proceedings and will continue to pursue collection of non-payments. If non-payments are not resolved in an expeditious manner the District will continue to Superior Court. As of December 1, 2013, no foreclosure actions have been filed with Superior Court. Exhibit B-6 - Page 1

12 Exhibit B-7 7. Development Status The total number of taxable parcels which are included in a Final Map are 356. The total number of building permits issued are 356. The special tax rates for the tax year are: RMA Category RMA Description FY Amount Levied Per Category Special Tax Rate Levied Per Parcel/Acre Number of Taxable Parcels 1 4,251 sq. ft. or greater $43, $3, ,001 sq. ft. to 4,250 sq. ft. $38, $3, ,751 sq. ft. to 4,000 sq. ft. $61, $2, ,251 sq. ft. to 3,750 sq. ft. $207, $2, ,001 sq. ft. to 3,250sq. ft. $155, $1, ,501 sq. ft. to 3,000 sq. ft. $123, $1, ,500 sq. ft. or less $122, $1, Multifamily Residential Property $0.00 $ Non-Residential Property $0.00 $ A1 Tract $0.00 $ A2 Tract $0.00 $ A3 Tract $0.00 $ A4 Tract $0.00 $ U Undeveloped $0.00 $ TOTAL $752, Please note: A Final Map has been recorded for Parcels within RMA Categories as noted above and have a building permit issued. Parcels within the Approved Property RMA Category are in a Final Map however, building permits have not been issued. There may be additional parcels in a Final Map which did not receive a levy for Fiscal Year and are not included within the above table. Exhibit B-7 - Page 1

13 Exhibit B-8 8. Ratio of Assessed Values to Allocated Share of Bonds Largest Property Owners Based on Total Annual Special Tax Assesse Name Parcels Total AV Fiscal Year % of Total AV Allocated Share of Outstanding Bonds Ratio ALLEN KIRK 1 $702, % $46, to 1 CLARKE STEVE C 1 $653, % $43, to 1 DEBOARD RYAN H 1 $654, % $43, to 1 DREXEL DAVID 1 $705, % $46, to 1 GUNDELFINGER RICHARD A 1 $686, % $45, to 1 HARRINGTON JONATHAN 1 $681, % $45, to 1 MALDONADO JASON PAUL 1 $472, % $31, to 1 THOMAS MARK W 1 $648, % $42, to 1 WALTZ MARK RICHARD 1 $701, % $46, to 1 WASKA DARRELL EUGENE 1 $701, % $46, to 1 Subtotal 10 $6,603, % $437, to 1 All Others 346 $135,554, % $8,982, to 1 TOTAL 356 $142,157, % $9,420, to 1 Exhibit B-8 - Page 1

14 9. Projects - Status of Construction Exhibit B-9 The following is a description of the project location. The property in Improvement Area B of the Community Facilities District is located in an unincorporated portion of Riverside County known as the Temecula Valley. In particular, Improvement Area B is about four miles east of the Temecula Valley Freeway (Interstate 15) and one mile south of State Highway 79, southeast of the existing communities of Redhawk and Vail Ranch, west of El Chimisal. Improvement Area B of the Community Facilities District includes approximately 143 gross acres representing approximately 112 acres of net buildable land and sites for a park and an elementary school, as well as nearly 31 acres of open space. The land within Improvement Area B will subdivide into 356 residential lots through 4 tract maps. The following is the current status of the project/construction. The project includes: (a) the acquisition or construction of certain sewer system improvements by or for the Water District that are required in order to provide sewer service to Improvement Area B of the Community Facilities District, and the acquisition of capacity in improvements provided through the District s Sewer Financial Participation Charge Program, (b) the acquisition or construction of certain water system improvements by or for Rancho California Water District that are required in order to provide water service to Improvement Area B and the acquisition of capacity in improvements provided through Ranch California Water District s development fee program, (c) the acquisition or construction of certain roadway and park improvements for the County. The construction of the public improvements to be acquired or constructed with the proceeds of the Bonds is under the control of the Developer. Reimbursements for completed and accepted public facilities will be processed as requests are made. The public improvements to be acquired or constructed with the Bond proceeds are complete. Exhibit B-9 - Page 1

15 Exhibit C Reporting of Significant Events Pursuant to the provisions of Section 5 of the Form of Continuing Disclosure Agreement, notice of the occurrence of any of the following events, if material, for the current fiscal year is as follows: Item Event Description Has Event Occurred During the Fiscal Year? Event Notice Filing Date 1. Principal and interest payment delinquencies 2. Non-Payment related defaults Unscheduled draws on the reserve fund reflecting financial difficulties Unscheduled draws on credit enhancements reflecting financial difficulties Substitution of credit or liquidity providers, or their failure to perform Adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds 7. Modifications to rights of Bond Owners 8. Unscheduled redemption of any Bond 9. Defeasances 10. Any release, substitution or sale of property securing repayment of Bonds 11. Rating changes 12. Failure to provide annual financial information as required 13. Tender offers Bankruptcy, insolvency, receivership or similar event of the obligated person Merger, consolidation, or acquisition of the obligated person, if material Appointment of a successor or additional trustee, or the change of name of a trustee, if material Exhibit C - Page 1