michigan finance authority - municipal securities ... finance authority state revolving fund revenue...

NEW ISSUE Ratings: SERIES 2011 CLEAN WATER REFUNDING BONDS: S&P: AAA Fitch: AAA SERIES 2011 DRINKING WATER REFUNDING BONDS: S&P: AAA Fitch: AAA (See “Ratings” herein)

In the opinion of Co-Bond Counsel and the Attorney General of the State of Michigan, subject to compliance with certain covenants, under existing law, interest on the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds (as defined below) is excluded from gross income for federal income tax purposes except as described under “TAX MATTERS” herein, and the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds and the interest thereon are exempt from all taxation provided by the laws of the State of Michigan except for estate taxes and taxes on gains realized from the sale, payment or other disposition of the Series 2011 Refunding Bonds.

MICHIGAN FINANCE AUTHORITYSTATE REVOLVING FUND REVENUE BONDS

$282,720,000consisting of

$225,860,000Clean Water Revolving Fund Revenue Refunding Bonds, Series 2011

$56,860,000Drinking Water Revolving Fund Revenue Refunding Bonds, Series 2011

Dated: Date of Delivery Due: October 1, as shown on the inside cover

The Clean Water Revolving Fund Revenue Refunding Bonds, Series 2011 (the “Series 2011 Clean Water Refunding Bonds”) will be issued to provide funds for the purpose of (a) making a deposit to the 2011 Clean Water Refunding Escrow Account under the Escrow Agreement (defined below) to be used to refund the Clean Water Bonds To Be Refunded (as defined herein), and (b) making a deposit to the Costs of Issuance Fund for the purpose of providing for the payment of costs of issuance related to the Series 2011 Clean Water Refunding Bonds. The Drinking Water Revolving Fund Revenue Refunding Bonds, Series 2011 (the “Series 2011 Drinking Water Refunding Bonds” and, together with the Series 2011 Clean Water Refunding Bonds, the “Series 2011 Refunding Bonds”) will be issued to provide funds for the purpose of (a) making a deposit to the 2011 Drinking Water Refunding Escrow Account under the Escrow Agreement to be used to refund the Drinking Water Bonds To Be Refunded (as defined herein), and (b) making a deposit to the Costs of Issuance Fund for the purpose of providing for the payment of costs of issuance related to the Series 2011 Drinking Water Refunding Bonds, all as described in greater detail in this Official Statement. The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds are separate series of bond issues of the types and classes set forth herein.

The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds are subject to optional redemption prior to maturity as more fully described in this Official Statement.

The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds are being issued by the Michigan Finance Authority, successor to the Michigan Municipal Bond Authority (the “Authority”) under a State Revolving Fund Revenue Bonds Master Indenture dated as of October 1, 1992, as amended and restated as of July 1, 1998 (the “Master Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A. (successor to NBD Bank, Detroit, Michigan) as Trustee (the “Trustee”), as supplemented through the date hereof and as supplemented by the Twenty-First Supplemental Indenture, dated as of November 1, 2011, between the Authority and the Trustee authorizing the issuance of the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds (collectively, the “Indenture”).

The Indenture authorizes the issuance and sale of Bonds in any one or more of several Types (as described herein). The Series 2011 Clean Water Refunding Bonds are Clean Water Revolving Fund Revenue Bonds which are the third series of Bonds of the Clean Water Revolving Fund Revenue Bond Class and of the Type PPB-III. The Series 2011 Clean Water Refunding Bonds are equally and ratably secured with other outstanding bonds issued by the Authority which are of the same Class and Type. The Series 2011 Drinking Water Refunding Bonds are Drinking Water Revolving Fund Revenue Bonds which are the first series of Bonds of the Drinking Water Revolving Fund Revenue Bond Class and the Type DWPPB-III. Bonds of different Types are separately secured from Bonds of other Types which may be issued by the Authority as provided in the Indenture.

The Bonds are payable solely from the Security (as defined herein) pledged therefor under the Indenture including Loan Repayments (as defined herein) and the moneys on deposit in funds and accounts corresponding to each Type held by the Trustee under the Indenture, and to the extent provided by the indenture, earnings on such funds and accounts. The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds will also be equally and ratably secured with other Bonds of the same Type, which may be issued under the Indenture, and a portion of the security pledged for the Bonds may be pledged as security and be made available for any Related State Match Bonds (as defined herein) which may be issued in the future. See “SOURCES OF PAYMENT FOR THE SERIES 2011 REFUNDING BONDS” and “ADDITIONAL BONDS” in this Official Statement.

The Bonds are limited obligations of the Authority. The Bonds shall not be in any way a debt, liability or obligation (moral or otherwise) of the State of Michigan (the “State”) or of any political subdivision of the State or be or constitute a pledge of the full faith and credit or the taxing power of the State or of any political subdivision of the State. The Authority has no taxing power.

The Bonds issued hereunder will be issued in fully registered form in denominations of $5,000 or any integral multiple of $5,000 and will be registered in the name of Cede & Co. as nominee of the Depository Trust Company, New York, New York, which will act as securities depository for the Series 2011 Refunding Bonds. Bondholders will not receive certificates representing their ownership interest in the Bonds purchased. See “APPENDIX V - Book-Entry-Only System.” Interest on the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds will be payable semiannually on April 1 and October 1, commencing April 1, 2012.

The Bonds are offered when, as and if issued and received by the Underwriters, subject to approval of legality by the Attorney General of the State of Michigan and by Co-Bond Counsel, Dickinson Wright PLLC, Lansing, Michigan and Miller, Canfield, Paddock and Stone, P.L.C., Lansing, Michigan. Certain legal matters will be passed upon by Bodman PLC, Detroit, Michigan, counsel to the Underwriters. It is expected that the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds will be available for delivery through DTC on or about November 3, 2011.

This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

BofA Merrill Lynch CitigroupEdward Jones Fidelity Capital Markets Goldman, Sachs & Co.

J.P. Morgan Ramirez & Co., Inc. Wells Fargo Securities

Dated: October 26, 2011

MICHIGAN FINANCE AUTHORITY STATE REVOLVING FUND REVENUE BONDS

$225,860,000 Clean Water Revolving Fund Revenue Refunding Bonds, Series 2011

Maturity October 1

Principal

Coupon Price CUSIP†

2012 $16,175,000 2.000% 101.637 59447PGX3 2013 14,895,000 5.000% 108.447 59447PGY1 2014 15,360,000 5.000% 111.968 59447PGZ8 2015 16,550,000 5.000% 114.475 59447PHA2 2016 18,350,000 5.000% 116.149 59447PHB0 2017 19,040,000 5.000% 117.559 59447PHC8 2018 19,810,000 5.000% 118.422 59447PHD6 2019 20,400,000 5.000% 118.472 59447PHE4 2020 21,120,000 5.000% 118.453 59447PHF1 2021 21,785,000 5.000% 119.114 59447PHG9 2022 21,010,000 5.000% 117.974∗ 59447PHH7

2023 16,855,000 5.000% 116.754∗ 59447PHJ3 2024 4,510,000 5.000% 115.549∗ 59447PHK0

$56,860,000

Drinking Water Revolving Fund Revenue Refunding Bonds, Series 2011

Maturity October 1

Principal

Coupon Price CUSIP†

2012 $4,150,000 2.000% 101.637 59447PHL8 2013 2,100,000 2.000% 102.752 59447PHM6 2013 1,940,000 5.000% 108.447 59447PHZ7 2014 200,000 3.000% 106.228 59447PHN4 2014 3,910,000 5.000% 111.968 59447PJA0 2015 1,100,000 3.000% 106.856 59447PHP9 2015 3,200,000 5.000% 114.475 59447PJB8 2016 1,125,000 3.000% 106.732 59447PHQ7 2016 3,340,000 5.000% 116.149 59447PJC6 2017 1,950,000 4.000% 111.984 59447PHR5 2017 2,650,000 5.000% 117.559 59447PJD4 2018 600,000 4.000% 112.025 59447PHS3 2018 4,195,000 5.000% 118.422 59447PJE2 2019 1,450,000 4.000% 111.312 59447PHT1 2019 3,535,000 5.000% 118.472 59447PJF9 2020 1,500,000 4.000% 110.567 59447PHU8 2020 3,605,000 5.000% 118.453 59447PJG7 2021 1,715,000 4.000% 110.503 59447PHV6 2021 3,580,000 5.000% 119.114 59447PJH5 2022 1,000,000 4.000% 109.414∗ 59447PHW4 2022 4,295,000 5.000% 117.974∗ 59447PJJ1 2023 4,280,000 5.000% 116.754∗ 59447PHX2 2024 970,000 3.000% 98.312 59447PHY0 2024 470,000 5.000% 115.549∗ 59447PJK8

*Priced to the October 1, 2021 call date.

†Registered trademark of American Bankers Association. CUSIP date herein is provided by Standard and Poor’s CUSIP Service Bureau, a division of The McGraw Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of bondholders only at the time of issuance of the Series 2011 Refunding Bonds and the Authority does not make any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Series 2011 Refunding Bonds as a result of various subsequent actions including, but limited to, a refunding in whole or in part of such maturity.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

THE UNDERWRITERS MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS, DEALER BANKS, AND BANKS ACTING AS AGENT, AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER OF THIS OFFICIAL STATEMENT. SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS.

No dealer, broker, salesman or other person has been authorized to make any representation other than as contained in this Official Statement, and if given or made, such other information or representation must not be relied upon. The information set forth in this Official Statement has been obtained from the Authority, the State of Michigan (the “State”), The Depository Trust Company (“DTC”) and other sources that are believed to be reliable, but as to information from sources other than themselves, is not to be construed as a representation by the Authority, the State or DTC, respectively. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor the sale of the Bonds offered pursuant to this Official Statement shall under any circumstances create any implication that there has been no change in the affairs of the Authority, the State or DTC since the date of this Official Statement.

This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. This Official Statement is not to be construed as a contract or agreement between the Authority and the purchasers or holders of any of the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds.

IN MAKING ANY INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE AUTHORITY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This Official Statement contains forward-looking statements, which can be identified by the use of the future tense or other forward-looking terms such as “may,” “intend,” “will,” “expect,” “anticipate,” “plan,” “management believes,” “estimate,” “continue,” “should,” “strategy,” or “position” or the negatives of those terms or other variations on them or by comparable terminology. In particular, any statements, express or implied, concerning future operating results or the ability to generate net revenues or cash flow to service indebtedness are forward-looking statements. Investors are cautioned that reliance on any of those forward-looking statements involves risks and uncertainties and that, although the Authority believes that the assumptions on which those forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate. As a result, the forward-looking statements based on those assumptions also could be incorrect, and actual results may differ materially from any results indicated or suggested by those assumptions. In light of these and other uncertainties, the inclusion of a forward-looking statement in this Official Statement should not be regarded as a representation by the Authority that its plans and objectives will be achieved. All forward-looking statements are expressly qualified by the cautionary statements contained in this paragraph. The Authority undertakes no duty to update any forward-looking statements.

Official Statement i

TABLE OF CONTENTS INTRODUCTORY STATEMENT ............................................................................................................................. 3 SOURCES OF PAYMENT FOR THE SERIES 2011 REFUNDING BONDS .......................................................... 5 INFORMATION REGARDING THE SERIES 2011 REFUNDING BONDS ........................................................... 5

General ..................................................................................................................................................... 5 Replacement Bonds .................................................................................................................................. 6 Optional Redemption ............................................................................................................................... 6 Redemption Procedures ............................................................................................................................ 6

PLAN OF FINANCE ................................................................................................................................................... 7 Series 2011 Clean Water Refunding Bonds ............................................................................................. 7 Series 2011 Drinking Water Refunding Bonds ........................................................................................ 8

ESTIMATED SOURCES AND USES OF FUNDS .................................................................................................... 8 STATE REVOLVING FUND PROGRAMS AND FLOW OF FUNDS .................................................................... 9

State Revolving Fund Programs ............................................................................................................... 9 Eligibility and Financial Assistance ....................................................................................................... 10 Capitalization of State Revolving Funds ................................................................................................ 10 Flow of Funds ........................................................................................................................................ 10 Investment of Funds ............................................................................................................................... 15 Projected Cash Flow Schedules ............................................................................................................. 15

THE AUTHORITY ................................................................................................................................................... 19 Powers and Duties .................................................................................................................................. 19 Membership ............................................................................................................................................ 19

GENERAL PROVISIONS OF THE STATE REVOLVING FUND LOAN PROGRAMS ..................................... 20 General ................................................................................................................................................... 20 Municipal Obligations ............................................................................................................................ 21 Governmental Units ............................................................................................................................... 22

ADDITIONAL BONDS ............................................................................................................................................ 23 TAX MATTERS ........................................................................................................................................................ 24

General ................................................................................................................................................... 24 Treatment of Original Issue Discount .................................................................................................... 25 Treatment of Premium ........................................................................................................................... 25 Risk of Changes to Tax Law .................................................................................................................. 26

LITIGATION ............................................................................................................................................................. 26 LEGALITY OF SERIES 2011 REFUNDING BONDS FOR INVESTMENT AND DEPOSIT .............................. 27 STATE NOT LIABLE ON SERIES 2011 REFUNDING BONDS .......................................................................... 27 CONTINUING DISCLOSURE UNDERTAKING ................................................................................................... 27 VERIFICATION OF MATHEMATICAL AND ARITHMETICAL CALCULATIONS ........................................ 28 LEGAL MATTERS ................................................................................................................................................... 28 RATINGS .................................................................................................................................................................. 29 UNDERWRITING .................................................................................................................................................... 29 OTHER MATTERS................................................................................................................................................... 30

General ................................................................................................................................................... 30 Professional Disclosure .......................................................................................................................... 30

APPENDIX I SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND TWENTY-FIRST SUPPLEMENTAL INDENTURE ................................................................................ I-1

APPENDIX II FORMS OF APPROVING OPINIONS OF BOND COUNSEL AND ATTORNEY GENERAL ................................................................................................................................................ II-1

APPENDIX III FORM OF CONTINUING DISCLOSURE UNDERTAKING ................................................... III-1 APPENDIX IV SYNOPSIS OF PRINCIPAL FLOW OF FUNDS FOR POOLED PROJECT BONDS

OF A SINGLE TYPE AND CLASS AND SYNOPSIS OF USE OF RELEASED ACCOUNT MONEYS UNDER THE INDENTURE ................................................................................................. IV-1

APPENDIX V BOOK-ENTRY ONLY SYSTEM ................................................................................................. V-1 APPENDIX VI OUTSTANDING PRIOR BONDS AND RESERVE ACCOUNT REQUIREMENTS ............. VI-1 APPENDIX VII BONDS TO BE REFUNDED .................................................................................................. VII-1

Official Statement 1

OFFICIAL STATEMENT

$282,720,000 MICHIGAN FINANCE AUTHORITY

STATE REVOLVING FUND REVENUE BONDS

consisting of

$225,860,000 Clean Water Revolving Fund Revenue Refunding Bonds, Series 2011

$56,860,000


This Official Statement (including the cover page, and Appendices to it) is being distributed in order to furnish information in connection with the sale of the Clean Water Revolving Fund Revenue Refunding Bonds, Series 2011 (the “Series 2011 Clean Water Refunding Bonds”) and the Drinking Water Revolving Fund Revenue Refunding Bonds, Series 2011 (the “Series 2011 Drinking Water Refunding Bonds”, and together with the Series 2011 Clean Water Refunding Bonds, the “Series 2011 Refunding Bonds”), by the Michigan Finance Authority, as successor to the Michigan Municipal Bond Authority (the “Authority”). The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds are issued under a State Revolving Fund Revenue Bonds Master Indenture dated as of October 1, 1992, as amended and restated as of July 1, 1998 (the “Master Indenture”), and as amended and supplemented to the date hereof by supplemental indentures including the Twenty-First Supplemental Indenture dated as of November 1, 2011 (the “Twenty-First Supplemental Indenture”) (the Master Indenture as so amended and supplemented is hereafter referred to as the “Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A. (successor to NBD Bank, Detroit, Michigan), as Trustee (the “Trustee”), and in accordance with Act No. 227 of the Public Acts of 1985 of the State of Michigan, as amended (the “Act”).

The Master Indenture authorizes the issuance and sale of bonds, pursuant to Supplemental Indentures, in any one or more of several Classes and Types (defined below). Separate Series of Bonds will be so designated in Supplemental Indentures. Bonds of different Types are separately secured, but Bonds which are Outstanding and which are of the same Type, regardless of their original issue date, are equally and ratably secured under the Indenture. Subordinate Bonds, in addition to being secured by the Security pledged therefor under the Master Indenture, are secured on a subordinate basis by Released Account Moneys Related to a different Type of Bonds.

The Series 2011 Clean Water Refunding Bonds are Bonds of the Clean Water Revolving Fund Revenue Bond Class and the PPB-III Type (defined below). Bonds of the PPB-III Type will be separately secured from other Types of Bonds of the Clean Water Revolving Fund Revenue Bond Class. Bonds of the Clean Water Revolving Fund Revenue Bond Class and the PPB-III Type have been previously issued by the Authority and are Outstanding. See “SOURCES OF PAYMENT FOR THE SERIES 2011 REFUNDING BONDS” in this Official Statement.

The Series 2011 Clean Water Refunding Bonds will be issued to provide funds for the purpose of (a) making a deposit to the 2011 Clean Water Refunding Escrow Account under the Escrow Agreement (defined below) to be used to refund the Authority’s outstanding Clean Water Revolving Fund Revenue Bonds, Series 2001 and Clean Water Revolving Fund Revenue Bonds, Series 2002 (collectively, the “Clean Water Bonds To Be Refunded”), and (b) making a deposit to the Costs of Issuance Fund for the


purpose of providing for the payment of costs of issuance related to the Series 2011 Clean Water Refunding Bonds. See “APPENDIX VII” for a list of the Clean Water Bonds To Be Refunded.

The Series 2011 Drinking Water Refunding Bonds are of the Drinking Water Revolving Fund Revenue Bonds Class and the Type DWPPB-III (defined below). Bonds of the Type DWPPB-III have not been previously been issued by the Authority and will be separately secured from other Types of Bonds of the Drinking Water Revolving Fund Revenue Bonds Class. See “SOURCES OF PAYMENT FOR THE SERIES 2011 REFUNDING BONDS” in this Official Statement.

The Series 2011 Drinking Water Refunding Bonds will be issued to provide funds for the purpose of (a) making a deposit to the 2011 Drinking Water Refunding Escrow Account under the Escrow Agreement to be used to refund the Authority’s outstanding Drinking Water Revolving Fund Revenue Bonds, Series 2001 and Drinking Water Revolving Fund Revenue Bonds, Series 2002 (collectively, the “Drinking Water Bonds To Be Refunded, and, together with the Clean Water Bonds To Be Refunded, the “Bonds To Be Refunded”), and (b) making a deposit to the Costs of Issuance Fund for the purpose of providing for the payment of costs of issuance related to the Series 2011 Drinking Water Refunding Bonds. See “APPENDIX VII” for a list of the Drinking Water Bonds To Be Refunded.

CAPITALIZED TERMS USED IN THIS OFFICIAL STATEMENT THAT ARE NOT OTHERWISE DEFINED IN THIS OFFICIAL STATEMENT HAVE THE MEANINGS SET FORTH IN “APPENDIX I – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND TWENTY-FIRST SUPPLEMENTAL INDENTURE” ATTACHED TO THIS OFFICIAL STATEMENT.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


INTRODUCTORY STATEMENT

The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds, which are of the Clean Water Revolving Fund Revenue Bond Class and the Type PPB-III and the Drinking Water Revolving Fund Revenue Bond Class and the Type DWPPB-III, respectively, are the sole Bonds issued pursuant to this Official Statement and the Twenty-First Supplemental Indenture.

Bonds of the Clean Water Revolving Fund Revenue Bond Class of the Type PPB-III have previously been issued by the Authority and are Outstanding, and will be separately secured from all other Types of Bonds.

Bonds of the Drinking Water Revolving Fund Revenue Bond Class of the Type DWPPB-III have not previously been issued by the Authority, and will be separately secured from all other Types of Bonds.

Below is a summary review of the Authority’s State Revolving Fund programs. For more detailed information, see “STATE REVOLVING FUND PROGRAMS AND FLOW OF FUNDS” and “GENERAL PROVISIONS OF STATE REVOLVING FUND LOAN PROGRAMS” herein.

Pursuant to the Act, the Authority’s State Revolving Fund programs have been established for the purpose of making loans (the “Loans”) to political subdivisions of the State of Michigan (the “State”) for financing local water pollution control and drinking water projects. The Authority’s State Revolving Fund programs currently consist of the State Clean Water Revolving Fund Program and the State Drinking Water Revolving Fund Program. Counties, cities, townships, villages, authorities, districts or other political subdivisions of the State (the “Governmental Units”) issue municipal obligations (the “Municipal Obligations”), which evidence the Loan to the Governmental Units and which are purchased by the Authority.

The Governmental Units use the proceeds of these Loans to finance water pollution control projects and drinking water projects, as described under the caption “STATE REVOLVING FUND PROGRAMS AND FLOW OF FUNDS –State Revolving Fund Programs,” herein.

Pursuant to the Master Indenture, the Bonds of any Series may consist of the following Classes of Bonds: (i) Clean Water Revolving Fund Revenue Bonds and (ii) Drinking Water Revolving Fund Revenue Bonds. In addition, the Bonds of any Series may consist of the following Types of Bonds: (i) separately designated Types of Local Project Bonds, (ii) separately designated Types of Pooled Project Bonds, (iii) separately designated Types of State Match Bonds, and (iv) additional Types as provided for in a Supplemental Indenture. Type designations may be changed in accordance with the Indenture. Unless otherwise provided in a Supplemental Indenture, all Bonds of the same Type must also be of the same Class.

Under Supplemental Indentures, each Type of Bond has specified Pledged Funds which typically include Related Accounts of the Revenue Fund, Reserve Fund, if any, Debt Service Fund and Loan Fund. In addition to these Pledged Funds, all Types of Bonds share to the extent provided in the Indenture from any Released Account Moneys. This provides cross-collateralization between different Classes and Types of Bonds. (See “APPENDIX IV” herein).

The Authority has Outstanding Bonds of the Clean Water Revolving Fund Revenue Bond Class and of the Types “PPB-I,” “PPB-III,” “CWRRB-II,” and “SRB-I” (collectively, the “Prior Clean Water Bonds”) (see “APPENDIX VI” herein for a list of Outstanding Prior Bonds and PPB-I and DWPPB-I Reserve Account Requirements). Bonds of the Type “PPB-I” have been issued for the purposes of


providing funds to purchase Municipal Obligations, to capitalize a portion of the interest on the Bonds, to provide for costs of issuance related to the Bonds and to refund other Bonds of the same Class issued by the Authority. Bonds of the Type “PPB-III” have been issued for the purposes of providing funds to purchase Municipal Obligations, to capitalize a portion of the interest on the Bonds, to provide for costs of issuance related to the Bonds and to refund other Bonds of the same Class issued by the Authority. Bonds of the Type “CWRRB-II” and “SRB-I” were issued to refund a portion of the then outstanding “PPB-I” Bonds. There are no Related State Match Bonds currently Outstanding.

In connection with the issuance of the Series 2011 Clean Water Refunding Bonds, the Clean Water Bonds To Be Refunded, which are of the Type PPB-I, will be defeased and no longer be considered Outstanding.

The Authority has Outstanding Bonds of the Drinking Water Revolving Fund Revenue Bond Class and of the Types “DWPPB-I” and “DWRRB-I” (collectively, the “Prior Drinking Water Bonds”) (see “APPENDIX VI” herein for a list of Outstanding Prior Bonds and PPB-I and DWPPB-I Reserve Account Requirements). Bonds of the Type “DWPPB-I” were used for the purpose of providing funds to purchase Municipal Obligations, to capitalize a portion of the interest on the Bonds and to provide for costs of issuance related to the Bonds. Bonds of the Type “DWRRB-I” were issued to refund a portion of the then outstanding “DWPPB-I” Bonds. There are no Related State Match Bonds currently Outstanding.

In connection with the issuance of the Series 2011 Drinking Water Refunding Bonds, the Drinking Water Bonds To Be Refunded, which are of the Type DWPPB-I, will be defeased and no longer be considered Outstanding.

Subject to any restrictions provided within the Indenture, the Authority expects in the future to issue Bonds of the same Types as the Prior Clean Water Bonds and the Series 2011 Clean Water Refunding Bonds, and the Prior Drinking Water Bonds and the Series 2011 Drinking Water Refunding Bonds, and to issue Bonds of other Types for purposes described in this Official Statement. The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds, when and if issued, will be payable solely from the Security pledged for the payment of Bonds of the same Class and Type under the Indenture, including those Loan Repayments designated by the Indenture and moneys on deposit in the funds and accounts Related to Bonds of the same Type, and to the extent provided by the Indenture, earnings of such funds and accounts. See “SOURCES OF PAYMENT FOR THE SERIES 2011 REFUNDING BONDS” in this Official Statement.

The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds are not in any way a debt, liability or obligation (moral or otherwise) of the State or any political subdivision thereof, and do not constitute a pledge of the faith and credit or taxing power of the State. The Authority has no taxing power.

The Trustee has been appointed to act as Escrow Trustee, Bond Registrar and Paying Agent with respect to the Series 2011 Refunding Bonds.

The following are summary descriptions of and information regarding, among other things, Sources of Payment for the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds, the Series 2011 Clean Water Refunding Bonds and Series 2011 Drinking Water Refunding Bonds Plans of Refunding, Estimated Sources and Uses of Funds, the Authority, the State Revolving Fund Programs and Flow of Funds, General Provisions of the State Clean Water Revolving Fund Loan Program and State Drinking Water Revolving Fund Loan Program, Additional Bonds and the tax status of the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds. A summary of certain provisions of the Master Indenture and the Twenty-First Supplemental Indenture is contained in Appendix I attached to this Official Statement. Such descriptions and information do not purport to be comprehensive and the descriptions of documents in this Official Statement are qualified in their entirety by reference to


such documents and to laws and principles of equity relating to creditors’ rights. Copies of the Indenture and other documents are available for inspection at the designated office of the Trustee.

SOURCES OF PAYMENT FOR THE SERIES 2011 REFUNDING BONDS

The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds shall not be in any way a debt, liability or obligation (moral or otherwise) of the State or any political subdivision of the State other than the Authority and shall not create or constitute any indebtedness, liability or obligation of the State, other than the Authority, or any political subdivision of the State, or be or constitute a pledge of the full faith and credit or the taxing power of the State or any political subdivision of the State. The Authority has no taxing power.

The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds are limited obligations of the Authority, payable by the Authority solely from the Security pledged for them under the Indenture, primarily payments received with respect to Related Loans acquired by the Authority, as described in this Official Statement, earnings on the Related Accounts and amounts in the Related Accounts held by the Trustee under the Indenture.

Under the Indenture, Accounts for each Type of Bond within each Class of Bonds are established in the various Funds created by the Indenture. The Indenture considers Accounts established with respect to the same Type of Bonds to be Related Accounts and Accounts established with respect to one Type of Bonds to be Related to all Bonds of that Type. Accounts established with respect to a Type of Subordinate Bonds are Subordinately Related to all Bonds of the Type to which they are subordinate. Municipal Obligations are acquired with amounts in the Loan Account. The Authority’s State Clean Water Revolving Fund Subordinate Refunding Bonds, Series 2010 are its only outstanding Subordinate Bonds. The 2011 Series Bonds are not Subordinate Bonds. See “APPENDIX VI” herein for a list of Outstanding Prior Bonds and PPB-I and DWPPB-I Reserve Account Requirements.

Loans are considered Related Loans to the Bonds of a Type if the Loan is made from the Loan Account Related to the Bonds of that Type, if the Loan is designated as a Project Loan Related to the Bonds of that Type, or if it is a Related Direct Loan which is a Direct Loan (or an undivided or allocated interest in a Direct Loan) which has been made available by the Authority as Security and designated to be Related to the Bonds of that Type in or pursuant to the Indenture.

The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds are Bonds of different Types and are separately secured. All Bonds of the same Class and Type, if any, will be secured by the Pledged Funds with respect to the Bonds of that Class and Type and the Authority’s rights and interests in and to Loan Repayments with respect to Related Loans, as provided by the Indenture. With respect to the Bonds of any Type, Pledged Funds include and to the extent provided in the Indenture with respect to such Type, the Related Accounts or subordinately Related Accounts of the Debt Service Fund, Revenue Fund, Reserve Fund and Loan Fund and all moneys, instruments and investments from time to time in such Related Accounts. Pledged Funds do not include the Costs of Issuance Fund or the Related Account of the Rebate Fund.

INFORMATION REGARDING THE SERIES 2011 REFUNDING BONDS

General

The Series 2011 Clean Water Refunding Bonds are the third Series of Bonds of the Type PPB-III issued by the Authority and the Series 2011 Drinking Water Refunding Bonds are the first Series of Bonds


of the Type DWPPB-III issued by the Authority. See “APPENDIX VI” herein for a list of Outstanding Prior Bonds and PPB-I and DWPPB-I Reserve Account Requirements.

The Series 2011 Refunding Bonds will mature on the dates and in the principal amounts set forth on the inside cover page of this Official Statement. The Series 2011 Refunding Bonds will bear interest from their dated date until maturity or prior redemption, payable commencing on April 1, 2012, and semi-annually on each subsequent October 1 and April 1. The Series 2011 Refunding Bonds will be issued as fully registered bonds in denominations of $5,000 and integral multiples of $5,000, and will be registered in the name of Cede & Co. as nominee of the Depository Trust Company, New York, New York, which will act as securities depository for the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds. Bondholders will not receive certificates representing their ownership interest in the Bonds purchased. See “APPENDIX V – Book-Entry Only System.”

Replacement Bonds

In the event that the book-entry-only system is discontinued, the Trustee will authenticate and make available for delivery replacement Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds in the form of fully registered bond certificates. In addition, the following provisions would apply: (a) principal of and redemption premium, if any, on the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds will be payable in lawful money of the United States of America at the designated office of the Trustee or such other office as may be designated by the Authority; (b) interest on the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds will be payable by check or draft mailed to the registered owners of the applicable Bonds or, upon five days written notice to the Bond Registrar and Paying Agent given by a Registered Owner of the applicable Bonds in an aggregate principal amount of at least $1,000,000, by wire transfer of funds to a bank account designated by such Registered Owner; and (c) interest on the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds will be payable to the Registered Owners whose names appear on the registration books of the Bond Registrar and Paying Agent as of the close of business on the 15th day of the calendar month immediately preceding the applicable interest payment date, all as provided more particularly in the Indenture.

Optional Redemption

The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds maturing prior to October 1, 2022, are not subject to optional redemption prior to maturity.

The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds maturing on or after October 1, 2022, are subject to redemption at the option of the Authority on or after October 1, 2021, in whole or in part, at any time, at the redemption price of 100% of the principal amount being redeemed, plus accrued interest to the redemption date.

Redemption Procedures

Notice of Redemption

The Bond Registrar and Paying Agent will mail, by first class mail, as specified in the Indenture, a notice of redemption, which may be conditioned on certain factors such as the availability of funds therefor, to the Owners of Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds to be redeemed at least 30 and not more than 60 days prior to the redemption date. A second notice of redemption shall be given within 60 days after the redemption date in the required manner to the registered Owners of redeemed Bonds which have not been presented for payment within 30 days after the redemption date. The failure of any Owner to receive any such notice or any defect in such


notice with respect to any Bond or portion of the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds will not affect the validity of any proceedings for the redemption of any Series 2011 Refunding Bonds.

Selection of Bonds to be Redeemed

When Series 2011 Clean Water Refunding Bonds are to be redeemed in part at the option of the Authority, the Authority shall specify to the Bond Registrar and Paying Agent the Original Issue Date and maturity date or dates of the Series 2011 Clean Water Refunding Bonds from which Series 2011 Clean Water Refunding Bonds or portions of Series 2011 Clean Water Refunding Bonds to be redeemed shall be selected. Subject to the Authority’s specification, the particular Series 2011 Clean Water Refunding Bonds or portions of Series 2011 Clean Water Refunding Bonds to be redeemed will be selected by the Bond Registrar and Paying Agent by lot or in such other manner as the Bond Registrar and Paying Agent in its discretion may deem fair, provided that (a) if only a portion of any Series 2011 Clean Water Refunding Bond is to be redeemed, the principal amount of the portion remaining Outstanding will be equal to $5,000 or an integral multiple of $5,000 and (b) in selecting Series 2011 Clean Water Refunding Bonds for redemption, the Bond Registrar and Paying Agent will treat each Series 2011 Clean Water Refunding Bond as representing that number of Series 2011 Clean Water Refunding Bonds that is obtained by dividing the principal amount of such Series 2011 Clean Water Refunding Bond by $5,000.

When Series 2011 Drinking Water Refunding Bonds are to be redeemed in part at the option of the Authority, the Authority shall specify to the Bond Registrar and Paying Agent the Original Issue Date and maturity date or dates of the Series 2011 Drinking Water Refunding Bonds from which Series 2011 Drinking Water Refunding Bonds or portions of Series 2011 Drinking Water Refunding Bonds to be redeemed shall be selected. Subject to the Authority’s specification, the particular Series 2011 Drinking Water Refunding Bonds or portions of Series 2011 Drinking Water Refunding Bonds to be redeemed will be selected by the Bond Registrar and Paying Agent by lot or in such other manner as the Bond Registrar and Paying Agent in its discretion may deem fair, provided that (a) if only a portion of any Series 2011 Drinking Water Refunding Bonds is to be redeemed, the principal amount of the portion remaining Outstanding will be equal to $5,000 or an integral multiple of $5,000 and (b) in selecting Series 2011 Drinking Water Refunding Bonds for redemption, the Bond Registrar and Paying Agent will treat each Series 2011 Drinking Water Refunding Bonds as representing that number of Series 2011 Drinking Water Refunding Bonds that is obtained by dividing the principal amount of such Series 2011 Drinking Water Refunding Bond by $5,000.

PLAN OF FINANCE

Series 2011 Clean Water Refunding Bonds

The Series 2011 Clean Water Refunding Bonds are being issued under the Act and the Twenty-First Supplemental Indenture to refund the Clean Water Bonds To Be Refunded, which will be called for redemption on the dates shown in Appendix VII. A portion of the proceeds of the Series 2011 Clean Water Refunding Bonds, together with certain other amounts available under the Indenture, will be deposited into an escrow account (the “2011 Clean Water Refunding Escrow Account”) created pursuant to the Escrow Agreement and will be used to purchase Government Obligations or held as cash. The Government Obligations will bear interest at such rates and will be scheduled to mature at such times and in such amounts so that, when paid in accordance with their respective terms and when added to cash balances on hand, sufficient money will be available therefrom to pay, when due upon redemption, the principal of, and interest becoming due on, the Clean Water Bonds To Be Refunded. Government Obligations and moneys held in the 2011 Clean Water Refunding Escrow Account will be held in trust and used solely for the payment of the Clean Water Bonds To Be Refunded. The Clean Water Bonds To Be Refunded will no longer be secured by any of the Loans which have been made from the proceeds of the


Clean Water Bonds To Be Refunded following the issuance of the Series 2011 Clean Water Refunding Bonds, and such Loans will be pledged as security for the Series 2011 Clean Water Refunding Bonds and Bonds of the same Type (except for those Loans which have been released as Security for such Bonds). The Loans to be pledged as security for the Series 2011 Clean Water Refunding Bonds and Bonds of the same Type consist of Loans, a portion of which were formerly pledged as Security for the Clean Water Bonds To Be Refunded, and Project Loans in the aggregate amount of approximately $837,312,331. See “STATE REVOLVING FUND PROGRAMS AND FLOW OF FUNDS—Projected Cash Flow Schedules” below.

Series 2011 Drinking Water Refunding Bonds

The Series 2011 Drinking Water Refunding Bonds are being issued under the Act and the Twenty-First Supplemental Indenture to refund the Drinking Water Bonds To Be Refunded which will be called for redemption on the dates shown in Appendix VII. A portion of the proceeds of the Series 2011 Drinking Water Refunding Bonds, together with certain other amounts available under the Indenture, will be deposited into an escrow account (the “2011 Drinking Water Refunding Escrow Account”) created pursuant to the Escrow Agreement and will be used to purchase Government Obligations or held as cash. The Government Obligations will bear interest at such rates and will be scheduled to mature at such times and in such amounts so that, when paid in accordance with their respective terms and when added to cash balances on hand, sufficient money will be available therefrom to pay, when due upon redemption, the principal of, and interest becoming due on, the Drinking Water Bonds To Be Refunded. Government Obligations and moneys held in the 2011 Drinking Water Refunding Escrow Account will be held in trust and used solely for the payment of the Drinking Water Bonds To Be Refunded. The Drinking Water Bonds To Be Refunded will no longer be secured by any of the Loans which have been made from the proceeds of the Drinking Water Bonds To Be Refunded following the issuance of the Series 2011 Drinking Water Refunding Bonds, and such Loans will be pledged as security for the Series 2011 Drinking Water Refunding Bonds and Bonds of the same Type (unless any such Loans have been released as Security for such Bonds). The Loans to be pledged as security for the Series 2011 Drinking Water Refunding Bonds and Bonds of the same Type consist of Loans which were formerly pledged as Security for the Drinking Water Bonds To Be Refunded in the aggregate amount of approximately $76,602,079. See “STATE REVOLVING FUND PROGRAMS AND FLOW OF FUNDS—Projected Cash Flow Schedules” below.

Attached as Appendix VII is a listing of the Clean Water Bonds To Be Refunded which will be refunded with the proceeds of the Series 2011 Clean Water Refunding Bonds and the Drinking Water Bonds To Be Refunded which will be refunded with the proceeds of the Series 2011 Drinking Water Refunding Bonds. See also Appendix IV herein for a chart related to the flow and use of funds for the Series 2011 Refunding Bonds.

ESTIMATED SOURCES AND USES OF FUNDS

The Series 2011 Clean Water Refunding Bonds

SOURCES:

Series 2011 Clean Water Refunding Bonds Par Amount $ 225,860,000.00 Original Issue Premium 34,843,866.50

Other Available Funds∗ 170,552,100.25 Total Sources $431,255,966.75


USES:

Deposit to Series 2011 Clean Water Refunding Bonds Escrow $289,052,337.56 Deposit to PPB-III Reserve Account 140,390,000.00 Deposit to Costs of Issuance Fund 787,777.45 Underwriters’ Discount 1,025,851.74 Total Uses $431,255,966.75

∗ Includes funds transferred from existing PPB-I Reserve Account, transfers of funds from the applicable Revenue Account and Loan Prepayment Subaccount under the Indenture, and a portion of termination payments and accrued interest received with respect to the termination of certain PPB-I Reserve Account investment agreements.

The Series 2011 Drinking Water Refunding Bonds

SOURCES:

Series 2011 Drinking Water Refunding Bonds Par Amount $ 56,860,000.00 Original Issue Premium 7,612,739.80

Other Available Funds∗ 40,398,320.53 Total Sources $104,871,060.33

USES:

Deposit to Series 2011 Drinking Water Refunding Bonds Escrow $ 70,235,516.98 Deposit to DWPPB-III Reserve Account 34,048,388.54 Deposit to Costs of Issuance Fund 328,454.16 Underwriters’ Discount 258,700.65 Total Uses $104,871,060.33

∗ Includes funds transferred from existing DWPPB-I Reserve Account, transfers of funds from the applicable Revenue Account and Loan Prepayment Subaccount under the Indenture, and a portion of termination payments and accrued interest received with respect to the termination of certain DWPPB-I Reserve Account investment agreements.

STATE REVOLVING FUND PROGRAMS AND FLOW OF FUNDS

State Revolving Fund Programs

State Clean Water Revolving Fund Program – The federal Water Quality Act of 1987 (the “Water Quality Act”), which amended the Clean Water Act of 1972, provides for the establishment of state loan programs which require that, as a condition for receipt of certain federal financial assistance, each state establish a revolving fund administered by the state or an instrumentality of the state. The purpose of the State Clean Water Revolving Fund (as defined below) is to provide a source for loans and other types of financial assistance (other than direct grants) to local entities for the construction of publicly owned wastewater treatment facilities.


State Drinking Water Revolving Program – The federal Safe Drinking Water Act of 1996, (the “Drinking Water Act”), which amended the Safe Drinking Water Act of 1974, provides for the establishment of state loan programs which require that as a condition for receipt of certain federal financial assistance, each state establish a revolving fund administered by the state or an instrumentality of the state. The purpose of the State Drinking Water Revolving Fund is to provide a source for loans and other types of financial assistance (other than direct grants) to local entities for community water supplies and non-community water supplies.

THE SERIES 2011 CLEAN WATER REFUNDING BONDS ARE CLEAN WATER REVOLVING FUND REVENUE BONDS AND ARE BEING ISSUED PURSUANT TO THE STATE’S CLEAN WATER REVOLVING FUND PROGRAM. THE SERIES 2011 DRINKING WATER REFUNDING BONDS ARE DRINKING WATER REVOLVING FUND REVENUE BONDS AND ARE BEING ISSUED PURSUANT TO THE STATE’S DRINKING WATER REVOLVING FUND PROGRAM.

Eligibility and Financial Assistance

Pursuant to the Act, the State has directed the Authority to establish the State Clean Water Revolving Fund (the “State Clean Water Revolving Fund”) and the State Drinking Water Revolving Fund (the “State Drinking Water Revolving Fund” and, together with the State Clean Water Revolving Fund, the “State Revolving Funds” ). The Act permits the moneys in the State Clean Water Revolving Fund and the State Drinking Water Revolving Fund to be applied to provide financial assistance, as defined in the Natural Resources and Environmental Protection Act, 1994 PA 451, as amended (“Act 451”) to a Governmental Unit for construction of eligible projects and certain other purposes, as permitted by the Water Quality Act and the Drinking Water Act, respectively. The Authority is authorized to make Loans to a Governmental Unit for eligible projects determined pursuant to Act 451. Different eligibility criteria have been established for State Clean Water Revolving Fund projects and for State Drinking Water Revolving Fund projects. Act 451 provides the procedures which a Governmental Unit must follow to receive assistance from either the State Clean Water Revolving Fund or the State Drinking Water Revolving Fund.

Capitalization of State Revolving Funds

The State Clean Water Revolving Fund and the State Drinking Water Revolving Fund are each capitalized through Federal Capitalization Grants awarded by the federal EPA to the State and are matched by funds provided by the State (“Federal Capitalization Grants”). To receive Federal Capitalization Grants, the State must provide its matching funds in a ratio of $1 of State matching funds for every $5 of Federal Capitalization Grants.

Through fiscal year 2011, approximately $1.319 billion in Clean Water Matching Federal Capitalization Grants have been awarded by the federal Environmental Protection Agency to the State, covering federal fiscal years ending September 30, 1989, through September 30, 2011.

Through fiscal year 2011, approximately $465 million in Drinking Water Matching Federal Capitalization Grants have been awarded by the federal Environmental Protection Agency to the State, covering federal fiscal years ending September 30, 1997, through September 30, 2011.

Cash draws are made on the Federal Capitalization Grants to fund Loans to Governmental Units to pay eligible project construction costs.

Flow of Funds

The following is a description of the flow of funds as applicable under the Indenture for the Series 2011 Refunding Bonds and any Bonds which may be Related to the Series 2011 Refunding Bonds. The


Authority expects in the future to issue Bonds of the same Types as the Series 2011 Refunding Bonds and State Match Bonds which may be Related to the Series 2011 Refunding Bonds. See “APPENDIX IV” herein for a chart related to the flow and use of funds for the Series 2011 Refunding Bonds.

Creation of Funds and Accounts. The following funds are created under the Master Indenture: the Reserve Fund, the Loan Fund, the Revenue Fund, the Debt Service Fund, the Cost of Issuance Fund, and the Rebate Fund. For each Type of Bond separate accounts may be established within the Loan Fund, the Debt Service Fund, Rebate Fund, the Reserve Fund and the Revenue Fund by the Indenture. Moneys shall be held in, and transfers shall be made to, the separate accounts of such funds in accordance with the Indenture.

Reserve Fund. A PPB-III Reserve Account and a PPB-III Supplemental Reserve Account have been established, in the Reserve Fund, for the Outstanding Prior Clean Water Bonds of the Type PPB-III, the Series 2011 Clean Water Refunding Bonds and other Bonds which may be issued in the future which are the same Class and Type. A DWPPB-III Reserve Account has also been established, in the Reserve Fund, for the Series 2011 Drinking Water Refunding Bonds and other Bonds which may be issued in the future which are the same Class and Type.

The Indenture provides that there is no Minimum Reserve Account Requirement for the Prior Clean Water Bonds of the Type PPB-III, the Series 2011 Clean Water Refunding Bonds, any subsequent Series of Bonds of the Clean Water Revolving Fund Revenue Bonds Class and the Type PPB-III, and each Series of State Match Bonds Related to such Bonds. As a result, the PPB-III Reserve Account is presently not funded.

The Indenture provides that there is no Minimum Reserve Account Requirement for the Series 2011 Drinking Water Refunding Bonds, any subsequent Series of Bonds of the Drinking Water Revolving Fund Revenue Bonds Class and the Type DWPPB-III, and each Series of State Match Bonds Related to such Bonds. Bonds of the Type DWPPB-III have not previously been issued by the Authority, and so the DWPPB-III Reserve Account is also not presently funded.

Upon the issuance of the Series 2011 Refunding Bonds, the PPB-III Reserve Account will be initially funded with moneys released from the PPB-I Reserve Account in connection with the defeasance of the Clean Water Bonds To Be Refunded, and the DWPPB-III Reserve Account will be funded with moneys released from the DWPPB-I Reserve Account in connection with the defeasance of the Drinking Water Bonds To Be Refunded.

If and when additional Bonds of the Clean Water Revolving Fund Revenue Bond Class and Type PPB-III or State Match Bonds Related to the Prior Clean Water Bonds of the Type PPB-III and the Series 2011 Clean Water Refunding Bonds are issued, the PPB-III Reserve Account will be a Related Account to such additional Bonds. If and when additional Bonds of the Drinking Water Revolving Fund Revenue Bond Class and Type DWPPB-III or State Match Bonds Related to the Series 2011 Drinking Water Refunding Bonds are issued, the DWPPB-III Reserve Account will be a Related Account to such additional Bonds.

Before Additional Bonds Related to Bonds of the Clean Water Revolving Fund Revenue Bonds Class and Type PPB-III or Drinking Water Revolving Fund Revenue Bonds Class and Type DWPPB-III may be issued, the Reserve Account established for that Type of Bond must contain an amount sufficient to meet the Reserve Account Requirement as applicable on the Outstanding Bonds of that Class and Type. As Additional Bonds of each Class and Type and Related State Match Bonds are issued, a separate Reserve Account Requirement will be established for each Series of Related Bonds, the sum of which will then be the new Reserve Account Requirement for the Reserve Account established for that Class and Type. See “ADDITIONAL BONDS.”


Investment earnings on a Reserve Account shall be transferred, first, to the Revenue Account for Related State Match Bonds, if any, in an amount sufficient (together with other available amounts) to pay Debt Service on the Related State Match Bonds on the day of the transfer or on the next Payment Date if the transfer is not on a Payment Date and, second, to the Related Revenue Account. To the extent amounts in the Revenue Account and from available Loan Repayments on Related Loans are insufficient, amounts in the corresponding Reserve Account will be transferred to the Debt Service Account for that Class and Type. Amounts in a Reserve Account from time to time determined to be in excess of the Reserve Account Requirement for that Class and Type of Bond are designated Released Account Moneys within the Reserve Account established for that Type of Bond. See “Flow of Funds - Released Account Moneys” below.

After any transfer required to the corresponding Rebate Account created in the Rebate Fund, amounts in the PPB-III Supplemental Reserve Account, if any, may be transferred, at the direction of an Authorized Officer, to the corresponding Revenue Account, or, if provided in a supplemental indenture, to the corresponding Loan Account for the purpose of making Direct Loans or designated as Released Account Moneys. Such transfer or designation shall not be made prior to the date on which all amounts in the PPB-III Loan Account attributable to the proceeds of Bonds of the Clean Water Revolving Fund Revenue Bonds Class and of the Type PPB-III have been disbursed unless the Authority has determined that, after such action, either draws upon Clean Water or Drinking Water Federal Capitalization Grants will be released to the Authority for deposit in the PPB-III Reserve Account, in amounts anticipated in accordance with the most recently completed Sufficiency Calculation or the Reserve Account Requirements for the PPB-III Reserve Account have otherwise been satisfied. No Supplemental Reserve Account has been established with respect to the Bonds of the Drinking Water Revolving Fund Bonds Class of the Type DWPPB-III.

Loan Fund. A PPB-III Loan Account has been established in the Loan Fund for the Prior Clean Water Bonds of the Type PPB-IIII, the Series 2011 Clean Water Refunding Bonds and other Bonds which may be issued in the future which are the same Class and Type. A DWPPB-III Loan Account has been established in the Loan Fund for the Series 2011 Drinking Water Refunding Bonds and other Bonds which may be issued in the future which are the same Class and Type. No Proceeds of the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds will be deposited into the PPB-III Loan Account or the DWPPB-III Loan Account, respectively. Moneys in Loan Accounts representing Bond proceeds or other deposits by the Authority from legally available sources to make Direct Loans are expended only for the purposes of the applicable State Revolving Fund Loan Program, including the financing of Loans to Governmental Units. A portion of the Proceeds of the Prior Clean Water Bonds of the Type PPB-III were deposited in the PPB-III Loan Account. If and when Bonds of the Type PPB-III or State Match Bonds Related to Bonds of Type PPB-III are issued in the future, the proceeds of those Related Bonds may be deposited in the PPB-III Loan Account as specified and determined by the Supplemental Indenture authorizing the issuance of those Related Bonds. If and when Bonds of the Type DWPPB-III or State Match Bonds Related to Bonds of Type DWPPB-III are issued in the future, the proceeds of those Related Bonds may be deposited in the DWPPB-III Loan Account as specified and determined by the Supplemental Indenture authorizing the issuance of those Related Bonds.

Investment earnings on Loan Accounts shall be transferred first to the corresponding Revenue Account for Related State Match Bonds, if any, in an amount sufficient (together with other available amounts) to pay Debt Service on the Related State Match Bonds on the day of the transfer or on the next Payment Date if the transfer is not on a Payment Date. Any remaining amount of interest earnings on a Loan Account, if any, shall be transferred to the Revenue Account established for the same Class and Type of Bonds.

Revenue Fund. A PPB-III Revenue Account has been established in the Revenue Fund for the Outstanding Prior Clean Water Bonds of the Type PPB-III, the Series 2011 Clean Water Refunding Bonds, and other Bonds which may be issued in the future which are the same Class and Type. A


DWPPB-III Revenue Account has been established in the Revenue Fund for the Series 2011 Drinking Water Refunding Bonds and other Bonds which may be issued in the future which are the same Class and Type. The Indenture also provides for the creation of a separate Revenue Account for any State Match Bonds which may be issued and designated to be Related to such Bonds.

Each Revenue Account shall receive the designated amount of accrued interest from the proceeds of Bonds of the same Class and Type, if any, the transfers designated to the PPB-III Revenue Account or the DWPPB-III Revenue Account from the Loan Account established for each Class and Type of Bond, and the investment earnings on each respective Revenue Account. In addition, Interest Loan Repayments on Related Loans and the investment earnings on a corresponding Reserve Account shall be transferred first to the Revenue Account for Related State Match Bonds, if any, in an amount sufficient (together with other available amounts) to pay Debt Service on the Related State Match Bonds on the day of the transfer or on the next Payment Date if the transfer is not on a Payment Date. Any remaining amount of interest payments on Related Loans and investment earnings on a corresponding Reserve Account, if any, plus amounts attributable to the proceeds of the Bonds of the Class and Type corresponding to the Reserve Account, which are transferred from the Reserve Account and Principal Loan Repayments on Related Loans and Loans designated as Related Project Loans, shall be transferred to the corresponding Revenue Account.

Upon the issuance of the Series 2011 Clean Water Refunding Bonds, Loans Related to the Series 2011 Clean Water Refunding Bonds will include Loans from Prior Clean Water Bond Proceeds of the Type PPB-III (unless any such Loans have been released as Security for those Bonds), Loans designated as Project Loans Related to the Clean Water Bonds of the Type PPB-III, and Direct Loans to which the Clean Water Bonds of the Type PPB-III are Related. If and when State Match Bonds related to the Prior Clean Water Bonds of the Type PPB-III and the Series 2011 Clean Water Refunding Bonds are issued, Loans from the proceeds of those Related State Match Bonds will also be considered Related Loans.

Upon the issuance of the Series 2011 Drinking Water Refunding Bonds, Loans Related to the Series 2011 Drinking Water Refunding Bonds will include Loans designated as Project Loans Related to the Series 2011 Drinking Water Refunding Bonds, and Direct Loans to which the Series 2011 Drinking Water Refunding Bonds are Related. If and when State Match Bonds related to the Series 2011 Drinking Water Refunded Bonds are issued, Loans from the proceeds of those Related State Match Bonds will also be considered Related Loans.

Amounts in a Revenue Account, after any necessary transfer to the corresponding Rebate Account created in the Rebate Fund to make Rebate Payments, will be transferred to the corresponding Debt Service Account. After transfers from the Revenue Account, the amounts remaining will be used to pay Bond Servicing Costs. If any amounts remain in a Revenue Account at any time, those remaining amounts, after a Sufficiency Calculation is made by the Authority, may be transferred to the corresponding Related Loan Account, if any, to make Related Direct Loans or may be determined by the Authority to be Released Account Moneys after having made a Sufficiency Calculation with respect to the Bonds of the same Class and Type to which the applicable Revenue Account relates and taking into account such determination. Principal repayments of Direct Loans or Loans made from the proceeds of any Related State Match Bonds will also be Released Account Moneys. See “Flow of Funds—Released Account Moneys” in this Official Statement.

Debt Service Fund. A PPB-III Debt Service Account has been established in the Debt Service Fund for the Prior Clean Water Bonds of the Type PPB-III, the Series 2011 Clean Water Refunding Bonds, and other Bonds which may be issued in the future which are the same Class and Type. A DWPPB-III Debt Service Account has been established in the Debt Service Fund for the Series 2011 Drinking Water Refunding Bonds and other Bonds which may be issued in the future which are the same Class and Type. The Indenture also provides for the creation of separate Debt Service Accounts for any State Match Bonds which may be issued and designated to be Related to any Type of Bond previously


issued. Each Debt Service Account will receive the amounts transferred from the corresponding Revenue Account. Each Debt Service Account will also receive, if the transfer from the corresponding Revenue Account is insufficient to pay Debt Service on the Type of Bond for which the Revenue Account was established, transfers first of Released Account Moneys in any Related Account or from any Related Loan, then from any amount in the Reserve Account established for that Type of Bond, if any, and finally transfers of Released Account Moneys in any non-Related Revenue or Reserve Accounts.

Amounts in each Debt Service Account will be paid out from time to time to the Trustee to pay Debt Service on Bonds of the Type for which the Debt Service Account was established and on any Related State Match Bonds which may be issued by the Authority.

Any amounts remaining in a Debt Service Account on the third Business Day after the end of the Bond Year will be transferred to the corresponding Revenue Account, except for remaining amounts held to pay the Redemption Price prior to the Redemption Date, unclaimed amounts held to pay the Redemption Price or principal at maturity, and amounts held for defeasance of any Bond of the Type to which the Debt Service Account is Related.

Released Account Moneys. Principal Loan Repayments with respect to Related Direct Loans, if any, amounts in the Related Reserve Account in excess of the Reserve Account Requirement and any amounts in a Related Revenue Account in excess of the amounts required following a Sufficiency Calculation for all Outstanding Bonds of the same Type, as defined below, are designated Released Account Moneys. Released Account Moneys will be used as follows, so long as there is on deposit in the Loan Prepayment Subaccount of the Related Revenue Account an amount sufficient to pay interest on the corresponding Bonds on the next succeeding Interest Payment Date:

(i) first, to pay Debt Service on Outstanding Bonds of the same Type before the use of amounts in the Reserve Account created for such Bonds and all other Bonds of the same Type if other available amounts are insufficient and, then, to correct any deficiency in the Reserve Account for Bonds of that Type;

(ii) second, in the case of Released Account Moneys for Bonds of the Type PPB-I, to pay debt service on Bonds of the Type SRB-I;

(iii) third, to pay Debt Service on Outstanding Bonds of a different Type and the same Class before the use of amounts in the Reserve Account created for such Bonds if other available amounts are insufficient and, then, to correct any deficiency in the Reserve Account for Bonds of that Type;

(iv) fourth, to cure any deficiency (by means of the issuance of Subordinated Funding Bonds) in a Debt Service Account for Bonds of another Class if other available amounts are insufficient, and, then, to correct any deficiency in the Reserve Account for Bonds of that Class and Type; and

(v) fifth, to pay the principal and interest on outstanding Subordinated Funding Bonds the proceeds of which were deposited in an Account Related to Bonds of the same Class as the Bonds payable from such Account.

Released Account Moneys from Accounts Related to Bonds of the Clean Water Revolving Fund Revenue Bonds Class shall be used only for Authorized Clean Water SRF Purposes and released Account Moneys from Accounts Related to Bonds of the Drinking Water Revolving Fund Revenue Bonds Class shall be used only for Authorized Drinking Water SRF Purposes or as otherwise provided in a Supplemental Indenture. See APPENDIX I-- “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND TWENTY-FIRST SUPPLEMENTAL INDENTURE,” under the subheading “MASTER INDENTURE — Pledge and Establishment of Funds and Accounts — Released Account Moneys” for a more detailed description. See also Appendix IV. To the extent not needed for


these purposes, the Indenture allows use of these Released Account Moneys for other purposes. See “Flow of Funds—Released Account Moneys” above.

Permitted Security Release. With respect to any Class and Type of Bonds, the Authority is authorized by the Indenture to direct the Trustee to release any particular Security, including a Related Loan, from the liens and pledge created by the Indenture for the Bonds of that Type if (a) the release would not result in the reduction or withdrawal of the rating on any Outstanding Bond secured by such Security and (b) a Sufficiency Calculation has been made taking the release into account. A “Sufficiency Calculation” can be made with respect to a Class and Type of Bonds if the Authority can certify that the amounts on hand or expected to be transferred to the Revenue Account for the Bonds of such Type and expected to be available to pay Debt Service on and Bond Servicing Costs related to the Bonds of such Type (including Loan Repayments from Loans then anticipated to be made but not yet made and excluding any amount expected to be derived from the corpus of the Reserve Account for the Bonds of such Type (except such amounts derived from proceeds of Related Bonds which are expected to be used to pay Debt Service), any Released Account Moneys available to pay Debt Service, and any amount required to be transferred to the Related Rebate Account) will be sufficient to pay, when due, Debt Service on all Bonds of such Type and all other Bond Servicing Costs relating to the Bonds of such Type. This Sufficiency Calculation must be made on the basis of all Outstanding Bonds of that Class and Type and all other Related Bonds of the Bond of such Class and Type.

State Match. The Indenture also authorizes the Authority to issue Bonds (i) of the same Classes and Types and State Match Bonds which are Related to the Outstanding Prior Bonds or the Series 2011 Refunding Bonds or (ii) of different Classes and Types, upon satisfaction of certain conditions specified in the Indenture. See “ADDITIONAL BONDS.” Depending upon the future availability of other State matching funds, the Authority may issue State Match Bonds which are Related to the Outstanding Prior Bonds or the Series 2011 Refunding Bonds. If State Match Bonds which are Related to the Outstanding Prior Bonds or the Series 2011 Refunding Bonds are issued, the Reserve Account and Loan Account to which the Prior Bonds or the Series 2011 Refunding Bonds are Related will also be Related Accounts to such State Match Bonds and the Loans Related to the Outstanding Prior Bonds or the Series 2011 Refunding Bonds will also be Related Loans with respect to those State Match Bonds. Investment earnings attributable to all Related Accounts created in the Reserve Fund and Loan Fund and Interest Loan Repayments with respect to Related Loans will be transferred, as received, first for payment of Debt Service on the State Match Bonds and, second, the remaining amount, if any, for payment of Debt Service on the Related Bonds. The principal of the Reserve Fund will not secure State Match Bonds. Principal Loan Repayments with respect to Related Loans will not secure State Match Bonds, but will continue to be transferred, as received, for payment of debt service on Bonds of the same Type.

Investment of Funds

Moneys held under the Indenture are to be invested in Eligible Investments by the Trustee at the direction of an Authorized Officer of the Authority. See APPENDIX I, “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND TWENTY-FIRST SUPPLEMENTAL INDENTURE,” under the heading “DEFINITIONS” and the heading “MASTER INDENTURE – Investment of Funds.”

Projected Cash Flow Schedules

The following Cash Flow Schedules illustrate projected Loan Repayments, estimated interest earnings and balances in the applicable Reserve Accounts available to pay debt service on Bonds of the Type PPB-III and the Type DWPPB-III. If necessary, Released Account Moneys, if any, will also be potentially available. (See “Flow of Funds—Released Account Moneys” above).


The actual cash flow received under the Indenture, including the Loan Repayments and actual investment earnings on reserves, if any, is subject to various factors, including general economic conditions, the demand for Loans, the credit of the Governmental Units, the credit of the issuers of investment securities in which moneys are invested, the availability of investment securities in which to invest moneys at sufficient rates and possible early termination of investments. As a result of these and other factors, the actual cash flow received under the Indenture, including the actual Loan Repayments and actual investment earnings on reserves, if any, may differ from the assumed cash flow, and these differences may be material.



Cash Flow Schedule Projected PPB-III Clean Water Bonds Cash Flow and Debt Service Coverage

Projected Aggregate Existing Series 2011 Clean Aggregate Projected PPB-III Projected PPB-III Projected PPB-III

Period PPB-III Clean Water PPB-III Clean Water Water Refunding Bonds PPB-III Clean Water Clean Water Debt Reserve Fund Reserve Fund % of Ending Total Revenue(1) Debt Service Debt Service Total Debt Service Service Coverage(2) Balance PPB-III Bonds

10/1/2012 $63,495,446.95 $26,432,437.50 $26,022,061.11 $52,454,498.61 1.21 $ 130,817,500.00 25.432%10/1/2013 62,028,073.53 26,430,637.50 25,379,250.00 51,809,887.50 1.20 120,987,500.00 24.806%10/1/2014 61,500,877.85 26,422,937.50 25,099,500.00 51,522,437.50 1.19 110,885,000.00 24.098%10/1/2015 62,411,129.93 26,428,562.50 25,521,500.00 51,950,062.50 1.20 100,502,500.00 23.328%10/1/2016 63,255,718.90 26,437,500.00 26,494,000.00 52,931,500.00 1.20 89,832,500.00 22.499%10/1/2017 63,041,570.31 26,423,600.00 26,266,500.00 52,690,100.00 1.20 78,852,500.00 21.520%10/1/2018 62,844,290.62 26,430,800.00 26,084,500.00 52,515,300.00 1.20 67,555,000.00 20.337%10/1/2019 62,493,633.48 26,428,550.00 25,684,000.00 52,112,550.00 1.20 55,930,000.00 18.856%10/1/2020 62,168,673.88 26,426,050.00 25,384,000.00 51,810,050.00 1.20 43,965,000.00 16.934%10/1/2021 61,409,203.53 26,426,650.00 24,993,000.00 51,419,650.00 1.19 31,670,000.00 14.318%10/1/2022 59,508,951.88 26,423,900.00 23,128,750.00 49,552,650.00 1.20 19,035,000.00 10.419%10/1/2023 56,300,261.15 26,429,650.00 17,923,250.00 44,352,900.00 1.27 6,070,000.00 4.116%10/1/2024 58,194,531.40 26,416,400.00 4,735,500.00 31,151,900.00 1.87 - - 10/1/2025 41,933,698.87 26,187,900.00 - 26,187,900.00 1.60 - - 10/1/2026 41,244,272.37 26,427,650.00 - 26,427,650.00 1.56 - - 10/1/2027 40,275,531.87 26,130,400.00 - 26,130,400.00 1.54 - - 10/1/2028 39,820,689.53 26,069,900.00 - 26,069,900.00 1.53 - - 10/1/2029 37,759,156.59 25,582,400.00 - 25,582,400.00 1.48 - - 10/1/2030 23,770,392.54 14,348,250.00 - 14,348,250.00 1.66 - -

Total: $1,023,456,105.18 $488,304,175.00 $302,715,811.11 $791,019,986.11

(1) Projected total revenue is comprised of all pledged Loan Repayments and Reserve Fund earnings. (2) The calculation of debt service coverage does not include the principal balance of the PPB-III Reserve Account or Released Account Moneys which may

potentially become available to pay debt service. Note: Totals may not add due to rounding. Source: The Authority, verified by the Authority’s Financial Advisor.


Cash Flow Schedule

Projected DWPPB-III Drinking Water Bonds Cash Flow and Debt Service Coverage

Projected Aggregate Existing DWPPB-III Series 2011 Drinking Aggregate DWPPB-III Projected DWPPB-III Projected DWPPB-III Projected DWPPB-III

Period DWPPB-III Drinking Water Drinking Water Water Refunding Bonds Drinking Water Drinking Water Debt Reserve Fund Reserve Fund % of Ending Total Revenue(1) Debt Service Debt Service Total Debt Service Service Coverage(2) Balance DWPPB-III Bonds

10/1/2012 $6,789,806.10 - $ 6,432,743.33 $ 6,432,743.33 1.06 $31,791,054.68 60.313% 10/1/2013 6,824,454.81 - 6,462,450.00 6,462,450.00 1.06 29,473,171.40 60.557% 10/1/2014 6,753,651.17 - 6,393,450.00 6,393,450.00 1.06 27,089,628.81 60.794% 10/1/2015 6,737,565.63 - 6,381,950.00 6,381,950.00 1.06 24,637,926.92 61.197% 10/1/2016 6,710,014.84 - 6,353,950.00 6,353,950.00 1.06 22,118,065.72 61.791% 10/1/2017 6,643,704.51 - 6,288,200.00 6,288,200.00 1.06 19,524,935.33 62.590% 10/1/2018 6,623,901.41 - 6,272,700.00 6,272,700.00 1.06 16,856,035.75 63.849% 10/1/2019 6,575,382.87 - 6,228,950.00 6,228,950.00 1.06 14,111,366.98 65.895% 10/1/2020 6,455,247.68 - 6,114,200.00 6,114,200.00 1.06 11,288,429.02 69.212% 10/1/2021 6,409,239.55 - 6,063,950.00 6,063,950.00 1.06 8,384,721.87 76.121% 10/1/2022 6,138,153.46 - 5,816,350.00 5,816,350.00 1.06 5,400,245.53 94.410% 10/1/2023 4,787,357.54 - 4,546,600.00 4,546,600.00 1.05 2,340,000.00 162.500% 10/1/2024 3,799,345.08 - 1,492,600.00 1,492,600.00 2.55 - -

Total: $81,247,824.65 - $74,848,093.33 $74,848,093.33

(1) Projected total revenue is comprised of all pledged Loan Repayments and Reserve Fund earnings. (2) The calculation of debt service coverage does not include the principal balance of the DWPPB-III Reserve Account or Released Account Moneys which may

potentially become available to pay debt service. Note: Totals may not add due to rounding. Source: The Authority, verified by the Authority’s Financial Advisor.


THE AUTHORITY

Powers and Duties

The Michigan Finance Authority is an autonomous public body corporate, separate and distinct from the State, created by Executive Order No. 2010-2 issued by the Governor on March 4, 2010 (the “Executive Order”) and effective by its terms on May 30, 2010. Under the Executive Order, among other things, the Authority is the successor to the Michigan Municipal Bond Authority, which was created by statute in 1985 for the purposes of fostering and promoting the borrowing of money by governmental units within the State for financing public improvements and for other municipal purposes. In order to effectuate such purposes, the Authority is authorized to issue its bonds or notes and to make money available to governmental units by the purchase of their municipal obligations.

In addition to the Series 2011 Refunding Bonds, the Authority (including its various predecessor authorities under the Executive Order) has outstanding, and the Authority expects to issue in the future, short and long term obligations under other Authority programs. The security for the Series 2011 Refunding Bonds does not serve as security for the Authority’s other program obligations.

Under the Executive Order, the Authority is within the State Department of Treasury but exercises its powers, duties and functions independently of the State Treasurer (except for the State Treasurer’s appointment of administrative staff and exercise of certain administrative functions related to staff, pursuant to the Governor’s Executive Order 2002-12). The Authority’s address is Richard H. Austin Building, 430 West Allegan Street, Lansing, Michigan 48922, and its telephone number is (517) 335-0994.

Membership

The Authority is governed by a board of directors (the “Board”). The State Treasurer serves as the Chairperson of the Board. The Authority is authorized to employ an Executive Director, legal and technical experts and other officers, agents or employees, permanent or temporary.

The members of the Board are appointed by the Governor of the State with the advice and consent of the State Senate. The members serve for various terms and continue to serve until successors are appointed and file the oath of office.

The members of the Board are:

Andy Dillon, Chairperson State Treasurer

Stephen N. Cassin Executive Director, Macomb County

Planning & Economic Development

MaryLee Davis Professor of Higher, Adult and Lifelong Education, Michigan State University

Charlotte P. Edwards Vice President & Community Development Officer, Citizens Bank

Donald H. Gilmer Retired Administrator, Kalamazoo County


JulieAnn Karkosak Vice President and General Counsel, Toyota Boshoku America, Inc.

David S. Mittleman Shareholder, Church Wyble, P.C.

The Indenture provides that the covenants, stipulations, promises, agreements and obligations of the Authority contained in the Indenture are those of the Authority and not of any member of the Board or any officer or employee of the Authority in his or her individual capacity and that no recourse shall be had for the payment of the principal of or interest on the Bonds or for any claim based thereon or on the Indenture against any member of the Board, any officer or employee of the Authority or any person executing the Bonds.

The Executive Director of the Authority is Joseph L. Fielek, Director, Bureau of State and Authority Finance, Michigan Department of Treasury.

GENERAL PROVISIONS OF THE STATE REVOLVING FUND LOAN PROGRAMS

General

Loans may be made from the State Revolving Funds to a Governmental Unit which is itself operating a Project for which a Loan is made or which is borrowing funds from either of the State Revolving Funds on behalf of another municipality which is operating a Project for which a Loan is made. Act 451 requires that each municipality operating a Project for which a Loan is made must provide for a dedicated source of revenue for the repayment of such Loan. A dedicated source for repayment of a Loan may include one or more of the following: (i) ad valorem taxes, (ii) special assessments, (iii) user based revenue collections, (iv) general funds of the municipality which is operating the Project for which a Loan is made, (v) benefit charges, and (vi) tap-in fees or other one-time assessments. To evidence compliance with this requirement of Act 451 and other conditions imposed by Act 451 and the Water Quality Act and/or the Drinking Water Act, the Authority requires each municipality operating a Project for which a Loan is made to enter into a supplemental agreement with respect to the Loan.

Pursuant to the provisions of a supplemental agreement, each municipality which is operating a Project for which a Loan is made must covenant, among other things, that:

(i) Rates and charges for the services of the Project will be established, levied and collected in an amount sufficient to pay the expenses of administration, operation and maintenance of the Project and to pay the principal and interest requirements on all bonds payable from revenues of the Project, including the Municipal Obligation evidencing the Loan for the Project;

(ii) It will exercise its best efforts to complete the Project in accordance with the estimated date of initiation of operation of the Project as set forth in its application and to provide from fiscal resources all moneys in excess of Loan proceeds necessary to complete the Project;

(iii) It will not voluntarily sell, lease, abandon, dispose of or transfer its title to the Project or any part of it, including lands and interest in the land, by sale, mortgage, lease or other encumbrances, without an effective assignment of the obligations and the prior written approval of the State’s Department of Environmental Quality, and the Authority;


(iv) It will operate and maintain the Project in good repair, working order and operating condition; and

(v) It will maintain and carry insurance on all physical properties of the Project, of the kinds and in the amounts normally carried by municipalities engaged in the operation of similar systems. All moneys received for losses under any such insurance policies shall be applied to the replacement and restoration of the property damaged or destroyed or for repayment of the Loan.

The Authority also requires that each Governmental Unit furnish to the Authority an opinion of counsel stating in part that the Municipal Obligation and the supplemental agreement have been duly authorized, executed and delivered and are valid and binding obligations of the Governmental Unit and the municipality operating the Project enforceable in accordance with their terms and that the interest on the Municipal Obligation is excluded from gross income for federal income tax purposes.

Municipal Obligations

Each Municipal Obligation acquired with amounts in the Loan Account or evidencing a loan designated as a Project Loan Related to the Authority’s Project Bonds must conform to the terms, conditions and limitations from time to time established by the Act and the Authority as a condition for eligibility. As a condition of the purchase of a Municipal Obligation, the Municipal Obligation must be duly executed and accompanied by (i) an approving legal opinion by a bond counsel approved by the Authority and of nationally recognized standing in the field of municipal law, (ii) closing documents in a form and substance satisfactory to the Authority, (iii) evidence that the pledge for payment of the Municipal Obligations will be sufficient to pay the principal of and interest on the Municipal Obligations, when due, and (iv) an order of approval by the Department of Environmental Quality as provided in Act 451.

The Authority uses its best efforts to determine that each Municipal Obligation acquired is of investment grade quality as “investment grade” is generally understood in the municipal finance industry. This determination is based upon either a confirmation of an investment rating or receipt of a credit assessment letter from a nationally recognized rating agency with respect to the Municipal Obligation being acquired indicating that such Municipal Obligation is of “investment grade” or by the existence of an investment grade rating on recently rated parity debt. For other Municipal Obligations where such a determination cannot be made, the Authority requests the Governmental Unit to provide an alternative security pledge or pledges. Such pledges may include a general obligation pledge, a revenue sharing pledge, a bond reserve fund, municipal bond insurance or some alternative security for the Municipal Obligation so that it can be determined to be of investment grade quality. Such alternative security may or may not be pledged by the Authority as additional Security under the Indenture.

After the acquisition of a Municipal Obligation from a Governmental Unit, the Authority monitors payments made pursuant to the Municipal Obligation and the Department of Environmental Quality receives annual audited financial statements from the Governmental Unit and actively monitors the amount and timely receipt of repayments of the Municipal Obligation. As of the date of this Official Statement, no Governmental Unit has defaulted on the repayment of a Municipal Obligation under the State Revolving Fund Loan Programs.

Under the Authority’s State Clean Water Revolving Fund program and State Drinking Water Revolving Fund program, Loans originated (and Municipal Obligations issued) bear interest at a rate per annum established on the date of such origination regardless of when funded. Rates on Loans funded from the PPB-III Loan Account may bear interest at different rates, and for Loans originated after September 30, 2012, at rates not yet determined. SEE TABLE 2 BELOW. In any event, the Authority


must make a Sufficiency Calculation before funding Loans from the Clean Water Loan Account and Drinking Water Loan Account as described above.

TABLE 2

Clean Water State Revolving Fund Program Loan Rates

Loan Origination Date Loan Rate

Before October 1, 1994 2% October 1, 1994 to September 29, 1998 2¼% September 30, 1998 to September 29, 2003 2½% September 30, 2003 to September 29, 2004 2⅛% September 30, 2004 to September 29, 2007 1⅝% September 30, 2007 to September 29, 2012 2½%

Drinking Water State Revolving Fund Program Loan Rates

Loan Origination Date

Loan Rate

Before September 30, 2003 2½ % September 30, 2003 to September 29, 2007 2⅛% September 30, 2007 to September 29, 2012 2½ %

Governmental Units

As of October 1, 2011, the Authority has entered into commitments (less adjustments) for approximately $3.326 billion with approximately 170 separate municipalities, for 433 projects in the Clean Water State Revolving Fund Program. Direct Loans have been used by the Authority to fund approximately $187 million of these commitments. Bond proceeds have been or are expected to be used to fund approximately $2.9 billion of these commitments and other commitments which will be entered into by the Authority. SEE TABLE 3 BELOW.

As of October 1, 2011, the Authority has entered into commitments (less adjustments) for approximately $625.1 million with approximately 135 separate municipalities, for 238 projects in the Drinking Water Revolving Fund Program. Direct Loans have been used by the Authority to fund approximately $174 million of these commitments. Bond proceeds have been or are expected to be used to fund approximately $397 million of these commitments and other commitments which will be entered into by the Authority. SEE TABLE 3 BELOW.


TABLE 3

Governmental Units

Clean Water State Revolving Fund Program

Commitments1

Through October 1, 2011

Funded with Direct Loans $ 186,829,644.00

Funded with other Project Loans $ 2,913,458,125.08

Funding Source not yet selected $ 225,387,968.04

Total Commitments (less adjustments)

$3,325, 675,737.12

Drinking Water State Revolving Fund Program

Commitments1

Through

October 1, 2011 Funded with Direct Loans $173,986,354.00

Funded with other Project Loans $397,123,321.90

Funding Source not yet selected $ 53,958,325.10

Total Commitments (less adjustments)

$625,068,001.00

________________________ 1 Estimated, subject to change.

A listing of the municipalities which have received commitments for Loans from the Authority under the State Clean Water Revolving Fund Program at any time, together with a list of Loans which have been made as of such time, is available upon request from the Authority.

ADDITIONAL BONDS

Pursuant to the Indenture, additional Series of Bonds comprised of Clean Water Revolving Fund Revenue Bonds of the Type PPB-III or Drinking Water Revolving Fund Revenue Bonds of the Type DWPPB-III may be issued from time to time under Supplemental Indentures. Additional Bonds of a Class or Type or State Match Bonds Related to the Bonds of a Type (the “Additional Bonds”) may be issued by the Authority if (a) the principal amount of the Additional Bonds proposed to be issued, together with the principal amount of Bonds of the Authority theretofore issued, will not exceed any limitation imposed by law, (b) the amount on deposit in, or otherwise provided for with respect to, the Related Reserve Account upon the issuance of the Additional Bonds will not be less than the Reserve Account Requirement with respect to such Additional Bonds, and (c) the Authority makes a Sufficiency Calculation taking into


account the proposed Additional Bonds, all Outstanding Bonds of that Class and Type, outstanding Related State Match Bonds of that Type, and any other previously issued Related Bonds then Outstanding (See “SOURCES OF PAYMENT FOR THE SERIES 2011 REFUNDING BONDS”). The Authority may issue Bonds of a Class and Type not Related to any of the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds without compliance with the foregoing conditions.

The Authority expects to issue Bonds to fund the State Revolving Funds in approximately January 2012, and anticipates future borrowings as well.

NOTWITHSTANDING THE DATES UPON WHICH PARTICULAR BONDS OF ANY CLASS AND TYPE ARE ISSUED, ALL OF THE BONDS OF THE SAME CLASS AND TYPE WILL BE EQUALLY AND RATABLY SECURED UNDER THE INDENTURE, AND NO HOLDER OF ANY BOND OF THAT CLASS AND TYPE WILL HAVE PRIORITY OVER ANY OTHER HOLDERS OF BONDS OF THE SAME CLASS AND TYPE.

TAX MATTERS

General

In the opinion of the Attorney General of the State of Michigan and in the opinion of Dickinson Wright PLLC and Miller, Canfield, Paddock and Stone, P.L.C., Co-Bond Counsel, based on their examination of the documents described in their opinions, under existing law: (a) the interest on the Series 2011 Refunding Bonds is excluded from gross income for federal income tax purposes; and (b) the interest on the Series 2011 Refunding Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that certain corporations must take into account interest on the Series 2011 Refunding Bonds in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. Their opinions are subject to the condition that the Authority and the Governmental Units comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Series 2011 Refunding Bonds in order that interest thereon be (or continue to be) excluded from gross income for federal income tax purposes. These requirements include rebating certain earnings to the United States. Failure to comply with such requirements could cause the interest on the Series 2011 Refunding Bonds to be included in gross income retroactive to the date of issuance of the Series 2011 Refunding Bonds. The Authority has covenanted to comply with all such requirements to the extent permitted by law. The Attorney General and Co-Bond Counsel will express no opinion regarding other federal tax consequences arising with respect to the Series 2011 Refunding Bonds and the interest thereon. They are further of the opinion that, under existing law, the Series 2011 Refunding Bonds and the interest thereon are exempt from all taxation provided by the laws of the State of Michigan except for estate taxes and taxes on gains realized from the sale, payment or other disposition of the Series 2011 Refunding Bonds.

Additional federal tax consequences relative to the Series 2011 Refunding Bonds and the interest thereon include the following matters: For federal income tax purposes; (a) tax-exempt interest, including interest on the Series 2011 Refunding Bonds, is included in the calculation of modified adjusted gross income required to determine the taxability of social security or railroad retirement benefits; (b) the receipt of tax-exempt interest, including interest on the Series 2011 Refunding Bonds, by life insurance companies may affect the federal income tax liabilities of such companies; (c) the amount of certain loss deductions otherwise allowable to property and casualty insurance companies will be reduced (in certain instances below zero) by 15% of, among other things, tax-exempt interest, including interest on the Series 2011 Refunding Bonds; (d) interest incurred or continued to purchase or carry the Series 2011 Refunding Bonds may not be deducted in determining federal income tax; (e) commercial banks, thrift institutions and other financial institutions may not deduct their costs of carrying certain obligations such as the Series


2011 Refunding Bonds (which is subject to a de minimis exception under Section 265(b)(7) of the Code); (f) interest on the Series 2011 Refunding Bonds will be included in effectively connected earnings and profits for purposes of computing the branch profits tax on certain foreign corporations doing business in the United States; (g) passive investment income, including interest on the Series 2011 Refunding Bonds, may be subject to federal income taxation for S Corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such S Corporation is passive investment income; (h) holders acquiring the Series 2011 Refunding Bonds subsequent to initial issuance will generally be required to treat market discount recognized under Section 1276 of the Code as ordinary taxable income; (i) the receipt or accrual of interest on the Series 2011 Refunding Bonds may cause disallowance of the earned income credit under Section 32 of the Code; and (j) interest on the Series 2011 Refunding Bonds is subject to backup withholding under Section 3406 of the Code in the case of registered owners that have not reported a taxpayer identification number and are not otherwise exempt from backup withholdings.

NO ASSURANCE CAN BE GIVEN THAT ANY FUTURE LEGISLATION OR CLARIFICATIONS OR AMENDMENTS TO THE CODE WILL NOT CAUSE THE INTEREST ON THE SERIES 2011 REFUNDING BONDS TO BE SUBJECT DIRECTLY OR INDIRECTLY TO FEDERAL OR STATE OF MICHIGAN INCOME TAXATION, ADVERSELY AFFECT THE MARKET PRICE OR MARKETABILITY OF THE SERIES 2011 REFUNDING BONDS, OR OTHERWISE PREVENT THE OWNERS FROM REALIZING THE FULL CURRENT BENEFIT OF THE STATUS OF THE INTEREST THEREON. FURTHER, NO ASSURANCE CAN BE GIVEN THAT ANY SUCH FUTURE LEGISLATION OR ANY ACTIONS OF THE INTERNAL REVENUE SERVICE, INCLUDING, BUT NOT LIMITED TO, SELECTION OF THE SERIES 2011 REFUNDING BONDS FOR AUDIT EXAMINATION, OR THE COURSE OR RESULT OF ANY EXAMINATION OF THE SERIES 2011 REFUNDING BONDS, OR OTHER BONDS WHICH PRESENT SIMILAR TAX ISSUES, WILL NOT AFFECT THE MARKET PRICE OF THE SERIES 2011 REFUNDING BONDS.

Treatment of Original Issue Discount

For federal income tax purposes, the difference between the initial offering prices to the public (excluding bond houses and brokers) at which a substantial amount of the Series 2011 Refunding Bonds initially sold at a discount as shown on the inside cover page hereof (the “OID Bonds”) are sold and the amount payable at the stated redemption price at maturity thereof constitutes “original issue discount.” Such discount is treated as interest excluded from federal gross income to the extent properly allocable to each registered owner of an OID Bond. The original issue discount accrues over the term to maturity of each such OID Bond on the basis of a constant interest rate compounded at the end of each six-month period (or shorter period from the date of original issue) with straight line interpolations between compounding dates. The amount of original issue discount accruing during such period is added to the adjusted basis of such OID Bonds to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such OID Bonds.

The Code contains provisions relating to the accrual of original issue discount in the case of registered owners of the OID Bonds who purchase such OID Bonds after the initial offering of a substantial amount of the OID Bonds. Registered owners who do not purchase such OID Bonds in the initial offering at the initial offering prices should consult their own tax advisors as to the tax consequences of the purchase of such OID Bonds. All registered owners of OID Bonds should consult their own tax advisors with respect to the allowance of a deduction for any loss on a sale or other disposition to the extent that such loss is attributable to accrued original issue discount.

Treatment of Premium

For federal income tax purposes, the difference between the initial offering prices to the public (excluding bond houses and brokers) at which the Series 2011 Refunding Bonds initially sold at a


premium as shown on the inside cover page hereof (the “Original Premium Bonds”) are sold and the amounts payable on the Original Premium Bonds other than stated interest constitutes for the original purchasers of the Original Premium Bonds an amortizable bond premium. Similarly, the amount by which any registered owner’s basis of any Series 2011 Refunding Bonds exceeds the amount payable thereon other than stated interest constitutes for that registered owner an amortizable bond premium (collectively with the Original Premium Bonds, the “Premium Bonds”). Such amortizable bond premium is not deductible from gross income; however, such amortizable bond premium is taken into account by certain corporations in determining adjusted current earnings for the purpose of computing the alternative minimum tax, which may also affect liability for the branch profits tax imposed by Section 884 of the Code. The amount of amortizable bond premium allocable to each taxable year is generally determined on the basis of the yield to maturity determined by using the registered owner’s basis (for purposes of determining loss on sale or exchange) of the Series 2011 Refunding Bonds and compounding at the close of each six-month accrual period. The amount of amortizable bond premium allocable to each taxable year is deducted from the registered owner’s adjusted basis of the Premium Bonds to determine taxable gain upon disposition (including sale, redemption or payment of maturity) of such bonds.

Risk of Changes to Tax Law

From time to time legislation is proposed, and there are or may be legislative proposals pending in the Congress of the United States that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Series 2011 Refunding Bonds. One such proposal is the “American Jobs Act of 2011” (the “American Jobs Act”), which President Obama submitted to Congress on September 12, 2011. If enacted in its present form, the American Jobs Act would limit for certain individual taxpayers the value of certain deductions and exclusions, including the exclusion for tax-exempt interest. It cannot be predicted whether, or in what form, the American Jobs Act or any other proposal that could alter one or more of the federal tax matters referred to above or adversely affect the market value of the Series 2011 Refunding Bonds may be enacted. Prospective purchasers of the Series 2011 Refunding Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Co-Bond Counsel and the Attorney General of the State of Michigan express no opinion regarding any pending or proposed federal tax legislation.

INVESTORS AND ALL REGISTERED OWNERS OF THE SERIES 2011 REFUNDING BONDS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THEIR ACQUISITION, HOLDING OR DISPOSITION OF THE SERIES 2011 REFUNDING BONDS AND THE TAX CONSEQUENCES OF THE ORIGINAL DISCOUNT OR PREMIUM THEREON, IF ANY.

LITIGATION

The Authority has not been served with any litigation and, to the best of the Authority’s knowledge, there is no threatened litigation against the Authority seeking to restrain or enjoin the sale of the Series 2011 Refunding Bonds, affecting the security pledged therefor or questioning or affecting the validity of the proceedings or authority under which the Series 2011 Refunding Bonds were issued. Neither the creation, organization nor existence of the Authority, nor the title of any of the present members or other officers of the Authority to their respective offices, is being contested. The Authority has not been served with any litigation, and to the best of the Authority’s knowledge, there is no litigation threatened which in any manner questions the right of the Authority to adopt the Resolution which authorizes the issuance of the Series 2011 Refunding Bonds or to secure the Series 2011 Refunding Bonds in the manner provided in the Resolution and the Act.


LEGALITY OF SERIES 2011 REFUNDING BONDS FOR INVESTMENT AND DEPOSIT

Under the Act, the State, a public officer, a Governmental Unit and agencies of the State or Governmental Units, a bank, trust company, savings bank or institution, savings and loan association, investment company or other person carrying on a banking business, an insurance company, insurance association, or other person carrying on an insurance business and an executor, administrator, guardian, trustee or other fiduciary may legally invest a sinking fund, money, or other funds belonging to them or within their control in bonds or notes of the Authority issued under the Act. The Act also provides that the Authority’s bonds and notes shall be authorized security for public deposits.

STATE NOT LIABLE ON SERIES 2011 REFUNDING BONDS

The Series 2011 Refunding Bonds are limited obligations of the Authority payable solely from the sources described in this Official Statement and pledged in the Indenture and neither the faith and credit nor the taxing power of the State, any political subdivision of the State or the Authority is pledged to the payment of the principal or redemption price of, interest on, or the purchase price of the Series 2011 Refunding Bonds.

The sources of payment for the Series 2011 Refunding Bonds are limited to those provided by the Act, and the issuance of the Series 2011 Refunding Bonds is not directly or indirectly or contingently an obligation, moral or other, of the State, any political subdivision of the State or the Authority to levy or to pledge any form of taxation whatever for the Series 2011 Refunding Bonds or to make any appropriation for their payment. The Authority has no taxing power.

CONTINUING DISCLOSURE UNDERTAKING

The Authority will, on or before the date of delivery of the Series 2011 Refunding Bonds, agree for the benefit of the Bondholders (including beneficial owners) of the Series 2011 Refunding Bonds (as defined in the Continuing Disclosure Undertaking which the Authority expects to execute on or before the date of delivery of the Series 2011 Refunding Bonds (the “Continuing Disclosure Undertaking”)) to (i) cause “Material Obligated Persons” (as defined in the Continuing Disclosure Undertaking) to enter into an undertaking to disclose certain financial information and operating data relating to that Material Obligated Person, by not later than nine months following the end of each applicable fiscal year (the “Annual Financial Information”), and (ii) provide notices of the occurrence of certain enumerated events, if material. The Continuing Disclosure Undertaking requires that notices of material events be filed by the Authority with the MSRB by electronic transmission through the MSRB’s Electronic Municipal Market Access System (“EMMA”) Dataport of the MSRB. The specific nature of the information to be contained in the notices of material events is set forth in “APPENDIX III – Form of Continuing Disclosure Undertaking.” These agreements have been made in order to assist the Underwriters named on the cover page of this Official Statement to comply with paragraph (b)(5) of Rule 15c2-12 (the “Rule”) promulgated by the Securities and Exchange Commission.

In response to requirements of the Rule, the Authority’s practice is to require, by means of a written Continuing Disclosure Undertaking, an “obligated person” (as defined in the Rule) who is a “Material Obligated Person” to provide, among other things, annual financial information including audited financial statements for filing with the MSRB through EMMA. A Governmental Unit which is an “obligated person” as defined in the Rule will be a Material Obligated Person with respect to any Type of Bonds under the Continuing Disclosure Undertaking if either (a) the principal amount of Municipal Obligations issued by and outstanding for that Governmental Unit and which have been pledged as


security by the Authority for that Type of Bonds is equal to or is in excess of twenty percent (20%) of the aggregate principal amount of all Municipal Obligations then outstanding which have been pledged for Bonds of that Type or (b) the principal amount of Municipal Obligations issued by and outstanding for that Governmental Unit and pledged by the Authority as security for Bonds of that Type together with the amount which the Authority reasonably expects to disburse to the Governmental Unit from funds held in the applicable Loan Account following delivery of the applicable Bonds is equal to or in excess of twenty percent (20%) of the aggregate principal amount of all Municipal Obligations which have been pledged for Bonds of that Type. For this purpose, Municipal Obligations pledged for a Type of Bonds will also be considered to be pledged to Bonds which are Subordinately Related to Bonds of such Type. The Authority expects that, as of the date of delivery, there will be no Material Obligated Person with respect to the Series 2011 Refunding Bonds. As a result, no Governmental Unit will be required to file Annual Financial Information with the MSRB through EMMA with respect to the Series 2011 Refunding Bonds.

The only persons entitled to enforce the Continuing Disclosure Undertaking are those described in the Continuing Disclosure Undertaking. The right to enforce the provisions of the Continuing Disclosure Undertaking is limited to a right, by action in mandamus or for specific performance, to compel performance of the obligations under the Continuing Disclosure Undertaking. Any failure by the Authority to perform in accordance with the Continuing Disclosure Undertaking will not constitute a default or an Event of Default under the Indenture, and the rights and remedies provided by the Indenture upon the occurrence of a default or an Event of Default will not apply to any such failure.

The Authority is in compliance in all material respects with all previous undertakings with regard to the Rule to provide annual financial information or notices of material events pursuant to the Rule.

A failure by the Authority to comply with the Continuing Disclosure Undertaking must be reported by the Authority in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Series 2011 Refunding Bonds in the secondary market. Consequently, such failure may adversely affect the marketability and liquidity of the Series 2011 Refunding Bonds and the market price therefor.

VERIFICATION OF MATHEMATICAL AND ARITHMETICAL CALCULATIONS

The accuracy of the mathematical and arithmetical computations of the adequacy of the funds invested in the Escrow Account, to pay when due the principal of the interest on the Clean Water Bonds To Be Refunded and the Drinking Water Bonds To Be Refunded, will be verified by Grant Thornton LLP, Minneapolis, Minnesota. Such verification of arithmetical accuracy and mathematical computations shall be based upon information and assumptions supplied by the Financial Advisor.

LEGAL MATTERS

The legality of the authorization, sale and delivery of the Series 2011 Refunding Bonds is subject to the approval of the Attorney General of the State and of Co-Bond Counsel, whose approving opinions, substantially in the forms attached as Appendix II to this Official Statement, will be delivered upon the issuance of the Series 2011 Refunding Bonds. The fees to be received by the Co-Bond Counsel in connection with the issuance of the Series 2011 Refunding Bonds will be paid from the proceeds of the Series 2011 Refunding Bonds and from investment earnings on such proceeds.

Certain legal matters will be passed upon for the Underwriters by their counsel, Bodman PLC, Detroit, Michigan.


RATINGS

Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc. (“S&P”) and Fitch Ratings (“Fitch”), have assigned the Series 2011 Clean Water Refunding Bonds ratings of “AAA” and “AAA,” respectively.

S&P and Fitch have assigned the Series 2011 Drinking Water Refunding Bonds ratings of “AAA” and “AAA,” respectively.

The above ratings reflect only the views of S&P and Fitch and an explanation of the significance of such ratings may be obtained from S&P and Fitch. The Authority has furnished to S&P and Fitch certain information and materials with respect to the Series 2011 Refunding Bonds. There is no assurance that the ratings which have been assigned to the Series 2011 Refunding Bonds will continue for any given period of time or that any of them will not be revised or withdrawn entirely by S&P or Fitch, if in the judgment of S&P or Fitch, circumstances so warrant. A downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Series 2011 Refunding Bonds.

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as a representative for the Underwriters shown on the cover page of this Official Statement. The Underwriters have jointly and severally agreed, subject to the terms of a Bond Purchase Agreement between the Underwriters and the Authority dated October 26, 2011, to purchase the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds from the Authority. This Bond Purchase Agreement provides, in part, that the Underwriters, subject to certain conditions, will purchase from the Authority all the Series 2011 Clean Water Refunding Bonds for a purchase price of $259,678,014.76 (which purchase price is equal to the $225,860,000.00 par amount of the Series 2011 Clean Water Refunding Bonds, plus original issue premium of $34,843,866.50, less underwriters’ discount of $1,025,851.74); and all the Series 2011 Drinking Water Refunding Bonds for a purchase price of $64,214,039.15 (which purchase price is equal to the $56,860,000.00 par amount of the Series 2011 Drinking Water Refunding Bonds, plus net original issue premium of $7,612,739.80, less underwriters’ discount of $258,700.65).

The initial public offering prices of the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds may be changed from time to time by the Underwriters.

Citigroup Inc., parent company of Citigroup Global Markets Inc., an underwriter of the Series 2011 Refunding Bonds, has entered into a retail brokerage joint venture with Morgan Stanley. As part of the joint venture, Citigroup Global Markets Inc. will distribute municipal securities to retail investors through the financial advisor network of a broker-dealer, Morgan Stanley Smith Barney LLC. This distribution arrangement became effective on June 1, 2009. As part of this arrangement, Citigroup Global Markets Inc. will compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Series 2011 Refunding Bonds.1

J.P. Morgan Securities LLC (“J.P. Morgan”) has entered into negotiated dealer agreements (each, a “Dealer Agreement”) with each of UBS Financial Services Inc. (“UBSFS”) and Charles Schwab & Co., Inc. (“CS&Co.”) for the retail distribution of certain municipal securities offerings to the retail customers of UBSFS and CS&Co. at the original issue prices. J.P. Morgan expects to invite UBSFS and CS&Co. to

1 Paragraph language provided by Citigroup Global Markets Inc.


participate in the offering of the Series 2011 Refunding Bonds. As compensation to UBSFS and CS&Co., J.P. Morgan will share a portion of the selling concession with UBSFS and CS&Co.1

Wells Fargo Securities is the trade name for certain capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association. Wells Fargo Bank, National Association (“WFBNA”), one of the underwriters of the Series 2011 Refunding Bonds, has entered into an agreement (the “Distribution Agreement”) with Wells Fargo Advisors, LLC (“WFA”) for the retail distribution of certain municipal securities offerings, including the Series 2011 Refunding Bonds. Pursuant to the Distribution Agreement, WFBNA will share a portion of its underwriting compensation with respect to the Bonds with WFA. WFBNA and WFA are both subsidiaries of Wells Fargo & Company.2

OTHER MATTERS

General

The summaries and explanations in this Official Statement of provisions of the Act, the Indenture and other materials are brief summaries of certain provisions. Such summaries do not purport to be complete and reference is made to such instruments, documents and other materials for full and complete statements of their provisions.

The information contained in this Official Statement has been compiled or prepared from sources deemed to be reliable, and while not guaranteed as to completeness or accuracy, is believed to be correct as of this date. Any statements involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact.

The attached Appendices are an integral part of this Official Statement and must be read in their entirety together with all of the foregoing information.

Professional Disclosure

Dickinson Wright PLLC and Miller, Canfield, Paddock and Stone, P.L.C., as Co-Bond Counsel, and Bodman PLC, as Underwriters’ Counsel, have in the past, are now, and may in the future represent the Authority and/or one or more of the Underwriters with respect to matters unrelated to the issuance of the Series 2011 Refunding Bonds and may act as bond counsel to some of the Governmental Units in connection with their issuance and sale of Municipal Obligations to the Authority.

First Southwest Company is employed as Financial Advisor (the “Financial Advisor”) to the Authority in connection with the issuance of the Series 2011 Refunding Bonds. The Financial Advisor’s fee for services rendered with respect to the sale of the Series 2011 Refunding Bonds is contingent upon the issuance and delivery of the Series 2011 Refunding Bonds. First Southwest Company, in its capacity as Financial Advisor, does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Series 2011 Refunding Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies.

The Financial Advisor to the Authority has provided the following sentence for inclusion in the Official Statement. The Financial Advisor has reviewed the information in this Official Statement in 1 Paragraph language provided by J.P. Morgan Securities LLC. 2 Paragraph language provided by Wells Fargo Bank, National Association.


accordance with, and as part of, its responsibilities to the Authority and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information.

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

MICHIGAN FINANCE AUTHORITY

By: /s/ Joseph L. Fielek Joseph L. Fielek Executive Director

[THIS PAGE INTENTIONALLY LEFT BLANK]

I-1

APPENDIX I

SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE AND TWENTY-FIRST SUPPLEMENTAL INDENTURE

The following is a brief summary of certain provisions of the Master Indenture and the Twenty-First Supplemental Indenture and does not purport to be complete. Reference is made to the Master Indenture and the Twenty-First Supplemental Indenture, copies of which are available from the Authority.

DEFINITIONS

The following are definitions of certain of the terms used in the Master Indenture, the Twenty-First Supplemental Indenture and this Official Statement. Capitalized terms appearing in this Official Statement and not specifically defined below have the meaning given to such terms in the Master Indenture and the Twenty-First Supplemental Indenture.

“Account” means a separate account established in a Fund. “Act” means the Shared Credit Rating Act, Act 227 of the Public Acts of 1985 of

the State, as from time to time amended. “Act 317” means the State Clean Water Assistance Act, Act 317 of the Public

Acts of 1988 of the State, as from time to time amended and any successor provision of law including Act 451.

“Act 451” means the Natural Resources and Environmental Protection Act, Act

451 of the Public Acts of 1994 of the State, as from time to time amended or modified, and any successor provision of law.

“Authority” means the Michigan Finance Authority, as successor to the

Michigan Municipal Bond Authority, or any successor. “Authorized Clean Water SRF Purpose” means any authorized use of funds by

the Authority, the DEQ, or the State in connection with the State Clean Water Revolving Fund and as authorized or permitted under the Act, Act 451 and the Clean Water Act.

“Authorized Denomination” means $5,000, and integral multiples thereof, or

such other denominations which shall be specified in a Supplemental Indenture. “Authorized Drinking Water SRF Purpose” means any authorized use of funds

by the Authority, the DEQ, or the State in connection with the State Drinking Water Revolving Fund and as authorized or permitted under the Act, Act 451 and the Drinking Water Act.

I-2

“Authorized Officer” means any member of the Authority, the Executive Director of the Authority, or any other officer or employee of the Authority authorized by resolution of the Authority to perform the act or sign the document in question.

“Authorized SRF Purpose” means collectively Authorized Clean Water SRF

Purpose and Authorized Drinking Water SRF Purpose. “Bond Counsel” means, with respect to the issuance of Bonds under the

Indenture, the firm or firms from time to time designated as such in the Supplemental Indenture authorizing such Bonds, and otherwise Counsel approved by the Authority and of nationally recognized standing in the field of municipal law.

With respect to the Series 2011 Clean Water Refunding Bonds and the Series

2011 Drinking Water Refunding Bonds, “Bond Counsel” means Dickinson Wright PLLC and Miller, Canfield, Paddock and Stone, P.L.C., as Co-Bond Counsel.

“Bond Registrar and Paying Agent” means, with respect to any Bond, the Bond

Registrar and Paying Agent appointed as such by a Supplemental Indenture and any successor thereto, and the Co-Paying Agent to the extent that the Bond Registrar and Paying Agent has delegated responsibilities under the Indenture to the Co-Paying Agent.

“Bond Servicing Costs” means, with respect to each Type of Bonds authorized

and Outstanding under the Indenture, the fees, expenses and charges, other than those constituting Costs of Issuance, from time to time payable to the Trustee, Paying Agent, Co-Paying Agent, Bond Registrar, Rating Agencies, Bond Counsel, Counsel, accountants, professional accountants, financial advisor, service companies or others and directly related or allocable to such Bonds, and such other fees and expenses as may be provided in a Supplemental Indenture.

“Bonds” means the Authority’s State Revolving Fund Revenue Bonds issued

pursuant to the Indenture. “Bonds” does not include Subordinated Funding Bonds. Bonds may be either “bonds” or “notes” as defined in the Act.

“Bonds To Be Refunded” means all the outstanding State Revolving Fund

Revenue Bonds Pooled Project Series 2001 and Pooled Project Series 2002 (collectively the “Clean Water Bonds To Be Refunded”) and Drinking Water Revolving Fund Revenue Bonds, Series 2001 and Series 2002 (collectively the “Drinking Water Bonds To Be Refunded”), issued pursuant to the Tenth Supplemental Indenture and the Twelfth Supplemental Indenture, all of which are being refunded, as provided in the Escrow Agreement, by a portion of the proceeds of the Series 2011 Refunding Bonds together with other available funds of the Authority.

“Bond Year” means, with respect to each Type of Bonds, the twelve month (or

shorter initial) period beginning and ending on the dates specified in the Supplemental Indenture creating such Type.

I-3

With respect to the Series 2011 Refunding Bonds, “Bond Year” means the twelve-month period beginning on October 2 in each year and ending on the October 1 of the immediately succeeding year, except that the first Bond Year with respect to the Series 2011 Refunding Bonds shall commence on the date of delivery of the Series 2011 Refunding Bonds and end on the immediately succeeding October 1.

“Business Day” means, except as provided in a Supplemental Indenture, each

weekday on which commercial banking institutions in the State and in the State of New York are not required or authorized by law or executive order to remain closed, and on which the New York Stock Exchange, Inc. is not closed.

“Class” means a Class of Bonds. The Classes of Bonds initially authorized to be

issued under the Indenture are (a) “Clean Water Revolving Fund Revenue Bonds” issued to provide funds with respect to the State Clean Water Revolving Fund or (b) “Drinking Water Revolving Fund Revenue Bonds” issued to provide funds with respect to the State Drinking Water Revolving Fund. All Bonds issued pursuant to the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture, the Fifth Supplemental Indenture and the Sixth Supplemental Indenture are of the Class Clean Water Revolving Fund Revenue Bonds. All Bonds issued pursuant to Supplemental Indentures on or after the effectiveness of the Amended and Restated Master Indenture shall be given a Class designation in or pursuant to the Resolution and Supplemental Indenture pursuant to which they are issued. Additional Classes of Bonds may be provided for in a Supplemental Indenture and Class designations may be changed in accordance with the Indenture.

With respect to the Clean Water Revolving Fund Revenue Refunding Bonds,

Series 2011, “Class” means the Class “Clean Water Revolving Fund Revenue Bonds.” With respect to the Drinking Water Revolving Fund Revenue Refunding Bonds,

Series 2011, “Class” means the Class “Drinking Water Revolving Fund Revenue Bonds.”

“Clean Water Act” means the federal Clean Water Act of 1972, PL 92-500, as

amended from time to time (including amendments made by the Water Quality Act). “Clean Water Revolving Fund Revenue Bonds” means Bonds issued pursuant

to the Indenture for the purposes of the State Clean Water Revolving Fund. “Code” means the Internal Revenue Code of 1986, as amended from time to

time, and any successor provision, act or statute, and the regulations from time to time promulgated or proposed thereunder or under Section 103 of the Internal Revenue Code of 1954.

“Collateral Documents” means such documents or instruments as may be

required as additional security for a Municipal Obligation by the Authority from a Governmental Unit, its incorporating or establishing municipality or other entity

I-4

designated in a Supplemental Indenture, but only if and to the extent designated as Collateral Documents in a Supplemental Indenture.

“Co-Paying Agent” means with respect to any Bond, the Co-Paying Agent, if

any, appointed as such by a Supplemental Indenture and any successor thereto. “Costs of Issuance” means any administrative costs of the Authority or items of

expense payable or reimbursable directly or indirectly by the Authority and related to the authorization, sale, and issuance of the Bonds, which items of expense shall include, but not be limited to, underwriters fees, printing costs, costs of reproducing documents, filing and recording fees, initial fees and charges of a Trustee, the initial fees of any liquidity facility issuer, if any, and fees or premiums of any credit facility issuer, if any, costs and expenses of verification agents, the Bond Registrar and Paying Agent, the Co-Paying Agent, and the Authority, legal fees and charges, professional consultants’ fees, financial advisor’s fees, costs of credit ratings, fees and charges for execution, transportation and safekeeping of Bonds, the cost of any Reserve Account Security Instrument and other costs, charges and fees in connection with the foregoing, or designated as such in a Supplemental Indenture, and any other items of expense authorized by the Act.

“Costs of Issuance Account” means, with respect to any Class, Type or Types or

Series of Bonds, the Costs of Issuance Account for such Bonds, if any, established in the Costs of Issuance Fund.

“Costs of Issuance Fund” means the Costs of Issuance Fund established and so

designated by the Indenture. Unless otherwise provided in a Supplemental Indenture, the Costs of Issuance Fund shall not be deemed to be part of the State Revolving Fund.

“Counsel” means an attorney duly admitted to practice law before the highest

court of any state. “Debt Service” means, with respect to any Bonds as of any Payment Date, the

principal, interest and/or Redemption Price, if any, payable on such Payment Date. “Debt Service Account” means, with respect to each Type of Bonds, the Debt

Service Account for such Type of Bonds within the Debt Service Fund. “Debt Service Fund” means the Debt Service Fund established and so

designated by the Indenture. “DEQ” means the Michigan Department of Environmental Quality, or any board,

body, commission, department or officer succeeding to the principal functions thereof or to whom the powers conferred upon the DEQ by law shall heretofore or hereafter be given by law.

“Direct Loan” means a Loan (or an undivided or allocated interest in a Loan

representing the portion of the Loan) made by the Authority from (i) State Revolving

I-5

Fund moneys not held and administered as part of the Indenture or (ii) State Revolving Fund moneys (other than Bond proceeds) transferred to a Loan Account for purposes of making such Loan.

“Drinking Water Act” means the federal Safe Drinking Water Act of 1974, PL

93-523, as amended from time to time. “Drinking Water Revolving Fund Revenue Bonds” means Bonds issued

pursuant to the Indenture for the purposes of the State Drinking Water Revolving Fund. “DWPPB-I Debt Service Account” means the Account designated as such in the

Seventh Supplemental Indenture and established in the Debt Service Fund with respect to Bonds, issued as Bonds of the Type DWPPB-I.

“DWPPB-I Direct Loans” means those existing loans, or portions of loans, if

any, set forth in a Supplemental Indenture authorizing the issuance of Drinking Water Revolving Fund Revenue Bonds of the Type DWPPB-I together with other Direct Loans thereafter made from the DWPPB-I Loan Account in accordance with the Master Indenture, all of which are designated by the Seventh Supplemental Indenture as “Related” to Bonds of the Types DWPPB-I and any Related State Match Bonds issued thereafter and Loan Repayments on which are pledged to the payment of principal of and interest on Bonds of the Type DWPPB-I and any Related State Match Bonds issued thereafter in accordance with, and to the extent provided by, the Master Indenture.

“DWPPB-I Loan Account” means the Account designated as such in the

Seventh Supplemental Indenture and established in the Loan Fund with respect to Bonds, issued as Bonds of the Type DWPPB-I.

“DWPPB-I Rebate Account” means the Account designated as such in the

Seventh Supplemental Indenture and established in the Rebate Fund with respect to Bonds, issued as Bonds of the Type DWPPB-I.

“DWPPB-I Reserve Account” means the Account designated as such in the

Seventh Supplemental Indenture and established in the Reserve Fund with respect to Bonds, issued as Bonds of the Type DWPPB-I.

“DWPPB-I Revenue Account” means the Account designated as such and

established in the Revenue Fund with respect to Bonds, issued as Bonds of the Type DWPPB-I. Within the DWPPB-I Revenue Account there has been designated a subaccount known as the Loan Prepayment Subaccount.

“DWPPB-I Supplemental Reserve Account” means the Account designated as

such and established in the Reserve Fund with respect to Bonds, issued as Bonds of the Type DWPPB-I.

I-6

“DWPPB-III Debt Service Account” means the Account designated as such in the Twenty-First Supplemental Indenture and established in the Debt Service Fund with respect to Bonds, including the Series 2011 Drinking Water Refunding Bonds, issued as Bonds of the Type DWPPB-III. “DWPPB-III Loan Account” means the Account designated as such in the Twenty-First Supplemental Indenture and established in the Loan Fund with respect to Bonds, including the Series 2011 Drinking Water Refunding Bonds, issued as Bonds of the Type DWPPB-III. “DWPPB-III Rebate Account” means the Account designated as such in the Twenty-First Supplemental Indenture and established in the Rebate Fund with respect to Bonds, including the Series 2011 Drinking Water Refunding Bonds, issued as Bonds of the Type DWPPB-III.

“DWPPB-III Reserve Account” means the Account designated as such in the Twenty-First Supplemental Indenture and established in the Reserve Fund with respect to Bonds, including the Series 2011 Drinking Water Refunding Bonds, issued as Bonds of the Type DWPPB-III.

“DWPPB-III Revenue Account” means the Account designated as such in the Twenty-First Supplemental Indenture and established in the Revenue Fund with respect to Bonds, including the Series 2011 Drinking Water Refunding Bonds, issued as Bonds of the Type DWPPB-III. Within the DWPPB-III Revenue Account there has been designated a subaccount known as the Loan Prepayment Subaccount.

“Eighteenth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Refunding Bonds Eighteenth Supplemental Indenture dated as of June 1, 2009, between the Authority and the Trustee.

“Eighth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Eighth Supplemental Indenture dated as of September 1, 1999, between the Authority and the Trustee.

“Eleventh Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Eleventh Supplemental Indenture dated as of August 1, 2002, between the Authority and the Trustee.

“Eligible Investment” means, except as otherwise provided in a Supplemental

Indenture, such of the following as shall mature, be subject to redemption by the holder thereof at the option of such holder, or otherwise be available for the use intended, not later than the respective dates when the moneys will be required for the purposes intended: (i) Government Obligations, (ii) certificates of deposit issued by any bank or trust company whose deposits are insured by the Federal Deposit Insurance Corporation, provided that such certificates of deposit are, at the time acquired, issued by banks or trust companies whose long term obligations have received from each Rating Agency

I-7

rating the Bonds secured by the investment a rating at least as high as the rating on such Bonds, (iii) debentures or notes issued by any of the following Federal agencies: Banks for Cooperatives, Federal Intermediate Credit Banks, Federal Loan Banks, Export-Import Bank of the United States, Governmental National Mortgage Association, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or Federal Home Loan Banks, Federal Land Banks (including participation certificates issued by such agencies) and all other obligations issued or in the opinion of the Attorney General of the United States unconditionally guaranteed as to principal and interest by any agency or person controlled or supervised by and acting as an instrumentality of the United States of America pursuant to authority granted by the Congress, provided that such debentures, notes or obligations have, at the time acquired, received from each Rating Agency rating the Bonds secured by the investment a rating at least as high as the rating on such Bonds or provided that an Authorized Officer has confirmed in writing with applicable Rating Agencies that investment in any one or more of such debentures, notes or obligations will not result in a reduction or withdrawal of any existing Rating Agency rating on any Bonds secured by such investment, (iv) an Investment Agreement which meets the then applicable rating criteria necessary to maintain the then existing ratings on the Bonds by each Rating Agency rating the Bonds secured by the Investment Agreement, (v) obligations, the interest on which is excluded from gross income for purposes of federal income tax under the Code, and which, at the time acquired, have received from each Rating Agency rating the Bonds secured by the investment a rating at least as high as the rating on such Bonds, (vi) commercial paper which, at the time acquired, has received from each Rating Agency rating the Bonds secured by the investment a rating in the highest Rating Category applicable thereto, (vii) bonds or notes which are general obligations of the State but, except with respect to such bonds or notes constituting the State’s matching contribution to the State Revolving Fund to be deposited and held in any Reserve Account, and except for any such bonds or notes deposited in a Supplemental Reserve Account, only if, when such bonds or notes are acquired, the State’s general obligation bonds have received from each Rating Agency rating the Bonds secured by the investment a rating in one of the two highest Rating Categories applicable thereto; (viii) any other investment permitted by the Act and approved by resolution of the Authority which, at the time acquired, has received from each Rating Agency rating the Bonds secured by the investment a rating at least as high as the rating on such Bonds. Notwithstanding the foregoing, Released Account Moneys may be invested in Subordinated Funding Bonds as and to the extent provided in the Indenture.

“Escrow Agreement” means the Escrow Agreement dated as of November 1, 2011, between the Authority and The Bank of New York Mellon Trust Company, N.A. as Escrow Trustee, pursuant to which amounts deposited thereunder will be used to refund the Bonds To Be Refunded.

“Event of Default” means an Event of Default specified under the Indenture. “Federal Capitalization Grant” means a capitalization grant provided to the

State by the United States for (a) the State Clean Water Revolving Fund pursuant to the

I-8

Clean Water Act (a “Clean Water Federal Capitalization Grant”) or (b) the State Drinking Water Revolving Fund pursuant to the Drinking Water Act (a “Drinking Water Federal Capitalization Grant”).

“Fees and Charges” means all fees and charges, if any, collected by the

Authority in connection with Municipal Obligations purchased pursuant to the Indenture. “Fifteenth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Fifteenth Supplemental Indenture dated as of November 1, 2006, between the Authority and the Trustee.

“Fifth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Fifth Supplemental Indenture dated as of August 1, 1996, between the Authority and the Trustee.

“First Supplemental Indenture” means the Michigan Municipal Bond Authority

State Revolving Fund Revenue Bonds First Supplemental Indenture dated as of October 1, 1992, between the Authority and the Trustee.

“Fitch” means Fitch Ratings, Inc., its successors and assigns, and, if such

corporation is dissolved or liquidated or no longer performs the functions of a securities rating agency, “Fitch” will be deemed to refer to any other nationally recognized rating agency designated by the Authority by notice to the Trustee.

“Fourteenth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Fourteenth Supplemental Indenture dated as of July 1, 2005, between the Authority and the Trustee.

“Fourth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Fourth Supplemental Indenture dated as of March 1, 1996, between the Authority and the Trustee.

“Fully Marketable Form” means, with respect to a Municipal Obligation, that

the Municipal Obligation has been duly executed and accompanied by all of the following: (i) an approving legal opinion of a bond counsel approved by the Authority and of nationally recognized standing in the field of municipal law, (ii) closing documents in a form and substance satisfactory to the Authority, (iii) evidence that the pledge for payment of the Municipal Obligation will be sufficient to pay the principal of and interest on the Municipal Obligation when due, and (iv) an order of approval by the Director of the DEQ as provided in Act 451; provided that, if the definition of Fully Marketable Form in the Act is changed or supplanted, Fully Marketable Form shall have the same meaning in the Indenture as in the Act.

“Fund” means a fund established and designated in the Indenture.

I-9

“Government Obligations” means, except as otherwise provided in a Supplemental Indenture, (i) direct obligations of the United States of America (including obligations issued or held in book-entry form), (ii) obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America, (iii) certificates which evidence ownership of the right to the payment of the principal of and interest on obligations described in clauses (i) and (ii) provided that such obligations are held in the custody of a bank or trust company satisfactory to the Trustee in a special account separate from the general assets of such custodian and (iv) municipal obligations the timely payment of the principal and interest on which is fully provided for by the deposit in trust or escrow of cash or obligations described in clause (i), (ii) or (iii); provided such obligations are not subject to call by the obligor for redemption prior to maturity, have been called for redemption prior to maturity or, if subject to call by the obligor for redemption prior to maturity, such right to call the obligation for redemption prior to maturity has been waived; provided, however, Government Obligations shall not include any investment which is prohibited or not permitted by the Act.

“Governmental Unit” means a “governmental unit” as defined in the Act which qualifies as “a governmental unit” within the meaning of Section 103(b) (3) (A) of the Internal Revenue Code of 1954, as amended, and Sections 141(b) (6) (A) and 141(c) (1) of the Code and, if the context so requires, which has received a Loan from the Authority.

“Indenture” means the Master Indenture adopted and so designated by the

Authority as the same may be supplemented or amended by Supplemental Indentures pursuant to the terms thereof.

“Interest Loan Repayments” means that portion of Loan Repayments not

constituting Principal Loan Repayments. “Interest Payment Date” means, except to the extent otherwise provided in any

Supplemental Indenture with respect to Bonds issued pursuant thereto (in which case such provision shall govern): the first October 1 or April 1 which occurs at least 3 months after the Original Issue Date of such Bond and each April 1 and October 1 thereafter.

“Interest Subsidy Account” means, with respect to each Type of Bonds for

which such an Account has been established by a Supplemental Indenture, the Interest Subsidy Account for such Type of Bonds within the Interest Subsidy Fund.

“Interest Subsidy Fund” means the Interest Subsidy Fund established and so

designated by the Indenture. Unless otherwise provided in a Supplemental Indenture, the Interest Subsidy Fund shall not be deemed to be part of the State Revolving Fund.

“Investment Agreement” means any agreement for the investment of funds held

under the terms of the Indenture which is authorized by law, which has been approved by all Rating Agencies rating the Bonds issued contemporaneously with and secured by such investment, and which will not, at the time entered into, and as confirmed in writing by

I-10

an Authorized Officer of the Authority with applicable Rating Agencies, result in a reduction or withdrawal of any existing Rating Agency rating on any other Bonds secured by such investment.

“Liquidation Proceeds” means amounts received by the Authority in connection

with enforcement of any of the remedies under or with respect to a Municipal Obligation, including the sale thereof, or Collateral Document after the occurrence of a default which has not been waived or cured.

“Loan” means a loan that is made by the Authority to a Governmental Unit

pursuant to (or as contemplated by) the provisions of the Indenture or a Supplemental Indenture and Loan Repayments with respect to which have been pledged to the payment of Bonds under the Indenture.

“Loan Account” means, with respect to each Type of Bonds, the Loan Account

for such Type of Bonds within the Loan Fund. “Loan Documents” means, with respect to each Loan, the various documents or

instruments authorizing a Governmental Unit to enter into the Loan and providing for the terms of the Loan including supplemental agreements among the Governmental Unit, the Authority and the DEQ and all such documents, instruments and approvals set forth in the Indenture in the definition of “Fully Marketable Form.”

“Loan Fund” means the Loan Fund established and so designated by the

Indenture. “Loan Repayments” means, with respect to a Loan and the Municipal Obligation

evidencing the same, the payments of principal of and interest on the Municipal Obligation, Liquidation Proceeds with respect to a Municipal Obligation and any other amounts payable by a Governmental Unit pursuant to its Municipal Obligation, but excluding Fees and Charges except to the extent otherwise provided in a Supplemental Indenture.

“Local Project Bonds” means Bonds designated as such in a Supplemental

Indenture issued in one or more Series to provide Loans to a single Governmental Unit (which may, nevertheless, also receive Direct Loans or Loans from proceeds of Pooled Project Bonds or State Match Bonds).

“Mandatory Redemption” means any mandatory redemption made pursuant to

the Indenture. “Master Indenture” means the Michigan Municipal Bond Authority State

Revolving Fund Revenue Bonds Master Indenture dated as of October 1, 1992, between the Authority and the Trustee as amended and restated as of July 1, 1998.

I-11

“Minimum Reserve Account Requirement” means, with respect to each Series of Bonds of a particular Type and its Related Reserve Account, the amount so designated in a Supplemental Indenture providing for the initial issuance of Bonds of that Type or Related Bonds, which amount may be satisfied in the same manner provided for in the definition of “Reserve Account Requirement” set forth in the Indenture. The Reserve Account Requirement for any Series of Bonds shall not be less than the Minimum Reserve Account Requirement established with respect to Bonds of that Type. Notwithstanding the foregoing, the Authority in a Supplemental Indenture may reduce or eliminate the Minimum Reserve Account Requirement with respect to any Type of Bonds at any time if an Authorized Officer of the Authority confirms in writing with applicable Rating Agencies that such reduction or elimination would not result in the reduction or withdrawal of any Rating Agency rating applicable to any Outstanding Bonds for which such Related Reserve Account is Security, and in such event such Minimum Reserve Account Requirement shall be deemed to be so reduced or eliminated.

With respect to each Series of Bonds of the Type PPB-I and each Series of State

Match Bonds Related to the Type PPB-I, and as determined by an Authorized Officer of the Authority, Minimum Reserve Account Requirement means the amount at any time which equals 50% of the Bonds of such Series then Outstanding. The Minimum Reserve Account Requirement applicable to any one or more of such Series of Bonds may be reduced at any time and from time to time by an amount equal to a designated percentage of the par amount of PPB-I Direct Loans then Outstanding, such percentage to be designated by the Authority in a Supplemental Indenture by only after (i) an Authorized Officer of the Authority has made a Sufficiency Calculation taking such designation into account and (ii) an Authorized Officer of the Authority has confirmed in writing with each Rating Agency then rating Bonds of the Type PPB-I and State Match Bonds Related thereto (if any) that such designation will not result in a reduction or withdrawal of its rating on such Bonds.

With respect to each Series of Bonds of the Type DWPPB-I and each Series of

State Match Bonds Related to the Type DWPPB-I, and as determined by an Authorized Officer of the Authority, Minimum Reserve Account Requirement means the amount at any time which equals 50% of the Bonds of such Series then Outstanding. The Minimum Reserve Account Requirement applicable to any one or more of such Series of Bonds may be reduced at any time and from time to time by an amount equal to a designated percentage of the par amount of DWPPB-I Direct Loans then Outstanding, such percentage to be designated by the Authority in a Supplemental Indenture by only after (i) an Authorized Officer of the Authority has made a Sufficiency Calculation taking such designation into account and (ii) an Authorized Officer of the Authority has confirmed in writing with each Rating Agency then rating Bonds of the Type DWPPB-I and State Match Bonds Related thereto (if any) that such designation will not result in a reduction or withdrawal of its rating on such Bonds.

With respect to Bonds of the Type PPB-III, including the Series 2011 Clean

Water Refunding Bonds, and any Series of State Match Bonds related to Bonds of the

I-12

Type PPB-III, and as determined by an Authorized Officer of the Authority, the amount at any time which equals 0% of the Bonds of such Series then Outstanding.

With respect to Bonds of the Type DWPPB-III, including the Series 2011

Drinking Water Refunding Bonds, and any Series of State Match Bonds related to Bonds of the Type DWPPB-III, and as determined by an Authorized Officer of the Authority, the amount at any time which equals 0% of the Bonds of such Series then Outstanding.

“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and

existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation is dissolved or liquidated or no longer performs the functions of a securities rating agency, “Moody’s” will be deemed to refer to any other nationally recognized securities rating agency designated by the Authority by notice to the Trustee.

“Municipal Obligation” means an obligation of a Governmental Unit (or an

undivided or allocated interest in such an obligation representing the portion of the obligation) evidencing a Loan made by the Authority to such Governmental Unit.

“Nineteenth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Nineteenth Supplemental Indenture dated as of March 1, 2010, between the Authority and the Trustee.

“Ninth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Ninth Supplemental Indenture dated as of September 1, 2000, between the Authority and the Trustee.

“Non-Arbitrage and Tax Compliance Certificate” means a Non-Arbitrage and

Tax Compliance Certificate executed by an Authorized Officer of the Authority relating to the use of the proceeds of the Bonds and compliance with the applicable provisions of the Code. It is anticipated that a separate Non-Arbitrage and Tax Compliance Certificate may be executed with respect to each Series of Bonds. All Non-Arbitrage and Tax Compliance Certificates executed by an Authorized Officer of the Authority with respect to any Bond, as such certificates may be amended or supplemented from time to time, are collectively referred to in the Indenture as the “Non-Arbitrage and Tax Compliance Certificate.”

“Notice Parties” means, with respect to notices relating to the Bonds of any

Type, the Authority, the Trustee, the Bond Registrar and Paying Agent, the Co-Paying Agent and any other party so designated by a Supplemental Indenture or such of them as are serving with respect to the Bonds of such Type.

“Original Issue Date” means, with respect to each Bond, the date on which the

Bond is delivered to the original purchasers thereof or such other date specified in a Supplemental Indenture.

I-13

“Outstanding,” when used with respect to Bonds, means all Bonds which have been authenticated and delivered by the Bond Registrar and Paying Agent under the Indenture, except:

(a) Bonds canceled after purchase in the open market or because of payment; (b) Bonds deemed paid under the Indenture; and (c) Bonds in lieu of which other Bonds have been authenticated under the

Indenture. “Owner” means the registered owner of any Bond. “Payment Date” means an Interest Payment Date, a Principal Payment Date, or a

Redemption Date and the date when principal of and interest on a particular Bond may be due because of acceleration (if allowed) after an Event of Default.

“Pledged Funds” means and includes, with respect to each Type of Bond, and to

the extent provided in the Indenture with respect to such Type, the Related Accounts within the Loan Fund, the Reserve Fund, the Revenue Fund, the Interest Subsidy Fund, the Debt Service Fund and all moneys, instruments, and investments from time to time therein. Pledged Funds does not include the Rebate Fund or the Costs of Issuance Fund. With respect to Subordinate Bonds, Pledged Funds also means and includes, on a subordinate basis, Released Account Moneys in Subordinately Related Accounts within the Reserve Fund and Revenue Fund.

“Pooled Project Bonds” means Bonds designated as such in a Supplemental

Indenture issued in one or more Series to provide Loans to one or more Governmental Units constituting a pool.

“PPB-I Debt Service Account” means the Account designated as such and

established in the Debt Service Fund with respect to Bonds issued as Bonds of the Type PPB-I.

“PPB-I Direct Loans” means those existing loans, or portions of loans, if any,

set forth in a Supplemental Indenture authorizing the issuance of Clean Water Revolving Fund Revenue Bonds of the Type PPB-I together with other Direct Loans thereafter made from the PPB-I Loan Account in accordance with the Master Indenture, all of which are designated by a Supplemental Indenture as “Related” to Bonds of the Type PPB-I and any Related State Match Bonds issued thereafter and Loan Repayments on which are pledged to the payment of principal of and interest on Bonds of the Type PPB-I and any Related State Match Bonds issued thereafter in accordance with, and to the extent provided by, the Master Indenture.

“PPB-I Loan Account” means the Account designated as such and established in

the Loan Fund with respect to Bonds issued as Bonds of the Type PPB-I.

I-14

“PPB-I Rebate Account” means the Account designated as such and established

in the Rebate Fund with respect to Bonds issued as Bonds of the Type PPB-I. “PPB-I Reserve Account” means the Account designated as such and

established in the Reserve Fund with respect to Bonds issued as Bonds of the Type PPB-I.

“PPB-I Revenue Account” means the Account designated as such and

established in the Revenue Fund with respect to Bonds issued as Bonds of the Type PPB-I. Within the PPB-I Revenue Account there has been designated a subaccount known as the Loan Prepayment Subaccount.

“PPB-I Supplemental Reserve Account” means the Account designated as such

and established in the Reserve Fund with respect to Bonds issued as Bonds of the Type PPB-I.

“PPB-III Debt Service Account” means the Account designated as such in the Eighteenth Supplemental Indenture and established in the Debt Service Fund with respect to Bonds, including the Series 2011 Clean Water Refunding Bonds, issued as Bonds of the Type PPB-III. “PPB-III Direct Loans” means those existing loans, or portions of loans, if any, identified in a Supplemental Indenture authorizing the issuance of Clean Water Revolving Fund Revenue Bonds of the Type PPB-III, together with other direct Loans thereafter made from the PPB-III Loan Account in accordance with the Master Indenture, all of which are designated as “Related” to Bonds of the Type PPB-III and any Related State Match Bonds issued thereafter and Loan Repayments on which are pledged to the payment of principal of and interest on Bonds of the Type PPB-III and any Related State Match Bonds issued thereafter in accordance with, and the extent provided by, the Master Indenture. “PPB-III Loan Account” means the Account designated as such in the Eighteenth Supplemental Indenture and established in the Loan Fund with respect to Bonds, including the Series 2011 Clean Water Refunding Bonds, issued as Bonds of the Type PPB-III. “PPB-III Rebate Account” means the Account designated as such in the Eighteenth Supplemental Indenture and established in the Rebate Fund with respect to Bonds, including the Series 2011 Clean Water Refunding Bonds, issued as Bonds of the Type PPB-III.

“PPB-III Reserve Account” means the Account designated as such in the Eighteenth Supplemental Indenture and established in the Reserve Fund with respect to Bonds, including the Series 2011 Clean Water Refunding Bonds, issued as Bonds of the Type PPB-III.

I-15

“PPB-III Revenue Account” means the Account designated as such in the

Eighteenth Supplemental Indenture and established in the Revenue Fund with respect to Bonds, including the Series 2011 Clean Water Refunding Bonds, issued as Bonds of the Type PPB-III. Within the PPB-III Revenue Account there has been designated a subaccount know as the Loan Prepayment Subaccount. “PPB-III Supplemental Reserve Account” means the Account designated as such in the Eighteenth Supplemental Indenture and established in the Reserve Fund with respect to Bonds, including the Series 2011 Clean Water Refunding Bonds, issued as the Bonds of the Type PPB-III.

“Principal Loan Repayments” means that portion of Loan Repayments representing the principal amount and premium payable, if any, with respect to a Municipal Obligation.

“Principal Payment Date” means, except to the extent otherwise provided in any

Supplemental Indenture with respect to Bonds issued pursuant thereto (in which case such provision shall govern): each October 1 and April 1 on which principal of a Bond is due by scheduled maturity or Mandatory Redemption.

“Project Bonds” means Local Project Bonds or Pooled Project Bonds. “Project Loan” means (i) a Loan (or an undivided or allocated interest in a Loan

representing the portion of the Loan) made by the Authority from the proceeds of Project Bonds or (ii) a Loan designated as such by a Supplemental Indenture or by a certificate of an Authorized Officer of the Authority.

“Rating Agency” means, with respect to the Bonds of any Type, any one or more

of Moody’s, Fitch, or S&P or any other rating agency as may be so designated in a Supplemental Indenture. With respect to the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds, “Rating Agencies” means S&P and Fitch.

“Rating Category” means one of the generic rating categories of a Rating

Agency without regard to any refinement or graduation of such rating category by a numerical modifier or otherwise.

“Rebate Account” means, with respect to each Type of Bonds, the Rebate

Account for such Type of Bonds within the Rebate Fund. “Rebate Fund” means the fund so designated and established by the Indenture.

Unless otherwise provided in a Supplemental Indenture, the Rebate Fund shall not be deemed to be part of the State Revolving Fund.

I-16

“Rebate Payments” means payments required to be made to the United States pursuant to the Indenture and the Non-Arbitrage and Tax Compliance Certificate.

“Record Date” means the 15th day of the calendar month immediately preceding

any Interest Payment Date, or as otherwise specified in a Supplemental Indenture. “Redemption Date” means the date on which a Bond is redeemed pursuant to the

Indenture, which may or may not coincide with a Principal Payment Date or an Interest Payment Date.

“Redemption Price” means, with respect to any Bond or any portion thereof, the

principal amount of such Bond or such portion thereof and any premium thereon payable upon redemption thereof pursuant to the Indenture or a Supplemental Indenture.

“Refunding Bonds” means Bonds issued pursuant to the Indenture or bonds

issued pursuant to a separate and distinct resolution or indenture issued for purposes described in the Indenture.

“Related” (i) means, as between Accounts, Accounts established with respect to

the same Type of Bonds; (ii) means, as between Bonds, all Bonds of the same Type; (iii) means as between Bonds and Accounts, all Bonds of one Type and all separate Accounts established with respect to the Bonds of that Type; (iv) means, as between Loans and Bonds, Bonds of one Type and Bonds Related to Bonds of that Type and (1) Loans made from the Loan Account Related to the Bonds of such Type, (2) Direct Loans not described in (1) above which have been made available by the Authority as Security under the Indenture and designated as “Related” to the Bonds of such Type in or pursuant to a Supplemental Indenture, or (3) Loans not described in (1) above which have been designated as Project Loans by a Supplemental Indenture or by a certificate of an Authorized Officer of the Authority ; (v) as between Project Bonds and State Match Bonds, means the Project Bonds of one Type and State Match Bonds of one Type which are designated as “Related” in a Supplemental Indenture; and (vi) as between State Match Bonds and a Reserve Account, Loan Account, and Loan Repayments means the Reserve Account, Loan Account and Loan Repayments on Loans Related to Project Bonds Related to such State Match Bonds as provided in clause (v) above.

“Released Account Moneys” means, with respect to any Account, Direct Loan

or State Match Loan, the amount so constituted or determined as provided in the Indenture or pursuant to a Supplemental Indenture.

“Required Amount” means, with respect to transfers on any date from any

Account to the Revenue Account for Related State Match Bonds, the amount determined by an Authorized Officer of the Authority to be necessary (taking into account other amounts then on deposit in or then required and available to be transferred to such Related Revenue Account) to make the amount on deposit in such Revenue Account equal to the amount required to be transferred from such Revenue Account to the Related Debt Service Account to pay Debt Service on the Related State Match Bonds on such

I-17

date, if it is a Payment Date, or the next succeeding Payment Date, if such Date is not a Payment Date.

“Reserve Account” means, with respect to each Type of Bonds, the Reserve

Account for such Type of Bonds within the Reserve Fund. “Reserve Account Requirement” means, with respect to each Reserve Account,

the amount certified by an Authorized Officer of the Authority to be equal to the sum of the Reserve Account Requirements designated in Supplemental Indentures authorizing different Series of Related Bonds. The Reserve Account Requirement for any Reserve Account may be satisfied by (i) cash, (ii) Eligible Investments (including general obligation notes or bonds of the State that meet the rating criteria described in the definition of Eligible Investments), (iii) State general obligation bonds or notes deposited or to be deposited in such Reserve Account valued, for such purposes, at the par amount of the bonds or notes deposited or to be deposited, provided that, unless such bonds or notes otherwise meet the rating criteria set forth in the definition of Eligible Investments, such bonds or notes shall satisfy the Reserve Account Requirement only to the extent the amount deposited or to be deposited does not or will not exceed the lesser of (1) the amount reasonably determined by an Authorized Officer of the Authority to be necessary to satisfy the State’s match obligations under the State Revolving Fund attributable to Loans made from, or deemed to be made from, Related Bonds or (2) 17% of the Reserve Account Requirement (or such higher percentage as may be specified in a Supplemental Indenture provided an Authorized Officer has confirmed in writing with applicable Rating Agencies that such higher percentage will not result in a reduction or withdrawal in any Rating Agency rating on Bonds secured by the Reserve Account to which the Reserve Account Requirement pertains), (iv) a Reserve Account Security Instrument, (v) Federal Capitalization Grants received or reasonably expected to be received by the Authority and deposited in such Reserve Account valued, for such purposes, at the amount deposited or to be deposited and/or (vi) any other amounts legally provided by the Authority or the State for such purposes. Notwithstanding the foregoing, the Authority in a Supplemental Indenture may reduce or eliminate the Reserve Account Requirement with respect to any Reserve Account at any time if an Authorized Officer of the Authority confirms in writing with applicable Rating Agencies that such reduction or elimination would not result in the reduction or withdrawal of any Rating Agency rating applicable to any Outstanding Bonds for which such Reserve Account is Security, and in such event such Reserve Account Requirement shall be deemed to be so reduced or eliminated. Additionally, the Authority may establish a Reserve Account Requirement for a Type of Bond that may be reduced or eliminated based upon a Sufficiency Calculation instead of obtaining confirmation from any Rating Agency.

“Reserve Account Security Instrument” means a letter of credit, line of credit,

policy of insurance, surety bond or similar instrument which will provide for the payment of all or part of the amounts required to be disbursed from a Reserve Account; provided that the use of any Reserve Account Security Instrument shall be allowed only if an Authorized Officer of the Authority confirms in writing with applicable Ratings Agencies

I-18

that it would not result in a reduction of any Rating Agency rating applicable to any Outstanding Bonds for which such Reserve Account Security Instrument is Security.

“Reserve Fund” means the Reserve Fund established and so designated by the

Indenture. “Revenue Account” means, with respect to each Type of Bonds, the Revenue

Account for such Type of Bonds within the Revenue Fund. “Revenue Fund” means the Revenue Fund established and so designated by the

Indenture. “Revenues” means all income derived for the period for which the calculation is

being made by or for the account of the Authority from the Municipal Obligations or under the Indenture including (i) Loan Repayments and (ii) income from the investment of all Funds and Accounts created by or pursuant to the Indenture (other than the Rebate Fund and the Costs of Issuance Fund).

“S&P” means Standard & Poor’s Ratings Service, a division of The McGraw-

Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation is dissolved or liquidated or no longer performs the functions of a securities rating agency, “S&P” will be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, by notice to the Trustee.

“Second Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Second Supplemental Indenture dated as of December 1, 1993, between the Authority and the Trustee.

“Security” means the amounts, properties and rights described in the Indenture as

security for the payment of the Bonds. “Senior Bonds” means Bonds (which may or may not be designated as such in a

Supplemental Indenture), whose Related Released Account Moneys are pledged, on a subordinate basis, to Subordinate Bonds pursuant to the terms of a Supplemental Indenture.

“Serial Bonds” means Bonds so designated in or pursuant to a Supplemental

Indenture authorizing their issuance. “Series of Bonds” or “Bonds of a Series” means a Series of Bonds, if any,

authorized and so designated by or pursuant to a Supplemental Indenture. “Series 1992A Bonds” means the Authority’s “State Revolving Fund Revenue

Bonds, Pooled Project Series 1992A” authorized under and delivered pursuant to the Master Indenture and the First Supplemental Indenture of the Type PPB-I.

I-19

“Series 1993 Bonds” means the Authority’s “State Revolving Fund Revenue

Bonds, Pooled Project Series 1993” authorized under and delivered pursuant to the Master Indenture and the Second Supplemental Indenture of the Type PPB-I.


Bonds, Pooled Project Series 1994” authorized under and delivered pursuant to the Master Indenture and Third Supplemental Indenture of the Type PPB-I.

“Series 1996A Bonds” means the Authority’s “State Revolving Fund Revenue

Bonds, Refunding Series 1996A” authorized under and delivered pursuant to the Master Indenture and the Fifth Supplemental Indenture of the Type RRB-I.

“Series 1996B Bonds” means the Authority’s “State Revolving Fund Revenue

Bonds, Pooled Project Series 1996B” authorized under and delivered pursuant to the Master Indenture and the Fourth Supplemental Indenture of the Type PPB-I.


Bonds, Pooled Project Series 1997” authorized under and delivered pursuant to the Master Indenture and the Sixth Supplemental Indenture of the Type PPB-I.

“Series 1998 Bonds” means collectively the Authority’s “Clean Water Revolving

Fund Revenue Bonds, Pooled Project Series 1998” (the “Series 1998 Clean Water Bonds”) and “Drinking Water Revolving Fund Revenue Bonds, Pooled Project Series 1998” (the “Series 1998 Drinking Water Bonds”) authorized under and delivered pursuant to the Master Indenture and the Seventh Supplemental Indenture consisting of the Type PPB-I and the Type DWPPB-I, respectively.


Fund Revenue Bonds, Pooled Project Series 1999” (the “Series 1999 Clean Water Bonds”) and “Drinking Water Revolving Fund Revenue Bonds, Pooled Project Series 1999” (the “Series 1999 Drinking Water Bonds”) authorized under and delivered pursuant to the Master Indenture and the Eighth Supplemental Indenture consisting of the Type PPB-I and the Type DWPPB-I, respectively.


Fund Revenue Bonds, Pooled Project Series 2000 (the “Series 2000 Clean Water Bonds”) and “Drinking Water Revolving Fund Revenue Bonds, Pooled Project Series 2000” (the “Series 2000 Drinking Water Bonds”) authorized under and delivered pursuant to the Master Indenture and the Ninth Supplemental Indenture consisting of the Type PPB-I and the Type DWPPB-I, respectively.


Fund Revenue Bonds, Pooled Project Series 2001 (the “Series 2001 Clean Water Bonds”) and “Drinking Water Revolving Fund Revenue Bonds, Pooled Project Series 2001 (the “Series 2001 Drinking Water Bonds”) authorized under and delivered pursuant to the

I-20

Master Indenture and the Tenth Supplemental Indenture consisting of the Type PPB-I and the Type DWPPB-I, respectively.

“Series 2002 Bonds” means collectively the Series 2002 Refunding Bonds and the Series 2002 Project Bonds.

“Series 2002 Project Bonds” means collectively the Authority’s “Clean Water

Revolving Fund Revenue Bonds, Pooled Project Series 2002” (the “Series 2002 Clean Water Bonds”) and “Drinking Water Revolving Fund Revenue Bonds, Pooled Project Series 2002” (the “Series 2002 Drinking Water Bonds”) authorized under and delivered pursuant to the Master Indenture and the Twelfth Supplemental Indenture consisting of the Type PPB-I and the Type DWPPB-I, respectively.

“Series 2002 Refunding Bonds” means collectively the Authority’s “Clean

Water Revolving Fund Revenue Bonds, Refunding Series 2002” (the “Series 2002 Clean Water Refunding Bonds”) and “Drinking Water Revolving Fund Revenue Bonds, Refunding Series 2002” (the “Series 2002 Drinking Water Refunding Bonds”) authorized under and delivered pursuant to the Master Indenture and the Eleventh Supplemental Indenture consisting of the Type CWRRB-II and the Type DWRRB-I, respectively.

“Series 2004 Bonds” means collectively the Authority’s Clean Water Revolving

Fund Revenue Bonds, Pooled Project Series 2004 (the “Series 2004 Clean Water Bonds”) and Drinking Water Revolving Fund Revenue Bonds, Pooled Project Series 2004 (the “Series 2004 Drinking Water Bonds”) authorized under and delivered pursuant to the Master Indenture and the Thirteenth Supplemental Indenture consisting of the Type PPB-I and the Type DWPPB-I, respectively.

“Series 2005 Bonds” means collectively the Authority’s Clean Water Revolving

Fund Revenue and Refunding Bonds, Pooled Project Series 2005 (the “Series 2005 Clean Water Bonds”) and the Drinking Water Revolving Fund Revenue Bonds, Pooled Project Series 2005 (the “Series 2005 Drinking Water Bonds”) authorized and delivered pursuant to the Master Indenture and the Fourteenth Supplemental Indenture of the Type PPB-I and the Type DWPPB-I respectively.

“Series 2006 Bonds” means the Authority’s State Clean Water Revolving Fund

Revenue Bonds, Series 2006 (the “Series 2006 Clean Water Bonds”) authorized under and delivered pursuant to the Master Indenture and the Fifteenth Supplemental Indenture consisting of the Type PPB-I.


Revenue Bonds, Series 2007 (the “Series 2007 Clean Water Bonds”) authorized under and delivered pursuant to the Master Indenture and the Sixteenth Supplemental Indenture consisting of the Type PPB-I.


Revenue Bond Anticipation Notes, Series 2008 (the “Series 2008 Bonds” or “Series 2008

I-21

Notes”) authorized under and delivered pursuant to the Master Indenture and the Seventeenth Supplemental Indenture consisting of the Type PPB-II.


Revenue Refunding Bonds, Pooled Project Series 2009 (the “Series 2009 Bonds”) authorized under and delivered pursuant to the Master Indenture and the Eighteenth Supplemental Indenture consisting of the Type PPB-III.

“Series 2010 Clean Water Project Bonds” means the Authority’s “Clean Water

Revolving Fund Revenue Bonds, Pooled Project Series 2010” authorized under and delivered pursuant to the Master Indenture and the Twentieth Supplemental Indenture consisting of Bonds of the Type PPB-III.

“Series 2010 Clean Water Subordinate Refunding Bonds” means the

Authority’s “Clean Water Revolving Fund Subordinate Refunding Bonds, Series 2010” authorized under and delivered pursuant to the Master Indenture and the Nineteenth Supplemental Indenture consisting of Bonds of the Type SRB-I.

“Series 2011 Refunding Bonds” means collectively the Authority’s “Clean

Water Revolving Fund Revenue Refunding Bonds, Series 2011” (the “Series 2011 Clean Water Refunding Bonds’) and “Drinking Water Revolving Fund Revenue Refunding Bonds, Series 2011” (the “Series 2011 Drinking Water Refunding Bonds”) authorized under and delivered pursuant to the Master Indenture and the Twenty-First Supplemental Indenture consisting of $225,860,000 Bonds of the Type PPB-III and $56,860,000 Bonds of the Type DWPPB-III, respectively.

“Series 2011 Resolution” means Resolution No. 2011-40 of the Authority

adopted on September 9, 2011, providing for, among other things, the adoption of the Twenty-First Supplemental Indenture.

“Seventeenth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Seventeenth Supplemental Indenture dated as of December 1, 2008, between the Authority and the Trustee.

“Seventh Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Seventh Supplemental Indenture dated as of July 1, 1998, between the Authority and the Trustee.

“Sixteenth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Sixteenth Supplemental Indenture dated as of October 1, 2007, between the Authority and the Trustee.

“Sixth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Sixth Supplemental Indenture dated as of June 1, 1997, between the Authority and the Trustee.

I-22

“State” means the State of Michigan. “State Clean Water Revolving Fund” or “Clean Water Revolving Fund”

means the water pollution control revolving fund established by the Authority pursuant to the Act and the Clean Water Act; Funds established pursuant to the Indenture with respect to the Clean Water Revolving Fund Bonds are, unless otherwise specified, part of the State Clean Water Revolving Fund.

“State Drinking Water Revolving Fund” or “Drinking Water Revolving

Fund” means the drinking water revolving fund established by the Authority pursuant to the Act and the Drinking Water Act; Funds established pursuant to the Indenture with respect to the Drinking Water Revolving Fund Bonds are, unless otherwise specified, part of the State Drinking Water Revolving Fund.

“State Match Bonds” means Bonds designated as such in a Supplemental

Indenture issued in one or more Series to provide moneys to make Loans to one or more Governmental Units or to make deposits to one or more Reserve Accounts, which moneys will qualify as all or a portion of the State’s required matching contribution in order for the State to obtain Federal Capitalization Grants; each Type of State Match Bonds will be Related to a separate Type of Local Project Bonds or Pooled Project Bonds.

“State Match Loan” means a Loan (or an undivided or allocated interest in a

Loan representing the portion of the Loan) made by the Authority from the proceeds of State Match Bonds.

“State Revolving Fund” means collectively the Clean Water Revolving Fund

and the Drinking Water Revolving Fund and individually either of them as the context requires.

“State Revolving Fund Revenue Bonds” or “Revolving Fund Revenue

Bonds” means, collectively, the Clean Water Revolving Fund Revenue Bonds and the Drinking Water Revolving Fund Revenue Bonds.

“State Treasurer” means the Treasurer of the State. “Subordinate Bonds” means Bonds designated as such in a Supplemental

Indenture which, in addition to the Security pledged therefor under the Indenture, are secured, on a subordinated basis, as designated in a Supplemental Indenture by Released Account Moneys Related to a different Type of Bonds.

“Subordinated Funding Bond Issuance Certificate” means a certificate of the

Executive Director or other Authorized Officer of the Authority specifying the terms of a Series of Subordinated Funding Bonds.

I-23

“Subordinated Funding Bonds” means Subordinated Funding Bonds designated as such by the Executive Director or other Authorized Officer of the Authority issued pursuant to Section 201A of the Master Indenture.

“Subordinately Related” means, with respect to any Type of Subordinate Bonds,

those Bonds, Accounts and Loans established with respect to and Related to Senior Bonds (and not directly Related to such Subordinate Bonds) to the extent Released Account Moneys Related to such Bonds, Accounts or Loans are pledged, on a subordinate basis, to such Subordinate Bonds.

“Sufficiency Calculation” means, with respect to a Type of Bonds and Bonds

Related to such Type and as of a particular time, the determination that (i) the amounts on hand in or expected to be transferred to the respective Revenue Accounts Related to all such Bonds and expected to be available to pay Debt Service on and Bond Servicing Costs relating to all such Bonds (including Loan Repayments from Loans then anticipated to be made but not yet made), as reasonably estimated and projected by an Authorized Officer of the Authority, will be sufficient to pay, when and as due, (ii) Debt Service on all such Bonds and Bond Servicing Costs relating to all such Bonds. For purposes of the Sufficiency Calculation there shall not be taken into account amounts in a Related Revenue Account or Related Debt Service Account expected to be derived from the corpus of a Related Reserve Account (except such amounts derived from proceeds of Related Bonds which are expected to be used to pay Debt Service), amounts on hand in the Related Revenue Account and expected to be transferred to a Related Rebate Account and any Released Account Moneys that may be available to pay Debt Service on Related Bonds. With respect to investments held as of the date of calculation (including Investment Agreements which allow for investment of funds in the future), the actual rate applicable thereto shall be used for purposes of the Sufficiency Calculation, and otherwise there shall be used a rate equal to 3% per annum or such higher percentage as may be designated in a Supplemental Indenture after an Authorized Officer of the Authority has confirmed in writing with each Rating Agency then rating Bonds to which such designation will pertain that such designation will not result in a reduction or withdrawal of its ratings on such Bonds.

“Supplemental Indenture” means an indenture supplemental to or amendatory

to the Indenture, adopted by the Authority in accordance with the Indenture. “Supplemental Reserve Account” means, with respect to each Type of Bond for

which such an Account has been established by Supplemental Indenture, the Supplemental Reserve Account for such Type of Bonds within the Reserve Fund.

“Term Bonds” means Bonds so designated in or pursuant to a Supplemental

Indenture authorizing their issuance. “Tenth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Tenth Supplemental Indenture dated as of August 1, 2001, between the Authority and the Trustee.

I-24

“Third Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Third Supplement Indenture dated as of December 1, 1994, between the Authority and the Trustee.

“Thirteenth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Thirteenth Supplemental Indenture dated as of April 1, 2004, between the Authority and the Trustee.

“Trustee” means, with respect to the Indenture in general, the Trustee specified

in the Indenture and, with respect to each Type of Bonds issued hereunder, the Trustee specified in the Supplemental Indenture first authorizing the issuance of such Type.

“Twelfth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Twelfth Supplemental Indenture dated as of August 1, 2002, between the Authority and the Trustee.

“Twentieth Supplemental Indenture” means the Michigan Municipal Bond

Authority State Revolving Fund Revenue Bonds Twentieth Supplemental Indenture dated as of March 1, 2010, between the Authority and the Trustee.

“Twenty-First Supplemental Indenture” means the Michigan Finance

Authority State Revolving Fund Revenue Bonds Twenty-First Supplemental Indenture dated as of November 1, 2011, between the Authority and the Trustee.

“Type” means, with respect to any Bond, the category of Bonds including such

Bond that are equally and ratably secured with each other under the Indenture. The Types of Bonds initially authorized to be issued under the Indenture are (i) separately designated Types of Local Project Bonds, (ii) separately designated Types of Pooled Project Bonds and (iii) separately designated Types of State Match Bonds. Additional Types may be provided for in a Supplemental Indenture and Type designations may be changed in accordance with the Indenture. Unless otherwise provided in a Supplemental Indenture, all bonds of the same Type shall also be of the same Class.

With respect to the Series 2010 Clean Water Subordinate Refunding Bonds, Type

means the Type designated in the Nineteenth Supplemental Indenture as “SRB-I.” With respect to the Series 2011 Clean Water Refunding Bonds, Type means the

Type designated in the Eighteenth Supplemental Indenture as “PPB-III”. With respect to the Series 2011 Drinking Water Refunding Bonds, Type means

the Type designated in the Twenty-First Supplemental Indenture as “DWPPB-III”. “Water Quality Act” means the federal Water Quality Act of 1987, PL 100-4,

which amended the Clean Water Act, the provisions of which may, from time to time, be amended.

I-25

“2011 Reserve Account Requirement” means (a) with respect to the Series 2011

Clean Water Refunding Bonds, initially $140,390,000.00 or, after undertaking a Sufficiency Calculation, such lesser amount specified at any time and from time to time in an Authorized Officer certificate delivered to the Trustee specifying the lesser amount, and in such event such 2011 Reserve Account Requirement with respect to the Series 2011 Clean Water Refunding Bonds shall be deemed to be so reduced, and (b) with respect to the Series 2011 Drinking Water Refunding Bonds, initially $34,048,389 or, after undertaking a Sufficiency Calculation, such lesser amount specified at any time and from time to time in an Authorized Officer certificate delivered to the Trustee specifying the lesser amount, and in such event such 2011 Reserve Account Requirement with respect to the Series 2011 Drinking Water Refunding Bonds shall be deemed to be so reduced.


I-26

THE MASTER INDENTURE

General

The following are summaries of certain provisions of the Master Indenture. These summaries do not purport to be complete or definitive and are qualified in their entireties by reference to the full terms of the Master Indenture. Certain provisions of the Master Indenture are modified by the provisions of the Twenty-First Supplemental Indenture during such time as any Series 2011 Clean Water Refunding Bonds and Series 2011 Drinking Water Refunding Bonds are Outstanding. See “THE TWENTY-FIRST SUPPLEMENTAL INDETURE” below.

Authorization, Issuance and Terms

Series of Bonds. The Master Indenture has established and created an issue of

Bonds of the Authority to be known as “State Revolving Fund Revenue Bonds.” Such Bonds may be issued as provided in the Master Indenture, without limit as to amount (except as provided in the Master Indenture or as may be limited from time to time by law), in order to make Loans to Governmental Units evidenced by Municipal Obligations, fund part or all of a Reserve Account, provide funds for the payment of capitalized interest on Bonds, pay Costs of Issuance, refund other Bonds issued the Master Indenture and for other purposes which may be specified in a Supplemental Indenture. Each Series of Bonds shall be State Match Bonds, Pooled Project Bonds, or Local Project Bonds and shall be authorized and so specified by a Supplemental Indenture.

Subordinated Funding Bonds. The Authority may issue Subordinated Funding

Bonds in order to provide funds to make up any insufficiency or deficiency in a Debt Service Account or Reserve Account. The Subordinated Funding Bonds shall be payable only from revenues or funds of the Authority provided for the payment of such Bonds under the Master Indenture or a Supplemental Indenture. Each Series of Subordinated Funding Bonds shall be purchased by the Trustee as an investment of Released Account Moneys from Accounts Related to Bonds of a different Class from the Bonds Related to the Account or Accounts funded with the proceeds of such Series of Subordinated Funding Bonds.

Refunding Bonds. The Authority may issue Refunding Bonds for the purpose of

refunding or advance refunding the Bonds or any portion thereof under a Supplemental Indenture or a separate and distinct resolution or indenture from the Master Indenture. Such Refunding Bonds may be secured as provided in the Supplemental Indenture or other resolution or indenture authorizing the issuance of such Refunding Bonds, and such security may include the Security for the Bonds set forth in the Master Indenture to the extent that any Bonds secured thereby have been defeased pursuant to the Master Indenture, provided, however, that unless the Refunding Bonds are Bonds of the same

I-27

Type as the Bonds being refunded, the security for the Refunding Bonds may include the Security for the Bonds being refunded only if an Authorized Officer of the Authority certifies in writing to the Trustee that he or she has made a Sufficiency Calculation with respect to any non-refunded Bonds of the same Type as the Bonds being refunded taking the inclusion of such Security for the Refunding Bonds into account.

Additional Bonds. (a) No additional Project Bonds of a Type, or State Match

Bonds Related to Project Bonds of a Type, shall be issued subsequent to the issuance of the initial Series of Project Bonds of that Type under the Master Indenture unless

(i) the principal amount of the additional Bonds then to be issued, together with the principal amount of the Bonds of the Authority theretofore issued, will not exceed in aggregate principal amount any limitation then imposed by law;

(ii) the amount on deposit in, or otherwise provided for with respect to, the

Related Reserve Account upon the issuance of such additional Bonds shall not be less than the Reserve Account Requirement applicable thereto; and

(iii) an Authorized Officer of the Authority certifies in writing to the Trustee

that he or she has made a Sufficiency Calculation taking into account the additional Bonds and all other then Outstanding Project Bonds and Outstanding State Match Bonds of that Type or Related to Bonds of that Type.

(b) The Authority expressly reserves the right to (i) issue Bonds of a Type not

previously issued under the Master Indenture and (ii) to adopt one or more other resolutions or indentures authorizing the issuance of bonds for purposes similar or dissimilar to the purposes for which Bonds may be issued under the Master Indenture so long as such bonds are not a charge or lien on the Security for any Bonds under the Master Indenture. Security

The Bonds and the interest thereon shall be a limited obligation of the Authority as provided in the Master Indenture. Bonds of each Type shall be secured solely by the Security pledged thereto. No Owners of any Type of Bonds shall have any claim to the Security pledged to any other Type of Bonds, provided, however, with respect to each Type of State Match Bonds, certain earnings in the Reserve Account and Loan Account established for, and portions of Interest Loan Repayments with respect to Loans Related to, Related Project Bonds secure such State Match Bonds as specified in the Master Indenture.

Subject to the foregoing, the Bonds of each Type shall be secured equally and

ratably with all other Bonds of such Type, as further provided in the Master Indenture, by the following:

I-28

(i) Pledged Funds; and (ii) all of the Authority’s rights and interest in and to Loan Repayments with

respect to Related Loans, including Municipal Obligations evidencing the same and Loan Documents and Collateral Documents related thereto, subject to the reservation by the Authority of the rights to indemnification and to make all determinations and approvals and receive all notices accorded to it under such Municipal Obligations, Loan Documents and Collateral Documents.

With respect to any Type of Bonds, an Authorized Officer of the Authority may

direct the Trustee to release any particular Security, including rights and interests in Collateral Documents, from the Master Indenture, free and clear of the liens and pledges created thereby, but only (a) if an Authorized Officer of the Authority has confirmed in writing with applicable Rating Agencies that such release would not result in a reduction or withdrawal of a Rating Agency rating on any Outstanding Bonds secured by such Security and (b) the Authorized Officer has delivered to the Trustee a certificate stating that a Sufficiency Calculation has been made taking such release into account. This provision shall not apply to Released Account Moneys which shall, in all events, be transferred and released as provided in the Master Indenture. Acquisition of Municipal Obligations Evidencing Loans

The Authority shall acquire Municipal Obligations as provided in the Master Indenture to evidence Loans. Funds held in the Loan Accounts of the Loan Fund shall be disbursed to Governmental Units as provided in the Master Indenture upon the acquisition by the Authority of Municipal Obligations, Loan Documents and Collateral Documents, if any, as provided in the Master Indenture or as otherwise provided in a Supplemental Indenture.

Each Municipal Obligation evidencing a Loan shall conform to the terms,

conditions and limitations from time to time established by the Authority as a condition for eligibility. All Municipal Obligations must be in Fully Marketable Form and all Governmental Units shall deliver or shall have delivered to the Authority the duly authorized and executed Municipal Obligations, Loan Documents and any Collateral Documents, together with such other information, certificates, opinions, documents and instruments as the Authority may require or has required. Loans shall be made only to Governmental Units.

With respect to each Type of Bonds, no Related Project Loan or State Match

Loan shall be made, and if made, no further disbursement shall be made thereon, unless and until an Authorized Officer shall have made a Sufficiency Calculation taking into account the making of such Loan or such disbursement.

I-29

Subject to the Authorized Officer having made a Sufficiency Calculation as provided in the Master Indenture, the Trustee shall make disbursements of Loans to Governmental Units from each applicable Loan Account at the written direction of an Authorized Officer of the Authority from time to time but, unless otherwise agreed by the Trustee, no more frequently than weekly.

Notwithstanding the foregoing, an Authorized Officer of the Authority shall not

direct the disbursement of any Loan from a Loan Account the disbursement of which was anticipated to result in the release of Federal Capitalization Grant moneys to the Authority for deposit to the Related Reserve Account as part of the Reserve Account Requirement unless such Authorized Officer of the Authority has first determined that (i) such Federal Capitalization Grant moneys will be released and deposited in the amounts anticipated in accordance with the Sufficiency Calculation most recently completed or, (ii) the Reserve Account Requirement has otherwise been satisfied. Pledge and Establishment of Funds and Accounts

Pledge With respect to each Type of Bonds the Pledged Funds are pledged to the Trustee

for such Type of Bonds for the payment of the principal of, Redemption Price, if applicable, and interest on, each Type of Bonds in accordance with the terms and provisions of the Master Indenture. This pledge shall be valid and binding from and after the date of adoption of the Master Indenture and the Pledged Funds shall immediately be subject to the lien of such pledge without any physical delivery thereof, recordation of the Master Indenture, or further act, and the lien of such pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the Authority, irrespective of whether such parties have notice thereof.

Any amount deposited into the Costs of Issuance Fund and the Rebate Fund are

not Pledged Funds and the Owners of Bonds shall not have any lien thereon. Establishment of Funds The following special funds and accounts may be established and maintained and

held by the Trustee (or in some instances, the Authority) for each Class and Type of Bonds pursuant to the provisions of the Master Indenture:

Reserve Fund - Michigan Municipal Bond Authority State Revolving Fund

Program (the “Reserve Fund”). Within the Reserve Fund there may be established separate Reserve Accounts (to be separately designated by Supplemental Indenture or by an Authorized Officer of the Authority) one such Reserve Account for each Type of Local Project Bonds and one for each Type of Pooled Project Bonds. Pursuant to the Supplemental Indenture, a separate Supplemental Reserve Account (to be designated by the Supplemental Indenture or by an Authorized Officer of the Authority) may be established for any Type of Bonds as determined to be necessary or appropriate.

I-30

Loan Fund - Michigan Municipal Bond Authority State Revolving Fund

Program (the “Loan Fund”). Within the Loan Fund there may be established separate Loan Accounts (each to be separately designated by Supplemental Indenture or by an Authorized Officer of the Authority) one such Loan Account for each Type of Local Project Bonds and one for each Type of Pooled Project Bonds.

Revenue Fund - Michigan Municipal Bond Authority State Revolving Fund

Program (the “Revenue Fund”). Within the Revenue Fund there shall be established separate Revenue Accounts (each to be separately designated by Supplemental Indenture or by an Authorized Officer of the Authority from time to time) one such Revenue Account for each Type of Bonds.

Debt Service Fund - Michigan Municipal Bond Authority State Revolving

Fund Program (the “Debt Service Fund”). Within the Debt Service Fund there shall be established separate Debt Service Accounts (each to be separately designated by Supplemental Indenture or by an Authorized Officer of the Authority from time to time) one such Debt Service Account for each Type of Bonds.

Rebate Fund - Michigan Municipal Bond Authority State Revolving Fund

Program (the “Rebate Fund”). Within the Rebate Fund there shall be established separate Rebate Accounts designated by a Supplemental Indenture or by a Non-Arbitrage And Tax Compliance Certificate.

Interest Subsidy Fund - Michigan Municipal Bond Authority State Revolving

Fund Program (the “Interest Subsidy Fund”). Pursuant to a Supplemental Indenture, a separate Interest Subsidy Account (to be designated by Supplemental Indenture or by an Authorized Officer of the Authority) may be established for any Type of Bonds as determined to be necessary or appropriate.

Costs of Issuance Fund - Michigan Municipal Bond Authority State

Revolving Fund Program (the “Costs of Issuance Fund”). Pursuant to Supplemental Indentures, one or more Costs of Issuance Accounts (to be designated by Supplemental Indenture or by an Authorized Officer of the Authority) may be established as determined to be necessary, convenient or required.

An Authorized Officer of the Authority is authorized to establish and maintain

such other accounts and subaccounts in the Funds and Accounts described above as may be necessary, convenient or required to provide for the Authority’s compliance with the covenants of the Authority contained in the Master Indenture.

The Executive Director is authorized to direct the Trustee in writing to close any

Fund, Account or subaccount established by or pursuant to the Master Indenture to the extent such Fund, Account or subaccount is determined by the Executive Director to be unnecessary and thereafter to reopen and reclose such Fund, Account or subaccount as the Executive Director shall determine.

I-31

Application of Bond Proceeds The net proceeds of each Series of Bonds (other than Bonds issued as a Type of

Refunding Bond) shall be deposited by the Authority as follows: (a) to the Costs of Issuance Fund (or a specified Account therein), the sum

directed by an Authorized Officer of the Authority; (b) to the Related Revenue Account in the Revenue Fund amounts received as

accrued interest, if any, on the Bonds and amounts specified by a Supplemental Indenture or an Authorized Officer of the Authority to provide for payment of capitalized interest on the Bonds;

(c) to the Related Reserve Account in the Reserve Fund amounts, if any,

specified by the Supplemental Indenture authorizing such Bonds or by an Authorized Officer of the Authority; and

(d) to the Related Loan Account in the Loan Fund the balance of the proceeds

received from the sale of the Bonds. Reserve Fund Amounts shall be deposited in each Reserve Account as received as follows:

(i) the designated amount of proceeds of Related Bonds or other amounts

deposited or caused to be deposited by the Authority in order to fund the Reserve Account upon the issuance of Related Bonds;

(ii) amounts transferred as Released Account Moneys from the Related

Revenue Account or from Principal Loan Repayments on Related Direct Loans or Related State Match Loans;

(iii) amounts transferred as Released Account Moneys from Principal Loan

Repayments on non-Related Direct Loans and non-Related State Match Loans or from a Revenue Account or Reserve Account relating to non-Related Bonds; and

(iv) any other amounts which the Authority may deposit or cause to be

deposited in such Reserve Account.

Amounts from time to time in each Reserve Account shall be paid out and applied as follows:

(i) investment earnings on the Reserve Account will be transferred as received at the direction of an Authorized Officer of the Authority, first, to

I-32

the Revenue Account for Related State Match Bonds in the Required Amount and, second, the remaining amount, if any, to the Related Revenue Account;

(ii) amounts not in excess of the aggregate amount in the Reserve Account

attributable to proceeds of Related Bonds will be transferred as provided in a Supplemental Indenture or at the direction of any Authorized Officer of the Authority to the Related Revenue Account to pay Debt Service on Related Bonds;

(iii) amounts will be transferred at the direction of an Authorized Officer of the

Authority to the Related Debt Service Account, when needed, to pay Debt Service on the Related Bonds to the extent amounts in the Related Revenue Account or then available for such purpose from Loan Repayments on Related Loans are insufficient; and

(iv) amounts in the Reserve Account from time to time determined by an

Authorized Officer of the Authority to be in excess of the Reserve Account Requirement will be transferred as Released Account Moneys.

Amounts shall be transferred to each Supplemental Reserve Account as received

as follows: (i) amounts representing State general obligations bonds or notes and

proceeds of Federal Capitalization Grants received by the Authority (1) if a portion of such State general obligation bonds or notes and Federal Capitalization Grant proceeds are to be deposited to a Related Reserve Account in satisfaction of part of the Reserve Account Requirement and (2) as determined by an Authorized Officer of the Authority, to the extent the proceeds of the State general obligation bonds or notes and proceeds of the Federal Capitalization Grants so received exceed the portion to be so deposited in the Related Reserve Account;

(ii) investment earnings on amounts in such Supplemental Reserve Account;

and (iii) any other amounts (including State general obligation bonds or notes not

described in clause (i) above) which the Authority may deposit or cause to be deposited in such Supplemental Reserve Account.

Amounts from time to time in each Supplemental Reserve Account shall be paid

out and applied as follows: (i) amounts will be transferred from time to time at the direction of an

Authorized Officer of the Authority to the Related Rebate Account, if necessary, to comply with the Authority’s tax covenants under the Code, the Indenture and the Non-Arbitrage and Tax Compliance Certificate;

I-33

(ii) amounts representing all or a portion of the earnings on such Account will

be transferred from time to time at the direction of an Authorized Officer of the Authority to the Related Revenue Account for use as provided therein if so provided in a Supplemental Indenture;

(iii) amounts will be transferred from time to time at the direction of an

Authorized Officer of the Authority to the Related Loan Account for the purpose of making Direct Loans; and

(iv) amounts, including the entire amount on deposit therein, will from time to

time be designated by an Authorized Officer of the Authority as Released Account Moneys and transferred as provided in the Master Indenture.

Loan Fund Amounts shall be deposited in each Loan Account as received as follows: (i) the designated amount of proceeds of Related Project Bonds will be

deposited to the Loan Account and invested until needed to make Loan disbursements;

(ii) the designated amount of proceeds of Related State Match Bonds will be

deposited to the Loan Account and invested until needed to make Loan disbursements;

(iii) if so provided in a Supplemental Indenture, earnings in the Loan Account

(excluding amounts directed by an Authorized Officer of the Authority to be transferred to the Related Revenue Account for further transfer to the Related Rebate Account) attributable to proceeds of Related Project Bonds or Related State Match Bonds will be deposited in the Loan Account and invested until needed to make Project Loan disbursements or State Match Loan disbursements, respectively; and

(iv) other moneys may be deposited in the Loan Account by the Authority

from legally available sources including a Related Supplemental Reserve Account for the purposes of making Direct Loans and will be invested until needed to make Direct Loan disbursements.

Amounts from time to time in each Loan Account, together with Loan

Repayments on Related Loans, shall be paid out and applied as follows: (i) to make disbursements of Loans as and when provided in the Master

Indenture;

I-34

(ii) investment earnings attributable to amounts held to make State Match Loans, amounts held to make Project Loans, or any other amounts will (unless deposited in the Loan Account as provided by the Indenture) be transferred as received, first, to the Revenue Account for Related State Match Bonds in the Required Amount and, second, to the extent remaining, if any, to the Related Revenue Account;

(iii) amounts representing Interest Loan Repayments with respect to Related

Direct Loans, Related Project Loans and Related State Match Loans, as determined by an Authorized Officer of the Authority, will be transferred as received, at the direction of an Authorized Officer of the Authority, first, to the Revenue Account for Related State Match Bonds in the Required Amount, and, second, to the extent remaining, if any, to the Related Revenue Account;

(iv) amounts representing Principal Loan Repayments with respect to Related

Project Loans, as determined by an Authorized Officer of the Authority, will be transferred, as received, to the Related Revenue Account;

(v) amounts representing Principal Loan Repayments of Related Direct Loans

or Related State Match Loans, as determined by an Authorized Officer of the Authority, will constitute Released Account Moneys and be transferred as provided below; and

(vi) amounts representing unspent proceeds of Related Project Bonds or

Related State Match Bond shall be transferred, at the direction of an Authorized Officer of the Authority, to the Related Revenue Account for Related Project Bonds or Related State Match Bonds, as applicable, at the times, if at all, provided in a Supplemental Indenture or Non-Arbitrage and Tax Compliance Certificate or as otherwise provided in the written direction of the Authorized Officer of the Authority, but in each case only upon the receipt of an opinion of Bond Counsel to the effect that the transfer and intended use of the Bonds will not adversely affect the exclusion of interest on any of the Bonds from gross income for purposes of federal income taxation.

Revenue Fund Amounts shall be deposited in each Revenue Account as received as follows: (i) the designated amount of proceeds of Related Bonds to be used for

capitalized interest and accrued interest; (ii) investment earnings and amounts attributable to proceeds of Related

Bonds transferred from the Related Reserve Account;

I-35

(iii) investment earnings transferred from amounts invested in the Related Loan Account prior to disbursement for Loans or as unspent proceeds of Project Bonds or State Match Bonds as provided in the Master Indenture;

(iv) amounts transferred from the Related Interest Subsidy Account, if any, as

provided in a Supplemental Indenture;

(v) for Revenue Accounts for Project Bonds, amounts representing Principal Loan Repayments received with respect to Related Project Loans;

(vi) amounts representing Interest Loan Repayments received with respect to

Related Direct Loans, Related Project Loans and Related State Match Loans;

(vii) investment earnings on amounts in such Revenue Account; and (viii) any other amounts which the Authority may deposit or cause to be

deposited in such Revenue Account. Amounts from time to time in each Revenue Account shall be paid out and applied as follows in the following order or priority;

(i) first, amounts necessary to make Rebate Payments, if any, as directed by

an Authorized Officer of the Authority will be transferred to the Related Rebate Account;

(ii) second, an amount will be transferred to the Related Debt Service

Account, in the amount necessary to pay interest on Related Bonds when due by maturity or redemption or transferred as accrued interest in connection with the purchase of Related Bonds for retirement as provided in the Master Indenture;

(iii) third, an amount will be transferred to the Related Debt Service Account

in the amount necessary to pay principal of Related Bonds when due by maturity or redemption or used to purchase Related Bonds for retirement as provided in the Master Indenture;

(iv) fourth, as periodically directed by an Authorized Officer of the Authority,

amounts will be used to pay related Bond Servicing Costs; (v) fifth, amounts will, from time to time, be transferred at the direction of an

Authorized Officer of the Authority to the Related Loan Account to make Related Direct Loans but only after an Authorized Officer of the Authority has made a Sufficiency Calculation with respect to the Related Bonds taking such transfer into account; and

I-36

(vi) finally, at any time, amounts determined by an Authorized Officer of the Authority to be Released Account Moneys (after having made a Sufficiency Calculation with respect to the Related Bonds taking such determination into account) will be transferred as provided in the Master Indenture.

Debt Service Fund Amounts shall be deposited in each Debt Service Account for each Type of

Project Bonds as received as follows: (i) amounts transferred from the Related Revenue Account;

(ii) amounts transferred, if necessary, as Released Account Moneys from

Principal Loan Repayments received with respect to Related Direct Loans and Related State Match Loans;

(iii) amounts transferred, if necessary, from the Related Reserve Account; and (iv) amounts transferred, if necessary, as Released Account Moneys from

Reserve Accounts or Revenue Accounts for non-Related Bonds or from Principal Loan Repayments with respect to non-Related Direct Loans or non-Related State Match Loans.

Amounts shall be deposited in each Debt Service Account for each Type of State Match Bond as received as follows:

(i) amounts transferred from the Related Revenue Account. Amounts from time to time in each Debt Service Account shall be paid out and applied as follows:

(i) amounts will be transferred to the Bond Registrar and Paying Agent to be used to pay Debt Service on Related Bonds on any Payment Date; and

(ii) except as provided in the Master Indenture, any amounts remaining in a

Debt Service Account on the 3rd Business Day after the end of a Bond Year will be transferred to the Related Revenue Account.

No transfer from a Debt Service Account to a Related Revenue Account shall be

made with respect to (i) unclaimed amounts, if any, held for the payment of the Redemption Price or principal on maturity of any Related Bond until such amount escheats as provided in the Master Indenture, (ii) amounts set aside to pay the Redemption Price of any Related Bond for redemption pursuant to notice duly given pursuant to the Master Indenture on a Redemption Date that has not then occurred, and (iii) amounts held for defeasance of any Related Bond pursuant to the Master Indenture.

I-37

Released Account Moneys Amounts in any Reserve Account, Supplemental Reserve Account, Revenue

Account or other Account, as applicable, or representing Principal Loan Repayments on Related Direct Loans or Related State Match Loans, and determined to be or otherwise constituting Released Account Moneys shall be paid out and applied at the direction of an Authorized Officer of the Authority as follows in the following order of priority:

(i) first, and before amounts in the Related Reserve Account, to the Related

Debt Service Account to the extent that amounts transferred or to be transferred from the Related Revenue Account and held or to be held with other amounts therein are (or are expected to be) insufficient to pay Debt Service on Related Project Bonds due within 10 Business Days thereof;

(ii) second, to the Related Reserve Account to the extent necessary to correct

any deficiency in the Reserve Account Requirement therein; (iii) third, in the case of Released Account Moneys for Bonds of the Type

PPB-I, to pay debt service on Bonds of the Type SRB-I; (iv) fourth, and before amounts in any Reserve Account are so used, to the

Debt Service Account or Accounts for any non-Related Pooled Project Bonds of the same Class to the extent amounts transferred or to be transferred to and held or to be held therein are (or are expected to be) insufficient to pay Debt Service on such Pooled Project Bonds when due within 10 Business Days thereof, pro rata if the aggregate deficiencies exceed the amount available to be transferred (or in order of priority as may be established in a Supplemental Indenture);

(v) fifth, to any Reserve Account or Accounts for any non-Related Pooled

Project Bonds of the same Class to the extent necessary to correct a deficiency in the Reserve Account Requirement therein, pro rata if the aggregate deficiencies exceed the amount available to be transferred (or in order of priority as may be established in a Supplemental Indenture);

(vi) sixth, and before amounts in any Reserve Account are so used, to the Debt

Service Account or Accounts for any non-Related Local Project Bonds of the same Class to the extent amounts transferred or to be transferred to and held or to be held therein are (or are expected to be) insufficient to pay Debt Service on such Local Project Bonds when due within 10 Business Days thereof, pro rata if the aggregate deficiencies exceed the amount available to be transferred (or in order of priority as may be established in a Supplemental Indenture);

I-38

(vii) seventh, to any Reserve Account or Accounts for any non-Related Local Project Bonds of the same Class to the extent necessary to correct a deficiency in the Reserve Account Requirement therein, pro rata if the aggregate deficiencies exceed the amount available to be transferred (or in order of priority as may be established in a Supplemental Indenture);

(viii) eighth, and before amounts in any Reserve Account are so used, to

purchase, as a temporary investment of such funds, Subordinated Funding Bonds issued to provide funds for deposit in (or, upon receipt of an opinion of Bond Counsel that a direct transfer is permitted under applicable federal and state laws and regulations, in lieu of the purchase of Subordinated Funding Bonds, such Released Account Moneys shall be transferred to) the Debt Service Account or Accounts for any non-Related Pooled Project Bonds of a different Class to the extent amounts otherwise transferred to and held or to be held therein are (or are expected to be) insufficient to pay Debt Service on such Pooled Project Bonds when due within 10 Business Days thereof, pro rata if the aggregate deficiencies exceed the amount available to be transferred (or in order of priority as may be established in a Supplemental Indenture);

(ix) ninth, to purchase, as a temporary investment of such funds, Subordinated

Funding Bonds issued to provide funds for deposit in (or, upon receipt of an opinion of Bond Counsel that a direct transfer is permitted under applicable federal and state laws and regulations in lieu of the purchase of Subordinated Funding Bonds, such Released Account Moneys shall be transferred to) any Reserve Account or Accounts for any non-Related Pooled Project Bonds of a different Class to the extent necessary to correct a deficiency in the Reserve Account Requirement therein, pro rata if the aggregate deficiencies exceed the amount available to be transferred (or in order of priority as may be established in a Supplemental Indenture);

(x) tenth, and before amounts in any Reserve Account are so used, to

purchase, as a temporary investment of such funds, Subordinated Funding Bonds issued to provide funds for deposit in (or, upon receipt of an opinion of Bond Counsel that a direct transfer is permitted under applicable federal and state laws and regulations, in lieu of the purchase of Subordinated Funding Bonds, such Released Account Moneys shall be transferred to) the Debt Service Account or Accounts for any non-Related Local Project Bonds of a different Class to the extent amounts otherwise transferred or to be transferred to and held or to be held therein are (or are expected to be) insufficient to pay Debt Service on such Local Project Bonds when due within 10 Business Days thereof, pro rata if the aggregate deficiencies exceed the amount available to be transferred (or in order of priority as may be established in a Supplemental Indenture);

I-39

(xi) eleventh, to purchase, as a temporary investment of such funds, Subordinated Funding Bonds issued to provide funds for deposit in (or, upon receipt of an opinion of Bond Counsel that a direct transfer is permitted under applicable federal and state laws and regulations, in lieu of the purchase of Subordinated Funding Bonds, such Released Account Moneys shall be transferred to) any Reserve Account or Accounts for any non-Related Local Project Bonds of a different Class to the extent necessary to correct a deficiency in the Reserve Account Requirement therein, pro rata if the aggregate deficiencies exceed the amount available to be transferred (or in order of priority as may be established in a Supplemental Indenture);

(xii) twelfth, to pay principal of and interest on outstanding Subordinated

Funding Bonds the proceeds of which were deposited in an Account Related to Bonds of the same Class as the Bonds payable from such account (or if a direct transfer has been made pursuant to (vii), (viii), (ix) or (x) hereof which has not been fully reimbursed, to reimburse the Account from which such transfer was made) as directed in writing by the Authority or if no such direction is received by the Trustee, in direct order of issuance or transfer; and

(xiii) finally, to the Authority, free and clear of the Master Indenture, for use for

any Authorized SRF Purpose; provided that Released Account moneys from Accounts Related to Bonds of the Class Clean Water Revolving Fund Revenue Bonds shall be used only for Authorized Clean Water SRF Purposes and Released Account Moneys from Accounts Related to Bonds of the Class Drinking Water Revolving Fund Revenue Bonds shall be used only for Authorized Drinking Water SRF Purposes or as otherwise provided in a Supplemental Indenture.

Notwithstanding anything to the contrary in the Master Indenture, unless

specifically provided otherwise in a Supplemental Indenture with respect to Released Account Moneys in Related Accounts of a particular Type of Bonds, the transfer of Released Account Moneys to any non-Related Account as provided in clauses (iv) through (vii) above shall be considered permissive, shall not be considered as Security for any non-Related Bonds, and shall be subject to being directed for other purposes in a Supplemental Indenture adopted before or after the issuance of any non-Related Bonds without the consent of the Owners of any non-Related Bonds.

Notwithstanding anything to the contrary in the Master Indenture, Released

Account Moneys derived from a Reserve Account and determined by an Authorized Officer of the Authority to be attributable to proceeds of Related Bonds shall be transferred as provided in clauses (iv) through (viii) above only after receipt of an opinion of Bond Counsel that such transfer will not adversely affect the exclusion of interest on any Bonds from gross income for federal income taxation.

I-40

Notwithstanding anything to the contrary in the Master Indenture, unless specifically provided otherwise in a Supplemental Indenture with respect to Released Account Moneys in Related Accounts of a particular Type of Bonds, the use of Released Account Moneys to purchase Subordinated Funds Bonds as provided in sections (viii) through (xi) above shall be considered permissive, shall not be considered as Security for any Bonds, and shall be subject to being directed for other purposes in a Supplemental Indenture adopted before the first issuance of Bonds of a particular Type without the consent of the Owners of Bonds.

Rebate Fund Amounts shall be deposited in each Rebate Account as received as follows: (i) amounts transferred at the direction of an Authorized Officer of the

Authority from the Related Revenue Account, Related Supplemental Reserve Account or the Costs of Issuance Fund;

(ii) other amounts transferred by or at the direction or request of the Authority

or an Authorized Officer of the Authority from legally available sources; and

(iii) investment earnings on amounts on deposit in the Rebate Account.

Amounts from time to time in each Rebate Account shall be paid out and applied as follows:

(i) Rebate Payments, as directed by an Authorized Officer of the Authority, will be paid to the United States of America in satisfaction of the Authority’s rebate obligations under the Code and the Authority’s Non-Arbitrage and Tax Compliance Certificate; and

(ii) to the extent not needed for Rebate Payments, and as directed by an

Authorized Officer of the Authority, to the Authority for any Authorized SRF Purpose, but only after receipt of an opinion of Bond Counsel that such transfer will not adversely affect the exclusion from gross income for federal income tax purposes of any interest on any Outstanding Bonds.

Interest Subsidy Fund Pursuant to one or more Supplemental Indentures the Authority may create one or

more separate Interest Subsidy Accounts in the Interest Subsidy Fund, provide for the deposit of amounts or investments into each Interest Subsidy Account on its creation and over time, provide for the investment of amounts on deposit therein, provide for the transfer of amounts therefrom to a Related Revenue Account or otherwise and provide for the identification and disposition of Released Account Amounts therein.

I-41

Notwithstanding the foregoing, no Interest Subsidy Account shall be so created if its creation would result in a reduction or withdrawal of a Rating Agency rating on any Outstanding Bonds for which such Interest Subsidy Account is Security.

Costs of Issuance Fund Amounts shall be deposited in the Costs of Issuance Fund as received as follows: (i) the amount of Project Bonds or State Match Bonds proceeds designated by

an Authorized Officer of the Authority for payment of Costs of Issuance will be deposited into the Costs of Issuance Account;

(ii) other amounts deposited in the Costs of Issuance Fund by the Authority

from legally available sources; and

(iii) investment earnings on amounts in the Costs of Issuance Account.

Amounts from time to time in the Costs of Issuance Fund shall be paid out and applied as follows:

(i) Costs of Issuance will be paid at the direction of an Authorized Officer of

the Authority; and (ii) amounts remaining in the Costs of Issuance Fund attributable to any

Bonds after all Costs of Issuance attributable to such Bonds have been paid will be transferred to a Related Rebate Account, Revenue Account or Debt Service Account, at the direction of an Authorized Officer of the Authority, if necessary, in compliance with its tax covenants under the Code, the Non-Arbitrage and Tax Compliance Certificate and the Master Indenture, and otherwise at the direction of an Authorized Officer of the Authority to the Authority free and clear of the Master Indenture for any Authorized SRF Purpose.

Investment of Funds

Investment of Funds and Accounts Held Except as otherwise provided in a Supplemental Indenture:

(a) Subject to the Master Indenture, moneys in the Costs of Issuance Fund

may be invested by an Authorized Officer of the Authority or at the direction of an Authorized Officer of the Authority by the Trustee in any investment permitted by the Act and moneys in each Account of the Loan Fund, the Reserve Fund, the Revenue Fund, the Debt Service Fund, the Interest Subsidy Fund and the Rebate Fund shall be invested by an Authorized Officer of the Authority or at the direction of an Authorized Officer of Authority by the Trustee in Eligible Investments, the maturity, redemption date or

I-42

purchase date at the option of the holder of which shall coincide as nearly as practicable with the times at which moneys are needed by the Authority for the purposes of such Account.

(b) Obligations purchased as an investment of moneys in any Fund or

Account held by the Authority or the Trustee under the provisions of the Master Indenture shall be deemed at all times to be a part of such Fund or Account; provided that the income or interest earned by, or increment to, any Fund or Account shall be transferred as herein provided.

(c) In computing the amount in any Fund or Account held by the Authority or

the Trustee under the provisions of the Master Indenture, obligations purchased as an investment of moneys therein shall be valued at par or, if purchased at a premium or discount, at cost as adjusted by amortization of the discount or premium paid upon purchase of such obligations ratably to their respective maturities.

(d) The Authority or the Trustee, at the direction of an Authorized Officer of

the Authority, shall sell at the best price obtainable, or present for redemption, any obligation purchased by it as an investment whenever it shall be necessary in order to provide moneys to meet any payment or transfer from the Fund or Account for which such investment was made. The Trustee shall advise the Authority in writing, on or before the 15th day of each calendar month, or such other interval as directed in writing by an Authorized Officer of the Authority, of the details of all investments held for the credit of each Fund or Account in its custody under the provisions of the Master Indenture as of the end of the preceding month.

(e) Notwithstanding any provision of the Indenture, the temporary investment

of Released Account Moneys in Subordinated Funding Bonds pursuant to the Indenture shall not be subject to provisions (a) through (d) above.

Liability of Trustee and Authority for Investments Neither the Trustee nor the Authority shall be liable or responsible for the making

of any investment authorized by the provisions of the Master Indenture, in the manner provided therein, or for any loss resulting from any such investment so made.

The Trustee

The Trustee accepts the duties and obligations of the Trustee created by the Master Indenture by execution of the Master Indenture. The Trustee undertakes to perform such duties as are specifically set forth in the Master Indenture, but only upon and subject to the following express terms and conditions:

(a) The Trustee, prior to the occurrence of an Event of Default and after the

curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Master Indenture. In case

I-43

an Event of Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by the Master Indenture, and use the same degree of care and skill in their exercise, as a prudent corporate trustee would exercise or use in the circumstances in the conduct of that corporate trustee’s own affairs.

(b) The Trustee may execute any of the trusts or powers and perform any of

its duties by or through attorneys, agents, receivers or employees but shall be answerable for the conduct of the same in accordance with the standard specified above, and shall be entitled to act upon the opinion or advice of Counsel concerning all matters, and may in all cases be reimbursed under the Master Indenture for reasonable compensation paid to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trust. The Trustee may act upon an opinion of Counsel and shall not be responsible for any loss or damage resulting from any action or nonaction by it taken or omitted to be taken in good faith in reliance upon such opinion of Counsel.

(c) The Trustee shall not be responsible for any recital in the Master Indenture

or in the Bonds (except in respect to the certificate of the Trustee endorsed on the Bonds), or for the validity of the execution by the Authority of the Master Indenture or of any supplements thereto or instruments of further assurance, or for the sufficiency of, or filing of documents related to, the Security for the Bonds issued thereunder or intended to be secured thereby, and the Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants, conditions or agreements on the part of the Authority or any Governmental Unit except as set forth in the Master Indenture. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with the Master Indenture.

(d) The Trustee shall not be accountable for the use of any Bonds

authenticated or delivered under the Master Indenture. The bank or trust company acting as Trustee and its directors, officers, employees or agents may in good faith buy, sell, own, hold and deal in the Bonds and may join in any action which any Owner may be entitled to take with like effect as if such bank or trust company were not the Trustee. To the extent permitted by law, such bank or trust company may also receive tenders and purchase in good faith Bonds from itself, including any department, affiliate or subsidiary, with like effect as if it were not the Trustee.

(e) The Trustee shall be protected in acting upon any notice, request, consent,

certificate, order, affidavit, letter, telegram or other paper or document reasonably believed by it to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Trustee pursuant to the Master Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the registered Owner of any Bond shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof.

(f) As to the existence or non-existence of any fact or as to the sufficiency or

validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon

I-44

a certificate believed in good faith to be genuine and correct, signed on behalf of the Authority by its Chairperson or Authorized Officer and attested by its Authorized Officer under its seal, or such other person or persons as may be designated for such purposes by resolution of the Authority, as sufficient evidence of the facts therein contained, and prior to the occurrence of an Event of Default of which the Trustee has been notified as provided in the Master Indenture, or of which by the Master Indenture it is deemed to have notice, the Trustee may also accept a similar certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed necessary or advisable, but shall in no case be bound to secure the same. The Trustee may accept a certificate of an Authorized Officer of the Authority to the effect that a resolution in the form therein set forth has been adopted by the Authority as conclusive evidence that such resolution has been duly adopted and is in full force and effect.

(g) The permissive right of the Trustee to do things enumerated in the Master

Indenture shall not be construed as a duty and the Trustee shall not be answerable for other than its gross negligence or willful default. The immunities and exceptions from liability of the Trustee shall extend to its officers, directors, employees and agents.

(h) The Trustee shall not be required to give any note or surety in respect to

the execution of its rights and obligations hereunder.

(i) All moneys received by the Trustee shall, until used or applied or invested as herein provided, be held in trust in the manner and for the purposes for which they were received but need not be segregated from other funds except to the extent required by the Master Indenture or by law. The Trustee shall not be under any liability for interest on any moneys received under the Master Indenture except such as may be agreed upon.

(j) Notwithstanding anything else contained in the Indenture, the Trustee

shall have no obligation, express or implied, to use, risk or commit any of its individual funds or property in the execution of its duties under the Master Indenture.

(k) Before taking any action under the Master Indenture, whether permissive

or mandatory the Trustee may require that reasonable security and/or a reasonably satisfactory indemnification be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from gross negligence or willful default by reason of any action so taken.

(l) If the Trustee receives different or conflicting instructions or directions

from more than one group of Owners, each of which is provided in accordance with the Master Indenture, the Trustee shall act in accordance with the instructions or directions provided by the group of Owners representing the largest aggregate principal amount of Bonds Outstanding.

I-45

Covenants of the Authority

Under the Master Indenture, the Authority covenants and agrees with the Owners of Bonds as follows:

(1) The Authority shall duly and punctually pay or cause to be paid the

principal or Redemption Price of every Bond and the interest, if any, thereon, at the dates and places and in the manner provided in the Bond, according to the true intent and meaning thereof, but only from the Security for such Bond as described in the Master Indenture.

(2) The Authority is duly authorized pursuant to law to issue the Bonds and to

adopt the Master Indenture and to pledge the Security pledged by the Master Indenture in the manner and to the extent provided in the Master Indenture or a Supplemental Indenture. The Security so pledged is and will be free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or of equal rank with, the pledge created by the Master Indenture except as otherwise provided in the Master Indenture, and all action on the part of the Authority to that end has been and will be duly and validly taken. The Bonds and the provisions of the Master Indenture are and will be the valid and legally enforceable obligations of the Authority in accordance with their terms and the terms of the Master Indenture including the Supplemental Indenture providing for the issuance of the Bonds. The Authority shall at all times, to the extent permitted by law, defend, preserve and protect the pledge of the Security pledged under the Master Indenture and all the rights of the Owners and the Trustee under the Master Indenture against all claims and demands of all persons whomsoever. Upon the preparation of the Authority’s annual report and financial statements the Authority shall promptly provide a copy of the same to all Rating Agencies rating Bonds hereunder and shall also provide to appropriate Rating Agencies (if not included in such annual report and financial statements) a list of Eligible Investments held in Accounts and Funds under the Master Indenture securing Bonds rated by such Rating Agencies.

(3) The Authority shall keep proper books of record and account in which

complete and correct entries shall be made of its transactions relating to all Loans and Municipal Obligations, payments thereof and all Funds and Accounts established by the Master Indenture, which shall, except as otherwise provided by law at all reasonable times be subject to the inspection by the Trustee and as to Related Accounts, the Owners of an aggregate of not less than 51% in principal amount of the Bonds Outstanding of any Type or their representatives duly authorized in writing.

(4) The Authority shall 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 hereafter in force which may affect the covenants and agreements contained in the Master Indenture, or in the Bonds, and all benefit or advantage of any such law or laws is expressly waived by the Authority.

I-46

(5) The Authority shall not create or permit the creation of or issue any obligations or create any additional indebtedness, other than the Bonds, secured by a charge and lien on the Security pledged by the Master Indenture except as provided in the Master Indenture.

(6) The Authority shall diligently take all reasonable steps, actions and

proceedings necessary for the enforcement of all terms, covenants and conditions of purchases made by the Authority which shall affect the prompt collection of payments under the Municipal Obligations evidencing Loans, including the enforcement of the Municipal Obligations. Whenever it shall be necessary in order to protect and enforce the rights of the Authority under a Municipal Obligation and to protect and enforce the rights and interests of Owners under the Master Indenture, the Authority shall commence proceedings against the Governmental Unit in default under the provisions of Municipal Obligations in protection and enforcement of its rights under such Municipal Obligations and bring appropriate action to collect any unpaid balance due on the Municipal Obligations. Further, the Authority covenants that it will diligently take all reasonable steps, actions and proceedings necessary for the protection and preservation of all other Security and the receipt thereof in times and amounts sufficient to pay, when and as due, Debt Service on Bonds issued pursuant to the Master Indenture.

(7) Notwithstanding any other provision of the Master Indenture, the

Authority shall not permit at any time or times any of the proceeds of the Bonds or any other funds of the Authority to be used directly or indirectly to acquire any investment property, the acquisition of which would cause any of the Bonds to be an “arbitrage bond” as defined in Section 148(a) of the Code. The Authority covenants and agrees that to the extent permitted by law, it shall take all actions within its control necessary to maintain and shall not take any actions the taking of which would adversely affect the exclusion of the interest on the Bonds from gross income for federal income tax purposes including but not limited to, actions relating to the rebate of arbitrage earnings and the expenditure and investment of Bond proceeds and money deemed to be Bond proceeds, all as more fully set forth in the Non-Arbitrage And Tax Compliance Certificate. Amounts required to be deposited in the Rebate Fund shall be determined by or at the direction of the Authority at such times as are required by the Non-Arbitrage And Tax Compliance Certificate.

Without limitation to the foregoing, the Authority covenants and agrees to pay to

the United States of America (but only to the extent of moneys under the Master Indenture) any amount required to be paid by the Authority to the United States pursuant to Section 148 (f) of the Code, at the times, in the amounts and at the places required thereby in order to maintain the exclusion of the interest on the Bonds from gross income for purposes of federal income taxation.

Pursuant to Supplemental Indentures the Authority may issue one or more Types

of Bonds, the interest on which is included in gross income for federal income taxation provided the issuance of any such taxable Bonds will not violate the Authority’s covenants in the Master Indenture and in the Non-Arbitrage and Tax Compliance

I-47

Certificate with respect to Bonds the interest on which is excluded from gross income for federal income tax purposes.

(8) Except as otherwise provided in a Supplemental Indenture with respect to

the initial issuance of Bonds of a Type, the Authority shall not permit at any time or times any of the proceeds of the Bonds or any other funds of the Authority to be used directly or indirectly in a manner which would result in the exclusion of the Bonds from the treatment afforded by Section 103(a) of the Code for any reason including without limitation by reason of the classification of such Bonds as “private activity bonds” within the meaning of Section 141(a) of the Code, or as federal guaranteed bonds as provided in Section 149(b) of the Code.

(9) To the extent the Authority has satisfied the Reserve Account

Requirement with respect to any Reserve Account by the commitment to (i) deposit or cause to be deposited Federal Capitalization Grants in designated amounts to the Reserve Account as received by the Authority or (ii) deposit or cause to be deposited State general obligation bonds or notes held or to be held by the Authority for such purposes in designated amounts to the Reserve Account, the Authority shall diligently take all legal and reasonable steps, actions and proceedings necessary to authorize, facilitate or require the receipt of such Federal Capitalization Grants or State obligations and the deposit of the same into such Reserve Account. Further, in order to prevent an imminent default of Bonds secured by any such Reserve Account, the Authority agrees to take such reasonable lawful action as may be in its control to provide cash in such Reserve Account for such purposes including, without limitation, pursuing an accelerated draw on Federal Capitalization Grants, remarketing or causing to be remarketed State general obligation bonds or notes then held by the Authority or the Trustee which are intended to satisfy the Reserve Account Requirement applicable to such Reserve Account and transferring cash received as principal or interest repayments with respect to such State general obligation bonds or notes prior to their deposit in the Reserve Account to the extent such cash is available therefor. Supplemental Indentures

Supplemental Indentures Not Requiring Consent of Owners The Authority may, without the consent of or notice to any of the Owners, adopt

at any time any Supplemental Indenture or Indentures for any one or more of the following purposes, and any such Supplemental Indenture shall become effective in accordance with its terms upon due execution and delivery of the same by the Trustee and the Authority:

(a) to cure any ambiguity or formal defect or omission in the Master

Indenture;

I-48

(b) to grant to or confer upon the Trustee for the benefit of the Owners any additional benefits, rights, remedies, powers or authorities that may lawfully be granted to or conferred upon the Owners or the Trustee;

(c) to subject to the Master Indenture additional revenues, properties or

collateral;

(d) to modify, amend or supplement the Master Indenture or any Supplemental Indenture in such manner as to permit the qualification under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect or to permit the qualification of the Bonds for sale under the securities laws of the United States of America or of any of the states of the United States of America, and, if they so determine, to add to the Master Indenture or any Supplemental Indenture such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939 or similar federal statute;

(e) to evidence the appointment of a separate or the succession of a new

Trustee, Bond Registrar and Paying Agent or Co-Paying Agent under the Master Indenture;

(f) to satisfy the requirements of Fitch, Moody’s or S&P or another Rating

Agency in order to obtain, maintain or improve the rating on any of the Bonds;

(g) to provide for the orderly sale of Bonds or acquisition of Municipal Obligations;

(h) to maintain the exclusion of interest on the Bonds from gross income for

federal income tax purposes, to prevent interest on any of the Bonds from being subject to any alternative minimum tax (other than an alternative minimum tax which applies to all tax exempt bonds generally) and to maintain the exemption of any of the Bonds and the interest thereon from State taxation;

(i) to provide for additional or different Types of Bonds as authorized in the

Master Indenture;

(j) to issue Refunding Bonds pursuant to the Master Indenture;

(k) to reduce or eliminate the Reserve Account Requirement with respect to any Type of Bonds if such reduction or elimination is otherwise permitted under the Master Indenture;

(l) to provide for the issuance of any Series of Bonds and to prescribe the

terms and conditions pursuant to which such Bonds may be issued, paid or redeemed;

I-49

(m) to provide for the issuance of Bonds of any Type which do not bear interest or bearing interest at variable interest rates, or with variable interest periods or subject to mandatory purchase at the option of the Owner thereof;

(n) to provide for the purchase of bond insurance or other credit or liquidity

support for any Bond;

(o) to provide for the purchase or acquisition of one or more Reserve Account Security Instruments;

(p) to effect any other changes in the Master Indenture which, in the judgment

of the Authority, upon advice of Bond Counsel and such other consultants or professionals as the Authority deems appropriate, are not to the prejudice of the Trustee or the Owners;

(q) to accomplish, implement, or give effect to any other action which is

authorized or required by the Master Indenture;

(r) to ensure the compliance of the Master Indenture with the provisions of the Clean Water Act, in particular as it relates to the issuance of Bonds (including State Match Bonds) and the Security therefor, but only if an Authorized Officer of the Authority has confirmed in writing with applicable Rating Agencies that the adoption of such provision will not result in the reduction or withdrawal of any Rating Agency rating on any Outstanding Bonds to which such provision will apply;

(s) to ensure the compliance of the Master Indenture with the provisions of

the Drinking Water Act, in particular as it relates to the issuance of Bonds (including State Match Bonds) and the Security thereof, but only if an Authorized Officer of the Authority has confirmed in writing with applicable Rating Agencies that the adoption of such provision will not result in the reduction or withdrawal of any Rating Agency rating on any Outstanding Bonds to which such provision will apply;

(t) to provide for additional or different Classes of Bonds as authorized by the

Master Indenture; (u) with respect to the Bonds issued on or after the effective date of the

Amended and Restated Master Indenture, to redesignate the Type and/or Class designations of any or all of such Bonds provided that (i) an Authorized Officer of the Authority has confirmed in writing with the applicable Rating Agencies that such redesignation shall not reduce or eliminate the then current rating by any Rating Agency on any Outstanding Bonds, and (ii) the Trustee shall have received an opinion of Bond Counsel that such redesignation is permitted hereunder and under any applicable federal and state laws and regulations; and

(v) with respect to Bonds of the Class “Clean Water Revolving Fund Revenue

Bonds” and of the Type “PPB-III” (including the Series 2011 Clean Water Refunding

I-50

Bonds) and Bonds of the Class “Drinking Water Revolving Fund Revenue Bonds” and of the Type “DWPPB-III” (including the Series 2011 Drinking Water Refunding Bonds), to effect any changes in the Master Indenture which the Authority deems desirable, provided that an Authorized Officer of the Authority has confirmed in writing with the applicable Rating Agencies that the adoption of such provision will not result in the reduction or withdrawal of any Rating Agency rating on any Outstanding Bonds to which the provisions will apply.

Supplemental Indentures Requiring Consent of Owners The Owners of not less than two-thirds in aggregate principal amount of the

Bonds Outstanding of any Type shall have the right, from time to time, anything contained in the Master Indenture to the contrary notwithstanding, to consent to and approve the adoption by the Authority and the acceptance by the Trustee of such other indenture or indentures supplemental thereto as shall be deemed necessary and desirable by the Authority for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions affecting or relating to such Type of Bonds contained in the Master Indenture or in any Supplemental Indenture; provided, however, that nothing in the Master Indenture contained shall permit, or be construed as permitting other than in accordance with the Master Indenture and the terms of the Bonds with respect to each Type of Bonds (a) without the consent of the Owners of all then Outstanding Bonds of such Type, (i) an extension of the Principal Payment Date or the Interest Payment Date on any Bond of such Type, or (ii) a reduction in the principal amount of any Bond of such Type or the rate of interest thereon, or (iii) a privilege or priority of any Bond or Bonds of a Type over any other Bond or Bonds of the same Type, or (iv) a reduction in the aggregate principal amount of the Bonds required for consent to such Supplemental Indenture, or (v) the creation of any lien other than a lien ratably securing all of the Bonds of the same Type at any time Outstanding, or (b) any modification of the trusts, powers, rights, obligations, duties, remedies, immunities and privileges of the Trustee without the written consent of the Trustee.

If at any time the Authority shall request the Trustee to accept any such

Supplemental Indenture, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed Supplemental Indenture to be mailed by registered or certified mail to each Owner of a Bond of the Type affected at the address shown on the registration books. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are on file at the designated office of the Trustee for inspection by all Owners. If, within 60 days, or such longer period as shall be prescribed by the Authority, following the mailing of such notice, the Owners of not less than two-thirds in aggregate principal amount of the Bonds of each Type affected by such Supplemental Indenture Outstanding at the time of the adoption of any such Supplemental Indentures shall have consented to and approved the adoption thereof as herein provided, no Owner of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the

I-51

Trustee or the Authority from executing the same or from taking any action pursuant to the provisions thereof. Upon the adoption of any such Supplemental Indentures, the Master Indenture shall be and be deemed to be modified, supplemented and amended in accordance therewith.

Notice of Amendments

Promptly after the adoption by the Authority of any Supplemental Indenture, the Trustee shall mail a notice, setting forth in general terms the substance thereof, to any Owner of the Type of Bonds affected requesting the same in writing, and each Rating Agency then rating the affected Bonds. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indentures.

Supplemental Non-Arbitrage and Tax Compliance Certificates

The Authority may, from time to time and at any time, amend, supplement or

modify the Non-Arbitrage and Tax Compliance Certificate, to the extent permitted by law, to maintain the exclusion of the interest on any of the Bonds from gross income for purposes of federal income taxation under the Code; provided however the Authority shall receive the opinion of Bond Counsel stating that such amendment, supplement or modification is necessary or desirable to maintain such exclusion of the interest on any of the Bonds (or the exclusion of the interest on any of the Municipal Obligations) prior to amending, supplementing or modifying the Non-Arbitrage and Tax Compliance Certificate.

Defaults and Remedies

Events of Default Each of the following events is declared an “Event of Default” under the Master

Indenture: (a) Default in the payment of Debt Service on any Bond on any Payment

Date, provided that an Event of Default shall be deemed to exist only with respect to those Bonds of the same Type as the Bond with respect to which such failure occurred or Bonds Related thereto; or

(b) With respect to each Type of Bonds, the Authority shall default in the

performance or observance of any other of the covenants, agreements or conditions on its part in the Master Indenture, continuance of such default for a period of 90 days after written notice thereof by the Trustee or the Owners of not less than 51% in principal amount of the Outstanding Bonds of such Type.

For purposes of the Master Indenture the Trustee shall be deemed to have

knowledge of Events of Default specified in clause (a) above upon their occurrence and

I-52

of Events of Default specified in clause (b) above upon receipt of written notice thereof from the Bond Registrar and Paying Agent, the Owners of not less than 25% in principal amount of the Outstanding Bonds of the applicable Type and upon actual knowledge thereof as acknowledged by the Trustee.

Remedies Except as otherwise provided in a Supplemental Indenture, with respect to each

Type of Bonds: (a) Upon the happening and continuance of any Event of Default specified in

the Master Indenture, then, and in each such case the Trustee may: (i) by mandamus or other suit, action or proceedings at law or in equity,

enforce the rights of the Owners; and to require the Authority to carry out any other agreement with Owners and to perform its duties under the Act;

(ii) by bringing suit upon the Bonds;

(iii) by action or suit, requiring the Authority to account as if it were the trustee

of an express trust for the Owners of the Bonds;

(iv) by action or suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of the Owners of the Bonds;

(v) by requiring the Authority to enforce the rights of the Authority under

Municipal Obligations or, if not prohibited by Supplemental Indenture, to sell the Municipal Obligations;

(vi) by bringing an action or suit to obtain any other remedy available at law or

equity;

(vii) if expressly authorized by Supplemental Indenture, by declaring all Bonds

of the Type with respect to which an Event of Default is deemed to exist and Bonds Related thereto, due and payable; and if all defaults shall have been cured, then, with the written consent of the Owners of not less than 51% in principal amount of the Outstanding Bonds of such Type, to annul such declaration and its consequences. The First Supplemental Indenture does not authorize the remedy provided by this subparagraph (vii).

(b) The Trustee shall give notice of any Event of Default to the Authority as

promptly as practicable after the occurrence of an Event of Default becomes known to the Trustee and shall give notice in writing to the Governor of the State, the State Treasurer, the Director of DEQ, the Attorney General of the State and the Authority not less than

I-53

thirty days prior to declaring the principal of any Bonds due and payable after an Event of Default.

(c) In the enforcement of any remedy under the Master Indenture with respect

to a Type of Bond, the Trustee shall be entitled to sue for, enforce payment on and receive any and all amounts then or during any default becoming, and any time remaining, due from the Authority for principal, interest or otherwise, under any provision of the Master Indenture or of the Bonds, and unpaid, together with any and all costs and expenses of collection and of all proceedings under the Master Indenture and under the Bonds, without prejudice to any other right or remedy of the Trustee or of the Owners, and to recover and enforce judgment or decree against the Authority for any portion of such amounts remaining unpaid, with interest, costs and expenses, and to collect from the Security, in any manner provided by law, the moneys adjudged or decreed to be payable.

Application of Moneys (a) With respect to Bonds of each Type all moneys received by the Trustee

pursuant to any right given or action taken under the provisions of the Master Indenture, including by virtue of action taken under provisions of any Bond or Municipal Obligation, shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances incurred or made or to be incurred or made by the Trustee, be applied, along with any other moneys available for such purposes, unless the principal of all the Bonds of such Type shall have become due and payable:

FIRST - To the payment to the persons entitled thereto of installments of interest

in the order of maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment of interest, then to the payment ratably, according to the amounts due on such installment to the persons entitled thereto, without any discrimination or privilege;

SECOND - To the payment to the persons entitled thereto of the unpaid principal

of any of the Bonds which shall have become due at stated maturity or pursuant to a call for redemption (other than Bonds called for redemption for the payment of which moneys are held pursuant to the other provisions of the Master Indenture), in the order of their due dates and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled thereto without any discrimination or privilege;

THIRD - To be held as provided under the heading “Pledge and Establishment of

Funds and Accounts” above for the payment of Bond Servicing Costs to the persons entitled thereto as the same shall become due of the amounts payable pursuant to the Master Indenture;

I-54

(b) If the principal of all the Bonds of any Type shall have become due, all such moneys shall be applied to the payment of the principal and interest then due and unpaid upon such Bonds and amounts payable as Bond Servicing Costs, with principal and interest to be paid first without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or privilege, and then amounts payable as Bond Servicing Costs.

(c) Whenever moneys are to be applied by the Trustee pursuant to the

provisions described above, such moneys shall be applied by the Trustee at such times, and from time to time, as the Trustee in its sole discretion shall determine; the deposit or otherwise setting aside such moneys in trust for the proper purpose, shall constitute proper application by the Trustee; and the Trustee shall incur no liability whatsoever to the Authority, to any Owner or to any other person for any delay in applying any such moneys, so long as the Trustee acts with reasonable diligence, having due regard for the circumstances, and ultimately applies the same in accordance with such provisions of the Master Indenture as may be applicable at the time of application by the Trustee. Whenever the Trustee shall exercise such discretion in applying such moneys, it shall fix the date upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue. The Trustee shall give such notice as it may deem appropriate for the fixing of any such date. The Trustee shall not be required to make payment of principal to any Owners unless such Owner’s Bond or Bonds shall be presented to the Trustee.

Termination of Proceedings In case any proceeding taken by the Trustee on account of any Event of Default

shall have been discontinued or abandoned for any reason or determined adversely to the Trustee, then in every such case the Authority, the Trustee, and the Owners shall be restored to their former positions and rights under the Master Indenture, respectively, and all rights, remedies, powers and duties of the Trustee, the Authority and the Owners shall continue as though no such proceeding had been taken.

Owners’ Direction of Proceedings Anything in the Master Indenture to the contrary notwithstanding, the Owners of

51% in principal amount of the Bonds Outstanding of any Type shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all remedial proceedings with respect to Bonds of such Type to be taken by the Trustee under the Master Indenture, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Master Indenture and any applicable Supplemental Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction.

I-55

Limitation on Rights of Owners With respect to Bonds of any Type, no Owner of any Bond shall have any right to

institute any suit, action or other proceeding under the Master Indenture, or for the protection or enforcement of any right under the Master Indenture or any right under law unless such Owner shall have given to the Trustee written notice of the Event of Default or breach of duty on account of which such suit, action or proceeding is to be taken, shall have made written request of the Trustee after the right to exercise such powers or right of action, as the case may be, shall have accrued, and shall have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers therein granted or granted under the law or to institute such action, suit or proceeding in its name and unless, also, there shall have been offered to the Trustee reasonable security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee shall have refused or neglected to comply with such request within a reasonable time; and such notification, request and offer of indemnity are declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the powers under the Master Indenture or for any other remedy thereunder or under law. It is understood and intended that no one or more Owners thereby secured shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Master Indenture, or to enforce any right thereunder or under law with respect to the Bonds or the Master Indenture, except in the manner therein provided, and all proceedings shall be instituted, had and maintained in the manner therein provided and for the benefit of all Owners of the Outstanding Bonds of each Type. Notwithstanding the foregoing provisions, the obligation of the Authority shall be absolute and unconditional to pay the principal of and interest on the Bonds to the respective Owners thereof at the respective due dates thereof from the Security and nothing therein shall affect or impair the right of action, which is absolute and unconditional, of such Owners to enforce such payment.

Anything to the contrary notwithstanding contained in the Master Indenture, each

Owner of any Bond by his acceptance thereof shall be deemed to have agreed that any court in its discretion may require, in any suit for the enforcement of any right or remedy under the Master Indenture or any Supplemental Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the reasonable costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in any such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this paragraph shall not apply to any suit instituted by the Trustee, to any suit instituted by any Owner, or group of Owners, holding at least 51% in principal amount of the Bonds Outstanding of the Type to which such suit relates, or to any suit instituted by any Owner for the enforcement of the payment of the principal or interest on any Bond on or after the respective due date thereof expressed in such Bond.

I-56

Possession of Bonds by Trustee Not Required All rights of action under the Master Indenture or under any of the Bonds,

enforceable by the Trustee, may be enforced by it without the possession of any of the Bonds or the production thereof on the trial or other proceeding relative thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in its name for the benefit of all the Owners of such Bonds, subject to the provisions of the Master Indenture.

Remedies Not Exclusive No remedy conferred upon or reserved to the Trustee or to the Owners of the

Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under the Master Indenture or now or hereafter existing at law or in equity or by statute.

No Waiver of Default No delay or omission of the Trustee or of any Owner of the Bonds to exercise any

right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by the Master Indenture to the Trustee, and the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient.

Notice of Event of Default With respect to the Bonds of each Type the Trustee shall give to the Owners of

such Bonds notice of each Event of Default respecting such Bonds known to the Trustee as soon as reasonably practicable after knowledge of the occurrence thereof, unless such Event of Default shall have been remedied or cured before the giving of such notice. Each such notice of Event of Default shall be given by the Trustee by mailing written notice thereof by first class mail to all registered Owners of such Bonds, as the names and addresses of such Owners appear upon the books for registration and transfer of Bonds as kept by the Bond Registrar and Paying Agent. Defeasance

Any Bond will be deemed to be paid within the meaning of the Master Indenture when (i) payment of the principal of, or Redemption Price, if applicable, of such Bond, plus interest thereon to the due date thereof (whether such due date is by reason of maturity or upon redemption), either (1) has been made or caused to be made in accordance with the terms thereof, or (2) has been provided for by irrevocably depositing with the Trustee or an escrow agent meeting the qualifications set forth for a successor Trustee in trust and irrevocably setting aside exclusively for such payment sufficient moneys to make such payment and/or Government Obligations maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient

I-57

moneys to make such payments, and (ii) all necessary and proper Bond Servicing Costs pertaining to the Bonds with respect to which such deposit is made have been paid or the payment thereof provided for to the satisfaction of the Trustee. At such times as a Bond is deemed to be paid under the Master Indenture, as aforesaid, such Bond will no longer be secured by or entitled to the benefits of the Master Indenture, except with respect to provisions relating to the payment of the principal of or Redemption Price of and interest on such Bond from such moneys or Government Obligations and the related duties of the Bond Registrar and Paying Agent or the Trustee.

Notwithstanding the foregoing paragraph, no deposit under clause (i)(2) of such

paragraph above will be deemed a payment of such Bonds (i) until the Authority has given the Trustee, in form satisfactory to the Trustee, irrevocable instructions: (1) stating the date when the principal of each such Bond is to be paid, whether at maturity or on a Redemption Date, (2) to call for redemption pursuant to the Master Indenture any Bonds to be redeemed prior to maturity pursuant to (1), and (3) if all the Bonds to be redeemed are not to be redeemed within 60 days, to mail, as soon as practicable, in the manner prescribed by the Master Indenture for notices of redemption, a notice to the Owners of such Bonds that the deposit required by (a)(i)(2) above has been made with the Trustee or an escrow agent and that said Bonds are deemed to have been paid and stating the maturity or Redemption Date upon which moneys are to be available for the payment of the principal or Redemption Price, if applicable, on said Bonds; and (4) if any Bonds are to be redeemed within the next 60 days, until proper notice of redemption of those Bonds has been given.

Indenture Constitutes Contract of Authority; No Recourse Against Members, Officers or Employees

All covenants, stipulations, promises and agreements in the Master Indenture contained by or on behalf of the Authority shall be for the sole and exclusive benefit of the Authority, the Trustee, such persons or parties as may be specified by Supplemental Indenture, and the Owners from time to time of the Bonds pertaining thereto.

All covenants, stipulations, promises, agreements and obligations of the Authority

contained in the Master Indenture shall be deemed to be the covenants, stipulations, promises, agreements and obligations of the Authority and not of any member, officer or employee of the Authority in his individual capacity, and no recourse shall be had for the payment of the principal or interest on the Bonds or for any claim based thereon or on the Master Indenture against any member, officer or employee of the Authority or any person executing the Bonds.

I-58

TWENTY-FIRST SUPPLEMENTAL INDENTURE

General

The following are summaries of certain provisions of the Twenty-First Supplemental Indenture. All of the provisions of the First Supplemental Indenture, Second Supplemental Indenture, Third Supplemental Indenture, Fourth Supplemental Indenture, Fifth Supplemental Indenture, Sixth Supplemental Indenture, Seventh Supplemental Indenture, Eighth Supplemental Indenture, Ninth Supplemental Indenture, Tenth Supplemental Indenture, Eleventh Supplemental Indenture, Twelfth Supplemental Indenture, Thirteenth Supplemental Indenture, Fourteenth Supplemental Indenture, Fifteenth Supplemental Indenture, Sixteenth Supplemental Indenture, Seventeenth Supplemental Indenture, the Eighteenth Supplemental Indenture, the Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture shall be deemed to be and construed as part of the Master Indenture to the same extent as if fully set forth therein. Except as supplemented by the First Supplemental Indenture, Second Supplemental Indenture, Third Supplemental Indenture, Fourth Supplemental Indenture, Fifth Supplemental Indenture, Sixth Supplemental Indenture, Seventh Supplemental Indenture, Eighth Supplemental Indenture, Ninth Supplemental Indenture, Tenth Supplemental Indenture, Eleventh Supplemental Indenture, Twelfth Supplement Indenture, Thirteenth Supplemental Indenture, Fourteenth Supplemental Indenture, Fifteenth Supplemental Indenture, Sixteenth Supplemental Indenture, Seventeenth Supplemental Indenture, the Eighteenth Supplemental Indenture, the Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture, the Master Indenture shall remain in full force and effect. Authorization, Terms and Issuance of Series 2011 Refunding Bonds.

Pursuant to the provisions of the Master Indenture, two Series of Bonds entitled to the benefit, protection and security of the Master Indenture are authorized as follows:

Series 2011 Clean Water Refunding Bonds shall be issued as Refunding Bonds, in

the aggregate principal amount of $225,860,000, and shall be designated as and shall be distinguished from the Bonds of all other Series by the title, “Clean Water Revolving Fund Revenue Refunding Bonds, Series 2011.” The Series 2011 Clean Water Refunding Bonds are designated as Bonds of the Class Clean Water Revolving Fund Revenue Bonds and as Bonds of the Type PPB-III, and will be secured equally and ratably by the Security applicable to such Type described in the Master Indenture with all other Bonds of the Type PPB-III which may be issued hereafter. As provided in the Master Indenture, the Authority may hereafter issue State Match Bonds which will be designated as “Related” to Bonds of the Type PPB-III.

Series 2011 Drinking Water Refunding Bonds shall be issued as Refunding

Bonds, in the aggregate principal amount of $56,860,000, and shall be designated as and

I-59

shall be distinguished from the Bonds of all other Series by the title, “Drinking Water Revolving Fund Revenue Refunding Bonds, Series 2011.” The Series 2011 Drinking Water Refunding Bonds are designated as Bonds of the Class Drinking Water Revolving Fund Revenue Bonds and as Bonds of the Type DWPPB-III, and will be secured equally and ratably by the Security applicable to such Type described in the Master Indenture with all other Bonds of the Type DWPPB-III which may be issued hereafter. As provided in the Master Indenture, the Authority may hereafter issue State Match Bonds which will be designated as “Related” to Bonds of the Type DWPPB-III.

The Series 2011 Clean Water Refunding Bonds are designated as Pooled Project

Bonds for purposes of the Master Indenture. The Series 2011 Drinking Water Refunding Bonds are designated as Pooled Project Bonds for purposes of the Master Indenture.

The Series 2011 Clean Water Refunding Bonds are issued for the purposes of (i) making a deposit to the 2011 Clean Water Refunding Escrow Account under the Escrow Agreement to be used to refund the Clean Water Bonds To Be Refunded, and (ii) making a deposit to the Costs of Issuance Fund in order to pay Costs of Issuance with respect to the Series 2011 Clean Water Refunding Bonds. The Series 2011 Drinking Water Refunding Bonds are issued for the purposes of (i) making a deposit to the 2011 Drinking Water Refunding Escrow Account under the Escrow Agreement to be used to refund the Drinking Water Bonds To Be Refunded, and (ii) making a deposit to the Costs of Issuance Fund in order to pay Costs of Issuance with respect to the Series 2011 Drinking Water Refunding Bonds.

Establishment of Accounts, Disposition of Bond Proceeds, and Use and Disbursement of Funds

Establishment of Accounts With respect to Bonds of the Type PPB-III (including the Series 2011 Clean

Water Refunding Bonds), the Authority, pursuant to the Eighteenth Supplemental Indenture, has previously established the following Accounts and subaccounts:

(i) the PPB-III Debt Service Account in the Debt Service Fund;

(ii) the PPB-III Loan Account in the Loan Fund;

(iii) the PPB-III Rebate Account in the Rebate Fund;

(iv) the PPB-III Reserve Account and the PPB-III Supplemental Reserve Account in the Reserve Fund; and

(v) the PPB-III Revenue Account (together with the Loan Prepayment Subaccount therein) in the Revenue Fund.

With respect to Bonds of the Type DWPPB-III (including the Series 2011 Drinking Water Refunding Bonds), the Authority establishes the following Accounts:

I-60

(i) the DWPPB-III Debt Service Account in the Debt Service Fund;

(ii) the DWPPB-III Loan Account in the Loan Fund;

(iv) the DWPPB-III Rebate Account in the Rebate Fund;

(iv) the DWPPB-III Reserve Account; and

(v) the DWPPB-III Revenue Account (together with the Loan Prepayment Subaccount therein) in the Revenue Fund.

An Authorized Officer of the Authority may direct the Trustee to establish and

maintain such additional subaccounts in the various Accounts described above as may be necessary, convenient or required to allow the Authority to comply with its covenants in the Master Indenture, including its covenants contained in any Non-Arbitrage and Tax Compliance Certificate, and to provide for the defeasance of the Bonds To Be Refunded.

Application of Series 2011 Refunding Bond Proceeds The proceeds of sale and delivery of the Series 2011 Clean Water Refunding

Bonds shall be deposited as follows in accordance with the provisions of the Master Indenture: (i) the amount designated by an Authorized Officer of the Authority to be used to refund the Clean Water Bonds To Be Refunded shall be deposited in the 2011 Clean Water Refunding Escrow Account and used as provided in the Escrow Agreement; (ii) the amount representing accrued interest, if any, shall be deposited in the PPB-III Revenue Account; and (iii) the balance thereof shall be deposited in the Clean Water Account (which is created) of the Costs of Issuance Fund. The proceeds of sale and delivery of the Series 2011 Drinking Water Refunding Bonds shall be deposited as follows in accordance with the provisions of the Master Indenture: (i) the amount designated by an Authorized Officer of the Authority to be used to refund the Drinking Water Bonds To Be Refunded shall be deposited in the 2011 Drinking Water Refunding Escrow Account and used as provided in the Escrow Agreement; (ii) the amount representing accrued interest, if any, shall be deposited in the DWPPB-III Revenue Account; and

I-61

(iii) the balance thereof shall be deposited in the Drinking Water Account (which is created) of the Costs of Issuance Fund.

Use and Disbursement of Funds (a) Proceeds of the Series 2011 Refunding Bonds deposited in the Accounts

shall be invested, used, transferred and disbursed as provided in the Master Indenture and the Escrow Agreement. (b) A Schedule to the Twenty-First Supplemental Indenture sets forth the designation of allocated portions of Loans (and Municipal Obligations evidencing the same) to Governmental Units and the Collateral Documents pertaining thereto, if any, repayments of which will be allocated to (i) the PPB-III Revenue Account which are initially included as Security for Bonds of the Type PPB-III, and (ii) the DWPPB-III Revenue Account which are initially included as Security for Bonds of the Type DWPPB-III, and such Loans are designated as Project Loans Related to the Series 2011 Refunding Bonds. An Authorized Officer of the Authority may from time to time, by written direction or certification to the Trustee, and with respect to loans duly approved by the DEQ or the DNR and the Authority, add or delete Governmental Units to or from the Schedule. Specific Loans, Collateral Documents pertaining thereto (in addition to those shown on the Schedule), if any, and Loan Repayments anticipated to be received with respect thereto, shall be designated from time to time by an Authorized Officer of the Authority by certificate or certificates delivered to the Trustee (which designation may be amended and supplemented from time to time in the same manner). Any such designation, amendment or supplement shall be made only if it is consistent with the applicable Sufficiency Calculation most recently made or if a new Sufficiency Calculation is made by an Authorized Officer of the Authority taking such designation, amendment or supplement into account. In making any such designation, amendment or supplement the Authorized Officer of the Authority shall do so with due regard for the protection and preservation of the Security for the Series 2011 Refunding Bonds and Bonds Related thereto, the Authority’s tax covenants in the Indenture and the Non-Arbitrage and Tax Compliance Certificate, and the provisions of the Act, Act 451, the Clean Water Act and the Drinking Water Act. Notwithstanding the foregoing, Security for the Series 2011 Refunding Bonds shall not be released except upon compliance with the provisions of the Master Indenture. (c) As provided in the Eighteenth Supplemental Indenture, there shall be allocated to the Loan Prepayment Subaccount of the PPB-III Revenue Account such amounts determined by an Authorized Officer of the Authority to represent Loan Repayments on Loans that are (i) in excess of amounts needed within twelve months of receipt for transfer to the PPB-III Debt Service Account for payment of Debt Service on the Bonds of the Type PPB-III but that are (ii) expected to be needed at a time or times later than twelve months from receipt for transfer to such PPB-III Debt Service Account for payment of Debt Service on Bonds of the Type PPB-III. Amounts from time to time on deposit in such Loan Prepayment Subaccount, and earnings thereon, shall be

I-62

transferred and applied with all other amounts in the PPB-III Revenue Account as provided in the Master Indenture. (d) There shall be allocated to the Loan Prepayment Subaccount of the DWPPB-III Revenue Account such amounts determined by an Authorized Officer of the Authority to represent Loan Repayments on Loans that are (i) in excess of amounts needed within twelve months of receipt for transfer to the DWPPB-III Debt Service Account for payment of Debt Service on the Bonds of the Type DWPPB-III but that are (ii) expected to be needed at a time or times later than twelve months from receipt for transfer to such DWPPB-III Debt Service Account for payment of Debt Service on Bonds of the Type DWPPB-III. Amounts from time to time on deposit in such Loan Prepayment Subaccount, and earnings thereon, shall be transferred and applied with all other amounts in the DWPPB-III Revenue Account as provided in the Master Indenture. Eligible Investment

As permitted by the Master Indenture, the following investments have been added to the definition of “Eligible Investment” with respect to the PPB-III Funds and Accounts and the DWPPB-III Funds and Accounts: “and (ix) subject to the provisions of the Non-Arbitrage and Tax Compliance Certificate, any of the following that does not result in a reduction of the Rating on any Bond:

(a) Direct obligations of the United States of America and securities fully

and unconditionally guaranteed by the United States of America; (b) Direct obligations of any of the following federal agencies which

obligations are fully guaranteed by the full faith and credit of the United States of America and have received a rating in the highest rating category from any Rating Agency rating such direct obligations, without regard to credit enhancement:

(i) Farmers Home Administration;

(ii) Rural Economic Community Development Administration;

(iii) General Services Administration;

(iv) U.S. Maritime Administration;

(v) Small Business Administration

(vi) Government National Mortgage Corporation (GNMA);

(vii) U.S. Department of Housing & Urban Development;

(viii) Federal Housing Administration;

I-63

(ix) Export-Import Bank; and

(x) Federal Financing Bank.

(c) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America and have received a rating in the highest rating category from any Rating Agency rating such direct obligations, without regard to credit enhancement:

(i) Federal Home Loan Mortgage Corporation (FHLMC, aka Freddie Mac);

(ii) Farm Credit System (formerly Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives);

(iii) Federal Home Loan Banks (FHL Banks);

(iv) Federal National Mortgage Association (FNMA);

(v) Financing Corp. (FICO); and

(vi) Resolution Funding Corporation (REFCORP).

(d) Government Obligations which have been stripped by the U.S. Treasury of their unmatured interest coupons, interest coupons stripped by the U.S. Treasury form Government Obligations, and receipts or certificates evidencing payments from Government Obligations or interest coupons stripped by the U.S. Treasury from Government Obligations, including the interest portion of Resolution Funding Corporation bonds stripped by the Federal Reserve Bank of New York and held in book entry form;

(e) General obligation bonds or notes issued by any state of the United

States that have received from at least two Rating Agencies rating such bonds or notes in one or the two highest rating categories assigned by such Rating Agency, without regard to any related credit enhancement;

(f) General obligation bonds, debentures or notes issued by any

municipality have a rating in one of the two highest rating categories from any Rating Agency rating such bonds, debentures or notes, without regard to any related credit enhancement;

I-64

(g) Municipal obligations which the timely payment of the principal and interest on which is fully provided for by the deposit in trust or escrow of cash or obligations that are Government Obligations, having a rating in the highest rating category from any Rating Agency rating such municipal obligations without regard to any related credit enhancement;

(h) Short term investments with domestic commercial banks (including

the Trustee and its affiliates) which have a rating on their short term certificates of deposit on the date of purchase of “P-1” by Moody’s and “A-1” or “A-1+” by S&P and maturing not more than 365 calendar days after the date of purchase; provided, however, if such short term investments are guaranteed by an Federal agency listed in (b) or (c) above, a rating will not be required;

(i) Short term debt of issuers rate “A-1” or higher by S&P, provided

such short term debt matures within 30 days and does not represent greater that 20% of the rated issue’s principal amount; and

(j) Money market funds which are comprised of obligations that qualify

as eligible investments under (a)-(i) above, including those for which the Trustee or an affiliate performs services for a fee, whether as custodian, transfer agent, investment advisor or otherwise.

Government Obligations

Pursuant to the terms of the Master Indenture and the Twenty-First Supplemental Indenture, for Bonds of the Class “Clean Water Revolving Fund Revenue Bonds” and of the Type “PPB-III” (including the Series 2011 Clean Water Refunding Bonds) and of the Class “Drinking Water Revolving Fund Revenue Bonds” and of the Type “DWPPB-III” (including the Series 2011 Drinking Water Refunding Bonds), the following definition is substituted for and in place of the definition of “Government Obligations” in the Master Indenture:

“‘Government Obligations’ means, except as otherwise provided in a Supplemental Indenture, (i) direct obligations of the United States of America (including obligations issued or held in book-entry form); (ii) obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America; (iii) certificates which evidence ownership of the right to the payment of the principal of and interest on obligations described in clauses (i) and (ii) provided that such obligations are held in the custody of a bank or trust company satisfactory to the Trustee in a special account separate from the general assets of such custodian; (iv) municipal obligations the timely payment of the principal and interest on which is fully provided for by the deposit in trust or escrow of cash or obligations described in clause (i), (ii) or (iii); (v) direct obligations of any of the following federal agencies which obligations are fully

I-65

guaranteed by the full faith and credit of the United States of America and have received a rating in the highest rating category from any Rating Agency rating such direct obligations, without regard to credit enhancement: Farmers Home Administration, Rural Economic Community Development Administration, General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage Corporation, U.S. Department of Housing & Urban Development, Federal Housing Administration, Export-Import Bank, and Federal Financing Bank; and (vi) direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America and have received a rating in the highest rating category from any Rating Agency rating such direct obligations, without regard to credit enhancement: Federal Home Loan Mortgage Corporation (FHLMC, aka Freddie Mac), Farm Credit System (formerly Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives), Federal Home Loan Banks (FHL Banks), Federal National Mortgage Association (FNMA), Financing Corp. (FICO), and Resolution Funding Corporation (REFCORP), provided such obligations are not subject to call by the obligor for redemption prior to maturity, have been called for redemption prior to maturity or, if subject to call by the obligor for redemption prior to maturity, such right to call the obligation for redemption prior to maturity has been waived; provided, however, Government Obligations shall not include any investment which is prohibited or not permitted by the Act.”

APPENDIX II

FORMS OF APPROVING OPINIONS OF BOND COUNSEL AND ATTORNEY GENERAL

FORM OF CO-BOND COUNSEL OPINION

November __, 2011

Michigan Finance Authority Richard H. Austin State Office Building Lansing, Michigan As Co-Bond Counsel to the Michigan Finance Authority (the “Authority”) we submit this opinion with respect to the issuance by the Authority of its Clean Water Revolving Fund Revenue Refunding Bonds, Series 2011 (the “Series 2011 Clean Water Refunding Bonds”) and Drinking Water Revolving Fund Revenue Refunding Bonds, Series 2011 (the “Series 2011 Drinking Water Refunding Bonds” and collectively, with the Series 2011 Clean Water Refunding Bonds, the “Series 2011 Refunding Bonds”). The Series 2011 Refunding Bonds are authorized to be issued by Act No. 227, Public Acts of Michigan, 1985, as amended and Executive Order No. 2010-2 (collectively, the “Act”), and by a State Revolving Fund Revenue Bonds Master Indenture dated as of October 1, 1992 as amended and restated by an Amended and Restated State Revolving Fund Revenue Bonds Master Indenture, dated as of July 1, 1998 between the Authority (as successor to the Michigan Municipal Bond Authority) and The Bank of New York Mellon Trust Company, N.A. (as successor to NBD Bank, Detroit, Michigan), as Trustee (the “Trustee”) as supplemented by a First Supplemental Indenture, a Second Supplemental Indenture, a Third Supplemental Indenture, a Fourth Supplemental Indenture, a Fifth Supplemental Indenture, a Sixth Supplemental Indenture, a Seventh Supplemental Indenture, an Eighth Supplemental Indenture, a Ninth Supplemental Indenture, a Tenth Supplemental Indenture, an Eleventh Supplemental Indenture, a Twelfth Supplemental Indenture, a Thirteenth Supplemental Indenture, a Fourteenth Supplemental Indenture, a Fifteenth Supplemental Indenture, a Sixteenth Supplemental Indenture, a Seventeenth Supplemental Indenture, an Eighteenth Supplemental Indenture, a Nineteenth Supplemental Indenture, a Twentieth Supplemental Indenture and a Twenty-First Supplemental Indenture (collectively the “Indenture”) and a resolution adopted by the Authority. The Series 2011 Refunding Bonds are being issued pursuant to the Act and the Indenture to refund certain outstanding bonds of the Authority as set forth in the Indenture (“the Refunded Bonds”) and to pay costs of issuance of the Series 2011 Refunding Bonds. The Refunded Bonds were issued to provide funding for the purchase of obligations (the “Municipal Obligations”) issued by various governmental units in the State of Michigan (the “Governmental Units”) as set forth in the Indenture and to pay costs of issuance of the Refunded Bonds. The Series 2011 Refunding Bonds are subject to redemption prior to maturity as set forth in the Indenture and the Series 2011 Refunding Bonds.

II-1

We have examined the constitution and statutes of the State of Michigan (the “State”), the Indenture, a specimen of a Series 2011 Drinking Water Refunding Bond and a specimen of a Series 2011 Clean Water Refunding Bond and such other information, records and documents as we deem necessary, including non-arbitrage and tax compliance certificates of the Authority, and based on such examination we are of the opinion under existing law that: 1. The Authority is a public body corporate and politic validly existing with the power to issue the Series 2011 Refunding Bonds. 2. The Series 2011 Refunding Bonds are valid and legally binding limited obligations of the Authority enforceable in accordance with their terms, payable as to the principal of, premium, if any, and accrued interest thereon solely from the security pledged therefor under the Indenture. The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds are separately secured under the Indenture. The Series 2011 Clean Water Refunding Bonds are secured on a parity basis with the State Clean Water Revolving Fund Revenue Refunding Bonds, Series 2009 dated as of June 30, 2009 and the State Clean Water Revolving Fund Revenue Bonds, Pooled Project, Series 2010 dated as of March 18, 2010 (collectively, the “Prior Clean Water Bonds”). The Series 2011 Refunding Bonds are not a general obligation of the Authority. Neither the State nor any political subdivision of the State is obligated to pay the principal of, premium, if any, or interest on the Series 2011 Refunding Bonds and neither the faith and credit nor the taxing power of the State or any political subdivision of the State is pledged to the payment of the principal of, premium, if any, or interest on the Series 2011 Refunding Bonds. The Authority has no taxing power. 3. The Authority is authorized to issue additional bonds of equal standing and priority of lien with (a) the Series 2011 Clean Water Refunding Bonds and the Prior Clean Water Bonds as provided in the Indenture, or (b) the Series 2011 Drinking Water Refunding Bonds as provided in the Indenture. 4. The interest on the Series 2011 Refunding Bonds (a) is excluded from gross income for federal income tax purposes and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that certain corporations must take into account interest on the Series 2011 Refunding Bonds in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. This opinion is subject to the condition that the Authority and the Governmental Units comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Series 2011 Refunding Bonds in order that interest thereon be (or continue to be) excluded from gross income for federal income tax purposes. These requirements include rebating certain earnings to the United States. Failure to comply with such requirements could cause the interest on the Series 2011 Refunding Bonds to be included in gross income retroactive to the date of issuance of the Series 2011 Refunding Bonds. The Authority has covenanted to comply with all such requirements to the extent permitted by law. We express no opinion regarding other federal tax consequences arising with respect to the Series 2011 Refunding Bonds and the interest thereon.

II-2

5. The Series 2011 Refunding Bonds and the interest thereon are exempt from all taxation provided by the laws of the State except for estate taxes and taxes on gains realized from the sale, payment or other disposition of the Series 2011 Refunding Bonds. In rendering the foregoing opinion, no opinion is expressed as to the validity or enforceability of the Municipal Obligations, and we are, with your approval, relying upon the opinions of bond counsel to each of the Governmental Units which have been or which will be given to the effect that interest on the Municipal Obligations is excluded from gross income for federal income tax purposes. Enforceability of the Series 2011 Refunding Bonds and the Indenture may be subject to the application of general principles of equity including those related to equitable subordination, and to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and their enforcement may be subject to the exercise of judicial discretion in appropriate cases.

Very truly yours, DICKINSON WRIGHT PLLC MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.

II-3

FORM OF OPINION OF THE ATTORNEY GENERAL OF THE STATE OF MICHIGAN

______________, 2011

Michigan Finance Authority Richard H. Austin State Office Building Lansing, Michigan 48909 In my capacity as Attorney General of the State of Michigan (the “State”), I have caused to be examined a closing transcript and, in particular, the following documents relating to the issuance by the Michigan Finance Authority (the "Authority") of bonds designated MICHIGAN FINANCE AUTHORITY CLEAN WATER REVOLVING FUND REVENUE REFUNDING BONDS, SERIES 2011 in the aggregate principal amount of $_____________ (the “2011 Clean Water Refunding Bonds”) and bonds designated MICHIGAN FINANCE AUTHORITY DRINKING WATER REVOLVING FUND REVENUE REFUNDING BONDS, SERIES 2011 in the aggregate principal amount of $______________, (the “2011 Drinking Water Refunding Bonds” and collectively with the 2011 Clean Water Refunding Bonds, the “Bonds”): (1) Executive Order No. 2010-2 of the Governor of the State of Michigan (the “Executive Order”) and the Shared Credit Rating Act, 1985 PA 227, as amended (the "Act"), which together created the Authority and empowers it to issue bonds; (2) a certified copy of Resolution No. 1998-8 adopted by the Authority on May 27, 1998, approving the amended and restated state revolving fund revenue bonds master indenture dated as of July 1, 1998, amending and restating the state revolving fund revenue bonds master indenture dated as of October 1, 1992 (the "Master Indenture") and a certified copy of Resolution No. 2011-40 adopted by the Authority on September 9, 2011, authorizing the issuance of the Bonds and approving the twenty-first supplemental indenture dated as of November 1, 2011 (the “Twenty-First Supplemental Indenture”) between the Authority and The Bank of New York Mellon Trust Company, N.A. (the Master Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture, the Fifth Supplemental Indenture, the Sixth Supplemental Indenture, the Seventh Supplemental Indenture, the Eighth Supplemental Indenture, the Ninth Supplemental Indenture, the Tenth Supplemental Indenture, the Eleventh Supplemental Indenture, the Twelfth Supplemental Indenture, the Thirteenth Supplemental Indenture, the Fourteenth Supplemental Indenture, the Fifteenth Supplemental Indenture, the Sixteenth Supplemental Indenture, the Seventeenth Supplemental Indenture, the Eighteenth Supplemental Indenture, the Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture (each as defined in the Twenty-First Supplemental Indenture), and the Twenty-First Supplemental Indenture are, collectively, the "Indenture");

(3) the Non-Arbitrage And Tax Compliance Certificates of the Authority; and

II-4

Michigan Finance Authority ________, 2011 Page 2 (4) The Bonds as executed, or specimens thereof.

The Bonds are being issued to provide funds (i) to make a deposits to the 2011 Clean Water Refunding Escrow Account and the 2011 Drinking Water Refunding Escrow Account under the Escrow Agreement to be used to refund portions of the bonds previously issued by the Authority pursuant to the Indenture (the “Refunded Bonds”) and (ii) to make a deposits to the respective Cost of Issuance Funds for the payment of costs of issuance related to each series of Bonds. The Refunded Bonds were issued to provide funding for the purchase of obligations (the “Municipal Obligations”) issued by various governmental units in the State (the “Governmental Units”) as set forth in the Indenture and to pay costs of issuance of the Refunded Bonds. The Bonds are not subject to redemption prior to maturity as set forth in the Indenture. In rendering this opinion, I express no opinion as to the validity or enforceability of the Municipal Obligations and I am relying upon the opinions of bond counsel to each of the Governmental Units which have been or which will be given to the effect that interest on the Municipal Obligations is excluded from gross income for federal income tax purposes. Based on the foregoing, I am of the opinion that, under existing law as presently interpreted: 1. The Authority is a public body corporate and politic of the State duly organized and validly existing under the Constitution and the laws of the State. 2. The Bonds have been duly authorized, executed, and delivered by the Authority and, when duly authenticated, will constitute valid and binding limited obligations of the Authority enforceable in accordance with their terms, payable as to the principal of, premium, if any, and interest thereon solely from the security pledged therefor as set forth in the Indenture. 3. The Bonds are limited obligations of the Authority. The Bonds, including the interest thereon, are not general obligations of the Authority and do not constitute obligations, debts, or liabilities of the State and do not constitute a charge against the general credit of the Authority or a charge against the credit or taxing power of the State. The Authority has no taxing power. 4. The Authority is authorized to issue additional bonds of equal standing and priority of lien with the (a) 2011 Clean Water Refunding Bonds and the Prior Clean Water Bonds as provided in the Indenture, or (b) the 2011 Drinking Water Bonds as provided in the Indenture. 5. Interest on the Bonds (i) is excluded from gross income for federal income tax purposes and (ii) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that certain corporations must take into account interest on the Bonds in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. This opinion is subject to the condition that the Authority and the Governmental Units comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue

II-5

Michigan Finance Authority ________, 2011 Page 3 to be, excluded from gross income for federal income tax purposes. The requirements include rebating certain earnings to the United States. Failure to comply with certain of those requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The Authority has covenanted to comply with each such requirement to the extent permitted by law. I express no opinion regarding other federal tax consequences arising with respect to the Bonds. 6. The Bonds and the interest thereon are exempt from all taxation provided by the laws of the State except estate taxes and taxes on gains realized from the sale, payment, or other disposition thereof. Enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium, and other laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and their enforcement may be subject to the exercise of judicial discretion including the application of general principles of equity.

Sincerely,

BILL SCHUETTE Attorney General

Assistant Attorney General

II-6

APPENDIX III

FORM OF CONTINUING DISCLOSURE UNDERTAKING



State Revolving Fund Revenue Bonds

$__________

Consisting of

$_______

Clean Water Revolving Fund Revenue Refunding Bonds, Series 2011

and

$__________


This Continuing Disclosure Undertaking (the “Undertaking”) is executed and delivered by

the Michigan Finance Authority, as successor to the Michigan Municipal Bond Authority (the “Issuer”) in connection with the issuance of its Clean Water Revolving Fund Revenue Refunding Bonds, Series 2011, and its Drinking Water Revolving Fund Revenue Refunding Bonds, Series 2011, as further identified above (collectively, the “Bonds”). The Bonds are being issued pursuant to a resolution adopted by the Board of Directors of the Issuer on September 9, 2011, and an Amended and Restated Master Indenture, as amended and supplemented (herein, collectively, the “Resolution”). The Issuer covenants and agrees as follows:

SECTION 1. Purpose of the Undertaking. This Undertaking is being executed and delivered by the Issuer for the benefit of the Bondholders and in order to assist the Participating Underwriters (as defined herein) in complying with subsection (b)(5) of the Rule (as defined herein). In consideration of the purchase and acceptance of any and all of the Bonds by those who shall hold the same or shall own beneficial ownership interests therein from time to time, this Undertaking shall be deemed to be and shall constitute a contract between the Issuer and the Bondholders and the covenants and agreements herein set forth to be performed on behalf of the Issuer shall be for the benefit of the Bondholders of any and all of the Bonds. The Issuer acknowledges that the State of Michigan (the “State”) has undertaken no responsibility with respect to any notices or disclosures provided or required under this Undertaking and has no liability to any person, including any Bondholders, with respect to any such notices or disclosures.

SECTION 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Undertaking unless otherwise defined in this Undertaking, the following capitalized terms shall have the following meanings:

“Annual Financial Information” means with respect to each Governmental Unit who may

become a Material Obligated Person at some future time, such financial information or operating data applicable to the Material Obligated Person’s most recent fiscal year consisting of Audited Financial

III-1

Statements, if available or Unaudited Financial Statements and to the extent not contained in those statements other material information concerning its revenues and expenses and results of operations, fund balances, significant incurrences of debt and litigation as required by the Rule.

“Audited Financial Statements” means annual financial statements, if any, of a Material

Obligated Person, audited by such auditor as shall then be required or permitted by State law, and prepared in accordance with GAAP applied on a consistent basis provided, however, that the Material Obligated Person may from time to time in accordance with GAAP and subject to applicable federal or State legal requirements modify the basis upon which its financial statements are prepared. Notice of any such modification shall be provided to the MSRB.

“Bondholders” shall mean the registered owner of any Bond and any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any of the Bonds (including any person holding Bonds through nominees, depositories or other intermediaries).

“Dissemination Agent” shall mean the Issuer, or any successor Dissemination Agent

designated in writing by the Issuer and which has filed with the Issuer a written acceptance of such designation.

“EMMA” shall mean the MSRB’s Electronic Municipal Market Access System, or such other system, Internet Web site, or repository hereafter prescribed by the MSRB for the submission of electronic filings pursuant to the Rule.

“GAAP” means generally accepted accounting principles, as such principles are prescribed,

in part, by the Financial Accounting Standards Board and modified by the Government Accounting Standards Board and in effect from time to time.

“Listed Events” shall mean any of the events listed in Section 3(a) of this Undertaking. “Material Obligated Person” shall mean a Governmental Unit meeting the objective criteria

established by the Issuer as provided in Section 4 of this Undertaking.

“MSRB” shall mean the Municipal Securities Rulemaking Board established in accordance with the provisions of Section 15B(b)(1) of the 1934 Act.

“1934 Act” shall mean the Securities Exchange Act of 1934, as amended.

“Official Statement” shall mean the Final Official Statement for the Bonds dated October __, 2011.

“Participating Underwriters” shall mean any of the original underwriters of the Bonds

required to comply with the Rule in connection with the primary offering of the Bonds.

“Rule” shall mean Rule 15c2-12 (17 CFR Part 240, §240.15c2-12) promulgated by the SEC pursuant to the 1934 Act, as the same may be amended from time to time, together with all interpretive guidance or other official interpretations or explanations thereof that are promulgated by the SEC. “SEC” shall mean the United States Securities and Exchange Commission.

“Securities Counsel” shall mean legal counsel expert in federal securities law.

III-2

“Unaudited Financial Statements” means the same as Audited Financial Statements except that they shall not have been audited.

SECTION 3. Reporting of Significant Events.

(a) The Issuer agrees to provide, or cause to be provided, notice of any of the following

events in a timely manner not in excess of ten (10) business days after the occurrence of the event and in accordance with the Rule:

(1) Principal and interest payment delinquencies; (2) Non-payment related defaults, if material; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financial

difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or

final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security;

(7) Modifications to rights of security holders, if material; (8) Bond calls, if material; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the securities, if

material; (11) Rating changes; (12) Tender offers; (13) Bankruptcy, insolvency, receivership or similar event of the obligated person; (14) The consummation of a merger, consolidation, or acquisition involving an obligated

person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

(15) Appointment of a successor or additional trustee or the change of name of a trustee,

if material.

(b) Whenever the Issuer obtains knowledge of the occurrence of a Listed Event described in subsection (a)(2), (7), (8), (10), (14) or (15), the Issuer shall as soon as possible determine if such event would be material under applicable federal securities laws.

III-3

(c) If the Issuer determines in the exercise of its best judgment in good faith that (i) a Listed Event described in subsection (a)(1), (3), (4), (5), (6), (9), (11), (12) or (13) has occurred or (ii) the occurrence of a Listed Event described in subsection (a)(2), (7), (8), (10), (14) or (15) would be material under applicable federal securities laws, the Issuer shall cause a notice of such occurrence to be filed with the MSRB through EMMA within ten (10) business days of the occurrence. In connection with providing a notice of the occurrence of a Listed Event described in subsection (a)(9), the Issuer shall include in the notice explicit disclosure as to whether the Bonds have been escrowed to maturity or escrowed to call, as well as appropriate disclosure of the timing of maturity or call.

(d) In connection with providing a notice of the occurrence of a Listed Event, the

Dissemination Agent (if other than the Issuer), solely in its capacity as such, is not obligated or responsible under this Undertaking to determine the sufficiency of the content of the notice for purposes of the Rule or any other state or federal securities law, rule, regulation or administrative order.

(e) The Issuer acknowledges that the “rating changes” referred to above in

Section 3(a)(11) of this Undertaking may include, without limitation, any change in any rating on the Bonds or other indebtedness for which the Issuer is liable.

(f) The Issuer acknowledges that it is not required to provide a notice of a Listed Event

with respect to credit enhancement when the credit enhancement is added after the primary offering of the Bonds, the Issuer does not apply for or participate in obtaining such credit enhancement, and such credit enhancement is not described in the Official Statement.

SECTION 4. Obligated Persons. (a) The Issuer hereby determines that for all bonds issued under the Master Indenture as

Bonds of the same Type as any of the Bonds that: (1) A Governmental Unit shall be a Material. Obligated Person with respect to a

particular Type of Bonds at any time that such Governmental Unit is an “obligated person” as defined in the Rule and (i) the aggregate principal amount of Municipal Obligations issued by and outstanding for such Governmental Unit and which have been pledged as security by the Issuer for the Bonds of that Type is equal to or in excess of twenty percent (20%) of the aggregate principal amount of all Municipal Obligations then outstanding which have been pledged as Security by the Issuer for Bonds of that Type or (ii) for Governmental Units that are not issuers of Municipal Obligations, but for whom financial and operating data is disclosed in an official statement of the Issuer in connection with such Municipal Obligations, the aggregate principal amount outstanding of such Municipal Obligations and which have been pledged as security by the Issuer for the Bonds of that Type is equal to or in excess of twenty percent (20%) of the aggregate principal amount of all Municipal Obligations then outstanding which have been pledged as security by the Issuer for Bonds of that Type; and

(2) A Governmental Unit shall be a Material Obligated Person at any time that it would

be a Material Obligated Person under the foregoing Section 4(a)(1) if for purposes of said Section 4(a)(1) in addition to Municipal Obligations which are then outstanding, Municipal Obligations are deemed to be outstanding to the extent that the Issuer reasonably expects to disburse funds then held in the Loan Account for Bonds of that Type which will result in such Municipal Obligations being outstanding in the future.

For purposes of this Section 4(a), any Municipal Obligations which have been legally

defeased shall not be considered outstanding.

III-4

(b) The Issuer agrees for the benefit of the Bondholders that it shall for each Material Obligated Person for Bonds of that Type cause that Material Obligated Person to enter into an undertaking in substantially the form attached as Exhibit A to disclose the following information:

(1) As soon as practicable but in no event later than nine (9) months after the end of each

fiscal year of such Material Obligated Person, the Annual Financial Information. The requirement to provide Annual Financial Information for any Material Obligated Person may be satisfied by filing a current official statement, prospectus or offering statement which contains such Annual Financial Information. It shall be sufficient for purposes of this Section 4(b) if Annual Financial Information is provided by specific reference to documents available to the public on the MSRB’s Internet Website or filed with the SEC. Annual Financial Information may be provided in one document or multiple documents and at one time or in part from time to time. The Annual Information shall be filed with the MSRB. Notice of any failure to file Annual Financial Information shall be timely filed with the MSRB.

(2) As soon as practicable, notice of any change in fiscal year for a Material Obligated

Person shall be filed with the MSRB, and if a change is made to the basis on which financial statements are prepared, the Annual Financial Information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a qualitative and, to the extent reasonably feasible, quantitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information.

(c) If a Material Obligated Person is an agency or authority created by a county, city,

village or township, the undertaking required by Section 4(b) may be satisfied by an undertaking entered into by the county, city, village or township which created that Material Obligated Person.

(d) As of the date hereof, no Governmental Unit is a Material Obligated Person with

respect to the Bonds. (e) At any time an entity once designated as a Material Obligated Person no longer

meets the “objective criteria” as defined in Section 4(a) above such entity shall no longer be considered a Material Obligated Person and accordingly Annual Financial Information for such entity will no longer be provided or required. In addition to any Material Obligated Person described in paragraph (a) above, the Issuer may in its discretion determine that any entity designated by the Issuer shall be considered a Material Obligated Person with respect to which Annual Financial Information will then be provided for so long as the Issuer shall determine.

SECTION 5. Mandatory Electronic Filing with EMMA. All filings with the MSRB

under this Undertaking shall be made by electronically transmitting such filings through the EMMA Dataport at http://www.emma.msrb.org as provided by the amendments to the Rule adopted by the SEC in Securities Exchange Act Release No. 59062 on December 5, 2008. SECTION 6. Termination of Reporting Obligation.

(a) The Issuer’s obligations under this Undertaking shall terminate upon the legal defeasance of the Bonds or the prior redemption or payment in full of all of the Bonds.

(b) This Undertaking, or any provision hereof, shall be null and void in the event that the

Issuer (i) receives an opinion of Securities Counsel, addressed to the Issuer, to the effect that those portions of the Rule, which require such provisions of this Undertaking, do not or no longer apply to the Bonds, whether because such portions of the Rule are invalid, have been repealed, amended or

III-5

modified, or are otherwise deemed to be inapplicable to the Bonds, as shall be specified in such opinion, and (ii) delivers notice to such effect to the MSRB through EMMA.

SECTION 7. Dissemination Agent. The Executive Director on behalf of the Issuer, from time to time, may appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Undertaking and may discharge any such Agent, with or without appointing a successor Dissemination Agent.

SECTION 8. Amendment.

Notwithstanding any other provision of this Undertaking, this Undertaking may be amended, and any provision of this Undertaking may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Section 3, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, a change in law or a change in the identity, nature or status of the Issuer, or type of business conducted by the Issuer in connection with the Revolving Loan Fund;

(b) this Undertaking, as so amended or taking into account such waiver, would, in the opinion

of Securities Counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the amendment or waiver either (i) is approved by the Bondholders in the same manner as

provided in the Resolution for amendments to the Resolution with the consent of the Bondholders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bondholders. SECTION 9. Additional Information. Nothing in this Undertaking shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Undertaking 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 Undertaking. If the Issuer chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Undertaking, the Issuer shall have no obligation under this Undertaking to update such information or include it in any future notice of occurrence of a Listed Event.

SECTION 10. Failure to Comply. In the event of a failure of the Issuer to comply with any provision of this Undertaking, any Bondholder may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Issuer to comply with its obligations under this Undertaking. A failure to comply with this Undertaking shall not be deemed an Event of Default under the Resolution. The sole remedy under this Undertaking in the event of any failure of the Issuer to comply with this Undertaking shall be an action to compel performance, and no person or entity shall be entitled to recover monetary damages hereunder under any circumstances.

SECTION 11. Duties of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Undertaking.

SECTION 12. Beneficiaries. This Undertaking shall inure solely to the benefit of the Issuer, the Dissemination Agent, the Participating Underwriters, and the Bondholders, and shall create no rights in any other person or entity.

III-6

SECTION 13. Transmission of Information and Notices. Unless otherwise required by law or this Undertaking, and, in the sole determination of the Issuer or the Dissemination Agent, as applicable, subject to technical and economic feasibility, the Issuer or the Dissemination Agent, as applicable, shall employ such methods of information and notice transmission as shall be requested or recommended by the herein-designated recipients of such information and notices.

SECTION 14. Additional Disclosure Obligations. The Issuer acknowledges and understands that other State and federal laws, including, without limitation, the Securities Act of 1933, as amended, and Rule 10b-5 promulgated by the SEC pursuant to the 1934 Act, may apply to the Issuer, and that under some circumstances, compliance with this Undertaking, without additional disclosures or other action, may not fully discharge all duties and obligations of the Issuer under such laws.

SECTION 15. Governing Law. To the extent not governed by federal law, this Undertaking shall be governed by the law of the State.

Date: November __, 2011


By: ____________________________________

Its: Authorized Officer

III-7

EXHIBIT A


This Continuing Disclosure Undertaking (the “Undertaking”) is executed and delivered by the __________________ (the “Governmental Unit”), in connection with its obligations purchased or to be purchased with funds from the State Water Pollution Control Revolving Fund [or the State Drinking Water Revolving Fund] (the “Municipal Obligations”) by the Michigan Finance Authority, as successor to the Michigan Municipal Bond Authority (the “MFA”). The Governmental Unit covenants and agrees for the benefit of the Bondholders, as hereinafter defined, as follows:

(a) Definitions. The following terms used herein shall have the following meanings:

“Audited Financial Statements” means the annual audited financial statement pertaining to the Governmental Unit’s _________________ system prepared by the Governmental Unit and audited by an individual or firm of independent certified public accountants as required by Act 2, Public Acts of Michigan, 1968, as amended, which presently requires preparation in accordance with accounting principles generally accepted in the United States of America.

“Bondholders” shall mean the MFA and the registered owner of any MFA Bond or any person with the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any MFA Bond (including any person holding an MFA Bond through a nominee, depository or other intermediary).

“EMMA” shall mean the MSRB’s Electronic Municipal Market Access system, or such other system, Internet Web site, or repository hereafter prescribed by the MSRB for the submission of electronic filings pursuant to the Rule.

“MFA Bond” means any bond issued by the MFA which is secured in whole or in

part by payments to be received on the Municipal Obligations.

“MSRB” means the Municipal Securities Rulemaking Board established in accordance with the provisions of Section 15B(b)(1) of the Securities Exchange Act of 1934, as amended.

“Rule” means Rule 15c2-12 promulgated by the SEC pursuant to the Securities

Exchange Act of 1934, as amended.

“SEC” means the United States Securities and Exchange Commission.

III-8

(b) Continuing Disclosure. The Governmental Unit hereby agrees, in accordance with the provisions of the Rule, to provide or cause to be provided to the MSRB through EMMA, on or before the 270th day after the end of the fiscal year of the Governmental Unit, the following annual financial information and operating data, commencing with its fiscal year ended ________;

(1) Updates of the numerical financial information and operating data included in the official statement of the MFA dated ___________________ relating to the MFA Bonds (the “Official Statement”) appearing in Appendix __ of the Official Statement as described below:

(i) Information regarding taxable valuations, tax levies and collections:

a. Ten-Year History; b. Components of SEV/Taxable Value; c. Major Taxpayers; d. Tax Rates; e. Tax Levies and Collections;

(ii) Information regarding Governmental Unit Debt:

a. Tax Supported and Revenue Debt; and

(2) Audited Financial Statements. Such annual financial information and operating data described above are expected

to be provided directly by the Governmental Unit in the following documents to be filed with the MSRB through EMMA; the Audited Financial Statements; materials containing the updates described in (b)(1) and (b)(2) above; and in subsequent official statements of the Governmental Unit filed with the MSRB.

If the fiscal year of the Governmental Unit is changed, the Governmental Unit shall

send notices of such change to the MSRB through EMMA, prior to the earlier of the ending date of the fiscal year prior to such change or, if earlier, the ending date of the fiscal year as changed. If the Audited Financial Statements are not available by the deadline for filing the Annual Information, unaudited financial statements in a format similar to the Audited Financial Statement most recently prepared for the Governmental Unit shall be included in the annual financial information and the Audited Financial Statements shall be provided when and if available.

(c) Notice of Failure to Disclose. The Governmental Unit agrees to provide or cause to be provided, in a timely manner, to (i) the MSRB through EMMA, and (ii) the MFA, notice of a failure by the Governmental Unit to provide the annual financial information with respect to the Governmental Unit described in subsection (b) above on or prior to the dates set forth in subsection (b) above.

(d) Occurrence of Events. The Governmental Unit agrees to provide, or cause to be provided, notice of any of the following events in a timely manner not in excess of ten (10) business days after the occurrence of the event and in accordance with the Rule with respect to Municipal Obligations to (i) the MSRB through EMMA, and (ii) the MFA:

(1) Principal and interest payment delinquencies; (2) Non-payment related defaults, if material;

III-9

(3) Unscheduled draws on debt service reserves reflecting financial difficulties;

(4) Unscheduled draws on credit enhancements reflecting financial

difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or

final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security;

(7) Modifications to rights of security holders, if material; (8) Bond calls, if material; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the

securities, if material; (11) Rating changes; (12) Tender offers; (13) Bankruptcy, insolvency, receivership or similar event of the obligated person; (14) The consummation of a merger, consolidation, or acquisition involving an obligated

person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

(15) Appointment of a successor or additional trustee or the change of name of a trustee, if material.

(e) Materiality Determined Under Federal Securities Laws. The Governmental Unit agrees that its determination of whether any event described in subsection (d) (2), (7), (8), (10), (14) or (15) is material shall be made in accordance with federal securities laws.

(f) Termination of Reporting Obligation. The obligation of the Governmental Unit to provide annual financial information and notices of material events, as set forth above, shall be terminated if and when the Governmental Unit no longer remains an “obligated person” with respect to the MFA Bonds within the meaning of the Rule, including upon legal defeasance of all Municipal Obligations.

(g) Benefit of Bondholders. The Governmental Unit agrees that its undertaking pursuant to the Rule set forth in this Undertaking is intended to be for the benefit of the Bondholders and shall be enforceable by any Bondholder; provided that, the right to enforce the provision of this Undertaking shall be limited to a right to obtain specific enforcement of the Governmental Unit’s obligations hereunder and any failure by the Governmental Unit to comply with the provisions of this

III-10

Undertaking shall not constitute a default or an event of default with respect to the MFA Bonds or the Municipal Obligations.

(h) Method of Filing. Any filing made with the MSRB under this Undertaking shall be

made electronically through the MSRB’s Electronic Municipal Market Access System (EMMA), or such other system, internet web site, or repository hereafter prescribed by the MSRB for submission of electronic filings pursuant to the Rule.

(h) Amendments to the Undertaking. Amendments may be made in the specific types of information provided or the format of the presentation of such information to the extent deemed necessary or appropriate in the judgment of the Governmental Unit, provided that the Governmental Unit agrees that any such amendment will be adopted procedurally and substantively in a manner consistent with the Rule, including any interpretations thereof by the SEC, which to the extent applicable, are incorporated herein by reference. Such interpretations currently include the requirements that (a) the amendment may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Governmental Unit or the type of activities conducted thereby, (b) the undertaking, as amended, would have complied with the requirements of the Rule at the time of the primary offering of the MFA Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (c) the amendment does not materially impair the interests of Bondholders, as determined by parties unaffiliated with the Governmental Unit (such as independent legal counsel), but such interpretations may be changed in the future. In the event of any amendment to, or waiver of a provision of, this Undertaking, the Governmental Unit shall describe such amendment or waiver in the next filing of its annual financial information and shall include an explanation of the reason for such amendment or waiver.

IN WITNESS WHEREOF, the Governmental Unit has caused this Undertaking to be

executed by an authorized officer as of _____________.

By:

Its:

III-11

IV-1

APPENDIX IV

SYNOPSIS OF PRINCIPAL FLOW OF FUNDS FOR POOLED PROJECT BONDS OF A SINGLE TYPE AND CLASS AND SYNOPSIS OF USE OF RELEASED ACCOUNT

MONEYS UNDER THE INDENTURE

THE FOLLOWING CHARTS ARE PROVIDED SOLELY TO ILLUSTRATE CERTAIN FUND FLOWS AND USES WITH RESPECT TO THE SERIES 2011 REFUNDING BONDS. THE CHARTS ARE NOT COMPREHENSIVE AND DO NOT AND SHOULD NOT BE INTERPRETED TO SET FORTH ALL PROVISIONS OF THE INDENTURE OR THE PRIORITY OF OR REQUIREMENTS FOR THE APPLICATION OF FUNDS UNDER THE INDENTURE. THE CHARTS MUST BE READ IN CONJUNCTION WITH THE OFFICIAL STATEMENT, INCLUDING APPENDIX I, WHICH SHOULD BE READ IN ITS ENTIRETY FOR THIS INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT. THE OFFERING OF THE SERIES 2011 REFUNDING BONDS TO POTENTIAL INVESTORS IS MADE ONLY BY MEANS OF THIS ENTIRE OFFICIAL STATEMENT. NO PERSON IS AUTHORIZED TO DETACH THIS APPENDIX FROM THIS OFFICIAL STATEMENT OR TO OTHERWISE USE IT WITHOUT THIS ENTIRE OFFICIAL STATEMENT.


IV-2

Clean Water Pooled Project Bonds Revenue Fund

Clean Water Pooled Project Bonds Revenue Funds

Refunding Revenue Bonds Revenue Fund

Clean Water Pooled Project Bonds Debt Service Fund

Clean Water Pooled Project Bond Reserve Fund

Clean Water Pooled Project Bonds Released Account Moneys

(Available on a Priority Basis – if needed- to A, B, C, D, E, F, G,

then Drinking Water requirements)

Any Authorized SRF Purpose of the Fund

Clean Water Pooled Project Bonds Debt Service Fund

Refunding Revenue Bonds Debt Service Fund

Clean Water Pooled Project Bond Reserve Fund

Discretionary; determined at time of issuance

Refunding Revenue Bond Reserve Fund



PPB-IReserve Fund

PPB-IIICash Flow/Hybrid

CWRRB-IRefunding

Clean Water SRF Loan Repayments, Investment Income

A

B

D

E

F

G

Clean Water Pooled Project Bonds Released Account Moneys

(Available on a Priority Basis – if needed- to D, E, A, B, C, F, G,


Refunding Revenue Bonds Released Account Moneys

(Available on a Priority Basis – if needed- to F, G, A, D, B, E, C,


(1) Released Account Moneys will be used if necessary to cure any deficiency (by means of the issuance of Subordinated Funding Bonds) in a Debt Service Account for Bonds of another Class, if other available amounts are insufficient, and then, to correct any deficiency in the Reserve Account for Bonds of the Class and Type.

Use Use of of Clean Water Clean Water Released Account Moneys Under IndentureReleased Account Moneys Under Indenture (1)(1)

Clean Water Subordinate Refunding Bond (SRB-I) Fund

C

IV-3

Drinking Water Pooled Project Bonds Revenue Fund

Drinking Water Pooled Project Bonds Revenue Funds

Refunding Revenue Bonds Revenue Fund

Drinking Water Pooled Project Bonds Debt Service Fund

Drinking Water Pooled Project Bond Reserve Fund

Drinking Water Pooled Project Bonds Released Account Moneys

(Available on a Priority Basis – if needed- to A, B, C, D, E, F,

then Clean Water requirements)


Drinking Water Pooled Project Bonds Debt Service Fund

Refunding Revenue Bonds Debt Service Fund

Drinking Water Pooled Project Bond Reserve FundDiscretionary; determined at

time of issuance

Refunding Revenue Bond Reserve Fund



DWPPB-IReserve Fund

DWPPB-IIICash Flow/Hybrid

DWRRB-IRefunding

Drinking Water SRF Loan Repayments, Investment Income

A

B

C

D

E

F

Drinking Water Pooled Project Bonds Released Account Moneys

(Available on a Priority Basis – if needed- to C, D, A, B, E, F,


Refunding Revenue Bonds Released Account Moneys

(Available on a Priority Basis – if needed- to E, F, A, C, B, D,


(1) Released Account Moneys will be used if necessary to cure any deficiency (by means of the issuance of Subordinated Funding Bonds) in a Debt Service Account for Bonds of another Class, if other available amounts are insufficient, and then, to correct any deficiency in the Reserve Account for Bonds of the Class and Type.

Use Use of Drinking Water Released Account Moneys Under Indenture of Drinking Water Released Account Moneys Under Indenture (1)(1)

IV-4

Flow of FundsFlow of Funds

Reserve Fund

Supplemental

Reserve Reserve

Accounts Accounts

Revenue Fund

Revenue Accounts

Debt Service FundFirst – Debt Service for Pooled Project

Bonds (PPB-I, PPB-II and PPB-III)

Second – Debt Service for Subordinate Refunding Bonds (SRB-I)

Loan Fund

Loan Accounts

Borrowers

Cost of Issuance

Cost of Issuance Accounts

EPA

Capitalization

Grants

State

Match

Revenue Bonds

Released

Account

Moneys

Any

Authorized

SRF Purpose

Of the Fund

(1)

(2)

(3)

(4)

(3)

(5)

(5)

(6)

Loan Repayments

InvestmentEarnings

SubordinatedRRB-I

Refunding Bonds(Both Clean Water

and Drinking Water)

Debt Service or Reserve Fund Deficiencies

(Bonds of Same Class, Different Types)

Debt Service or Reserve Fund Deficiencies

(Bonds of a Different Class)

Note: Dotted lines indicate permitted but not expected use

(1) Reserve Fund moneys in excess of the Reserve Account Requirement are released as principal on Bonds is paid. Supplemental Reserve Account moneys released following Sufficiency Calculation once all Related Loan Account moneys have been disbursed.

(2) Revenue Fund moneys released in order of priority at any time following Sufficiency Calculation.(3) Released Account moneys available first for any Deb Service Fund Account deficiencies and second for any Reserve Fund Account deficiencies.(4) Reserve Fund moneys that are not Released Account moneys only applied to fund Restated Debt Service account deficiencies after available Related Revenue Account and Released Account

Moneys are used.(5) Interest repayments on Related Loans and Investment earnings on the Loan Account and the Reserve Account first transferred to the Revenue Account for the Related State Match Bonds (none

currently issued) and then to the Related Revenue Account. Principal repayments on Related Loans only transferred to the Related Revenue Account.(6) Accrued interest and capitalized interest, if any (initially deposited to the Revenue Fund).

V-1

APPENDIX V

BOOK-ENTRY ONLY SYSTEM

DTC will act as securities depository for the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds. The Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond certificate will be issued for each maturity of the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. 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 (the “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 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 (the “Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of the Series 2011 Clean Water Refunding Bonds and the Series 2011 Drinking Water Refunding Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2011 Clean Water Refunding Bonds and/or the Series 2011 Drinking Water Refunding Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2011 Clean Water Project Bond or the Series 2011 Drinking Water Refunding 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 expected, however, 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 Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds except in the event that use of the book-entry system for each of the Series 2011 Refunding Bonds is discontinued.

V-2

To facilitate subsequent transfers, all Series 2011 Refunding 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 Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding 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 Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding 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 the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds may wish to ascertain that the nominee holding the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding 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 the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding 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 Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and interest payments on the Series 2011 Clean Water Refunding Bonds or the Series 2011 Drinking Water Refunding 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 Authority or the Trustee, on the 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 Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee or the Authority. 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.

V-3

DTC may discontinue providing its services as depository with respect to the Series 2011 Refunding Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2011 Clean Water Refunding Bond certificates or Series 2011 Drinking Water Refunding Bond certificates are required to be printed and delivered.

The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event Series 2011 Clean Water Refunding Bond certificates or Series 2011 Drinking Water Refunding Bond certificates will be printed and delivered to DTC.

THE INFORMATION IN THIS APPENDIX CONCERNING DTC AND DTC’S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM DTC. NO REPRESENTATION IS MADE BY THE AUTHORITY, THE STATE, THE TRUSTEE OR THE UNDERWRITERS AS TO THE COMPLETENESS OR ACCURACY OF SUCH INFORMATION OR AS TO THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE HEREOF. NO ATTEMPT HAS BEEN MADE BY THE AUTHORITY, THE STATE, THE TRUSTEE OR THE UNDERWRITERS TO DETERMINE WHETHER DTC IS OR WILL BE FINANCIALLY OR OTHERWISE CAPABLE OF FULFILLING ITS OBLIGATIONS. NEITHER THE AUTHORITY, THE STATE NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS, INDIRECT PARTICIPANTS OR THE PERSONS FOR WHICH THEY ACT AS NOMINEES WITH RESPECT TO THE SERIES 2011 CLEAN WATER REFUNDING BONDS OR THE SERIES 2011 DRINKING WATER REFUNDING BONDS, OR FOR ANY PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST PAYMENT THEREON.


VI-1

APPENDIX VI

OUTSTANDING PRIOR BONDS AND RESERVE ACCOUNT REQUIREMENTS

OUTSTANDING CLEAN WATER PRIOR BONDS

Outstanding Prior Bonds

of the Clean Water Class and of the Type PPB-I

Series

Outstanding Principal Amount

Series 1998 Bonds $ 9,230,000

Series 2001 Bonds 146,775,000* Series 2002 Bonds 134,005,000*

Series 2004 Bonds 229,325,000

Series 2005 Bonds 148,595,000 Series 2006 Bonds 130,885,000 Series 2007 Bonds 254,520,000

Total $1,053,335,000

.

Outstanding Prior Bonds of the Clean Water Class and of the Type PPB-III

Series Outstanding Principal

Amount Series 2009 Bonds $141,645,000 Series 2010 Bonds 174,315,000

Total $315,960,000

Outstanding Prior Bonds of the Clean Water Class and of the Type CWRRB-II


Amount Series 2002 Bonds $268,565,000

Outstanding Prior Bonds of the Clean Water Class and of the Type SRB-I


Amount Series 2010 Bonds $55,070,000

* Bonds to be refunded with proceeds of the Series 2011 Clean Water Refunding Bonds.

VI-2

RESERVE ACCOUNT REQUIREMENT FOR OUTSTANDING PPB-I CLEAN WATER BONDS1

Series Outstanding

Principal Percentage

Requirement Current

Requirement2 Long Term

Investment Provider

Series 1998 $ 9,230,000.00 56.35% $ 5,201,105.00 Westdeutsche Landesbank Girozentrale

Series 2001 146,775,000.00 50.00% 73,387,500.00 None3

Series 2002 134,005,000.00 50.00% 67,002,500.00 None3

Series 2004 229,325,000.00 50.21% 115,144,082.50 JPMorgan Chase Bank

Series 2005 148,595,000.00 72.64%4 107,939,408.00 Citigroup Global Markets Inc.

Series 2006 130,885,000.00 66.28% 86,750,578.00 FSA Capital Management Services LLC

Series 2007 254,520,000.00 64.91% 165,208,932.00 DEPFA Bank plc

Total $1,053,335,000.00 $620,634,105.50

___________________

1 The Reserve Account for the Outstanding PPB-I Clean Water Bonds is not Security for the 2011 Clean Water Refunding Bonds, except that (i) the PPB-III Reserve Account will be initially funded with amounts transferred from the PPB-I Reserve Account in connection with the defeasance of the Clean Water Bonds To Be Refunded, and (ii) all Types of Bonds share to the extent provided in the Indenture from any Released Account Moneys. 2 Approximate; may be reduced or eliminated if such reduction or elimination will not result in the reduction or withdrawal of any rating applicable to any Outstanding Bonds for which the Reserve Account is Security. 3 The investment agreements for the Series 2001 and the Series 2002 Bonds have been terminated. 4 Percentage requirement consists of a 65.86% requirement with respect to the Series 2005 Bonds issued for the purpose of funding new loan requirements and an 82.32% requirement with respect to the Series 2005 Bonds issued for refunding purposes.

VI-3

OUTSTANDING PRIOR DRINKING WATER BONDS

Outstanding Prior Bonds

of the Drinking Water Class and of the Type DWPPB-I

Series

Outstanding Principal Amount

Series 2001 Bonds $ 15,625,000* Series 2002 Bonds 51,785,000* Series 2004 Bonds 53,725,000

Series 2005 Bonds 66,530,000

Total $187,665,000

Outstanding Prior Bonds of the Drinking Water Class and of the Type DWRRB-I


Amount

Series 2002 Bonds $63,520,000

* Bonds to be refunded with proceeds of the Series 2011 Drinking Water Refunding Bonds.

VI-4

RESERVE ACCOUNT REQUIREMENT FOR OUTSTANDING DWPPB-I DRINKING WATER BONDS1

Series Outstanding

Principal Percentage

Requirement Current

Requirement2 Long Term

Investment Provider

Series 2001 $ 15,625,000.00 52.20% $ 8,156,250.00 None3

Series 2002 51,785,000.00 50.00% 25,892,500.00 None3

Series 2004 53,725,000.00 55.78% 29,967,805.00 Citigroup Global Markets Inc.

Series 2005 66,530,000.00 54.28% 36,112,484.00 Citigroup Global Markets Inc.

Total $187,665,000.00 $100,129,039.00

___________________

1 The Reserve Account for the Outstanding DWPPB-I Drinking Water Bonds is not Security for the 2011 Drinking Water Refunding Bonds, except that (i) the DWPPB-III Reserve Account will be initially funded with amounts transferred from the DWPPB-I Reserve Account in connection with the defeasance of the Drinking Water Bonds To Be Refunded, and (ii) all Types of Bonds share to the extent provided in the Indenture from any Released Account Moneys. 2 Approximate; may be reduced or eliminated if such reduction or elimination will not result in the reduction or withdrawal of any rating applicable to any Outstanding Bonds for which the Reserve Account is Security. 3 The investment agreements for the Series 2001 and the Series 2002 Bonds have been terminated.

VII-1

APPENDIX VII

BONDS TO BE REFUNDED

CLEAN WATER BONDS TO BE REFUNDED

Bond Series Maturity Date

October 1 Interest Rate Principal Amount

to be Refunded Redemption Date

Clean Water Revolving Fund Revenue Bonds, Series 2001

2012 5.000% $10,535,000 12/05/2011

2013 5.000 10,805,000 12/05/2011

2014 5.000 11,085,000 12/05/2011

2015 5.000 11,375,000 12/05/2011

2016 5.250 11,670,000 12/05/2011

2017 5.250 12,000,000 12/05/2011

2018 5.250 12,340,000 12/05/2011

2019 5.250 12,690,000 12/05/2011

2020 5.000 13,055,000 12/05/2011

2021 5.000 13,390,000 12/05/2011

2022 5.000 13,735,000 12/05/2011

2023 5.000 14,095,000 12/05/2011

Clean Water Revolving Fund Revenue Bonds, Series 2002

2012 5.250% $ 8,610,000 10/01/2012

2013 5.375 8,855,000 10/01/2012

2014 5.375 9,120,000 10/01/2012

2015 5.375 9,390,000 10/01/2012

2016 5.375 9,670,000 10/01/2012

2017 5.375 9,960,000 10/01/2012

2018 5.375 10,255,000 10/01/2012

2019 5.375 10,560,000 10/01/2012

VII-2

Clean Water Revolving Fund Revenue Bonds, Series 2002 (cont’d)

2020 5.375 10,875,000 10/01/2012

2021 5.375 11,200,000 10/01/2012

2022 5.000 11,535,000 10/01/2012

2023 5.000 11,835,000 10/01/2012

2024 5.000 12,140,000 10/01/2012

DRINKING WATER BONDS TO BE REFUNDED

Bond Series Maturity Date October 1

Interest Rate Principal Amount to be Refunded

Redemption Date

Drinking Water Revolving Fund Revenue Bonds, Series 2001

2012 5.000% $1,130,000 12/05/2011

2013 5.000 1,155,000 12/05/2011

2014 5.000 1,185,000 12/05/2011

2015 5.000 1,215,000 12/05/2011

2016 5.250 1,245,000 12/05/2011

2017 5.250 1,280,000 12/05/2011

2018 5.250 1,315,000 12/05/2011

2019 5.250 1,350,000 12/05/2011

2020 5.000 1,385,000 12/05/2011

2021 5.000 1,420,000 12/05/2011

2022 5.000 1,455,000 12/05/2011

2023 5.000 1,490,000 12/05/2011

VII-3

Bond Series Maturity Date October 1

Interest Rate Principal Amount to be Refunded

Redemption Date

Drinking Water Revolving Fund Revenue Bonds, Series 2002

2012 5.250% $3,335,000 10/01/2012

2013 5.375 3,430,000 10/01/2012

2014 5.375 3,530,000 10/01/2012

2015 5.375 3,635,000 10/01/2012

2016 5.375 3,740,000 10/01/2012

2017 5.375 3,850,000 10/01/2012

2018 5.375 3,965,000 10/01/2012

2019 5.375 4,080,000 10/01/2012

2020 5.375 4,200,000 10/01/2012

2021 5.375 4,325,000 10/01/2012

2022 5.000 4,450,000 10/01/2012

2023 5.000 4,565,000 10/01/2012

2024 5.000 4,680,000 10/01/2012