CITY OF DES MOINES Polk County, Iowa (Des Moines Water Works) $10,250,000 Water Revenue Refunding Bonds, Series 2011

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1 NEW ISSUE Investment Ratings: Moody's Investors Service... Aa1 Standard & Poor s... AA+ ADDENDUM DATED JANUARY 25, 2011 OFFICIAL STATEMENT DATED JANUARY 14, 2011 CITY OF DES MOINES Polk County, Iowa () $10,250,000 Water Revenue Refunding Bonds, Series 2011 AMOUNTS, MATURITIES, INTEREST RATES AND YIELDS Principal Due Interest CUSIP Principal Due Interest CUSIP Amount December 1 Rate Yield NUMBER Amount December 1 Rate Yield NUMBER $1,500, % 0.400% FM2 $1,590, % 1.830% FR1 1,475, % 0.750% FN0 1,655, % 2.150% FS9 1,510, % 1.050% FP5 960, % 2.450% FT7 1,560, % 1.370% FQ3 The Official Statement of the Water Works dated January 14, 2011 (the Official Statement ) with respect to the Bonds is incorporated by reference herein and made a part hereof. The Final Official Statement of the Water Works with respect to the Bonds as that term is defined in Rule 15c2-12 of the Securities and Exchange Commission shall be comprised of the following: 1. Official Statement dated January 14, 2011; and 2. This Addendum dated January 25, No dealer, broker, salesman or other person has been authorized by the Water Works to give any information or to make any representations with respect to the Bonds other than as contained in the Final Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the Water Works. Certain information contained in the Final Official Statement may be obtained from sources other than records of the Water Works and, while believed to be reliable, is not guaranteed as to completeness. NEITHER THE DELIVERY OF THE OFFICIAL STATEMENT OR THE FINAL OFFICIAL STATEMENT NOR ANY SALE MADE THEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE WATER WORKS SINCE THE DATE THEREOF. The Water Works has authorized preparation of the Final Official Statement containing pertinent information relative to the Bonds and the Water Works. Copies of that Final Official Statement can be obtained from the Underwriter, as defined herein. Additional information may also be obtained from the Water Works or from the Independent Public Finance Consultants to the Water Works: Established 1954 Speer Financial, Inc. INDEPENDENT PUBLIC FINANCE CONSULTANTS ONE NORTH LASALLE STREET, SUITE 4100 CHICAGO, ILLINOIS Telephone: (312) ; Facsimile: (312) COMMERCIAL STREET, SUITE 608 WATERLOO, IOWA Telephone: (319) ; Facsimile: (319)

2 $10,250,000 Water Revenue Refunding Bonds, Series 2011 SYSTEM DEBT Water Works Outstanding Bonded Debt(1) (Principal Only) Fiscal Outstanding Outstanding Outstanding Cumulative Year Ended Note Bonds Series Bonds Less: The Total Principal Retired December 31 Series A and B Series 2006 The Bonds Refunded Bonds Bonded Debt Amount Percent $ 113,000 $1,800,000 $ 2,260,000 $ 1,500,000 $(1,510,000) $ 4,163,000 $ 4,163, % ,000 1,870,000 2,355,000 1,475,000 (1,570,000) 4,246,000 8,409, % ,000 1,940,000 2,440,000 1,510,000 (1,625,000) 4,385,000 12,794, % ,000 2,035,000 2,540,000 1,560,000 (1,710,000) 4,549,000 17,343, % ,000 2,110,000 2,650,000 1,590,000 (1,770,000) 4,707,000 22,050, % ,000 2,210,000 2,765,000 1,655,000 (1,860,000) 4,901,000 26,951, % ,000 1,555,000 2,400, ,000 (1,190,000) 3,860,000 30,811, % , ,000 2,495, ,014,000 33,825, % , ,000 2,610, ,148,000 36,973, % , ,000 2,725, ,288,000 40,261, % , ,000 2,850, ,437,000 43,698, % , ,000 2,970, ,582,000 47,280, % ,000 3,105, ,580,000 50,860, % ,000 3,245, ,745,000 54,605, % ,400, ,400,000 58,005, % ,560, ,560,000 61,565, % Total... $1,605,000 $16,575,000 $44,370,000 $10,250,000 $(11,235,000) $61,565,000 Note: (1) Source: the Water Works Water Works Outstanding Bonded Debt Service Fiscal Year Total Outstanding Total Ended Bonded Debt The Less: The Bonded Debt December 31 Service(1) Bonds Refunded Bonds Service $ 6,683,575 $ 1,736,604 $ (1,932,525) $ 6,487, ,702,697 1,737,500 (1,947,225) 6,492, ,702,492 1,728,250 (1,951,200) 6,479, ,723,480 1,732,950 (1,971,200) 6,485, ,724,760 1,716,150 (1,962,800) 6,478, ,749,550 1,733,450 (1,982,000) 6,501, ,530, ,800 (1,237,600) 5,281, ,292, ,292, ,307, ,307, ,322, ,322, ,338, ,338, ,343, ,343, ,195, ,195, ,212, ,212, ,704, ,704, ,715, ,715,750 Total... $83,250,176 $11,373,704 $(12,984,550) $81,639,330 Note: (1) Includes the Water Revenue Bonds, Series 2004 and 2006 and the Water Revenue Note, Series 2003.

3 $10,250,000 Water Revenue Refunding Bonds, Series 2011 Historical and Pro Forma Net Revenues and Debt Service Coverage Years Ending December Gross Operating Revenues... $35,018,884 $39,659,080 $38,591,144 $38,468,025 $41,113,730 Operating Expenses(1)... 33,111,759 34,591,868 33,908,739 34,946,376 36,009,411 Net Operating Revenues... $ 1,907,125 $ 5,067,212 $ 4,682,405 $ 3,521,649 $ 5,104,319 Plus: Non-Operating Revenues(2)... 2,807,349 3,168, ,095 95,019 78,654 Plus: Depreciation... 8,734,782 8,891,789 7,242,073 6,271,439 6,449,683 Net Revenues Available for Debt Service... $13,449,256 $17,127,170 $12,386,573 $ 9,888,107 $11,632,656 Maximum Annual Debt Service... $ 5,712,216 $ 6,749,550 $ 6,749,550 $ 6,749,550 $ 6,749,550 Historical Debt Service Coverage(3) x 2.54x 1.84x 1.47x 1.72x Pro Forma Maximum Annual Debt Service... $ 6,501,000 $ 6,501,000 $ 6,501,000 $ 6,501,000 $ 6,501,000 Pro Forma Debt Service Coverage(3) x 2.63x 1.91x 1.52x 1.79x Notes: (1) Includes depreciation. (2) Interest earnings on invested moneys in funds established by the Bond Resolution plus other miscellaneous revenue. (3) Mandatory debt service coverage is 1.30 times debt service. ADDITIONAL INFORMATION References herein to laws, rules, regulations, resolutions, agreements, reports and other documents do not purport to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made herein. Where full texts have not been included as appendices to the Official Statement or the Final Official Statement, they will be furnished on request. INVESTMENT RATINGS The Bonds have been rated Aa1 by Moody s Investors Service and AA+ by Standard & Poor s Investors Service respectively. The Water Works has supplied certain information and material concerning the Bonds and the Water Works to the rating services shown on the cover page as part of its application for an investment ratings on the Bonds. Generally, such rating services base their rating on such information and material, and also on such investigations, studies and assumptions that it may undertake independently. There is no assurance that such ratings will continue for any given period of time or that it may not be lowered or withdrawn entirely by such rating services if, in their judgment, circumstances so warrant. Any such downward change in or withdrawal of such rating may have an adverse effect on the secondary market price of the Bonds. An explanation of the significance of investment ratings may be obtained from the rating agencies: Moody s Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, New York 10007, telephone or Standard & Poor s Investors Service, 55 Water St., New York, New York 10041, telephone UNDERWRITING The Bonds were offered for sale by the Water Works at a public, competitive sale on January 25, The best bid submitted at the sale was submitted by Citigroup Global Markets, Chicago, Illinois, and associates (the Underwriter ). The Water Works awarded the contract for sale of the Bonds to the Underwriter at a price of $10,669, The Underwriter has represented to the Water Works that the Bonds have been subsequently re-offered to the public initially at the yields set forth in this Addendum.

4 $10,250,000 Water Revenue Refunding Bonds, Series 2011 AUTHORIZATION The Official Statement dated January 14, 2011, and this Addendum dated January 25, 2011, for the $10,250,000 Water Revenue Refunding Bonds, Series 2011, have been prepared under the authority of the Water Works and have been authorized for distribution by the Water Works. /s/ DAVID A. CARLSON /s/ RANDALL R. BEAVERS Chairperson Secretary and General Manager BOARD OF WATER WORKS TRUSTEES BOARD OF WATER WORKS TRUSTEES Des Moines, Polk County, Iowa Des Moines, Polk County, Iowa

5 New Issue Investment Ratings: Date of Sale: Tuesday, January 25, 2011 Moody s Investors Service 10:30 A.M. - 11:00 A.M., C.S.T. (Internet Sale) Standard & Poor s 11:00 A.M., C.S.T. (Sealed Bids) (Ratings Requested) (Alternative Bid Methods) Official Statement Assuming compliance with certain covenants, in the opinion of Ahlers & Cooney, P.C, Bond Counsel, under present law interest on the Bonds paid to the owners thereof is excluded from gross income for purposes of present federal income taxation to the extent and subject to such exceptions as are more fully discussed under the headings TAX MATTERS herein. CITY OF DES MOINES Polk County, Iowa () Dated Date of Delivery Book-Entry Due Serially December 1, The (the Bonds ), are being issued by the Board of Water Works Trustees (the Board ) of the Municipal Water Works Plant and System of the City of Des Moines, Iowa (the Water Works ). Interest is payable semiannually on December 1 and June 1 of each year, commencing June 1, The Bonds will be issued using a book-entry system. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds. The ownership of one fully registered Bond for each maturity will be registered in the name of Cede & Co., as nominee for DTC and no physical delivery of Bonds will be made to purchasers. The Bonds will mature on December 1 in the following years and amounts. AMOUNTS*, MATURITIES, INTEREST RATES AND PRICES OR YIELDS Principal Due Interest Yield or Principal Due Interest Yield or Amount* December 1 Rate Price Amount* December 1 Rate Price $1,580, % % $1,670, % % 1,555, % % 1,735, % % 1,590, % % 1,045, % % 1,640, % % The Bonds are non-callable. OPTIONAL REDEMPTION PURPOSE, LEGALITY AND SECURITY The Bond proceeds, along with approximately $700,000 of other funds of the Water Works, will be used to: (i) currently refund the Water Works outstanding Water Revenue Refunding Bonds, Series 2004B, and (ii) pay the costs of issuance of the Bonds. See PLAN OF FINANCING herein. The Bonds are not payable in any manner by taxation but, together with presently outstanding water revenue bonds of the Water Works ranking on a parity, and any additional bonds as may be hereafter issued and outstanding from time to time under prescribed conditions and restrictions ranking on a parity therewith, will be payable only from the net revenues of the System as described herein. The Water Works will furnish the written approving opinion of Bond Counsel, Ahlers & Cooney, P.C., Des Moines, Iowa, evidencing legality of the Bonds and that the interest thereon is exempt from Federal income taxes as and to the extent discussed under the heading TAX MATTERS herein. The Water Works does not intend to designate the Bonds as qualified tax-exempt obligations pursuant to the small issuer exception provided by Section 265(b)(3) of the Internal Revenue Code of This Official Statement is dated January 14, 2011, and has been prepared under the authority of the Water Works. An electronic copy of this Official Statement is available from the web site under Official Statement Sales Calendar. Additional copies may be obtained from Ms. Peggy Freese, Director of Finance,, 2201 George Flagg Parkway, Des Moines, Iowa, 50321, or from the Independent Public Finance Consultants to the Water Works: Established 1954 Speer Financial, Inc. INDEPENDENT PUBLIC FINANCE CONSULTANTS ONE NORTH LASALLE STREET, SUITE 4100 CHICAGO, ILLINOIS Telephone: (312) ; Facsimile: (312) COMMERCIAL STREET, SUITE 608 WATERLOO, IOWA Telephone: (319) ; Facsimile: (319) *Subject to change. The Water Works reserves the right to change the principal amount of the Bonds to effect the Water Works desired refunding savings, but any such change shall not increase the principal amount of the Bonds above $11,600,000. Any such change will be in increments of $5,000 and may be made in any of the maturities. In such event, the purchase price of the Bonds will be adjusted proportionately allowing the same dollar amount of gross spread per $1,000 Bond (assuming a delivery date of February 24, 2011).

6 For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document, as the same may be supplemented or corrected by the Water Works from time to time (collectively, the Official Statement ), may be treated as an Official Statement with respect to the Bonds described herein that is deemed near final as of the date hereof (or the date of any such supplement or correction) by the Water Works. The Official Statement, when further supplemented by an addendum or addenda specifying the maturity dates, principal amounts and interest rates of the Bonds, together with any other information required by law or deemed appropriate by the Water Works, shall constitute a Final Official Statement of the Water Works with respect to the Bonds, as that term is defined in Rule 15c2-12. Any such addendum shall, on and after the date thereof, be fully incorporated herein and made a part hereof by reference. No dealer, broker, salesman or other person has been authorized by the Water Works to give any information or to make any representations with respect to the Bonds other than as contained in the Official Statement or the Final Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the Water Works. Certain information contained in the Official Statement and the Final Official Statement may have been obtained from sources other than records of the Water Works and, while believed to be reliable, is not guaranteed as to completeness. THE INFORMATION AND EXPRESSIONS OF OPINION IN THE OFFICIAL STATEMENT AND THE FINAL OFFICIAL STATEMENT ARE SUBJECT TO CHANGE, AND NEITHER THE DELIVERY OF THE OFFICIAL STATEMENT OR THE FINAL OFFICIAL STATEMENT NOR ANY SALE MADE UNDER EITHER SUCH DOCUMENT SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE WATER WORKS SINCE THE RESPECTIVE DATES THEREOF. References herein to laws, rules, regulations, ordinances, resolutions, agreements, reports and other documents do not purport to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made herein. Where full texts have not been included as appendices to the Official Statement or the Final Official Statement they will be furnished on request. This Official Statement does not constitute an offer to sell, or solicitation of an offer to buy, any securities to any person in any jurisdiction where such offer or solicitation of such offer would be unlawful. 2

7 BOND ISSUE SUMMARY This Bond Issue Summary is expressly qualified by the entire Official Statement, including the Official Terms of Offering and the Official Bid Form, which are provided for the convenience of potential investors and which should be reviewed in their entirety by potential investors. Issuer: The City of Des Moines, Polk County, Iowa by its Board of Water Works Trustees. Issue:. Dated Date: Date of Delivery (expected to be on or about February 24, 2011). Interest Due: Each December 1 and June 1, commencing June 1, Principal Due: No Optional Redemption: Authorization: Security: Investment Ratings: Purpose: Tax Matters: Not Bank Qualified: Book-Entry Form: Denomination: Serially each December 1, commencing December 1, 2011 through 2017, as detailed on the front page of this Official Statement. The Bonds are non-callable. The Bonds are being issued pursuant to authority established in the Code of Iowa, Chapter 384 and all laws amendatory thereof and supplementary thereto, and in conformity with a resolution of the Board duly passed and approved. The Bonds are special obligations of the Water Works payable solely from the net revenues of the System as described herein, ranking on a parity with existing and future obligations payable from the same source. The Bonds are not general obligations of the City of Des Moines, Polk County, Iowa, and are not payable in any manner by taxation. The City is in no manner liable by reason of the failure of the net revenues of the System to be sufficient for the payment of the Bonds. Investment ratings for the Bonds have been requested from Moody s Investors Service and Standard & Poor s Corporation. See INVESTMENT RATINGS herein. The Bond proceeds, along with approximately $700,000 of other funds of the Water Works, will be used to: (i) currently refund the Water Works outstanding Water Revenue Refunding Bonds, Series 2004B, and (ii) pay the costs of issuance of the Bonds. See PLAN OF FINANCING herein. Ahlers & Cooney, P.C., Des Moines, Iowa, will provide an opinion as to the tax exemption of the Bonds as discussed under TAX MATTERS in this Official Statement. Interest on the Bonds is not exempt from present State of Iowa income taxes. See APPENDIX D for a draft form of legal opinion for the Bonds. The Water Works does not intend to designate the Bonds as qualified tax-exempt obligations. The Bonds will be registered in the name of Cede & Co. as nominee for The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository of the Bonds. See APPENDIX B herein. $5,000 or integral multiples thereof. Date of Delivery: Expected to be on or about February 24, Bond Registrar/Paying Agent: The Director of Finance of the Water Works. Financial Advisor: Speer Financial, Inc., Waterloo, Iowa and Chicago, Illinois. *Subject to change. 3

8 CITY OF DES MOINES Polk County, Iowa DES MOINES WATER WORKS Board of Water Works Trustees David A. Carlson Chairperson James M. Grant Vice-Chairperson Mary C. Gottschalk Susan R. Huppert Robert G. Riley, Jr. Trustee Trustee Trustee Officers Randall R. Beavers, PE Chief Executive Officer and General Manager Peggy E. Freese, CPA Director of Finance GENERAL INFORMATION Introduction The Municipal Water Works Plant and System of the City of Des Moines, Iowa (the Water Works ) was first established under private ownership in In 1919, the private owners sold the water company to the City of Des Moines (the City ). Related acquisition costs and some subsequent expansion were paid from the proceeds of a fortyyear general obligation water bond issue. These early bonds were paid entirely from the revenues of the Water Works even though they were general obligations of the City. In 1980, the Water Works issued its first public revenue debt financing. Governance of the Water Works is vested in a five-member Board of Water Works Trustees (the Board ) appointed by the Mayor of Des Moines with approval of the City Council. Trustees serve for six-year staggered terms. The Board has complete control of Water Works management and appoints a Chief Executive Officer and General Manager, Treasurer, and Secretary. Brief resumes of the present Board and key staff directors follow: David A. Carlson, Chairperson, Board of Water Works Trustees Mr. Carlson was appointed to the Board of Water Works Trustees in May He is a registered architect with a minor in city planning. He planned and built infrastructure for various islands in the Pacific and developed special projects for the City of Des Moines. He was the founder of the city newspaper, Skywalker, a past president of Des Moines Citizens for Community Improvement (CCI) and a past member of the Des Moines Board of Adjustment. He currently is active as a real estate owner/developer in the Sherman Hill area of Des Moines. 4

9 James M. Grant, Vice-Chairperson, Board of Water Works Trustees Mr. Grant was appointed to the Board of Water Works Trustees in March 2010 to fill a vacancy on the Board. Mr. Grant was employed by the City of Des Moines in the Planning Department/Community Development Department for 41 years, the last 21 years as the department director. Following retirement in 2003, Mr. Grant was employed part-time as an adjunct professor in community and regional planning at Iowa State University for five years, and as a part-time planner at Snyder and Associates for four years. Currently he serves on the Community Advisory Board of Valley View Village, a retirement community and is a retired member of the American Planning Association and American Institute of Certified Planners. Mr. Grant received a Bachelors Degree from Drake University in Public Administration/Economics in Mary C. Gottschalk, Member, Board of Water Works Trustees Ms. Gottschalk was appointed to the Board of Water Works Trustees on March 12, 2007 to fill a vacancy on the Board. Ms. Gottschalk came to Des Moines as CFO of The Federal Home Loan Bank. Under the name MCG Strategic Services, she now is an independent consultant providing financial and strategic planning for the nonprofit sector. She received her Bachelor s Degree from the University of Chicago and her Masters in Business Administration from the University of Cincinnati. She currently serves on the Board and Executive Committee of Polk County Health Services; on the Finance and Investment Committees of Des Moines Art Center; and on the Investment Committee of The Greater Des Moines Community Foundation. She formerly served on the Financial Advisory Committee reporting to the Board of the Des Moines Independent School District and as a member of the Quality of Life Team of Project Destiny. In addition, she was a member of the 2001 Greater Des Moines Leadership Institute. Susan R. Huppert, Member, Board of Water Works Trustees Ms. Huppert was appointed to the Board of Water Works Trustees on January 24, 2005 to fill a vacancy on the Board. After graduating from Iowa State University in 1978, Ms. Huppert worked for Xerox Corporation in West Des Moines and currently works for Des Moines University as their Director of Development. Ms. Huppert served as the chair of the Gray s Lake Planning and Design Committee and continues to work on the project through her involvement on the Meredith Trail and Gray s Lake Advisory Committee. Robert G. Riley, Jr., Member, Board of Water Works Trustees Mr. Riley was appointed to the Board of Water Works Trustees in December 2002 to fill a vacancy on the Board. Mr. Riley is President and CEO of Feed Energy Company, an agribusiness firm primarily engaged in processing soybean oil co-products focused in feed, agronomy, dust control, fuel, industrial and fertilizer applications. He has a life-long interest in the environment that resulted in his extensive involvement in rural development, sustainable agriculture, and land use. He currently serves on several local and state agricultural and environmental boards and committees including IaAgState (a strategic agriculture policy group), the Iowa Environmental Council, Water for Iowans, The Nature Conservancy, WhiteRock Conservancy, and the Greater Des Moines Community Foundation. He has also served on the Boards of the Wallace House Foundation, Science Center of Iowa, Laurel Hill Neighborhood Association, and several professional industry groups. 5

10 Chief Executive Officer/Managers Randall R. Beavers, PE, CEO and General Manager Mr. Beavers is the CEO and General Manager for the Water Works since January Prior to this assignment, he served as the Interim CEO and General Manager from December 2007 until December 2008, and as the Assistant General Manager from 2000 through Mr. Beavers was the Director of Engineering Services for the Water Works from 1985 through He was principal engineer prior to his director position where he led the Water Works design efforts. He spent seven years with a national engineering consulting firm prior to joining. He received his Bachelor and Master s degrees in engineering from the University of Iowa. In 2005, Mr. Beavers completed six years of service on the Iowa Engineering and Land Surveying Examiner board. He is a past officer in the state chapter of the National Society of Professional Engineers. He is a graduate of the 1996/97 class of the Greater Des Moines Leadership Institute. Other professional and service organizations that Mr. Beavers belongs to include the American Water Works Association, the downtown Des Moines Lions Club where he is past President, and Toastmasters. Gary L. Benjamin, PE, Assistant General Manager and Director of Engineering Services Gary Benjamin joined the Water Works in 1983 as an Engineer. He was promoted to Senior Engineer in 1986, to Director of Water Production in 1991, to Director of Engineering Services in 2000 and to the dual role of Assistant General Manager and Director of Engineering Services in Prior to joining the Water Works, he worked as a design engineer with Stanley Consultants, Inc. Mr. Benjamin graduated from the University of Iowa with a B.S.C.E. degree in 1977 and a M.S. degree in Environmental Engineering in He is a licensed Professional Engineer and serves on the Iowa Engineering and Land Surveying Examining Board. Mr. Benjamin is a member of Chi Epsilon Honorary Engineering Society and a member of the American Water Works Association (AWWA). He holds a Grade IV Water Distribution System Operator Certificate and a Grade IV Water Treatment Plant Operator Certificate. Mr. Benjamin received the Operator s Meritorious Service Award from the AWWA Iowa Section of AWWA in Staff Directors The members of the management staff of the Water Works report directly to the General Manager. The seven departments include Finance, Engineering Services, Distribution, Information Services, Water Production, Human Resources and Customer Service. Peggy E. Freese, CPA, Director of Finance Peggy Freese has served as the Director of Finance for the Water Works since She worked as a Senior Financial Analyst with Principal Financial Group from 1997 to 2000 after serving as the Controller for the Water Works beginning in Prior to her initial employment with the Water Works, she was the Controller for Systemed Pharmacy, Inc., and served as a staff accountant with Mercy Hospital and McGladrey and Pullen, L.L.P. Ms. Freese received her B.A. degree from Simpson College. She is a member of the Iowa Society of CPAs, American Water Works Association and Government Finance Officers Association. 6

11 Ted P. Corrigan, PE, Director of Distribution Ted Corrigan joined the Water Works in 1990 as a Staff Engineer. He was promoted to Senior Engineer in 1994, to Director of Water Production in 2000, and to Director of Water Distribution in Previously Mr. Corrigan was employed by Alvord, Burdick & Howson Consulting Engineers in Chicago and attended Iowa State University where he received a B.S.C.E. degree in Mr. Corrigan is a registered Professional Engineer and holds Grade IV Water Treatment Plant Operator and Grade IV Water Distribution Operator Certifications. He is also a member of the American Water Works Association (AWWA) and has served as the Secretary/Treasurer for the Iowa Section of AWWA since Jason Bumgardner, Director of Information Services Jason Bumgardner joined the Water Works in Prior to working for, Jason worked for American Equity Life Insurance Company as Director of Technical Services and for Data Transmission Network as Director of Technical Operations. Jason graduated from the University of Upper Iowa with a Bachelor of Science degree in Technology and Information Management. Jason also holds an Associate of Science degree in Electronics and Computers from National Education Centers. He is a member of the American Water Works Association and the Water Environment Federation. Michael J. McCurnin, PE, Director of Water Production Michael McCurnin has served as Director of Water Production for the Water Works since August of He has been on staff as an Electrical Engineer and Senior Engineer since Mr. McCurnin attended Iowa State University where he received a B.S. degree in Electrical Engineering Between 1985 and 2005 Mr. McCurnin was also an enlisted-member of the 132nd Tactical Fighter Wing of the Iowa Air National Guard serving as an Electronic Countermeasures Technician. Mr. McCurnin is a licensed Professional Engineer, a member of the American Water Works Association, and holds a Grade IV Water Treatment Plant Operators Certification. Dorenda C. Walters, Director of Human Resources & Business Strategy Dorenda Walters joined the Water Works as Director of Human Resources in Prior to her employment with, she served as Vice President of Human Resources at Universal Pediatric Services, and Manager of Employment and Corporate Human Resource Services for MidAmerican Energy Company. She holds a B.A. Degree in Psychology from Drake University, a Masters Degree in Industrial Relations from Iowa State University and is a certified Senior Professional in Human Resources. Ms. Walters received the Award for Excellence in Human Resources presented by the Society for Human Resource Management and is a graduate of the Des Moines Leadership Institute. She is also a member of the Institute for Certified Professional Managers. Amy Kahler, Director of Customer Service and Marketing Amy Kahler has served as Director of Customer Service since Having joined in 2000, she initially served as Controller. She graduated from Iowa State University with a Bachelor of Business Administration degree in Accounting, and holds her Certified Public Accountant (CPA) certification and license. Prior to joining the Water Works, Ms. Kahler worked as an auditor for the accounting firm of Deloitte & Touche, LLP from 1993 to 1995, and as a financial analyst for Principal Financial Group from 1995 to Amy serves as Chair of the Customer Service Committee of the American Water Works Association-Iowa Section. She is a member of the Iowa Society of CPAs, International Customer Service Association, American Marketing Association, and serves as an adjunct instructor for Des Moines Area Community College. 7

12 Water Works Employees The Water Works employs approximately 217 full-time and 8 part-time or seasonal employees. Certain employee groups of the Water Works are unionized (excluding professional and supervisory employees). AFSCME Council 61 and its affiliated Local 3673 (collectively, the Union ) represent unionized employees in collective bargaining with the Water Works. A Labor Management Committee comprised of representatives from the Union and the Water Works meets monthly as provided by the contract. These meetings provide an on-going forum to communicate on items of interest to both parties. The Water Works considers its employee relations to be good and continues to utilize teams of employees to carry out operational and capital activities of the Water Works through detailed work plans developed during the budgeting process. THE WATER WORKS SYSTEM The water sources for the System (the System ) are the Raccoon River and, since 1981, the Des Moines River. An intake and pumping station was constructed in 1949 for direct withdrawal of water from the Raccoon River, to supplement the underground infiltration gallery, which relies on seepage from the Raccoon River. In 1981 the Water Works constructed facilities to tap the Des Moines River as an additional source of water supply. Wells along the Raccoon River near Maffitt Reservoir just west of Des Moines were added as a water source in 2000 to supply the newly constructed Treatment Plant at Maffitt Reservoir. These four sources are used to provide adequate supply in the most cost effective combination. The Water Works withdraws raw water from both the Raccoon and Des Moines Rivers under the authority of a permit issued by the State of Iowa Department of Natural Resources (IDNR). The present permit was issued for a tenyear period and expires in May, Under the terms of the permit, the Water Works is limited by the IDNR to no more than 120 million gallons per day (MGD) or billion gallons per year from the combined water sources. The Water Works maximum daily demand for the year 2009 was million gallons and total usage for the year was 16.6 billion gallons. To insure an adequate supply of water in the Raccoon River and at the Maffitt plant, the Water Works owns the 1.5 billion gallon capacity Maffitt Reservoir. During times of low river flow, water from this reservoir is released directly into the Raccoon River to increase flow downstream at the Fleur Drive plant and is also used to supplement output from the Maffitt plant s wells. In 1983, the Water Works contracted with IDNR for the storage of water in the Saylorville reservoir. The IDNR is compensated annually under the terms of this contract, which authorizes the Water Works to request release of water into the Des Moines River. The present facilities of the Water Works consist of: (A) (B) (C) (D) (E) The infiltration gallery system with a total length of over three miles. A river intake and low-lift pumping station on the Raccoon River at the Fleur Drive plant with total raw water pumping capacity of 85 MGD. A river intake and pumping station on the Des Moines River with total raw water pumping capacity of 100 MGD. One horizontal and six radial collector wells at the Maffitt Plant. The 1.5 billion gallon Maffitt Reservoir. Maffitt Park, approximately 400 acres surrounding the 200-acre reservoir, includes nature trails, picnic facilities and fishing opportunities. 8

13 (F) (G) (H) (I) (J) (K) The Treatment Plant at Maffitt Reservoir, funded in part by the Water Works Water Revenue Bonds, Series 1997, with treatment capacity of 25 MGD. The Fleur Drive chemical treatment and softening plant with treatment capacity of 80 MGD. A high-lift pumping station at the Fleur Drive plant with capacity to pump 136 MGD of treated water into the distribution system. A distribution system consisting of over 1,300 miles of pipe ranging in size from 4 to 60. This system serves over 79,000 connections and over 9,100 hydrants. Three standpipes and an elevated tower with total storage capacity of 12.4 million gallons of treated water; underground and surface storage provide an additional 26 million gallons; and 540 million gallons of underground aquifer storage. The Water Works suburban and rural water district customers have an additional million gallons of treated water storage capacity in elevated and ground storage structures and 135 million gallons of underground aquifer storage. Approximately 1,500 acres of grounds on Fleur Drive in Des Moines. Unique to the Water Works System is Water Works Park. The Park was opened in 1933 and is the site of the Fleur Drive treatment facility and the Water Works administrative offices. The Park is wholly owned, operated and maintained by the Water Works. Some of the Park s amenities include bike and horse trails, an arboretum, picnic facilities and fishing ponds. Events at the arboretum, fun runs and the holiday lights show draw approximately 100,000 visitors annually from throughout the Des Moines metropolitan area. The Water Works provides retail water service to residents within the City and, by contracts, to residents in the Cities of Pleasant Hill, Runnells, Alleman, Cumming and Windsor Heights, the unincorporated village of Greenfield Plaza and in parts of unincorporated Polk County. The Water Works also provides wholesale water service based on long-term contracts to thirteen municipalities and rural water districts. The Water Works has also provided billing and collection services on a contractual basis to wholesale customers and billing and collection services to the City of Des Moines for wastewater treatment, solid waste collection and the storm water utility. The Water Works has supplied water to suburban entities for 70 years, initially providing water service only to a contract community s boundary. As the suburban areas around the City have expanded, the need developed for water storage facilities, booster stations and additional treatment capacity to meet peak demand requirements. The most economical approach for the Water Works has involved utilizing these facilities to supply multiple customers. Contractual service users share in the cost of these joint-use facilities, which allows for meeting peak use demands and also allows some users to participate in lower off-peak or purchased capacity water rates. Therefore, negotiated contracts provided for both wholesale water and the proportional cost of constructing and operating joint-use shared facilities. The Treatment Plant at Maffitt Reservoir financed in part by the Water Works Water Revenue Bonds, Series 1997 (refunded by Series 2004B) is such a joint-use shared facility. Financial participation includes initial cash contributions or payments of debt service for the improvements as well as operating and maintenance costs. Although financed by the end users, ownership of these facilities is maintained by the Water Works. Where contracts provide for capital improvements necessary to supply wholesale water, they are generally for a period of forty years with provisions for renewal. The Water Works anticipates that this approach will continue and that additional joint-use facilities will be constructed in the future. 9

14 Overview of Water Works Service Area 2000 Census or Date of County Estimated Initial Contract Community Location Population Contract Service Provided City of Des Moines... Polk 198,682 N/A Retail Water City of Urbandale... Polk 29,072 07/26/34 Wholesale Water and Engineering Saylorville Rural Water District... Polk 1,200 07/30/48 Wholesale Water City of Pleasant Hill... Polk 5,070 10/07/58 Retail Water and Engineering City of Clive... Polk 12,855 10/30/58 Wholesale Water City of Windsor Heights... Polk 4,805 03/06/62 Retail Water and Engineering City of Norwalk... Warren 6,884 04/29/69 Wholesale Water City of Johnston... Polk 8,649 03/20/73 Wholesale Water City of Ankeny... Polk 27,117 12/16/74 Wholesale Water City of West Des Moines... Polk 46,403 03/10/77 Wholesale Water Berwick(1)... Polk /30/78 Wholesale Water Greenfield Plaza(1)... Warren 2,000 08/30/79 Retail Water and Engineering S.E. Polk Rural Water District... Polk 4,211 01/26/83 Retail Water and Engineering Polk County Service Area(2)... Polk 9,283 06/01/84 Retail Water and Engineering Warren Water District... Warren 10,195 08/10/87 Wholesale Water City of Waukee... Dallas 5,126 07/01/88 Wholesale Water Xenia Rural Water District... Dallas 6,579 07/21/94 Wholesale Water City of Bondurant... Polk 1,846 04/25/00 Wholesale Water City of Polk City... Polk 2,344 03/26/02 Wholesale Water City of Runnells... Polk /01/06 Retail Water and Engineering City of Cumming... Polk /01/07 Retail Water and Engineering City of Alleman... Polk /01/07 Retail Water and Engineering Notes: (1) Unincorporated area. (2) Polk County Service Area represents numerous benefited water districts, most of which were previously served by the Water Works. All of these districts were consolidated by Polk County in The table below shows the growth in service area population over the past five years. Service Area Population(1) Estimated Year Population , , , , ,390 Note: (1) Source: The Water Works. 10

15 Water Works Service Area(1) Note: (1) All shaded areas represent retail or wholesale customers of the Water Works. 11

16 WATER WORKS SYSTEM OPERATIONS As of December 31, 2009 the Water Works had 79,698 metered locations of which 93.3% are residential, 6.6% are commercial and 0.1% are industrial. Not included in this total are 39 metered accounts for wholesale contracts with thirteen municipalities and rural water districts, approximately 150 accounts for the City of Des Moines and its agencies and approximately 1,300 unmetered private fire services. Largest Retail Users(1) Ranked by Calendar Year 2009 Water Usage Years Ending December Thousands Water Thousands Water User Name Service/Product of Gallons Billing of Gallons Billing ADM Oil Refining...Oil Refining ,844 $ 175, ,275 $ 259,468 Firestone Tire & Rubber Co....Tire Manufacturing , , , ,467 Titan Tire Corp....Tire Manufacturing , , , ,545 Pine Ridge Farms....Manufacturing Pork Products , , , ,789 Mid American Energy...Energy , , , ,384 Anderson Erickson Dairy...Dairy Products... 92, ,820 86, ,230 Cargill, Inc....Grain Processing... 78,531 91,480 72,912 92,800 Methodist Medical Center...Hospital... 68,724 89,233 67, ,102 Mercy Medical Center...Hospital ,986 93,937 Waste Water Treatment Plan...Waste Water Treatment... 72,486 84,637 59,327 77,001 Archer Daniels Midland Co....Corn, Soybean Processing... 68,911 85, Total of Largest Retail Users... 1,254,856 $ 1,554,863 1,068,388 $ 1,487,723 System Total... 14,878,232 $32,870,245 14,709,630 $35,224,878 Top Users as Percent of System Total % 4.73% 7.26% 4.22% Note: (1) Source: the Water Works. Largest Wholesale Users(1) Ranked by Calendar Year 2009 Water Usage Years Ending December Thousands Water Thousands Water User Name of Gallons Billing of Gallons Billing City of Urbandale... 1,550,663 $ 1,347,811 1,473,225 $ 1,450,235 City of Ankeny... 1,397,216 1,208,774 1,378,155 1,348,114 Warren County Rural Water District , , , ,409 City of Johnston ,708 1,532, ,178 1,538,303 City of Clive , , , ,688 West , , , ,742 City of Waukee , , , ,596 Xenia Rural Water District , , , ,332 City of Norwalk , , , ,701 Bondurant... 90,641 79,469 86,879 86,236 Total of Largest Wholesale Users... 6,605,645 $ 6,632,649 6,607,697 $ 7,426,357 System Total... 14,878,232 $32,870,245 14,709,630 $35,224,878 Top Users as Percent of System Total % 20.18% 44.92% 21.08% Note: (1) Source: the Water Works. 12

17 Historic Water Usage(1) Total Gallons Billed (In 000's) Calendar Gallons Outside Year (In 000 s) Inside City City Total ,071,014 8,019,408 6,419,623 14,439, ,374,569 7,980,469 6,816,508 14,796, ,440,144 7,946,780 7,003,477 14,950, ,930,823 7,802,897 7,479,867 15,282, (2)... 16,043,122 7,287,105 7,170,269 14,457, ,413,308 7,726,264 7,941,287 15,667, ,350,396 7,492,878 8,481,188 15,974, ,282,110 7,493,482 8,003,977 15,497, ,904,210 7,072,734 7,805,498 14,878, ,603,730 6,643,207 8,066,423 14,709,630 Notes: (1) Source: the Water Works. (2) An abnormally wet year reduced water demand. The table below summarizes daily demand statistics for the System for the most recent three years. Daily Demand Statistics(1) (In gallons per day) Years Ending December Average Daily Demand... 48,000,000 46,200,000 45,490,000 Maximum Daily Demand... 85,000,000 75,340,000 75,520,000 Maximum Rated System Capacity ,000, ,000,000 (2) 110,000,000 (2) Notes: (1) Source: the Water Works. (2) The Capacity of Fleur Drive Treatment Plant changed due to treatment regulation changes. Water Rate Structure The Water Works Board of Trustees has full authority to determine the water rates of the System (subject to the rate covenant of the Bond Resolution) without application to any regulatory authority. As described herein under the heading SUMMARY OF THE BOND RESOLUTION, the Water Works has historically provided free water service to the City and in structuring user rates for retail customers; only users inside the City incur the cost of this free service. In addition, the cost of fire protection services performed for the City, primarily maintenance of fire hydrants, is charged only to City users. Wholesale municipal and rural water district customers are charged the rates listed under the Political Subdivision category. In addition to these rates, individually negotiated surcharge fees are assessed to those governmental units for which infrastructure improvements have been made. Surcharge fees for local governmental units are determined based on project costs. The current monthly cost for water service to an average family of four using 9,600 gallons of water per month is $30.92 inside City limits, $34.36 outside City limits, $53.14 in Polk County and $29.86 in Windsor Heights. 13

18 System User Rates(1) Water Rates Per 1,000 Gallons Rates as of Rates as of Rates as of Rates as of Rates as of Service Classification April 1, 2006 April 1, 2007 April 1, 2008 May 1, 2009 April 1, 2010 Des Moines: Inside City Step 1 (Residential)... $2.21 $2.28 $2.35 $2.70 $2.70 Step 2 (Commercial) Step 3 (Industrial) Des Moines: Outside City Step 1 (Residential) Step 2 (Commercial) Step 3 (Industrial) Polk County Step 1 (Residential) Step 2 (Commercial) Step 3 (Industrial) Windsor Heights Pleasant Hill Step 1 (Residential) Step 2 (Commercial) Runnells (2) Water Waste Water Cumming (3) Alleman (4) Political Subdivision (Wholesale) With Storage Off-Peak Usage Purchased Capacity Notes: (1) Source: the Water Works. Rates do not include an additional Availability Charge. (2) Runnells entered into a total service agreement in (3) Cumming entered into a total service agreement in February (4) Alleman entered into a total service agreement in July Billing and Collections Water meters are read monthly for both retail and wholesale accounts. Residential, commercial, industrial and wholesale accounts are billed monthly based on actual meter readings, and bills are computed and mailed within three days of the meter reading. Water accounts are considered delinquent if unpaid after 50 days from the date of billing. Notices are sent to delinquent accounts during the 50 day period, after which water service is cut off. A termination fee of $45 is applied to all accounts when water service is terminated or attempted to be terminated due to non-payment of charges. This fee includes the restoration of water service once the termination amount is paid. Section of the Code of Iowa provides that all rates or charges for city utility services, if not paid as provided by ordinance of council or resolution of trustees, shall constitute a lien upon the premises served by any of these services and may be certified to the County Auditor and collected in the same priority as taxes. Implementation of this lien process by the Water Works in 1992 has reduced uncollectible accounts to approximately $100,000 annually. 14

19 PLAN OF FINANCING Approximately $10,650,000 in proceeds of the Bonds, along with approximately $700,000 of other funds of the Water Works, will be used to currently refund certain outstanding water revenue bonds of the Water Works (the Refunded Bonds ), with the remaining proceeds being used to pay the costs associated with such refunding. The Refunded Bonds are described below. Water Revenue Refunding Bonds, Series 2004B (Originally dated December 1, 2004) Refunded Outstanding Amount Redemption Redemption Maturities Amount Refunded(1) Price Date 12/1/11... $1,510,000 $1,510, % 03/01/11 12/1/ ,570,000 1,570, % 03/01/11 12/1/ ,625,000 1,625, % 03/01/11 12/1/ ,710,000 1,710, % 03/01/11 12/1/ ,770,000 1,770, % 03/01/11 12/1/ ,860,000 1,860, % 03/01/11 12/1/ ,190,000 1,190, % 03/01/11 Note: (1) Subject to Change. SYSTEM DEBT After the issuance of the Bonds and refunding of the Refunded Bonds, the Water Works will have approximately $62,130,000* aggregate principal amount of outstanding note and bonded indebtedness. The Water Works does not expect to issue any additional debt in the foreseeable future. Water Works Outstanding Bonded Debt(1) (Principal Only) Fiscal Outstanding Outstanding Outstanding Cumulative Year Ended Note Bonds Series Bonds Less: The Total Principal Retired(2) December 31 Series A and B Series 2006 The Bonds(2) Refunded Bonds Bonded Debt (2) Amount Percent $ 113,000 $1,800,000 $ 2,260,000 $ 1,580,000 $(1,510,000) $ 4,243,000 $ 4,243, % ,000 1,870,000 2,355,000 1,555,000 (1,570,000) 4,326,000 8,569, % ,000 1,940,000 2,440,000 1,590,000 (1,625,000) 4,465,000 13,034, % ,000 2,035,000 2,540,000 1,640,000 (1,710,000) 4,629,000 17,663, % ,000 2,110,000 2,650,000 1,670,000 (1,770,000) 4,787,000 22,450, % ,000 2,210,000 2,765,000 1,735,000 (1,860,000) 4,981,000 27,431, % ,000 1,555,000 2,400,000 1,045,000 (1,190,000) 3,945,000 31,376, % , ,000 2,495, ,014,000 34,390, % , ,000 2,610, ,148,000 37,538, % , ,000 2,725, ,288,000 40,826, % , ,000 2,850, ,437,000 44,263, % , ,000 2,970, ,582,000 47,845, % ,000 3,105, ,580,000 51,425, % ,000 3,245, ,745,000 55,170, % ,400, ,400,000 58,570, % ,560, ,560,000 62,130, % Total... $1,605,000 $16,575,000 $44,370,000 $10,815,000 $(11,235,000) $62,130,000 Notes: (1) Source: the Water Works (2) Subject to change. *Subject to change. 15

20 Water Works Outstanding Bonded Debt Service Fiscal Year Total Outstanding Total Ended Bonded Debt The Less: The Bonded Debt December 31 Service(1) Bonds(2) Refunded Bonds Service (2) $ 6,683,575 $ 1,775,439 $ (1,932,525) $ 6,526, ,702,697 1,786,880 (1,947,225) 6,542, ,702,492 1,795,445 (1,951,200) 6,546, ,723,480 1,812,850 (1,971,200) 6,565, ,724,760 1,802,670 (1,962,800) 6,564, ,749,550 1,822,580 (1,982,000) 6,590, ,530,620 1,080,530 (1,237,600) 5,373, ,292, ,292, ,307, ,307, ,322, ,322, ,338, ,338, ,343, ,343, ,195, ,195, ,212, ,212, ,704, ,704, ,715, ,715,750 Total... $83,250,176 $11,876,394 $(12,984,550) $82,142,020 Notes: (1) Includes the Water Revenue Bonds, Series 2004 and 2006 and the Water Revenue Note, Series (2) Subject to change. Assumes an average interest rate of approximately 2.90% on the Bonds. Historical and Pro Forma Net Revenues and Debt Service Coverage Years Ending December 31, Gross Operating Revenues... $35,018,884 $39,659,080 $38,591,144 $38,468,025 $41,113,730 Operating Expenses(1)... 33,111,759 34,591,868 33,908,739 34,946,376 36,009,411 Net Operating Revenues... $ 1,907,125 $ 5,067,212 $ 4,682,405 $ 3,521,649 $ 5,104,319 Plus: Non-Operating Revenues(2)... 2,807,349 3,168, ,095 95,019 78,654 Plus: Depreciation... 8,734,782 8,891,789 7,242,073 6,271,439 6,449,683 Net Revenues Available for Debt Service... $13,449,256 $17,127,170 $12,386,573 $ 9,888,107 $11,632,656 Maximum Annual Debt Service... $ 5,712,216 $ 6,749,550 $ 6,749,550 $ 6,749,550 $ 6,749,550 Historical Debt Service Coverage(3) x 2.54x 1.84x 1.47x 1.72x Pro Forma Maximum Annual Debt Service(4)... $ 6,590,130 $ 6,590,130 $ 6,590,130 $ 6,590,130 $ 6,590,130 Pro Forma Debt Service Coverage(3) x 2.60x 1.88x 1.50x 1.76x Notes: (1) Includes depreciation. (2) Interest earnings on invested moneys in funds established by the Bond Resolution plus other miscellaneous revenue. (3) Mandatory debt service coverage is 1.30 times debt service. (4) Estimated debt service based upon an estimated average interest rate of approximately 2.90% on the Bonds. SUMMARY OF THE BOND RESOLUTION The following is a summary of the applicable provisions of the Bond Resolution. Copies of the Bond Resolution are available on request. The System means the of the City of Des Moines and all properties, of every nature hereinafter owned by the City comprising part of or used as a part of the System, all extensions and improvements thereto; all real and personal property; and all contracts, leases, franchises and other intangibles. The fiscal year of the System is a twelve-month period beginning January 1 of the calendar year and ending on the next succeeding December

21 Rate Covenant While the Bonds, and the Water Works Water Revenue Bonds, Series 2004A (the Series 2004A Bonds ), Series 2006 (the Series 2006 Bonds ) and any other bonds issued hereafter on a parity therewith (together with the Series 2004A Bonds and Series 2006 Bonds, the Parity Bonds ), or any of them remain outstanding, rates charged for services shall be sufficient at all times to meet the requirements of the Bond Resolution. The Board covenants and agrees that it will establish and maintain a schedule of rates and charges sufficient at all times to pay the operation and maintenance costs of the System, the principal of and interest on all outstanding bonds payable from Net Revenues, to provide an adequate reserve for the payment of the interest on and principal of all bonds which by their terms are payable from the revenues of the System, and to make all of the deposits required by and to comply with all of the covenants of the Bond Resolution. Net Revenues means gross earnings of the System after deduction of current expenses. Current Expenses means and includes the reasonable and necessary cost of operating, maintaining, repairing and insuring the System, including purchases at wholesale, if any, salaries, wages, and costs of materials and supplies, but excluding depreciation and principal of and interest on the Bonds and any Parity Bonds or payments to the various funds established in the Bond Resolution and capital costs. There shall be charged such rates and amounts for water service as shall be adequate to meet the requirements of the Bond Resolution. On or before the beginning of each fiscal year the Board will adopt or continue in effect rates for all services rendered by the System sufficient to produce net revenue for the next succeeding fiscal year sufficient to meet the requirements of the Bond Resolution. The Bond Resolution provides that the Board will adjust, revise, institute, and maintain net revenues to produce an amount equal to 125% of the annual debt service requirement in such fiscal year on all Bonds then outstanding. Provision is made that should the net available revenues produce an amount in excess of such required minimum, they may be reduced but not below the rates at which such required minimum amount would be produced. No free use of the System by the City or any department, agency or instrumentality of the City is permitted except upon the determination that the rates or charges in affect are sufficient to provide Net Revenues at least equal to the requirement above. Flow of Funds There is established in the Bond Resolution the Water Revenue Fund (the Revenue Fund ). The entire income and revenues of the System shall be set aside as collected and deposited in the Revenue Fund. All monies held in the Revenue Fund are to be paid to the accounts described below, in order of priority. (a) Operation and Maintenance Fund To the Operation and Maintenance Fund, each month an amount sufficient to pay the current month expenses of the operation, maintenance, and repair of the System, plus one-twelfth of all expenses payable on an annual basis. (b) Water Revenue Bond and Interest Sinking Fund To the Water Revenue Bond and Interest Sinking Fund, each month the equal amount necessary to pay the next installment of interest coming due on the next succeeding interest date on the Bonds and Parity Bonds and the equal amount necessary to pay the principal coming due on the Bonds and Parity Bonds. All monies in said account shall be used for the purpose of paying interest and principal on the Bonds and Parity Bonds as the same shall become due. Any and all sums received from the purchaser of the Bonds as accrued interest shall be paid into said account. 17

22 (c) Water Revenue Debt Service Reserve Fund To the Water Revenue Debt Service Reserve Fund (the Reserve Fund ) in amounts required by the Bond Resolution. The Bond Resolution requires that the Debt Service Reserve Fund be maintained in an amount equal to the lesser of maximum annual debt service on the Bonds and Parity Bonds, 10% of stated principal amount of the Bonds and Parity Bonds, or 125% of the average annual principal and interest on the Bonds and Parity Bonds. Monies credited to this account shall be used to pay principal and interest on the Bonds and Parity Bonds when insufficient funds are available in the Revenue Bond and Interest Sinking Fund. Whenever any money is paid out from this account, monthly payments to this account will resume in an amount equal to 25% of the amount deposited that month into the Water Revenue Bond and Interest Sinking Fund. The Reserve Fund is currently fully funded and is expected to be fully funded upon issuance of the Bonds. (d) Water Revenue Improvement Fund To the Water Revenue Improvement Fund (the Improvement Fund ), beginning the first month after delivery of the Bonds, each month the sum of $50,000 until a balance of $600,000 is achieved. The current balance in the Improvement Fund is $600,000. No further deposits need be made except to maintain the Improvement Fund at that level. Money in this fund shall be used solely for the payment of principal and interest on the Bonds and Parity Bonds when there are no other funds available for that purpose. Whenever monies are withdrawn from the Improvement Fund, the monthly deposits shall be resumed until the Improvement Fund balance is restored to the minimum requirement. To the extent money in the Improvement Fund is not required for principal and interest payments it may be used to pay the cost of extraordinary maintenance expenses, repairs, renewals and replacements not included in the annual budget, payment of rentals on any part of the System and for capital improvements to the System. (e) Subordinate Obligations Money may next be used to pay principal of and interest on any other obligations which may be issued in the future and are payable from the Net Revenues of the System but which are subordinate to the Bonds and Parity Bonds. (f) Surplus Revenue All monies remaining in the Revenue Fund, after crediting the required amounts to the respective funds provided for above, and after making up any deficiency in such funds, shall be credited to the Surplus Revenue Account, to pay for extraordinary repairs or replacements to the System, or to pay or redeem the Bonds or Parity Bonds, or for any lawful purpose. Application of Bond Proceeds Except for accrued interest which shall be credited to the Sinking Fund, the remaining money from the sale of the Bonds shall be used to currently refund the Refunded Bonds and to pay the costs of issuance of the Bonds. See PLAN OF FINANCING herein for a further description of the application of Bond proceeds. Investments Moneys on hand in all of the funds provided by the Bond Resolution may be invested only in permitted investments. 18

23 Permitted Investments Permitted Investments shall mean investments allowable under the Code of Iowa, 2009, as amended, for the investment of public funds, as follows: direct obligations of (including obligations issued or held in book entry form on the books of) the Department of the Treasury of the United States of America; obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: Export - Import Bank Farm Credit System Financial Assistance Corporation USDA - Rural Development General Services Administration U.S. Maritime Administration Small Business Administration Government National Mortgage Association (GNMA) U.S. Department of Housing & Urban Development (PHA's) Federal Housing Administration repurchase agreements whose underlying collateral consists of the investments set out above if the Water Works takes delivery of the collateral either directly or through an authorized custodian. Repurchase agreements do not include reverse repurchase agreements; senior debt obligations rated AAA by Standard & Poor s Corporation (S&P) or Aaa by Moody s Investors Service Inc. (Moody s) issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; U.S. dollar denominated deposit accounts, federal funds and banker s acceptances with domestic commercial banks which have a rating on their short-term certificates of deposit on the date of purchase of A-1 or A-1+ by S&P or P-1 by Moody s and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); commercial paper which is rated at the time of purchase in the single highest classification, A-1+ by S&P or P-1 by Moody s and which matures not more than 270 days after the date of purchase; investments in a money market fund rated AAAm or AAAm-G or better by S&P; pre-refunded municipal obligations, defined as any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (a) which are rated, based on an irrevocable escrow account or fund (the escrow ), in the highest rating category of S&P or Moody s or any successors thereto; or (b)(i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or direct obligations of the Department of the Treasury of the United States of America, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate; and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; 19

24 tax exempt bonds as defined and permitted by section 148 of the Internal Revenue Code and applicable regulations and only if rated within the two highest classifications as established by at least one of the standard rating services approved by the superintendent of banking by rule adopted pursuant to chapter 17A Code of Iowa; an investment contract rated within the two highest classifications as established by at least one of the standard rating services approved by the superintendent of banking by rule adopted pursuant to chapter 17A Code of Iowa; and Iowa Public Agency Investment Trust. Investments shall mature or be subject to redemption prior to the time when needed, but in no event maturing in more than three years in the case of the Debt Service Reserve Fund. Additional Bonds Additional bonds may be issued ranking on a parity with the Bonds and the Parity Bonds (i) to refund any of the Bonds or any Parity Bonds which shall have matured or will mature within three months and for the payment of which there is not sufficient money in the Revenue Bond and the Interest Sinking Fund and the Debt Service Reserve Fund, and (ii) to refund any of the Bonds or any Parity Bonds or general obligation bonds outstanding or make extensions, additions, improvements, or replacements to the System, if all of the following conditions are met: (a) (b) before any additional Parity Bonds are issued, an opinion by an independent auditor, independent financial consultant or a consultant engineer, must be obtained stating that the Net Revenues of the System for the preceding fiscal year were equal to at least 1.30 times the maximum annual debt service on the then outstanding Bonds and the Parity Bonds then proposed to be issued. The Net Revenues referred to above may be adjusted to reflect any changes in the amount of revenue which would have resulted had any revised rate schedule been in effect during all the preceding fiscal year, and additional bonds must be payable as to principal and interest on the same month and day as the Bonds. (i) (ii) Principal and interest falling due on the first day of a Fiscal Year shall be deemed a requirement of the immediately preceding Fiscal Year. General obligation bonds shall be refunded only upon a finding of necessity by the Water Works and only to the extent the general obligation bonds were issued or the proceeds of them were expended for the System. Preceding fiscal year shall be the most recently completed fiscal year for which audited financial statements prepared by a certified public accountant are issued and available, but in no event a fiscal year which ended more than 18 months prior to the date of issuance of additional bonds. General Covenants The Water Works covenants to maintain the System in good condition and operate it efficiently and faithfully and at reasonable cost, and will faithfully and punctually perform all duties with respect thereto required by the Constitution and laws of the State of Iowa. The Water Works covenants to carry insurance or maintain a program of self-insurance on the System of the kind and in the amounts usually carried for similar properties. All monies received for loss under such insurance policies shall be deposited in the Improvement Fund. 20

25 Under the Bond Resolution, the books and accounts of the System must be maintained and kept separate from all other accounts of the City in accordance with generally accepted accounting practices, and the Board will cause the books and accounts to be audited annually not later than 180 days of the close of each fiscal year by independent auditors. Further, the Board will permit the original purchaser and any holder or holders of the Bonds or Parity Bonds to inspect the System, and all records and accounts and data relating thereto, at any reasonable time. Modification of Bond Resolution Provision is made for modifying or amending the Bond Resolution provided written consent has been obtained from owners of not less than two-thirds of the principal amount of all Bonds then outstanding, excluding any Bonds owned by or under the control of the Board. The usual restrictions on modifications such as no extension or change or maturities or reduction of interest rate are included. Certain modifications, including those necessary to cure ambiguities, maintain the tax status of the Bonds, add covenants or pledge revenues do not require the consent of or notice to Bondholders. SYSTEM FINANCIAL INFORMATION Financial Reports The Water Works financial statements are audited annually by certified public accountants. The Water Works financial statements are completed on a modified accrual basis of accounting consistent with generally accepted accounting principles applicable to governmental entities. See APPENDIX A for more detail. No Consent or Updated Information Requested of the Auditor The tables and excerpts (collectively, the Excerpted Financial Information ) contained in this SYSTEM FINANCIAL INFORMATION section and in APPENDIX A are from the audited financial statements of the Water Works, including the audited financial statements for the fiscal year ended December 31, 2009 (the 2009 Audit ). The Water Works has not requested the Water Works auditor to update information contained in the Excerpted Financial Information; nor has the Water Works requested that the auditor consent to the use of the Excerpted Financial Information in this Official Statement. Other than as expressly set forth in this Official Statement, the financial information contained in the Excerpted Financial Information has not been updated since the date of the 2009 Audit. The inclusion of the Excerpted Financial Information in this Official Statement in and of itself is not intended to demonstrate the fiscal condition of the Water Works since the date of the 2009 Audit. Questions or inquiries relating to financial information of the Water Works since the date of the 2009 Audit should be directed to the Water Works. Summary Financial Information The following tables are summaries and do not purport to be the complete audits, copies of which are available upon request. The Water Works expects its Income before Contributions to be approximately $5,400,000 for fiscal year ended December 31, The Water Works has approved a balanced budget for Fiscal Year

26 Balance Sheets(1) Audited as of December ASSETS: Current Assets: Cash... $ 1,364,730 $ 1,452,914 $ 256,926 $ 2,222,319 $ 3,190,773 Restricted Assets: Cash ,667 1,759,264 7,628,614 5,617,822 6,398,748 Investments, Water Revenue Bond Reserve Fund ,885,273 12,066,172 9,792,072 4,355,204 Accounts Receivable: Billed... 3,128,303 3,484,132 3,183,413 3,071,519 3,672,560 Unbilled ,716 1,093,455 1,079,204 1,134,231 1,130,710 Other Receivables , , , , ,507 Inventory, Material and Supplies... 1,036,656 1,241,741 1,313,572 1,490,571 1,591,892 Prepaid Expenses , , , , ,314 Total Current Assets... $ 8,299,294 $ 38,185,510 $ 26,902,959 $ 24,660,081 $ 21,672,708 Restricted Assets, Investments... $ 18,588,760 $ 30,426,367 $ 24,229,783 $ 19,403,427 $ 16,470,038 Long-Term Investments... 3,541,660 4,654,441 4,654,126 4,112,186 4,697,326 Capital Assets: Land... $ 4,835,402 $ 4,911,351 $ 4,911,351 $ 4,911,351 $ 4,890,351 Construction in Progress... 11,552,484 13,872,969 33,207,076 36,617,178 48,420,080 Buildings, Equipment and Machinery ,088, ,022, ,478, ,073, ,154,478 Supply System... 39,344,208 39,643,628 39,643,628 43,078,877 43,588,579 Distribution System ,862, ,399, ,157, ,661, ,479,887 Accumulated Depreciation... (89,927,767) (98,819,556) (105,828,611) (112,018,853) (118,286,496) Capital Assets, Net... $198,755,238 $216,030,583 $233,569,476 $241,322,908 $252,246,879 Bond Issue Costs and Discounts , , , , ,847 Other Assets , , , , ,464 Total Assets... $229,668,231 $290,201,832 $290,106,949 $290,270,404 $295,960,262 LIABILITIES AND NET ASSETS: Current Liabilities: Accounts Payable... $ 2,184,305 $ 2,801,027 $ 2,268,414 $ 1,402,364 $ 1,274,303 Accrued Wages and Benefits , , , , ,752 Compensated Absences... 1,119,047 1,283,031 1,326,253 1,534,324 1,564,166 Deferred Revenue... 1,321,235 1,330,632 1,333,951 1,311,808 1,671,812 Special Deposits , ,712 69, , ,898 Construction Payables... 4,002,450 5,352,632 6,290,830 6,462,651 4,269,498 Water Revenue Bond Interest Payable... 92, , , , ,526 Current Portion of Long-Term Debt... 4,598,000 4,770,000 3,778,000 3,912,000 4,040,000 Fees Collected for Other Entities , , , , ,263 Total Current Liabilities... $ 14,063,412 $ 16,679,862 $ 16,187,541 $ 15,769,454 $ 14,119,218 Noncurrent Liabilities: Long-term Debt, Less Current Installments... $ 27,190,000 $ 74,280,000 $ 70,502,000 $ 66,590,000 $ 62,550,000 Compensated Absences , , , , ,179 Deferred Revenue... 18,379,733 17,058,120 15,724,168 14,432,048 13,155,755 Pension Liability , , , , ,912 Other Postemployment Benefits Liability ,324,347 1,959,932 Other Noncurrent Liabilities, Arbitrage ,000 Total Noncurrent Liabilities... $ 46,945,943 $ 92,626,861 $ 87,249,644 $ 83,078,505 $ 78,768,778 Total Liabilities... $ 61,009,355 $109,306,723 $103,437,185 $ 98,847,959 $ 92,887,996 Net Assets: Invested in Capital Assets, Net of Related Debt... $167,080,017 $180,520,412 $187,343,763 $179,918,504 $189,377,017 Restricted (Bond Indentures)... 19,372,427 17,136,157 16,169,822 25,988,574 23,751,056 Unrestricted... (17,793,568) (16,761,460) (16,843,821) (14,484,633) (10,055,807) Total Net Assets... $168,658,876 $180,895,109 $186,669,764 $191,422,445 $203,072,266 Total Liabilities and Net Assets... $229,668,231 $290,201,832 $290,106,949 $290,270,404 $295,960,262 Note: (1) Source: the Water Works. 22

27 Statements of Revenues, Expenses and Changes in Net Assets(1) Audited as of December OPERATING REVENUES: Water Sales... $ 30,969,743 $ 35,286,161 $ 33,980,607 $ 34,205,509 $ 36,536,686 Other Sales and Services... 3,548,599 3,780,969 3,885,178 3,783,562 4,151,877 Connection Fees , , , , ,167 Total Operating Revenues... $ 35,018,884 $ 39,659,080 $ 38,591,144 $ 38,468,025 $ 41,113,730 OPERATING EXPENSES: Labor... $ 10,888,101 $ 9,956,210 $ 10,407,304 $ 10,556,380 $ 11,105,697 Group Insurance... 1,064,948 1,369,792 1,472,393 1,597,243 1,710,006 Retirement Benefits (Including Social Security)... 1,613,296 1,820,599 1,643,367 2,845,992 2,694,828 Purchased Services... 2,559,800 3,179,056 3,346,776 3,661,378 3,740,493 Corporate Insurance , , , , ,496 Materials, Supplies and Equipment... 3,003,276 3,127,030 3,155,726 3,021,496 2,959,322 Chemicals... 2,048,517 2,673,600 2,966,033 3,405,635 3,818,508 Utilities... 2,114,129 2,427,017 2,390,589 2,386,021 2,169,158 Depreciation... 8,734,782 8,891,789 7,242,073 6,271,439 6,449,683 Other , , , , ,220 Total Operating Expenses... $ 33,111,759 $ 34,591,868 $ 33,908,739 $ 34,946,376 $ 36,009,411 Operating Income... $ 1,907,125 $ 5,067,212 $ 4,682,405 $ 3,521,649 $ 5,104,319 NON-OPERATING REVENUES (EXPENSE): Investment Income... $ 517,567 $ 3,001,447 $ 2,943,034 $ 1,564,931 $ 551,818 Interest Expense... (1,530,012) (2,903,806) (2,660,093) (1,835,812) (606,254) Land Use Income , , , , ,693 Gain (Loss) on Sale of Fixed Assets (58,982) Other... 19,251 4,590 3,966 4,428 4,379 Nonoperating Revenue, net... $ (839,402) $ 264,363 $ 462,095 $ (95,019) $ 78,654 Income Before Contributions... 1,067,723 5,331,575 5,144,500 3,426,630 5,182,973 Capital Contributions... 2,116,739 6,904, ,155 1,326,051 6,466,848 Change in Net Assets... 3,184,462 12,236,233 5,774,655 4,752,681 11,649,821 Net Assets, Beginning of Year... $165,474,414 $168,658,876 $180,895,109 $186,669,764 $191,422,445 Net Assets, End of Year... $168,658,876 $180,895,109 $186,669,764 $191,422,445 $203,072,266 Note: (1) Source: the Water Works. See APPENDIX A herein. PENSION AND RETIREMENT OBLIGATIONS GENERAL CITY INFORMATION Location and Transportation The City is located near the center of Iowa and serves as Iowa s capital. The City also serves as the political, economic and cultural capital of the State. The City is a center of insurance, printing, retail and wholesale trade as well as industry, providing a diverse economic base. Highways serving the area include Interstates 35, 235 and 80. In addition to rail service and motor carrier transportation, air travel is available through the Des Moines International Airport located just south of downtown Des Moines. 23

28 General Services and Attractions The City provides its citizens a full range of services including the municipal functions of police and fire protection; sanitation services; park and recreational programs and activities; construction and maintenance of infrastructure, including streets, roads and bridges; enforcement of building code regulations; traffic control and parking; operation and maintenance of an international airport; housing and other community improvements and social services; economic development; and six libraries. The City maintains 70 parks, covering approximately 3,210 acres, five cemeteries, and road medians and boulevards. Recreation facilities include playgrounds, tennis courts, softball and soccer complexes, bike trails, swimming pools, community centers and three golf courses. The City is also home to the Principal baseball stadium (formerly Sec Taylor Stadium), which serves the Iowa Cubs AAA baseball team. Municipal water, sanitary sewer and storm sewer services are provided to essentially all developed areas of the City. The City, as Operating Contractor to the Des Moines Metropolitan Wastewater Reclamation Authority (WRA) is responsible for the design, construction, and operation of wastewater reclamation facility, conveyance and flow equalization facilities. The WRA, which includes the City, ten surrounding communities, two counties and three sanitary sewer districts, was formed to implement wastewater conveyance and treatment facilities improvements mandated by federal law. Each WRA participant institutes user charges to cover the cost of operation of WRA facilities as well as debt payments related to the construction of improvements. Education The Des Moines Independent Community School District provides public educational services for grades K-12 for City residents. The District s enrollment is approximately 31,000. The Des Moines metropolitan are is also served by five other community school districts. Those districts are Carlisle, Johnston, Saydel, Southeast Polk and West Des Moines Community School Districts. Higher educational facilities serving the Des Moines area include the four-year private institutions of Drake University, Des Moines University (formerly University of Osteopathic Medicine and Health Sciences) and Grand View College. Two-year degree programs are offered at Des Moines Area Community College, American Institute of Business (AIB) and Hamilton College. SOCIOECONOMIC INFORMATION The following economic and demographic information is for the City. The statistics shown may also pertain to Polk County and the State of Iowa. Population City of Des Moines Population 1980 U.S. Census , U.S. Census , U.S. Census , U.S. Census Estimate ,052 24

29 Employment Major public and private employers within the Des Moines area are described below. Major Area Employers(1) Approximate Employer Name Business/Service Employees(2) Wells Fargo(3)... Financial Services... 11,700 State of Iowa... State Government... 8,900 Principal Financial Group... Insurance... 8,170 Iowa Health Systems... Healthcare (Hospitals and Clinics)... 6,470 Des Moines Independent Community School District... Education... 4,745 Mercy Hospital Medical Center... Healthcare (Hospitals and Clinics)... 4,650 Nationwide/Allied Insurance... Financial Services... 4,400 MidAmerican Energy Company... Utility... 3,650 CDS Global... Magazine and Direct Marketing Services... 3,000 City of Des Moines... City Government... 2,040 Pioneer Hybrid International Inc.... Agricultural Seed... 2,000 Marsh Company... Insurance... 1,700 Hy-Vee Food Stores... Retail Food Stores... 1,670 Wellmark Blue Cross & Blue Shield of Iowa... Insurance... 1,650 United Parcel Service... Package Shipping... 1,600 Bridgestone-Firestone Tire & Rubber... Tire Manufacturing... 1,500 John Deere Des Moines Works... Manufacturing of Agricultural Equipment... 1,340 EDS Corporation... Global Technology Services... 1,200 FBL Financial Services, Inc.... Financial Services... 1,200 John Deere Credit Company... Consumer Financial Services... 1,200 Qwest... Telecommunications... 1,200 EMC Insurance Companies... Insurance... 1,200 Polk County... County Government... 1,120 Racing Association of Central Iowa (dba Prairie Meadows)... Entertainment Facility... 1,100 Casey s General Store, Inc.... Retail General Store... 1,076 Meredith Corporation... Publishing... 1,010 Broadlawns Medical Center... Healthcare... 1,010 Notes: (1) Major area employers within the Des Moines area, which includes Polk, Warren and Dallas Counties. (2) Source: the City. (3) Includes both Wells Fargo Banks and Wells Fargo Financial. Unemployment Rates Annual Average Unemployment Rates(1) Calendar Des Moines State of United Year Metro Area Iowa States % 3.8% 4.6% % 3.7% 4.6% % 4.1% 5.8% % 6.0% 9.3% 2010(2) % 6.7% 9.8% Notes: (1) Source: Iowa Workforce Development. (2) Through November Building Permits Building permit data illustrates certain valuation growth in the City. City of Des Moines Building Permits and Valuations(1) Fiscal Years: 2005/ / / / /2010 Total Building Permits... 2,576 2,667 2,539 2,080 1,518 Total Permit Valuations... $347,063,723 $492,221,246 $338,138,252 $226,173,960 $168,319,156 Note: (1) Source: the City. 25

30 REGISTRATION, TRANSFER AND EXCHANGE See also APPENDIX B, BOOK-ENTRY SYSTEM for information on registration, transfer and exchange of book-entry bonds. The Bonds will be initially issued as book-entry bonds. The Water Works shall cause books (the Bond Register ) for the registration and for the transfer of the Bonds to be kept at the Registrar in Des Moines, Iowa. The Registrar for the Bonds is the Water Works Director of Finance. The Water Works will authorize to be prepared, and the Registrar shall keep custody of, multiple bond blanks executed by the Water Works for use in the transfer and exchange of Bonds. Any Bond may be transferred or exchanged, but only in the manner, subject to the limitations, and upon payment of the charges as set forth in the Bond Resolution. Upon surrender for transfer or exchange of any Bond at the principal office of the Registrar, duly endorsed by, or accompanied by a written instrument or instruments of transfer in form satisfactory to the Registrar and duly executed by the registered owner or such owner s attorney duly authorized in writing, the Water Works shall execute and the Registrar shall authenticate, date and deliver in the name of the registered owner, transferee or transferees (as the case may be) a new fully registered Bond or Bonds of the same maturity and interest rate of authorized denominations, for a like aggregate principal amount. The execution by the Water Works of any fully registered Bond shall constitute full and due authorization of such Bond, and the Registrar shall thereby be authorized to authenticate, date and deliver such Bond, provided, however, the principal amount of outstanding Bonds of each maturity authenticated by the Registrar shall not exceed the authorized principal amount of Bonds for such maturity less Bonds previously paid. The Registrar shall not be required to transfer or exchange any Bond following the close of business on the 15th day of the month next preceding any interest payment date on such Bond, nor to transfer or exchange any Bond after notice calling such Bond for redemption has been mailed, nor during a period of fifteen days next preceding mailing of a notice of redemption of any Bonds. The person in whose name any Bond shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of the principal of or interest on any Bonds shall be made only to or upon the order of the registered owner thereof or such owner s legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. No service charge shall be made for any transfer or exchange of Bonds, but the Water Works or the Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Bonds. TAX MATTERS In the opinion of bond counsel, under existing laws, regulations, published rulings and judicial decisions, and assuming continuing compliance with certain tax covenants made by the Water Works, interest on the Bonds (a) is excluded from gross income for present 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, with respect to corporations, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. 26

31 Prospective purchasers of the Bonds should be aware that (i) Section 265 of the Internal Revenue Code of 1986 (the Code ), denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds or, in the case of a financial institution, that portion of a holder s interest expense allocated to interest on the Bonds, (ii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 831(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the Bonds, (iii) interest on the Bonds earned by some corporations could be subject to the environmental tax imposed by Section 59A of the Code, (iv) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (v) passive investment income including interest on the Bonds, may be subject to Federal income taxation under Section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 24% of the gross receipts of such Subchapter S corporation is passive investment income, and (vi) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement Benefits to take into account in determining gross income, receipts or accruals of interest on the Bonds. See APPENDIX D for a form of Bond Counsel opinion for the Bonds. Covenants, Representations and Warranties In order to maintain the exemption from Federal income taxes of interest on the Bonds and for no other purpose, the Water Works covenants in the Bond Resolution to comply with the provisions of the Code. Until and unless, and except to the extent, in the opinion of bond counsel, the following are not necessary to maintain the tax-exempt status of the Bonds. The Water Works covenants to submit in a timely manner all reports, accountings and information to the Internal Revenue Service and will take whatever action is necessary within its power to assure the continued tax exemption on the Bonds, and to take whatever action is necessary within its power to comply with the applicable law and regulations in order to maintain tax exemption with respect to the Bonds. The resolution authorizing the issuance of the Bonds may be amended without the consent of any owner of the Bonds for the sole purpose of taking action necessary to maintain tax exemption with respect to the Bonds under applicable Federal law or regulations. Pending Federal Tax Legislation From time to time, legislative proposals are pending in Congress that would, if enacted, alter or amend one or more of the federal tax matters described herein in certain respects or would adversely affect the market value of the Bonds. It cannot be predicted whether or in what forms any of such proposals, either pending or that may be introduced, may be enacted and there can be no assurance that such proposals will not apply to the Bonds. ORIGINAL ISSUE DISCOUNT The initial public offering price of a maturity of the Bonds may be less than the principal amount payable at maturity (such Bonds may be referred to as OID Bonds ). The difference between the Issue Price (defined below) of any such maturity of OID Bonds and the principal amount payable at maturity is original issue discount. The issue price (the Issue Price ) for each maturity of OID Bonds is the price at which a substantial amount of such maturity of the OID Bonds is first sold to the public. The Issue Price of each maturity of the Bonds is expected to be either the dollar price or the amount corresponding to the yield set forth in the addendum to this Official Statement, but is subject to change based on actual sales. 27

32 For an investor who purchases an OID Bond in the initial public offering at the Issue Price for such maturity and who holds such OID Bond to its stated maturity, subject to the condition that the Water Works complies with the covenants discussed under the caption TAX MATTERS, (a) the full amount of original issue discount with respect to such OID Bond constitutes interest which is not includible in the gross income of the owner thereof for federal income tax purposes; (b) such owner will not realize taxable capital gain or market discount upon payment of such OID Bond at its stated maturity; (c) such original issue discount is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Code, but is taken into account in computing an adjustment used in determining the alternative minimum tax for certain corporations under the Code, as described above; and (d) the accretion of original issue discount in each year may result in an alternative minimum tax liability for corporations or certain other collateral federal income tax consequences in each year even though a corresponding cash payment may not be received until a later year. If a Bond issued with original issue discount is purchased at any time for a price that is less than the Bond s Issue Price plus accreted original issue discount (the Revised Issue Price ), the purchaser will be treated as having purchased such Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Such treatment would apply to any purchaser who purchases such Bond for a price that is less than its Revised Issue Price. Owners of OID Bonds who dispose of such Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase OID Bonds in the initial public offering, but at a price different from the Issue Price or purchase OID Bonds subsequent to the initial public offering should consult their own tax advisors. Owners of Bonds issued with original issue discount should consult their own tax advisors with respect to the state and local tax consequences of original issue discount on such Bonds. CONTINUING DISCLOSURE The Water Works will enter into a Continuing Disclosure Undertaking (the Undertaking ) for the benefit of the beneficial owners of the Bonds to send certain information annually and to provide notice of certain events to the Municipal Securities Rulemaking Board ( MSRB ) pursuant to the requirements of Section (b)(5) of Rule 15c2-12, as amended, (the Rule ) adopted by the Securities and Exchange Commission (the Commission ) under the Securities Exchange Act of The information to be provided on an annual basis, the events which will be noticed on an occurrence basis and a summary of other terms of the Undertaking, including termination, amendment and remedies, are set forth in APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE. The Water Works believes it has substantially complied with those undertakings previously entered into by it pursuant to the Rule. A failure by the Water Works to comply with the Undertaking will not constitute a default under the Bond Resolution and beneficial owners of the Bonds are limited to the remedies described in the Undertaking. See APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE. A failure by the Water Works to comply with the Undertaking must be reported 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 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds and their market price. Bond Counsel expresses no opinion as to whether the Undertaking complies with the requirements of Section (b)(5) of the Rule. The Bonds are non-callable. OPTIONAL REDEMPTION 28

33 LITIGATION There is no litigation of any nature now pending or threatened restraining or enjoining the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds or any proceedings of the Water Works taken with respect to the issuance or sale thereof. LEGAL MATTERS The Bonds are subject to approval as to certain legal matters by Ahlers & Cooney, P.C., Des Moines, Iowa, as Bond Counsel. Bond Counsel has not participated in the preparation of this Official Statement except for guidance concerning the section regarding TAX MATTERS, and will not pass upon its accuracy, completeness, or sufficiency. Bond Counsel has not examined nor attempted to examine or verify any of the financial or statistical statements, or data contained in this Official Statement, and will express no opinion with respect thereto. The Water Works has not requested its auditors to consent to the inclusion of financial statement information contained in this Official Statement. OFFICIAL STATEMENT AUTHORIZATION This Official Statement has been authorized for distribution to prospective purchasers of the Bonds. All statements, information, and statistics herein are believed to be correct but are not guaranteed by the consultants or by the Water Works, and all expressions of opinion, whether or not so stated, are intended only as such. INVESTMENT RATINGS The Water Works has supplied certain information and material concerning the Bonds and the Water Works to the rating services shown on the cover page as part of its application for investment ratings on the Bonds. Generally, such rating services bases their ratings on such information and material, and also on such investigations, studies and assumptions that they may undertake independently. There is no assurance that such ratings will continue for any given period of time or that they may not be lowered or withdrawn entirely by such rating services if, in their judgment, circumstances so warrant. Any such downward change in or withdrawal of such ratings may have an adverse effect on the secondary market price of the Bonds. An explanation of the significance of the investment ratings may be obtained from the rating agencies: Moody s Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, New York 10007, telephone Standard & Poor s Corporation, 55 Water Street, New York, New York 10041, telephone UNDERWRITING The Bonds were offered for sale by the Water Works at a public, competitive sale on January 25, The best bid submitted at the sale was submitted by (the Underwriter ). The Water Works awarded the contract for sale of the Bonds to the Underwriter at a price of $. The Underwriter has represented to the Water Works that the Bonds have been subsequently re-offered to the public initially at the yields or prices set forth in the addendum to this Official Statement. 29

34 FINANCIAL ADVISOR The Water Works has engaged Speer Financial, Inc. as financial advisor (the Financial Advisor ) in connection with the issuance and sale of the Bonds. The Financial Advisor will not participate in the underwriting of the Bonds. The financial information included in the Official Statement has been compiled by the Financial Advisor. Such information does not purport to be a review, audit or certified forecast of future events and may not conform with accounting principles applicable to compilations of financial information. The Financial Advisor is not obligated to undertake any independent verification of or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement, nor is the Financial Advisor obligated by the Water Works continuing disclosure undertaking. CERTIFICATION We have examined this Official Statement dated January 14, 2011, for the $10,815,000* Water Revenue Refunding Bonds, Series 2011, believe it to be true and correct and will provide to the purchasers of the Bonds at the time of delivery a certificate confirming to the purchasers that to the best of our knowledge and belief information in the Official Statement was at the time of acceptance of the bid for the Bonds and, including any addenda thereto, was at the time of delivery of the Bonds true and correct in all material respects and does not include any untrue statement of a material fact, nor does it omit the statement of any material fact required to be stated therein, or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. /s/ DAVID A. CARLSON /s/ RANDALL R. BEAVERS Chairperson Secretary and General Manager BOARD OF WATER WORKS TRUSTEES BOARD OF WATER WORKS TRUSTEES Des Moines, Polk County, Iowa Des Moines, Polk County, Iowa *Subject to change. 30

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36 APPENDIX A DES MOINES WATER WORKS, POLK COUNTY, IOWA EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2009 A-1

37 A-2

38 A-3

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49 APPENDIX B DESCRIBING BOOK-ENTRY ONLY ISSUANCE 1. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds (the Securities ). The Securities 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 fullyregistered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. 2. 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 DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC s records. The ownership interest of each actual purchaser of each Security ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities 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 Securities 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 Securities; DTC s records reflect only the identity of the Direct Participants to whose accounts such Securities 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. B-1

50 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Water Works 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend payments on the Securities 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 Water Works or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the Water Works, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Water Works or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to any Tender/Remarketing Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant s interest in the Securities, on DTC s records, to any Tender/Remarketing Agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC s records and followed by a book-entry credit of tendered Securities to any Tender/Remarketing Agent s DTC account. 10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the Water Works or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. 11. The Water Works may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. 12. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Water Works believes to be reliable, but the Water Works takes no responsibility for the accuracy thereof. B-2

51 APPENDIX C C-1

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53 C-3

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55 C-5

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