William Blair & Company

Transcription

1 New Issue Book-Entry Only Ratings : Moody s Investors Service: Aa2 Standard & Poor s: AA- Subject to compliance by the Agency with certain covenants, in the opinion of Chapman and Cutler LLP, Bond Counsel, under present law, interest on the 2013 Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but such interest is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Interest on the 2013 Bonds is not exempt from present Illinois income taxes. See Tax Matters herein for a more complete discussion. $20,970,000 Northwest Suburban Municipal Joint Action Water Agency Cook, DuPage and Kane Counties, Illinois Water Supply System Revenue Refunding Bonds, Series 2013 Dated Date of Delivery Due May 1, as shown below The Water Supply System Revenue Refunding Bonds, Series 2013 (the 2013 Bonds ), are being issued by the Northwest Suburban Municipal Joint Action Water Agency (the Agency ). The 2013 Bonds will be issued in fully registered form and will be registered initially only in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the 2013 Bonds. Purchasers of the 2013 Bonds will not receive certificates representing their interests in the 2013 Bonds purchased. Ownership by the beneficial owners of the 2013 Bonds will be evidenced by book-entry only. Principal of and interest on the 2013 Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., Chicago, Illinois, as trustee, bond registrar and paying agent, to DTC, which in turn will remit such payments to its participants for subsequent disbursement to the beneficial owners of the 2013 Bonds. As long as Cede & Co. is the registered owner as nominee of DTC, payments of the principal of and interest on the 2013 Bonds will be made to such registered owner, and disbursement of such payments will be the responsibility of DTC and its participants. Individual purchases of the 2013 Bonds will be made in the principal amount of $5,000 or any integral multiple thereof. Interest on the 2013 Bonds (computed on the basis of a 360-day year of twelve 30 day months) will be payable on May 1, 2013, and semiannually on each May 1 and November 1 thereafter. The 2013 Bonds are not subject to redemption prior to maturity. Maturities, Amounts, Interest Rates and Yields Year (May 1) Amount $5,680,000 5,850, , ,000 Interest Rate 3% Yield 0.50% Year (May 1) Amount $365, , ,000 7,610,000 Interest Rate 3% Yield 1.33% The 2013 Bonds are limited obligations of the Agency proceeds of which will be used, together with certain funds of the Agency, to provide funds to refund the $20,115,000 outstanding principal amount of the Agency s Water Supply System Revenue Refunding Bonds, Series 2003, maturing in the years 2014 and 2015, to fund a deposit to the Debt Service Reserve Fund, and to pay the costs of issuance of the 2013 Bonds. See Plan of Finance herein. The 2013 Bonds, together with the $40,510,000 principal amount of Water Supply System Revenue Bonds that will remain outstanding after the issuance of the 2013 Bonds and additional parity bonds that may be issued in the future, have a claim for payment solely from, and are secured by, the Revenues of the Agency s Water Supply System, after paying the Expense of Operation and Maintenance, and from certain Funds and Accounts as provided in the General Resolution. Revenues of the System consist primarily of payments received by the Agency pursuant to Water Supply Agreements for the sale of Lake Michigan water to its members on a take or pay basis. Those payments are to be sufficient to meet all requirements of the General Resolution, regardless of the Agency s ability to supply water. The Agency does not have the power to levy taxes. See Security and Sources of Payment for the 2013 Bonds herein. The 2013 Bonds are offered when, as and if issued by the Agency and accepted by the Underwriter, subject to prior sale, withdrawal or modification of the offer without notice, and subject to the approval of legality by Chapman and Cutler LLP, Chicago, Illinois, Bond Counsel. Certain legal matters will be passed upon for the Agency by its counsel, Ancel, Glink, Diamond, Bush, DiCianni & Krafthefer, P.C., Chicago, Illinois, and for the Underwriter by its counsel Katten Muchin Rosenman LLP, Chicago, Illinois. Speer Financial, Inc., Chicago, Illinois, is acting as financial advisor to the Agency. The 2013 Bonds in definitive form are expected to be delivered through the facilities of DTC, in New York, New York, on or about March 28, William Blair & Company The date of this Official Statement is March 14, See Credit Ratings herein.

2 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY 901 Wellington Avenue Elk Grove Village, Illinois ( ) BOARD OF DIRECTORS Al Larson, Chairman Mayor Village of Schaumburg Craig Johnson Mayor Village of Elk Grove Village Rodney Craig President Village of Hanover Park William McLeod Mayor Village of Hoffman Estates Irvana Wilks Mayor Village of Mount Prospect Thomas Rooney Mayor City of Rolling Meadows Billie D. Roth President Village of Streamwood OFFICERS Al Larson Chairman Michael Janonis Secretary Christine Tromp Treasurer EXECUTIVE COMMITTEE Michael Janonis, Chairman Manager Village of Mount Prospect Kenneth Fritz Manager Village of Schaumburg Barry Krumstok Manager City of Rolling Meadows Juliana Maller Manager Village of Hanover Park James Norris Manager Village of Hoffman Estates Gary O Rourke Manager Village of Streamwood Raymond Rummel Manager Village of Elk Grove Village ADMINISTRATION Joseph G. Fennell, Executive Director Kevin Lockhart, Deputy Director BOND COUNSEL AGENCY COUNSEL FINANCIAL ADVISOR Chapman and Cutler LLP Ancel, Glink, Diamond, Bush, DiCianni & Krafthefer, P.C. Speer Financial, Inc. Chicago, Illinois Chicago, Illinois Chicago, Illinois TRUSTEE The Bank of New York Mellon Trust Company, N.A. Chicago, Illinois

3 No dealer, broker, salesman or other person has been authorized by the Agency or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and if given or made, such other information or representations must not be relied upon as statements having been authorized by the Agency, the Underwriter or any other entity. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the 2013 Bonds by any person, in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. Unless otherwise indicated, the Agency is the source of all tables and statistical and financial information contained in this Official Statement. The information set forth herein relating to governmental bodies or from other sources is believed to be reliable. The information and opinions expressed herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in operations of the Agency since the date of this Official Statement. This Official Statement should be considered in its entirety and no one factor considered less important than any other by reason of its position in this Official Statement. Where statutes, reports or other documents are referred to herein, reference should be made to such statutes, reports or other documents for more complete information regarding the rights and obligations of parties thereto, facts and opinions contained therein and the subject matter thereof. The information contained in this Official Statement is tentative and subject to completion, amendment, or other change without notice. Certain terms and conditions described herein are subject to further negotiation. The Agency reserves the right to withdraw, amend or modify the terms and conditions of this proposed financing at any time without any notice. Any statements made in this Official Statement, including the Appendices, involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such estimates will be realized. This Official Statement contains certain forward-looking statements and information that are based on the Agency s beliefs as well as assumptions made by and information currently available to the Agency. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense. Certain persons participating in this offering may engage in transactions that maintain or otherwise affect the price of the 2013 Bonds. Specifically, the Underwriter may overallot in connection with the offering, and may bid for, and purchase, the 2013 Bonds in the open market. The prices and other terms respecting the offering and sale of the 2013 Bonds may be changed from time to time by the Underwriter after the 2013 Bonds are released for sale, and the 2013 Bonds may be offered and sold at prices other than the initial offering prices, including sales to dealers who may sell the 2013 Bonds into investment accounts.

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5 TABLE OF CONTENTS INTRODUCTION... 1 PLAN OF FINANCE... 2 Refunding Program... 2 Use of Proceeds and Agency Funds... 2 DESCRIPTION OF THE 2013 BONDS... 2 General... 2 No Optional Redemption... 2 DESCRIBING BOOK-ENTRY ONLY ISSUANCE... 3 Book-Entry Only System... 3 ANNUAL DEBT SERVICE REQUIREMENTS... 5 SECURITY AND SOURCES OF PAYMENT FOR THE 2013 BONDS... 5 General... 5 Flow of Funds... 6 Additional Obligations... 7 Member Deposits... 7 Certain Covenants... 7 RESERVE FUND INSURANCE POLICY... 8 General... 8 Reorganization of MBIA... 9 National Public Finance Guarantee Corporation... 9 Regulation... 9 Financial Strength Ratings of National Recent Litigation National Financial Information Incorporation of Certain Documents by Reference WATER SUPPLY AGREEMENTS General Quantities Payment Provisions Certain Covenants Defaults THE AGENCY Background Organization and Management THE WATER SUPPLY SYSTEM Existing Facilities System Operation THE CHICAGO CONTRACT CHICAGO DEPARTMENT OF WATER STATE WATER ALLOCATIONS SERVICE AREA OF THE AGENCY Service Area Location and Customers Service Area Population (i)

6 Service Area Economics INFORMATION RELATING TO THE MEMBERS LITIGATION TAX MATTERS FINANCIAL STATEMENTS CREDIT RATINGS CONTINUING DISCLOSURE THE UNDERTAKING Annual Financial Information Disclosure Reportable Events Disclosure Amendment; Waiver Consequences of Failure to Provide Information Termination of Undertaking Revenue Test Additional Information Dissemination Agent VERIFICATION OF MATHEMATICAL COMPUTATIONS FINANCIAL ADVISOR LEGAL MATTERS UNDERWRITING AUTHORIZATION APPENDIX A Summary of Certain Provisions of the General Resolution APPENDIX B Form of Opinion of Bond Counsel APPENDIX C Financial Statements of the Agency for the Fiscal Year Ended April 30, 2012 APPENDIX D CUSIPS (ii)

7 SUMMARY STATEMENT The Northwest Suburban Municipal Joint Action Water Agency (the Agency ), proposes to issue $20,970,000 Water Supply System Revenue Refunding Bonds, Series 2013 (the 2013 Bonds ). This summary statement is subject in all respects to more complete information contained elsewhere in this Official Statement, and specifically to the complete documents to which summary statements refer. The Issuer. The Agency was created by its member municipalities pursuant to the Illinois Intergovernmental Cooperation Act, as amended, to construct and operate a water supply system (the System ) to obtain and transmit potable water drawn from Lake Michigan ( Lake Water ) to the water systems of the member municipalities. The member municipalities have been granted allocations of the Lake Water ( State Water Allocations ) by the Illinois Department of Natural Resources. The membership of the Agency consists of seven contiguous home rule municipalities located in northwest Cook, DuPage and Kane Counties, Illinois: Elk Grove Village, Hanover Park, Hoffman Estates, Mount Prospect, Rolling Meadows, Schaumburg and Streamwood (the Members ). Members Service Area. The combined area of the Members is approximately square miles. The 2010 population of the Members was 315,346 having increased from 288,205 and 315,162 in 1990 and 2000, respectively. The Members serve approximately 94,727 water customers. Total water consumption in the most recently ended fiscal years of the Members was billion gallons or a daily average of million gallons. State Water Allocations, based in part on population forecasts for the area, will increase from an aggregate of million gallons per day ( MGD ) to MGD between 2000 and The Water Supply System. The Agency s water supply system (the System ) obtains treated Lake Water from the water system of the City of Chicago at a site located near the eastern boundary of O Hare International Airport. From the delivery point, the System transmission mains extend west and northwest in a 55-mile network to provide at least three service connections to each Member s local water system. Construction of the System commenced in 1983 and was substantially completed in April 1986 at a cost of $114.5 million. The System consists of transmission mains, related facilities including a major pumping station, booster pumping stations, ground level and standpipe storage facilities and a control system. Operations. The Agency initiated operation of the System on December 10, 1985, and by April 1, 1986, was delivering in excess of the minimum daily water requirements of the Members. Since 2003, the Agency has delivered an average of MGD to the Members, including a System wide maximum of million gallons in July of Purpose of the 2013 Bonds. Proceeds of the 2013 Bonds will be used, together with certain funds of the Agency, to provide funds (i) to refund the $20,115,000 outstanding principal amount of Agency s Water Supply System Revenue Refunding Bonds, Series 2003, maturing on May 1 of the years 2014 and 2015, (ii) to fund a portion of the Agency s Debt Service Reserve Fund, and (iii) to pay the costs of issuance of the 2013 Bonds. Security and Sources of Payment for the 2013 Bonds. The 2013 Bonds are limited obligations of the Agency which, together with the Agency s $9,200,000 outstanding principal amount of unrefunded Water Supply System Revenue Refunding Bonds, Series 2003 (all of which mature on May 1, 2013), and $31,310,000 outstanding principal amount of Water Supply System Revenue Refunding Bonds, Series 2008 (which mature serially on May 1 of the years 2013 to 2020, inclusive) and additional parity bonds (iii)

8 that may be issued in the future, have a claim for payment solely from and are secured by a pledge of the Revenues of the System and amounts in certain Funds and Accounts established by the General Resolution, defined herein. The 2013 Bonds are not a debt of any Member. The Agency has no power to levy taxes. Debt Service Reserve Requirement. The Debt Service Reserve Requirement for other than the Reduction Period (as defined and described below) is an amount equal to the maximum amount of principal of and interest on all outstanding bonds issued under the General Resolution (the Bonds ) which is to become due in any 12-month period ending on May 1 (the Debt Service Reserve Requirement ). Upon the issuance of the 2013 Bonds, the applicable Debt Service Reserve Requirement will be $11,030,506. The General Resolution permits debt service reserve fund insurance to be used as an alternative to funding the Debt Service Reserve Fund with cash and investments in an amount equal to the Debt Service Reserve Requirement. The Bank of New York Mellon Trust Company, N.A., Chicago, Illinois, as trustee under the General Resolution (the Trustee ), holds a debt service reserve fund insurance policy ( Reserve Fund Insurance Policy ) of National Public Finance Guarantee Corporation, an operating subsidiary of MBIA, Inc., in the face amount of $10,830,750. As of the date of issuance of the 2013 Bonds, the Trustee will hold in the Debt Service Reserve Fund the Reserve Fund Insurance Policy and Investment Obligations in an amount sufficient to satisfy the Debt Service Reserve Requirement. The Reserve Fund Insurance Policy expires in accordance with its terms on May 1, Resolution No of the Agency (adopted February 20, 2008) provides for a reduction in the Debt Service Reserve Requirement for only the period from May 2, 2015 through April 30, 2016, inclusive (the Reduction Period ) to an amount equal to 50% of the maximum amount of principal of and interest on all outstanding Bonds. In connection with the issuance of the 2013 Bonds, the Agency will direct the Trustee to (i) assume that the Debt Service Reserve Requirement will remain unchanged for the Reduction Period, (ii) retain any funds on deposit in the Debt Service Reserve Fund which would otherwise be released as a result of the reduction of the Debt Service Reserve Requirement during the Reduction Period and (iii) provide the Agency with the value of the cash and Investment Obligations on deposit in the Debt Service Reserve Fund (excluding the amount of the expiring Reserve Fund Insurance Policy on deposit therein) (the Available Balance ) as of May 2, The Agency will agree to fund, by not later than April 30, 2014, an amount not less than one-third of the difference between the Available Balance and the full Debt Service Reserve Requirement (ignoring the Reduction Period) and to fund, by not later than April 30, 2015, an amount sufficient to cause the amount of cash and Investment Obligations on deposit in the Debt Service Reserve Fund (not including the amount of the expiring Reserve Fund Insurance Policy on deposit therein) to equal the Debt Service Reserve Requirement (ignoring the Reduction Period). Certain Covenants. The Agency covenants in the General Resolution to adopt a budget and establish fees and charges for its provision of water, including amounts due under the Water Supply Agreements, sufficient to provide at all times adequate Revenues, together with other available amounts, to meet all of its requirements under the General Resolution and the specific authorizing series resolutions. Water Supply Agreements. On December 31, 1982, each Member executed a 40-year agreement with the Agency (the Water Supply Agreement ) under which the Member is obligated to purchase water from the Agency on a take or pay basis and to pay monthly its allocated share of all costs of the Agency, including debt service on notes or bonds issued by the Agency. The obligation of each Member to make all payments required by the Water Supply Agreement is unconditional and irrevocable, regardless of the ability of the Agency to supply water. (iv)

9 Each Member covenanted to establish and collect rates and charges for its water or combined water and sewer system as required to produce revenues sufficient, among other things, to make all payments under the Water Supply Agreement, except to the extent that certain funds are set aside in cash or investments in a separate account designated for that purpose and appropriated to make payments under the Water Supply Agreement. See INFORMATION RELATING TO THE MEMBERS. As security for payment of its obligations under the Water Supply Agreement, each Member is obligated to deposit and maintain with the Trustee in each fiscal year an amount equal to the maximum amount of the Member s estimated share of the Agency s costs for any month in that fiscal year. In the event of default of a Member, the aggregate monthly costs allocated to non-defaulting Members will be automatically increased, without limitation, by the amount of any defaulting Member s unpaid obligation under its Water Supply Agreement. The Chicago Contract. On June 24, 1982, the Agency and the City of Chicago (the City ) entered into a 40-year agreement under which the City agreed to sell quantities of Lake Water sufficient to supply the projected water needs of the Agency and Members through the term of the agreement. Minimum quantity purchase obligations of the Agency equal approximately 60 percent of the currently projected water demands of the Members. The City is obligated to supply water up to a maximum quantity which exceeds State Water Allocations of the Members through The cost of water purchased from the City by the Agency may not exceed the lowest rate charged to any water customer of the City. The current lowest volume rate charged any water customers of the City is $2.89 per 1,000 gallons, plus a credit for timely payment. The agreement provides for certain credits against the Agency s water purchase costs as described in this Official Statement. See THE CHICAGO CONTRACT. Additional Bonds. The Agency may issue additional parity obligations for certain purposes, subject to the tests identified and described under Additional Agency Obligations in the Summary of Certain Provisions of the General Resolution, included as APPENDIX A. Accounts and Reports. Under the General Resolution, the Agency has covenanted that within 120 days after the close of its fiscal year (currently ending April 30), it will file with the Trustee a copy of its annual report along with an accountant s certificate stating, among other things, whether the Agency is in default with respect to any of the covenants, agreements or conditions on its part contained in the General Resolution or any Series Resolution. Such report will be available to the holders of any Agency Obligations who will file a written request for such document with the Trustee. (v)

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11 OFFICIAL STATEMENT $20,970,000 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY (COOK, DUPAGE AND KANE COUNTIES, ILLINOIS) WATER SUPPLY SYSTEM REVENUE REFUNDING BONDS, SERIES 2013 INTRODUCTION This Official Statement, including the cover page, the Summary Statement and the Appendices, is furnished by the Northwest Suburban Municipal Joint Action Water Agency (the Agency ), to provide information concerning the $20,970,000 principal amount of Water Supply System Revenue Refunding Bonds, Series 2013 (the 2013 Bonds ), to be issued by the Agency. Proceeds of the 2013 Bonds will be used, together with certain funds of the Agency, to provide funds to refund the $20,115,000 outstanding principal amount of the Agency s Water Supply System Revenue Refunding Bonds, Series 2003, maturing in the years 2014 and 2015 (the 2003 Bonds to be Refunded ), to fund a deposit to the Agency s Debt Service Reserve Fund and to pay the costs of issuance of the 2013 Bonds. The 2013 Bonds are issued on a parity with the Agency s $9,200,000 outstanding principal amount of Water Supply System Revenue Refunding Bonds, Series 2003 maturing on May 1, 2013 (the Unrefunded 2003 Bonds ) and the $31,310,000 outstanding principal amount of Water Supply System Revenue Refunding Bonds, Series 2008 (the 2008 Bonds ). As described in APPENDIX A Summary of Certain Provisions of the General Resolution Additional Agency Obligations, the Agency may issue additional parity obligations, subject to the satisfaction of certain conditions described therein (the Additional Bonds ). The Agency is a municipal corporation and public body politic and corporate established by seven municipalities pursuant to Article VII, Section 10 of the Constitution of the State of Illinois and the Intergovernmental Cooperation Act of the State of Illinois, as amended (the Act ). The Agency is empowered under the Act to plan, construct, improve, extend, acquire, finance, operate and maintain a joint water supply system to serve its members and other potential purchasers. The Agency is governed by a Board of Directors (the Board ) consisting of the President or Mayor of each hereinafter defined Member. The 2013 Bonds are authorized and issued pursuant to the Act and the Agency s Water Supply System Revenue Bond and Note General Resolution (the General Resolution ), adopted December 17, 1982, as supplemented, and a resolution adopted December 5, 2012 (the 2013 Series Resolution ). The 2013 Bonds, the 2008 Bonds, the Unrefunded 2003 Bonds and any Additional Bonds are referred to as the Bonds. The General Resolution and any resolution of the Agency authorizing the issuance of a Series of Bonds in accordance with the General Resolution, including the 2013 Series Resolution (each, a Series Resolution ), are referred to together as the Resolutions. The summaries of and references to all documents, statutes, reports and other instruments referred to in this Official Statement do not purport to be complete and are qualified in their entirety by reference to each such document, statute, report or instrument. Terms not defined in this Official Statement shall have the meanings set forth in the respective documents.

12 PLAN OF FINANCE Refunding Program A portion of the proceeds of the 2013 Bonds, together with funds of the Agency in the amount of $438, currently on deposit with the Trustee in the Debt Service Fund established under the General Resolution (the Agency Funds ), will be used to refund the 2003 Bonds to be Refunded on their redemption date of May 1, 2013 at a redemption price equal to the principal amount thereof plus accrued interest to the date of redemption. Upon delivery of the 2013 Bonds, there will be deposited into the Bond Redemption Account of the Debt Service Fund proceeds of the 2013 Bonds and the Agency Funds, as described above, which will be used to purchase direct obligations of the United States of America ( Government Securities ) to be held in trust by the Trustee. The Government Securities will mature in amounts and bear interest at rates sufficient, without reinvestment, to pay the redemption price of the 2003 Bonds to be Refunded on the redemption date of May 1, Upon deposit of the moneys and Government Securities with the Trustee, the Trustee will be irrevocably instructed to redeem the 2003 Bonds to be Refunded and the 2003 Bonds to be Refunded will be defeased and no longer outstanding under the General Resolution. Use of Proceeds and Agency Funds The proceeds of the 2013 Bonds, together with the Agency Funds, will be applied or deposited approximately as summarized below. Deposit to Bond Redemption Account... $20,616,340 Deposit to Debt Service Reserve Fund... 2,097,000 Payment of Costs of Issuance (1) ,818 (1) Total... $23,036,158 (1) Includes Underwriter s discount. General DESCRIPTION OF THE 2013 BONDS The 2013 Bonds will be dated the date of issue thereof, and will mature (without option of prior redemption) on the dates and in the principal amounts shown on the cover page of the Official Statement. The 2013 Bonds will bear interest, payable semiannually on each May 1 and November 1, commencing May 1, 2013, at the rates shown on the cover page of the Official Statement. The interest so payable on each 2013 Bond will be paid to the person in whose name such 2013 Bond is registered at the close of business on the applicable record date (the April 15 or October 15, as the case may be, next preceding the interest payment date). The 2013 Bonds are issuable only as fully registered bonds, registered in the name of Cede & Co., as nominee for The Depository Trust Company, of New York, New York ( DTC ), as securities depository for the 2013 Bonds. Principal and redemption price of, and interest on, the 2013 Bonds are payable to DTC. Such payments will be distributed by DTC and its participants. See DESCRIBING BOOK-ENTRY ONLY ISSUANCE herein. No Optional Redemption The 2013 Bonds are not subject to redemption prior to maturity. -2-

13 Book-Entry Only System DESCRIBING BOOK-ENTRY ONLY ISSUANCE The information in this section has been furnished by DTC. No representation is made by the Agency, Bond Counsel, Agency Counsel, the Underwriter or the Trustee as to the completeness or accuracy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. No attempt has been made by the Agency, Bond Counsel, Agency Counsel, the Underwriter or the Trustee to determine whether DTC is or will be financially or otherwise capable of fulfilling its obligations. Neither the Agency nor the Trustee will have any responsibility or obligation to DTC participants, indirect participants or the persons for which they act as nominees with respect to the 2013 Bonds, or for any principal or interest payment thereof. DTC will act as securities depository for the 2013 Bonds. The 2013 Bonds will be issued as fully registered bonds registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond certificate will be issued for each maturity of the 2013 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended (the Exchange Act ). DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC is rated AA+ by Standard & Poor s Ratings Services. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission (the Commission ). More information about DTC can be found at and Purchases of 2013 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2013 Bonds on DTC s records. The ownership interest of each actual purchaser of each 2013 Bond ( 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 2013 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their -3-

14 ownership interests in 2013 Bonds, except in the event that use of the book-entry system for the 2013 Bonds is discontinued. To facilitate subsequent transfers, all 2013 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2013 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2013 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such 2013 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2013 Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the 2013 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2013 Bond documents. For example, Beneficial Owners of 2013 Bonds may wish to ascertain that the nominee holding the 2013 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Registrar and request that copies of notices be provided directly to them. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 2013 Bonds unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Agency as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the 2013 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments on the 2013 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detailed information from the Agency or Trustee, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with bonds held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Trustee, or the Agency, 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 Agency or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the 2013 Bonds at any time by giving reasonable notice to the Agency or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, 2013 Bond certificates are required to be printed and delivered. The Agency may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, 2013 Bond certificates will be printed and delivered to DTC. -4-

15 The information in this section concerning DTC and DTC s book-entry system has been obtained from DTC, and the Agency takes no responsibility for the accuracy thereof. The Agency will have no responsibility or obligation to any Securities Depository, any Participants in the Book-Entry System or the Beneficial Owners with respect to (i) the accuracy of any records maintained by the Securities Depository or any Participant; (ii) the payment by the Securities Depository or by any Participant of any amount due to any Beneficial Owner in respect of the principal amount of, or interest on, any Bonds; (iii) the delivery of any notice by the Securities Depository or any Participant; or (iv) any other action taken by the Securities Depository or any Participant. ANNUAL DEBT SERVICE REQUIREMENTS The following table shows the annual debt service requirements of the Agency s Water Supply System Revenue Bonds after giving effect to the issuance of the 2013 Bonds and the refunding of the 2003 Bonds to be Refunded. Bond Year Ending May Bonds 2008 Bonds 2013 Bonds Total Debt Service 2013 $9,430,000 $ 1,536,513 $ 63,993 $11,030, ,536,513 6,378,100 7,914, ,536,513 6,377,700 7,914, ,211, ,200 7,918, ,214, ,100 7,914, ,213, ,000 7,916, ,216, ,050 7,918, ,218, ,800 7,914, ,914,400 7,914,400 Total $9,430,000 $40,684,325 $24,242,343 $74,356,671 Note: Individual column totals may not exactly sum due to rounding. General SECURITY AND SOURCES OF PAYMENT FOR THE 2013 BONDS The 2013 Bonds are revenue obligations. The 2013 Bonds are limited obligations of the Agency which, together with the Unrefunded 2003 Bonds, the 2008 Bonds and additional parity bonds which may be issued in the future, have a claim for payment solely from and are secured by a pledge of the Revenues of the System and amounts in the various Funds and Accounts established by the Resolutions, and from amounts required by the Resolutions to be deposited in those Funds and Accounts, including amounts from eminent domain proceedings, proceeds of insurance or sales or exchanges of property and proceeds of the sale of notes and bonds of the Agency, all as and to the extent and in the priority provided by the Resolutions. The 2013 Bonds are not a debt of any Member. The Agency has no power to levy taxes. Revenues of the System, as defined in the General Resolution, consist of: (a) all receipts derived from the hereinafter defined Agreements or any other contract for the supply of water, other than deposits in the Member Deposit Funds or similar funds for Agency customers; (b) all income derived from the investment of moneys held pursuant to the Resolutions and required to be deposited in the Revenue Fund; -5-

16 and (c) all income, fees, water service charges and all rates, rents and receipts derived by the Agency directly or indirectly from the ownership and operation of the System and the sale of water. Flow of Funds All Revenues are to be immediately deposited into the Revenue Fund. Deposits of Revenues held by the Trustee in the Revenue Fund are required to be paid monthly by the Trustee to the following Funds and Accounts established under the Resolutions, in the following order and amounts. (1) Operation and Maintenance Fund. A sum which, together with amounts already on deposit in the Operation and Maintenance Fund, is sufficient to pay the Expense of Operation and Maintenance (exclusive of Water Purchase Costs and Power Costs) for the current month and the next two months, Water Purchase Costs for the current month and Power Costs for the current month and the next month. (2) Debt Service Fund. An amount equal to one-sixth of the interest to come due on Bonds on the next interest payment date until there shall be on deposit the full amount of that interest and an amount equal to one-twelfth of the principal to come due on Bonds on the next principal payment date until there shall be on deposit the full amount of that principal. The Trustee will apply amounts in the Debt Service Fund to the payment of principal of, redemption premium, if any, and interest on Bonds. (3) Debt Service Reserve Fund. Any amount required so that the value of the Debt Service Reserve Fund is equal to the maximum amount of principal of and interest on outstanding Bonds of the Agency which is to come due in a 12-month period ending on May 1 (the Debt Service Reserve Requirement ). The value of the Debt Service Reserve Fund from time to time shall be the value of the investments of the fund plus the Surety Bond Coverage of the Reserve Fund Insurance Policy or any Substitute Surety Bond and of any reserve fund insurance policy issued upon the issuance of Additional Bonds. In the event a drawing is made on the Reserve Fund Insurance Policy or moneys are withdrawn from the Debt Service Reserve Fund, the Agency shall be obligated to reinstate the maximum limits of such Reserve Fund Insurance Policy and to restore any moneys withdrawn so that within 12 months following such drawing or withdrawal the amount on deposit in the Debt Service Reserve Fund (including the Surety Bond Coverage) equals the Debt Service Reserve Requirement. Presently, the Debt Service Reserve Requirement is met in part by a Reserve Fund Insurance Policy provided by National Public Finance Guarantee Corporation, an operating subsidiary of MBIA Inc. ( NPFGC ), which expires in accordance with its terms on May 1, Resolution No of the Agency provides for a reduction in the Debt Service Reserve Requirement from May 2, 2015 through April 30, 2016, inclusive, but only for that period of time. In connection with the issuance of the 2013 Bonds, the Agency will direct the Trustee to assume that the Debt Service Reserve Requirement will remain unchanged for that period and will establish a funding mechanism to fund the Debt Service Reserve Fund at the full Debt Service Reserve Requirement following the expiration of the Reserve Fund Insurance Policy, without giving effect to such reduction. See SUMMARY STATEMENT DEBT SERVICE RESERVE REQUIREMENT and RESERVE FUND INSURANCE POLICY. (4) Bond Anticipation Note Debt Service Fund*. The amount specified in each Notes Series Resolution as the Notes Interest Deposit Requirement for that month for that Series and the amount specified in each Notes Series Resolution as the Notes Principal Deposit Requirement for that month for that Series. The Trustee will apply amounts in the Bond Anticipation Note Debt Service Fund to the payment of principal of, redemption price, if any, and interest on Notes. * No Bond Anticipation Notes have been outstanding since May 1,

17 If at any time the amounts in the Debt Service Fund and Debt Service Reserve Fund are insufficient to make required payments on the Bonds, and upon depletion of the Accounts in the General Fund as provided in the General Resolution, the Trustee may withdraw from the Bond Anticipation Note Debt Service Fund amounts sufficient to pay interest on or principal of the Bonds then due. No such withdrawal shall ever be made from any Note Capitalized Interest Account. (5) Replacements and Contingencies Account in the General Fund. $50,000 per month to accumulate and maintain a required balance of $3,000,000 in the Account. The amount of the required monthly deposit to or balance in the Account may be increased from time to time by the Agency. As of December 31, 2012, such Account had a balance of $4,117,954. (6) General Reserve Account in the General Fund. The amount, if any, remaining in the Revenue Fund after payment or credit to all other Funds and Accounts. The amounts in the General Reserve Account may be used by the Agency to pay debt service on subordinate obligations and to pay costs of extensions and improvements to the System, may be deposited in the Revenue Fund as a credit against payments due under the Agreements or may be deposited in the Construction Fund, the Bond Redemption Account or the Note Redemption Account. All Funds and Accounts are held by the Trustee with the exception of the Operation and Maintenance Fund which is held by the Agency. Additional Obligations The Agency may issue additional parity obligations for certain purposes, subject to the tests identified and described under Additional Agency Obligations in the Summary of Certain Provisions of the General Resolution, included as APPENDIX A. The Agency may also issue Additional Agency Obligations to refund Agency Obligations. Member Deposits As security for payment of its obligations under the Agreements, each Member is obligated to deposit and maintain with the Trustee in each fiscal year an amount equal to the maximum amount of the Member s estimated share of the Agency s costs for any month in that fiscal year. Any amounts withdrawn from a Member s Deposit Fund by the Trustee to pay amounts due and unpaid from such Member under the Agreement are required to be immediately restored by the Member. Certain Covenants The Agency covenants in the General Resolution to establish fees and charges for its provision of water, including amounts due under the Agreements, sufficient to provide Revenues at all times adequate, together with other available amounts, to meet all of its requirements under the Resolutions, including making in timely fashion all the required deposits and credits in the various Funds and Accounts. The Agency covenants in the General Resolution to adopt a budget not less than 30 days prior to the beginning of each fiscal year which will set forth a detailed estimate of the Revenues and the Expense of Operation and Maintenance of the Agency for such fiscal year. In accordance with the Agreements, the budget will also set forth the estimated share of costs of the Agency by month for each Member. Following the end of each quarter of each fiscal year, the Agency shall review its estimates set forth in the budget for such year and, in the event such estimates do not substantially correspond with actual Revenues and the Expense of Operation and Maintenance or other requirements, adopt an amended budget. -7-

18 See Summary of the General Resolution included as APPENDIX A for further discussion of certain of the terms and provisions of the General Resolution. General RESERVE FUND INSURANCE POLICY In 1986, Municipal Bond Insurance Association, now known as MBIA Corp. ( MBIA ) issued a surety bond (the Reserve Fund Insurance Policy ) in the amount of $10,830,750. The Reserve Fund Insurance Policy expires in accordance with its terms on May 1, The Reserve Fund Insurance Policy provides that upon notice to MBIA of insufficient amounts being on deposit in the Debt Service Fund to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the Bonds up to the face amount of the Reserve Fund Insurance Policy, MBIA will promptly deposit with the Trustee an amount sufficient to pay the principal of and interest on the Bonds or the available amount of the Reserve Fund Insurance Policy, whichever is less. The available amount of the Reserve Fund Insurance Policy is the face amount of the Reserve Fund Insurance Policy less the amount of any previous deposits by MBIA with the Trustee, which have not been reimbursed by the Agency. The Agency is required to reimburse MBIA, within one year, the amount of any deposit made by MBIA with the Trustee under the Reserve Fund Insurance Policy. Such reimbursement shall be made only after all required deposits to the Operation and Maintenance Fund and the Debt Service Fund have been made. The Agency is required to reimburse MBIA, with interest, until the face amount of the Reserve Fund Insurance Policy is reinstated before any deposit is made to the General Fund. No optional redemption of Bonds may be made until any Reserve Fund Insurance Policy is so reinstated. The Reserve Fund Insurance Policy will be held by the Trustee in the Debt Service Reserve Fund and is provided in addition to the Agency depositing funds or Investment Obligations equal to the Debt Service Reserve Requirement for outstanding Bonds. The Reserve Fund Insurance Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any 2013 Bonds. The Reserve Fund Insurance Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of 2013 Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. The Reserve Fund Insurance Policy also does not insure against nonpayment of principal of or interest on the 2013 Bonds resulting from the insolvency, negligence or any other act or omission of the Trustee or any other paying agent for the 2013 Bonds. The following information has been furnished by National Public Finance Guarantee Corporation ( National ) for use in this Official Statement. National does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Reserve Fund Insurance Policy and National set forth under the heading National Public Finance Guarantee Corporation. Additionally, National makes no representation regarding the 2013 Bonds or the advisability of investing in the 2013 Bonds. Neither the Agency, the Trustee, nor the Underwriter make any representation as to the completeness or the accuracy of information provided by National or as to the absence of material adverse changes in such information subsequent to the date hereof. -8-

19 Reorganization of MBIA On February 18, 2009, MBIA Inc., the parent holding company of MBIA Corp., announced that it had established a new U.S. public finance financial guarantee insurance company within the MBIA Inc. group by restructuring MBIA Corp. and its subsidiaries through a series of transactions (the Transactions ). As part of the Transactions, (i) the stock of MBIA Insurance Corp. of Illinois (which, effective March 19, 2009 was renamed National Public Finance Guarantee Corporation), an existing public finance financial guarantee insurance subsidiary of MBIA Corp., was transferred to a newly established intermediate holding company, National Public Finance Guarantee Holdings, Inc. ( National Holdings ), also a subsidiary of MBIA Inc.; and (ii) effective January 1, 2009, MBIA Corp. ceded to National all of MBIA Corp. s U.S. public finance business, including the Reserve Fund Insurance Policy, pursuant to that certain Amended and Restated Quota Share Reinsurance Agreement between MBIA Corp. and National (the Reinsurance Agreement ). Pursuant to the Reinsurance Agreement, MBIA Corp. paid to National approximately $2.89 billion (which equals the net unearned premium, loss and loss adjustment expense reserves, net of the 22 percent ceding commission that MBIA Corp. received) as a premium to reinsure the policies covered under the Reinsurance Agreement (each a Covered Policy ). The Reserve Fund Insurance Policy is a Covered Policy. National was further capitalized with $2.09 billion from funds distributed by MBIA Corp. to MBIA Inc. as a dividend and return of capital, which was ultimately contributed to National through National Holdings. The Reinsurance Agreement provides a cut-through provision enabling the holder of a Covered Policy to make a claim for payment directly against National. In addition, National has also issued second-to-pay policies for the benefit of the holder of a Covered Policy, granting such policyholder the right to make a claim directly against National if MBIA Corp. did not honor such claim. National Public Finance Guarantee Corporation National is an operating subsidiary of MBIA Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts of or claims against National. National is domiciled in the State of New York and is licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia and the Commonwealth of Puerto Rico. The principal executive offices of National are located at 113 King Street, Armonk, New York and the main telephone number at that address is (914) Regulation As a financial guaranty insurance company licensed to do business in the State of New York, National is also subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for National, limits the classes and concentrations of investments that are made by National and requires the approval of policy rates and forms that are employed by National. State law also regulates the amount of both the aggregate and individual risks that may be insured by National, the payment of dividends by National, changes in control with respect to National and transactions among National and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. -9-

20 Financial Strength Ratings of National below: National s current financial strength ratings from the major rating agencies are summarized Agency Ratings Outlook S&P BBB Developing Moody s Baa2 Negative Each rating of National should be evaluated independently. The ratings reflect the respective rating agency s current assessment of the creditworthiness of National and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the 2013 Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the 2013 Bonds. National does not guaranty the market price of the 2013 Bonds nor does it guaranty that the ratings on the 2013 Bonds will not be revised or withdrawn. Recent Litigation In the normal course of operating its business, National may be involved in various legal proceedings. Additionally, MBIA Inc. may be involved in various legal proceedings that directly or indirectly impact National. For information concerning material litigation involving National and MBIA Inc., including but not limited to certain actions relating to the Transactions entitled ABN AMRO Bank N.V. et al. v. MBIA Inc. et al., ABN AMRO Bank N.V. et al. v. Eric Dinallo, in his capacity as Superintendent of the New York State Insurance Department, the New York State Insurance Department, MBIA Inc. et al., and Barclays Bank PLC., et al. v. James Wrynn, in his capacity as Superintendent of the New York State Insurance Department, the New York State Insurance Department, MBIA Inc. et al., see MBIA Inc. s Annual Report on Form 10-K for the year ended December 31, 2011 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, which is hereby incorporated by reference into this appendix and shall be deemed to be a part hereof, as well as the information posted on MBIA Inc. s web site at MBIA Inc. and National are defending against the aforementioned actions and expect ultimately to prevail on the merits. There is no assurance, however, that they will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on National s ability to implement its strategy and on its business, results of operations and financial condition. Other than as described above and referenced herein, there are no other material lawsuits pending or, to the knowledge of National, threatened, to which National is a party. National Financial Information Based upon statutory financials, as of September 30, 2012, National had cash and admitted assets of $5.9 billion (unaudited), total liabilities of $4.1 billion (unaudited), and total surplus of $1.8 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning National, see the financial statements of MBIA Inc. and its subsidiaries as of December 31, 2011, prepared in accordance with generally accepted accounting -10-

21 principles, included in the Annual Report on Form 10-K of MBIA Inc. for the year ended December 31, 2011, which are hereby incorporated by reference into this appendix and shall be deemed to be a part hereof. Incorporation of Certain Documents by Reference The following documents filed by MBIA Inc. with the Securities and Exchange Commission (the SEC ) are incorporated by reference into this Official Statement: MBIA Inc. s Quarterly Report on Form 10Q for the quarter ended September 30, 2012; MBIA Inc. s Annual Report on Form 10-K for the year ended December 31, 2011; Any documents, including any financial statements of National that are included therein or attached as exhibits thereto, or any Form 8-K, filed by MBIA Inc. pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of MBIA Inc. s most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the 2013 Bonds offered hereby shall be deemed to be incorporated by reference in this appendix and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this appendix, shall be deemed to be modified or superseded for purposes of this appendix to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this appendix. MBIA Inc., files annual, quarterly and special reports, information statements and other information with the SEC under File No Copies of MBIA Inc. s SEC filings (including MBIA Inc. s Quarterly Report on Form 10Q for the quarter ended September 30, 2012 and Annual Report on Form 10-K for the year ended December 31, 2011) are available (i) over the Internet at the SEC s web site at (ii) at the SEC s public reference room in Washington D.C.; (iii) over the Internet at MBIA Inc. s web site at and (iv) at no cost, upon request to National at its principal executive offices. General WATER SUPPLY AGREEMENTS The Water Supply Agreements (the Agreements ) between the Agency and the Members are substantially uniform for each Member except for identifying information, quantities of water, distance and capacity shares (as defined below) and points of delivery of water. Each Member executed an Agreement with the Agency on December 31, 1982, for a term of 40 years, extending to December 31, The Agreements are irrevocable and may not be terminated or amended in any manner except as provided in the General Resolution. The Agreements were amended in 1997 to reduce Agency storage requirements. See THE WATER SUPPLY SYSTEM Existing Facilities. Take or Pay Obligation. Each Member is obligated, on a take or pay basis, to purchase or in any event to pay for a minimum annual quantity of water regardless of the ability of the Agency to complete the System or to supply water. Such payments are not subject to reduction whether by setoff or -11-

22 otherwise and are not conditional upon the performance or nonperformance of any party of any agreement for any cause whatever. At the time the Agreements were executed, five of the Members (Elk Grove Village, Hanover Park, Hoffman Estates, Mount Prospect and Schaumburg) were home rule municipalities, which had been authorized under provisions of the Illinois Constitution, without statutory authority, to enter into the Agreements, including the take or pay provisions. In January 1985, the State of Illinois adopted legislation to state explicitly the Illinois law on the take or pay aspects of the Agreements. This legislation, which governs non-home rule municipalities, provides: Any such contract made by a municipality for a supply of water with a municipal joint action water agency under the provisions of the Intergovernmental Cooperation Act may contain provisions whereby the municipality is obligated to pay for such supply of water without setoff or counterclaim and irrespective of whether such supply of water is ever furnished, made available or delivered to the municipality or whether any project for the supply of water contemplated by any such contract is completed, operable or operating and notwithstanding any suspension, interruption, interference, reduction or curtailment of the supply of water from such project. Any such contract with a municipal joint action water agency may provide that if one or more of the other purchasers of water defaults in the payment of its obligations under such contract or a similar contract made with the supplier of the water, one or more of the remaining purchasers party to such contract or such similar contract shall be required to pay for all or a portion of the obligations of the defaulting purchasers. This was stated to be declarative of existing Illinois law. Subsequent to the adoption of this legislation, the two Members (Rolling Meadows and Streamwood), which were then non-home rule municipalities, each ratified the Agreements. Both Members are now home rule units. In the opinion of Bond Counsel, the Agreements, including without limitation, the unconditional and irrevocable obligation of Members to make payments under the Agreements notwithstanding a failure, delay, interruption or reduction of water delivery by the Agency, are valid and legally binding limited obligations of the Members, payable from the revenues of the Members respective waterworks or combined waterworks and sewerage systems, in accordance with the terms of the Agreements. Source of Payment. The payments required to be made by each Member under the Agreements are required to be made solely from the revenues derived from the operation of the waterworks or combined waterworks and sewerage system of the Member, as applicable (each a Local System ). Members are not prohibited by the Agreements, however, from using any other available funds to make the payments under the Agreements. Each Member has agreed that its obligation to make payments required by the Agreements from revenues of its Local System presently is, and will continue to be, payable from the operation and maintenance account of its Local System and from all other accounts of its Local System in which there are available funds. Under the Agreements, each Member agrees that all future revenue bond ordinances of the Member will provide that amounts payable under the Agreements will have priority over the claim of those future revenue bonds to revenues of the Local System. No Member has any outstanding Local System revenue bonds. -12-

23 Quantities Requirements Obligation. Each Member agrees to purchase all Lake Water necessary to meet all water demands of its Local System, but not in excess of the Member s State Water Allocation or the Maximum Quantity, which the Agency is obligated to deliver on any day. The Members may not purchase water from any other source except to the extent that a Member s total requirement exceeds the Maximum Quantity that it is entitled to purchase from the Agency. Minimum Quantity Purchase Obligation. Each Member must purchase or in any event pay for a Minimum Quantity of Lake Water. The aggregate of the Minimum Quantities of the Members corresponds to the minimum purchase obligation of the Agency under the Chicago Contract. Hanover Park and Rolling Meadows used less than the Minimum Quantity Purchase Obligations in 2012 but paid such amount. See THE CHICAGO CONTRACT. The Minimum Quantity may not be reduced or assigned under any circumstance. Minimum Quantity Purchase Obligations and Actual Fiscal 2012 Purchases (Millions of Gallons per year) Minimum Quantity Actual Purchases Purchase Obligations Fiscal Year Fiscal Year Member Elk Grove Village... 2, , , , , , ,692 1,748 1,803 Hanover Park... 1, , ,029 Hoffman Estates... 1, , , , , , ,549 1,570 1,592 Mount Prospect... 1, , , , , , ,090 1,123 1,155 Rolling Meadows Schaumburg... 3, , , , , , ,685 2,843 3,001 Streamwood... 1, , , , , , Total... 12, , , , , , ,490 9,855 10,220 Maximum Quantity. Each Member has the right to purchase each day 1.8 times the Maximum Quantity (expressed in terms of average daily consumption) as set forth in the Agreement although the total amount of Lake Water sold by the Agency to a Member in any year may not exceed its State Water Allocation, including any allowable excess then in effect. The Agency s obligation to furnish water is subject to the receipt of sufficient water under the Chicago Contract and to the ability of the Agency to deliver Lake Water to the Member. The Maximum Quantity of a Member may be reduced (but not below that Member s Minimum Quantity purchase obligation), assigned or increased subject to the approval of the Agency and provided that the sum of Maximum Quantities for all Members and other Agency customers shall in any fiscal year at least equal the original total of Maximum Quantities. Any change in the Maximum Quantity will in no way alter the Minimum Quantity purchase obligation of each Member. The Maximum Quantities for representative fiscal years for each Member are set forth below. -13-

24 Maximum Quantity and Actual Fiscal Year Purchases (Millions of Gallons per year) Actual Purchases Fiscal Year Maximum Quantity Purchase Obligations Fiscal Year Member Elk Grove Village.. 2, , , , , , ,323 3,417 3,515 Hanover Park... 1, , ,825 1,913 2,006 Hoffman Estates... 1, , , , , , ,047 3,074 3,103 Mount Prospect... 1, , , , , , ,141 2,195 2,251 Rolling Meadows ,541 1,586 1,632 Schaumburg... 3, , , , , , ,249 5,541 5,851 Streamwood... 1, , , , , , ,486 1,525 1,565 Total... 12, , , , , , ,612 19,252 19,921 Payment Provisions Shares of Agency Costs. Each Member has agreed and is obligated to pay monthly its allocated share of all of the Agency s costs. Amounts due each month are composed of: (a) Water Purchase Costs, (b) Power Costs, (c) Operation and Maintenance Costs, (d) Fixed Costs, (e) Underconsumption Costs, if any, and (f) Member Default Costs, if any. The definition of each cost and the method of calculation is summarized below. (a) Water Purchase Costs are the amounts payable under the Chicago Contract and amounts payable for any water purchased from any other sources. A Member s share of Water Purchase Costs will be that proportion which the delivered quantity of water to that Member in the preceding month under the Agreement was to the total delivered quantities for all Members in that preceding month. (b) Power Costs are the amounts required (or reasonably estimated to be required in the case of a future month) to be paid by the Agency in a month for energy used in connection with operation of the System. A Member s share of the Power Costs will be that proportion which the delivered quantity of water for that Member in the preceding month under the Agreement was to the total delivered quantities for all Members in that preceding month. Prior to System commencement these costs were shared equally among Members. (c) Operation and Maintenance Costs are the amounts required by the General Resolution to be paid to the Agency s Operation and Maintenance Fund each month except Water Purchase Costs and Power Costs. A Member s share of such costs will be that proportion which the Member s water use in the preceding year (or Minimum Quantity if larger) was of the total water use (or Minimum Quantity if, larger) of all the Members. Prior to System commencement these costs were shared equally among Members. (d) Fixed Costs are all amounts required by the Resolutions to be paid to the various Accounts in the Debt Service Fund and the General Fund. A Member s share of such costs will be determined for each fiscal year according to a weighted cost allocation formula set forth in the Agreement. The formula takes into account the Member s distance share as defined below, the Member s capacity share as defined below, and two times the Member s proportionate share of total water use for the most recent calendar year. A capacity share is the Member s proportionate share of the capacity of the System for the remaining term of the Agreement. A distance share is based upon the distance of the Member from the connection point of the System to the Chicago system. A water use share for a year will be the same ratio used for allocating Operation and Maintenance Costs. A reconciliation of the -14-

25 allocation of Fixed Costs will be made annually to reflect each Member s actual water use (or Minimum Quantity, if larger). (e) Underconsumption Costs are amounts the Agency must pay under the Chicago Contract as a result of failure of the Agency in a year to accept delivery of the minimum purchase quantity under the Chicago Contract. Those costs will be shared among those Members who failed to take their Minimum Quantity in that year. (f) Member Default Costs are the shares of costs unpaid in a month. If in any month any Member fails to make any payment due, then the unpaid obligation of that Member will be pro-rated among the other Members and will be payable by them, without limitation, in addition to their regular monthly payments due, in the next month. Payment Terms. The Agency bills each Member by the fifth day of each month and payments are due on the 25th day of that month with late charges of three percent on all unpaid amounts. Interest accrues on all unpaid amounts at the rate of one percent per month or portion thereof beginning with the following month. Member Deposit. To secure its obligation under the Agreement, each Member is required to maintain on deposit with the Agency an amount equal in each fiscal year to the sum of its estimated maximum monthly share of Water Purchase Costs, Power Costs, Operation and Maintenance Costs and Fixed Costs. In the event a Member is delinquent in remitting its monthly payment, the deposit will be applied by the Trustee to the Member s Payment for that month. The Member is required to immediately restore the deposit to the required amount. Credits. The Agency agrees to cause the Trustee to deposit available amounts in the General Reserve Account to the Revenue Credits Account and to credit those amounts to Members which have paid Member Default Costs until the amount so deposited and credited equals the amount of Default Costs and interest on that amount to the date of the credit. The Agency also agrees to credit to Members any amounts which are transferred from the General Reserve Account for deposit in the Revenue Credits Account on the basis of (i) their shares of Fixed Costs if the amounts are derived from investment income or from an initial capital contribution of an additional municipality or an Agency customer or (ii) their shares of all costs if the amounts are derived from sales of water to Agency customers or from late charges paid by Members. Certain Covenants Rate Covenant. Each Member has covenanted to establish and collect rates and charges for its customers as required to produce revenues sufficient (a) to make all payments under the Agreement and to pay all other costs of operation and maintenance of the Member s Local System, (b) to make all deposits in all funds and accounts required by ordinances providing for bonds to be paid from revenues of the Member s Local System and (c) to pay the principal of and interest on all bonds of the Member which by their terms are payable from the revenues of the Member s Local System. Such rates and charges are not required, however, to be sufficient to produce amounts required for making payments under the Agreement during the longer of the immediately succeeding six months or the remainder of the current fiscal year to the extent that available amounts sufficient for paying amounts required for those payments shall have been set aside in cash or investments in a separate account in the revenue fund of the Member s Local System designated for those purposes and appropriated to make payments under the Agreement. Certain Other Member Covenants. Each Member covenants among other things to operate, maintain and improve its Local System and to use its best efforts to continue serving all present customers -15-

26 of the Local System. Each Member also agrees to cooperate in the construction of the System and in the issuance of the Agency s obligations. Each Member covenants to use its best efforts to maintain a State Water Allocation that satisfies its water requirements from time to time. Agency Covenants. The Agency covenants, among other things, to operate and maintain the System in order to be able to perform its obligation to supply Lake Water to the Members. Consequently, the Agency also covenants to acquire and construct Additional Facilities as they are needed to supply sufficient quantities of Lake Water to the Members. In connection with both covenants, the Agency s additional agreement to perform all of its covenants under the General Resolution incorporates a requirement that at least once in each three-year period it will cause the Consulting Engineer to prepare and file reports with the Agency and the Trustee stating which repairs, replacements, renewals or additions are necessary or expected to become necessary to keep the System in proper working order and condition and in good repair and whether the deposits being made in the Replacements and Contingencies Account, and the Replacements and Contingencies Requirement, are adequate to provide and maintain an adequate Account for paying reasonably projected Costs of Replacements and Contingencies and, if they are not, any recommendation as to changes in the monthly deposits and the Replacements and Contingencies Requirement. Burns & McDonnell, the Consulting Engineer to the System, completed its most recent triennial report in 2011 (the Bond Resolution Triennial Condition and Operating Report 2011 ). Defaults Member Defaults. The following events are defaults of a Member under the Agreement: (1) failure to pay when due any amounts payable under the Agreement; (2) failure to maintain its Member deposit in the required amount; (3) failure to take delivery of the Member s water requirements as described above under Quantities Requirements Obligation ; and (4) failure to perform any other obligation and continuation of that failure after 30 days written notice of failure. In the event of a default described in (1) or (2) above the Agency will have the right to apply the Member deposit and to collect the late charge and interest provided in the Agreement. In the event of a default described in (2), (3) or (4) above the Member agrees that the Agency will have the right to mandamus and specific performance. The specified remedies are in addition to any other remedy which the Agency may have at law or in equity or under the Agency Agreement or under the Agreement. Agency Default. Failure by the Agency to perform its obligation under the Agreement will be an Agency default unless such failure is caused by an event or condition beyond the reasonable control of the Agency. In the event of default by the Agency, the Member may bring an action against the Agency including an action in equity and actions for mandamus and specific performance but the Member agrees that it will have no right whether or not there is an Agency default to cancel or rescind the Agreement, to withhold payments due or to become due under the Agreement to recover amounts previously paid under the Agreement or to reduce or set-off against amounts due or to become due under the Agreement and will have no claim on the Operation and Maintenance Fund or any Fund or Account held by the Trustee. -16-

27 THE AGENCY Background The Agency was established in March 1981 upon adoption of an Agency Agreement (the Agency Agreement ), pursuant to the Act by the Village of Elk Grove Village, Village of Hanover Park, Village of Hoffman Estates, Village of Mount Prospect, City of Rolling Meadows, Village of Schaumburg and the Village of Streamwood (each, a Member ). The Members form a contiguous geographic service area which is located 15 to 30 miles northwest of downtown Chicago. Under the Agency Agreement, additional members may join the Agency upon the unanimous approval of the Members. The Agency was created to finance, build and operate a water supply system to deliver Lake Water to the Members of the Agency. The Agency is empowered to plan, finance, construct and operate the System. It is also authorized to contract for the purchase and resale of water. Members may, for the purpose of and upon request by the Agency, exercise the power of eminent domain and convey property so acquired to the Agency at cost. The rates established by the Agency for the sale of water, as well as all other aspects of its budgeting, operating and financing activities, are not currently subject to regulation by any state or federal administrative agency. All property, income and receipts of or transactions by the Agency are presently exempt from property or income taxation. Organization and Management Board of Directors. The Agency is governed by the Board, which consists of one elected official from each Member. The current Directors are listed on the second page of this Official Statement. Each Director has an equal vote. The officers of the Agency are appointed by the Board, Members of the Board and officers serve without compensation. The Board determines the general policy of the Agency, makes all appropriations, approves contracts for sale or purchase of water, adopts resolutions providing for the issuance of bonds or notes by the Agency, adopts by-laws, rules and regulations, and exercises such powers and performs such duties as may be prescribed in the Agency Agreement or the by-laws. The individuals listed below currently serve as the duly appointed officers of the Agency: Officer Affiliation Al Larson Chairman President Village of Schaumburg Michael Janonis Secretary Manager Village of Mount Prospect Christine Tromp Treasurer Director of Finance Village of Elk Grove Village Executive Committee. The Executive Committee of the Agency consists of the Village Manager or other appointed official of each Member as designated by the Member. The current members of the Executive Committee are listed on the second page of this Official Statement. Each member of the Executive Committee is entitled to one vote on the Committee. The officers of the Executive Committee are elected from its members. Marc Hummel, Manager of Hanover Park, presently serves as chairman. The daily operation of the Agency is conducted under the direction and supervision of the Executive Committee, subject to the general policy decisions of the Board. The Executive Committee is responsible for carrying out the policy decisions of the Board. Members of the Executive Committee serve without compensation. -17-

28 Administration. The full-time staff of the Agency consists of 14 employees. The Executive Director acts as the administrative head of the Agency and is directly responsible to the Executive Committee for the administration of the Agency. The Executive Director is appointed by the Executive Committee on the basis of administrative and executive qualifications. Joseph G. Fennell. Executive Director, joined the Agency in February, Prior to that time, Mr. Fennell served as Director of Public Services for the Village of Woodridge, Illinois. Mr. Fennell is a graduate of Lewis University and holds a Master s Degree in Public Administration from Northern Illinois University. The Deputy Director is appointed by the Executive Committee and reports to the Executive Director. The Deputy Director is responsible for the development of payroll systems, investments, maintenance of financial records and reports, and aspects of the capital and operating budgets of the Agency. Kevin Lockhart, Deputy Director, became associated with the Agency in June, Prior to that time Mr. Lockhart spent eight years in banking and over 18 years in finance positions in state and local government. Mr. Lockhart is a graduate of Illinois State University with a degree in Finance and earned his MBA from Lewis University. Steven Pittman was appointed Water Operations Manager in November Mr. Pittman was employed by the City of Evanston, Illinois, for sixteen years prior to his appointment to his present position, serving as chief of the Pumping Division and Maintenance Supervisor. He has a Class A Illinois Water Operator s License and a supervising Electrician s License from the City of Chicago. Existing Facilities THE WATER SUPPLY SYSTEM The System, completed in April 1986 at a cost of $114.5 million (which included $13.7 million of net capitalized interest), receives its water supply from the City of Chicago at the Main Pumping/Storage Station located at O Hare Airport (the O Hare Site ). Ground storage reservoirs at the O Hare Site serve the dual roles of the terminal point of the Chicago delivery system and the suction source for the Agency s Main Pumping Station. The System includes pumping stations, reservoirs to receive Lake Water from Chicago, standpipe storage facilities, a looped transmission main network and multiple delivery points to furnish water to each member. The System includes about 55 miles of transmission mains the sizes of which range from 90 inches in diameter at the O Hare Site to 12 inches for certain lines extending into areas of the periphery of the System. The Agency s transmission mains convey water from the Main Pumping Station to each Member community. Storage volume and pumping capacity have been sufficient to meet all System demands to date. The Main Pumping Station has seven pumps with a total rated capacity of 128 MGD and a firm rated capacity of 98 MGD. All Lake Water received from the City is pumped from the Main Pumping Station located at the O Hare Site into a looped transmission main network at sufficient pressure to serve the entire water demands of three Members and a portion of a fourth Member s demands directly. Four satellite booster pumping stations pump water directly from the looped transmission main network into transmission mains at sufficiently elevated pressures to serve the other Members. -18-

29 The System has been designed and constructed with the following distinctive features. The size and configuration of the transmission mains as well as the location of storage and pumping facilities were designed to minimize the energy requirements of the System. Each pumping station has a standby power source in the event of a localized or regional power failure, thereby improving the reliability of the System. The looped transmission system was designed to increase the reliability of service in the event of failure of a portion of the main. The locations of the water delivery points for each Member were selected to minimize local capital expenditures and also to maintain reliability of service in the event of delivery point malfunctions. Water is also delivered into each Members Local System, rather than receiving reservoirs, allowing the System pressure to be used by each Member to distribute water. Every three years the Agency causes to be prepared a Consulting Engineer Report that evaluates the sufficiency of the System to meet customer demands. The Bond Resolution Triennial Condition and Operating Report 2011 dealt primarily with the present system conditions, the operations of the System and the proper level of the Replacements and Contingencies Account. The Bond Resolution Triennial Condition and Operating Report 2011 indicated that water storage volume at the O Hare Site is sufficient to meet the contractual minimums under the Agreements of 20 million gallons. The report also concluded that the System is complete and that its components are operating satisfactorily and are properly maintained. All System improvements and replacements for the foreseeable future are funding through existing revenues available to the Agency. System Operation Pumpage data for the years 2004 to 2012 is set forth in the following table. Fiscal Year Daily Pumpage Average Maximum Summary Pumpage Data (Millions of Gallons) Total Annual Sales Delivered Total Annual Sales Purchased Percent Unaccounted For (1) ,628 12, % ,242 12, % ,231 13, % ,124 12, % ,064 12, % ,428 11, % ,185 11, % ,853 11, % ,683 10, % (1) Members are billed monthly for the total cost of water purchased from the City of Chicago. -19-

30 Agency sale of water to the Members Local Systems is set forth in the following table below along with historical pumpage figures for the Members. Fiscal Year Ended April 30 Historical Pumpage of Members and Agency Sales to Members Local Systems (Millions of Gallons per year) Elk Grove Village Hanover Park Hoffman Estates Mount Prospect Rolling Meadows Schaumburg Streamwood Total Historical Pumpage , ,402 1, , , , ,389 1,759 1,034 2, , ,542 1,017 1,817 1,654 1,073 3,624 1,204 12, ,619 1,067 1,977 1,577 1,068 3,773 1,248 13, , ,955 1, ,505 1,210 12, , ,938 1, ,118 1,168 11, , ,755 1, ,079 1,077 10,682 Agency Sales , ,937 1, ,608 1,245 12, , ,955 1, ,505 1,210 12, ,332 1,081 2,125 1,655 1,001 3,761 1,275 13, ,102 1,073 1,910 1, ,447 1,201 12, ,099 1,016 1,952 1, ,421 1,236 12, , ,835 1, ,213 1,205 11, , ,938 1, ,118 1,168 11, , ,792 1, ,082 1,084 10, , ,755 1, ,079 1,077 10,683 The following table shows the variable and fixed debt service costs billed by the Agency to each Member in fiscal 2012, along with the average cost per 1,000 gallons of water purchased by each Member. Fiscal 2008 Billing Summary Members Variable Costs Debt Service Total Percent Cost (1000) Gal Elk Grove Village.. $ 370,111 $1,505,256 $ 1,875, % $2.41 Hanover Park , ,531 1,033, % 2.54 Hoffman Estates ,765 1,369,024 1,700, % 2.39 Mount Prospect , ,652 1,233, % 2.38 Rolling Meadows , , , % 2.46 Schaumburg ,965 2,449,310 3,056, % 2.41 Streamwood , , , % 2.25 Total... $2,118,550 $8,540,839 $10,659, % -20-

31 Fiscal 2009 Billing Summary Members Variable Costs Debt Service Total Percent Cost (1000) Gal Elk Grove Village... $417,126 $ 974,587 $ 1,391, % $2.35 Hanover Park , , , % 2.51 Hoffman Estates ,909 9,805,332 10,179, % 2.35 Mount Prospect , , , % 2.32 Rolling Meadows , , , % 2.29 Schaumburg ,068 1,586,683 2,270, % 2.30 Streamwood , , , % 2.32 Total... $2,387,671 $14,767,422 $17,155, % Fiscal 2010 Billing Summary Members Variable Costs Debt Service Total Percent Cost (1000) Gal Elk Grove Village... $ 397,282 $ 905,171 $1,302, % $2.71 Hanover Park , , , % 2.81 Hoffman Estates , ,087 1,298, % 2.64 Mount Prospect , , , % 2.67 Rolling Meadows , , , % 2.69 Schaumburg ,670 1,478,964 2,146, % 2.66 Streamwood , , , % 2.67 Total... $2,371,831 $5,543,116 $7,914, % Fiscal 2011 Billing Summary Members Variable Costs Debt Service Total Percent Cost (1000) Gal Elk Grove Village.. $ 395,902 $ 768,275 $1,164, % $2.77 Hanover Park , , , % 2.93 Hoffman Estates , ,379 1,289, % 2.86 Mount Prospect , , , % 2.81 Rolling Meadows , , , % 2.94 Schaumburg ,986 1,315,629 2,022, % 2.80 Streamwood , , , % 2.86 Total... $2,539,461 $4,975,901 $7,515, % -21-

32 Fiscal 2012 Billing Summary Members Variable Costs Debt Service Total Percent Cost (1000) Gal Elk Grove Village.. $ 440,136 $ 970,414 $1,410, % $2.97 Hanover Park , , , % 3.16 Hoffman Estates ,846 1,075,381 1,501, % 3.05 Mount Prospect , ,901 1,029, % 3.02 Rolling Meadows , , , % 3.16 Schaumburg ,371 1,661,774 2,399, % 2.97 Streamwood , , , % 3.05 Total... $2,598,207 $6,285,088 $8,883, % Historical Agency Operating Results ($000s Except Unit Costs) (1) Annual Water Purchased (million gallons)... 12,906 12,491 13,614 12,397 12,344 11,687 11,398 11,032 10,871 Annual Water Delivered (million gallons)... 12,628 12,242 13,231 12,124 12,064 11,428 11,185 10,853 10,683 Revenue from Members... $25,357 $27,099 $29,525 $27,663 $29,187 $28,075 $30,074 $30,655 $32,267 Average Cost of Water Delivered (1000) gal... $2.01 $2.21 $2.23 $2.28 $2.40 $2.34 $2.68 $2.83 $3.03 Variable Costs Water Purchase: Unit Cost (1000) gal... $1.194 $1.272 $1.308 $1.330 $1.388 $1.637 $1.834 $2.010 $2.104 Annual Cost... $15,924 $16,020 $17,885 $16,455 $17,171 $18,912 $20,831 $21,961 $22,761 Operation & Maintenance: Power... $1,090 $1,066 $1,155 $1,114 $1,152 $1,117 $1,209 $1,067 $601 Personnel... 1,163 1,230 1,315 1,211 1,441 1,519 1,584 1,659 1,691 Insurance & Others Total O&M Costs... $2,882 $3,034 $3,362 $3,212 $3,288 $3,394 $3,523 $3,483 $3,172 Total Variable Costs... $18,806 $19,054 $21,247 $19,667 $20,459 $22,306 $24,354 $25,444 $25,933 Net Operating Revenues... 6,551 8,045 8,278 7,996 10,035 6,704 5,720 5,211 6,334 Interest Expense... (4,717) (4,385) (4,423) (4,246) (3,262) (3,697) (3,562) (3,550) (3,524) Interest Earnings (2) ,076 1,258 1, Net Annual Change... 2,757 4,473 4,931 5,008 7,932 3,929 2,964 2,483 3,612 Account Balances Member Deposits (3)... 2,494 2,517 2,591 2,707 2,816 2,846 2,845 2,846 2,847 O&M Reserve (4)... 1,956 1,992 2,105 2,267 2,399 2,459 2,461 2,453 2,447 Replacements & Contingencies (5)... 4,220 4,123 4,164 4,224 4,268 4,212 4,212 4,217 4,117 Total... $8,670 $8,632 $8,860 $9,198 $9,483 $9,517 $9,518 $9,516 $9,411 Notes: (1) Source: Annual Reports. (2) Earnings on Debt Service Fund and Replacements and Contingencies Account only. Interest earnings on Member Deposits and the O&M Fund Reserve are credited directly to those accounts and are not reported as non-operating income. (3) Equal to maximum estimated variable and fixed costs for one month. (4) Equal to one month's estimated variable costs. (5) Current minimum required balance is $3.0 million. -22-

33 Projected Agency Operating Results (1) (audited) 2012 (current budget) 2013 (proposed budget) 2014 (estimated) 2015 Delivered Water (000) (1)... $10,682,767 11,583,000 11,642,000 11,642,000 Purchased Water (000)... 10,870,507 11,814,660 11,874,840 11,874,840 Cost per 1000 Gallon... $2.01 $2.64 $3.04 $3.63 Chicago Rate (blended)... $2.10 $2.64 $3.04 $3.50 Total Water Cost... $22,828,065 $31,190,702 $36,099,514 $43,071,232 Power... $588,928 $867,581 $766,990 $782,330 Administration , , , ,141 Pumping & Distribution... 1,759,544 1,914,901 1,919,769 2,015,757 O&M Capital , , , ,000 Debt Service Payments... 3,522,263 12,202,236 7,927,313 7,928,688 Debt Service Reserve... 1,025,532 1,250,825 Surplus... 2,604,271 (4,719,128) 9,689,977 11,267,601 12,517,701 12,858,741 Total... $32,518,042 $42,458,303 $48,617,215 $55,929,973 Surplus Balance Over Previous Year... $9,165,586 $5,293,800 $5,346,738 $5,400,205 Total Costs % 30.60% 14.50% 15.00% Average Cost to Members Net Rate Increase % 20.40% 13.90% 15.00% (1) Unaccounted for water estimated at 2%. THE CHICAGO CONTRACT The Agency has entered into a water purchase agreement (the Chicago Contract ) with the City of Chicago (the City ) for a term of 40 years, extending to June 24, 2022, to provide Lake Water for resale to its seven Members and, with the prior written consent of the City, to any additional Members or Agency customers. Payments by the Agency to the City began in March 1986, with commencement of operation of the System. The City s obligation to furnish Lake Water will not exceed in any calendar day in any calendar year the following daily amounts expressed in million gallons per day. Maximum Daily Supply From Through End of MGD Last full calendar year within term of agreement

34 The quantities of Lake Water Supplied by the City to the Agency, on an annual basis, will not exceed the aggregate State Water Allocations, including any allowable excess, in effect from time to time for the Members and Agency customers. The Agency is obligated to purchase, or in any event to pay for, annually no less than the following amounts of Lake Water expressed in million gallons per year ( MGY ). Maximum Annual Purchase Amounts From Through End of MGD , , Last full calendar year within term of agreement 10,220 The Agency may purchase its water needs in excess of the minimum annual purchase amounts from any other source. The cost of water purchased from the City may not exceed the lowest volume rate (including any volume discounts) fixed by the City for Lake Water furnished through meters to any customer of the City, currently $2.89 per 1,000 gallons, including a credit for timely payment. The City will bill the Agency quarterly for Lake Water delivered in the preceding three months and annually for any quantities the Agency failed to purchase under the minimum annual purchase commitment. The City may require the Agency to maintain a deposit of an amount equal to the estimated bill at the then prevailing rate for Lake Water furnished during a 30-day period. To date, the City has not asked for any such deposit. The City has leased to the Agency, and granted to it related easements on, certain properties located on the O Hare Site for the construction of certain transmission mains, a pumping station, receiving reservoirs and other facilities constituting a portion of the System as originally constructed to provide the interconnection with the City s water mains terminating on the eastern boundary of the airport. The facilities and reservoirs located on the O Hare Site were purchased by the City from the Agency at a price of $38,767,034 plus the cost of any additional facilities and reservoirs located at the O Hare Site through a buy-back arrangement with periodic payments to the Agency in the form of credits against charges for Lake Water supplied to the Agency. For amounts up to the minimum annual purchase amounts, there was a credit equal to 12 percent of the net charges. For amounts furnished during a calendar year above the minimum annual purchase amounts the credits were equal 25 percent of net charges. The Agency credits were received through fiscal 2003 at which time the value of the credits aggregated the cost of the facilities subject to the buy-back. Conveyance of the properties by the Agency to the City will not occur until the later of (i) the date all of the obligations issued in whole or in part to finance the System as originally constructed and additions thereto, and any obligations issued to refund any of such obligations, have been paid in full or (ii) such time as the credits granted by the City equal the costs of the properties, including construction and related financing costs, as determined under the contract. All facilities and reservoirs situated on the O Hare Site are under the control of the Agency during the term of the contract without regard to whether title to the properties is held by the Agency or the City. The Agency will continue to operate, maintain, replace and improve the facilities and reservoirs provided that the cost of any expansions or additions are to be added to buy-back costs. -24-

35 CHICAGO DEPARTMENT OF WATER The City of Chicago Department of Water operates one of the largest municipal water systems in the world. The City s system currently serves the City of Chicago and 123 suburban communities with a total service area covering approximately 4,232 square miles and a population according to the 2000 Census of approximately 5 million, which is 60.44% of the Chicago Primary Metropolitan Statistical Area. The system s average daily pumpage is some 1,000 MGD. The replacement value of the system is estimated at over $5 billion. The Department is headed by the Commissioner of Water, currently John Spatz, who is appointed by the Mayor with the advice and consent of the City Council. The Commissioner reports directly to the Mayor. Rates are established by ordinance of the City Council. All suburban municipal customers purchasing water for resale and located within the boundaries of the Greater Chicago Metropolitan Sanitary District are charged the same rate as City residents. Under the Chicago Contract the City may not impose a surcharge for service to the Agency or by the Agency outside the limits of the Metropolitan Water Reclamation District of Greater Chicago or outside the corporate limits of any Member. Effective Date City of Chicago Water Rate History Net Water Rate ($ Per 1,000 Gallons) Total Increase January 1, 1977 $0.458 May 1, % May 1, May 1, September 13, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, January 1, Supply and Water Quality. The City reports that its water quality consistently meets or exceeds federal and state standards. The Department of Water operates and maintains two of the world s largest water treatment plants. The James W. Jardin plant, completed in 1964, has been rated as capable of providing a sustainable filtering capacity of 1,440 MGD, and the South Water Filtration Plant, opened in -25-

36 1944, is rated at 720 MGD. The combined peak treatment capability of 2,550 MGD is over 2-1/2 times the current average daily pumpage. All related facilities are sized commensurately. The City has three active intake tunnels which extend several miles into Lake Michigan, and two shore intakes. The primary distribution network and pumping system has an aggregate capacity equal to the peak treatment capability of the two purification plants combined. The system contains more than 4,200 miles of transmission mains. STATE WATER ALLOCATIONS The amount of water which the State of Illinois and its political subdivisions are permitted to divert from Lake Michigan is limited by an order of the United States Supreme Court to approximately 3,200 cubic feet per second. The allocation of Lake Water among Illinois communities is the responsibility of the Illinois Department of Natural Resources. Each Member has received an allocation of Lake Water from the Department for the period ending September 30, An allocation of Lake Water may be modified or terminated in certain circumstances: (1) evidence of a substantial change in circumstances which results in a change in water needs; (2) violation of a permit condition or failure or neglect properly to utilize an allocation; (3) a determination that a total reallocation is necessary to best utilize the Lake Michigan diversion to preserve the health, safety and welfare of the Northeastern Illinois Metropolitan Region; or (4) a determination that needs for dilution in the Sanitary and Ship Canal have changed. In the determination of a modification proceeding, the Department is required to determine the effect of a modification on any securities, debt obligations or contractual obligations of any permittee whose allocation is the subject of the modification proceeding and is required to avoid any material adverse effect on those obligations. One condition to the allocation permits is that the total amount of water not accounted for by a Member not exceed specified percentages (currently eight percent). All members are operating below the eight percent lost water requirement as of the most recent report of the Department of Natural Resources (December of 2012). Certain Members water consumption over the 40-year period, as projected for purposes of system sizing, is in excess of their allocations. All Members have covenanted in the Water Supply Agreement to use their best efforts to have their allocations meet their water requirements. The State of Illinois, the seven other Great Lakes States, the United States and the Metropolitan Water Reclamation District of Greater Chicago, on July 29, 1996, entered into a Memorandum of Understanding ( MOU ) with respect to water diversion from Lake Michigan. The MOU was designed to address a dispute among the States as to an alleged violation of the decrees of the Supreme Court of the United States limiting the total amount of water diverted by the State of Illinois and its political subdivisions. The other Great Lakes States had contended that the water being diverted exceeded the Supreme Court s limit of 3200 cubic feet per second. The MOU sets forth measures governing the measurement of Lake Michigan diversion. It also provides for undertakings by the State of Illinois to reduce diversion to the Supreme Court limit and to under-divert until past over-diversions are made up. This could, in effect, reduce the total allowed diversion until 2015 to below 3100 cubic feet per second. Among the State of Illinois undertakings are measures to reduce leakage at the Chicago River Controlling Works, reducing diversion for navigation makeup, and to initiate allocation proceedings by the State regarding all domestic and industrial Illinois Lake Michigan water issues. The MOU also provides that the State of Illinois shall use its power to ensure that municipalities using water from Lake Michigan comply with allocation limits, unaccountedfor flow requirements and legally required conservation measures. -26-

37 water. The State of Illinois has not initiated any proceeding to reduce allocations of Lake Michigan The Agency is unable to predict whether any of these undertakings will have any effect on allocations of any of its Members. The current allocations of Members, as of the 2009 allocations determined by the Illinois Department of Natural Resources, are shown in the following table: State Water Allocations (Millions of Gallons per day) Actual Usage Elk Grove Village Hanover Park Hoffman Estates Mount Prospect Rolling Meadows Schaumburg Streamwood Total Source: Illinois Department of Natural Resources Order LMO Allocations in intervening years shall be determined by straight line interpolation. Service Area Location and Customers SERVICE AREA OF THE AGENCY The service area of the Agency consists of the combined geographical area served by the respective Local Systems presently operated by the Members. The service area of the Agency includes approximately square miles and currently encompasses some 82,477 residential and 7,491 nonresidential water users. The aggregate number of water users, by class of customer, served by the Members during the periods indicated are set forth in the following table: Aggregate Customers Served by Members Most Recent Fiscal Year Ended (1) Residential... 63,698 75,003 85,409 86,703 Commercial and Industrial... 4,973 5,867 7,481 8,024 Other , Total... 69,474 82,117 92,966 84,727 (1) Fiscal Year ends on April 30 for Elk Grove Village, Hanover Park and Schaumburg; Fiscal Year ends on December 31 for Hoffman Estates, Mount Prospect, Rolling Meadows and Streamwood. -27-

38 Approximately 25% of the water users in Mount Prospect are and will continue to be supplied water by Citizens Utilities Company of Illinois, a for-profit corporation operating pursuant to a franchise granted by the Village of Mount Prospect. Statistical information relating to the Local System of Mount Prospect does not include customers of Citizens Utilities Company of Illinois. Service Area Population The historical and projected growth in population of each Member is set forth in the table below. Also shown are comparable statistics relating to the City of Chicago and Cook County, Illinois. Each of the Member communities is a home rule unit under the 1970 Illinois Constitution and accordingly has no tax rate or debt limits nor is required to conduct a referendum to authorize the issuances of debt or to increase property taxes. Comparative Population Statistics Projected (2) Elk Grove Village... 28,907 33,429 34,727 33,127 41,745 Hanover Park... 28,850 32,895 38,278 37,973 45,305 Hoffman Estates... 37,272 46,561 49,495 51,895 60,189 Mount Prospect... 52,634 53,170 56,265 54,167 63,830 Rolling Meadows... 20,167 22,591 24,604 24,099 26,568 Schaumburg... 53,305 68,586 75,386 74,277 90,944 Streamwood... 23,456 30,987 36,407 39,858 42,174 Total , , , , ,755 City of Chicago... 3,005,072 2,783,726 2,896,016 2,695,598 3,264,099 Cook County... 5,233,655 5,105,067 5,376,741 5,194,675 6,182,487 Note: (1) Source: Chicago Metropolitan Agency for Planning, 2040 Forecast of Population, Households and Employment, developed in support of the GO TO 2040 comprehensive regional plan adopted on October 13, (2) Chicago Metropolitan Agency for Planning has prepared a 2040 population forecast for long-term planning purposes. They have not prepared a population estimate for the Chicago Metropolitan Area for 2020 or any date between 2010 and Service Area Economics The following table sets forth for each Member its equalized assessed valuation as of January 1 of each of the last five tax years and its per capita assessed value and total true and per capita true value for 2012 (based upon January 1, 2012 property values). Taxes are not pledged to make payments under the Water Supply Agreements. -28-

39 Levy Years Elk Grove Village Equalized Assessed Valuation for Taxing Purposes ($000s except per capita amounts) Hanover Park Hoffman Estates Mount Prospect Rolling Meadows Schaumburg Streamwood 2002 $1,916,292 $539,115 $1,176,428 $1,355,301 $813,117 $3,293,594 $598, ,883, ,449 1,171,201 1,321, ,489 3,236, , ,067, ,180 1,343,232 1,491, ,703 3,699, , ,200, ,485 1,451,885 1,594, ,039 3,959, , ,212, ,946 1,508,313 1,597, ,178 3,913, , ,541, ,188 1,773,558 1,870,325 1,085,114 4,500, , ,639, ,205 1,885,037 1,979,496 1,152,685 4,724,118 1,002, ,497, ,756 1,912,123 2,017,411 1,146,153 4,552,440 1,052, ,340, ,653 1,739,393 1,834,681 1,003,838 4,052, , ,113, ,936 1,553,747 1,694, ,794 3,614, ,322 None of the Members has outstanding revenue bonds payable from their water systems. Each of the Members has general obligation debt outstanding that is rated by one or more rating services, which ratings are subject to change and express only the views of the respective rating agency. There is no assurance that the ratings will continue for any period of time or that they will not be revised or withdrawn by the rating agency if, in its sole judgment, circumstances so warrant. In any case, the 2013 Bonds are not a debt of any Member and the taxing power of any Member has not been pledged as security for the 2013 Bonds. The present ratings of each of the Members are set out below: Member General Obligation Bond Ratings Moody s Standard & Poor s Elk Grove Village... Aaa NR Hanover Park... Aa2 AA Hoffman Estates... Aa2 AA+ Mount Prospect... Aa2 AA+ Rolling Meadows... A1 A+ Schaumburg... Aaa AA+ Streamwood... NR AA -29-

40 The following table sets forth the population of the Members along with details of dwelling units and median home values monthly rent and family income for each Member. For comparison purposes, the same statistics are set forth for Cook County and the State of Illinois. Census Statistics Population, Dwelling Units and Wealth Members Population 2010 Census Number of Dwelling Units Percent Increase From Percentage Increase Schaumburg... 74, % 31,799 33, % Mount Prospect... 54, ,585 21, Hoffman Estates.. 51, ,034 18, Elk Grove Village 33, ,278 13, Hanover Park... 37, ,105 11, Streamwood... 39, ,095 13, Rolling Meadows. 24, ,923 9, Total , % 115, , % Cook County... 5,194, % 1,974,181 2,173, % State of Illinois... 12,830, % 4,591,779 5,267, % Members 2010 Median Home Value 2010 Median Monthly Rent 2010 Median Family Income Schaumburg... $261,000 $1,147 $82,865 Mount Prospect , ,608 Hoffman Estates ,500 1,028 99,441 Elk Grove Village.. 298, ,208 Hanover Park , ,519 Streamwood ,700 1,410 76,643 Rolling Meadows ,700 1,048 72,932 Cook County , ,039 State of Illinois , ,236 The following table sets forth a comparison of the distribution of the 2000 median family income of the Members and related areas. Median Family Income Less Than $24,999 $25,000-$49,999 $50,000-$99,999 Over $100,000 Members % 18.67% 38.49% 35.65% Cook County % 21.37% 32.31% 29.16% State of Illinois % 21.06% 35.27% 29.50% -30-

41 The following table sets forth information regarding the number and value of building permits issued by the Members for the year shown. Number of Permits Building Permits Issued by the Members Value Number of Permits Value Number of Permits Value Elk Grove Village... 7 $12,780,000 3 $890,000 1 $320,000 Hanover Park ,755, ,013, Hoffman Estates ,025, ,305, ,640,383 Mount Prospect ,933, ,942, ,075,000 Rolling Meadows ,974, ,105, ,260,000 Schaumburg ,924, ,535, ,468,750 Streamwood ,844, ,535, ,433,450 Number of Permits Number of Number of Value Permits Value Permits Value Elk Grove Village... 0 $0 1 $340,000 0 $0 Hanover Park ,072, ,672,880 Hoffman Estates ,163, ,957, ,400 Mount Prospect ,688, , ,288 Rolling Meadows , ,000 Schaumburg , ,000 Streamwood ,940, , ,735,939 Source: U.S. Bureau of the Census Includes only new privately-owned residential housing units authorized by building permits. Residential housing units include single family, two family, three and four family and five or more family units. Unemployment Rates of Members With at Least 33,000 Population Elk Grove Village % 4.7% 4.5% 3.3% 3.5% Hanover Park % 6.7% 6.3% 4.8% 6.4% Hoffman Estates % 4.9% 4.5% 3.4% 3.5% Mount Prospect % 4.6% 4.4% 3.2% 3.3% Schaumburg % 4.7% 4.4% 3.2% 3.6% Streamwood % 6.1% 5.8% 4.2% 5.2% Cook County % 6.7% 6.4% 4.7% 5.1% State of Illinois % 6.2% 5.7% 4.5% 5.3% U.S % 5.5% 5.1% 4.6% 4.8% The trends indicated in the tables presented above may or may not reflect current trends. -31-

42 INFORMATION RELATING TO THE MEMBERS Each Member is a municipal corporation existing under the laws of the State of Illinois. Each Village or City has a professional Manager who oversees the daily operations of the Village or City, respectively. Each Member owns and operates its Local System for its customers. Water rates for Members are established by their respective Village Boards or City Councils and are not subject to regulation by any agency. LITIGATION The Agency is not a party to, nor has it been threatened with, any litigation concerning the Agency Agreement, the 2013 Bonds, the Water Supply Agreements or the Chicago Contract. No Member is a party to any litigation concerning the Agency, the 2013 Bonds or the Water Supply Agreements. At the time of delivery of the 2013 Bonds, the Agency will certify that there is no litigation or other proceeding pending or, to the knowledge of the Agency threatened, in any court, agency or other administrative body (either state or federal) restraining or enjoining the issuance, sale or delivery of the 2013 Bonds or the collection of Revenues, or in any way questioning or affecting (i) the proceedings under which the 2013 Bonds are to be issued, (ii) the validity of any provision of the 2013 Bonds, the General Resolution or the 2013 Series Resolution, (iii) the respective pledges by the Agency under the General Resolution or (iv) the legal existence of the Agency, the title to office of the present officials of the Agency, or the authority of the Agency to own and operate the System. TAX MATTERS Federal tax law contains a number of requirements and restrictions which apply to the 2013 Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The Agency has covenanted to comply with all requirements that must be satisfied in order for the interest on the 2013 Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the 2013 Bonds to become includible in gross income for federal income tax purposes retroactively to the date of issuance of the 2013 Bonds. Subject to the Agency s compliance with the above referenced covenants, under present law, in the opinion of Bond Counsel, interest on the 2013 Bonds is excludable from the gross income of the owners thereof for federal income tax purposes, and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but interest on the 2013 Bonds is taken into account, however, in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. In rendering its opinion, Bond Counsel will rely upon certifications of the Agency and its Members with respect to certain material facts within the Agency s and such Members knowledge and upon the mathematical computation of the yield on the 2013 Bonds and the yield on certain investments by Robert Thomas CPA, LLC, Certified Public Accountants. Bond Counsel s opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result. The Internal Revenue Code of 1986, as amended (the Code ), includes provisions for an alternative minimum tax ( AMT ) for corporations in addition to the corporate regular tax in certain cases. The AMT, if any, depends upon the corporation s alternative minimum taxable income ( AMTI ), which -32-

43 is the corporation s taxable income with certain adjustments. One of the adjustment items used in computing the AMTI of a corporation (with certain exceptions) is an amount equal to 75% of the excess of such corporation s adjusted current earnings over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). Adjusted current earnings would include certain tax-exempt interest, including interest on the 2013 Bonds. Ownership of the 2013 Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax exempt obligations. Prospective purchasers of the 2013 Bonds should consult their tax advisors as to applicability of any such collateral consequences. The issue price (the Issue Price ) for each maturity of the 2013 Bonds is the price at which a substantial amount of such maturity of the 2013 Bonds is first sold to the public. The Issue Price of a maturity of the 2013 Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the cover page hereof. Owners of 2013 Bonds who dispose of 2013 Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase 2013 Bonds in the initial public offering, but at a price different from the Issue Price or purchase 2013 Bonds subsequent to the initial public offering should consult their own tax advisors. If a 2013 Bond is purchased at any time for a price that is less than the 2013 Bond s stated redemption price at maturity, the purchaser will be treated as having purchased a 2013 Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a 2013 Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser s election, as it accrues. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such 2013 Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the 2013 Bonds. An investor may purchase a 2013 Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as bond premium and must be amortized by an investor on a constant yield basis over the remaining term of the 2013 Bonds in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax-exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor s basis in the 2013 Bond. Investors who purchase a 2013 Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Bond s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the 2013 Bond. There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the 2013 Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the 2013 Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. The Internal Revenue Service (the Service ) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is -33-

44 includible in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the 2013 Bonds. If an audit is commenced, under current procedures the Service may treat the Agency as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the 2013 Bonds until the audit is concluded, regardless of the ultimate outcome. Payments of interest on, and proceeds of the sale, redemption or maturity of, tax-exempt obligations, including the 2013 Bonds, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any 2013 Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any 2013 Bond owner who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes. Interest on the 2013 Bonds is not exempt from present State of Illinois income taxes. Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the 2013 Bonds. Prospective purchasers of the 2013 Bonds should consult their tax advisors regarding the applicability of any such state and local taxes. FINANCIAL STATEMENTS The audited financial statements of the Agency (the Financial Statements ) set forth in APPENDIX C have been examined by Sikich LLP, Aurora, Illinois, certified public accountants (the Auditor ), whose report on the Financial Statements for the Fiscal Year ended April 30, 2012 is included as APPENDIX C. The Financial Statements, including the independent auditor s report accompanying the Financial Statements, has been prepared by the Auditor, and approved by formal action of the Board of Directors of the Agency. The Agency has not requested the Auditor to update information contained in the Financial Statements; nor has the Agency requested that the Auditor consent to the use of the Financial Statements in this Official Statement. Other than as expressly set forth in this Official Statement, the financial information contained in the Financial Statements has not been updated since the date of the Financial Statements. The inclusion of the Financial Statements in this Official Statement in and of itself is not intended to demonstrate the fiscal condition of the Agency since the date of the Financial Statements. CREDIT RATINGS Moody s and S&P have assigned ratings for the 2013 Bonds of Aa2 and AA-, respectively. No application was made to any other rating agency for the purpose of obtaining an additional rating on the 2013 Bonds. A rating reflects only the views of the rating agency assigning such rating and an explanation of the significance of such rating may be obtained from such rating agency. The Agency has furnished to the rating agencies certain information and materials relating to the 2013 Bonds and the Agency, including certain information and materials which may not have been included in this Official Statement. Generally, rating agencies base their ratings on such information and materials and investigations, studies and assumptions by the respective rating agency. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies if, in their judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 2013 Bonds. -34-

45 The Agency and the Underwriter have undertaken no responsibility either to bring to the attention of the registered owners of the 2013 Bonds any proposed change in or withdrawal of such ratings or to oppose any such revision or withdrawal (other than to comply with any applicable continuing disclosure requirements). CONTINUING DISCLOSURE The Agency, the Village of Schaumburg ( Schaumburg ) and Speer Financial, Inc., as dissemination agent, will enter into a Continuing Disclosure Undertaking (an Undertaking ) for the benefit of the beneficial owners of the 2013 Bonds to send certain information annually and to provide notice of certain events to certain information to the Municipal Securities Rulemaking Board (the MSRB ) pursuant to the requirements of Section (b)(5) of Rule 15c2-12 (the Rule ) adopted by the Securities 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 below under THE UNDERTAKING. With the exception of its 2010 Audited Financial Statement, the Agency did not file its Annual Financial Information Disclosure or Audited Financial Statements (described below) in a timely manner for the fiscal years ended April 30, 2008 through The Agency subsequently filed the truant Annual Financial Information Disclosure and Audited Financial Statements along with a failure to file notice relating thereto on EMMA. The Agency has engaged Speer Financial, Inc. as its Dissemination Agent (described below) to assist with ensuring compliance with its continuing disclosure obligations going forward. Schaumburg has represented that it has not failed to comply in all material respects with each and every undertaking previously entered into by it pursuant to the Rule. A failure by the Agency or Schaumburg to comply with the Undertaking will not constitute a default under the Resolutions or the Agreements and beneficial owners of the Bonds are limited to the remedies described in the Undertaking. See THE UNDERTAKING - Consequences of Failure to Provide Information. The Agency and Schaumburg will be required to report any failure to comply with the Undertaking in accordance with the Rule. Any broker, dealer or municipal securities dealer must consider such report 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. THE UNDERTAKING The following is a brief summary of certain provisions of the Undertaking and does not purport to be complete. The statements made under this caption are subject to the detailed provisions of the Undertaking, copies of which are available upon request from the Agency. Annual Financial Information Disclosure The Agency covenants that it will disseminate its Annual Financial Information (as described below) and the Agency and Schaumburg covenant that they will disseminate their Audited Financial Statements (as described below) annually to the MSRB in such manner and format and accompanied by identifying information as is prescribed by the MSRB or the Commission at the time of delivery of such information. The Agency and Schaumburg are required to deliver such information within 210 days after the last day of their respective fiscal year. MSRB Rule G-32 requires all EMMA filings to be in word- -35-

46 searchable PDF format. This requirement extends to all documents to be filed with EMMA, including financial statements and other externally prepared reports. Annual Financial Information means: (1) Minimum Quantity Purchase Obligations and Actual Fiscal 2012 Purchases (as it pertains to Actual Purchases); (2) Maximum Quantity and Actual Fiscal Year Purchases (as it pertains to Actual Purchases); (3) Summary Pumpage Data ; (4) Historical Pumpage of Members and Agency Sales to Members Local Systems; (5) Fiscal 2012 Billing Summary; and (6) Historical Agency Operating Results; The Annual Financial Information will be filed each year within 210 days after the last day of the Agency s Fiscal Year. The Audited Financial Statements means the audited annual financial statements of the Agency or Schaumburg, as applicable, prepared in accordance with generally accepted accounting principles as modified by the positions of the Governmental Accounting Standards Board and as may further be modified by express requirements of State law, to be provided to EMMA with the Annual Financial Information, or within 30 days after availability to the Agency or Schaumburg, as applicable, if later. Reportable Events Disclosure The Agency and Schaumburg covenant that they will disseminate in a timely manner (not in excess of ten business days after the occurrence of the Reportable Event) Reportable Events Disclosure to the MSRB in such manner and format and accompanied by identifying information as is prescribed by the MSRB or the Commission or the State at the time of delivery of such information. MSRB Rule G-32 requires all EMMA filings to be in word-searchable PDF format. This requirement extends to all documents filed with EMMA, including financial statements and other externally prepared reports. The Events are: Principal and interest payment delinquencies Non-payment related defaults, if material Unscheduled draws on debt service reserves reflecting financial difficulties Unscheduled draws on credit enhancements reflecting financial difficulties Substitution of credit or liquidity providers, or their failure to perform Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax-exempt status of the security Modifications to the rights of security holders Bond calls, if material, and tender offers Defeasances Release, substitution or sale of property securing repayment of the securities, if material Rating changes -36-

47 Bankruptcy, insolvency, receivership or similar event of the Agency* The consummation of a merger, consolidation, or acquisition involving the Agency or the sale of all or substantially all of the assets of the Agency, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement to any such actions, other than pursuant to its terms, if material Appointment of a successor or additional trustee or the change of name of a trustee, if material Amendment; Waiver Notwithstanding any other provision of the Undertaking, the Agency and Schaumburg may amend the Undertaking, and any provision of the Undertaking may be waived, if: (a) The amendment or the waiver is made in connection with a change in circumstances that arises from a change in legal requirements, including, without limitation, pursuant to a no-action letter issued by the Commission, a change in law, or change in the identity, nature, or status of the Agency or Schaumburg, or type of business conducted; or (b) The Undertaking, as amended, or the provision, as waived, would have complied with the requirements of the Rule at the time of the primary offering, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver does not materially impair the interests of the beneficial owners of the Bonds, as determined either by parties unaffiliated with the Agency and Schaumburg (such as Bond Counsel) or by approving vote of Bondholders pursuant to the terms of the General Resolution at the time of the amendment. In the event that the Commission or the MSRB or other regulatory authority approves or requires Annual Financial Information or notices of a Reportable Event to be filed with a central post office, governmental agency or similar entity other than the MSRB or in lieu of the MSRB, the Agency and Schaumburg shall, if required, make such dissemination to such central post office, governmental agency or similar entity without the necessity of amending the Undertaking. Consequences of Failure to Provide Information The Agency or Schaumburg, as applicable, shall give notice in a timely manner to the MSRB, of any failure to provide disclosure of Annual Financial Information and Audited Financial Statements when the same is due under the Undertaking. In the event of a failure of the Agency or Schaumburg to comply with any provision of the Undertaking, the beneficial owner of any 2013 Bond may seek mandamus or specific performance by court order, to cause the Agency or Schaumburg, as applicable, to comply with the obligations under the Undertaking. A default under the Undertaking shall not be deemed an Event of Default under the Resolutions or a default under the Agreements and the sole remedy under any Undertaking in the event of any failure of the Agency to comply with the Undertaking shall be an action to compel performance. * This event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the Agency in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Agency, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Agency. -37-

48 Termination of Undertaking The Undertaking shall be terminated if the Agency shall no longer have any legal liability for any obligation on or relating to payment of the 2013 Bonds under the Resolutions. The Agency shall give notice to each NRMSIR or to the MSRB in a timely manner if this paragraph is applicable. Revenue Test For so long as a Member represents 20% or more of the Revenues of the System, as determined annually by the Agency, such Member shall be requested to become a party of the Undertaking subject to Annual Financial Statement and Reportable Events disclosure requirements. If a Member becomes a party to the Undertaking and subsequently drops below 20% of the Revenues of the System, such Member shall be released from the Undertaking. Schaumburg is the only Member currently representing more than 20% of the Revenues of the System. Additional Information Nothing in the Undertaking shall be deemed to prevent the Agency or Schaumburg from disseminating any other information, using the means of dissemination set forth in the Undertaking or any other means of communication, or including any other information in any Annual Financial Information or Audited Financial Statements or notice of occurrence of a material Event, in addition to that which is required by the Undertaking. If the Agency or Schaumburg chooses to include any information from any document or notice of occurrence of a material Event in addition to that which is specifically required by the Undertaking, the Agency or Schaumburg, as applicable, shall have no obligation under the Undertaking to update such information or include it in any future disclosure or notice of occurrence of a material Event. Dissemination Agent The Agency may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Undertaking, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. Speer Financial, Inc. has been appointed as the Dissemination Agent. VERIFICATION OF MATHEMATICAL COMPUTATIONS Robert Thomas, CPA, LLC of Shawnee Mission, Kansas will deliver to the Agency its verification report indicating that it has examined, in accordance with standards established by the American Institute of Certified Public Accounts, the information and assertions provided by the Agency and its representatives. Included in the scope of its examination will be a verification of the mathematical accuracy of the computation of the adequacy of the cash and the maturing principal of, an interest on, the Government Securities deposited in the Bond Redemption Account of the Debt Service Fund to pay, when due and upon redemption principal of and interest on the 2003 Bonds to be Refunded. FINANCIAL ADVISOR The Agency has engaged Speer Financial, Inc. as financial advisor (the Financial Advisor ), in connection with the issuance and sale of the 2013 Bonds. The Financial Advisor will not participate in the underwriting of the 2013 Bonds. The Financial Advisor has assisted in compiling the financial -38-

49 information included in this Official Statement. 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. LEGAL MATTERS Certain legal matters incident to the authorization, issuance and sale of the 2013 Bonds are subject to the approving legal opinion of Chapman and Cutler LLP, as Bond Counsel (the Bond Counsel ), who has been retained by, and acts as, Bond Counsel to the Agency. Bond Counsel has not been retained or consulted on disclosure matters and has not undertaken to review or verify the accuracy, completeness or sufficiency of this Official Statement or other offering material relating to the 2013 Bonds and assumes no responsibility for the statements or information contained in or incorporated by reference in this Official Statement, except that in its capacity as Bond Counsel, Chapman and Cutler LLP has, at the request of the Agency supplied the information under the heading TAX MATTERS and has reviewed the statements describing its approving opinion and the information under the headings DESCRIPTION OF THE 2013 BONDS, SECURITY AND SOURCES OF PAYMENT FOR THE 2013 BONDS, RESERVE FUND INSURANCE POLICY (first paragraph only), WATER SUPPLY AGREEMENTS, and APPENDIX A Summary of Certain Provisions of the General Resolution (excluding forecasts, projections, estimates or any other financial or economic information in connection therewith) solely to determine whether such descriptions and information are accurate summaries of the terms of the Bonds and the Resolutions in all material respects. This review was undertaken solely at the request and for the benefit of the Agency and did not include any obligation to establish or confirm factual matters set forth herein. Certain legal matters in conjunction with the issue of the 2013 Bonds will be passed upon for the Agency by its counsel, Ancel, Glink, Diamond, Bush, DiCianni & Krafthefer, P.C., Chicago, Illinois, and for the Underwriter by its counsel Katten Muchin Rosenman LLP, Chicago, Illinois. UNDERWRITING Subject to the terms and conditions of a purchase contract, the Agency has agreed to sell to William Blair & Company, L.L.C., Chicago, Illinois (the Underwriter ), and the Underwriter has agreed to purchase from the Agency the 2013 Bonds. The 2013 Bonds are being purchased by the Underwriter pursuant to a purchase contract for a purchase price of $22,460, (reflecting an Underwriter s discount of $136,305 and an original issue premium of $1,627,275.85). The initial public offering prices for the 2013 Bonds are set forth on the cover of this Official Statement. The purchase contract provides that the Underwriter will purchase all of the 2013 Bonds if any are purchased. The obligations of the Agency to deliver the 2013 Bonds and of the Underwriter to accept delivery of the 2013 Bonds are subject to various conditions contained in the purchase contract. The Underwriter may offer and sell 2013 Bonds to certain dealers at prices lower than the public offering prices stated on the cover of this Official Statement. -39-

50 AUTHORIZATION The Agency has authorized the distribution of this Official Statement. /s/ Al Larson Chairman, Board of Directors NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY /s/ Joseph G. Fennell Executive Director NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY -40-

51 SUMMARY OF CERTAIN PROVISIONS OF THE GENERAL RESOLUTION APPENDIX A The following is a summary of certain provisions of the General Resolution. This summary is not a full statement of the terms of the General Resolution and accordingly is qualified by reference to the General Resolution and is subject to the full text of the General Resolution. Capitalized terms not defined in this summary or in the Official Statement have the respective meanings set forth in the General Resolution. Resolution and Series Resolutions Constitute Contract In consideration of the purchase and acceptance of any Bonds or Notes ( Agency Obligations ) issued under the General Resolution by their Holders from time to time, the General Resolution constitutes a contract between the Agency and the Holders of the Agency Obligations. The pledges, grants, assignments, covenants, liens and security interests provided for and set forth in the General Resolution to be performed by the Agency will be for the benefit, protection and security of the Holders of any and all of the Agency Obligations. Each Series Resolution will constitute a contract between the Agency and the Holders of the Agency Obligations of that Series. Authorization of Agency Obligations There is authorized and created by the General Resolution an issue of bonds of the Agency, to be known and designated as Water Supply System Revenue Bonds. The Bonds may be issued from time to time in Series of Bonds, as provided by Series Resolutions. The Bonds may be issued for any purpose which under the Act, including as it may be amended, revenue bonds of the Agency may lawfully be issued. There is also authorized and created under the General Resolution an issue of notes of the Agency, to be known and designated as Water Supply System Bond Anticipation Notes. The Bond Anticipation Notes may be issued from time to time in Series of Notes, as provided by Series Resolutions. The Bond Anticipation Notes may be issued for any purpose which under the Act, including as it may be amended, notes of the Agency may lawfully be issued. The Agency Obligations will be revenue bonds or notes. They will be limited obligations of the Agency with a claim for payment, as to interest, premium and principal, solely from Revenues and amounts in the various Funds and Accounts established by the General Resolution, including without limitation, amounts received from eminent domain proceedings, proceeds of insurance or sales or exchanges of property and proceeds of notes and bonds of the Agency, or otherwise, all as and to the extent and in the priority as provided in the General Resolution and the Series Resolutions. Nothing in the General Resolution or in any Series Resolution prohibits the use for any payment of principal or premium of or interest on Agency Obligations of any other funds which lawfully may be used for that purpose. Pledge Effected by the General Resolution Under the General Resolution, the Revenue Fund, the Debt Service Fund, the Debt Service Reserve Fund, the Bond Anticipation Note Debt Service Fund, the General Fund, the Member Deposit Funds, the Construction Fund and the Cost of Issuance Accounts will be funds held in trust for the Holders of the Agency Obligations, as and to the extent provided in the General Resolution and the Series Resolutions and subject to use and disbursement as provided in the General Resolution. All Revenues are, by the General Resolution, pledged and assigned to the Trustee for the benefit of the Holders of the A-1

52 Agency Obligations. The Holders of the Agency Obligations are granted a lien on and security interest in those Revenues, subject to use and disbursement as provided in the General Resolution. The Revenue Fund, the Debt Service Fund, the Debt Service Reserve Fund, the Bond Anticipation Note Debt Service Fund, the General Fund, the Construction Fund, and the Cost of Issuance Accounts are each, by the General Resolution, pledged and assigned to the Holders of the Agency Obligations, and the Holders of the Agency Obligations are granted a lien on and security interest in those Funds and Accounts, subject to use and disbursement as provided in the General Resolution and the Series Resolutions. The Member Deposit Funds are pledged and assigned, up to the amount which will from time to time be required to be deposited in the Revenue Fund from those Funds, to the Holders of the Agency Obligations, and the Holders of the Agency Obligations are granted a lien on and security interest in the Member Deposit Funds to that extent, subject to use and disbursement as provided in the General Resolution. The General Resolution provides that the pledges, assignments, security interests and liens described in this paragraph are valid and binding from the date the Agency Obligations are issued, without any physical delivery or further action, and shall be valid and binding as against, and prior to any claim of all other parties having claims of any and in tort contract or otherwise against the Agency or any Municipality or any other person, irrespective of whether the other parties have notice of the lien or security interest. Providers of Debt Service Reserve Policies are given a similar security interest in the Revenues and various Funds and Accounts, subordinate to the claims of the Holders of the Agency Obligations. The Agency by the General Resolution assigns to the Trustee its rights to enforce the Water Supply Agreements, including without limitation the covenants set forth in the Water Supply Agreements. The Trustee will have the right to enforce the Water Supply Agreements at law or in equity with or without the further consent or participation of the Agency. The Assignment to the Trustee of the right to enforce the Water Supply Agreements will not prevent the Agency from enforcing the Water Supply Agreements on its own behalf to the extent that such enforcement by the Agency will not adversely affect the rights of the Holders of the Agency Obligations and is not inconsistent with any action for enforcement brought by the Trustee. A-2

53 Application of Revenues Revenues are pledged by the General Resolution to payment of principal and Redemption Price of and interest on the Agency Obligations, subject to the provisions of the General Resolution permitting application for other purposes. The General Resolution establishes the following separate and distinct Funds and Accounts for the application of Revenues: Fund Revenue Fund... Operation and Maintenance Fund... Debt Service Fund... Bond Principal Amount Bond Interest Account Bond Capitalized Interest Accounts Bond Redemption Account Debt Service Reserve Fund... Bond Anticipation Note Debt Service Fund... Note Principal Account Note Interest Account Note Capitalized Interest Accounts Note Redemption Account General Fund... Replacements and Contingencies Account General Reserve Account Subordinate Obligations Account Revenue Credits Account Improvements and Extensions Account General Surplus Account Held By Trustee Agency Trustee Trustee Trustee Trustee All Revenues received are to be deposited promptly in the Revenue Fund upon their receipt. Amounts in the Revenue Fund are to be paid as they become available monthly to the following Funds and Accounts in the following order of priority for application as follows: (1) To the Operation and Maintenance Fund, a sum which, together with amounts already on deposit in the Operation and Maintenance Fund, will be sufficient to enable the Agency (a) to pay the Expense of Operation and Maintenance (exclusive of Water Purchase Costs and Power Costs) for the then current month and for the next two months, (b) to pay Water Purchase Costs for the then current month, and (c) to pay Power Costs for the then current month and the next month. That sum is required to be paid to the Operation and Maintenance Fund as soon as practicable in each month after deposit of Revenues in the Revenue Fund. Amounts in the Operation and Maintenance Fund are required to be used by the Agency solely for paying the Expense of Operation and Maintenance. Amounts in the Operation and Maintenance Fund may be disbursed upon such authorization as the Agency may from time to time determine. If at any time the amounts on deposit in the Operation and Maintenance Fund, after the deposits for the month have been made, are insufficient to pay the Expense of Operation and Maintenance in timely fashion, the Trustee is required, upon the request of an Authorized Officer, after all payments to the Operation and Maintenance Fund from the General Reserve A-3

54 Account have been made, as described below, to withdraw moneys from the Replacements and Contingencies Account in order to make up any such deficiency. (2) To the Bond Principal Account and the Bond Interest Account in the Debt Service Fund, an amount equal to the sum of (a) one-sixth of the interest to come due on the Bonds on the next interest payment date (other than interest for the payment of which sufficient amounts have been deposited in a Bond Capitalized Interest Account), until there is on deposit in the Bond Interest Account the full amount of that interest, and (b) beginning the twelfth month prior to the first date that any payment of principal on Bonds is due, one-twelfth of the principal to come due on the next principal payment date on Bonds, either at maturity or pursuant to Sinking Fund Installments, until there is on deposit in the Bond Principal Account the full amount of that principal. All amounts deposited in the Debt Service Fund each month for credit to the Bond Interest Account and the Bond Principal Account are required to be credited equally and ratably to those Accounts in proportion to the amount which is required to be credited in that month to those Accounts. The Trustee will apply amounts in the Bond Principal Account and the Bond Interest Account to the payment of principal of and interest on the Bonds. If at any time, after all payments to the Debt Service Fund from the General Reserve Account have been made, the amounts in the Bond Interest Account or the Bond Principal Accounts are insufficient to pay, respectively, the interest on the Bonds to be paid from the Bond Interest Account as it comes due, or to pay principal on Bonds at maturity or pursuant to Sinking Fund Installments, the Trustee is required to transfer amounts from the following Funds and Accounts in the following order of priority sufficient to make up any such deficiency: the Bond Redemption Account in the Debt Service Fund, the Debt Service Reserve Fund, the Replacements and Contingencies Account (after any required payments to the Operation and Maintenance Fund) and the Bond Anticipation Note Debt Service Fund. (3) To the Bond Redemption Account in the Debt Service Fund, an amount sufficient to reimburse that Account for prior unreimbursed transfers to the Bond Principal Account and the Bond Interest Account. Amounts in the Bond Redemption Accounts shall be used to reimburse any amounts due to Providers of Debt Service Reserve Policies for Surety Bond Payments, and remaining amounts may be used by the Trustee at the direction of any Authorized Officer to redeem or purchase Bonds. No purchase of Bonds is to be at any price in excess of the Redemption Price of the Bonds on optional redemption at the next optional redemption date, plus accrued and unpaid interest to the date of redemption. (4) To the Debt Service Reserve Fund, the amount, if any, required so that the value of this Fund equals the Debt Service Reserve Requirement. Amounts in the Debt Service Reserve Fund shall be transferred by the Trustee to make all needed reimbursements for any Surety Bond Payments, with interest and with all other amounts due to the Providers. Remaining amounts in the Debt Service Reserve Fund are required to be transferred by the Trustee and deposited in the Debt Service Fund to the credit of the Bond Principal Account and the Bond Interest Account, if any deficiency exists in those Accounts, in order to pay the principal of the Bonds at maturity or pursuant to Sinking Fund Installments and to pay interest on the Bonds, as such amounts come due. If in any month, after the deposit of Revenues to the Debt Service Reserve Fund has been made, the value of the Fund remains less than the Debt Service Reserve Requirement, the Trustee is required to transfer moneys from the General Reserve Account (after making any required payments from that Account to the Operation and Maintenance Fund and the Debt Service Fund) A-4

55 to the Debt Service Reserve Fund in an amount so that the value of the Fund after those transfers is equal to the Debt Service Reserve Requirement. If moneys on deposit in the Debt Service Reserve Fund exceed the Debt Service Reserve Requirement, the excess will be deposited in the Debt Service Fund to the credit of the Bond Redemption Account as soon as practicable in May of each year or on any date that Bonds are redeemed. The value of the Debt Service Reserve Fund from time to time shall be the value of the investments of the Fund plus the Surety Bond Coverage of the Reserve Fund Insurance Policy, any Substitute Surety Bond and any Reserve Fund Insurance Policy issued upon the issuance of Additional Bonds. Debt Service Reserve Requirement means, as of any date, an amount equal to the maximum sum of (1) the amount of interest on Bonds (other than interest to be paid from a Bond Capital Interest Account) and (2) principal of Bonds at maturity in case of Serial Bonds and pursuant to Sinking Fund Installments in the case of Term Bonds, which is to come due on all Outstanding Bonds of the Agency in that or any succeeding twelve month period ending on any May 1. Between May 2, 2015 and April 30, 2016, inclusive, and for that period of time only, the Debt Service Reserve Requirement will be 50% of the maximum amount of principal and interest payable in any year on bonds issued under the General Resolution. See SUMMARY STATEMENT DEBT SERVICE RESERVE REQUIREMENT for a discussion of an alternative funding mechanism for the Debt Service Reserve Fund during such period of reduction. (5) To the Note Interest Account and the Note Principal Account in the Bond Anticipation Note Debt Service Fund, an amount equal to the sum of (a) the Notes Interest Deposit Requirement for each Series of Notes for that month, and (b) the Notes Principal Deposit Requirement for each Series of Notes for that month. All amounts deposited in the Bond Anticipation Note Debt Service Fund in each month for credit to the Note Interest Account and the Note Principal Account are required to be credited equally and ratably to those Accounts in proportion to the amounts which are required to be credited in that month to those Accounts. The Trustee will apply amounts in the Note Principal Account and the Note Interest Account to the payment of principal of and interest on the Notes. Amounts in the Bond Anticipation Note Debt Service Fund (other than amounts in a Note Capitalized Interest Account) will be transferred and credited by the Trustee to the Debt Service Fund to the credit of the Bond Principal Account and the Bond Interest Account, if the amounts in those Accounts in the Debt Service Fund, after all transfers to those Accounts from the General Reserve Account, the Bond Redemption Account, the Debt Service Reserve Fund, and the Replacements and Contingencies Account, are insufficient to pay principal of the Bonds at maturity or pursuant to Sinking Fund Installments and to pay interest on the Bonds, as such amounts come due. The term Substitute Surety Bond means a surety bond or other obligation provided by an insurance company or other institution other than NPFGC, which company or institution provides surety bonds or other similar obligations for municipal bonds, which are rated in one of the top two ratings by Moody s Investors Service, Inc. and by Standard & Poor s Ratings Services; provided that the legal rights under the surety bond or other obligation must, in the opinion of nationally recognized bond counsel selected by the Agency, be not less favorable to the holders of Bonds than would be the Surety Bond (Reserve Fund Insurance Policy) issued by MBIA on the date of issuance of the 1985 Bonds; and provided further that if, at the time the Substitute Surety Bond is to become effective, any of the Bonds are covered by a policy of insurance issued by MBIA or NPFGC (other than a Surety Bond), the issuer of the Substitute Surety Bond must be satisfactory to MBIA. The term Surety Bond Coverage shall mean, as of any date, the amount then available to pay principal of and interest on the Bonds under a Surety Bond or Substitute Surety Bond; provided that if the Surety Bond or Substitute Surety Bond is subject to ceasing effectiveness within five years of the date of determination and before the final maturity of the Bond upon the issuance of which it (or its predecessor) was obtained the Surety Bond Coverage shall be reduced by an amount equal to the product of the amount of the Surety Bond Coverage (calculated as if no unreimbursed amounts had been drawn on the Surety Bond or Substitute Surety Bond and without regard to this proviso) and a fraction, the denominator of which shall be 60 and the numerator of which shall be 60 minus the number of months prior to the date the Surety Bond or Substitute Surety Bond is subject to ceasing effectiveness. A-5

56 If at any time the amounts in the Note Interest Account or the Note Principal Account, after credits to those Accounts from the General Reserve Account, are insufficient to pay, respectively, the interest on the Notes to be paid from the Note Interest Account as it comes due, or principal on Notes at maturity or pursuant to mandatory redemption, the Trustee is required to transfer amounts from the following Funds and Accounts in the following order of priority sufficient to make up any such deficiency: the Note Redemption Account in the Bond Anticipation Note Debt Service Fund and the Replacements and Contingencies Account (after any required payment to the Operation and Maintenance Fund and the Debt Service Fund). (6) To the Note Redemption Account in the Bond Anticipation Note Debt Service Fund, an amount sufficient to reimburse that Account for prior unreimbursed transfers to the Note Principal Account and the Note Interest Account. Amounts in the Note Redemption Account shall be used to reimburse any amounts due to Providers of Debt Service Reserve Policies for Surety Bond Payments and remaining amounts may be used by the Trustee at the direction of an Authorized Officer to redeem or purchase Notes. No purchase of Notes is to be at any price in excess of the Redemption Price of the Notes on optional redemption at the next optional redemption date, plus accrued and unpaid interest. (7) To the Replacements and Contingencies Account in the General Fund, an amount equal to the sum of (a) $50,000 (or such greater amount as may be required by any Series Resolution or any other resolution of the Board) and (b) the lesser of (i) the amount by which, prior to any credit in that month, the value of the Replacements and Contingencies Account is less than the Replacements and Contingencies Requirement; or (ii) the total amount which has been paid to the Debt Service Fund, the Bond Anticipation Note Debt Service Fund or the Operation and Maintenance Fund from the Replacements and Contingencies Account which has not been previously reimbursed to the Replacements and Contingencies Account. The Replacements and Contingencies Requirement is the sum of $3,000,000 or such greater amount as may be set by a Series Resolution or pursuant to any other resolution of the Agency from time to time setting a greater requirement. If at any time there are insufficient amounts in the Operation and Maintenance Fund to pay the Expense of Operation and Maintenance as it comes due, in the Debt Service Fund to pay interest on or principal of the Bonds at maturity or pursuant to Sinking Fund Installments, or in the Bond Anticipation Note Debt Service Fund to pay principal of or interest on the Bond Anticipation Notes as such amounts come due, the Trustee is required to withdraw amounts from the Replacements and Contingencies Account and credit those amounts to the Operation and Maintenance Fund, the Debt Service Fund, or the Bond Anticipation Note Debt Service Fund (in that order of priority) to make up any such deficiency. Amounts in the Replacements and Contingencies Account are required to be used to pay the Costs of Replacements and Contingencies. The Trustee is to make disbursements from the Replacements and Contingencies Account upon receiving a direction from an Authorized Officer showing in reasonable detail the purposes for which expenditures are to be made, and stating that the expenditures are for Costs of Replacements and Contingencies. Any directed disbursement of $100,000 or more is to be accompanied by a certificate of the Consulting Engineer stating that any replacements being paid for represent actual replacements or betterments of physical property or that any repair, reconstruction or relocation is an extraordinary item not properly chargeable as an ordinary Expense of Operation and Maintenance. After all required deposits have been made in each month to the Replacements and Contingencies Account and after all required credits and payments have been made to other A-6

57 Funds and Accounts (as described above), the Trustee is required to credit to the General Reserve Account the amount, if any, by which the value of the Replacement and Contingencies Account exceeds the Replacements and Contingencies Requirement. (8) To the General Reserve Account in the General Fund, all amounts in the Revenue Fund not required to be paid to or credited to any other Fund or Account. Amounts credited to the General Reserve Account in any month are required to be credited to the following Accounts in the following priority: (i) to the Subordinate Obligations Account, all amounts which are required so to be credited by the term of any resolution providing for the issuance of such Obligations; (ii) to the Replacements and Contingencies Account the amount by which the value of that Account is less than the Replacements and Contingencies Requirement; (iii) to the Revenue Credits Account all amounts which the Agency from time to time may direct the Trustee so to credit; (iv) to the Improvements and Extensions Account, all amounts which the Agency shall from time to time direct the Trustee so to credit; (v) to the General Surplus Account, all remaining amounts. If at any time there is any deficiency in the amounts credited to or paid to any Funds of Accounts from the Revenue Fund, amounts in the General Reserve Account are required to be used to make up the deficiency in the order in which those Funds or Accounts are to have amounts in the Revenue Fund used to be deposited and credited to those Funds and Accounts, until each such Fund and Account in order has no deficiency of such deposits and credits. Amounts in the General Reserve Account are to be taken from the various sub-accounts of the General Reserve Account and used for such credits in the reverse order of priority specified above. Amounts credited to the Subordinate Obligations Account are to be used by the Trustee for paying interest on, premium, if any and principal of all Subordinate Obligations as such amounts come due or for redeeming or purchasing those Obligations, all pursuant to the requirements, if any, of any resolution of the Agency authorizing the issuance of such Obligations. Amounts in the Revenue Credits Account as of the first day of each month are to be withdrawn from that sub-account and deposited in the Revenue Fund. Amounts credited to the Improvements and Extensions Account are to be used as directed by the Agency to pay costs of the Agency of improving or extending the System, or for repairing or reconstructing the System in the event of loss or damage to it. Amounts in the General Surplus Account may be credited to any other sub-account in the General Reserve Account or paid to the Operation and Maintenance Fund, the Construction Fund, the Bond Redemption Account or the Note Redemption Accounts, directed by an authorized Officer. Member Deposit Funds The General Resolution establishes the Member Deposit Funds, to be held by the Trustee, into which will be paid the deposits of the Members pursuant to the Water Supply Agreement between the Agency and each Member. All amounts received from a Member in excess of the amounts which are due from that Member as payment of its other obligations under its Water Supply Agreement are to be deposited in the Member Deposit Fund for that Member. If any Member shall have failed to pay in full all of the amounts due under the Water Supply Agreement by the end of the first business day following the 25th day of any month, the Trustee is required to withdraw an amount equal to the amount due but unpaid by that Member from the Member Deposit Fund for that Member, deposit that amount in the Revenue Fund and notify the Agency of that Member s failure to pay. Amounts in a Member Deposit Fund which the Trustee s Annual Report states are in excess of the amount required under the Water Supply Agreement with that Member to be A-7

58 maintained in the Member Deposit Fund for that Member are required to be paid by the Trustee to that Member. Interest and other investment earnings on a Member Deposit Fund are required to be deposited in that Fund. Security for Deposits and Investment of Funds The General Resolution provides that all moneys held under the General Resolution by the Trustee will be continuously and fully secured for the benefit of the Agency and the Holders of the Agency Obligations, by Investment Obligations of a market value equal at all times to the amount of the deposit so held by the Trustee. However, it is not necessary for the Trustee to give security for such amount of moneys as is insured by federal deposit insurance, for the Trustee to give security for any moneys which are represented by Investment Obligations purchased under the provisions of the General Resolution as an investment of such moneys, or for any Paying Agent to give security for the deposit of any moneys held by it in trust for the Holders of any Agency Obligations. The General Resolution provides that, upon the direction of an Authorized Officer of the Agency, moneys in the Funds and Accounts established by the General Resolution shall be invested by the Trustee in Investment Obligations so that the maturity date or date of redemption at the option of the holder of such Investment Obligations shall coincide, as nearly as practicable, with the times at which moneys in those Funds and Accounts will be required for the purposes as provided in the General Resolution. Moneys in the Debt Service Reserve Fund are required to be invested by the Trustee upon the direction of an Authorized Officer, in investment Obligations the maximum maturity of which will not be more than five years from the date of such investment; provided, however, that at least 25% of the moneys in the Debt Service Reserve Fund are required from time to time to be invested in Investment Obligations the average maturity of which is not more than two years from the date of any investment. In computing the value of any Fund or Account held by the Trustee under the provisos of the General Resolution, except the Debt Service Reserve Fund, obligations purchased as an investment of moneys in such Fund or Account are to be valued at the cost or market price of such obligations whichever is lower, exclusive of accrued interest. In computing the value of the Debt Service Reserve Fund, Obligations purchased as an investment of moneys in that Fund are to be valued at par, or if purchased at less than par, at their cost to the Agency. The Trustee is required to sell at the best price obtainable, or present for redemption, any obligations purchased by it as an investment whenever it is necessary in order to provide moneys to meet any payment or transfer from the Fund or Account for which such investment was made. The Trustee is required to advise the Agency in writing, on or before the last day of each calendar month, of the details of all investments held for the credit of each Fund and Account in its custody under the provisions of the General Resolution as of the end of the preceding month. Additional Agency Obligations (1) The Agency will not issue any Additional Agency Obligations except as hereinafter described. (2) Additional Agency Obligations may at any time and from time to time be issued as described in this paragraph to pay the Cost of Construction of the Initial Project. Additional Agency Obligations may also at any time and from time to time be issued as described in this paragraph to pay costs of paying, refunding or redeeming any Notes issued for paying the Cost of Construction of the Initial Project (including any Refunding Initial Notes and any other Notes issued to pay, refund or redeem Notes Refunding Initial Notes issued to pay such Cost of Construction or subsequent Notes in a A-8

59 succession of refunding Notes). When Additional Agency Obligations are issued as described in this paragraph for the purpose specified above, proceeds of those Additional Agency obligations may also be used to pay Costs of Issuance, to pay capitalized interest, to fund the Debt Service Reserve Fund, to pay bond insurance premiums or to pay commitment fees to banks under a Bank Credit Facility. Additional Agency Obligations may be issued as described in this paragraph only if the Debt Service Reserve Fund test is met as described in paragraph (5) below (with respect to the issuance of Bonds) and if the contract test is met as described in paragraph (7) below. (3) In addition to Additional Agency Obligations which may be issued as described in paragraph (2) above, the Agency may also at any time and from time to time issue Additional Agency Obligations for the purpose of paying Costs of Construction of any portion of the System. Additional Agency Obligations may also at any time and from time to time be issued, as described in this paragraph to pay, refund or redeem Agency Obligations issued for any purpose described in this paragraph. When Additional Agency Obligations are issued as described in this paragraph for the purposes specified above in this paragraph, proceeds of those Additional Agency Obligations may also be used to pay Costs of Issuance, to pay capitalized interest, to fund the Debt Service Reserve Fund, to pay bond insurance premiums, or to pay commitment fees to banks under a Bank Credit Facility. Additional Agency Obligations may be issued as described in this paragraph only if the Debt Service Reserve Fund test of paragraph (5) below (with respect to the issuance of Bonds) is met, if the Funds and Accounts test of paragraph (6) below is met, if either the contract test of paragraph (7) below is met or the projected earnings test of paragraph (8) below is met, and if the continued operations test of paragraph (9) below is met, if it is applicable as described in that paragraph. The 2013 Bonds are being issued pursuant to the authorization described in the preceding paragraph, with the Agency meeting the contract test of paragraph (7) below, and the continued operations test of paragraph (9) below being inapplicable. (4) (a) Notwithstanding any other provision, the Agency may issue Additional Agency Obligations to pay, redeem or refund Agency Obligations if there will be in the judgment of the Agency no money available to make payments of interest on or principal of those Agency Obligations (at maturity or on Sinking Fund Installment dates) as such amounts come due, and (with respect to the issuance of Bonds) the Debt Service Reserve Fund test of paragraph (5) below is met. (b) In addition to Additional Agency Obligations which may be issued as described in paragraphs (2) and (3) and subparagraph (a) of this Paragraph (4), the Agency may issue Additional Agency Obligations to pay, redeem or refund any Agency Obligations if the total amount of principal of (at maturity or on Sinking Fund Installment dates) and interest on all Agency Obligations to be Outstanding after the issuance of the Additional Agency Obligations will be not in excess of such principal of and interest on all Agency Obligations Outstanding prior to the issuance of those Additional Agency Obligations in each Fiscal Year in which there was to be any principal of (at maturity or on Sinking Fund Installment dates) or interest due on those Outstanding Agency Obligations, if the Debt Service Reserve Fund test of paragraph (5) below is met and if the contract test of paragraph (7) below is met. (5) The Debt Service Reserve Fund test applies to the issuance of Bonds and is met if, as evidenced by the advice of the Trustee, the value of the Debt Service Reserve Fund, upon the application of the proceeds of the bonds and then being issued as provided in the Series Resolution for those Bonds, shall not be less than the Debt Service Reserve Requirement. The value of the Debt Service Reserve Fund from time to time shall be the value of the investments of the Fund plus the Surety Bond Coverage of the Reserve Fund Insurance Policy, any Substitute Surety Bond and any Reserve Fund Insurance Policy issued upon the issuance of the Additional Bonds. A-9

60 (6) The Funds and Accounts test is met with respect to the issuance of Additional Agency Obligations if, as of the end of the last month prior to the date of the issuance of the Additional Agency Obligations, all required deposits, payments and credits required to be made from amounts in the Revenue Fund to the various Funds and Accounts established by the General Resolution shall have been made, there being no deficiency in any such Fund or Account. (7) The contract test is met if the Trustee shall have received a Counsel s Opinion and a certificate of a Consulting Engineer as provided in this paragraph. The Counsel s Opinion shall be from a nationally recognized bond counsel and shall state there are in existence valid and legally binding Water Supply Agreements with Members which shall obligate the Municipalities together, on a take or pay basis, to pay amounts to the Trustee sufficient to make all required deposits in and credits to and payments from the Revenue Fund as provided in the General Resolution during the full period that any such Agency Obligations are to be Outstanding. The certificate of the Consulting Engineer shall state that in the opinion of the Consulting Engineer, the Members will be able to charge and collect sufficient rates and charges for the use of water in order to meet all their costs and obligations payable from water revenues, including the making of timely payment of all amounts under the Water Supply Agreements. (8) The projected earnings test is met if the Agency shall have received a certificate of a Consulting Engineer showing that the Net Revenues which it projects the Agency will receive in the first full Fiscal Year beginning after the additional facilities, the Cost of Construction of which is to be financed by the Additional Agency Obligations, are first placed in service, will not be less than 110% of the maximum amount of interest on and principal of (at maturity or on Sinking Fund Installment dates) all Agency Obligations to be Outstanding upon the issuance of the Additional Agency Obligations, in that or in any future Fiscal Year, in which the previously issued Agency Obligations are to remain Outstanding. Amounts in the Revenue Credits Account which are transferred to the Revenue Fund shall be included in this calculation as Revenues. (9) The continued operations test is applicable when Additional Agency Obligations are being issued to pay the Cost of Construction of any portion of the System. This test is met if the Trustee shall have received a certificate from the Consulting Engineer prior to the time that the Additional Agency Obligations are to be issued that the ability of the Agency to perform its obligations under the Water Supply Agreements will not be impaired by the operations of the System upon the completion of the portion of the System for the payment of the Cost of Construction of which Additional Agency Obligations are then being issued. Maintenance of Existence The Agency is required not to terminate or dissolve itself. It is required not to permit any of the Members to withdraw from the Agency. It is required to take all necessary actions to maintain its existence under the Act. Construction of Additional Facilities The Agency is required to use its best efforts to cause the Additional Facilities to be acquired and constructed when they are needed in order for the Agency to meet its obligations to supply water pursuant to the Water Supply Agreements. Operations and Maintenance of System; Extensions and Improvements The Agency is required at all times to cause the System to be operated properly and in an efficient and economical manner. It is required to cause the System to be maintained, preserved, and kept, in good repair, working order and condition, and is required from time to time to cause to be made, all necessary A-10

61 and proper repairs, replacements, reconstruction and renewals so that at all times the operation of the System may be conducted properly and advantageously. At least once in each three Fiscal Years, beginning with the Fiscal Year starting after the System Commencement Date, the Agency is required to cause to be prepared a report from the Consulting Engineer stating which repairs, replacements, renewals or additions are necessary or expected to become necessary in order to keep the System in proper working order and condition and in good repair. The Agency is required to file the report with the Trustee. Prior to constructing or acquiring any extension, improvement, replacement or renewal of the System the total cost of which the Agency reasonably believes will exceed $200,000, the Agency is required to file with the Trustee a certificate signed by the Consulting Engineer stating that in the signer s opinion, the extension, improvement, replacement or renewal contemplated will not materially adversely affect the ability of the Agency to comply with its obligations under the General Resolutions. Disposition of Property The Agency agrees not to sell, lease or otherwise dispose of any portion of the System, except as follows: (1) The Agency may sell or exchange at any time and from time to time any property or facilities constituting part of the System if it shall determine that such property or facilities are not useful in the operation of the System, and (a) the proceeds of such sale are $100,000 or less, or it shall file with the Trustee a certificate of an Authorized Officer stating, in the opinion of the signer, that the fair market value of the property or facilities exchanged is $100,000 or less, or (b) if the sale proceeds or fair market value exceeds $100,000 there shall be filed with the Trustee a certificate of the Consulting Engineer stating, in the opinion of the signer, that the sale or exchange of such property or facilities will not impair the ability of the Agency to comply during the current or any future Fiscal Year with the provisions of the General Resolution described above under the heading Operations and Maintenance of System; Extensions and Improvements. The proceeds of any such sale or exchange not used to acquire other property necessary or desirable for the safe or efficient operations of the System shall be deposited upon their receipt in the Bond Redemption Account of the Debt Service Fund. (2) Upon any termination of the construction of the Initial Project prior to its substantial completion, the Agency may sell or exchange any or all property or facilities constituting part of the Initial Project, subject, however, to the rights of the Members under the Water Supply Agreements. The proceeds of any such sale or exchange are required to be deposited in the Bond Redemption Account of the Debt Service Fund. (3) The Agency may sell that portion of the System to the City of Chicago as is provided so to be sold in the Chicago Contract as in effect on the date of adoption of the General Resolution if it obtains and delivers to the Trustee a Counsel s Opinion stating that this sale will not be inconsistent with the provisions of the General Resolution described above under the heading Operations and Maintenance of System; Extensions and Improvements. Charges and Collections (1) The Agency agrees to retain the right to establish charges and cause to be collected amounts with respect to the use of the System and the sale of water from the System as provided in the General Resolution. A-11

62 (2) The Agency agrees to establish fees and charges for its provision of water, including amounts due under the Water Supply Agreements sufficient to provide at all times adequate Revenues, together with other available amounts, to meet all of its requirements under the General Resolution and the Series Resolutions, including making in timely fashion all the required deposits and credits in the various Funds and Accounts. (3) The Agency agrees not to furnish or supply or cause to be furnished or supplied any water from the System to any person at a price less than provided in the Water Supply Agreement or Customer Agreement for that person; or if there is no such agreement at a price less than the additional cost to the Agency of providing such water (except during an emergency affecting that person s water supply system). The Agency will enforce the payment of any and all accounts, including from its Members, owing to the Agency by reason of its ownership and operation of the System by discontinuing the delivery of water, if feasible without jeopardizing public health or safety, or by filing suit for the amounts owing, as soon as practicable after any such accounts are overdue and in any event within 120 days, or by both such discontinuance and by filing suit. Receipt by Trustee of Payments Under and Enforcement of Agreements The Agency and the Trustee are required to receive and immediately deposit in the Revenue Fund for the purposes set forth in the General Resolution all amounts (other than amounts for deposit in Member Deposit Funds or similar funds for Agency Customers) payable to either of them pursuant to the Water Supply Agreements, the Customer Agreements or any other contract for the sale of water. The Agency will enforce or cause to be enforced the provisions of the Chicago Contract, the Water Supply Agreements, the Customer Agreements, if any, and all other contracts for the sale of water and shall duly perform its covenants and agreements under such agreements. The Agency will not consent or agree to or permit any rescission of or amendment to or otherwise take any action under or in connection with the Chicago Contract or the Water Supply Agreement which will reduce the payments required under the Water Supply Agreements or the right to receive water under the Chicago Contract or which will in any manner materially impair or materially adversely affect the rights of the Agency under those agreements or the rights or security of the Holders of the Agency Obligations under the General Resolution. Insurance and Eminent Domain (1) The Agency agrees to keep or cause to be kept the properties of the System which are of an insurable nature and of the character usually insured by those constructing or operating properties similar to the System insured against loss or damage, including fire and extended coverage, vandalism, malicious mischief, collapse, boiler and sprinkler leakage and against such other risks as may be deemed necessary or advisable by the Board with such exceptions as are ordinarily required by insurers of structures or facilities of similar type, in an amount not less than the lesser of (a) one hundred percent (100%) of the replacement value of the System, as certified by the Consulting Engineer in writing, which certificate shall be filed with the Agency and with the Trustee, or (b) the total principal amount of Outstanding Agency Obligations; provided, however, that such amount of insurance is required at all times to be sufficient to comply with any legal or contractual requirement which, if breached, would result in assumption by the Agency of a portion of any loss or damage as co-insurer, and that such insurance may provide for the deduction from each claim for loss or damage (except in case of a total loss) of not more than two percent (2%) of the total amount of insurance required by the application of the co-insurance clauses; and provided further, that if at any time the Agency is unable to obtain such insurance to the extent above required, either as to amount of such insurance or as to the risks covered thereby, it will not constitute an Event of Default under the provisions of the General Resolution if the Agency shall maintain such insurance to the extent reasonably obtainable. A-12

63 (2) Any such insurance is required to be in the form of policies or contracts for insurance with insurers of good standing and shall be payable to the Trustee. (3) If any useful portion of the System is damaged, destroyed, condemned or otherwise lost through the exercise of eminent domain or otherwise, the Agency will as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair, reconstruction, replacement or relocation of such portion of the System to the extent recommended by the Consulting Engineer or the Design Engineer. The proceeds of any insurance (other than any business interruption loss insurance) and the award from any condemnation or other eminent domain proceeding, paid on account of such damage, destruction or loss is required to be deposited by the Trustee in the General Fund to the credit of the Improvements and Extensions Account and made available for, and to the extent necessary be applied to, the cost of such repair, reconstruction, replacement or relocation. The proceeds of any insurance and the award from any condemnation or other eminent domain proceeding, not applied within 36 months after their receipt by the Agency to repairing, reconstructing, replacing or relocating damaged, destroyed or taken property, or in respect of which notice in writing of intention to apply the same to the work of repairing, reconstructing, replacing or relocating the property damaged, destroyed or taken is not given to the Trustee by the Agency within such 36 months, or which the Agency at any time notifies the Trustee are not to be so applied, are required to be deposited in the Debt Service Fund to the credit of the Bond Redemption Account. Notwithstanding the foregoing, in the event that payments are made from the Replacements and Contingencies Account for any such repairing, reconstructing, replacing or relocating of property damaged, destroyed or taken prior to the availability of insurance or other proceeds, such proceeds when received are required to be deposited in the Replacements and Contingencies Account to the extent of such payments from that Account. (4) If the proceeds of insurance or the award from any condemnation or other eminent domain proceeding, authorized by the foregoing to be applied to the reconstruction or replacement of any portion of the System are insufficient or unavailable for such purpose the deficiency may be supplied out of moneys in the Replacements and Contingencies Account to the extent, as shown by a certificate of any Authorized Officer filed with the Trustee, not needed to be reserved for the purposes provided for that Account. (5) The proceeds of business interruption loss insurance, if any, will be deposited in the Revenue Fund. Replacements and Contingencies Deposit Changes; Reports of Consulting Engineers The Agency is required from time to time to increase the monthly deposit requirement in the Replacements and Contingencies Account or the Replacements and Contingencies Requirement, or both, as shall be necessary so that the amounts in this Account will at all times be sufficient to pay reasonably expected Costs of Replacements and Contingencies when those amounts come due. The Agency is required at least once in each three year period, to cause the Consulting Engineer to file with the Agency, each Municipality and the Trustee, a report as to whether the deposits being made in the Replacements and Contingencies Account, and the Replacements and Contingencies Requirement, are adequate to provide and maintain an adequate Account for paying reasonably projected Costs of Replacements and Contingencies and, if they are not, any recommendation as to changes in the monthly deposits and the Replacements and Contingencies Requirement. Upon receiving any such Report making such a recommendation, the Board is required by resolution to consider and determine whether and to what extent compliance with the requirements of the General Resolution requires the making of changes in the deposit requirement and the Replacements and Contingencies Requirement and is required to make any such needed changes. A-13

64 Accounts and Reports The Agency shall annually, within 120 days after the close of each fiscal year, cause to be filed with the Trustee a copy of an annual report for such fiscal year accompanied by an accountant s certificate stating, among other things, whether the Agency is in default with respect to any of the covenants, agreements or conditions on its part contained in the General Resolution or any Series Resolution. Such report shall be available to the holders of any Agency Obligations who shall file a written request for such document with the Trustee. State Water Allocation The Agency is required to use its best efforts to maintain each Member s State Water Allocation at its current level and to aid the Members in increasing their respective State Water Allocations, so long as any of the Agency Obligations are Outstanding. Modification of General Resolution The General Resolution includes provisions by which the Agency may, by Supplemental Resolution, modify the General Resolution or any Series Resolution without the consent of the Holders of Agency Obligations in order to further secure or provide for payment of Agency Obligations to impose further limitation on or surrender rights of the Agency, and with the consent of the Trustee, modifications to correct ambiguities, defects or inconsistent provisions. Other than these modifications, the General Resolution may not be amended while any of the Agency Obligations are Outstanding except with the consent of the Holders of 66-2/3% in principal amount of all the Bonds then Outstanding (other than Bonds of a Series which is unaffected by such modification or amendment) and the consent of the Holders of 66-2/3% in principal amount of all the Notes then Outstanding (other than Notes of a Series which is unaffected by such modification or amendment) by written instrument. No such modification or amendment may extend the maturity of or reduce the interest rate on, or otherwise alter or impair the obligation of the Agency to pay the principal of, Redemption Price, if any, or interest on any Agency Obligation at the time and place and at the rate and in the currency provided in such Agency Obligation without the express consent of the Holder of that Agency Obligation, nor permit the creation by the Agency of any mortgage, pledge, lien or security interest on the System, or upon any Revenues or moneys held pursuant to the General Resolution, other than those contemplated by the General Resolution, nor permit the preference or priority of any Bond or Bonds over any other Bond or Bonds or of any Note or Notes over any other Note or Notes, nor reduce the percentages or Bonds and Notes required for the written consent to an amendment or modification, nor modify any of the rights or obligations of the Trustee or any Paying Agent at the time acting pursuant to the General Resolution without the written consent of the Trustee or any such Paying Agent. For purposes of modification of the General Resolution, the principal amount of any Agency Obligation issued at an original issue discount in excess of 2% of its face amount is to be its compound accreted value. Defeasance If the Agency shall pay or cause to be paid, or there shall otherwise be paid, to the Holders of the Agency Obligations then Outstanding, the principal and interest and Redemption Price, if any, to become due thereon, at the times and in the manners stipulated in the Agency Obligations, the General Resolution and the Series Resolutions, then and in that event the covenants, agreements and other obligations of the Agency to the Holders of the Agency Obligations shall be discharged and satisfied. A-14

65 Agency Obligations for the payment and redemption of which moneys shall have been set aside and shall be held in trust by the Trustee or Paying Agents (through deposit by the Agency of funds for such payment or redemption or otherwise), whether at or prior to maturity or the redemption date of such Agency Obligations, shall be deemed to have been paid within the meaning and with the effect expressed in the paragraph above. All Outstanding Agency Obligations of any Series shall, prior to the maturity or redemption thereof, be deemed to have been paid within the meaning and with the effect expressed in the paragraph above if there shall have been deposited with the Trustee or Paying Agents either moneys in an amount which shall be sufficient, or Investment Obligations the principal of and interest on which when due will provide moneys which, when added to the moneys, if any, deposited with the Trustee or Paying Agents at the same time, shall be sufficient to pay when due the principal or Redemption Price, if applicable, and interest due and to become due on those Agency Obligations on and prior to the Redemption Date or maturity date thereof, as the case may be, and the Agency shall have given the Trustee irrevocable instructions to publish notice of redemption of such Agency Obligations as provided in the General Resolution. Neither Investment Obligations nor moneys deposited with the Trustee nor principal of or interest on any such Investment Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal or Redemption Price, if applicable, of and interest on those Agency Obligations. For purposes of defeasance of Agency Obligations, Investment Obligations means only direct Obligations of the United States of America. A-15

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67 FORM OF OPINION OF BOND COUNSEL APPENDIX B [Date of Issuance of 2013 Bonds] We hereby certify that we have examined certified copy of the proceedings (the Proceedings ) of the Board of Directors of the Northwest Suburban Municipal Joint Action Water Agency, Cook, DuPage and Kane Counties, Illinois (the Agency ) passed preliminary to the issue by the Agency of its fully registered Water Supply System Revenue Refunding Bonds, Series 2013 (the Series 2013 Bonds ), dated the date hereof, to the amount of $20,970,000, issued in the denomination of $5,000 or integral multiples thereof. The Series 2013 Bonds mature on May 1 of the years and in the amounts and bear interest at the respective rates percent per annum as follows: YEAR AMOUNT INTEREST RATE 2014 $5,680, % ,850, , , , , , ,610, Each of the Series 2013 Bonds bears interest from its date until paid, such interest being payable semiannually on May 1 and November 1 of each year, commencing on May 1, The Series 2013 Bonds are issued pursuant to the Water Supply System Revenue Bond and Note General Resolution of the Agency (the General Resolution ), adopted by the Board of Directors of the Agency (the Board ) on December 17, 1982, as supplemented and amended from time to time, including by certain parity series resolutions and by the series resolution for the Series 2013 Bonds adopted by the Board on December 5, 2013 (the 2013 Series Resolution, the General Resolution as so supplemented and amended, including by the 2013 Series Resolution, being referred to as the Bond Resolution ). The Series 2013 Bonds are being issued for the purpose of (i) refunding certain of the outstanding Water Supply System Revenue Bonds, Series 2003, of the Agency (the Series 2003 Bonds ), (ii) making a necessary deposit to the Debt Service Reserve Fund established by and held under the Bond Resolution and (iii) paying the costs of issuance of the Series 2013 Bonds. In our capacity as bond counsel, we have examined, among other things, the following: (a) (b) a certified copy of the Proceedings; a certified copy of the Bond Resolution; B-1

68 (c) an executed copy of the written determination of the Chairman of the Agency delivered pursuant to the 2013 Series Resolution establishing and approving the terms and conditions of the Series 2013 Bonds (the Determination ); (d) a certified and conformed copy of the Water Supply Agreement, dated December 31, 1982, as supplemented and amended (the Water Supply Agreement ), by and between the Agency and each of the Villages of Elk Grove Village, Hanover Park, Hoffman Estates, Mount Prospect, Schaumburg and Streamwood, Illinois, and the City of Rolling Meadows, Illinois (collectively, the Members ); and (e) such other certifications, documents, proceedings, showings and related matters of law as we have deemed necessary in order to render this opinion. Based upon such examination, we are of the opinion that: 1. The Agency is a legally existing public body politic and corporate and a municipal corporation under the Constitution and laws of the State of Illinois. 2. The Agency has the legal right and power to adopt the General Resolution and the 2013 Series Resolution. The General Resolution and the 2013 Series Resolution have each been duly and lawfully adopted by the Board and the Determination of the Chairman has been duly executed on behalf of the Agency and the General Resolution, the 2013 Series Resolution and the Determination are each in full force and effect and are each valid and binding upon the Agency. The 2013 Series Resolution and the Determination conform to the requirements of the General Resolution. 3. The Proceedings show lawful authority for the issuance of the Series 2013 Bonds under the laws of the State of Illinois now in force. The Series 2013 Bonds are valid and binding limited obligations of the Agency entitled to the benefits of the Bond Resolution which, together with (i) the Series 2003 Bonds remaining outstanding after the issuance of the Series 2013 Bonds and the application of the proceeds thereof, (ii) the Water Supply System Revenue Refunding Bonds, Series 2008, of the Agency and (iii) any additional Water Supply System Revenue Bonds which may be issued in the future on a parity basis under the terms of the Bond Resolution, have a claim for payment, as to interest, premium and principal, solely from the revenues of the Agency s water supply system (the System ), after paying the expenses of operation and maintenance of the System, and from amounts in the various Funds and Accounts established by the Bond Resolution, including from amounts required by the Bond Resolution to be deposited in those Funds and Accounts, all as and to the extent and in the priority as provided in the Bond Resolution. Such revenues of the System are to be derived primarily from payments to be made by the Members pursuant to the Water Supply Agreement. Payments under the Water Supply Agreement are required to be made from the revenues of the respective waterworks or combined waterworks and sewerage systems of the Members, each being a Local System and collectively, the Local Systems. The revenues of each Member s Local System are referred to herein respectively as Local System Revenues. 4. The form of the Series 2013 Bonds prescribed for said issue by the Bond Resolution is in due form of law. 5. The assignment, pledge and grant of a lien and security interest, for the benefit of the owners of the Series 2013 Bonds, with respect to the Revenues (as defined in the Bond Resolution), and the assignment and provision for direct payment to the Trustee of all amounts owed by Members under each of the Water Supply Agreements, all for use and disposition for the purposes and in the priority provided in the Bond Resolution, are valid and legally effective. B-2

69 6. The assignment, pledge and grant of a lien and security interest, for the benefit of the owners of the Series 2013 Bonds, with respect to the various Funds and Accounts, as established by the Bond Resolution, are valid and legally effective. 7. There are in existence valid and legally binding Water Supply Agreements between the Agency and the Members which obligate the Members together, on a take or pay basis, to pay amounts to The Bank of New York Mellon Trust Company, N.A., as Trustee, sufficient to make all required deposits in and credits to and payments from the Revenue Fund established under the Bond Resolution as provided in the Bond Resolution during the full period that the Series 2013 Bonds are to be outstanding within the meaning of the Bond Resolution. Each Water Supply Agreement is enforceable by the Agency or the Trustee in accordance with its terms. 8. Assuming compliance by the Members with the agreements contained in each Member s Water Supply Agreement and described in the final sentence of this paragraph, the amounts payable by each Member under its Water Supply Agreement will be payable, under any Member ordinance authorizing revenue obligations payable from their respective Local System Revenues ( Local System Revenue Obligations ), from the Member s Local System Revenues and will constitute proper expenses of operation and maintenance of the Member s Local System. In the event Local System Revenue Obligations are issued by any Members, the Local System Revenues of such Members are generally to be used first to pay operation and maintenance expenses of the Local Systems, then to pay principal of and interest on the Local System Revenue Obligations and to make deposits in reserve and depreciation funds, with any amounts remaining to be deposited in surplus accounts. Each Member represents and warrants in its Water Supply Agreement that the payments it is required to make under the Water Supply Agreement constitute operation expenses of the Member s Local System. Further, each Member agrees in its Water Supply Agreement to (i) establish and collect Local System rates and charges to produce Local System Revenues sufficient to make all payments required to be made under the Water Supply Agreement, and (ii) to provide in all future ordinances of the Member authorizing Local System Revenue Obligations that Local System Revenues may be used to pay principal of and interest on the Local System Revenue Obligations only to the extent that the Local System Revenues exceed the amounts required to pay the operation and maintenance expenses of the Local System, including all amounts payable from time to time under the Water Supply Agreement. 9. Subject to the Agency s compliance with certain covenants, under present law, interest on the Series 2013 Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as amended, but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Failure to comply with certain of such Agency covenants could cause interest on the Series 2013 Bonds to be includible in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2013 Bonds. Ownership of the Series 2013 Bonds may result in other federal tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Series 2013 Bonds. In rendering our opinion on tax exemption, we have relied on the mathematical computation of the yield on the Series 2013 Bonds and the yield on certain investments by Robert Thomas CPA, LLC, Certified Public Accountants. The rights of the registered owners of the Series 2013 Bonds and the enforceability of provisions of the Series 2013 Bonds, the Bond Resolution and the Water Supply Agreements may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights. Enforcement of provisions of the Series 2013 Bonds, the Bond Resolution and the Water Supply Agreements by an equitable or similar remedy is subject to general principles of law or equity governing such a remedy, including the exercise of judicial discretion whether to grant any particular form of relief. B-3

70 We express no opinion herein as to the accuracy, adequacy or completeness of the Official Statement relating to the Series 2013 Bonds. In rendering this opinion, we have relied upon certifications of the Agency and the Members with respect to certain material facts within the Agency s and such Members knowledge. Our opinion represents our legal judgment based upon our review of the law and the facts that we deem relevant to render such opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes that may hereafter occur. B-4

71 APPENDIX C FINANCIAL STATEMENTS OF THE AGENCY for the Fiscal Year Ended April 30, 2012

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73 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY Elk Grove Village, Illinois COMPREHENSIVE ANNUAL FINANCIAL REPORT As of and for the Year Ended April 30, 2012 Prepared by: Fiscal Department of the Northwest Suburban Municipal Joint Action Water Agency

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75 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY Elk Grove Village, Illinois TABLE OF CONTENTS As of and for the Year Ended April 30, 2012 INTRODUCTORY SECTION Transmittal Letter Officers and Officials Organizational Chart Certificate of Achievement for Excellence in Financial Reporting i- iii iv v vi FINANCIAL SECTION Independent Auditors' Report 1-2 Required Supplementary Information Management's Discussion and Analysis 3-10 Basic Financial Statements Statement of Net Assets Statement of Revenues. Expenses, and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements Required Supplementary Information Schedule of Employer Contributions and Schedule of Funding Progress- Illinois Municipal Retirement Fund Schedule of Employer Contributions and Schedule of Funding Progress- Other Postemployment Benefit Plan Supplementary Information Budgetary Information Schedule of Changes in Net Assets - Restricted Accounts Schedule of Operating Expenses- Budget and Actual Operations and Maintenance Account Long-Term Debt Requirements Water Special Obligation Bonds, Series 1997A Water Supply System Revenue Refunding Bonds, Series 2003 Water Supply System Revenue Refunding Bonds, Series

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77 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY Elk Grove Village, Illinois TABLE OF CONTENTS (cont.) As of and for the Year Ended April 30, 2012 FINANCIAL SECTION (cont.) Supplementary Information (cont.) Schedule of Insurance in Force Schedule of Change in Trustee Accounts- Bank. of New York Schedule of Change in Account Balances - Members' Deposit Accounts STATISTICAL SECTION- UNAUDITED Net Assets by Component, Last Eight Fiscal Years Change in Net Assets, Last Eight Fiscal Years Schedule of Revenue by Source, Last Ten Fiscal Years Schedule of Expenses by Function, Last Ten Fiscal Years Census Delivered Water Average Per Day (Million Gallons), Last Ten Fiscal Years Ratios of Outstanding Debt by Type, Last Ten Fiscal Years Schedule of Revenue Bond Coverage, Last Ten Fiscal Years Demographic and Economic Information, Last Ten Calendar Years Principal Employers, Current Year and Nine Years Ago Full-Time Equivalent Employees, Last Ten Fiscal Years Operating Indicators, Last Ten Fiscal Years Capital Asset Statistics by Function, Last Ten Years

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79 NoRTHWEST SuBURBAN MuNICIPAL JoiNT AcTION WATER AGENCY 901 WELLINGTON AVENUE ELK GROVE VILLAGE, ILLINOIS TELEPHONE 847/ FAX 847/ October 11, 2012 Chairman AI Larson Members of the Board of Directors Members of the Executive Committee Northwest Suburban Municipal Joint Action Water Agency The Comprehensive Annual Financial Report (CAFR) of the Northwest Suburban Municipal Joint Action Water Agency for the fiscal year ended April 30, 2012 is submitted herewith. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the Agency. This report was prepared in conformity with generally accepted accounting principles. The CAFR includes an independent audit, as required by state statute and our Water Revenue Bonds. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner that presents fairly the financial position and changes in financial positions of the Agency. All disclosures necessary to enable the reader to gain an understanding of the Agency's financial activity have been included. The Northwest Suburban Municipal Joint Action Water Agency is an intergovernmental agency created under the Illinois Intergovernmental Cooperation Act to construct and operate a water supply system to obtain and transmit treated potable water, drawn from Lake Michigan, to the water systems of the member municipalities. The membership of the Agency consists of seven contiguous municipalities located in Northwest Cook, DuPage and Kane counties in Illinois: Elk Grove Village, Hanover Park, Hoffman Estates, Mount Prospect, Rolling Meadows, Schaumburg and Streamwood. The financial reporting entity (the Agency) includes all operations of the primary government. The Agency has no component unit. Component units are legally separate entities for which the primary government is financially accountable. The Agency is governed by a Board of Directors that consists of one elected official from each member. Each Director has an equal vote. The officers of the Agency are appointed by the Board of Directors. The Board of Directors determines the general policies of the Agency, makes all appropriations, approves contracts for sale or purchase of water, adopts resolutions providing for the issuance of bonds and notes by the Agency, adopts by-laws, rules and regulations and exercises such powers and performs such duties as may be prescribed in the Agency Agreement or its By-Laws. The operation of the Agency is conducted under the direction of the Executive Committee, subject to the general policy decisions of the Board of Directors. The Executive Committee is responsible for carrying out the policy decisions of the Board of Directors. The Executive Committee consists of the Village manager or other appointed official of each member community. Each member is entitled to one vote on the committee. SCHAUMBURG HOFFMAN ESTATES ROLLING MEADOWS ELK GROVE VILLAGE MOUNT PROSPECT HANOVER PARK STREAMWOOD

80 ECONOMIC CONDITION AND OUTLOOK The seven member municipalities have a current population of approximately 314,284 people located in a contiguous geographic area of approximately seventy-eight square miles. Although the area is primarily single-family residential, there are significant industrial and commercial areas. The service area is adjacent to O'Hare International Airport, one of the world's busiest airports. OTHER INFORMATION The Agency engaged the independent certified public accounting firm of Baker Tilly Virchow Krause, LLP to render an opinion on the financial statements. As independent auditors, Baker Tilley also provided an objective outside review of management's performance in reporting operating results and financial condition. All requirements have been complied with and the auditor's opinion is included in the Financial Section of the report AWARD The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Agency for its Comprehensive Annual Financial Report for the fiscal year ended April 30, The Certificate of Achievement is a prestigious national award that recognizes conformance with the highest standards for preparation of state and local government financial reports. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. Such CAFR must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid only for one year. The Northwest Suburban Municipal Joint Action Water Agency has received a Certificate of Achievement for the last eighteen consecutive years (fiscal years ended ). We believe our current report continues to conform,to the Certificate of Achievement program requirements, and are submitting it to GFOA ACKNOWLEDGEMENT Special acknowledgement to our Executive Director, Joseph Fennell, and all Agency employees for their ongoing efforts in keeping the water and paperwork flowing in an efficient and economical manner. Additionally, I would like to acknowledge the Chairman, the Board of Directors and the Executive Committee for their leadership and support in planning and conducting the financial operations of the Agency in a responsible and progressive manner. ;;::c~_a- Kevin C. Lockhart Deputy Director iii

81 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY OFFICERS AND OFFICIALS As of April 30, 2012 BOARD OF DIRECTORS Village of Elk Grove Village Village of Hanover Park Village of Hoffinan Estates Village of Mount Prospect City of Rolling Meadows Village of Schaumburg Village of Streamwood Secretary Treasurer Crajg Johnson Rodney Craig William McLeod Irvana Wilks Thomas Rooney AI Larson, Chairman Billie Roth Michael Janonis Christine Tromp EXECUTIVE COMMITTEE Village of Elk Grove Village Village of Hanover Park Village of Hoffman Estates Village of Mount Prospect City of Rolling Meadows Village of Schaumburg Village of Streamwood Raymond Rummel Howard Killian, Alternate James Norris Michael Janonis, Chairman Barry Krumstock Kenneth Fritz Gary O 'Rourke EXECUTIVE DIRECTOR Joseph Fennell iv

82 Northwest Suburban Municipal Joint Action Water Agency Organization Chart I Board of Directors l Executive Committee < I Executive Director _l Operations Manager l Foreman Secretary Deputy Director _j l_ Operators Maintenance Cs) (3) Scheduler

83 Certificate of Achievement for Excellence in Financial Reporting Presented to Northwest Suburban Municipal Joint Action Water Agency Illinois For its Comprehensive Annual Financial Report for the Fiscal Year Ended April 30, 2011 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Offi~ Association of the United States and Canada to government units and public employee retiremenl systems whose comprehensive annual financial reports (CAFR.s) achieve the h.igbest standards in government accounting and financial reporti.og. President Executive Director vi

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85 ~AKE R TILlY Dakcr Tilly Vi rchow Ku use, LLP 1301 W 22nd St, Sc< 400 Oak D roo k, l LG O S2 3-33~ 9!ci 63D990313l (, x G !> bakerti lly.c<>m INDEPENDENT AUDITORS' REPORT To the Members of the Board of Directors Northwest Suburban Municipal Joint Action Water Agency Elk Grove Village, Illinois We have audited the basic financial statements of the Northwest Suburban Municipal Joint Action Water Agency, Elk Grove Village, Illinois, as of and for the year ended April30, 2012, as listed in the accompanying table of contents. These basic financial statements are the responsibility of the Northwest Suburban Municipal Joint Action Water Agency's management. Our responsibility is to express an opinion on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasqnable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the basic financial statements referred to previously present fairly, in all material respects. the financial position of the Northwest Suburban Municipal Joint Action Water Agency as of April30, 2012, and the changes in its financial position and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the required supplementary infonnation as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economical, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Page 1

86 Members of the Board of Directors Northwest Suburban Municipal Joint Action Water Agency Elk Grove Village, Illinois Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Northwest Suburban Municipal Joint Action Water Agency's basic financial statements. The supplementary information as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare financial statements. The supplementary information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, is fairly stated in all material respects in relation to the basic financial statements as a whole. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Northwest Suburban Municipal Joint Action Water Agency's basic financial statements. The introductory section and statistical section listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. 2Jwz_ '1-1)~ ~' LL? Oak Brook, Illinois October 11, 2012 Page 2

87 Management's Discussion & Analysis Overview of the Annual Financial Report Management's Discussion and Analysis (MD&A) serves as an introduction to, and should be read in conjunction with, the basic audited financial statements and supplementary information. The MD&A represents management's examination and analysis of the Agency's financial condition and performance. Summary financial statement data, key financial and operational indicators used in the Agency's budget, bond resolution and other management tools were used for this analysis. The financial statements report information about the Agency using full accrual accounting methods as utilized by similar business activities in the private sector. However, (ateregulated accounting principles applicable to private sector utilities are not required to be used by government utilities and have not been used in this report. The financial statements include a statement of net assets, a statement of revenues. expenses and changes in net assets, a statement of cash flows and notes to the financial statements. The statement of net assets presents the financial position of the Agency on a full accrual historical cost basis. The statement of net assets presents information on all of the Agency's assets and liabilities with the difference reported as net assets. Over time, increases and decreases in net assets are one indicator of whether the financial position of the Agency is improving or deteriorating. While the statement of net assets provides information about the nature and amount of resources and obligation at year-end, the statement of revenues, expenses and changes in net assets presents the results of the business activities over the course of the fiscal year and information as to how the net assets changed during the year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. This statement also provides certain information about the Agency's recovery of its costs. The statement of cash flows presents changes in cash and cash equivalents resulting from operational, financing and investing activities. This statement presents cash receipts and cash disbursement information without consideration of the earnings event, when an obligation arises, or depreciation of capital assets. The notes to the financial statements provide required disclosures and other information that are essential to a full understanding of material data provided in the statements. The notes present information about the Agency's accounting policies, significant account balances and activities, material risks, obligations, commitments, contingencies and subsequent events, if any. Supplementary information such as debt coverage data is provided. (See independent auditors' report) Page 3

88 Financial Analysis The following comparative condensed financial statements and other selected information serve as the key financial data and indicators for management, monitoring and planning. General Trends and Significant Events The following information details the water pumped to members and net cost as purchased from the City of Chicago. The volume of water sold in fiscal year was approximately billion gallons, a decrease of 1.57% from fiscal year Weather and water conservation continue to be big determinates of water usage. Pumpage by Fiscal Year Fiscal Year Pumped (Gallons) 10,682,767,000 10,853,019, '185,344,000 11,427,627,000 12,064,366,000 12,123,968,000 13,231,528,000 Net Cost per Thousand Gallons of Water Charged to Members The net cost per thousand gallons is simply the average member payments divided by total water pumped to each member community. Member payments are based on formulas that seek to reimburse the Agency for cash expenditures. Fiscal Year Pumped Cost {See independent auditors' report) Page 4

89 Cost of water purchased from the City of Chicago (1,000) gallons Fiscal Year 2011~ ~ ~ ~ Gallons (000) 10,870,507 11,031,683 11,397,706 11,687,257 12,344,392 12,396,882 13,614,292 Cost Gross Cost 22,872,841 22,173,683 20,901,827 19,080,930 17,133,041 16,487,853 17,812,561 Financial Condition The following tables indicate that the Agency's financial condition remained strong at year-end with adequate liquid assets, reliable plants and systems to meet demand and a reasonable level of unrestricted net assets. The current financial condition, technical support staff capabilities and operating and expansion plans to meet anticipated customer needs are well balanced and under control. The Agency purchases all water from the City of Chicago who raised their rates by 25% on January 1, This increase resulted in a corresponding rate increase by the Agency which resulted in the large increases in Other Noncurrent Assets, Current liabilities, Operating Revenues and Operating Expenses. The following charts summarize the statement of net assets with comparisons to the prior year. Statement of Net Assets Change %of Change Total Current Assets $ 12,084,455 $ 11,834,195 $ 250, % Noncurrent Assets Net Capital Assets , (1 '169,338) -2.4% Other Noncurrent Assets 26,532,875 23, % Total Assets 85,972, ,882 1,640, % Current Liabilities 4,675,472 4,196, , % Long Term Liabilities 74, ,617,884 (627,834) -0.8% Total Liabilities 79,665, ,543 (149,021) -0.2% Net Assets ln\ested Capital Assets (net of related debt) (17,628, 436) (16, 790, 890) ( ) 5.0% Restricted 9,161, ,337 (107,120) -1.2% Unrestricted 14,774,475 11,859,892 2,914, % Total Net Assets (Deficit) $ 6,307,256 $ 4,337,339 $ 1,969, % - (See independent auditors' report) Page 5

90 The Agency has had deficits and profits because of its billing method of receiving payments for cash-only disbursements. Such items as depreciation and amortization are not billed while an item such as bond principal is billed. The net deficit position will become positive as bond principal is retired. Statement of Revenue Exeenses and Changes in Net Assets _ Change Re-..enues Operating Re-..enues-Charges for Sen-ices $ ,959 $ 30,654,804 $ 1,612,155 Non-Operating Re-..enues-ln-..es tm ent Income (14,066) 33,074, ,476,497 1,598,089 Expenses Purchases of Water 22, All other 8,344,053 9, (887, 128) 31' 104,669 31,192,421 (87,752) Change in Net Assets 1.969, ,076 1,685,841 Net Assets May 1 4,337, , ,076 Net Assets April 30 $ 6,307,256 $ 4,337,339 $ 1,969,917 The following table shows the Agency's ability to generate net operating cash. provided by operating activities is shown in total dollars. Net cash 2012 Change Total Operating Revenues Net Cash From Operations Net Operating Gash-% of Operating Revenue $ 32,266,959 $ 30,654,804 $ ,805 5, 063, % 16.52% 1,612,155 1,200, % The Agency bills its membe(s one month in arrears for cash paid out in the previous month. In addition, the Agency has advance billed approximately one month of operation and maintenance and three months of debt service payments. The Agency pays its water supplier quarterly in arrears. The Agency maintains total deposits combined in.the Operations and Maintenance and Trustee Accounts of $5,308,635. (See independent auditors' report) Page 6

91 Results of Operations Operating Revenues: Revenues from Operations fall into one category: member charges. The following chart depicts water revenues for the last five fiscal years: Elk Gro~ Village $ 5,440,530 $ 4,677,641 $ 4,417,221 $ 4,618,347 $ 5,056,018 Hanover Park 2,914,822 2,503,423 2,452,450 2,484,073 2,575,997 Hoffman Estates 5,359,250 4, 713,490 4,731,300 4,531,389 4,655,414 Mount Prospect 3,779,685 3,342,871 3,258,535 3,346,323 3,402,751 Rolling Meadows 2,437,019 2,191,888 2,253,579 2,391,752 2,238,491 Schaumburg 9,159,966 7,944,131 7,648,026 7,827,446 8,231,389 Streamwood 3,288,239 2,847,792 2,867,517 2,927,645 2, 780,527 Total $ 32,379,511 $ 28,221,236 $ 27,628,628 $ 28,126,975 $ 28,940,587 Expenses The Agency operates and maintains a potable water delivery system. The Agency purchases water from the City of Chicago and transports the water through a fifty-five mile transmission main to its seven member communities. Wages and fringe benefits increased from fiscal year to by $32,793. The Agency granted a 2.0% wage increase to all employees at the beg inning of Salary and related benefits for the last six years are as follows: Wages and Fringe Benefits $ 1,691,082 1,658,289 1,584,005 1,518,758 1,440,687 1,120, 785 (See independent auditors' report) Page 7

92 Rate Covenant In the Bond Resolution the Agency covenants and agrees that it will at all times provide sufficient revenues for the safe and proper operation of a water system. The Agency also agrees to maintain certain minimum balances and set aside appropriate amounts of money in specific accounts for the purposes of payments of the outstanding bonds. The Agency has a surety bond that provides as a replacement for a debt service reserve account. Annual debt service requirements to maturity are as follows: F iscal Year Ending April 30 Principal Bond Interest Total 2013 $ 705,000 $ 3.506,439 $ 4,211, ,176,638 15,761, , 145,000 2,458, , ,365,000 1,795,638 12,160, ,000 1,395,575 7,070, ,960,000 1,106,763 7,066, ,944 7,069, ,545, ,375 7,052, , ,875 7,046,875 Tolal $ 71,110,000 $ 14,933,635 $ 86,043,635 The Agency is also required to have a minimum balance of $3,000,000 in its Replacement and Contingency Account. The current balance in the account is $4,117,243. Debt Administration As shown in Note IV of the Financial Statements, on April 30, 2012, the Agency had $71,110,000 of revenue bonds outstanding. No bonds were issued during the year and $500,000 was retired. (See independent auditors' report) Page 8

93 Capital Assets Beginning Retirements/ Ending Balance 5/1 Additions Adjustments Balance 4/30 Capital Assets not being depreciated Land and Easements $ 3.254,354 $ - $ - $ 3,254,354 Construction in progress Total capital assets not being depreciated 3,254,354 3,254,354 Capital Assets being depreciated Water System 66,398,765 65,398,765 Booster Station and Standpipes 10,674, ,848,748 Control System 4,513, ,197 4,710,263 Other Construction ,499 Furniture, fixtures & equipment ,736 Automobiles and trucks 563,477 19, ,959 Leasehold improvements 110, ,117 Temporary Easements 1,000,000 1,000,000 Total capital assets being depreciated 83,015, ,969 83,406,087 Less accumulated depreciation for Water System 26,393,854 1,089,979 27,483,833 Booster Station and Standpipes 5,948, ,219 6,219,338 Control System 3,651, ,433 3,763,468 Other Construction 190,542 7, ,421 Furniture, fixtures & equipment , ,373 Automobiles and trucks 459,730 49, ,043 Leasehold improvements 103,117 1, ,517 Temporary Easements 575,000 25, Total accumulated depreciation 37,744, ,309 39,304,993 Total Capital Assets being depreciated 45,270,434 (1.169, 340) 44,101,094 CAP~ALASSETS.NET $ 48,524,788 $ (1 '169, 340) $ - $ 47,355,448 SEE NOTE 3 IN FINANCIAL STATEMENTS ECONOMIC FACTORS AND IMPACTS The Agency is supported solely by member usage charges, interest income and other miscellaneous income. The current economic conditions, if continued in , will continue to have a negative impact on interest income. In late 2011, JAWA was notified that the City of Chicago was increasing their water rates over the next four years beginning January 1, The percentage rate increases annually are %, %, % and %. All of these increases will be incorporated into the Agency's monthly billing on January 1 of each year. Also in late 2011 the Agency was notified by the Illinois State Toll Highway Authority that they were moving forward with the expansion of the 1-90 corridor from O'Hare to Rockford. The Agency has 16 miles of pipeline that parallels the project and could be impacted by the construction. The Agency is working closely with the ISTHA to identify potential conflicts and the financial impact. (See independent auditors' report) Page 9

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95 FINAL COMMENTS The Agency historically works very closely with its member communities. The respective staffs have a high degree of intergovernmental cooperation. There is the common view that thoughtful planning and prudent administration of resources will yield efficiency in the operation of the system and thereby result in affordable, efficient and reliable water service. Should there be any questions regarding this report or any item contained herein, please address such questions to: Kevin C. Lockhart, Deputy Director Northwest Suburban Municipal Joint Action Water Agency 901 Wellington Avenue Elk Grove Village, Illinois {See independent auditors' report) Page 10

96 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY STATEMENT OF NET ASSETS As of April 30, 2012 ASSETS CURRENT ASSETS Cash and Investments Accounts receivable Restricted investments Total current assets $ 2,521,240 2,395,376 7,167,839 12,084,455 NONCURRENT ASSETS Capital assets Capital assets not being depreciated Capital assets being depreciated Accumulated depreciation Net capital assets Other noncurrent assets Gash and Investments Restricted investments Accrued interest receivable Developer receivable Unamortized bond issuance costs Total other noncurrent assets Total noncurrent assets Total assets 3,254,354 83,406,087 (39,304,993) 47,355,448 9,165,990 16, ,260 24, ,467 26,532,875 73,888, ,778 Page 11

97 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses Revenue bonds payable - payable from restricted assets Interest payable- payable from restricted assets Due to Illinois State Toll Highway Authority Total current liabilities $ 2,189, ,000 1,760,807 20,000 4,675,472 NONCURRENT llabilities Revenue bonds payable Unamortized bond premium Unamortized loss on refunding bonds Total long-term revenue bonds payable Due to Illinois State Toll Highway Authority Deposits payable - members (trustee accounts) Deposits payable- members (agency accounts) Net other postemployment benefits obligation IMRF net pension obligation Total other noncurrent liabilities Total noncurrent liabilities Total Liabilities 70,405,000 4,772,941 {51826,022) 69, ,000 2,847,215 2,461, ~20 16,376 5,638,131 74,990,050 79,665,522 NET ASSETS Invested in capital assets, net of related debt Restricted for debt service Restricted for improvements and replacements Unrestricted (17,628,436) 4,854,358 4,306, ,475 TOTAL NET ASSETS $ 6,307,256 See accompanying notes to financial statements. Page 12

98 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Year Ended April 30, 2012 OPERATING REVENUES Charges for services Billings to members Total operating revenues $ 32,266,959 32,266,959 OPERATING EXPENSES Water pumping and distribution Administrative Total operating expenses Depreciation Operating income before depreciation 25,149, ,143 25,933,090 6,333,869 1,560,309 Operating Income (Loss) 4,773,560 NONOPERATING REVENUES (EXPENSES) Investment income Other income Interest expense (including amortization) Total nonoperating revenues (expenses) 802,316 5,311 (3,611,270) (2,803,643) CHANGE IN NET ASSETS NET ASSETS- BEGINNING OF YEAR 1,969,917 4,337,339 NET ASSETS - END OF YEAR See accompanying notes to financial statements. Page 13

99 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY STATEMENT OF CASH FLOWS For the Year Ended April 30, 2012 CASH FLOWS FROM OPERATING ACTIVITIES Received from customers Payments to employees for services Payments to suppliers for goods and services Net cash flows from operating activities $ 31,899,256 (1 '186,358) (24,449,093) 6, CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES None CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal payments on bonds Interest payments on bonds Payments to Illinois State Toll Highway Authority Purchase of capital assets Net cash flows from capital and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment Sale of investment Investment income Net cash flows from investing activities Net Increase (Decrease) in Cash and Cash Equivalents CASH AND CASH EQUIVALENTS, Beginning of Year CASH AND CASH EQUIVALENTS, END OF YEAR CONSISTING OF Cash and investments Current restricted investments Noncurrent cash and investments Noncurrent restricted investments Cash and Investments Less non-cash equivalents CASH AND CASH EQUIVALENTS RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES Operating income Adjustments to Reconcile Operating Income to Net Cash from Operating Activities Depreciation Changes in assets and liabilities Accounts receivable Accounts payable and accrued expenses Net other postemployment benefits obligation IMRF net pension obligation NET CASH FLOWS FROM OPERATING ACTIVITIES (500,000) (3,521,614) (20,000) (390,969) (4,432,583) (3,309,024) 324, ,316 (2,181,993) {350,771) 19,170,540 $ 18,819,769 $ 2,521,240 7,167,839 9,165,990 16,043,401 34,898,470 (16,078,702) $ 18,819,768 $ 4,773,560 1,560,309 (367,703) 284,813 3,031 9,795! ~63,80~ See accompanying notes to financial statements. Page 14

100 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30,2012 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Northwest Suburban Municipal Joint Action Water Agency (the Agency) have been prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting principles and policies utilized by the Agency are described below. A. REPORTING ENTITY The Agency was organized on March 17, The Agency assumed all contracts, debts, liabilities, obligations, and assets of the Northwest Suburban Water System Venture under Chapter 127, par of the Illinois Revised Statutes titled "Intergovernmental Cooperation Act." The purposes and objectives of the Agency are: 1) To provide water to member municipalities on a wholesale basis. 2) To plan, construct, acquire, develop, operate, maintain or contract for facilities for receiving, storing, and transmitting water from Lake Michigan for the principal use and mutual benefit of the municipalities and their water users. 3) To provide adequate supplies of such water on an economical and efficient basis for the municipalities. At April 30, 2012, the following municipalities were members of the Agency: Village of Elk Grove Village Village of Hanover Park Village of Hoffman Estates Village of Mount Prospect City of Rolling Meadows Village of Schaumburg Village of Streamwood The Agency is an intergovernmental agency created under the Illinois Intergovernmental Cooperation Act and is governed by a Board of Directors, which consists of one elected official from each member municipality. This report includes all of the funds of the Northwest Suburban Municipal Joint Action Water Agency. The reporting entity for the Agency consists of (a} the primary government, (b) organizations for which the primary government is financially accountable, and (c) other organizations for which the nature and significance of their relationship with the primary government are such that their exclusion would cause the reporting entity's financial statements to be misleading or incomplete. A legally separate organization should be reported as a component unit if the elected officials of the primary government are financially accountable for the organization. The primary government is financially accountable if it appoints a voting majority of the organization's governing body and (1) it is able to impose its will on that organization or (2) there is a potential for the organization to provide specific financial benefits to or burdens on the primary government. The primary government may be financially accountable if an organization is fiscally dependent on the primary government. Page 15

101 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE I- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) A. REPORTING ENTITY (con/.) A legally separate, tax exempt organization should be reported as a component unit of a reporting entity if all of the following criteria are met: (1) The economic resources received or held by the separate organization are entirely or almost entirely for the direct benefit of the primary government, its component units, or its constituents; (2) The primary government is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the separate organization; (3) The economic resources received or held by an individual organization that the specific primary government, or its component units, is entitled to, or has the ability to otherwise access, are significant to that primary government. Blended component units. although legally separate entities, are, in substance. part of the government's operations and are reported with similar funds of the primary government. This report does not contain any component units and the Agency should not be included as a component unit of any of its members. B. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Private-sector standards of accounting and financial reporting issued prior to December 1, generally are followed in the Agency's financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. The Agency also has the option of following subsequent private-sector guidance subject to this same limitation. The Agency has elected to follow subsequent private-sector guidance. Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Page 16

102 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, NOTE I- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) C. ASSe:TS, LIABILITIES AND NET ASSETS 1. Deposns and Investments For purposes of the statement of cash flows, the Agency considers all highly liquid investments with an initial maturity of three months or less when acquired to be cash equivalents. Illinois Statutes authorize the Agency to make deposits/investments in insured commercial banks, savings and loan institutions, obligations of the U.S. Treasury and U.S. Agencies, insured credit union shares, money market mutual funds with portfolios of securities issued or guaranteed by the United States or agreement to repurchase these same obligations, repurchase agreements, short-term commercial paper rated within the three highest classifications by at least two standard rating services, and the Illinois Funds Investment Pool. Additional restrictions may arise from local charters, ordinances, resolutions and grant resolutions. Investments are stated at fair value, which is the amount at which an investment could be exchanged in a current transaction between willing parties. Fair values are based on quoted market prices. No investments are reported at amortized cost. Adjustments necessary to record investments at fair value are recorded in the operating statement as increases or decreases in investment income. The difference between the bank statement balance and carrying value is due to outstanding checks and/or deposits in transit. Illinois Funds is an investment pool managed by the State of Illinois, Office of the Treasurer, which allows governments within the State to pool their funds for investment purposes. Illinois Fuf'lds Is not registered with the SEC as an investment company, but does operate in a manner consistent with Rule 2a7 of the Investment Company Act of lnves1men1s in Illinois Funds are valued at Illinois Fund's share price, the price for which the investments could be sold. See Note II. for further information. 2. Receivab/es/Payables The Agency states accounts receivable at the amounts billed to customers. The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management's best estimate of amounts that will not be collected. The Agency considers the entire amount of the receivable to be collectible and has therefore estima1ed the valuation allowance to be zero at April 30, Restricted Assets Mandatory segregations of assets are presented as restricted assets. Such segregations are required by bond agreements and other external parties. Current liabilities payable from these restricted assets are so classified. When both restricted and unrestricted resources are available for use and using restricted resources is appropriate. it is the Agency's policy to use restricted resources first, then unrestricted resources. Page 17

103 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) C. ASSETS, LIABILITIES AND NET ASSETS (cont.) 4. CAPITAL ASSETS Capital assets include property, plant and equipment. Capital assets are defined by the government as assets with an initial cost of more than $5,000 and an estimated useful life in excess of one year. All capital assets are valued at historical cost, or estimated historical cost if actual amounts are unavailable. Donated capital assets are recorded at their estimated fair value at the date of donation. Capital assets In service are depreciated or amortized using the straight-line method over the following useful lives: Water system Booster station and standpipes Other construction Easements Control system Furniture, fixtures, and equipment Automobiles and trucks Leasehold impro\oements years years years 40 years 15 years 5-7 years 5 years 7 years Maintenance and repairs are charged to expense in the year incurred. Expenses that extend the useful life or increase productivity of property, plant, and equipment are capitalized. Interest has been capitalized on assets acquired with debt. The amount of interest capitalized was calculated by offsetting interest expense incurred from the date of the borrowing until completion of the project, with interest earned on invested proceeds over the same period. Buy-Back of Facilities, Reservoirs, and Site at O'Hare- Due from the City of Chicago Section 3.4 of the Water Purchase Agreement between the Agency and the City of Chicago (the City) states that the Agency agrees to sell and the City agrees to buy the facilities and reservoirs, together with any interest in the site, at a price equal to the aggregate costs of the facilities, reservoirs, and site as determined. Payments shall be solely in the form of a credit against any amounts due and owing the City for lake water furnished. The Agency will convey to the City its entire right (title and interest) in the facilities and the reservoirs, together with any interest in the site, 30 days after the later of the date all of the obligations issued in whole or in part to finance the provision of the Agency project or any expansion thereof or addition thereto and any obligations issued to refund any of such securities have been paid In full as to principal and interest or at such time as the credits granted by the City equal the aggregate costs of the facilities and reservoirs as determined. The credits shall be determined as follows: each billing to the Agency, computed on the basic charge as adjusted with respect to all quantities of lake water furnished in a calendar year up to the minimum annual quantity applicable to such year, shall be reduced by a credit to the Agency equal to 12% of the net charges on any billlo the Agency for such quantities. With respect to any additional quantities of lake water furnished during such calendar year, billings shall be reduced by a credit to the Agency equal to 25% of the net charges on any bill to the Agency for such quantities. Such credits shall commence with the first billing to the Agency and continue until such time as the City shall have credited the Agency with an amount equal to the aggregate cost of the facilities and reservoirs. As of April 30, 2012, the Agency has been fully reimbursed for their aggregate costs incurred for the site at O'Hare and the property has been conveyed to the City of Chicago. Should the Agency incur further expansion costs at the site they would be eligible for additional reimbursements. Page 18

104 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) C. ASSETS, LIABILmES AND NET ASSETS (cont.) 5. Other Assets Debt issuance costs are deferred and amortized over the term of the debt issue. 6. Compensated Absences Under terms of employment. employees are granted sick leave and vacations in varying amounts. Only benefits considered to be vested are disclosed in these statements. Vested vacation pay is accrued when earned in the financial statements. The liability at April 30, 2012 is $87,424 and is included in the financial statements within accounts payable and accrued expenses. In the event of termination, there are no amounts due to Agency employees at April 30, 2012 for accumulated sick leave. 7. Long-Term Obligations Long-term debt and other obligations are reported as Agency liabilities. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line or effective interest method. Gains or losses on prior refundings are amortized over the remaining life of the old debt or the life of the new debt, whichever is shorter. D. REVENUES AND EXPENSES The Agency distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the Agency's principal ongoing operations. The principal operating revenues of the Agency are charges to customers for sales and services. Operating expenses for the Agency include the cost of sales and services, administrative expenses, and depreciation on capital assets. AU revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. E. EFFECT OF NEW ACCOUNTING STANDARDS ON CURRENT PERIOD FINANCIAL STATEMENTS The Governmental Accounting Standards Board (GASB) has approved GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements; Statement No. 61, The Financial Reporting Entity: Omnibus; Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and A/CPA Pronouncements; Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position; and Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions- an amendment of GASB Statement No. 53. Application of these standards may restate portions of these financial statements. Page 19

105 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE II- CASH AND INVESTMENTS As of April 30, 2012, cash, cash equivalents and investments at year end consisted of the following: Canying Bank Value Balance ASSOCiated Risks Deposits with financial institutions $ 2,516,417 $ 2.544,402 Custodial credit U.S. Treasury obligations 13,193,650 13,193,650 Custodial credit, interest rate U.S. Agency obligations 2,542,897 2,542,897 Custodial credit, interest rate State and local bonds 342, ,155 Custodial credit, credit, interest rate Money market mutual funds 13,868,672 13,868,672 Custodial credit, interest rate Illinois funds 2,434,679 2,520,964 Credit. interest rate Total deposits and im.estments $ 34,898,470 $ 35,012,740 Per statement of net assets Cash and investments $ 2,521,240 Current restricted investments 7,167,839 Noncurrent cash and investments 9,165,990 Noncurrent restricted i m.estments 16,043,401 Total deposits and im.estments $ 34,898,470 Deposits in each local and area bank are insured by the FDIC in the amount of $250,000 for time and savings accounts (including NOW accounts), $250,000 for interest-bearing demand deposit accounts, and unlimited amounts for nonlnterest bearing transaction accounts. A. Custodial Credit Risk 1. Deposits Custodial credit risk is the risk that in the event of a financial institution failure, the Agency's deposits may not be returned to the Agency. The Agency's investment policy requires pledging of collateral for all bank balances in excess of federal depository insurance, at an amount not less than 110% of the fair market value of the funds secured. 2. Investments For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Agency will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. To limit its exposure, the Agency's investment policy requires all security transactions that are exposed to custodial credit risk to be processed on a delivery versus payment (DVP) basis with the underlying investments he!d by an independent third-party custodian and evidenced by safekeeping receipts. Page 20

106 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE II- CASH AND INVESTMENTS (cont.) B. Credit Risk Credit risk is the risk an issuer or other counterparty to an investment will not fulfill its obligations. To limit its exposure to credit risk, the Agency's investment policy required that it primarily invest In U.S. Treasury obligations and external investment pools. Illinois Funds is an investment pool managed by the State of Illinois, Office of the Treasurer. which allows governments within the State to pool their funds for investment purposes. Illinois Funds is not registered with the SEC as an investment company, but does operate in a manner consistent with Rule 27 of the Investment Company Act of Investments in Illinois Funds are valued at Illinois Fund's share price, the price for which the investments could be sold. Illinois Funds are not rated. The Agency's investments in state and local bonds were rated Aa2 by Moody's lnv~stor Service and AA by Standard & Poor's. C. Interest Rate Risk Interest rate risk is the risk changes in interest rates will adversely affect the fair value of an investment. In accordance with its formal investment policy, the Agency limits its exposure to interest rate risk by structuring the portfolio to provide liquidity for short and long-term cash flow needs while providing a reasonable rate of return based on the current market. As of April 30, 2012, the Agency's investments were as follows: Investment Maturities in Years Fair Less than More than Investment Type Value U.S. Treasury obligations $ 13,193,650 $ 165,708 $ 13,027,942 $ - $ U.S. Agency obligations 2,542,897 2,542,897 State and local bonds 342, ,155 Money market mutual funds 13,868,672 13,868,672 Total $ 29,947,374 $ 14,034,380 $ 13,370,097 $ - $ 2,542,897 Page 21

107 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE Ill- CAPITAL ASSETS Capital asset activity for the year ended April 30, 2012, was as follows: Balance Balance 5/1/2011 Additions Deletions 4130/2012 Capital assets not being depreciated/amortized Easements $ 3, 254,354 $ $ $ 3.254,354 Total capital assets not being depreciated/amortized 3,254,354 3,254,354 Capital assets being depreciated/amortized Water system 65,398,765 65,398,765 Booster station and standpipes 10, ,290 10,B48,748 Control system 4,513, ,197 4,710,263 Other construction 315, ,499 Furniture, fixtures, and equipment 439, ,736 Automobiles and trucks 563,477 19, ,959 Leasehold impro\. ments 110, ,117 Temporary easements 1,000,000 1,000,000 Total capital assets being depreciated/amortized 83,015, ,969 83,406,087 Less accumulated depreciation/amortization for: Water system 26,393,854 1,089,979 27,483,833 Booster station and standpipes 5,948, ,219 6,219,338 Control system 3,651, ,433 3,763,468 Other construction 190,542 7, ,421 Furniture, fixtures, and equipment 423,287 3, ,373 Automobiles and trucks 459,730 49, Leasehold impro\. ments 103,117 1, ,517 Temporary easements 575,000 25, ,000 Total accumulated depreciat ion/amortization 37,744,684 1,560, Net Capital Assets $ 48,524,788 $ (1' 169, 340) $ $ 47, Page 22

108 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE IV- LONG-TERM OBLIGATIONS A. LONG TERM OBLIGATIONS SUMMARY Long-term obligation activity for the year ended April 30, 2012 is as follows: Balance Balance Due Within 5/1/2011 Additions Reductions 4/30/2012 One Year Re~.enue bonds $ 71,610,000 $ $ 500,000 $ $ 705,000 Due to IL State Toll Highway Authority 340,000 20, ,000 Other liabilities Unamortized bond premium 4.795,389 22,448 4, Unamortized loss on refunding bond (5, ) (102,634) (5,826,022) Other post employment benefit payable 10,089 3,031 13,120 IMRF net pension obligation 6,581 9, Total Long-Term Obligations $ 70,833,403 $ 12,826 $ 439,814 $ 70,406,415 $ 725,000 B. REVENUE BONDS PAYABLE Revenue bonds outstanding at year end are as follows: Outstanding Final Interest Original Amount Date Series Maturity Rate Amount 4/30/2012 9/1/1997 Water Special Obligation Bond, 5/1/ % $ 12,755,000 $ 9,985,000 Series 1997 A 2/15/2003 Water Supply System Revenue Refunding Bond 5/1/ % 46,240,000 29,815,000 3/13/2008 Water Supply System Revenue Refunding Bond 5/1/ % 31,310,000 31,310,000 To tar $ 90,305,000 $ 71,110,000 Page 23

109 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE IV- LONG-TERM OBLIGATIONS B. REVENUE BONDS PAYABLE(cont.) Revenue bonds debt service requirements \o maturity follows: Year Ending April 30 Principal Interest Total 2013 $ $ 3,506,439 $ 4,211, ,638 15,761, ,145,000 2,458,387 18,603, ,365,000 1, 795,638 12,160, ,675,000 1,395,575 7,070, ,635,000 2,600,956 28,235,956 Totals $ 71,110,000 $ 14,933,633 $ 86,043,633 c. REVENUE BOND RESOLUTION DISCLOSURES The above bonds are limited obligations of the Agency. The bonds have a claim for payment solely from and are secured by the revenue of the Agency's Water Supply System (the System). after paying the expense of operation and maintenance, and from certain accounts and sub-accounts as provided in the General Resolution. Revenues of the System will consist primarily of payment received by the Agency pursuant to Water Supply Agreements for the sale of water lo the members on a "take or pay" basis. Those payments are to be sufficient to meet all requirements of the General Resolution, regardless of the Agency's ability to complete the System or to supply water. The Agency does not have the power to levy taxes. Even though the Agency has accumulated a large deficit invested in capital assets net of related debt, its ability to continue as a going concern is assured because of the commitments of the member communities to use water supplied by the Agency. Revenues of the System, as defined in the General Resolution (the Resolution). consist of (a) all receipts derived from the Water Supply Agreements or any other contract for the supply of water, other than deposits in the Member Deposit Accounts or similar accounts for the Agency's customers; (b) au income derived from the investment of monies held pursuant to the Resolution and required to be deposited in the Revenue Account; and (c) all income. fees. water service charges, and all rates, rents, and receipts derived by the Agency directly or indirectly from the ownership and operation of the System and the sale of water. These revenues are to be deposited with the trustee. Water Supply System Revenue Bond and Note Resolution Disclosures This Resolution establishes and governs the use of the following funds and accounts that were employed by the Agency in its operations during the year: The Agency Revenue Account The Agency Operation and Maintenance Account Page 24

110 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE IV- LONG-TERM OBLIGATIONS (cont.) C. REVENUE BOND RESOLUTION DISCLOSURES (cont.) The Debt Service Account, in which the following sub-accounts are established: The Bond Interest Sub-Account The Bond Principal Sub-Account The Debt Service Reserve Account The General Account, in which the following sub-accounts are established: The Replacements and Contingencies Sub-Account The General Surplus Sub-Account The Member Deposit Account The Agency Revenue Account This account shall be maintained by the Trustee and all revenues shall be paid to the Trustee for deposit to this account. All amounts deposited in any month in the Revenue Account shall be paid and credited to the various accounts and subaccounts and disbursed for the purposes of those accounts and subaccounts, all in the amounts, at the times, and for the purposes as provided In the Resolution. The Agency Ooeration and Maintenance Account The Agency Operation and Maintenance Account is established by the Resolution as a separate and distinct account of the Agency, to be used as provided in the Resolution. The Operation and Maintenance Account may be maintained at any authorized depository of the Agency and is not required to be maintained by the Agency at the Trustee. As soon as practical in each month after any revenues and other amounts have been deposited in the Revenue Account, the Trustee shall cause from the revenues and other amounts deposited in the Revenue Account in that month (and not previously paid to any other account) an amount to be withdrawn from the Revenue Account and paid to the Agency for deposit in the Operation and Maintenance Account. The amount to be paid to the Agency in each month shall be a sum that shall be sufficient, together with amounts already on deposit in the Operation and Maintenance Account. to enable the Agency (a) to pay the expenses of operations and maintenance (exclusive of water purchase costs and power costs) for the then current month and to retain in the Operation and Maintenance Account as of the end of that month an amount sufficient to pay the expenses of operations and maintenance (exclusive of water purchase costs and power costs) for the next two months, (b) to pay water purchase costs for the then current month, and (c) to pay power costs for the then current month and to retain in the Operation and Maintenance Account as of the end of that month an amount sufficient to pay power costs for the next month. The Trustee shall be entitled, upon notice to the Agency, to deduct from the amounts to be paid to the Agency under this paragraph all amounts owed to the Trustee for its fees that are then due (except the initial Trustee's fee) and to pay those amounts to itself for its own account. The Debt Service Account The Debt Service Account is established by the Resolution as a separate and distinct account to be maintained by the Trustee and to be used as provided in the Resolution. The Bond Interest Sub-Account and the Bond Principal Sub-Account are established as sub-accounts. Page 25

111 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE IV- LONG-TERM OBLIGATIONS (cont.) C. REVENUE BOND RESOLUTION DISCLOSURES (cont.) In each month, the Trustee, after making payments to the Operation and Maintenance Account, shall make deposits to the Debt Service Account to meet the requirements of the Bond Principal and Bond Interest Sub-Accounts as follows: Bond Interest Sub-Account There shall be credited in each month to the Bond Interest Sub-Account an amount equal to one-sixth of the interest to come due on the bonds on the next interest payment date, until there shall be on deposit in the Bond Interest Sub-Account the full amount of that interest. Bond Principal Sub-Account There shall be credited in each month to the Bond Principal Sub-Account an amount equal to one-twelfth of the principal to come due on the next principal payment date on bonds. either at maturity or pursuant to sinking fund installments, until there shalt be on deposit in the Bond Principal Sub-Account the full amount of that principal. The Debt Service Reserve Account The Debt Service Reserve Account is established by the Resolution as a separate and distinct account to be maintained by the Trustee and to be used as provided by the Resolution. The Agency shall pay to the Trustee any amount required for deposit in the Debt Service Reserve Account so that the value of the account is equal to the maximum amount of principal of and interest on outstanding bonds of the Agency that is to come due in a 12-month period ending on any May 1 (the Debt Service Reserve Requirement). The value of the Debt Service Reserve Account from time-to-time shall be the value of the investments of the account plus the surety bond coverage of the Debt Service Reserve Account Insurance Policy or any substitute surety bond and Debt Service Reserve Account Insurance Policy. In the event a drawing is made on the Debt Service Reserve Account Insurance Policy or monies are withdrawn from the Debt Service Reserve Account. the Agency shall be obligated to reinstate the maximum limits of such Debt Service Reserve Account Insurance Policy and to restore any moneys withdrawn so that within 12 months following such drawing or withdrawal, the amount on deposit in the Debt Service Reserve Account (including the surety bond coverage) equals the Debt Service Reserve Requirement. Presently, the Debt Service Reserve Requirement is met by a Reserve Account Insurance Policy provided by Municipal Bond Insurance Association. See "Reserve Account and Bond Guaranty Insurance Policies." Reserve Account and Bond Guaranty Insurance Policies Reserve Account Insurance Policy Page 26

112 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April30, 2012 NOTE IV- LONG-TERM OBLIGATIONS (cont.) C. REVENUE BOND RESOLUTION DISCLOSURES (cont.) The Municipal Bond Insurance Association (MBIA) has issued a surety bond (the Reserve Account Insurance Policy) in a dollar amount that calculates to be equal to the Debt Service Reserve Requirement. The Reserve Account Insurance Policy provides that upon notice to MBIA of insufficient amounts being on deposit in the Debt Service Reserve Account to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the bonds and other parity bonds that may be issued, up to the face amount of the Reserve Account Insurance Policy, MBIA will promptly deposit with the Trustee an amount sufficient to pay the principal of and interest on the bonds or the available amount of the Reserve Account Insurance Policy, whichever is less. The available amount of the Reserve Account Insurance Policy will be the face amount of the Reserve Account Insurance Policy less the amount of any previous deposits by MBIA with the Trustee that have not been reimbursed by the Agency. The Agency will be required to reimburse MBIA. within one year, the amount of any deposit made by MBIA with the Trustee under the Reserve Account Insurance Policy. Such reimbursement shall be made only after all required deposits to the Operation and Maintenance Account and the Debt Service Reserve Account have been made. The Trustee is required to reimburse MBIA, with interest, until the face amount of the Reserve Account Insurance Policy is reinstated before any deposit is made to the General Account. No optional redemption of bonds may be made until any Reserve Account Insurance Policy is so reinstated. The Reserve Account Insurance Policy will be held by the Trustee in the Debt Service Reserve Account and is provided as an alternative to the Agency depositing funds equal to the Debt Service Reserve Requirement for outstanding bonds. The Reserve Account Insurance Policy is extended to 2015 and is cancelable at the sole discretion of MBIA, on either May 1, 2005 or May 1, 2010, upon 10 years advance notice. The premium for such policy has been paid in full by the Agency when the 1986 Bonds were issued. If the Reserve Account Insurance Policy is canceled by MBIA at one of the predetermined dates with advance notice to the Agency, the Agency will be obligated over the five years preceding the termination date to fund fully, in equal monthly installments, the Debt Service Reserve Account to an amount equa! to the Debt Service Reserve Requirement or to provide a substitute surety bond. A substitute surety bond is a surety bond or other obligation provided by an insurance company or other institution (surety bond provider), which surety bond provider provides surety bonds or other similar obligations for municipal bonds, which are rated in one of the top two ratings of a nationally recognized rating agency. The legal rights under the substitute surety bond must, in the opinion of nationally recognized bond counsel selected by the Agency, be not less favorable to the holders of bonds than would be the Reserve Account Insurance Policy. If, at the time the substitute surety bond becomes effective, any bonds are covered by a policy of insurance issued by MBIA (other than the Reserve Account Insurance Policy), the surety bond provider must be satisfactory to MBIA. The Agency is required, in each year the Reserve Account Insurance Policy is outstanding, to provide MBIA with a certificate from Bond Counsel or Agency Counsel that all legal covenants of the Agency as described in the Resolution have been met and a certificate from the Agency's auditors that all financial covenants have been met. Page 27

113 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE IV- LONG-TERM OBLIGATIONS (cont.) C. REVENUE BOND RESOLUTION DISCLOSURES (cont.) Bond Guaranty Insurance The MBIA policy unconditionally and irrevocably guarantees the fuji and complete payment required to be made by or on behalf of the Agency to the Trustee or its successor of an amount equal to (i) the principal (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on the bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date or such principal by reason of mandatory or optional redemption or acceleration resulting from the default or otherwise, other than an advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration) and (ii) the reimbursement of any such payment that is subsequently recovered from any owner of the bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law (a Preference), Water Supply System Refunding Revenue Bonds, Series 2003 MBIA Insurance Corporation (the Insurer) has issued a policy containing the following provisions, such policy being on file at Bank One, National Association, Chicago, Illinois. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to Bank One, National Association or its successor (the Paying Agent) of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations~ shall mean: $46,240,000, Northwest Suburban Municipal Joint Action Water Agency, Cook, DuPage, and Kane Counties, Illinois, Water Supply System Refunding Revenue Bonds, Series The General Account The General Account is established by the Resolution as a separate and distinct account to be maintained by the Trustee and to be used as provided in the Resolution. Within this account, there are established as sub-accounts a Replacements and Contingencies Sub-Account and a General Surplus Sub-Account. Page 28

114 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, NOTE IV- LONG-TERM OBLIGATIONS (cont.) C. REVENUE BOND RESOLUTION DISCLOSURES (cont.) Replacements and Contingencies Sub-Account In each month beginning with May 1, 1985, the Trustee shall, after making all required payments to the Operation and Maintenance Account, the Debt Service Reserve Account cause from the revenues and other amounts deposited in the Revenue Account (and not previously paid to any other account) an amount to be withdrawn from the Revenue Account and deposited to the credit of the Replacements and Contingencies Sub-Account as provided in this paragraph. The amount required to be so credited to the Replacements and Contingencies Sub-Account in each month shall be $50,000 or such greater amount as shall be required by any series resolution or pursuant to Section 918 of the Resolution or pursuant to any resolution of the board from time-to-time establishing a greater credit requirement. These accounts will be used to fund deficiencies in other accounts. This account has a balance of $4,117,243 at April 30, The current required minimum balance in the account is $3,000,000. General Surplus Sub-Account After all required credits have been made in each month to the Replacements and Contingencies Sub Account and after all required credits or payments have been made to other funds and accounts, the Trustee shall credit to the General Surplus Sub-Account the amount, if any, by which the value of the Replacements and Contingencies Sub-Account exceeds the replacements and contingencies requirements of $3,000,000 or higher if determined by the Board. No amounts were credited to this account as of April 30, The Member Deposit Account As security for payment of the Agency's obligations under the Resolution, the Agency shalt pay to the Trustee on or before the tenth day of each fiscal year an amount which, together with amounts already on deposit in the Member Deposit Account established by the Resolution in the name of the Agency, equals the maximum amount of the member's estimated share (as set forth in the budget) of the costs for any month in that fiscal year. D. INSTANTANEOUS DEFEASANCE OF 1997 A $12,755,000 On August 20, the Agency passed a resolution providing for the issuance of $12,755,000 of Water Special Obligation Bonds of 1997A. On August 20, 1997, the Agency passed a resolution that provided for an amended and restated escrow agreement in order to redeem the previously in-substance defeased Water Supply System Revenue Bonds of 1996 and to refund the Water Special Obligation Bonds of 1997 A. Proceeds were used to redeem outstanding 1986 bonds. The escrow account from the prior in-substance defeasance of the 1996 bond issue will be used to satisfy the Debt Service Requirements of the 1997A issue, with excess from the escrow account paid to the Agency. The proceeds in escrow are not subject to lien for any purpose other than in connection with the defeasance. Page 29

115 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE IV- LONG-TERM OBLIGATIONS (cont.) D. INSTANTANEOUS DEFEASANCE OF 1997A $12,755,000 (cont.) Although the requirements that satisfy defeasance have been met for the 1997 A issue, the financial statements do not reflect the satisfaction of the liability of the 1997 A $12,265,000 bond issue, thus, both the debt and the corresponding escrow are to be reflected on the financial statements. The amount of outstanding bonds that will be paid from escrow at April 30, 2012 is $9,985,000. E. PRIOR YEAR DEFEASANCE OF DEBT On March 13, 2008, the Agency issued $31,310,000 Water Supply System Revenue Refunding Bonds, Series 2008 to advance refund, through an in-substance defeasance, $29,405,000 of the Water Supply System Revenue Refunding Bond Series of The proceeds of the 2008 bonds were placed in an irrevocable trust to provide all future debt service payments on the old bonds. As a result, these bonds are considered defeased and the liability has been removed from the Agency's financial statements. Defeased bonds remaining outstanding at April 30, 2012 are $7,870,000. F. EASEMENT AGREEMENT WITH THE ILLINOIS STATE TOLL HtGHWA Y AUTHORITY The Agency entered into an agreement with the Illinois State Toll Highway Authority for right-of-way on the tollway. The agreement calls for a payment of $800,000 to be paid in 40 installments at $20,000 annually. As of April 30, 2012, $320,000 is outstanding. NOTE V- EMPLOYEES RETIREMENT SYSTEM ILLINOIS MUNICIPAL RETIREMENT FUND The Agency's defined benefit pension plan, Illinois Municipal Retirement (IMRF) an agent multi-employer plan, provides retirement, disability, annual cost of living adjustments and death benefits to plan members and beneficiaries. IMRF acts as a common investment and administrative agent for local governments and school districts in Illinois. The Illinois Pension Code establishes the benefit provisions of the plan that can only be amended by the Illinois General Assembly. IMRF issues a financial report that includes financial statements and required supplementary information. That report may be obtained at or by writing to the Illinois Municipal Retirement Fund, 2211 York Road, Suite 500, Oak Brook Illinois All employees hired in positions that meet or exceed the prescribed annual hourly standard must be enrolled in IMRF as participating members. Public Act created a second tier for IMRF's Regular Plan. Effective January 1, 2011, IMRF assigns a benefit tier to a member when he or she is enrolled In IMRF. The tier is determined by the member's first IMRF participation date. If the member first participated in IMRF before January 1, 2011, they participate in Regular Tier 1. If the member first participated in!mrf on or after January 1, 2011, they participate in Regular Tier 2. Page 30

116 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE V- EMPLOYEES RETIREMENT SYSTEM (cont.) For Regular Tier 1, pension benefits vest after eight years of service. Participating members who retire at or after age 60 with 8 years of service are entitled to an annual retirement benefit, payable monthly for life in- an amount equal to 1 213% of their final rate (average of the highest 48 consecutive months earnings during the last 10 years) of earnings for each year of credited service up to 15 years and 2% for each year thereafter. For Regular Tier 2, pension benefits vest after ten years of service. Participating members who retire at or after age 67 with 10 years of service, or age 62 with 35 years of service are entitled to an annual retirement benefit as described above. IMRF also provides death and disability benefits. These benefit provisions and all other requirements are established by. Illinois Compiled Statutes. Participating members are required to contribute 4.5% of their annual salary to IMRF. The Agency Is required to contribute the remaining amounts necessary to fund the coverage of its own employees in JMRF, as specified by statute. For calendar year 2011, the Agency's contribution rate was percent of annual covered payroll. The Agency's required contribution rate was percent. Annual Pension Cost The Agency annual required contribution for the current year and related information for the plan is as follows: Actuarial Valuation Date Contribution rates: Employer Employee Annual required contribution Contributions made Percent of annual required contribution contributed Actuarial cost method Asset valuation method Amortization method Amortization period Actuarial assumptions: Investment rate of return Projected salary increases Inflation rate included Cost-of-living adjustments 12/31/ % 4.50% $163,244 $153, % Entry~age normal 5 year smoothed. Market Level percentage of payroll 10 years, open 7.50% 0.4 to 10% 4.00% 3.00% Page 31

117 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, NOTE V- EMPLOYEES RETIREMENT SYSTEM (cont.) IMRF Net Pension Obligation The following is the IMRF net pension obligation calculation from the actuarial report: Annual required contribution Interest on net pension obligation Adjustment to annual required contribution Annual pension cost Contributions made Change in net pension obligation IMRF net pension obligation, beginning of year IMRF net pension obligation, end ofyear Illinois Municipal Retirement $ $ 163, ,244 (153,449) 9,795 6,581 16,376 Trend Information Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. Fiscal Year Illinois Municipal Retirement Annual pension cost (APC) 2012 $ 163, , ,904 Contributions made 2012 $ 153, , ,904 Percentage of APC contributed % % % IMRF net pension obligation 2012 $ 16, , Page 32

118 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE V- EMPLOYEES RETIREMENT SYSTEM (cont.) Funded Status and Funding Pr:ogress The Agency's actuarial value of plan assets for the current year and related information is as follows: Actuarial Valuation Date Actuarial Valuation of Assets (a) Actuarial Accrued Liability (AAL) - Entry Age (b) Unfunded AAL (UAAL) (b - a) Funded Ratio (a/b) Covered Payroll (c) UAAL as a Percentage of Covered Payroll ((b -a)/c) Illinois Municipal Retirement 12131/2009 $ 2,474,170 $ 3,263,867 $ 789, % $ 1,209, % The schedules of funding progress. presented as RSI following the notes to the financial statements, present multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. NOTE VI- OTHER POSTEMPLOYMENT BENEFITS The Agency's group health insurance plan provides coverage to active employees and retirees (or other qualified terminated employees) at blended premium rates. This results in another postemployment benefit (OPEB} for the retirees, commonly referred to as an implicit rate subsidy. Contribution requirements are established through personnel policy guidelines and may be amended by the action of the governing body. The Agency provides pre and post Medicare postretirement healthcare benefits to all retirees who worked for the Agency, were enrolled in one of the Agency's healthcare plans at the time of retirement, and receive a pension from the Agency through IMRF. Spouses and dependents of retirees are eligible to continue healthcare coverage while the retiree is alive if they were enrolled at the time of retirement. Surviving spouses and dependents of employees are eligible for COBRA coverage. The amount payable under the Agency health plan will be reduced by the amount payable under Medicare for those expenses that are covered under both. Page 33

119 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE VI- OTHER POSTEMPLOYMENT BENEFITS The Agency's annual other postemployment benefit (OPES) costs (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with parameters of GASB Statement No. 45. The ARC represents a level of funding that if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the Agency's annual OPES cost for the year, the amount actually contributed to plan, and changes in the Agency's net OPES obligation to the plan. 01her Postemployment Benefits Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution $ 3, (235) Annual OPEB cost Contributions made Increase in net OPEB obligation (asset) Net OPES Obligation (Asset)- Beginning of Year 4,047 1,016 3,031 10,089 Net OPEB Obligation (Asset)- End of Year $ 13,120 The Agency's annual OPEB cost. the percentage of annual OPES cost contributed to the plan. and the net OPEB obligation for April 30, 2012 and the two preceding years were as follows: Percentage of Annual OPEB Annual OPEB Cost Net OPEB Fiscal Year Ended Cost Contributed Liability 2012 $ 4, % $ 13, , % 10, , % 7,058 Page 34

120 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30, 2012 NOTE VI- OTHER POSTEMPLOYMENT BENEFITS (cont.) The funded status of the plan as of the April 30, 2010 actuarial valuation was as follows: Actuarial Valuation of Assets (a) Actuarial Accrued Liability (AAL) - Entry Age (b) Unfunded AAL (UAAL) (b - a) Funded Ratio (a/b) Covered Payroll (c) UAAL as a Percentage of Covered Payroll ((b- a)/c) Other Postemployment Benefits $ $ 29,214 $ 29, % $ 1, % Actuarial valuations of an ongoing plan involve estimates for the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the April 30, 2010 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions include a 4% investment rate of return and an annual healthcare cost trend of 13.1% initially, reduced by decrements to an ultimate rate of 4.5%. Both rates include a 3.0% inflation assumption and a 4.0% wage inflation assumption. The actuarial value of Retiree Health Plan assets was not determined as the Agency has not advance funded its obligation. The plan's unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. The amortization period at April 30, 2010, was 30 years. Page 35

121 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended April 30,2012 NOTE VII- OTHER INFORMATION A. CLAIMS AND JUDGMENTS From time to time, the Agency is party to various pending claims and legal proceedings. Although the outcome of such mahers cannot be forecasted with certainty, it is the opinion of management and the Agency's legal counsel that the likelihood is remote that any such claims or proceedings will have a material adverse effect on the Agency's financial position or results of operations. B. RISK MANAGEMENT The Agency is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets; errors, and omissions: workers compensation: and health care of its employees. Employee health/medial risks are covered by private insurance. Municipal Insurance Cooperative Agency (MICA) The Agency participates in the MICA. MICA is a public entity risk pool whose members are Illinois municipalities. MICA manages and funds first-party property losses, third-party liability claims, workers' compensation claims, and public officials' liability claims of its members. There have been no significant reductions in coverage in the past year. No settlements have exceeded insurance coverage in the past three years. The Agency's payments to MICA are displayed on the financial statements as expenses. Management of MICA consists of a Board of Directors compromised of one appointed representative from each member. In addition, there are three officers, a Benefit Administrator, and a Treasurer. The Agency does not exercise any control over activities of MICA beyond its representation on the Board of Directors. Page 36

122 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY ILLINOIS MUNICIPAL RETIREMENT FUND SCHEDULE OF EMPLOYER CONTRIBUTIONS AND ANALYSIS OF FUNDING PROGRESS As of and for the Year Ended April 30, 2012 Percentage Fiscal Annual Pension ofapc Net Pension Year Cost (APC) Contributed Obligation 4/30/12 $ 163,244 94% $ 16,376 4/30/11 142,199 95% 6,581 4/30/10 120, % 4/30/09 106, % 4/30/08 110, % 4/30/07 127, % Actuarial Actuarial Accrued Unfunded UAAL as a Actuarial Value of Liability (AAL) AAL Funded Covered Percentage of Valuation Assets Entry Age (UAAL) Ratio Payroll Covered Payroll Date (a) {b~ {b-a) {alb~ (c) ( (b-a)/c) 12/31/11 $ 2,474,170 $ 3,263,867 $ 789, % $ 1,209, % 12/31/10 2,990,776 3,486, , % 1,175, % 12/31/09 2,702,091 3,187, , % 1,152, % 12/31/08 2,821,725 3,159, , % 1,104, % 12/31/07 2,840,569 2,951, , % 1 '101 ' % 12131/06 2,470,147 2,534,763 64, % 983, % On a market value basis, the actuarial value of assets as of December 31, 2011, is $2,355,798. On a market basis, the funded ratio would be 72.18%. See independent auditors' report. Page 37

123 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY OTHER POSTEMPLOYMENT BENEFIT PLAN SCHEDULE OF EMPLOYER CONTRIBUTIONS AND ANALYSIS OF FUNDING PROGRESS As of and for the Year Ended April 30, 2012 Fiscal Year Annual OPEB Cost Percentage of OPEB Cost Contributed NetOPEB Obligation 4/30/12 4/30/11 4/30/10 $ 4,047 4,047 3, % 25.11% 6.53% $ 13,120 10,089 7,058 Actuarial Valuation Date Actuarial Value of Assets (a} Actuarial Accrued Liability (AAL) Entry Age (b) Unfunded AAL (UAAL) (b-a} Funded Ratio (a/b) Covered Payroll (c) UAAL as a Percentage of Covered Payroll ( (b-a)/c) 4/30/10 4/30/09 $ $ 29, $ 29,214 25, % 0.00% $ 1,128,587 1,085, % 2.35% See independent auditors' report. Page 38

124 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY BUDGETARY INFORMATION For the Year Ended April 30, 2012 BUDGETS AND BUDGETARY ACCOUNTING The Agency is required to prepare an annual budget 90 days prior to the beginning of each fiscal year, and the budget shall be adopted no later than 60 days prior to the beginning of each fiscal year. Budgetary control is at the fund level. Management may exceed budgeted amounts on a line item basis without Board approval. All amendments to the fund totals must be approved by the Board. The annual budget is adopted on a basis consistent with GAAP. Budgeted amounts lapse at fiscal yearend. Page 39

125 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY SCHEDULE OF CHANGES IN NET ASSETS- RESTRICTED ACCOUNTS For the Year Ended April 30, 2012 Bond Interest Bond Principal Debt Service Reserve Total INCREASES Contributions from members and transfers Interest Income $ 3,022,262 $ 500,000 $ - 92,844 $ 3,522,262 92,844 Total increases 3,022, ,000 92,844 3,615,106 DECREASES Bond Principal Interest Expense , ,000 3, Total Decreases 3,028, ,000 3, NET INCREASE (DECREASE) (6,000) 200,000 92, ,844 ACCOUNT BALANCES- RESTRICTED BEGINNING OF YEAR 2,366, ,000 3,411,665 6,078,645 ACCOUNT BALANCES- RESTRICTED END OF YEAR $ 2,360,980 $ 500,000 $ 3,504,509 6,365,489 Less interest payable from restricted accounts (1, ) NET ASSETS - RESTRICTED FOR DEBT SERVICE END OF YEAR $ 4,854,358 Page 40

126 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY SCHEDULE OF OPERATING EXPENSES- BUDGET AND ACTUAL OPERATIONS AND MAINTENANCE ACCOUNT For the Year Ended April30, 2012 Budget ADMINISTRATION Salaries $ 328,292 FICA 24,950 IMRF 41,595 Life and health insurance 67,500 Professional meetings 3,310 Communications 2,750 Meetings and travel 200 Liability insurance 130,000 Dues and subscriptions 600 Machinery and equipment 2,000 Easement agreements 21,007 Photocopy 890 Printing and postage 1,300 Office supplies 900 Transportation 3,600 Technical services 19,800 Building maintenance 13,000 Professional services 30,000 Trustee and bank fees 17,000 TOTAL ADMINISTRATION EXPENSES EXCLUDING DEPRECIATION $ 708,694 Actual $ 306,963 14, ,023 7,253 3, , ,615 1,316 5, ,381 12,065 37, $ 783,143 Page 41

127 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY SCHEDULE OF OPERATING EXPENSES- BUDGET AND ACTUAL (continued) OPERATIONS AND MAINTENANCE ACCOUNT For the Year Ended April 30, 2012 WATER PUMPING AND DISTRIBUTION Salaries Overtime FICA IMRF Unemployment insurance Life and health insurance Communications Diesel fuel Natural gas Chlorine and chemicals Safety and training Contractual services Uniforms Office supplies Professional development Laboratory Transportation Tools and parts Building maintenance and supplies Equipment rental Electrical parts Mechanical parts Instrument parts Maintenance agreements Miscellaneous T -Main repairs T -Main parts Power - electric Water purchase Capital expenditures Total water pumping and distribution Less amounts capitalized TOTAL WATER PUMPING AND DISTRIBUTION EXPENSES EXCLUDING DEPRECIATION TOTAL OPERATING EXPENSES EXCLUDING DEPRECIATION Budget Actual $ 822,771 $ 834,768 56,301 48,003 65, , ,997 1,784 2, , ,393 90,180 87,549 22,283 25,171 8,500 10,932 29,120 20,828 2,500 2, ,300 72,463 3,575 3,268 3,500 2,899 11,500 3,240 2,600 1,410 42,000 45,008 4, ,000 2,440 5,000 3,257 70,000 77,346 42,000 40,997 26, ,700 5,773 1,400 (225) 85,000 60,604 30,000 8, , ,928 24,251,593 22,760, , ,828 27,111,252 25,540,916 (390,969) $ 27,819,946 $ 25,933,090 Page 42

128 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY LONG-TERM DEBT REQUIREMENTS WATER SPECIAL OBLIGATION BONDS, SERIES 1997A As of April 30, 2012 Bonds Dated Date of Issue Date of Maturity Authorized Issue Denomination of Bonds Interest Rates Principal Maturity Date Payable at September 1, 1997 September 1, 1997 May 1, 2016 $12,755,000 $5, % % May 1 First Trust Illinois FUTURE PRINCIPAL AND INTEREST REQUIREMENTS Fiscal Year Principal Interest Total 2013 $ 205,000 $ 494,176 $ 699, ,385, ,375 3,789, ,345, '125 6,506, ,000 1,250 51,250 $ 9,985,000 $ 1,060,926 $ 11,045,926 Current $ 205,000 $ 494,176 $ 699,176 Long-Term 9,780, ,750 10,346,750 $ 9,985,000 $ 1,060,926 $ 11,045,926 Page 43

129 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY LONG-TERM DEBT REQUIREMENTS WATER SUPPLY SYSTEM REVENUE REFUNDING BONDS, SERIES 2003 As of April 30, 2012 Bonds Dated Date of Issue Date of Maturity Authorized Issue Denomination of Bonds Interest Rates Principal Maturity Date Payable at February 15, 2003 February 15, 2003 May 1, 2015 $46,240,000 $5, % % May 1 Cede & Co. FUTURE PRINCIPAL AND INTEREST REQUIREMENTS Fiscal Year Principal Interest Total 2013 $ 500,000 $ 1,475,750 $ 1,975, ,200,000 1,235,750 10,435, ,800, ,750 10,560, , ,875 10,572,875 $ 29,815,000 $ 3.730,125 $ 33,545,125 Current $ 500,000 $ 1,475,750 $ 1,975,750 Long-Term ,000 2,254,375 31,569,375 $ ,000 $ 3.730,125 $ 33,545,125 Page 44

130 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY LONG-TERM DEBT REQUIREMENTS WATER SUPPLY SYSTEM REVENUE REFUNDING BONDS, SERIES 2008 As of April 30, 2012 Bonds Dated Date of Issue Date of Maturity Authorized Issue Denomination of Bonds Interest Rates Principal Maturity Date Payable at March 13, 2008 March 13, 2008 May 1, 2020 $31,310,000 $5, % % May 1 The Bank of New York Trust Company N.A. FUTURE PRINCIPAL AND INTEREST REQUIREMENTS Fiscal Year Principal Interest Total 2013 $ - $ 1,536,513 $ 1,536, ,536,513 1,536, ,536,513 1,536, ,536,513 1,536, ,675,000 1,395,575 7,070, ,960,000 1,106,763 7,066, ,255, ,944 7,069, ,545, ,375 7,052, ,875, ,873 7,046,873 $ 31,310,000 $ ,582 $ 41,452,582 Current $ - $ 1,536,513 $ 1,536,513 Long-Term 31,310,000 8,606,069 39,916,069 $ 31,310,000 $ 10,142,582 $ 41,452,582 Page 45

131 NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY SCHEDULE OF INSURANCE IN FORCE As of April30, 2012 AgenUinsurer Municipal Insurance Cooperative Agency Property Description of Coverage Amount of Coverage $1,000,000/0ccurrence Municipal Insurance Cooperative Agency Municipal Insurance Cooperative Agency Municipal Insurance Cooperative Agency Municipal Insurance Cooperative Agency Municipal Insurance Cooperative Agency Municipal Insurance Cooperative Agency Municipal Insurance Cooperative Agency Liability, Automobile Liability, Employee Benefits Liability, and Errors & Omissions Workers' Compensation Crime Excess Workers' Compensation Boiler and Machinery Excess Property Excess Liability including public officials' liability $800,000/0ccurrence $1 00,000/Employers Liability $500,000/0ccurrence $750,000/E m players Liability $50,000,000/0ccurrence $400,000/0ccurrence $9,000,000/0ccurrence Page 46

132 NORTHWEST SUBURBAN MUNICIPAL JOiNT ACTION WATER AGENCY SCHEDULE OF CHANGE IN TRUSTEE ACCOUNTS - BANK OF NEW YORK For the Year Ended April 30, 2012 Debt Service Bond Rebate Bond Escrow Trust Bond Bond & 1997 Revenue Interest Principal INCREASES Inter-account transfers $ - $ - $ - $ - $ Interest 2 706,522 Member deposits 3, ,000 Total increases 2 706,522 3, ,000 DECREASES Inter-account transfers Expenses Interest 504,352 3,028,262 Principal 200, Total decreases 704, ,000 NET INCREASE (DECREASE) 2 2,170 (6,000) 200,000 ACCOUNT BALANCES, BEGINNING OF YEAR 1,715 9,687,789 2,366, ,000 ACCOUNT BALANCES. END OF YEAR $ 1,717 $ 9,689,959 $ - $ 2,360,980 $ 500,000 Page 47

133 General Debt Service Replacements Improvements Debt Service Cost of and Member and Trust Reserve Issuance Contingencies De~osits Extensions Sur~lus Total $ - $ - $ $ - $ 100,000 $ 2,650,274 $ 2,750,274 92,844 1, ,015 3,522,262 92, ,221 2, ,073, , , , ,186 3,532, , , ,186 4, ,844 (1 00,000) 1,426 (299,965) 2,650,274 2,540, ,665 4,217,243 2,845, ,581 6,515,716 29,836,479 $ 3,504,509 $ - $ 4,117,243 $ 2,847,216 $ 189,616 $ 9,165,990 $ 32,377,230 Page 48

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135 $ NORTHWEST SUBURBAN MUNICIPAL JOINT ACTION WATER AGENCY SCHEDULE OF CHANGES IN ACCOUNT BALANCES MEMBERS' DEPOSIT ACCOUNTS As of and for the Year Ended April 30, 2012 TRUSTEE ACCOUNTS Balances Increases/ Balances Ma}" 1 Interest Decreases A~ri130 Deposits Village of Elk Grove $ 546,016 $ 276 $ - $ 546,291 Village of Hanover Park 256, ,097 Village of Hoffman Estates 418, ,371 Village of Mount Prospect 331, ,430 City of Rolling Meadows 242, ,424 Village of Schaumburg 778, ,593 Village of Streamwood 272, ,009 TOTAL DEPOSITS $2,845,790 $ 1,426 $ 2,847,215 AGENCY ACCOUNTS Deposits Village of Elk Grove $ 485,733 $ 462 $ - $ 486,195 Village of Hanover Park 199, ,326 Village of Hoffman Estates 336, ,293 Village of Mount Prospect 329, ,297 City of Rolling Meadows 206, ,443 Village of Schaumburg 662, ,188 Village of Streamwood 238, ,678 TOTAL DEPOSITS $2,458,692 $ 2,728 $ - $ 2,461,420 Page 49

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137 STATISTICAL SECTION (UNAUDITED) This part of the Northwest Suburban Municipal Joint Action Water Agency's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the Agency's overall financial health. Contents Financial Trends These schedules contain trend information to help the _reader understand how the Agency's financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the Agency's most significant local revenue source, water sales. Debt Capacity These schedules present information to help the reader assess the affordability of the Agency's current levels of outstanding debt and the Agency's ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the Agency's financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the Agency's financial report relates to the services the Agency provides and the activities it performs Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The Northwest Suburban Municipal Joint Action Water Agency implemented GASB Statement 34 in 2005; schedules presenting government-wide information include information beginning in that year.