$4,775,000 * CITY OF GEORGETOWN, KENTUCKY, WATER AND SEWER REVENUE BONDS, SERIES 2013A. and

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1 This Preliminary Official Statement has been prepared for submission to prospective bidders for the Series 2013 Bonds herein described and is in a form deemed final by the City for purposes of SEC Rule 15c2-12(b)(1), but is subject to revision, amendment and completion in a final Official Statement. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of the Series 2013 Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful before registration or qualification under the securities laws of any such jurisdiction. New Issues (Bank Qualified) PRELIMINARY OFFICIAL STATEMENT Dated September 11, 2013 (Series 2013A Bonds to be sold September 18, 2013, at 11:30 a.m., EDT) (Series 2013B Bonds to be sold September 18, 2013 at Noon, EDT) RATING: Aa3 Moody s (See Rating herein) In the opinion of Bond Counsel, subject to the conditions set forth in TAX MATTERS herein, interest on the Series 2013 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of computing the federal alternative minimum tax. Bond Counsel is further of the opinion that interest on the Series 2013 Bonds is excluded from gross income for Kentucky income tax purposes and the Series 2013 Bonds are exempt from ad valorem taxation by the Commonwealth of Kentucky and its political subdivisions. Dated: Date of Delivery $4,775,000 * CITY OF GEORGETOWN, KENTUCKY, WATER AND SEWER REVENUE BONDS, SERIES 2013A and $2,675,000 * CITY OF GEORGETOWN, KENTUCKY, WATER AND SEWER REFUNDING REVENUE BONDS, SERIES 2013B Due: May 1, as shown herein Interest on the Series 2013A Bonds is payable semiannually on each May 1 and November 1, commencing November 1, Interest on the Series 2013B Bonds is payable semiannually on each May 1 and November 1, commencing May 1, Accordingly, principal and interest on the Series 2013A Bonds and the Series 2013B Bonds (collectively, the Series 2013 Bonds ) will be paid by The Bank of New York Mellon Trust Company, N.A., Louisville, Kentucky, as Paying Agent and Bond Registrar, directly to The Depository Trust Company ( DTC ) or Cede & Co., its nominee. DTC will in turn remit such principal or interest to the Direct Participants (as defined herein) for subsequent distribution to the Beneficial Owners (as defined herein) of the Series 2013 Bonds. The Series 2013 Bonds will be issuable in denominations of $5,000 or any integral multiples thereof, fully registered as to both principal and interest. The Series 2013 Bonds will mature on the respective dates shown on the following page. The Series 2013A Bonds maturing on and after May 1, 2024, are subject to optional redemption on and after May 1, 2023, as described herein. The Series 2013B Bonds are not subject to optional redemption before maturity. The Series 2013 Bonds are offered, subject to prior sale, when, as and if issued by the City, subject to prior approval of legality by Stoll Keenon Ogden PLLC, Louisville, Kentucky, Bond Counsel. Certain legal matters will be passed on for the City by counsel for its Board of Water and Sanitary Sewer Commissioners, R. Bruce Lankford, Georgetown, Kentucky. Delivery of the Series 2013A Bonds is expected on or about September 30, 2013 and delivery of the Series 2013B Bonds is expected on or about October 21, * J.J.B. HILLIARD, W.L. LYONS, LLC Louisville, Kentucky Financial Advisor Preliminary, subject to adjustment as described in the Notice and Official Terms and Conditions of Bond Sale for each series of Series 2013 Bonds.

2 MATURITY SCHEDULES $4,775,000 * CITY OF GEORGETOWN, KENTUCKY, WATER AND SEWER REVENUE BONDS, SERIES 2013A First interest payment is due November 1, The Series 2013A Bonds will mature on May 1 of the following years: Year Amount Rate Price Yield CUSIP # Year Amount Rate Price Yield CUSIP # * Interest * Interest 2014 $170,000 % 2024 $230,000 % , , , , , , , , , , , , , , , , , ,000 (No accrued interest) $2,675,000 * CITY OF GEORGETOWN, KENTUCKY, WATER AND SEWER REFUNDING REVENUE BONDS, SERIES 2013B First interest payment is due May 1, following years: The Series 2013B Bonds will mature on May 1 of the Year Amount * Rate Price Yield CUSIP # Interest 2014 $275,000 % , , , , , , , , ,000 (No accrued interest) * Preliminary, subject to adjustment as described in the Notice and Official Terms and Conditions of Bond Sale for each series of Series 2013 Bonds. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein are provided by CUSIP Global Services, managed by Standard & Poor s Financial Services LLC on behalf of The American Bankers Association. These data are not intended to create a database and do not serve in any way as a substitute for the CUSIP Services. Neither the City, the Board of Water and Sanitary Sewer Commissioners nor the Underwriter is responsible for the selection or correctness of the CUSIP numbers set forth herein.

3 This Official Statement does not constitute an offer to sell the Series 2013 Bonds in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. No dealer, salesman or any other person has been authorized to give any information or make any representation, other than those contained herein, in connection with the offering of the Series 2013 Bonds, and if given or made, such information or representation must not be relied upon. Neither the delivery of this Official Statement nor the sale of any Series 2013 Bonds implies that there has been no change in the matters described herein since the date hereof. The information and expressions of opinion herein are subject to change without notice. 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 the affairs of the City since the date hereof. All quotations from and summaries and explanations of provisions of laws and documents herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. The information in this Official Statement has been obtained from sources which are considered reliable and which are customarily relied upon in preparation of similar official statements, but such information is not guaranteed as to accuracy or completeness. The Series 2013 Bonds will not be registered under the Securities Act of 1933, as amended, or any state securities laws and will not be listed on any stock or other securities exchange, and neither the Securities and Exchange Commission nor any federal, state, municipal or other governmental agency will pass upon the accuracy, completeness or adequacy of this Official Statement. All financial and other information presented in this Official Statement has been provided by the City and its Board of Water and Sanitary Sewer Commissioners (the Board ) from their records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from revenues and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City or the Board. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue or be repeated in the future. Insofar as the statements contained in this Official Statement involve matters of opinion or estimates, even if not expressly stated as such, such statements are made as such and not as representations of fact or certainty, no representation is made that any of such statements have been or will be realized, and such statements should be regarded as suggesting independent investigation or consultation of other sources before the making of investment decisions. Certain information may not be current; however, attempts were made to date and document sources of information. Neither this Official Statement nor any oral or written representations by or on behalf of the City or the Board preliminary to sale of the Series 2013 Bonds should be regarded as part of the City s contract with the successful bidder or the holders from time to time of the Series 2013 Bonds. References herein to provisions of Kentucky law, whether codified in the Kentucky Revised Statutes or uncodified, or to the provisions of the Kentucky Constitution or the City s ordinances or resolutions, are references to such provisions as they presently exist. Any of these provisions may from time to time be amended, repealed or supplemented.

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5 TABLE OF CONTENTS Page Cover Page INTRODUCTORY STATEMENT... 1 THE SERIES 2013 BONDS... 2 General... 2 Book-Entry-Only System... 3 Optional Redemption... 5 Other Redemption Provisions... 6 THE CITY... 6 General... 6 Board of Water and Sanitary Sewer Commissioners... 7 Investment Policy... 7 Water and Sewer Services and Rates... 8 Pension Obligations... 8 Other Information... 9 THE SYSTEM... 9 Water System... 9 Sanitary Sewer System... 9 Assets Five-Year Capital Plan Miscellaneous PURPOSES Series 2013A Bonds Series 2013B Bonds AUTHORITY AND SECURITY CERTAIN PROVISIONS OF THE SERIES 2013 ORDINANCES Parity Declaration Collection and Application of Revenues of System Investments Maintenance of Rates Certain Covenants Enforcement and Remedies Parity Bonds Permitted; Terms Insurance Accounting Required Use of Sewer System Management of System Tax Covenants and Representations Defeasance Series 2013 Ordinances as Contracts Holidays i -

6 TAX MATTERS General Original Issue Discount Original Issue Premium Legislative Changes Audits Miscellaneous ABSENCE OF MATERIAL LITIGATION LEGAL MATTERS CONTINUING DISCLOSURE UNDERTAKINGS RATING FINANCIAL ADVISOR REFERENCE TO DOCUMENTS MISCELLANEOUS Appendix A: Appendix B: Appendix C: Estimated Annual Debt Service Requirements on Series 2013A Bonds and Series 2013B Bonds; and Estimated Total Annual Debt Service Requirements Demographic and Economic Data Water and Sewer System Operating and Financial Data Appendix D: Audited Financial Statements for Fiscal Year Ended June 30, 2012 Appendix E: Forms of Bond Counsel Opinions - ii -

7 $4,775,000 * CITY OF GEORGETOWN, KENTUCKY, WATER AND SEWER REVENUE BONDS, SERIES 2013A and $2,675,000 * CITY OF GEORGETOWN, KENTUCKY, WATER AND SEWER REFUNDING REVENUE BONDS, SERIES 2013B INTRODUCTORY STATEMENT This Official Statement of the City of Georgetown, Kentucky (the City ), sets forth certain information with respect to the City s Water and Sewer Revenue Bonds, Series 2013A, dated September 30, 2013, to be issued in the principal amount of $4,775,000 * (the Series 2013A Bonds ), and the City s Water and Sewer Refunding Revenue Bonds, Series 2013B, dated October 21, 2013, to be issued in the principal amount of $2,675,000 * (the Series 2013B Bonds and, together with the Series 2013A Bonds, the Series 2013 Bonds ). The proceeds from the sale of the Series 2013A Bonds, after paying costs of issuance, will be used (a) to acquire, construct and install major new water and sanitary sewer (wastewater) service facilities constituting part of the City s combined and consolidated municipal waterworks and sanitary sewer system (the System ), including (i) the acquisition, expansion and improvement of the Mallard Point Wastewater Collection System; and (ii) the acquisition, construction and installation of new wastewater pumping facilities and wastewater lines; (b) to pay and discharge a subordinate bank note designated Series 2009 in the outstanding principal amount of $1,000,000 (the 2009 Note ) previously issued by the City for the interim financing of force main extensions and improvements; and (c) to fund a debt service reserve, as described under the heading PURPOSES - Series 2013A Bonds. The proceeds from the sale of the Series 2013B Bonds, after paying costs of issuance, will be used (a) to refund, redeem and discharge the City s Water and Sewer Revenue Bonds, Series 2003A (the Series 2003A Bonds ); and (b) to fund a debt service reserve, as described under the heading PURPOSES - Series 2013B Bonds. The City is a city and political subdivision of the Commonwealth of Kentucky situated in Scott County, Kentucky. The Series 2013 Bonds will be issued under authority of Chapter 58 of the Kentucky Revised Statutes and two ordinances adopted by the City Council of the City (the Series 2013A Ordinance and the Series 2013B Ordinance, respectively, and collectively, the Series 2013 Ordinances ) and will be payable only from the revenues of the System as described under the heading AUTHORITY AND SECURITY. Before the issuance of the Series 2013 Bonds, the City will deliver a Continuing Disclosure Certificate for each series of the Series 2013 Bonds (each, a Continuing Disclosure Certificate and together, the Continuing Disclosure Certificates ) regarding its obligation to make continuing annual disclosure of certain financial and operating information and disclosure of certain events which might occur, all as described hereinafter under the heading CONTINUING DISCLOSURE UNDERTAKINGS. The Series 2013 Bonds will be issued initially only in book-entry form in the name of Cede & Co., a nominee of The Depository Trust Company ( DTC ), as securities depository. No physical * Preliminary, subject to adjustment as described in the Notice and Official Terms and Conditions of Bond Sale for each series of Series 2013 Bonds

8 delivery of the Series 2013 Bonds will be made to purchasers. SO LONG AS CEDE & CO., AS NOMINEE OF DTC, IS THE REGISTERED OWNER, REFERENCES TO BONDHOLDERS OR REGISTERED HOLDERS OR OWNERS SHALL MEAN CEDE & CO., AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE SERIES 2013 BONDS. SEE THE SERIES 2013 BONDS - Book-Entry-Only System. There follows a brief description of the City, the Series 2013 Bonds, the System, the Series 2013 Ordinances and the Continuing Disclosure Certificates, together with the Appendices, containing financial and other information with respect to the System and the forms of opinions of Bond Counsel. All descriptions contained herein of the Series 2013 Bonds, the Series 2013 Ordinances and the Continuing Disclosure Certificates do not purport to be comprehensive or definitive and are qualified in their entirety by reference to such documents, all of which are available for inspection at the office of the City Clerk in Georgetown, Kentucky. General Series 2013A Bonds THE SERIES 2013 BONDS The Series 2013A Bonds will be dated the date of original issuance and delivery, will be issued in the principal amount of $4,775,000 *, in fully registered form and in denominations of $5,000 or any integral multiple thereof, and will mature as to principal on each May 1 and will bear interest as set forth on the inside cover page of this Official Statement, subject to possible optional redemption as hereinafter provided. Interest will be computed on the basis of a year of 360 days consisting of twelve 30-day months. Interest accruing on the Series 2013A Bonds will be payable semiannually on May 1 and November 1 of each year (commencing November 1, 2013) from the later of the date of original issuance and delivery or the most recent interest payment date (May 1 and November 1) to which interest has been paid or duly provided for. The interest installment on each Series 2013A Bond will be paid to the person who is the registered holder thereof as of the close of business on the Record Date for such interest installment, which Record Date shall be the 15th day (whether or not a business day) of the calendar month next preceding such interest payment date. Payment of interest shall be made by check mailed to the person who is the registered holder on the applicable Record Date at the address of such holder as it appears on the books of the Paying Agent and Bond Registrar, The Bank of New York Mellon Trust Company, N.A. Principal shall be paid when due upon delivery of the Series 2013A Bond for payment at the designated office of the Paying Agent and Bond Registrar. If the date for making any payment in respect of the Series 2013A Bonds is not a business day for the Paying Agent and Bond Registrar, such payment may be made or act performed or right exercised on the next succeeding business day with the same force and effect as if done on the date stipulated in the Series 2013A Bonds and no interest shall accrue for the period after such stipulated date. See THE SERIES 2013 BONDS - Book-Entry-Only System below regarding payment of principal and interest to the Beneficial Owners while the Series 2013A Bonds are in the Book-Entry-Only System. * Preliminary, subject to adjustment as described in the Notice and Official Terms and Conditions of Bond Sale for each series of Series 2013 Bonds

9 Series 2013B Bonds The Series 2013B Bonds will be dated the date of original issuance and delivery, will be issued in the principal amount of $2,675,000 *, in fully registered form and in denominations of $5,000 or any integral multiple thereof, and will mature as to principal on each May 1 and will bear interest as set forth on the inside cover page of this Official Statement. Interest will be computed on the basis of a year of 360 days consisting of twelve 30-day months. Interest accruing on the Series 2013B Bonds will be payable semiannually on May 1 and November 1 of each year (commencing May 1, 2014) from the later of the date of original issuance and delivery or the most recent interest payment date (May 1 and November 1) to which interest has been paid or duly provided for. The interest installment on each Series 2013B Bond will be paid to the person who is the registered holder thereof as of the close of business on the Record Date for such interest installment, which Record Date shall be the 15th day (whether or not a business day) of the calendar month next preceding such interest payment date. Payment of interest shall be made by check mailed to the person who is the registered holder on the applicable Record Date at the address of such holder as it appears on the books of the Paying Agent and Bond Registrar, The Bank of New York Mellon Trust Company, N.A. Principal shall be paid when due upon delivery of the Series 2013B Bond for payment at the designated office of the Paying Agent and Bond Registrar. If the date for making any payment in respect of the Series 2013B Bonds is not a business day for the Paying Agent and Bond Registrar, such payment may be made or act performed or right exercised on the next succeeding business day with the same force and effect as if done on the date stipulated in the Series 2013B Bonds and no interest shall accrue for the period after such stipulated date. See THE SERIES 2013 BONDS - Book-Entry-Only System below regarding payment of principal and interest to the Beneficial Owners while the Series 2013B Bonds are in the Book-Entry-Only System. Book-Entry-Only System Only beneficial interests will be available to purchasers through a book-entry-only system maintained by DTC (the Book-Entry-Only System ). The following discussion will not apply to Series 2013 Bonds if issued in physical form after the discontinuance of the Book-Entry-Only System. DTC will act as securities depository for the Series 2013 Bonds upon their initial issuance. The Series 2013 Bonds will be registered in the name of Cede & Co. (DTC s partnership nominee). The Series 2013 Bonds will be originally issued as one fully-registered Series 2013 Bond for each maturity of each series, in the aggregate principal amount of each series, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds bonds that its participants (the Direct Participants ) deposit with DTC. DTC also facilitates the settlement among Direct Participants of bond transactions, such as transfers and pledges, in deposited bonds through electronic computerized book-entry changes in Direct Participants accounts, thereby eliminating the need for physical movement of bond certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and * Preliminary, subject to adjustment as described in the Notice and Official Terms and Conditions of Bond Sale for each series of Series 2013 Bonds

10 certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). Direct Participants and Indirect Participants are collectively referred to as Participants. The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Series 2013 Bonds under the Book-Entry-Only System must be made by or through Direct Participants, which will receive a credit for the Series 2013 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2013 Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participant s records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners are 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 Series 2013 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in Series 2013 Bonds, except in the event that use of the Book-Entry-Only System for the Series 2013 Bonds is discontinued. To facilitate subsequent transfers, all Series 2013 Bonds deposited by Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. The deposit of Series 2013 Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2013 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2013 Bonds are credited, which may or may not be the Beneficial Owners. The 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. Redemption notices shall be sent to Cede & Co. If less than all of the Series 2013 Bonds of a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in the maturity to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to Series 2013 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Series 2013 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Series 2013 Bonds will be made to DTC. DTC s practice is to credit Direct Participants accounts on the payable date in accordance with their respective holdings shown on DTC s records unless DTC has reason to believe that it will not receive payment on the payable date. 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 Paying Agent and Bond Registrar, the City or its Board of Water and Sanitary Sewer Commissioners (the Board ), subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Paying Agent and Bond Registrar, - 4 -

11 disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. The foregoing information concerning DTC and DTC s book-entry system has been obtained from DTC and contains statements that are believed to describe accurately DTC, the method of effecting book-entry transfers of securities distributed through DTC and certain related matters, but the City takes no responsibility for the accuracy of such statements. THE CITY AND THE PAYING AGENT AND BOND REGISTRAR WILL HAVE NO RESPONSIBILITY OR OBLIGATION TO ANY DIRECT PARTICIPANT, INDIRECT PARTICIPANT OR ANY BENEFICIAL OWNER OR ANY OTHER PERSON NOT SHOWN ON THE REGISTRATION BOOKS OF THE PAYING AGENT AND BOND REGISTRAR AS BEING A REGISTERED OWNER WITH RESPECT TO: (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT; (2) THE PAYMENT OF ANY AMOUNT DUE BY DTC TO ANY DIRECT PARTICIPANT OR BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OR REDEMPTION PRICE OF OR INTEREST ON THE SERIES 2013 BONDS; (3) THE DELIVERY OF ANY NOTICE BY DTC TO ANY DIRECT PARTICIPANT OR BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED TO BE GIVEN TO REGISTERED OWNERS UNDER THE TERMS OF THE SERIES 2013 ORDINANCES; (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE SERIES 2013 BONDS; OR (5) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS REGISTERED OWNER. The Securities Depository may discontinue providing its services with respect to the Series 2013 Bonds at any time by giving thirty (30) days notice to the City and the Paying Agent and Bond Registrar and discharging its responsibilities with respect thereto under applicable law. If no successor Securities Depository is appointed in accordance with the Series 2013 Ordinances, or if the City decides to discontinue the Book-Entry System, Series 2013 Bond certificates shall be printed and delivered to and registered in the name of the Beneficial Owners. In the event that the Book-Entry-Only System is discontinued, a Bondholder may transfer or exchange Series 2013 Bonds in accordance with the Series 2013 Ordinances. The Paying Agent and Bond Registrar may require a Bondholder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Series 2013 Ordinances. The Paying Agent and Bond Registrar shall not be required to transfer or exchange any Series 2013 Bond: (a) during any period beginning five (5) days before the selection by the Paying Agent and Bond Registrar of Series 2013 Bonds to be redeemed before maturity and ending on the date of mailing of notice of any such redemption; or (b) if such Series 2013 Bond has been selected or called for redemption in whole or in part. Optional Redemption Series 2013A Bonds The Series 2013A Bonds maturing on and after May 1, 2024, are subject to redemption by the City, at its option, before maturity on May 1, 2023, and on any date thereafter in whole or from time to time in part in any order of maturity (less than all of a single maturity to be selected by lot in such manner as the Paying Agent and Bond Registrar may determine) at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date

12 Series 2013B Bonds The Series 2013B Bonds are not subject to optional redemption before maturity. Other Redemption Provisions The Paying Agent and Bond Registrar will cause notice of the call for any redemption, identifying the series of the Series 2013 Bonds or the portions thereof ($5,000 or any integral multiple thereof) to be redeemed, to be sent by first-class mail not less than thirty (30) days nor more than sixty (60) days before the date fixed for redemption to the registered holder of each Series 2013 Bond to be redeemed at the address shown on the registration books. Failure to give such notice by mailing or any defect therein in respect of any Series 2013 Bond shall not affect the validity of any proceedings for the redemption of any other Series 2013 Bond. Any notice mailed as provided above shall be conclusively presumed to have been duly given, irrespective of whether the registered holder receives the notice. See THE SERIES 2013 BONDS - Book-Entry-Only System regarding redemption notices and related matters while the Series 2013 Bonds are in the Book-Entry-Only System. General THE CITY The City of Georgetown, Kentucky (the City ), a city of the fourth class and a political subdivision of the Commonwealth of Kentucky, is the county seat of Scott County situated approximately fifteen (15) miles north of Lexington and has a population (according to the 2012 estimate of the United States Census Bureau) of 29,690. Its administrative offices are located in the City Hall, 100 Court Street, Georgetown, Kentucky The City is governed by a Council composed of eight (8) elected members and an elected Mayor, who serves as the chief executive officer of the City. The incumbent Mayor and City Council members are: Name Everette Varney David Lusby Kelly McEuen Brad Penn Mark Showalter Mark Singer Connie Tackett Marvin Thompson Karen Tingle-Sames Title Mayor City Council Member City Council Member City Council Member City Council Member City Council Member City Council Member City Council Member City Council Member The City s City Clerk and Treasurer is Tracie Hoffman, Stacey Clark is the City s Finance Director and Andrew Hartley is the City Attorney. See Appendix B for a general description of the Georgetown area

13 Board of Water and Sanitary Sewer Commissioners Pursuant to an ordinance adopted in 1945 (and amended and supplemented from time to time), the operation, management and control of the System have been vested in the Board. The City has covenanted and agreed that so long as any of the Series 2013 Bonds are outstanding the operation, management and control of the System will continue to be vested in and carried out by the Board. The Board consists of five (5) members appointed by the Mayor, with the approval of the City Council. The present members and officers of the Board are identified below: Name Title Qualifications Johnny Griffin Chairman Retired-IBM; Insurance Agent Billie Travis Secretary/Treasurer Kentucky Board of Education Harry Dickerson Commissioner Retired-Banker David Fraley Commissioner Chemistry Professor- Georgetown College Dave Roberts Commissioner Retired The Board sets policy for the operation and improvement of the System, approves annual operating and capital budgets, approves all contracts and recommends rate and financing structures to the City Council. The Board employs a General Manager to manage and oversee the daily administration, operation and maintenance of the System, to maintain fiscal management of the System, to implement policy and to ensure regulatory compliance. The General Manager is Robert Wilhite, who has served in that capacity since March Mr. Wilhite was previously employed by the Board in June 1998 as Finance Director. He received his BA- Accounting degree from the University of Kentucky in 1982 and is a member of Scott County United, Kentucky Municipal Utilities Association, and the 409 Council of the Bluegrass Area Development District. The Board currently has fifty-two full-time employees, consisting of management staff, department heads, clerical and administrative employees and field employees. The Board also retains a General Counsel to advise and represent the Board on all legal matters. Investment Policy The Board has a policy that funds under its control will be invested on a competitive basis in a manner that will provide an acceptable investment return with emphasis on security of principal while meeting the periodic cash flow needs of the Board. Cash deposits in banks, including certificates of deposit, are required to be collateralized, to the extent not insured by the Federal Deposit Insurance Corporation or one of its agencies, by United States Government obligations. See the provisions of the Series 2013 Ordinances summarized under CERTAIN PROVISIONS OF SERIES 2013 ORDINANCES - Investments herein for a description of authorized investments, which conform to statutory authority for investments of public funds

14 Water and Sewer Services and Rates The Board provides water and sanitary sewer (wastewater) services through the System to customers in the area of the City at rates which, together with other data, are summarized in Appendix C. Rates for water and sanitary sewer services are established from time to time by the City Council, upon recommendation of the Board, and are not (except in any cases of rates charged to regulated utilities) subject to review or approval by the Public Service Commission of Kentucky. For a description of the facilities furnishing these services, see THE SYSTEM herein. Pension Obligations All current full-time employees of the Board belong to the state operated cost-sharing multipleemployer pension plan, the County Employees Retirement System ( CERS ). All of the Board s employees participate in the non-hazardous duty benefits. CERS is a defined benefit plan created by the Kentucky General Assembly. CERS provides retirement and disability benefits, annual cost of living adjustments, and death benefits to plan members and beneficiaries. Benefits fully vest upon reaching five (5) years of service and are established by state statute. Benefits of CERS members are calculated on the basis of age, final average salary, and service credit. CERS also provides survivor, disability and health care coverage. Authority to establish and amend benefits is provided by Kentucky Revised Statutes Section CERS issued a stand-alone financial report, which may be obtained from the Kentucky Retirement System, 1260 Louisville Road, Frankfort, Kentucky, 40601, or by telephone at (502) Kentucky Revised Statutes provide statutory authority for employee and employer contributions. The Board and its employees have contributed 100% of the required contributions for the fiscal years ended June 30, 2011 and June 30, Contribution rates for the fiscal year ended June 30, 2012 for individuals who became employees of the Board before September 1, 2008 were as follows: Employee Employer Nonhazardous 5.00% 18.96% The employees contribution rates for individuals who became employees of the Board on or after September 1, 2008 are one percent (1.0%) higher than the rates above. The Board s contributions for the fiscal years ending June 30 were as follows: Year Total 2012 $590, , ,624 The Board is obligated to make future contributions to CERS for the benefit of its employees. Future contribution rates may change given changes in benefits or the value of investments held by CERS. Please visit the following website for further details regarding CERS. CERS also provides post-retirement health care coverage and contributions towards the costs of such coverage to the Board s employees who satisfy certain eligibility requirements. A portion of each - 8 -

15 employer and employee s contribution to CERS is set aside for the funding of post-retirement health care. The Kentucky Revised Statutes provide statutory authority requiring public employees to fund postretirement health care through their contributions to CERS. Additional information regarding CERS and the Board s obligations thereto can be found on pages of the Board s Audited Financial Statement Report for the Year Ended June 30, 2012 located in Appendix D. Other Information Reference is made to Appendix C for certain operating and financial information and data relating to the System. The City s estimated annual debt service requirements for the Series 2013 Bonds, and related information, are contained in Appendix A, and the Board s audited financial statements appear in Appendix D. THE SYSTEM The System is composed of the municipal waterworks and sanitary sewer (wastewater) facilities of the City, all operated by the Board on a combined and consolidated basis. The following subsections describe the System, and reference is further made to Appendices C and D for additional information and data regarding the System s operations and customers. Water System The water system s raw water source is the Royal Spring Aquifer. The water system also has two (2) connections for finished water, one with the Frankfort Electric and Water Plant Board and the other with Kentucky American Water Co. The water system s water treatment plant has a rated capacity of 4.0 million gallons per day ( MGD ). Conventional processes of coagulation/flocculation, sedimentation and filtration are utilized. Disinfection is achieved with chloramines and ultra-violet light. Average annual production at the water treatment plant is 2.5 MGD. The water system maintains a total of 1.60 million gallons in clearwell and elevated storage and has over 457 miles of water mains ranging in size from 1-inch to 16-inches in diameter. The water system supplies water to the Cities of Georgetown, Stamping Ground, Sadieville, and northwest portions of Scott County. Sanitary Sewer System The sanitary sewer system operates three (3) wastewater treatment plants. Wastewater Treatment Plant #1 has a rated capacity of 4.5 MGD and serves residents and businesses within the City of Georgetown. The treatment process includes screening and grit removal, activated sludge, clarification and disinfection with ultra-violet light. Treated effluent is discharged to Elkhorn Creek. The annual, average day influent flow is 2.9 MGD. The sewer system includes 210 miles of gravity and force main sewers and 48 pumping stations. Wastewater Treatment Plant #2 has a rated capacity of 4.0 MGD. This plant provides sanitary sewer service to a local manufacturing plant, with a small but growing portion of its capacity (including all of the new headworks) being used for residential customers. The treatment process includes screening - 9 -

16 and grit removal, activated sludge, clarification, sand filtration and disinfection with ultra-violet light. Treated effluent is discharged to Lanes Run Creek. The annual, average-day influent flow is 1.03 MGD. Wastewater Treatment Plant #3 has a rated capacity of 160,000 gallons per day ( GPD ) and serves residents and businesses within the City of Stamping Ground. The treatment process includes screening and grit removal, activated sludge, clarification and disinfection with ultra-violet light. The annual, average day influent flow is 40,000 GPD. Assets In addition to the treatment plants discussed above, the System maintains an administration building for customer service, data processing and administrative functions. Another building, located across the street from the administration building, houses the distribution and engineering departments. The historical cost value of the combined assets of the System exceeds $147 million. The Board maintains comprehensive insurance coverages including property, liability, boiler machinery, vehicle, electronic equipment and flood. Five-Year Capital Plan The Board maintains and updates annually a five-year capital plan that identifies and prioritizes the requirements of the System necessary to maintain the level of service to existing customers and to accommodate growth. The Depreciation Fund receives any excess water and sewer revenues to fund renewal, replacement or expansion of the system. The present five-year capital plan provides for approximately $10 million in improvements to be funded from revenues, bonds and grants. Miscellaneous The System has no wholesale customers at this time. Series 2013A Bonds PURPOSES The Series 2013A Bonds are being issued for the purposes of: (a) acquiring, constructing and installing major new water and sanitary sewer (wastewater) service facilities constituting part of the System, including (i) the acquisition, expansion and improvement of the Mallard Point Wastewater Collection System; and (ii) the acquisition, construction and installation of new wastewater pumping facilities and wastewater lines; (b) paying and discharging the 2009 Note; (c) funding a debt service reserve; and (d) paying costs of issuance of the Series 2013A Bonds. The estimated sources and uses of funds of the Series 2013A Bonds are shown in the following schedule: Sources of Funds (Estimated) Par Amount of Series 2013A Bonds Transfer from Existing Debt Service Reserve $4,775, ,518 Total Sources of Funds $5,198,

17 Uses of Funds (Estimated) Pay and discharge 2009 Note $1,000,000 Fund Construction Account 3,632,659 Fund Debt Service Reserve 421,095 Account Underwriter s Discount (2.0%) 95,500 Costs of Issuance 49,264 Total Uses of Funds $5,198,518 Series 2013B Bonds The Series 2013B Bonds are being issued for the purposes of: (a) refunding, redeeming and discharging the City s Water and Sewer Revenue Bonds, Series 2003A; (b) funding a debt service reserve; and (c) paying costs of issuance of the Series 2013B Bonds. The estimated sources and uses of funds of the Series 2013B Bonds are shown in the following schedule: Sources of Funds (Estimated) Par Amount of Series 2013B $2,675,000 Bonds Transfer from Existing Debt Service Reserve 354,282 Transfer from Existing Sinking Fund for 2003A Bonds 144,423 Total Sources of Funds $3,173,705 Uses of Funds (Estimated) Redeem Series 2003A Bonds $2,867,087 Fund Debt Service Reserve 235,902 Account Underwriter s Discount (2.0%) 40,125 Costs of Issuance 30,591 Total Uses of Funds $3,173,705 AUTHORITY AND SECURITY The Series 2013 Bonds are being issued under the laws of the Commonwealth of Kentucky, including among others Sections through and through of the Kentucky Revised Statutes and pursuant to the Series 2013 Ordinances duly adopted by the City Council. THE SERIES 2013 BONDS ARE NOT GENERAL OBLIGATIONS OF THE CITY OR AN INDEBTEDNESS OR PLEDGE OF THE FAITH AND CREDIT OF THE CITY WITHIN THE

18 MEANING OF APPLICABLE PROVISIONS OR LIMITATIONS OF THE CONSTITUTION OR STATUTES OF THE COMMONWEALTH OF KENTUCKY. Upon issuance and delivery of the Series 2013 Bonds (and the concurrent defeasance of the Series 2003A Bonds), the City will have outstanding, in addition to the Series 2013 Bonds, the following bonds and other obligations payable from and secured by a pledge of a fixed portion of the revenues of the System on a parity with the Series 2013 Bonds: (i) (ii) $775, outstanding principal amount of Water and Sewer Refunding Revenue Bonds, Series 2003B, maturing on May 1, 2014 and having remaining sinking fund installments of $395,000 (the Series 2003B Bonds ), authorized by Ordinance adopted on March 20, 2003 (the Series 2003B Ordinance ); and $5,377, outstanding principal amount of a semi-annual loan repayment obligation (the 2007 KRWFC Loan ) to the Kentucky Rural Water Finance Corporation ( KRWFC ), pursuant to an Assistance Agreement by and between the City and KRWFC dated January 30, 2007 (the 2007 KRWFC Assistance Agreement ). Pursuant to the Series 2013 Ordinances, interest on and principal of the Series 2013 Bonds will be payable solely from, and secured by a pledge of, a fixed portion of the gross income and revenues of the System to be set aside in the City s Water and Sewer Bond and Interest Redemption Account, which fixed portion is to be sufficient to pay when due the principal of and interest on the Series 2003B Bonds, the 2007 KRWFC Loan, the Series 2013 Bonds and any additional parity bonds. See CERTAIN PROVISIONS OF SERIES 2013 ORDINANCES - Collection and Application of Revenues of System herein. In the Series 2013 Ordinances, the City covenants that it will fix and charge such rates for the services and facilities of the System so that the revenues produced will be sufficient to pay such principal and interest when due from time to time and to pay the costs of operation and maintenance of the System and related obligations. In addition to the Series 2013 Bonds, the City will also have outstanding, payable from System revenues on a subordinate basis: (i) (ii) $219, outstanding principal amount of a semi-annual repayment obligation (the 1991 KIA Loan ) owed by the City to the Kentucky Infrastructure Authority ( KIA ) pursuant to an Assistance Agreement dated December 1, 1992 by and between the City and KIA (the 1991 KIA Assistance Agreement ); and $7, outstanding principal amount of a semi-annual loan repayment obligation (the 2007 KIA Loan ) owed by the City to KIA pursuant to an Assumption and Supplemental Assistance Agreement dated March 1, 2007 by and between the City and KIA (the 2007 KIA Assumption Agreement ), whereby the City formally assumed all of the rights and obligations of the City of Stamping Ground, Kentucky ( Stamping Ground ) with respect to the Assistance Agreement dated as of September 1, 1994 by and between Stamping Ground and KIA (the 1994 KIA Assistance Agreement ), such 2007 KIA Loan being secured by the revenues of the portion of the waterworks system of Stamping Ground acquired by the City

19 CERTAIN PROVISIONS OF THE SERIES 2013 ORDINANCES The following paragraphs under this general heading contain excerpts from and summaries and descriptions of certain consolidated provisions of the Series 2013 Ordinances and previous parity bond ordinances (collectively the Ordinances ). The Ordinances are on file in the office of the City Clerk and reference is made to them for a complete description of their terms. Parity Declaration Before the delivery of the Series 2013 Bonds to the purchasers thereof, there will have been procured and filed with the City Clerk a statement by an independent public accountant not in the regular employ of the City reciting the opinion that based upon necessary investigation the net income and revenues of the System (as defined in the Series 2003B Ordinance and the 2007 KRWFC Assistance Agreement) for twelve (12) consecutive months out of the eighteen (18) months preceding the issuance of the Series 2013 Bonds, adjusted (if necessary) as provided in the Series 2003B Ordinance and the 2007 KRWFC Assistance Agreement, were equal to at least 1.30 times the maximum annual debt service in any calendar year on the Series 2003B Bonds, the 2007 KRWFC Loan, the Series 2013A Bonds and the Series 2013B Bonds; and accordingly the Series 2013 Bonds will be equally and ratably payable from the income and revenues of the System on a parity with the outstanding Series 2003B Bonds and the 2007 KRWFC Loan. Collection and Application of Revenues of System The provisions set forth in the Series 2003 Ordinance and the 2007 KRWFC Agreement with reference to the creation of the funds and accounts therein established and continued and the collection, segregation and distribution of revenues of the System are ratified and confirmed in all respects by the Series 2013 Ordinances. For purposes of clarity, those provisions are set out in substance in the Series 2013 Ordinances, with appropriate modifications recognizing the existence of applicable federal tax rules and the Series 2013 Bonds, ranking on a parity with the Series 2003B Bonds and the 2007 KRWFC Loan. From and after the issuance and delivery of the Series 2013 Bonds, and so long as any thereof remain outstanding, the System shall continue to be operated as a revenue producing public project and the income and revenues of the System shall continue to be set aside into a separate and special fund designated the Water and Sewer Revenue Fund (the Revenue Fund ) to be used and apportioned as follows: (a) Bond Fund. There will be set aside and deposited in the City s Water and Sewer Bond and Interest Redemption Account (the Bond Fund ), amounts sufficient to pay when due the interest on and the principal of the Series 2003B Bonds, the 2007 KRWFC Loan and the Series 2013 Bonds (collectively, the First Lien Parity Bonds ). Such deposits to the Bond Fund will be made on or before the first day of each month in amounts sufficient to pay at least one-sixth (1/6) of the interest on the First Lien Parity Bonds coming due on the next semiannual interest payment date (May 1 or November 1 for the Series 2003B Bonds and the Series 2013 Bonds and January 1 and June 1 for the 2007 KRWFC Loan) and at least one twelfth (1/12) of the principal (if any) of the First Lien Parity Bonds coming due on the next principal payment date (May 1 for the Series 2003B Bonds and the Series 2013 Bonds and January 1 for the 2007 KRWFC Loan); provided that no later than the first day of the month before the first interest payment date following the issuance of the Series 2013 Bonds there should be paid into the Bond Fund the amount of any deficiency in the amount of interest to be due on such first interest payment date. Upon issuance of the Series 2013 Bonds, the reserve in the Bond Fund will constitute a separate and segregated subaccount within the Bond Fund identified as the Reserve Account and will be funded

20 in an amount sufficient to cause the balance in the Reserve Account to be equal to the Reserve Amount. Reserve Amount means the sum of the reserve permitted for each issue of First Lien Parity Bonds (excluding the 2007 KRWFC Loan), such reserve for each issue to be equal to the least of: (i) the maximum annual principal and interest requirements on the outstanding principal owed by the City pursuant for such issue (for annual periods ending May 1); (ii) an amount equal to 125% of the average annual principal and interest requirements for such issue (for annual periods ending May 1); and (iii) an amount equal to 10% of the proceeds, within the meaning of Section 148(d) of the United States Internal Revenue Code of 1986, as amended (the Code ), for such issue, all as prescribed in Section (f) of the Income Tax Regulations, as amended, promulgated under the Code. Whenever the balance in the Reserve Account is less than the Reserve Amount, such deficiency will be replenished to and maintained at the required Reserve Amount from the first available revenues of the System (and in any event at least 20% of the required monthly deposit to the Bond Fund), after providing for operation and maintenance costs. If additional parity bonds are issued as herein permitted, there will be paid into the Reserve Account: (i) an amount of parity bond proceeds sufficient to fund the Reserve Account to the Reserve Amount; or (ii) from the Revenue Fund, in equal monthly installments in addition to any other sums required to be paid therein, sums that will result in the accumulation within five (5) years from the date of issuance of such additional parity bonds of an aggregate sum in the Reserve Account equal to the Reserve Amount. If in any month the City will for any reason fail to pay into the Bond Fund, including the Reserve Account, the full amounts above stipulated, then an amount equal to such deficiency will be set apart and paid into the Bond Fund, or the Reserve Account therein as the case may be, from the first available revenues of the System in the following month or months, and such payments shall be in addition to the amounts above provided to be set apart and paid into the Bond Fund, including the Reserve Account, during such succeeding month. If for any reason the City would fail to make a required payment into the Bond Fund during any month, moneys then held in the Reserve Account will be used to pay any portion of interest on or principal of the First Lien Parity Bonds (excluding the 2007 KRWFC Loan) becoming due as to which there would otherwise be a default, but the Reserve Account will be reimbursed from the first payments thereafter made into the Bond Fund in excess of the required payments. When the first day of any month shall be a Sunday or a legal holiday, payments into the Bond Fund, including the Reserve Account, will be made on the next succeeding business day. No further payments need be made into the Bond Fund when the amount then held in the Bond Fund, including the Reserve Account, is at least equal to the entire amount required for retiring all outstanding bonds and notes payable therefrom and paying all interest that will accrue at the time of such retirement. All moneys held in the Bond Fund, including the Reserve Account, will be deposited at the Paying Agent and Bond Registrar, or such other bank or banks as the Board may designate (individually or jointly, as the case may be, referred to as the Depository Bank ), and all such deposits which cause the aggregate deposits of the City in any one bank to be in excess of the amount insured by FDIC or one of its agencies will be continuously secured by a valid pledge of direct obligations of the United States of America having an equivalent market value. All or any part of the Bond Fund may, except that the Reserve Account, shall, be invested in Investment Obligations, as hereinafter defined, maturing or being subject to retirement at the option of the holder not more than five (5) years from the date of the investment or on such dates as the same may be needed for meeting interest or principal payments, and all such investments will be carried to the credit of the Bond Fund or the Reserve Account therein, as the case may be, whichever supplied the funds for such investments; but the income from such investments will be credited to the Bond Fund and not to the Reserve Account unless the balance in the Reserve Account is less than the Reserve Amount, in which event such interest income will be credited to the

21 Reserve Account. Any amount in the Reserve Account in excess of the Reserve Amount will be transferred to the Bond Fund and applied as credit against payments into the Bond Fund from the Revenue Fund as described above in this subsection (a). Investment Obligations in the Reserve Account will be valued at least annually and each such Investment Obligation will be valued at the fair market value thereof or, for a plain par investment within the meaning of Treasury Regulations Section (d) or any successor provision, at the outstanding stated principal amount thereof plus any accrued unpaid interest. The Bond Fund shall be used solely and will be pledged for the purpose of paying principal of and interest on the First Lien Parity Bonds that may be outstanding from time to time except that any and all funds held in the Reserve Account shall be used solely and is hereby pledged solely for the purpose of paying principal of and interest on the Series 2003A Bonds and the Series 2013 Bonds; and unless all bonds payable from the Bond Fund at the time outstanding are to be then retired, only such part of the Bond Fund shall be used to purchase or redeem bonds in advance of maturity as may be in excess of the Reserve Amount and the interest and principal becoming due within the succeeding twelve (12) months on all bonds which by their terms are payable from the Bond Fund. (b) Operation and Maintenance Fund. There was created by the prior Ordinances a special fund known as the City s Water and Sewer Operation and Maintenance Fund (the Operation and Maintenance Fund ), which will continue to be maintained so long as any of the First Lien Parity Bonds remain, and from the balance of the income and revenues remaining in the Revenue Fund after the aforesaid payments into the Bond Fund there will be set aside on the first day of each month into the Operation and Maintenance Fund such amount as may be determined to be necessary and sufficient to pay the reasonable and current expenses of operating and maintaining the System for the current month, and provided that no expenditures for capital improvements may be made therefrom and the amount to be retained and maintained in the Operation and Maintenance Fund will at all times be equal to the estimated cost of operation and maintenance of the System for a period of three (3) months. (c) Depreciation Fund. There was created by the prior Ordinances a special fund known as the City s Water and Sewer Depreciation Fund (the Depreciation Fund ), which shall continue to be maintained so long as any bonds are outstanding pursuant hereto, and 40% of the balance of the income and revenues remaining in the Revenue Fund after the aforesaid payments into the Bond Fund and Operation and Maintenance Fund or the sum of $5,000, whichever amount is the greater, will be set aside on the first day of each month into the Depreciation Fund; provided, however, that such monthly payment into the Depreciation Fund will be increased on the recommendation of a consulting engineer, and provided further that the aforesaid prescribed payments will continue to be made into the Depreciation Fund so long as any of the First Lien Parity Bonds remain outstanding without regard to any prescribed minimum level for said Fund. The Depreciation Fund will be used to set up reasonable reserves for renewals, replacements, new construction and contingencies in the operation of the System, and provided also that withdrawals and disbursements will be made from the Depreciation Fund to meet the payment of interest on or principal of any revenue bonds to whatever extent and if for any reason funds in the applicable sinking funds should be insufficient for that purpose. Such part of the Depreciation Fund as may be in excess of $300,000 may (on written recommendation of a consulting engineer) be used to purchase or redeem bonds in advance of maturity. All funds in the Depreciation Fund shall be kept apart from all other municipal funds and shall be deposited and secured in the manner as herein provided for the deposit and security of the Bond Fund, or all or any part of the Depreciation Fund may be invested in Investment Obligations as described hereinafter having a maturity date or being subject to redemption at the option of the holder within not more than five (5) years subsequent to the date of investment therein, and all such investments as well as all income therefrom shall be carried to the credit of the Depreciation Fund

22 (d) Excess Income and Revenues. Each month, after all the specified and required transfers and payments into the special funds hereinbefore provided have been made, if there is a balance of income and revenues remaining in the Revenue Fund in excess of the estimated amounts required to be so transferred and paid into said special funds during the succeeding two (2) months, all or any part of such excess may be paid into the Depreciation Fund or may be used for the payment of the interest on and principal of any other obligations of the City incurred in connection with the System, but shall not be available for any other purpose. Investments As used in the Series 2013 Ordinances, the term Investment Obligations means any of the following, if and to the extent the following are legal investments for the moneys held in the funds and accounts established pursuant to the Series 2013 Ordinances: (a) direct general obligations of, or obligations the payment of the principal of and interest on which are unconditionally guaranteed by, the United States of America, and any certificate or other evidence of an ownership interest in any such securities or in specified portions thereof consisting of the principal thereof or the interest thereon or any combination thereof; (b) savings accounts, interest bearing time deposits or certificates of deposit in any bank or trust company authorized to engage in the banking business the deposits of which shall be insured by the FDIC and having a combined capital and surplus aggregating not less than Ten Million Dollars ($10,000,000); provided, however, that each such deposit shall be continuously secured (to the extent not insured by FDIC) by lodging with a bank or trust company approved by the City, as custodian, collateral security in the form of obligations described in (a) above having a market value at all times (exclusive of accrued interest) not less than the amount of such deposit, which collateral security must be unencumbered and not otherwise pledged and will be subject to a perfected first lien for the benefit of the City; (c) repurchase agreements, with banks or trust companies as described in (b) above and whose outstanding debt obligations are rated A or better by Moody s Investors Service, Inc., continuously secured as provided in (b) above; and (d) money market funds composed of securities listed in (a) above and rated Aaa by Moody s Investors Service, Inc., or AAA by Standard & Poor s Ratings Services. Maintenance of Rates. While the Series 2013 Bonds, or any of them, remain outstanding and unpaid the rates for all services rendered by the System to the City and to its citizens, corporations or other consumers will be reasonable and just, taking into account and consideration the cost and value of said properties and the cost of maintaining and operating the System, the proper and necessary allowances for depreciation thereof and the amounts necessary for the retirement of all bonds and the accruing interest on all such bonds as may be issued and outstanding and which by their terms are payable in any manner from the income and revenues of the System; provided, however, that no schedule of rates and charges for water and sewer services from time to time in effect will be reduced unless or until all payments into the various special funds referred to in the Ordinances are current and there shall have been procured the written determination of a qualified consulting engineer approving such reduction and stating that such revised rates and charges will produce income and revenues sufficient to provide for all expenses of operation, repair and maintenance of the System and leave a balance each year equal to at least 1.30 times the maximum amount required in any succeeding calendar year to pay when due all bonds and interest thereon for the payment of which such income and revenues have or will have been pledged, charged or otherwise encumbered. There shall be charged against all users of the services and facilities of the System, including the City, such rates and amounts as shall be adequate to meet the requirements of the Ordinances. Compensation for services rendered to the City will be charged against the City and payment for same from the corporate funds shall be apportioned as other income and revenues

23 Certain Covenants The City covenants and agrees that so long as the Series 2013 Bonds or any part thereof remain outstanding and unpaid it will faithfully and punctually perform all duties with reference to the System required by the Constitution and laws of the Commonwealth of Kentucky, including the making and collecting of reasonable and sufficient rates for services rendered thereby, and will segregate the income and revenues and make application thereof into the respective funds, as provided in the Ordinances; and the City irrevocably covenants, binds and obligates itself not to sell, lease, mortgage or in any manner dispose of said properties, including any and all extensions thereto (unless they are no longer necessary or useful in the operation of the System), until all of the Series 2013 Bonds and parity bonds will have been paid in full, both principal and interest; and the City further covenants and agrees so long as any of the Series 2013 Bonds are outstanding and unpaid, to maintain in good condition and continuously operate the System as a combined and consolidated municipal public project, and that such rates and charges for services rendered thereby will be imposed and collected so that the gross revenue will be sufficient at all times to make the prescribed payments into the several special funds as provided above, as well as pay the costs of operation, repair or maintenance of the System. Enforcement and Remedies Any holder of the Series 2013 Bonds may either at law or in equity, by suit, action, mandamus or other proceedings, enforce and compel performance by the City and its officers and agents of all duties and obligations imposed or required by law or the Series 2013 Ordinances in connection with the operation of the System, including the making and collecting of sufficient rates and segregation of the income and revenues and the application thereof. If there be any default in the payment of the principal of or interest on any of the Series 2013 Bonds then, upon the filing of suit by any holder of said bonds, any court having jurisdiction of the action may appoint a receiver to administer the System on behalf of the City with power to charge and collect rates sufficient to provide for the payment of any bonds or obligations outstanding against the System, and for the payment of the operating expenses, and to apply the income and revenues in conformity with the Series 2003B Ordinance, the Series 2013 Ordinances, the 2007 KRWFC Assistance Agreement and the provisions of KRS Chapter 58. Parity Bonds Permitted; Terms The City reserves the right and privilege of issuing additional bonds from time to time, payable from income and revenues of the System ranking on a parity with the First Lien Parity Bonds in order to pay the cost of further extensions, betterments and improvements to the System; provided, that before any such additional bonds ranking on a parity may be so issued there has been procured and filed with the City Clerk a statement by an independent certified public accountant not in the regular employ of the City reciting the opinion, based upon necessary investigation, that the net income and revenues of the System for twelve (12) consecutive months out of the eighteen (18) months preceding the issuance of said additional parity bonds (with adjustments as hereinafter provided) were equal to at least 1.30 times the maximum amount that will become due in any calendar year for both principal and interest on the bonds then outstanding and the bonds then proposed to be issued. Net income and revenues are defined as gross income and revenues less operating expenses which shall include salaries, wages, cost of maintenance and operation, materials and supplies, pumping costs and insurance, as well as all other items that are normally and regularly so included under recognized accounting practices (and including debt service on subordinate obligations), exclusive of allowance for depreciation. The net income and revenues may be adjusted for the purpose of the foregoing computations to reflect any revision in the schedule of rates or charges being imposed at the time of the issuance of any such additional parity bonds,

24 and also to reflect any increase in such income and revenues by reason of the extensions and improvements to the System, the cost of which is to be paid through the issuance of such additional parity bonds, but such latter adjustment shall only be made if contracts for the immediate construction or acquisition of such extensions and improvements have been or will be entered into before the issuance of such additional parity bonds. All such adjustments shall be based upon written certification by an independent consulting engineer or firm of consulting engineers of national reputation in the field of waterworks and sanitary engineering and licensed in Kentucky and not in the regular employ of the City. Insurance Subordinate obligations may also be issued. The City will carry adequate fire and windstorm insurance on all buildings and structures of the System which are subject to loss through fire or windstorm and will carry adequate public liability insurance, and will carry for the benefit of the holders of said bonds insurance of the kinds and in the amounts normally carried in the operation of similar properties in Kentucky. All moneys received for losses under any of such insurance policies, except public liability, will be paid into the Depreciation Fund and such payments shall not reduce the amounts otherwise required to be paid into said Fund. Disbursement of such proceeds will be made in the same manner and for the same purposes as are other disbursements made from the Depreciation Fund. Accounting The City will cause proper books and accounts adapted to the System to be kept and will cause the books and accounts to be audited annually by a recognized independent certified public accountant or firm of certified public accountants. The holders of any of the Series 2013 Bonds shall have at all reasonable times the right to inspect the System and the records, accountants and data of the City relating thereto. Required Use of Sewer System The City agrees in the Series 2013 Ordinances to take all such steps as may be necessary to cause the owners of all properties abutting upon any sewer lines of the City to connect thereto and to keep connected thereto all sanitary sewage drain pipes on such properties, and to maintain in effect an ordinance imposing such requirements. Management of System Pursuant to Ordinance No. 550 of the City adopted September 7, 1945, as amended and supplemented, the management, control and operation of the System are vested in the Board and the City agrees in the Series 2013 Ordinances that so long as any of the First Lien Parity Bonds remain outstanding the management, control and operation of the System will continue to be vested in and carried out by the Board created, appointed and functioning as provided in Ordinance No. 550, as amended and supplemented. Tax Covenants and Representations The City covenants that so long as any of the Series 2013 Bonds remain outstanding, moneys on deposit in any fund or account in connection with the Series 2013 Bonds, whether or not such moneys were derived from the proceeds of the sale of the Series 2013 Bonds or from any other sources, will not be invested or used in a manner which will cause the Series 2013 Bonds to be arbitrage bonds within the meaning of Sections 103(b)(2) and 148 of the United States Internal Revenue Code of 1986, as

25 amended (the Code ), and any lawful regulations promulgated or proposed thereunder, as the same presently exist or may from time to time hereafter be amended, supplemented or revised. Further covenants and representations are made to assure that interest paid by the City on the Series 2013 Bonds will, for purposes of federal income taxation, be excludable from gross income, including without limitation compliance with the arbitrage rebate requirements of the Code. Defeasance If the City shall pay or cause to be paid, or there shall otherwise be paid, to all of the holders of the Series 2013A Bonds or the Series 2013B Bonds the total principal and interest due or to become due thereon at the times and in the manner stipulated therein and in the Series 2013 Ordinance for such series, then the pledge of the Ordinance for such series, and all covenants, agreements and other obligations of the City to the Bondholders of such series, shall thereon cease, terminate and become void and be discharged and satisfied. Whenever there shall be held irrevocably in the Bond Fund or an escrow fund established for such purpose either: (a) moneys in an amount which shall be sufficient; or (b) direct obligations of or obligations fully guaranteed by the United States of America, including such obligations issued or held in book-entry form, the principal of and interest on which when due (without consideration of reinvestment income) will provide moneys which, together with other moneys, if any, then on deposit in the Bond Fund or such escrow fund, shall be sufficient to pay when due the principal of and interest on the Series 2013A Bonds or the Series 2013B Bonds or any part thereof to and including the date on which such Series 2013 Bonds or any of them will be redeemed in accordance with the Series 2013 Ordinance for such series, or the maturity date or dates thereof, as the case may be, then and in any of said events all such Series 2013 Bonds shall be deemed to have been paid within the meaning and with the effect expressed above, and the Paying Agent and Bond Registrar will mail, via first class mail, irrevocable notice thereof to the holders of such Series 2013 Bonds, such notice to contain a statement that the cash and obligations as provided above are held in the Bond Fund or such escrow fund, that such Series 2013 Bonds are deemed to have been paid in accordance with the Series 2013 Ordinance for such series, and a statement of the maturities or redemption date or dates on which the moneys are or will become available for the payment of the amounts due. Thereafter the holders of such Series 2013 Bonds shall be entitled only to payment out of the cash and obligations deposited as aforesaid. The provisions of the immediately foregoing paragraph are subject to the limitation that no discharge and release of the pledge of the Series 2013A Ordinance or the Series 2013B Ordinance shall be accomplished through the use of any funds or investments which, in the opinion of the City s Bond Counsel, would adversely affect the exclusion of interest on any such Series 2013 Bonds from gross income for federal income tax purposes. Series 2013 Ordinances as Contracts The provisions of the Series 2013 Ordinances constitute contracts between the City and the holders of the Series 2013 Bonds and any additional parity bonds, and after the issuance of any of said bonds no material change of any kind in the provisions of the Series 2013 Ordinances shall be made in any manner except as herein provided, until such time as all of said bonds issued hereunder and interest thereon have been paid or provided for in full by defeasance as provided above or as otherwise provided in the Series 2013 Ordinances. The City may specifically make any amendment or change in the respective Series 2013 Ordinances: (a) to evidence the succession of an institution as Paying Agent and Bond Registrar; (b) to cure any ambiguity or to cure, correct or supplement any defective or inconsistent provisions contained

26 therein or in any ordinance or other proceedings pertaining hereto; (c) to grant to or confer on the Paying Agent and Bond Registrar for the benefit of the holders of the Series 2013 Bonds any additional rights, remedies, powers, authority or security which may lawfully be granted or conferred and which are not contrary to or inconsistent with the respective Series 2013 Ordinance as theretofore in effect; (d) to permit the Paying Agent and Bond Registrar to comply with any obligations imposed on it by law; (e) to achieve compliance of respective Series 2013 Ordinance with any federal tax law, regulation or ruling; (f) to maintain or improve any rating on the Series 2013 Bonds; or (g) for any other purpose not inconsistent with the terms of the respective Series 2013 Ordinance which shall not impair the security of the Bondholders or otherwise materially adversely affect the rights of the Bondholders. Holidays If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in the Series 2013 Ordinances, is not a business day for the Paying Agent and Bond Registrar, such payment may be made or act performed or right exercised on the next succeeding business day with the same force and effect as if done on the date stipulated in the Series 2013 Ordinances and no interest shall accrue for the period after such stipulated date. General TAX MATTERS It is the opinion of Bond Counsel, Stoll Keenon Ogden PLLC, Louisville, Kentucky, assuming the correctness and accuracy of certain representations and warranties of the City made in connection with the issuance of the Series 2013 Bonds, that under existing laws interest on the Series 2013 Bonds: (a) is excluded from gross income for federal and Kentucky income tax purposes; and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; provided, however, it should be noted that with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. The opinions set forth in the first sentence of this paragraph are subject to the conditions, among others (as set out in Appendix E, to which reference is made), that the representations and warranties of the City referred to above are accurate and that the City complies with all requirements of the Code that must be satisfied after the issuance of the Series 2013 Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with all such requirements. Failure to comply with certain of such requirements, or a determination that certain of such representations and warranties are inaccurate, could cause the interest on the Series 2013 Bonds to be included in gross income retroactive to the date of issuance of the Series 2013 Bonds. Bond Counsel expresses no opinion regarding other federal and Kentucky income tax consequences arising with respect to the Series 2013 Bonds. Reference is made to the form of opinion of Bond Counsel for each series of Series 2013 Bonds contained in Appendix E to this Official Statement. Prospective purchasers of the Series 2013 Bonds should be aware that: (a) Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Series 2013 Bonds or, in the case of a financial institution (within the meaning of Section 265(b)(5) of the Code), that portion of a holder s interest expense allocated to interest on the Series 2013 Bonds, except to the extent described below. The City has designated a portion of the Series 2013 Bonds as qualified tax-exempt obligations and the remaining portion of the Series 2013 Bonds are deemed designated as qualified

27 tax-exempt obligations within the meaning of Section 265(b)(3) of the Code, and, in the case of financial institutions (within the meaning of Section 265(b)(5) of the Code), including federal- or state-supervised commercial banks, a deduction is allowed for 80% of that portion of such a financial institution s interest expenses that is allocable to interest on the Series 2013 Bonds. (b) With respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the Series 2013 Bonds. (c) (d) (e) Interest on the Series 2013 Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code. Passive investment income, including interest on the Series 2013 Bonds, may be subject to federal income taxation under Section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income. Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on the Series 2013 Bonds. Bond Counsel is further of the opinion that the Series 2013 Bonds are exempt from ad valorem taxation by the Commonwealth of Kentucky and its political subdivisions. Original Issue Discount The Series 2013 Bonds that bear an interest rate that is lower than their yield, as shown on the inside cover page hereof (the Discount Bonds ), have been offered and sold to the public at an original issue discount ( OID ). OID is the excess of the stated redemption price at maturity (original principal amount) over the issue price of each Discount Bond. The issue price of a Discount Bond is the initial offering price to the public (other than the bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount of the Discount Bonds of the same maturity are sold pursuant to that offering. For federal income tax purposes, OID accrues to the owner of the Discount Bond over the period to maturity based on the constant interest rate method, compounded semiannually. With respect to a purchase of a Discount Bond at its issue price in the initial offering, the portion of OID that accrued during the period that the purchase owns the Discount Bond: (i) is interest excludable from that purchaser s gross income for federal income tax purposes to the same extent and subject to the same considerations discussed above as to other interest on the Series 2013 Bonds; and (ii) is added to that purchaser s tax basis for the purposes of determining gain or loss on the maturity, redemption, prior sale or other disposition of that Discount Bond. Owners of any Discount Bonds should consult their own tax advisors with respect to the determination for federal income tax purposes of the amount of OID properly accruable each year with respect to such Discount Bonds, other federal tax consequences of owning Discount Bonds and the treatment of OID for state and local tax purposes

28 Original Issue Premium The Series 2013 Bonds that bear an interest rate that is greater than the yield, as shown on the inside cover page hereof (the Premium Bonds ), have an initial public offering price that is greater than the amount payable at maturity with respect to such Series 2013 Bonds. The difference between: (a) the amount payable at maturity of the Premium Bonds; and (b) the initial offering price to the public (excluding bond houses, brokers or similar persons acting in the capacity of underwriter or wholesalers) at which a substantial amount of the Premium Bonds of such maturities are sold, will constitute original issue premium ( OIP ). Under certain circumstances, as a result of the tax cost reduction requirements of the Code relating to the amortization of bond premium, the owner of a Premium Bond may realize a taxable gain upon its disposition even though the Premium Bond is sold or redeemed for an amount not greater than the owner s original acquisition cost. Owners of Premium Bonds should consult their own tax advisors with respect to the determination for federal income tax purposes of the amount of OIP properly accruable each year and the treatment of OIP for state and local tax purposes. Legislative Changes 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 Series 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 before enactment. Prospective purchasers of the Series 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. Audits 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 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 Series 2013 Bonds. If an audit is commenced, under current procedures the Service may treat the City 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 Series 2013 Bonds until the audit is concluded, regardless of the ultimate outcome. Miscellaneous Payments of interest on, and proceeds of the sale, redemption or maturity of, tax-exempt obligations, including the Series 2013 Bonds, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any Series 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 Series 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

29 ABSENCE OF MATERIAL LITIGATION There is no litigation now pending or, to the knowledge of City officials, threatened restraining or enjoining the issuance, sale, execution or delivery of the Series 2013 Bonds or in any way contesting or affecting the validity or security of the Series 2013 Bonds or any proceedings of the City taken with respect to the issuance or sale thereof, or contesting the due existence or organization of the City or the Board or materially affecting the financial condition of the System or the pledge or application of any moneys or security provided for the payment of the Series 2013 Bonds. LEGAL MATTERS Certain legal matters incident to the authorization and validity of the Bonds will be the subject of approving opinions of Stoll Keenon Ogden PLLC, Louisville, Kentucky, Bond Counsel, which will be available at the time of delivery of the Bonds. Proposed forms of such opinions are contained in Appendix E to this Official Statement. Certain legal matters relating to the City s title to properties constituting the System, the legality of the proceedings of the City and the absence of any litigation which might affect the validity or security of the Series 2013 Bonds or the proceedings of the City with respect thereto will be passed on by counsel for the Board, R. Bruce Lankford, Georgetown, Kentucky. The information contained in this Official Statement under the headings INTRODUCTORY STATEMENT, AUTHORITY AND SECURITY (except for the computation referred to in the last paragraph thereof), THE SERIES 2013 BONDS, CERTAIN PROVISIONS OF THE SERIES 2013 ORDINANCES, TAX MATTERS and CONTINUING DISCLOSURE UNDERTAKING has been reviewed by Bond Counsel to determine that such information conforms in substance to the proceedings and laws relating to the issuance of the Series 2013 Bonds that are summarized in such information (see Reference to Documents hereinafter); but Bond Counsel has not undertaken to review the accuracy or completeness of statements and data otherwise contained in this Official Statement, including Appendices A through D, and expresses no opinion thereon and assumes no responsibility in connection therewith. CONTINUING DISCLOSURE UNDERTAKINGS The City will agree in a Continuing Disclosure Certificate, dated as of the date of issuance of the Bonds (the Continuing Disclosure Certificate ), to provide or to cause to be provided, in accordance with the requirements of Rule 15c2-12, as amended, and official interpretations thereof (the Rule ) promulgated by the Securities and Exchange Commission, the following: (a) with the Municipal Securities Rulemaking Board (the MSRB ), or any successor thereto for purposes of the Rule, through the continuing disclosure service portal provided by the MSRB s Electronic Municipal Market Access ( EMMA ) system as described in 1934 Act Release No , or any similar system that is acceptable to the Securities and Exchange Commission, certain annual financial information and operating data, including audited financial statements, generally consistent with the financial information and operating data and audited financial statements contained in Appendix C (other than the 12- months unaudited income statements and estimated pro forma debt coverage schedules) and Appendix D. Such information, including audited financial statements, is expected to be available on or before December 15 of each year for the fiscal year ending on the preceding June 30 and will be made available, in addition to EMMA, to each holder of Bonds who makes written request for such information; provided that audited financial statements, if not available on December 15, will be filed when available

30 The audited financial statements and other financial statements will be prepared in accordance with: (i) generally accepted accounting principles ( GAAP ) as applied to governmental units, as described in the notes to the City s audited financial statements appearing in Appendix D to this Official Statement; (ii) the standards of the Governmental Accounting Standards Board; and (ii) state law requirements, all as from time to time in effect. The City uses fund accounting to report on its financial position and the results of its operations, and the modified accrual basis of accounting is used by all governmental fund types, expendable trust funds and agency funds, all as described in the notes to the City s audited financial statements. Reference is made to the notes to the City s audited financial statements for a detailed description of the accounting principles pursuant to which the City s financial statements will be prepared. (b) with the MSRB through EMMA, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not in excess of ten business days after the occurrence of such event: (i) principal and interest payment delinquencies, (ii) non-payment related defaults, if material, (iii) unscheduled draws on debt service reserves reflecting financial difficulties, (iv) unscheduled draws on credit enhancements reflecting financial difficulties, (v) substitution of credit or liquidity providers, or their failure to perform, (vi) 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 Bonds, or other material events affecting the tax status of the Bonds, (vii) modifications to rights of holders of Bonds, if material, (viii) Bond calls, if material, and tender offers, (ix) defeasances, (x) release, substitution or sale of property securing repayment of the Bonds, if material, (xi) rating changes, (xii) bankruptcy, insolvency, receivership or similar event of the City, (xiii) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material, and (xiv) appointment of a successor or additional trustee or the change of a trustee, if material. The City may from time to time choose to file notice of the occurrence of certain other events, in addition to those listed above, if, in the judgment of the City, any such other event is material with respect to the Series 2013 Bonds, but the City does not undertake to commit to file any such notice of the occurrence of any event except those events listed above. (c) in a timely manner, with the MSRB through EMMA, notice of a failure by the City to file the required financial information on or before the date specified in the Continuing Disclosure Certificate. The City reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information, to the extent necessary or appropriate in the judgment of the City; provided that the City agrees that any such modification will be done in a manner consistent with the Rule. All documents provided to the MSRB in accordance with the Rule shall be accompanied by identifying information as prescribed by the MSRB. The City reserves the right to terminate its obligation to provide annual financial information and notices of material events as set forth

31 above, if and when the City no longer remains an obligated person with respect to the Series 2013 Bonds within the meaning of the Rule. The City acknowledges that its undertaking pursuant to the Rule described under this heading is intended to be for the benefit of the holders (including beneficial owners) of the Series 2013 Bonds and shall be enforceable by any holder of the Series 2013 Bonds; provided that a Bondholder s right to enforce the provisions of this undertaking shall be limited to a right to obtain specific performance of the City s obligations pursuant to the provisions of this undertaking, and any failure by the City to comply with the provisions of this undertaking shall not be an event of default with respect to the Series 2013A Bonds or Series 2013B Bonds under the respective Series 2013 Ordinance. The City has filed all of its financial information, operating data and audited financial statements regarding its Municipal Water and Sewer Service (the Service ) with the appropriate parties as required by the Continuing Disclosure Certificates executed in connection with the City s outstanding Series 2003A Bonds and Series 2003B Bonds. The Service, on behalf of the City, however, failed to file the financial information, operating data and audited financial statements of the Service for its 2007 through 2012 fiscal years until the Service reviewed the status of the filings in preparation for the issuance of the Series 2013 Bonds. To ensure that future filings for the outstanding Series 2003B Bonds and the Series 2013 Bonds are made on or before the deadlines contained in the applicable Continuing Disclosure Certificates, the Service and its financial advisor have implemented procedures to ensure their respective personnel receive timely reminders to file such information on or before the due dates contained within the respective Continuing Disclosure Certificates. Purchase of the Series 2013 Bonds shall be conditioned upon the receipt by the initial purchaser of the Series 2013 Bonds, at or before the delivery of the Series 2013 Bonds, of evidence that the City has made the Continuing Disclosure Undertaking described above, in the form of the Continuing Disclosure Certificate, for the benefit of the holders of the Series 2013 Bonds. RATING The Series 2013 Bonds have been assigned a rating of Aa3 and the Series 2013B Bonds have been assigned a rating of Aa3 by Moody s Investors Service, Inc. (the Rating Agency ). An explanation of the significance of such rating may be obtained from the Rating Agency. The City has furnished the Rating Agency with certain information and materials relating to the Series 2013 Bonds and the City which have not been included in this Official Statement. Such rating reflects only the views of the Rating Agency at the time such rating is issued and is not a recommendation to buy, sell or hold the Series 2013 Bonds. The rating is subject to change or withdrawal by the Rating Agency at any time and any such change or withdrawal may affect the market price or marketability of the Series 2013 Bonds. FINANCIAL ADVISOR J.J.B. Hilliard, W.L. Lyons, LLC, Louisville, Kentucky is acting as Financial Advisor to the City in connection with the issuance of the Series 2013 Bonds and will receive a fee, payable from Series 2013A Bond and Series 2013B Bond proceeds, for its services as Financial Advisor. REFERENCE TO DOCUMENTS All foregoing summaries and descriptions of provisions set forth in the Series 2013 Ordinances, the Series 2013 Bonds, the Continuing Disclosure Certificates and related documents, and all references to other documents and materials not purported to be quoted in full, are brief outlines of certain provisions of such documents, reference to which documents is hereby made and copies of which will be furnished by the City upon written request

32 MISCELLANEOUS Neither this Official Statement nor any statement which may have been made orally or in writing is to be construed as a contract with the holders of any of the Series 2013 Bonds. The City of Georgetown, Kentucky, acting by and through its Council, has approved and caused this Official Statement to be executed and delivered by its Mayor. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or holders of any of the Series 2013 Bonds. Dated: CITY OF GEORGETOWN, KENTUCKY By: Mayor

33 APPENDICES Appendix A Estimated Annual Debt Service Requirements on Series 2013A Bonds and 2013B Bonds; and Estimated Total Annual Debt Service Requirements Appendix B - Demographic and Economic Data Appendix C Water and Sewer System Operating and Financial Data Appendix D - Audited Financial Statement for Fiscal Year Ended June 30, 2012 Appendix E - Forms of Bond Counsel Legal Opinions

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35 APPENDIX A CITY OF GEORGETOWN, KENTUCKY WATER AND SEWER REVENUE AND REFUNDING REVENUE BONDS SERIES 2013A & SERIES 2013B Estimated Annual Debt Service Requirements on Series 2013A and 2013B Bonds; and Estimated Total Annual Debt Service Requirements

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37 CITY OF GEORGETOWN, KENTUCKY WATER AND SEWER REVENUE BONDS SERIES 2013A ESTIMATED DEBT SERVICE REQUIREMENTS ON SERIES 2013A BONDS g Date Principal Interest Gross P+I Fiscal Total 11/01/ $13, $13, /01/2014 $170, , , $261, /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/2032-7, , /01/ , , , , Total $4,775, $2,096, $6,871, $6,871, Source: J.J.B. Hilliard, W.L. Lyons, LLC A-1

38 CITY OF GEORGETOWN, KENTUCKY WATER AND SEWER REFUNDING REVENUE BONDS SERIES 2013B ESTIMATED DEBT SERVICE REQUIREMENTS ON SERIES 2013B BONDS g Date Principal Interest Gross P+I Fiscal Total 5/01/2014 $275, , , $302, /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/ , , /01/ , , , , /01/2021-9, , /01/ , , , , /01/2022-4, , /01/ , , , , Total $2,675, $339, $3,014, $3,014, Source: J.J.B. Hilliard, W.L. Lyons, LLC A-2

39 City of Georgetown, Kentucky Water and Sewer Revenue Bonds, Series 2013A and Water and Sewer Refunding Revenue Bonds, Series 2013B As of September 18, 2013 ESTIMATED TOTAL ANNUAL LONG-TERM DEBT SERVICE REQUIREMENTS Fiscal Year Ending 6/30 Total Existing Principal (1) Total Existing Interest (1) Total Existing Debt Series 2013A Series 2013B Service (1) Principal Interest Total P+I Principal Interest Total P+I Estimated Total Principal Estimated Total Interest Estimated Total Debt Service 2014 $698, $128, $826, $170, $91, $261, $275, $27, $302, $1,143, $248, $1,391, , , , , , , , , , , , ,178, , , , , , , , , , , , ,185, , , , , , , , , , , , ,180, , , , , , , , , , , , ,184, , , , , , , , , , , , ,182, , , , , , , , , , , , ,182, , , , , , , , , , , , ,175, , , , , , , , , , , , ,178, , , , , , , , , , , , ,188, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Total $5,974, $1,794, $7,768, $4,775, $2,096, $6,871, $2,675, $339, $3,014, $13,424, $4,230, $17,654, Notes: (1) Total existing principal, interest and debt service exclude the refunded portion of the Series 2003A Bonds. Total existing debt reflects only long-term debt of the City that is secured by first-lien pledge of the water and sewer revenues of the City's Municipal Water and Sewer Service. Source: J.J.B. Hilliard, W.L. Lyons, LLC A-3

40 CITY OF GEORGETOWN, KENTUCKY WATER AND SEWER SYSTEM SUBORDINATED DEBT In addition to the debt service requirements set out on the previous page, the City also has outstanding, payable from the revenues of the System on a subordinate basis, loan repayment obligations in the outstanding principal amounts of $219, and $7,499.97, payable to the Kentucky Infrastructure Authority ( KIA ). Both obligations to the KIA mature within the next 12 months. A-4

41 APPENDIX B CITY OF GEORGETOWN, KENTUCKY WATER AND SEWER REVENUE AND REFUNDING REVENUE BONDS, SERIES 2013A & 2013B Demographic and Economic Data

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43 CITY OF GEORGETOWN, KENTUCKY Georgetown, the county seat of Scott County, is located in central Kentucky s scenic Blue Grass Region, an area famous for its many beautiful horse farms and low rolling hills. Located only two miles from Interstate 75 and nine miles from Interstate 64, Georgetown is ideally situated for easy highway access. Georgetown was named a Hall of Fame Kentucky Certified City in 1993 based upon progress in community and economic development, and had an estimated 2012 population of 30,271 persons. Scott County, which covers a land area of 285 square miles, had an estimated 2012 population of 49,057 persons. The Economic Framework The total number of Scott County residents employed in 2012 averaged 22,332. Manufacturing firms in the county reported 8,051 employees; trade transportation and utilities provided 3,473 jobs; 5,285 people were employed in service occupations; information, financial activities and public administration accounted for 1,135 employees; and contract construction firms provided 386 jobs. Labor Supply There is a current estimated labor supply of 35,776 persons available for industrial jobs in the labor market area. In addition, from 2013 through 2016, 40,323 young persons in the area will become 18 years of age and potentially available for industrial jobs. The largest manufacturing employers in Georgetown, as of July 2013, are as follows: Firm Product Average Employment Toyota Motor Manufacturing, Automobiles-Camry sedan, Avalon sedan, Sienna 7,900 Kentucky minivan. Engines (4 cyl & V6), axles, steering components, blocks/cylinder heads/crankshafts Johnson Controls, Inc. Automotive foam seating 643 Toyota Tsusho America Inc. Headquarters: warehousing; metals svc center; 410 steel slitting; distribution Aichi Forge USA Inc Steel forgings and powder metal 239 sinter forgings for application in automotive/aircraft engine and suspension components Leggett & Platt Inc Assembly of adjustable bed base units 231 Phoenix Transportation Services Trucking, except local 200 Transfreight LLC Logistics and cross-docking facility 200 Qualex Manufacturing LLC Sheet metal fabricating, gas welding, assembly 180 International Crankshaft Inc. Crankshafts & steel forgings 149 Transportation U.S. Highways 25, 62, and 460 are AAA -rated trucking highways serving Georgetown, and two interchanges of Interstate 75 are only two miles east of the city. Interstate 64 is accessible nine miles south of Georgetown. Thirty-one common carrier trucking companies provide interstate and/or intrastate service. The Norfolk Southern Corporation provides daily rail freight and intermodal service to Georgetown. The nearest scheduled commercial airline service is available at Blue Grass Airport near Lexington, 18 miles south. Marshall Field (Georgetown-Scott County Airport). Located seven miles east of the city, maintains a 4,000-foot paved runway. Power and Fuel Kentucky Utilities Company, an electric power generation and transmission company, provides electricity to Georgetown and parts of Scott County. The remainder of the County is served by East Kentucky Power through the Harrison Rural Electric Cooperative Corporation and the Owen Electric Cooperative. Columbia Gas of Kentucky provides natural gas service to Georgetown. B-1

44 Education The Scott County Public School System provides primary and secondary education in Scott County. One nonpublic school operates in the county. Georgetown College is a coeducational, liberal arts college conferring Baccalaureate and Masters degrees, as well as offering a Rank I Education program. There are seven other institutions of higher within 40 miles of Georgetown. The nearest vocational training is available at the Kentucky Tech Central Campus, the Fayette County South Area Vocational Education Center, all located in Lexington, Kentucky, 16 miles south of Georgetown. Median Family Income Scott County Economic Statistics Average Weekly Wage Year Per Capita Income Employment Civilian Labor Force Unemployment Rate 2013 (1) $56,300 (1) 23,000 (2) 24,622 (2) 6.6% (2) 2012 (1) 67,100 (1) 22,332 23, $34,376 66,200 $ ,581 23, ,995 65, ,102 23, ,259 65, ,128 23, Source: Kentucky Department of Economic Development (1) Data not available (2) Preliminary, as of May, (The Remainder of This Page Intentionally Left Blank) B-2

45 APPENDIX C CITY OF GEORGETOWN, KENTUCKY WATER AND SEWER REVENUE AND REFUNDING REVENUE BONDS SERIES 2013A & 2013B Operating and Financial Data

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47 GEORGETOWN MUNICIPAL WATER AND SEWER SYSTEM Operating Information Water & Sewer System Fees and Charges (effective November 15, 2007) (1) : Water System Rates First 2,000 gallons Per 1,000 gallons $8.54 (minimum bill or any portion thereof) $4.80 (anything over minimum) Water Connection Fees ¾ x 5/8" $1,500 1": $2,100 2": $4,350 3": $16,500 4": $21,000 Over 4": at cost Water Meter Testing Cost of testing meter (unless found defective) $75.00 Fire Sprinkler Charges (based on square footage of building) 0-10,000 sq. ft. $15.00/month 10,001-20,000 sq. ft. $20.00/month 20,001-50,000 sq. ft. $25.00/month 50,000 + sq. ft. $30.00/month Sewer System Rates First 2,000 gallons Per 1,000 gallons Sewer System Fees Connection fee Waste Hauler Fee BOD Surcharge Fee TSS Surcharge Fee Ammonia Surcharge Fee Phosphorus Surcharge Fee $7.82 (minimum bill or any portion thereof) $5.58 (anything over minimum) $1,500 per equivalent residential unit $75 per 1,000 gallons $1.37 per pound $1.18 per pound $6.30 per pound $2.09 per pound Residential Deposit No deposit required Service reconnection $30.00 (customers with GMWSS water and sewer) $ (customers with KAWC water and GMWSS sewer) Insufficient funds check $25.00 Rental Property Renter's Deposit Multi-Rental Property Deposit Reconnect Fee $75.00 (non-owner occupied) No deposit required $30.00 service charge C-1

48 Commercial and Industrial New Customers Initial deposit Existing Customers Reconnect Fee: Estimated based on similar type of business $30.00 service charge (customers with GMWSS water and sewer) $ (customers with KAWC water and GMWSS sewer) Other Charges Adjustments Swimming Pools One time per year adjustments for filling swimming pools (sewer only) Existing customers must be >1.5 times the average usage New customers must be >1.5 times the system average usage of 5,000 gallons per month Filled via fire hydrant $40.00 fee plus cost of water used (when applicable) Inspection of Sewer Lines & Fees Inspections $50.00 per hour (minimum charge of $75.00) per customer's request Utility Tax 3% of water billed (in dollars) Garbage Residential Rate Residents (65 and over) $15.00 per month $8.00 per month Sales Tax 6% of water and sewer billed (in dollars) Kentucky River Authority $0.045 per 1,000 gallons of water Operating Data Water System 2013 (1) (2) (2) Annual Pumpage 1,061,245,353 1,007,652,442 1,085,856, ,684,429 1,005,394,444 Annual Usage 870,014, ,392, ,546, ,627, ,290,276 Avg. Daily Water Pumpage 2,907,522 2,753,149 2,974,948 2,699,682 2,754,505 Avg. Daily Water Usage 2,383,602 2,318,012 2,333,003 2,216,009 2,365,178 Percent Water Loss 18.0% 15.8% 21.6% 17.9% 14.1% Total Annual Water Loss 191,230, ,259, ,309, ,057, ,104,168 Source: City of Georgetown Municipal Water & Sewer System (1) As of June 30, 2013 (2) Estimated based on data from first six months of fiscal year C-2

49 Storage Facilities Listed below are the 5 storage facilities of the water system and their respective capacities: Storage Facilities Whitaker Tank Lancaster Tank Johnson Tank Burton Tank Stamping Ground Capacity (MG) 750,000 gallons 600,000 gallons 500,000 gallons 500,000 gallons 200,000 gallons Water Customers Listed below is the total number of customers of the water system for the last five years: Fiscal Year Residential Comm./Industrial Total 2013 (1) 11,100 1,218 12, ,933 1,209 12, ,813 1,184 11, ,744 1,191 11, ,624 1,186 11,810 Source: City of Georgetown Municipal Water and Sewer System (1) As of June 30, 2013 Set forth below is a list of the ten largest customers of the water system in terms of quantity of water used during the fiscal years Fiscal Year 2013 (1) Customer Revenue ($) % of Revenue Annual Gallons (MG) International Crankshaft $118, % 24,640,500 G town College Dorm Complex 67, ,003,000 Electro-Shield Plating 36, ,709,750 Housing Authority 24, ,135,000 G town Community Hospital 25, ,220,600 Housing Authority 22, ,601,000 Cralle Student Center 18, ,791,500 Scott County Jail 17, ,622,100 Hilton Garden Inn 15, ,271,400 Scott County High School 15, ,256,600 (1) As of June 30, 2013 (The Remainder of This Page Intentionally Left Blank) C-3

50 Fiscal Year 2012 Customer Revenue ($) % of Revenue Annual Gallons (MG) G'town College Dorm Complex $97, % 16,336,500 International Crankshaft 85, ,895,000 Housing Authority 28, ,875,000 Housing Authority 24, ,705,100 G'town Community Hospital 22, ,781,000 Hilton Garden Inn 21, ,472,200 Cralle Student Center 20, ,222,000 Scott County Jail 15, ,241,100 Hampton Inn 11, ,458,000 Windsor Place Apartments 6, ,450,000 Fiscal Year 2011 Customer Revenue ($) % of Revenue Annual Gallons (MG) International Crankshaft $109, % 22,758,000 G'town College Dorm Complex 94, ,845,000 Housing Authority 25, ,395,000 G'town Community Hospital 24, ,031,100 Housing Authority 21, ,560,900 Cralle Student Center 19, ,033,800 Hilton Garden Inn 18, ,852,200 Scott County Jail 14, ,051,000 Hampton Inn 12, ,661,000 Windsor Place Apartments 11, ,470,500 Fiscal Year 2010 Customer Revenue ($) % of Revenue Annual Gallons (MG) G'town College Dorm Complex $88, % 18,430,000 International Crankshaft 78, ,346,500 Electro-Shield Plating 33, ,921,980 Cralle Student Center 24, ,131,400 G'town Community Hospital 20, ,316,500 Housing Authority 18, ,825,000 Hilton Garden Inn 17, ,688,800 Windsor Place Apartments 16, ,499,500 Scott County Jail 15, ,175,000 Aset Investments, Inc. 13, ,785,000 Fiscal Year 2009 Customer Revenue ($) % of Revenue Annual Gallons (MG) G'town College Dorm Complex $71, ,964,000 International Crankshaft 61, ,997,500 Electro-Shield Plating 37, ,860,160 Georgetown College E Campus 23, ,853,000 G'town Community Hospital 22, ,725,300 Scott County Jail 15, ,204,500 Aset Investments, Inc. 14, ,990,500 Housing Authority 13, ,822,900 Hampton Inn 13, ,807,000 Windsor Place Apartments 10, ,118,000 Source: City of Georgetown Municipal Water & Sewer System C-4

51 Operating Data Sewer System Water Treatment Plants #1 and #3 Fiscal Year Annual Flow (MG) Peak Flow (MGD) Average Daily Flow (MGD) System Capacity (MGD) 2013 (1) Source: City of Georgetown Municipal Water & Sewer System (1) As of April 1, 2013 Operating Data Sewer System Water Treatment Plant #2 Fiscal Year Annual Flow (MG) Peak Flow (MGD) Average Daily Flow (MGD) System Capacity (MGD) 2013 (1) Source: City of Georgetown Municipal Water & Sewer System (1) As of May 30, 2013 Sewer System Customers Listed below is the total number of customers of the sewer system for the last five years: Fiscal Year Residential Comm./Industrial Total ,789 1,129 10, ,464 1,098 10, ,299 1,064 10, ,150 1,096 10, ,934 1,119 10,053 Source: City of Georgetown Municipal Water & Sewer System Set forth below is a list of the ten largest customers of the sewer system during fiscal years Fiscal Year 2013 (1) : Customer Revenue ($) % of Revenue Annual Gallons (MG) International Crankshaft $86, % 15,554,400 G town College Dorm Complex 33, ,046,500 Electro-Shield Plating 42, ,709,750 Housing Authority 28, ,135,000 G town Community Hospital 29, ,220,600 Housing Authority 25, ,601,000 Cralle Student Center 21, ,791,500 Scott County Jail 20, ,622,100 Hilton Garden Inn 18, ,271,400 Scott County High School 15, ,766,870 (1) As of June 30, 2013 C-5

52 Fiscal Year 2012: Customer Revenue ($) % of Revenue Annual Gallons (MG) G'town College Dorm Complex $ 72, % 8,026,990 International Crankshaft 44, ,342,000 Housing Authority 32, ,875,000 Housing Authority 27, ,705,100 G'town Community Hospital 26, ,781,000 Hilton Garden Inn 24, ,472,200 Cralle Student Center 23, ,222,000 Scott County Jail 18, ,241,100 Hampton Inn 13, ,458,000 Windsor Place Apartments 8, ,450,000 Fiscal Year 2011: Customer Revenue ($) % of Revenue Annual Gallons (MG) International Crankshaft $ 67, % 12,192,170 G'town College Dorm Complex 63, ,541,500 Housing Authority 30, ,395,000 G'town Community Hospital 28, ,031,100 Housing Authority 25, ,560,900 Cralle Student Center 22, ,033,800 Hilton Garden Inn 21, ,852,200 Scott County Jail 16, ,051,000 Hampton Inn 14, ,661,000 Windsor Place Apartments 13, ,470,500 Fiscal Year 2010: Customer Revenue ($) % of Revenue Annual Gallons (MG) G'town College Dorm Complex $ 64, % 11,584,500 International Crankshaft 52, ,463,440 Electro-Shield Plating 38, ,921,980 Cralle Student Center 28, ,131,400 G'town Community Hospital 24, ,316,500 Housing Authority 21, ,825,000 Hilton Garden Inn 20, ,688,800 Windsor Place Apartments 19, ,499,500 Scott County Jail 17, ,175,000 Aset Investments, Inc. 15, ,785,000 C-6

53 Fiscal Year 2009: Customer Revenue ($) % of Revenue Annual Gallons (MG) G'town College Dorm Complex $ 52, % 9,464,500 Electro-Shield Plating 43, ,860,160 International Crankshaft 27, ,430,440 Georgetown College E Campus 27, ,853,000 G'town Community Hospital 26, ,725,300 Scott County Jail 17, ,204,500 Aset Investments, Inc. 16, ,990,500 Housing Authority 15, ,822,900 Hampton Inn 15, ,807,000 Windsor Place Apartments 11, ,118,000 Source: City of Georgetown Municipal Water & Sewer System Water and Sewer Produced and Sold Last Five Years Listed below is the total water and sewer produced and sold for the last five years: Fiscal Year Water Gallons Produced Water Gallons Sold Water Revenues Sewer Gallons Sold Sewer Revenues 2013 (1) 1,061,245, ,797,316 $4,166, ,102,747 $3,500, ,007,652, ,884,575 4,067, ,092,636 3,593, ,085,856, ,774,412 4,082, ,267,789 3,606, ,684, ,249,990 3,808, ,726,246 3,440, ,005,394, ,182,758 3,969, ,473,559 3,464,054 Source: City of Georgetown Municipal Water & Sewer System (1) Unaudited as of June 30, 2013 (The Remainder of This Page Intentionally Left Blank) C-7

54 City of Georgetown, Kentucky Georgetown Municipal Water and Sewer Service Audited Balance Sheet ASSETS As of June Unrestricted assets: Cash and cash equivalents $485,556 $393,095 $529,857 $593,546 $368,721 Accounts receivables: Intergovernmental ,336 Customer Accounts receivable, net 967, , , , ,713 Other, net ,202 33,865 Interfund receivable - 1,570,480 1,635,257 1,621,235 1,587,709 Prepaid expenses 25,672 23,904 34,831 68, ,700 Total unrestricted assets $1,479,179 $2,892,323 $3,148,845 $3,165,530 $2,977,044 Restricted Assets: Cash, cash equivalents and investments: Bond and interest reserve - cash , ,459 Bond and interest reserve - investment , ,143 Note and interest reserve - investment , ,666 KIA loan reserve - cash ,221 77,402 Restricted cash 2,024,456 1,114,159 2,793, Restricted investments 1,527,337 1,522,739 1,468, Depreciation reserve - cash ,909,907 1,707,203 Depreciation reserve - investment , ,000 Customer deposits - cash , ,786 Customer deposits - investments , ,089 Accrued interest receivable 1, ,961 2,556 4,418 Total restricted assets $3,553,744 $2,637,733 $4,263,789 $3,836,526 $3,605,166 Total current assets $5,032,923 $5,530,056 $7,412,634 $7,002,056 $6,582,210 Capital assets: Land and easements 705, , , , ,168 Building and improvements 7,743,278 7,686,667 7,661,794 5,948,843 5,917,534 Utility plants in service 133,915, ,951, ,955, ,773, ,304,558 Furniture, fixtures, and equipment ,681,195 1,765,690 Transportation and work equipment 1,590,064 1,584,173 1,378,415 1,376,336 1,373,001 Construction in progress 360,265 3,225, , ,663 2,951, ,314, ,152, ,035, ,775, ,890,146 Less: accumulated depreciation (57,664,621) (54,276,860) (50,872,108) (47,329,744) (44,009,212) Net capital assets $90,418,250 $87,876,079 $86,163,435 $87,445,662 $86,880,934 Other assets: Deferred costs of issuing debt 214, , , , ,808 Total other assets $214,600 $238,902 $263,204 $287,506 $311,808 Total assets $91,897,429 $93,645,037 $93,839,273 $94,735,224 $93,774,952 Source: City of Georgetown Municipal Water & Sewer Audited Financial Statements C-8

55 (cont'd) LIABILITIES Current liabilities (payable from unrestricted assets): Account payable $75,487 $59,006 $180,049 $117,918 $35,392 Accrued payroll liabilities 658, , , , ,008 Other accrued liabilities , ,061 Interfund payable - 1,570,480 1,635,257 1,621,235 1,587,709 Contracts payable 52, , , , ,307 Total current liabilities (payable from unrestricted assets) $785,923 $2,513,530 $2,446,084 $2,448,948 $2,245,477 Current Liabilities (payable from restricted assets): Current portion of long-term debt 1,329,183 1,280,647 1,245,985 1,192,645 1,040,463 Customer deposits 209, , , , ,180 Accrued interest payable 63,005 97, , , ,525 Total current liabilities $1,601,553 $1,573,519 $1,535,563 $1,475,133 $1,321,168 Long-term liabilities: Accrued expenses 354, , , , ,185 Long-term debt, net of current portion 9,881,589 10,211,773 11,479,772 12,725,757 14,025,068 Total long-term liabilities $10,236,376 $10,569,950 $11,813,370 $13,044,450 $14,322,253 Total liabilities $12,623,852 $14,656,999 $15,795,017 $16,968,531 $17,888,898 NET ASSETS Invested in capital assets, net of related debt 75,439,134 76,383,659 73,437,678 73,527,260 71,815,403 Restricted 3,281,374 2,344,861 3,974,211 3,554,038 3,324,461 Unrestricted 553, , , , ,190 Total Net Assets $79,273,577 $78,988,038 $78,044,256 $77,766,693 $75,886,054 Total liabilities and net assets $91,897,429 $93,645,037 $93,839,273 $94,735,224 $93,774,952 Source: City of Georgetown Municipal Water & Sewer Audited Financial Statements C-9

56 City of Georgetown, Kentucky Georgetown Municipal Water and Sewer Service Audited Statement of Revenues and Expenses As of June 30, OPERATING REVENUE Water revenue $4,067,307 $4,082,321 $3,808,275 $3,969,360 $3,788,695 Sewer revenue 3,593,623 3,606,689 3,440,726 3,464,054 3,347,296 Connection fees 814, , , ,700 1,018,600 Commercial user fees 1,057, , , , ,865 Miscellaneous 322, , , , ,351 Penalties 80,386 82,589 85,103 94,908 87,312 Total operating revenues $9,936,043 $9,333,436 $9,192,306 $9,378,760 $9,463,119 OPERATING EXPENSES Administration 534, , , , ,325 Customer accounts 633, , , , ,974 Water treatment plant 1,416,014 1,620,910 1,341,263 1,439,272 1,302,050 Water distribution 1,926,043 2,009,411 1,861,459 1,856,445 1,774,202 Wastewater Treatment Plant No. 1 2,477,887 2,413,781 2,256,101 2,572,982 2,550,974 Engineering 396, , , , ,068 Wastewater collections 783, , , Wastewater Treatment Plant No. 2 1,816,817 1,638,133 1,732,870 1,827,136 1,886,881 Water and Wastewater Treatment Plant No , , ,406 Total operating expenses $9,985,497 $9,968,753 $9,352,356 $9,401,770 $9,297,880 OPERATING INCOME ($49,454) ($635,317) ($160,050) ($23,010) $165,239 NON-OPERATING REVENUES (EXPENSES) Interest income 28,905 42,014 74,693 82, ,784 Interest expense (451,107) (495,287) (539,613) (580,049) (618,167) Amortization of bond discount (36,949) (36,949) (36,949) (36,949) (36,949) Settlement on sewer damages - (63,241) Total non-operating revenues (expenses) ($459,151) ($553,463) ($501,869) ($534,209) ($543,332) Gain (Loss) Before Capital Contributions ($508,605) ($1,188,780) ($661,919) ($557,219) ($378,093) CAPITAL CONTRIBUTIONS Contributed assets ,437,858 2,413,999 Developer contributions 702, , , Commercial user contributions 81, , Grant revenues 10,000 1,802, , Total capital contributions $794,144 $2,132,562 $939,484 $2,437,858 $2,413,999 CHANGE IN NET ASSETS $285,539 $943,782 $277,565 $1,880,639 $2,035,906 NET ASSETS Beginning of the year 78,988,038 78,044,256 77,766,691 75,886,054 73,850,148 End of the year $79,273,577 $78,988,038 $78,044,256 $77,766,693 $75,886,054 Source: City of Georgetown Municipal Water & Sewer Audited Financial Statements C-10

57 City of Georgetown, Kentucky Georgetown Municipal Water and Sewer Service Unaudited Income Statement For the Year Ending June 30, 2013 REVENUES Water revenue $4,166,502 Sewer revenue 3,747,385 Connection fees - water 215,542 Connection fees - sewer 494,827 Penalties 86,620 Commercial user fees 1,041,116 Other Income 330,037 Interest Income 16,349 Total revenues $10,098,378 EXPENDITURES Salaries & wages 2,713,583 Employee benefits 1,296,125 Maintenance & repairs 444,882 Insurance 177,591 Supplies 717,698 Depreciation 3,499,310 Professional services 231,787 Employee training/meetings 75,571 Utilities & communications 665,621 Water purchases 593,702 Interest expense 431,478 Misc exp & bank fees 93,675 Total expenditures $10,941,023 REVENUES OVER EXPENDITURES ($842,645) Source: City of Georgetown Municipal Water & Sewer Unaudited Financial Statement C-11

58 ASSETS As of June 30, 2013 Current Assets: Cash $506,700 Restricted cash 1,972,973 Restricted CDs 1,530,234 Receivables 1,067,682 Prepaid Expenses 78,360 Total Current Assets $5,155,949 Long-Term Assets: Fixed assets 147,400,594 Less: accumulated depreciation (61,071,908) Fixed assets (less accumulated depreciation) $86,328,686 Deferred costs 199,784 Total Long-Term Assets $86,528,470 TOTAL ASSETS $91,684,419 LIABILITIES & FUND BALANCES LIABILITIES City of Georgetown, Kentucky Georgetown Municipal Water and Sewer Service Unaudited Balance Sheet Current Liabilities: Accounts payable 501,782 Accrued Payroll 251,046 Current - Bonds & Notes 1,166,324 Other 287,222 Total Current Liabilities $2,206,374 Long-Term Liabilities: Bonds Payable 7,723,750 Notes Payable 1,000,000 Total Long-Term Liabilities $8,723,750 Accrued Compensation (Less Non-Current Liabilities) 344,058 TOTAL LIABILITIES $11,274,182 FUND BALANCE Contribution in aid of construction 67,109,264 Grants in aid of construction 6,460,571 Retained earnings 7,683,046 TOTAL FUND BALANCE $81,252,882 Revenues over/under expenses ($842,645) TOTAL LIABILITIES & FUND BALANCE $91,684,419 Source: City of Georgetown Municipal Water & Sewer Unaudited Financial Statement C-12

59 City of Georgetown, Kentucky Georgetown Municipal Water and Sewer Service Historical Debt Service Coverage Audited Unaudited For Years Ended June 30, Ended June 30, FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Revenues $11,988,902 $11,899,407 $10,206,483 $11,508,012 $10,759,092 $10,098,378 Expenditures (5,786,923) (5,938,972) (5,809,992) (6,408,839) (6,529,312) (7,010,235) Net Revenues Available For Debt Service $6,201,979 $5,960,435 $4,396,491 $5,099,173 $4,229,780 $3,088,143 Parity Debt Service (1) 1,390,797 1,284,510 1,289,377 1,291,895 1,287,950 1,288,603 Parity Debt Coverage Total Debt Service (2) 1,845,756 1,744,318 1,748,886 1,746,053 1,746,921 1,747,073 Total Debt Service Coverage Note: (1) Parity debt service includes Series 2003A Bonds, Series 2003B Bonds and a semi-annual loan repayment obligation owed to the Kentucky Rural Water Finance Corporation pursuant to an Assistance Agreement dated January 30, 2007 (the "2007 KRWFC Loan"). (2) Total debt service includes Series 2003A Bonds, Series 2003B Bonds, two loan repayment obligations owed to the Kentucky Infrastructure Authority pursuant to two Assistance Agreements dated December 1, 1992 and March 1, 2007, respectively and the 2007 KRWFC Loan. C-13

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61 APPENDIX D CITY OF GEORGETOWN, KENTUCKY WATER AND SEWER REVENUE AND REFUNDING REVENUE BONDS SERIES 2013A & 2013B Audited Financial Statement for Fiscal Year Ending June 30, 2012

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63 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE Georgetown, Kentucky FINANCIAL STATEMENTS June 30, 2012

64 CONTENTS Management's Discussion and Analysis Independent Auditors' Report Financial Statements: Statement of Net Assets Statements of Revenues, Expenses and Changes in Net assets Statements of Cash Flows Notes to Financial Statements Supplementary Information: Combining Statement of Net Assets oo oo Combining Statement of Revenue, Expenses and Changes in Fund Net Assets Combining statement of cash flows Water and Wastewater Treatment Plant No. 1- Comparative Statements of Net Assets Comparative Statement of Revenues, Expenses and Changes in Fund NetAssets Wastewater Treatment Plant No. 2- Comparative Statements of Net Assets , Comparative Statement of Revenues, Expenses and Changes in Fund Net Assets Independent auditor's report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards

65 GEORGETOWN. MUNICIPAL WATER AND SEWER SERVICE MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2012 The Management Discussion and Analysis (MD&A) gives readers an overview and analysis of the financial position and activity of Georgetown Municipal Water and Sewer Service (GMWSS) for the fiscal year ended June This information should be read in conjunction with the Auditor's Reports and the financial statements immediately following this analysis. FINANCIAL HIGHLIGHTS The assets of GMWSS exceeded its liabilities at the close of the fiscal year by $79.3 million, compared to the previous fiscal year balance of$78.9 million (net assets). GMWSS's total net assets increased $ from fiscal year GMWSS had total assets of $93.5 million at June with capital assets, net of depreciation comprising $86.6 million of the total. GMWSS's debt decreased $0.3 million to $11.2 million at June 30, FINANCIAL STATEMENTS Financial statements include the Statement of Net Assets and the Statement of Revenues, Expenses, and Changes in Fund Net Assets. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most privatesector companies. All the revenues earned and expenses incurred in the fiscal year are taken into account regardless of when cash is received or paid. The Statement of Net Assets presents information on all the assets and liabilities of GMWSS as of June 30, Net assets are the difference between assets and liabilities. Over time, increases or decreases in net assets is one indicator of whether financial health is improving or deteriorating. Information on other factors, such as changes in the revenue structure and the condition of GMWSS's assets, is also needed to assess the overall financial situation of the GMWSS. The Statement of Revenues, Expenses, and Changes in Fund Net Assets present GMWSS's annual revenues and expenses, as well as any other transactions that increase or reduce net assets. The Statement of Cash Flows presents the changes in the GMWSS's cash and cash equivalents for the year ended June 30, 2012, summarized by operating, capital and noncapital financing, and investing activities. The statement is prepared using the direct method of reporting cash flows, and, therefore, presents gross rather than net amounts for the year's activities. REPORTING ON FUNDS The combining and individual Enterprise Fund financial statements report GMWSS's activities in more detail than the consolidated financial statements. Plant No. 1 (which comprises the primary water plant, distribution, and two waste water plants) financial statements are presented on pages 20 through 23. Plant No. 2 is comprised of a waste water plant, whjch receives most of its revenues from a local manufacturing plant and a small portion from residential customers. These financial statements are presented on pages 24 through 25.

66 ANALYSIS OF GMWSS Net Assets As of June 30, 2012, GMWSS had net assets greater than its liabilities of $79.3 million. Of these net assets, $75.4 million or 91% is invested in capital assets, net of related debt. Restricted net assets total $3.3 million or 4.0%. This reflects funds held in various reserve accounts to meet the various bond and note covenants, or as deemed appropriate by management. Total assets were $93.5 million and decreased by $100,000 over the prior year. As of June 30, 2011, GMWSS had net assets greater than its liabilities of $79.0 million. Of these net assets, $76.3 million or 96.6% is invested in capital assets, net of related debt. Restricted net assets total $2.3 million or 3.0%. This reflects flmds held in various reserve accounts to meet the various bond and note covenants, or as deemed appropriate by management. Total assets were $93.6 million and decreased by $195,000 over the prior year. Revenues Revenues for GMWSS for the fiscal year ended June 30, 2012, totaled $9.9 million. Water and sewer revenues represent $7.7 million or 77.8% of the total. Other major sources of revenue are connection fees and commercial user fees. Budgeted revenues for this same fiscal year were $9.3 million. Water and sewer revenues decreased approximately $28,000 or 0.4% over the previous fiscal year. Revenues for GMWSS for the fiscal year ended June 30, 2011, totaled $9.3 million. Water and sewer revenues represent $7.7 million or 82.4% of the total. Other major sources of revenue are connection fees and commercial user fees. Budgeted revenues for this same fiscal year were $9.3 million. Water and sewer revenues increased approximately $440,000 or 6.1% over the previous fiscal year. Expellses Expenses for GMW S ~ r the fiscal year ended June 30, 2012, totaled $9.9 million of which $3.5 million represented depreciation expense. Budgeted expenses for this same fiscal year were $10.4 million. Actual expense for water treatment & distribution and sewer collection & treatment totaled $8.4 million or 81.0% of the total. Expenses increased approximately $17,000 or 0.2% over the previous fiscal year. "'Xpenses for GMW S for the fiscal year ended June 30, 2011, totaled $9.9 million; of which $3.5 million represented depreciation expense. Budgeted expenses for this same fiscal year were $10.2 mil lion. Actual expenses for water treatment & distribution and sewer collection & treatment totaled $8.4 million or 83.9% of the total. Expenses increased approximately $616,000 or 6.6% over the previous fiscal year. Operating Income F r the year ended June operating loss before non-operating revenues and expenses was approximately $ which includes an ajiowance of $3.5 million for depreciation expense. Non-operating expenses total $ Contributed capital, which consists primarily of assets constructed by developers and contribut d to GMWSS, totals $700,000. The increase in net assets is $285,000 For the year ended June 30, 2011, operating loss before non-operating revenues and expenses was approximately $635,000, which includes an allowance of $3.5 million for depreciation expense. Non-operating expenses total $490,000. ontributed capital which consists primarily of assets constructed by developers and contributed to GMW and grant proceeds total $2.1 million. The increase in net assets is $944,000.

67 Liabilities Total liabilities as of June 30, 2012, were $14.2 million. Of this amount approximately $2.6 million is classified as current liabilities to be paid from unrestricted assets. Additionally, $1.3 million in current liabilities is to be paid from restricted assets. GMWSS maintains sufficient balances in unrestricted & restricted assets to cover these liabilities. Long-term liabilities consist primarily of bonds payable and notes payable, which is funds borrowed by GMWSS to finance major capital improvement projects. These amounts, along with an accrual for compensated absences, total $10.2 million. Total liabilities as of June 30, 2011, were $14.6 million. Of this amount approximately $2.8 million is classified as current liabilities to be paid from unrestricted assets. Additionally, $1.3 million in current liabilities is to be paid from restricted assets. GMWSS maintains sufficient balances in unrestricted & restricted assets to cover these liabilities. Long-term liabilities consist primarily of bonds payable and notes payable, which is funds borrowed by GMWSS to finance major capital improvement projects. These amounts, along with an accrual for compensated absences, total $10.6 million. Capital Assets GMWSS has been recording the value of capital assets on an ongoing basis. GMWSS's investment in capital assets totaled $144 million as of June 30, 2012, an increase of $2 million over the previous fiscal year. This investment in capital assets includes land, buildings, equipment, water systems, and sewer systems. Major capital additions for this fiscal year included: Water and sewer system improvements constructed by developers and donated to G MWS S in the amount of $702,000. Water and sewer system improvements constructed by GMWSS in the amount of $3,680,000. Additional information on GMWSS's capital asset activity can be found in the notes on page 13. Debt Administration At the end of the fiscal year, GMWSS had $11.2 million in bonds and notes outstanding, of which $1.3 million is the current portion payable. The Board of Commissioners for GMWSS has authorized a debt to equity ratio of 28%. As of June 30, 2012, the debt to equity ratio was 12.2%. Additional information about long-term debt can be found in the notes beginning on page 14. BUDGET FOR FISCAL YEAR 2013 FY 2013 revenues are budgeted to be $9.9 million, an increase of approximately $573,000 or 6.15% from fiscal year 2012 budgeted revenues. Expenses (including depreciation) are budgeted to be $10.6 million, an increase of approximately $234,000 or 2.3% from 2013 budgeted expenses. Although GMWSS faces substantial price increases in many expense items in our budget, management continues to look for operating efficiencies in all areas that can be translated to budget savings. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the GMWSS's finances for all those interested. Questions concerning any of the information provided in this report or request for additional information should be addressed to Finance Director, Georgetown Municipal Water and Sewer Service, P 0 Box 640, Georgetown, Kentucky

68 Board of Water and Sanitary Sewer Commissioners City of Georgetown Georgetown, Kentucky Ray, Foley, Hensley & Company, PLLC Certified Public Accountants and Consultants INDEPENDENT AUDITOR'S REPORT Stephen R.Allen, CPA/PFS Dennis H. England, CPA Michael D. Foley, CPA Lyman Hager, Jr., CPA/PFS Jerry W. Hensley, CPA.J. Carroll Luby, CPA We have audited the accompanying financial statements of the Georgetown Municipal Water and Sewer Service, a component unit of the City of Georgetown, Kentucky as of and for the year ended June 30, 2012, as listed in the table of contents. These financial statements are the responsibility of the Georgetown Municipal Water and Sewer Service's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the 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 financial statements referred to above present fairly, in all material respects, the respective financial position of the Georgetown Municipal Water and Sewer Service, as of June 30, 2012, and the respective changes in financial position, and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated September 7, 2012, on our consideration of the Georgetown Municipal Water and Sewer Service's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 1 through 3 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 230 Lexington Green Circle, Suite 600 Lexington, Kentucky Phone: Fax: Toll-Free: Members American Institute of Certit1ed Public Accountants and Kentucky Society of Certified Public Accountants

69 Our audit was conducted for the purpose of forming an op1mon on the financial statements that collectively comprise the Georgetown Municipal Water and Sewer Service's financial statements as a whole. The combining and individual fund financial statements are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional 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 additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. ~~~ff~~ Ray, Foley, Hensley & Company, PLLC September 7, 2012

70 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE STATEMENT OF NET ASSETS June 30, 2012 ASSETS Current assets Cash and cash equivalents Accounts receivable Prepaid expenses Total current assets Noncurrent assets Restricted cash Restricted investments Accrued interest receivable Other assets Capital assets Construction in progress Land and easements Buildings, property and equipment Utility plants in service Transportation and work equipment Less accumulated depreciation Total noncurrent assets Total assets $ $ 485, ,951 25, ,024,456 1,527,337 1, , , ,308 7,743, ,915,612 1,590,064 (57,664,621) 90,41 8,250 91,897,429 LIABILITIES Current liabilities Accounts payable Accrued liabilities Contracts payable Current portion of long-term debt Customer deposits Accrued interest payable Total current liabilities Noncurrent liabilities Accrued expenses Bonds, notes, and loans payable Total noncurrent liabilities Total liabilities $ 75, ,427 52,009 1,329, , ,387, ,787 9,881,589 10, ,623,852 NET ASSETS Invested in capital assets, net of related debt Restricted for debt service Unrestricted Total net assets 75,439,134 3,281, ,069 79,273,577 Total liabilities and net assets $ 91,897,429 The accompanying notes are an integral part of the financial statements. -6-

71 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS for the year ended June 30, 2012 Operating revenues Water revenue Sewer revenue Connection fees Commercial user fees Miscellaneous Penalties Total operating revenues $ 4,067,307 3,593, ,425 1,057, ,663 80,386 9,936,043 Operating expenses Administration Customer accounts Water treatment plant Water distribution Wastewater treatment plant #1 Engineering Wastewater collections Wastewater treatment plant # 2 Total operating expenses 534, ,754 1,416,014 1,926,043 2,477, , , ,985,497 Operating income (loss) (49,454) Nonoperating revenues (expenses) Interest income Interest expense Amortization expense 28,905 (451,107) (36,949) Total nonoperating expenses (459, 151) Loss before capital contributions Developer contributions Commercial user contributions Grant revenues (508,605) 702,444 81, Change in net assets Net assets at beginning of year 285,539 78,988,038 NET ASSETS AT END OF YEAR $ 79,273,577 The accompanying notes are an integral part of the financial statements. -7-

72 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE STATEMENT OF CASH FLOWS for the year ended June 30, 2012 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers Payments for employee services and benefits Other receipts $ 9,563,908 (2,705,627) (3,706,997) 322,663 Net cash provided by operating activities 3,473,947 CASH FLOW FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets Capital contributions Grants in aid of construction Principal paid on capital debt Draws on line of credit Interest paid on capital debt (2,075,646) 375,103 10,000 (1,281,647) 1,000,000 (522,190) Net cash (used) by capital and related financing activities (2,494,380) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments Interest income (4,598) 27,789 Net cash provided by investing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,191 1,002,758 1,507,254 2,510,012 Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating loss Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation expense Change in assets and liabilities: Receivables, net Prepaid expense Other assets Accounts payable and other accrued liabilities Customer deposits Net cash provided by operating activities $ $ (49,454) 3,456,185 (63, 107) (1,768) 24,302 94, ,947 Supplemental disclosures of cash flow information: Noncash capital and related financing activities: Capital contributions Increase (decrease) in contracts payable for capital items Deferred bond cost included with bonds payable $ $ $ 409,041 (254,673) 12,648 The accompanying notes are an integral part of the financial statements. -8-

73 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE NOTES TO FINANCIAL STATEMENTS June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Georgetown, Kentucky, Georgetown Municipal Water and Sewer Service ("Water and Sewer Service") have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the standard-setting body of governmental accounting and financial reporting. The GASB periodically updates its codification of the existing Governmental Accounting and Financial Reporting Standards which, along with subsequent GASB pronouncements (Statements and Interpretations), constitutes GAAP for governmental units. The more significant of these accounting policies are described below, and where appropriate, subsequent pronouncements will be referenced. A. Reporting Entity The City of Georgetown, Kentucky ("the City") created the Georgetown Municipal Water and Sewer Service by a City Ordinance and has delegated the authority of managing and controlling the municipal water and sewer systems to the Board of Water and Sanitary Sewer Commissioners (Board). The Board consists of five members, which are appointed by the Mayor and approved by the City Council. The City retains certain control over the Board including: 1. Approval of all contracts for the purchase of materials, supplies, and equipment which exceed $20,000, 2. Issuing all debt instruments required for capital construction or maintenance purposes, and 3. Approval of changes in the customer rate structure for services provided. Because of the above oversight criteria, The Georgetown Municipal Water and Sewer Service and their activities are considered to be a part of the reporting entity of the City. As such, these financial statements are not intended to present fairly the financial position, results of operations and cash flows of the City. B. Basis of Presentation, Fund Accounting The accounts of the Water and Sewer Service are organized on the basis of funds, each of which is considered to be a separate fiscal and accounting entity. Each fund is accounted for by providing a separate set of self-balancing accounts that is comprised of its assets, liabilities, net assets, revenues and expenses, as appropriate. The Water and Sewer Service has two enterprise funds consisting of one municipal water filtration plant, one distribution system, and two sewage treatment plants, which have been established to account for the acquisition, operation, and maintenance of the Water and Sewer Service facilities and services, which are entirely or predominately self-supported by user charges. The sewage treatment plants are referred to as Wastewater Treatment Plant No. 1 and Wastewater Treatment Plant No. 2. Residents and businesses within the City have services provided by Wastewater Treatment Plant No. 1, and it is accounted for with the water system. Wastewater Treatment Plant No. 2 provides sanitary sewer service to a local manufacturing plant, with a portion of its capacity used for residential customers. In addition, it will be used for businesses at the new industrial park. -9-

74 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE NOTES TO FINANCIAL STATEMENTS June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued C. Basis of Accounting The enterprise funds are accounted for on the accrual basis of accounting. Their revenues are recognized in the period earned, and expenses are recognized at the time liabilities are incurred. Enterprise funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with an enterprise fund's principal ongoing operations. The principal operating revenue of the Water and Sewer Service are charges to customers for sales and services. The Water and Sewer Service also recognizes as operating revenue connection fees intended to recover the costs of connecting new customers to the utility system. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses n9t meeting this definition are reported as nonoperating revenues and expenses. The enterprise funds have elected not to follow FASB pronouncements issued after November 30, 1989 as allowed by GASB Statement 20. When both restricted and unrestricted resources are available for use, it is the Commission's policy to use restricted resources first, then unrestricted resources as they are needed. D. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for account balances deemed not collectible, and the time period used to depreciate the utility plants. Actual results could differ from estimated amounts. E. Budgetary Control and Encumbrances Budget Policy- The Board annually prepares and approves a budget. The budget is prepared on the same basis as the financial statements, and budgetary control is maintained at the department level. Appropriations lapse at year end; however, uncompleted capital projects may be re-appropriated at the beginning of each fiscal year. Encumbrances - The Water and Sewer Service does not report its financial statements on an encumbrance basis. F. Assets, Liabilities, and Net Assets Cash and cash equivalents- For purposes of reporting cash flows, cash and cash equivalents consist of cash on hand, cash on deposit with banks, and certificates of deposit with an original maturity of less than three months (including amounts held in restricted assets accounts). Investments- Investments are reported at fair value. Investments of the Water and Sewer Service consist of certificates of deposits with an original maturity of three months or greater. Receivables- Customer accounts receivable reflect revenues earned or accrued in the current period from customers of the water and sewer system. These accounts are stated at face value less an allowance for uncollectible accounts of $16,614. Accounts receivable from other governments include amounts due to be reimbursed on the cost of construction projects, which have been incurred by the Water and Sewer Service. -10-

75 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE NOTES TO FINANCIAL STATEMENTS June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Inventories- Purchases of supplies are expensed when purchased and are not inventoried and reflected in the balance sheet. Generally, supplies are purchased as needed. This departure from GAAP is not considered material to the financial statements. Restricted Assets- Certain proceeds of revenue bonds, as well as certain resources set aside for their payment, are classified as restricted assets on the balance sheet since their use is limited by applicable bond and note indentures. Capital Assets- Expenditures are items having a useful life greater than one year are capitalized. Capital assets are stated at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method as follows: Buildings and improvements Utility plant Furniture, fixtures and equipment Transportation and work equipment years years 7-10years 5-10 years Construction in progress represents construction projects for capital assets that have not yet been placed in service. Interest expense related to these projects has not been capitalized as the amount is minimal. Deferred Charges- The discounts and costs associated with issuing debt are deferred and amortized to non-operating expenses, using the straight-line method over the life of the related debt. Contracts Payable- Contracts payable reflect amounts due to contractors for work on construction projects, which were incurred at June 30, 2012, but unpaid at that date. This liability includes amounts held by the Water and Sewer Service for retainage, which is to be paid upon completion of the construction projects. Long-Term Obligations- Long-term liabilities include (a) principal outstanding on revenue bonds and notes, and (b) accrued compensated absences, which reflect the extent that future benefits have been earned as it relates to rights attributable to employee services already rendered, and are probable of being paid out. Management has estimated a portion of the compensated absences to be a current liability. Restricted Net Asset- Restricted net assets reflect funds held in various reserve accounts to meet the various covenants as may be specified and defined in the revenue bond and note indentures or as deemed appropriate by management. -11-

76 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE NOTES TO FINANCIAL STATEMENTS June 30, CASH AND INVESTMENTS Custodial credit risk for deposits is the risk that in the event of a bank failure, the Water and Sewer Service funds on deposit with the banks may not be returned or the Water and Sewer Service will not be able to recover collateral securities in the possession of an outside party. The Water and Sewer Service's policy requires bank balances to be 100% secured by collateral valued at market or par, whichever is lower, less the amount of the Federal Deposit Insurance Corporation (FDIC) insurance. At June 30, 2012, all of the Water and Sewer Service's funds were fully insured or collateralized. Under KRS , the Water and Sewer Service is allowed to invest in obligation$ of the U.S. treasury and U.S. agencies, repurchase agreements, obligations of the Commonwealth of Kentucky and its agencies, insured savings and loans, or interest-bearing deposits of insured national or state banks. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Investments held for longer periods are subject to increased risk of adverse interest rate changes. The Water and Sewer Service does not have a policy related to interest rate risk. Concentration of credit risk is the risk of loss attributed to the magnitude of the Water and Sewer Service's investment in a single issuer. The Water and Sewer Service's policy is that with the exception of fully insured or fully collateralized investments and demand deposit accounts, no more than 20% of the total investment portfolio shall be invested in a single security type of a single financial institution. The Water and Sewer Service's investments at June 30, 2012 are as follows: T~1;1e of Investments Fair Value Cost Interest Rate Maturit~ Date United Bank: Certificate of deposit $ 483,111 $ 483, % 11/17/2012 Certificate of deposit 201, , % 8/2/2012 Certificate of deposit 300, , % 8/2/2012 Central Bank of Jefferson County: Certificate of deposit 171, , % 5/5/2014 Salt Lick Deposit Bank (Central Bank): Certificate of deposit 121, , % 4/15/2013 Central Bank & Trust Company: Certificate of deposit 250, , % 3/26/2013 $ j, 527,~3Z $ 1,

77 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE NOTES TO FINANCIAL STATEMENTS June 30, CAPITAL ASSETS The following is a summary of changes in capital assets and accumulated depreciation for the year ended June 30, 2012: Balance July Additions Deletions Balance June Land and easements Buildings, property, and equipment Utility plants in service Transportation and work equipment Construction in progress Accumulated depreciation $ 704,751 7,686, ,951,534 1,584, , ,152,939 ( ) $ $ ,611 4,964,078 74, ,723 5, (3,456, 185) $ $ (68,424) (3, ) (3, 750,696) $ ( ) $ 705,308 7,743, ,915,612 1,590, , ,314,527 ( ) $ Depreciation expense was charged to operations as follows: 4. RETIREMENT PLAN Administration Customer accounts Water treatment plant Water distribution Engineering Waste water treatment plant No. 1 Wastewater collections Sewer plant No. 2 $ 36,240 23, ,533 1,055,077 7,149 1,571,968 71, ,319 $ The Water and Sewer Service is a participating employer of the County Employees' Retirement System (CERS). Under the provisions of Kentucky Revised Statute , the Board of Trustees of Kentucky Retirement Systems administers the CERS. The plan issues separate financial statements which may be obtained by request from Kentucky Retirement Systems, 1260 Louisville Road, Frankfort, Kentucky Plan Description - CERS is a cost-sharing multiple-employer defined benefit pension plan that covers substantially all regular full-time members employed in positions of each participating county, city, and school board, and any additional eligible local agencies electing to participate in the System. The plan provides for retirement, disability, and death benefits to plan members. Retirement benefits may be extended to beneficiaries of plan members under certain circumstances. Cost-ofliving (COLA) adjustments are provided at the discretion of state legislature. Contributions- For the year ended June 30, 2012, plan members were required to contribute 5.00% of wages for non-hazardous job classifications. Employees hired after September 2008 are required to contribute an additional 1% to cover the cost of medical insurance that is provided through CERS. Participating employers were required to contribute at an actuarially determined rate. Per Kentucky -13-

78 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE NOTES TO FINANCIAL STATEMENTS June 30, RETIREMENT PLAN, continued Revised Statue Section (3), normal contribution and past service contribution rates shall be determined by the Board on the basis of an annual valuation last proceeding the July 1 of a new biennium. The Board may amend contribution rates as of the first day of July of the second year of a biennium, if it is determined on the basis of a subsequent actuarial valuation that amended contributions rates are necessary to satisfy requirements determined in accordance with actuarial basis adopted by the Board. For the year ended June 30, 2012, participating employers contributed 18.96%, of each employee's wages, which is equal to the actuarially determined rate set by the Board. Administrative costs of Kentucky Retirement System are financed through employer contributions and investment earnings. The required contribution (employer and employee) and the actual percentage contributed for the Water and Sewer Service for the current and previous two years are as follows: Year Required Contribution $ 590,238 $ 537,238 $ 517,624 Percentage Contributed 100% 100% 100% 5. LONG-TERM DEBT Bonds Payable, Notes Payable and Compensated Absences Revenue bonds: Water and Sewer, Series 2003A Water and Sewer, Series 2003B Refunding Kentucky Rural Water & Sewer, Series 2007 A Deferred cost of refunding Total revenue bonds Interest Rates % % % Final Maturity 2023 $ Outstanding Principal 3,045, ,000 5,747,750 (22.133) Notes payable and lines of credit: Kentucky Infrastructure Authority Subordinated Note, Series 2004 Kentucky Infrastructure Authority Subordinated Note, Series 1993 Kentucky Bank line of credit % 4.00% 2.98% , ,155 1,000,000 Total notes payable and lines of credit 1,665, 155 Other long-term obligations: Compensated absences Total obligations 11, Less current portion of: Revenue bonds Notes payable Deferred cost of refunding Total current portion 906, ,831 ( ) 1, Total long-term obligations $ 10,

79 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE NOTES TO FINANCIAL STATEMENTS June 30, LONG-TERM DEBT, continued Summary of Bonds, Notes and Compensated Absences Transactions Balance Jul~ 1, 2011 Additions Deletions Revenue bonds $ 10,407,970 $ $ 862,353 Notes payable 1,084,450 1,000, ,295 Compensated absences $ :1 :1, 85Q,597 $ :I,QQQ 000 $ :1 285,038 Balance June 30, 2012 $ 9,545,617 1,665, $ 11,565,559 The annual requirement to amortize the Water and Sewer Service's indebtedness as of June 30, 2012 (including interest payments) are as follows: Fiscal Year Interest $ 434, , , , , , $2 943,587 Principal $ 1,341,831 2,167, , , ,833 3,439,917 2,518,167 $ Total $ 1,775,974 2,551, , , ,883 4,402,882 2,802,814 $ 14, Description of Bonds and Notes Payable- The Water and Sewer Revenue Bonds, Series of 2003A, and 2003B are secured by a pledge of a fixed portion of the gross income and revenues of the water and sewer system other than from Wastewater Treatment Plant No.2. The Kentucky Rural Water Finance Corporation Water and Sewer Revenue Bonds, Series of 2007 A are secured by a pledge of all system gross income and revenues. The bonds are subject to redemption prior to maturity at various times, along with a call premium, as more fully described in the ordinance. The Kentucky Infrastructure Authority Subordinated Note, Series of 1993 and 2004, are secured by a second lien on the water and sewer system gross income and revenues, other than from Wastewater Treatment Plant No.2. The notes are subordinated to the revenue bonds. The City entered into a $3 million line of credit agreement with Kentucky Bank August 31, 2009, on behalf of the Water and Sewer Service for the purpose of financing wastewater improvements and additions. The bond and note ordinances require that certain reserves be maintained as follows: Bond and Interest Reserve- This reserve includes the sinking fund payments as required by the Revenue Bond ordinance, plus a Sinking Fund Reserve equal to the maximum annual debt service required on all revenue bonds outstanding of Water and Wastewater Treatment Plant No.1 which approximated $775,456 at June 30, This reserve was fully funded at June 30, Depreciation Reserve- All excess cash flow generated each month over and above that required for three month's operating expenses and sinking fund requirements, or $5,000 per month, whichever is greater, are to be deposited into this reserve for use in financing contingencies or for the retirement of revenue bonds. The reserve has been funded as required. The balance in the reserve was $1,842,991 at June 30,

80 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE NOTES TO FINANCIAL STATEMENTS June 30, LONG-TERM DEBT, continued Note and Interest Reserve- This reserve receives sinking fund payments to meet semiannual debt service requirements on the subordinated note issued to finance the renovation and expansion of Water and Wastewater Treatment Plant No.1. At June 30, 2012 the reserve was fully funded with a balance of $300,680. KIA Loan Reserve- This reserve receives the sinking fund payments to meet the semiannual debt service requirements on the subordinated note issued to finance the renovation and expansion of Water and Wastewater Treatment Plant No.1. The reserve has been funded as required. 6. CONTRIBUTED ASSETS Contributed assets totaling $784,144 have been reported in the accompanying statement of revenues, expenses, and changes in fund assets. These contributions include $409,041 [Fund 01] of water and sewer lines, which were constructed by developers and were contributed to the Water & Sewer Service and $293,403 of cash contributions made by various state and local governments and developers. In addition, $81,700 [Fund 02] of capital contributions were received from a commercial customer. These funds were used to construct various water and sewer projects. 7. ECONOMIC DEPENDENCE One manufacturing plant accounted for 80% of the revenues of Wastewater Treatment Plant No.2. Ten customers accounted for 7% of the operating revenues of the Water and Wastewater Treatment Plant No COMMITMENTS AND CONTINGENCIES The City entered into a $3 million line of credit agreement with Kentucky Bank August 31, 2009, on behalf of the Water and Sewer Service for the purpose of financing wastewater improvements and additions. The line of credit was renewed during July 2012 at an interest rate of 2.98% and a maturity date of July At June 30, 2012, $1,000,000 was due on the line of credit. The Water and Sewer Service is subject to legal proceediflgs arising from normal business activities. Administrative officials believe that these actions are without merit or that the ultimate liability, if any, resulting from them will not materially affect the accompanying financial statements. The Water and Sewer Service has insurance coverage from various entities, thus transferring risk of loss. The following commitments to construction projects have been made as of June 30, 2012: 9. SUBSEQUENT EVENTS Projects Amount Frankfort Booster Station Upgrade $ 3,545 The Water and Sewer Service has evaluated and considered the need to recognize or disclose subsequent events through September 7, 2012; which represents the date that these financial statements were available to be issued. Subsequent events past this date, as they pertain to the fiscal year ended June 30, 2012, have not been evaluated by the Water and Sewer Service. -16-

81 SUPPLEMENTARY INFORMATION

82 COMBINING STATEMENTS

83 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE COMBINING STATEMENT OF NET ASSETS June 30, 2012 Water& Wastewater Wastewater Treatment Treatment Plant No.1 Plant No.2 Totals ASSETS Current assets Cash and cash equivalents $ 485,556 $ $ 485,556 Accounts receivable 867, , ,951 lnterfund receivable 1,554,878 (1,554,878) Prepaid expenses 21,562 4,110 25,672 Total current assets 2,929, 751 (1,450,572) Noncurrent assets Restricted cash 2,024,456 2,024,456 Restricted investments 1,527,337 1,527,337 Accrued interest receivable 1,951 1,951 Other assets 214, ,600 Capital assets Construction in progress 360, ,265 Land and easements 575, , ,308 Buildings, property and equipment 3,035,432 4,707,846 7,743,278 Utility plants in service 115,841,576 18,074, ,915,612 Transportation and work equipment 1,426, ,757 1,590,064 Less accumulated depreciation (44,262,567) (13,402,054) (57,664,621) Total noncurrent assets 80,744,646 9,673,604 90,418,250 Total assets $ 83,674,397 $ 8,223,032 $91,897,429 LIABILITIES Current liabilities Accounts payable $ 71,216 $ 4,271 $ 75,487 Accrued liabilities 622,268 36, ,427 Contracts payable 52,009 52,009 Current portion of long-term debt 1,329,183 1,329,183 Customer deposits 209, ,365 Accrued interest payable 63,005 63,005 Total current liabilities ,387,476 Noncurrent liabilities Accrued expenses 264,641 90, ,787 Bonds, notes, and loans payable 9,881,589 9,881,589 Total noncurrent liabilities 10,146, ,236,376 Total liabilities 12,493, ,576 12,623,852 NET ASSETS Invested in capital assets, net of related debt 65,765,530 9,673, ,134 Restricted for debt service 3,281,374 3,281,374 Unrestricted 2,134,217 (1,581'1 48) 553,069 Total net assets 71,181,121 8,092,456 79,273,577 Total liabilities and net assets $ 83,674,397 $ 8,223,032 $91,897,

84 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE COMBINING STATEMENT OF CASH FLOWS for the year ended June 30, 2012 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers Payments for employee services and benefits Internal activity- payments to other funds Other receipts Water& Wastewater Treatment Plant No.1 $ 8,269,259 (2,043,788) (3,054,977) 15, ,851 Wastewater Treatment Plant No.2 $ 1,294,649 (661,839) (652,020) (15,602) Totals $9,563,908 (2,705,627) (3, 706,997) 322,663 Net cash provided by operating activities 3,473,947 3,473,947 CASH FLOW FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets Capital contributions Grants in aid of construction Principal paid on capital debt Draws on line of credit Interest paid on capital debt (1,993,946) 293,403 10,000 (1,281,647) 1,000,000 (522, 190) (81,700) 81,700 (2,075,646) 375,103 10,000 (1,281,647) 1,000,000 (522,190) Net cash used by capital and related financing activities (2,494,380) (2,494,380) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments Interest income (4,598) 27,789 (4,598) 27,789 Net cash provided by investing activities 23,191 23,191 Net decrease in cash and cash equivalents 1,002,758 1,002,758 Cash and cash equivalents at beginning of year 1,507,254 1,507,254 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,510,012 $ $2,510,012 Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating gain (loss) Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation expense Change in assets and liabilities: Receivables, net lnterfund activity Prepaid expense Other assets Accounts payable and other accrued liabilities Customer deposits $ 451,937 2,962,866 (77,142) 15,602 (2,004) 24,302 84, $ (501,391) 493,319 14,035 (15,602) 236 9,403 $ (49,454) 3,456,185 (63, 107) (1,768) 24,302 94,154 13,635 Net cash provided by operating activities $ 3,473,947 $ $3,473,947 Supplemental disclosures of cash flow information: Noncash capital and related financing activities: Capital contributions Increase (decrease) in contracts payable for capital items Deferred bond cost included with bonds payable $ 409,041 $ $ (254,673) $ $ 12,648 $ $ 409,041 $ (254,673) $ 12,

85 COMPARATIVE STATEMENTS WATER AND WASTEWATER TREATMENT PLANT NO. 1

86 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE WATER AND WASTEWATER TREATMENT PLANT N0.1 STATEMENT OF NET ASSETS June 30, ASSETS Current assets Cash and cash equivalents $ 485,556 $ 393,095 Accounts receivable 867, ,613 lnteriund receivable 1,554,878 1,570,480 Prepaid expenses 21,562 19,558 Total current assets 2, Noncurrent assets Restricted cash 2,024,456 1,114,159 Restricted investments 1,527,337 1,522,739 Accrued interest receivable 1, Other assets 214, ,902 Capital assets Construction in progress 360,265 3,225,814 Land and easements 575, ,732 Buildings, property and equipment 3,035,432 2,978,821 Utility plants in service 115,841, ,950,250 Transportation and work equipment 1,426,307 1,379,363 Less accumulated depreciation (44,262,567) (41,318,124) Total noncurrent assets 80,744,646 80,667,491 Total assets $ 83,674,397 $ 83,441,237 LIABILITIES Current liabilities Accounts payable $ 71,216 $ 58,087 Accrued liabilities 622, ,241 lnteriund payable Contracts payable 52, ,682 Current portion of long-term debt 1,329,183 1,280,647 Customer deposits 209, ,730 Accrued interest payable 63,005 97,142 Total current liabilities 2, 347,046 2,484,529 Noncurrent liabilities Accrued expenses 264, ,044 Bonds, notes, and loans payable 9, 881, Total noncurrent liabilities 10,146, Total liabilities 12,493,276 12,965,346 NET ASSETS Invested in capital assets, net of related debt 65,765,530 66,298,436 Restricted for debt service 3,281,374 2,344,861 Unrestricted 2,134,217 1,832,594 Total net assets 71,181,121 70,475,891 Total liabilities and net assets $ 83,674,397 $ 83,441,

87 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE WATER AND WASTEWATER TREATMENT PLANT NO. 1 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS for the years ended June 30, Operating revenues Water revenue $ 4,067,307 $ Sewer revenue 3,370,648 Connection fees 814,425 Miscellaneous 287,851 Penalties 80,386 Total operating revenues 8,620, ,082,321 3,341, , ,671 82,589 8,233,400 Operating expenses Administration Depreciation 36,240 Salaries and wages 273,712 Employee benefits 124,918 Utilities 12,779 Supplies 15,695 Maintenance and repairs 34,019 Insurance 6,152 Professional services 6,762 Conferences, training, and meetings 20,407 Miscellaneous Total administration expenses Customer accounts Depreciation 23,576 Salaries and wages 262,561 Employee benefits 134,723 Utilities 9,189 Supplies 120,380 Maintenance and repairs 32,880 Insurance 4,826 Professional services 4,192 Conferences, training, and meetings 3,971 Miscellaneous Total customer accounts expenses , , ,027 13,217 7,782 32,397 5,210 14,729 16, , , ,179 9, ,994 28,952 4,200 6,249 7, ,

88 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE WATER AND WASTEWATER TREATMENT PLANT NO.1 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS for the years ended June 30, Water treatment plant Depreciation 197, ,538 Salaries and wages 324, ,494 Employee benefits 145, ,622 Purchased water 394, ,487 Utilities 124, ,389 Supplies 158, ,038 Maintenance and repairs 39,061 42,926 Insurance 12,992 14,996 Professional services 9,610 13,408 Conferences, training, and meetings 9,617 5,107 Miscellaneous 816 1,507 Wellhead Protection Total water treatment plant expenses Water distribution Depreciation 1,055,077 1,092,693 Salaries and wages 451 ' ,233 Employee benefits 224, ,481 Utilities 50,039 72,030 Supplies 15,173 14,120 Maintenance and repairs 66,969 82,051 Insurance 44,377 46,583 Professional services 6,306 8,390 Conferences, training, and meetings 12,395 14,796 Miscellaneous Total water distribution expenses 1.926, Wastewater treatment plant #1 Depreciation 1,571,968 1,562,635 Salaries and wages 261 ' ,771 Employee benefits 125, ,609 Utilities 180, ,772 Supplies 40,780 39,327 Maintenance and repairs 116,756 84,210 Insurance 33,091 33,798 Professional services 134, ,750 Conferences, training, and meetings 9,110 8,917 Miscellaneous Total wastewater treatment plant #1 expenses 2,477,

89 CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE WASTEWATER TREATMENT PLANT NO. 2 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS for the years ended June 30, Operating revenues Sewer revenue $ 222,975 $ 265,320 Commercial user fees 1,057, ,910 Miscellaneous Total operating revenues 1, 315,426 1,100,036 Operating expenses Depreciation 493, ,090 Salaries and wages 451, ,750 Employee benefits 206, ,317 Utilities 117, ,648 Supplies 373, ,539 Maintenance and repairs 102,022 92,206 Insurance 24,639 27,600 Professional services 44,135 35,975 Conferences, training, and meetings 3,942 4,051 Miscellaneous Total operating expenses 1,816,817 1,638,133 Operating income (loss) (501,391) (538,097) Capital contributed Commercial user contributions Change in net assets (419,691) (425,341) Net assets at beginning of year 8,512,147 8,937,488 NET ASSETS AT END OF YEAR $ 81092,456 $ 8,512,

90 Ray, Foley, Hensley & Company, PLLC Certified Public Accountants and Consultants CITY OF GEORGETOWN GEORGETOWN MUNICIPAL WATER AND SEWER SERVICE REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Stephen R.Allen, CPA/PFS Dennis H. England, CPA Michael D. Foley, CPA Lyman Hager, Jr., CPA/PFS Jerry W Hensley, CPA ]. Carroll Luby, CPA Board of Water and Sanitary Sewer Commissioners City of Georgetown Georgetown, Kentucky We have audited the financial statements of Georgetown Municipal Water and Sewer Service ("Water and Sewer Service"), a component unit of the City of Georgetown, Kentucky, as of and for the year ended June 30, 2012 and have issued our report thereon dated September 7, 2012, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of the Water and Sewer Service is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Water and Sewer Service's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Water and Sewer Service's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Water and Sewer Service's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Water and Sewer Service's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 230 Lexington Green Circle, Suite 600 o Lexington, Kentucky Phone: o Fax: o Toll-Free: Members American Institute oj Certified Public Accountants and Kentucky Society of Certified Public Accountants