<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                    FORM 10-Q


              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 1998

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

     For the transition period from ________________ to ________________

                          Commission file number 1-9779

                             NIPSCO INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)


                                                          Indiana 35-1719974
                                     (State  or other  jurisdiction  of  (I.R.S.
                                    Employer   incorporation   or  organization)
                                    Identification No.)


                                   801 East 86th Avenue,  Merrillville,  Indiana
                                    46410   (Address  of   principal   executive
                                    offices) (Zip Code)

     Registrant's telephone number, including area code: (219) 853-5200

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days.


          Yes X No -------- --------

                           As of October 31,  1998,  117,525,257  common  shares
were outstanding.


<PAGE>


NIPSCO INDUSTRIES, INC.

                                     PART I.
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Board of Directors of
NIPSCO Industries, Inc.:

      We have  audited the  accompanying  consolidated  balance  sheet of NIPSCO
Industries,  Inc. (an Indiana  corporation) and subsidiaries as of September 30,
1998, and December 31, 1997, and the related consolidated  statements of income,
common  shareholders' equity and cash flows for the three, nine and twelve month
periods  ended  September  30,  1998  and  1997.  These  consolidated  financial
statements are the responsibility of Industries' management.  Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.

      We conducted our audits in accordance  with  generally  accepted  auditing
standards.  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  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated  financial  statements referred to above
present  fairly,  in all material  respects,  the  financial  position of NIPSCO
Industries,  Inc. and  subsidiaries  as of September 30, 1998,  and December 31,
1997,  and the results of their  operations  and their cash flows for the three,
nine and twelve month periods  ended  September 30, 1998 and 1997, in conformity
with generally accepted accounting principles.


                             /s/ Arthur Andersen LLP

Chicago, Illinois
October 28, 1998



<PAGE>


<TABLE>
<CAPTION>
Consolidated Balance Sheet
                                                              September 30, December 31,
Assets                                                            1998         1997
                                                               ==========   ==========

<S>                                                            <C>          <C>

(In thousands)
Property, Plant and Equipment:
 Utility Plant, (Note 2)(including Construction Work in
   Progress of  $233,714 and $184,110, respectively)
    Electric                                                   $4,129,914   $4,066,568
    Gas                                                         1,432,982    1,395,140
    Water                                                         646,250      604,018
    Common                                                        352,846      351,350
                                                               ----------   ----------
                                                                6,561,992    6,417,076
    Less -Accumulated provision for depreciation
       and amortization                                         2,913,430    2,759,945
                                                               ----------   ----------
      Total Utility Plant                                       3,648,562    3,657,131
                                                               ----------   ----------
 Other property, at cost, net of accumulated provision
       for depreciation                                            83,108       96,028
                                                               ----------   ----------
      Total Property, Plant and Equipment                       3,731,670    3,753,159
                                                               ----------   ----------
Investments:
 Investments, at equity (Note 2)                                  103,572       82,855
 Investments, at cost                                              53,766       31,771
 Other investments                                                 25,897       24,499
                                                               ----------   ----------
      Total Investments                                           183,235      139,125
                                                               ----------   ----------
Current Assets:
 Cash and cash equivalents                                         32,490       30,780
 Accounts receivable, less reserve of  $8,339 and
     $7,401 respectively (Note 2)                                 195,003      231,580
 Other receivables (Note 24)                                       36,809      107,231
 Fuel adjustment clause (Note 2)                                     --          2,679
 Gas cost adjustment clause (Note 2)                               33,336       89,991
 Materials and supplies, at average cost                           61,671       60,085
 Electric production fuel, at average cost                         17,540       18,837
 Natural gas in storage (Note 2)                                   72,043       61,436
 Prepayments and other                                             33,292       28,089
                                                               ----------   ----------
      Total Current Assets                                        482,184      630,708
                                                               ----------   ----------
Other Assets:
 Regulatory assets (Note 2)                                       201,833      211,513
 Intangible assets, net of accumulated amortization (Note 2)       65,765       68,175
 Prepayments and other (Note 9)                                   172,543      134,353
                                                               ----------   ----------
      Total Other Assets                                          440,141      414,041
                                                               ----------   ----------
                                                               $4,837,230   $4,937,033
                                                               ==========   ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.





<PAGE>


<TABLE>
<CAPTION>
Consolidated Balance Sheet
                                                               September 30, December 31,
Capitalization and Liabilities                                    1998          1997
                                                               ===========  ===========
<S>                                                            <C>          <C>
  (In thousands)
Capitalization:
 Common shareholders' equity
    (See accompanying statement)                               $1,134,718   $1,264,788
 Cumulative preferred stocks (Note 11) -
   Series without mandatory redemption provisions (Note 12)        85,614       85,620
   Series with mandatory redemption provisions (Note 13)           56,991       58,841
 Long-term debt excluding amounts due within one
    year (Note 19)                                              1,669,850    1,667,925
                                                               ----------   ----------
      Total Capitalization                                      2,947,173    3,077,174
                                                               ----------   ----------
Current Liabilities:
 Current portion of long-term debt (Note 20)                       20,718       54,621
 Short-term borrowings (Note 21)                                  363,054      212,639
 Accounts payable                                                 189,891      226,751
 Dividends declared on common and preferred stocks                 29,475       30,784
 Customer deposits                                                 20,897       22,091
 Taxes accrued                                                     62,773       77,573
 Interest accrued                                                  24,104       19,124
 Fuel adjustment clause                                             3,053         --
 Accrued employment costs                                          46,069       58,799
 Other accruals                                                    35,653       47,930
                                                               ----------   ----------
      Total Current Liabilities                                   795,687      750,312
                                                               ----------   ----------
Other:
 Deferred income taxes (Note 8)                                   628,893      651,815
 Deferred investment tax credits, being amortized over
   life of related property (Note 8)                              100,074      105,538
 Deferred credits                                                  72,166       73,715
 Customer advances and contributions in aid of
    construction (Note 2)                                         111,141      110,145
 Accrued liability for postretirement benefits (Note 10)          141,071      132,919
 Other noncurrent liabilities                                      41,025       35,415
                                                               ----------   ----------
      Total Other                                               1,094,370    1,109,547
                                                               ----------   ----------
Commitments and Contingencies
 (Notes 5, 7, 22, 23 and 24)
                                                               $4,837,230   $4,937,033
                                                               ==========   ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.


<PAGE>


<TABLE>
<CAPTION>
Consolidated Statement of Income
 (Dollars in thousands, except for per share amounts)
                                                                   Three Months                 Nine Months
                                                                Ended September 30,         Ended September 30,
                                                             ----------------------      ------------------------

                                                                1998         1997           1998           1997
                                                             =========    =========      =========      =========
<S>                                                         <C>          <C>            <C>            <C>  
Operating Revenues: (Notes 2, 6 and 26)
  Gas                                                       $   80,953   $   90,258     $  434,033     $  544,668
  Electric                                                     469,119      342,030      1,138,592        874,344
  Water                                                         24,374       23,577         62,940         42,372
  Products and Services                                        173,346      140,450        543,979        318,068
                                                             ---------    ---------      ---------      ---------
                                                               747,792      596,315      2,179,544      1,779,452
                                                             ---------    ---------      ---------      ---------
Cost of Sales: (Note 2)
 Gas costs                                                      43,504       53,841        242,686        330,642
 Fuel for electric generation                                   72,246       65,008        193,263        178,025
 Power purchased                                               179,627       74,198        365,915        136,489
 Products and Services                                         145,541      113,412        469,017        249,708
                                                             ---------    ---------      ---------      ---------
                                                               440,918      306,459      1,270,881        894,864
                                                             ---------    ---------      ---------      ---------
Operating Margin                                               306,874      289,856        908,663        884,588
                                                             ---------    ---------      ---------      ---------
Operating Expenses and Taxes (except income):
  Operation                                                    104,365      101,194        298,584        290,348
  Maintenance (Note 2)                                          19,100       17,854         59,058         56,182
  Depreciation and amortization (Note 2)                        64,417       64,712        191,334        187,471
  Taxes (except income)                                         22,044       19,686         66,582         61,643
                                                             ---------    ---------      ---------      ---------
                                                               209,926      203,446        615,558        595,644
                                                             ---------    ---------      ---------      ---------
Operating Income                                                96,948       86,410        293,105        288,944
                                                             ---------    ---------      ---------      ---------
Other Income (Deductions) (Note 2)                               2,870        3,764         10,387         17,475
                                                             ---------    ---------      ---------      ---------
Interest and Other Charges:
 Interest on long-term debt                                     28,301       28,266         83,324         75,220
 Other interest                                                  3,632        2,435          7,762         10,480
 Amortization of premium, reacquisition premium,
  discount and expense on debt, net                              1,144        1,209          3,436          3,542
 Dividend requirements on preferred stock
  of subsidiaries                                                2,122        2,174          6,417          6,520
                                                             ---------    ---------      ---------      ---------
                                                                35,199       34,084        100,939         95,762
                                                             ---------    ---------      ---------      ---------
Income before income taxes                                      64,619       56,090        202,553        210,657
                                                             ---------    ---------      ---------      ---------
Income taxes                                                    21,492       20,221         69,259         75,714
                                                             ---------    ---------      ---------      ---------
Net Income                                                   $  43,127    $  35,869      $ 133,294      $ 134,943
                                                             =========    =========      =========      =========
Average common shares outstanding - basic                  119,494,531  125,495,862    121,833,316    123,445,964

Basic Earnings per average common share                      $    0.36    $    0.28      $    1.09       $   1.09
                                                             =========    =========      =========       ========
Diluted Earnings per average common share                    $    0.35    $    0.28      $    1.08       $   1.09
                                                             =========    =========      =========       ========
Dividends declared per common share                          $   0.240    $   0.225      $   0.720       $  0.675
                                                             =========    =========      =========       ========
</TABLE>
          The  accompanying  notes to consolidated  financial  statements are an
     integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Income
 (Dollars in thousands, except for per share amounts)
                                                            Twelve Months           
                                                         Ended September 30,
                                                    ----------------------------
                                                          1998            1997
                                                        ========        ========
<S>                                                 <C>            <C> 
Operating Revenues: (Notes 2, 6 and 26)
  Gas                                               $    696,604   $    816,223
  Electric                                             1,450,579      1,127,143
  Water                                                   81,311         42,372
  Products and Services                                  758,139        373,787
                                                    ------------   ------------
                                                       2,986,633      2,359,525
                                                    ------------   ------------
Cost of Sales: (Note 2)
 Gas costs                                               407,331        504,939
 Fuel for electric generation                            253,786        238,508
 Power purchased                                         434,457        148,601
 Products and Services                                   656,057        292,174
                                                    ------------   ------------
                                                       1,751,631      1,184,222
                                                    ------------   ------------
Operating Margin                                       1,235,002      1,175,303
                                                    ------------   ------------
Operating Expenses and Taxes (except income):
  Operation                                              398,489        376,005
  Maintenance (Note 2)                                    79,428         72,818
  Depreciation and amortization (Note 2)                 253,667        247,901
  Taxes (except income)                                   88,704         81,365
                                                    ------------   ------------
                                                         820,288        778,089
                                                    ------------   ------------
Operating Income                                         414,714        397,214
                                                    ------------   ------------
Other Income (Deductions) (Note 2)                         8,680         20,858
                                                    ------------   ------------
Interest and Other Charges:
 Interest on long-term debt                              110,946         95,736
 Other interest                                           10,329         15,793
 Amortization of premium, reacquisition premium,
  discount and expense on debt, net                        4,612          4,679
 Dividend requirements on preferred stock
  of subsidiaries                                          8,588          8,681
                                                    ------------   ------------
                                                         134,475        124,889
                                                    ------------   ------------
Income before income taxes                               288,919        293,183
                                                    ------------   ------------
Income taxes                                              99,719        106,831
                                                    ------------   ------------
Net Income                                          $    189,200   $    186,352
                                                    ============   ============
    
Average common shares outstanding - basic            122,644,571    122,785,466

Basic Earnings per average common share             $       1.54   $       1.51
                                                    ============   ============
Diluted Earnings per average common share           $       1.53   $       1.51
                                                    ============   ============ 
Dividends declared per common share                 $      0.960   $      0.900
                                                    ============   ============ 
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
                                                                              Additional 
(Dollars in thousands)                              Common       Treasury      Paid-in       Retained
Three Months Ended                                  Shares        Shares       Capital       Earnings       Other
========================                          ==========    ==========    ==========    ==========    ==========
<S>                                              <C>            <C>           <C>           <C>           <C>   
 
Balance, July 1, 1997                            $   870,930    $ (336,416)   $   89,556    $  634,083    $  (3,741)
Comprehensive Income:
  Net income                                                                                    35,869 
  Other comprehensive income, net of tax: 
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income         
       tax of $1
     Realized

  Gain (loss) on foreign currency translation:
       Unrealized
       Realized
Total Comprehensive Income
Dividends:
 Common shares                                                                                (28,244)
Treasury shares acquired                                            (1,211)
Issued:
  IWC Resources Corporation acquisition
  NEM Acquisition
  Employee stock purchase plan                                           67          107
  Long-term incentive plan                                            1,412
  Amortization of unearned compensation                                                                          531
Unrealized gain (loss) on available
   securities
Other
                                                 -----------    -----------   ----------    ----------    ----------
Balance, September 30, 1997                      $   870,930    $ (336,148)   $   89,663    $  641,708    $  (3,210)
==========                                       ===========    ===========   ==========    ==========    ==========

Balance, July 1, 1998                            $   870,930    $ (456,018)   $   90,704    $  698,633    $  (2,962)
Comprehensive Income:
     Net income                                                                                 43,127 
     Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
       tax of $621)
      Realized (net of income
       tax of $720)
  Gain (loss) on foreign currency translation:
       Unrealized
       Realized
Total Comprehensive Income
Dividends:
  Common shares                                                                               (28,144)
Treasury shares acquired                                           (84,520)
Issued:
 IWC Resources Corporation acquisition
 NEM Acquisition
 Employee stock purchase plan                                           100          251
 Long-term incentive plan                                             2,210                                       46
 Amortization of unearned compensation                                                                           591
Other                                                                                             (55)
                                                 -----------    -----------   ----------    ----------    ----------             
Balance, September 30, 1998                      $   870,930    $ (538,228)   $   90,955    $  713,561    $  (2,325)
                                                 ===========    ===========   ==========    ==========    ==========
</TABLE>
<TABLE>
<CAPTION>
                                                  Accumulated                                    Shares
                                                   Other                                    ------------------------
   Three Months Ended                            Comprehensive                Comprehensive   Common       Treasury
       (continued)                                 Income         Total         Income        Shares        Shares
========================                         ==========     ==========    ==========    ===========   ==========
<S>                                              <C>            <C>           <C>           <C>           <C>            
Balance, July 1, 1997                            $     4,005    $ 1,258,417$         -      147,784,218   (22,316,984)
Comprehensive Income:
  Net income                                                         35,869       35,869
  Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
       tax of $1)                                          1              1            1
      Realized
  Gain (loss) on foreign currency translation:
       Unrealized                                      (244)          (244)        (244)
       Realized                                                                      -
                                                                              ----------                    
Total Comprehensive Income                                                    $   35,626
Dividends:                                                                    ==========                     
 Common shares                                                     (28,244)
Treasury shares acquired                                            (1,211)                                   (60,444)
Issued:                                  
 IWC Resources Corporation acquisition
 NEM Acquisition
 Employee stock purchase plan                                           174                                      8,402
 Long-term incentive plan                                             1,412                                     92,600
 Amortization of unearned compensation                                  531
Other
                                                 -----------    -----------                 -----------   ------------
Balance, September 30, 1997$                     $     3,762    $ 1,266,705                 147,784,218   (22,276,426)
                                                 ===========    ===========                 ===========   ============ 

Balance, July 1, 1998                            $     2,602    $ 1,203,889 $       -       147,784,218   (26,750,149)
Comprehensive Income:
  Net income                                                         43,127       43,127
  Other comprehensive income, net of tax:
  Gain (loss) on available for sale securities:
  Unrealized gain (net of income
     tax of $621)                                    (1,017)        (1,017)      (1,017)
  Realized (net of income
     tax of $720)                                    (1,180)        (1,180)      (1,180)
  Gain (loss) on foreign currency translation:
       Unrealized                                      (766)          (766)        (766)
       Realized                                          186            186          186
                                                                              ----------                    
Total Comprehensive Income                                                    $   40,350
Dividends:                                                                    ==========
 Common shares                                                     (28,144)
Treasury shares acquired                                           (84,520)                                (2,992,986)
Issued:
 IWC Resources Corporation acquisition
 NEM acquisition
 Employee stock purchase plan                                           351                                     12,524
 Long-term incentive plan                                             2,256                                    123,500
 Amortization of unearned compensation                                  591
Other                                                                  (55)
                                                 -----------    -----------                 -----------   ------------
Balance, September 30, 1998$                     $     (175)    $ 1,134,718                 147,784,218   (29,607,111)
                                                 ===========    ===========                 ===========   ============ 
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
                                                                              Additional
(Dollars in thousands)                             Common         Treasury     Paid-in       Retained
Nine Months Ended                                  Shares          Shares      Capital       Earnings       Other
========================                         ==========     ==========    ==========    ==========    ==========
<S>                                              <C>            <C>           <C>           <C>           <C>                  
Balance, January 1, 1997                         $   870,930    $ (392,995)   $   32,868    $   591,370   $    (4,280)
Comprehensive Income:
     Net income                                                                                 134,943  
     Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
       tax of $1,033)
     Realized

  Gain (loss) on foreign currency translation:
       Unrealized
       Realized
Total Comprehensive Income
Dividends:
 Common shares                                                                                 (84,479)
Treasury shares acquired                                          (103,732)            2
Issued:
 IWC Resources Corporation acquisition                              152,405       55,007
 NEM Acquisition                                                      4,118        1,351
Employee stock purchase plan                                            209          318
 Long-term incentive plan                                             3,847          116                         (443)

 Amortization of unearned compensation                                                                           1,513
Other                                                                                  1          (126)
                                                 -----------    -----------   ----------    -----------   ------------
Balance, September 30, 1997                      $   870,930    $ (336,148)   $   89,663    $   641,708   $    (3,210)
                                                 ===========    ===========   ==========    ===========   ============

Balance, January 1, 1998                         $   870,930    $ (363,943)   $   89,768    $   667,790   $    (2,624)
Comprehensive Income:
  Net income                                                                                    133,294 
     Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
       tax of $761)
     Realized  gain (net of income
       tax of $620)
  Gain (loss) on foreign currency translation:
       Unrealized
       Realized
Total Comprehensive Income
Dividends:
 Common shares                                                                                 (86,781)
Treasury shares acquired                                          (182,502)            2
Issued:
 IWC Resources Corporation acquisition
 NEM Acquisition
 Employee stock purchase plan                                           251          608
 Long-term incentive plan                                             7,966          575                       (1,084)
 Amortization of unearned compensation                                                                           1,383
Other                                                                                  2          (742)
                                                 -----------    -----------   ----------    -----------   ------------
Balance, September 30, 1998                      $   870,930    $ (538,228)   $   90,955    $   713,561   $    (2,325)
==========                                       ===========    ===========   ==========    ===========   ============
</TABLE>
<TABLE>
<CAPTION>

                                                    Accumulated                                     Shares
                                                      Other                           -------------------------------------
   Nine Months Ended                               Comprehensive             Comprehensive      Common      Treasury
       (continued)                                    Income       Total        Income          Shares        Shares
========================                            ==========  ==========    ==========      ==========     ==========
<S>                                               <C>            <C>          <C>           <C>            <C>                    
Balance, January 1, 1997                          $    2,608    $ 1,100,501   $      -      147,784,218   (28,172,896)
Comprehensive Income:
  Net income                                                        134,943      134,943
  Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
       tax of $794)                                    1,298          1,298        1,298
     Realized
   Gain (loss) on foreign currency translation:
       Unrealized                                      (144)          (144)        (144)
       Realized                                                                        -
                                                                            -----------------
Total Comprehensive Income                                                   $   136,097
Dividends:                                                                    ===========
 Common shares                                                     (84,479)
Treasury shares acquired                                          (103,730)                                (5,237,750)
Issued:
 IWC Resources Corporation acquisition                              207,412                                 10,580,764
 NEM Acquisition                                                      5,469                                    270,064
 Employee stock purchase plan                                           527                                     26,326
 Long-term incentive plan                                             3,520                                    257,066
 Amortization of unearned compensation                                1,513
Other                                                                 (125)
                                                  ----------      ---------                 -----------   -----------
Balance, September 30, 1997$                          3 ,762    $ 1,266,705                 147,784,218   (22,276,426)
                                                  ==========    ===========                 ===========   ===========

Balance, January 1, 1998                        $      2,867 $    1,264,788 $         -     147,784,218   (23,471,554)
Comprehensive Income:
  Net income                                                        133,294      133,294
  Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
       tax of $140)                                      232            232          232
     Realized (net of income
       tax of $1,340)                                (2,196)        (2,196)      (2,196)
  Gain (loss) on foreign currency translation:
       Unrealized                                    (1,264)        (1,264)      (1,264)
       Realized                                          186            186          186
                                                                             -----------
Total Comprehensive Income                                                    $  130,252
Dividends:                                                                   ===========
 Common shares                                                     (86,781)
Treasury shares acquired                                          (182,500)                                (6,620,413)
Issued:
 IWC Resources Corporation acquisition
 NEM Acquisition
 Employee stock purchase plan                                           859                                     31,512
 Long-term incentive plan                                             7,457                                    453,344
 Amortization of unearned compensation                                1,383
Other                                                                 (740)
                                                 --------------- ---------                  ----------------- --------
Balance, September 30, 1998$                           (175) $    1,134,718               147,784,218     (29,607,111)
                                                  ========== ==============                ==========   ==============   
</TABLE>
 <TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY

                                                                              Additional
(Dollars in thousands)                               Common     Treasury      Paid-in        Retained
Twelve Months Ended                                  Shares      Shares        Capital        Earnings       Other
========================                          ==========    ==========    ==========    ==========    ==========
<S>                                               <C>           <C>           <C>           <C>           <C>         
Balance, October 1, 1996                        $    870,930    $  (352,807)  $    2,774    $   566,903   $    (5,102)
Comprehensive Income:
  Net income 186,352 Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
       tax of $1,187)
     Realized

  Gain (loss) on foreign currency translation:
       Unrealized
       Realized
Total Comprehensive Income
Dividends:
 Common shares                                                                                 (111,421)
Treasury shares acquired                                           (147,290)           2
Issued:
 IWC Resources Corporation acquisition                              152,405       55,007
 NEM Acquisition                                                      4,118        1,351
 Employee stock purchase plan                                           284          411
 Long-term incentive plan                                             7,142          116                         (443)
 Amortization of unearned compensation                                                                          2,335
Other                                                                                  2           (126)
                                                  ----------    -----------   ----------    -----------   -----------
Balance, September 30, 1997                       $  870,930    $  (336,148)  $   89,663    $   641,708   $    (3,210)
                                                  ----------    -----------   ----------    -----------   -----------

Net income 189,200 Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
         tax of $1,001)
      Realized (net income
         tax of $620)
  Gain (loss) on foreign currency translation:
       Unrealized
       Realized
Total Comprehensive Income
Dividends:
 Common shares                                                                                 (116,605)
Treasury shares acquired                                           (211,843)           1
Issued:
IWC Resources Corporation acquisition
 NEM Acquisition
 Employee stock purchase plan                                           315          714
 Long-term incentive plan                                             9,448          575                       (1,084)
 Amortization of unearned compensation                                                                          1,969
Other                                                                                  2           (742)
                                                  ----------    -----------   ----------    -----------   ------------
Balance, September 30, 1998                       $  870,930    $  (538,228)  $   90,955    $   713,561   $    (2,325)
                                                  ==========    ===========   ==========    ===========   ===========
</TABLE>
<TABLE>
<CAPTION>
                                                 Accumulated                                    Shares
                                                     Other                                    -------------------------------------
   Twelve Months Ended                           Comprehensive               Comprehensive    Common       Treasury
       (continued)                                  Income         Total         Income        Shares        Shares
========================                          ==========    ===========   ==========    ===========   ===========
<S>                                               <C>           <C>           <C>           <C>           <C> 
Balance, October 1,1996                           $      244    $ 1,112,942   $     -       147,784,218   (26,168,332)
Comprehensive Income:
  Net income                                                        186,352      186,352
  Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
       tax of $1,187)                                  1,942          1,942        1,942
      Realized
  Gain (loss) on foreign currency translation:
       Unrealized                                      1,576          1,576        1,576
       Realized                                                                      -
                                                                              ----------
Total Comprehensive Income                                                    $  189,870
Dividends:                                                                    ==========
 Common shares                                                     (111,421)
Treasury shares acquired                                           (147,288)                               (7,491,422)
Issued:
 IWC Resources Corporation acquisition                              207,412                                10,580,764
 NEM Acquisition                                                      5,469                                   270,064
 Employee stock purchase plan                                           695                                    35,734
 Long-term incentive plan                                             6,815                                   496,766
 Amortization of unearned compensation                                2,335
Other                                                                  (124)
                                                  ----------    -----------                 -----------   -----------
Balance, September 30, 1997                       $   3 7625    $ 1,266,705                 147,784,218   (22,276,426)
                                                  ----------    -----------                 -----------   -----------     

  Net income                                                        189,200   $  189,200
  Other comprehensive income, net of tax:
     Gain (loss) on available for sale securities:
     Unrealized gain (net of income
       tax of $1,001)                                    622            622          622
     Realized (net income
       tax of $620)                                   (2,195)        (2,195)      (2,195)
  Gain (loss) on foreign currency translation:
       Unrealized                                     (2,550)        (2,550)      (2,550)
       Realized                                          186            186          186
                                                                              ----------
Total Comprehensive Income                                                    $  185,263
Dividends:                                                                    ==========
 Common shares                                                     (116,605)
Treasury shares acquired                                           (211,842)                               (7,919,591)
Issued:
IWC Resources Corporation acquisition
 NEM Acquisition
  Employee stock purchase plan                                        1,029                                    39,562
 Long-term incentive plan                                             8,939                                   549,344
 Amortization of unearned compensation                                1,969
Other                                                                  (740)
                                                  ----------    -----------                 -----------   -----------      
Balance, September 30, 1998                       $     (175)   $ 1,134,718                 147,784,218   (29,607,111)
                                                  ==========    ===========                 ===========   ===========
</TABLE>
          The  accompanying  notes to consolidated  financial  statements are an
     integral part of this statement.
<PAGE>

<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
 (In thousands)
                                                                        Three Months              Nine Months
                                                                     Ended September 30,             Ended September 30,
                                                          ------------------------------    -------------------------------
                                                                    1998        1997            1998           1997
                                                                  ========    ========         ========      ========
Cash flows from operating activities:
<S>                                                           <C>            <C>            <C>            <C>
 Net income                                                   $    43,127    $    35,869    $   133,294    $   134,943
Adjustments to reconcile net income
 to net cash:
  Depreciation and amortization                                    64,417         64,712        191,334        187,471
  Deferred federal and state income
   taxes, net                                                      (6,991)          (411)       (49,641)       (33,506)
  Deferred investment tax credits, net                             (1,821)        (1,832)        (5,463)        (5,467)
  Advance contract payment                                            475            475          1,425          1,425
  Change in certain assets and liabilities -*
   Accounts receivable, net                                        31,696          3,896         39,726         22,959
   Other receivables                                               (3,644)        29,916         70,422        (39,436)
   Electric production fuel                                        (1,041)        11,484          1,297          9,335
   Materials and supplies                                          (1,046)           744         (1,586)           727
   Natural gas in storage                                         (34,467)       (36,897)       (10,607)        (6,931)
   Accounts payable                                                (6,067)         5,171        (23,697)       (54,980)
   Taxes accrued                                                    2,571         (4,664)        15,048         30,585
   Fuel adjustment clause                                           2,428          4,451          5,732          5,343
   Gas cost adjustment clause                                      (6,511)       (13,436)        56,655         39,723
   Accrued employment costs                                         5,215          3,284        (12,730)         1,359
   Other accruals                                                  (3,684)        (1,635)       (12,277)        11,264
   Other, net                                                     (14,411)        15,641        (22,300)        24,470
                                                               ----------     ----------     ----------     ----------
      Net cash provided by
                   (used in) operating activities                  70,246        116,768        376,632        329,284
                                                               ----------     ----------     ----------     ----------
Cash flows provided by (used in) investing activities:
  Utilities construction expenditures                             (56,395)       (51,833)      (176,196)      (160,504)
Acquisition of IWC Resources
    Corporation, net of cash acquired                                --             --             --         (288,932)
  Acquisition of minority interest                                   --             --             --           (5,641)
  Proceeds from disposition of assets                                  24            186         10,443         29,961
  Proceeds from settlement of litigation                             --           41,069           --           41,069
  Other, net                                                      (14,964)         1,128        (63,631)       (18,649)
                                                               -----------    -----------    -----------    -----------
      Net cash used in investing activities                       (71,335)        (9,450)      (229,384)      (402,696)
                                                               -----------    -----------    -----------    -----------
Cash flows provided by (used in) financing activities:
  Issuance of long-term debt                                       40,503         42,669         46,878        450,931
  Issuance of short-term debt                                     774,540        203,400      1,661,869        778,495
  Net change in commercial paper                                   42,800         19,850         63,400       (235,705)
  Retirement of long-term debt                                    (41,631)      (116,909)       (79,204)      (118,416)
  Retirement of short-term debt                                  (707,999)      (228,807)    (1,575,695)      (827,302)
  Retirement of preferred shares                                     (600)          (600)        (1,856)        (1,853)
  Issuance of common shares                                         2,561          1,586          9,400        216,919
  Acquisition of treasury shares                                  (84,520)        (1,211)      (182,500)      (103,740)
 Cash dividends paid on common shares                             (28,871)       (28,247)       (88,180)       (83,342)
 Cash dividends paid on preferred shares                             --             --             --             --
  Other, net                                                          112           (155)           350           (623)
                                                               ----------     ----------     ----------     ----------
      Net cash provided by (used in)
       financing activities                                        (3,105)      (108,424)      (145,538)        75,364
                                                               ----------     ----------     ----------     ----------
Net increase (decrease) in cash and
 cash equivalents                                                  (4,194)        (1,106)         1,710          1,952

Cash and cash equivalents at
   Beginning of period                                             36,684         29,391         30,780         26,333
                                                               ----------     ----------     ----------     ----------
Cash and cash equivalents at
   End of period                                               $   32,490     $   28,285     $   32,490     $   28,285
                                                               ==========     ==========     ==========     ==========
 *Net of effect from purchase of IWC Resources Corporation 

The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
(In thousands)
                                                                Twelve Months
                                                           Ended September 30,
                                                   ----------------------------------
                                                     1998                      1997
                                                   ========                  ========
<S>                                             <C>                       <C>
Cash flows from operating activities:
 Net income                                     $   189,200               $   186,352
Adjustments to reconcile net income
 to net cash:
  Depreciation and amortization                     253,667                   247,902
  Deferred federal and state income
   taxes, net                                       (17,784)                  (26,790)
  Deferred investment tax credits, net               (7,372)                   (7,553)
  Advance contract payment                            1,900                     1,900
  Change in certain assets and liabilities -*
   Accounts receivable, net                         (20,602)                  (82,883)
   Other receivables                                 44,811                   (52,397)
   Electric production fuel                            (392)                   14,050
   Materials and supplies                               252                       666
   Natural gas in storage                               (19)                   10,529
   Accounts payable                                  12,716                    26,159
   Taxes accrued                                    (12,148)                   57,233
   Fuel adjustment clause                             6,859                     6,001
   Gas cost adjustment clause                        27,155                      (782)
   Accrued employment costs                          (1,954)                    7,082
   Other accruals                                   (14,112)                    8,793
   Other, net                                        13,628                    13,812
                                                -----------               -----------
      Net cash provided by
       (used in) operating activitis                475,805                   410,074
                                                -----------               -----------
Cash flows provided by
   (used in) investing activities:
  Utilities construction expenditures              (234,623)                 (217,903)
  Acquisition of IWC Resources
    Corporation, net of cash acquired                  --                    (288,932)
  Acquisition of minority interest                     --                      (5,641)
  Proceeds from disposition of assets                16,475                    29,961
  Proceeds from settlement of litigation               --                      41,069
  Other, net                                        (99,802)                  (22,809)
                                                -----------               -----------
    Net cash used in investing activities          (317,950)                 (464,255)
                                                -----------               -----------
Cash flows provided by
   (used in) financing activities:
  Issuance of long-term debt                        254,179                   451,847
  Issuance of short-term debt                     1,912,882                 1,243,247
  Net change in commercial paper                     74,460                  (102,500)
  Retirement of long-term debt                     (285,392)                 (119,037)
  Retirement of short-term debt                  (1,790,617)               (1,414,651)
  Retirement of preferred shares                     (2,411)                   (2,411)
  Issuance of common shares                          11,047                   220,368
  Acquisition of treasury shares                   (211,837)                 (147,298)
  Cash dividends paid on common shares             (116,431)                 (108,847)
  Cash dividends paid on preferred shares              --                        (647)
  Other, net                                            470                      (510)
                                                -----------               -----------
      Net cash provided by (used in)
       financing activities                        (153,650)                   19,561
                                                -----------               -----------
Net increase (decrease) in cash and
 cash equivalents                                     4,205                   (34,620)

Cash and cash equivalents at
   Beginning of period                               28,285                    62,905
                                                -----------               -----------
Cash and cash equivalents at
   End of period                                $    32,490               $    28,285
                                                ===========               ===========
 *Net of effect from purchase of IWC Resources Corporation.
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) HOLDING  COMPANY  STRUCTURE:  NIPSCO  Industries,  Inc.  (Industries)  is an
energy/utility-based  holding company providing electric energy, natural gas and
water  to  the  public  through  its  six  wholly-owned  regulated  subsidiaries
(Utilities):  Northern Indiana Public Service Company (Northern Indiana); Kokomo
Gas and Fuel Company (Kokomo Gas); Northern Indiana Fuel and Light Company, Inc.
(NIFL);  Crossroads  Pipeline Company  (Crossroads);  Indianapolis Water Company
(IWC); and Harbour Water Corporation  (Harbour).  Industries'  regulated gas and
electric  subsidiaries  (Northern Indiana,  Kokomo Gas, NIFL and Crossroads) are
referred to as "Energy  Utilities";  and regulated water  subsidiaries (IWC, and
Harbour) are referred to as "Water Utilities."

      Industries  also provides  non-regulated  energy/utility-related  services
including  gas  marketing  and  trading;   wholesale  power   marketing;   power
generation;  gas  transmission,  supply and  storage;  installation,  repair and
maintenance of  underground  pipelines;  utility line locating and marking;  and
related products targeted at customer segments principally through the following
wholly-owned  subsidiaries:  NIPSCO Development Company, Inc. (Development);  NI
Energy  Services,  Inc.  (Services);  Primary  Energy,  Inc.  (Primary);  Miller
Pipeline Corporation (Miller);  and SM&P Utility Resources,  Inc. (SM&P). NIPSCO
Capital Markets, Inc. (Capital Markets) handles financing for Industries and its
subsidiaries,  other than Northern Indiana and IWCR. These  subsidiaries,  other
than the  wholesale  power  marketing  operations  of Services,  are referred to
collectively as "Products and Services." On March 25, 1997,  Industries acquired
IWC Resources  Corporation  (IWCR).  IWCR's  subsidiaries  include two regulated
water  utilities  (IWC, and Harbour) and five  non-utility  companies  including
Miller and SM&P.

     On December 16, 1997, the Board of Directors authorized a two-for-one split
of  Industries'  common  stock.  The stock split was paid  February 20, 1998, to
shareholders of record at the close of business January 30, 1998. All references
to number of shares  reported  for the period  including  per share  amounts and
stock option data of  Industries'  common stock  reflect the  two-for-one  stock
split as if it had occurred at the beginning of the earliest period.

     On  December  18,  1997,  Industries  and Bay  State Gas  Company  signed a
definitive  merger  agreement  under which  Industries  will  acquire all of the
common stock of Bay State Gas Company in a stock-for-stock transaction. Refer to
"Purchase  of  Bay  State  Gas  Company"  in  Note 4 to  Consolidated  Financial
Statements for a more detailed discussion of the proposed acquisition.

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      BASIS OF PRESENTATION.  The consolidated  financial statements include the
accounts of  majority-owned  subsidiaries of Industries after the elimination of
significant  intercompany  accounts  and  transactions.  Investments  for  which
Industries  has at least a 20% interest and certain joint ventures are accounted
for under the  equity  method.  Investments  with less than a 20%  interest  are
accounted  for under the cost  method.  Certain  reclassifications  were made to
conform the prior years' financial statements to the current presentation.

      USE OF ESTIMATES.  The  preparation of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

      OPERATING  REVENUES.  Utility  revenues  are  recorded  based on estimated
service rendered, but are billed to customers monthly on a cycle basis. Electric
and gas marketing  revenues are recognized as the related commodity is delivered
to  customers.  Construction  revenues  are  recognized  on  the  percentage  of
completion  method  whereby  revenues  are  recognized  in  proportion  to costs
incurred over the life of each project. Industries records provisions for losses
on  construction  contracts,  if any, in the period in which such losses  become
probable.

      DEPRECIATION  AND  MAINTENANCE.  The Utilities  provide  depreciation on a
straight-line  method over the remaining  service  lives of the  electric,  gas,
water and common  properties.  The approximate  weighted average remaining lives
for major components of electric, gas, and water plant are as follows:
<TABLE>
                Electric:
<S>                 <C>                                                 <C>     
                    Electric generation plant                           24 years
                    Transmission plant                                  26 years
                    Distribution plant                                  25 years
                    Other electric plant                                24 years
</TABLE>
     The  depreciation  provision for electric utility plant, as a percentage of
the original cost, was 3.8% for the three-month  period, 3.7% for the nine-month
period, and 3.6% for the twelve-month  period,  ended September 30,1998, and was
3.6% for the three-month and nine-month  periods,  and 3.7% for the twelve-month
period ended September 30, 1997.
 <TABLE>
                Gas:
<S>                 <C>                                                 <C>     
                    Gas storage plant                                   18 years
                    Transmission plant                                  34 years
                    Distribution plant                                  27 years
                    Other gas plant                                     24 years
</TABLE>
     The  depreciation  provision for gas utility plant,  as a percentage of the
original  cost,  was  5.1% for the  three-month,  nine-month,  and  twelve-month
periods ended September 30, 1998, and was 5.2% for the three-month, 5.1% for the
nine-month, and 5.0% for the twelve-month period ended September 30, 1997.
<TABLE>
                Water:
<S>                 <C>                                                 <C>     
                    Water source and treatment plant                    34 years
                    Distribution plant                                  68 years
                    Other water plant                                   13 years
</TABLE>
     The depreciation  provision for water utility plant, as a percentage of the
original  cost,  was 2.2% for the  three-month,  and 2.1% for the nine-month and
twelve-month periods ended September 30, 1998, and was 2.0% for the three-month,
2.1% for the nine-month,  and 2.0% for the  twelve-month  period ended September
30, 1997.

     The  Utilities  follow the  practice of charging  maintenance  and repairs,
including  the cost of  renewals  of minor  items of  property,  to  maintenance
expense  accounts,  except for repairs of  transportation  and service equipment
which are charged to clearing  accounts and  redistributed to operating  expense
and other accounts. When property which represents a retired unit is replaced or
removed,  the cost of such property is credited to utility plant, and such cost,
together  with the cost of removal less salvage,  is charged to the  accumulated
provision for depreciation.

     PLANT ACQUISITION ADJUSTMENTS.  Utility plant includes amounts representing
the excess of purchase price over  underlying  book values  associated  with the
acquisitions  of Kokomo Gas,  NIFL,  IWC and  Harbour.  These  amounts are being
amortized over a forty-year period from the respective dates of acquisition. The
plant  acquisition  adjustments  net of  accumulated  amortization  were  $186.7
million  and  $190.4  million at  September  30,  1998 and  December  31,  1997,
respectively.

      AMORTIZATION  OF  SOFTWARE  COSTS.  Industries  has  capitalized  software
relating  to  various  technology  functions.   At  the  date  of  installation,
Industries  estimates that the specific software will have a useful life between
five and ten years. The Federal Energy  Regulatory  Commission (FERC) prescribes
certain amortization periods, and Industries' management has determined that, on
average,  these are  reasonable  useful  life  estimates  for the  portfolio  of
capitalized software. The Energy Utilities include these amortization estimates,
based on useful  life,  in their  quarterly  filings  with the  Indiana  Utility
Regulatory Commission (Commission).

      INTANGIBLE  ASSETS.  The  excess  of cost  over the fair  value of the net
assets of non-utility subsidiaries acquired is reported as goodwill and is being
amortized on a straight-line  basis over a weighted  average period of 34 years.
Other intangible  assets  approximating  $7.7 million are being amortized over a
period of eight years.  Industries assesses the recoverability of its intangible
assets on a periodic  basis to confirm that  expected  future cash flows will be
sufficient to support the recorded intangible assets.  Accumulated  amortization
of intangibles  at September 30, 1998 and December 31, 1997,  was  approximately
$4.0 million and $1.6 million, respectively.

      COAL RESERVES.  Northern  Indiana has a long-term  mining contract to mine
its coal reserves  through the year 2001.  The costs of these reserves are being
recovered  through  the  ratemaking  process as such coal  reserves  are used to
produce electricity.

     POWER  PURCHASED.  Power  purchases  and net  interchange  power with other
electric  utilities  under   interconnection   agreements  and  wholesale  power
purchases are included in Cost of Sales under the caption "Power purchased."

      ACCOUNTS RECEIVABLE. At September 30, 1998, Northern Indiana had sold $100
million of its accounts receivable under a sales agreement which expires May 31,
2002.

      CUSTOMER  ADVANCES AND  CONTRIBUTIONS IN AID OF  CONSTRUCTION.  IWC allows
developers to install and provide for the installation of water main extensions,
which  are to be  transferred  to IWC  upon  completion.  The  cost of the  main
extensions  and the  amount of any funds  advanced  for the cost of water  mains
installed are included in customer  advances for  construction and are generally
refundable  to the  customer  over a period of ten years.  Advances not refunded
within  ten  years  are  permanently  transferred  to  contributions  in  aid of
construction.

      Comprehensive   Income.   Industries  adopted  SFAS  No.  130,  "Reporting
Comprehensive  Income" effective January 1, 1998. The objective of the statement
is to report comprehensive income which is a measure of all changes in equity of
an enterprise which result from transactions or other economic events during the
period other than transactions with  shareholders.  This information is reported
in  Industries'   Consolidated   Statement  of  Common   Shareholders'   Equity.
Industries'  components  of  accumulated  other  comprehensive  income  includes
unrealized  gains (losses) on available for sale securities and unrealized gains
(losses) on foreign currency  translation  adjustments.  The accumulated amounts
for these components,  respectively, were $4.0 million and $(0.04) million as of
July 1, 1997;  $4.7 million and $(2.1) million as of July 1, 1998;  $2.7 million
and $(0.1) million as of January 1, 1997;  $4.4 million and $(1.5) million as of
January 1, 1998;  $2.1 million and $(1.9)  million,  as of October 1, 1996:  and
$4.0 million and $(0.3) million as of October 1, 1997.

      STATEMENT OF CASH FLOWS. For the purposes of the Consolidated Statement of
Cash Flows,  Industries  considers  temporary cash  investments with an original
maturity of three months or less to be cash equivalents.

               Cash paid  during  the  periods  reported  for  income  taxes and
          interest was as follows:
<TABLE>
<CAPTION>
                                     Three Months             Nine Months               Twelve Months
                                 Ended September 30,      Ended September 30,        Ended September 30,
                                ---------------------   ------------------------     -------------------
(In thousands)                      1998        1997         1998         1997         1998        1997
                                  =======     =======      =======      =======       =======    =======
<S>                             <C>         <C>          <C>          <C>          <C>          <C>     
Income taxes                    $  19,313   $  19,000    $  95,413    $  80,700    $  131,562   $ 80,700
Interest, net of 
  amounts capitalized           $  27,351   $  24,059    $  83,537    $  68,714    $  117,184   $ 99,906
</TABLE>
      FUEL ADJUSTMENT CLAUSE. All metered electric rates contain a provision for
adjustment in charges for electric energy to reflect  increases and decreases in
the cost of fuel and the fuel cost of  purchased  power  through  operation of a
fuel adjustment  clause. As prescribed by order of the Commission  applicable to
metered retail rates,  the adjustment  factor has been  calculated  based on the
estimated  cost of fuel  and  the  fuel  cost of  purchased  power  in a  future
three-month period. If two statutory requirements relating to expense and return
levels are satisfied,  any  under-recovery or over-recovery  caused by variances
between estimated and actual cost in a given three-month period will be included
in a future filing. Northern Indiana records any under-recovery or over-recovery
as a  current  asset or  current  liability  until  such time as it is billed or
refunded to its customers.  The fuel adjustment factor is subject to a quarterly
hearing by the Commission and remains in effect for a three-month period.

     GAS COST  ADJUSTMENT  CLAUSE.  All  metered  gas  sales  rates  contain  an
adjustment  factor,  which  reflects the  increases and decreases in the cost of
purchased gas, contracted gas storage and storage  transportation  charges.  The
Energy Utilities record any  under-recovery  or over-recovery as a current asset
or current liability until such time it is billed or refunded to customers.  The
gas cost  adjustment  factor for  Northern  Indiana  is  subject to a  quarterly
hearing by the  Commission and remains in effect for a three-month  period.  The
gas cost  adjustment  factor  for each of  Kokomo  Gas and  NIFL is  subject  to
semi-annual  hearings  by the  Commission  and remains in effect for a six-month
period.  If the  statutory  requirement  relating  to the  level  of  return  is
satisfied,  any  under-recovery  or  over-recovery  caused by variances  between
estimated  and actual cost in a given  three-month  or six-month  period will be
included in a future filing.  The Northern  Indiana gas cost  adjustment  factor
includes a gas cost incentive  mechanism (GCIM) which allows Northern Indiana to
share any cost savings or cost increases with customers based on a comparison of
Northern Indiana's actual gas supply portfolio costs to a market based benchmark
price.  See note 6, FERC Order No. 636 for a discussion of gas  transition  cost
charges.

      NATURAL  GAS IN  STORAGE.  Northern  Indiana's  natural  gas in storage is
valued using the last-in,  first-out (LIFO) inventory methodology.  Based on the
average cost of gas purchased in September  1998 and December 1997 the estimated
replacement  cost of gas in storage  (current and  non-current) at September 30,
1998 and December 31, 1997  exceeded the stated LIFO cost by  approximately  $15
million and $42 million, respectively.  Certain other subsidiaries of Industries
have natural gas in storage valued at average cost.

       HEDGING  ACTIVITIES.  Industries  utilizes a variety  of  commodity-based
derivative  financial  instruments  to reduce  the price  risk  inherent  in its
natural gas and electric  power  marketing  activities.  The gains and losses on
these  derivative  financial  instruments  are deferred (Other Current Assets or
Other Current  Liabilities)  pursuant to an identified risk reduction  strategy.
Such deferrals are recognized in income  concurrent  with the disposition of the
underlying physical commodity. In certain circumstances,  a derivative financial
instrument  will  serve to  hedge  the  acquisition  cost of gas  injected  into
storage.  In this  situation,  the  gain or  loss  on the  derivative  financial
instrument  is  deferred  as  part  of the  cost  basis  of gas in  storage  and
recognized  upon the  ultimate  disposition  of the natural gas. If a derivative
financial  instrument contract is terminated early because it is probable that a
transaction or anticipated  transaction  will not occur,  any gain or loss as of
such date is  immediately  recognized  in earnings.  If a  derivative  financial
instrument contract is terminated early for other economic reasons,  any gain or
loss as of the  termination  date is deferred and recorded  when the  associated
transaction or anticipated transaction affects earnings.

      Industries uses commodity  futures  contracts,  options and swaps to hedge
the impact of natural gas price fluctuations related to its business activities,
including price risk related to the physical  location of the natural gas (basis
risk).  As of  September  30, 1998,  Industries  had open  derivative  financial
instruments  representing hedges of natural gas sales of 23.6 billion cubic feet
(Bcf),  natural gas  purchases of 14.1 Bcf and net basis  differentials  of 18.8
Bcf. The net  deferred  gain on these  derivative  financial  instruments  as of
September 30, 1998 was not material.

      Industries  utilizes options to hedge price risk associated with a portion
of its fixed price purchase and sale  commitments  related to  electricity.  The
deferred premiums on these options as of September 30, 1998 were not material.

     IMPACT OF ACCOUNTING STANDARDS.  During June 1998, the Financial Accounting
Standards  Board  (FASB)  issued  Statement of  Financial  Accounting  Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities".
This statement standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts,  by requiring that a
company  recognize those items as assets or liabilities in the balance sheet and
measure them at fair value.  This Statement  generally  provides for matching of
the timing of gain or loss recognition of derivatives  instruments designated as
a hedge with the recognition of changes in the fair value of the hedged asset or
liability  through  earnings.  This  Statement  also provides that the effective
portion of a hedging  instrument's  gain or loss on a forecasted  transaction be
initially reported in other comprehensive  income and subsequently  reclassified
into  earnings  when  the  hedged  forecasted   transaction   affects  earnings.
Industries  expects to adopt this Statement on January 1, 2000, and is currently
assessing  the impact of  adoption  on its  financial  position  and  results of
operations.
     In March 1998,  the  American  Institute of  Certified  Public  Accountants
(AICPA) issued  Statement of Position (SOP) 98-1,  "Accounting  for the Costs of
Computer  Software  Developed or Obtained  for Internal  Use." This SOP provides
guidance for the  capitalization  of certain costs related to computer  software
developed or obtained for internal use.  Industries expects to adopt SOP 98-1 on
January 1, 1999 and estimates  that adoption will not have a significant  impact
on its financial position or results of operations.


      REGULATORY ASSETS. The Utilities' operations are subject to the regulation
of the  Commission  and,  in  the  case  of  the  Energy  Utilities,  the  FERC.
Accordingly, the Utilities' accounting policies are subject to the provisions of
SFAS No. 71,  "Accounting for the Effects of Certain Types of  Regulation."  The
Utilities monitor changes in market and regulatory  conditions and the resulting
impact of such changes in order to continue to apply the  provisions of SFAS No.
71 to some or all of their operations. As of September 30, 1998 and December 31,
1997, the regulatory assets  identified below represent  probable future revenue
to the  Utilities  associated  with  certain  incurred  costs as these costs are
recovered  through  the  rate-making  process.  If a portion  of the  Utilities'
operations  becomes  no  longer  subject  to the  provisions  of SFAS No.  71, a
write-off of certain  regulatory  assets might be required,  unless some form of
transition cost recovery is established by the appropriate regulatory body which
would meet the requirements under generally accepted  accounting  principles for
continued   accounting  as  regulatory   assets  during  such  recovery  period.
Regulatory assets were comprised of the following items:
<TABLE> 
<CAPTION>
                                                  September 30,        December 31,
(In thousands)                                        1998                  1997
                                                   ===========          ==========
<S>                                                <C>                  <C>      
Unamortized reacquisition premium on
  debt (Note 19)                                   $    44,112         $    46,748
Unamortized R.M. Schahfer Unit 17 and
 Unit 18 carrying charges and deferred
  depreciation (See below)                              63,383              66,546
Bailly scrubber carrying charges and
 deferred depreciation (See below)                       9,179               9,880
Deferred SFAS No. 106 expense not
 recovered (Note 10)                                    83,253              87,653
FERC Order No. 636 transition costs (Note 6)            23,126              28,744
Regulatory income tax asset, net  (Note 8)               7,398               6,941
Other                                                    5,025               4,261
                                                   -----------         -----------
                                                       235,476             250,773
Less: Current portion of regulatory assets              33,643              39,260
                                                   -----------         -----------
                                                   $   201,833         $   211,513
                                                    ==========          ==========
</TABLE>
      CARRYING  CHARGES AND  DEFERRED  DEPRECIATION.  Upon  completion  of R. M.
Schahfer Units 17 and 18, Northern Indiana  capitalized the carrying charges and
deferred depreciation in accordance with orders of the Commission until the cost
of  each  unit  was  allowed  in  rates.  Such  carrying  charges  and  deferred
depreciation are being amortized over the remaining life of each unit.

      Northern   Indiana  has   capitalized   carrying   charges  and   deferred
depreciation  and certain  operating  expenses  relating to its scrubber service
agreement for its Bailly  Generating  Station in accordance with an order of the
Commission.  The accumulated  balance of the deferred costs and related carrying
charges is being  amortized  over the  remaining  life of the  scrubber  service
agreement.

      ALLOWANCE  FOR FUNDS USED DURING  CONSTRUCTION.  Allowance  for funds used
during  construction  (AFUDC) is charged to construction work in progress during
the period of  construction  and  represents the net cost of borrowed funds used
for construction purposes and a reasonable rate upon other (equity) funds. Under
established regulatory rate practices,  after the construction project is placed
in service,  Northern  Indiana is permitted to include in the rates  charged for
utility  services  (a) a fair  return  on and (b)  depreciation  of  such  AFUDC
included in plant in service.

      At January 1, 1996, a pre-tax rate of 5.5% for all  construction was being
used; effective January 1, 1997 the rate remained at 5.5%; and effective January
1, 1998, the rate increased to 6.0%.

      FOREIGN CURRENCY  TRANSLATION.  Translation gains or losses are based upon
the  end-of-period  exchange  rate and are  recorded as a separate  component of
other   comprehensive   income  reflected  in  the  Consolidated   Statement  of
Shareholders' Equity.

      INVESTMENTS IN REAL ESTATE.  Development invests in a series of affordable
housing projects within the Utilities'  service  territories.  These investments
include certain tax benefits,  including  low-income housing tax credits and tax
deductions for operating losses of the housing  projects.  Development  accounts
for these investments using the equity method.  Investments,  at equity, include
$34.8  million and $30.1  million  relating to  affordable  housing  projects at
September 30, 1998 and December 31, 1997, respectively.

      INCOME  TAXES.  Deferred  income  taxes  are  recognized  as  costs in the
ratemaking process by the commissions having jurisdiction over the rates charged
by the Utilities.  Deferred  income taxes are provided as a result of provisions
in the income tax law that either require or permit certain items to be reported
on the income tax return in a  different  period  than they are  reported in the
financial statements.  These taxes are reversed by a debit or credit to deferred
income tax expense as the temporary differences reverse.  Investment tax credits
have been  deferred  and are  being  amortized  to  income  over the life of the
related property.

(3)  PURCHASE  OF IWC  RESOURCES  CORPORATION:  On March  25,  1997,  Industries
acquired all the outstanding common stock of IWCR for $290.5 million. Industries
financed this transaction with debt of approximately  $83.0 million and issuance
of approximately 10.6 million  Industries' common shares.  Industries  accounted
for the  acquisition  as a purchase.  The  purchase  price was  allocated to the
assets and liabilities acquired based on their fair values.

(4) PURCHASE OF BAY STATE GAS COMPANY: On December 18, 1997,  Industries and Bay
State Gas Company (Bay State) signed a definitive  merger  agreement under which
Industries   will   acquire  all  of  the  common   stock  of  Bay  State  in  a
stock-for-stock  transaction  valued at $40 per Bay State share. The transaction
is valued at approximately  $551 million.  Bay State  shareholders will have the
option  of  taking  up to 50  percent  of the  total  purchase  price  in  cash.
Consummation of the merger is subject to certain closing  conditions,  including
the  approval  by  the  Securities  and  Exchange  Commission,  FERC  and  state
regulatory agencies in Massachusetts,  New Hampshire and Maine. The shareholders
of Bay State  approved  the  merger on May 27,  1998,  and the state  regulatory
agencies in  Massachusetts,  New  Hampshire,  and Maine have also  approved  the
merger. The transaction is expected to be completed in late 1998.

     Bay  State,  one of the  largest  natural  gas  utilities  in New  England,
provides  natural gas  distribution  service to more than  300,000  customers in
Massachusetts,  New Hampshire and Maine. The combined company will be one of the
10 largest natural gas distribution systems in the nation, servicing more than 1
million gas customers.  In addition,  Industries and Bay State have entered into
joint marketing agreements to expand the operation of Bay State's  non-regulated
energy service companies.

(5) NESI ENERGY MARKETING CANADA LTD. LITIGATION: On October 31, 1996, Services'
wholly-owned  subsidiary  NIPSCO  Energy  Services  Canada  Ltd.  (NESI  Canada)
acquired 70% of the outstanding  shares of Chandler Energy Inc., a gas marketing
and trading company located in Calgary,  Alberta,  and  subsequently  renamed it
NESI Energy Marketing  Canada Ltd.  (NEMC).  Between November 1 and November 27,
1996, gas prices in the Calgary market increased dramatically. As a result, NEMC
was selling  gas,  pursuant to contracts  entered into prior to the  acquisition
date, at prices  substantially  below its costs to acquire such gas. On November
27, 1996,  NEMC ceased doing business and sought  protection  from its creditors
under  the  Companies'   Creditors   Arrangement   Act,  a  Canadian   corporate
reorganization statute. NEMC was declared bankrupt as of December 12, 1996.

     Certain  creditors of NEMC have filed claims in the Canadian courts against
Industries,   Services,  Capital  Markets  and  NESI  Canada,  alleging  certain
misrepresentations  relating to NEMC's financial condition and claiming damages.
Industries  and its affiliates  intend to vigorously  defend against such claims
and any other  claims  seeking  to  assert  that any  party  other  than NEMC is
responsible for NEMC's liabilities. Industries has fully reserved its investment
in NEMC. Management believes that any additional loss relating to NEMC would not
be material to the results of operations or financial position of Industries.

(6) FERC ORDER NO. 636:  Since  December  1993,  the Energy  Utilities have paid
approximately $140.5 million of interstate pipeline transition costs to pipeline
suppliers  to reflect  the impact of FERC Order No.  636.  The Energy  Utilities
expect that additional transition costs will not be significant.  The Commission
has approved the recovery of these FERC-allowed transition costs on a volumetric
basis from sales and  transportation  customers.  Regulatory  assets, in amounts
corresponding to the costs recorded but not yet collected, have been recorded to
reflect the ultimate recovery of these costs.

(7) ENVIRONMENTAL MATTERS: The Utilities have an ongoing program to remain aware
of laws and regulations  involved with hazardous  waste and other  environmental
matters.  The  Utilities  intend to continue to evaluate  their  facilities  and
properties with respect to these rules and identify any sites that would require
corrective  action.  The Utilities have recorded a reserve of approximately  $16
million to cover probable  corrective actions as of September 30, 1998; however,
environmental  regulations  and  remediation  techniques  are  subject to future
change.  The  ultimate  cost could be  significant,  depending  on the extent of
corrective  actions  required.   Based  upon   investigations  and  management's
understanding  of current laws and regulations,  the Utilities  believe that any
corrective  actions  required,  after  consideration of insurance  coverages and
contributions  from  other  potentially  responsible  parties,  will  not have a
significant  impact on the  results  of  operations  or  financial  position  of
Industries.

     Because  of  major  investments  made  in  modern   environmental   control
facilities and the use of low-sulfur  coal, all of Northern  Indiana's  electric
production  facilities now comply with the sulfur dioxide limitations  contained
in the acid  deposition  provisions  of the  Clean  Air Act  Amendments  of 1990
(CAAA). Reflecting this compliance, on December 31, 1997, the Indiana Department
of Environmental Management (IDEM) issued the Phase II Acid Rain permits for all
four of Northern Indiana's  electric  generating  stations.  As discussed below,
however, other provisions of the CAAA impose additional requirements on Northern
Indiana.

     On December 19, 1996, the Environmental Protection Agency (EPA) promulgated
rules for Phase II of the Acid Rain nitrogen oxides (NOx) reduction program. For
Phase I,  during the summer of 1997,  the EPA  formally  approved  the Acid Rain
Early Election permits for the pulverized coal units at D. H. Mitchell and R. M.
Schahfer  stations.  The  permits  establish  the  Phase  I  limits  for the NOx
emissions  on these units until 2007.  On December 23,  1997,  Northern  Indiana
submitted  an Acid Rain  Phase II NOx  Compliance  Plan to IDEM  which  included
additional  controls  for two  cyclone  fired  boilers  and a plan for  emission
averaging to achieve the NOx limits for the system by 2000.  Northern Indiana is
conducting tests to demonstrate a cost effective combustion control technique on
the Unit 12 cyclone fired boiler at Michigan City during 1998.

     The CAAA also contain other  provisions  that could lead to  limitations on
emissions of hazardous  air  pollutants  and other air  pollutants  as discussed
below, which may require significant  capital  expenditures for control of these
emissions.  Northern Indiana cannot predict what these  requirements  will be or
the costs of complying with these potential requirements.

      On September 24, 1998, the EPA  Administrator  signed the final rulemaking
requiring  certain  states to reduce NOx levels to lower  regional  transport of
ozone under the  non-attainment  provisions of the CAAA. Because NOx, along with
other factors,  contributes to ozone formation the EPA requires  significant NOx
reductions  for 22 states,  including  Indiana,  to address the ozone  transport
issue.  According to the rule,  the state of Indiana now has one year to develop
an ozone control plan.  Any  resulting  NOx emission  limitations  could be more
restrictive  than those  imposed on electric  utilities  under the Acid Rain NOx
reduction  program.  The EPA has encouraged  states to achieve the reductions by
requiring controls on electric utilities and large boilers.  Northern Indiana is
evaluating the EPA's final rule and evaluating potential requirements that could
result from the final rule.

     The EPA issued final rules on July 18, 1997,  revising the National Ambient
Air Quality  Standards for ozone and particulate  matter.  The revised standards
begin a  regulatory  process that may lead to  reductions  in  particulate,  NOx
emissions and possibly  sulfur  dioxide  emissions  from many sources  including
Northern Indiana's coal-fired boilers at its generating stations, beyond current
CAAA  requirements.  Northern Indiana cannot predict the costs of complying with
future control  requirements to meet these new standards.  Northern Indiana will
continue to closely monitor  developments in this area and anticipates the exact
nature of the impact of the new  standards on its  operations  will not be known
for some time.

     The EPA has notified Northern Indiana that it is a Apotentially responsible
party" (PRP) under the  Comprehensive  Environmental  Response  Compensation and
Liability  Act  (CERCLA)  and may be required to share in the cost of cleanup of
several  waste  disposal  sites  identified by the EPA. The sites are in various
stages  of  investigation,  analysis  and  remediation.  At each  of the  sites,
Northern Indiana is one of several PRPs, and it is expected that remedial costs,
as provided  under  CERCLA,  will be shared among them.  At some sites  Northern
Indiana and/or the other named PRPs are presently  working with the EPA to clean
up the sites and avoid the imposition of fines or added costs.

     In December  1997,  at the Summit on Climate  Change in Kyoto,  Japan,  159
nations  formally  agreed to targets  reducing  worldwide  levels of  greenhouse
gases.  If the U.S.  Senate  ratifies the  agreement,  the Kyoto  Protocol would
impose an  obligation on the United States to reduce its emissions of greenhouse
gas to a level  seven  percent  below 1990  levels  during the period of 2008 to
2012.  The impact of this agreement on Northern  Indiana is uncertain.  Northern
Indiana,  as a charter  member of the Department of Energy's  Climate  Challenge
Program,  the  electric  industries'  voluntary  reduction  effort,  has already
implemented over 21 projects to voluntarily  reduce  greenhouse gases emissions.
Northern Indiana continues to investigate methods to address reduction in carbon
dioxide  emissions  and will monitor the  development  of U. S.  climate  change
policy.

     The  Energy  Utilities  have  instituted  a program to  investigate  former
manufactured-gas  plants where one of them is the current or former  owner.  The
Energy  Utilities have  identified  twenty-eight  of these sites and made visual
inspections  of these sites.  Initial  samplings  have been  conducted at twenty
sites.  Follow-up  investigations  have been  conducted  at  thirteen  sites and
remedial  measures have been selected at six sites.  The Energy  Utilities  will
continue their program to assess and cleanup sites.

     During the  course of various  investigations,  the Energy  Utilities  have
identified impacts to soil, groundwater,  sediment and surface water from former
manufactured-gas  plants.  At three sites where residues were noted seeping into
rivers, Northern Indiana notified IDEM and the EPA and immediately took steps to
contain the material.  The Energy  Utilities have worked with IDEM or the EPA on
investigation  or remedial  activities at several  sites.  Six of the sites have
been  enrolled in the IDEM  Voluntary  Remediation  Program  (VRP).  The goal of
placing  these sites in the VRP is to obtain IDEM  approval of the selection and
implementation  of whatever  remedial  measures,  if any, may be  required.  The
Energy Utilities  anticipate  placing additional sites in the VRP after remedial
measures have been selected.

     Northern Indiana and Indiana Gas Company,  Inc.  (Indiana Gas) have entered
into an agreement  covering  cost sharing and  management of  investigation  and
remediation programs at five former  manufactured-gas  plant sites at which both
companies or their  predecessors  were former operators or owners.  One of these
sites is the Lafayette site which Indiana Gas had previously  notified  Northern
Indiana is being investigated and remediated pursuant to an administrative order
with IDEM.  Northern  Indiana also notified  Cinergy  Services,  Inc.  (Cinergy)
(formerly  PSI  Energy,  Inc.) that it was a former  owner or  operator of seven
former  manufactured-gas  plants at which Northern  Indiana had conducted or was
planning  investigation or remediation  activities.  In December 1996,  Northern
Indiana sent a written demand to Cinergy related to one of these sites,  Goshen.
Northern  Indiana  demanded that Cinergy pay Northern Indiana for costs Northern
Indiana has already  incurred and to be incurred to implement  the needed remedy
at the Goshen site. In August 1997, Northern Indiana filed suit in federal court
against Cinergy seeking  recovery of those costs.  Northern  Indiana and Cinergy
are discussing settlement of that litigation.

     In 1994, the Energy Utilities  approached  various  companies that provided
insurance  coverage which the Energy  Utilities  believe covers costs related to
actions  taken at former  manufactured-gas  plants.  There  has been  litigation
between  Northern  Indiana and various  insurance  companies over covered costs.
Northern  Indiana has filed  claims in state  court  against  various  insurance
companies,   seeking   coverage  for  costs   associated   with  several  former
manufactured-gas  plants  and  damages  for  alleged  misconduct  by some of the
insurance companies. The state court action is now proceeding.  Northern Indiana
has received cash settlements from several of the insurance companies.

     The  possibility  that  exposure  to electric  and  magnetic  fields  (EMF)
emanating from power lines,  household appliances and other electric sources may
result in adverse  health  effects has been the subject of public,  governmental
and media  attention.  Recently,  researchers from the National Cancer Institute
and the  Childhood  Cancer Group  reported  they found no evidence that magnetic
fields in homes increase the risk of childhood  leukemia.  This study follows an
EMF  report  released  in 1997 by the  U.S.  National  Research  Council  of the
National Academy of Sciences, which concluded, after examining more than 500 EMF
studies  spanning 17 years,  that,  among other things,  there was  insufficient
evidence to  consider  EMF a threat to human  health.  A new report in June 1998
from a National Institutes of Health panel accepted the position that EMF should
be regarded as a "possible human carcinogen". Further panel comments also stated
that the risk "is  possibly  quite small  compared to many other  public  health
risks."

     The Water  Utilities  are subject to  pollution  control and water  quality
control regulations,  including those issued by the EPA, IDEM, the Indiana Water
Pollution Control Board and the Indiana Department of Natural  Resources.  Under
the Federal Clean Water Act and Indiana's regulations,  IWC must obtain National
Pollutant  Discharge  Elimination System (NPDES) permits for discharges from its
water treatment stations.  Applications for renewal of any expiring permits have
been filed and are the subject of ongoing  discussions  with,  but have not been
finalized  by, IDEM.  These  permits  continue in effect  pending  review of the
current applications.

     Under the Federal Safe Drinking Water Act (SDWA),  the Water  Utilities are
subject to  regulation  by the EPA for the  quality of water sold and  treatment
techniques  used to make  the  water  potable.  The EPA  promulgates  nationally
applicable maximum  contaminant levels (MCLs) for contaminants found in drinking
water.  Management believes the Water Utilities are currently in compliance with
all MCLs  promulgated  to date. The EPA has continuing  authority,  however,  to
issue additional  regulations  under the SDWA. In August 1996,  Congress amended
the SDWA to allow the EPA more  authority  to weigh the  costs and  benefits  of
regulations being considered in some, but not all, cases. The 1996 amendments do
not,  however,  reduce the number of new  standards  previously  required.  Such
standards  promulgated  could be costly and require  substantial  changes in the
Water  Utilities'  operations.  The Water  Utilities would expect to recover the
costs of such changes through their water rates;  however, such recovery may not
necessarily be timely.

     Under a 1991 law enacted by the Indiana  Legislature,  a water  utility may
petition  the   Commission  for  prior  approval  of  its  plans  and  estimated
expenditures  required to comply with provisions of, and regulations  under, the
Federal Clean Water Act and SDWA. Upon obtaining such approval,  a water utility
may include, to the extent of its estimated costs as approved by the Commission,
such costs in its rate base for  rate-making  purposes  and recover its costs of
developing and implementing  the approved plans if statutory  standards are met.
The capital costs for such new systems, equipment or facilities or modifications
of  existing  facilities  may be included  in a water  utility's  rate base upon
completion of construction of the project or any part thereof. While use of this
statute is voluntary  on the part of a water  utility,  if  utilized,  it should
allow water  utilities a greater degree of confidence in recovering  major costs
incurred to comply with environmentally related laws on a timely basis.

(8) INCOME TAXES:  Industries uses the liability method of accounting for income
taxes under which deferred  income taxes are  recognized,  at currently  enacted
income tax rates, to reflect the tax effect of temporary differences between the
financial statement and tax bases of assets and liabilities.

      To  the  extent  certain  deferred  income  taxes  of  the  Utilities  are
recoverable or payable through future rates,  regulatory  assets and liabilities
have  been  established.   Regulatory  assets  are  primarily   attributable  to
undepreciated  AFUDC-equity  and the  cumulative  net amount of other income tax
timing  differences  for which deferred taxes had not been provided in the past,
when  regulators  did not  recognize  such  taxes as  costs  in the  rate-making
process.  Regulatory  liabilities  are primarily  attributable to the Utilities'
obligation  to credit to  ratepayers  deferred  income  taxes  provided at rates
higher than the current  federal tax rate currently being credited to ratepayers
using the average rate assumption method and unamortized deferred investment tax
credits.

               The  components  of the net  deferred  income  tax  liability  at
          September 30, 1998 and December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
                                                    September 30,    December 31,
(In thousands)                                          1998            1997
                                                    ============     ===========
<S>                                                <C>               <C>
Deferred tax liabilities -
 Accelerated depreciation and other
    property differences                            $   788,970      $   779,223
  AFUDC-equity                                           33,460           35,282
 Adjustment clauses                                      11,485           35,253
 Other regulatory assets                                 30,270           31,862
 Reacquisition premium on debt                           17,658           18,335
Deferred tax assets -
 Deferred investment tax credits                        (37,924)        (40,017)
 Removal costs                                         (153,405)       (144,111)
 Other postretirement/postemployment benefits           (49,200)        (45,298)
 Other, net                                             (28,071)         (3,069)
                                                    -----------      -----------
                                                        613,243          667,460
Less: Deferred income taxes related to current
         assets and liabilities                         (15,650)          15,645
                                                    -----------      -----------
Deferred income taxes -noncurrent                   $   628,893      $   651,815
                                                    ===========      ===========
</TABLE>
      Federal and state income taxes as set forth in the Consolidated  Statement
of Income are comprised of the following:
<TABLE>
<CAPTION>
                                     Three Months              Nine Months              Twelve Months
                                 Ended September 30,       Ended September 30,       Ended September 30,
                               ----------------------    ----------------------    ----------------------
(In thousands)                    1998         1997         1998         1997         1998         1997
                               =========    =========    =========    =========    =========    =========
Current income taxes -
<S>                            <C>          <C>          <C>          <C>          <C>          <C>
 Federal                       $  26,063    $  19,259    $ 107,974    $  99,532    $ 106,568    $ 122,724

 State                             4,241        3,205       16,389       15,155       18,307       18,450

                               ---------    ---------    ---------    ---------    ---------    ---------
                                  30,304       22,464      124,363      114,687      124,875      141,174
                               ---------    ---------    ---------    ---------    ---------    ---------
Deferred income taxes, net -
 Federal                          (6,520)        (434)     (46,020)     (31,088)     (16,704)     (24,929)

 State                              (471)          23       (3,621)      (2,418)      (1,080)      (1,861)
                               ---------    ---------    ---------    ---------    ---------    ---------
                                  (6,991)        (411)     (49,641)     (33,506)     (17,784)     (26,790)
                               ---------    ---------    ---------    ---------    ---------    ---------
Deferred investment tax
    credits, net                  (1,821)      (1,832)      (5,463)      (5,467)      (7,372)      (7,553)
                               ---------    ---------    ---------    ---------    ---------    ---------
Total income taxes             $  21,492    $  20,221    $  69,259    $  75,714    $  99,719    $ 106,831
                               =========    =========    =========    =========    =========    =========
</TABLE>
      A  reconciliation  of total  income tax  expense to an amount  computed by
applying the statutory federal income tax rate to pre-tax income is as follows:

<TABLE>
<CAPTION>
                                                               Three Months              Nine Months              Twelve Months
                                                           Ended September 30,       Ended September 30,       Ended September 30,
                                                         ----------------------    ----------------------    ----------------------
(In thousands)                                              1998         1997         1998         1997         1998         1997
                                                         =========    =========    =========    =========    =========    =========
<S>                                                      <C>          <C>          <C>          <C>          <C>          <C>
Net income                                               $  43,127    $  35,869    $ 133,294    $ 134,943    $ 189,200    $ 186,352
Add-Income taxes                                            21,492       20,221       69,259       75,714       99,719      106,831
 Dividend requirements on
  preferred stocks of subsidiaries                           2,122        2,174        6,417        6,520        8,588        8,681
                                                         ---------    ---------    ---------    ---------    ---------    ---------
Income before preferred dividend
  requirements of subsidiaries and
  income taxes                                           $  66,741    $  58,264    $ 208,970    $ 217,177    $ 297,507    $ 301,864
                                                         =========    =========    =========    =========    =========    =========
Amount derived by multiplying
   pre-tax  income by the
    statutory rate                                       $  23,360    $  20,391    $  73,140    $  76,012    $ 104,127    $ 105,651

Reconciling items multiplied by the statutory rate:
    Book depreciation over
     related tax depreciation                                1,996        1,021        3,992        3,109        4,955        4,710
    Amortization of deferred
     investment tax credits                                 (1,821)      (1,832)      (5,463)      (5,467)      (7,372)      (7,553)
   State income taxes, net of
     federal income tax benefit                              2,286        2,106        7,032        7,433       10,820       10,132
    Reversal of deferred taxes
      provided at rates in excess
      of the current federal
      income tax rate                                       (2,543)      (1,033)      (5,085)      (4,069)      (5,079)      (6,485)
     Low-income housing
      credits                                                 (960)        (764)      (2,880)      (2,292)      (3,644)      (2,868)
     Nondeductible amounts
       related to amortization of
       intangible assets and plant
       acquisition adjustments                                 629          515        1,887        1,126        2,401        1,222
     Other, net                                             (1,455)        (183)      (3,364)        (138)      (6,489)       2,022
                                                         ---------    ---------    ---------    ---------    ---------    ---------
        Total income taxes                               $  21,492    $  20,221    $  69,259    $  75,714    $  99,719    $ 106,831
                                                         =========    =========    =========    =========    =========    =========
</TABLE>


(9) PENSION PLANS:  Industries and its subsidiaries  have four  noncontributory,
defined  benefit  retirement  plans  covering the  majority of their  employees.
Benefits under the plans reflect the employees'  compensation,  years of service
and age at retirement.

     The change in the benefit obligation for 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(In thousands)                                          1997             1996
                                                     =========        =========
<S>                                                  <C>              <C>       
Benefit obligation at beginning of year (January 1,) $ 743,634        $ 759,557
Service cost                                            14,714           16,300
Interest cost                                           57,938           53,477
Plan amendments                                         25,096             --
Actuarial (gain) loss                                   73,818          (39,024)
Acquisition of IWCR                                     15,722             --
Benefits paid                                          (55,166)         (46,676)
                                                     ---------        ---------
Benefit obligation at end of the year (December 31,) $ 875,756        $ 743,634
                                                     =========        ==========
</TABLE>

               The change in the fair  value of the plans'  assets for the years
          1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(In thousands)                                    1997         1996
                                               =========    =========
<S>                                            <C>          <C>
     year(January 1,)                          $ 790,978    $ 705,541
Actual return on plans' assets                   126,695       87,407
Employer contributions                            46,440       44,706
Acquisition of IWCR                               15,910         --
Benefits paid                                    (55,166)     (46,676)
                                               ---------    ---------
Plan assets at fair value at end of the year
 (December 31,)                                $ 924,857    $ 790,978
                                               =========    =========
</TABLE>
     The plans' assets are invested primarily in common stocks, bonds and notes.


     The plans'  funded  status as of January 1, 1998 and  January 1, 1997 is as
follows:
<TABLE>
<CAPTION>
                                                      January 1,     January 1,
(In thousands)                                           1998          1997
                                                      =========      =========
<S>                                                   <C>            <C>          
Plan assets in excess of  benefit obligation          $  49,101      $  47,344
Unrecognized net actuarial loss                         (46,960)       (66,976)
Unrecognized prior service cost                          47,114         25,172
Unrecognized transition amount                           32,107         38,062
                                                      ---------      ---------
Prepaid pension costs                                 $  81,362      $  43,602
                                                      =========      =========
</TABLE>

      The benefit  obligation  is the present  value of future  pension  benefit
payments and is based on a plan benefit formula which considers  expected future
salary  increases.  Discount  rates of 7.00% and 7.75% and rates of  increase in
compensation  levels  of 4.5%  and  5.5%  were  used to  determine  the  benefit
obligation  at  January  1, 1998 and 1997,  respectively.  The  increase  in the
benefit  obligation  at  January 1, 1998 was  impacted  by the  decrease  in the
discount rate from 7.75% to 7.00%.  Prepaid pension costs were $114.7 million as
of September 30, 1998.

      The following  items are the components of provisions for pensions for the
three-month,  nine-month and  twelve-month  periods ended September 30, 1998 and
September 30, 1997:
<TABLE>
<CAPTION>
                                                                        
                                                          
                                              Three Months              Nine Months              Twelve Months
                                           Ended September 30,       Ended September 30,      Ended September 30,
                                        -----------------------   ----------------------    ---------------------      

(In thousands)                             1998           1997        1998        1997         1998          1997
                                          =======       =======     =======      =======      =======     =======
<S>                                     <C>          <C>          <C>          <C>          <C>          <C>      
Service costs                           $   4,850    $   6,641    $  17,886    $  16,023    $  16,301    $  17,240
Interest costs                             15,712       31,651       59,280       65,003       51,922       68,869
Expected return on plan assets            (19,619)     (40,486)     (78,125)     (81,966)     (68,412)    (110,396)
Amortization of transition obligation       1,262        3,216        4,928        6,569        3,685        6,937
Amortization of prior service costs            96         --          4,279         --          3,869         --
Other net amortization and deferral          --          2,011         --          3,911         --         27,975
                                        ---------    ---------    ---------    ---------    ---------    ---------
                                        $   2,301    $   3,033    $   8,248    $   9,540    $   7,365    $  10,625
                                        =========    =========    =========    =========    =========    =========
</TABLE>
               Assumptions  used in the valuation and  determination of 1998 and
          1997 pension expense were as follows:
<TABLE>
<CAPTION>
                                            1998           1997
                                           ======         ======
<S>                                         <C>            <C>  
Discount rate                               7.00%          7.75%
Rate of increase in compensation levels     4.50%          5.50%
Expected long-term rate of return on assets 9.00%          9.00%
</TABLE>
     The plans'  assets are invested  primarily  in common  stocks,  bonds,  and
notes.  A substantial  portion of the plans'  domestic  equity  investments  are
hedged against significant movements in the S&P 500 Index. The hedge will expire
on December 31, 1998.

      IWCR participates in several  industry-wide,  multi-employer pension plans
for certain of its union  employees at Miller.  These plans  provide for monthly
benefits based on length of service.  Specified amounts per compensated hour for
each employee are contributed to the trustees of these plans.  Contributions  of
$0.6  million,  $1.1  million and $1.4  million were made to these plans for the
three-month,  nine-month  and  twelve-month  periods  ended  September 30, 1998,
respectively.  The relative  position of each  employer  participating  in these
plans with respect to the actuarial  present value of accumulated  plan benefits
and net assets available for benefits is not available.

(10) POSTRETIREMENT  BENEFITS:  Industries provides certain health care and life
insurance benefits for retired employees.  The majority of Industries' employees
may  become  eligible  for those  benefits  if they reach  retirement  age while
working for Industries. The expected cost of such benefits is accrued during the
employees' years of service.

      Northern  Indiana's  rate-making  had  historically  included  the cost of
providing these benefits based on the related  insurance  premiums.  On December
30,  1992,  the  Commission  authorized  the accrual  method of  accounting  for
postretirement  benefits for rate-making  purposes  consistent with SFAS No. 106
AEmployers'  Accounting for  Postretirement  Benefits Other Than  Pensions," and
authorized   the   deferral  of  the   differences   between  the  net  periodic
postretirement  benefit costs and the insurance  premiums paid for such benefits
as a  regulatory  asset.  On June  11,  1997,  the  Commission  issued  an order
approving the  inclusion of  accrual-based  postretirement  benefit costs in the
rate-making  process to be  effective  February 1, 1997 for  electric  rates and
March 1, 1997 for gas rates. These costs include an amortization of the existing
regulatory  asset  consistent  with the  remaining  amortization  period for the
transition obligation. Northern Indiana discontinued its cost deferral and began
amortizing its regulatory asset concurrent with these dates.

      IWC's  current rates  include  postretirement  benefit costs on an accrual
basis,  including  amortization  of the  regulatory  asset that  arose  prior to
inclusion of these costs in the rates.  IWC currently  remits to a grantor trust
amounts collected in rates.

      The  following  table  sets  forth the  change in the  plans'  accumulated
postretirement benefit obligation (APBO) for the years 1997 and 1996:
 <TABLE>
<CAPTION>
(In thousands)                                     1997         1996
                                                =========    =========
<S>                                             <C>          <C>
Accumulated postretirement benefit obligation
   at beginning of year  (January 1,)           $ 200,790    $ 257,915
Service cost                                        5,034        7,352
Interest cost                                      16,215       18,310
 Plan amendments                                    4,015      (10,482)
Actuarial (gain)                                  (10,242)     (65,718)
Acquisition of IWCR                                18,505         --
Benefits paid                                     (10,409)      (6,587)
                                                ---------    ---------
Accumulated postretirement benefit obligation
   at end of the year  (December 31,)           $ 223,908    $ 200,790
                                                =========    =========
</TABLE>
               The change in the fair  value of the plans'  assets for the years
          1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(In thousands)                                         1997        1996
                                                     ========    ======== 
<S>                                                  <C>         <C>
Fair value of plan assets at beginning of year
 (January 1,)                                        $   --      $   --
Employer contributions                                 12,809       6,587
Benefits paid                                         (10,409)     (6,587)
                                                     --------    --------
Plan assets at fair value at end of the year
(December 31,)                                       $  2,400    $   --
                                                     ========    ========
</TABLE>
               Following is the funded status for postretirement  benefits as of
          January 1, 1998 and January 1, 1997:
<TABLE>
<CAPTION>
                                                                   January 1,    January 1,
(In thousands)                                                       1998          1997
                                                                  =========     =========
<S>                                                               <C>          <C>
Funded status                                                     $(221,508)   $(200,790)
Unrecognized net actuarial gain                                     (99,117)     (89,547)
Unrecognized prior service cost                                       4,195         --
Unrecognized transition amount                                      176,464      175,012
                                                                  ---------    ---------
Accrued liability for postretirement benefits                     $(139,966)   $(115,325)
                                                                  =========    =========
</TABLE>
A discount rate of 7.00%, a pre-Medicare medical trend rate of 8% declining to a
long-term rate of 5%, a discount rate of 7.75% and a pre-Medicare  medical trend
rate of 9% declining to a long-term  rate of 6%, were used to determine the APBO
at January 1, 1998 and 1997,  respectively.  The increase in the APBO at January
1, 1998 was  primarily  attributable  to the  inclusion  of IWCR's  APBO and the
decrease in the discount  rate from 7.75% to 7.00%.  The accrued  liability  for
postretirement benefits was $146.2 million at September 30, 1998.

      Net periodic  postretirement  benefits costs, before  consideration of the
rate-making   discussed   previously,   for  the  three-month,   nine-month  and
twelve-month periods ended September 30, 1998 and September 30, 1997 include the
following components: 
<TABLE>
<CAPTION>
                                             Three Months          Nine Months          Twelve Months                               
                                          Ended September 30,   Ended September 30,   Ended September 30,
                                       ----------------------  ---------------------- ---------------------

 (In thousands)                           1998        1997        1998        1997        1998        1997
                                        ========    ========    ========    ========    ========    ========
<S>                                     <C>         <C>         <C>         <C>         <C>         <C>
Service costs                           $  1,488    $  1,589    $  4,162    $  4,638    $  4,428    $  7,129
Interest costs                             4,073       4,798      12,219      14,056      14,041      17,129
Expected return on plan assets               (50)       --          (150)       --          (150)       --
Amortization of transition obligation      2,929       2,970       8,788       8,704      11,642      11,012
Amortization of prior service cost            75        --           225        --           504        --
Amortization of (gain) loss               (1,394)     (1,014)     (4,180)     (3,036)     (6,988)     (1,842)
                                        --------    --------    --------    --------    --------    --------
                                        $  7,121    $  8,343    $ 21,064    $ 24,362    $ 23,477    $ 33,428
                                        ========    ========    ========    ========    ========    ========
</TABLE>
               Assumptions  used in the  determination  of  1998  and  1997  net
          periodic postretirement benefit costs were as follows:
<TABLE>
<CAPTION>
                                           1998           1997
                                           ======         ======
<S>                                        <C>            <C>  
Discount rate                              7.00%          7.75%
Rate of increase in compensation levels    4.50%          5.50%
</TABLE>
     The  pre-Medicare  medical  trend  rates  used for  1998  and 1997  were 8%
declining to a long-term  rate of 5% and 9% declining to a long-term rate of 6%,
respectively.  The effect of a 1% increase in the assumed health care cost trend
rates for each future year would increase the accumulated postretirement benefit
obligation at January 1, 1998 by approximately  $27.1 million,  and increase the
aggregate  of the  service  and  interest  cost  components  of  plan  costs  by
approximately  $0.7 million and $2.2 million for the  three-month and nine-month
periods  ended  September  30, 1998.  The effect of a 1% decrease in the assumed
health care cost trend rates for each future year would decrease the accumulated
postretirement  benefit  obligation  at January 1, 1998 by  approximately  $22.2
million,  and decrease the aggregate of the service and interest cost components
of plan costs by approximately $0.6 million and $1.8 million for the three-month
and nine-month  periods ended September 30, 1998.  Amounts disclosed above could
be changed  significantly  in the future by changes in health care  costs,  work
force demographics, interest rates, or plan changes.


(11) AUTHORIZED CLASSES OF CUMULATIVE PREFERRED AND PREFERENCE STOCKS:

      INDUSTRIES -
        20,000,000 shares -Preferred -without par value

       4,000,000 of Industries' Series A Junior  Participating  Preferred Shares
are reserved for issuance  pursuant to the Share Purchase  Rights Plan described
in Note 17, Common Shares.

     NORTHERN INDIANA -
        2,400,000 shares -Cumulative  Preferred -$100 par value 3,000,000 shares
        -Cumulative   Preferred  -no  par  value  2,000,000  shares  -Cumulative
        Preference -$50 par value
                                      (none outstanding)
        3,000,000                     shares  -Cumulative   Preference  -no  par
                                      value (none issued)

     INDIANAPOLIS WATER COMPANY -
           300,000 shares -Cumulative Preferred -$100 par value

      Note 12 sets forth the preferred stocks which are redeemable solely at the
option of the  issuer,  and Note 13 sets forth the  preferred  stocks  which are
subject to mandatory redemption  requirements or whose redemption is outside the
control of the issuer.

      The  Preferred  shareholders  of  Northern  Indiana and IWC have no voting
rights,  except in the  event of  default  on the  payment  of four  consecutive
quarterly  dividends,  or as  required by Indiana  law to  authorize  additional
preferred  shares,  or by the Articles of  Incorporation in the event of certain
merger transactions.


(12)  Preferred  Stocks,   Redeemable  Solely  at  the  Option  of  the  Issuer,
Outstanding at September 30, 1998 and December 31, 1997 :
<TABLE>
<CAPTION>
                                                                                        Redemption
                                                                                         Price at
                                                     September 30,     December 31,     September 30,
 (Dollars in thousands)                                 1998              1997              1998
                                                     ===========       ===========      ===========
<S>                                                  <C>               <C>                <C> 
Northern Indiana Public Service Company:
 Cumulative preferred stock -  $100 par value -
  4-1/4% series - 209,056 and 209,118 shares
        outstanding,  respectively                   $    20,906       $    20,912        $101.20
  4-1/2% series -  79,996 shares outstanding               8,000             8,000        $100.00
  4.22% series - 106,198 shares outstanding               10,620            10,620        $101.60
  4.88% series - 100,000 shares outstanding               10,000            10,000        $102.00
  7.44% series -   41,890 shares outstanding               4,189             4,189        $101.00
  7.50% series -   34,842 shares outstanding               3,484             3,484        $101.00
  Premium on preferred stock                                 254               254            N/A


 Cumulative preferred stock -
  no par value -
   Adjustable rate (6.00% at September 30, 1998),
     Series A (stated value $50 per share) 473,285
     shares outstanding                                   23,664            23,664        $50.00


Indianapolis Water Company:
 Cumulative preferred stock - $100 par value -
  Rates ranging from 4.00% to 5.00%, 44,966
     shares outstanding                                    4,497             4,497        $100 - $105
                                                     ------------       -----------
                                                     $     85,614       $   85,620
                                                     ============       ==========
</TABLE>
     During the period  October 1, 1997 to  September  30,  1998,  there were no
additional issuances of the above preferred stocks.

      The foregoing  preferred  stocks are redeemable in whole or in part at any
time upon  thirty  days'  notice at the option of the  issuer at the  redemption
prices shown.

(13) REDEEMABLE  PREFERRED STOCKS OUTSTANDING AT SEPTEMBER 30, 1998 AND DECEMBER
31, 1997 : Preferred  stocks  subject to mandatory  redemption  requirements  or
whose  redemption  is outside  the  control of issuer,  excluding  sinking  fund
payments due within one year are as follows: 
<TABLE>
<CAPTION>
                                                      September 30,     December 31,
(Dollars in thousands)                                    1998              1997
                                                       ==========       ==========
<S>                                                    <C>              <C>
Northern Indiana Public Service Company:
 Cumulative preferred stock -$100 par value -
   8.85% series - 50,000 and  62,500 shares
     outstanding, respectively                         $    5,000       $    6,250
   7-3/4% series - 38,906 shares outstanding                3,891            3,891
   8.35% series - 51,000 and 57,000 shares outstanding,
   respectively
5,100                  5,700
 Cumulative preferred stock -no par value -
   6.50% series - 430,000 shares outstanding               43,000           43,000
                                                       ----------       ----------
                                                       $   56,991       $   58,841
                                                       ==========       ==========
</TABLE>
      The  redemption  prices at  September  30,  1998,  as well as sinking fund
provisions for the cumulative  preferred stocks subject to mandatory  redemption
requirements,  or whose  redemption is outside the control of Northern  Indiana,
are as follows: <TABLE> <CAPTION>
                                                                     Sinking Fund or
 Series                Redemption Price Per Share              Mandatory Redemption Provisions
===   ========        ======================              ======================================
<S>                   <C>                                      <C>                              
Cumulative preferred stock -$100 par value -
         8.85%        $101.11, reduced periodically             12,500 shares on or before April 1.
                
         8.35%        $103.44, reduced periodically             3,000 shares on or before   July  1;
                                                                increasing to 6,000
                                                                shares beginning in 2004;
                                                                noncumulative option
                                                                to double amount each year.

        7-3/4%        $104.23, reduced periodically             2,777 shares on or before December 1;
                                                                noncumulative option to                            
                                                                double amount each year.
 Cumulative preferred stock -no par value -
        6.50%         $100.00 on October 14, 2002               430,000 shares on  October  14, 2002.
</TABLE>
      Sinking fund  requirements  with respect to  redeemable  preferred  stocks
outstanding  at  September  30,  1998  for  each  of  the  twelve-month  periods
subsequent to September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended September 30,*
================================
<S>                   <C>       
2000                  $1,827,700
2001                  $1,827,700
2002                  $1,827,700
2003                  $1,827,700
</TABLE>
* Table does not reflect redemptions made after September 30, 1998.

(14) STOCK  SPLIT:  On December 16,  1997,  the Board of Directors  authorized a
two-for-one split of Industries' common stock. The stock split was paid February
20, 1998, to shareholders  of record at the close of business  January 30, 1998.
All references to number of shares  reported for the period  including per share
amounts  and  stock  option  data  of  Industries'   common  stock  reflect  the
two-for-one  stock split as if it had occurred at the  beginning of the earliest
period.

(15) COMMON SHARE DIVIDEND:  During the next few years,  Industries expects that
the majority of earnings  available for  distribution  of dividends  will depend
upon  dividends  paid to  Industries  by Northern  Indiana.  Northern  Indiana's
Indenture  dated  August 1,  1939,  as  amended  and  supplemented  (Indenture),
provides  that it will not declare or pay any  dividends on any class of capital
stock (other than preferred or preference stock) except out of earned surplus or
net profits of Northern  Indiana.  At September 30, 1998,  Northern  Indiana had
approximately $146.8 million of retained earnings (earned surplus) available for
the payment of dividends.  Future  dividends will depend upon adequate  retained
earnings, adequate future earnings and the absence of adverse developments.

(16) EARNINGS PER SHARE: At December 31, 1997,  Industries  adopted SFAS No. 128
"Earnings  per Share." The adoption of this  statement  required  Industries  to
present  basic  earnings  per share and diluted  earnings  per share in place of
primary  earnings per share.  Basic  earnings per share was computed by dividing
net income,  reduced for preferred  dividends,  by the average  number of common
shares outstanding during the period. The diluted earnings per share calculation
assumes conversion of nonqualified stock options into common shares. As a result
of adopting the statement,  previously  reported  earnings per share information
was  restated.  The  effect of this  accounting  change on  previously  reported
earnings per share data was insignificant.

The net income, preferred dividends and shares used to compute basic and diluted
earnings per share is presented in the following table:

<TABLE>
<CAPTION>
                                                         
                                                                         
                                                                                     
                                                               Three Months Ended      Nine Months Ended      Twelve Months Ended 
                                                                 September 30,           September 30,           September 30,  
                                                             --------------------     --------------------    --------------------
 (Dollars in thousands, except per share amounts)                  1998      1997        1998      1997       1998       1997 
 (Shares outstanding in thousands)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>        <C>        <C>        <C>        <C>        <C>
Basic
Weighted Average Number of Shares:
     Average Common Shares Outstanding                          119,495    125,496    121,833    123,446    122,645    122,785
                                                                =======    =======    =======    =======    =======    =======
Net Income to be Used to Compute Basic Earnings per Share:
Net Income                                                     $ 43,128   $ 35,869   $133,294   $134,943   $189,201   $186,352
                                                                =======    =======    =======    =======    =======    =======
Basic Earnings per Average Common Share                        $   0.36   $   0.28   $   1.09   $   1.09   $   1.54   $   1.51
                                                                =======    =======    =======    =======    =======    =======
Diluted
Weighted Average Number of Shares:
     Average Common Shares Outstanding                          119,495    125,496    121,833    123,446    122,785    122,645
     Dilutive effect for Nonqualified               
     Stock Options                                                  566        351        555        339        522        558
                                                                -------    -------    -------    -------    -------    -------
Weighted Average Shares                                         120,061    125,847    122,388    123,784    123,166    123,344
                                                                =======    =======    =======    =======    =======    =======

Net Income to be Used to Compute Diluted Earnings per Share:
Net Income                                                     $ 43,128   $ 35,869   $133,294   $134,943   $189,201   $186,352
                                                                =======    =======    =======    =======    =======    =======
Diluted Earnings per Average Common Share                      $   0.35   $   0.28   $   1.08   $   1.09    $  1.53    $  1.51
                                                                =======    =======    =======    =======    =======    =======
</TABLE>

(17) COMMON SHARES: On April 8, 1998,  shareholders  approved an increase in the
number of authorized common shares without par value from 200,000,000  shares to
400,000,000 shares.

      SHARE  PURCHASE  RIGHTS PLAN. On February 27, 1990, the Board of Directors
of Industries  (Board)  declared a dividend  distribution  of one Right for each
outstanding  common share of Industries to  shareholders  of record on March 12,
1990. The Rights are not currently  exercisable.  Each Right,  when exercisable,
would initially entitle the holder to purchase from Industries one two-hundredth
of a Series A Junior  Participating  Preferred  Share,  without  par  value,  of
Industries  at a price  of $30 per one  two-hundredth  of a  share.  In  certain
circumstances, if an acquirer obtained 25% of Industries' outstanding shares, or
merged into Industries or merged Industries into the acquirer,  the Rights would
entitle the holders to purchase  Industries' or the acquirer's common shares for
one-half  of the market  price.  The Rights will not dilute  Industries'  common
shares nor affect  earnings per share unless they become  exercisable for common
shares.  The Plan was not adopted in response to any specific attempt to acquire
control of Industries.

      COMMON SHARE  REPURCHASES.  The Board has  authorized  the  repurchase  of
Industries'  common  shares.  At September  30, 1998,  Industries  had purchased
approximately  50.7 million  shares since 1989 at an average price of $15.91 per
share.  Approximately  11.4 million  additional common shares may be repurchased
under the Board's authorization.

(18) LONG-TERM INCENTIVE PLAN:  Industries has two long-term incentive plans for
key management  employees that were approved by  shareholders  on April 13, 1988
(1988  Plan) and April 13,  1994 (1994  Plan),  each of which  provides  for the
issuance  of up to 5.0 million of  Industries'  common  shares to key  employees
through April 1998 and April 2004,  respectively.  At September 30, 1998,  there
were 3,242,700  shares  reserved for future awards under the 1994 Plan. The 1994
Plan  permits  the  following  types of grants,  separately  or in  combination:
nonqualified  stock options,  incentive stock options,  restricted stock awards,
stock  appreciation  rights and performance units. No incentive stock options or
performance  units were  outstanding at September 30, 1998. Under this Plan, the
exercise  price of each option equals the market price of  Industries'  stock on
the date of grant.  Each  option  has a maximum  term of ten years and vests one
year from the date of grant.

      The stock appreciation  rights (SARs) may be exercised only in tandem with
stock options on a one-for-one basis and are payable in cash, Industries' common
shares or a combination thereof. There were no SARs outstanding at September 30,
1998 and 11,200 SARs outstanding at September 30, 1997.  Restricted stock awards
are restricted as to transfer and are subject to forfeiture for specific periods
from the date of grant.  Restrictions on shares awarded in 1995 lapse five years
from  date of  grant  and  vesting  is  variable  from 0% to 200% of the  number
awarded,  subject to specific earnings per share and stock  appreciation  goals.
Restrictions  on shares  awarded  in 1997 and 1998  lapse two years from date of
grant and vesting is variable from 0% to 100% of the number awarded,  subject to
specific performance goals. If a participant's employment is terminated prior to
vesting  other than by reason of death,  disability  or  retirement,  restricted
shares  are  forfeited.   There  were  534,666  and  542,666  restricted  shares
outstanding at September 30, 1998 and December 31, 1997, respectively.

      The  Industries  Nonemployee  Director  Stock  Incentive  Plan,  which was
approved  by  shareholders,  provides  for  the  issuance  of up to  200,000  of
Industries'  common  shares to  nonemployee  directors of  Industries.  The Plan
provides  for awards of common  shares,  which vest in 20% per year  increments,
with  full  vesting  after  five  years.  The  Plan  also  allows  the  award of
nonqualified  stock options.  If a director's service on the Board is terminated
for any reason other than death or  disability,  any common shares not vested as
of the date of  termination  are  forfeited.  As of September  30, 1998,  71,500
shares had been issued under the Plan.

      Industries  accounts  for these plans under  Accounting  Principles  Board
Opinion  No.  25,  under  which no  compensation  cost has been  recognized  for
non-qualified stock options. The compensation cost that has been charged against
income for  restricted  stock awards was $0.7,  $2.1, and $2.6 million and $0.5,
$1.4 and $1.9 million for the three-month,  nine-month and twelve-month  periods
ending September 30, 1998 and September 30, 1997, respectively. Had compensation
cost for  non-qualified  stock options been determined  consistent with SFAS No.
123  "Accounting  for  Stock-Based  Compensation,"  Industries'  net  income and
earnings per share would have been reduced to the following  pro forma  amounts:
<TABLE>
<CAPTION>
                                  Three Months                Nine Months               Twelve Months                  
                               Ended September 30,        Ended September 30,        Ended September 30,
                              ---------------------      ---------------------      ---------------------
                                 1998        1997           1998        1997           1998       1997
                                ======      ======         ======      ======          =====     ======
                                          (Dollars   in   thousands,   except  per share data)
<S>                           <C>        <C>           <C>         <C>          <C>        <C> 
Net Income:
 As reported                  $  43,127   $  35,869      $ 133,294   $ 134,943      $ 189,200   $186,352
 Pro forma                       42,839      35,661        132,580     134,321        188,273    185,520

Earnings Per Average Common Share:
 Basic:
   As reported                $    0.36   $    0.28       $   1.09   $    1.09      $    1.54    $  1.51
   Pro forma                       0.35        0.28           1.08        1.08           1.53       1.51
 Diluted:
  As reported                 $    0.35   $    0.28       $   1.08   $    1.09      $    1.53     $ 1.51
   Pro forma                       0.35        0.28           1.08        1.08           1.52       1.50
</TABLE>

The fair value of each option  granted used to determine pro forma net income is
estimated as of the date of grant using the  Black-Scholes  option pricing model
with  the  following  weighted  average  assumptions  used  for  grants  in  the
three-month,  nine-month and  twelve-month  periods ended September 30, 1998 and
September 30, 1997:  risk-free  interest rate of 5.70% and 6.29%,  respectively;
expected  dividend  yield per share of $0.67and  $0.87,  respectively;  expected
option  term of five and  one-quarter  years and five years,  respectively;  and
expected volatilities of 12.7% for both periods.

      Changes in outstanding shares under option for the three-month, nine-month
and twelve-month  periods ended September 30, 1998 and September 30, 1997 are as
follows:

<TABLE>
<CAPTION>

                                                 NONQUALIFIED STOCK OPTIONS

                                       --------------------------------------------
                                                      Weighted              Weighted
                                                      Average               Average
                                                      Option                Option
Three Months Ended September 30,          1998        Price      1997       Price
============================           =========    ========  =========    ========
<S>                                    <C>          <C>       <C>          <C>       
Balance, beginning of period           2,193,600    $  16.79  2,195,400    $  15.37
 Granted                                 607,000       29.21    533,600       20.64
 Exercised                               115,500       17.76     92,600       15.81
 Canceled                                   --                     --
                                       ---------              ---------
Balance, end of period                 2,685,100       19.56  2,636,400       16.42
                                       =========              =========
Shares exercisable                     2,078,100       16.74  2,102,800       15.35
                                       =========              =========
</TABLE>
<TABLE>
<CAPTION>

                                                 NONQUALIFIED STOCK OPTIONS

                                       --------------------------------------------
                                                      Weighted              Weighted
                                                      Average               Average
                                                      Option                Option
Nine Months Ended September 30,           1998        Price      1997       Price
============================           =========    ========= =========   =========
<S>                                    <C>          <C>       <C>         <C>       
Balance, beginning of period           2,535,400    $  16.41   2,360,900  $   15.33
 Granted                                 607,000       29.21     533,600      20.64
 Exercised                               437,100       14.65     234,400      14.76
 Canceled                                 20,200       20.64      23,700      18.90
                                       ---------               ---------
Balance, end of period                 2,685,100       19.56   2,636,400      16.42
                                       =========               =========
Shares exercisable                     2,078,100      16.74   2,102,800      15.35
                                       =========              =========
</TABLE>
<TABLE>
<CAPTION>
                                                 NONQUALIFIED STOCK OPTIONS

                                       --------------------------------------------
                                                      Weighted              Weighted
                                                      Average               Average
                                                      Option                Option
Twelve Months Ended September 30,         1998        Price      1997       Price
============================           =========    ========= =========   =========
<S>                                    <C>          <C>       <C>         <C>       
Balance, beginning of period           2,633,400    $  16.42  2,612,400   $   15.33
 Granted                                 607,000       29.21    533,600       20.64
 Exercised                               530,100       14.97    474,100       14.99
 Canceled                                 25,200       20.64     35,500       18.54
                                       ---------              ---------
Balance, end of period                 2,685,100       19.56  2,636,400       16.42
                                       =========              =========
Shares exercisable                     2,078,100       16.74  2,102,800       15.35
                                       =========              =========
Weighted average fair value
 of options granted                    $    4.28              $    2.66
                                       =========              =========

</TABLE>
     The  following  table  summarizes  information  about  non-qualified  stock
options at September 30, 1998:
<TABLE>
<CAPTION>
                                           OPTIONS OUTSTANDING

                    ------------------------------------------------------------
                               Number          Weighted Average
   Range of                Outstanding at        Remaining        Weighted Average
  Option Price           September 30, 1998    Contractual Life     Option Price
==============            ===============      ===============     ===============

<S>                             <C>            <C>                <C>
$ 8.66 to $ 8.97                   91,000      1.50 years         $    8.63
$11.47 to $18.91                1,511,600      7.91 years         $   18.91
$20.64 to $29.22                1,082,500      7.27 years         $   25.45
----------------                ---------      ----------         ---------
$ 8.66 to $29.22                2,685,100      7.27 years         $   19.56
                                =========
</TABLE>
<TABLE>
<CAPTION>
                                           OPTIONS EXERCISABLE

                    ------------------------------------------------------------
                              Number
   Range of                Exercisable at       Weighted Average
  Option Price            September 30, 1998     Option Price
=============              ================      ==============
<S>                         <C>                     <C>    
$ 8.66 to $ 8.97               91,000                $ 8.63
$11.47 to $18.91            1,511,600                $18.91
$20.64 to $29.22              475,000                $20.64
----------------            ---------                ------
$ 8.66 to $29.22            2,078,100                $16.74
                            =========
</TABLE>
(19)  Long-Term  Debt: At September 30, 1998 and December 31, 1997,  Industries'
outstanding  long-term debt,  excluding  amounts due within one year, issued and
not retired or canceled was as follows:
<TABLE>
<CAPTION>
                                                              September30,     December 31,
(Dollars in thousands)                                            1998           1997
                                                               ==========     ==========
<S>                                                           <C>            <C>
First mortgage bonds -
 Interest rates between 5.05% and 9.83% with a weighted
 average interest rate of
   6.62% and various maturities
   between May 1, 2001 and September 1, 2025                  $   186,600    $   187,100

Pollution control notes and bonds-
 Interest rates between 3.50% and 5.70% with a weighted
 average interest rate of
  3.82% and various maturities
  between October 1, 2003 and April 1, 2019                       241,000        241,000

Medium-term notes -
 Interest rates between 6.10% and 7.99% with a weighted
 average interest rate of
  7.19% and various maturities
  between March 20, 2000 and August 4, 2027                     1,048,025      1,048,025

Subordinated Debentures -
  7-3/4%, due March 31, 2026                                       75,000         75,000

Senior Notes Payable -
  6.78%, due December 1, 2027                                      75,000         75,000

Notes payable -
 Interest rates between 6.31% and 9.00% with a weighted
 average interest rate of
  7.44% and various maturities
  between October 1, 1999 and January 1, 2008                      42,304         40,229

Variable bank loan -
  6.63% -due August, 2003                                           5,600          5,600

Unamortized premium and discount on long-term debt, net            (3,679)        (4,029)
                                                              -----------    -----------

    Total long-term debt, excluding amounts due in one year   $ 1,669,850    $ 1,667,925
                                                              ===========    ===========
</TABLE>
            
     In July 1998,  IWC  refinanced $40 million of first mortgage bonds lowering
the interest rate from 7.875% to 5.05%

      The sinking fund  requirements of long-term debt  outstanding at September
30, 1998  (including the maturity of Northern  Indiana's  first mortgage  bonds:
Series T, 7.50%, due April 1, 2002;  Northern  Indiana's  medium-term  notes due
from March 20, 2000 to July 8,2003; NDC Douglas Properties, Inc.'s notes payable
due October 1,1999 through September 1, 2003; IWC's first mortgage bonds: Series
5.20%,  due May 1, 2001 and Series 8.00%,       due December 15,2001; and IWCR's
senior notes payable,  due March 15, 2001), for each of the twelve-month periods
subsequent to September 30, 1999 are as follows:

<TABLE>
<CAPTION>
Twelve Months Ended September 30,
================================
<S>                <C>
2000               $163,657,346
2001                 49,716,021
2002                 66,985,975
2003                133,810,223
</TABLE>

       Unamortized  debt  expense,   premium  and  discount  on  long-term  debt
applicable  to  outstanding  bonds  are being  amortized  over the lives of such
bonds.  Reacquisition premiums are being deferred and amortized.  These premiums
are not earning a return during the recovery period.

       Northern Indiana's Indenture, securing the first mortgage bonds issued by
Northern  Indiana,  constitutes a direct first mortgage lien upon  substantially
all property and franchises,  other than expressly excepted  property,  owned by
Northern Indiana.

       On May 28, 1997,  Northern Indiana was authorized to issue and sell up to
$217.7 million of its Medium-Term Notes, Series E, with various maturities,  for
purposes of refinancing  certain first mortgage bonds and medium-term  notes. As
of September 30, 1998,  $139.0 million of the medium-term  notes had been issued
with various  interest rates and  maturities.  The proceeds from these issuances
were used to pay short-term  debt incurred to redeem its First  Mortgage  Bonds,
Series N, and to pay at maturity various issues of Medium-Term Notes, Series D.

       IWC's first mortgage  bonds are secured by its utility plant.  Provisions
of trust  indentures  related to the 8% Series Bonds require annual sinking fund
or improvement fund payments  amounting to 1/2% of the maximum  aggregate amount
outstanding. As permitted, this requirement has been satisfied by substituting a
portion of permanent additions to utility plant.

     On July 15, 1998, IWC issued  Refunding  Revenue Bonds,  Series 1998 in the
aggregate  principal  amount of $40 million.  The proceeds  from the Series 1998
Bonds  were used to redeem the City of  Indianapolis,  Indiana  7-7/8%  Economic
Development  Water  Facilities  Revenue  Bonds and the Town of Fishers,  Indiana
7-7/8% Economic  Development  Water  Facilities  Revenue Bonds.  The Series 1998
bonds will bear  interest from July 15, 1998, at the rate of 5.05% per annum and
will mature on July 15, 2028.

      Between March 27, 1997 and May 7, 1997,  Capital  Markets  issued and sold
$300 million of medium-term  notes with various  interest rates and  maturities.
The proceeds from these  issuances were used for the purchase of IWCR and to pay
other outstanding short-term obligations of Capital Markets.

     In  December  1997,  Capital  Markets  issued and sold $75 million of 6.78%
senior notes  payable  which mature  December 1, 2027.  The holders of the notes
have the right to require  Capital Markets to repurchase all or a portion of the
notes on  December  1, 2007 at a purchase  price of the  principal  amount  plus
accrued interest thereon.  The proceeds from these issuances were primarily used
for the payment of Capital  Markets Zero Coupon Notes which matured  December 1,
1997. The remaining net proceeds were used for general corporate purposes.

      The  obligations  of Capital  Markets are  subject to a Support  Agreement
between Industries and Capital Markets,  under which Industries has committed to
make payments of interest and principal on Capital  Markets'  obligations in the
event of a  failure  to pay by  Capital  Markets.  Restrictions  in the  Support
Agreement  prohibit  recourse on the part of Capital Markets'  creditors against
the stock and assets of Northern  Indiana which are owned by  Industries.  Under
the  terms of the  Support  Agreement,  in  addition  to the  cash  flow of cash
dividends paid to Industries by any of its consolidated subsidiaries, the assets
of  Industries,  other  than the  stock  and  assets of  Northern  Indiana,  are
available  as  recourse  for the  benefit of  Capital  Markets'  creditors.  The
carrying  value of the assets of  Industries,  other than the assets of Northern
Indiana,  reflected in the consolidated financial statements of Industries,  was
approximately $1.3 billion at September 30, 1998.

(20) CURRENT  PORTION OF LONG-TERM  DEBT: At September 30, 1998 and December 31,
1997,  Industries'  current portion of long-term debt due within one year was as
follows:

<TABLE>
<CAPTION>
                                                     September 30,        December 31,
(Dollars in thousands)                                  1998                  1997
                                                      ===========         ==========
<S>                                                   <C>                 <C>            
First Mortgage Bonds                                  $    14,509         $   14,509

Medium-term notes -
  Interest rates of 5.83% and 5.95% with a weighted
   average interest rate of 5.86% and various
   maturities between April 6, 1998 and April 13, 1998       --               35,000

Notes payable -
Interest rates of 6.72% and 9.00% with a weighted
   average interest rate of 7.87% and various
   maturities between October 1, 1998
   and September 1, 1999                                    4,709              3,612

Sinking funds due within one year                           1,500              1,500
                                                      -----------         ----------    
   Total current portion of long-term debt            $    20,718         $   54,621
                                                      ===========         ==========
</TABLE>

(21)  SHORT-TERM  BORROWINGS:  Northern  Indiana and Capital Markets make use of
commercial  paper  to  fund  short-term  working  capital  requirements.  As  of
September 30, 1998 and December 31, 1997, Northern Indiana had $67.9 million and
$71.5 million of commercial paper  outstanding,  respectively.  At September 30,
1998, the weighted  average  interest rate of commercial  paper  outstanding was
5.58%. As of September 30, 1998 and December 31, 1997, Capital Markets had $84.0
million and $17.0  million of  commercial  paper  outstanding.  At September 30,
1998, the weighted  average  interest rate of commercial  paper  outstanding was
5.90%.

     In September 1998,  Northern  Indiana entered into a five-year $100 million
revolving credit agreement and a 364-day $100 million revolving credit agreement
with  several  banks.  These  agreements  terminate  on  September  23, 2003 and
September  23,  1999,  respectively.  The 364-day  agreement  may be extended at
expiration  for  additional  periods of 364 days upon the  request  of  Northern
Indiana and agreement by the banks. Under these agreements, Northern Indiana may
borrow funds at a floating  rate of interest or, at Northern  Indiana's  request
under certain  circumstances,  a fixed rate of interest for a short term period.
These agreements  provide  financing  flexibility to Northern Indiana and may be
used to support the issuance of commercial  paper. At September 30, 1998,  there
were no borrowings  outstanding under either of these  agreements.  Concurrently
with  entering  into  such  agreements,  Northern  Indiana  terminated  its then
existing  revolving  credit  agreement  which would otherwise have terminated on
August 19, 1999.

  . In addition, Northern Indiana has $14.2 million in lines of credit which run
to May 31, 1999.  The credit pricing of each of the lines varies from either the
lending banks' commercial prime or market rates.  Northern Indiana has agreed to
compensate  the  participating   banks  with  arrangements  that  vary  from  no
commitment fees to a combination of fees which are mutually satisfactory to both
parties. As of September 30, 1998, there were no borrowings under these lines of
credit.  The lines of credit are also  available  to  support  the  issuance  of
commercial paper.

      Northern  Indiana also has $273.5 million of money market lines of credit.
As of September 30, 1998, there was $25.5 million  outstanding under these lines
of credit. At December 31, 1997, there was $47.5 million outstanding under these
lines of credit.

      Northern  Indiana  has a $50  million  uncommitted  finance  facility.  At
September 30, 1998, there were no borrowings outstanding under this facility.

       In September, 1998, Capital Markets entered into a five-year $100 million
revolving credit agreement and a 364-day $100 million revolving credit agreement
with  several  banks.  These  agreements  terminate  on  September  23, 2003 and
September  23,  1999,  respectively.  The 364-day  agreement  may be extended at
expiration  for  additional  periods  of 364 days upon the  request  of  Capital
Markets and agreement by the banks. Under these agreements,  Capital Markets may
borrow  funds at a floating  rate of interest  or, at Capital  Market's  request
under certain  circumstances,  a fixed rate of interest for a short term period.
These  agreements  provide  financing  flexibility to Capital Markets and may be
used to support the issuance of commercial  paper. At September 30, 1998,  there
were no borrowings  outstanding under either of these  agreements.  Concurrently
with entering into such agreements, Capital Markets terminated its then existing
revolving  credit  agreement which would otherwise have terminated on August 19,
1999.

     Capital  Markets also has $130 million of money market lines of credit.  As
of September  30, 1998 and  December,  1997,  $94.5  million and $20.1  million,
respectively, were outstanding under these lines of credit.

      IWCR and its  subsidiaries  have lines of credit  with  banks  aggregating
$93.7 million. As of September 30, 1998 and December 31, 1997, $85.1 million and
$48.9 million, respectively, were outstanding under these lines of credit.

               At  September  30,  1998  and  December  31,  1997,   Industries'
          short-term borrowings were as follows:
<TABLE>
<CAPTION>
                               September 30,      December 31,
(In thousands)                      1998               1997
                                ===========       ===========
<S>                              <C>                <C>
  Commercial paper               $151,900           $ 88,500
  Notes payable                   211,154            116,469
  Revolving loan facility            --                7,670
                                 --------           --------
   Total short-term borrowings   $363,054           $212,639
                                 ========           ========
</TABLE>

(22)  OPERATING  LEASES:  On April 1,  1990,  Northern  Indiana  entered  into a
twenty-year  agreement for the rental of office facilities from Development at a
current annual rental payment of approximately $3.4 million.

     The following is a schedule,  by years, of future minimum rental  payments,
excluding those to associated  companies,  required under operating  leases that
have initial or remaining  noncancelable lease terms in excess of one year as of
September 30, 1998: 
<TABLE>
<CAPTION>

  Twelve Months Ended September 30,
===========================================
(In thousands)
<S>                                <C>     
   1999                            $ 28,738
   2000                              29,596
   2001                              29,203
   2002                              60,473
   2003                              25,620
   Later years                      293,600
                                   --------
Total minimum payments required    $467,230
                                    =======
</TABLE>
               The consolidated  financial statements include rental expense for
          all operating leases as follows:
<TABLE>
<CAPTION>
                           September 30,      September 30,
(In thousands)                  1998             1997
                            ===========      ===========
<S>                          <C>              <C>    
Three months ended           $  6,167         $ 2,112
Nine months ended              17,699           6,652
Twelve months ended            19,886           9,287
</TABLE>
(23) COMMITMENTS:  The Utilities estimate that approximately $1.019 billion will
be expended  for  construction  purposes  for the period from January 1, 1998 to
December 31, 2002.  Substantial  commitments  have been made by the Utilities in
connection with their programs.

      Northern  Indiana has entered  into a service  agreement  with Pure Air, a
general  partnership  between Air Products and  Chemicals,  Inc. and  Mitsubishi
Heavy Industries America,  Inc., under which Pure Air provides scrubber services
to reduce  sulfur  dioxide  emissions  for  Units 7 and 8 at  Bailly  Generating
Station.  Services  under this  contract  commenced on  September  15, 1992 with
annual charges  approximating $20 million. The agreement provides that, assuming
various  performance  standards are met by Pure Air, a termination payment would
be due if Northern  Indiana  terminates  the  agreement  prior to the end of the
twenty-year contract period.

      During the fourth  quarter of 1995,  Northern  Indiana  entered into a ten
year agreement with IBM to perform all data center,  application development and
maintenance,  and  desktop  management.  Annual  fees  under the  agreement  are
estimated at $20.6 million.

(24)  PRIMARY  ENERGY:  Primary  arranges   energy-related  projects  for  large
energy-intensive   facilities  and  has  entered  into  certain  commitments  in
connection  with  these  projects.   Primary  offers  large  energy   customers,
nationwide, expertise in managing the engineering,  construction,  operation and
maintenance of energy-related  projects.  Primary is the parent of the following
subsidiaries:  Harbor Coal Company (Harbor Coal);  North Lake Energy Corporation
(North Lake);  Lakeside Energy  Corporation  (LEC);  Portside Energy Corporation
(Portside); and Cokenergy, Inc. (CE).

      Harbor Coal has invested in a partnership to finance,  construct,  own and
operate a $65 million  pulverized coal injection facility which began commercial
operation in August  1993.  The facility  receives raw coal,  pulverizes  it and
delivers it to Inland Steel Company  (Inland  Steel) for use in the operation of
its blast  furnaces.  Harbor Coal is a 50% partner in the project with an Inland
Steel  affiliate.  Industries has guaranteed the payment and  performance of the
partnership's obligations under a sale and leaseback of a 50% undivided interest
in the facility.

      North Lake has entered  into a lease for the use of a  75-megawatt  energy
facility  located at Inland Steel.  The facility uses steam  generated by Inland
Steel to produce  electricity  which is delivered to Inland Steel.  The facility
began commercial  operation in May 1996.  Industries has guaranteed North Lake's
obligations  relative  to the  lease and  certain  obligations  to Inland  Steel
relative to the project.

      LEC has entered into a lease for the use of a 161-megawatt energy facility
located at USS Gary  Works.  The  facility  processes  high-pressure  steam into
electricity  and  low-pressure  steam for delivery to USX  Corporation-US  Steel
Group. The fifteen-year  tolling  agreement with US Steel commenced on April 16,
1997 when the  facility  was placed in  commercial  operation.  Capital  Markets
guarantees LEC's security deposit obligations  relative to the lease and certain
limited LEC obligations to the lessor.

      Portside has entered into an agreement  with  National  Steel  Corporation
(National)  to utilize a  63-megawatt  energy  facility  at  National's  Midwest
Division to process natural gas into electricity, process steam and heated water
for a fifteen-year period.  Portside has entered into a lease with a third-party
lessor for use of the facility.  Capital Markets has guaranteed certain Portside
obligations  to the lessor.  Construction  of the project began in June 1996 and
the facility began commercial operation on September 26, 1997.

      CE has entered into a fifteen-year service agreement with Inland Steel and
the Indiana Harbor Coke Company,  LP (Harbor Coke), a subsidiary of Sun Company,
Inc.  This  agreement  provides  that CE will  utilize a new energy  facility at
Inland  Steel's  Indiana Harbor Works to scrub flue gases and recover waste heat
from Harbor Coke's coke facility and produce process steam and electricity  from
the recovered heat which will be delivered to Inland Steel.  CE has entered into
a lease  for the use of these  facilities  with a third  party  lessor.  Capital
Markets guarantees certain CE obligations relative to the lease. Construction of
the  project  began in January  1997.  The  facility is now  conducting  startup
operations with commercial operation being anticipated before December 31, 1998.

      Primary has advanced  approximately  $36.8  million and $107  million,  at
September  30, 1998 and December 31, 1997,  respectively,  to the lessors of the
energy  related  projects  discussed  above.  These net advances are included in
"Other  Receivables"  in the  Consolidated  Balance  Sheet and as a component of
operating activities in the Consolidated Statement of Cash Flows.

     Primary is  evaluating  other  potential  projects  with  Northern  Indiana
customers  as well as with  potential  customers  outside of Northern  Indiana's
service  territory.   Projects  under  consideration  include  those  which  use
industrial  by-product fuels and natural gas to produce  electricity . (25) FAIR
VALUE OF FINANCIAL INSTRUMENTS:  The following methods and assumptions were used
to estimate the fair value of each class of financial  instruments  for which it
is practicable to estimate that value:

     Cash and cash  equivalents:  The carrying  amount  approximates  fair value
because of the short maturity of those instruments.

     Investments:  The fair value of the  majority  of  investments  is based on
market prices for those or similar investments.

     Long-term  debt/Preferred  stock:  The  fair  value of  long-term  debt and
preferred  stock is estimated  based on the quoted market prices for the same or
similar  issues or on the rates offered to Industries for securities of the same
remaining maturities. Certain premium costs associated with the early settlement
of long-term debt are not taken into consideration in determining fair value.

      The carrying  values and estimated  fair values of  Industries'  financial
instruments (excluding derivatives) are as follows:
<TABLE>
<CAPTION>
                                                                 
                                                              
                                      September 30, 1998             December 31, 1997   
                                  --------------------------   ---------------------------
                                    Carrying      Estimated      Carrying      Estimated
(In thousands)                       Amount       Fair Value      Amount       Fair Value
                                    ========      ========        ========     ========
<S>                                <C>          <C>            <C>          <C>
Cash and cash equivalents          $   32,490   $   32,490     $   30,780   $   30,780
Investments                            43,608       42,497         32,625       32,886
Long-term debt (including
 current portion)                   1,690,568    1,776,050      1,722,546    1,718,897
Preferred stock                       144,433      138,158        146,289      139,814

</TABLE>
      The  majority of the  long-term  debt relates to utility  operations.  The
Utilities  are  subject to  regulation,  and gains or losses may be  included in
rates  over a  prescribed  amortization  period,  if in fact  settled at amounts
approximating those above.

(26) CUSTOMER  CONCENTRATIONS:  Industries' utility  subsidiaries supply natural
gas, electric energy and water.  Natural gas and electric energy are supplied to
the northern third of Indiana.  The water utilities serve Indianapolis,  Indiana
and surrounding areas.  Although the Energy Utilities have a diversified base of
residential and commercial  customers,  a substantial  portion of their electric
and gas industrial  deliveries are dependent upon the basic steel industry.  The
basic  steel  industry  accounted  for  3%  and  4% of  gas  revenue  (including
transportation  services)  and 13% and 19% of  electric  revenue  for the twelve
months ended September 30, 1998 and September 30, 1997, respectively.

(27)  BUSINESS  SEGMENTS:  Industries  adopted SFAS No. 131  "Disclosures  about
Segments of an Enterprise and Related  Information"  during the first quarter of
1998.  SFAS No.  131  establishes  standards  for  reporting  information  about
operating  segments in financial  statements and disclosures  about products and
services,  and geographic areas. Operating segments are defined as components of
an  enterprise  for which  separate  financial  information  is available and is
evaluated  regularly by the chief  operating  decision  maker in deciding how to
allocate resources and in assessing performance.

     Industries has four reportable operating segments: Gas, Electric, Water and
Gas Marketing.  The Gas segment  includes  regulated gas utilities which provide
natural gas distribution and  transportation  services.  The Electric segment is
comprised  principally of Northern Indiana, a regulated electric utility,  which
generates,  transmits and  distributes  electricity.  In addition,  the Electric
segment includes a wholesale power marketing  operation which markets  wholesale
power to other  utilities  and  electric  power  marketers.  The  Water  segment
includes regulated water utilities which provide distribution of water supply to
the public.  The Gas Marketing  segment provides natural gas marketing and sales
to wholesale and industrial customers.  The Other Products and Services category
includes a variety of energy-related  businesses,  such as installation,  repair
and  maintenance  of underground  pipelines;  utility line locating and marking;
transmission of natural gas through pipelines; the arrangement of energy-related
projects  for  large  energy-intensive   facilities;  and  other  energy-related
products.

     Industries'  reportable segments are operations that are managed separately
and meet the quantitative thresholds required by SFAS No. 131.

     Revenues for each of Industries'  segments are principally  attributable to
customers in the United States.  Additional revenues, which are insignificant to
Industries'  consolidated  revenues, are attributable to customers in Canada and
the United Kingdom.

     The  following  tables  provides  information  about  Industries'  business
segments.  Industries  uses income before  interest and other charges and income
taxes as its primary measurement for each of the reported segments.  Adjustments
have been made to the segment  information to arrive at information  included in
the results of operations and financial position of Industries. Such adjustments
include  unallocated  corporate  revenues and expenses  and the  elimination  of
intercompany transactions,  a majority of which are intercompany receivables and
payables.  The  accounting  policies of the  operating  segments are the same as
those described in Note 2, "Summary of Significant Accounting Policies."

<TABLE>
<CAPTION> 
                                                                                    
(In thousands)                                                                             Other
For the three months ended                                                       Gas      Products
September 30, 1998                        Gas      Electric       Water      Marketing   & Services   Adjustments    Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>          <C>    
Operating revenues                   $   80,953   $  469,119   $   24,374   $  136,746   $   67,985   $  (31,385)  $  747,792
Other Income (Deductions)            $      153   $      181   $      355   $      417   $      159   $    1,605   $    2,870
Depreciation and amortization        $   18,868   $   39,438   $    2,968   $       77   $    3,012   $       54   $   64,417
Income before Interest and Other
   Charges and Income Taxes          $  (15,338)  $  108,107   $    9,163   $    1,555   $   10,119   $  (13,788)  $   99,818
Assets                               $  918,549   $2,509,137   $  $604,971  $   74,549   $1,461,588   $ (731,564)  $4,837,230

                                                                                      
 (In thousands)                                                                           Other
For the three months ended                                                       Gas      Products
September 30, 1997                        Gas      Electric       Water      Marketing   & Services   Adjustments    Total
-----------------------------------------------------------------------------------------------------------------------------------
Operating revenues                   $   90,258   $  342,030   $   23,577   $  108,068   $   64,108   $  (31,726)  $  596,315
Other Income (Deductions)            $      (26)  $      108   $      414   $      475   $    3,783   $     (990)  $    3,764
Depreciation and amortization        $   18,414   $   39,084   $    2,584   $       58   $    3,066   $    1,506   $   64,712
Income before Interest and Other
  Charges and Income Taxes           $  (18,113)  $   94,419   $    9,815   $      732   $   17,638   $  (14,317)  $   90,174

Assets                               $  956,110   $2,536,672   $  547,581   $   72,908   $1,098,615   $ (415,973)  $4,795,913

                                                                                     
 (In thousands)                                                                           Other
For the nine months ended                                                        Gas      Products   
September 30, 1998                        Gas      Electric       Water      Marketing   & Services   Adjustments    Total
-----------------------------------------------------------------------------------------------------------------------------------
Operating revenues                   $  434,033   $1,138,592   $   62,940   $  451,543   $  187,142  $  (94,706)   $2,179,544
Other Income (Deductions)            $    1,065   $      354   $      575   $    1,588   $    4,719  $    2,086    $   10,387
Depreciation and amortization        $   56,390   $  117,162   $    8,616   $      193   $    8,813  $      160    $  191,334
Income before Interest and Other
   Charges and Income Taxes          $   30,590   $  258,885   $   21,022   $    3,711   $   29,196  $  (39,912)   $  303,492
Assets                               $  918,549   $2,509,137   $  604,971   $   74,549   $1,461,588  $ (731,564)   $4,837,230



                                                                                     
 (In thousands)                                                                           Other
For the nine months ended                                                        Gas      Products&
September 30, 1997                        Gas      Electric       Water      Marketing   & Services   Adjustments    Total
------------------------------------------------------------------------------------------------------------------------------------
Operating revenues                   $  544,668   $  874,344   $   42,372   $  278,441   $  151,818   $ (112,191)  $1,779,452
Other Income (Deductions)            $       53   $      359   $      872   $    2,828   $   14,602   $   (1,725)  $   17,475
Depreciation and amortization        $   54,616   $  116,188   $    5,151   $      173   $    8,617   $    2,726   $  187,471
Income before Interest and Other
  Charges and Income Taxes           $   43,989   $  232,422   $   15,959   $    6,912   $   42,244   $  (35,107)  $  306,419
Assets                               $  956,110   $2,536,672   $  547,581   $   72,908   $1,098,615   $ (415,973)  $4,795,913



                                                                                      
 (In thousands)                                                                           Other
For the twelve months ended                                                      Gas      Products&
September 30, 1998                        Gas      Electric       Water      Marketing   & Services   Adjustments    Total
--------------------------------------------------------------------------------------------------------------------------
Operating revenues                   $  696,604   $1,450,579   $   81,311   $  654,088   $  247,408   $ (143,357)  $2,986,633
Other Income (Deductions)            $    1,348   $      632   $    1,167   $    2,109   $    1,054   $    2,370   $    8,680
Depreciation and amortization        $   74,621   $  154,818   $   11,101   $      253   $   11,910   $      964   $  253,667
Income before Interest and Other
  Charges and  Income Taxes          $   75,551   $  338,706   $   27,665   $    3,884   $   35,936   $  (58,348)  $  423,394
Assets                               $  918,54    $2,509,137   $  604,971   $   74,549   $1,461,588   $ (731,564)  $4,837,230


                                                                                     
 (In thousands)                                                                            Other
For the twelve months ended                                                      Gas       Products
September 30, 1997                        Gas      Electric       Water      Marketing   & Services   Adjustments    Total
------------------------------------------------------------------------------------------------------------------------------------
Operating revenues                   $  816,223   $1,127,143   $   42,372   $  354,315   $  179,295$  (159,823)      $2,359,525
Other Income (Deductions)            $      911   $      614   $      872   $    3,643   $   16,498$    (1,680)      $   20,858
Depreciation and amortization        $   71,670   $  151,414   $    5,151   $      183   $   16,715$     2,768       $  247,901
Income before Interest and Other
  Charges and  Income Taxes          $   87,067   $ 309,368    $   15,959   $    9,938   $   39,210$   (43,470)     $   418,072
Assets                               $  956,110   $2,536,672   $  547,581   $   72,908   $1,098,615 $ (415,973)      $4,795,913

</TABLE>
               ITEM  2.  MANAGEMENT'S   DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS


HOLDING COMPANY -

      NIPSCO Industries,  Inc. (Industries) is an  energy/utility-based  holding
company providing  electric energy,  natural gas and water to the public through
its six wholly-owned regulated subsidiaries (Utilities): Northern Indiana Public
Service Company  (Northern  Indiana);  Kokomo Gas and Fuel Company (Kokomo Gas);
Northern  Indiana  Fuel and Light  Company,  Inc.  (NIFL);  Crossroads  Pipeline
Company  (Crossroads);  Indianapolis  Water  Company  (IWC);  and Harbour  Water
Corporation  (Harbour).  Industries'  regulated  gas and  electric  subsidiaries
(Northern  Indiana,  Kokomo Gas, NIFL and Crossroads) are referred to as "Energy
Utilities"; and regulated water subsidiaries (IWC, and Harbour,) are referred to
as "Water Utilities."

               Industries  also  provides  non-regulated  energy/utility-related
          products and services  including gas marketing and trading;  wholesale
          electric  marketing;  power generation;  gas transmission,  supply and
          storage;   installation,   repair  and   maintenance   of  underground
          pipelines;  utility line  locating and marking;  and related  products
          targeted  at  customer  segments  principally  through  the  following
          wholly-owned   subsidiaries:    NIPSCO   Development   Company,   Inc.
          (Development);  NI Energy Services,  Inc. (Services);  Primary Energy,
          Inc. (Primary); Miller Pipeline Corporation (Miller); and SM&P Utility
          Resources, Inc. (SM&P). NIPSCO Capital Markets, Inc. (Capital Markets)
          handles  financing for  Industries  and its  subsidiaries,  other than
          Northern  Indiana  and  IWCR.  These  subsidiaries,   other  than  the
          wholesale  power  marketing  operations  of Services,  are referred to
          collectively as "Products and Services."

     On March 25, 1997,  Industries  acquired IWC Resources  Corporation (IWCR).
IWCR's subsidiaries include two regulated water utilities (IWC, and Harbour) and
five  non-utility  companies  providing  utility-related  products  and services
including  installation,  repair and  maintenance of  underground  pipelines and
utility line locating and marking. The two primary non-utility  subsidiaries are
Miller and SM&P.  Industries'  results of  operations  include  three,  nine and
twelve months of operating results from IWCR for the three-month, nine-month and
twelve-month  periods ended  September 30, 1998,  and three months for the three
month period and six months for the nine-month,  and twelve-month  periods ended
September 30, 1997.


REVENUES -

      Total  operating  revenues for the twelve months ended  September 30, 1998
increased  $627.1  million as compared to the twelve months ended  September 30,
1997. The increase includes $100.6 million reflecting twelve months of operating
revenues  from IWCR for the  period.  Gas  revenues  decreased  $119.6  million,
electric revenues  increased $323.4 million and Products and Services  revenues,
excluding Pipeline construction,  Locate and marking,  increased $322.7 million,
as compared to the same period in 1997.  The decrease in gas revenues was mainly
due to  decreased  sales to  residential  and  commercial  customers  reflecting
unusually  warm weather during the first quarter of 1998,  decreased  industrial
sales,  decreased  gas  transition  costs and  decreased  gas cost per dekatherm
(dth), partially offset by increased wholesale sales and increased deliveries of
gas  transported  for  others.  The  increase in  electric  revenues  was mainly
attributable to increased  sales to residential and commercial  customers due to
warmer  weather  during  the second and third  quarter  of 1998,  and  increased
wholesale  transactions,  partially  offset  by  decreased  sales to  industrial
customers and decreased fuel costs per kilowatt-hour (kwh). Increased volumes in
gas  marketing to existing and new  customers  resulted in an increase of $315.5
million in Products and  Services  revenues  for the  twelve-month  period ended
September 30, 1998. For the twelve months ended  September 30, 1998,  volumes in
gas marketing  were 249.4 million dth, an increase of 137.2 million dth over the
same period in 1997.

     Total  operating  revenues  for the nine months  ended  September  30, 1998
increased  $400.1  million as compared to the nine months  ended  September  30,
1997. The increase  includes $51.0 million  reflecting  nine months of operating
revenues  from IWCR for the  period.  Gas  revenues  decreased  $110.6  million,
electric revenues  increased $264.2 million and Products and Services  revenues,
excluding Pipeline construction,  Locate and marking,  increased $195.5 million,
as compared to the same period in 1997. The decrease in gas revenues was largely
attributable to decreased  sales to residential and commercial  customers due to
unusually warm weather during the first quarter of 1998, decreased gas costs per
dekatherm  (dth),  decreased  sales to  industrial  customers  and decreased gas
transition  costs which were partially  offset by increased  wholesale sales and
increased  deliveries of gas  transported  for others.  The increase in electric
revenues  was  mainly   attributable  to  increased  sales  to  residential  and
commercial  customers due to warmer  weather during the second and third quarter
of 1998 and increased wholesale transactions. Increased volumes in gas marketing
to existing and new customers  resulted in an increase of $194.2  million in the
Products and Services  revenues for the  nine-month  period ended  September 30,
1998.  For the nine months ended  September  30, 1998,  volumes in gas marketing
were 193.4 million dth, an increase of 100.7 million dth over the same period in
1997.

     Total  operating  revenues for the three months  ended  September  30, 1998
increased  $151.5  million as compared to the three months ended  September  30,
1997. Gas revenues  decreased $9.3 million,  electric revenues  increased $127.1
million,  water  revenues  increased  $0.8  million,  and  Products and Services
revenues,  increased  $32.9  million  compared to the same  period in 1997.  The
decrease  in  gas  revenues  was  mainly  attributable  to  decreased  sales  to
residential  and  commercial  customers as a result of warmer weather during the
third  quarter,  decreased gas cost per dth and decreased gas  transition  costs
partially  offset by  increased  sales to wholesale  customers.  The increase in
electric revenues was mainly  attributable to increased sales to residential and
commercial customers due to warmer weather and increased wholesale transactions,
partially offset by decreased  industrial sales and decreased fuel cost per kwh.
Increased  volumes in gas marketing  resulted in an increase of $29.2 million in
Products and Services  revenues for the  three-month  period ended September 30,
1998. For the three-months  ended September 30, 1998, gas marketing volumes were
66.5  million  dth, an increase of 25.0 million dth compared to the three months
ended September 30, 1997.

      The basic  steel  industry  accounted  for 35% of  natural  gas  delivered
(including  volumes  transported)  and 16% of  electric  sales  for  the  Energy
Utilities for the twelve months ended September 30, 1998.

    The  components of the variations in gas,  electric,  water and Products and
Services revenues are shown in the following table:
 <TABLE>
<CAPTION>
                                                Variations from Prior Periods

                              ---------------------------------------------------------------------
                                       September 30,1998  Compared to September 30, 1997

                             ---------------------------------------------------------------------
                                       Three             Nine          Twelve
(In thousands)                         Months            Months         Months
                                       =======          ========       =======
<S>                                      <C>          <C>          <C>
Gas Revenue -
  Pass through of net changes in
    purchased gas costs, gas storage,
     and storage transportation costs   $  (4,985)   $ (29,874)   $ (38,189)
  Gas transition costs                     (5,109)     (18,695)     (22,659)
  Changes in sales levels                     479      (63,824)     (61,283)
Gas transported                               310        1,758        2,512
                                        ---------    ---------    ---------
Gas Revenue Change                         (9,305)    (110,635)    (119,619)
                                        ---------    ---------    ---------
Electric Revenue                             --
  Pass through of net changes
     in fuel costs                         (4,033)      (5,094)      (6,458)
  Changes in sales levels                  36,324       59,304       55,853
  Wholesale electric marketing             94,798      210,038      274,041
                                        ---------    ---------    ---------
Electric Revenue Change                   127,089      264,248      323,436
                                        ---------    ---------    ---------
Water Revenue Change                          797       20,568       38,939
                                        ---------    ---------    ---------
Products and Services Revenues -
  Gas marketing                            29,183      194,163      315,494
  Pipeline construction                     1,466       12,059       27,404
  Locate and marking                        2,219       15,483       29,917
  Other                                        28        4,206       11,537
                                        ---------    ---------    ---------
Products and Services Revenue Change       32,896      225,911      384,352
                                        ---------    ---------    ---------
   Total Revenue Change                 $ 151,477    $ 400,092    $ 627,108
                                        =========    =========    =========
</TABLE>
See "Summary of Significant Accounting Policies - Gas Cost Adjustment Clause" in
the Notes to  Consolidated  Financial  Statements  for a discussion  of gas cost
incentive  mechanism.  Also,  see  Note 6 to  Notes  to  Consolidated  Financial
Statements regarding FERC Order No. 636 transition costs.

GAS COSTS -

      The Energy Utilities' gas costs decreased $10.3 million, $88.0 million and
$97.6 million for the three-month,  nine-month,  and twelve-month  periods ended
September  30, 1998,  respectively.  Gas costs  decreased  for the  three-month,
nine-month,  and twelve-month periods due to decreased gas purchases,  decreased
gas  transition  costs and decreased gas costs per dth. The average cost for the
Energy   Utilities'   purchased  gas  for  the  three-month,   nine-month,   and
twelve-month  periods  ended  September  30,  1998,  after  adjustment  for  gas
transition costs billed to transport  customers,  was $2.56, $2.67 and $2.87 per
dth,  respectively,  as compared to $3.09,  $3.10 and $3.22 per dth for the same
periods in 1997.

FUEL AND PURCHASED POWER -

      The cost of fuel for electric  generation  increased  $7.2 million,  $15.2
million  and $15.3  million for the  three-month,  nine-month  and  twelve-month
periods  ended  September 30, 1998,  compared to the 1997  periods,  mainly as a
result of increased production of electricity.

      Power purchased increased for the three-month, nine-month and twelve-month
periods ended September 30, 1998 reflecting  increased wholesale power marketing
activities.

COST OF PRODUCTS AND SERVICES -

      The cost of sales for Products and Services  increased  $363.9 million for
the twelve months ended September 30, 1998. The increase  includes $44.8 million
reflecting  twelve  months of cost of sales from IWCR for the period.  Increased
volumes in gas marketing  activities  increased cost of sales $327.5 million for
the twelve months ended September 30, 1998,  compared to the twelve months ended
September 30, 1997.

     The cost of sales for Products and Services  increased  $219.3  million for
the nine months  ended  September  30, 1998,  compared to the 1997  period.  The
increase  includes  $23.4  million  related to the cost of sales for IWCR in the
current period.  Increased volumes in gas marketing activities increased cost of
sales $203.1 million for the nine months ended  September 30, 1998,  compared to
the nine months ended September 30, 1997.

       The cost of sales for Products and Services  increased  $32.1 million for
the three months ended  September  30, 1998,  compared to the 1997 period mainly
due to increased  volumes in gas marketing  activities,  which increased cost of
sales $31.4 million for the three months ended  September 30, 1998,  compared to
the three months ended September 30, 1997.

OPERATING MARGINS -

      Operating margins for the twelve months ended September 30, 1998 increased
$59.7 million from the same period a year ago. The increase in operating margins
includes  $55.7  million  related  to twelve  months of IWCR  operations  in the
period. The operating margin from gas deliveries  decreased $22.0 million due to
decreased sales to residential  and commercial  customers  reflecting  unusually
warm weather in the first quarter of 1998 and decreased  industrial  sales which
were partially offset by increased sales to wholesale  customers,  and increased
deliveries of gas transported for others.  Electric  operating  margin increased
$22.3  million  mainly  as a  result  of  increased  sales  to  residential  and
commercial customers due to warmer weather and increased wholesale transactions,
which were partially  offset by additional  wholesale power marketing costs. The
operating  margin for Products and Services,  excluding  Pipeline  construction,
Locate and marking,  increased $3.7 primarily due to increased margin at Primary
Energy.

     Operating  margins for the nine months ended  September 30, 1998  increased
$24.1 million from the same period a year ago. The increase in operating margins
includes $27.5 million  related to nine months of IWCR operations in the current
period.  Gas operating  margin decreased $22.7 million due to decreased sales to
residential and commercial  customers  reflecting  unusually warm weather during
the first  half of 1998 and  decreased  industrial  sales,  partially  offset by
increased  wholesale  sales and  increased  deliveries  of gas  transported  for
others.  Electric operating margin increased $19.6 million mainly as a result of
increased  sales to residential  and commercial  customers due to warmer weather
and increased wholesale transactions,  which were partially offset by additional
wholesale power marketing costs. The operating margin for Products and Services,
excluding Pipeline construction, Locate and marking, decreased $0.3 million.

      Operating  margins for the three months ended September 30, 1998 increased
$17.0  million from the same period a year ago. Gas operating  margin  increased
$1.0  million  due to  increased  sales to  wholesale  customers  and  increased
deliveries of gas transported for others  partially offset by decreased sales to
residential and commercial customers reflecting milder weather during the period
and decreased  industrial  sales.  Electric  operating  margin  increased  $14.4
million  mainly  as  a  result  of  warmer   weather  and  increased   wholesale
transactions.  Water  operating  margin  increased  $0.8  million in the current
period due to increased  volumes sold and increased water rates for Indianapolis
Water Company  effective  April 8, 1998.  The operating  margin for Products and
Services increased $0.8 million, primarily reflecting increased operating margin
from locate activity.

OPERATING EXPENSES AND TAXES -

     Operation  expenses  increased  $22.5 million for the  twelve-month  period
ended  September  30,  1998.  Operation  expense  includes  an increase of $35.8
million reflecting a full year of operations of IWCR for the twelve-month period
ended  September  30,  1998.  New  operations  at  Primary  Energy  subsidiaries
increased  lease  expenses by  approximately  $19.4  million.  This increase was
partially  offset by decreased  operation  expenses at Northern Indiana of $28.3
million for the twelve-month period ended September 30, 1998, mainly as a result
of  decreased  employee  related  costs of $11.1  million,  decreased  marketing
activity  of  $10.3  million,  and  decreased  property  insurance  cost of $1.8
million. Operation expenses, excluding IWCR, for the nine months ended September
30, 1998  decreased  $10.9  million.  Operation  expenses  at  Northern  Indiana
decreased  $20.9  million for the nine months  ended  September  30, 1998 mainly
reflecting  decreased  employee  related  costs of $9.4  million  and  decreased
marketing  activity of $6.9 million,  and decreased  property insurance costs of
$1.3 million partially offset by increased  operating expenses of Primary Energy
subsidiaries.  Operation  expenses  increased  $3.2 million for the  three-month
period ended  September 30, 1998  compared to the same period in 1997  primarily
due to  increased  lease  expenses  at Primary  Energy and  increased  operation
expenses at Services.

      Maintenance  expenses  increased  $6.6.and $2.9 million for the twelve and
nine month  periods  ended  September 30, 1998,  mainly  reflecting  maintenance
expenses of the Water Utilities and increased  maintenance  activity at Northern
Indiana.  Maintenance expenses increased $1.2 million for the three-month period
ended  September  30,  1998  mainly  reflecting  increased  electric  production
maintenance activity at Northern Indiana.

      Depreciation  and  amortization  expenses  increased $3.9 million and $5.8
million for the nine-month and  twelve-month  periods ended  September 30, 1998,
respectively, primarily reflecting depreciation and amortization at IWCR.

OTHER INCOME (DEDUCTIONS) -

      Other Income (Deductions)  decreased $0.9 million,  $7.1 million and $12.2
million for the three-month, nine-month and twelve-month periods ended September
30,  1998,  respectively.  Other Income  (Deductions)  for the  three-month  and
nine-month  periods decreased  primarily as a result of lower equity earnings in
certain oil and gas investments. Additionally, Other Income (Deductions) for the
twelve-month  period ended September 30, 1998 reflects a loss on the disposition
of property as compared to gains on disposition of properties in the same period
a year ago.

INTEREST AND OTHER CHARGES -

      Interest and other charges  increased for the three-month,  nine-month and
twelve-month  periods ended  September 30, 1998  reflecting the issuance of $300
million of Capital Markets'  medium-term  notes, $75 million of Capital Markets'
Junior  Subordinated  Deferrable  Interest  Debentures,  Series  A and  interest
expense at IWCR.


NET INCOME -

      Industries'  net income for the  twelve-month  period ended  September 30,
1998 was $189.2 million compared to $186.4 million for the  twelve-month  period
ended September 30, 1997.

               Net income  for the nine  months  ended  September  30,  1998 was
          $133.3  million  compared to $134.9  million for the nine months ended
          September 30, 1997.

               Net income for the three  months  ended  September  30,  1998 was
          $43.1  million  compared to $35.9  million for the three  months ended
          September 30, 1997.


ENVIRONMENTAL MATTERS -

      The  Utilities  have an  ongoing  program  to  remain  aware  of laws  and
regulations involved with hazardous waste and other environmental matters. It is
the Utilities'  intent to continue to evaluate  their  facilities and properties
with respect to these rules and identify any sites that would require corrective
action.  The Utilities have recorded a reserve of  approximately  $16 million to
cover  probable   corrective   actions  as  of  September  30,  1998;   however,
environmental  regulations  and  remediation  techniques  are  subject to future
change.  The  ultimate  cost could be  significant,  depending  on the extent of
corrective  actions  required.   Based  upon   investigations  and  management's
understanding  of current laws and regulations,  the Utilities  believe that any
corrective  actions  required,  after  consideration of insurance  coverages and
contributions  from  other  potentially  responsible  parties,  will  not have a
significant  impact on the  results  of  operations  or  financial  position  of
Industries.

     The EPA has notified Northern Indiana that it is a "potentially responsible
party" (PRP) under the  Comprehensive  Environmental  Response  Compensation and
Liability  Act  (CERCLA)  and may be required to share in the cost of cleanup of
several  waste  disposal  sites  identified by the EPA. The sites are in various
stages  of  investigation,  analysis  and  remediation.  At each  of the  sites,
Northern Indiana is one of several PRPs, and it is expected that remedial costs,
as provided  under  CERCLA,  will be shared among them.  At some sites  Northern
Indiana and/or the other named PRPs are presently  working with the EPA to clean
up the sites and avoid the imposition of fines or added costs.

      Refer to Note 7 "Environmental Matters" of notes to consolidated financial
statements for a more detailed discussion of the status of certain environmental
issues.

LIQUIDITY AND CAPITAL RESOURCES -

      During the next few years, it is anticipated that the majority of earnings
available  for  distribution  of dividends  will depend upon  dividends  paid to
Industries by Northern Indiana.  See Note 15 of Notes to Consolidated  Financial
Statements for a discussion of the Common Share dividend.

     Cash flow from operations has provided sufficient liquidity to meet current
operating  requirements.  Because of the seasonal nature of the utility business
and the  construction  program,  Northern  Indiana makes use of commercial paper
intermittently  as short-term  financing.  As of September 30, 1998 and December
31, 1997,  Northern  Indiana had $67.9  million and $71.5  million of commercial
paper  outstanding,  respectively.  At September 30, 1998, the weighted  average
interest rate of commercial paper outstanding was 5.58%.

     In September 1998,  Northern  Indiana entered into a five-year $100 million
revolving credit agreement and a 364-day $100 million revolving credit agreement
with  several  banks.  These  agreements  terminate  on  September  23, 2003 and
September  23,  1999,  respectively.  The 364-day  agreement  may be extended at
expiration  for  additional  periods of  364-days  upon the  request of Northern
Indiana and agreement by the banks. Under these agreements, Northern Indiana may
borrow funds at a floating  rate of interest or, at Northern  Indiana's  request
under certain  circumstances,  a fixed rate of interest for a short term period.
These agreements  provide  financing  flexibility to Northern Indiana and may be
used to support the issuance of commercial  paper. At September 30, 1998,  there
were no borrowings  outstanding under either of these  agreements.  Concurrently
with  entering  into  such  agreements,  Northern  Indiana  terminated  its then
existing  revolving  credit  agreement  which would otherwise have terminated on
August 19, 1999.

      In addition,  Northern  Indiana has $14.2 million in lines of credit.  The
credit  pricing  of each of the lines  varies  from  either the  lending  banks'
commercial prime or market rates.  Northern Indiana has agreed to compensate the
participating  banks with  arrangements  that vary from no commitment  fees to a
combination  of fees which are  mutually  satisfactory  to both  parties.  As of
September 30, 1998,  there were no borrowings  under these lines of credit.  The
Credit  Agreement and lines of credit are also available to support the issuance
of commercial paper.

      Northern  Indiana also has $273.5 million of money market lines of credit.
As of September 30, 1998 there was $25.5 million  outstanding  under these lines
of credit At December 31, 1997, there was $47.5 million  outstanding under these
lines of credit.

      Northern  Indiana  has a $50  million  uncommitted  finance  facility.  At
September 30, 1998, there were no borrowings outstanding under this facility.

      During  recent  years,  Northern  Indiana  has been  able to  finance  its
construction  program with internally  generated funds and expects to be able to
meet future commitments through such funds.

     As of September 30, 1998 and December 31, 1997,  Capital  Markets had $84.0
million and $17.0 million,  respectively,  of commercial paper  outstanding.  At
September 30, 1998,  the weighted  average  interest  rate of  commercial  paper
outstanding was 5.90%.

     In September,  1998,  Capital Markets entered into a five-year $100 million
revolving credit agreement and a 364-day $100 million revolving credit agreement
with  several  banks.  These  agreements  terminate  on  September  23, 2003 and
September  23,  1999,  respectively.  The 364-day  agreement  may be extended at
expiration  for  additional  periods  of  364-days  upon the  request of Capital
Markets and agreement by the banks. Under these agreements,  Capital Markets may
borrow,  repay and reborrow  funds at a floating rate of interest or, at Capital
Market's request under certain circumstances,  at a fixed rate of interest for a
short term period.  These agreements  provide  financing  flexibility to Capital
Markets  and may be  used to  support  the  issuance  of  commercial  paper.  At
September 30, 1998, there were no borrowings  outstanding  under either of these
agreements.  Concurrently  with entering into such  agreements,  Capital Markets
terminated its then existing  revolving  credit  agreement which would otherwise
have terminated on August 19, 1999.

      Capital Markets also has $130 million of money market lines of credit.  As
of September 30, 1998 and December 31, 1997,  $94.5 million and $20.1 million of
borrowings were outstanding, respectively, under these lines of credit.

      The  financial  obligations  of Capital  Markets  are subject to a Support
Agreement  between  Industries and Capital  Markets,  under which Industries has
committed  to make  payments  of  interest  and  principal  on Capital  Markets'
obligations in the event of a failure to pay by Capital Markets. Restrictions in
the  Support  Agreement  prohibit  recourse  on the  part  of  Capital  Markets'
creditors  against the stock and assets of Northern  Indiana  which are owned by
Industries.  Under the terms of the Support  Agreement,  in addition to the cash
flow  of  cash  dividends  paid  to  Industries  by  any  of  its   consolidated
subsidiaries,  the  assets of  Industries,  other  than the stock and  assets of
Northern Indiana,  are available as recourse for the benefit of Capital Markets'
creditors. The carrying value of the assets of Industries, other than the assets
of Northern  Indiana,  reflected in the  consolidated  financial  statements  of
Industries, was approximately $1.3 billion at September 30, 1998.

     On March 25, 1997,  Industries acquired all the outstanding common stock of
IWCR for $290.5  million.  Industries  financed  this  transaction  with debt of
approximately  $83.0  million and the  issuance of  approximately  10.6  million
Industries'  common  shares.  Industries  accounted  for  the  acquisition  as a
purchase and the  purchase  price was  allocated  to the assets and  liabilities
acquired based on their fair values.

     IWCR and its subsidiaries have lines of credit with banks aggregating $93.7
million.  At September 30, 1998, and December 31, 1997,  $85.1 million and $48.9
million were outstanding under these lines of credit, respectively.

      Industries  does not expect the effects of inflation at current  levels to
have a significant impact on its results of operations,  ability to contain cost
increases,  or the Utilities' need to seek timely and adequate rate relief.  The
Energy  Utilities do not  anticipate  the need to file for gas and electric base
rate increases in the near future.

YEAR 2000-

     Risks.  Year 2000  issues  address  the  ability of  electronic  processing
equipment to process  date  sensitive  information  and  recognize  the last two
digits of a date as occurring  in or after the year 2000.  Any failure in one of
Industries'  systems may result in material  operational  and  financial  risks.
Possible  scenarios  include  a system  failure  in one  Industries'  generating
plants, an operating disruption or delay in transmission or distribution,  or an
inability  to  interconnect  with the systems of other  utilities.  In addition,
while Industries  currently  anticipates that its own  mission-critical  systems
will be year  2000  compliant  in a timely  fashion,  it  cannot  guarantee  the
compliance of systems  operated by other  companies  upon which it depends.  For
example,  the  ability of an  electric  company to  provide  electricity  to its
customers depends upon a regional electric transmission grid, which connects the
systems of  neighboring  utilities to support the  reliability of electric power
within the region. If one company's system is not year 2000 compliant, then such
a  failure  will  affect  the  reliability  of all  providers  within  the grid,
including  Industries.  Similarly,  Industries' gas operations depend on natural
gas  pipelines  that it does not own or control,  and any non-  compliance  by a
company owning or controlling those pipelines may affect Industries'  ability to
provide gas to its customers.  Failure to achieve year 2000 readiness could have
a material adverse affect on Industries' results of operations, financial 
position and cash flows.  

         Industries is continuing its program to address risks  associated  with
the year 2000.  Industries'  year 2000 program  focuses on both its  information
technology (IT) and non-IT systems,  and Industries has been making  substantial
progress in preparing these systems for proper functioning in the year 2000.

         State of  Readiness.  Industries'  year 2000  program  consists of four
phases:  inventory  (identifying systems potentially affected by the year 2000),
assessment (testing identified systems),  remediations  (correcting or replacing
non-compliant systems) and validation (evaluating and testing remediated systems
to confirm  compliance).  By second  quarter 1997,  Industries had completed the
inventory  and  assessment  phases for all of its  mission-critical  IT systems.
Industries also has completed the remediation and validation  phases for four of
its six major IT  components.  The  remediation  and  validation  phases for the
remaining  two  components  are  expected  to be  completed  within the next few
months,  so that  Industries  expects to conclude  the year 2000 program for its
mission-critical  systems  by  first  quarter  1999.  Industries  completed  the
inventory  and  assessment  phases for all of its non-IT  systems in April 1998.
Industries has scheduled remediation (including replacement ) and validation for
its non-IT systems throughout 1999. Industries expects to conclude the year 2000
program for its non-IT systems by fourth quarter 1999.

         Because  Industries  depends  on outside  suppliers  and  vendors  with
similar year 2000 issues, Industries is assessing the ability of those suppliers
and vendors to provide it with an  uninterrupted  supply of goods and  services.
Industries  has  contacted  its  critical  vendors  and  suppliers  in  order to
investigate  their year 2000  efforts.  In addition,  Industries is working with
electricity and gas industry groups such as North American Electric  Reliability
Council,  Electric Power Research Institute, and the American Gas Association to
discuss  and  evaluate  the  potential  impact  of year 2000  problems  upon the
electric  grid systems and pipeline  networks that  interconnect  within each of
those industries.

         Costs.  Industries currently estimates that the total cost of its year
2000 program will be between $17 million and $26 million. These costs have been,
and will continue to be, funded through  operating cash flows.  Costs related to
the maintenance or modification of Industries'  existing systems are expensed as
incurred.   Costs  related  to  the  acquisition  of  replacement   systems  are
capitalized in accordance with Industries' accounting policies.  Industries does
not anticipate these costs to have a material impact on its results of 
operations.

         Contingency   Plans.   Industries   currently  is  in  the  process  of
structuring  its  contingency   plans  to  address  the  possibility   that  any
mission-critical system upon which it depends,  including  those  controlled by
outside parties,  will be  non-compliant.  This includes  identifying  alternate
suppliers and vendors,  conducting  staff training and developing  communication
plans.  In addition, Industries is evaluating both its ability to maintain or
restore  service in the event of a power  failure  or  operating  disruption  or
delay,  and its limited  ability to mitigate the effects of a network failure by
isolating  its own  network  from  the  non-compliant  segments  of the  greater
network.  The company  expects to  complete  these  contingency  plans by second
quarter 1999.

COMPETITION -

      The Energy  Policy Act of 1992 (Energy Act) allows FERC to order  electric
utilities  to  grant  access  to  transmission   systems  by  third-party  power
producers.  The Energy Act specifically prohibits federally mandated wheeling of
power for retail  customers.  On April 24, 1996, FERC issued its Order No. 888-A
which opens wholesale  power sales to competition and requires public  utilities
owning,  controlling, or operating transmission lines to file non-discriminatory
open access tariffs that offer others the same transmission service they provide
themselves.  Northern  Indiana  filed  its  tariff  as did  virtually  all other
transmission owners subject to FERC jurisdiction.  Order No. 888-A also provides
for the recovery of stranded costs - that is, costs that were prudently incurred
to serve  wholesale  power  customers  and that  could go  unrecovered  if these
customers  use open access to move to another  supplier.  FERC expects this rule
will accelerate competition and bring lower prices and more choices to wholesale
energy  customers.  On  November  25,  1997,  FERC  issued  Order  No.  888-B on
rehearing,  affirming in all  important  respects its earlier  Order No.  888-A.
Although  wholesale  customers  represent a relatively small portion of Northern
Indiana's  sales,  Northern  Indiana will continue its efforts to retain and add
customers by offering competitive rates.

      In January  1997 and  January  1998,  legislation  was  introduced  in the
Indiana  General   Assembly   addressing   electric   utility   competition  and
deregulation.  Neither bill was passed.  Northern  Indiana is  participating  in
discussions with other utilities and its largest  customers on the technical and
economic aspects of possible legislation to allow customer choice. If Industries
believes that  consensus  legislation  is possible,  Industries  would support a
deregulation bill in the January 1999 Indiana General Assembly.

      Operating  in a  competitive  environment  will place added  pressures  on
utility  profit  margins  and  credit  quality.  Increasing  competition  in the
electric  utility  industry has already led the credit rating  agencies to apply
more stringent guidelines in making credit rating determinations.

      Competition within the electric utility industry will create opportunities
to compete for new customers  and revenues,  as well as increase the risk of the
loss of customers.  Industries'  management  has taken steps to make the company
more competitive and profitable in the changing utility  environment,  including
partnering on energy projects with major industrial customers and conversions of
some of its generating units to allow use of lower cost, low sulfur coal.

      FERC Order No. 636 shifted  primary  responsibility  for gas  acquisition,
transportation  and peak days' supply from  pipelines to local gas  distribution
companies such as the Energy Utilities. Although pipelines continue to transport
gas, they no longer provide sales  service.  The Energy  Utilities  believe they
have taken appropriate steps to ensure the continued acquisition of adequate gas
supplies at reasonable prices.

      The mix of gas revenues  from retail  sales,  interruptible  retail sales,
firm  transportation  service  and  interruptible  transportation  services  has
changed  significantly  over the past several years. The deregulation of the gas
industry, since the mid-1980s,  allows large industrial and commercial customers
to  purchase  their gas  supplies  directly  from  producers  and use the Energy
Utilities'  facilities  to transport the gas.  Transportation  customers pay the
Energy  Utilities  only for  transporting  their  gas from the  pipeline  to the
customers' premises.

      The Commission has approved Northern Indiana's Alternative Regulatory Plan
(ARP) which implements new rates and services that include,  among other things,
further  unbundling  of services  for  additional  customer  classes,  increased
customer  choice for  sources of natural  gas supply,  negotiated  services  and
prices, a gas cost incentive mechanism and a price protection  program.  The gas
cost incentive  mechanism  allows Northern Indiana to share any gas cost savings
or cost increases with its customers based on a comparison of Northern Indiana's
actual gas supply  portfolio costs to a market based benchmark  price. The first
pilot  program  was  launched in January  1998 and the first gas volumes  flowed
under this program in April 1998.  The  Commission  order allows the natural gas
marketing  affiliate of Northern  Indiana to participate as a supplier of choice
to customers on the Northern Indiana system. Northern Indiana offers customers a
price protection  service (PPS) which allows  residential  customers to purchase
gas at a fixed price or capped price for a specific period of time.

      To date, the Energy Utilities' system has not been materially  affected by
competition,  and management does not foresee substantial adverse effects in the
near future,  unless the current regulatory structure is substantially  altered.
The Energy  Utilities  believe the steps they are taking to deal with  increased
competition will have significant, positive effects in the next few years.

FORWARD LOOKING STATEMENTS -

     This report contains forward looking  statements  within the meaning of the
securities laws. Forward looking statements include terms such as "may", "will",
"expect",  "believe",  "plan" and other similar terms. Industries cautions that,
while it believes  such  statements to be based on  reasonable  assumptions  and
makes such  statements in good faith,  there can be no assurance that the actual
results  will  not  differ   materially  from  such   assumptions  or  that  the
expectations  set forth in the  forward  looking  statements  derived  from such
assumptions  will be realized.  Investors  should be aware of important  factors
that could have a material impact on future results.  These factors include, but
are not limited to, weather, the federal and state regulatory environment,  year
2000  issues,  the  economic  climate,  regional,  commercial,   industrial  and
residential   growth  in  the   service   territories   served  by   Industries'
subsidiaries, customers' usage patterns and preferences, the speed and degree to
which competition enters the utility industry,  the timing and extent of changes
in commodity prices,  changing  conditions in the capital and equity markets and
other  uncertainties,  all of which are difficult to predict,  and many of which
are beyond the control of Industries.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The primary  market risks to which  Industries is exposed and in connection
with which Industries uses market risk sensitive instruments are commodity price
risk and interest rate risk.

     Industries   engages  in  price  risk  management   activities  related  to
electricity  and natural  gas.  Price risk arises  from  fluctuations  in energy
commodity  prices  due to  changes in supply  and  demand.  Industries  actively
monitors and limits its exposure to commodity price risk. Industries' price risk
management  policy  allows  the  use  of  derivative   financial  and  commodity
instruments to reduce (hedge)  exposure to price risk of its commodity  supplies
and  related  purchase  and sales  commitments  of  energy,  as well as  related
anticipated  transactions.  Industries  utilitizes  contracts  for  the  forward
purchase  and sale of natural  gas and  electricity  and natural gas futures and
options  to  manage  its  power  and gas  marketing  businesses.  As part of its
commodity price risk,  Industries is exposed to geographic  price  differentials
due  primarily  to  transportation   costs  and  local  supply-demand   factors.
Industries  uses basis swaps to hedge a portion of this  exposure.  For economic
reasons or otherwise, Industries does not hedge all of its basis exposure.

     Industries  enters into certain sales contracts with customers based upon a
fixed commodity  sales price and varying volumes which are ultimately  dependent
upon  the  customer's  supply   requirements.   Industries   utilizes  financial
instruments to reduce the commodity price risk based on modeling techniques that
anticipate these future supply requirements.  Industries continues to be exposed
to  commodity  price  risk  for  the  difference  between  the  ultimate  supply
requirements and those modeled.

     Although the Energy  Utilities are subject to commodity  price risk as part
of their traditional  operations,  the current regulatory framework within which
the Energy  Utilities  operate  allows for  collection  of fuel and gas costs in
rate-making.  Consequently, there is limited commodity price risk for the Energy
Utilities  after  consideration  of the  related  rate-making.  However,  as the
utility industry  deregulates,  the Energy Utilities will be providing  services
without the benefit of the traditional rate-making allowances and will therefore
be more exposed to commodity price risk.

     Because the  commodities  covered by Industries'  derivative  financial and
commodity  instruments are  substantially  the same  commodities that Industries
buys and sells in the physical market, no special correlation studies are deemed
necessary other than monitoring the degree of convergence between the derivative
and cash markets.

     Industries'   daily  net  commodity   position   consists  of  natural  gas
inventories,  natural gas and power purchase and sales  contracts and derivative
financial  and  commodity  instruments.  The fair value of such  positions  is a
summation of the fair values  calculated  for each commodity by valuing each net
position  at quotes  from  exchanges  and  over-the-counter  counterparties  and
includes location differentials.  Based on Industries' net commodity position at
fair value at September 30, 1998, a 10% adverse movement in electric and natural
gas market prices would have reduced net income by  approximately  $2.0 million.
However,  any such movement in prices is not indicative of actual results and is
subject to change. Refer to Summary of Significant  Accounting  Policies-Hedging
Activities for further discussion of Industries' hedging policies.

     Industries  utilizes  long-term  debt as a primary source of capital in its
business.  A  significant  portion  of  the  total  debt  portfolio  includes  a
medium-term note program,  the interest  component of which resets on a periodic
basis to reflect current market conditions.  The Energy Utilities utilize longer
term fixed  price debt  instruments  which have been and will be  refinanced  at
lower interest rates if Industries deems it to be economical.  Refer to Notes to
Consolidated   Financial   Statements  for  detailed   information   related  to
Industries'   long-term  debt  outstanding  and  the  fair  value  of  financial
instruments for the current market valuation of long-term debt.



<PAGE>


                                    PART II.
                                OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

      Industries   and  its   subsidiaries   are  parties  to  various   pending
proceedings,  including suits and claims against them for personal injury, death
and property  damage.  Such  proceedings and suits, and the amounts involved are
routine  litigation  and  proceedings  for the kinds of businesses  conducted by
Industries and its  subsidiaries,  except as described under Note 5 (NESI Energy
Marketing  Canada Ltd.  Litigation)  and Note 7  (Environmental  Matters) in the
Notes to Consolidated  Financial  Statements under Part I, Item 1 of this report
on Form 10-Q, which notes are incorporated by reference. No other material legal
proceedings  against  Industries  or its  subsidiaries  are  pending  or, to the
knowledge of  Industries,  contemplated  by  governmental  authorities  or other
parties.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.
         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.
         None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
         None

ITEM 5.  OTHER INFORMATION.
         Any shareholder  proposal submitted outside the processes of Rule 14a-8
under the Securities  Exchange Act of 1934 for  presentation to Industries' 1999
Annual Meeting of Shareholders will be considered untimely for purposes of Rules
14a-4 and 14a-5 if notice  thereof is received by Industries  after  November 9,
1998.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.
 (a)  Exhibits


     Exhibit 4.1-  Indenture  of Trust of Town of Fishers  and  Indiana  Water
Company to National City Bank of Indiana, As Trustee,  dated as of July 15, 1998
(including Form of $30,000,000  Town of Fishers,  Indiana  Economic  Development
Water Facilities Refunding Revenue Bond, Series 1998 (Indianapolis Water Company
Project).

     Exhibit 4.2-  Indenture  of Trust  of City of  Indianapolis,  Indiana  and
Indiana Water Company to National City Bank of Indiana, As Trustee,  dated as of
July 15, 1998  (including  Form of  $10,000,000  City of  Indianapolis,  Indiana
Economic  Development  Water  Facilities  Refunding  Revenue Bonds,  Series 1998
(Indianapolis Water Company Project).

     Exhibit 23- Consent of Arthur Andersen LLP

     Exhibit 27- Financial Data Schedule

     Pursuant to Item  601(b)(4)(iii)  of Regulation  S-K,  Industries
     hereby agrees to furnish the Commission,  upon request, any instrument
     defining the rights of holders of  long-term  debt of  Industries  not
     filed as an exhibit herein.  No such instrument  authorizes  long-term
     debt securities in excess of 10% of the total assets of Industries and
     its subsidiaries on a consolidated basis.

 .


     (b) Reports on Form 8-K.
         None





                               INDENTURE OF TRUST



                            TOWN OF FISHERS, INDIANA



                                       AND



                           INDIANAPOLIS WATER COMPANY



                                       TO


                         National City Bank of Indiana,
                                   As Trustee



                            DATED AS OF JULY 15, 1998



     $30,000,000 Town of Fishers,  Indiana Economic Development Water Facilities
Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project)




<PAGE>
<TABLE>
<CAPTION>

                                Table of Contents

<S>      <C>     <C>                                                                     <C>
RECITALS                                                                                  1

GRANTING CLAUSES                                                                          2

ARTICLE I        Definitions and Exhibits                                                 3
         Section 101.  Terms Defined.                                                     3
         Section 102.  Rules of Interpretation.                                           6
         Section 103.  Exhibits.                                                          7

ARTICLE II       The Bonds                                                                7
         Section 201.  Terms of Bonds.                                                    7
         Section 202.  Issuance of Bonds; Denominations.                                  7
         Section 203.  Payments on Bonds.                                                 8
         Section 204.  Execution; Limited Obligation.                                     8
         Section 205.  Authentication.                                                    8
         Section 206.  Delivery of Bonds.                                                 9
         Section 207.  Mutilated, Lost, Stolen or Destroyed Bonds.                        9
         Section 208.  Registration and Exchange of Bonds; Persons Treated as Owners.    10
         Section 209.  Form of Bonds.                                                    10
         Section 210.  Book Entry.                                                       10
         Section 211.  Payment Procedure Pursuant to Municipal Bond Insurance Policy.    11

ARTICLE III      Application of Bond Proceeds; Redemption Fund                           12
         Section 301.  Deposit of Funds.                                                 12
         Section 302.  Redemption Fund.                                                  12

ARTICLE IV       Revenues and Funds                                                      12
         Section 401.  Source of Payment of Bonds.                                       12
         Section 402.  Creation of Bond Fund.                                            12
         Section 403.  Payments into Bond Fund.                                          12
         Section 404.  Use of Moneys in Bond Fund.                                       13
         Section 405.  Investment of Funds.                                              13
         Section 406.  Trust Funds.                                                      13
         Section 407.  Nonpresentment of Bonds.                                          13

ARTICLE V        Redemption of Bonds Before Maturity                                     14
         Section 501.  Determination of Taxability Redemption.                           14
         Section 502.  Redemption in the Event of Death of a Bondholder                  14
         Section 503.  Optional Redemption.                                              15
         Section 504.  Notice of Redemption.                                             16
         Section 505.  Cancellation.                                                     17

ARTICLE VI       General Covenants                                                       17
         Section 601.  Payment of Principal, Premium, if any, and Interest.              17
         Section 602.  Performance of Covenants.                                         18
         Section 603.  Ownership; Instruments of Further Assurance.                      18
         Section 604.  Rights under Loan Agreement and Note.                             18
         Section 605.  Designation of Additional Paying Agents.                          18
         Section 606.  Recordation; Application of Uniform Commercial Code.              18
         Section 607.  List of Bondholders.                                              19

ARTICLE VII      Possession and Use of the Project Financed with the 1989 Bonds          19
         Section 701.  Subordination to Rights of Company.                               19

ARTICLE VIII     Remedies                                                                19
         Section 801.  Events of Default.                                                19
         Section 802.  Acceleration Rights.                                              20
         Section 803.  Other Remedies; Rights of Bondholders.                            20
         Section 804.  Right of Bondholders to Direct Proceedings.                       21
         Section 805.  Appointment of Receivers.                                         21
         Section 806.  Application of Moneys.                                            21
         Section 807.  Remedies Vested in Trustee.                                       22
         Section 808.  Rights and Remedies of Bondholders.                               23
         Section 809.  Termination of Proceedings.                                       23
         Section 810.  Waivers of Events of Default.                                     23
         Section 811.  Cooperation of Municipality.                                      23
         Section 812.  Consent of MBIA Upon Default                                      23

ARTICLE IX       The Trustee                                                             24
         Section 901.  Acceptance of Trusts.                                             24
         Section 902.  Certain Rights of Trustee.                                        24
         Section 903.  Fees, Charges and Expenses of Trustee and Paying Agent.           26
         Section 904.  Notice to Bondholders if Default Occurs.                          26
         Section 905.  Intervention by Trustee.                                          26
         Section 906.  Successor Trustee.                                                26
         Section 907.  Resignation by Trustee.                                           26
         Section 908.  Removal of Trustee.                                               27
         Section 909.  Appointment of Successor Trustee by Bondholders;
                           Temporary Trustee.                                            27
         Section 910.  Concerning Any Successor Trustees.                                27
         Section 911.  Trustee Protected in Relying upon Resolution, etc.                27
         Section 912.  Successor Trustee as Trustee of Funds, Paying Agent
                           and Bond Registrar.                                           28

ARTICLE X        Continuing Disclosure                                                   28
         Section 1001.  Continuing Disclosure.                                           28

ARTICLE XI       Supplemental Indentures                                                 28
         Section 1101.  Supplemental Indentures Not Requiring Consent of Bondholders.    28
         Section 1102.  Supplemental Indentures Requiring Consent of Bondholders.        29

ARTICLE XII      Amendments to the Loan Agreement                                        29
         Section 1201.  Amendments, etc., to Loan Agreement or the
                           Guaranty Not Requiring Consent of Bondholders.                29
         Section 1202.  Amendments, etc., to Loan Agreement or the Guaranty
                           Requiring Consent of Bondholders.                             29
         Section 1203.  No Amendment May Alter Note.                                     30

ARTICLE XIII     Miscellaneous                                                           30
         Section 1301.  Satisfaction and Discharge.                                      30
         Section 1302.  Application of Trust Money.                                      31
         Section 1303.  Consents, etc., of Bondholders.                                  31
         Section 1304.   Parties Interested Herein.                                      31
         Section 1305.  Severability.                                                    31
         Section 1306.  Notices.                                                         32
         Section 1307.  Trustee as Paying Agent and Registrar.                           32
         Section 1308.  Counterparts.                                                    32
         Section 1309.  Applicable Law.                                                  32
         Section 1310.  Holidays.                                                        32
         Section 1311.  Captions and Table of Contents.                                  32

ARTICLE XIV      Municipal Bond Insurance Provisions                                     32
         Section 1401.  Notices.                                                         32
         Section 1402.  Consent of MBIA.                                                 35
         Section 1403.  Effectiveness of Rights of MBIA to Consent or Direct Actions.    35
         Section 1404.  Trustee to Consider Effect on Bondholders of Actions
                           Taken Pursuant to Indenture as if There Were No
                           Municipal Bond Insurance.                                     35
         Section 1405.  MBIA as Third-Party Beneficiary.                                 35
</TABLE>

<PAGE>



                               INDENTURE OF TRUST


         This  INDENTURE OF TRUST has been  executed as of July 15, 1998, by and
among the TOWN OF FISHERS,  INDIANA  (the  "Municipality"),  INDIANAPOLIS  WATER
COMPANY,  an Indiana  corporation  (the  "Company"),  and National  City Bank of
Indiana,  a national  banking  association  authorized  to accept trusts of this
character with its principal office located in Indianapolis, Indiana, as Trustee
(the "Trustee").


                                    RECITALS

         1. Definitions of certain of the terms used in these Recitals  are  set
out in Article I  hereof and Article I of the Loan Agreement.

         2. IC 5-1-5, IC 36-7-11.9 and IC 36-7-12  authorize  municipalities  in
the State of Indiana to issue  revenue  bonds to finance  the cost of  providing
economic  development  facilities and also authorize the municipalities to issue
revenue bonds to refund such bonds.

         3. In 1989,  the Company  financed a portion of its  capital  expansion
program in  Indianapolis  through the  issuance and sale of the Town of Fishers,
Indiana 7-7/8% Economic  Development Water Facilities Revenue Bonds, Series 1989
(Indianapolis Water Company Project) (the "1989 Bonds").

         4. The Company  borrowed from the  Municipality  funds derived from the
sale of the 1989 Bonds, and the Company,  as evidence of its obligation to repay
the funds,  issued and delivered to the  Municipality  its First Mortgage Bonds,
Economic Development Series C in the principal amount of $30,000,000.

         5. The Company has determined  that the 1989 Bonds can be refinanced at
a net savings to the Company and has further  determined  that such  refinancing
will result in other benefits to the Company.

         6. Pursuant to IC 5-1-5, IC 36-7-11.9 and IC 36-7-12,  the Municipality
is  authorized  and  empowered to issue  revenue  bonds to refund and  refinance
revenue bonds  previously  issued by it. The  Municipality is obtaining funds to
loan to the Company to assist with the  refunding  and  refinancing  of the 1989
Bonds through the sale of its $30,000,000  aggregate principal amount of Town of
Fishers,  Indiana Economic Development Water Facilities Refunding Revenue Bonds,
Series 1998 (Indianapolis Water Company Project).

         7. Under  the  Loan  Agreement  and  pursuant  to this  Indenture,  the
Municipality will issue $30,000,000 of its Economic Development Water Facilities
Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project),  will
sell the Bonds to the  Purchaser and will lend the proceeds from the sale of the
Bonds to the Company.  The Bonds will be payable  solely out of the revenues and
other amounts derived from the Note and under the Loan  Agreement,  and pursuant
to the Guaranty  Agreement  under which the principal of,  premium,  if any, and
interest  on the Bonds  will be  guaranteed  by IWC  Resources  Corporation,  an
Indiana  corporation  (the  "Guarantor")  and will be further  secured under and
pursuant to the  Municipal  Bond  Insurance  Policy.  The Bonds shall not in any
respect be a general  obligation of, an indebtedness  of, or constitute a charge
against  the  general  credit of the  Municipality,  the State of Indiana or any
political subdivision thereof.

         8. To evidence  its  obligation  to repay the Loan,  the  Company  will
deliver its Note to the Municipality.

         9. This  Indenture   provides  for  the  issuance  of  the  Bonds,  the
assignment  by the  Municipality  of the  Note  and its  rights  under  the Loan
Agreement  (except the right to receive  payment for its expenses,  the right to
receive indemnities, the right to receive notices and its rights relating to any
amendments to the Loan Agreement) to the Trustee.

        10. The Bonds  and the Trustee's  Certificate of Authentication  for the
Bonds will be substantially in the form set forth in Exhibit A hereto.

        11. All things  necessary to make the Bonds,  when  authenticated by the
Trustee and issued as provided in this Indenture,  the valid,  binding and legal
obligations  of  the  Municipality  according  to  the  import  thereof,  and to
constitute  this  Indenture a valid  assignment and pledge of the properties and
amounts assigned and pledged to the payment of the principal of and premium,  if
any, and interest on the Bonds and a valid  assignment  and pledge of the rights
of the  Municipality  under the Loan  Agreement  (except  the  right to  receive
payment for its expenses, the right to receive indemnities, the right to receive
notices and its rights relating to any amendments to the Loan Agreement) and the
Note have been done and performed,  and the creation,  execution and delivery of
this Indenture and the creation, execution and issuance of the Bonds, subject to
the terms hereof, have in all respects been duly authorized.

                  NOW, THEREFORE, THIS INDENTURE OF TRUST WITNESSES THAT:

                                GRANTING CLAUSES

         In order to secure the payment of the principal of and premium, if any,
and interest on the Bonds and in order to secure the  performance and observance
of all the covenants and conditions in this  Indenture and in the Bonds,  and in
order to  declare  the terms and  conditions  upon  which the Bonds are  issued,
authenticated,  delivered,  secured  and  accepted by all persons who shall from
time to time be or become holders  thereof,  and for and in consideration of the
premises,  the Loan, the mutual covenants of the parties,  the acceptance by the
Trustee of the trust hereby  created,  and the purchase  and  acceptance  of the
Bonds by the  holders,  the  Municipality  and the  Company  have  executed  and
delivered  this  Indenture and by this  Indenture  assign and pledge and grant a
security  interest in the following to the Trustee,  its  successors and assigns
forever:

                              First Granting Clause

         All of the right,  title and  interest of the  Municipality  in, to and
under the Note and the Loan Agreement  (except the right to receive  payment for
its expenses, the right to receive indemnities, the right to receive notices and
its rights relating to any amendments to the Loan Agreement), including all sums
payable  with  respect to the  indebtedness  evidenced  by the Note and the Loan
Agreement,  and all proceeds thereof;  provided that the assignment made by this
clause shall not impair or diminish any obligation of the Municipality under the
Loan Agreement.

                             Second Granting Clause

         All moneys and  securities  from time to time held by the Trustee under
the terms of this  Indenture,  including  without  limitation the Guaranty,  the
moneys held in trust funds, and any and all other property pledged,  assigned or
transferred  to  the  Trustee  at  any  time  for  additional  security  by  the
Municipality  or the Company or with their  written  consent,  and all  proceeds
thereof.  The Trustee is  authorized to receive the  additional  property at any
time and to hold and apply that property under this Indenture.

         TO HAVE AND TO HOLD FOREVER IN TRUST,  NEVERTHELESS,  upon the terms of
this Indenture,  to secure the payment of the principal of and premium,  if any,
and interest on the Bonds,  and to secure the observance and  performance of all
the terms of this Indenture,  and for the benefit and security of the holders of
the Bonds, without preference,  priority or distinction as to lien or otherwise,
except as provided in this Indenture,  of any one Bond over any other Bond or as
among principal, premium and interest.

         The  terms and  conditions  upon  which  the  Bonds  are to be  issued,
authenticated,  delivered,  secured  and  accepted by all persons who shall from
time to time be or become the  holders  thereof,  and the trusts and  conditions
upon which the pledged property,  rights, interests,  moneys and revenues are to
be held and disbursed, are as follows:


                                    ARTICLE I

                            Definitions and Exhibits

         Section 101. Terms Defined.  As used in this  Agreement,  the following
terms shall have the following  meanings  unless the context otherwise requires.

         "Bond" or  "Bonds"  means one or more of the Town of  Fishers,  Indiana
Economic  Development  Water  Facilities  Refunding  Revenue Bonds,  Series 1998
(Indianapolis  Water Company  Project) to be issued under this  Indenture in the
aggregate principal amount of $30,000,000.

         "Bondholder" or "Holder" or "Owner" or "Owner of the  Bonds"  means the
registered owner of any Bond.

         "Bond Register" means the registration  books of the Municipality  kept
by the Trustee to evidence the registration and transfer of the Bonds.

         "Business  Day" means each Monday  through Friday on which the national
banks located in  Indianapolis,  Indiana are open for the  transaction of normal
banking business.

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Company" means Indianapolis Water Company, an Indiana corporation.

         "Continuing Disclosure  Undertaking" shall mean that certain Continuing
Disclosure  Undertaking  of the  Company  and the  Guarantor  dated  the date of
issuance  and  delivery of the Bonds,  as  originally  executed and as it may be
amended from time to time in accordance with the terms thereof.

         "DTC" means The Depository  Trust Company,  New York, New York, and its
successors  and  assigns,   including  without  limitation  (i)  any  surviving,
resulting  or  transferee   corporation  or  successor   corporation   appointed
consistent with this Indenture,  and (ii) any direct or indirect participants of
The Depository Trust Company.

         "Determination  of Taxability"  means  the occurrence  of  any  of  the
following:

                  (a) the   filing  by  the  Company of its certificate with the
         Trustee  indicating  to  the  satisfaction   of  the  Trustee  that  an
         Event of Taxability has occurred;

                  (b) notification to the Trustee that an authorized  officer or
         official of the Internal  Revenue Service has issued a statutory notice
         of deficiency or document of substantially similar import to the effect
         that an Event of Taxability has occurred; or

                  (c) notification  to the Trustee from any Bondholder or former
         Bondholder to the effect that the Internal Revenue Service has assessed
         as  includable  in the  gross  income  of  such  Bondholder  or  former
         Bondholder  interest  on a Bond  due to the  occurrence  of an Event of
         Taxability;

provided, however, that in respect of clauses (b) and (c) above, a Determination
of Taxability  shall not be deemed to have occurred unless and until the Company
has  been  notified  of  the  allegation  that  an  Event  of  Taxability  and a
Determination  of  Taxability  have occurred and either (i) the Company fails to
commence a contest of such  allegation  in good faith and by  appropriate  legal
proceedings within 90 days following such notification, or (ii) the Company does
commence  such  contest  within  such time,  but  thereafter  fails to pursue it
diligently,  in good faith and by appropriate legal proceedings to a final order
or judgment by a court or  administrative  body of  competent  jurisdiction,  or
(iii)  such  contest  results  in a  final  order  or  judgment  of a  court  or
administrative  body of  competent  jurisdiction  to the effect that an Event of
Taxability  has  occurred  and the time for any appeal of such order or judgment
has expired.

         "Escrow  and  Defeasance  Agreement"  means the Escrow  and  Defeasance
Agreement dated July 15, 1998 among the Company,  the Trustee as trustee for the
Bonds and the Trustee as trustee for the 1989 Bonds.

         "Event of Default" means those events of default specified  in  Section
801.

         "Event of Taxability" means any event,  condition or circumstance which
has the effect or result that interest on a Bond is not  excludable  for federal
income tax purposes from the gross income of a Bondholder or a former Bondholder
under  Section  103 of the  Code,  other  than for a  period  during  which  the
Bondholder or a former Bondholder is or was a "substantial  user" of the project
financed  with the 1989  Bonds or a "related  person"  for  purposes  of Section
147(a) of the Code, and the regulations thereunder.  An Event of Taxability does
not include any event,  condition or circumstance  which results in the interest
on a Bond being a preference item subject to an alternate minimum tax, or in any
other tax consequences  that do not involve the inclusion for federal income tax
purposes  of interest on the Bonds in the income of  Bondholders  generally  but
instead depend upon a Bondholder's particular tax status.

         "Guarantor" means IWC Resources Corporation,  the guarantor  under  the
guaranty.

         "Guaranty"  means the  Guaranty  Agreement  dated as of July 15,  1998,
under which IWC Resources  Corporation  guarantees  the payment of the principal
of, premium, if any, and interest on the Bonds.

         "Loan  Agreement" means the Loan Agreement dated as of the date of this
Indenture  between the  Company  and the  Municipality  and all  amendments  and
supplements thereto.

         "Majority"  means, when used with reference to the Owners or Holders of
Bonds  outstanding,  in excess of fifty percent (50%) of the principal amount of
the Bonds outstanding.

         "MBIA" means MBIA Insurance  Corporation,  issuer of the Municipal Bond
Insurance Policy.

         "Municipal  Bond  Insurance  Policy" means the municipal bond insurance
policy  issued by MBIA  insuring  the payment  when due of the  principal of and
interest on the bonds as provided therein.

         "Municipality" means the Town of Fishers, Indiana.

         "Officer's  Certificate" means a certificate of the Municipality signed
by the Mayor or Clerk or by any other person  designated  by  resolution  of the
Municipality  to act for  either of those  officers,  either  generally  or with
respect to the execution of any particular  document or other specific matter, a
certified copy of which resolution shall be filed with the Trustee.

         "Outstanding" or "Bonds  outstanding" or "outstanding  Bonds" means all
Bonds which have been duly authenticated and delivered by the Trustee under this
Indenture, except:

                  (a) Bonds cancelled after purchase or because of payment at or
         redemption prior to maturity;

                  (b) Bonds for the  payment  or  redemption  of which  funds or
         securities  shall have been deposited with the Trustee (whether upon or
         prior to the  maturity  or  redemption  date of those  Bonds)  and with
         respect to which all  actions  required to be taken at the time of such
         deposit as set forth in Section 1301 have been taken including, without
         limitation,  the  requirement  that if those  Bonds are to be  redeemed
         prior to the maturity thereof, notice of the redemption shall have been
         given or arrangements  satisfactory to the Trustee shall have been made
         for  notice,  or waiver of notice  satisfactory  in form to the Trustee
         shall have been filed with the Trustee; and

                  (c)  Bonds in lieu of which  others  have  been  authenticated
         under Section 207 and Section 208.

         "Person" means natural persons, firms, associations,  corporations  and
public bodies.

         "Purchaser" means Edward D. Jones & Co., L.P.

         "Record Date" means with respect to an interest payment date, the first
(1st) day of the  calendar  month  that  includes  such  interest  payment  date
(whether or not a Business Day).

         "Representation Letter" means the Letter of Representation executed  by
the Issuer and delivered to DTC.

         "Securities   Depository"   means  The  Depository  Trust  Company,   a
corporation  organized and existing under the laws of the State of New York, and
any  other  securities  depository  for  the  Bonds  appointed  pursuant  to the
Indenture.

         "Trust Estate" means the property, rights, moneys, securities and other
amounts conveyed to the Trustee pursuant to the Granting Clauses hereof.

         "Trustee" means  National  City  Bank  of  Indiana,  and  any successor
trustee or co-trustee.

         "Written Request" with reference to the Municipality means a request in
writing  signed by the President of the Town Council or  Clerk-Treasurer  or any
other officer or officers of the Municipality satisfactory to the Trustee.

         Section 102. Rules  of  Interpretation.    For  all purposes  of  this 
Indenture,   except  as  otherwise   expressly  provided  or  unless the context
otherwise requires:

         (1) The words  "herein,"  "hereof" and  "hereunder"  and other words of
similar import refer to this Indenture as a whole including  exhibits and not to
any particular Article, Section or other subdivision.

         (2) The terms  defined in this Article  include the plural,  as well as
the singular.

         (3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles.

         (4) Any terms not  defined  herein but  defined  in the Loan  Agreement
shall have the same meaning herein as in the Loan Agreement.

         Section 103. Exhibits. The  following  Exhibits  are  a  part of  this 
Agreement:
<TABLE>

<S>     <C>               <C>  
         Exhibit A:       Form of Bond, form of Trustee's Certificate of Authentication and form of Assignment.

         Exhibit B:       Form of Municipal Bond Insurance Policy.
</TABLE>

                                   ARTICLE II

                                    The Bonds

         Section 201. Terms  of  Bonds.  No  Bonds  may  be  issued  under  this
Indenture except in accordance with this Article.  The total aggregate principal
amount of Bonds shall not exceed  $30,000,000  (other than Bonds issued pursuant
to Section 207).

         Section 202. Issuance of Bonds; Denominations.  Each of the Bonds shall
be designated "Town of Fishers, Indiana Economic  Development  Water  Facilities
Refunding Revenue Bond, Series 1998 (Indianapolis Water Company Project)."

         The Bonds shall be issuable as fully  registered  bonds without coupons
in the  denominations  of $5,000 or any integral  multiple  thereof and shall be
lettered and numbered R-1 upward.  Each Bond initially issued hereunder shall be
dated July 15, 1998 and shall bear interest from that date.

         Bonds issued in exchange for Bonds surrendered for transfer or exchange
or in place of  mutilated,  lost,  stolen or destroyed  Bonds will bear interest
from the last date to which  interest  has been paid in full on the Bonds  being
transferred,  exchanged or replaced or, if no interest has been paid,  from July
15, 1998.

         Interest  on the Bonds shall be paid to the persons who were the Owners
of such Bonds as of the close of business on the Record Date next preceding such
interest  payment date at the registered  addresses of such Owners as they shall
appear on the registration books maintained by the Trustee  notwithstanding  the
cancellation of any such Bonds upon any exchange or transfer thereof  subsequent
to the Record Date and prior to such interest payment date.  Payment of interest
to all  Bondholders  shall be by  check  drawn on the  principal  office  of the
Trustee and mailed on the due date thereof by first class United  States mail to
such Bondholder, or, at the written election of the registered owner of $500,000
or more in aggregate principal amount of Bonds delivered to the Trustee at least
one  Business  Day prior to the  Record  Date for which  such  election  will be
effective,  by wire  transfer  to the  registered  owner or by deposit  into the
account of the registered owner if such account is maintained by the Trustee.

         The interest on the Bonds shall be payable on each July 15, and January
15 commencing  on January 15, 1999.  The Bonds shall mature on July 15, 2028 and
shall bear  interest at the per annum rate of 5.05%,  computed on the basis of a
year of 360 days  (consisting  of 12  months  of 30 days  each).  To the  extent
permitted by law, overdue interest on the Bonds shall also bear interest at such
rate until paid in full.

         Section 203. Payments on Bonds.  The principal of and premium,  if any,
and interest on the Bonds shall be payable in any coin or currency of the United
States of America which, at the date of payment thereof, is legal tender for the
payment of public and private  debts.  Principal  of and  premium,  if any,  and
interest on the Bonds shall be payable at the principal  corporate  trust office
of the Trustee,  in the Town of Fishers,  Indiana,  or of any  alternate  paying
agent named in the Bonds or subsequently  appointed.  Payment of the interest on
the Bonds on any payment date shall be made to the person  appearing on the Bond
registration  books of the Trustee as the registered  Owner and shall be paid by
check or draft mailed to the registered  Owner on the due date at the address on
such  registration  books without any presentation of the Bonds.  Payment of the
principal  of and premium,  if any, on any Bond shall be made upon  presentation
and surrender of the Bond as the same shall become due and payable.

         Section 204. Execution; Limited Obligation. The Bonds shall be executed
on behalf of the  Municipality  with the manual or  facsimile  signature  of its
Mayor and attested with the manual or facsimile signature of its Clerk and shall
have  impressed or printed  thereon the corporate seal of the  Municipality.  In
case any officer whose  signature  appears on the Bonds shall cease to hold that
office before the delivery of the Bonds,  the signature  shall  nevertheless  be
valid and sufficient  for all purposes,  the same as if the officer had remained
in office until  delivery.  The Bonds,  and interest  thereon,  shall be limited
obligations  of the  Municipality  payable by it solely from the  payments to be
made under the Loan  Agreement and on the Note (except to the extent paid out of
moneys  attributable  to the  proceeds  of the  Bonds  or the  income  from  the
temporary  investment  thereof)  and shall be a valid claim of the Holder of the
Bonds only against the moneys held by the Trustee.  In addition,  payment of the
Bonds shall be  guaranteed  by the  Guarantor  under the  Guaranty  and shall be
further secured under and pursuant to the Municipal Bond Insurance  Policy.  The
payments to be made under the Loan  Agreement and on the Note which are assigned
for the payment of the Bonds shall be used for no other  purpose than to pay the
principal  of and premium,  if any, and interest on the Bonds,  except as may be
otherwise  expressly  authorized in this  Indenture.  The Bonds shall not in any
respect be a general  obligation of, an indebtedness  of, or constitute a charge
against the general  credit of the  Municipality,  the State of Indiana,  or any
political  subdivision thereof, and they shall not be payable in any manner from
funds raised by taxation.

         Section 205. Authentication.  No  Bond shall be valid or obligatory for
any  purpose  or  entitled  to any  benefit  under  this  Indenture  unless  the
certificate of authentication on the Bond has been executed by the Trustee,  and
the executed certificate of the Trustee on the Bond shall be conclusive evidence
that the Bond has been  authenticated  and delivered under this  Indenture.  The
Trustee's certificate of authentication on any Bond shall be deemed to have been
executed by it if signed by an authorized  representative of the Trustee, but it
shall not be necessary  that the same  representative  sign the  certificate  of
authentication on all of the Bonds.

         Section 206. Delivery of Bonds. Upon the execution and delivery of this
Indenture,  the Municipality  shall execute and deliver to the Trustee the Bonds
in  the  aggregate  principal  amount  of  $30,000,000  and  the  Trustee  shall
authenticate  the Bonds and deliver  them to the  Municipality  or to such other
person or persons as directed by the  Municipality  as provided in this  Section
206.

         Prior to the delivery by the Trustee of the Bonds, there shall be filed
with the Trustee:

                  1. A copy, certified by the Clerk of the Municipality,  of the
Ordinance adopted by the Municipality  authorizing the execution and delivery of
the Loan Agreement and this Indenture and the issuance of the Bonds.

                  2. Original executed counterparts of the Loan Agreement,  this
Indenture, the Note and the Guaranty.

                  3. A  Written  Request  of  the  Municipality  to the  Trustee
requesting  the Trustee to  authenticate  and deliver the Bonds to the person or
persons therein  identified upon payment to the Trustee,  but for the account of
the Municipality, of a sum specified in such request and authorization.

                  4. An opinion of bond counsel to the effect that the Bonds are
valid and binding limited  obligations of the Municipality and that the interest
thereon  is  excludable  from the gross  income of the  recipients  thereof  for
federal income tax purposes under Section 103 of the Code, except when the Bonds
are held by a "substantial  user" of the project financed by the 1989 Bonds or a
"related person."

                  5. The Municipal Bond Insurance Policy.

                  6. The Continuing Disclosure Undertaking.

                  7. Such  other  items  as shall be  required  by bond  counsel
employed in connection with the issuance of the Bonds.

         The proceeds of the Bonds shall be paid to the Trustee and deposited as
provided in Section 301 hereof.

         Section 207. Mutilated, Lost, Stolen or Destroyed Bonds. If any Bond is
mutilated,  lost,  stolen or destroyed,  the Trustee may authenticate a new Bond
for the same original principal amount provided that, in the case of a mutilated
Bond, such mutilated Bond shall first be surrendered to the Trustee,  and in the
case of a lost,  stolen or destroyed Bond, there shall be first furnished to the
Trustee evidence of the loss, theft or destruction  satisfactory to the Trustee,
together with indemnity  satisfactory to the Trustee.  In the event a mutilated,
lost,  stolen or  destroyed  Bond  shall  have  matured,  instead  of  issuing a
duplicate  Bond the  Trustee may pay the same  without  surrender  thereof.  The
Municipality  and the  Trustee  may  charge the Holder or Owner of the Bond with
their reasonable fees and expenses in this connection.

         Section 208. Registration  and  Exchange of Bonds;  Persons  Treated as
Owners.  The  Municipality  shall cause books for the  registration  and for the
transfer of the Bonds to be kept by the Trustee,  which is hereby  appointed the
Bond registrar of the  Municipality.  Upon surrender for transfer of any Bond at
the principal office of the Trustee,  endorsed for transfer or accompanied by an
assignment  executed by the  registered  Owner or his authorized  attorney,  the
Trustee shall authenticate and deliver in the name of the transferee a new fully
registered  Bond or Bonds for the same original  principal  amount,  which fully
registered Bond or Bonds shall have been executed by the Municipality.

         Bonds may be exchanged at the principal  corporate  trust office of the
Trustee  for the same  original  principal  amount of Bonds of other  authorized
denominations. The Municipality shall execute and the Trustee shall authenticate
and  deliver  new Bonds  which the  Bondholder  making the change is entitled to
receive, bearing numbers not then outstanding.

         The Trustee  shall not be  required  to  transfer or exchange  any Bond
during any period  beginning on a Record Date and ending on the interest payment
date with  respect to such Record Date or to transfer or exchange any Bond after
the  first  mailing  of  notice  calling  such  Bond or a  portion  thereof  for
redemption, nor any Bond during the fifteen-day period next preceding the giving
of such notice of redemption.

         As to any Bond,  the person in whose name the Bond is registered  shall
be deemed the absolute Owner for all purposes,  and payment of either  principal
of or  interest or premium on the Bond shall be made only to or upon the written
order of the registered Owner or his legal representative.

         In each  case  the  Bondholder  requesting  registration,  exchange  or
transfer shall pay any resulting tax or other governmental charge.

         Section 209. Form of Bonds.  The Bonds shall  be  substantially  in the
form set forth in Exhibit A hereto with any appropriate notations, omissions and
insertions  permitted or required by this  Indenture or deemed  necessary by the
Trustee.

         Section 210. Book Entry. Initially,  one certificate for the Bonds will
be issued and registered to the Securities Depository.  The Municipality and the
Trustee may enter into a Letter of  Representations  (as defined below) relating
to a book  entry  system to be  maintained  by the  Securities  Depository  with
respect to the Bonds.

         In the  event  that (a) the  Securities  Depository  determines  not to
continue to act as a securities depository for the Bonds by giving notice to the
Trustee and the Municipality discharging its responsibilities  hereunder, or (b)
the  Municipality  determines  (at  the  direction  of  the  Company)  (i)  that
beneficial  owners of the Bonds shall be able to obtain  certificated  Bonds, or
(ii) to select a new Securities Depository,  attempt to locate another qualified
securities  depository to serve as Securities  Depository  or  authenticate  and
deliver  certificated  Bonds  to the  beneficial  owners  or to  the  Securities
Depository participants on behalf of beneficial owners substantially in the form
provided for in this Section 210. In delivering  certificated Bonds, the Trustee
shall be entitled to rely on the records of the Securities  Depository as to the
beneficial  owners or the  records  of the  Securities  Depository  participants
acting on behalf of  beneficial  owners.  Such  certificated  Bonds will then be
registrable, transferable and exchangeable as set forth in the Indenture.

         So long as there is a Securities  Depository  for the Bonds,  (1) it or
its nominee  shall be the  registered  owner of the Bonds;  (2)  notwithstanding
anything to the contrary in the Indenture, determinations of persons entitled to
payment of principal or purchase price, premium, if any, and interest, transfers
of ownership and exchanges and receipt of notices shall be the responsibility of
the Securities Depository and shall be effected pursuant to rules and procedures
established by the Securities Depository; (3) the Municipality,  the Company and
the Trustee shall not be responsible or liable for  maintaining,  supervising or
reviewing the records maintained by the Securities Depository,  its participants
or persons acting through such participants;  (4) references in the Indenture to
owners or registered owners of the Bonds shall mean the Securities Depository or
its nominee and shall not mean the  beneficial  owners of the Bonds;  and (5) in
the event of any  inconsistency  between the provisions of the Indenture and the
provisions  of the Letter of  Representations,  the  provisions of the Letter of
Representations,  except to the extent set forth in this  paragraph and the next
preceding paragraph, shall control.

         For purposes of this Section,  following  term shall have the following
meaning:

         "Letter of  Representations"  means the Letter of Representations  from
the  Municipality  to the  Securities  Depository  and (with the  consent of the
Company)  any  amendments   thereto,   or  successor   agreements   between  the
Municipality, the Trustee and any successor Securities Depository, relating to a
book entry system to be maintained by the Securities  Depository with respect to
the Bonds.

         Section 211.  Payment  Procedure  Pursuant to Municipal  Bond Insurance
Policy.  As long as the Municipal Bond  Insurance  Policy shall be in full force
and effect with respect to the Bonds,  the Municipality and the Trustee agree to
comply with the following provisions:

                  (a) At least two (2) days prior to all  interest or  principal
         payment  dates the  Company  will  notify  MBIA and the  Trustee if the
         Company does not expect to provide the Trustee with sufficient funds to
         pay the principal of or interest on the Bonds on such interest  payment
         date.   Such  notice  shall  specify  the  amount  of  the  anticipated
         deficiency,  the  Bonds to which  such  deficiency  is  applicable  and
         whether such Bonds will be  deficient  as to principal or interest,  or
         both.




                                   ARTICLE III

                          Application of Bond Proceeds;
                                 Redemption Fund

         Section 301.  Deposit  of Funds.  Pursuant  to Section  3.1 of the Loan
Agreement, the Municipality shall deposit with the Trustee all proceeds from the
sale of Bonds and the Trustee shall  deposit the accrued  interest on the Bonds,
if any,  into the Bond Fund created  under Section 402 hereof and the balance of
the proceeds into the Redemption Fund created under Section 302 hereof.

         Section 302. Redemption Fund. The Municipality shall establish with the
Trustee a separate account to be designated as the "Indianapolis  Water Company,
Series 1998 (Fishers) Redemption Fund." Moneys on deposit in the Redemption Fund
shall be held by the Trustee under the Escrow and Defeasance  Agreement and paid
out by the Trustee as provided in Section 3.2 of the Loan  Agreement  solely for
the  purposes  of  discharging,  retiring  and  redeeming  the  1989  Bonds  and
terminating  all  obligations  and  liabilities  of the  Company  created  by or
relating to the 1989 Bonds; provided,  however, that any moneys remaining in the
Redemption  Fund after such  discharge,  retirement,  redemption and termination
shall be promptly released and distributed to the Company.  Moneys on deposit in
the  Redemption  Fund may be invested only in direct  obligations  of the United
States of  America or other  obligations  backed by the full faith and credit of
the United States of America and the income or loss shall be credited or charged
to the Redemption Fund.


                                   ARTICLE IV

                               Revenues and Funds

         Section 401. Source of Payment of Bonds.  The Bonds and all payments to
be  made  by the  Municipality  hereunder  are not  general  obligations  of the
Municipality,  but are  limited  obligations  payable  by it  solely  out of the
revenues and other amounts  derived from the Note and under the Loan  Agreement.
In addition,  the Bonds shall be guaranteed by the Guarantor  under the Guaranty
and shall be further  secured under and pursuant to the Municipal Bond Insurance
Policy.

         Section 402. Creation of Bond Fund. There is created with the Trustee a
trust fund to be designated as the "Indianapolis Water Company, Series 1998 Bond
Fund."  Amounts  deposited into the Bond Fund shall be used to pay the principal
of and premium, if any, and interest on the Bonds and as otherwise authorized in
this Indenture.

         Section 403. Payments  into Bond Fund.  Pursuant to Section 301 hereof,
all  accrued  interest  received  at the time of the sale of any Bonds  shall be
deposited  into the Bond Fund.  In addition,  there shall be deposited  into the
Bond  Fund all  payments  received  pursuant  to the Note and all  other  moneys
received by the  Trustee  under the Loan  Agreement  or the  Guaranty  which are
required or directed to be paid into the Bond Fund and all amounts received from
MBIA under the Municipal Bond Insurance Policy.

         Section 404. Use of Moneys in Bond Fund.  Except as provided in Section
1301 hereof, moneys in the Bond Fund shall be used solely for the payment of the
principal of and premium,  if any, and interest on the Bonds, for the redemption
of all or a portion of the Bonds prior to maturity, for the purchase of Bonds or
portions thereof for the purpose of  cancellation,  for any fees and expenses of
the  Trustee  and any  paying  agent  and  for  any  fees  and  expenses  of the
Municipality  caused by any  default of the  Company  under the Loan  Agreement.
Whenever  the amount in the Bond Fund is  sufficient  to redeem all of the Bonds
then unpaid and to pay the premium, if any, and interest to accrue thereon prior
to  redemption,  the  Trustee  shall,  at the request of the  Company,  take the
necessary steps to redeem the Bonds on the earliest possible redemption date for
which the required  redemption notice may be given.  However,  any moneys in the
Bond Fund may be used to redeem a part of the Bonds  outstanding  so long as the
Company is not in default with respect to any payments  under the Loan Agreement
or the Note,  but only to the  extent  those  moneys are in excess of the amount
still  required  for payment of the portion of the Bonds  previously  called for
redemption, the premium thereon, if any, and interest, and any past due interest
and principal.

         Section 405. Investment  of  Funds.  Moneys  in  the  Bond Fund and the
Redemption  Fund may be invested in direct  obligations  of the United States of
America or other  obligations  backed by the full faith and credit of the United
States of America. Any such investments shall be held by or under control of the
Trustee  and shall be deemed at all times a part of the Bond Fund or  Redemption
Fund,  as the case may be,  and the  interest  accruing  thereon  and any profit
realized  therefrom  shall be credited to such fund, and any loss resulting from
such  investments  shall be  charged to such fund.  The  Trustee  shall sell and
reduce to cash funds a sufficient portion of investments under the provisions of
this Section 405 whenever the cash balance in the Bond Fund is  insufficient  to
pay the principal of and premium,  if any, and interest on the Bonds as and when
payable.

         The Company and the Municipality  covenant to each other and to and for
the benefit of the Holders of the Bonds that no use will be made of the proceeds
from  the  issue  and  sale of the  Bonds  which  would  cause  the  Bonds to be
classified  as  arbitrage  bonds  within the  meaning of Section  103(b)(2)  and
Section 148 of the Code.  The parties  reserve the right,  however,  to make any
investment of proceeds permitted by the laws of the State of Indiana, if Section
148 or regulations  thereunder are repealed or relaxed or are held void by final
judgment of a court of competent  jurisdiction,  so long as the investment would
not  result in making  the  interest  on the Bonds  subject  to  federal  income
taxation.  In making investments,  the parties may rely on an opinion of counsel
of  recognized  competence  in such  matters.  The  Trustee may make any and all
investments permitted by this Section 405 through its own bond department.

         Section 406. Trust Funds.  All  moneys and  securities  received by the
Trustee under the  provisions of this  Indenture  shall be trust funds and shall
not be subject to lien or attachment of any creditor of the  Municipality  or of
the Company.

         Section 407. Nonpresentment  of  Bonds. In the event any Bond shall not
be  presented  for payment when the  principal  thereon  becomes due,  either at
maturity,  or at the date fixed for redemption thereof,  or otherwise,  if funds
sufficient  to pay such Bond shall have been made  available  to the Trustee for
the benefit of the Holder  thereof,  all  liability of the  Municipality  to the
Owner thereof for the payment of such Bond shall forthwith cease,  determine and
be completely  discharged,  and thereupon it shall be the duty of the Trustee to
hold such funds for five years,  without liability for interest thereon, for the
benefit  of the  Holder  of  such  Bond,  who  shall  thereafter  be  restricted
exclusively  to such funds,  for any claim of whatever  nature on his part under
this  Indenture  or on, or with  respect to, such Bond.  Any moneys so deposited
with and held by the Trustee not so applied to the payment of Bonds  within five
years after the date on which the same shall become due,  shall be repaid by the
Trustee to the Company and thereafter Bondholders shall be entitled to look only
to the Company for payment, and then only to the extent of the amount so repaid,
and the Company  shall not be liable for any  interest  thereon and shall not be
regarded  as a trustee of such  money.  Nor shall the  Company be liable for any
portion of such money that it  delivers  to the State of Indiana  pursuant to IC
32-9.


                                    ARTICLE V

                       Redemption of Bonds Before Maturity

         Section 501. Determination  of  Taxability  Redemption.  The  Bonds are
subject to mandatory  redemption in whole (or in part as provided  below) on the
earliest  practicable  date  (selected  by the  Trustee)  within one hundred and
eighty (180) days following a Determination of Taxability.  The redemption price
shall be 100% of the  principal  amount  thereof  plus  accrued  interest to the
redemption date. Fewer than all the Bonds may be redeemed if redemption of fewer
than all would result in the interest payable on the Bonds remaining outstanding
being not  includable in the gross income for federal income tax purposes of any
owner other than a  "substantial  user" or  "related  person." If fewer than all
Bonds are  redeemed,  the Trustee will select the Bonds to be redeemed by lot or
by such other random means as the Trustee shall determine in its discretion. For
purposes of this Section,  Bondholder  shall include the  beneficial  owner of a
Bond (i.e., the actual owner as recorded in the records of DTC).

         Section 502. Redemption in the Event of Death of a Bondholder.  On July
15 of each year  commencing  July 15, 2000, the Trustee will,  upon the death of
any registered  owner,  redeem any Bond held by such registered  owner following
presentation  for  redemption  as  described  below by such  registered  owner's
personal representative or surviving joint tenant(s), subject to the limitations
that in any 12-month  period the Trustee  shall not be obligated to redeem Bonds
pursuant to this Section to the extent that (i) the aggregate  principal  amount
of Bonds so subject to redemption,  together with the aggregate principal amount
of City of Indianapolis, Indiana Economic Development Water Facilities Refunding
Revenue  Bonds,  Series 1998  (Indianapolis  Water  Company  Project) (the "1998
Indianapolis  Bonds")  subject  to  redemption  by  reason  of the  death of any
registered owner of 1998 Indianapolis Bonds exceeds $800,000,  or (ii) the Bonds
of any  registered  owner so subject to redemption  together with the registered
owner's 1998 Indianapolis  Bonds subject to redemption by reason of the death of
such registered  owner,  exceed the aggregate  principal amount of $25,000.  The
Bonds subject to redemption as described  above may be presented for  redemption
by delivering  to the Trustee  within two (2) years of the death of a registered
owner (i) a written request for redemption in form  satisfactory to the Trustee,
signed by the  personal  representative  or  surviving  joint  tenant(s)  of the
registered owner, (ii) the Bond(s) to be redeemed, (iii) appropriate evidence of
death and ownership of such Bond(s) at the time of death,  and (iv)  appropriate
evidence of the authority of such  personal  representative  or surviving  joint
tenant(s). In order for Bonds to be eligible for redemption on any July 15, such
Bonds must be presented for  redemption in full  compliance  with the provisions
set forth above,  prior to the May 15, next preceding such July 15. Upon receipt
by the Trustee of all of the  foregoing  and by the time  specified  above,  the
Trustee  shall  promptly (and in any event by the June 15 next  succeeding  such
July 15) certify to the Company and MBIA of such  receipt and that a  redemption
of Bonds will occur under this Section 502 on the next  succeeding  July 15. The
Bonds  presented for redemption  prior to maturity will be redeemed in the order
of their  receipt by the  Trustee.  Any Bonds not  redeemed  in any such  period
because  of  the  individual   $25,000  limitation  or  the  aggregate  $800,000
limitation, will be held in the order described above for redemption on the July
15 in succeeding  years until redeemed.  Any such redemption shall be at a price
equal to 100% of the  principal  amount  of the  Bonds so to be  redeemed,  plus
accrued interest to the redemption date.

         The death of a person who, during his or her lifetime,  was entitled to
substantially  all of the  beneficial  interest of  ownership  of a Bond will be
deemed the death of a registered  owner,  regardless of the registered owner, if
such beneficial  interest can be established to the satisfaction of the Trustee.
Such  beneficial  interest  shall be deemed to exist in typical  cases of street
name or nominee  ownership,  ownership  under the  Uniform  Gifts to Minors Act,
community property or other joint ownership arrangements between the husband and
wife,   and  trust  and  certain  other   arrangements   where  one  person  has
substantially all of the beneficial ownership interest in the Bond during his or
her  lifetime.  In the case of Bonds  registered  in the  name of  banks,  trust
companies or broker-dealers who are members of a national securities exchange or
the National Association of Securities Dealers, Inc. ("Qualified Institutions"),
the redemption  limitations  described above apply to each  beneficial  owner of
Bonds held by any  Qualified  Institution.  In  connection  with the  redemption
request,  such Qualified  Institution must submit evidence,  satisfactory to the
Trustee, that it holds the Bonds subject to request on behalf of such beneficial
owner and must  certify the  aggregate  amount of  redemption  requests  made on
behalf of such beneficial owner.

         It is  intended  that  the  Bonds  and the 1998  Indianapolis  Bonds be
treated as a single  issue of bonds for purposes of this Section 502 and for all
other  provisions of this Indenture  related to this Section 502 and the Trustee
agrees to apply and  administer  the  provisions of this Indenture in accordance
with that intention.

         Section 503. Optional  Redemption.  The Bonds are subject to redemption
by the  Municipality  (at the  election and  direction of the Company)  prior to
stated  maturity in whole or in part on any date on or after July 15, 2005.  The
redemption price for any such redemption shall be the amount determined from the
table below  (expressed as a percentage of the principal  amount of the Bonds or
portions thereof so redeemed), plus accrued interest to the redemption date:
<TABLE>
<CAPTION>

         Redemption Period                               Redemption
       (both dates inclusive)                               Price

<S>  <C> <C>               <C> <C>                           <C> 
July 15, 2005 through July 14, 2006                          102%
July 15, 2006 through July 14, 2007                          101%
July 15, 2007 and thereafter                                 100%
</TABLE>

         If less than all  Bonds at the time  outstanding  are to be called  for
prior redemption,  the particular Bonds or portions thereof to be redeemed shall
be selected by lot or by such other random means as the Trustee shall  determine
in its discretion.  Bonds of denominations greater than $5,000 may be called for
redemption, in part, in multiples of $5,000.

         Section 504. Notice of Redemption.

                  (a) Notice of the call for redemption identifying the Bonds to
         be redeemed (and, in the case of partial  redemption of any Bonds,  the
         respective  principal  amounts thereof to be redeemed),  the redemption
         date and the redemption  price shall (except for a redemption  pursuant
         to Section  502) be given to  Bondholders  and to MBIA by  mailing  the
         redemption  notice by registered or certified mail at least thirty days
         but no more than sixty days prior to the date fixed for  redemption  to
         the registered Owner of each Bond to be redeemed in whole or in part at
         the address shown on the registration books;  provided,  however,  that
         failure to give notice by mailing, or any defect therein,  with respect
         to any Bond shall not affect the  validity of any  proceedings  for the
         redemption of any other Bonds or portions thereof.  Reference is hereby
         made to Section 5.4 of the Loan  Agreement,  which provision sets forth
         the obligations of the Company with respect to notice to the Trustee of
         the Company's  exercise of its rights to prepay the Note. In connection
         with an optional  redemption,  the redemption notice may state that the
         redemption  is  conditional  upon the timely  receipt by the Trustee of
         funds  sufficient  to pay  the  redemption  price  of the  Bonds  to be
         redeemed  as of the  date  of such  redemption.  In the  event  of such
         conditional redemption notice, if such funds are not so received by the
         Trustee,  the call for  redemption  shall be of no force and effect and
         the  redemption  shall not  occur.  On and after  the  redemption  date
         specified  in the notice,  if funds  sufficient  to pay the  redemption
         price  of the  Bonds  described  in such  notice  are  received  by the
         Trustee,  the Bonds  that were  called  for  redemption  shall not bear
         interest,  shall no longer be protected by this Indenture and shall not
         be deemed to be  outstanding,  and the Holders  thereof  shall have the
         right only to receive the redemption price plus accrued interest to the
         date fixed for redemption; provided, however, that all actions required
         by Section 1301 of this Indenture have been taken.

                  (b) In addition to the redemption  notice  required  above, if
         there is more than one Bondholder of all the Bonds, further notice (the
         "Additional Notice") shall be given by the Trustee as set out below. No
         defect  in the  Additional  Notice  or any  failure  to give all or any
         portion  of the  Additional  Notice  shall  in any  manner  defeat  the
         effectiveness of a call for redemption if notice is given as prescribed
         in paragraph (a) above.

                                    (1) Each  Additional  Notice  of  redemption
                  shall contain the information  required in paragraph (a) above
                  for an  official  notice  of  redemption  plus  (i) the  CUSIP
                  numbers  of all  Bonds  being  redeemed;  (ii) the date of the
                  Bonds as originally  issued:  (iii) the rate of interest borne
                  by each Bond being  redeemed;  (iv) the maturity  date of each
                  Bond being redeemed; and (v) any other descriptive information
                  needed to identify accurately the Bonds being redeemed.

                                    (2) Upon the payment of the redemption price
                  of the Bonds being  redeemed,  each check or other transfer of
                  funds  issued for such  purpose  shall  bear the CUSIP  number
                  identifying,  by issue and maturity,  the Bonds being redeemed
                  with the proceeds of such check or other transfer.

                                    (3) Each  Additional  Notice  of  redemption
                  shall be sent at least 35 days before the  redemption  date by
                  registered or certified mail or overnight  delivery service to
                  the  Paying  Agents,  if  any,  to all  registered  securities
                  depositories  then  in the  business  of  holding  substantial
                  amounts of obligations similar to the Bonds (such depositories
                  now being The Depository  Trust Company of New York, New York,
                  Midwest Securities Trust Company of Chicago, Illinois, Pacific
                  Securities   Depository   Trust  Company  of  San   Francisco,
                  California  and  Philadelphia   Depository  Trust  Company  of
                  Philadelphia,  Pennsylvania),  to Standard and Poor's  Ratings
                  Group, and to one or more national  information  services that
                  disseminate  notices of redemption of obligations  such as the
                  Bonds.

                                    (4) In  addition,  the Trustee  shall at all
                  reasonable  times  make  available  to  any  interested  party
                  complete  information  as to which Bonds have been redeemed or
                  called for redemption.

         Section 505. Cancellation.  All Bonds that have  been redeemed shall be
cancelled by the Trustee and disposed of by the Trustee.  A cancelled Bond shall
not be reissued and a counterpart of the certificate  evidencing its disposition
shall be furnished by the Trustee to the Municipality and the Company.


                                   ARTICLE VI

                                General Covenants

         Section 601. Payment of Principal,  Premium, if any, and Interest.  The
Municipality  shall  promptly  pay,  but  solely  from  payments  under the Loan
Agreement  and on the Note and from funds  otherwise  available  therefor in the
Bond Fund the  principal of and  premium,  if any, and interest on every Bond at
the place, on the dates and in the manner provided herein and in the Bonds.  The
Bonds do not  represent  or  constitute  a debt of the  Municipality  within the
meaning  of the  provisions  of the  Constitution  or  Statutes  of the State of
Indiana or a pledge of or charge against the credit of the Municipality or grant
to the Owners or Holders thereof any right to have the  Municipality  levy taxes
or  appropriate  any funds for the payment of the principal  thereof or interest
thereon.
         Section 602. Performance  of Covenants.  The Municipality  will perform
its  obligations  under this  Indenture,  the Bonds and the  proceedings  of its
governing body pertaining to the Bonds. The  Municipality  represents that it is
authorized  under the Constitution and laws of the State of Indiana to issue the
Bonds,  to  execute  this  Indenture  and to assign  all its right and title and
interest in and to the Note and the Loan Agreement  under this  Indenture;  that
all  action on its part for the  issuance  of the Bonds  and the  execution  and
delivery of this  Indenture  has been taken,  and that the Bonds in the hands of
the Holders and Owners thereof are and will be valid and binding  obligations of
the Municipality.

         The Company covenants that it will faithfully  perform at all times all
covenants,  undertakings,  stipulations  and  provisions  which it has expressly
undertaken to perform in this Indenture.

         Section 603. Ownership;   Instruments   of   Further  Assurance.    The
Municipality  represents  that it lawfully owns the Note and that the pledge and
assignment  thereof and the assignment of its interests in the Loan Agreement to
the Trustee hereby made are valid and lawful. The Municipality covenants that it
will  defend  the  title  to the  Note and its  interest  in the Loan  Agreement
assigned to the Trustee,  for the benefit of the Holders and Owners of the Bonds
against the claims and demands of all persons whomsoever.

         The  Municipality  covenants that it will do, execute,  acknowledge and
deliver  or  cause  to be  done,  executed,  acknowledged  and  delivered,  such
indentures  supplemental hereto and such further acts, instruments and transfers
as the Trustee may  reasonably  require for the better  assuring,  transferring,
pledging, assigning and confirming unto the Trustee the Note, the Loan Agreement
and all payments  thereon and  thereunder  pledged  hereby to the payment of the
principal of and premium,  if any, and interest on the Bonds.  The  Municipality
covenants that, except as provided herein and in the Loan Agreement, it will not
sell,  convey,  mortgage,  encumber  or  otherwise  dispose  of any  part of the
revenues  and  receipts  payable  under the Note and the Loan  Agreement  or its
rights under the Loan Agreement.

         Section 604. Rights under Loan  Agreement and  Note.  The  Municipality
agrees  that the  Trustee  in its name or in the  name of the  Municipality  may
enforce all rights,  remedies and privileges granted to the Municipality and all
obligations of the Company under and pursuant to the Loan Agreement and the Note
for and on behalf of the  Bondholders,  whether  or not the  Municipality  is in
default hereunder.

         Section 605. Designation of  Additional Paying Agents. The Municipality
will cause the  necessary  arrangements  to be made  through the Trustee for the
designation  of  alternate  paying  agents,  if any,  and for the payment of the
Bonds.

         Section 606. Recordation;  Application  of Uniform Commercial Code. The
Municipality,  the Company and the Trustee  shall cause this  Indenture  and all
supplements  hereto  as well  as  such  other  security  instruments,  financing
statements and all supplements thereto and other instruments or documents as may
be reasonably  required from time to time to be kept, recorded and filed in such
manner and in such places as may be  required by law in order to preserve  fully
and  protect  the  security  of the  Owners of the  Bonds and the  rights of the
Trustee hereunder, and to perfect the lien of, and the security interest created
by, this  Indenture.  This  Indenture is a security  agreement in support of any
financing  statement  which may be executed  and filed with respect to the Trust
Estate,  or any part thereof,  and should an Event of Default occur, the Trustee
may assert any or all of the remedies accorded a secured party under the Uniform
Commercial Code of Indiana.  The Company  covenants and agrees to execute and to
furnish to the Trustee such financing  statements and  continuations  thereof as
the Trustee may reasonably deem necessary or appropriate.

         Section 607. List of  Bondholders.  The Trustee as bond  registrar will
keep on file at the  principal  corporate  trust office of the Trustee a list of
names and addresses of the Holders of all Bonds.  At reasonable  times and under
reasonable  regulations  established by the Trustee,  said list may be inspected
and copied by the  Company,  by the  Purchaser  or by Holders  (or a  designated
representative  thereof)  of 10% or more  in  principal  amount  of  Bonds  then
outstanding,   such   ownership  and  the  authority  of  any  such   designated
representative to be evidenced to the reasonable satisfaction of the Trustee.


                                   ARTICLE VII

                        Possession and Use of the Project
                          Financed with the 1989 Bonds

         Section 701. Subordination to Rights of Company. This Indenture and the
rights and privileges  hereunder of the Trustee and the Holders of the Bonds are
specifically  made subject and  subordinate  to the rights and privileges of the
Company set forth in the Loan Agreement.


                                  ARTICLE VIII

                                    Remedies

         Section 801. Events of Default.  If any of the following events occurs,
it is hereby declared an "Event of Default":

                  (a)default in the due and punctual payment and for a period of
         five (5) days thereafter of any interest on any Bonds; or

                  (b)default in  the due and punctual  payment of the  principal
         of or  redemption  premium,  if any,  on any  Bond,  whether  at stated
         maturity thereof,  or at the date for redemption thereof, or otherwise;
         or

                  (c)any  Event of Default as defined in Section 6.1 of the Loan
         Agreement shall have occurred; or

                  (d)failure by  the  Municipality or the Company to perform any
         other obligations  under the Bonds or in this Indenture  continuing for
         sixty (60) days after written  notice  specifying  the failure given to
         the Municipality and the Company by the Trustee,  which shall give such
         notice  at the  written  request  of the  Holders  of not less than ten
         percent  (10%)  in  aggregate   principal  amount  of  the  Bonds  then
         outstanding;  provided,  however,  that with respect to this clause (d)
         and with respect to Section  6.1(d) of the Loan Agreement if failure of
         performance  shall be such  that it  cannot be  corrected  within  such
         period,  it shall  not  constitute  an Event of  Default  if:  (i) such
         failure of performance,  in the reasonable  opinion of the Trustee,  is
         correctable   without  material  adverse  effect  on  the  Bonds;  (ii)
         corrective  action is instituted by or on behalf of the Municipality or
         the Company  within such period and is  diligently  pursued  until such
         failure  of  performance  is  corrected;  and  (iii) in the  reasonable
         opinion of the Trustee,  correction of such failure of performance  has
         not taken an unreasonable  amount of time. The Trustee may request (and
         may rely upon) from the Company or the  Municipality  a certificate  to
         the  effect  that  the  Company  or  the  Municipality  has  instituted
         corrective  action and will diligently  pursue such action and believes
         that its failure of performance  can be corrected  through such action;
         or

                  (e)an  Event of  Default  as  defined  in  Section  4.1 of the
         Guaranty shall have occurred.

         Section 802.  Acceleration  Rights.  Upon the happening of any Event of
Default  specified in Section 801 herein,  the Trustee may,  with the consent of
MBIA,  and shall,  at the written  direction of MBIA,  without any action on the
part of the  Holders of the Bonds,  and shall  upon the  written  request of the
Holders of not less than twenty-five percent (25%) in aggregate principal amount
of the Bonds then  outstanding  (but only with the written  consent of MBIA), by
notice in writing  delivered to the  Municipality  and MBIA,  declare the entire
principal amount of the Bonds then outstanding and the interest accrued thereon,
immediately  due and payable,  whereupon  that  portion of the  principal of the
Bonds thereby coming due and the interest thereon accrued to the date of payment
shall,  without  further  action,  become and be  immediately  due and  payable,
anything in this Indenture or in the Bonds to the contrary notwithstanding.

         Section 803. Other Remedies; Rights of Bondholders. Upon the occurrence
of an Event of Default,  the Trustee may pursue any available  remedy by suit at
law or in equity to enforce the payment of the principal of and premium, if any,
and  interest on the Bonds then  outstanding,  to enforce  this  Indenture or to
enforce its rights under the Loan Agreement or the Note.

         If an Event of Default shall have occurred, and if requested by MBIA or
by the Holders of not less than twenty-five percent (25%) in aggregate principal
amount of the Bonds then outstanding (but only with the written consent of MBIA)
and indemnified as provided in Section 902(i) hereof,  the Trustee must exercise
such one or more of the rights and powers  conferred  by this Section 803 as the
Trustee, being advised by counsel, shall deem most expedient in the interests of
the Bondholders.

         No  remedy  given  under  this  Indenture  to  the  Trustee  or to  the
Bondholders  is intended to be exclusive of any other remedy.  Each remedy shall
be  cumulative  and shall be in addition to any other remedy given  hereunder or
existing at law or in equity or by statute.

         No delay or omission to exercise any right or power  accruing  upon any
Event of Default  shall  impair the right or power or shall be construed to be a
waiver of any Event of Default;  and every right and power may be exercised from
time to time and as often as may be deemed expedient.

         No waiver of any Event of  Default,  whether  by the  Trustee or by the
Bondholders,  shall extend to or shall affect any subsequent Event of Default or
shall impair any rights or remedies relating to that Event of Default.

         Section 804. Right of Bondholders to Direct Proceedings. Subject to the
rights of MBIA under the  Municipal  Bond  Insurance  Policy,  the  Holders of a
majority in aggregate  principal amount of the Bonds then outstanding shall have
the right, at any time, by an instrument or instruments in writing  executed and
delivered to the Trustee, to direct the time, the method and place of conducting
all  proceedings  to be  taken  in  connection  with  the  enforcement  of  this
Indenture,  or for  the  appointment  of a  receiver  or any  other  proceedings
hereunder;  provided,  that  such  direction  shall  be in  accordance  with the
provisions of law and of this  Indenture and that the Trustee is  indemnified as
provided in Section 902(i) of this Indenture.

         Section 805. Appointment of Receivers.  Upon the occurrence of an Event
of  Default,  and upon the filing of a suit or other  commencement  of  judicial
proceedings  to enforce the rights of the Trustee and of the  Bondholders  under
this Indenture,  the Trustee shall be entitled,  to the extent permitted by law,
to the  appointment  of a receiver or  receivers  of the Trust Estate and of the
revenues,   earnings,   income,  products  and  profits  thereof,  pending  such
proceedings, with such powers as the court making such appointment shall confer.

         Section 806. Application of Moneys. Subject to the rights of MBIA under
the Municipal Bond Insurance Policy, all moneys received by the Trustee pursuant
to any right given or action  taken under the  provisions  of this  Article VIII
shall,  after payment of the costs and expenses of the proceedings  resulting in
the collection of such moneys and of the expenses,  liabilities and advances and
fees  incurred or made by the  Trustee  and the sums  required to be paid by the
Company  pursuant to this Indenture,  the Bonds,  the Loan Agreement or the Note
(other  than  payment of  principal,  premium  and  interest on the Bonds or the
Note),  be  deposited  into  the  Bond  Fund  and  applied  as  follows  without
preference, priority or distinction as between any Bond and any other Bond:

                  (a) Unless the principal of all the Bonds shall have become or
         shall have been declared due and payable, all moneys shall be applied:

                                    First--To the payment of all installments of
                  interest  then due on the Bonds,  in the order of the maturity
                  of the  installments  of  such  interest  and,  if the  amount
                  available  is not  sufficient  to pay in full  any  particular
                  installment,  then to the payment  ratably,  according  to the
                  amounts  due on  that  installment,  to the  persons  entitled
                  thereto, without any discrimination or privilege; and
                                    Second--To   the   payment   of  the  unpaid
                  principal  of and  premium,  if any,  on the Bonds which shall
                  have become due (other than  portions of the Bonds  called for
                  redemption  for the payment of which moneys are held  pursuant
                  to the  provisions of this  Indenture),  in the order of their
                  due dates,  with interest from the respective dates upon which
                  they become due and, if the amount available is not sufficient
                  to pay in full any particular installment, then to the payment
                  ratably, according to the amounts due on that installment,  to
                  the persons entitled  thereto,  without any  discrimination or
                  privilege.

                                    Third--To   MBIA  in  connection  with  any 
                  payments due it with respect to the Municipal  Bond  Insurance
                  Policy.

                  (b) If the principal of all the Bonds shall have become due or
         shall have been  declared due and payable,  all moneys shall be applied
         to the payment of the  principal of and  premium,  if any, and interest
         then due and  unpaid on the Bonds  (other  than  portions  of the Bonds
         called for redemption for the payment of which moneys are held pursuant
         to the provisions of this Indenture),  without  preference or priority,
         ratably,  according  to the amounts  due  respectively  for  principal,
         premium and  interest,  to the persons  entitled  thereto,  without any
         discrimination or privilege.

                  (c) If the principal of all the Bonds shall have been declared
         due and payable,  and if such  declaration  shall  thereafter have been
         rescinded,  then,  subject to the  provisions of subsection (b) of this
         Section  806 in the event that the  principal  of the Bonds shall later
         become due or be declared due and  payable,  the money shall be applied
         in accordance with subsection (a) of this Section 806.

         Moneys  shall be applied  under this  Section 806 at the times that the
Trustee shall  determine,  having regard for the amount of moneys  available for
application  and the  likelihood of  additional  moneys  becoming  available for
application  in the future.  The Trustee  shall fix the date (which  shall be an
interest  payment  date unless it shall deem another  date more  suitable)  upon
which  application  is to be made and on that date  interest  on the  amounts of
principal to be paid shall cease to accrue.  The Trustee  shall give such notice
as it may deem  appropriate of the deposit with it of any such moneys and of the
fixing of any such date, and shall not be required to make payment to the Holder
of any Bond until the Bond shall be  presented  to the Trustee  for  appropriate
endorsement or for cancellation if fully paid.

         Section  807.  Remedies  Vested  in  Trustee.   All  rights  of  action
(including  the right to file proofs of claim) under this Indenture or under any
of the Bonds may be enforced by the Trustee without the possession of any of the
Bonds or the  production  thereof  in any  trial or other  proceedings  relating
thereto  and any such suit or  proceeding  instituted  by the  Trustee  shall be
brought in its name as Trustee without the necessity of joining as plaintiffs or
defendants the Holders of the Bonds and any recovery of judgment shall,  subject
to the provisions of Section 806 hereof, be for the equal benefit of the Holders
of the Bonds.

         Section 808. Rights and Remedies of Bondholders.  No Holder of any Bond
may  institute  any  suit,  action  or  proceeding  in  equity or at law for the
enforcement  of this  Indenture or for the execution of any trust thereof or for
the  appointment  of a  receiver  or any other  remedy  hereunder,  unless (a) a
default  has  occurred  of which the  Trustee  has been  notified as provided in
subsection  (g) of Section  902  hereof,  or of which by that  subsection  it is
deemed to have notice,  (b) that  default  shall have become an Event of Default
and the  Holders  of not  less  than  twenty-five  percent  (25%)  in  aggregate
principal amount of the Bonds then  outstanding  shall have made written request
to the Trustee and shall have offered  reasonable  opportunity either to proceed
to exercise the powers hereinbefore granted or to institute such action, suit or
proceedings in its own name,  (c) they have offered to the Trustee  indemnity as
provided in Section 902(i) hereof,  and (d) the Trustee shall thereafter fail or
refuse to exercise its powers, or to institute such action,  suit or proceeding.
The  notification,  request  and offer of  indemnity  are,  at the option of the
Trustee,  conditions precedent to the execution of the powers and trusts of this
Indenture,  and to any  action or cause of action  for the  enforcement  of this
Indenture,  or for  the  appointment  of a  receiver  or for  any  other  remedy
hereunder.  No one or more  Holders  of the  Bonds  shall  have any right in any
manner whatsoever to affect,  disturb or prejudice the lien of this Indenture by
their  action or to enforce  any right  hereunder  except in the  manner  herein
provided,  and all proceedings at law or in equity shall be instituted,  had and
maintained  in the  manner  herein  provided  and for the equal  benefit  of the
Holders of all Bonds then outstanding.

         Section 809. Termination   of  Proceedings.  If the Trustee  shall have
proceeded to enforce any right under this  Indenture and the  proceedings  shall
have  been  discontinued  or  abandoned  for any  reason,  or  shall  have  been
determined  adversely,  then the Municipality,  the Company, the Trustee and the
Bondholders shall be restored to their former positions and rights hereunder.

         Section  810. Waivers  of Events of  Default.  Subject to the rights of
MBIA  under  the  Municipal  Bond  Insurance  Policy,  the  Trustee  may  in its
discretion  waive any Event of Default (except to the extent that the Trustee is
required by the Bondholders  pursuant to Section 803 hereof to exercise  certain
rights  or  powers)  and  its   consequences  and  rescind  any  declaration  of
acceleration of maturity of principal of and interest on the Bonds, and shall do
so upon the  written  request  of the  Holders  of not less than a  majority  in
aggregate  principal amount of the Bonds then  outstanding;  provided,  however,
that there shall not be waived (a) any  default in the payment of the  principal
of or premium  on any Bond or (b) any  default  in the  payment  when due of the
interest on any Bond unless prior to such waiver or  rescission,  all arrears of
interest,  principal  and  premium,  and all fees and expenses of the Trustee in
connection  with such default,  shall have been paid or provided for. In case of
any such waiver or rescission,  the Municipality,  the Company,  the Trustee and
the  Bondholders  shall  be  restored  to  their  former  positions  and  rights
hereunder,  respectively,  but no such waiver or rescission  shall extend to any
subsequent or other default, or impair any right consequent thereon.

         Section 811. Cooperation  of  Municipality. In the event of a default  
hereunder,  the  Municipality  shall cooperate with the Trustee and use its best
efforts to protect the Bondholders.

         Section 812.  Consent of MBIA Upon Default.  Anything in this Indenture
to the contrary notwithstanding,  so long as the Municipal Bond Insurance Policy
is in effect and MBIA is not in default in its obligations thereunder,  upon the
occurrence  and  continuance  of an Event of Default,  MBIA shall be entitled to
control and direct the  enforcement  of all rights and  remedies  granted to the
Bondholders  or the  Trustee  for the  benefit  of the  Bondholders  under  this
Indenture,  including, without limitation,  acceleration of the principal of the
Bonds as described in this  Indenture and the right to annul any  declaration of
acceleration,  and MBIA shall also be  entitled to approve all waivers of Events
of Default.


                                   ARTICLE IX

                                   The Trustee

         Section 901. Acceptance  of  Trusts.  The  Trustee   accepts the trusts
imposed upon it by this  Indenture.  The Trustee  shall  exercise the rights and
powers vested in it by this Indenture and shall use the same degree of care as a
prudent man would exercise or use in the circumstances in the conduct of his own
affairs.

         Section 902. Certain Rights of Trustee.

                  (a) The  Trustee  may  perform any of its duties by or through
         attorneys,  agents,  receivers or employees but shall be answerable for
         the conduct of the same in  accordance  with the standard  specified in
         Section 901 and shall be entitled to advice of counsel  concerning  all
         matters hereunder and may pay reasonable  compensation to all attorneys
         and agents as may  reasonably  be  employed  and shall be  entitled  to
         reimbursement  therefor from the Company.  The Trustee may act upon the
         opinion or advice of any attorney (who may be the attorney or attorneys
         for  the  Municipality  or  the  Company).  The  Trustee  shall  not be
         responsible  for any  loss or  damage  resulting  from  any  action  or
         nonaction in good faith in reliance upon such opinion or advice.

                  (b) The Trustee  shall not be  responsible  for any recital in
         this Indenture,  or in the Bonds (except the certificate of the Trustee
         endorsed on the Bonds) or in any related document (other than documents
         relating  solely  to and  executed  only  by the  Trustee),  or for the
         validity of the execution by the  Municipality  of this Indenture or of
         any  supplements  or  instruments  of  further  assurance,  or for  the
         sufficiency  of the security for the Bonds or as to the  maintenance of
         the security therefor except as provided in Section 606 hereof; and the
         Trustee  shall  not  be  bound  to  make  any  investigation  as to the
         performance or observance of any covenants, conditions or agreements on
         the part of the  Municipality  or on the part of the Company  under the
         Loan Agreement.  The Trustee shall have no obligation to perform any of
         the  duties  of the  Municipality  under  the Loan  Agreement,  and the
         Trustee  shall not be  responsible  or liable for any loss  suffered in
         connection  with any investment of funds made by it in accordance  with
         the provisions of this Indenture.

                  (c) The Trustee  shall not be  accountable  for the use of any
         Bonds.  The  Trustee  may be or become the Owner of Bonds with the same
         rights which it would have if not Trustee.

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

                  (e) As to the existence or  nonexistence  of any fact or as to
         the sufficiency or validity of any instrument, paper or proceeding, the
         Trustee shall be entitled to rely upon an Officer's  Certificate of the
         Municipality. Prior to the occurrence of a default of which the Trustee
         has been notified or of which it is deemed to have notice,  the Trustee
         may accept an Officer's  Certificate  to the effect that any particular
         dealing,  transaction  or action is necessary or expedient,  but may at
         its  discretion  secure  such  further  evidence  deemed  necessary  or
         advisable,  but  shall in no case be  bound to  secure  the  same.  The
         Trustee may accept an Officer's  Certificate of the Municipality to the
         effect  that  an  ordinance  or  resolution  has  been  adopted  by the
         Municipality  as conclusive  evidence that such ordinance or resolution
         has been adopted and is in full force and effect.

                  (f)  The  permissive   right  of  the  Trustee  to  do  things
         enumerated in this  Indenture  shall not be construed as a duty and the
         Trustee shall not be answerable for other than its gross  negligence or
         willful default.

                  (g) The  Trustee  shall not be  required  to take notice or be
         deemed to have notice of any Event of Default (other than nonpayment of
         the  principal  and interest on the Bonds)  unless the Trustee shall be
         specifically  notified  in  writing  of the  Event  of  Default  by the
         Municipality,  by the Holders of at least twenty-five  percent (25%) in
         aggregate  principal  amount of all Bonds  then  outstanding  or by the
         Company and all notices or other instruments required by this Indenture
         to be  delivered  to the Trustee  must,  in order to be  effective,  be
         delivered at the principal corporate trust office of the Trustee.

                  (h) The Trustee may demand,  in respect of the  authentication
         of any Bonds,  the withdrawal of any cash, the release of any property,
         or any action  whatsoever  within the  purview of this  Indenture,  any
         showings,  certificates,  opinions, appraisals or other information, or
         corporate action or evidence  thereof,  in addition to that required by
         the terms hereof which the Trustee deems desirable.

                  (i) Before  taking any action,  the Trustee may require that a
         satisfactory  indemnity bond be furnished for the  reimbursement of all
         expenses  which it may incur and to protect it against  all  liability,
         except  liability  which is adjudicated to have resulted from its gross
         negligence or willful default in connection with any action so taken.

                  (j) All moneys  received  by the  Trustee or any paying  agent
         shall be held in trust for the  purposes  for which they were  received
         but need not be  segregated  from  other  funds  except  to the  extent
         required by law.

                  (k) The  Trustee  shall  not be  required  to give any bond or
         surety in respect  of the  execution  of the said  trusts and powers or
         otherwise in respect of the premises.

         Section 903. Fees,  Charges  and Expenses of Trustee and Paying  Agent.
The Trustee and any paying agent shall be entitled to prompt payment upon demand
or  reimbursement  for usual and  customary  fees for  their  services  rendered
hereunder as set forth in fee schedules or similar  documents  effective  during
the term of this  Indenture  and  available  from the Trustee and all  advances,
counsel fees and other expenses  reasonably and necessarily  made or incurred by
them in connection with such services.  Upon an Event of Default,  but only upon
an Event of  Default,  the  Trustee  and any paying  agent shall have a right of
payment  prior to payment on account of interest or principal of or premium,  if
any, on the Bonds for the foregoing advances, fees, costs and expenses incurred.

         Section 904. Notice  to Bondholders if Default  Occurs.  If an Event of
Default  occurs of which the  Trustee is required to take notice or if notice of
an Event of Default be given by the Municipality, the Bondholders or the Company
as provided in Section  902(g)  hereof,  the Trustee  shall give prompt  written
notice thereof to MBIA and to the Owners of all Bonds then outstanding.

         Section 905. Intervention  by  Trustee.  In any judicial  proceeding to
which the  Municipality  is a party and which in the  opinion of the Trustee and
its counsel has a  substantial  bearing on the  interests  of the Holders of the
Bonds,  the Trustee may intervene on behalf of the Bondholders  and,  subject to
the provisions of Section 902(i) hereof,  shall do so if requested in writing by
the Holders of at least twenty-five  percent (25%) in aggregate principal amount
of all Bonds then  outstanding.  The rights and obligations of the Trustee under
this  Section  905  are  subject  to  the  approval  of  a  court  of  competent
jurisdiction.

         Section 906. Successor  Trustee.   Any corporation or association  into
which  the  Trustee  may  be  converted  or  merged,  or  with  which  it may be
consolidated,  or to which it may sell or transfer its corporate  trust business
and  assets  as a whole or  substantially  as a  whole,  or any  corporation  or
association resulting from any such conversion,  sale, merger,  consolidation or
transfer  to which  it is a party  shall  become  successor  Trustee  hereunder,
without the  execution or filing of any  instrument  or any further act, deed or
conveyance on the part of any of the parties hereto; provided,  however, that if
the  successor  corporation  is not a trust  company or bank within the State of
Indiana that satisfies the requirements of Section 909 hereof, the Trustee shall
resign from the trusts hereby created prior to such sale, merger,  consolidation
or transfer.

         Section 907. Resignation  by  Trustee.  The  Trustee and any  successor
Trustee  may at any time resign by giving  thirty  days'  written  notice to the
Municipality,  the Company and MBIA and by registered  or certified  mail to the
registered Owners of the Bonds then outstanding,  and the resignation shall take
effect  upon  the  appointment  of a  successor  or  temporary  Trustee  by  the
Bondholders  or by the  Municipality  as provided  herein and such  successor or
temporary Trustee's  acceptance of such appointment.  The Trustee may petition a
court of appropriate jurisdiction to have a successor Trustee appointed.

         Section 908. Removal of Trustee. The Trustee may be removed at any time
by an instrument or concurrent  instruments in writing  delivered to the Trustee
and to the  Municipality  and signed by the Owners of a  majority  in  aggregate
principal  amount of all Bonds then  outstanding  (but only with the  consent of
MBIA).  The Trustee may be removed at any time, at the request of MBIA,  for any
breach of the Trust set forth  herein.  Any such removal  shall take effect upon
the appointment of a successor or temporary Trustee by the Bondholders or by the
Municipality  as  provided  herein and such  successor  or  temporary  Trustee's
acceptance of such appointment.

         Section 909. Appointment of Successor Trustee by Bondholders; Temporary
Trustee.  In case the Trustee shall resign or be removed,  or be  dissolved,  or
shall be in course of dissolution or liquidation,  or otherwise become incapable
of  acting  hereunder,  or in case it shall be taken  under the  control  of any
public officer or officers,  or of a receiver  appointed by a court, a successor
reasonably  acceptable  to MBIA may be  appointed by the Owners of a majority in
aggregate  principal  amount of all Bonds then  outstanding  by an instrument or
concurrent instruments in writing; provided,  nevertheless, that in case of such
vacancy the Municipality by an instrument  executed by its Mayor and attested by
its Clerk  under its seal may  appoint a  temporary  Trustee to fill the vacancy
until a successor  Trustee is appointed by the  Bondholders;  and any  temporary
Trustee shall  immediately be superseded by the successor  Trustee  appointed by
the Bondholders.  Every temporary or successor  Trustee shall be a trust company
or bank in good  standing  within  the  State of  Indiana,  duly  authorized  to
exercise trust powers and subject to examination by federal or state  authority,
and having a reported  capital  and  surplus  of not less than  $75,000,000  and
acceptable to MBIA.  The  appointment  of every  temporary or successor  Trustee
shall be subject to the prior approval of the Company, which approval may not be
unreasonably withheld. Notwithstanding any other provision of this Indenture, no
removal,  resignation  or  termination  of the Trustee shall take effect until a
successor, acceptable to MBIA, shall be appointed.

         Section 910. Concerning Any Successor Trustees. Every successor Trustee
shall deliver to its predecessor, the Municipality and the Company an instrument
in writing  accepting its appointment,  and thereupon such successor without any
further  act,  deed or  conveyance,  shall  become  fully  vested  with  all the
properties,  rights,  powers, trusts, duties and obligations of its predecessor;
but  the  predecessor  shall,  nevertheless,  on  the  Written  Request  of  the
Municipality,  or of the  successor  Trustee,  execute and deliver an instrument
transferring  to the successor  Trustee all the properties,  rights,  powers and
trusts of the  predecessor;  and every  predecessor  Trustee  shall  deliver all
securities and moneys held by it as Trustee to its successor.  If any instrument
in writing from the  Municipality is required by any successor  Trustee for more
fully and  certainly  vesting in the  successor  the  rights,  powers and duties
hereby  vested or  intended  to be vested in the  predecessor,  any and all such
instruments  in writing  shall,  on request,  be executed  and  delivered by the
Municipality.  The  resignation of any Trustee and the instrument or instruments
removing any Trustee and  appointing a successor  hereunder,  together  with all
other  instruments  provided for in this Article,  shall be filed or recorded by
the successor  Trustee in each recording office, if any, where the Indenture has
been filed or recorded.

         Section 911.  Trustee  Protected in Relying upon  Resolution,  etc. The
resolutions,  opinions,  certificates and other instruments provided for in this
Indenture may be accepted by the Trustee as conclusive evidence of the facts and
conclusions  stated therein and shall be full warrant,  protection and authority
to the Trustee for the release of property and the withdrawal of cash.

         Section 912.  Successor  Trustee as Trustee of Funds,  Paying Agent and
Bond  Registrar.  In the  event  of a  change  in the  office  of  Trustee,  the
predecessor Trustee which has resigned or been removed shall cease to be trustee
of the  funds  provided  hereunder  and bond  registrar  and  paying  agent  for
principal of and premium,  if any, and interest on the Bonds,  and the successor
Trustee shall become such Trustee, bond registrar and paying agent.


                                    ARTICLE X

                              Continuing Disclosure

         Section 1001. Continuing  Disclosure.  Pursuant  to  Section 4.8 of the
Loan  Agreement and Section 3.4 of the Guaranty  Agreement,  the Company and the
Guarantor have  undertaken all  responsibility  for compliance  with  continuing
disclosure  requirements,  and the  Municipality  shall have no liability to the
Holders  of the  Bonds or any  other  person  with  respect  to such  disclosure
matters.  Notwithstanding any other provision of this Indenture,  failure of the
Company or the Guarantor to comply with the  Continuing  Disclosure  Undertaking
shall not be considered an Event of Default;  however,  any  Bondholder may take
such actions as may be necessary and  appropriate,  including  seeking  specific
performance  by court  order,  to cause the Company and the  Guarantor to comply
with its obligations  under Section 4.8 of the Loan Agreement and Section 3.4 of
the Guaranty Agreement.


                                   ARTICLE XI

                             Supplemental Indentures

         Section 1101. Supplemental   Indentures   Not   Requiring   Consent  of
Bondholders.  The  Municipality,  the  Company  and the  Trustee may without the
consent of, or notice to, any of the  Bondholders  (but only with the consent of
MBIA) enter into an  indenture or  indentures  supplemental  to this  Indenture,
which is consistent with the terms hereof,  for any one or more of the following
purposes:

                  (a) To cure any ambiguity or formal defect or omission in this
         Indenture  or in  any  supplemental  indenture  which  is  not  to  the
         prejudice of the Trustee or the Holders of the Bonds;

                  (b) To grant to the Trustee any additional  rights,  remedies,
         powers or authority that may lawfully be granted to the Trustee;

                  (c) To subject to this Indenture additional collateral;

                  (d) To  modify,  amend or  supplement  this  Indenture  or any
         indenture   supplemental  hereto  in  such  manner  as  to  permit  the
         qualification hereof and thereof under any federal statute hereafter in
         effect or under any state Blue Sky Law, and in connection therewith, if
         they  so  determine,   to  add  to  this  Indenture  or  any  indenture
         supplemental  hereto,  such  other  terms,  conditions  and  provisions
         (which, in the judgment of the Trustee, are not to the prejudice of the
         Holders of the Bonds) as may be  permitted  or required by said federal
         statute or Blue Sky Law; and

                  (e) To effect any other change  which,  in the judgment of the
         Trustee,  is not to the  prejudice of the Trustee or the Holders of the
         Bonds.

         Section 1102. Supplemental Indentures Requiring Consent of Bondholders.
Exclusive of supplemental  indentures covered by Section 1101 hereof and subject
to the terms of this  Section,  the Holders of at least a majority in  aggregate
principal  amount of the Bonds then outstanding may (with the written consent of
MBIA) consent to the execution and delivery by the Municipality, the Company and
the Trustee of such other  indenture or indentures  supplemental  hereto for the
purpose  of  modifying,  altering,  amending,  adding to or  rescinding,  in any
particular,  any of the terms of this Indenture or any  supplemental  indenture;
provided,  however,  that the unanimous written consent of the Bondholders shall
be required for any amendment which would permit: (a) an extension of the stated
maturity or  reduction in the  principal  amount of, or reduction in the rate or
extension  of the time of paying of  interest  on, or  reduction  of any premium
payable  on the  redemption  of,  any Bond,  (b) a  reduction  in the  aggregate
principal  amount of Bonds the  Holders of which are  required to consent to any
such  supplemental  indenture,  or (c) the material  modification of the rights,
duties or immunities of the Trustee.


                                   ARTICLE XII

                        Amendments to the Loan Agreement

         Section 1201. Amendments, etc., to Loan Agreement  or the Guaranty Not 
Requiring Consent of Bondholders.  The  Municipality  and  the  Trustee with the
consent of the  Company  and with the  written  consent of  MBIA  shall, without
the consent of or notice to the  Bondholders,  consent to  any amendment, change
or  modification of the Loan Agreement or the Guaranty as may be required (a) by
the  provisions of any such  instrument and this  Indenture, (b) for the purpose
of  curing  any  ambiguity  or  formal  defect  or omission or (c) in connection
with  any  other change  which,  in  the judgment of the Trustee, is not to the 
prejudice of the Trustee or the Holders of the Bonds.

         Section 1202. Amendments,   etc.,  to  Loan  Agreement  or the Guaranty
Requiring  Consent  of  Bondholders.  Except  for  the  amendments,  changes  or
modifications  as provided in Section 1201 hereof,  neither the Municipality nor
the Trustee shall consent to any other amendment,  change or modification of the
Loan Agreement or the Guaranty  without the consent of the Holders of at least a
Majority in aggregate  principal  amount of the Bonds then  outstanding and only
with the written consent of MBIA.

         Section 1203. No Amendment May Alter Note. Under no circumstances shall
any amendment to the Loan Agreement alter the provisions of the Note relating to
the payment of principal,  premium,  and interest  thereon,  without the written
consent of the Holders of all the Bonds at the time  outstanding and without the
written consent of MBIA.


                                  ARTICLE XIII

                                  Miscellaneous

         Section 1301. Satisfaction and Discharge. All rights and obligations of
the  Municipality  and the Company under the Loan  Agreement,  the Note and this
Indenture  shall  terminate and those  instruments  shall cease to be of further
effect,  and the Trustee  shall  cancel the Note and deliver it to the  Company,
shall  execute  and  deliver  all   appropriate   instruments   evidencing   the
satisfaction of this Indenture,  and shall assign and deliver to the Company any
moneys and  investments  in all funds  established  hereunder  (except moneys or
investments held by the Trustee for the payment of principal of, interest on, or
premium, if any, on the Bonds) when

                  (a) all fees and expenses of the Trustee and any paying agent 
         shall have been paid or provided for;

                  (b) the  Municipality and the Company shall have performed all
         of  their  obligations  under  the  Loan  Agreement,  the Note and this
         Indenture;

                  (c) there shall have been  deposited  with the Trustee  either
         moneys in an amount which shall be sufficient without reinvestment,  or
         direct  noncallable  obligations  of the United  States of America  the
         principal  of and the  interest on which when due without  reinvestment
         will provide moneys which,  together with the moneys, if any, deposited
         with the Trustee, shall be sufficient, to pay when due the principal or
         redemption price, if applicable,  and interest due and to become due on
         the Bonds prior to the redemption date or maturity date thereof, as the
         case may be;  provided,  that if any Bonds are to be redeemed  prior to
         the maturity  thereof,  notice of such redemption  shall have been duly
         given or arrangement  satisfactory  to the Trustee shall have been made
         for notice,  or waiver of notices  satisfactory  in form to the Trustee
         shall have been filed with the Trustee; and

                  (d) the Trustee shall have received an opinion of Bond Counsel
         addressed  to the  Trustee to the effect  that such  actions  shall not
         cause the interest on the Bonds to become  includable under Section 103
         of the Code in the gross  income of the  Holders  thereof  for  federal
         income tax purposes.

         Notwithstanding  anything herein to the contrary, in the event that the
principal and/or interest due on the Bonds shall be paid by MBIA pursuant to the
Municipal  Bond Insurance  Policy,  the Bonds shall remain  Outstanding  for all
purposes,  not be defeased or otherwise  satisfied and not be considered paid by
the  Municipality,  and the  assignment  and pledge of the Trust  Estate and all
covenants,   agreements  and  other  obligations  of  the  Municipality  to  the
Bondholders  shall  continue to exist and shall run to the benefit of MBIA,  and
MBIA shall be subrogated to the rights of such Bondholders.

         Section 1302. Application  of   Trust   Money.  All   money  or  direct
obligations  of the  United  States  of  America  deposited  with or held by the
Trustee  pursuant to Section  1301 hereof shall be held in trust for the Holders
of the Bonds,  and applied by it, in accordance with the provisions of the Bonds
and this Indenture, to the payment, either directly or through any paying agent,
to the persons  entitled  thereto,  of the  principal  and premium,  if any, and
interest on the Bonds for whose  payment the money has been  deposited  with the
Trustee. Any income or interest earned by, or increment to, the investments held
under  Section  1301 hereof shall to the extent not required for the purposes of
this Section 1302, be transferred to the Bond Fund.

         Section 1303. Consents,  etc., of  Bondholders.  Any consent,  request,
direction, approval, objection or other instrument required by this Indenture to
be executed by the Bondholders  may be in any number of concurrent  writings and
may be executed by the  Bondholders in person or by agent  appointed in writing.
Proof of the execution of any such  instrument or of the writing  appointing any
agent and of the ownership of Bonds, if made in the following  manner,  shall be
sufficient for any of the purposes of this Indenture, and shall be conclusive in
favor of the Trustee with regard to any action taken under such request or other
instrument. The fact and date of the execution by any person of any such writing
may be proved by the certificate of any officer in any  jurisdiction  who by law
has power to take  acknowledgments  within  such  jurisdiction  that the  person
signing such writing acknowledged before him the execution thereof, by affidavit
of any witness to such execution.

         For all  purposes  of this  Indenture  and of the  proceedings  for the
enforcement hereof, any such person shall be deemed to continue to be the Holder
of such Bonds until the  Trustee  shall have  received  notice in writing to the
contrary.

         In determining  whether the holders of the required principal amount of
Bonds outstanding have taken any action under this Indenture, Bonds owned by the
Company or any person  controlling,  controlled by or under common  control with
the  Company  shall  be  disregarded  and  deemed  not  to  be  outstanding.  In
determining  whether  the  Trustee  shall be  protected  in  relying on any such
action,  only Bonds which the Trustee knows to be so owned shall be disregarded.
Any action,  consent or other instrument shall be irrevocable and shall bind any
subsequent owner of such Bond or any Bond delivered in substitution therefor.

         Section 1304.  Parties  Interested  Herein.  Nothing in this  Indenture
expressed or implied is intended or shall be  construed  to confer  upon,  or to
give or grant to, any person or entity,  other than the  Company,  the  Trustee,
MBIA and the Bondholders, any right, remedy, or claim under or by reason of this
Indenture or any covenant,  condition or stipulation  hereof, and all covenants,
stipulations,  promises and  agreements  in this  Indenture  contained by and on
behalf  of the  Company  shall  be for the  sole and  exclusive  benefit  of the
Company, the Trustee, MBIA, and the Bondholders.

         Section 1305. Severability. If any provision of this Indenture shall be
held or deemed to be or shall,  in fact,  be  inoperative  or  unenforceable  as
applied in any particular case in any  jurisdiction or  jurisdictions  or in all
jurisdictions,  or in all cases because it conflicts with any other provision or
provisions  hereof or any  constitution or statute or rule of public policy,  or
for any other reason,  such circumstances shall not have the effect of rendering
the  provision in question  inoperative  or  unenforceable  in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative or unenforceable to any extent whatever.

         The  invalidity  of any  one or more  phrases,  sentences,  clauses  or
Sections  in this  Indenture  shall not affect the  remaining  portions  of this
Indenture, or any part thereof.

         Section 1306.  Notices.  All notices,  certificates,  payments or other
communications  hereunder shall be sufficiently  given and shall be deemed given
when delivered or mailed by registered or certified mail,  postage  prepaid,  or
overnight  express mail  addressed as follows:  if to the  Municipality,  at the
Fishers Town Hall, 1 Municipal Drive, Fishers,  Indiana 46038,  Attention of its
Clerk-Treasurer;  if to  the  Company  or to the  Guarantor,  at  1220  Waterway
Boulevard,  Indianapolis,  Indiana  46202,  Attention  of  its  Chief  Financial
Officer; if to the Trustee, at 101 West Washington Street, Indianapolis, Indiana
46255,  Attention of the  Corporate  Trust  Department;  and if to MBIA, at MBIA
Insurance Corporation, 113 King Street, Armonk, New York 10504; or to such other
addresses as may hereafter be furnished by notice.

         Section 1307. Trustee as Paying Agent and Registrar.   The  Trustee  is
hereby designated and agrees to act as principal paying agent and Bond Registrar
for the Bonds.

         Section 1308. Counterparts.  This Indenture may be  executed in several
counterparts, each of which shall be an original.

         Section 1309. Applicable Law. This  Indenture  shall be governed by and
construed in accordance with the applicable laws of the State of Indiana.

         Section 1310. Holidays.  If any date for the payment of principal of or
premium or interest on the Bonds is not a Business  Day, then such payment shall
be due on the first  Business  Day  thereafter  and payment on such day shall be
considered timely hereunder.

         Section 1311. Captions  and Table of Contents.  The captions herein and
the Table of Contents are inserted only as a matter of convenience and do not in
any way  define,  limit,  construe  or  describe  the  scope or  intent  of this
Indenture or any section thereof or in any other way affect this Indenture.


                                   ARTICLE XIV

                       Municipal Bond Insurance Provisions

         Section 1401. Notices.  While the Municipal Bond Insurance Policy is in
effect,  the Company shall furnish to MBIA: (i) as soon as practicable after the
filing  thereof,  a copy  of any  financial  statement  of the  Company  and the
Guarantor  and a copy of any  audit and  annual  report  of the  Company  or the
Guarantor;  (ii) a copy of any notice to be given to the Bondholders,  or to any
other  person  pursuant  to this  Indenture  or the Loan  Agreement,  including,
without limitation,  notice of any redemption of or defeasance of Bonds, and any
certificate rendered pursuant to this Indenture relating to the security for the
Bonds; and (iii) such additional information it may reasonably request.

         The Trustee  shall notify MBIA of any failure of the Company to provide
relevant notices, certificates, etc.

         If and to the extent the Trustee does not have sufficient  funds on the
date on which interest on or principal of the Bonds is due to make such interest
or principal  payments,  the Trustee shall notify MBIA by telephone or telegraph
(which  notification shall be confirmed in writing sent to MBIA by registered or
certified mail). In the event of such notification and thereafter on the date on
which  interest on or  principal  of the Bonds is due,  the Trustee does receive
sufficient  funds to make such  interest  or  principal  payments in whole or in
part,  the Trustee  shall so notify  MBIA in the same manner (and shall  confirm
such notification in the same manner).

         If the  Trustee  has notice that any  Bondholder  has been  required to
disgorge  payments  of  principal  or  interest  on the  Bonds to a  trustee  in
bankruptcy  or  creditors or others  pursuant to a final  judgment by a court of
competent  jurisdiction that such payment constitutes an avoidable preference to
such Bondholder  within the meaning of any applicable  bankruptcy laws, then the
Trustee  shall  notify  MBIA or its  designee  of  such  fact  by  telephone  or
telegraphic notice, confirmed in writing by registered or certified mail.

         The Trustee is hereby irrevocably designated,  appointed,  directed and
authorized to act as attorney-in-fact for the Bondholders, as follows:

                                    (i)  If  and  to  the  extent   there  is  a
                  deficiency  in amounts  required to pay interest on the Bonds,
                  the Trustee shall (a) execute and deliver to State Street bank
                  and Trust Company, N.A., or its successors under the Insurance
                  Policy,  in form  satisfactory  to the Insurance  Trustee,  an
                  instrument appointing the Insurer as agent for such Holders in
                  any legal  proceeding  related to the payment of such interest
                  and an assignment to the Insurer of the claims for interest to
                  which  such  deficiency  relates  and  which  are  paid by the
                  Insurer;  (b) receive as designee  of the  respective  Holders
                  (and not as  Trustee)  in  accordance  with  the  tenor of the
                  Insurance  Policy  payment  from the  Insurance  Trustee  with
                  respect  to the  claims  for  interest  so  assigned;  and (c)
                  disburse the same to such respective Holders; and

                                    (ii) If and to the extent of a deficiency in
                  amounts  required to pay  principal of the Bonds,  the Trustee
                  shall (a) execute and deliver to the Insurance Trustee in form
                  satisfactory to the Insurance Trustee an instrument appointing
                  the Insurer as agent for such  Holder in any legal  proceeding
                  relating to the payment of such principal and an assignment to
                  the Insurer of any of the Bonds  surrendered  to the Insurance
                  Trustee of so much of the principal  amount thereof as has not
                  previously  been paid or for which  moneys are not held by the
                  Insurer and  available  for such payment (but such  assignment
                  shall be delivered only if payment from the Insurance  Trustee
                  is  received);  (b)  receive  as  designee  of the  respective
                  Holders (and not as Insurer) in  accordance  with the tenor of
                  the  Insurance  Policy  payment  therefor  from the  Insurance
                  Trustee; and (c) disburse the same to such Holders.

         Payments  with respect to claims for interest on and principal of Bonds
disbursed  by the Trustee  from  proceeds of the  Insurance  Policy shall not be
considered  to  discharge  the  obligation  of the Company  with respect to such
Bonds,  and the Insurer  shall  become the owner of such unpaid Bonds and claims
for the interest in accordance with the tenor of the assignment made to it under
the provisions of this subsection or otherwise.

         Irrespective  of whether any such assignment is executed and delivered,
the  Municipality  and the Trustee  hereby  agree for the benefit of the Insurer
that they recognize that to the extent the Insurer makes  payments,  directly or
indirectly,  on account of  principal  of or interest on the Bonds,  the Insurer
will be  subrogated  to the rights of such Holders to receive the amount of such
principal and interest from the Municipality,  with interest thereon as provided
and solely from the sources  stated in this  Indenture and the Bonds.  They will
accordingly  pay to the  Insurer  the  amount  of such  principal  and  interest
(including principal and interest recovered under subparagraph (ii) of the first
paragraph of the Insurance Policy,  which principal and interest shall be deemed
past due and not to have been paid),  with interest  thereon as provided in this
Indenture  and the Bonds,  but only from the sources and in the manner  provided
herein for the payment of principal of and interest on the Bonds to Holders, and
will  otherwise  treat the  Insurer as the owner of such rights to the amount of
such principal and interest.

         The  Company  will permit MBIA to discuss  the  affairs,  finances  and
accounts of the Company or any information MBIA may reasonably request regarding
the security for the Bonds with appropriate officers of the Company. The Trustee
or the  Company,  as  appropriate,  will  permit MBIA to have access to and make
copies of all books and records relating to the Bonds at any reasonable time.

         In connection  with the issuance of Additional  Bonds  pursuant to this
Indenture,  the Company shall deliver to MBIA a copy of the disclosure document,
if any, circulated with respect to such Additional Bonds.

         Copies of any amendments  made to any documents  executed in connection
with the issuance of the Bonds which  amendments are consented to by MBIA, shall
be sent to Standard & Poor's Ratings Service.

         MBIA shall receive notice of the  resignation or removal of the Trustee
and the appointment of a successor thereto.

         Notwithstanding  any other provision of this Indenture to the contrary,
the Trustee shall immediately  notify MBIA if at any time there are insufficient
moneys to make any  payments  of  principal  and/or  interest  as  required  and
immediately upon the occurrence of any Event of Default hereunder.

         Section  1402.  Consent  of  MBIA.  Any  provision  of  this  Indenture
expressly recognizing or granting rights in or to MBIA may not be amended in any
manner  which  affects the rights of MBIA  hereunder  without the prior  written
consent of MBIA.

         Unless  otherwise  provided in this  Section,  MBIA's  consent shall be
required in addition to Bondholder  consent,  when  required,  for the following
purposes:  (i)  execution  and  delivery of any  supplemental  indenture  or any
amendment,  supplement or change to or modification  of the Loan Agreement,  the
Note or the Guaranty;  (ii) removal of the Trustee and selection and appointment
of any  successor  trustee;  and (iii)  initiation or approval of any action not
described in (i) or (ii) above which requires Bondholder consent.

         Section  1403.  Effectiveness  of Rights of MBIA to  Consent  or Direct
Actions. All rights granted MBIA hereunder to direct or consent to actions to be
taken under any  provision of this  Indenture  shall be  effective  only if MBIA
shall, at the time thereof,  be in compliance with its payment obligations under
the Municipal Bond Insurance Policy.

         Section  1404.  Trustee to Consider  Effect on  Bondholders  of Actions
Taken  Pursuant  to  Indenture  as if There Were No  Municipal  Bond  Insurance.
Notwithstanding  any other provision of this Indenture,  in determining  whether
the rights of the  Bondholders  will be  adversely  affected by any action taken
pursuant  to the terms and  provisions  of this  Indenture,  the  Trustee  shall
consider  the  effect on the  Bondholders  as if there  were no  Municipal  Bond
Insurance Policy.

         Section 1405. MBIA as Third-Party Beneficiary.  To the extent that this
Indenture  confers upon or gives or grants to MBIA any right,  remedy,  or claim
under or by reason of this Indenture,  MBIA is hereby  explicitly  recognized as
being a third-party beneficiary hereunder and may enforce any such right, remedy
or claim conferred, given, or granted hereunder.


<PAGE>






















          [This page intentionally left blank. Signature pages follow.]

<PAGE>


         IN WITNESS  WHEREOF,  INDIANAPOLIS  WATER  COMPANY,  has  caused  these
presents to be signed in its name and behalf and attested by its duly authorized
officers and the Town of Fishers Indiana, has caused these presents to be signed
in its name and  behalf  by its  Mayor  and its  corporate  seal to be  hereunto
affixed and attested by its Clerk and, to evidence its  acceptance of the Trusts
hereby created,  National City Bank of Indiana of Indianapolis  has caused these
presents to be signed in its name and behalf by a duly authorized Vice President
and Trust Officer,  its official seal to be hereunto affixed, and the same to be
attested  by one of its  duly  authorized  officers,  all as of the day and year
first above written.

                                               INDIANAPOLIS WATER COMPANY


                                               By   /s/ Joseph R. Broyles
                                               Joseph R. Broyles, President

/s/ John M. Davis
John M. Davis, Secretary


                                               THE TOWN OF FISHERS, INDIANA


                                               By   /s/  Walter F. Kelly
(SEAL)                                         Walter F. Kelly, President,
                                               Town Council

ATTEST:

/s/ Linda Gaye Cordell
Linda Gaye Cordell, Clerk-Treasurer


                                               NATIONAL CITY BANK OF INDIANA


(SEAL)                                         By /s/ Authorized Vice President,
ATTEST:                                        Vice President

/s/  Trust Officer, Trust Officer


STATE OF INDIANA  )
                                    )  SS:
COUNTY OF                           )

         Before me,  the  undersigned,  a Notary  Public in and for the State of
Indiana,  personally  appeared  Joseph R.  Broyles and John M. Davis  personally
known to me to be the  President and Secretary of  Indianapolis  Water  Company,
who,  after  being first duly sworn,  acknowledged  that they as such  officers,
being authorized to do so, executed the foregoing  Indenture of Trust for and on
behalf of said Corporation.

         WITNESS MY HAND and  Notarial  Seal this _____ day of  _______________,
1998.

                                                       -------------------------
                                                            Notary Public

                                                  ------------------------------
I am a resident of                                         (Printed Name)
____________ County, Indiana


My Commission Expires:
----------------------



<PAGE>


STATE OF INDIANA  )
                                    )  SS:
COUNTY OF                           )

                  Before me,  the  undersigned,  a Notary  Public in and for the
State of Indiana,  personally  appeared  Walter F. Kelly and Linda Gaye  Cordell
personally   known  to  me  to  be  the   President  of  the  Town  Council  and
Clerk-Treasurer  of the Town of  Fishers,  who,  after  being  first duly sworn,
acknowledged that they as such officers, being authorized to do so, executed the
foregoing Indenture of Trust for and on behalf of said Town.

         WITNESS MY HAND and  Notarial  Seal this _____ day of  _______________,
1998.

                                                       -------------------------
                                                              Notary Public

                                                  ------------------------------
I am a resident of                                          (Printed Name)
____________ County, Indiana


My Commission Expires:
----------------------



<PAGE>


STATE OF INDIANA  )
                                    )  SS:
COUNTY OF                           )

         Before me,  the  undersigned,  a Notary  Public in and for the State of
Indiana,  personally  appeared   _______________________________________________
personally  known to me to be the  _________________________________________  of
National City Bank of Indiana,  who, after being first duly sworn,  acknowledged
that as  such  officers,  being  authorized  to do so,  executed  the  foregoing
Indenture of Trust for and on behalf of said Company.

         WITNESS MY HAND and  Notarial  Seal this _____ day of  _______________,
1998.

                                                       -------------------------
                                                             Notary Public

                                                  ------------------------------
I am a resident of                                        (Printed Name)
____________ County, Indiana
My Commission Expires:
----------------------


















     This  instrument was prepared by Theodore J. Esping,  Baker & Daniels,  300
North Meridian Street, Suite 2700, Indianapolis, Indiana 46204.



<PAGE>
                                                          EXHIBIT A TO INDENTURE




                            [FORM OF REGISTERED BOND]



                            UNITED STATES OF AMERICA
                                STATE OF INDIANA
                                 TOWN OF FISHERS

                           ECONOMIC DEVELOPMENT WATER
                 FACILITIES REFUNDING REVENUE BOND, SERIES 1998
                      (INDIANAPOLIS WATER COMPANY PROJECT)
                                     NO. R-_

INTEREST   MATURITY                AUTHENTICATION
  RATE       DATE                       DATE                            CUSIP

 ____%   JULY 15, 2028

REGISTERED OWNER:  ______________________________

PRINCIPAL AMOUNT:  ______________________________

         The Town of Fishers, Indiana (the "Municipality"),  for value received,
promises  to pay in  lawful  money  of  the  United  States  of  America  to the
Registered Owner (named above) or registered  assigns,  on the Maturity Date set
forth above unless this Bond shall have  previously  been called for  redemption
and payment of the  redemption  price made or  provided  for but solely from the
payments  under  the Loan  Agreement  and on the Note  described  below  and not
otherwise,  upon surrender hereof,  the principal sum set forth above and to pay
interest  on the  principal  amount  remaining  unpaid from time to time in like
money,  but solely from the payments  under the Loan  Agreement  and on the Note
described below, at the rate per annum set forth above,  payable semiannually on
July 15 and January 15 of each year commencing  January 15, 1999,  until payment
of such principal  amount,  or provision for that payment,  shall have been made
upon  redemption  or at  maturity  including,  to the extent  permitted  by law,
interest  on  overdue  interest  at such rate.  This Bond  shall  bear  interest
(computed on the basis of a year of 360 days  consisting of 12 months of 30 days
each) from July 15, 1998.

         The  principal  of and  premium,  if any,  and  interest  payable  upon
redemption, are payable at the principal corporate trust office of National City
Bank of  Indiana,  as  Trustee  (the  "Trustee")  in the  City of  Indianapolis,
Indiana,  or at the  principal  office of any  successor  Trustee or  additional
paying agent  appointed  under the  Indenture  described  below.  Payment of the
interest on this Bond on any  interest  payment date shall be made to the person
appearing  on the Bond  registration  books of the Trustee on the Record Date as
the registered  owner and shall be paid by check or draft mailed on the interest
payment date to the registered owner at the address on such  registration  books
(or at any other  address  furnished  to the  Trustee in writing by the  holder)
without  any  presentation  of this Bond,  or, at the  written  election  of the
registered  owner of $500,000  or more in  aggregate  principal  amount of Bonds
delivered  to the Trustee at least one Business Day prior to the Record Date for
which such election will be effective,  by wire transfer to the registered owner
or by  deposit  into the  account  of the  registered  owner if such  account is
maintained  by the Trustee.  Payment of the principal of this Bond shall be made
upon  presentation  and  surrender of this Bond as the same shall become due and
payable.  If any date for the payment of the principal of or premium or interest
on this Bond is not a Business  Day (as such term is defined in the  Indenture),
then such payment shall be due on the first Business day thereafter.

         This Bond is one of the Bonds  being  issued  under the  Indenture  (as
described  herein) in the aggregate  principal  amount of $30,000,000 to provide
for  the  discharge  and  termination  of all  liabilities  and  obligations  of
Indianapolis Water Company, an Indiana corporation (the "Company"),  relating to
or  connected  with the 7-7/8% Town of Fishers,  Indiana,  Economic  Development
Water  Facilities  Revenue  Bonds,   Series  1989  (Indianapolis  Water  Company
Project).  The proceeds from the sale of the Bonds will be loaned to the Company
under a Loan Agreement dated as of July 15, 1998 (the "Loan Agreement")  between
the Company and the  Municipality  and the Company will give its Promissory Note
(the "Note") to evidence the Company's obligation to repay the loan.

         The Bonds are issued  under and secured by an  Indenture of Trust dated
as  of  July  15,  1998  (the  "Indenture"),   executed  and  delivered  by  the
Municipality and the Company to National City Bank of Indiana,  Indianapolis, as
Trustee.  Under the Indenture,  the Municipality assigns the Note and its rights
under the Loan Agreement  (except the right to receive payment for its expenses,
the right to receive  indemnities  and rights  relating to any  amendment of the
Loan Agreement) to the Trustee. In addition,  the principal of, premium, if any,
and  interest  on the Bonds are  guaranteed  by IWC  Resources  Corporation,  an
Indiana  corporation.  Reference is made to the Indenture and to all  indentures
supplemental  thereto for a description  of the nature and extent of the rights,
duties and  obligations of the  Municipality,  the Company and the Trustee,  the
rights of the holders of the Bonds,  and the terms on which the Bonds are issued
and to all the  provisions of which the holder hereof by the  acceptance of this
Bond assents.

         This Bond is  transferable  by the  registered  holder at the principal
corporate trust office of the Trustee in Indianapolis,  Indiana, but only in the
manner,  subject to the limitations and upon payment of the charges  provided in
the Indenture and upon surrender and cancellation of this Bond.

         The Bonds are issuable as fully  registered  Bonds in  denominations of
$5,000  and any whole  multiple  thereof.  Subject to the  limitations  and upon
payment of the charges provided in the Indenture,  fully registered Bonds may be
exchanged for an equal aggregate  principal  amount of fully registered Bonds of
any denomination or denominations authorized by the Indenture.

         The  Municipality  and the Trustee may treat the  registered  holder of
this Bond as the absolute  owner for the purpose of  receiving  payment of or on
account of principal, premium, if any, and interest due hereon and for all other
purposes and neither the Municipality nor the Trustee nor any paying agent shall
be affected by any notice to the contrary.

         The Bonds are subject to mandatory  redemption  in whole (or in part as
provided  below)  upon  a  Determination   of  Taxability  (as  defined  in  the
Indenture).  When so called  for  redemption,  the  Bonds  shall be  subject  to
redemption by the  Municipality  at a redemption  price of 100% of the principal
amount thereof outstanding plus accrued interest to the redemption date.

         Fewer than all the Bonds may be  redeemed if  redemption  of fewer than
all would  result in the  interest  payable on the Bonds  remaining  outstanding
being not  includible in the gross income for federal income tax purposes of any
owner other than a  "substantial  user" or  "related  person." If fewer than all
Bonds are  redeemed,  the Trustee will select the Bonds to be redeemed by lot as
provided in the Indenture or by such other method acceptable to the Trustee.

         On July 15 of each year  commencing  July 15, 2000,  the Trustee  will,
upon the death of any registered owner,  redeem any Bond held by such registered
owner  following   presentation  for  redemption  as  described  below  by  such
registered owner's personal representative or surviving joint tenant(s), subject
to the limitation that in any 12-month period the Trustee shall not be obligated
to redeem  Bonds  pursuant to this  paragraph  to the extent that the  aggregate
principal amount of Bonds so subject to redemption,  together with the aggregate
principal amount of City of Indianapolis,  Indiana  Economic  Development  Water
Facilities  Refunding  Revenue Bonds,  Series 1998  (Indianapolis  Water Company
Project) (the "1998 Indianapolis  Bonds") subject to redemption by reason of the
death of any registered owner of 1998 Indianapolis  Bonds exceeds  $800,000,  or
the Bonds of any registered owner so tendered for redemption,  together with the
registered owners 1998  Indianapolis  Bonds tendered for redemption by reason of
the death of such  registered  owner,  is in excess of the  aggregate  principal
amount of $25,000.  The Bonds subject to  redemption  as described  above may be
presented for  redemption  by delivering to the Trustee  within two years of the
death of the  registered  owner (i) a written  request  for  redemption  in form
satisfactory to the Trustee,  signed by the personal representative or surviving
joint tenant(s) of the registered owner, (ii) the Bond(s) to be redeemed,  (iii)
appropriate  evidence  of death and  ownership  of such  Bond(s)  at the time of
death,  and  (iv)  appropriate  evidence  of  the  authority  of  such  personal
representative  or surviving joint tenant(s).  In order for Bonds to be eligible
for  redemption on any July 15, such Bonds must be presented  for  redemption in
full  compliance  with the  provisions  set  forth  above,  prior to May 15 next
preceding  such July 15. The Bonds  presented for  redemption  prior to maturity
will be redeemed  in the order of their  receipt by the  Trustee.  Any Bonds not
redeemed in any such period because of the individual  $25,000 limitation or the
aggregate  $800,000  limitation,  will be held in the order  described above for
redemption  on  the  July  15 in  succeeding  years  until  redeemed.  Any  such
redemption  shall be at a price  equal to 100% of the  principal  amount  of the
Bonds so to be redeemed, plus accrued interest to the redemption date.

         The death of a person who, during his or her lifetime,  was entitled to
substantially  all of the  beneficial  interest of  ownership  of a Bond will be
deemed the death of a registered  owner,  regardless of the registered owner, if
such beneficial  interest can be established to the satisfaction of the Trustee.
Such  beneficial  interest  shall be deemed to exist in typical  cases of street
name or nominee ownership,  ownership under the Uniform Transfers to Minors Act,
community property or other joint ownership arrangements between the husband and
wife,   and  trust  and  certain  other   arrangements   where  one  person  has
substantially all of the beneficial ownership interest in the Bond during his or
her  lifetime.  In the case of Bonds  registered  in the  name of  banks,  trust
companies or broker-dealers who are members of a national securities exchange or
the National Association of Securities Dealers, Inc. ("Qualified Institutions"),
the redemption  limitations  described above apply to each  beneficial  owner of
Bonds held by any  Qualified  Institution.  In  connection  with the  redemption
request,  such Qualified  Institution must submit evidence,  satisfactory to the
Trustee, that it holds the Bonds subject to request on behalf of such beneficial
owner and must  certify the  aggregate  amount of  redemption  requests  made on
behalf of such beneficial owner.

         The  Bonds are also  subject  to  redemption  (at the  election  of the
Company)  prior to stated  maturity in whole or in part on any interest  payment
date on or after July 15, 2005.  The  redemption  price for any such  redemption
shall be the amount  determined from the table below  (expressed as a percentage
of the  principal  amount of the Bonds or portions  thereof so  redeemed),  plus
accrued interest to the redemption date:
<TABLE>
<CAPTION>

REDEMPTION PERIOD (BOTH DATES INCLUSIVE)           REDEMPTION PRICE

<S>  <C> <C>               <C> <C>                        <C> 
July 15, 2005 through July 14, 2006                       102%
July 15, 2006 through July 14, 2007                       101%
July 15, 2007 and thereafter                              100%
</TABLE>


         If less than all  Bonds at the time  outstanding  are to be called  for
redemption,  the  particular  Bonds or portions  thereof to be redeemed shall be
selected  by the  Trustee by lot or by such other  random  means as the  Trustee
shall determine in its discretion.  Bonds of  denominations  greater than $5,000
may be called for redemption, in part, in multiples of $5,000.

         If any of the Bonds are called for redemption, a notice of the call for
redemption  identifying the Bonds to be redeemed will be mailed by registered or
certified  mail at least  thirty  days but no more than  sixty days prior to the
date fixed for  redemption to the  registered  owner at the address shown on the
registration books, provided that failure to give this notice by mailing, or any
defect in the notice,  shall not affect the validity of any  proceedings for the
redemption  of any  other  Bonds or  portions  thereof.  All  Bonds  called  for
redemption  will  cease  to bear  interest  on the  specified  redemption  date,
provided  funds for  redemption  are on  deposit at the place of payment at that
time and all  other  requirements  relating  to  redemption  as set forth in the
Indenture are  satisfied,  and shall no longer be protected by the Indenture and
shall not be deemed to be outstanding under the provisions of the Indenture.

         The  Bonds  are  issued  pursuant  to and in full  compliance  with the
Constitution  and laws of the  State  of  Indiana,  particularly  IC  5-1-5,  IC
36-7-11.9  and IC  36-7-12  and  pursuant  to an  Ordinance  adopted by the Town
Council of the  Municipality  on the ____ day of June,  1998.  THIS BOND AND THE
ISSUE OF WHICH IT FORMS A PART ARE LIMITED  OBLIGATIONS OF THE  MUNICIPALITY AND
ARE PAYABLE  SOLELY AND ONLY FROM  REVENUES AND  RECEIPTS  DERIVED FROM THE LOAN
AGREEMENT  AND THE  NOTE.  THE  BONDS  SHALL  NOT IN ANY  RESPECT  BE A  GENERAL
OBLIGATION OF AN  INDEBTEDNESS  OF, OR  CONSTITUTE A CHARGE  AGAINST THE GENERAL
CREDIT OF THE TOWN OF FISHERS,  INDIANA,  THE STATE OF INDIANA OR ANY  POLITICAL
SUBDIVISION  THEREOF,  AND THEY SHALL NOT BE  PAYABLE  IN ANY MANNER  FROM FUNDS
RAISED BY TAXATION.  Payments  sufficient for the prompt payment when due of the
principal  of and  premium,  if any, and interest on the Bonds are to be paid to
the Trustee for the account of the Municipality and deposited into the Bond Fund
created under the Indenture.

         The holder of this Bond shall have no right to enforce  the  provisions
of the  Indenture  or to take any  action  with  respect to any Event of Default
under the  Indenture,  or to  institute,  appear in or defend  any suit or other
proceedings  with  respect  thereto,  except as  provided in the  Indenture.  In
certain events,  as provided in the Indenture,  the principal of all outstanding
Bonds may become or may be declared due and payable before the stated  maturity.
Modifications or alterations of the Indenture may be made only to the extent and
in the circumstances permitted by the Indenture.

         In the event of default in the payment of principal or interest  hereon
or if any Event of  Default  as  defined  in the  Indenture  occurs,  the unpaid
principal  of this Bond may be  declared  or may become  immediately  due in the
manner and with the effect and subject to the conditions  provided  therein.  If
any payment of principal of and premium, if any, and interest on this Bond shall
not be paid when due, the Municipality shall pay to the holder of this Bond, but
solely from payments  under the Loan  Agreement  and the Note,  interest on such
unpaid  obligations  (to the  extent  permitted  by law) at a per annum  rate of
interest equal to the per annum rate then in effect on the Bonds.

         Municipal  Bond  Insurance  Policy No.  _________  (the  "Policy") with
respect to  payments  due for  principal  of and  interest on this Bond has been
issued   by   ____________________.   The   Policy   has   been   delivered   to
_________________________,  as the Insurance  Trustee under said Policy and will
be held by such Insurance Trustee or any successor insurance trustee. The Policy
is on file and available for inspection at the principal office of the Insurance
Trustee and a copy thereof may be secured from  _______________ or the Insurance
Trustee.  All  payments  required  to be made under the Policy  shall be made in
accordance with the provisions thereof.  The owner of this Bond acknowledges and
consents to the subrogation rights of _______________ as more fully set forth in
the Policy.

         It is hereby certified,  recited and declared that all acts, conditions
and things  required to exist,  happen and be performed  precedent to and in the
execution  and delivery of the Indenture and the issuance of this Bond do exist,
have happened and have been  performed in due time,  form and manner as required
by law;  and that the  issuance of this Bond,  and the issue of which it forms a
part, together with all other obligations of the Municipality,  do not exceed or
violate any constitutional or statutory limitation.

         This  Bond  shall  not be valid or  obligatory  for any  purpose  or be
entitled  to  any  benefit  under  the  Indenture   until  the   certificate  of
authentication on this Bond shall have been executed by the Trustee.



<PAGE>


         IN  WITNESS  WHEREOF,  the  Municipality  has  caused  this  Bond to be
executed under its corporate seal.

                                            Town of Fishers, Indiana


                                            By: ____________________________
                                                   Mayor

                                            Attest: ________________________
                                                       Clerk-Treasurer




                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

         This Bond is one of the Bonds described in the Indenture.

                                            NATIONAL CITY BANK OF INDIANA
                                             as Trustee


                                            By: _____________________________
                                                  Authorized Representative





<PAGE>







         The following  abbreviations,  when used in the inscription of the face
of the within  Bond,  shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>

<S>                        <C>              <C> 
                           TEN COM          as tenants in common

                           TEN ENT          as tenants by the entireties

                           JT TEN           as joint tenants with right of survivorship and not as tenants in common
</TABLE>

UNIF TRANF MIN ACT _____________            Custodian _______________
                       (Cust)                              (Minor)

                      under Uniform Transfers to Minors Act

                                                         ---------------------
                                     (State)

         Additional abbreviations may also be used though not in list above.




<PAGE>


                                   ASSIGNMENT


         For value received, the undersigned hereby sells, assigns and transfers
unto  ____________________  [PLEASE INSERT SOCIAL SECURITY OR OTHER  IDENTIFYING
NUMBER  OF  ASSIGNEE:  __________________]  the  within  Bond  of  the  City  of
Indianapolis,  Indiana and all rights  thereunder  and does  hereby  irrevocably
constitute  and appoint  _______________  attorney to transfer  such Bond on the
books kept for  registration  thereof,  with full power of  substitution  in the
premises.

Dated:

================================
   (Registered Owner)


NOTICE:  The signature(s) to this assignment must correspond with the name as it
appears upon the face of the within Bond in every particular, without alteration
or enlargement or any change whatever.



Signature guaranteed:
--------------------------

     NOTICE:   Signature(s)   must  be  guaranteed  by  an  eligible   guarantor
institution  participating  in  a  Securities  Transfer  Association  recognized
signature guarantee program.






                               [END OF BOND FORM]





                               INDENTURE OF TRUST



                          CITY OF INDIANAPOLIS, INDIANA



                                       AND



                           INDIANAPOLIS WATER COMPANY



                                       TO


                         National City Bank of Indiana,
                                   As Trustee



                            DATED AS OF JULY 15, 1998



     $10,000,000  City  of  Indianapolis,  Indiana  Economic  Development  Water
Facilities  Refunding  Revenue Bonds,  Series 1998  (Indianapolis  Water Company
Project)




<PAGE>
<TABLE>
<CAPTION>

<S>                             <C>    
                                Table of Contents




<S>      <C>     <C>                                                                     <C>
RECITALS                                                                                  1

GRANTING CLAUSES                                                                          2
                                                                    
ARTICLE I        Definitions and Exhibits                                                 3                
         Section 101.  Terms Defined.                                                     3
         Section 102.  Rules of Interpretation.                                           6
         Section 103.  Exhibits.                                                          7

ARTICLE II       The Bonds                                                                7
         Section 201.  Terms of Bonds.                                                    7
         Section 202.  Issuance of Bonds; Denominations.                                  7
         Section 203.  Payments on Bonds.                                                 8
         Section 204.  Execution; Limited Obligation.                                     8
         Section 205.  Authentication.                                                    8
         Section 206.  Delivery of Bonds.                                                 9
         Section 207.  Mutilated, Lost, Stolen or Destroyed Bonds.                        9
         Section 208.  Registration and Exchange of Bonds; Persons Treated as Owners.    10
         Section 209.  Form of Bonds.                                                    10
         Section 210.  Book Entry.                                                       10
         Section 211.  Payment Procedure Pursuant to Municipal Bond Insurance Policy.    11

ARTICLE III      Application of Bond Proceeds; Redemption Fund                           12
         Section 301.  Deposit of Funds.                                                 12
         Section 302.  Redemption Fund.                                                  12

ARTICLE IV       Revenues and Funds                                                      12
         Section 401.  Source of Payment of Bonds.                                       12
         Section 402.  Creation of Bond Fund.                                            12
         Section 403.  Payments into Bond Fund.                                          12
         Section 404.  Use of Moneys in Bond Fund.                                       13
         Section 405.  Investment of Funds.                                              13
         Section 406.  Trust Funds.                                                      13
         Section 407.  Nonpresentment of Bonds.                                          13

ARTICLE V        Redemption of Bonds Before Maturity                                     14
         Section 501.  Determination of Taxability Redemption.                           14
         Section 502.  Redemption in the Event of Death of a Bondholder.                 14
         Section 503.  Optional Redemption.                                              15
         Section 504.  Notice of Redemption.                                             16
         Section 505.  Cancellation.                                                     17

ARTICLE VI       General Covenants                                                       17
         Section 601.  Payment of Principal, Premium, if any, and Interest.              17
         Section 602.  Performance of Covenants.                                         18
         Section 603.  Ownership; Instruments of Further Assurance.                      18
         Section 604.  Rights under Loan Agreement and Note.                             18
         Section 605.  Designation of Additional Paying Agents.                          18
         Section 606.  Recordation; Application of Uniform Commercial Code.              18
         Section 607.  List of Bondholders.                                              19

ARTICLE VII      Possession and Use of the Project Financed with the 1989 Bonds          19
         Section 701.  Subordination to Rights of Company.                               19

ARTICLE VIII     Remedies                                                                19
         Section 801.  Events of Default.                                                19
         Section 802.  Acceleration Rights.                                              20
         Section 803.  Other Remedies; Rights of Bondholders.                            20
         Section 804.  Right of Bondholders to Direct Proceedings.                       21
         Section 805.  Appointment of Receivers.                                         21
         Section 806.  Application of Moneys.                                            21
         Section 807.  Remedies Vested in Trustee.                                       22
         Section 808.  Rights and Remedies of Bondholders.                               23
         Section 809.  Termination of Proceedings.                                       23
         Section 810.  Waivers of Events of Default.                                     23
         Section 811.  Cooperation of Municipality.                                      23
         Section 812.  Consent of MBIA Upon Default                                      23

ARTICLE IX       The Trustee                                                             24
         Section 901.  Acceptance of Trusts.                                             24
         Section 902.  Certain Rights of Trustee.                                        24
         Section 903.  Fees, Charges and Expenses of Trustee and Paying Agent.           26
         Section 904.  Notice to Bondholders if Default Occurs.                          26
         Section 905.  Intervention by Trustee.                                          26
         Section 906.  Successor Trustee.                                                26
         Section 907.  Resignation by Trustee.                                           26
         Section 908.  Removal of Trustee.                                               27
         Section 909.  Appointment of Successor Trustee by Bondholders;
                           Temporary Trustee.                                            27
         Section 910.  Concerning Any Successor Trustees.                                27
         Section 911.  Trustee Protected in Relying upon Resolution, etc.                27
         Section 912.  Successor Trustee as Trustee of Funds, Paying Agent
                           and Bond Registrar.                                           28

ARTICLE X        Continuing Disclosure                                                   28
         Section 1001.  Continuing Disclosure.                                           28

ARTICLE XI       Supplemental Indentures                                                 28
         Section 1101.  Supplemental Indentures Not Requiring Consent of Bondholders.    28
         Section 1102.  Supplemental Indentures Requiring Consent of Bondholders.        29

ARTICLE XII      Amendments to the Loan Agreement                                        29
         Section 1201.  Amendments, etc., to Loan Agreement or the Guaranty
                           Not Requiring Consent of Bondholders.                         29
         Section 1202.  Amendments, etc., to Loan Agreement or the Guaranty
                           Requiring Consent of Bondholders.                             29
         Section 1203.  No Amendment May Alter Note.                                     30

ARTICLE XIII     Miscellaneous                                                           30
         Section 1301.  Satisfaction and Discharge.                                      30
         Section 1302.  Application of Trust Money.                                      31
         Section 1303.  Consents, etc., of Bondholders.                                  31
         Section 1304.   Parties Interested Herein.                                      31
         Section 1305.  Severability.                                                    32
         Section 1306.  Notices.                                                         32
         Section 1307.  Trustee as Paying Agent and Registrar.                           32
         Section 1308.  Counterparts.                                                    32
         Section 1309.  Applicable Law.                                                  32
         Section 1310.  Holidays.                                                        32
         Section 1311.  Captions and Table of Contents.                                  32

ARTICLE XIV      Municipal Bond Insurance Provisions                                     33
         Section 1401.  Notices.                                                         33
         Section 1402.  Consent of MBIA.                                                 34
         Section 1403.  Effectiveness of Rights of MBIA to Consent or Direct Actions.    35
         Section 1404.  Trustee to Consider Effect on Bondholders of Actions
                           Taken Pursuant to Indenture as if There Were No Municipal
                           Bond Insurance.                                               35
         Section 1405.  MBIA as Third-Party Beneficiary.                                 35
</TABLE>


<PAGE>



                               INDENTURE OF TRUST


         This  INDENTURE OF TRUST has been  executed as of July 15, 1998, by and
among the CITY OF INDIANAPOLIS, INDIANA (the "Municipality"), INDIANAPOLIS WATER
COMPANY,  an Indiana  corporation  (the  "Company"),  and National  City Bank of
Indiana,  a national  banking  association  authorized  to accept trusts of this
character with its principal office located in Indianapolis, Indiana, as Trustee
(the "Trustee").


                                    RECITALS

         1. Definitions  of certain  of the terms used in these Recitals are set
out in Article I hereof and Article I of the Loan Agreement.

         2. IC 5-1-5, IC 36-7-11.9 and IC 36-7-12  authorize  municipalities  in
the State of Indiana to issue  revenue  bonds to finance  the cost of  providing
economic  development  facilities and also authorize the municipalities to issue
revenue bonds to refund such bonds.

         3. In 1989,  the Company  financed a portion of its  capital  expansion
program  in  Indianapolis   through  the  issuance  and  sale  of  the  City  of
Indianapolis,  Indiana 7-7/8%  Economic  Development  Water  Facilities  Revenue
Bonds, Series 1989 (Indianapolis Water Company Project) (the "1989 Bonds").

         4. The Company  borrowed from the  Municipality  funds derived from the
sale of the 1989 Bonds, and the Company,  as evidence of its obligation to repay
the funds,  issued and delivered to the  Municipality  its First Mortgage Bonds,
Economic Development Series B in the principal amount of $10,000,000.

         5. The Company has determined  that the 1989 Bonds can be refinanced at
a net savings to the Company and has further  determined  that such  refinancing
will result in other benefits to the Company.

         6. Pursuant to IC 5-1-5, IC 36-7-11.9 and IC 36-7-12,  the Municipality
is  authorized  and  empowered to issue  revenue  bonds to refund and  refinance
revenue bonds  previously  issued by it. The  Municipality is obtaining funds to
loan to the Company to assist with the  refunding  and  refinancing  of the 1989
Bonds through the sale of its $10,000,000  aggregate principal amount of City of
Indianapolis,  Indiana Economic  Development Water Facilities  Refunding Revenue
Bonds, Series 1998 (Indianapolis Water Company Project).

         7. Under  the  Loan  Agreement  and  pursuant  to this  Indenture,  the
Municipality will issue $10,000,000 of its Economic Development Water Facilities
Refunding Revenue Bonds, Series 1998 (Indianapolis Water Company Project),  will
sell the Bonds to the  Purchaser and will lend the proceeds from the sale of the
Bonds to the Company.  The Bonds will be payable  solely out of the revenues and
other amounts derived from the Note and under the Loan  Agreement,  and pursuant
to the Guaranty  Agreement  under which the principal of,  premium,  if any, and
interest  on the Bonds  will be  guaranteed  by IWC  Resources  Corporation,  an
Indiana  corporation  (the  "Guarantor")  and will be further  secured under and
pursuant to the  Municipal  Bond  Insurance  Policy.  The Bonds shall not in any
respect be a general  obligation of, an indebtedness  of, or constitute a charge
against  the  general  credit of the  Municipality,  the State of Indiana or any
political subdivision thereof.

         8. To evidence  its  obligation  to repay the Loan,  the  Company  will
deliver its Note to the Municipality.

         9. This  Indenture   provides  for  the  issuance  of  the  Bonds,  the
assignment  by the  Municipality  of the  Note  and its  rights  under  the Loan
Agreement  (except the right to receive  payment for its expenses,  the right to
receive indemnities, the right to receive notices and its rights relating to any
amendments to the Loan Agreement) to the Trustee.

        10. The  Bonds and the Trustee's  Certificate of Authentication  for the
Bonds will be substantially in the form set forth in Exhibit A hereto.

        11. All  things necessary to make the Bonds,  when  authenticated by the
Trustee and issued as provided in this Indenture,  the valid,  binding and legal
obligations  of  the  Municipality  according  to  the  import  thereof,  and to
constitute  this  Indenture a valid  assignment and pledge of the properties and
amounts assigned and pledged to the payment of the principal of and premium,  if
any, and interest on the Bonds and a valid  assignment  and pledge of the rights
of the  Municipality  under the Loan  Agreement  (except  the  right to  receive
payment for its expenses, the right to receive indemnities, the right to receive
notices and its rights relating to any amendments to the Loan Agreement) and the
Note have been done and performed,  and the creation,  execution and delivery of
this Indenture and the creation, execution and issuance of the Bonds, subject to
the terms hereof, have in all respects been duly authorized.

                  NOW, THEREFORE, THIS INDENTURE OF TRUST WITNESSES THAT:

                                GRANTING CLAUSES

         In order to secure the payment of the principal of and premium, if any,
and interest on the Bonds and in order to secure the  performance and observance
of all the covenants and conditions in this  Indenture and in the Bonds,  and in
order to  declare  the terms and  conditions  upon  which the Bonds are  issued,
authenticated,  delivered,  secured  and  accepted by all persons who shall from
time to time be or become holders  thereof,  and for and in consideration of the
premises,  the Loan, the mutual covenants of the parties,  the acceptance by the
Trustee of the trust hereby  created,  and the purchase  and  acceptance  of the
Bonds by the  holders,  the  Municipality  and the  Company  have  executed  and
delivered  this  Indenture and by this  Indenture  assign and pledge and grant a
security  interest in the following to the Trustee,  its  successors and assigns
forever:

                              First Granting Clause

         All of the right,  title and  interest of the  Municipality  in, to and
under the Note and the Loan Agreement  (except the right to receive  payment for
its expenses, the right to receive indemnities, the right to receive notices and
its rights relating to any amendments to the Loan Agreement), including all sums
payable  with  respect to the  indebtedness  evidenced  by the Note and the Loan
Agreement,  and all proceeds thereof;  provided that the assignment made by this
clause shall not impair or diminish any obligation of the Municipality under the
Loan Agreement.

                             Second Granting Clause

         All moneys and  securities  from time to time held by the Trustee under
the terms of this  Indenture,  including  without  limitation the Guaranty,  the
moneys held in trust funds, and any and all other property pledged,  assigned or
transferred  to  the  Trustee  at  any  time  for  additional  security  by  the
Municipality  or the Company or with their  written  consent,  and all  proceeds
thereof.  The Trustee is  authorized to receive the  additional  property at any
time and to hold and apply that property under this Indenture.

         TO HAVE AND TO HOLD FOREVER IN TRUST,  NEVERTHELESS,  upon the terms of
this Indenture,  to secure the payment of the principal of and premium,  if any,
and interest on the Bonds,  and to secure the observance and  performance of all
the terms of this Indenture,  and for the benefit and security of the holders of
the Bonds, without preference,  priority or distinction as to lien or otherwise,
except as provided in this Indenture,  of any one Bond over any other Bond or as
among principal, premium and interest.

         The  terms and  conditions  upon  which  the  Bonds  are to be  issued,
authenticated,  delivered,  secured  and  accepted by all persons who shall from
time to time be or become the  holders  thereof,  and the trusts and  conditions
upon which the pledged property,  rights, interests,  moneys and revenues are to
be held and disbursed, are as follows:


                                    ARTICLE I

                            Definitions and Exhibits

         Section 101.  Terms Defined.  As used in this Agreement,  the following
terms shall have the following meanings unless the context otherwise requires.

         "Bond"  or  "Bonds"  means  one or  more of the  City of  Indianapolis,
Indiana Economic  Development Water Facilities  Refunding Revenue Bonds,  Series
1998  (Indianapolis  Water Company Project) to be issued under this Indenture in
the aggregate principal amount of $10,000,000.

         "Bondholder "or "Holder" or "Owner" or "Owner of the  Bonds"  means the
registered owner of any Bond.

         "Bond Register" means the registration  books of the Municipality  kept
by the Trustee to evidence the registration and transfer of the Bonds.

         "Business  Day" means each Monday  through Friday on which the national
banks located in  Indianapolis,  Indiana are open for the  transaction of normal
banking business.

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Company" means Indianapolis Water Company, an Indiana corporation.

         "Continuing Disclosure  Undertaking" shall mean that certain Continuing
Disclosure  Undertaking  of the  Company  and the  Guarantor  dated  the date of
issuance  and  delivery of the Bonds,  as  originally  executed and as it may be
amended from time to time in accordance with the terms thereof.

         "DTC" means The Depository  Trust Company,  New York, New York, and its
successors  and  assigns,   including  without  limitation  (i)  any  surviving,
resulting  or  transferee   corporation  or  successor   corporation   appointed
consistent with this Indenture,  and (ii) any direct or indirect participants of
The Depository Trust Company.

          "Determination  of  Taxability"  means  the  occurrence  of any of the
following:

                  (a) the filing  by the  Company  of its  certificate  with the
         Trustee indicating to the  satisfaction of the Trustee that   an Event 
         of Taxability has occurred;

                  (b) notification to the Trustee that an authorized  officer or
         official of the Internal  Revenue Service has issued a statutory notice
         of deficiency or document of substantially similar import to the effect
         that an Event of Taxability has occurred; or

                  (c) notification  to the Trustee from any Bondholder or former
         Bondholder to the effect that the Internal Revenue Service has assessed
         as  includable  in the  gross  income  of  such  Bondholder  or  former
         Bondholder  interest  on a Bond  due to the  occurrence  of an Event of
         Taxability;

provided, however, that in respect of clauses (b) and (c) above, a Determination
of Taxability  shall not be deemed to have occurred unless and until the Company
has  been  notified  of  the  allegation  that  an  Event  of  Taxability  and a
Determination  of  Taxability  have occurred and either (i) the Company fails to
commence a contest of such  allegation  in good faith and by  appropriate  legal
proceedings within 90 days following such notification, or (ii) the Company does
commence  such  contest  within  such time,  but  thereafter  fails to pursue it
diligently,  in good faith and by appropriate legal proceedings to a final order
or judgment by a court or  administrative  body of  competent  jurisdiction,  or
(iii)  such  contest  results  in a  final  order  or  judgment  of a  court  or
administrative  body of  competent  jurisdiction  to the effect that an Event of
Taxability  has  occurred  and the time for any appeal of such order or judgment
has expired.

         "Escrow  and  Defeasance  Agreement"  means the Escrow  and  Defeasance
Agreement dated July 15, 1998 among the Company,  the Trustee as trustee for the
Bonds and the Trustee as trustee for the 1989 Bonds.

         "Event of Default"  means those events of default  specified in Section
801.

         "Event of Taxability" means any event,  condition or circumstance which
has the effect or result that interest on a Bond is not  excludable  for federal
income tax purposes from the gross income of a Bondholder or a former Bondholder
under  Section  103 of the  Code,  other  than for a  period  during  which  the
Bondholder or a former Bondholder is or was a "substantial  user" of the project
financed  with the 1989  Bonds or a "related  person"  for  purposes  of Section
147(a) of the Code, and the regulations thereunder.  An Event of Taxability does
not include any event,  condition or circumstance  which results in the interest
on a Bond being a preference item subject to an alternate minimum tax, or in any
other tax consequences  that do not involve the inclusion for federal income tax
purposes  of interest on the Bonds in the income of  Bondholders  generally  but
instead depend upon a Bondholder's particular tax status.

         "Guarantor" means  IWC Resources  Corporation,  the guarantor under the
Guaranty.

         "Guaranty"  means the  Guaranty  Agreement  dated as of July 15,  1998,
under which IWC Resources  Corporation  guarantees  the payment of the principal
of, premium, if any, and interest on the Bonds.

         "Loan  Agreement" means the Loan Agreement dated as of the date of this
Indenture  between the  Company  and the  Municipality  and all  amendments  and
supplements thereto.

         "Majority"  means, when used with reference to the Owners or Holders of
Bonds  outstanding,  in excess of fifty percent (50%) of the principal amount of
the Bonds outstanding.

         "MBIA" means MBIA Insurance  Corporation,  issuer of the Municipal Bond
Insurance Policy.

         "Municipal  Bond  Insurance  Policy" means the municipal bond insurance
policy  issued by MBIA  insuring  the payment  when due of the  principal of and
interest on the bonds as provided therein.

         "Municipality" means the City of Indianapolis, Indiana.

         "Officer's  Certificate" means a certificate of the Municipality signed
by the Mayor or Clerk or by any other person  designated  by  resolution  of the
Municipality  to act for  either of those  officers,  either  generally  or with
respect to the execution of any particular  document or other specific matter, a
certified copy of which resolution shall be filed with the Trustee.

         "Outstanding" or "Bonds  outstanding" or "outstanding  Bonds" means all
Bonds which have been duly authenticated and delivered by the Trustee under this
Indenture, except:

                  (a) Bonds cancelled after purchase or because of payment at or
         redemption prior to maturity;

                  (b) Bonds for the  payment  or  redemption  of which  funds or
         securities  shall have been deposited with the Trustee (whether upon or
         prior to the  maturity  or  redemption  date of those  Bonds)  and with
         respect to which all  actions  required to be taken at the time of such
         deposit as set forth in Section 1301 have been taken including, without
         limitation,  the  requirement  that if those  Bonds are to be  redeemed
         prior to the maturity thereof, notice of the redemption shall have been
         given or arrangements  satisfactory to the Trustee shall have been made
         for  notice,  or waiver of notice  satisfactory  in form to the Trustee
         shall have been filed with the Trustee; and

                  (c) Bonds in  lieu of which  others  have  been  authenticated
         under Section 207 and Section 208.

         "Person"  means natural persons, firms, associations,  corporations and
public bodies.

         "Purchaser" means Edward D. Jones & Co., L.P.

         "Record Date" means with respect to an interest payment date, the first
(1st) day of the  calendar  month  that  includes  such  interest  payment  date
(whether or not a Business Day).

         "Representation Letter"  means the Letter of Representation executed by
the Issuer and delivered to DTC.

         "Securities   Depository"   means  The  Depository  Trust  Company,   a
corporation  organized and existing under the laws of the State of New York, and
any  other  securities  depository  for  the  Bonds  appointed  pursuant  to the
Indenture.

         "Trust Estate" means the property, rights, moneys, securities and other
amounts conveyed to the Trustee pursuant to the Granting Clauses hereof.

         "Trustee"  means  National  City  Bank of  Indiana,  and any  successor
trustee or co-trustee.

         "Written Request" with reference to the Municipality means a request in
writing  signed by the Mayor or Clerk or any other  officer or  officers  of the
Municipality satisfactory to the Trustee.

         Section  102.  Rules  of  Interpretation.  For   all  purposes  of this
Indenture,  except  as  otherwise  expressly  provided  or  unless  the  context
otherwise requires:

         (1) The words  "herein,"  "hereof" and  "hereunder"  and other words of
similar import refer to this Indenture as a whole including  exhibits and not to
any particular Article, Section or other subdivision.

         (2) The terms  defined in this Article  include the plural,  as well as
the singular.

         (3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles.

         (4) Any terms not  defined  herein but  defined  in the Loan  Agreement
shall have the same meaning herein as in the Loan Agreement.

         Section  103.  Exhibits.  The  following  Exhibits  are a part of this
Agreement:

                  Exhibit A:  Form  of  Bond, form  of   Trustee's   Certificate
         of Authentication and form of Assignment.

                  Exhibit B:  Form of Municipal Bond Insurance Policy.


                                   ARTICLE II

                                    The Bonds

         Section 201. Terms  of  Bonds.  No  Bonds  may  be  issued  under  this
Indenture except in accordance with this Article.  The total aggregate principal
amount of Bonds shall not exceed  $10,000,000  (other than Bonds issued pursuant
to Section 207).

         Section 202. Issuance of Bonds; Denominations.  Each of the Bonds shall
be   designated  "City  of Indianapolis,  Indiana  Economic  Development  Water 
Facilities   Refunding  Revenue  Bond,  Series 1998 (Indianapolis  Water Company
Project)."

         The Bonds shall be issuable as fully  registered  bonds without coupons
in the  denominations  of $5,000 or any integral  multiple  thereof and shall be
lettered and numbered R-1 upward.  Each Bond initially issued hereunder shall be
dated July 15, 1998 and shall bear interest from that date.

         Bonds issued in exchange for Bonds surrendered for transfer or exchange
or in place of  mutilated,  lost,  stolen or destroyed  Bonds will bear interest
from the last date to which  interest  has been paid in full on the Bonds  being
transferred,  exchanged or replaced or, if no interest has been paid,  from July
15, 1998.

         Interest  on the Bonds shall be paid to the persons who were the Owners
of such Bonds as of the close of business on the Record Date next preceding such
interest  payment date at the registered  addresses of such Owners as they shall
appear on the registration books maintained by the Trustee  notwithstanding  the
cancellation of any such Bonds upon any exchange or transfer thereof  subsequent
to the Record Date and prior to such interest payment date.  Payment of interest
to all  Bondholders  shall be by  check  drawn on the  principal  office  of the
Trustee and mailed on the due date thereof by first class United  States mail to
such Bondholder, or, at the written election of the registered owner of $500,000
or more in aggregate principal amount of Bonds delivered to the Trustee at least
one  Business  Day prior to the  Record  Date for which  such  election  will be
effective,  by wire  transfer  to the  registered  owner or by deposit  into the
account of the registered owner if such account is maintained by the Trustee.

         The interest on the Bonds shall be payable on each July 15, and January
15 commencing  on January 15, 1999.  The Bonds shall mature on July 15, 2028 and
shall bear  interest at the per annum rate of 5.05%,  computed on the basis of a
year of 360 days  (consisting  of 12  months  of 30 days  each).  To the  extent
permitted by law, overdue interest on the Bonds shall also bear interest at such
rate until paid in full.

         Section 203. Payments on  Bonds. The principal of and premium,  if any,
and interest on the Bonds shall be payable in any coin or currency of the United
States of America which, at the date of payment thereof, is legal tender for the
payment of public and private  debts.  Principal  of and  premium,  if any,  and
interest on the Bonds shall be payable at the principal  corporate  trust office
of the Trustee, in the City of Indianapolis, Indiana, or of any alternate paying
agent named in the Bonds or subsequently  appointed.  Payment of the interest on
the Bonds on any payment date shall be made to the person  appearing on the Bond
registration  books of the Trustee as the registered  Owner and shall be paid by
check or draft mailed to the registered  Owner on the due date at the address on
such  registration  books without any presentation of the Bonds.  Payment of the
principal  of and premium,  if any, on any Bond shall be made upon  presentation
and surrender of the Bond as the same shall become due and payable.

         Section 204. Execution; Limited Obligation. The Bonds shall be executed
on behalf of the  Municipality  with the manual or  facsimile  signature  of its
Mayor and attested with the manual or facsimile signature of its Clerk and shall
have  impressed or printed  thereon the corporate seal of the  Municipality.  In
case any officer whose  signature  appears on the Bonds shall cease to hold that
office before the delivery of the Bonds,  the signature  shall  nevertheless  be
valid and sufficient  for all purposes,  the same as if the officer had remained
in office until  delivery.  The Bonds,  and interest  thereon,  shall be limited
obligations  of the  Municipality  payable by it solely from the  payments to be
made under the Loan  Agreement and on the Note (except to the extent paid out of
moneys  attributable  to the  proceeds  of the  Bonds  or the  income  from  the
temporary  investment  thereof)  and shall be a valid claim of the Holder of the
Bonds only against the moneys held by the Trustee.  In addition,  payment of the
Bonds shall be  guaranteed  by the  Guarantor  under the  Guaranty  and shall be
further secured under and pursuant to the Municipal Bond Insurance  Policy.  The
payments to be made under the Loan  Agreement and on the Note which are assigned
for the payment of the Bonds shall be used for no other  purpose than to pay the
principal  of and premium,  if any, and interest on the Bonds,  except as may be
otherwise  expressly  authorized in this  Indenture.  The Bonds shall not in any
respect be a general  obligation of, an indebtedness  of, or constitute a charge
against the general  credit of the  Municipality,  the State of Indiana,  or any
political  subdivision thereof, and they shall not be payable in any manner from
funds raised by taxation.

         Section 205. Authentication.  No  Bond shall be valid or obligatory for
any  purpose  or  entitled  to any  benefit  under  this  Indenture  unless  the
certificate of authentication on the Bond has been executed by the Trustee,  and
the executed certificate of the Trustee on the Bond shall be conclusive evidence
that the Bond has been  authenticated  and delivered under this  Indenture.  The
Trustee's certificate of authentication on any Bond shall be deemed to have been
executed by it if signed by an authorized  representative of the Trustee, but it
shall not be necessary  that the same  representative  sign the  certificate  of
authentication on all of the Bonds.

         Section 206. Delivery of Bonds. Upon the execution and delivery of this
Indenture,  the Municipality  shall execute and deliver to the Trustee the Bonds
in  the  aggregate  principal  amount  of  $10,000,000  and  the  Trustee  shall
authenticate  the Bonds and deliver  them to the  Municipality  or to such other
person or persons as directed by the  Municipality  as provided in this  Section
206.

         Prior to the delivery by the Trustee of the Bonds, there shall be filed
with the Trustee:

                  1. A copy, certified by the Clerk of the Municipality,  of the
Ordinance adopted by the Municipality  authorizing the execution and delivery of
the Loan Agreement and this Indenture and the issuance of the Bonds.

                  2. Original executed counterparts of the Loan Agreement,  this
Indenture, the Note and the Guaranty.

                  3. A  Written  Request  of  the  Municipality  to the  Trustee
requesting  the Trustee to  authenticate  and deliver the Bonds to the person or
persons therein  identified upon payment to the Trustee,  but for the account of
the Municipality, of a sum specified in such request and authorization.

                  4. An opinion of bond counsel to the effect that the Bonds are
valid and binding limited  obligations of the Municipality and that the interest
thereon  is  excludable  from the gross  income of the  recipients  thereof  for
federal income tax purposes under Section 103 of the Code, except when the Bonds
are held by a "substantial  user" of the project financed by the 1989 Bonds or a
"related person."

                  5. The Municipal Bond Insurance Policy.

                  6. The Continuing Disclosure Undertaking.

                  7. Such  other  items  as shall be  required  by bond  counsel
employed in connection with the issuance of the Bonds.

         The proceeds of the Bonds shall be paid to the Trustee and deposited as
provided in Section 301 hereof.

         Section 207. Mutilated, Lost, Stolen or Destroyed Bonds. If any Bond is
mutilated,  lost,  stolen or destroyed,  the Trustee may authenticate a new Bond
for the same original principal amount provided that, in the case of a mutilated
Bond, such mutilated Bond shall first be surrendered to the Trustee,  and in the
case of a lost,  stolen or destroyed Bond, there shall be first furnished to the
Trustee evidence of the loss, theft or destruction  satisfactory to the Trustee,
together with indemnity  satisfactory to the Trustee.  In the event a mutilated,
lost,  stolen or  destroyed  Bond  shall  have  matured,  instead  of  issuing a
duplicate  Bond the  Trustee may pay the same  without  surrender  thereof.  The
Municipality  and the  Trustee  may  charge the Holder or Owner of the Bond with
their reasonable fees and expenses in this connection.

         Section 208. Registration  and  Exchange of Bonds;  Persons  Treated as
Owners.  The  Municipality  shall cause books for the  registration  and for the
transfer of the Bonds to be kept by the Trustee,  which is hereby  appointed the
Bond registrar of the  Municipality.  Upon surrender for transfer of any Bond at
the principal office of the Trustee,  endorsed for transfer or accompanied by an
assignment  executed by the  registered  Owner or his authorized  attorney,  the
Trustee shall authenticate and deliver in the name of the transferee a new fully
registered  Bond or Bonds for the same original  principal  amount,  which fully
registered Bond or Bonds shall have been executed by the Municipality.

         Bonds may be exchanged at the principal  corporate  trust office of the
Trustee  for the same  original  principal  amount of Bonds of other  authorized
denominations. The Municipality shall execute and the Trustee shall authenticate
and  deliver  new Bonds  which the  Bondholder  making the change is entitled to
receive, bearing numbers not then outstanding.

         The Trustee  shall not be  required  to  transfer or exchange  any Bond
during any period  beginning on a Record Date and ending on the interest payment
date with  respect to such Record Date or to transfer or exchange any Bond after
the  first  mailing  of  notice  calling  such  Bond or a  portion  thereof  for
redemption, nor any Bond during the fifteen-day period next preceding the giving
of such notice of redemption.

         As to any Bond,  the person in whose name the Bond is registered  shall
be deemed the absolute Owner for all purposes,  and payment of either  principal
of or  interest or premium on the Bond shall be made only to or upon the written
order of the registered Owner or his legal representative.

         In each  case  the  Bondholder  requesting  registration,  exchange  or
transfer shall pay any resulting tax or other governmental charge.

         Section 209. Form of  Bonds.  The Bonds shall be  substantially  in the
form set forth in Exhibit A hereto with any appropriate notations, omissions and
insertions  permitted or required by this  Indenture or deemed  necessary by the
Trustee.

         Section 210. Book Entry. Initially,  one certificate for the Bonds will
be issued and registered to the Securities Depository.  The Municipality and the
Trustee may enter into a Letter of  Representations  (as defined below) relating
to a book  entry  system to be  maintained  by the  Securities  Depository  with
respect to the Bonds.

         In the  event  that (a) the  Securities  Depository  determines  not to
continue to act as a securities depository for the Bonds by giving notice to the
Trustee and the Municipality discharging its responsibilities  hereunder, or (b)
the  Municipality  determines  (at  the  direction  of  the  Company)  (i)  that
beneficial  owners of the Bonds shall be able to obtain  certificated  Bonds, or
(ii) to select a new Securities Depository,  attempt to locate another qualified
securities  depository to serve as Securities  Depository  or  authenticate  and
deliver  certificated  Bonds  to the  beneficial  owners  or to  the  Securities
Depository participants on behalf of beneficial owners substantially in the form
provided for in this Section 210. In delivering  certificated Bonds, the Trustee
shall be entitled to rely on the records of the Securities  Depository as to the
beneficial  owners or the  records  of the  Securities  Depository  participants
acting on behalf of  beneficial  owners.  Such  certificated  Bonds will then be
registrable, transferable and exchangeable as set forth in the Indenture.

         So long as there is a Securities  Depository  for the Bonds,  (1) it or
its nominee  shall be the  registered  owner of the Bonds;  (2)  notwithstanding
anything to the contrary in the Indenture, determinations of persons entitled to
payment of principal or purchase price, premium, if any, and interest, transfers
of ownership and exchanges and receipt of notices shall be the responsibility of
the Securities Depository and shall be effected pursuant to rules and procedures
established by the Securities Depository; (3) the Municipality,  the Company and
the Trustee shall not be responsible or liable for  maintaining,  supervising or
reviewing the records maintained by the Securities Depository,  its participants
or persons acting through such participants;  (4) references in the Indenture to
owners or registered owners of the Bonds shall mean the Securities Depository or
its nominee and shall not mean the  beneficial  owners of the Bonds;  and (5) in
the event of any  inconsistency  between the provisions of the Indenture and the
provisions  of the Letter of  Representations,  the  provisions of the Letter of
Representations,  except to the extent set forth in this  paragraph and the next
preceding paragraph, shall control.

         For purposes of this Section,  following  term shall have the following
meaning:

         "Letter of  Representations"  means the Letter of Representations  from
the  Municipality  to the  Securities  Depository  and (with the  consent of the
Company)  any  amendments   thereto,   or  successor   agreements   between  the
Municipality, the Trustee and any successor Securities Depository, relating to a
book entry system to be maintained by the Securities  Depository with respect to
the Bonds.

         Section 211. Payment  Procedure  Pursuant to  Municipal  Bond Insurance
Policy.  As long as the Municipal Bond  Insurance  Policy shall be in full force
and effect with respect to the Bonds,  the Municipality and the Trustee agree to
comply with the following provisions:

                  (a) At least two (2) days prior to all interest  payment dates
         the Company  will  notify MBIA and the Trustee if the Company  does not
         expect  to  provide  the  Trustee  with  sufficient  funds  to pay  the
         principal of or interest on the Bonds on such  interest  payment  date.
         Such notice shall specify the amount of the anticipated deficiency, the
         Bonds to which such  deficiency  is  applicable  and whether such Bonds
         will be deficient as to principal or interest, or both.



<PAGE>


                                   ARTICLE III

                          Application of Bond Proceeds;
                                 Redemption Fund

         Section 301. Deposit  of  Funds.  Pursuant  to Section  3.1 of the Loan
Agreement, the Municipality shall deposit with the Trustee all proceeds from the
sale of Bonds and the Trustee shall  deposit the accrued  interest on the Bonds,
if any,  into the Bond Fund created  under Section 402 hereof and the balance of
the proceeds into the Redemption Fund created under Section 302 hereof.

         Section 302. Redemption Fund. The Municipality shall establish with the
Trustee a separate account to be designated as the "Indianapolis  Water Company,
Series 1998 (Indianapolis) Redemption Fund." Moneys on deposit in the Redemption
Fund shall be held by the Trustee under the Escrow and Defeasance  Agreement and
paid out by the Trustee as provided in Section 3.2 of the Loan Agreement  solely
for the  purposes of  discharging,  retiring  and  redeeming  the 1989 Bonds and
terminating  all  obligations  and  liabilities  of the  Company  created  by or
relating to the 1989 Bonds; provided,  however, that any moneys remaining in the
Redemption  Fund after such  discharge,  retirement,  redemption and termination
shall be promptly released and distributed to the Company.  Moneys on deposit in
the  Redemption  Fund may be invested only in direct  obligations  of the United
States of  America or other  obligations  backed by the full faith and credit of
the United States of America and the income or loss shall be credited or charged
to the Redemption Fund.


                                   ARTICLE IV

                               Revenues and Funds

         Section 401. Source of Payment of Bonds.  The Bonds and all payments to
be  made  by the  Municipality  hereunder  are not  general  obligations  of the
Municipality,  but are  limited  obligations  payable  by it  solely  out of the
revenues and other amounts  derived from the Note and under the Loan  Agreement.
In addition,  the Bonds shall be guaranteed by the Guarantor  under the Guaranty
and shall be further  secured under and pursuant to the Municipal Bond Insurance
Policy.

         Section 402. Creation of Bond Fund. There is created with the Trustee a
trust fund to be designated as the "Indianapolis Water Company, Series 1998 Bond
Fund."  Amounts  deposited into the Bond Fund shall be used to pay the principal
of and premium, if any, and interest on the Bonds and as otherwise authorized in
this Indenture.

         Section 403. Payments  into Bond Fund.  Pursuant to Section 301 hereof,
all  accrued  interest  received  at the time of the sale of any Bonds  shall be
deposited  into the Bond Fund.  In addition,  there shall be deposited  into the
Bond  Fund all  payments  received  pursuant  to the Note and all  other  moneys
received by the  Trustee  under the Loan  Agreement  or the  Guaranty  which are
required or directed to be paid into the Bond Fund and all amounts received from
MBIA under the Municipal Bond Insurance Policy.

         Section 404. Use of Moneys in Bond Fund.  Except as provided in Section
1301 hereof, moneys in the Bond Fund shall be used solely for the payment of the
principal of and premium,  if any, and interest on the Bonds, for the redemption
of all or a portion of the Bonds prior to maturity, for the purchase of Bonds or
portions thereof for the purpose of  cancellation,  for any fees and expenses of
the  Trustee  and any  paying  agent  and  for  any  fees  and  expenses  of the
Municipality  caused by any  default of the  Company  under the Loan  Agreement.
Whenever  the amount in the Bond Fund is  sufficient  to redeem all of the Bonds
then unpaid and to pay the premium, if any, and interest to accrue thereon prior
to  redemption,  the  Trustee  shall,  at the request of the  Company,  take the
necessary steps to redeem the Bonds on the earliest possible redemption date for
which the required  redemption notice may be given.  However,  any moneys in the
Bond Fund may be used to redeem a part of the Bonds  outstanding  so long as the
Company is not in default with respect to any payments  under the Loan Agreement
or the Note,  but only to the  extent  those  moneys are in excess of the amount
still  required  for payment of the portion of the Bonds  previously  called for
redemption, the premium thereon, if any, and interest, and any past due interest
and principal.

         Section 405. Investment  of  Funds.  Moneys  in  the  Bond Fund and the
Redemption  Fund may be invested in direct  obligations  of the United States of
America or other  obligations  backed by the full faith and credit of the United
States of America. Any such investments shall be held by or under control of the
Trustee  and shall be deemed at all times a part of the Bond Fund or  Redemption
Fund,  as the case may be,  and the  interest  accruing  thereon  and any profit
realized  therefrom  shall be credited to such fund, and any loss resulting from
such  investments  shall be  charged to such fund.  The  Trustee  shall sell and
reduce to cash funds a sufficient portion of investments under the provisions of
this Section 405 whenever the cash balance in the Bond Fund is  insufficient  to
pay the principal of and premium,  if any, and interest on the Bonds as and when
payable.

         The Company and the Municipality  covenant to each other and to and for
the benefit of the Holders of the Bonds that no use will be made of the proceeds
from  the  issue  and  sale of the  Bonds  which  would  cause  the  Bonds to be
classified  as  arbitrage  bonds  within the  meaning of Section  103(b)(2)  and
Section 148 of the Code.  The parties  reserve the right,  however,  to make any
investment of proceeds permitted by the laws of the State of Indiana, if Section
148 or regulations  thereunder are repealed or relaxed or are held void by final
judgment of a court of competent  jurisdiction,  so long as the investment would
not  result in making  the  interest  on the Bonds  subject  to  federal  income
taxation.  In making investments,  the parties may rely on an opinion of counsel
of  recognized  competence  in such  matters.  The  Trustee may make any and all
investments permitted by this Section 405 through its own bond department.

         Section 406. Trust Funds.  All moneys  and  securities  received by the
Trustee under the  provisions of this  Indenture  shall be trust funds and shall
not be subject to lien or attachment of any creditor of the  Municipality  or of
the Company.

         Section 407. Nonpresentment  of  Bonds. In the event any Bond shall not
be  presented  for payment when the  principal  thereon  becomes due,  either at
maturity,  or at the date fixed for redemption thereof,  or otherwise,  if funds
sufficient  to pay such Bond shall have been made  available  to the Trustee for
the benefit of the Holder  thereof,  all  liability of the  Municipality  to the
Owner thereof for the payment of such Bond shall forthwith cease,  determine and
be completely  discharged,  and thereupon it shall be the duty of the Trustee to
hold such funds for five years,  without liability for interest thereon, for the
benefit  of the  Holder  of  such  Bond,  who  shall  thereafter  be  restricted
exclusively  to such funds,  for any claim of whatever  nature on his part under
this  Indenture  or on, or with  respect to, such Bond.  Any moneys so deposited
with and held by the Trustee not so applied to the payment of Bonds  within five
years after the date on which the same shall become due,  shall be repaid by the
Trustee to the Company and thereafter Bondholders shall be entitled to look only
to the Company for payment, and then only to the extent of the amount so repaid,
and the Company  shall not be liable for any  interest  thereon and shall not be
regarded  as a trustee of such  money.  Nor shall the  Company be liable for any
portion of such money that it  delivers  to the State of Indiana  pursuant to IC
32-9.


                                    ARTICLE V

                       Redemption of Bonds Before Maturity

         Section 501. Determination  of  Taxability  Redemption.  The  Bonds are
subject to mandatory  redemption in whole (or in part as provided  below) on the
earliest  practicable  date  (selected  by the  Trustee)  within one hundred and
eighty (180) days following a Determination of Taxability.  The redemption price
shall be 100% of the  principal  amount  thereof  plus  accrued  interest to the
redemption date. Fewer than all the Bonds may be redeemed if redemption of fewer
than all would result in the interest payable on the Bonds remaining outstanding
being not  includable in the gross income for federal income tax purposes of any
owner other than a  "substantial  user" or  "related  person." If fewer than all
Bonds are  redeemed,  the Trustee will select the Bonds to be redeemed by lot or
by such other random means as the Trustee shall determine in its discretion. For
purposes of this Section,  Bondholder  shall include the  beneficial  owner of a
Bond (i.e., the actual owner as recorded in the records of DTC).

         Section 502. Redemption in the Event of Death of a Bondholder.  On July
15 of each year  commencing  July 15, 2000, the Trustee will,  upon the death of
any registered  owner,  redeem any Bond held by such registered  owner following
presentation  for  redemption  as  described  below by such  registered  owner's
personal representative or surviving joint tenant(s), subject to the limitations
that in any 12-month  period the Trustee  shall not be obligated to redeem Bonds
pursuant to this Section to the extent that (i) the aggregate  principal  amount
of Bonds so subject to redemption,  together with the aggregate principal amount
of Town of Fishers,  Indiana Economic  Development  Water  Facilities  Refunding
Revenue  Bonds,  Series 1998  (Indianapolis  Water  Company  Project) (the "1998
Fishers  Bonds")  subject to redemption by reason of the death of any registered
owner  of 1998  Fishers  Bonds  exceeds  $800,000,  or  (ii)  the  Bonds  of any
registered owner so subject to redemption  together with the registered  owner's
1998  Fishers  Bonds  subject  to  redemption  by  reason  of the  death of such
registered owner,  exceed the aggregate  principal amount of $25,000.  The Bonds
subject to  redemption  as described  above may be presented  for  redemption by
delivering  to the  Trustee  within  two (2) years of the death of a  registered
owner (i) a written request for redemption in form  satisfactory to the Trustee,
signed by the  personal  representative  or  surviving  joint  tenant(s)  of the
registered owner, (ii) the Bond(s) to be redeemed, (iii) appropriate evidence of
death and ownership of such Bond(s) at the time of death,  and (iv)  appropriate
evidence of the authority of such  personal  representative  or surviving  joint
tenant(s). In order for Bonds to be eligible for redemption on any July 15, such
Bonds must be presented for  redemption in full  compliance  with the provisions
set forth above,  prior to the May 15, next preceding such July 15. Upon receipt
by the Trustee of all of the  foregoing  and by the time  specified  above,  the
Trustee  shall  promptly (and in any event by the June 15 next  succeeding  such
July 15) certify to the Company and MBIA of such  receipt and that a  redemption
of Bonds will occur under this Section 502 on the next  succeeding  July 15. The
Bonds  presented for redemption  prior to maturity will be redeemed in the order
of their  receipt by the  Trustee.  Any Bonds not  redeemed  in any such  period
because  of  the  individual   $25,000  limitation  or  the  aggregate  $800,000
limitation, will be held in the order described above for redemption on the July
15 in succeeding  years until redeemed.  Any such redemption shall be at a price
equal to 100% of the  principal  amount  of the  Bonds so to be  redeemed,  plus
accrued interest to the redemption date.

         The death of a person who, during his or her lifetime,  was entitled to
substantially  all of the  beneficial  interest of  ownership  of a Bond will be
deemed the death of a registered  owner,  regardless of the registered owner, if
such beneficial  interest can be established to the satisfaction of the Trustee.
Such  beneficial  interest  shall be deemed to exist in typical  cases of street
name or nominee  ownership,  ownership  under the  Uniform  Gifts to Minors Act,
community property or other joint ownership arrangements between the husband and
wife,   and  trust  and  certain  other   arrangements   where  one  person  has
substantially all of the beneficial ownership interest in the Bond during his or
her  lifetime.  In the case of Bonds  registered  in the  name of  banks,  trust
companies or broker-dealers who are members of a national securities exchange or
the National Association of Securities Dealers, Inc. ("Qualified Institutions"),
the redemption  limitations  described above apply to each  beneficial  owner of
Bonds held by any  Qualified  Institution.  In  connection  with the  redemption
request,  such Qualified  Institution must submit evidence,  satisfactory to the
Trustee, that it holds the Bonds subject to request on behalf of such beneficial
owner and must  certify the  aggregate  amount of  redemption  requests  made on
behalf of such beneficial owner.

         It is intended  that the Bonds and the 1998 Fishers Bonds be treated as
a single  issue of bonds  for  purposes  of this  Section  502 and for all other
provisions of this Indenture  related to this Section 502 and the Trustee agrees
to apply and administer the provisions of this Indenture in accordance with that
intention.

         Section 503. Optional  Redemption.  The Bonds are subject to redemption
by the  Municipality  (at the  election and  direction of the Company)  prior to
stated  maturity in whole or in part on any date on or after July 15, 2005.  The
redemption price for any such redemption shall be the amount determined from the
table below  (expressed as a percentage of the principal  amount of the Bonds or
portions thereof so redeemed), plus accrued interest to the redemption date:
<TABLE>
<CAPTION>

       Redemption Period                                 Redemption
      (both dates inclusive)                                Price

<S>  <C> <C>               <C> <C>                           <C> 
July 15, 2005 through July 14, 2006                          102%
July 15, 2006 through July 14, 2007                          101%
July 15, 2007 and thereafter                                 100%
</TABLE>

         If less than all  Bonds at the time  outstanding  are to be called  for
prior redemption,  the particular Bonds or portions thereof to be redeemed shall
be selected by lot or by such other random means as the Trustee shall  determine
in its discretion.  Bonds of denominations greater than $5,000 may be called for
redemption, in part, in multiples of $5,000.

         Section 504. Notice of Redemption.

                  (a) Notice of the call for redemption identifying the Bonds to
         be redeemed (and, in the case of partial  redemption of any Bonds,  the
         respective  principal  amounts thereof to be redeemed),  the redemption
         date and the redemption  price shall (except for a redemption  pursuant
         to Section  502) be given to  Bondholders  and to MBIA by  mailing  the
         redemption  notice by registered or certified mail at least thirty days
         but no more than sixty days prior to the date fixed for  redemption  to
         the registered Owner of each Bond to be redeemed in whole or in part at
         the address shown on the registration books;  provided,  however,  that
         failure to give notice by mailing, or any defect therein,  with respect
         to any Bond shall not affect the  validity of any  proceedings  for the
         redemption of any other Bonds or portions thereof.  Reference is hereby
         made to Section 5.4 of the Loan  Agreement,  which provision sets forth
         the obligations of the Company with respect to notice to the Trustee of
         the Company's  exercise of its rights to prepay the Note. In connection
         with an optional  redemption,  the redemption notice may state that the
         redemption  is  conditional  upon the timely  receipt by the Trustee of
         funds  sufficient  to pay  the  redemption  price  of the  Bonds  to be
         redeemed  as of the  date  of such  redemption.  In the  event  of such
         conditional redemption notice, if such funds are not so received by the
         Trustee,  the call for  redemption  shall be of no force and effect and
         the  redemption  shall not  occur.  On and after  the  redemption  date
         specified  in the notice,  if funds  sufficient  to pay the  redemption
         price  of the  Bonds  described  in such  notice  are  received  by the
         Trustee,  the Bonds  that were  called  for  redemption  shall not bear
         interest,  shall no longer be protected by this Indenture and shall not
         be deemed to be  outstanding,  and the Holders  thereof  shall have the
         right only to receive the redemption price plus accrued interest to the
         date fixed for redemption; provided, however, that all actions required
         by Section 1301 of this Indenture have been taken.

                  (b) In addition to the redemption  notice  required  above, if
         there is more than one Bondholder of all the Bonds, further notice (the
         "Additional Notice") shall be given by the Trustee as set out below. No
         defect  in the  Additional  Notice  or any  failure  to give all or any
         portion  of the  Additional  Notice  shall  in any  manner  defeat  the
         effectiveness of a call for redemption if notice is given as prescribed
         in paragraph (a) above.

                                    (1) Each  Additional  Notice  of  redemption
                  shall contain the information  required in paragraph (a) above
                  for an  official  notice  of  redemption  plus  (i) the  CUSIP
                  numbers  of all  Bonds  being  redeemed;  (ii) the date of the
                  Bonds as originally  issued:  (iii) the rate of interest borne
                  by each Bond being  redeemed;  (iv) the maturity  date of each
                  Bond being redeemed; and (v) any other descriptive information
                  needed to identify accurately the Bonds being redeemed.

                                    (2) Upon the payment of the redemption price
                  of the Bonds being  redeemed,  each check or other transfer of
                  funds  issued for such  purpose  shall  bear the CUSIP  number
                  identifying,  by issue and maturity,  the Bonds being redeemed
                  with the proceeds of such check or other transfer.

                                    (3) Each  Additional  Notice  of  redemption
                  shall be sent at least 35 days before the  redemption  date by
                  registered or certified mail or overnight  delivery service to
                  the  Paying  Agents,  if  any,  to all  registered  securities
                  depositories  then  in the  business  of  holding  substantial
                  amounts of obligations similar to the Bonds (such depositories
                  now being The Depository  Trust Company of New York, New York,
                  Midwest Securities Trust Company of Chicago, Illinois, Pacific
                  Securities   Depository   Trust  Company  of  San   Francisco,
                  California  and  Philadelphia   Depository  Trust  Company  of
                  Philadelphia,  Pennsylvania),  to Standard and Poor's  Ratings
                  Group, and to one or more national  information  services that
                  disseminate  notices of redemption of obligations  such as the
                  Bonds.

                                    (4) In  addition,  the Trustee  shall at all
                  reasonable  times  make  available  to  any  interested  party
                  complete  information  as to which Bonds have been redeemed or
                  called for redemption.

         Section 505. Cancellation.  All Bonds  that have been redeemed shall be
cancelled by the Trustee and disposed of by the Trustee.  A cancelled Bond shall
not be reissued and a counterpart of the certificate  evidencing its disposition
shall be furnished by the Trustee to the Municipality and the Company.


                                   ARTICLE VI

                                General Covenants

         Section 601. Payment of Principal,  Premium, if any, and Interest.  The
Municipality  shall  promptly  pay,  but  solely  from  payments  under the Loan
Agreement  and on the Note and from funds  otherwise  available  therefor in the
Bond Fund the  principal of and  premium,  if any, and interest on every Bond at
the place, on the dates and in the manner provided herein and in the Bonds.  The
Bonds do not  represent  or  constitute  a debt of the  Municipality  within the
meaning  of the  provisions  of the  Constitution  or  Statutes  of the State of
Indiana or a pledge of or charge against the credit of the Municipality or grant
to the Owners or Holders thereof any right to have the  Municipality  levy taxes
or  appropriate  any funds for the payment of the principal  thereof or interest
thereon.
         Section 602. Performance of  Covenants.  The Municipality  will perform
its  obligations  under this  Indenture,  the Bonds and the  proceedings  of its
governing body pertaining to the Bonds. The  Municipality  represents that it is
authorized  under the Constitution and laws of the State of Indiana to issue the
Bonds,  to  execute  this  Indenture  and to assign  all its right and title and
interest in and to the Note and the Loan Agreement  under this  Indenture;  that
all  action on its part for the  issuance  of the Bonds  and the  execution  and
delivery of this  Indenture  has been taken,  and that the Bonds in the hands of
the Holders and Owners thereof are and will be valid and binding  obligations of
the Municipality.

         The Company covenants that it will faithfully  perform at all times all
covenants,  undertakings,  stipulations  and  provisions  which it has expressly
undertaken to perform in this Indenture.

         Section 603. Ownership;   Instruments  of   Further   Assurance.    The
Municipality  represents  that it lawfully owns the Note and that the pledge and
assignment  thereof and the assignment of its interests in the Loan Agreement to
the Trustee hereby made are valid and lawful. The Municipality covenants that it
will  defend  the  title  to the  Note and its  interest  in the Loan  Agreement
assigned to the Trustee,  for the benefit of the Holders and Owners of the Bonds
against the claims and demands of all persons whomsoever.

         The  Municipality  covenants that it will do, execute,  acknowledge and
deliver  or  cause  to be  done,  executed,  acknowledged  and  delivered,  such
indentures  supplemental hereto and such further acts, instruments and transfers
as the Trustee may  reasonably  require for the better  assuring,  transferring,
pledging, assigning and confirming unto the Trustee the Note, the Loan Agreement
and all payments  thereon and  thereunder  pledged  hereby to the payment of the
principal of and premium,  if any, and interest on the Bonds.  The  Municipality
covenants that, except as provided herein and in the Loan Agreement, it will not
sell,  convey,  mortgage,  encumber  or  otherwise  dispose  of any  part of the
revenues  and  receipts  payable  under the Note and the Loan  Agreement  or its
rights under the Loan Agreement.

         Section 604. Rights  under Loan  Agreement and Note.  The  Municipality
agrees  that the  Trustee  in its name or in the  name of the  Municipality  may
enforce all rights,  remedies and privileges granted to the Municipality and all
obligations of the Company under and pursuant to the Loan Agreement and the Note
for and on behalf of the  Bondholders,  whether  or not the  Municipality  is in
default hereunder.

         Section 605. Designation  of Additional Paying Agents. The Municipality
will cause the  necessary  arrangements  to be made  through the Trustee for the
designation  of  alternate  paying  agents,  if any,  and for the payment of the
Bonds.

         Section 606. Recordation;   Application of Uniform Commercial Code. The
Municipality  and the Company  shall cause this  Indenture  and all  supplements
hereto as well as such other security instruments,  financing statements and all
supplements  thereto and other  instruments  or documents  as may be  reasonably
required from time to time to be kept,  recorded and filed in such manner and in
such places as may be required by law in order to preserve fully and protect the
security of the Owners of the Bonds and the rights of the Trustee hereunder, and
to perfect the lien of, and the security  interest  created by, this  Indenture.
This  Indenture is a security  agreement in support of any  financing  statement
which may be executed  and filed with respect to the Trust  Estate,  or any part
thereof, and should an Event of Default occur, the Trustee may assert any or all
of the remedies  accorded a secured party under the Uniform  Commercial  Code of
Indiana.  The  Company  covenants  and agrees to  execute  and to furnish to the
Trustee such financing  statements and continuations  thereof as the Trustee may
reasonably deem necessary or appropriate.

         Section 607. List of  Bondholders.  The Trustee as bond  registrar will
keep on file at the  principal  corporate  trust office of the Trustee a list of
names and addresses of the Holders of all Bonds.  At reasonable  times and under
reasonable  regulations  established by the Trustee,  said list may be inspected
and copied by the  Company,  by the  Purchaser  or by Holders  (or a  designated
representative  thereof)  of 10% or more  in  principal  amount  of  Bonds  then
outstanding,   such   ownership  and  the  authority  of  any  such   designated
representative to be evidenced to the reasonable satisfaction of the Trustee.


                                   ARTICLE VII

                        Possession and Use of the Project
                          Financed with the 1989 Bonds

         Section 701. Subordination to Rights of Company. This Indenture and the
rights and privileges  hereunder of the Trustee and the Holders of the Bonds are
specifically  made subject and  subordinate  to the rights and privileges of the
Company set forth in the Loan Agreement.


                                  ARTICLE VIII

                                    Remedies

         Section 801. Events of Default.  If any of the following events occurs,
it is hereby declared an "Event of Default":

                  (a) default in the due and punctual  payment and for a period
         of five (5) days thereafter of any interest on any Bonds; or

                  (b) default in the due and punctual  payment of the  principal
         of or  redemption  premium,  if any,  on any  Bond,  whether  at stated
         maturity thereof,  or at the date for redemption thereof, or otherwise;
         or

                  (c) any Event of Default as defined in Section 6.1 of the Loan
         Agreement shall have occurred; or

                  (d) failure by the  Municipality or the Company to perform any
         other obligations  under the Bonds or in this Indenture  continuing for
         sixty (60) days after written  notice  specifying  the failure given to
         the Municipality and the Company by the Trustee,  which shall give such
         notice  at the  written  request  of the  Holders  of not less than ten
         percent  (10%)  in  aggregate   principal  amount  of  the  Bonds  then
         outstanding;  provided,  however,  that with respect to this clause (d)
         and with respect to Section  6.1(d) of the Loan Agreement if failure of
         performance  shall be such  that it  cannot be  corrected  within  such
         period,  it shall  not  constitute  an Event of  Default  if:  (i) such
         failure of performance,  in the reasonable  opinion of the Trustee,  is
         correctable   without  material  adverse  effect  on  the  Bonds;  (ii)
         corrective  action is instituted by or on behalf of the Municipality or
         the Company  within such period and is  diligently  pursued  until such
         failure  of  performance  is  corrected;  and  (iii) in the  reasonable
         opinion of the Trustee,  correction of such failure of performance  has
         not taken an unreasonable  amount of time. The Trustee may request (and
         may rely upon) from the Company or the  Municipality  a certificate  to
         the  effect  that  the  Company  or  the  Municipality  has  instituted
         corrective  action and will diligently  pursue such action and believes
         that its failure of performance  can be corrected  through such action;
         or

                  (e) an Event of  Default  as  defined  in  Section  4.1 of the
         Guaranty shall have occurred.

         Section 802. Acceleration   Rights.  Upon the happening of any Event of
Default  specified in Section 801 herein,  the Trustee may,  with the consent of
MBIA,  and shall,  at the written  direction of MBIA,  without any action on the
part of the  Holders of the Bonds,  and shall  upon the  written  request of the
Holders of not less than twenty-five percent (25%) in aggregate principal amount
of the Bonds then  outstanding  (but only with the written  consent of MBIA), by
notice in writing  delivered to the  Municipality  and MBIA,  declare the entire
principal amount of the Bonds then outstanding and the interest accrued thereon,
immediately  due and payable,  whereupon  that  portion of the  principal of the
Bonds thereby coming due and the interest thereon accrued to the date of payment
shall,  without  further  action,  become and be  immediately  due and  payable,
anything in this Indenture or in the Bonds to the contrary notwithstanding.

         Section 803. Other Remedies; Rights of Bondholders. Upon the occurrence
of an Event of Default,  the Trustee may pursue any available  remedy by suit at
law or in equity to enforce the payment of the principal of and premium, if any,
and  interest on the Bonds then  outstanding,  to enforce  this  Indenture or to
enforce its rights under the Loan Agreement or the Note.

         If an Event of Default shall have occurred, and if requested by MBIA or
by the Holders of not less than twenty-five percent (25%) in aggregate principal
amount of the Bonds then outstanding (but only with the written consent of MBIA)
and indemnified as provided in Section 902(i) hereof,  the Trustee must exercise
such one or more of the rights and powers  conferred  by this Section 803 as the
Trustee, being advised by counsel, shall deem most expedient in the interests of
the Bondholders.

         No  remedy  given  under  this  Indenture  to  the  Trustee  or to  the
Bondholders  is intended to be exclusive of any other remedy.  Each remedy shall
be  cumulative  and shall be in addition to any other remedy given  hereunder or
existing at law or in equity or by statute.

         No delay or omission to exercise any right or power  accruing  upon any
Event of Default  shall  impair the right or power or shall be construed to be a
waiver of any Event of Default;  and every right and power may be exercised from
time to time and as often as may be deemed expedient.

         No waiver of any Event of  Default,  whether  by the  Trustee or by the
Bondholders,  shall extend to or shall affect any subsequent Event of Default or
shall impair any rights or remedies relating to that Event of Default.

         Section 804. Right of Bondholders to Direct Proceedings. Subject to the
rights of MBIA under the  Municipal  Bond  Insurance  Policy,  the  Holders of a
majority in aggregate  principal amount of the Bonds then outstanding shall have
the right, at any time, by an instrument or instruments in writing  executed and
delivered to the Trustee, to direct the time, the method and place of conducting
all  proceedings  to be  taken  in  connection  with  the  enforcement  of  this
Indenture,  or for  the  appointment  of a  receiver  or any  other  proceedings
hereunder;  provided,  that  such  direction  shall  be in  accordance  with the
provisions of law and of this  Indenture and that the Trustee is  indemnified as
provided in Section 902(i) of this Indenture.

         Section 805. Appointment of Receivers.  Upon the occurrence of an Event
of  Default,  and upon the filing of a suit or other  commencement  of  judicial
proceedings  to enforce the rights of the Trustee and of the  Bondholders  under
this Indenture,  the Trustee shall be entitled,  to the extent permitted by law,
to the  appointment  of a receiver or  receivers  of the Trust Estate and of the
revenues,   earnings,   income,  products  and  profits  thereof,  pending  such
proceedings, with such powers as the court making such appointment shall confer.

         Section 806. Application of Moneys. Subject to the rights of MBIA under
the Municipal Bond Insurance Policy, all moneys received by the Trustee pursuant
to any right given or action  taken under the  provisions  of this  Article VIII
shall,  after payment of the costs and expenses of the proceedings  resulting in
the collection of such moneys and of the expenses,  liabilities and advances and
fees  incurred or made by the  Trustee  and the sums  required to be paid by the
Company  pursuant to this Indenture,  the Bonds,  the Loan Agreement or the Note
(other  than  payment of  principal,  premium  and  interest on the Bonds or the
Note),  be  deposited  into  the  Bond  Fund  and  applied  as  follows  without
preference, priority or distinction as between any Bond and any other Bond:

                  (a) Unless the principal of all the Bonds shall have become or
         shall have been declared due and payable, all moneys shall be applied:

                                    First--To the payment of all installments of
                  interest  then due on the Bonds,  in the order of the maturity
                  of the  installments  of  such  interest  and,  if the  amount
                  available  is not  sufficient  to pay in full  any  particular
                  installment,  then to the payment  ratably,  according  to the
                  amounts  due on  that  installment,  to the  persons  entitled
                  thereto, without any discrimination or privilege; and
                                    Second--To   the   payment   of  the  unpaid
                  principal  of and  premium,  if any,  on the Bonds which shall
                  have become due (other than  portions of the Bonds  called for
                  redemption  for the payment of which moneys are held  pursuant
                  to the  provisions of this  Indenture),  in the order of their
                  due dates,  with interest from the respective dates upon which
                  they become due and, if the amount available is not sufficient
                  to pay in full any particular installment, then to the payment
                  ratably, according to the amounts due on that installment,  to
                  the persons entitled  thereto,  without any  discrimination or
                  privilege.
                                    Third--To  MBIA  in  connection   with   any
                  payments due it with respect to the Municipal  Bond  Insurance
                  Policy.

                  (b) If the principal of all the Bonds shall have become due or
         shall have been  declared due and payable,  all moneys shall be applied
         to the payment of the  principal of and  premium,  if any, and interest
         then due and  unpaid on the Bonds  (other  than  portions  of the Bonds
         called for redemption for the payment of which moneys are held pursuant
         to the provisions of this Indenture),  without  preference or priority,
         ratably,  according  to the amounts  due  respectively  for  principal,
         premium and  interest,  to the persons  entitled  thereto,  without any
         discrimination or privilege.

                  (c) If the principal of all the Bonds shall have been declared
         due and payable,  and if such  declaration  shall  thereafter have been
         rescinded,  then,  subject to the  provisions of subsection (b) of this
         Section  806 in the event that the  principal  of the Bonds shall later
         become due or be declared due and  payable,  the money shall be applied
         in accordance with subsection (a) of this Section 806.

         Moneys  shall be applied  under this  Section 806 at the times that the
Trustee shall  determine,  having regard for the amount of moneys  available for
application  and the  likelihood of  additional  moneys  becoming  available for
application  in the future.  The Trustee  shall fix the date (which  shall be an
interest  payment  date unless it shall deem another  date more  suitable)  upon
which  application  is to be made and on that date  interest  on the  amounts of
principal to be paid shall cease to accrue.  The Trustee  shall give such notice
as it may deem  appropriate of the deposit with it of any such moneys and of the
fixing of any such date, and shall not be required to make payment to the Holder
of any Bond until the Bond shall be  presented  to the Trustee  for  appropriate
endorsement or for cancellation if fully paid.

         Section  807. Remedies   Vested  in  Trustee.   All  rights  of  action
(including  the right to file proofs of claim) under this Indenture or under any
of the Bonds may be enforced by the Trustee without the possession of any of the
Bonds or the  production  thereof  in any  trial or other  proceedings  relating
thereto  and any such suit or  proceeding  instituted  by the  Trustee  shall be
brought in its name as Trustee without the necessity of joining as plaintiffs or
defendants the Holders of the Bonds and any recovery of judgment shall,  subject
to the provisions of Section 806 hereof, be for the equal benefit of the Holders
of the Bonds.

         Section 808. Rights and Remedies of Bondholders.  No Holder of any Bond
may  institute  any  suit,  action  or  proceeding  in  equity or at law for the
enforcement  of this  Indenture or for the execution of any trust thereof or for
the  appointment  of a  receiver  or any other  remedy  hereunder,  unless (a) a
default  has  occurred  of which the  Trustee  has been  notified as provided in
subsection  (g) of Section  902  hereof,  or of which by that  subsection  it is
deemed to have notice,  (b) that  default  shall have become an Event of Default
and the  Holders  of not  less  than  twenty-five  percent  (25%)  in  aggregate
principal amount of the Bonds then  outstanding  shall have made written request
to the Trustee and shall have offered  reasonable  opportunity either to proceed
to exercise the powers hereinbefore granted or to institute such action, suit or
proceedings in its own name,  (c) they have offered to the Trustee  indemnity as
provided in Section 902(i) hereof,  and (d) the Trustee shall thereafter fail or
refuse to exercise its powers, or to institute such action,  suit or proceeding.
The  notification,  request  and offer of  indemnity  are,  at the option of the
Trustee,  conditions precedent to the execution of the powers and trusts of this
Indenture,  and to any  action or cause of action  for the  enforcement  of this
Indenture,  or for  the  appointment  of a  receiver  or for  any  other  remedy
hereunder.  No one or more  Holders  of the  Bonds  shall  have any right in any
manner whatsoever to affect,  disturb or prejudice the lien of this Indenture by
their  action or to enforce  any right  hereunder  except in the  manner  herein
provided,  and all proceedings at law or in equity shall be instituted,  had and
maintained  in the  manner  herein  provided  and for the equal  benefit  of the
Holders of all Bonds then outstanding.

         Section 809. Termination  of   Proceedings.  If the Trustee  shall have
proceeded to enforce any right under this  Indenture and the  proceedings  shall
have  been  discontinued  or  abandoned  for any  reason,  or  shall  have  been
determined  adversely,  then the Municipality,  the Company, the Trustee and the
Bondholders shall be restored to their former positions and rights hereunder.

         Section  810. Waivers  of Events of  Default.  Subject to the rights of
MBIA  under  the  Municipal  Bond  Insurance  Policy,  the  Trustee  may  in its
discretion  waive any Event of Default (except to the extent that the Trustee is
required by the Bondholders  pursuant to Section 803 hereof to exercise  certain
rights  or  powers)  and  its   consequences  and  rescind  any  declaration  of
acceleration of maturity of principal of and interest on the Bonds, and shall do
so upon the  written  request  of the  Holders  of not less than a  majority  in
aggregate  principal amount of the Bonds then  outstanding;  provided,  however,
that there shall not be waived (a) any  default in the payment of the  principal
of or premium  on any Bond or (b) any  default  in the  payment  when due of the
interest on any Bond unless prior to such waiver or  rescission,  all arrears of
interest,  principal  and  premium,  and all fees and expenses of the Trustee in
connection  with such default,  shall have been paid or provided for. In case of
any such waiver or rescission,  the Municipality,  the Company,  the Trustee and
the  Bondholders  shall  be  restored  to  their  former  positions  and  rights
hereunder,  respectively,  but no such waiver or rescission  shall extend to any
subsequent or other default, or impair any right consequent thereon.

         Section 811. Cooperation of Municipality.  In the  event  of a  default
hereunder, the Municipality shall cooperate with the
Trustee and use its best efforts to protect the Bondholders.

         Section 812. Consent of  MBIA Upon Default.  Anything in this Indenture
to the contrary notwithstanding,  so long as the Municipal Bond Insurance Policy
is in effect and MBIA is not in default in its obligations thereunder,  upon the
occurrence  and  continuance  of an Event of Default,  MBIA shall be entitled to
control and direct the  enforcement  of all rights and  remedies  granted to the
Bondholders  or the  Trustee  for the  benefit  of the  Bondholders  under  this
Indenture,  including, without limitation,  acceleration of the principal of the
Bonds as described in this  Indenture and the right to annul any  declaration of
acceleration,  and MBIA shall also be  entitled to approve all waivers of Events
of Default.


                                   ARTICLE IX

                                   The Trustee

         Section  901. Acceptance  of  Trusts.  The  Trustee  accepts the trusts
imposed upon it by this  Indenture.  The Trustee  shall  exercise the rights and
powers vested in it by this Indenture and shall use the same degree of care as a
prudent man would exercise or use in the circumstances in the conduct of his own
affairs.

         Section 902. Certain Rights of Trustee.

                  (a) The  Trustee  may  perform any of its duties by or through
         attorneys,  agents,  receivers or employees and shall not be answerable
         for the conduct of such attorneys,  agents or receivers if the same are
         appointed in accordance with the standard  specified in Section 901 and
         shall be entitled to advice of counsel concerning all matters hereunder
         and may pay reasonable  compensation to all attorneys and agents as may
         reasonably be employed and shall be entitled to reimbursement  therefor
         from the Company. The Trustee may act upon the opinion or advice of any
         attorney (who may be the attorney or attorneys for the  Municipality or
         the  Company).  The Trustee  shall not be  responsible  for any loss or
         damage resulting from any action or nonaction in good faith in reliance
         upon such opinion or advice.

                  (b) The Trustee  shall not be  responsible  for any recital in
         this Indenture,  or in the Bonds (except the certificate of the Trustee
         endorsed on the Bonds) or in any related document (other than documents
         relating  solely  to and  executed  only  by the  Trustee),  or for the
         validity of the execution by the  Municipality  of this Indenture or of
         any  supplements  or  instruments  of  further  assurance,  or for  the
         sufficiency  of the security for the Bonds or as to the  maintenance of
         the security therefor except as provided in Section 606 hereof; and the
         Trustee  shall  not  be  bound  to  make  any  investigation  as to the
         performance or observance of any covenants, conditions or agreements on
         the part of the  Municipality  or on the part of the Company  under the
         Loan Agreement.  The Trustee shall have no obligation to perform any of
         the  duties  of the  Municipality  under  the Loan  Agreement,  and the
         Trustee  shall not be  responsible  or liable for any loss  suffered in
         connection  with any investment of funds made by it in accordance  with
         the provisions of this Indenture.

                  (c) The Trustee  shall not be  accountable  for the use of any
         Bonds.  The  Trustee  may be or become the Owner of Bonds with the same
         rights which it would have if not Trustee.
                  
                  (d) The Trustee  shall be protected in acting upon any notice,
         request, consent,  certificate,  order, affidavit,  letter, telegram or
         other paper or document  believed to be genuine and correct and to have
         been signed or sent by the proper  person or persons.  Any action taken
         by the Trustee pursuant to this Indenture upon the request or authority
         or  consent of any  person  who at the time of making  such  request or
         giving  such  authority  or consent is the Owner of any Bond,  shall be
         conclusive and binding upon all future Owners of the same Bond and upon
         Bonds issued in exchange therefor or in place thereof.

                  (e) As to the existence or  nonexistence  of any fact or as to
         the sufficiency or validity of any instrument, paper or proceeding, the
         Trustee shall be entitled to rely upon an Officer's  Certificate of the
         Municipality. Prior to the occurrence of a default of which the Trustee
         has been notified or of which it is deemed to have notice,  the Trustee
         may accept an Officer's  Certificate  to the effect that any particular
         dealing,  transaction  or action is necessary or expedient,  but may at
         its  discretion  secure  such  further  evidence  deemed  necessary  or
         advisable,  but  shall in no case be  bound to  secure  the  same.  The
         Trustee may accept an Officer's  Certificate of the Municipality to the
         effect  that  an  ordinance  or  resolution  has  been  adopted  by the
         Municipality  as conclusive  evidence that such ordinance or resolution
         has been adopted and is in full force and effect.

                  (f)  The  permissive   right  of  the  Trustee  to  do  things
         enumerated in this  Indenture  shall not be construed as a duty and the
         Trustee shall not be answerable for other than its gross  negligence or
         willful default.

                  (g) The  Trustee  shall not be  required  to take notice or be
         deemed to have notice of any Event of Default (other than nonpayment of
         the  principal  and interest on the Bonds)  unless the Trustee shall be
         specifically  notified  in  writing  of the  Event  of  Default  by the
         Municipality,  by the Holders of at least twenty-five  percent (25%) in
         aggregate  principal  amount of all Bonds  then  outstanding  or by the
         Company and all notices or other instruments required by this Indenture
         to be  delivered  to the Trustee  must,  in order to be  effective,  be
         delivered at the principal corporate trust office of the Trustee.

                  (h) The Trustee may demand,  in respect of the  authentication
         of any Bonds,  the withdrawal of any cash, the release of any property,
         or any action  whatsoever  within the  purview of this  Indenture,  any
         showings,  certificates,  opinions, appraisals or other information, or
         corporate action or evidence  thereof,  in addition to that required by
         the terms hereof which the Trustee deems desirable.

                  (i) Before  taking any action,  the Trustee may require that a
         satisfactory  indemnity bond be furnished for the  reimbursement of all
         expenses  which it may incur and to protect it against  all  liability,
         except  liability  which is adjudicated to have resulted from its gross
         negligence or willful default in connection with any action so taken.

                  (j) All moneys  received  by the  Trustee or any paying  agent
         shall be held in trust for the  purposes  for which they were  received
         but need not be  segregated  from  other  funds  except  to the  extent
         required by law.
                  
                  (k) The  Trustee  shall  not be  required  to give any bond or
         surety in respect  of the  execution  of the said  trusts and powers or
         otherwise in respect of the premises.

         Section 903. Fees,  Charges  and Expenses of Trustee and Paying  Agent.
The Trustee and any paying agent shall be entitled to prompt payment upon demand
or  reimbursement  for usual and  customary  fees for  their  services  rendered
hereunder as set forth in fee schedules or similar  documents  effective  during
the term of this  Indenture  and  available  from the Trustee and all  advances,
counsel fees and other expenses  reasonably and necessarily  made or incurred by
them in connection with such services.  Upon an Event of Default,  but only upon
an Event of  Default,  the  Trustee  and any paying  agent shall have a right of
payment  prior to payment on account of interest or principal of or premium,  if
any, on the Bonds for the foregoing advances, fees, costs and expenses incurred.

         Section 904. Notice to  Bondholders if Default  Occurs.  If an Event of
Default  occurs of which the  Trustee is required to take notice or if notice of
an Event of Default be given by the Municipality, the Bondholders or the Company
as provided in Section  902(g)  hereof,  the Trustee  shall give prompt  written
notice thereof to MBIA and to the Owners of all Bonds then outstanding.

         Section 905. Intervention  by  Trustee.  In any judicial  proceeding to
which the  Municipality  is a party and which in the  opinion of the Trustee and
its counsel has a  substantial  bearing on the  interests  of the Holders of the
Bonds,  the Trustee may intervene on behalf of the Bondholders  and,  subject to
the provisions of Section 902(i) hereof,  shall do so if requested in writing by
the Holders of at least twenty-five  percent (25%) in aggregate principal amount
of all Bonds then  outstanding.  The rights and obligations of the Trustee under
this  Section  905  are  subject  to  the  approval  of  a  court  of  competent
jurisdiction.

         Section 906. Successor  Trustee.   Any corporation or association  into
which  the  Trustee  may  be  converted  or  merged,  or  with  which  it may be
consolidated,  or to which it may sell or transfer its corporate  trust business
and  assets  as a whole or  substantially  as a  whole,  or any  corporation  or
association resulting from any such conversion,  sale, merger,  consolidation or
transfer  to which  it is a party  shall  become  successor  Trustee  hereunder,
without the  execution or filing of any  instrument  or any further act, deed or
conveyance on the part of any of the parties hereto; provided,  however, that if
the  successor  corporation  is not a trust  company or bank within the State of
Indiana that satisfies the requirements of Section 909 hereof, the Trustee shall
resign from the trusts hereby created prior to such sale, merger,  consolidation
or transfer.

         Section 907. Resignation  by  Trustee.  The  Trustee and any  successor
Trustee  may at any time resign by giving  thirty  days'  written  notice to the
Municipality,  the Company and MBIA and by registered  or certified  mail to the
registered Owners of the Bonds then outstanding,  and the resignation shall take
effect  upon  the  appointment  of a  successor  or  temporary  Trustee  by  the
Bondholders  or by the  Municipality  as provided  herein and such  successor or
temporary Trustee's  acceptance of such appointment.  The Trustee may petition a
court of appropriate jurisdiction to have a successor Trustee appointed.

         Section 908. Removal of Trustee. The Trustee may be removed at any time
by an instrument or concurrent  instruments in writing  delivered to the Trustee
and to the  Municipality  and signed by the Owners of a  majority  in  aggregate
principal  amount of all Bonds then  outstanding  (but only with the  consent of
MBIA).  The Trustee may be removed at any time, at the request of MBIA,  for any
breach of the Trust set forth  herein.  Any such removal  shall take effect upon
the appointment of a successor or temporary Trustee by the Bondholders or by the
Municipality  as  provided  herein and such  successor  or  temporary  Trustee's
acceptance of such appointment.

         Section 909. Appointment of Successor Trustee by Bondholders; Temporary
Trustee.  In case the Trustee shall resign or be removed,  or be  dissolved,  or
shall be in course of dissolution or liquidation,  or otherwise become incapable
of  acting  hereunder,  or in case it shall be taken  under the  control  of any
public officer or officers,  or of a receiver  appointed by a court, a successor
reasonably  acceptable  to MBIA may be  appointed by the Owners of a majority in
aggregate  principal  amount of all Bonds then  outstanding  by an instrument or
concurrent instruments in writing; provided,  nevertheless, that in case of such
vacancy the Municipality by an instrument  executed by its Mayor and attested by
its Clerk  under its seal may  appoint a  temporary  Trustee to fill the vacancy
until a successor  Trustee is appointed by the  Bondholders;  and any  temporary
Trustee shall  immediately be superseded by the successor  Trustee  appointed by
the Bondholders.  Every temporary or successor  Trustee shall be a trust company
or bank in good  standing  within  the  State of  Indiana,  duly  authorized  to
exercise trust powers and subject to examination by federal or state  authority,
and having a reported  capital  and  surplus  of not less than  $75,000,000  and
acceptable to MBIA . The  appointment  of every  temporary or successor  Trustee
shall be subject to the prior approval of the Company, which approval may not be
unreasonably withheld. Notwithstanding any other provision of this Indenture, no
removal,  resignation  or  termination  of the Trustee shall take effect until a
successor, acceptable to MBIA, shall be appointed.

         Section 910. Concerning Any Successor Trustees. Every successor Trustee
shall deliver to its predecessor, the Municipality and the Company an instrument
in writing  accepting its appointment,  and thereupon such successor without any
further  act,  deed or  conveyance,  shall  become  fully  vested  with  all the
properties,  rights,  powers, trusts, duties and obligations of its predecessor;
but  the  predecessor  shall,  nevertheless,  on  the  Written  Request  of  the
Municipality,  or of the  successor  Trustee,  execute and deliver an instrument
transferring  to the successor  Trustee all the properties,  rights,  powers and
trusts of the  predecessor;  and every  predecessor  Trustee  shall  deliver all
securities and moneys held by it as Trustee to its successor.  If any instrument
in writing from the  Municipality is required by any successor  Trustee for more
fully and  certainly  vesting in the  successor  the  rights,  powers and duties
hereby  vested or  intended  to be vested in the  predecessor,  any and all such
instruments  in writing  shall,  on request,  be executed  and  delivered by the
Municipality.  The  resignation of any Trustee and the instrument or instruments
removing any Trustee and  appointing a successor  hereunder,  together  with all
other  instruments  provided for in this Article,  shall be filed or recorded by
the successor  Trustee in each recording office, if any, where the Indenture has
been filed or recorded.

         Section 911. Trustee  Protected  in Relying upon  Resolution,  etc. The
resolutions,  opinions,  certificates and other instruments provided for in this
Indenture may be accepted by the Trustee as conclusive evidence of the facts and
conclusions  stated therein and shall be full warrant,  protection and authority
to the Trustee for the release of property and the withdrawal of cash.

         Section 912. Successor  Trustee  as Trustee of Funds,  Paying Agent and
Bond  Registrar.  In the  event  of a  change  in the  office  of  Trustee,  the
predecessor Trustee which has resigned or been removed shall cease to be trustee
of the  funds  provided  hereunder  and bond  registrar  and  paying  agent  for
principal of and premium,  if any, and interest on the Bonds,  and the successor
Trustee shall become such Trustee, bond registrar and paying agent.


                                    ARTICLE X

                              Continuing Disclosure

         Section 1001. Continuing  Disclosure.  Pursuant  to  Section 4.8 of the
Loan  Agreement and Section 3.4 of the Guaranty  Agreement,  the Company and the
Guarantor have  undertaken all  responsibility  for compliance  with  continuing
disclosure  requirements,  and the  Municipality  shall have no liability to the
Holders  of the  Bonds or any  other  person  with  respect  to such  disclosure
matters.  Notwithstanding any other provision of this Indenture,  failure of the
Company or the Guarantor to comply with the  Continuing  Disclosure  Undertaking
shall not be considered an Event of Default;  however,  any  Bondholder may take
such actions as may be necessary and  appropriate,  including  seeking  specific
performance  by court  order,  to cause the Company and the  Guarantor to comply
with its obligations  under Section 4.8 of the Loan Agreement and Section 3.4 of
the Guaranty Agreement.


                                   ARTICLE XI

                             Supplemental Indentures

         Section 1101. Supplemental   Indentures   Not   Requiring   Consent  of
Bondholders.  The  Municipality,  the  Company  and the  Trustee may without the
consent of, or notice to, any of the  Bondholders  (but only with the consent of
MBIA) enter into an  indenture or  indentures  supplemental  to this  Indenture,
which is consistent with the terms hereof,  for any one or more of the following
purposes:

                  (a) To cure any ambiguity or formal defect or omission in this
         Indenture  or in  any  supplemental  indenture  which  is  not  to  the
         prejudice of the Trustee or the Holders of the Bonds;

                  (b) To grant to the Trustee any additional  rights,  remedies,
         powers or authority that may lawfully be granted to the Trustee;

                  (c) To subject to this Indenture additional collateral;

                  (d) To  modify,  amend or  supplement  this  Indenture  or any
         indenture   supplemental  hereto  in  such  manner  as  to  permit  the
         qualification hereof and thereof under any federal statute hereafter in
         effect or under any state Blue Sky Law, and in connection therewith, if
         they  so  determine,   to  add  to  this  Indenture  or  any  indenture
         supplemental  hereto,  such  other  terms,  conditions  and  provisions
         (which, in the judgment of the Trustee, are not to the prejudice of the
         Holders of the Bonds) as may be  permitted  or required by said federal
         statute or Blue Sky Law; and

                  (e) To effect any other change  which,  in the judgment of the
         Trustee,  is not to the  prejudice of the Trustee or the Holders of the
         Bonds.

         Section 1102. Supplemental Indentures Requiring Consent of Bondholders.
Exclusive of supplemental  indentures covered by Section 1101 hereof and subject
to the terms of this  Section,  the Holders of at least a majority in  aggregate
principal  amount of the Bonds then outstanding may (with the written consent of
MBIA) consent to the execution and delivery by the Municipality, the Company and
the Trustee of such other  indenture or indentures  supplemental  hereto for the
purpose  of  modifying,  altering,  amending,  adding to or  rescinding,  in any
particular,  any of the terms of this Indenture or any  supplemental  indenture;
provided,  however,  that the unanimous written consent of the Bondholders shall
be required for any amendment which would permit: (a) an extension of the stated
maturity or  reduction in the  principal  amount of, or reduction in the rate or
extension  of the time of paying of  interest  on, or  reduction  of any premium
payable  on the  redemption  of,  any Bond,  (b) a  reduction  in the  aggregate
principal  amount of Bonds the  Holders of which are  required to consent to any
such  supplemental  indenture,  or (c) the material  modification of the rights,
duties or immunities of the Trustee.


                                   ARTICLE XII

                        Amendments to the Loan Agreement

         Section 1201. Amendments, etc., to Loan Agreement or  the Guaranty  Not
Requiring Consent of Bondholders.  The Municipality  and  the Trustee  with  the
consent of the  Company  and with the  written  consent  of MBIA  shall, without
the consent of or notice to the  Bondholders,  consent to any amendment,  change
or  modification of the Loan Agreement or the Guaranty as may be required (a) by
the  provisions of any such  instrument and this  Indenture, (b) for the purpose
of  curing  any  ambiguity  or  formal  defect  or omission or (c) in connection
with  any  other  change  which,  in the  judgment of the Trustee, is not to the
prejudice of the Trustee or the Holders of the Bonds.

         Section 1202. Amendments,  etc.,   to  Loan  Agreement  or the Guaranty
Requiring  Consent  of  Bondholders.  Except  for  the  amendments,  changes  or
modifications  as provided in Section 1201 hereof,  neither the Municipality nor
the Trustee shall consent to any other amendment,  change or modification of the
Loan Agreement or the Guaranty  without the consent of the Holders of at least a
Majority in aggregate  principal  amount of the Bonds then  outstanding and only
with the written consent of MBIA.

         Section 1203. No Amendment May Alter Note. Under no circumstances shall
any amendment to the Loan Agreement alter the provisions of the Note relating to
the payment of principal,  premium,  and interest  thereon,  without the written
consent of the Holders of all the Bonds at the time outstanding.


                                  ARTICLE XIII

                                  Miscellaneous

         Section 1301. Satisfaction and Discharge. All rights and obligations of
the  Municipality  and the Company under the Loan  Agreement,  the Note and this
Indenture  shall  terminate and those  instruments  shall cease to be of further
effect,  and the Trustee  shall  cancel the Note and deliver it to the  Company,
shall  execute  and  deliver  all   appropriate   instruments   evidencing   the
satisfaction of this Indenture,  and shall assign and deliver to the Company any
moneys and  investments  in all funds  established  hereunder  (except moneys or
investments held by the Trustee for the payment of principal of, interest on, or
premium, if any, on the Bonds) when

                  (a) all fees and expenses of the Trustee and any paying  agent
         shall have been paid or provided for;

                  (b) the  Municipality and the Company shall have performed all
         of  their  obligations  under  the  Loan  Agreement,  the Note and this
         Indenture;

                  (c) there shall have been  deposited  with the Trustee  either
         moneys in an amount which shall be sufficient without reinvestment,  or
         direct  noncallable  obligations  of the United  States of America  the
         principal  of and the  interest on which when due without  reinvestment
         will provide moneys which,  together with the moneys, if any, deposited
         with the Trustee, shall be sufficient, to pay when due the principal or
         redemption price, if applicable,  and interest due and to become due on
         the Bonds prior to the redemption date or maturity date thereof, as the
         case may be;  provided,  that if any Bonds are to be redeemed  prior to
         the maturity  thereof,  notice of such redemption  shall have been duly
         given or arrangement  satisfactory  to the Trustee shall have been made
         for notice,  or waiver of notices  satisfactory  in form to the Trustee
         shall have been filed with the Trustee; and

                  (d) the Trustee shall have received an opinion of Bond Counsel
         addressed  to the  Trustee to the effect  that such  actions  shall not
         cause the interest on the Bonds to become  includable under Section 103
         of the Code in the gross  income of the  Holders  thereof  for  federal
         income tax purposes.

         Notwithstanding  anything herein to the contrary, in the event that the
principal and/or interest due on the Bonds shall be paid by MBIA pursuant to the
Municipal  Bond Insurance  Policy,  the Bonds shall remain  Outstanding  for all
purposes,  not be defeased or otherwise  satisfied and not be considered paid by
the  Municipality,  and the  assignment  and pledge of the Trust  Estate and all
covenants,   agreements  and  other  obligations  of  the  Municipality  to  the
Bondholders  shall  continue to exist and shall run to the benefit of MBIA,  and
MBIA shall be subrogated to the rights of such Bondholders.

         Section 1302. Application  of    Trust  Money.  All  money   or  direct
obligations  of the  United  States  of  America  deposited  with or held by the
Trustee  pursuant to Section  1301 hereof shall be held in trust for the Holders
of the Bonds,  and applied by it, in accordance with the provisions of the Bonds
and this Indenture, to the payment, either directly or through any paying agent,
to the persons  entitled  thereto,  of the  principal  and premium,  if any, and
interest on the Bonds for whose  payment the money has been  deposited  with the
Trustee. Any income or interest earned by, or increment to, the investments held
under  Section  1301 hereof shall to the extent not required for the purposes of
this Section 1302, be transferred to the Bond Fund.

         Section 1303. Consents,   etc., of Bondholders.  Any consent,  request,
direction, approval, objection or other instrument required by this Indenture to
be executed by the Bondholders  may be in any number of concurrent  writings and
may be executed by the  Bondholders in person or by agent  appointed in writing.
Proof of the execution of any such  instrument or of the writing  appointing any
agent and of the ownership of Bonds, if made in the following  manner,  shall be
sufficient for any of the purposes of this Indenture, and shall be conclusive in
favor of the Trustee with regard to any action taken under such request or other
instrument. The fact and date of the execution by any person of any such writing
may be proved by the certificate of any officer in any  jurisdiction  who by law
has power to take  acknowledgments  within  such  jurisdiction  that the  person
signing such writing acknowledged before him the execution thereof, by affidavit
of any witness to such execution.

         For all  purposes  of this  Indenture  and of the  proceedings  for the
enforcement hereof, any such person shall be deemed to continue to be the Holder
of such Bonds until the  Trustee  shall have  received  notice in writing to the
contrary.

         In determining  whether the holders of the required principal amount of
Bonds outstanding have taken any action under this Indenture, Bonds owned by the
Company or any person  controlling,  controlled by or under common  control with
the  Company  shall  be  disregarded  and  deemed  not  to  be  outstanding.  In
determining  whether  the  Trustee  shall be  protected  in  relying on any such
action,  only Bonds which the Trustee knows to be so owned shall be disregarded.
Any action,  consent or other instrument shall be irrevocable and shall bind any
subsequent owner of such Bond or any Bond delivered in substitution therefor.

         Section 1304. Parties  Interested   Herein.  Nothing in this  Indenture
expressed or implied is intended or shall be  construed  to confer  upon,  or to
give or grant to, any person or entity,  other than the  Company,  the  Trustee,
MBIA, and the  Bondholders,  any right,  remedy,  or claim under or by reason of
this  Indenture  or any  covenant,  condition  or  stipulation  hereof,  and all
covenants, stipulations,  promises and agreements in this Indenture contained by
and on behalf of the Company shall be for the sole and exclusive  benefit of the
Company, the Trustee, MBIA, and the Bondholders.

         Section 1305. Severability. If any provision of this Indenture shall be
held or deemed to be or shall,  in fact,  be  inoperative  or  unenforceable  as
applied in any particular case in any  jurisdiction or  jurisdictions  or in all
jurisdictions,  or in all cases because it conflicts with any other provision or
provisions  hereof or any  constitution or statute or rule of public policy,  or
for any other reason,  such circumstances shall not have the effect of rendering
the  provision in question  inoperative  or  unenforceable  in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative or unenforceable to any extent whatever.

         The  invalidity  of any  one or more  phrases,  sentences,  clauses  or
Sections  in this  Indenture  shall not affect the  remaining  portions  of this
Indenture, or any part thereof.

         Section 1306.  Notices.  All notices,  certificates,  payments or other
communications  hereunder shall be sufficiently  given and shall be deemed given
when delivered or mailed by registered or certified mail,  postage  prepaid,  or
overnight  express mail  addressed as follows:  if to the  Municipality,  at the
City-County Building, Indianapolis,  Indiana 46204, Attention of its Controller;
if to the Company or to the Guarantor, at 1220 Waterway Boulevard, Indianapolis,
Indiana 46202,  Attention of its Chief Financial Officer;  if to the Trustee, at
101 West  Washington  Street,  Indianapolis,  Indiana  46255,  Attention  of the
Corporate Trust Department;  and if to MBIA, at MBIA Insurance Corporation,  113
King Street, Armonk, New York 10504; or to such other addresses as may hereafter
be furnished by notice.

         Section 1307. Trustee as Paying  Agent and  Registrar.  The Trustee  is
hereby designated and agrees to act as principal paying agent and Bond Registrar
for the Bonds.

         Section 1308. Counterparts.  This Indenture may be executed in several
counterparts, each of which shall be an original.

         Section 1309. Applicable  Law. This Indenture  shall be governed by and
construed in accordance  with the applicable  laws of the State of Indiana.

         Section 1310. Holidays.  If any date for the payment of principal of or
premium or interest on the Bonds is not a Business  Day, then such payment shall
be due on the first  Business  Day  thereafter  and payment on such day shall be
considered timely hereunder.

         Section 1311. Captions and Table  of Contents.  The captions herein and
the Table of Contents are inserted only as a matter of convenience and do not in
any way  define,  limit,  construe  or  describe  the  scope or  intent  of this
Indenture or any section thereof or in any other way affect this Indenture.


                                   ARTICLE XIV

                       Municipal Bond Insurance Provisions

         Section 1401. Notices.  While the Municipal Bond Insurance Policy is in
effect,  the Company shall furnish to MBIA: (i) as soon as practicable after the
filing  thereof,  a copy  of any  financial  statement  of the  Company  and the
Guarantor  and a copy of any  audit and  annual  report  of the  Company  or the
Guarantor; (ii) a copy of any notice to be given to the Bondholders,  including,
without limitation,  notice of any redemption of or defeasance of Bonds, and any
certificate rendered pursuant to this Indenture relating to the security for the
Bonds; and (iii) such additional information it may reasonably request.

         The Trustee  shall notify MBIA of any failure of the Company to provide
relevant notices, certificates, etc.

         If and to the extent the Trustee does not have sufficient  funds on the
date on which interest on or principal of the Bonds is due to make such interest
or principal  payments,  the Trustee shall notify MBIA by telephone or telegraph
(which  notification shall be confirmed in writing sent to MBIA by registered or
certified mail). In the event of such notification and thereafter on the date on
which  interest on or  principal  of the Bonds is due,  the Trustee does receive
sufficient  funds to make such  interest  or  principal  payments in whole or in
part,  the Trustee  shall so notify  MBIA in the same manner (and shall  confirm
such notification in the same manner).

         If the  Trustee  has notice that any  Bondholder  has been  required to
disgorge  payments  of  principal  or  interest  on the  Bonds to a  trustee  in
bankruptcy  or  creditors or others  pursuant to a final  judgment by a court of
competent  jurisdiction that such payment constitutes an avoidable preference to
such Bondholder  within the meaning of any applicable  bankruptcy laws, then the
Trustee  shall  notify  MBIA or its  designee  of  such  fact  by  telephone  or
telegraphic notice, confirmed in writing by registered or certified mail.

         The Trustee is hereby irrevocably designated,  appointed,  directed and
authorized to act as attorney-in-fact for the Bondholders, as follows:

                                    (i)  If  and  to  the  extent   there  is  a
                  deficiency  in amounts  required to pay interest on the Bonds,
                  the Trustee shall (a) execute and deliver to State Street bank
                  and Trust Company, N.A., or its successors under the Insurance
                  Policy,  in form  satisfactory  to the Insurance  Trustee,  an
                  instrument appointing the Insurer as agent for such Holders in
                  any legal  proceeding  related to the payment of such interest
                  and an assignment to the Insurer of the claims for interest to
                  which  such  deficiency  relates  and  which  are  paid by the
                  Insurer;  (b) receive as designee  of the  respective  Holders
                  (and not as  Trustee)  in  accordance  with  the  tenor of the
                  Insurance  Policy  payment  from the  Insurance  Trustee  with
                  respect  to the  claims  for  interest  so  assigned;  and (c)
                  disburse the same to such respective Holders; and

                                    (ii) If and to the extent of a deficiency in
                  amounts  required to pay  principal of the Bonds,  the Trustee
                  shall (a) execute and deliver to the Insurance Trustee in form
                  satisfactory to the Insurance Trustee an instrument appointing
                  the Insurer as agent for such  Holder in any legal  proceeding
                  relating to the payment of such principal and an assignment to
                  the Insurer of any of the Bonds  surrendered  to the Insurance
                  Trustee of so much of the principal  amount thereof as has not
                  previously  been paid or for which  moneys are not held by the
                  Insurer and  available  for such payment (but such  assignment
                  shall be delivered only if payment from the Insurance  Trustee
                  is  received);  (b)  receive  as  designee  of the  respective
                  Holders (and not as Insurer) in  accordance  with the tenor of
                  the  Insurance  Policy  payment  therefor  from the  Insurance
                  Trustee; and (c) disburse the same to such Holders.

         Payments  with respect to claims for interest on and principal of Bonds
disbursed  by the Trustee  from  proceeds of the  Insurance  Policy shall not be
considered  to  discharge  the  obligation  of the Company  with respect to such
Bonds,  and the Insurer  shall  become the owner of such unpaid Bonds and claims
for the interest in accordance with the tenor of the assignment made to it under
the provisions of this subsection or otherwise.

         Irrespective  of whether any such assignment is executed and delivered,
the  Municipality  and the Trustee  hereby  agree for the benefit of the Insurer
that they recognize that to the extent the Insurer makes  payments,  directly or
indirectly,  on account of  principal  of or interest on the Bonds,  the Insurer
will be  subrogated  to the rights of such Holders to receive the amount of such
principal and interest from the Municipality,  with interest thereon as provided
and solely from the sources  stated in this  Indenture and the Bonds.  They will
accordingly  pay to the  Insurer  the  amount  of such  principal  and  interest
(including principal and interest recovered under subparagraph (ii) of the first
paragraph of the Insurance Policy,  which principal and interest shall be deemed
past due and not to have been paid),  with interest  thereon as provided in this
Indenture  and the Bonds,  but only from the sources and in the manner  provided
herein for the payment of principal of and interest on the Bonds to Holders, and
will  otherwise  treat the  Insurer as the owner of such rights to the amount of
such principal and interest.

         The  Company  will permit MBIA to discuss  the  affairs,  finances  and
accounts of the Company or any information MBIA may reasonably request regarding
the security for the Bonds with appropriate officers of the Company. The Trustee
or the  Company,  as  appropriate,  will  permit MBIA to have access to and make
copies of all books and records relating to the Bonds at any reasonable time.

         Notwithstanding  any other provision of this Indenture to the contrary,
the Trustee shall immediately  notify MBIA if at any time there are insufficient
moneys to make any  payments  of  principal  and/or  interest  as  required  and
immediately upon the occurrence of any Event of Default hereunder.

         Section 1402. Consent   of  MBIA.  Any   provision  of  this  Indenture
expressly recognizing or granting rights in or to MBIA may not be amended in any
manner  which  affects the rights of MBIA  hereunder  without the prior  written
consent of MBIA.

         Unless  otherwise  provided in this  Section,  MBIA's  consent shall be
required in addition to Bondholder  consent,  when  required,  for the following
purposes:  (i)  execution  and  delivery of any  supplemental  indenture  or any
amendment,  supplement or change to or modification of the Loan Agreement;  (ii)
removal of the Trustee and selection and  appointment of any successor  trustee;
and (iii)  initiation  or  approval of any action not  described  in (i) or (ii)
above which requires Bondholder consent.

         Section 1403. Effectiveness   of  Rights of MBIA to  Consent  or Direct
Actions. All rights granted MBIA hereunder to direct or consent to actions to be
taken under any  provision of this  Indenture  shall be  effective  only if MBIA
shall, at the time thereof,  be in compliance with its payment obligations under
the Municipal Bond Insurance Policy.

         Section 1404. Trustee to Consider  Effect  on   Bondholders  of Actions
Taken  Pursuant  to  Indenture  as if There Were No  Municipal  Bond  Insurance.
Notwithstanding  any other provision of this Indenture,  in determining  whether
the rights of the  Bondholders  will be  adversely  affected by any action taken
pursuant  to the terms and  provisions  of this  Indenture,  the  Trustee  shall
consider  the  effect on the  Bondholders  as if there  were no  Municipal  Bond
Insurance Policy.

         Section 1405. MBIA as Third-Party Beneficiary.  To the extent that this
Indenture  confers upon or gives or grants to MBIA any right,  remedy,  or claim
under or by reason of this Indenture,  MBIA is hereby  explicitly  recognized as
being a third-party beneficiary hereunder and may enforce any such right, remedy
or claim conferred, given, or granted hereunder.

<PAGE>






















          [This page intentionally left blank. Signature pages follow.]


<PAGE>


         IN WITNESS  WHEREOF,  INDIANAPOLIS  WATER  COMPANY,  has  caused  these
presents to be signed in its name and behalf and attested by its duly authorized
officers and the City of Indianapolis  Indiana,  has caused these presents to be
signed in its name and behalf by its Mayor and its corporate seal to be hereunto
affixed and attested by its Clerk and, to evidence its  acceptance of the Trusts
hereby created,  National City Bank of Indiana of Indianapolis  has caused these
presents to be signed in its name and behalf by a duly authorized Vice President
and Trust Officer,  its official seal to be hereunto affixed, and the same to be
attested  by one of its  duly  authorized  officers,  all as of the day and year
first above written.

                                               INDIANAPOLIS WATER COMPANY


                                               By   /s/ Joseph R. Broyles
                                                    Joseph R. Broyles, President

/s/ John M. Davis
John M. Davis, Secretary


                                               THE CITY OF INDIANAPOLIS


                                               By   /s/ Stephen Goldsmith
(SEAL)                                              Stephen Goldsmith, Mayor

ATTEST:

  /s/ Suellen Hart
Suellen Hart, Clerk


                                               NATIONAL CITY BANK OF INDIANA


(SEAL)                                         By  /s/Authorized Vice President,

ATTEST:                                        Vice President



/s/  Trust Officer, Trust Officer


STATE OF INDIANA  )
                                    )  SS:
COUNTY OF                           )

         Before me,  the  undersigned,  a Notary  Public in and for the State of
Indiana,  personally  appeared David A. Kelly and John M. Davis personally known
to me to be the Vice President and Secretary of Indianapolis Water Company, who,
after being first duly sworn,  acknowledged  that they as such  officers,  being
authorized to do so, executed the foregoing Indenture of Trust for and on behalf
of said Corporation.

         WITNESS MY HAND and  Notarial  Seal this _____ day of  _______________,
1998.

                                                       -------------------------
                                  Notary Public

                                                  ------------------------------
I am a resident of                                         (Printed Name)
____________ County, Indiana


My Commission Expires:
----------------------



<PAGE>


STATE OF INDIANA  )
                                    )  SS:
COUNTY OF                           )

                  Before me,  the  undersigned,  a Notary  Public in and for the
State of  Indiana,  personally  appeared  Stephen  Goldsmith  and  Suellen  Hart
personally  known to me to be the Mayor  and Clerk of the City of  Indianapolis,
who,  after  being first duly sworn,  acknowledged  that they as such  officers,
being authorized to do so, executed the foregoing  Indenture of Trust for and on
behalf of said City.

         WITNESS MY HAND and  Notarial  Seal this _____ day of  _______________,
1998.

                                                       -------------------------
                                  Notary Public

                                                  ------------------------------
I am a resident of                                          (Printed Name)
____________ County, Indiana


My Commission Expires:
----------------------



<PAGE>


STATE OF INDIANA  )
                                    )  SS:
COUNTY OF                           )

         Before me,  the  undersigned,  a Notary  Public in and for the State of
Indiana,  personally  appeared   _______________________________________________
personally  known to me to be the  _________________________________________  of
National City Bank of Indiana,  who, after being first duly sworn,  acknowledged
that as  such  officers,  being  authorized  to do so,  executed  the  foregoing
Indenture of Trust for and on behalf of said Company.

         WITNESS MY HAND and  Notarial  Seal this _____ day of  _______________,
1998.

                                                       -------------------------
                                  Notary Public

                                                  ------------------------------
I am a resident of                                          (Printed Name)
____________ County, Indiana
My Commission Expires:
----------------------


















     This  instrument was prepared by Theodore J. Esping,  Baker & Daniels,  300
North Meridian Street, Suite 2700, Indianapolis, Indiana 46204.





<PAGE>

                                                          EXHIBIT A TO INDENTURE




                            [FORM OF REGISTERED BOND]



                            UNITED STATES OF AMERICA
                                STATE OF INDIANA
                              CITY OF INDIANAPOLIS

                           ECONOMIC DEVELOPMENT WATER
                 FACILITIES REFUNDING REVENUE BOND, SERIES 1998
                      (INDIANAPOLIS WATER COMPANY PROJECT)
                                     NO. R-_

INTEREST   MATURITY                 AUTHENTICATION
  RATE       DATE                        DATE                            CUSIP

 ____%   JULY 15, 2028

REGISTERED OWNER:  ______________________________

PRINCIPAL AMOUNT:  ______________________________

         The City of  Indianapolis,  Indiana  (the  "Municipality"),  for  value
received, promises to pay in lawful money of the United States of America to the
Registered Owner (named above) or registered  assigns,  on the Maturity Date set
forth above unless this Bond shall have  previously  been called for  redemption
and payment of the  redemption  price made or  provided  for but solely from the
payments  under  the Loan  Agreement  and on the Note  described  below  and not
otherwise,  upon surrender hereof,  the principal sum set forth above and to pay
interest  on the  principal  amount  remaining  unpaid from time to time in like
money,  but solely from the payments  under the Loan  Agreement  and on the Note
described below, at the rate per annum set forth above,  payable semiannually on
July 15 and January 15 of each year commencing  January 15, 1999,  until payment
of such principal  amount,  or provision for that payment,  shall have been made
upon  redemption  or at  maturity  including,  to the extent  permitted  by law,
interest  on  overdue  interest  at such rate.  This Bond  shall  bear  interest
(computed on the basis of a year of 360 days  consisting of 12 months of 30 days
each) from July 15, 1998.

         The  principal  of and  premium,  if any,  and  interest  payable  upon
redemption, are payable at the principal corporate trust office of National City
Bank of  Indiana,  as  Trustee  (the  "Trustee")  in the  City of  Indianapolis,
Indiana,  or at the  principal  office of any  successor  Trustee or  additional
paying agent  appointed  under the  Indenture  described  below.  Payment of the
interest on this Bond

<PAGE>


on any interest  payment date shall be made to the person  appearing on the Bond
registration books of the Trustee on the Record Date as the registered owner and
shall be paid by  check or draft  mailed  on the  interest  payment  date to the
registered  owner at the  address  on such  registration  books (or at any other
address  furnished  to the  Trustee  in  writing  by  the  holder)  without  any
presentation of this Bond, or, at the written  election of the registered  owner
of $500,000 or more in  aggregate  principal  amount of Bonds  delivered  to the
Trustee  at least one  Business  Day  prior to the  Record  Date for which  such
election  will be  effective,  by wire  transfer to the  registered  owner or by
deposit into the account of the  registered  owner if such account is maintained
by the  Trustee.  Payment  of the  principal  of this  Bond  shall be made  upon
presentation  and  surrender  of this  Bond as the  same  shall  become  due and
payable.  If any date for the payment of the principal of or premium or interest
on this Bond is not a Business  Day (as such term is defined in the  Indenture),
then such payment shall be due on the first Business day thereafter.

         This Bond is one of the Bonds  being  issued  under the  Indenture  (as
described  herein) in the aggregate  principal  amount of $10,000,000 to provide
for  the  discharge  and  termination  of all  liabilities  and  obligations  of
Indianapolis Water Company, an Indiana corporation (the "Company"),  relating to
or connected with the 7-7/8% City of Indianapolis, Indiana, Economic Development
Water  Facilities  Revenue  Bonds,   Series  1989  (Indianapolis  Water  Company
Project).  The proceeds from the sale of the Bonds will be loaned to the Company
under a Loan Agreement dated as of July 15, 1998 (the "Loan Agreement")  between
the Company and the  Municipality  and the Company will give its Promissory Note
(the "Note") to evidence the Company's obligation to repay the loan.

         The Bonds are issued  under and secured by an  Indenture of Trust dated
as  of  July  15,  1998  (the  "Indenture"),   executed  and  delivered  by  the
Municipality and the Company to National City Bank of Indiana,  Indianapolis, as
Trustee.  Under the Indenture,  the Municipality assigns the Note and its rights
under the Loan Agreement  (except the right to receive payment for its expenses,
the right to receive  indemnities  and rights  relating to any  amendment of the
Loan Agreement) to the Trustee. In addition,  the principal of, premium, if any,
and  interest  on the Bonds are  guaranteed  by IWC  Resources  Corporation,  an
Indiana  corporation.  Reference is made to the Indenture and to all  indentures
supplemental  thereto for a description  of the nature and extent of the rights,
duties and  obligations of the  Municipality,  the Company and the Trustee,  the
rights of the holders of the Bonds,  and the terms on which the Bonds are issued
and to all the  provisions of which the holder hereof by the  acceptance of this
Bond assents.

         This Bond is  transferable  by the  registered  holder at the principal
corporate trust office of the Trustee in Indianapolis,  Indiana, but only in the
manner,  subject to the limitations and upon payment of the charges  provided in
the Indenture and upon surrender and cancellation of this Bond.

         The Bonds are issuable as fully  registered  Bonds in  denominations of
$5,000  and any whole  multiple  thereof.  Subject to the  limitations  and upon
payment of the charges provided in the Indenture,  fully registered Bonds may be
exchanged for an equal aggregate  principal  amount of fully registered Bonds of
any denomination or denominations authorized by the Indenture.

         The  Municipality  and the Trustee may treat the  registered  holder of
this Bond as the absolute  owner for the purpose of  receiving  payment of or on
account of principal, premium, if any, and interest due hereon and for all other
purposes and neither the Municipality nor the Trustee nor any paying agent shall
be affected by any notice to the contrary.

         The Bonds are subject to mandatory  redemption  in whole (or in part as
provided  below)  upon  a  Determination   of  Taxability  (as  defined  in  the
Indenture).  When so called  for  redemption,  the  Bonds  shall be  subject  to
redemption by the  Municipality  at a redemption  price of 100% of the principal
amount thereof outstanding plus accrued interest to the redemption date.

         Fewer than all the Bonds may be  redeemed if  redemption  of fewer than
all would  result in the  interest  payable on the Bonds  remaining  outstanding
being not  includible in the gross income for federal income tax purposes of any
owner other than a  "substantial  user" or  "related  person." If fewer than all
Bonds are  redeemed,  the Trustee will select the Bonds to be redeemed by lot as
provided in the Indenture or by such other method acceptable to the Trustee.

         On July 15 of each year  commencing  July 15, 2000,  the Trustee  will,
upon the death of any registered owner,  redeem any Bond held by such registered
owner  following   presentation  for  redemption  as  described  below  by  such
registered owner's personal representative or surviving joint tenant(s), subject
to the limitation that in any 12-month period the Trustee shall not be obligated
to redeem  Bonds  pursuant to this  paragraph  to the extent that the  aggregate
principal amount of Bonds so subject to redemption,  together with the aggregate
principal  amount  of  Town  of  Fishers,  Indiana  Economic  Development  Water
Facilities  Refunding  Revenue Bonds,  Series 1998  (Indianapolis  Water Company
Project) (the "1998 Fishers Bonds") subject to redemption by reason of the death
of any registered owner of 1998 Fishers Bonds exceeds $800,000,  or the Bonds of
any registered  owner so tendered for  redemption,  together with the registered
owners 1998 Fishers Bonds tendered for redemption by reason of the death of such
registered owner, is in excess of the aggregate principal amount of $25,000. The
Bonds subject to redemption as described  above may be presented for  redemption
by  delivering  to the Trustee  within two years of the death of the  registered
owner (i) a written request for redemption in form  satisfactory to the Trustee,
signed by the  personal  representative  or  surviving  joint  tenant(s)  of the
registered owner, (ii) the Bond(s) to be redeemed, (iii) appropriate evidence of
death and ownership of such Bond(s) at the time of death,  and (iv)  appropriate
evidence of the authority of such  personal  representative  or surviving  joint
tenant(s). In order for Bonds to be eligible for redemption on any July 15, such
Bonds must be presented for  redemption in full  compliance  with the provisions
set  forth  above,  prior  to May 15 next  preceding  such  July 15.  The  Bonds
presented  for  redemption  prior to  maturity  will be redeemed in the order of
their receipt by the Trustee.  Any Bonds not redeemed in any such period because
of the individual $25,000 limitation or the aggregate $800,000 limitation,  will
be held in the order described above for redemption on the July 15 in succeeding
years until redeemed.  Any such redemption  shall be at a price equal to 100% of
the principal  amount of the Bonds so to be redeemed,  plus accrued  interest to
the redemption date.

         The death of a person who, during his or her lifetime,  was entitled to
substantially  all of the  beneficial  interest of  ownership  of a Bond will be
deemed the death of a registered  owner,  regardless of the registered owner, if
such beneficial  interest can be established to the satisfaction of the Trustee.
Such  beneficial  interest  shall be deemed to exist in typical  cases of street
name or nominee ownership,  ownership under the Uniform Transfers to Minors Act,
community property or other joint ownership arrangements between the husband and
wife,   and  trust  and  certain  other   arrangements   where  one  person  has
substantially all of the beneficial ownership interest in the Bond during his or
her  lifetime.  In the case of Bonds  registered  in the  name of  banks,  trust
companies or broker-dealers who are members of a national securities exchange or
the National Association of Securities Dealers, Inc. ("Qualified Institutions"),
the redemption  limitations  described above apply to each  beneficial  owner of
Bonds held by any  Qualified  Institution.  In  connection  with the  redemption
request,  such Qualified  Institution must submit evidence,  satisfactory to the
Trustee, that it holds the Bonds subject to request on behalf of such beneficial
owner and must  certify the  aggregate  amount of  redemption  requests  made on
behalf of such beneficial owner.

         The  Bonds are also  subject  to  redemption  (at the  election  of the
Company)  prior to stated  maturity in whole or in part on any interest  payment
date on or after July 15, 2005.  The  redemption  price for any such  redemption
shall be the amount  determined from the table below  (expressed as a percentage
of the  principal  amount of the Bonds or portions  thereof so  redeemed),  plus
accrued interest to the redemption date:
<TABLE>
<CAPTION>

REDEMPTION PERIOD (BOTH DATES INCLUSIVE)             REDEMPTION PRICE

<S>  <C> <C>               <C> <C>                         <C> 
July 15, 2005 through July 14, 2006                        102%
July 15, 2006 through July 14, 2007                        101%
July 15, 2007 and thereafter                               100%

</TABLE>

         If less than all  Bonds at the time  outstanding  are to be called  for
redemption,  the  particular  Bonds or portions  thereof to be redeemed shall be
selected  by the  Trustee by lot or by such other  random  means as the  Trustee
shall determine in its discretion.  Bonds of  denominations  greater than $5,000
may be called for redemption, in part, in multiples of $5,000.

         If any of the Bonds are called for redemption, a notice of the call for
redemption  identifying the Bonds to be redeemed will be mailed by registered or
certified  mail at least  thirty  days but no more than  sixty days prior to the
date fixed for  redemption to the  registered  owner at the address shown on the
registration books, provided that failure to give this notice by mailing, or any
defect in the notice,  shall not affect the validity of any  proceedings for the
redemption  of any  other  Bonds or  portions  thereof.  All  Bonds  called  for
redemption  will  cease  to bear  interest  on the  specified  redemption  date,
provided  funds for  redemption  are on  deposit at the place of payment at that
time and all  other  requirements  relating  to  redemption  as set forth in the
Indenture are  satisfied,  and shall no longer be protected by the Indenture and
shall not be deemed to be outstanding under the provisions of the Indenture.

         The  Bonds  are  issued  pursuant  to and in full  compliance  with the
Constitution  and laws of the  State  of  Indiana,  particularly  IC  5-1-5,  IC
36-7-11.9 and IC 36-7-12 and pursuant to an Ordinance adopted by the City County
Council of the  Municipality  on the ____ day of June,  1998.  THIS BOND AND THE
ISSUE OF WHICH IT FORMS A PART ARE LIMITED  OBLIGATIONS OF THE  MUNICIPALITY AND
ARE PAYABLE  SOLELY AND ONLY FROM  REVENUES AND  RECEIPTS  DERIVED FROM THE LOAN
AGREEMENT  AND THE  NOTE.  THE  BONDS  SHALL  NOT IN ANY  RESPECT  BE A  GENERAL
OBLIGATION OF AN  INDEBTEDNESS  OF, OR  CONSTITUTE A CHARGE  AGAINST THE GENERAL
CREDIT  OF THE  CITY OF  INDIANAPOLIS,  INDIANA,  THE  STATE OF  INDIANA  OR ANY
POLITICAL  SUBDIVISION THEREOF, AND THEY SHALL NOT BE PAYABLE IN ANY MANNER FROM
FUNDS RAISED BY TAXATION. Payments sufficient for the prompt payment when due of
the  principal of and premium,  if any, and interest on the Bonds are to be paid
to the Trustee for the account of the  Municipality  and deposited into the Bond
Fund created under the Indenture.

         The holder of this Bond shall have no right to enforce  the  provisions
of the  Indenture  or to take any  action  with  respect to any Event of Default
under the  Indenture,  or to  institute,  appear in or defend  any suit or other
proceedings  with  respect  thereto,  except as  provided in the  Indenture.  In
certain events,  as provided in the Indenture,  the principal of all outstanding
Bonds may become or may be declared due and payable before the stated  maturity.
Modifications or alterations of the Indenture may be made only to the extent and
in the circumstances permitted by the Indenture.

         In the event of default in the payment of principal or interest  hereon
or if any Event of  Default  as  defined  in the  Indenture  occurs,  the unpaid
principal  of this Bond may be  declared  or may become  immediately  due in the
manner and with the effect and subject to the conditions  provided  therein.  If
any payment of principal of and premium, if any, and interest on this Bond shall
not be paid when due, the Municipality shall pay to the holder of this Bond, but
solely from payments  under the Loan  Agreement  and the Note,  interest on such
unpaid  obligations  (to the  extent  permitted  by law) at a per annum  rate of
interest equal to the per annum rate then in effect on the Bonds.

         Municipal  Bond  Insurance  Policy No.  _________  (the  "Policy") with
respect to  payments  due for  principal  of and  interest on this Bond has been
issued   by   ____________________.   The   Policy   has   been   delivered   to
_________________________,  as the Insurance  Trustee under said Policy and will
be held by such Insurance Trustee or any successor insurance trustee. The Policy
is on file and available for inspection at the principal office of the Insurance
Trustee and a copy thereof may be secured from  _______________ or the Insurance
Trustee.  All  payments  required  to be made under the Policy  shall be made in
accordance with the provisions thereof.  The owner of this Bond acknowledges and
consents to the subrogation rights of _______________ as more fully set forth in
the Policy.

         It is hereby certified,  recited and declared that all acts, conditions
and things  required to exist,  happen and be performed  precedent to and in the
execution  and delivery of the Indenture and the issuance of this Bond do exist,
have happened and have been  performed in due time,  form and manner as required
by law;  and that the  issuance of this Bond,  and the issue of which it forms a
part, together with all other obligations of the Municipality,  do not exceed or
violate any constitutional or statutory limitation.

         This  Bond  shall  not be valid or  obligatory  for any  purpose  or be
entitled  to  any  benefit  under  the  Indenture   until  the   certificate  of
authentication on this Bond shall have been executed by the Trustee.



<PAGE>


         IN  WITNESS  WHEREOF,  the  Municipality  has  caused  this  Bond to be
executed under its corporate seal.

                                            City of Indianapolis, Indiana


                                            By: ____________________________
                                                       Mayor

                                            Attest: ________________________
                                                       Clerk




                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

         This Bond is one of the Bonds described in the Indenture.

                                            NATIONAL CITY BANK OF INDIANA
                                             as Trustee


                                            By: _____________________________
                                                  Authorized Representative





<PAGE>







         The following  abbreviations,  when used in the inscription of the face
of the within  Bond,  shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>

<S>                        <C>              <C>
                           TEN COM          as tenants in common

                           TEN ENT          as tenants by the entireties

                           JT TEN           as joint tenants with right of survivorship and not as tenants in common
</TABLE>


UNIF TRANF MIN ACT _____________            Custodian _______________
                       (Cust)                              (Minor)

                      under Uniform Transfers to Minors Act

                             ---------------------
                                     (State)

         Additional abbreviations may also be used though not in list above.




<PAGE>


                                   ASSIGNMENT


         For value received, the undersigned hereby sells, assigns and transfers
unto  ____________________  [PLEASE INSERT SOCIAL SECURITY OR OTHER  IDENTIFYING
NUMBER  OF  ASSIGNEE:  __________________]  the  within  Bond  of  the  City  of
Indianapolis,  Indiana and all rights  thereunder  and does  hereby  irrevocably
constitute  and appoint  _______________  attorney to transfer  such Bond on the
books kept for  registration  thereof,  with full power of  substitution  in the
premises.

Dated:

================================
   (Registered Owner)


NOTICE:  The signature(s) to this assignment must correspond with the name as it
appears upon the face of the within Bond in every particular, without alteration
or enlargement or any change whatever.



Signature guaranteed:
--------------------------

NOTICE:  Signature(s) must  be guaranteed  by an  eligible guarantor institution
participating   in  a  Securities  Transfer  Association  recognized   signature
guarantee program.






                               [END OF BOND FORM]



SIGNATURES

      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                               NIPSCO Industries, Inc.

                                    (Registrant)


                                 -----------------------------------------------
                                 Stephen P. Adik
               Executive Vice President, Chief Financial Officer,
                                 Treasurer and Chief Accounting Officer



Date:  November 9, 1998



<PAGE>




                                                                      EXHIBIT 23

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

               As  independent  public  accountants,  we hereby  consent  to the
          incorporation  of our report  included in this Form 10-Q,  into NIPSCO
          Industries,  Inc.'s  previously filed Form S-8 Registration  Statement
          No. 33-30619; Form S-8 Registration Statement No. 33-30621;  Forms S-8
          Registration Statement No. 333-08263;  Form S-8 Registration Statement
          No. 333-19981; Form S-8 Registration Statement No. 333-19983; Form S-8
          Registration Statement No. 333-19985;  Form S-8 Registration Statement
          No. 333-59151; Form S-8 Registration Statement No. 333-59153; Form S-3
          Registration Statement No. 333-22347;  Form S-3 Registration Statement
          No. 333-26847; Form S-3 Registration Statement No. 333-39911, and Form
          S-4A Registration Statement No. 333-50537.





Chicago, Illinois
November 9, 1998