City of Lago Vista, Texas (Travis County, Texas)

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1 THIS PRELIMINARY OFFICIAL STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO COMPLETION AND AMENDMENT. UNDER NO CIRCUMSTANCES SHALL THE PRELIMINARY OFFICIAL STATEMENT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION. NEW ISSUE: Book-Entry-Only PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER 20, 2016 RATING: S&P: AA (stable outlook) (See RATING herein) In the opinion of McCall Parkhurst & Horton L.L.P., Bond Counsel, interest on the Series 2016A Bonds will be excludable from gross income for federal income tax purposes under statutes, regulations, published rulings and court decisions existing on the date thereof, subject to the matters described under TAX MATTERS herein, including the alternative minimum tax on corporations. The Taxable Series 2016B Bonds are not obligations described in Section 103(a) of the Internal Revenue Code of See TAX MATTERS herein. The Issuer will designate the General Obligation Refunding Bonds, Series 2016A as qualified tax-exempt obligations for financial institutions. City of Lago Vista, Texas (Travis County, Texas) $1,800,000* $3,885,000* General Obligation Refunding Bonds Series 2016A Dated: November 15, 2016 (Interest accrues from the date of delivery) General Obligation Refunding Bonds Taxable Series 2016B Due: February 15, as shown on next page The City of Lago Vista, Texas General Obligation Refunding Bonds, Series 2016A (the Series 2016A Bonds ) and General Obligation Refunding Bonds, Taxable Series 2016B (the Taxable Series 2016B Bonds ), are authorized and issued in accordance with the Constitution and laws of the State of Texas, including Chapter 1207, Texas Government Code, as amended ( Chapter 1207 ), and an ordinance (the Bond Ordinance ) adopted by the City Council of the City of Lago Vista, Texas (the Issuer ). The Series 2016A Bonds and Taxable Series 2016B Bonds (collectively referred to herein as the Bonds ) constitute direct obligations of the Issuer, payable from a continuing, direct annual ad valorem tax, levied upon all taxable property within the Issuer, within the limits prescribed by law, sufficient to provide for the payment of principal and interest due on the Bonds, as provided in the Bond Ordinance authorizing the issuance of the Bonds. In the Bond Ordinance, the City Council has delegated to a designated officer of the Issuer (the "Pricing Officer"), pursuant to certain provisions of Chapter 1207, authority to effect the sale of the Bonds and to establish certain terms related to the issuance and sale of the Bonds. The terms of the sale will be set forth in a "Pricing Certificate," which will complete the sale of the Bonds (the Bond Ordinance and the Pricing Certificate are collectively referred to as the "Ordinance"). See DESCRIPTION OF THE BONDS - Authority for Issuance and DESCRIPTION OF THE BONDS Security and Source of Payment herein. The Bonds are initially issuable only to Cede & Co., the nominee of The Depository Trust Company, New York, New York ( DTC ), pursuant to the book-entry system described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable to Cede & Co., which will make distributions of the amounts so paid to the participating members of DTC for subsequent remittance to the beneficial owners of the Bonds. Such book-entry-only system will affect the method and timing of payment and the method of transfer for the Bonds. Interest on the Bonds will be payable on August 15 and February 15 of each year, commencing August 15, Principal of the Bonds will be payable at maturity or prior redemption. The initial Paying Agent/Registrar for the Bonds is U.S. Bank National Association, Dallas, Texas (the Paying Agent/Registrar ). The Issuer reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2027 in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2026, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see DESCRIPTION OF THE BONDS - Optional Redemption ). Proceeds of the Bonds will be used to refund certain outstanding obligations of the Issuer and pay the costs of issuing the Bonds. See "PLAN OF FINANCING" and APPENDIX D - SCHEDULE OF REFUNDED OBLIGATIONS herein. The refunding is being undertaken to restructure the overall debt service requirements of the Issuer. The Bonds are offered when, as and if issued, subject to approval of legality by the Attorney General of the State of Texas and the approval of certain legal matters by McCall, Parkhurst & Horton L.L.P., Austin and Dallas, Texas, Bond Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Andrews Kurth Kenyon LLP, Houston, Texas. Definitive Bonds are expected to be available for delivery on December 1, 2016 through the facilities of DTC. * Preliminary; subject to change. FMSbonds, Inc.

2 CUSIP Prefix: (1) City of Lago Vista, Texas MATURITY SCHEDULES* City of Lago Vista, Texas General Obligation Refunding Bonds, Series 2016A General Obligation Refunding Bonds, Taxable Series 2016B $1,800,000 Serial Bonds* $2,300,000 Taxable Serial Bonds* Maturity Principal Interest Initial CUSIP Maturity Principal Interest Initial CUSIP (Feb 15) Amount Rate Yield Suffix (1) (Feb 15) Amount Rate Price/Yield Suffix (1) 2018 $ 15, $ 30, , , , , , , , , , , , , , , , , (2) 100, (2) 220, (2) 100, (2) 230, (2) 105, (2) 240, (2) 100, (2) 255, (2) 100, (2) 270, (2) 100, (2) 105,000 $1,585,000 Taxable Term Bonds* 2034 (2) 110,000 $1,585,000 % Term Bonds due February 15, 2037 (2)(4) 2035 (2) 115, Priced at %, CUSIP Suffix (1) : 2036 (2) 150, (2) 155,000 (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor s Financial Services LLC on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP services. Neither the Issuer, the Financial Advisor nor the Underwriter takes any responsibility for the selection or correctness of the CUSIP numbers set forth herein. (2) The Issuer reserves the right, at its option, to redeem Bonds maturing or subject to mandatory sinking fund redemption on and after February 15, 2027, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2026, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. If less than all of the Bonds within a maturity are to be redeemed, the Paying Agent/Registrar shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. (3) The yield shown for these Bonds is the yield to the first call date, February 15, (4) The Term Bonds are subject to mandatory sinking fund redemption as provided herein. See DESCRIPTION OF THE BONDS Mandatory Sinking Fund Redemption. * Preliminary; subject to change. i

3 CITY OF LAGO VISTA 5803 Thunderbird Lago Vista, Texas (512) ELECTED OFFICIALS Term Expires First Elected City Council (November) Occupation to Council Dale Mitchell, Mayor 2017 Retired Feb 2009 Ron Smith, Mayor Pro Tem, Place 4 (1) 2016 Retired May 2010 Vacant, Place 1 (2) Kevin Sullivan, Place 2 (1) 2016 Software professional Jun 2016 Ed Tidwell, Place Firefighter Nov 2015 Stephanie Smith, Place Employee, sign producer Nov 2015 Suzanne Bland, Place 6 (1) 2016 Director, Dell Inc. Aug 2016 (1) Running for reelection and facing an opponent; Mr. Sullivan and Ms. Bland were appointed by City Council to fill vacancies. (2) Council member Rich Raley, who was elected in November 2015, has resigned his position following a recent move from the City of Lago Vista. Council is scheduled to declare the vacancy and its intent to appoint a successor at a meeting to be held November 17, APPOINTED OFFICIALS Name Title Years with City Melissa Byrne Vossmer City Manager 3 Sandra Barton City Secretary 2 CONSULTANTS AND ADVISORS Name Neffendorf & Knopp, P.C. Fredericksburg, Texas McCall, Parkhurst & Horton L.L.P. Austin and Dallas, Texas Lawrence Financial Consulting LLC Austin, Texas Title Independent Auditor Bond Counsel Financial Advisor ii

4 USE OF INFORMATION IN OFFICIAL STATEMENT For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, this document constitutes an official statement of the Issuer with respect to the Bonds that has been deemed "final" by the Issuer as of its date except for the omission of no more than the information permitted by Subsection (b)(1) of Rule 15c2-12. No dealer, broker, salesman or other person has been authorized to give any information or make any representations other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the Issuer or any other person. This Official Statement does not constitute an offer to sell or solicitation of an offer to buy, and there shall not be any sale of, the Bonds in any state in which it is unlawful to make such offer, solicitation or sale. The information and expressions of opinion contained herein have been obtained from the Issuer and other sources that are believed to be reliable, but the accuracy and completeness of information obtained from sources other than the Issuer cannot be guaranteed. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer or other matters described herein since the date hereof. See OTHER MATTERS - Continuing Disclosure of Information herein for a description of the Issuer s obligation to update certain information contained in this Official Statement. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriter after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering prices, including to dealers who may sell the Bonds into investment accounts. The cover page contains certain information for general reference only and is not intended as a summary of this offering. Investors should read the entire Official Statement, including all appendices attached hereto, to obtain information essential to making an informed investment decision. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. NEITHER THE ISSUER, ITS FINANCIAL ADVISOR, NOR THE UNDERWRITER MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK-ENTRY ONLY SYSTEM, AS SUCH INFORMATION HAS BEEN PROVIDED BY THE DEPOSITORY TRUST COMPANY. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THE BONDS HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. iii

5 TABLE OF CONTENTS SUMMARY STATEMENT... v INTRODUCTION... 1 PLAN OF FINANCING... 1 Purpose of the Bonds... 1 Refunded Obligations... 1 Sources and Uses of Funds... 2 DESCRIPTION OF THE BONDS... 2 General... 2 Authority for Issuance... 3 Book-Entry-Only System... 3 Security and Source of Payment... 5 Optional Redemption... 5 Mandatory Sinking Fund Redemption... 5 Notice of Redemption... 6 Paying Agent/Registrar... 6 Transfer and Exchange... 7 Replacement Bonds... 7 Amendments to the Ordinance... 7 Defeasance... 8 Bondholders Remedies... 8 ISSUER DEBT AND AD VALOREM TAX INFORMATION Table 1 - Current Appraised Valuation, Exemptions and Tax Supported Debt Table 2 - Appraised Valuation by Category Table 3 - Tax Rates, Levies, Collections and Ratios Table 4 - Largest Taxpayers Estimated Overlapping Debt and Tax Rates Table 5 Proforma Debt Service Requirements Table 6 - Other Obligations Table 7 - Authorized But Unissued Ad Valorem Tax Debt Property Tax Code OTHER FINANCIAL INFORMATION Table 8 - General Fund Summary Revenues and Expenditures Table 8A - Changes in Net Position Table 9 - General Fund Summary Balance Sheet Table 9A - Statement of Net Position Table 10 - Municipal Sales Tax History Investments Table 11 - Status of Current Investments LEGAL MATTERS TAX MATTERS Certain Federal Income Tax Considerations Series 2016A Bonds Taxable Series 2016B Bonds RATING OTHER MATTERS No Litigation Certificate Legal Investments and Eligibility to Secure Public Funds in Texas Financial Advisor Financial Statements Registration and Qualification of Bonds for Sale Underwriting Continuing Disclosure of Information Conclusion APPENDIX A - FORM OF BOND COUNSEL OPINIONS... A APPENDIX B - FINANCIAL STATEMENTS... B APPENDIX C - GENERAL INFORMATION REGARDING THE ISSUER... C APPENDIX D - SCHEDULE OF REFUNDED OBLIGATIONS... D iv

6 SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information and to the definitions contained in or incorporated into this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement, including the cover page and all appendices. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without the entire Official Statement. The Issuer The City of Lago Vista (the Issuer ) is located in Travis County, Texas, and operates as a home rule city under the laws of the State of Texas. See APPENDIX C - GENERAL INFORMATION REGARDING THE ISSUER. The Bonds The Bonds are being issued in the aggregate principal amount(s) set forth on the cover page pursuant to the laws of the State of Texas, particularly Chapter 1207, Texas Government Code, as amended ( Chapter 1207 ), and an ordinance adopted by the City Council of the Issuer (the Bond Ordinance ). In the Bond Ordinance, the City Council has delegated to a designated officer of the Issuer (the "Pricing Officer") pursuant to certain provisions of Chapter 1207, authority to effect the sale of the Bonds and to establish certain terms related to the issuance and sale of the Bonds. The terms of the sale will be set forth in a "Pricing Certificate," which will complete the sale of the Bonds (the Bond Ordinance and the Pricing Certificate are collectively referred to as the "Ordinance"). The Bonds are subject to redemption at the option of the Issuer prior to maturity on and after February 15, See "DESCRIPTION OF THE BONDS Optional Redemption." Security The Bonds constitute direct obligations of the Issuer, payable from a continuing annual ad valorem tax levied upon all taxable property located within the Issuer, within the limitations prescribed by law. The Ordinance irrevocably pledges such ad valorem taxes in an amount sufficient to provide for the payment of the Bonds while they remain outstanding. See "DESCRIPTION OF THE BONDS - Security." Tax Matters In the opinion of Bond Counsel, interest on the Series 2016A Bonds will be excludable from gross income for purposes of federal income taxation under statutes, regulations, published rulings and court decisions existing on the date thereof, subject to the matters described under "TAX MATTERS" herein, including the alternative minimum tax on corporations. The Issuer will designate the Series 2016A Bonds as qualified tax-exempt obligations for financial institutions. The Taxable Series 2016B Bonds are not obligations described in Section 103(a) of the Internal Revenue Code of See TAX MATTERS herein. Summary of Key Analytical Data (1) General Fund Equity Balance as of 09/30/2015 $ 2,834,675 Estimated Population of the Issuer 6,478 Net Taxable Assessed Valuation (TAV) for Fiscal Year $ 740,241,361 TAV per capita $ 114, Ad Valorem Tax Debt as of 09/30/2016 $ 29,959,000 Ratio of Ad Valorem Tax Debt to TAV 4.05% Ad Valorem Tax Debt per capita $ 4, Sources: Travis Central Appraisal District, the Issuer s audited and unaudited financial statements and records, and the U.S. Census Bureau. (1) See also ISSUER DEBT AND AD VALOREM TAX INFORMATION herein. v

7 PRELIMINARY OFFICIAL STATEMENT relating to City of Lago Vista, Texas (Travis County, Texas) $1,800,000* $3,885,000* General Obligation Refunding Bonds Series 2016A INTRODUCTION General Obligation Refunding Bonds Taxable Series 2016B This Preliminary Official Statement provides certain information in connection with the issuance by the City of Lago Vista, Texas (the Issuer ) of its General Obligation Refunding Bonds, Series 2016A (the Series 2016A Bonds ) and General Obligation Refunding Bonds, Taxable Series 2016B (the Taxable Series 2016B Bonds ). The Series 2016A Bonds and Taxable Series 2016B Bonds are collectively referred to herein as the Bonds. Capitalized terms used herein have the same meanings assigned to such terms in the Ordinance (hereinafter defined). The Series 2016A Bonds and the Taxable Series 2016B Bonds have been offered under this common Official Statement as separate and distinct securities offerings and are being sold and issued independently except for this common Official Statement, and, while the Series 2016A Bonds and the Taxable Series 2016B Bonds share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the federal, state or local tax consequences of the purchase, ownership or disposition of the Series 2016A Bonds and the Taxable Series 2016B Bonds, and other features. Although they are separate and distinct securities issues, the Series 2016A Bonds and the Taxable Series 2016B Bonds have each been authorized to be issued, sold and delivered by one ordinance adopted by the City Council of the Issuer (the "Bond Ordinance"). In the Bond Ordinance, the City Council has delegated to a designated officer of the Issuer (the "Pricing Officer"), pursuant to certain provisions of Chapter 1207, Texas Government Code, as amended, authority to effect the sale of the Bonds and to establish certain terms related to the issuance and sale of the Bonds. The terms of the sale of the Bonds will be set forth in a Pricing Certificate, which will complete such sale. The Bond Ordinance and the Pricing Certificate are collectively referred to as the Ordinance. There follows in this Preliminary Official Statement descriptions of the plan of financing, the Bonds and certain information about the Issuer and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the Issuer. Purpose of the Bonds PLAN OF FINANCING Proceeds from the sale of the Series 2016A Bonds will be used to refund the entire outstanding balance of the Issuer's Limited Tax Note, Series 2015, and pay the costs associated with the issuance of the Series 2016A Bonds. Proceeds from the sale of the Taxable Series 2016B Bonds will be used to refund the entire outstanding balance of the Issuer's Limited Tax Note, Taxable Series 2015, and pay the costs associated with the issuance of the Series 2016B Bonds. The two aforementioned Notes that are being refunded are referred to collectively herein as the Refunded Obligations. See APPENDIX D for a detailed listing of the Refunded Obligations and their call date at par. The purpose of these refundings is to restructure the overall debt service requirements of the Issuer. Refunded Obligations The redemption prices of the Refunded Obligations will be paid on the date fixed for redemption from funds to be deposited with BOKF, NA, Austin, Texas (the "Escrow Agent"), pursuant to the Escrow Agreement executed between the Issuer and the Escrow Agent. * Preliminary; subject to change. 1

8 The Ordinance provides that from the proceeds of the sale of the Bonds the Issuer will deposit with the Escrow Agent the gross amount necessary to accomplish the discharge and final payment of the Refunded Obligations. Such funds will be held by the Escrow Agent in an escrow account (the "Escrow Fund"). Such funds will be held uninvested, subject to the collateralization requirements under Texas law. Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations. The Escrow Fund will not be available to pay the principal or interest due on the Bonds. By the deposit of the cash with the Escrow Agent pursuant to the Escrow Agreement, the Issuer will have effected the defeasance of all of the Refunded Obligations in accordance with State law and in reliance on the Certification described below. Lawrence Financial Consulting LLC, in its capacity as paying Financial Advisor to the Issuer, will certify (the Certification ) that the deposit to be made to the Escrow Fund on the date of delivery of the Bonds will be sufficient to pay all principal and interest of the Refunded Obligations on the redemption date. It is the opinion of Bond Counsel that, as a result of such defeasance, and in reliance upon the Certification, the Refunded Obligations will be outstanding only for the purpose of receiving payments from the cash held for such purpose by the Escrow Agent and such Refunded Obligations will not be deemed as being outstanding obligations of the Issuer payable from taxes nor for the purpose of applying any limitation on the issuance of debt, and the Issuer will have no further responsibility with respect to amounts available in the Escrow Fund for the payment of the Refunded Obligations from time to time. Sources and Uses of Funds The following is a summary of the anticipated sources and uses of proceeds of funds in connection with the issuance of the Taxable Series 2016A Series 2016B Combined Sources of Funds Bonds Bonds Total Principal Amount of Bonds $ - $ - $ - Original Issue Premium Total Sources $ - $ - $ - General Bonds: Uses of Funds Deposit to Escrow Fund $ - $ - $ - Issuance Costs Underwriting Discount Estimated Rounding Amount Total Uses $ - $ - $ - DESCRIPTION OF THE BONDS The Bonds are dated November 15, Interest on the Bonds will accrue from the date of their delivery, at the rates set forth on page i following the cover page hereof, is payable semiannually on August 15 and February 15 of each year, commencing August 15, The Bonds are stated to mature on February 15 in the years and in the principal amounts set forth on page i following the cover page hereof. The Bonds will be initially issued utilizing the Book-Entry-Only System of The Depository Trust Company ("DTC"), and will be in fully registered form, payable to Cede & Co., as nominee for DTC. See "Book-Entry-Only System" below. The Bonds are issued only as fully registered Bonds in denominations of $5,000 of principal amount or any integral multiple thereof (an "Authorized Denomination"). The principal and redemption price of the Bonds is payable on the maturity or redemption date upon surrender at the corporate trust office of U.S. Bank National Association, Dallas, Texas (the Paying Agent/Registrar ). Interest on the Bonds payable on any interest payment date shall be paid to the owner (the "Owner") whose name appears in the registration books of the Paying Agent/Registrar (the "Register") at the close of business on the Record Date (the last business day of the month immediately preceding an interest payment date) and shall be paid by the Paying 2

9 Agent/Registrar by check sent United States mail, first class, postage prepaid, to the address of the Owner recorded in the Register or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Owner. So long as the Bonds are in book-entry-only form and are registered in the name of Cede & Co., as nominee for DTC, payment of the principal of and interest on the Bonds will be made to the beneficial owners thereof as described below under "Book-Entry-Only System." In the event of a non-payment of interest on a scheduled payment date with respect to the Bonds, that remains unpaid for 30 days thereafter, the Ordinance requires the Paying Agent/Registrar to establish a Special Record Date, if and when funds for the payment of such interest are received from the Issuer. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date" that shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Bond appearing in the Register of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. If the date specified for the payment of the principal of or interest on the Bonds is a Saturday, Sunday, legal holiday or day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized or required to be closed, then such payment will be made on the next succeeding day which is not one of the foregoing days, without additional interest and with the same force and effect as if made on the specified date for such payment. Authority for Issuance The Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the State ), including particularly Chapter 1207, Texas Government Code, as amended ( Chapter 1207 ), and the Ordinance, and are direct obligations of the Issuer, payable from the levy and collection of a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the Issuer. Book-Entry-Only System This section describes how ownership of the Bonds are to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC"), New York, New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry- Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The Issuer believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. Neither the Issuer nor the Underwriter can or does give any assurance that (1) DTC will distribute payment of debt service on the Bonds, or redemption or other notices to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond will be issued for each maturity of the Bonds, in the aggregate principal amount of each such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain 3

10 other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the bookentry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds and principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Issuer or the Paying Agent/Registrar, on payable dates in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as in the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 4

11 DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, physical Bonds are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, physical Bonds will be printed and delivered. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes not responsibility for the accuracy thereof. Security and Source of Payment The Bonds will constitute direct obligations of the Issuer, payable from ad valorem taxes levied against all taxable property located within the Issuer, within the limitations prescribed by law. The Ordinance irrevocably pledges such ad valorem taxes to the payment of the principal of and interest on the Bonds while they remain outstanding. See "ISSUER DEBT AND AD VALOREM TAX INFORMATION" herein. The Constitution of the State of Texas provides that the ad valorem tax levied by the Issuer for general purposes and for the purpose of paying debt service requirements of the Issuer s general obligation debt shall not exceed $2.50 for each $100 of assessed valuation of taxable property. There is no limitation within the $2.50 rate for interest and sinking fund purposes. Administratively, however, the Attorney General of the State of Texas will not permit allocation of more than $1.50 of the $2.50 maximum tax rate for all tax supported debt based on a 90% collection rate. Optional Redemption The Issuer reserves the right, at its option, to redeem Bonds maturing or subject to mandatory sinking fund redemption on and after February 15, 2027, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2026, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. If less than all of the Bonds within a maturity are to be redeemed, the Paying Agent/Registrar shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. Mandatory Sinking Fund Redemption * The Taxable Series 2016B Bonds maturing on February 15 in the year(s) indicated in the following table (the Term Bonds ) shall be subject to mandatory redemption in part prior to maturity, at random by lot or other customary method selected by the Paying Agent/Registrar, at the redemption price of par and accrued interest to the date of redemption on the dates and in the respective principal amounts, set forth in the following schedule: Preliminary; subject to change. Term Bond Maturity February 15, 2037 Redemption Date Amount 2/15/2032 $ 285,000 2/15/ ,000 2/15/ ,000 2/15/ ,000 2/15/ ,000 2/15/2037 (maturity) 195,000 The principal amount of Term Bonds of a stated maturity required to be redeemed on any mandatory redemption date pursuant to the operation of the mandatory sinking fund redemption provisions shall be reduced, at the option of the District, by the principal amount of any Term Bonds of the same maturity which, at least 45 days prior to a mandatory 5

12 redemption date (1) shall have been acquired by the District at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the District at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase, or (3) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement. Notice of Redemption Not less than 30 days prior to a redemption date for the Bonds, the Issuer shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to each Owner of a Bond to be redeemed, in whole or in part, at the address of the Owner appearing in the Register at the close of business on the business day next preceding the date of mailing of such notice. ANY NOTICE GIVEN SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN AND ALL OTHER CONDITIONS TO REDEMPTION ARE SATISFIED, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND, NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. With respect to any optional redemption of the Bonds, unless certain prerequisites to such redemption required by the Ordinance have been met and money sufficient to pay the principal of and premium, if any, and interest or maturity value on the Bonds to be redeemed will have been received by the Paying Agent/Registrar prior to the giving of such notice of redemption, such notice will state that said redemption may, at the option of the Issuer, be conditional upon the satisfaction of such prerequisites and receipt of such money by the Paying Agent/Registrar on or prior to the date fixed for such redemption or upon any prerequisite set forth in such notice of redemption. If a conditional notice of redemption is given and such prerequisites to the redemption are not fulfilled, such notice will be of no force and effect, the Issuer will not redeem such Bonds, and the Paying Agent/Registrar will give notice in the manner in which the notice of redemption was given, to the effect that the Bonds have not been redeemed. The Paying Agent/Registrar and the Issuer, so long as a Book-Entry-Only System is used for the Bonds, will send any notice of redemption, notice of proposed amendment to the Ordinance or other notices with respect to the Bonds only to DTC. Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the beneficial owner, shall not affect the validity of the redemption of the Bonds called for redemption or any other action premised on any such notice. Redemption of portions of the Bonds by the Issuer will reduce the outstanding principal amount of such Bonds held by DTC. In such event, DTC may implement, through its Book-Entry-Only System, a redemption of such Bonds held for the account of DTC participants in accordance with its rules or other agreements with DTC participants and then DTC participants and indirect participants may implement a redemption of such Bonds from the beneficial owners. Any such selection of Bonds to be redeemed will not be governed by the Ordinance and will not be conducted by the Issuer or the Paying Agent/Registrar. Neither the Issuer nor the Paying Agent/Registrar will have any responsibility to DTC participants, indirect participants or the persons for whom DTC participants act as nominees, with respect to the payments on the Bonds or the providing of notice to DTC participants, indirect participants, or beneficial owners of the selection of portions of the Bonds for redemption. See "DESCRIPTION OF THE BONDS Book-Entry- Only System" herein. Paying Agent/Registrar The initial Paying Agent/Registrar is U.S. Bank National Association, Dallas, Texas. In the Ordinance, the Issuer retains the right to replace the Paying Agent/Registrar. The Issuer covenants to maintain and provide a Paying Agent/Registrar at all times while the Bonds are outstanding, and any successor Paying Agent/Registrar shall be a bank, trust company, financial institution or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying Agent/Registrar for the Bonds, the Issuer agrees to promptly cause a written notice thereof to be sent to each Owner by United States mail, first class, postage prepaid, which notice shall also give the effective date of the change and the address of the new Paying Agent/Registrar. If the Paying Agent/Registrar is replaced, the new Paying Agent/Registrar shall accept the previous Paying Agent/Registrar's records and act in the same capacity as the previous Paying Agent/Registrar. 6

13 Transfer and Exchange In the event the Book-Entry-Only System shall be discontinued with respect to the Bonds, such Bonds may be transferred and exchanged on the Register only upon presentation and surrender thereof to the Paying Agent/Registrar, and such transfer or exchange shall be without expense or service charge to the Owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. A Bond may be assigned by the execution of an assignment form on the Bond or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Bond or Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bond being transferred or exchanged, at the principal corporate trust office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new Owner or its designee. New Bonds registered and delivered in an exchange or transfer shall be in Authorized Denominations for any one stated maturity and for a like aggregate principal amount and interest rate as the Bond or Bonds surrendered for exchange or transfer. Neither the Issuer nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Bond in whole or in part during the period commencing with the close of business on any Record Date or Special Record Date and ending on the day subsequent to the immediately following payment date or, with respect to any Bond called for redemption, in whole or in part, within 45 days of the date fixed for redemption, provided that such limitation of transfer shall not be applicable to the exchange by the registered owner of the uncalled balance of a Bond. The Paying Agent/Registrar shall require payment by the Owner requesting such transfer or exchange of any tax or other governmental charges required to be paid with respect to such transfer or exchange. Replacement Bonds If any Bond is mutilated, destroyed, stolen or lost, a new Bond in the same principal amount and bearing the same rate of interest as the Bond so mutilated, destroyed, stolen or lost will be issued under the conditions set forth in the Ordinance. In the case of a mutilated Bond, such new Bond will be delivered only upon surrender and cancellation of such mutilated Bond. In the case of any Bond issued in lieu of and substitution for a Bond which has been destroyed, stolen or lost, such new Bond will be delivered only upon (a) the filing with the Issuer and the Paying Agent/Registrar of evidence satisfactory to establish to the Paying Agent/Registrar proof of the ownership and the circumstances of loss, destruction or theft of such Bond, and (b) the furnishing to the Paying Agent/Registrar of such security of indemnity satisfactory to it to hold it and the Issuer harmless. The person requesting the authentication and delivery of a new Bond must comply with such other reasonable requirements as the Issuer and the Paying Agent/Registrar may prescribe and pay such expenses as may be incurred in connection therewith. Amendments to the Ordinance In the Ordinance, the Issuer has reserved the right to amend the Ordinance without the consent of any holder for the purpose of amending or supplementing the Ordinance to (i) cure any ambiguity, defect or omission therein that does not materially adversely affect the interests of the holders, (ii) grant additional rights or security for the benefit of the holders, (iii) add events of default as shall not be inconsistent with the provisions of the Ordinance that do not materially adversely affect the interests of the holders, (iv) qualify the Ordinance under the Trust Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect or (v) make such other provisions in regard to matters or questions arising under the Ordinance that are not inconsistent with the provisions thereof and which, in the opinion of Bond Counsel for the Issuer, do not materially adversely affect the interests of the holders. The Ordinance further provides that the holders of the Bonds aggregating in principal amount 51% of the outstanding Bonds shall have the right from time to time to approve any amendment not described above to the Ordinance if it is deemed necessary or desirable by the Issuer; provided, however, that without the consent of 100% of the holders in original principal amount of the then outstanding Bonds, no amendment may be made for the purpose of: (i) making any change in the maturity of any of the outstanding Bonds; (ii) reducing the rate of interest borne by any of the outstanding Bonds; (iii) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Bonds; (iv) modifying the terms of payment of principal or of interest or redemption premium on outstanding Bonds, or imposing any condition with respect to such payment; or (v) changing the minimum percentage of the principal amount of the Bonds necessary for consent to such amendment. Reference is made to the Ordinance for further provisions relating to the amendment thereof. 7

14 Defeasance The Ordinance provides for the defeasance of the Bonds when payment of the principal of and premium, if any, on Bonds, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise), is provided by irrevocably depositing with a paying agent or other authorized entity, in trust (1) money sufficient to make such payment or (2) Defeasance Securities, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation and expenses of the paying agent for the Bonds, and thereafter the Issuer will have no further responsibility with respect to amounts available to such paying agent (or other financial institution permitted by applicable law) for the payment of such defeased Bonds, including any insufficiency therein caused by the failure of such paying agent (or other financial institution permitted by applicable law) to receive payment when due on the Defeasance Securities. The Ordinance provides that "Defeasance Securities" means any securities and obligations now or hereafter authorized by State law that are eligible to discharge obligations such as the Bonds. Current State law permits defeasance with the following types of securities: (1) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (2) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the Issuer approves the defeasance, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (3) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the Issuer approves the defeasance, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The Issuer has additionally reserved the right, subject to satisfying the requirements of (1) and (2) above, to substitute other Defeasance Securities for the Defeasance Securities originally deposited, to reinvest the uninvested moneys on deposit for such defeasance and to withdraw for the benefit of the Issuer moneys in excess of the amount required for such defeasance. Upon such deposit as described above, such Bonds shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of the Bonds have been made as described above, all rights of the Issuer to initiate proceedings to call the Bonds for redemption or take any other action amending the terms of the Bonds are extinguished; provided, however, that the right to call the Bonds for redemption is not extinguished if the Issuer: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Bonds for redemption; (ii) gives notice of the reservation of that right to the owners of the Bonds immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. There is no assurance that the current law will not be changed in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Bonds. Because the Ordinance does not contractually limit such investments, registered owners will be deemed to have consented to defeasance with such other investments, notwithstanding the fact that such investments may not be of the same investment quality as those currently permitted under State law. There is no assurance that the ratings for U.S. Treasury securities used as Defeasance Securities or those for any other Defeasance Security will be maintained at any particular rating category. Bondholders Remedies The Ordinance establishes specific events of default with respect to the Bonds. If the Issuer defaults in the payment of the principal of or interest on the Bonds when due or the Issuer defaults in the observance or performance of any of the covenants, conditions, or obligations of the Issuer, the failure to perform which materially, adversely affects the rights of the owners of the Bonds, including but not limited to, their prospect or ability to be repaid in accordance with the Ordinance, and the continuation thereof for a period of 60 days after notice of such default is given by any owner to the Issuer, the Ordinance provides that any registered owner is entitled to seek a writ of mandamus from a court of proper jurisdiction requiring the Issuer to make such payment or observe and perform such covenants, obligations, or conditions. The issuance of a writ of mandamus may be sought if there is no other available remedy at law to compel performance of the Bonds or the Ordinance and the Issuer's obligations are not uncertain or disputed. The remedy of mandamus is controlled by equitable principles, so rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Ordinance does not provide for the appointment of a trustee to represent the interest of 8